Azelis Group Nv

Hello and welcome to the Azaleas half-year 2023 earnings call. As usual, we are joined by Dr. Jochen Müller, who will present the highlights of the first half of the year, and Thijs Bakker, who will take us through the numbers. We will take questions after the presentation, but until then, everyone will be in listen-only mode. We will make a recording of this webcast available for replay on our website later today. As a reminder, this presentation may include forward-looking statements that may be subject to risk and uncertainty. With that, let's start. Over to you, Jochen.

Thank you, Pam. Good day, everyone. Thanks for tuning in and joining us for the presentation of our first half 2023 results. We appreciate, especially as we know some of you are just coming back from or about to go to or maybe even are in the middle of your summer holiday. As usual, I will start with an overview of the performance on H1. On to the next slide. In the first six months, our revenues increased by 6% to 2.1 billion, and adjusted EBITDA increased by almost 9% to 263 million. The challenges we experienced in some of our markets have put pressure on organic revenue, which declined by 5%. While the industry faces some headwinds, namely weaker demand in Americas and industrial chemicals, It's also worth reminding that H1 last year reported revenue growth of 54%, of which 28% was organic. So there's still an element of tough comes in the results for H1 2023. Nevertheless, too, we face varying degrees of challenges, some of them are markets. Overall, diversity of our portfolio allows us to mitigate the impact of the current challenges on our business. In addition, we continue to expand our footprint and invest in future growth drivers. Since the beginning of the year, we have acquired six companies across three regions. These acquisitions further strengthened our business by enforcing our lateral value chain. Worth noting that these companies have combined annual revenues of over 370 million euro in 2022. We continue to see excellent opportunities and we intend to pursue those opportunities with the same rigor and diligence as before. A proof point of the resilience of our business model is our gross profit margin remaining stable at 24.1%, despite the volatility in some of our markets. Furthermore, We adjusted EBITDA margin expanded by 29 basis points, driving 129 base point expansion and conversion margin to 50.9. Reflecting the benefits of our asset-light cash-generated business, we achieved a 92% cash conversion ratio. Operationally, we are progressing on our innovation, digital, and sustainability agendas. We just won another innovation award for personal care, have rolled out 118 portals, and had our industry-leading ESG ranking confirmed in the most recent sustainability and assessment cycle. Let's go through some of the highlights of our growth drivers in the next slide. Across the three regions where we operate, the normalization from the exceptional growth in 2022 is ongoing. Our diversified footprint and the general defensiveness of our business model allowed us to mitigate the impact of the current volatility in many of our markets. Demand is generally holding up better in life science, cushioning the impact of the weak demand in industrial chemicals. In EMEA, organic growth declined 2% in H1, driven by and large by the acceleration of demand slowdown in industrial chemicals in Q2. Organic revenues in the Americas declined by 13% as our performance remains under pressure from continuous weakness in case and in Latin America. Although we have started to see an easing in flavors and fragrances, which has impacted by the stocking since Q3 last year, the growth momentum is still feeble. In APEC, we achieved 7% organic revenue growth, despite much slower than expected recovery in China. thanks mainly to continued strong performance in Southeast Asia and India. In terms of industry consolidation, we completed six acquisitions in H1. In EMEA, Smoky Light and Sirius enhance our lateral value chain in the Benelux market. Leader gives us a strong foothold in Israel, especially in the very attractive ag market in the region. In the Americas, we acquired the well-established Brazilian Food and Nutraceuticals Distributor Vogler, a significant step in our growth expansion strategy in Latin America. And the acquisition of Gilco gives us a formidable entry platform in the US food and nutrition market. And eventually in APAC, the acquisition of ChemEplus significantly strengthens our footprint in Australia and New Zealand. Now, the following two slides will give you some idea about the type of formulations we recently developed with our customers. To stress it again, our formulation work showcases our expertise and, most importantly, the value we bring to our principals and customers as an innovation service provider. In this example on this slide, we feature work we did for a customer in the construction sector. Given the rising cost of lithium carbonate, They need help to reformulate the existing motor product to reduce lithium carbonate content. Our lab team helped this customer by creating a formulation that not only reduces the lithium carbonate content significantly and therefore reduces a cost phase, but the customer also got a product with significantly improved sustainability characteristics. Now on the next slide. The following example you see is more tangible for consumers and hence easier to relate to. Our lab colleagues developed a formulation to address the lactose sensitivity of an increasing number of consumers. By choosing specific enzymes and combining ingredients from specific principles, our colleagues formulated a dairy product that even lactose intolerant consumers can enjoy. This example and the one in the previous slide demonstrate how we create value for our principals and customers by living up to our corporate tagline, innovations through formulation. Our efforts to contribute do not stop with our principals and customers. As you know, sustainability is utterly important to us. As you can see, we continue to make strides towards our Action 2025 agenda, noteworthy We are already ahead of schedule in one of our key objectives. We already have nearly 32% of senior management positions filled by women. Obviously, we still have work left to do on our sustainability agenda, but it's encouraging to be recognized for our ongoing efforts. In the latest assessment cycle of Sustainalytics, we further improved our score and reconfirmed our top industry rating. It's a great motivator for all of us to continue on our journey of relentless improvement. With this, I will hand over to you, Thijs.

