Azelis Group Nv

Hi, everyone. Welcome to the Azaleas nine-month 2023 trading update call. My name is Pam, investor relations, and I'm here as usual with Dr. Jochen Müller, group CEO, and Thijs Bakker, group CFO. Jochen will give us an update of the operations and a word on the outlook, and Thijs will take us through the group's financial performance. We will also open the floor for Q&A, but until then, you will be on listen-only mode. As a reminder, the presentation and the call may include forward-looking statements that are subject to risk and uncertainty. A recording of this call will be made available on our website later today. I will now hand you over to Jochen.

Thank you, Pam. Good morning, everybody. Thank you for joining us today. As usual, I will start with an overview of our performance in the first nine months of the year, which is shown on the next slide. So in the first nine months of the year, our revenue grew 2.3% to almost 3.2 billion. In constant currency terms, that is an increase of 6.3%. During the period, M&A revenue contribution offset the impact of the current microeconomic uncertainty of demand, which has reduced organic revenue by 5.7%, and the significant headwind from FX translation, which has reduced our reported revenue by almost 4%. that organic contraction in the first nine months of 2023 compares to a 26% organic expansion we reported in the same period last year. We continue to expand our footprint and invest in future growth drivers. As already reported, we acquired six companies in the first nine months of the year and have announced another two recently. These eight companies had total combined revenues of over 410 million in 2022 and represent a significant strategic expansion of our lateral value chain or LVC. Regarding profitability, the 22 basepoints gross profit margin expansion reflects the negative impact of our efforts to support our principals and customers are set by the positive mix effect across our business as we leverage the scale and diversity of our portfolio. To put it another way, our pricing action to maintain volumes and market share is mitigated by the overall shift towards life science in our business mix. We're continuing to keep a close eye on our cost and expanded our EBITDA margin to 11.8%. That drove a 45 base point expansion and conversion margin to 49.4. Our cash conversion ratio exceeded 100% during the period, demonstrating yet again our asset-light cash-generated business model. Operationally, we continue to work towards becoming an industry reference in digital, sustainability, and innovation. We have now rolled out 136 customer portals and 29 e-labs. We continue to invest in our lab network and keep our innovation efforts at the heart of what we do and the value we provide to our customers and principals. Just yesterday, we won the Global Award for Innovation at the InCosmetics Asia from our team in Bangkok. So the hair care formulation. Also remain focused on our sustainability agenda. Azelis has retained its top industry ranking in the latest Sustainalytics assessment and achieves the highest ESG score in the industry from Ecovartis. In summary, we continue to focus on executing our growth strategy and building a company that can withstand challenges like the ones we're currently facing even better to ensure that we fully benefit from the recovery. Now we're moving on to the next slide and go through some of the highlights of our growth strivers. As I said, we increased our revenue by 6.3% in the first nine months to 3.2 billion as the 12% M&A revenue growth contribution of set the 5.7 organic revenue decline during the period. It is worth noting that organic revenue includes the impact of some business that we have discontinued, either as part of our sustainability agenda, like vaping, non-core essential activities in Russia, or as part of our continuous program to really get rid of commodity business we run, like CO2 and caustic soda, which usually come with some acquisitions we do. With our business segments, demand is holding up in life science, but industrial chemo remains under pressure. It is worth noting that if one drives into the details, the performance of these segments can vary across regions from country to country. In EMEA, organic revenue in the first nine months was 2% behind the prior year. As a reminder, organic revenue growth last year in 2022 was over 32%. Demand in life science is holding up, mitigating the softer trend in industrial chemicals. Although volumes show a sequential improvement in industrial chemicals, volume growth remains softer compared to last year. In the Americas, We continue to see lower demand across most end markets, especially in case in the US and Canada. The impact of intense competitive pressure in South America further weights on the regional performance since Roxa in Colombia became part of the organic scope in Q3. Over in Asia Pacific, our activities in Southeast Asia continue to offset the weakness we're seeing in China. And the slowdown in industrial chemicals is also evident in Australia and New Zealand. Regarding M&A, we continue to pursue exciting opportunities to expand our lateral value chain and our overall network footprint. Of the six M&A transactions we completed in the first nine months, two were strategic platforms we acquired. Vogler, which gave us an entry into Brazil, and Gilco eventually gave us a platform for the U.S. food market. We also recently announced two further transactions. BLH in France is a perfect complement to Kymnus in the FNF space, serving the European market. And then earlier today, you might have read that we announced the acquisition of EXPEC, which will significantly strengthen our footprint in the agriculture market in Australia. In summary, our results reflect the benefits of our diverse portfolio. Overall, I'm really proud of the performance during these difficult times. Thanks to our resilient business model, we can support our principals and customers whilst managing our profitability. That means that even during the softer cycle we're currently in, we can keep making progress on our long-term growth strategy. And we continue to see lots of exciting opportunities, which will further strengthen our portfolio for the future. Let me pause here and hand over to Tejs, to give you a financial update.

