Azelis Group Nv

Good day and welcome to Azaleas' Q1 Trading Update call. As usual, we are joined by Ana Bertone, Group CEO, who will give us an overview of business trends and our overall performance during the quarter. Thijs Bakker, Group CFO, will then walk us through the numbers. After their presentation, we will open the floor for Q&A, but until then, you will be on listen-only mode. As a reminder, this presentation may contain forward-looking statements that are subject to risk. Let me now hand you over to Ana. Thank you, Pam.

And good morning, everyone. I am pleased to have you here on the call today. And like last time, I will start by providing you a high level overview of the trends we saw in the first quarter and our performance during the period. Guys will then take you through the numbers. Afterwards, I will conclude with our view on the outlook. As I mentioned, we are happy to answer any question you may have after the presentation. Here are the three main points that I would like to highlight about the first quarter. First, I'm very pleased to report that we have maintained and are actively maintaining a strong conversion margin. This demonstrates our commitment to balance growth and profitability, even in challenging conditions. Second, there are some important points to consider when looking at the first quarter performance. On the one hand, the growth trends we are reporting for the first quarter are measured against strong prior year comparables, especially for EMEA and APEC. And as a reminder, Q1 last year, the EMEA growth organically was 4.4%, and at APEC, it was double digit at 11%. So in these regions, comps were still tough. Adding to that, there is a longer stabilization period in the industry. We are seeing recovery in volumes, but they are offset by pricing friction in some of our end markets. The supply and demand dynamic is rebalancing and inflationary pressures from supply chain disruptions are easing. Some price discovery is natural in this situation. Final point I would like to make is that we are seeing a slow but steady improvement in our order book. This gives us comfort that organic growth should return during the year. In the meantime, we continue to control our costs while also making sure we are well prepared for the growth recovery. Now let's move on to the key from the first quarter on the next slide. During the quarter, we achieved a revenue of 1.1 billion, representing a 1% year-on-year decline in constant currency. We generated profit of 261 million, up 0.7% from prior year. This means that we were able to expand our gross profit margin by 47 basis points compared to Q1 2023. Given the price pressure in some of our markets, this is another demonstration of the strength of our diversified portfolio. We achieved 124 million adjusted EBITDA, and equivalent to a EBITDA margin of 11.8%. And this reflects our ongoing focus on cost control to limit the impact of slower revenue development. As mentioned earlier, we have kept our group conversion margin well above 47%. We also continued our M&A strategy to expand our footprint. And during the quarter, we closed three acquisitions and we have announced two additional acquisitions. And that brings the M&A count this year already to five. They are all small bold-ons which further enhance our lateral value chain. Now let's look at some of the drivers of the results on the next slide. In life sciences, volumes are recovering, within certain end markets some pricing fictions. But on the whole, trends are encouraging. Our home care and industrial cleaning segment is performing well across the board. The recovery in Weigen is slow but steady. FNF in other regions is stabilizing. But in general, global trends in FNF are starting to go in the right direction. Food volume are also broadly stable with some price pressure in certain markets. While on the other hand, Agri was weak throughout last year due to overstocking. And this quarter, we were not helped by the weather in Europe. In aggregate, volumes are recovering, although offset by price pressure. The trends in industrial chemicals are mixed in case we continue to see over recovery in U.S. volumes, while in other regions and other industrial and market volume stabilization is still ongoing. A highlight is the good performance in lubricant metal working fluids in EMEA. Overall, I would say the market is still volatile, but the stabilization is taking root. Volumes are slowly coming back while price pressure will dissipate and we are well positioned for the recovery. Now, in terms of the inorganic growth, we completed three acquisitions so far this year, one in each region. In EMEA, we closed the acquisition of Octrade, which is a great addition to our personal care business in Turkey. South America, we acquired LocalPak, and in APEC, we completed the acquisition of Xpak, expanding our agri-foodprint in Australia. We also signed two other acquisitions, MDK, which is a strong addition to our personal care business in Indonesia, and DBH, which adds to our industrial business in the TAG region. I'm actually very pleased with our M&A pipeline, which remains strong. We are continuing to play our part in the industry consolidation, building a stronger platform, a broader lateral value chain, and enhancing our capabilities to the benefit of our customers and principals. With that, let me turn it over to Thijs to talk about the knowledge.

