FY2023 results: Azelis delivers record free cash flow

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Antwerp, Belgium, March 7^th, 2024 - 07.00am CET

FY2023 results: Azelis delivers record free cash flow

2023 Highlights

• Revenue of EUR 4.2bn, representing year-on-year growth of 1.0% (5.3% on a constant currency basis), as resilient performance in Life Sciences offset weakness in Industrial Chemicals.
• Gross profit of EUR 984.1m represents year-on-year growth of 2.4% compared to the prior year. Gross profit margin expanded by 32 bp to 23.7%, reflecting positive mix effects across our businesses.
• Adjusted EBITA of EUR 466.3m represents a 2.1% year-on-year increase and 11 bp margin step-up. Conversion margin remains robust at 47.4%, reflecting our ability to maintain profitability despite the challenging environment.
• Free cash flow increased by 37.3% to EUR 601.2m, implying a cash conversion ratio to 127.4%. FCF per share was EUR 2.5, compared to EUR 1.9 in the previous year.
• Reported net profit of EUR 189.3m includes EUR 21m of non-cash financial charges related to the impact of hyperinflation accounting as well as adjustments in the fair value of certain derivative instruments.
• Seven acquisitions were completed during the year, representing combined prior year revenue of over EUR 400m. Three further acquisitions with combined prior year revenue of over EUR 30m were announced in the fourth quarter and are expected to close in Q1 2024.
• Leverage ratio was 2.5x at the end of the year, compared to 2.6x at the end of June, and 2.2x at the end of 2022.
• Industry-leading ESG ranking confirmed in most recent Sustainalytics assessment and reflected in Azelis’ inclusion in the Euronext BEL®ESG Index.
• Proposal for a dividend of EUR 53.3m, representing 30% of distributable net profit, and implies EUR 0.22 (rounded) dividend per share[1].
• Despite political and economic uncertainty persisting globally, we remain steadfast in our focus on controlling costs, cash conversion and driving growth. We expect to return to organic growth during 2024, although the timing of the recovery remains uncertain.

¹Refer to the definitions of Alternative Performance Measures in the 2023 Integrated Report

Comment from Anna Bertona, CEO: "I am pleased to present our results for 2023, highlighting the resilience and cash-generative nature of our business. The record 127.4% cash conversion ratio achieved during the year demonstrates our success in managing all the drivers in our business under our control whilst our industry continues to face headwinds.

Our achievements illustrate the expertise and dedication of our teams as valued partners to our customers and principals, and as we execute our long-term strategy of becoming the reference solutions provider in our industry. Over the last three years, we have outperformed the midterm guidance set during the IPO, delivering 23% average revenue growth and 90 bps average adjusted EBITA margin expansion per year.

As I embark on my new role as Group CEO, I am excited to work with the entire Azelis team to build on the strengths we have developed over these last few years to fuel our success in the future. We continue to execute our strategy, expanding our footprint and strengthening our capabilities to ensure that we are well-positioned to accelerate growth in our existing markets and benefit from emerging opportunities across our businesses.

I look forward to presenting an update on our strategy in September.”

Results presentation by management

The management of Azelis invites you to a webcast at 09:00 CET to discuss our full year results and current operating trends. Please click here to view the webcast.

Contact information

Azelis Investor Relations
T: +32 3 613 01 27
E: investor-relations@azelis.com

Operational Review

Headline results

¹Total Adjusted EBITA includes Holding companies

Azelis achieved revenue of EUR 4.2bn, representing a 1% increase over the prior year (+5.3% increase in constant currency). Revenue growth contribution of 11.2% from acquisitions offset the impact of challenging trading conditions, which drove a 5.9% organic revenue contraction, as well as the 4.2% FX translation headwind for the year.

The Group recorded a 3.7% year-on-year revenue growth in Life Sciences (+7.7% in constant currency), supported by strong performance in Pharma across all regions and revenue contribution from recent acquisitions. Revenue in Industrial Chemicals declined by 2.9% (+1.6% in constant currency) compared to the prior year, as demand remained weak across most end-markets, particularly in CASE in the US.  