Thank you, Jochen. Good morning, everyone. I will now provide you a brief summary of the group financial performance for the first nine months of 2023. Let me start on slide number eight, where you will find a summary of the nine months P&L with a revenue split between life sciences and industrial chemicals. To the right of the slide, for the first nine months of 2023, we recorded revenue of almost 3.2 billion euros, representing a 2.3% year-on-year growth. To put this into context, this is compared to the 52.5% revenue growth in the same period last year. Organic revenue of the group was 5.7% lower in the first months of this year compared to organic revenue growth of 25.8% in the first nine months of 2022. As Jochem already mentioned, our performance reflects the diversified nature of our business across countries and market segments. Revenue growth contribution from M&A during the quarter was 12%, whilst FX headwinds had a significant negative impact of minus 4% on our top line. In constant currency terms, revenue growth in the first nine months ended at 6.3%. Now, if we break down the 3.2 billion revenue, nearly 2 billion euro came from life sciences, which was up 5.6 over the prior year, or 9.5% up measured in constant currency, supported by the sustained strength across most end markets in EMEA and APEC. Our industrial chemical business delivered 1.2 billion euro of revenue. This is 2.6% behind the previous year on a reported basis, but up 1.4% in constant currency, The rate of demand in industrial chemicals varies across geographies and across underlying segments, reflecting a volatile macroeconomic environment, but on the other hand, the geographical diversification of the business model of Azelis. Having a look at our gross profit for the first nine months came in at 760 million euros, a 3.3% year-on-year increase on a reported basis and 7% on constant currency basis. Cross-profit margin expanded 22 basis points to 23.9%, driven mostly by mixed effects from existing businesses tilting more towards life sciences and offsetting dilution effects from recent acquisitions, which came on average with lower margins. During the period, we achieved an adjusted EBITDA of €375.2 million, a year-on-year increase of 4.2% on a reported basis and 8.7% on a constant currency basis. The adjusted EBITDA margin of 11.8% represents a margin expansion of 22 basis points compared to the already very strong margin achieved in the prior year. a clear testimony of the variable nature of our cost base and the work that we have put into that. This resulted in a conversion margin of 49.4%, which is a 45 basis point step up from the same period last year. In constant currency, conversion margin expanded by 79 basis points. On the next slide, I'll 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 nine months declined by 5.7%, with broadly stable performance in EMEA and APEC, mitigating continued weakness in the Americas, where we have a higher industrial chemicals exposure, in particular in case, and where we also see the impact of a challenging environment in South America. The first-time inclusion of acquisitions contributed 12% of our revenue growth during the period, We are on track with our M&A pipeline, as Jochen already mentioned, and one of the two acquisitions that were signed was already closed. FX Translation had a significant negative impact of 4% on revenue growth due to the strengthening of the Euro during the period, whilst last year it was the other way around. Now, as I mentioned earlier, our diversified portfolio allows us to hold ground on margins. as reflected in our organic adjusted EBITDA, only slightly behind the previous year, despite the top line pressure. This demonstrates our ability to seek protection from life sciences, leverage skill and control our cost while continuing to invest for the future like digital and M&A. Now let's have a look at the regional performance on the next slide. Start with EMEA. which makes up 43% of the group's revenue. Revenue increased by 0.6% during the period, or 5.2% in constant currency, to 1.4 billion euro. On an organic basis, revenue was 2.2% lower, as softer demand in industrial chemicals outweighed the good performance in our food and nutribusiness and pharma segments. also in the Middle East and Africa business, which is performing very strong. EMEA's gross profit increased by 11%, of which 7% was organic, mainly driven by a shifting mix towards the more resilient life sciences segment, as well as benefits from commercial excellence programs to optimize an as broad as possible lateral value chain to our customers whilst supporting our principles. EMEA continued to make progress on operational improvement programs and cost control actions, resulting in a conversion margin improving further from 51.7% to 53.2%. Please note that in the third quarter, conversion margins are seasonally always a bit lower. Let's turn to the Americas, which makes up 35% of the group's revenue. Revenue decreased by 6.9% to 1.1 billion euro, 8.7% of M&A revenue growth contribution, mitigating the 13% organic revenue decline during this period. In the third quarter, trends in case in the U.S. were broadly similar like the second quarter. While in our F&F business, we observed signs of stabilization. Organic revenue in the region was also impacted by weaknesses in South America, as also Rockstab became part of the organic scope in the third quarter. Adjusted EBITDA margin declined by 92 basis points to 13.1% in the first nine months, resulting in a 13 basis points contraction in conversion margin to 55.9%. It's also demonstrated that we took early actions regarding cost control. Lastly, turn to Asia Pacific, which now makes up 22% of Group's revenue. Revenue during the period was 685 million euros, a 27.4% year-on-year growth, of which 2.4% was organic. In Q3, APAC generated lower organic revenue growth, but please note, this is mainly due to the record organic growth of 41%, I repeat, 41% in Q3 2022. So these are tough comps to beat. Southeast Asia remains the growth engine in the region, mitigating continued weakness in the Chinese market, where we see a slight uptick, but not in line with our expectations. Adjusted EBITDA in the region increased by 39% to almost 60 million euros. The step-up in EBITDA margin to 8.7% translated to a 468 basis points expansion in conversion margin to 45.8% in the first months of the year, which is in line with our expectations. Now, let's look at the main slide of our cash flow generation, and in particular, the working capital slide on 11, slide 11. as we made very solid progress, which led to a free cash flow of €389.4 million and a cash conversion ratio of 102.7%, reflecting the asset-light business nature of our business. Networking capital to revenue, normalized for acquisitions at the end of the period, was 15.3%, a significant improvement from prior year's performance. This improvement has been broad-based and program-based, DSO, DPO, and DIO all starting to normalize closer to historical trends. We're making progress as I already communicated to the markets earlier, although there's still a lot of work to be done, especially on getting our DIO down to unlock value and get the acquired companies onto our systems. Overall, we are very pleased with the progress we are making here as our cash flows also help us to manage our net debt levels and the asset-like defensive nature of our business provide additional comfort under a more challenging environment. With that, I'm handing the floor back to Jochem for a comment on the outlook and additional closing remarks.

