Azelis Reports Solid Margin Progress for 9M 2023

ANTWERP, Belgium–(BUSINESS WIRE)–Regulatory News:

Azelis (Brussels:AZE):

9M 2023 Highlights

• Revenue of EUR 3.2bn, representing year-on-year growth of 2.3% (6.3% on a constant currency basis) as M&A revenue contribution offset organic revenue decline and impact from F/X translation. In Q3, group revenue declined by 4.6% year-on-year to EUR 1.0bn (an increase of 3.1% on constant currency).

• Gross profit of EUR 760.1m represents growth of 3.3% compared to the prior year. Gross profit margin was 23.9%, reflecting a 22 bp step-up from the prior year, supported by positive mix effects across our business.

• Adjusted EBITA of EUR 375.2m, representing growth of 4.2%, and a 22 bp margin expansion from the prior year. Conversion margin expanded by 45 bp to 49.4%, underscoring the resilience of our business model.

• Azelis generated free cash flow of EUR 389.4m, representing a 41.5% year-on-year increase. Cash conversion ratio for the period was 102.7%, reflecting the defensive, cash-generative nature of our business.

• Leverage ratio was 2.6x at the end of September 2023, stable compared to June and up 0.3x compared to the prior year.

• Six acquisitions were completed during the period, representing combined prior year revenue of over EUR 370m. Two further acquisitions with combined prior year revenue of over EUR 40m announced.

• The management is confident of delivering at least 10-15 bps of adjusted EBITA margin expansion for the full year. Revenue is expected to be slightly higher than the previous year, with M&A revenue contribution offsetting the impact from ongoing macroeconomic challenges, significant F/X headwinds, and the Group’s portfolio optimization program.

(in millions of €)		9M 2023		9M 2022		Reported Change		Constant Currency
Life Sciences		1,965.4		1,860.8		5.6%		9.5%
Industrial Chemicals		1,214.2		1,246.9		-2.6%		1.4%
Revenue		3,179.6		3,107.7		2.3%		6.3%
Gross Profit		760.1		736.1		3.3%		7.1%
Gross Profit Margin		23.9%		23.7%		22 bp		19 bp
Adjusted EBITDA1		400.0		379.8		5.3%		9.8%
Adjusted EBITDA Margin		12.6%		12.2%		36 bp		42 bp
Adjusted EBITA1		375.2		360.1		4.2%		8.7%
Adjusted EBITA Margin		11.8%		11.6%		22 bp		28 bp
Conversion Margin1		49.4%		48.9%		45 bp		79 bp
Free Cash Flow1		389.4		275.1		41.5%
FCF Conversion ratio1		102.7%		75.7%		2699 bp
Net Working Capital / Revenue normalized for acquisitions1		15.3%		15.9%		-62 bp
Leverage Ratio1		2.6		2.3		13.5%

1 Refer to the definitions of Alternative Performance Measures in the 2022 Annual Report

Comment from Dr. Hans Joachim Müller, Group CEO: “I am very proud of the unwavering commitment of the entire Azelis team to support our principals and customers during this challenging period. I am equally grateful for our teams’ focus on protecting our profitability as we navigate the current pressures in the industry. Our results for the first nine months of 2023 reflect the resilience of our business model, as well as the dedication of our colleagues to continue delivering for our stakeholders.

Based on our performance year to date, I remain confident that we will achieve at least 10-15 bps of adjusted EBITA margin expansion for the full year 2023. Revenue growth for the full year is expected to come in below the average annual growth guidance of 8-10% due to the impact from the challenging macroeconomic conditions, significant F/X headwinds, and our portfolio optimization program. Over the medium-term, we remain confident that the Group will achieve its mid-term guidance of generating average annual revenue growth of 8-10%, supported by a combination of organic growth and M&A.

We remain focused on executing on our growth plans, and we continue to see exciting opportunities – organic and inorganic – to deploy capital and generate value, and we remain committed to the company’s long-term strategy of becoming the reference innovation solutions provider in specialty chemicals and food ingredients distribution.”

