Good morning, everyone. Welcome to the Azelis full year 2022 earnings call. My name is Pamela, Investor Relations. We hope you've had some time to read our press release. The press release and the annual report are downloadable from the IR section of our website. As usual, we have Dr. Joachim Müller, who will present highlights of the year, and Thijs Bakker, who will take us through the numbers. We will take questions after the presentation, but until then, everyone will be on listen only mode. As a reminder, this presentation may include forward-looking statements that may be subject to risk and uncertainty. We'll make a recording of this webcast available for replay on our website later today. With that, I'll hand you over to Joachin.
Good morning, everyone. 2022 was another record year of excellent achievements and success for Azelis. Our revenue increased by 45% from which 20% was organic. Demand was solid in our end markets, and we experienced a supportive pricing environment. We also continued to leverage our growing scale to win new business from customers and principals. In 2022, we acquired 12 companies. These companies strengthen our intellectual value chain in strategic market segments across EMEA, the Americas, and Asia Pacific. Those 12 companies generated an aggregate over EUR 620 million in annual revenues. Moving on to profitability. Adjusted EBITDA, EBITA increased by 70%. That means the EBITA margin expanded by over 160 basis points. Again, this is another demonstration of the benefits of scale. Operationally, Azelis continues to run full steam with our internal improvement initiatives to execute our strategy.
On the digital side, we now have 100-plus customer portals and 14 e-labs, and are continuing to roll out principal portals. We achieved a significant milestone on our digital journey by migrating our ERP system to the cloud. All these accomplishments support our current and future growth. During the year, we inaugurated our new Regional Innovation Center in Singapore, which serves as a hub for our technical innovations for the Food & Nutrition market in Asia Pacific. The Americas RIC that opened in Mexico City in 2021 became fully operational in 2022. We also opened a 1-of-a-kind Regional Competence Center for Meat and Meat Alternatives. These lab centers serve as incubator hubs for innovative formulations and are a most important value proposition. The awards that we win are a testament to our customers value, the innovation, and bring to them and the market.
Our passion and the efforts devoted to digital innovation and commercial and operational excellence originates from our mission. Azelis contributes to a better, more sustainable world. We have continued to execute our sustainability agenda, in 2022, we obtained the top industry rating from Sustainalytics. Financially, we continued to deliver and finish the year at 2.2 net debt to EBITA, EBITDA, compared to 2.7 at the end of 2021. Thijs will later on talk more about the financial of the firm. We are proud of our cash conversion as we generated EUR 438 million of free cash flow, which means that at a 95% cash conversion ratio, we are closer to our historical performance. Based on these strong results, we propose a dividend per share of EUR 0.29, which is 32% of our net profit.
Moving on to the next page. The 45% revenue growth for the year comprises an organic growth of 20%, revenue growth from acquisitions of 20%, and a positive impact of 5% from FX. All three regions delivered double-digit organic growth for the year, supported by strong demand, especially in the first half, and a helpful pricing environment throughout much of 2022. Towards the end of the year, we saw a normalization and a return to historical trends, with demand growth slowing in Q4, although remaining at double-digit levels in EMEA and APAC. As mentioned, we acquired 12 companies in 2022, with combined annual revenues of more than EUR 620 million. We continued our APAC expansion with 4 acquisitions, including Ashapura in India, which completes our global Flavors & Fragrance platform following the acquisitions of in the Vigon U.S. and Quimdis in France.
We completed seven acquisitions in EMEA to reinforce our footprint in the region. Lastly, we entered South America by the acquiring ROCSA in Colombia. These acquisitions give us scale and strengthen our lateral value chain, allowing us to expand our offering to customers. Let's now turn to Zooming in on EMEA. In EMEA, demand was solid across most of the end market segments we serve, namely Life Sciences and Industrial Chemicals. The solid demand resulted in a convincing organic growth of 27% for the year. Although we saw slowing, growth slowing down in Q4 to almost, let's say, 30% compared to over 30% in each of the first three quarters, it is worth noting that the fourth quarter of 2021 was also strong.