Thank you, Thijs. Our performance during this volatile time demonstrates the benefits of our diversified footprint and the resilience of our business model. Our industry is clearly recalibrating, and that is a result of the pressure and the challenges we're currently seeing. But the long-term fundamentals, and that's important really to note down, the long-term fundamentals of the industry, of our business model, remains intact. In addition to the volatile trading trends, we are facing significant negative impact from currency fluctuation. Year-to-date FX headwinds have shaved 4% off revenue growths. We now think that this is unlikely to reverse for the remaining two months of the year. That means that for the full year 2023, revenue is likely to be only slightly higher than last year. We remain confident, though, that we will deliver a minimum of 10 to 15 base points of adjusted EBITDA margin expansion this year. With that, we're ready to take your questions. Operator, please open the line for Q&A.

Yeah, if you'd like to ask a question, please press the right hand button on your screen, or if you dialed in, please select star nine to raise your hand and star six to unmute. As a reminder, participants can also submit their questions through the webcast page using the submit a question button option. We'll pause for a moment to assemble the queue. We will now take a question from a number ending with 000.

Please unmute your line and go ahead with your question.

Hello. Hi, can you hear me?

Yep.

Great. Sorry about that. I have a couple of questions, please. I think the comparatives in Americas get a little bit easier for you in 4Q. Just wanted to understand, based on what you're seeing in the end markets, can we expect a return to positive organic revenue trends in the fourth quarter? And the second one is on gross margins, please. It was down again in third quarter on a year-over-year basis. How should we think about, you know, normalized gross margin levels for this region going into 4Q and also for 2024? And maybe just the last one, I appreciate you've given the color on revenue guidance for the year, which is expected to be slightly higher on a year-over-year basis. But how do you think about the mix between organic FX and M&A, at least in terms of what is the M&A contribution that you expect on a full year basis on revenues at this point in time based on deals that you've completed so far and also the FX impact based on current rates? Thank you.

