Azelis Group Nv

Good day and welcome to Azalis' first half 2026 earnings presentation. Today we have Anna Bertona, Group CEO, who will give an update on our operating progress year-to-date. Boris Cambon-Lalanne, Group CFO, will present the financial results and then Anna will say a few words on the outlook. After their presentations, we will open the call 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. We will make a recording of this call available on our website later today. I will now hand you over to Anna.

Thanks, Pam, and good day to everyone. Thank you for dialing in today. We realize it is a very busy day for corporate earnings, and many of you are probably one report away from your summer holidays, so we will be sharp and efficient and start right away. As usual, I will kick off with the most important messages based on our performance in the first half of the year. And let me start by saying that we are proud to have delivered positive group organic revenue growth for the first time in more than a year. The 4% organic growth achieved in the second quarter reversed the decline in Q1, resulting in stable organic revenue for the first half of 26. These results demonstrate our agility in capturing growth in a volatile environment, building on our strong reputation with our customers and principals. The stable margins achieved during the first half of the year are another accomplishment and a testament to our team's commitment to balancing the need of all our stakeholders. Delivering this outcome while navigating raw material volatility, mixed demand patterns and ongoing supply chain challenges requires both discipline and execution excellence. This consistent and disciplined approach has translated into strong earnings growth with Q2 EBITDA increasing by 12% versus prior year and 23% sequentially. We are pleased with this performance, which reflects both the quality of our business model and the dedication of our employees across the group. Now let's have a look at the drivers of these results on the next slide. In the first half of the year, we generated revenue of 2.2 billion, more than 3% higher than prior year in constant currency. This was driven by 3% contribution from acquisitions supported by stable organic revenue growth. We achieved adjusted EBITDA of 233 million and generated cash of 122 million, even as we invested a bit more in working capital to support the growth in the business, especially in the second quarter. and let me walk you now through the drivers of our organic revenue. Momentum varied across regions with APEC and Americas delivering strong performance while EMEA remained challenging also due to the tougher comps. The impact of broad-based price increases vary across end markets and across regions. As said APEC, Growth substantially and remained the largest driver of our positive organic revenue performance, accelerating from 4% in Q1 to 13% in Q2. And while the region benefited from some pre-buying in the beginning of the quarter, we believe that the strong performance was also the result of our team's commercial focus and strengthening of our position. Second, the green shoots that we saw in Life Sciences in the Americas in Q1 are taking root. with continued recovery in personal care and sustained solid performance in food. In EMEA, we are starting to see a recovering case, both in terms of volume and price, supporting the industrial chemicals performance in that region. While we are building on this positive momentum, we still face challenges in some markets. In EMEA, demand in general remains soft, especially in life sciences, although the pressure is somewhat easing. We saw a smaller year-on-year organic rate of decline of 5% in Q2 compared to the 9% decline in Q1. In the region, we continue to see competitive pressure in flavors and fragrance. And in addition, our agribusiness was impacted by the exceptionally dry weather. In the US, we recorded weak volumes in case, only somewhat offset by positive pricing. And the weak volumes were partly due to supply constraints and some key principles during the period. And lastly, the weak macroeconomic situation in Brazil and Mexico is reflected in overall weakness in our business there. In summary, we are continuously strengthening our position, building on the momentum in markets with positive dynamics and focusing on improving performance in more challenging markets. I will now hand you over to Boris to take you through our financial performance in more detail.

