Azelis Group Nv

Good morning. Welcome to Azaleas' 2024 results presentation. Thank you for joining us. My name is Pam, Investor Relations. We hope you've had some time to go through the press release published earlier this morning. As usual, we have Anna Bertone, Group CEO, who will present the highlights of our results. Thijs Bakker, Group CFO, will then walk us through the financial performance of the group during the year. And Anna will provide some concluding remarks before we open the floor for Q&A. Until then, you will be on listen-only mode. Let me remind you that the presentation may contain some forward-looking statements that are subject to risk. We will make a recording of the presentation available on the website starting later today. Now let me give the floor to Anna.

Good morning, Pam. Thank you for the introduction. As Pam said, I will give an overview of the business performance in 2024. Thijs will then go through the details of our financial results, and we will conclude with some more remarks on what we are seeing so far this year. As usual, I will start with the most important messages for today on the next slide. First, many of the green shoots reflected at the beginning of 2024 were sustained throughout the year. Our results improved versus prior year, but it did not happen overnight or over one quarter. Instead, we have shown a steady improvement since the first quarter last year. Organic growth turned positive in Q3 and remained positive in Q4. My second point is that our business model proved again to be resilient. The market remained volatile overall, with the pace of improvements varying across regions and across our end markets. Throughout the year, we remained focused on protecting our profitability, and that was reflected in our EBITDA margin remaining stable at 11.2%, despite cost inflation in many of our geographies. Good thing is that we are seeing a continuation of the trend improvements, even if tempered by persistent volatility, which is mainly driven by geopolitical uncertainty. As we presented during our strategy update in September, Azelis is strongly positioned to navigate the industry challenges and to capture growth. And we have already demonstrated this in recent years. Let's move to the next slide for the summary of our results. In the final quarter of 24, our revenue increased by 4.3%, of which 1.8% was organic. This brings our total revenue for the full year 24 at 4.2 billion, an increase of 2.6% in constant currency compared to 23. The positive organic momentum in Q3 and Q4 resulted in 2.3% organic growth in H2. This reversed part of the organic revenue decline that we saw in the first half of the year. We have achieved gross profit of 1 billion for the year, and the 77 basis points increase in gross profit margin was driven by positive mixed effects due to our diversified portfolio. Adjusted EBITDA margin was stable at 11.2%, despite cost pressure we faced during the year. This included an average salary cost inflation of around 3%, as well as higher bonus accruals in markets where we saw significant performance improvements. In 24, we completed eight acquisitions across our three regions, and those eight companies had combined revenues of over 140 million in 23. I will give more details about the progress in executing our updating strategy in a later slide, but I want to highlight here the progression that we made during the year towards our objective of being the reference in the industry for innovation, sustainability and digital. Now, before we go to the strategy execution, let me share some details on our growth drivers in the next slide. Let's start on the organic side. We see the trends aligning in the right direction, although the pace varies across end markets and across regions. In general, I can say we have been observing more robust recovery in life sciences, while industrial chemicals remained mixed. If I look more in detail in the end markets, for home care, we saw a strong performance consistently across all regions throughout the year. We observed good recovery in FNF across all regions. Food, US delivered strong performance in 2024, but in EMEA, good volume growth is somewhat tempered by volatile prices and APEC was weak during the year. We recorded a recovery in personal care in H2, although mostly driven by the US. And for case, we are seeing a recovery in the US, but it remains volatile in EMEA and APEC. And for loops metalworking fluid, we see overall a constructive environment. And the rest of the end markets are broadly stable. If we look into the regions, the first green shoots were in the Americas, and the recovery was sustained throughout the year. Performance in the U.S. was driven by a strong recovery across all our focus and markets in life science, but also U.S. case has been showing improvements, but that was at a lower pace. Canada was a drag for most of the year, but we are starting to see some stabilization there as well. And Latin America, we continue to see a slow, broad-based recovery. EMEA has been different. The picture is still mixed. Western Europe remained under pressure for most of 24. Emerging markets in the region, Eastern Europe and EMEA were stable. And EMEA was supported in the second half by the strong recovery in our agri and F&F business in the region. And in Asia Pacific, results were driven by continued solid performance in Southeast Asia and a good recovery in India. And this mitigated a still weak China economy. and Australia and New Zealand. In terms of inorganic growth, we closed three M&A deals in Q4 and that brings the completed M&A to eight for the year of 24. As we presented during our investor day in September, we have identified our focus and markets and have been doing our homework in reassessing our M&A priorities accordingly. The pipeline looks good and is aligned with our strategy of building global leadership in our focus and