Thank you, Jochem. And good morning, everyone. As Jochem has taken you through the business update, I would like to focus on the group's financial performance and those of our regions for the first half of 2023. Let's start with a high-level overview of the P&L and the drivers of our performance for the second quarter of 2023 on page 11. Group revenue for the first half year of 2023 was over 2.1 billion euros, representing a year-on-year growth of 6.1%, or at constant EVX rate, 8%. This growth reflects the performance of our resilient life science business, which grew 9%, or at constant EVX, 10.8%, and our industrial chemicals business, which grew 1.7% year-on-year, or at Constantinvix, 3.7%. For the second quarter, revenue came in at 1 billion euros, representing a flat year-on-year performance. Without the impact of the acquisitions, sales decreased with 8.1% versus an organic growth of 23.3% in the same quarter last year. Therefore, this performance is not only in the context of a more challenging environment, but also against a very tough comparable. The revenue trends reflect ongoing softness in the Americas, as well as efforts in balancing mix and gross profit margins levels at similar levels like last year. We have been successful in executing our M&A strategy. On a pro forma basis, accounting for the full six months revenue of closed M&A in 2023, half your revenue would have been 2.22 billion euros. Cross-profit for the first half year came in at 517 million euros, representing a year-on-year growth of 5.8% or at constant VIX rate 7.6%. Cross-profit as a percentage of revenue ended at 24.1%, which is basically stable versus prior year. This stability reflects the outcome of excellent margin management and a favorable mix shift towards life sciences. In the same period last year, we expanded gross margin by 157 basis points, so we are pleased to hold ground despite the less favorable market environment, as Jochem alluded. Furthermore, we have kept our gross profit margin stable despite the first-time inclusion of some M&A in emerging markets, which is performing at lower gross profit levels. To illustrate this, gross profit as a percentage of revenue for the organic business improved from 24.2 to 24.7%, implying a step up of 49 basis points, predominantly mixed driven. For the first half year of 2020 through, the group generated an adjusted EBIT DA of 279.2 million euros and an adjusted EBIT A of 263.4 million euros. The adjusted EBITDA margin remains strong at 12.3%, translating to a 29 basis points margin expansion resulted in an excellent 129 basis points expansion in conversion margin. This improvement is a reflection of all the items that we can control. We are executing on the M&A pipeline, We're executing balanced margin management, and we are controlling our cost base by executing on integration and operational excellence. So controlling our costs. In the second quarter, EBITDA margin ended at 12.3%, which is a 22 basis point step up from the previous year period. Our net profit for the first half year was 109.2 million euros. I will discuss the drivers of net profit in detail in a later slide. On the slide on page number 12, I would like to provide a breakdown of growth by region for revenue, cross-profit, and EBITDA. In this table, we have broken down the 6.1% reported revenue growth and the 5.8% reported cross-profit growth between organic growth and growth coming from the first-time inclusion of acquisitions and VIX effects. Following record performance in 2022, organic revenue levels in the first half of 2023 decreased with 4.8%. This was largely driven by lower revenue levels in the Americas, where the group has a higher mix towards industrial chemicals, which saw lower demand, slower recovery in the F&F segment, as well as softer performance in South America. The strong organic gross margin performance I mentioned earlier, together with the execution of cost initiatives, means that despite lower organic revenue, there is no change in organic EBITDA relative to the first half of 2022. This clearly shows the resilience of our business and our ability to leverage scale and cost initiatives in all environments, while continuing to invest for the future. First-time inclusion of acquisitions generated 12.8% of our revenue growth for the first six months, as we are executing well on our M&A pipeline with six acquisitions closed, out of which two are platform acquisitions. Please note, we completed 12 transactions in the course of last year with seven in the second half of the year, which are not part of the organic definition yet. Now, the impact from exchange rate was a negative effect of 1.9% on revenue growth, When comparing the EVX rate in the first half of 2023 versus the same period in 2022, the euro has continued to strengthen against most of the major currencies in which the group operates. Let's have a look at the regional financial performance, so please turn to slide number 13. Starting on the left with EMEA, which makes up 44% of group revenue. Revenue increased by 33.1% or with 6.1% at constant FX rate to 944 million euros. On an organic basis, revenue was 2.2% lower, predominantly driven by softer industrial chemicals demand, outweighing good performance in the Middle Eastern Africa and our food and nutrition and pharma segments. But