Thank you Anna and good morning everyone. As Anna mentioned during the business update, Zelis delivered an improved performance in the first half 26 with a return to organic growth while maintaining strong costs discipline. Let me take you through the Group P&L before we move to the regional performance. Please note that as I guide you through the P&L and the regional performances over the next two slides, I will be referring to prior year or sequential comparisons in constant currency. We clearly provide the impact of FX alongside organic and M&A in the headline growth table on slide 10. In the first half year, Azelis delivered a revenue of 2.2 billion euros, representing year-on-year growth of 3.2%. Growth was broad-based across both life sciences and industrial chemicals, with life sciences growing at 3.8% and industrial chemicals at 2.1%. Gross profit in the first half year was 524 million, up 4.3%, and corresponds to a margin of 24.2%. The 28 basis point margin improvement reflects positive pricing momentum across some end markets, supported by a favorable inventory position, partially offset by the negative mixed effect from higher growth contribution from APAC. Adjusted EBITDA in the first half year was 233 million euros, An increase of 2.6% versus the prior year, supporting a broadly stable adjusted EBITDA margin of 10.7%. As I indicated during our Q1 earnings call back in April, the 2025 performance included some favorable one-off items, such as the provisions for the variable remuneration that had to be adjusted, especially in Q2 last year, while the company faced adverse performance. The impact of the improving trends in 2026 is therefore reflected in the change in provisions versus prior year as highlighted in the chart. Normalized from these one-off items and the FX, the H1 2026 EBITDA growth would then be plus 12% versus same period last year. This performance was derived from organic gross profit growth as well as from the full benefit of the cost-saving actions announced in April 2025 representing a plus 11 million euro improvement and well aligned with the 20 million euro planned run rate. M&A contributed another 10 million versus H1 2025 and the conversion margin remained at a healthy 44.4%, showing a sequential improvement from 42.4% in Q1 26. Let's now move to the overview of the regional performance on the next slide. In EMEA, which accounts for 46% of the group, revenue in the first half year was 990 million, representing a year-on-year growth of 1.7%, driven by a growth contribution from acquisition of 6.3%, offsetting organic decline of 4.6%. Growth profit was 257 million, implying a growth profit margin of 25.9%. This 52 basis point gross margin expansion reflects the positive pricing environment offsetting continued volume softness. Adjusted EBITDA of 127 million resulted in an alleged EBITDA margin of 12.9% and a 31 basis point margin expansion during the period. Turning to the Americas, first half revenue grew 2.3% to 748 million euros. The region, which accounts for 34% of group revenue, delivered entirely organic growth led by 3.4% increase in life sciences, while industrial chemicals grew 0.9%. Gross profit in the region increased by 3.9% to €182 million, corresponding to a gross profit margin of 24.3%, which represents a 40 bps expansion. These reflects broadly positive pricing momentum in industrial chemicals in North America and improved performance in Latin America. Adjusted EBITDA decreased by 1.1% to 83 million euros, resulting in EBITDA margin of 11.1%. This slight adjusted EBITDA margin contraction was largely driven by a higher change in provisions, reflecting the improving business performance. In Asia-Pacific, which represent 20% of the group, Revenue in the first half year increased by 8.2% compared to the prior year of €428 million, also entirely driven by organic growth. The organic revenue increased by 8.2% in life science and 8.0% increase in industrial chemicals versus prior year. Gross profit in the region increased by 7% to €86 million, corresponding to a gross profit margin of 20%. The 24 bps contraction reflects the continued weakness in Australia and New Zealand, partially mitigated by volume growth as well as a positive pricing in most of N markets in the rest of the region. Adjusted EBITDA increased by 8.2% to 43 million euros with adjusted EBITDA margin stable at 10.1%. The strong cost discipline resulted in a solid conversion margin of 50.4%. Overall, FX remained a significant headwind, particularly in Americas and APAC, with stop-line impacted respectively by negative 3.9% and negative 6.2% versus prior year on revenue. Across the group, the FX headwind drove gross profit down by negative 2.6% and EBIT down by minus 3.4%. I will leave you to review this slide at your convenience. We provide this table to give you the detailed gross breakdown of the key metrics between organic M&A and FX. And let me now take you through the net profit on the next slide. In line with the EBITDA development during the first half, operating profit was €188 million. This compares to €191 million in the prior year. Looking below the operating line, the net financial expense decreased by almost 6% year-on-year to €66 million. This improvement was mainly driven by a significant reduction of interest expense and other financial costs, despite the one-off refinancing costs linked to the bond refinancing executed in Q1 this year. As a result, profit before tax increased slightly to €122 million compared to €121 million in the prior year. Tax expenses for the first half was €36 million, corresponding to an effective tax rate of 29.4%, broadly stable compared with 29.3% in H1 2025, and improving versus the 35.3% at the end of the year 2025. Overall, despite the slightly lower operating profit, the lower financing costs enabled the Group to deliver a slight increase in net profit to €86 million. Moving on to cash. As business returned to growth during the first half, the net working capital, the revenue, increased to 16% at the end of June, compared to 14% at the end of March and also December. But similar level at the same time last year. Comparing with December 2025, DSO and DPO almost equally increased from 38 days to respectively 51 and 50 days, while DIO increased from 51 to 58 days. Inventory remains a strategic asset for Azelis, enabling us to ensure high service levels for both our customers and principals while maintaining a disciplined approach to inventory optimization. In absolute terms, These translated to a change in net working capital of 107 million euros. Deducted from an adjusted EBITDA of 254 million and together with 20 million of lease payments and 5 million of capital expenditure, the free cash flow stood at 122 million euros for the first half. This corresponds to a free cash flow conversion ratio of 52.3%. compared to 63.8% in the prior year, reflecting the temporary investment in working capital to support the return to organic growth. And we expect free cash flow conversion to improve as working capital normalizes over the course of the year. Now, before I hand it back to Anna, let's close on our net debt position. At the end of June 2026, the net debt remained broadly stable at 1.6 billion, resulting in a stabilized leverage ratio of 3.4x. While EBDA growth was more modest, our disciplined capital allocation and continued cash generation enabled us to maintain a stable leverage profile, and we continue to work at bringing down the leverage ratio by the end of the year. Overall, our resilient cash generation and ample liquidity provide us with the financial flexibility to invest in growth and support our long-term strategy. And with that, I'll hand it back to Anna for the closing remarks.