Results presentation by management

The management of Azelis invites you to a conference call and live webcast at 10:00 CET to discuss the operating trends and outlook for the remainder of the year. Please click here to view the webcast.

Operational Review

Headline results

(in millions of €)		9M 2023		9M 2022		F/X Translation		M&A Growth Contribution		Organic Growth		Total Growth
EMEA		1,378.7		1,371.0		-4.6%		7.4%		-2.2%		0.6%
Americas		1,115.6		1,198.9		-2.2%		8.7%		-13.4%		-6.9%
Asia Pacific		685.3		537.8		-6.1%		31.1%		2.4%		27.4%
Group Revenue		3,179.6		3,107.7		-3.9%		12.0%		-5.7%		2.3%
EMEA		367.3		330.7		-4.6%		8.6%		7.0%		11.1%
Americas		262.2		300.7		-2.2%		6.5%		-17.0%		-12.8%
Asia Pacific		130.6		104.6		-6.0%		27.6%		3.2%		24.8%
Group Gross Profit		760.1		736.1		-3.8%		10.4%		-3.3%		3.3%
EMEA		195.3		170.9		-5.3%		7.6%		12.0%		14.2%
Americas		146.6		168.5		-2.5%		5.6%		-16.1%		-13.0%
Asia Pacific		59.8		43.0		-6.5%		34.2%		11.3%		39.0%
Adjusted EBITA1		375.2		360.1		-4.5%		10.3%		-1.6%		4.2%

1 Total Adjusted EBITA includes Holding companies

EMEA

(in millions of €)		Q3 2023		Q3 2022		Reported Change		9M 2023		9M 2022		Reported Change		Constant Currency
Revenue		434.3		454.6		-4.5%		1,378.7		1,371.0		0.6%		5.2%
Gross Profit		114.8		106.1		8.2%		367.3		330.7		11.1%		15.7%
Gross Profit Margin		26.4%		23.3%		309 bp		26.6%		24.1%		252 bp		252 bp
Adjusted EBITDA		58.8		53.6		9.8%		205.4		178.8		14.9%		20.2%
Adjusted EBITDA Margin		13.5%		11.8%		176 bp		14.9%		13.0%		186 bp		195 bp
Adjusted EBITA		55.1		50.9		8.1%		195.3		170.9		14.2%		19.6%
Adjusted EBITA Margin		12.7%		11.2%		148 bp		14.2%		12.5%		170 bp		179 bp
Conversion Margin		48.0%		48.0%		-2 bp		53.2%		51.7%		147 bp		187 bp

EMEA revenue increased by 0.6% (5.2% in constant currency) to EUR 1.4bn in 9M 2023, with organic revenue declining by 2.2%, due to lower demand in the broader market compared to the very strong growth in the prior year, especially in Industrial Chemicals. Revenue growth contribution from acquisitions was 7.4%, while FX translation was a 4.6% headwind during the period. In 9M 2023, we completed three acquisitions in EMEA, representing combined annual revenue of over EUR 60m in 2022.

Gross profit increased by 11.1% year-on-year (15.7% in constant currency) to EUR 367.3m in 9M 2023, representing a 252 bp expansion in gross profit margin to 26.6%, largely due to positive mix effect in the business. Adjusted EBITA grew 14.2% to EUR 195.3m, resulting in a 170 bp margin expansion to 14.2%, and a 147 bp increase in conversion margin, reflecting continuous efficiency improvements.

Americas

(in millions of €)		Q3 2023		Q3 2022		Reported Change		9M 2023		9M 2022		Reported Change		Constant Currency
Revenue		380.7		436.0		-12.7%		1,115.6		1,198.9		-6.9%		-4.7%
Gross Profit		85.9		103.8		-17.2%		262.2		300.7		-12.8%		-10.6%
Gross Profit Margin		22.6%		23.8%		-124 bp		23.5%		25.1%		-158 bp		-157 bp
Adjusted EBITDA		49.5		63.3		-21.9%		154.8		175.1		-11.6%		-9.2%
Adjusted EBITDA Margin		13.0%		14.5%		-153 bp		13.9%		14.6%		-74 bp		-70 bp
Adjusted EBITA		46.6		60.6		-23.2%		146.6		168.5		-13.0%		-10.5%
Adjusted EBITA Margin		12.2%		13.9%		-167 bp		13.1%		14.1%		-92 bp		-87 bp
Conversion Margin		54.2%		58.4%		-419 bp		55.9%		56.0%		-13 bp		3 bp