EMEA

Revenue in EMEA for the full year remained broadly stable at EUR 1.8bn, despite the slower fourth quarter, when revenue declined by 5.8% compared to Q4 2022, due to weaker demand in the broader market as macroeconomic uncertainty drove customers to delay orders.

Organic revenue for the full year contracted by 2.7%, compared to the record organic revenue growth of 27% in the prior year. Performance varied across geographies, with MEA delivering robust growth, offsetting the slightly weaker demand in Europe. Revenue growth contribution from acquisitions of 6.5% mitigated the organic revenue contraction and the 4.9% negative impact from FX translation.

We completed four acquisitions in EMEA during the year. In January, we completed the acquisition of Smoky Light, a distributor of specialty smoke ingredients in Benelux. In April the acquisition of Lidorr Elements, a leading specialty chemical distributor for crop-protection, industrial materials, and care & nutrition in Israel was completed. In May we closed the acquisition of Sirius International, a specialty chemicals distributor active in sustainable cleaning products in the Benelux market. In November we completed the acquisition of BLH, complementing our flavors & fragrance offering in the region with its expertise in the fine perfumery market in France. These companies generated combined annual revenue of over EUR 90m in 2022.

Gross profit in EMEA was EUR 468.1m, representing year-on-year growth of 8.1%, of which 4.5% was organic. The 220 bp expansion in gross profit margin to 26.1% reflects the positive impact of the  shift in the business mix to Life Sciences. Adjusted EBITA grew 10.3% to EUR 237.6m, driving a 136 bp margin expansion to 13.2%, and a 101 bp increase in conversion margin to 50.8% for the full year. This includes a EUR 4.1m negative impact on adjusted EBITA from hyperinflation accounting and portfolio optimization program in the final quarter, which drove a contraction in conversion margin. Adjusting for these items, conversion margin in EMEA in Q4 was 44.3%, a 40 bps expansion on a like-for-like basis.

Americas

Revenue in the Americas was EUR 338.8m in the fourth quarter, bringing total revenue for the full year to EUR 1.5bn, representing a year-on-year decline of 6.2%. The weak trading environment across most end-markets in the region, particularly in CASE in the US, and the broader market in South America, is reflected in the 12.4% organic revenue contraction during the year. Revenue growth contribution from acquisitions was 8.9%, mitigating the organic revenue contraction and the 2.6% negative impact from FX translation.

During the year, we completed two strategic acquisitions in the region that generated combined annual revenue of over EUR 150m in 2022. In June Azelis completed the transaction to acquire Vogler Ingredients, representing a significant development in the group's expansion strategy in Latin America. We also completed the acquisition of Gillco Ingredients, providing the group an entry platform into the food & nutrition market in the US. In addition to the group’s flavors & fragrances offering, Gillco allows Azelis to create a compelling portfolio for the local food and nutrition industry, as well as the wider life sciences market in North America.

Gross profit in the region declined by 10.6% to EUR 344.3m, resulting in gross profit margin of 23.7%, due to the challenging trading environment, as well as dilution from recent acquisitions in South America. Adjusted EBITA declined by 12.9% to EUR 184.6m, driving a 139 bp contraction in conversion margin to 53.6%. 

Asia Pacific

APAC revenue was EUR 218.8m in the fourth quarter, bringing full-year revenue to EUR 904.0m, representing an increase of 20.9% over the prior year. Organic revenue for the full year remained broadly stable despite continued weakness in China, and the slowdown in demand in the broader region in the final quarter. The region reported a 5.9% negative revenue impact from FX translation.

In 2023, revenue growth in the region was driven by a 27.3% contribution from acquisitions. During the year, we closed the acquisition of Chemiplas Agencies, significantly expanding our footprint in Australia and New Zealand. Chemiplas had revenue of over EUR 160m in 2022.