We succeeded by beating the already excellent Q4 2021 revenues by a growth of 13%, affirming the convincing growth momentum we see in EMEA. In addition, we completed 7 acquisitions in EMEA. WhitChem in the UK, Tunçkaya, Aktaş, and Dağaltı in Turkey, Umongo in South Africa, Chemical Partners in Lebanon, and Eurotrading in Italy. In total, revenue from EMEA increased by over 47% and so far trends remain positive in the region with a positive development of the order book. Turning to the Americas. We generated 11% organic growth in the region as the strong pricing trend offset some of the impacts of a slowdown in volume growth in Industrial Chemicals and the destocking in the Flavors and Fragrances business in Q4. I would like to highlight that the order book in Flavors and Fragrances is recovering well in 2023.
Some of the deacceleration in the Americas was also partly due to the discontinuation of certain product lines which we don't want to be active in because they are not in line with our mission to contribute to a better world and a better society. Regarding M&A in the region, we acquired ROCSA in the summer of last year, which marks our entry into South America. This is a significant milestone in our expansion strategy in the South American region. In total, revenue from the Americas increased by more than 33%. Let us move on to Asia-Pacific. Revenue in APAC grew more than 73% in 2022. Organic growth was over 25% despite the drag from China. In 2022, our activities in China were quite a bit impacted by the COVID-related lockdowns. Over the last months, we saw improvements in our China operations.
Immediately after the lockdowns in China ended, we also resumed implementing our commercial excellence programs and M&A integration activities. Our business across the rest of the region, especially in Southeast Asia, mitigated the slower growth at China in 2022. Asia-Pacific continues to represent a strategic growth region for Azelis. In 2022, we made further significant progress in our M&A strategy with four acquisitions. Ashapura in India, which complements, as mentioned earlier, Vigon in the U.S. and Quimdis in France, Catalite in Thailand, ChemSol in Malaysia, and Chemo India. We are pleased with our progress and continue to see exciting growth opportunities in the region, both organically and through M&A. In the following slides, I want to give you some examples of what we do in our labs. The first slide on the screen, we feature a formulation for the growing plant-based food sector.
This example shows how we help our customers address their target market and contribute to the shift towards more sustainable food alternatives. To be somewhat more specific, please zoom in on what our lab team did. They developed a meat alternative by combining and processing different textures of pea proteins, which then were blended with hydrocolloids to ensure moisture preservation and juiciness of a patty. Eventually, our expert added a liquid smoke flavor, a natural flavor enhancer, and a natural lactic acid to balance the taste profile. Besides the feel-good factor of developing a sustainable solution, this development also impacts our business positively. Let's move on to the next page where we show how our lab teams succeeded in developing a water-based acrylic concrete sealer package. A concrete sealer. That does not sound so much like an exciting product where innovation could have an impact. Well, it has.
As explained on that slide, our lab team in the U.S. was instrumental in developing a water-based high-performance formulation. That formulation underwent significant testing, including gloss and gloss retention, chemical resistance, adhesion, blush resistance, hard tire marking resistance, and filming characteristics. Well, it performed well on each test. That innovation formulation concept was presented to our customers and enabled them to commercialize high-performance water-based concrete sealers. You will find other exciting examples of our innovative formulations in our annual report. Worthy of noting that all these examples in our annual report illustrate why innovations through formulation is not just our tagline. It's the core of our firm. It's what drives Azelis. Moving on to another topic which is close to Azelis heart, our sustainability scorecard.
We continue to focus on the execution of our sustainability strategy as Action 2025, with the ambition to become the world leading provider of sustainable solutions and services in the specialty chemicals and Food & Nutrition distribution industry. 2022 has been the year where we consolidated our initiatives around Action 2025 to ensure that sustainability is an integral part of all our business processes and a pillar of our corporate strategy. As you can see, we continue to make strides, and in 2022, we achieved one of our objectives 3 years early. I'm proud to report that at the end of 2022, women held nearly 32% of senior management positions. There's still so much work left to do on our sustainability agenda. Regardless, it is encouraging that our ongoing efforts resulted in us getting the top industry rating percent from Sustainalytics.
Even though we are happy with the outcome of the Sustainalytics rating, I want to stress that even though awards and recognition are nice to have, it is not our prime objective to get them. Our prime mission for all of us at Azelis is to be a driving force, a change agent in helping the transformation, not just of our industry. We support our customers and principal partners so that we all contribute towards a better, more sustainable world. Our impact on developing sustainable products is sometimes rather significant. More often, though, a single new sustainable formulation will only have a limited effect on our global sustainability challenges. However, considering our 59,000 customers worldwide, these baby steps are utterly meaningful. Lastly to mention, we communicate our sustainability ambitions frequently and clearly by repeating our mission to be the leading service provider of sustainable, innovative formulations.