please put this performance also in context of growth, organic growth over 30% in the first half of 2022. EMEA's gross profit increased with 12.4%, out of which 5.7% was organic, mainly driven by a shift towards life science and execution and balancing of our commercial excellence program to optimize our lateral value chain at the customer base. EMEA successfully executed on operational improvement programs and cost control actions, such in H1, which led to an improvement in conversion margin from 53.4% to 55.5%. Turning to the Americas, which makes up 34% of the group revenue. Revenue decreased by 3.7% to 735 million euros, out of which 13% was organic. Trends in Q2 were broadly similar to Q1 in the Americas, where the region's sales development was impacted by its higher mix in favor of industrial chemicals, slower than anticipated FNF performance, as well as softer performance in South America. Adjusted EBITDA margin for the half year ended at 13.6%, a decrease of 53 basis points. Despite the challenges in the Americas, put in cost control, and mitigating actions translated to 195 basis step up in conversion margin to 56.7%. An excellent performance. Let's move to Asia Pacific. This region makes up 22% of group revenue versus 17% in 2022, as we are executing on our strategy. Revenue increased by 36% to 462 million euros, including solid organic growth of 7%. Organic growth was seen across the board, but particularly in Southeast Asia, which more than offset continued weakness in the Chinese market. Asia-Pacific nearly doubled EBITDA to 41 million euros and expanded its adjusted EBITDA margin with 50 basis points to 8.9%, translating into a 399 basis points improvement in conversion margin to 46.7%. Continued execution of our M&A strategy, both in terms of new acquisitions and excellent progress on M&A integration, will continue to drive margin improvement in subsequent periods. Let's please turn to slide number 14, which shows the net profit of the group. Net profit after tax came in at 109.2 million euros, a decrease of 23%. This is driven predominantly by the higher interest costs increasing due to higher debt levels and higher interest rates. Secondly, the group incurred a negative impact from two non-cash-related drivers, first being hyperinflation accounting in Turkey, where both balance sheet items and P&L are adjusted for inflation, and there was a negative impact from FX volatility, mainly on intercompany loans. This all led to a higher-than-desired effective tax rate, despite good progress in completing our structure post-IPO. Please move to slide number 15 for the cash flow performance of the group. During the first six months of 2023, Azedas delivered excellent free cash flow, with free cash flow of €245.2 million versus €139.2 million in 2022, an increase of 76%. our cash conversion came in at 92.2% in line with historical trends and in line with our target range of 85 to 95%. Given that working capital is one of our key drivers of our cash flow, let me take you through our working capital development in the next slide, number 60. Networking capital to revenue normalized for acquisitions remained flat at 15.4%. But in my view, this does not give credit to the underlying improved performance. Since Q2 2022, the businesses we have acquired have added 170 million euros of working capital. Over the same period, the group's net working capital increased by 53 million euros. So on an organic basis, it has decreased significantly. This demonstrates the working capital improvement we have delivered in the organic business and the opportunity we have to optimize the working capital for the acquired companies. This improvement has been broad-based. with both DSO and DPO normalizing closer to historical trends. We still see that whilst DIO has improved slightly compared to last year, it's still in the higher end in my view, and reflects more work required here to unlock the full opportunity. Now, overall, we're pleased with the progress we are making, and our programs are working, as our cash flows also help us to manage our net debt levels. So please turn to slide 17 to look at the debt profile of Azelis. Change in net debt during the first half year reflects strong operating cash flow of 250 million euros. The 200 million euro capital increased completely in May and M&A spent approximately 558 million euros, which includes deferred payment to acquisition from previous years of approximately 50 million euros. We ended the first half of 2023 with a leverage of 2.6 at the lower end of our stated leverage policy between 2.5 and three times. Now at the end of June, 2023, we have a strong liquidity position of 766 million euros, both in cash and unused credit facilities. And the strength of our balance sheet, both in terms of leverage and liquidity, provides us an excellent runway to continue to execute our strategy. So in summary, we continue to make great progress on our strategic and financial objectives in the first half of 2023. This is a more difficult operating environment than we have seen in recent years. But we believe AZEDIS is stronger than ever and is ready to perform for our principal customers and shareholders through the rest of 2023 and beyond. And let me give it back to Jochen for some closing remarks and the outlook. Thank you, Dees. Well said.