Thanks, Boris. As you can all appreciate, we are operating in an environment where volatility has become the norm rather than the exception. The geopolitical developments, trade dynamics, shifting customer sentiments continue to create uncertainty, making short-term trends difficult to predict. At the same time, this environment reinforces the importance Thank you very much. Thank you very much. and continuing to generate strong cash flow. Based on our performance in the first half of the year and the momentum we have seen in the second quarter, our objective is to deliver positive everyday growth for the full year while continuing to strengthen the long-term foundations of our business. I will close the formal presentation with that and open the floor for Q&A. Operator, you can open the lines.

If you would like to ask a question, please signal by pressing star 1. We will pause for a moment to assemble the queue. Your first question comes from Ayanna Shihani from Varanasi from Goldman Sachs. Your line is open.

Hi, good morning. Thank you so much for taking my questions. Just a couple for me please. A very healthy improvement in the second quarter. I just want to check if you could give some color on 3Q trading, whether you've seen something similar to 2Q, maybe a little bit better or worse. Just some color there would be really helpful, please. And the second question is, if we look at the gross margins for 2Q, there was a mention that it was supported by favorable inventory position. So I just want to get a sense of how much could potentially unwind on gross margins in the third quarter. Thank you for your questions. For the Q3 trading, we see the order books continuing in a positive way.

That's why we are positive on the outlook. But with the caveat that we are uncertain about what geopolitical situation might bring us. And that's why we said if the things continue in the market as they do, then we aim for a growth of our EBITDA by the end of the year. And that's based, of course, on the past performance, but also on the order book that we have currently in our hands. On the margin, yeah, of course, as you know, we benefited like it's normal in distribution from stock, which is around two to three months, meaning we had that at a lower price, prices went up, so we benefit from that. That benefit will ease out. We have at the moment no indications of large price increases or decreases From our principles to come, they have been passed through in the course of Q2. So in that respect, there's no change to be expected on the pricing side.

I understand. Thank you.

Your next question comes from Dimitra from ING. Your line is open.

Yes. Good morning. Thanks for taking my question, guys. First, given your relative exposure to the Middle East in EMEA, can you comment on the current conditions and outlook for the region and could you give maybe some indication on how EMEA performs relative to continental Europe in terms of organic growth in Q2? If that's possible. And then secondly, your competitor made a remark on supplier mandate wins as a key driver for growth in Q2, while also seeing increased outsourcing trends at suppliers. Can you comment on the dynamic regarding those two topics at your end? Thanks.