markets. Now, let's look a bit more in the strategy and the progress that we have against the longer term objectives in the next slide. And for those who were in Istanbul in September, this slide should be somewhat familiar. In 24, we made significant progress toward an important pillar of our strategy, our objective to be the industry reference for our focus and markets and the leader in innovation, sustainability and digital. This underscores our commitment to create value for all our stakeholders, and it strengthens the mode that we are building around our business. During the year, we won five industry awards for innovative formulations across our three regions. This reflects our dedication to advancing the most innovative solutions to our customers and principals. And you can find interesting examples of these solutions in the appendix. We recently launched Impact 2030 after the successful achievement of our first set of commitments in Action 2025 around sustainability. Impact 2030 is the next phase of our ambitious sustainability agenda and shows even more ambition. And for example, it incorporates the SBTI Scope 3 targets. This reflects our firm belief that we are uniquely positioned to contribute to a sustainable future and help all our stakeholders to do the same. And in line with what we said in September, we continue to invest in our platforms to remain at the forefront of digital developments in our industry. Equally, we are focused on monetizing our ongoing investments. And this is reflected in the 60% growth in the number of active customers across our digital platforms. The next pillar of our strategy revolves around our commitment to be an active consolidator in our industry. And as I said in the previous slides, we have done our homework in aligning our pipeline for M&A to focus and markets. And the eight deals we completed during the year is consistent with that. We also have launched multiple commercial excellence programs to win market share by providing successful solutions and access to a wide portfolio of products to our customers. And furthermore, we are leveraging our global network to grow its strategic principles. By developing new applications that grow the market for their products, we strive to become their preferred distributor. And last, but definitely not least, is our third strategic pillar, building one agile Azelis. We have launched various internal projects and programs to ensure global cohesion and that we use our skill and scope to our advantage. On the other hand, we foster agility by empowering local teams to respond swiftly to opportunities in this volatile environment. As you can see, we have been busy, and while we are proud of our achievement in 24, we still have a lot to look forward to. You will find more details of our performance and the execution of our strategy in the integrated report that will be available from the 6th of March. Now let me hand over to Thijs for a run-through of our financial results.

Thank you, Anna, and good morning, everyone. As Anna mentioned, just before getting into the numbers, we've decided to align our reporting calendar with our internal reporting. So the full integrated report with comprehensive and very interesting overviews of our sustainability indicators will be published on our website on March 6th. Now let's dive into the numbers on the next slide. In the final quarter of 2024, the group revenue increased by 4.3% year-on-year to over 1 billion, driven by a strong performance in our life science business. which grew by 7.3%, and slightly weaker industrial chemicals, which came in 0.6% behind prior year. Group revenue for the full year came in at 4.2 billion, representing a year-on-year growth of 1.5% or 2.6% measured in constant currency. This reflects a 3.4% reported growth delivered by our life science business and a 1.7% decline in industrial chemicals for the full year. Gross profit in the fourth quarter came in at 247 million euros, representing a year-on-year growth of 10.4% or 9.4% in constant currency, bringing the full-year gross profit to over 1 billion euros, a year-on-year growth of 4.8% or 5.9% in constant currencies. These results reflect a positive mix as well as improved organic growth. Now, gross profit as a percentage of revenue ended at 24.5%, 77 basis point gross margin expansion to 24.5% reflects positive mix coming from the Americas, which had a higher contribution from the life science business. And of course, as case is still in recovery mode, a margin improvement in APEC and Latin America, where we made further progress on optimizing our portfolio. In the fourth quarter, adjusted EBIT ended at 101 million euros, reflecting a year-on-year growth of 11.4% or 10% in constant currency, reversing the decline in the first nine months, bringing the full-year adjusted EBITDA to 471 million euros, an increase of 0.9% or 2.4% in constant currency. The adjusted EBITDA margin was stable compared to the prior year at 11.2%, despite salary and general cost inflation again demonstrating confidence in the resilience of our business model that we can deliver. The slower development EBIT-A growth resulted in a conversion margin of 45.7% compared to 47.4% in 2023. On the last line here on the slide, the net profit for the year was stable at €189.5 million. I will go through the details of our net profit drivers in a later slide. But let's first take a look at the breakdown of our growth. On the next slide, page 11. Here I will give you an overview of the growth breakdown of revenue, cross-profit, and adjusted EBITDA split between organic, M&A, and EVIX. On the left side of the slide, you see the quarter, and on the right side, you see the full year. I will take you to some more regional details in the following slide in addition to the segment comments that Anna provided already. In the fourth quarter, revenue came in at 4.3%, supported by positive organic revenue