Azelis Group Nv

Good day and welcome to Azalea's full year 2025 results presentation. My name is Pam Ante, investor relations. I have Anna Bartona, group CEO, who will present the key developments in 2025. We are also joined by our new group CFO, Boris Kamboulala, who will present the financial results of the group. Anna will then conclude the presentation with some remarks on the outlook before we open the floor for Q&A. As a reminder, this presentation may contain some forward-looking statements that are subject to risk. Please note that all lines are on listen-only mode until we open for Q&A. We will make a recording of the presentation available online later today. With that, I'm handing the floor to Anna.

Thanks, Fem, and good morning, everyone. Thank you for dialing in. I understand it's a busy day for corporate earnings, so I appreciate that you're taking the time to join us. And I'm also very happy to sit here with Boris, our new group CFO. So please join me in welcoming Boris in his first Azelis earnings call. And I'm sure that you will have an opportunity to engage with him along with the rest of the Azelis IR team in the coming days. Let me start with the key takeaways from our results. In a year marked by tariff uncertainty and software demands, we continued to execute on our long-term strategy and made progress in becoming the reference in the industry for our customers and principals. I will give more details later in the presentation. Second, we delivered strong growth in free cash flow. While momentum remains muted overall, we continue to focus on what we can control, cost, working capital and cash optimization. Our performance underscores the resilience of our business model and the structural downside protection it provides through the cycle. Third, we are sharpening our capital allocation to ensure efficient use of our resources and rebuild balance sheet headroom. This is deliberate. We want to be ready to accelerate when markets stabilize, to capture organic growth and to lead consolidation as it re-emerge. Boris will walk you through our capital deployment framework later on. I've said it before, and I will say it again. The challenges that the chemical distribution market is going through are temporary. 2025 was a demanding year for the industry, yet our cash performance demonstrates the strength of our model. And our strategy continues to position Azelis to deliver sustainable long-term value creation. So let's turn to the detailed results for the year. Last year we achieved a revenue of 4.1 billion, a 1.3% increase over prior year in constant currency. Organic revenue for the full year declined 1.6% as the market deterioration in the second half reversed the organic growth we achieved in the first half. Our gross profit was 968 million, with gross margin contracting 91 bps due to negative mixed effects across our business. Our adjusted EBITDA came in at 411 million, resulting in conversion margin of 42.4%. As mentioned, our strong focus on cost and working capital management allowed us to generate $442 million of free cash flow, translating to a cash conversion ratio of 106%. And this demonstrates how our asset-light, cash-generative business creates value even in challenging markets. And then also we completed four acquisitions in 2025, all perfectly fitting our portfolio and our strategy for Boldons to reinforce our footprint. Now let's look at some of the drivers behind these results. In terms of organic performance, we saw softer demand across life sciences and industrial chemicals. We experienced weak trends in the most cyclical businesses, while the more defensive end markets like pharma and food and nutrition performed better. If we go in each of the end markets, these are the following comments that I can make. There was a strong momentum in pharma. Food and nutrition was positive in the US, offset by a weak APEC, while in EMEA food was broadly stable. For agro, the weather-related weakness in the US was partially offset by stable performance in EMEA. Personal care was stable in EMEA, but continued to see headwinds in both the US and APEC. And case and EMA were weak across the three regions, reflecting the subdued industrial output. And then finally, loops, metal working fluid, trends were a bit mixed across the regions. If we look at the regions in EMEA, the masses growth in life sciences was offset by weak industrial chemicals. While in the Americas, the shift in sentiment that started around Liberation Day continued throughout the year. Lastly, in APAC, the competitive pressures from increased supply from China persisted all year, and especially in Southeast Asia. In terms of inorganic growth, we have been pacing our M&A, and executing on only the most strategic acquisitions. Solchem in Nutraceuticals in Spain, S-Amid in India, Distona in Switzerland, and