We are clearly in volatile territory as our industry is normalizing after two years of exceptional growth. it needs to be stressed, the long-term fundamental drivers of the industry remains intact. While the current volatility in our markets has raised the risk of our outlook at present, the group remains on track to achieve its medium annual revenue growth guidance of 8 to 10 percent, subject to currency fluctuations, and is confident of delivering 10 to 15 BIPs adjusted EBITDA margin expansion for the full year. With that, We're ready to take your questions. Operator, please open the line for the Q&A.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star and then one on your touch-tone phone or on the keypad on your screen. We'll pause a moment to assemble the queue. We will take our first question from Suharshini Varasana from Golden Stacks. Please go ahead.

Hi, good morning. Thank you for taking my question. A few from me, please. In America, the gross margin fell more than 350 basis points in Q2, and you indicated time lag in pricing as one of the reasons for the decline. Can you maybe give us some more color on that and whether this is a one-off effect that's going to reverse in second half or whether it will continue in the second half? That's my first question, please. I'll take it one by one, if that's okay.

Well, The gross margin decrease in the Americas was pronounced, especially on the case side, where last year, with markets being in turbulent waters and short, also prices were extremely high. So we had to adjust to market environment in our formulations by giving in some of the higher prices of last year and give that back. Margin then... Obviously, it also came down some, but we do feel, especially for the Americas, that we have reached a plateau or even slightly are moving up. That's currently the rate of the market, especially on the industrial side.

Yeah, and there are two mixed elements in that number, which you see. One is, of course, the inclusion of Roxa in the M&A in South America, which is performing at a lower cross-profit level. So you see that becoming more dominant. So they're performing at a cross-margin level of around 13 to 17%. Second, Figen, which are FNF platform, which basically was performing last year quite high and basically has declined. So you see that effect in the mix as well, in addition to the comment that Jochen is making.

Thank you. My question is on the Outlook.

Hello? Please go ahead. Sorry.

Thank you. Thank you. Sorry, my second question is on the outlook, please. You highlighted the higher risk this year, and I appreciate that FX swings is something that nobody can predict, but on an underlying basis, it's clear that Q2 growth has maybe worsened compared to 1Q, with maybe some stabilization in America. But can you give us your sense on what are the key parameters or factors that would result in, let's say, going slightly below the lower end of your guidance for the year?