growth of 1.8%, versus some of the negative effects from the first half year. On a full year basis, organic revenue declined by 1.1%. Fourth quarter marks the second quarter of positive organic revenue growth and was driven by continued recovery in life sciences in the US. Second, a positive environment in the FNF flavors and fragments segment across all regions and a recovery in AgriHorti in EMEA. During the first half of 2024, organic revenue declined by 4%. This was partly offset by 2.3% organic revenue growth in the second half of the year. As we look ahead, we have confidence in our order book for the first quarter of 2025, based on a number of drivers, but not the least, improved momentum in the Americas, which is approximately 36% of our global revenue. In the fourth quarter, gross profit accelerated to 10.4%, mainly driven by organic growth. Of 7.4% for the full year, the 4.8% in gross profit was driven by organic growth 1.5% and 4.4% growth contribution from recent acquisitions, offsetting a negative 1.1% FX headwind. This picture reflects in part our work on optimizing our portfolio in LATAM and Asia-Pacific. In the fourth quarter, adjusted EBITDA grew by 11.4%, with organic EBITDA growth accelerating to 7.2% during the quarter. For the full year, EBITDA increased by 0.9%, driven by EBITDA growth contribution from recent acquisitions, offsetting a 2.2% organic EBITDA decline and 1.5% negative impact from the FX translation. For the second half of the year, organic EBITDA growth was 5.4%. This refers part of the decline in the first half, which was minus 8.1% in H1 2024. So we see positive momentum here. Organic EBIT agro for the full year includes an average salary and cost inflation of about 3%, as well as higher bonus accruals in light of improving performance in some of our markets, and as well, higher distribution costs driven by the top line. Overall, organic trends appear to be stabilizing across our markets, and we see more regular buying patterns in our customer base. Now, let's turn to our regional financial performance on slide number 12. Let's start on the left here, EMEA. In EMEA, which makes up 43% of Azaleas' revenue, revenue for the full year ended at 1.8 billion euro, broadly stable compared to the prior year, and up 1.2% in constant currency, driven by a 2.9% revenue growth contribution from recent acquisitions, offsetting the 1.8% decline in organic revenues. In the fourth quarter, organic revenue grew 0.4%, following a 3.2% organic revenue growth in Q3, reversing in part the organic decline, which is in the first half. The organic revenue growth in the second half was driven by a recovery in our RT-RT business and a favorable flavors and fragrances, or FNF as we call it, environment, and a continued strong home care performance. Gross profit in EMEA declined by 1.1%, resulting in a 28 basis points contraction in gross profit margin, due mainly to the negative mix effect from the gradual recovery in industrial chemicals, which comes at lower margin levels. In the fourth quarter, gross profit grew by 9.8%, of which 5.1% was organic. driven by the recovery in life sciences and reversing some of the negative mixed effects, as well as several lubricant orders shifting to the first quarter in 2025, where Anna also alluded. Adjusted EBITDA declined by 4%, resulting in a 52 basis points EBITDA margin contraction to 12.7%, driven mainly by salary cost inflation in the region, hireable variable comp, and investments in sales and logistics operations in MEA, and also dilution by M&A. Furthermore, EBITDA is impacted by mixed effects from the recovery in industrial chemicals and higher contribution from emerging markets in the region that come with a lower margin profile. Lower EBITDA resulted in a 145 basis step down in conversion margin to 49.3%. Please note this is still in line with 2022 levels as we took early cost mitigating actions. Let's move to the middle of the slide, turning to the Americas, which makes up 36% of group revenue and 40% of the group EBITDA. Revenue for the full year ended at 1.5 billion euros, 5.6% growth year-on-year, or 5.9% measured in constant currency, driven by a 5.4% revenue growth contribution from recent acquisitions and a modest organic revenue growth contribution of 0.5%. As communicated in Q2 and Q3, we are happy to see sustained trend improvements in the Americas, reflected in positive organic revenue growth of 0.4% in Q2, accelerating to 4.6% in Q3 and 5.6% in Q4. The positive momentum was driven by a robust recovery across all our end markets in life sciences, as well as continued stabilization in case in the U.S., where we are still in recovery mode. In the second half of the year, we also started seeing stabilization in Canada, and we see a broad-based improvement in Latin America, where our hard work building the business is paying off. Cross-profit in America has increased by 11.3%, of which a large part, 5.6%, was organic. In the fourth quarter, organic gross profit growth was 10.4%. The gross profit growth drove 127 basis points, gross margin uplift to 24.9% for the full year, driven mainly by strong recovery in life sciences in the US, as well as positive mixed effect from our portfolio optimization program in LATAM. Lastly, the adjusted EBITDA increased by 2.7%, driving adjusted EBITDA margin to 12.3%, representing a 36 basis point contraction, mainly due to a dilution effect from Latin America, where we have made investments in our infrastructure, but also from higher bonus accruals in light of improved performance. This resulted in a 417 basis point step down in conversion margin to 49.4%. Lastly, in Asia Pacific, revenue ended €885 million and declined 2.1% or flat at constant currency, driven by FX headwinds of 2.1%, an organic revenue decline of 2.5%, offsetting a 2.5% revenue growth from acquisitions. The organic revenue development reflects continued weaknesses, especially in