Gross profit in APAC grew by 20.4% to EUR 171.7m, with gross profit margin of 19.0%, largely stable compared to the prior year, supported by positive mix effect across our APAC businesses as we integrate past acquisitions. Adjusted EBITA was EUR 78.4m, representing a 34.9% increase, of which 9.9% was organic. The 90 bp step-up in adjusted EBITA margin drove a 490 bp in conversion margin in the region to 45.7%.

Holding companies

Operating costs at the group’s holding companies, relating to the group’s non-operating entities as well as the head office in Belgium, were EUR 34.3m in 2023, compared to EUR 28.5m in 2022. Relative to revenue, operating costs at the group’s holding companies show a 13 bp uptick to 0.8% mostly due to the group's ongoing investments to support its digitalization strategy.

Outlook

Azelis' strategy of driving growth is underpinned by a consistently 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.

Despite political and economic uncertainty persisting globally, we remain steadfast in our focus on controlling costs, cash conversion and driving growth. We expect to return to organic growth during 2024, although the timing of the recovery remains uncertain.

Notwithstanding the current market volatility, we continue to execute on our strategic programs, and will provide an update on the strategy at our annual investor laboratory event in September.

Financial review

Revenue

Group revenue increased slightly to EUR 4.2bn, as revenue growth contribution from acquisitions offset the impact of weaker market demand and the negative revenue impact of FX translation. As previously reported, our organic revenue results also include the impact of our continuous portfolio optimization program, which represented 0.9% of group revenue for the full year 2023.

Revenue in Life Sciences increased by 3.7% (+7.7% in constant currency) to EUR 2.6bn, supported by strong performance in Pharma across regions, and the inclusion of larger acquisitions in the segment during the year. In Industrial Chemicals revenue declined by 2.9% (+1.6% in constant currency) to EUR 1.6bn, due to weak end-market demand.

Weaker demand across our geographies was reflected in a 5.9% contraction in group organic revenue in 2023, following organic growth of 15.7% and 20.1% in 2021 and 2022 respectively. The organic revenue contraction and the 4.2% FX headwind was offset by revenue growth contribution from acquisitions of 11.2% for the year.

Profitability

In the fourth quarter, gross profit was stable compared to the prior year at EUR 224.0m, bringing full year gross profit to EUR 984.1m, representing an increase of 2.4% over the prior year. The 32 bp gross profit margin expansion to 23.7% reflects the mix effect due to higher contribution from Life Sciences.

Adjusted EBITA in the fourth quarter was EUR 91.0m, bringing full year adjusted EBITA to EUR 466.3m, representing an increase of 2.1%. Adjusted EBITA margin expanded by 11 bps to 11.2%. The adjusted EBITA decline in the fourth quarter reflects the full year effect of salary cost inflation, in addition to slower top line development. Despite the challenging trading conditions, conversion margin remained robust at 47.4%, reflecting the resilience of our business.

Net financial expense for the year was EUR 139.8m, driven by a significant increase in interest expense reflecting higher gross debt, and the full impact of effective interest rates, which more than doubled compared to 2022, and is partly mitigated by the interest rate cap concluded in 2022. Furthermore, our financial expense includes EUR 21m of non-cash financial cost from the impact of hyperinflation accounting (EUR 21m) and fair value adjustments of derivative instruments. Tax expense in 2023 was EUR 57.9m, implying an effective tax rate of 23.4%, including the tax impact of the non-cash costs associated with hyperinflation accounting and fair value adjustment of put options, which are not tax-deductible.

Reported net profit for 2023 was EUR 189.3m, a 13.5% decline (-10.9% in constant currency) compared to the previous year, driven by higher interest expense and non-cash financial charges. Reported earnings per share (EPS) was EUR 0.74, whilst cash earnings per share was EUR 1.07. 

Cash flow and financing

Net working capital to revenue normalized for acquisitions was 13.4% at the end of 2023, a further improvement from the 13.8% achieved at the end of the prior year. The reduction in working capital reflects partly the weaker demand in the industry, but also our focus on continuously improving working capital management and cash generation, as reflected in the reduction in DIO from 52 to 48 days, and total working capital from 50 to 49 days of normalized revenue.

