Azelis reports 15% growth in adjusted EBITA for Q1 2023
Q1 2023 Highlights
- Revenue of EUR 1.1bn in Q1 2023, representing year-on-year growth of 12.0%. Organic revenue was broadly stable, following a record growth of 32.6% in the prior year. Continued strong growth in EMEA and APAC offsets softer performance in the Americas.
- Gross profit of EUR 265.8m represents year-on-year growth of 12.7%, of which 2.1% was organic. Gross profit margin of 24.3% reflects a 13 bp expansion over the prior year.
- Adjusted EBITA of EUR 134.0m, representing a 15.5% increase, of which 3.6% was organic. The 36 bp adjusted EBITA margin step-up implies a 123 bp expansion in conversion margin to 50.4%, reflecting the strength of Azelis' business model and ongoing margin improvement initiatives.
- Azelis generated free cash flow of EUR 136.1m, representing a cash conversion ratio of 100.7%.
- Leverage ratio was 2.3x at the end of March 2023, compared to 2.6x in the prior year, and 2.2x at the end of December 2022.
- Acceleration of expansion strategy in Latin America with the signed acquisition of Vogler Ingredients in Brazil. Together with three other acquisitions completed in APAC and EMEA since the start of the year, the combined annual revenues of these companies were EUR 260m in 2022.
- The management remains confident of delivering on its midterm guidance of achieving annual revenue growth of 8-10% and 10-15 bp adjusted EBITA margin expansion for the full year 2023.
(in millions of €) | Q1 2023 | Q1 2022 | Reported Change | Constant Currency |
Life Sciences | 669.0 | 592.8 | 12.9% | 12.9% |
Industrial Chemicals | 423.8 | 382.5 | 10.8% | 10.6% |
Revenue | 1,092.8 | 975.3 | 12.0% | 12.0% |
Gross Profit | 265.8 | 235.9 | 12.7% | 12.3% |
Gross Profit Margin | 24.3% | 24.2% | 13 bp | 7 bp |
Adjusted EBITDA1 | 141.7 | 121.9 | 16.2% | 16.1% |
Adjusted EBITDA Margin | 13.0% | 12.5% | 47 bp | 46 bp |
Adjusted EBITA2 | 134.0 | 116.0 | 15.5% | 15.4% |
Adjusted EBITA Margin | 12.3% | 11.9% | 36 bp | 36 bp |
Conversion Margin3 | 50.4% | 49.2% | 123 bp | 134 bp |
Free Cash Flow4 | 136.1 | 57.9 | 135.2% |
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FCF Conversion ratio5 | 100.7% | 49.5% | 5125 bp |
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Net Working Capital / Revenue normalized for acquisitions6 | 14.7% | 14.6% | 10 bp |
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Leverage Ratio | 2.3 | 2.6 | -10.0% |
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- 1. Adjusted EBITA before depreciation of property, plant and equipment
- 2. Operating profit or loss before amortization and impairment of intangible assets and excluding adjustments
- 3. Adjusted EBITA / Gross profit
- 4. Adjusted EBITDA less lease payments, plus changes in Net Working Capital, plus changes in other assets, liabilities and provisions, less net capital expenditures
- 5. Free Cash Flow divided by Adjusted EBITDA less lease payments
- 6. Net Working Capital/Revenue including those from acquisitions for the full period
Comment from Dr. Hans Joachim Müller, CEO: "I am pleased to report a solid set of results for the Group in Q1 2023 following exceptionally strong growth achieved in Q1 2022. We also achieved a record conversion margin of 50.4% during the quarter, a 123 bp expansion versus the prior year, demonstrating the resilience of our business model. Furthermore, we have made significant progress on our expansion strategy with the acquisitions signed or completed year to date.
Given the continuous strengthening of our lateral value chain in the various markets that we serve, we are very well-positioned to continue capturing growth in EMEA and Asia Pacific, and benefit from improved performance in the Americas. Furthermore, based on the order book development, and recent mandate wins, as well as the completed and signed acquisitions, I remain confident that we will deliver solid growth in 2023."