Yes, of course, and good morning. On MEA, indeed, we have a larger exposure to that. It's normally, I would say, a very interesting region With nice growth potential. In Q1, they had a more difficult start. But during the Q2, we saw their performance improving. And we see that this is continuing. So that will be helpful if it continues indeed for the rest of the year. It's going to be helpful for the performance of EMEA. Suppliers, we have many strong relationships with our principals and we always work on expanding our footprint with our strategic ones and actually in any given year our net wins are always more than our losses and also this year that's the case. We have some nice conversations ongoing and I see no reason why this year should be different from any other year. The trend in outsourcing continues. As you know, we talked already in the past that sometimes in adverse market circumstances, you see opposite, I would say, movements from principals. You see the ones that are restructuring their sales force and move more to distribution. Then you see also the ones that for, I would say, a shorter period of time, Take back some accounts to serve directly. That normally doesn't last that long as these customers are used to a service level that they don't get from the principal. So overall, I would say these positive trends are there and continue.

Thank you very much.

Your next question comes from the line of Eric Wilmar from Kempen. Your line is open.

Hi, good morning. I actually also wanted to dig a little bit deeper on that topic regarding EMEA in the Middle East. Because despite the 100 basis points year-on-year and sequential gross margin improvement you are showing in the region, so in EMEA, I believe you reported a negative 1% organic sales growth for the same region. So as such, I was wondering if you could perhaps decompose this 1% number. I believe in EMEA, the Middle East and Africa represent about 15% of sales. And you also highlighted software life sciences performance in EMEA, which typically carries a higher gross margin. So to what extent is this negative 1% organic sales growth and better EMEA gross margins a kind of counterintuitive Perhaps driven by soft performance in MIA, which may carry a lower gross margin. I'm just trying to understand a bit better these two dynamics and indeed also in light of your pair that reported yesterday. Thank you.

Yeah, there's a couple of drivers behind the EMEA performance. First of all, let's not forget the comms are tough. And yeah, I'm managing Azelis and not our peers, so don't comment so much on their performance, but we have tough comms. And there's, I would say, two other drivers that negatively impacted the Our EMEA performance. One is we have a large business in FNF and there's quite some price pressure at the moment there. And the other thing that is also a negative impact is our AES, our agro business. I know you're also sitting in Europe, so it's probably no surprise we had an exceptionally dry weather. And this dry weather is not favorable for our agro business. And agro business is, by the way, for us also a We are a high margin business, so we feel that. I think these are the biggest, I would say, points that we can mention.

Understood. Thank you.

Your next question comes from the line of Luc Van Beek from the group PageCam. Your line is open.

Yes, good morning. Two questions. First of all, can you give a bit of a comment on the breakdown between volumes and price? I know that you cannot give an exact figure, but what are the volume trends when you try to exclude the price impact? And secondly, you commented that the inventories are strategically high service levels, and obviously customers are more and more relying on just-in-time. Do you expect them to remain structurally higher, or Do you see room for improvement from current levels?

Thanks for your question. Let me take the question on the price and volume. So first, there is no one answer across all the markets. It varies across the markets. I can highlight, for example, that pricing has been supportive, especially in industrial chemicals. Overall, in Q2, Most of the gross industrial chemical was indeed price driven and I would say life science was more mixed between volume and price. When it goes to inventory, your question about inventory? Yeah, I mean I think we highlighted that in Q1 already that we may have to increase inventory should the sale goes up and also if customers started to do pre-buy, we didn't see significant pre-buys as we We expected but definitely we had to build on inventory to get ready for Q3 and Q4 and I highlighted the order book was well oriented and that is just following this trend.

Thank you. Your next question comes from Anil Chenoy from Barclays. Your line is open.