Well, the first one on the comps and whether we can expect in the U.S., whether we can expect really an uptick in the business. I don't think we are yet back into the territories where we see organic growth, but we likely will get there in Q1, Q2. As you point out correctly, the comps become easier. As indicated in the previous call, we have seen the easing of the business already starting with Wagon in Q3 last year, which then moved into the coding activity, the case activities in Q4, and then which then eventually also went on into some of also software business on the lifestyle side. So I expect that not Q4 will be the turning point for the organic growth, but I see that more in Q1, Q2. Second one was on the margin. You want to take that one?

Yeah. Okay. In the third quarter, obviously, our margins came down in the US, which is normal. Also, from a seasonal point of view, you would also see this in 2022 Q3. So there's normally always a contraction in the third quarter. However, there is also an impact there, of course, with the mix, where you will see also that basically our FNF platform, which has much higher performance, Yeah, we saw already decline much earlier last year. So, and we see basically we expect a normalized level going forward of the mix in Q4. Then there's another element into it. There's also a lot of effect in the business where we willingly stepped into the business there and they come in at a little bit of lower margin. And in Q3, obviously the platform that was bought in Columbia is now part of the organic growth. So you also see there an effect of that as well. Yeah. There, we also expect a further improvement on our margin levels as we are making progress with moving the business more to a specialty profile.

If we take this year's gross margin profile, is that the normalized margin that we should gross margin for 2024?

Yeah, I can give you offline exact numbers there, but I think for Q4, you will see a higher number than Q3.

And just as an add-on, Sushini, on the Q4 versus Q1, also as mentioned, we stopped our vaping business in Q4 last year in the U.S., and it was a double-digit million top-line business. So obviously also this needs to be overcome to see then the growth in Q1, Q2.

Thank you.

Our next question comes from Annelise Remmelund from Morgan Stanley.

Hi, good morning. Can you hear me?

Yep, I hear you.

Hi, good morning. Hi, great. Thank you. So, yeah, I have three questions as well, please. So, firstly, you know, the half-year results, you were very clear that you expected to continue to grow operating profit margins in the second half. In the third quarter, I think, as you outlined, they were flat year over year. So, could you comment on your expectations for the fourth quarter and should we expect more benefit from your cost-cutting initiatives to become apparent in Q4? And actually, perhaps, could you comment on those cost initiatives, whether they have all proceeded as planned and have delivered the benefits that you'd hoped they would. And then secondly, just on China, I know earlier in the year we were talking about a recovery in the second half. I think it's safe to say that hasn't materialized. You mentioned in your comments you saw a slight uptick in the third quarter. But is it safe to say this is more of a first half 24 story now? And how much visibility do you have on any kind of improvement within China? And then lastly, just on M&A, you've had a busy year, clearly. And how should we think about the development into next year? Perhaps you could comment on the pipeline and whether you are confident you can continue at the same pace, bearing also in mind your leverage, where that is. That's it. Thank you.

Thank you. Yeah, on the conversion margin and basically our cost mitigation plans there. I think first, a general performance. P&L is highly variable by nature. So for instance, if we take roughly a distribution cost is linked to the top line. So there is always an inflow coming for that. We pay per pallet, we pay per warehouse space. So we don't have assets in that aspect. So that gives you an additional advantage, especially during challenging times. I think our conversion margins demonstrate that we are making good progress on our contingency plans. The contingency plans have been fully executed in North America. In EMEA, we had in the first quarter, we had an organic growth. So in that respect, there we took an approach where we started with these plans in April. So you'll see more full run effects in Q4 indeed. And in Asia, we started only in June with some contingency, selected contingency planning, especially around the depressed performance, for instance, in China. So we have not seen all the effects yet, but also you can see our conversion margin reflects already our ability to control the cost. And we're quite good at that. And also that is reflected in our EBITDA percentages that you also can see.