Revenue in the Americas was EUR 1.1bn, representing a year-on-year decline of 6.9% (-4.7% in constant currency). The group’s activities in the Americas reported a 13.4% organic revenue decline due to lower end-market demand, especially in Industrial Chemicals. The results in the region were also impacted by the current weakness driven by competitive pressures in South America¹. The organic revenue decline and the 2.2% negative impact of FX were partially mitigated by the 8.7% revenue growth contribution from acquisitions. During the period, we completed two strategic acquisitions in the Americas that generated combined annual revenue of over EUR 150m in 2022.

Gross profit in the region declined by 12.8% to EUR 262.2m, resulting in gross profit margin of 23.5%. The contraction was driven by the challenging trading environment, as well as dilution from recent acquisitions in South America. During the period, adjusted EBITA declined by 13.0% to EUR 146.6m, with adjusted EBITA margin of 13.1%. Conversion margin was broadly stable at 55.9% despite the continued pressures in the region.

Asia Pacific

(in millions of €)		Q3 2023		Q3 2022		Reported Change		9M 2023		9M 2022		Reported Change		Constant Currency
Revenue		223.4		198.1		12.8%		685.3		537.8		27.4%		33.5%
Gross Profit		42.3		37.5		12.6%		130.6		104.6		24.8%		30.8%
Gross Profit Margin		18.9%		19.0%		-3 bp		19.1%		19.5%		-39 bp		-43 bp
Adjusted EBITDA		20.7		16.1		28.1%		65.6		47.6		37.8%		44.2%
Adjusted EBITDA Margin		9.3%		8.2%		111 bp		9.6%		8.9%		72 bp		74 bp
Adjusted EBITA		18.6		14.4		29.2%		59.8		43.0		39.0%		45.5%
Adjusted EBITA Margin		8.3%		7.2%		106 bp		8.7%		8.0%		73 bp		76 bp
Conversion Margin		43.9%		38.2%		563 bp		45.8%		41.1%		468 bp		489 bp

Revenue in APAC increased by 27.4% to EUR 685.3m in 9M 2023, with the growth in Southeast Asia and contribution from recent acquisitions mitigating the continued weakness in China. Organic growth was 2.4%, and revenue growth contribution from acquisitions was 31.1% during the period. FX headwind represented a 6.1% drag on revenue growth. In 9M 2023, Azelis completed one acquisition in the region, which had revenue of over EUR 160m in 2022.

Gross profit in the region grew 24.8% to EUR 130.6m, representing gross profit margin of 19.1%, reflecting a 39 bp dilution due to negative mix effects from recent acquisitions. Adjusted EBITA increased by 39.0% to EUR 59.8m, representing a 73 bp margin expansion to 8.7%, driven by the benefits of our growing scale. This resulted in a 468 bp expansion in conversion margin to 45.8%.

Holding companies

		Q3 2023		Q3 2022		Reported Change		9M 2023		9M 2022		Reported Change		Constant Currency
Adjusted EBITA (in millions of €)		-8.4		-8.5		-0.8%		-26.4		-22.4		18.0%		18.0%
As % of Group Revenues		-0.8%		-0.8%		-3 bp		-0.8%		-0.7%		-11 bp		-8 bp

Operating costs at Azelis’ holding companies, which relate to the Group’s non-operating entities as well as the head office in Belgium, were EUR 26.4m in 9M 2023, compared to EUR 22.4m in the previous year. Relative to revenue, operating costs at the holding companies increased slightly to 0.8%, mainly driven by investments to support the Group’s digitalization strategy, as well as salary inflation.