Thank you, Anna. Good morning, everyone. I will start with an overview of the group financial performance for the first quarter of 2024. Let me start on slide nine, where you'll find a summary of our P&L and revenue split between life sciences and industrial chemicals. For the first three months, we recorded a revenue of 1.1 billion euros, representing a 3.8% year-on-year decline, excluding negative effects, revenue was broadly stable compared to the prior year. As mentioned before, Q1 last year was our highest quarter in 2023, and Anna already provided some color on the organic profile of last year Q1. Diving deeper into the composition of this 1.1 billion euro revenue, 669 million euro of revenue came from life sciences, flat from last year, or plus 2.5% in constant currency, supported by volume recovery in most end markets, as well as M&A contribution due to the first time inclusion of M&A. Our industrial chemicals business delivered 382 million euros of revenue, representing a 10% decline versus prior year or 7% measured incomes in currency. This performance reflects stabilizing volumes offset by pricing pressure and mixed effects. We've seen improvement in trends and volumes compared to previous quarters, supporting stabilization and recovery later in the year. Our gross profit for the first quarter was 261 million euros, a 2% decrease year-on-year on a reported basis, and 0.7% increase in constant currency. So, broadly stable compared to the same period last year. Gross profit as a percentage of revenue expanded by 47 basis points to 24.8%. The expansion was largely the outcome of mixed effects from existing business tilting more towards life sciences, progress on M&A integration from previous year's M&A, offsetting dilution effect from recent acquisitions. During the first quarter, we achieved an adjusted EBITDA of 124.3 million euro, a year-on-year decrease of 7.2% on a reported basis, and 3.6% on constant currency basis. Resulted in an adjusted EBITDA of percentage of revenue of 11.8%. This represents a 43 basis point contraction versus the strongest quarter in 2023. The contraction in margin was driven by margin pressure in the Americas, which had lower cost savings impact compared to the prior year, given that they started the contingency actions already earlier in Q4 2022. And from dilution from our Latin America business, which comes at a lower EBITDA margin profile. EBITDA as a percentage of revenue in EMEA remained more or less flat, even though diluted by recent acquisitions. These effects were partly offset by the strong expansion in Asia-Pacific, which were supported by cost savings measures, as well as positive mixed effects across our businesses in the region, as we are making progress in integrating the product portfolio from acquisitions made in previous years. Conversion margin during the first quarter was 47.7%, which is a 270 basis points contraction from the strong performance in the prior year. We see this as phasing and note that we continue to maintain a strong conversion margin above 47%, which was achieved at the peak of the growth cycle back in 2022. Let's move from here to the next slide, where I'll provide a quick overview of the growth breakdown of our financial metrics between organic and inorganic. Organic revenue for the group was 8% lower compared to Q1 2023, as the comparable versus prior year in EMEA and APEC are still challenging. And macroeconomic pressures in Latin America continue to weigh down performance in the Americas. Revenue growth contribution from M&A during the quarter was 7%, whilst FX remained a headwind, with a negative effect of 3% on revenue growth. In general, it's more common we need to be careful on the interpretation of the top line as we see volume and activities improving, but it will take time to translate to absolute growth because price labels need to stabilize first. In EMEA, organic revenue declined 8.6% compared to the 4.4% organic revenue growth achieved in the first quarter of 2023 and 34% in Q1 2022. M&A contributed 4.8% of revenue growth, whilst FxEffect had a negative effect of 4.3% on our revenues. Life Sciences in EMEA is experiencing volume stabilization with an increase, except for agricultural and environmental solutions. Offset by price friction in some end markets, while in industrial chemicals, volumes and prices are still stabilizing and still include the last negative impact from a portfolio optimization program, which is roughly 6 million in revenue, representing 1% of revenue in the prior year. I will drill down into the regional drivers a bit later. But these elements have weighed down on gross profit in the region, leading to an organic decline of 8.8%. In the first quarter, organic EBITDA declined by 9%, driven by the full-year impact of salary cost inflation across Europe, offset by cost-mitigating actions, leading to a conversion margin of 54.3%, slightly below Q1 2023. So it's quite good. In the Americas, the improving organic revenue development in the US was offset by continuous weakness in Canada and Latin America, Mexico in particular. This resulted in an organic revenue decline of 8.6%, although we can report sequential improvement. This was offset by revenue growth contribution from M&A of more than 11% at stable FX, allowing us to report a top-line growth of 3.6% in the first quarter. Cross-profit in the Americas increased by 1.5%, driven by contribution of 11.7% from recent platform acquisitions in life sciences, offset by a 10% organic decline. The organic decline in gross profit is driven by a couple of moving parts, namely the positive mix effect from the recovery in higher margin flavors and fragrances, where we see increased volume activities being offset by volume recovery in