Azelis Group Nv

Good day and welcome to Azalea's first half-year 2025 update call. With us today is Anna Bertona, Group CEO, who will give high-level insights into our progress in the first half of the year. Thijs Bakker, Group CFO, will take us through the numbers for the period. As a reminder, this presentation may contain forward-looking statements that are subject to risk. We will open the call for Q&A after the presentation, but until then, you will be on listen-only mode. I will now hand you over to Anne. Anne?

Thanks, Pam, and good day, everyone. Thank you for dialing in today. I understand from Pam that most of you are very busy with multiple companies queuing their results this week, and especially today, so we will be sharp and efficient. And let's start immediately on the next slide. I want to begin with the most important messages based on our progress in the first half of 2025. First, we see areas of growth across our business, even as volatility has increased throughout the past four months. This is reflected in organic revenue growth staying in positive territory for the first half of the year. As you may have seen from the half-year report, our positive results in EMEA offset the slowdown in the US in the second quarter and the ongoing pressure in APEC. I will go through the trends across end markets and regions on a later slide, highlighting the benefits of our diverse global footprint. Second, as the market becomes more challenging, the resilience of our business model becomes more evident. This is demonstrated in the higher cash flows, even as the impact of our cost-saving measures are not yet fully reflected in the results of the first half year. The last and key point is this. The market is going through some temporary challenges, mostly driven by trade discussions and geopolitical issues. But the fundamentals of the industry are intact, and the long-term drivers remain attractive. As I said before, volatility is here to stay, and it creates opportunities for global distributors like Azelis, who have the right portfolio and technical capabilities. Now more than ever, customers rely on us to reformulate or provide innovative solutions to help them address the market challenges or supply chain disruptions. And also principals continue to need a strong partner to grow their business, even more now that they are restructuring and refocusing on their core. Our diversified footprint allows us to capture growth in some end markets or regions to offset temporary weaknesses elsewhere. And I'm confident that we are taking the right course of action to navigate these temporary challenges and have the right strategy to achieve our long-term objectives. Now let's move to the results of H125 on the next slide. In the first half of the year, we achieved a revenue of 2.2 billion, a 3.3% increase over the prior year in constant currency. Organic growth for the first half was 1.2% despite the slowdown, specifically in the US in the second quarter. Our gross profit in H1 was 515 million, which is broadly stable versus last year on a constant currency basis. The gross margin contraction during the period was due to negative mixed effects from higher contribution from industrial chemicals, as well as from recent acquisitions, emerging markets, and increasing competitive pressures in Southeast Asia. Adjusted EBITDA came in at 234 million and resulted in an EBITDA margin of 10.9% and a conversion margin of 45.5%. The contraction in our profit margin reflects only a limited impact from our cost savings measures, as the benefits will come in the second half of the year, while we already absorbed the salary cost inflation for 2025. We generated 151 million in free cash flow resulting in an 11 percentage point increase in our cash conversion ratio. We ended June with a leverage of 3.1 due to slower organic EBITDA development as well as a peak in deferred payments in H1. We remain committed to our leveraging policy and we expect to manage this back to our stated range of 2.5 to 3. Now let's look at some of the drivers of the results on the next slide. Overall, we saw that life science was stable, while in industrial chemicals, we saw slight recovery in the first half of the year. Online sciences, we can comment this. There was a strong momentum in pharma. Food and nutrition was positive, whereas stable in EMEA, offset by a weak food market in APEC. Agri-recovery in EMEA continued throughout the first six months, but in the U.S. was weak. Personal care was positive in EMEA, but continued to see headwinds in the U.S. and APEC. And we saw a mixed picture in case and advanced materials and additives, with stronger performance EMEA offsetting weaker U.S. and APEC. For lubricants, metalworking fluids, we saw positive momentum, except in the U.S., On a regional basis, EMEA saw a positive momentum in the first half of the year, both in life sciences and industrial chemicals. But in the US, we saw a shift in sentiments, and the shift that we saw earlier in the year continued throughout Q2. Uncertainty over the