Outlook

Azelis’ strategy of driving growth is underpinned by a continually strengthening lateral value chain, supported by continuous investments in innovation capabilities and digitalization, as well as a commitment to sustainability to create long-term value. In line with this, the management aims to generate 8-10% of revenue growth and deliver 10-15 bps adjusted EBITA margin expansion per year on average in the medium-term.

For the full year 2023, management remains confident of achieving at least 10-15 bps of adjusted EBITA margin expansion, in line with its guidance. Revenue growth is expected to come in below the average annual guidance of 8-10% due to the impact from ongoing macroeconomic challenges, significant F/X headwind and our portfolio optimization program.

Financial Review

(in millions of €)		Q3 2023		Q3 2022		Reported Change		9M 2023		9M 2022		Reported Change		Constant Currency
Life Sciences		648.5		652.1		-0.6%		1,965.4		1,860.8		5.6%		9.5%
Industrial Chemicals		389.8		436.6		-10.7%		1,214.2		1,246.9		-2.6%		1.4%
Group Revenue		1,038.3		1,088.7		-4.6%		3,179.6		3,107.7		2.3%		6.3%
Gross Profit		243.0		247.5		-1.8%		760.1		736.1		3.3%		7.1%
Gross Profit Margin		23.4%		22.7%		67 bp		23.9%		23.7%		22 bp		19 bp
Adjusted EBITDA		120.8		124.8		-3.2%		400.0		379.8		5.3%		9.8%
Adjusted EBITDA Margin		11.6%		11.5%		17 bp		12.6%		12.2%		36 bp		42 bp
Adjusted EBITA		111.8		117.4		-4.8%		375.2		360.1		4.2%		8.7%
Adjusted EBITA Margin		10.8%		10.8%		-2 bp		11.8%		11.6%		22 bp		28 bp
Conversion Margin		46.0%		47.5%		-145 bp		49.4%		48.9%		45 bp		79 bp

Revenue

Revenue increased 2.3% to EUR 3.2bn in 9M 2023, with revenue growth contribution from acquisitions offsetting the weaker organic revenue development in some of the Group’s markets. During the period, Group organic revenue declined 5.7%, driven by slower demand as the industry normalizes following very strong growth in the prior two years (17.9% average organic growth over 2021 and 2022). Revenue from acquisitions represented topline growth contribution of 12.0%, while FX translation represented a negative revenue growth impact of 3.9%.

Our results for the period also include the impact from our portfolio optimization program, which, together with the exit from the non-essential chemical distribution business in Russia, represented 1.2% of Group revenue.

Revenue in Life Sciences increased by 5.6% to EUR 2.0bn, supported by stable demand in EMEA and APAC. Revenue in Industrial Chemicals declined by 2.6% to EUR 1.2bn due to lower demand across most end markets.

In EMEA, organic revenue declined by 2.2%, with Life Sciences mitigating lower demand in Industrial Chemicals. In the Americas, the competitive pressures in South America, in addition to continued challenging environment in Industrial Chemicals in the US, are reflected in organic revenue decline of 13.4% in the region. In Asia Pacific, sustained growth in Southeast Asia offset the continued weakness in China, as reflected in organic growth of 2.4% in the region.

Profitability

Gross profit increased by 3.3% to EUR 760.1m in 9M 2023, implying gross profit margin of 23.9%. The 22 bps step-up in gross profit margin was due to positive mix effects given relatively stronger performance in Life Sciences, offsetting the dilution from recent acquisitions.

During the period, adjusted EBITA increased by 4.2% to EUR 375.2m, representing a 22 bp margin step-up to 11.8%. The 45 bp expansion in conversion margin to 49.4% reflects the benefits of our variable cost base, allowing us to respond to market environment to protect our profitability.

Cash Flow and Financing

Net working capital to revenue normalized for acquisitions was 15.3% at the end of September 2023, versus 15.9% in September 2022. The reduction in the Group’s working capital investments, despite the impact of acquisitions, reflects the Group’s focus on cash generation and aligning its working capital investments to the lower business activities as the industry normalizes following unprecedented growth and supply chain disruptions in the prior two years.