The improvement in working capital also reflects our progress in integrating acquired companies, as financial practices align with the group. Although still well above group level, the net working capital to revenue of 2023 acquisitions improved from 34.2% at the end of 2022 to 23.1% at the end of 2023.

Operating cash flow increased by 34.6% to EUR 617.6m despite the slower top line and profitability growth, and was largely driven by the significant improvement in working capital efficiency. Capital expenditure was reduced by 16.0% to EUR 15.5m partly due to the shift in accounting of certain IT investments from capital to operating expenditure, and partly because some of our planned investments were front-loaded in 2021 and 2022, amongst which our upgraded and cloud-based global ERP system.

Free cash flow increased by 37.3% to EUR 601.2m in 2023, representing cash conversion ratio of 127.4%. The record cash conversion step-up reflects the group’s relentless focus on managing its working capital and cash generation.

At the end of December 2023, net debt was EUR 1.3bn and the leverage ratio stood at 2.5x, versus 2.6x at the end of June 2023, and 2.2x at the end of December 2022. At the end of the period, the group had liquidity of EUR 834.9m in cash and unused credit facilities.

Non-financial performance

Our sustainability strategy, Action 2025, sets out our commitment to become the world’s leading provider of sustainable solutions and services in the specialty chemicals and food ingredients distribution industry, and is structured around four pillars: People, Products and Innovation, Governance, and Environment. Azelis’ industry-leading ESG ranking has been confirmed in the latest Sustainalytics assessment in 2023.

Our progress towards our Sustainability agenda can be found in our Integrated Report 2023, which contains information on both financial and non-financial performance.  

Post-closing events

On the 31^st of January, Azelis completed the acquisition of Agspec, a leading distributor of crop nutrition, crop protection and specialty agricultural products in Australia.

On the 1^st of February, Azelis completed the acquisition of Localpack, a specialty chemicals and ingredients distributor in Colombia, reinforcing our footprint in the domestic market.

On the 1^st of March 2024, Azelis completed the acquisition of Oktrade, a distributor of specialty personal care ingredients based in Turkey, strengthening our lateral value chain to become a leader in this fast-growing market.

Financial calendar

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 Integrated Report 2023.

Appendix

All figures and tables contained in the appendix have been compiled in accordance with the IFRS accounting and valuation principles, as adopted within the European Union. The applied valuation principles, as published in the Integrated Report 2023, were applied for the figures included in this press release.

Statutory auditor’s note on the consolidated financial information the year ended 31 December 2023

The statutory auditor, PwC Bedrijfsrevisoren BV / Reviseurs d’Entreprises SRL, represented by Peter Van den Eynde, has completed the audit of the Azelis Group NV consolidated financial statements, which comprise the consolidated statement of financial position as at 31 December 2023, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information, and which is characterized by a consolidated statement of financial position total of EUR 5,572,228 thousand and a profit for the year of EUR 189,312 thousand.

The statutory auditor has issued an unqualified report without emphasis of matter paragraph dated 5 March 2024 on the company’s consolidated accounts as of and for the year ended 31 December 2023, and has confirmed that the accounting data reported in this press release is consistent, in all material respects, with the accounts from which it has been derived.

For the Integrated Report 2023 and the full audit report of the statutory auditor we refer to Azelis' website.

Consolidated income statement for the period ended 31 December

Consolidated statement of financial position

Consolidated statement of cash flows

Notes and disclaimer

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 +4,200 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 +63,000 customers, supported by +2,800 principal relationships, creating a turnover of €4.2 billion (2023). Azelis Group NV is listed on Euronext Brussels under ticker AZE.

Across our extensive network of more than 70 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 inform

[1] Based on 2023 Net Profit attributable to equity shareholders of EUR 177.7m and 243.6m shares outstanding as of 31/12/2023.