HF in Italy, creating by far the largest personal care distributor in Italy, providing skill benefits and synergies. It is worth noting that, regardless of our own appetite and capacity, the current down cycle is slowing the pace of acquisitions in the industry. We see that sellers have still high expectations and hesitate to be valued on current performance. The pace is expected to pick up again once the market inflicts. As we navigate the short-term market challenges, we are not losing sight of our strategy. Through our 25, we have executed different programs to realize our longer-term objectives. And I want to give you some high-level insights on how we are building and positioning for the future, as this will drive our performance in the coming years. As a reminder, our strategy of being the reference in the industry rests on three pillars. One, leadership in our focus and markets. Second, play a proactive role in consolidation, and this is not limited to M&A, but we also want to consolidate our position with customers and with principals, and strengthen our company and move as one Agile Azelis. Regarding the first pillar, leadership in our focus and markets, We are continuously refining our portfolio for each of these end markets to ensure we have the best products and service offerings for our customers. And this allows us to develop applications to expand the market for our principles products. And it goes beyond the mandates that we pitch for, it's also investments we make in our technical capabilities. For the second pillar, we have launched several commercial campaigns to strengthen our position. To create focus, we have appointed a global commercial director to lead these initiatives. We also conducted our first edition of a global customer satisfaction survey, where we received feedback from over 4,000 customers globally. Although we are very pleased with a score of 8.3 on 10, we derived several important improvement actions that have been incorporated in our programs. As part of winning with principles, we have continued to identify and build relationships with the winners of the future. Principles that can deliver us the best portfolio of innovative and high quality specialty chemicals and food ingredients. I am personally spending a considerable amount of time in strengthening our relationship with these principles. And as just mentioned, we continue to execute on the most strategic and compelling M&A projects. And then finally, for the third pillar, which is equally future-oriented, we are pursuing multiple internal programs to align the entire organization with our long-term objectives. In 25, we started several activities to reorganize so that the local operations can focus on accelerating commercial actions, while in parallel we are building efficient AI-enabled back-offices. We also accelerated the rollout of shared service centers in each region to maximize efficiency in certain functions like finance. And it is actually one of the things that will keep BORUS busy in the coming month. And to conclude, we have initiated several HR programs to build a best-in-class organization. I also want to give an update on our progress on what we refer to as strategic growth accelerator. The first accelerator is innovation. At Azelis, this is a critical business driver. Our mission is to help our customers to win and innovate, solving technical problems and creating innovative formulations for them. I'm very proud to say that in 25, Azelis won 8 industry innovation awards, reflecting once again our focus on innovation. The second accelerator is digital, where we invest significantly for both commercial and operational gains. On the commercial side, we now have over 200 customer portals live, generating more than 100,000 product views per month, with over 100,000 documents downloaded in the year. We also started rolling out version 3 of the principal portal for some of our largest suppliers. And internally, AI starts to be embedded in most of our processes. And as an example, the rollout of several custom designs AI tools, supported by our robust digital backbone, are already producing efficiency gains across the operations. And then the third accelerator is sustainability. And as you know, we launched Impact 2030 last year with some ambitious targets. Last year, our CDP rating was upgraded to A-, and reflecting our progress towards environmental stewardship and transparency. Along with our MSCI ESG AA rating, the CDP rating upgrade reflects our commitment to sustainability. And you can find more details in our integrated report, which is, by the way, already online. These are just a few highlights of our achievements that are very critical milestones for our long-term strategy. Now, with this, let me turn you over to Boris, who will take you through the financial results.