Yeah, hi. Good morning, and thank you so much for taking my questions. Just the two, please. The first one is on your cost structure. If you could talk a little bit about your costs, please, because I'm asking because it's been a while since EBIT A organic growth has outperformed gross profit organic growth. So I was just wondering, even going forward, Can we expect EBITDA growth to be higher than gross profit organic growth? In other words, do you see any increase in cost structure going forward, or do you think it will remain flat for the next two or three quarters? So that's my first question. And the second question is on your guidance. First of all, thank you for giving guidance this time. It makes our lives easier. If you could just give us some comments on the segments for your guidance. I mean, when you say you expect EBIT A to grow in 2026, is it more in life sciences or is it more in case? And also, which regions do you see more growth in?

Thank you. Let me take these two questions. Thanks for your questions. Let me start with guidance. So we give an indication of how we expect the year to end. and that's already I think some improvement in clarity on our performance expected and I think we won't give any further details by segments. On the cost structure, sure we are always managing our costs very Delicately, I would say. And we have to manage also the investments required sometimes when you see your top line picking up. And that's what is happening, as you saw in Q2. So while we have printed another quarter of savings in our announced plan back last year in April 2025, Just as a reminder in my slide I highlighted in the bridge I show you an 11 million euro for the first half of structural savings in line with the previous announced plan. We are continuing to explore optimization in our core structure. We're doing that in the back office and we are doing that thanks to our IT structure and digital capabilities in our frontline to help our frontline, our commercial folks to be more effective in what they do with a clear mindset on optimizing the costs. So you asked the question whether our EBITDA growth should be higher than gross profit. What I can tell you is all we do will have an impact. We still have to face inflation. We're trying to be better than inflation, but it's a constant focus that we have in Azelis.

Thank you.

As a reminder, if you wish to ask a question, Please press star followed by 1 on your telephone and wait for your name to be announced. That is star 1 to ask a question. And your next question comes from the line of Philip Nagato from Kepler Chevro. Your line is open.

Hi, good morning. Thanks for taking my questions. I have a few left. First of all, on the Capex, I saw the Capex on the first half year was significantly down compared to last year. Is this simply timing or what level of Capex should we assume for the full year? I also had a question on the financing costs. So after excluding the roughly 10 million refinancing costs and the value effects in H1, what's the run rate that we should be assuming for the second half of the year? And finally, I was also wondering, given working capital movements, has the utilization of non-recourse factoring changed versus last year?

I will take again the questions. Thanks for them. CapEx down versus last year. It's really related to timing. We don't have a regular CapEx spend. So it really depends on the needs. So don't expect to be that as a trend. It's just phasing. Financing costs. Indeed, in the first half, you see some reduction. Overall, as a reminder, the refinancing we did earlier this year saves us 6.5 million euros of borrowing costs, of coupons costs. And that's what you should expect, half of that, of course, in the second half in the P&L. Regarding factoring, we are usually very delicate in the use of factoring. It's a relatively inexpensive way to obtain liquidity when needed and also something that we mostly do in Europe. There is no fundamental change in the way we use that and we will be keeping the rate of usage about 25% of our receivables. which is, if I'm not mistaken, Brodie Stable, which is what we've been doing so far.

Okay, thank you. As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. That is star one if you wish to ask a question. There are no further questions. Apologies. Your next question comes from the line of Anil Shenoy from Barclays. Your line is open.

Hi. Good morning again. Sorry, just a quick follow-up, please. Could you sort of give us some color on what kind of pre-buying you've seen in Q2? I may have missed it, but did you use the word significant to mention the pre-buying in Q2, or was it Was it meaningful? That's all I'm trying to ask.

No, it is very limited, actually. We saw a bit in APEC, but for the rest, I would say very, very limited.

Great, thank you.

There are no further questions on the conference line. We have come to the end of this call. I will now hand over to Chief Executive Officer Anna Bertona for her closing remarks.

Thanks. I would like to close the call in which we gave an update on our progress and some reassurance on why we remain confident in the medium to long-term potential of our market. We hope to see you at our annual lab tour at the end of September and there we plan to provide more details on our longer-term plans and also on our digital developments. Thank you for your continued interest in Azelis and I also would like to thank our teams around the world for their dedication and commitment in delivering these results. We wish you a relaxing and enjoyable summer.