Conference call
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.
Contact information
Azelis Investor Relations
T: +32 3 613 01 27
E: investor-relations@azelis.com
Operational Review
Headline results
(in millions of €) | Q1 2023 | Q1 2022 | F/X Translation | M&A Growth Contribution | Organic Growth | Total Growth |
EMEA | 501.0 | 450.5 | -2.1% | 8.9% | 4.4% | 11.2% |
Americas | 358.4 | 366.5 | 3.7% | 7.5% | -13.4% | -2.2% |
Asia Pacific | 233.5 | 158.3 | -2.0% | 38.5% | 11.0% | 47.5% |
Group Revenue | 1,092.8 | 975.3 | 0.1% | 13.2% | -1.2% | 12.0% |
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EMEA | 129.7 | 111.6 | -1.8% | 8.7% | 9.4% | 16.3% |
Americas | 90.9 | 92.9 | 3.7% | 4.0% | -9.9% | -2.1% |
Asia Pacific | 45.1 | 31.4 | -1.9% | 33.6% | 11.8% | 43.5% |
Group Gross Profit | 265.8 | 235.9 | 0.3% | 10.2% | 2.1% | 12.7% |
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EMEA | 72.5 | 60.1 | -1.9% | 9.7% | 12.8% | 20.7% |
Americas | 48.8 | 49.7 | 3.4% | 2.7% | -7.9% | -1.8% |
Asia Pacific | 21.5 | 13.6 | -2.7% | 47.2% | 13.5% | 58.1% |
Adjusted EBITA1 | 134.0 | 116.0 | 0.1% | 11.7% | 3.6% | 15.5% |
- 1. Total Adjusted EBITA includes Holding companies
EMEA
(in millions of €) | Q1 2023 | Q1 2022 | Reported Change | Constant Currency |
Revenue | 501.0 | 450.5 | 11.2% | 13.3% |
Gross Profit | 129.7 | 111.6 | 16.3% | 18.1% |
Gross Profit Margin | 25.9% | 24.8% | 113 bp | 105 bp |
Adjusted EBITDA | 75.8 | 62.5 | 21.1% | 23.1% |
Adjusted EBITDA Margin | 15.1% | 13.9% | 124 bp | 121 bp |
Adjusted EBITA | 72.5 | 60.1 | 20.7% | 22.5% |
Adjusted EBITA Margin | 14.5% | 13.3% | 113 bp | 110 bp |
Conversion Margin | 55.9% | 53.9% | 203 bp | 207 bp |
EMEA revenue increased by 11.2% to EUR 501m in Q1 2023. Demand remains robust across the region, with continued volume growth in Life Sciences, offsetting the slower but broadly stable performance in Industrial Chemicals. During the period, our EMEA businesses generated organic growth of 4.4%, following the 33.9% organic growth achieved in the prior year. Revenue growth contribution from acquisitions was 8.9%, whilst FX translation represented a 2.1% headwind.
In January, we completed the acquisition of Smoky Light, which enhances our lateral value chain for the Benelux food & nutrition market.
Gross profit increased 16.3% to EUR 129.7m in Q1 2023, implying gross profit margin of 25.9%, an expansion of 113 bps compared to the prior year, supported by positive mix effects as well as margin optimization initiatives. Adjusted EBITA grew 20.7% to EUR 72.5m, with adjusted EBITA margin expanding by 113 bps to 14.5%, implying 203 bp conversion margin expansion to 55.9%.
