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.