case, which typically comes at lower gross profit margin levels. and as well as dilution from Latin America, which is having lower margins than North America. EBITDA reduced by 7.4%, driven by a 17.6% organic decline due to negative mix effect, dilution from Latin America, and lower impact of cost savings in Q1. And that is because we started with a cost containment much earlier in North America, Now, we're in the early in the year and in the recovery. As such, we monitor the sequential volume improvement in the Americas and don't rule out for the cost reductions if needed. In Asia-Pacific, we reported the revenue decline of 6%. In the first quarter, 5% revenue growth was achieved from M&A, offset by a negative fixed effect of 5% and 6% organic revenue decline. Some context here, these were very tough comps to beat, following 11% organic growth in the comparable period last year. The region did well in the area of gross profit margin expansion, driven by positive mix effect, but mainly solid progress expanding our product portfolio from past acquisitions done in 21, 22, 23, but also margin accretive impact of recent acquisitions that Anna alluded to. This, in combination with continuing cost management efforts, resulted in a 3.3% year-on-year growth in adjusted EBITDA, which follows a 58% growth in the same period last year. So this is an excellent performance. Bringing it all together, total revenue of the group decreased by 4% to 1.1 billion euro in the first quarter of the year. We can now leave the top comparables behind us. as well as the portfolio optimization, which ended in March. Our co-continuity plans are at various stages of its development. As such, our conversion margin remained at 48%, demonstrating our ability to manage the elements that are under our control. Now, let's take a look at the regional finance performance on the next slide. So let's start on the left here with EMEA. In the first quarter, revenue declined by 8.2% to 500 million euros, driven by 8.6% organic contraction. Within life sciences, clear volume recovery was offset by some price friction, while the market continues to recalibrate towards stabilization. Our Middle East and Africa business was negatively impacted by delays in shipments due to the ongoing Red Sea tension tensions where containers are delayed in port. AIS Agro witnessed continued weaknesses in Europe, where the end of the destocking was more than offset by the impact of weather-related demand issues in Europe, as well as price pressure in Central and Eastern Europe. Within industrial chemicals, volumes are still stabilizing, with pricing remaining under pressure. Also note that the results in the first quarter still contained the last impact for our portfolio optimization program, which ended at the beginning of March. Slower revenue development, as well as the full year impact of cost inflation from a salary point of view, led to adjusted EBITDA of 14.3% and a 54.3% conversion margin. This is 157 basis points contraction versus the record conversion margin achieved in Q1 2023. Turning to the Americas, revenue increased with 3.6%, supported by two platform acquisitions to strengthen our life science presence in the region, namely Jilco in the food in the US and Vogler in Brazil, both with strong synergy potential. In the organic scope, the recovery in flavors and fragrances, which started in Q4, continued into Q1. And we continue to closely monitor the pace of the recovery, as this provides margin recovery for us as well. For the rest of the segments, the promising volume trend is partly offset by price pressures in some end markets, but we are seeing positive trends here, and we will get there. In industrial chemicals, the ongoing recovery in volumes in case is offset by continued weaknesses in the rest of the segment. Adjusted EBITDA as a percentage of revenue contracted by 145 basis points to 12.2% due to the dilution from Latin America and lower impact cost savings in Q1 of this year. This led to a 468 base point contraction in conversion margin, which came in at 49% for the quarter. To the right, lastly, in Asia-Pacific, revenue decreased with 6%, following a very strong growth in the prior year with 11% organic growth. Despite this performance adjusted EBITDA as a percentage of revenue expanded by 90 basis points to 10.1% supported by positive mixed effect as we are focused on improving our portfolio from prior M&A and continuing cost controls. Our APEC business achieved a 47% conversion margin during the quarter down slightly from Q1, 2023. Now let's look at the main driver of our cashflow generation working capital on slide 12. Networking capital to sales was 13.9% at the end of March 2024, compared to 13.4% at the end of December, and 14.7% at the end of March 2023. So we're well in control here. The year-on-year reduction in our working capital demonstrates our focus on optimizing our processes to preserve cash and are mainly to applying credit control applications, former systems and M&A integration. The slight uptick in working capital to sales compared to Q4 is driven by seasonality as well as preparations in view of our improving order book for April, May and June. We generate free cash flow of 114.5 million euros representing a cash flow conversion of 91% for the period. It's driven by the EBITDA that's a bit lower than prior year and slightly higher investments in working capital during the quarter to prepare for our order book. Overall, we will continue to optimize our working capital and focus on cash generation regardless of a business cycle, mainly in the area of M&A, which is still in the area of 25% working capital of revenue. Now, with this, I'm handing back the floor to Anna for some closing remarks and the outlook.