short-term economic outlook is weighing on consumer demands and resulting on our customers not wanting to build up stock and going back to much smaller and more frequent orders. And then lastly, in APEC, we saw an uptick in competitive pressure across Southeast Asia with increased supply from China. In terms of inorganic growth, We are pacing our M&A and executing on only the most strategic acquisitions while our leverage is at elevated levels. Solkem represents the missing piece in our offering in Spain and gives us access to the very lucrative domestic nutraceutical markets. S-AMIT is a small baldon that complements our India business, and then with ACEF, Azelis creates by far the larger personal care distributor in Italy, providing skill benefits and synergies. Although we have an exciting pipeline, we are focused on managing our leverage to within the 2.5 and 3 range. I am confident that we will return to full M&A execution as soon as we have stabilized the balance sheet according to our leverage commitment. Now, before I hand you over to Thijs to talk about the financial results in detail, I would like to take a moment to highlight our strategic growth accelerators, innovation, sustainability, and digital. Now, you can wonder why are we focused on these even when we face temporary challenges. Well, because we think these are very important elements that demonstrate our ability to provide solutions for our customers and principals, whatever their requirements are and whatever the economic cycle is. And this is how we create opportunity during times of volatility and uncertainty. And that's why we continue to invest in them. And in the long term, these pillars strengthen the mode around our business. Now, why is innovation important? Well, customers rely on us for formulations and innovative solutions at all times. And currently, the focus is on addressing market challenges and supply chain disruptions. Principals rely on us to grow their business by developing applications for their products. And why is sustainability important? We believe it's the right thing to do and we play an important role in making the world a better place. But also because it makes economic sense. Reformulating for a more sustainable alternative is a revenue opportunity. And finally, digital, that's also very important. And why is that? Well, having the right IT and digital infrastructure makes it easier to develop digital tools, which are growth enablers and efficiency accelerators. we continue to focus on these strategic pillars across economic cycles, whether we are in growth mode or in more challenging markets. And these efforts are recognized by the industry, as shown by the awards we win every year. This year, we have received multiple awards already for our innovative solutions. And we also have achieved an industry-leading MSCI ESG rating, Some of you have already seen Innovation at Work at one of our labs, and we hope to see you in Hartford in September, where we will showcase our lab capabilities in the UK, as well as some of our digital tools. For now, I will hand you over to Thijs to talk more about the numbers.

Thank you, Anna. Good morning, everyone. As Anna already outlined during the business update, a diversified footprint and resilient business model continue to support us through a volatile environment. Now I will guide you through the group's financial performance and those of our regions for the first half year of 2025. So let's start with a high-level overview of the P&L and the drivers of our performance for the second quarter of 2025, the first half year, on page number 10. Group revenue for the first half year of 2025 reached 2.2 billion euros, representing a year-on-year growth of 0.6% or 3.3% at constant currency. This reflects a 0.1% reported growth or 2.6% at constant currency delivered by our life science business, and a 1.5% reported growth of 4.6% at constant currency for industrial chemicals. For the second quarter, revenue ended at 1.1 billion euro, indicating a 3.1% year-on-year decline, driven by a 5.1% EVIX headwind, which offsets stable organic revenue growth and a 2.1% contribution from acquisitions. Cross-profit for the first half year was 550 million euros, representing a year-on-year decline of 2.2% or at constant eviction rate, 0.3% growth. Cross-profit as a percentage of revenue contracted by 68 basis points to 23.9%. This contraction was largely due to mixed effect as industrial chemicals, which tend to come with lower cross-profit margin levels, grew faster than life sciences, as well as some dilution impact from recent acquisitions. For the first half of 2025, adjusted EBITDA came in at 234.5 million euros, reflecting year-on-year decline of 7.7% or 5.3% in constant currency, resulting in an adjusted EBITDA margin of 10.9%. This decline was driven by higher operating costs, as the benefit from our cost-saving program is not yet fully reflected in our results. The cost mitigation program communicated at the first quarter results is well on track. We also accelerated, and