And you mentioned China, great segue to your second questions. Yeah, we were more hopeful on the recovery. And when you wind back throughout the year, we said in Q1, we're hoping that after, actually, we're saying last year, this time around, we're saying after Chinese New Year, we're hoping for an uptick in the business. We didn't see that come through. Then there was word of, well, there will be some stimulus program brought forward by the government. So we're hoping more that This would bring us into more positive territory in China in the second half of the year, which also did not happen. What is true, though, and Thijs mentioned that in his part, is that we are seeing an uptick of the business. It's not a storm. It's really moving up slightly. There is now also another stimulus package coming out. And when you listen, also, I've been there recently, so People are getting a bit more confident, at least on what they want to invest, but there's still a high level of uncertainty in the market. If you go back to some of our principal partners and listen to their transcripts and what they have said, so they also see that China is kind of getting a bit out of the doldrums, but it will not be a very smashing story in the next couple of months, I'm afraid. But we're on a good path here. Then the last question was related to M&A. And yeah, we executed quite a few of our acquisitions this year. We're currently standard eight. And with regard to revenues and the run rate basis of 410 million, the pipeline for the months to come is still very vibrant. And just as a reminder, we have still 20,000 or what, acquisition opportunities out there. So there are numerous players and that's not only it. Yes, we have in some of the countries, we have a complete lateral value chain, we would say. This is where we then can say, look, we have all what customers potentially want as a one-stop shopping opportunity, plus our recipes, our formulation expertise to bring to them. But there are numerous, numerous countries slash market segments where we still can grow and tuck in acquisitions. So from this point of view, I foresee 2024 not to be any different as compared to 2023. And this for many, many more years will be the same story because there's a lot of potential. on acquiring companies. We obviously will be always very diligent to stay within our guidance with regard to net debt. We will not exceed. So our leverage ratio will be at max, max, max. That's free. At times, we're currently... So we have still some dry powder in, and that also will be good enough to fulfill our aspirations for next year with regard to the inorganic crops. Does that answer your question?

Yes, that's very helpful. Thank you very much.

Just as a reminder, if you'd like to ask a question, please press the raise hand button on your screen, or if you dial in, please select sub-9 to raise your hand and sub-6 to mute. The next question comes from Stingy Demister from Inc. Good morning.

Can you hear me?

Yep.

Okay, cool. Three questions from my end. The first one is also an M&A. Given the macro-heterogeneous and competitive issues in Latin America, are you inclined to slow down the expansion in the region or actually accelerate it to more rapidly gain scale and improve performance? Second one is also an M&A. Wouldn't you expect pressure on acquisition multiples given the current rate environment? And if so, are sellers really willing to lower expectations in terms of multiple buys right now? And do you expect that could impact the M&A roadmap? The last question is on the potential In fact, the impact of the conflict in Israel is possible to quantify your exposure to the region. And do you see an impact there for the time being? Thanks.

Well, thank you. South America, yeah, as Hayes alluded to, South America is not a fountain of joy right now. It's really that the economies are doing not very well, especially in the beginning of the year, I must say. We're seeing though that, and this is now mostly focusing on Colombia and Mexico, we're seeing though an easing, especially in Colombia, we're moving into better territories. So we will continue obviously to improve that operationally through integrating. And we've shown that in the past with the numerous acquisitions we did over time, we move all of them into better territories. uh then to your question will that really have an impact on our ambition our desire to to grow in the region no absolutely not uh we have a clear plan going forward we have bought platforms in colombia and brazil so brazil was a guild acquisition earlier this year where we said look these are the platforms where we will tug on some moral acquisitions specialty in nature of adding new market segments we currently don't serve with the existing platforms or strengthening in the existing platforms, especially lateral value chains through smaller acquisitions. So there's more to come on this side. Also in South America. When I say also in South America, we're in all three regions in almost all countries. We have opportunities to strengthen our LVC and we have to pick what's really the most burning ones Plus also then, obviously, the ability to get a target at a reasonable multiple. And this is now coming to the second question on what are we seeing with regard to multiples. And there, obviously, the world is a different one than it was two years ago or a year ago. So people appreciate that. Sellers not always have, in the beginning, a head start with accepting lower multiples. But if I really would go to analyze what the deals we have been signing this year versus last year versus the year before. There is certainly a trend that we can push multiples down quite a bit. Thanks to you for the third one.

Yeah, so good question on Israel. Obviously, the operational impact is way too early to tell at this point in time. Israel is roughly... The nice thing about the ZADES portfolio is that we have a very diversified portfolio, both from a segment and from a geography point of view. Israel is roughly 40 million in revenue for us, and it's mainly active in the ag and in the essential personal care elements. Those segments will keep going despite, for instance, the tensions that are there because the local country needs to feed itself and needs to basically use hygienic products and pharmaceutical products to basically keep going.

um those are the ingredients i can give you at this point in time okay thank you that's very helpful next question is from luke van beek of dicom please go ahead please look at me yourself and go ahead

Please look, unmute yourself, and go ahead, and if you're tired, then press star six to unmute.