As I said, we're confident to stay in between the 8% to 10% of revenue growth. That's also a result of having some of the M&A coming in. We indicated that we acquired... two businesses in the Americas generating on an analyzed basis 2022, 150 million. We closed that business in June, so that will help certainly also to uplift our revenues for the second half, which again gives us the confidence on the 8% to 10% revenue guidance we gave. The second point, and now looking more into the markets, we do see that Asia is still a mixed bag, but we see some slight recovery coming up in China, which gives us some hope that this will gain momentum. Southeast Asia, we have some really bright spots in the region there, with Vietnam doing very well, but also China. In Thailand, we could see some good performance. So this will also give us some momentum. As I indicated earlier when we spoke about our results, America, we think we're at the end of the thread. We are seeing even some minor movement, not huge, but I think we have not only bottomed out, but we're kind of moving up. Where we do have challenges is in EMEA, where We will leave aside that the comps in Q3 of last year, the winning growth stage was still 32% in Q3 last year. So they're beating the comps will be extremely difficult, especially as we see that the markets here are scattered. We have some which are really doing well and some where they're not doing so well. Obviously, then Middle East, Africa standing out, still doing very nicely. But here in Western Europe, in some countries, it's challenging. And we see it softening compared to Q1 and Q2. So in a nutshell, Asia moving up slightly, America is moving up slightly, and EMEA a little bit weaker. That's, I think, what I would say.

That's very clear. That's all for me. Thank you so much.

Thank you. The next question is from Laurent Fabre of BNP. Please go ahead.

Yes, good morning all. Two questions, please. The first one is on agri-horticulture. It's an area where we have seen several warnings from suppliers. We haven't mentioned it as a point of weakness. What are you seeing there and is that an area that will weaken in 2H2? And then the second question on the guidance You've had 30 basis points improvement in the first half against very tough comps. What are the reasons why you wouldn't be able to grow margins at the same pace in the second half, bearing in mind weaker comps? Thank you.

On the first, you take the second?

Second. Okay. Agri Horti, it's a mixed bag. Agri Horti business in the U.S. is doing okay. Actually, so far the year is not performing in EMEA. It's soft. It's a soft season.

It's doing well in Asia.

Asia is also okay. U.S. is okay. EMEA is soft, which is the largest region. We see signs of uptick through the summer and the weather conditions in Q3 from an open order.

And usually for agri here in Europe, then Q3 and Q4 are the stronger seasons. So we expect this to improve in the second half of the year.

And on the guidance, you were referring to gross profit, I assume?

No, it depends on the EBIT margin, so straight EBIT margin.

Okay. It's very simple. Our business, you see a shift towards life sciences. So our mix is shifting towards the life science side. Second, there is, of course, a volume component from a distribution cost with paper pallet, basically. That also gives us a protection there. This is a very resilient business. And then lastly, obviously, we're executing also operational improvement like M&A integration. We made great progress with 20 companies on the platform integrated. So that helps with working capital, but also operating cost leverage and integration of legal entities, those kind of things. And then lastly, we're also operating efficiency programs to align basically our cost base with the top line. As I said, we have a very variable P&L, and we're basically adjusting towards the current environment. Sorry, I didn't hear that.

My question was more, what are the reasons why that improvement wouldn't reoccur in the second half? Are there reasons why? smaller than in the first half.

No, we expect to continue to grow EBITDA margin in the second half.

Okay, thank you.

Thank you very much. Next question is from Stein Demister of ING. Please go ahead.

Yes, good morning. Thanks for taking my questions too from my end. So first one is on China. My understanding was that in China, there is still some M&A that is not fully integrated due to COVID restraints. Can you comment on the progress you've made since travel restrictions have been lifted? And more broadly, what are you seeing in China in terms of demand recovery? And secondly, you already partly answered it in the previous question, but what to expect from contingency actions in the second half? What other levers can you draw upon to offset the revenue weakness in terms of profitability? In that respect, it may be also helpful to get a view on a bonus accruals phasing in the last year. So, these are my questions.