We reach not only the Azelis colleagues with many years of tenure, but also those who joined the Azelis family through a recent acquisition. Those newcomers become early on aligned with group policy, thus ensuring that they adhere to our high ethical standards. With this, I will hand over to Thijs, who will walk you through our financial performance.
Thank you, Joachim Good morning, everyone. Let me start with a high-level overview of the P&L for the full year 2022 and give you some insights in our quarter 4 performance. As Joachim already mentioned, 2022 was an incredibly strong year for Azelis, with a growth trajectory resulting in a revenue of EUR 4.1 billion to represent a year-on-year growth of 45.3%. This growth reflects the performance of our Life Science business that you can see of this slide, which grew with 41%. Also the Industrial Chemical side, which grew with 53% year-on-year. For the fourth quarter, revenue came in with EUR 1 billion, representing a year-on-year growth of 27%. We see the industry gradually normalizing to more historical trends, with growth slowing down in the fourth quarter, similar to patterns that we experience every year.
We're now also lap-lapping tougher comparables, given the exceptional period of growth in the fourth quarter of 2021, especially in December. Organically, our revenue and gross profit grew year-on-year in Q4 by 6%, and the adjusted EBITA grew of 22%, reflecting the outcome of efficiency gains and executing of our operational programs, which Joachim also alluded to. Please note that on a pro forma basis, accounting for the full year revenue of closed M&A in 2022, revenue would have been EUR 4.4 billion. Note that this also excludes the 3 acquisitions that we have announced in the beginning of 2023. Gross profit for the year came in with EUR 960.7 million, representing a year-on-year growth of 47.8%.
Profit in percentage of revenue ended at 23.4%, implying a 39 basis point step up during the year, despite the significant and persistent inflation in the industry and the impact of newly acquired businesses. To help you disentangle the impact of M&A on gross margin in 2022, gross profit as a percentage of revenue for the organic business improved from 23%- 23.8%, implying a step up of 80 basis points. In Q4, our gross profit margin was lower. This is solely due to the mix effect from the first time inclusion of new acquisitions at lower gross profit margin levels. Organically, we also expanded our gross profit margin in the fourth quarter.
If we look in 2022, the group generated an adjusted EBITDA of EUR 484.7 million, which you can see on this slide, and an adjusted EBITA, which we think is the right measurement for our business, of EUR 456.9 million. Azelis ended the year with an adjusted EBITA margin of 11.1%, translating to 164 basis points margin expansion, resulted in an excellent 635 basis points expansion in conversion margin. This improvement is the reflection of strong organic growth and benefits of growing our scale despite our ramped up growth investments in digital commercial initiatives and elevated bonus levels reflecting the strong operating performance.
In the fourth quarter, adjusted EBITA margin ended at 9.7%, which is 113 basis points step up from the previous year period. As was also the case in 2020 and 2021, our Q4 2022 adjusted EBITA margin is below the full year 2022 year margin. It's mainly due to the moderate top-line growth, as is typical for this quarter, and the first time inclusion of new acquisitions, as I already mentioned before. Adjusted net profit came in with EUR 219 million. I will discuss the drivers of that later on.
On the next slide on page 13, I would like to provide a quick overview on the growth breakdown of our revenue and gross profit by region. In this table, we have broken down the 45.3% reported revenue growth in an organic component into an FX component and an M&A component. We did that for revenue, gross profit and EBITA. The group performed well on the key pillars of our growth and achieved 20.1% organic revenue growth, with all our regions delivering double-digit organic growth. Our ability in passing through price inflation in combination with execution of our margin management programs, initiatives is reflected in our robust gross profit organic growth. Of the 47.8% growth in our gross profit in 2022, around 25% was organic.
For year-end purposes, we also added on this slide the adjusted EBITA picture. This is where you see Azelis' ability to leverage scale while continuing to invest in the business. We achieved an adjusted EBITA growth of 70% in 2022, of which, more than half, 41% was organic. Let's have a look at the regional financial performance across our segments on the next page. Starting with EMEA, which makes up 44% of our group revenue. Revenue increased with 47% to EUR 1.8 billion. The majority of this growth, 27%, was organic, driven by the more resilient Life Sciences segment. EMEA's gross profit increased to 47.8%, out of which 31.7% was organic, mainly driven by mix towards Life Sciences and execution of margin management initiatives.