Thank you, Anna, and good morning, everyone. I'm pleased to be joining Anna in our first earnings presentation together, and I'm looking forward to meeting all of you in due course. As Anna outlined during the business update, Azelis delivered a very robust cash flow growth in a difficult market. I'll guide you through the impacts of the challenges on each of the headline metrics, starting with the group P&M. Azelis achieved a revenue of €937 million in the fourth quarter, bringing full-year 2025 revenue to €4.1 billion. This is a 1.3% year-on-year growth at constant currency. This performance was led by Life Sciences, who is plus 1.9%, while industrial chemicals grew at a modest plus 0.3%, both expressed at constant currency. Gross profit in the fourth quarter was €217 million, bringing full year to €968 million, corresponding to a margin of 23.6%. The margin contraction reflects the adverse mix effect across the group, notably in the traditionally high margin businesses within life sciences such as personal care and FNF. Adjusted EBITDA in the fourth quarter was 78 million euros, translating for the full year in 411 million euros. and in an adjusted EBITDA margin of 10%, a 170 basis point reduction versus prior year, weighted by the unfavorable impacts of higher costs at recently acquired companies and overall inflation in the organic scope of the group. However, Azeli successfully implemented its cost-saving plans and delivered more than the 20 million initially announced to offset part of these headwinds, resulting in a full-year conversion margin of 42.4%, the contraction of about 3 percentage points versus the strong level of prior year. Further down in the P&L, the net profit ended at 113 million euros for 2025, a 37.6% decline versus prior year, mostly driven by non-cash items that I will comment just after closing first on the breakdown of our growth. Acquisitions delivered plus 2.9% revenue growth, more than offsetting a modest 1.6% organic decline, mostly in APAC with ongoing competitive pressures in the region and in the Americas with a soft market demand. However, the global strong foreign exchange headwinds of minus 3.8% impacted the total reported revenue that decreased by 2.4% versus prior year. The 6% decline in growth profit was primarily driven by organic contraction, mostly in APAC, with minus 11.6%, reflecting competitive pressure both on volumes and prices from another supplied market. In America, the organic gross profit decline was limited to minus 6.5% due to weakness in traditionally high-margin businesses like F&F and personal care, as well as dilution from Latin America. EMEA, in contrast, grew by plus 1.8%, thanks to a plus 6% growth from M&A offsetting a modest adverse mixed effect impact, driving organized gross profit down by 2.5%. Consequently, the group adjusted EBITDA ended behind prior year by 12.7%. In APAC, tight cost control resulted in adjusted EBITDA decline being broadly limited to the impact of the gross profit contraction. Overall, the results of the group reflect a softer demand environment with negative product and geographic mixed effects, broader cost inflation and adverse foreign exchange, against which the group mitigated in part with cost savings. Now, let's step back and look at the overall pictures by region. The MEA, which makes up 46% of the group, grew its revenue by plus 4.4% to $1.9 billion, in 2025, supported by acquisitions and stable organic revenue, though partially offset by negative impact from foreign exchange. Gross profit benefited from the stock bank growth and reached 471 million, or a plus 1.8% growth versus prior year. However, adjusted EBITDA decreased by 4.7% to 218 million euros, resulting in a 110 basis point contraction in the adjusted EBITDA margin, pulled down by the product mix development within the segments and dilution from recent acquisitions. Consequently, the conversion margin that remains strong at 46.2%, contracted by 314 basis points versus prior year. In the Americas, which make up 35% of the group, full year revenue was 1.4 billion euros or 6.6% behind last year. reflecting a modest 2.0% organic decline and a stronger 4.7% FX headwind. As it is observed to witness across most end markets in the region, as customers remain unwilling to meaningfully build up stock given uncertain demand outlook. In life sciences, pharma and food and nutrition were strong throughout the year, partially mitigating the road-based demand softness in other end markets in the segment. Performance in industrial chemicals remained weak, with softer volume notably in case. Gross profit in the region decreased by 11.2% to €340 million, and the adjusted EBITDA decreased to €156 million, resulting in a 147 basis point margin contraction to 10.9%, with dilution from lower EBITDA margin in Latin America. Conversion margin remained at a healthy level of 45.8%, but conceding 367 basis points versus prior year. In Asia Pacific, which makes up 19% of the group, full year revenue was 805 million euros, or 9% versus prior year, on the back of