China and ANZ, mitigated in part by strong performance in India and Southeast Asia. Cross-profit in APAC ended at 185 million euros, representing year-on-year growth of 7.7%, of which 4.7% was organic. Cross-margin expanded by 190 basis points to 20.9%, driven by improved profitability of the product portfolio of recent acquisitions, as well as positive impact of our portfolio optimization program as we are discontinuing less attractive product lines. Adjusted EBIT increased by 12.3%, driving 128 basis points EBIT margin expansion to 9.9%. as we continue to execute on our M&A integration programs and leverage our growing skill in the Asian region. This resulted in 195 base point expansion in conversion margin to 47.6%, reiterating that over time we see margins in Asia Pacific being similar as EMEA and Americas. Now let's move on to slide number 13, our net profit. Net profit after tax came in at €189.5 million, basically flat versus prior year. Net financial expenses came in at €129.8 million, with increased financial income partly offsetting the higher financial expense. In September, we conducted a refinancing of our debt, lowering our interest rate going forward and extending maturities till 2029. The financial expense also includes €26 million of non-cash financial costs from the impact of hyperinflation accounting for Turkey and a one-off non-cash P&L charge of €4 million related to transaction costs from previous refinancing activities. Tax expense in 2024 was 66.6 million euros, implying an effective tax rate of 26% versus 23.4% in 2023, and includes the tax impact of non-cash costs associated with hyperinflation accounting and fair value adjustment of acquisition-related liabilities, which are not tax deductible. Now, let's jump to the next slide and talk about the cash performance of the group. In 2024, we generated a free cash flow of 342 million euros, down versus prior year, mainly driven by significant prior period working capital release from the stock. This was driven by higher investments in working capital in light of improving demand in our end markets. Let me provide a little bit more detail on this, as the lower free cash flow conversions mainly due to the higher working capital investments. In 2024, the cash outflow from working capital was €118 million, which is mainly driven by the inventory of €98 million. This is also reflected in our higher DIO at 57 days versus the average for the last three years of roughly 52 days. So why is this inventory higher? Now, Our inventory was at the low side end of 2023 due to prior period destocking. Now we experience the opposite as we get out of the downturn cycle and we see improved momentum. There's also a mixed effect. The growth drivers behind our inventory this year are flavors and fragrances and our Latam business. Those businesses typically have a higher working capital level than the group level. Lastly, there's also inventory buildup for the positive outlook of the first quarter 2025. Now, the swing of inventory of above represents roughly 10% of free cash flow conversion. We're not worried about our free cash flow conversion and are confident in the order book for the first quarter. That's also about an impact of about 0.2 on our net debt leverage. Furthermore, of course, the 180 million euro is also an increase driven by an increase in accounts receivable in line with the revenue trend that we presented here and investments in fresh inventory in markets where we see growth in demand picking up. F&F, LATAM and Turkey in particular. With new inventory buildup in Q4, broadly corresponding to the order book of Q1 2025, we expect a normalization in working capital trends in line with historical seasonality later in the year. The higher net working capital investment resulted in a 55 percentage point contraction in free cash flow conversion to 72.1% in 2024. Let's zoom a little bit more into that working capital on the next slide. Networking capital to revenue normalized for acquisitions was 15.9% at the end of the year versus 15.4% in June and 13.4% at 2023. So looking to the right side of the chart, you see the evolution of our networking capital was tracking historical seasonal patterns until Q2, accelerating in Q3 as demand in our markets are ramping up. In 2023, we represent the yellow trend line. The trend was exceptionally low due to the weak business environment in the chemical industry and in our top line. The higher working capital in the second half of 24 points to continued volume recovery following a prolonged period of demand weakness across all of our end markets. We remain committed, of course, to our working capital projects to protect our cash flows and debt levels. And we expect this trend to come back, as I said earlier, in the second half of 2025 in line with the short seasonality. Obviously, we remain committed to strict control on our working capital to protect our cash flows, but We have some work to do here. That brings me to the final slide, our debt levels, on page 16. The change in debt during 2024 reflects the weaker operating cash flow, 369 million versus 618 million in 2023, mainly driven by the change of working capital, higher interest payment, 108 million versus 89 million in 2023, M&A investments and dividend payments. We ended the year with a leverage of 2.9, well within our confidence of 4.5. At the end of December, we have a liquidity position of 804 million euros, both in cash and unused credit facilities, giving us ample runway to continue to execute our strategy and convert our strong M&A pipeline. In summary, we continue to make progress on our strategic and financial objectives in 2024. Recovery is underway in many of our end markets, and we have demonstrated that we are well positioned, delivering strong performance for principals, customers, and shareholders. Based upon this, let me give it back to Anna for some closing remarks on the outlook.