Americas
(in millions of €) | Q1 2023 | Q1 2022 | Reported Change | Constant Currency |
Revenue | 358.4 | 366.5 | -2.2% | -5.9% |
Gross Profit | 90.9 | 92.9 | -2.1% | -5.8% |
Gross Profit Margin | 25.4% | 25.4% | 2 bp | 2 bp |
Adjusted EBITDA | 51.3 | 51.6 | -0.4% | -3.9% |
Adjusted EBITDA Margin | 14.3% | 14.1% | 26 bp | 80 bp |
Adjusted EBITA | 48.8 | 49.7 | -1.8% | -5.2% |
Adjusted EBITA Margin | 13.6% | 13.6% | 6 bp | 10 bp |
Conversion Margin | 53.7% | 53.5% | 19 bp | 34 bp |
Revenue in the Americas was EUR 358.4m in Q1 2023, a decline of 2.2% compared to the prior year. The Group’s activities in the Americas reported a 13.4% organic revenue contraction, due to the impact of the destocking trends in the flavors & fragrance business, weaker demand in CASE reflecting ongoing macroeconomic uncertainty, and the strong comparable performance in Q1 2022. The organic revenue contraction was offset by the 7.5% revenue growth from acquisitions as well as a 3.7% FX translation tailwind.
Gross profit in the region declined 2.1% to EUR 90.9m in Q1 2023, with a stable gross profit margin at 25.4%. During the period, adjusted EBITA declined by 1.8% to EUR 48.8m, with adjusted EBITA margin remaining stable at 13.6%. Consequently, conversion margin improved by 19 bps to 53.7% despite the temporary headwinds in the region.
Asia Pacific
(in millions of €) | Q1 2023 | Q1 2022 | Reported Change | Constant Currency |
Revenue | 233.5 | 158.3 | 47.5% | 49.5% |
Gross Profit | 45.1 | 31.4 | 43.5% | 45.4% |
Gross Profit Margin | 19.3% | 19.9% | -54 bp | -55 bp |
Adjusted EBITDA | 23.2 | 15.0 | 55.0% | 57.5% |
Adjusted EBITDA Margin | 9.9% | 9.5% | 48 bp | 53 bp |
Adjusted EBITA | 21.5 | 13.6 | 58.1% | 60.8% |
Adjusted EBITA Margin | 9.2% | 8.6% | 62 bp | 68 bp |
Conversion Margin | 47.6% | 43.2% | 439 bp | 473 bp |
Revenue in APAC increased 47.5% to EUR 233.5m in Q1 2023. The Group generated 11.0% of organic growth in the region, as end-market demand in most markets remained strong, especially in Southeast Asia. Performance in China remains relatively muted, as resumption of normal business activities is slow following the lifting of Covid restrictions. Acquisitions contributed 38.5% of revenue growth, whilst revenue growth impact from FX translation was limited.
In January, we completed the acquisition of Chemiplas Agencies, significantly expanding our footprint in Australia and New Zealand.
Gross profit increased 43.5% to EUR 45.1m during the period, representing margin contraction of 54 bps to 19.3% due to negative mix effects. Adjusted EBITA grew 58.1% to EUR 21.5m during the period, reflecting a 62 bps adjusted EBITA margin step-up as scale benefits from our growing footprint in the region offset the impact of some of the recent acquisitions. Conversion margin expanded 439 bps to 47.6% during the period.
Holding companies
| Q1 2023 | Q1 2022 | Reported Change | Constant Currency |
Adjusted EBITA (in millions of €) | -8.8 | -7.3 | 19.8% | 19.8% |
As % of Group Revenues | -0.8% | -0.8% | -5.2 bp | -5.2 bp |
Operating costs at the Group’s holding companies, which relate to the Group’s non-operating entities as well as the head office in Belgium, were EUR 8.8m in Q1 2023, compared to EUR 7.3m in the previous year. Relative to total revenue, operating costs at the Group’s holding companies remained broadly stable during the period.
Outlook
Our strategy of driving growth is underpinned by a constantly 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, we are confident that we should be able to generate 8-10% of revenue growth and deliver 10-15 bps adjusted EBITA margin expansion per year in the medium term.
Despite the headwinds that the group observed in the Americas in the first quarter, the management remains confident that Azelis will perform in line with its medium-term guidance for the full year 2023.