Anna alluded already to that, our digital investments as seen in our holding cost and capital expenses. The lower absolute EBITDA development resulted in a conversion margin of 45.5% compared to 48.2% in 2024. Net profit for the first half year was 85 million euros, and I will discuss the drivers of the net profit in more detail in slide 13. Now let's take a look at the breakdown of our growth in slide 11. On this slide, we provide a high-level breakdown of revenue, cross-profit, and adjusted EBITDA into organic growth, M&A, and EVX. The breakdown by business provides insight into our regional diversification as well. Organic revenue grew by 1.2% in the first half of 2025 and was broadly stable for the second quarter, with continued strong organic growth in EMEA, offsetting weaker performance in Americas and Asia Pacific. Worth profit declined by 2.2%, driven by an organic decline of 1.8% and a 2.4% Fx headwind, partially offset by a 2.1% growth contribution from recent acquisitions. In the second quarter, organic gross profit declined by 3% by mixed effects from higher growth contribution from industrial chemicals, emerging markets, as well as price pressure in Southeast Asia. Adjusted EBITDA for the first half was supported by contributions from recent acquisitions, partly mitigating the 7.9% decline in organic EBITDA and FX headings. The organic EBITDA decline was most pronounced in absolute terms in EMEA and the Americas, driven by higher operating costs compared to prior year. Please note that the benefit from our cost savings initiatives are not fully reflected in the result for the period, as I said before. Our operating costs also came already down significantly quarter on quarter and is flat on prior year despite payroll inflation. So we're back on track. Let's have a look at our regional financial performance on the next slide. In EMEA, which makes up 45% of our group revenue, revenue for the first half year came in at 979 million euros, representing a year-on-year growth of 6.7% or 9% in constant currency. This was driven by organic revenue growth of 4.8% and revenue growth contribution from acquisitions of 4.2%, partially offset by 2.2% negative impact from a VIX headwind. In the second quarter, revenue increased by almost 6% year-on-year as organic growth accelerated to 5.1%, as we aggressively pursue growth across most end markets in both life sciences and industrial chemicals. These underscores are commercial technical capabilities, as Anna said, and adapting solutions for ever-evolving end markets, even under challenging conditions. Gross profit in EMEA grew by 3.4% year-on-year, or 5.2% in constant currency, to 249 million euros. translating to an 82 basis point contraction in gross profit margin to 25.4%. This is mainly driven by a mixed shift towards industrial chemicals at almost twice the growth rate as life sciences, emerging market, exposure as well, as these come typically both with a lower margin profile and lastly, dilution from recent acquisitions. Adjusted EBITDA decreased by 3.9% to 123 million Euro resulting in 139 basis point adjusted EBITDA margin contraction to 12.6%. This is driven mainly by the aforementioned mixed effects and also higher operating costs compared to prior year as the benefit of these cost saving actions in the regions are not fully reflected in the result yet. Furthermore, I can say that the region is well on track to deliver the cost saving commitments Turning to the Americas, which makes up 35% of our group revenue for the first half year ended at 760 million euros, reflecting a year-on-year decline of 3.4% or 0.2% in constant currency. Organic revenue and M&A revenue growth contribution were broadly stable, while FX translation represented a negative impact of 3.2% as the euro strengthened versus the dollar. In the second quarter, revenue decreased by 9.5%, driven by FX headwind of 6.3%, and an organic decline of 3.2%, reversing the organic growth achieved in the first quarter. The organic revenue decline was driven by a mixed performance in life science, where we see continued strong performance in food and pharma, offset by a softer personal care. which remains under pressure as consumer sentiment over the near-term economic outlook weighed on the demand. Our industrial chemical businesses in the Americas were broadly stable during the quarter. Gross profit in the region declined by 6% to €182 million, with a 67 basis point contraction in gross profit margin of 23.9%. The margin contraction is mainly driven by mixed effects across the businesses in the region with higher contribution from industrial chemicals and left in America, which come at lower margin levels. Adjusted EBITDA declined by 10.6% to €88 million, driving adjusted EBITDA margin to 11.6%. The 93 basis point contraction was mainly due to softer top line in gross profit and dilution from our less mature Latin America business. The results similarly like EMEA only reflect limited impact from recently in nation cost measures, which were executed in May, June. The lower adjusted EBITDA