Okay, we'll move to the next one. Number finishing with 094. Please unmute yourself and go ahead with your question. And if you're dialed in, start six to unmute yourself.

Hi, it's Nicole here from UBS. Can you hear me? Yeah. Great. Thank you. Just one question from me, please. Can we maybe get some more detail on the volume trend within that organic gross profit decline that you saw in Q3? and what we should sort of assume the volume element of that was and whether that was kind of basically all of the decline and therefore we can assume prices sort of flattish or whether there's a difference there that you would give us, but just to have that breakdown if you can point towards it. Thank you.

Well, thank you for the question. You get always the same answer from me. which I give almost every quarter. We do not make statements on volume. This is a specialty business and a very diversified portfolio. So you cannot compare grams with pharma with tons in coatings. For instance, you get really strange outcomes from an analytical point of view. However, there are some underlying trends, and that's why we segmentize our business in industrial chemicals and in life sciences. In the industrial chemicals, it's predominantly volume driven. That is driving basically the top line, where volumes have not recovered. Life science is much more resilient. Previously, there were also changes in there, for instance, in the agro space. But you have a much more resilient volume pattern compared to, for instance, industrial chemicals, which is much more prone to macroeconomic volatility and also have, for instance, a volume effect.

Great, thank you. And maybe just sequentially in that industrial business, kind of how things are looking, if you can sort of point towards that.

We have, well, obviously in the industrial side, we have different elements. When you look into the coding side, the sector here in North America, we kind of have leveled out. We don't see really yet a strong gross momentum there, but it feels like We're about to get out of the doldrums and moving into better territories in Europe, where the decline started later. Also, we feel it's bottomed out and we're on the verge of emerging again. And in Asia Pacific, it's really a mixed bag. You have to split then China, where the industrial sector we're serving mostly case here is still not looking too great versus what we're doing in Southeast Asia. where we do see a good growth. And I mentioned ANZ earlier, Australia, New Zealand, there we have, even though those economies are not doing great, we still have a little bit of mixed picture in our industrial activities and in Australia, which is suffering a little more than New Zealand, which is holding up quite nicely. And then on the industrial side, we do have also quite a loop and metalworking fluid presence. And this actually is holding up very nicely, which has something to do with also regulatory changes in the markets we serve. So from this point of view, it's a mixed bag, but it's looking better, I'd say, as compared to what we've seen a quarter ago.

Great. Thank you. That was very useful. Thanks.

And again, if you'd like to ask a question, please press the right-hand button on your screen, or if you're tied in, start six to raise your hand and start, sorry, start nine to raise your hand and start six to unmute. Next question comes from number eight, finishing with three, two, one. Please go ahead with your question.

Hi. Hi.

Hi, I have three questions, please. So first, given easier comp in 4Q, can we expect a better organic growth trend in 4Q for revenue and EBITDA? Secondly, can you comment on earnings contribution from acquired companies? Because it seems that the earnings contribution from M&A has been running below the pro forma numbers you had previously provided. And lastly, are you seeing pricing pressure stabilize or worsen, especially in some product categories in America's? That will be all. Thank you.

The last one. Can you get the last one? Could you repeat, please, your last question?

It didn't really come to my last question. Yes. Sure. So I was asking if you see any pricing pressure stabilize or worsen, especially in some product categories in America's.

Hello. Yeah, we're still working on it because the first one was also not so clear to me.

What's the expectations from Q4 basically from an EDA point of view? Well, I think we have given you the ingredients there already in the call where we also indicated where in our outlook where you can derive basically what we see from a Q4 point of view. Jochen also indicated right now that in case we have seen it, it has bottomed out in our view. The life science side is very resilient. It keeps doing what it is doing. And Asia, Southeast Asia, we don't see a change in the climate there as well. So also another question, the question from UBS, you see also our cost control measures. Yeah, we will see some prolonged effect there. It's finished in the Americas. EMEA is on full steam. And Asia, we started later. So we see some effects of that also in the fourth quarter, which basically gives us confidence also to meet the outlook as Jochem communicated. Yeah. Maybe M&A companies, the contribution, maybe you can pick that one up as well. Please note that we have a very diversified portfolio, which we acquire, obviously. And also we buy companies that are in industrial chemical space, where they face a similar macroeconomic headwind as our non-organic business. Second, there is quite an ethics effect, of course, in those businesses as well, which you also have to take into account as well. When you look, for instance, at the contribution from M&A companies, On the other hand, there are plenty of interesting opportunities in our pipeline. We have signed two deals. One is closed already. And we have interesting opportunities in our pipeline. And that reflects a little bit that contribution. So we're not so concerned about that there, if that's what you are alluding to.