Free cash flow increased by 41.5% to EUR 389.4m, representing a cash flow conversion of 102.7% for the period, compared to the cash conversion ratio of 75.7% achieved in the prior year, and 94.8% at the end of December 2022.

At the end of September 2023, net debt was EUR 1.4bn, and leverage ratio was 2.6x, versus EUR 1.1bn and 2.3x respectively at the end of September 2022. At the end of the period, the group had liquidity of EUR 793.9m in both cash and unused revolving credit facility (RCF).

Post-closing events

On the 23rd of October, Azelis announced the acquisition of BLH SAS, reinforcing its leading position in flavors & fragrances in France. On the 6th of November, Azelis signed an agreement to acquire Agspec Australia Pty Ltd., a specialty chemicals distributor active in crop nutrition, crop protection and specialty agricultural products.

Financial calendar

Date				Event
March 7th, 2024				Full year 2023 results
April 25th, 2024				Q1 2024 trading update
June 13th, 2024				Annual General Meeting 2024
August 1st, 2024				Half year 2024 results
October 24th, 2024				Q3 2024 trading update

Alternative performance measures

Throughout its financial communication (Annual and Interim reports, website, press releases, presentations, etc.), Azelis presents certain financial measures and adjustments that are not in accordance with IFRS, or any other internationally accepted accounting principles. Certain of these measures are termed ‘alternative performance measure’ (“APM’s”) because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. For more information regarding these APM’s, including definitions and calculation methodology, refer to the section ‘Alternative performance measures’ in the Annual Report 2022.

Notes to the editor

About Azelis:

Azelis is a leading global innovation service provider in the specialty chemical and food ingredients industry present in 63 countries across the globe with over 3,800 employees. Our knowledgeable teams of industry, market and technical experts are each dedicated to a specific market within Life Sciences and Industrial Chemicals. We offer a lateral value chain of complementary products to more than 59,000 customers, supported by +2,700 principal relationships, creating a turnover of €4.1 billion (2022). Azelis Group NV is listed on Euronext Brussels under ticker AZE.

Across our extensive network of more than 65 application laboratories, our award-winning staff help develop formulations and provide technical guidance throughout the customers’ product development process. We combine a global market reach with a local footprint to offer a reliable, integrated and unique digital service to local customers and attractive- business opportunities to principals. Top industry-rated by Sustainalytics, Azelis is a leader in sustainability. We believe in building and nurturing solid, honest and transparent relationships with our people and partners.

Impact through ideas. Innovation through formulation.

Important disclaimer:

This announcement may contain statement relevant to Azelis Group NV (the “Company”) and/or its affiliated companies (collectively “Azelis” or the “Azelis Group”) which are not historical facts and are hereby identified as “forward-looking statements”. Such forward looking statements, include, without limitation, those relating to the future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, in each case relating to the Azelis Group.

The forward-looking statements and estimates contained herein represent the judgement of and are based on the information available to the Company’s management as of the date of this announcement. They involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements.

These forward-looking statements should not be considered as guarantees for future performance of the Azelis Group and should, therefore, be considered in light of various important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements. These include without limitation economic and business cycles, the terms and conditions of the Azelis’ financing arrangements, foreign currency rate fluctuations, competition in Azelis’ key markets, acquisitions or disposals of businesses or assets and trends in Azelis’ principal industries or economies.

The foregoing list of important factors is not exhaustive. When considering forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in any other document published by the Company with the Belgian Financial Services and Markets Authority (“FSMA”) or on the Azelis website (www.azelis.com/investor-relations) from time to time, including the prospectus related to the admission to trading of the securities of Azelis Group NV on the regulated market of Euronext Brussels dated 14 September 2021. No undue reliance should be placed on such forward looking statements which are relevant only as of the date of this announcement. Except as required by the FSMA, Euronext or otherwise in accordance with applicable law, the Company undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise.

¹ ROCSA (Colombia) became part of organic scope in Q3 2023.

Contacts

Azelis Investor Relations

T: +32 3 613 01 27

E: investor-relations@azelis.com