resulted in a conversion margin 48.4% in H1 2025. Also, America is on track on delivering these savings. Lastly, Asia-Pacific. Revenue declined by 4.9% to 420 million euros, driven by an organic decline of 3.6%. FX headwinds of 2.7%, partially offset by revenue growth contribution from acquisitions of 1.5%. In the second quarter, revenue decreased by 9.1%, driven mainly by a VIX headwind of 5.2%, and organic decline of 5%. The organic revenue decline was driven by slowing volumes in Southeast Asia, continued weakness in Australia and New Zealand, residual impact of our portfolio optimization program in the region, while China is bottoming out. Gross profit in Asia Pacific declined by 8.5% to 84 million euros, representing gross profit margin of 20.1%. The 80 basis points gross profit margin contraction reflects negative volume, negative mix effects, as well as competitive pressure in Southeast Asia. Adjusted EBITDA for the first half year declined by 4.9%, or 2.6% in constant currency, to €43 million. Also here reflecting an initial contribution from cost-saving measures. But Asia did a good job when it comes to conversion margin, because despite top-line pressure, the adjusted EBITDA margin remained stable at 10.1%, and conversion margin expanded by 194 basis points to 15.5%, demonstrating discipline across the P&L. Now let's move to the next slide on net profit, and I provide some comments on the line items here. Net financial expenses in the first half year came in at 70 million euros, down 3.4% compared to prior year as lower financial expense offset the decline in financial income during the period. The lower financial expense were mainly driven by significant reduction in interest expense, which decreased by almost 15% compared to the prior year, as well as a 5.9% year-on-year decrease in other financial costs. Tax expense for the period was 35.5 million euro, implying an effective tax rate of 29% versus 30% in 2024. The lower operating profit was partly offset by lower net financial expenses, resulting in a 14.6 decrease in net profit, which came in at 85.5 million euros for the first half of 2025. Now let's look at the next slide for the cash performance on the group on slide 14. During the first six months of the year, Azelis generated free cash flow of 151 million euros. While margins have compressed, our cash generation has accelerated. Free cash flow rose to 10.8% year-on-year, and conversion margin improved to 63.8%. A clear testament to our asset-light, resilient business model and operational desk discipline. enabling us to fund growth while maintaining flexibility under uncertainty. This resulted in a 10.6% point uplift in free cash flow conversion to 63.8% for H1 2025, compared to 53.3% in H1 2024. This improvement was driven by lower working capital investments, despite lower EBITDA, demonstrating the strength of our asset-light business model. Now let's look at the components of the working capital in the next slide, in slide 15. Networking capital as a percentage of sales was 15.8% at the end of June 2025, compared to 15.9% at the end of December and 15.4% at the end of June 2024. Compared to December, we have made progress reducing our working capital level as indicated in the Q1 call. However, the progress is slower than I expected, and timing of supplier payments did not support the ratios. So there's still quite some work to do here, especially on the inventory side, and we expect further improvements in working capital efficiency as the year progresses. Looking at the chart on the right, our working capital was flat for the first half year due to slow market demand. compared to historical seasonal patterns where we witnessed every year a ramp up towards the summer. You see this on the dotted lines of the chart. Overall, we'll manage our working capital in line with adjusted demand and expect to reduce working capital investment in the second half of the year, as this will also benefit our net debt that we can see on slide 17. The change in net debt during the first half of the year reflects a stronger operating cash flow of 177 million euros, stable interest payment and our M&A investments, which includes 99 million euros in deferred considerations with options in the first half of 2025. These cash outflows for deferred payments coupled with slower EBITDA development resulted in a leverage ending at 3.1 at the end of the period. At the end of June 2025, we have a strong liquidity position of €702 million, both in cash and unused credit facilities. As Anna highlighted, our innovation capabilities, ESG leadership, reflected in our MSCI AA rating, and digitization capabilities are key differentiators. We're not holding back investments indeed. These strengths combined with our financial resilience position us to emerge stronger from current market challenges. Whilst the environment remains challenging, we are well positioned and resilient to deliver for our principals, customers, and shareholders throughout the rest of 2025 and beyond. Let me give it back to Anna from here.