I'll take a second. So, on China, and you were asking or what progress we made, or whether we made any progress in integrating the entities, and the clear answer is yes. We have now that people are allowed to travel. We have parachuted some of our managers from also Singapore in. We have made sure that we manage the business much closer than we were able to do it before, so integration from a technical point, is done. Now it's about how we create value by enhancing the lateral value chain with the products we had in the rest of our sales to China before the acquisition. That's working out quite nicely. We have not yet seen a massive margin uptick, but over the last three months, it's moving in the right direction. That said, markets in China are still not strong. And remember, this acquisition, the last one I'm talking about, the bigger one, the WWFC acquisition, was geared towards industrial, and industrial is still not doing well. China reported last month, it was last month when they reported still that there's not a lot of expansion going on of the economy, right? Actually, they were still at 49.3, if I recall correctly. We'll see whether July has changed the picture here. On industrial activity, the outlook is still not great there. As you know, everybody speaks about the crisis on the construction sector there. So this industrial will remain difficult, but I'm confident that we will be able to lift our margin profile over time over the next couple of months. also by having people really steering the business and doing what we're doing elsewhere in the group. On the life science sector, where we did some acquisitions earlier on personal care, which were not well integrated because of COVID, we made significant progress. The teams are now sitting together in one office. And they're also, through this, we're able now to capture more value from the strengths and platform value chain. So from this point of view, China, not economically out of the doldrums yet, but our operation is on the right track. Now over to you, Thijs, if that stain answers the first part of your question.

A couple of things on the other levers we can pull. Basically, we communicate this to the market. We do two budget rounds. One is a normal budget round. Second is a completion plan budget round. So the plan has been commenced in the first quarter. It's a whole array of programs. We're not going to communicate widely on a big cost restructuring or those kind of things. That's not the case. That's just normal practice we're going to say is. Second thing you also need to take into account, costly reports or distribution costs is roughly 2.8% on a revenue line. So you see an immediate inflow there. That's the variable part. Then regarding M&A integration, we're gaining pace there. We integrated 20 acquisitions, as I already indicated to you. They're on the platform fully. And there is a potential uplift, of course, as we are accelerating our efforts in that. And then your last question regarding bonus is just one of the sources of the uplift to give you a bit of an indication, the impact, because we are still running quite well, as you see from our EBITDA point of view versus prior year. So there will be an effect of, we estimate around 20 million for the full year. You can estimate from phasing around 50-50.

Okay, helpful. Thanks.

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

Hi, good morning. Thank you for taking my question. I just wanted to ask about the breakdown of your organic gross profit growth in terms of the volume and the pricing components. I know you don't always like to speak about it in that way, but assuming that most of this weakness is still, for now, volume-driven, just in light of the very strong conversion margin performance, including in Americas, could you speak to maybe how you expect that to evolve as prices develop from here? I know you said they actually might have found some support in Americas, but just across the board, the group? what you would expect. Thank you.

Let me take the comment on the volume. Normally, we do not make statements on volume, because I always say you cannot compare grams in pharma and tons in coatings. This is a very differentiated portfolio, so therefore we split this up in industrial chemicals. And in life sciences, the industrial chemicals can be characterized as more macroeconomic related. So they're basically the activity, to call it like that, is basically much more linked to the macroeconomic activity. Life science business is much more resilient. It's much more formulation driven where we incorporate services to customers and they really need us from the production line. And that's the lateral value chain concept where we are really working hard on to basically help our customer base. So what happens when we're basically going a little bit in a more challenging environment, you can see that the industrial chemicals from a volume point of view and an activity point of view goes down, and the life science side remains relatively stable. That gives a margin uplift. There is about 200 basis points differential between life sciences and industrial chemicals, and that has done an impact basically that your profit remains relatively stable. Please note that we also have outliers in our portfolio, where we, for instance, in the FNF side, where the margin profile is higher. And also, please take into account, as I said in the onslaught, that also we bought quite some M&A at much lower margin levels. And basically, it's the game to get that up to average levels by working on the lateral value chain, by putting more principles in the mix and offering a wider formulation. Now, what we then also do in such an environment and why that conversion margin is going up is basically we also activate cost control. Our P&L has a variable component. Like I mentioned to Stein just now, a distribution cost is, for instance, a component that we put in, but also our bonus is, of course, a variable related to cost margin and, of course, the volume effects in a way as well. And then we take basically cost saving measurements out And we're quite disciplined in that aspect. And therefore, you see this conversion margin uptick. That conversion margin uptick, for instance, take the contingency plans we're referring to. We activated that in the first quarter. That doesn't happen overnight. So you will see the effect in the second half of the year, the full effect of these measures you see that coming in. Please note, we also keep investing in our business in the areas of sustainability, labs, innovation to formulation, and also digital technologies. So we're not stopping with those kinds of investments because we feel quite confident on where we are right now.