Financial Review
(in millions of €) | Q1 2023 | Q1 2022 | Reported Change | Constant Currency |
Life Sciences | 669.0 | 592.8 | 12.9% | 12.9% |
Industrial Chemicals | 423.8 | 382.5 | 10.8% | 10.6% |
Revenue | 1,092.8 | 975.3 | 12.0% | 12.0% |
Gross Profit | 265.8 | 235.9 | 12.7% | 12.3% |
Gross Profit Margin | 24.3% | 24.2% | 13 bp | 7 bp |
Adjusted EBITDA | 141.7 | 121.9 | 16.2% | 16.1% |
Adjusted EBITDA Margin | 13.0% | 12.5% | 47 bp | 46 bp |
Adjusted EBITA | 134.0 | 116.0 | 15.5% | 15.4% |
Adjusted EBITA Margin | 12.3% | 11.9% | 36 bp | 36 bp |
Conversion Margin | 50.4% | 49.2% | 123 bp | 134 bp |
Free Cash Flow | 136.1 | 57.9 | 135.2% |
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FCF Conversion ratio | 100.7% | 49.5% | 5125 bp |
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Net Working Capital / Revenue normalized for acquisitions | 14.7% | 14.6% | 10 bp |
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Leverage Ratio | 2.3 | 2.6 | -10.0% |
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Revenue
Revenue increased 12.0% to EUR 1.1bn in Q1 2023, with organic growth of 4.4% and 11.0% in EMEA and APAC respectively offsetting the 13.4% organic revenue contraction in the Americas. Group organic revenue declined by 1.2% during the quarter. Revenue contribution from acquisitions was EUR 128.7m representing topline growth contribution of 13.2%, whilst FX translation was broadly neutral.
Revenue in Life Sciences increased 12.9% to EUR 669.0m, driven by continued positive trends across most end markets in EMEA and APAC, offsetting the weaker environment in the Americas, where revenue reflected the impact of destocking trends in the flavors & fragrances market. In Industrial Chemicals, revenue increased 10.8% to EUR 423.8m, with broadly stable demand in EMEA and continued strong trends in APAC mitigating some of the weakness in CASE in the Americas.
Profitability
Gross profit increased to EUR 265.8m in Q1 2023, representing a 12.7% increase year-on-year, of which 2.1% was organic. Gross profit margin was 24.3%, a 13 bp step-up driven by mix effect and continuous pricing management discipline.
Adjusted EBITA was EUR 134.0m, representing a 15.5% year-on-year increase, of which 3.6% was organic. Scale benefits, as well as the diversity of our portfolio and variability of our cost base, allowed us to drive a 36 bp expansion in Adjusted EBITA margin despite slower topline growth, reflecting the strength of Azelis’ business model and ongoing margin improvement initiatives.
Cash Flow and Financing
Free cash flow was EUR 136.1m, representing a free cash flow conversion ratio of 100.7%, versus 49.5% in Q1 2022 which was impacted by higher investments in working capital given the unprecedented growth throughout most of 2022. The expansion in free cash flow conversion demonstrates the group's ability to protect margins, expand profits and generate cash across economic cycles.
Net working capital to sales was 14.7% at the end of March 2023, compared to 14.6% in the prior year, due partly to slower revenue development compared to the previous year, but also due to the impact of new acquisitions. Working capital represented 54 days of revenue at the end of March 2023, compared to 50 days at the end of December 2022 and 53 days at the end of March 2022. Capital expenditure in Q1 2023 was EUR 1.4m, compared to EUR 4.4m in the prior year.
At the end of March 2023, net debt was EUR 1.3bn, with the leverage ratio reduced to 2.3x, versus EUR 965.9m and 2.6x respectively at the end of March 2022. On the 8th of March, 2023, Azelis raised EUR 400m from the issuance of Senior Unsecured Notes at 5.75% annual coupon, primarily to diversify the Group's sources of funding and provide increased flexibility to execute on its M&A strategy. At the end of the period, the Group had liquidity of EUR 947.2m in both cash and unused revolving credit facility.
Post-closing event
On the 3rd of April 2023, Azelis successfully completed the acquisition of Lidorr Elements, one of Israel's leading specialty chemical distributors in crop-protection, industrial materials, and care & nutrition.
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 and disclaimer
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 60 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.
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.