a 4.3% organic contraction, compounded by a strong 5.6 negative impact from FX translation. The group's businesses saw pressures across most end markets in both life sciences and industrial chemicals, as tariff-related uncertainty continues to wait on demand and pricing that remain under pressure in certain product categories due to excess supply, especially in Southeast Asia. Gross profit in the region was 157 million euros, 15% lower than prior year. The strong cost control in the region, translating into an adjusted EBITDA decline of a comparable 14.7%, and a reinforced conversion margin of 47.9%, a 33 basis point expansion during the year. Now, let me come back to the net profit evolution. Following the EBITDA downtrend, the operating profit declined by 19%, weighted down by additional non-cash one-item accounting impacts. Looking at financial expenses, as it has successfully reduced its borrowing costs and other financial expenses by €25 million, corresponding to a 140 basis point reduction versus prior year. However, net of the reduced financial income mostly coming from lower non-cash favorable accounting impacts of acquisition related liabilities revaluation the net financial expenses slightly increased by 8 million waiting on the profit before tax ending at 175 million euros or minus 32 percent versus prior year Finally, the group effective tax rate for the year increased to 35.3% versus 26.0% in 2024, impacted by the lower benefit from non-taxable fair value adjustments on acquisition-related liabilities, the mix of contribution from geographies with higher tax rates, and the impact of unrecognized current tax losses. All these resulted in a net profit of $113 million for the year versus $189 million in 2024. Moving on to cash. Networking capital to sales was once more reduced and reached 14.1% at the end of 2025 versus 15.3% at the end of September 2025 and 15.9% at the end of 2024. This reduction reflects our continuous focus on working capital management and cash generation, as we can also see in the reduction in DIO from 57 to 51 days. It is important to note that inventory management is critical for the business and the financial element at Azelis, where we hold stocks strategically, both for our customers and our principals. Our inventory optimization program is carefully executed, as an example by driving down slow-moving stocks. Overall, this relentless focus on efficient working capital management resulted in a reduction in total working capital from 58 to 51 days of sale. And along with cost control, this resulted in a strong $442 million free cash flow generated, or an increase of plus 29% versus prior year. This performance corresponds to a cash conversion expanded to 106% of adjusted EBITDA, a testimony to our asset-light, resilient and counter-cyclical cash-generating business model, and our focus on operational discipline. Now let's see how this is translating into our net debt evolution. A strong free cash flow delivery in 2025 net of tax cash out, interest, and a stable dividend payout enabled Acelis to self-finance its M&A strategic investments. These also included about 100 million euros in deferred payments from previous acquisitions. Overall, the net debt remained fairly stable, reaching 1.6 billion euros at the end of 2025 versus 1.532 billion at the end of 2024. Now, looking at the leverage ratio, Despite a rather stable net debt, given the EBITDA contraction in 2025, the leverage ratio ended up at 3.3x at the end of the year, versus 2.9x at the end of 2024, and slight reduction after the 3.4x of September 2025 end. With this in mind, let me conclude by giving you some clarity about the general framework of our capital allocation. As Anna mentioned at the beginning of the presentation, we have sharpened our capital allocation priorities to build back headroom in our balance sheet. This will be largely enabled by our strong track record of EBITDA to free cash flow conversion, steadily over 90% for a number of years. We don't expect any meaningful change in this level of cash conversion, as we will continue to be disciplined in managing our working capital, And we will continue to invest for growth via capital expenditures in our organic scope. This will include investments in our lab network, in our product and service portfolio, in our commercial programs, and in our digital infrastructure. Net of tax and interest expense payments, of which we also remain vigilant, any excess cash will be deployed in priority. Four, shareholder remuneration via dividend according to our policy. deleveraging as necessary to maintain our BBB plus credit rating. Value creative acquisitions that could also include the acquisition of Azeli's own shares subject to the same returns criteria. A high level of discipline in our cash generation and cash deployment are essential to maintain a healthy balance sheet and maintain the ability to seize attractive and affordable opportunities to continue growing our business. With that, let me give it back to Anna for some words on the outlook.