Great. Thank you. It was very helpful.

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

Hi, thanks. I have a few questions. I think if I look at the, you know, Americas, Americas was already weak in Q1, also Q4, so it sort of continued that trend. But I think one region which seems to have weakened through Q2 actually is EMEA. And I think especially given when we spoke last time on the call and what we've seen actually in the numbers, it seems maybe it was the worsening might have happened more towards the end of the second quarter compared to the beginning. And so I'm just curious as you think about the, just the absolute numbers, I know the year on year growth is driven a lot by the, you know, swings in, you know, comms and MNA and stuff, but I'm just curious as we think about the absolute numbers, earnings every day for Q3, just run rate wise versus Q2, you know, besides the impact from M&A that you've done in Q2, how should we think about that run rate X M&A as we think about Q3? You know, you think you can hold on to that run rate or, you know, things have softened through Q2 and we are coming out of Q2 organic is somewhat weaker than what we've seen at entering the Q2. The second question was just on cost. It's quite a good performance to limit the organic EBITDA declining second quarter to like 3% from what I calculate versus 8% gross profit declines. And you alluded to some of the measures you've taken. But is that sustainable through the year or there were one-off effects on cost in Q2, which helped the second quarter everyday decline to be less than the sharper decline we saw on gross profit line? And third, Joachim, you mentioned something about giving back pricing in Americas in case. Is that one-off or is that a trend or tendency you are seeing more across other parts of the world as well, given clearly the dynamic is not much different in many parts of the world in terms of demand weakness. Thank you.

Take the first two.

Okay. Try to remember all your questions, but okay, let's go for the first question. I think only Mia, you need to see that a little bit in the context of the organic growth there. So in Q1 last year, we had 34% growth, 31% in Q2, and 32% in the third quarter. So on such a peak, to come in with an organic growth in the second half of the year with an organic performance of minus 2.2% is an excellent performance in my view. You heard Jochen also said in EMEA, we expect basically the performance to have a similar profile like the second quarter, because we see there also the markets having the environment is quite tough over there at this moment. Now, on the other hand, we have also M&A, because that's also part of our growth model to pick up. And as always, our M&A pipeline is always quite active and full. So we're not so concerned there. So I think you should see this a little bit in the context of the previous period. Then on the second question that you had on our operating cost and if this is sustainable. Yes, it is. And we actually expect to accelerate in the second half of the year as basically our operating cost measures are gaining traction. So obviously in the first quarter where our performance was very strong, we saw organic growth everywhere. except the near Americas. So obviously, we're not going to cut costs over there, but we're basically accelerating now M&A integration, back-office synergies, taking synergies of our platforms out, taking digital synergies also into the business. And those are the items that we are focusing on. And of course, they take a little bit of time to come into fruition. But we see already the benefits of that. And you can see that already in America, where that normally happens faster, you can see that in the conversion margins. And then on the principal side, maybe Jochen, you can answer that.