But you were also talking, if I picked that up correctly, and sorry, the line wasn't so clear. You were also concerned that the performance of the acquired business is below what we usually do, if I understood that correctly. And it's true that some of that business is not at par, and usually it isn't at what we do in general. But through our operational programs in the PMI, we really upgrade the margin profile of these acquired companies over the months and years they are under our wings. And that you will see also with the business we bought going forward.

There's the diluting effect of our M&A, which we mentioned as well, which is also confronted in those numbers. But yeah, we'll check that up. We're here for future growth. We do M&A on a very strategic and thematic basis.

And then you asked the question whether we see the pricing pressure in especially the US. I guess you spoke about easing. And we felt, again, we have reached the bottom of it. When you also talk to our partners, our principal partners, they see what we are seeing that, yes, there still is a lot, a lot of, it's still not so that you can increase prices, but it feels in the US that at least the inventory question is not any longer laying around and there is some demand. So we don't see prices to come down further. Was that okay? Or did we capture what you- Thank you, that's very helpful.

Okay. Yeah, yeah. Yes, yes, that was perfect. Thank you.

Next question comes from Thibault Linu at KBC. Please go ahead.

Hello, can you hear me? Yep. Good morning. I have a question. Yeah, I have a question with respect to Asia Pacific. You talked about China, and it seems like there the revenue seems okay and seems to improve. But if I look for the Q3 numbers, it seems that the organic revenue for the region as a whole decreased. So could you give some color on what's behind that?

Yeah. I also mentioned a comment last year of the record growth, organic growth of 42%. So I repeated that, 41%. Obviously, that's a very tough comp to beat. But if you take the 41% and you take a reflection on the organic growth, what we are doing right now, that's quite a good performance, I would say so.

In general, Asia-Pacific is holding up really nicely, driven by a very solid performance in India and Southeast Asia. and while obviously taken back by China, as mentioned. Also Korea is holding up okay, and also Japan. So we're satisfied with APAC.

Q3 was very strong last year. I think if you look at the organic growth profiles and you go back, it was Q1 last year, 43%, Q2, 14, Q3, 41%, and then Q4, 14%. So we expected to be normalizing going forward and you will see a better performance in the line. So maybe that gives the outlier in your analysis.

Yes. Now, looking for Q4, previously you mentioned that the bonuses were a pretty variable part, given the dynamics that we have seen this year. How are you looking towards the bonuses in Q4?

Yeah, actually, we accrue as per our normal budget, what we are targeting for. Obviously, last year was a very high bonus payout year. Let me be very clear about that. The effect is roughly in between 20 and 25 million euros. We have a full year basis. So we also be very clear about that. And this year, yeah, we're still paying out bonuses as per usual. That's our expectation, at least.

Okay. Okay, thank you. That's clear. That's all for me.

Thank you. There are no further questions. We have come to the end of this call. I will now hand over to Chief Executive Officer Mr. Mueller for his closing remarks.

Thank you, everyone, for your time today. We really hope that we were able to provide you with sufficient information on how we are navigating the current conditions. It's clear there's a lot of uncertainty out there, but our performance demonstrates that we are successfully managing every element that is within our control. Our results show that we have built and continue to build and strengthen a business that not only can withstand challenges, except the one we're facing now, but a business that can continue to grow and thrive despite these challenges. It gives me an enormous pride to hand over this business to Anna, It's a strong and resilient business, and Anna will be able to lead that business on to the next phase of this. It's a really exciting journey. The journey for me started 11 years ago, more than 11 years ago, from really humble beginnings. We are today a company of 4.2 billion, top line roundabout, successful, but still humble, because we still have our objective, to serve both our principal partners and our customers. Anna joined me 10 years ago and she has been instrumental in what we have been building over the last years, she and the entire team. So I'm very confident that the journey will continue. I've enjoyed interacting with all of you and the interest put forward into our firm. And well, it has been a privilege being involved with that. The future might have its challenges for Azelus, but I have all confidence in me that the journey will go and the company will grow from strength to strength. So that's it for me. And thank you all. And hopefully you will be ready to support Azelus also going forward.