I'll talk on the pricing. That was the third one. The pricing, I mentioned the Americas, and that is true that some of the chemistries we're serving, they were so short last year that, well, pricing was rather easy to be done. This year, obviously, the market is long, and our partners, scrambling to keep their plant loaded because they cannot turn down below a certain ratio if the market's not there. So they really want also us to push through our formulations the volume in the market, then pricing gets some easing. As I indicated, I think we have reached a point there in the Americas where the prices are not going down further. As I indicated, we see some rising again also of the activities. What we usually do, Chetan, also to give you some comfort around that, is that we also very, very meticulously just do very simple things. And Thijs will be laughing at me. We're counting customers. And we're, I told you, this is what we also do in America. So we're not losing customers here, but we're making sure we stay competitive with our formulations that they don't start to reformulate us out then moving on is that a wire trend wider globally well certainly from the industrial seconds especially also here in europe you see similar trends which kind of kicked in and that was a little bit surprising when you look at historical cycles usually the us started first when there was some Yeah, and the market was not doing so well. And Europe followed this time around. It looks like it's the other way around. So we see that in Europe also starting. But I don't expect it to be that deep as compared to what we have seen in the Americas and in Asia. Yeah, more of the same, but well. With a scattered picture, you go into individual markets, picture is different. And when you go into China, I indicated before, industrial activity is not strong. But when you then move on into India, they still have a strong growth pattern there, which also enhances our ability to keep up the pricing and then with us even maybe expand margin. Is that sufficiently answered, Chetan?

Yes, thank you.

Thank you very much. The next question is from Tybalt Lanier of KBC Securities. Please go ahead.

Good morning. I have a question with respect to which cache level you would like to maintain. I assume the M&A pipeline is well filled. What is the cache level that you would like to maintain?

Yeah, it's a difficult question. I think what we give guidance on is basically our cash conversion, which is 85% to 95%. We stick in that, so I think you can use that to basically retract your cash level. We feel very comfortable. We have $766 million in facilities. Obviously, the cash that we generate, a large portion of this, goes straight back into the business to fund our M&A growth. So yeah, if you take the percentages that we're using. And then in the beginning of the year, yeah, we did a bit larger M&As instead of smaller tokens. So, yeah, you can see that also in our cash out. Okay, thank you. You need to take, you're making a point here, you also need to take into account for your leverage outlook where we're staying within the 2.5 to 3 range, and that's how we manage that.

Okay, thank you. And how are you looking towards the seasonality in the gross profit margin, given the strong different dynamics, for example, in EMEA and the Americas, where the EMEA gross profit margin increased significantly? Can we there see more seasonality in the second half? And maybe we can see potentially less seasonality in the Americas due to the weaker gross profit in the first half?

I think you should see that in light of mixed. Again, in the U.S., we indicated that we are more exposed to the industrial chemicals, while in EMEA, it's the opposite. Much more exposed towards the life science segment. In the life science segment, yeah, the service level is also much higher. You have more products, but what you put in, the lateral value chain is much more broader. So that gives you also, of course, more cross-profit percentage power, basically, to work with your customer, because you don't only look at the cost of the product. And I think you should see it in that respect. And the life science side of the business is a very resilient business model. And you can also see that in our current performance.

Which will help us in H2, if I may add. Because we added, as indicated before, with Gilco and Vogler, assets purely playing in the F&N field.

So they will contribute $150 million Yeah, there's a mix of sex from M&A that you need to take into account as well. And as Jochen said, we're diversifying in the Americas also more towards the life science sector. And also please note, when you talk about GP percentages, the acquisitions we did, for instance, in LATAM, what we did in Colombia and also our Mexican business, they are performing at a lower profit percentage than the Americas. So that also you need to take that into account.

That's good.

Thank you very much.

Thank you very much. There are no further questions on the conference line, and we've come to the end of this call. I will now hand over to the Chief Executive Officer, Jochen Miller, for his closing remarks.

Thank you. Thank you to everybody for dialing in. As said, it is an interesting time out there in the market, but our business model is just intact. And we will continue to deliver to promise. We do, as Taze mentioned before, whatever we can control. Obviously, we can't control the markets. But when you look back historically, whenever there are difficult times, there are also a lot of opportunities. And we're very much determined to tackle those and grow our company from strength to strength. Thank you again for dialing in. I'm looking forward to talking to you. an update on our Q3 results. Till then, take care and goodbye.