In the fourth quarter, organic revenue growth was double-digit and from a seasonal pattern, we noticed a more normalized picture in line with historical patterns, as seen also in our working capital patterns. The EMEA business generated double-digit organic growth in Q4, despite the tough comparables in Q4, 2021. This was driven by favorable Life Sciences conditions and strong performance of our Middle East and Africa business. We continue to benefit from increasing scale and margin improvement initiatives which offset elevated bonus levels, allowing EMEA to expand the adjusted EBITA margin to 11.9% for the full year 2022. This all translated to almost 700 basis points expansion in conversion margin, which was 49.8% for 2022. Let's turn to the Americas in the middle of the page, which makes up 38% of the group's revenue.
Revenue increased with almost 33% to EUR 1.5 billion, out of which 11% was organic. Full year organic growth was achieved despite lower year-on-year revenues in the fourth quarter, reflecting the de-stocking in the Flavours & Fragrance segment and a deceleration in volume of growth in CASE, as well a more regular seasonal pattern that we are used to in December. We have already seen a recovery, as Joachim mentioned, in the volumes in the Flavours & Fragrance activity in our open order tracking for 2023. Adjusted EBITA margin for the Americas ended at 13.7%, a step up of 185 basis points. This all translated to a 420 basis points step up in conversion margin. Asia Pacific continues to be the fastest growing region for our group.
The region makes up 18% of revenue versus 15% in 2021. The revenue increased to 74% to EUR 748 million. This growth was supported by strong organic growth, 25%, particularly in Southeast Asia, and driven by the continued execution of our M&A strategy, where we build synergies in over time. We are particularly pleased with this growth in light of the prolonged lockdowns in China, which had an industry-wide impact in 2022. Asia Pacific nearly doubled the adjusted EBITA to EUR 58 million and expanded its adjusted EBITA margin 90 basis points to 7.8%, translating into a 638 improvement in conversion margin to 14.8%. Our increased scale and margin initiatives offset the first time inclusions of acquisitions with lower starting margin levels.
This really supports our view that there's no reason why APAC margin levels will not reach the same levels as in EMEA and Americas as communicated before. Let me take a moment to take you through the details of our net profit on the next slide. As you can see on this table, there were a couple of charges that were booked in the P&L that you need to bear in mind when looking at our net profit. As you can see from the picture here, the strong revenue and EBITA growth translated in 87% increase in operating profit. Our interest expense was lower despite the higher debt levels at the end of the year, reflecting more favorable interest rates on our borrowings.
There are a couple of non-cash items that I would like to call out because they impacted our taxable profits. Included within our financial expenses, there's a EUR 17.6 million non-cash fair value adjustment related to put options over non-controlling interests arising from past acquisitions. The adjustment reflects the acquisitions I'm referring to are performing better, that is positive. In addition, there is also EUR 7 million non-cash charge with the impact of hyperinflation accounting in Turkey. This is purely a booking in line with IFRS requirements. These charges had obviously a negative impact on our profit before tax and are not tax-deductible, they also contribute to a higher effective tax rate in 2022.
As an aside, we have projects ongoing to streamline the structure of the Group that will be completed in 2023, which we are expected to benefit a bit on our effective tax rate. On the next slide, I will go a bit into the cash flow. As you can see, the absolute amount of free cash flow was EUR 438 million. Our cash conversion is now back at historical trends of 95% as in line with our targeted range of 85%-95% cash conversion. This was partly due to the higher EBITDA, but also driven by the progress we have made in our working capital management. As we've been saying throughout 2022, was a key focus, especially on integrating the recent acquisitions to bring their working capital levels in line with Group policies.
Given that our working capital is one of our key drivers of our cash flow, let me take you to our working capital development on the next slide. If you look on the left, you see our net working capital to revenue normalized for acquisitions. It improved significantly from 15.3%- 13.8% at the end of 2022. As communicated in the previous quarter, we expected a more regular seasonal pattern versus the outliers in 2021, evidencing the accuracy of our forecasting systems. The improvement has been broad-based, with DSO and DPO normalizing close to historical trends. You will also see that whilst DIO has improved, it's still at elevated levels when you look it from an historical point of view. This basically reflects the continued elevated business activities that we are experiencing.
Of this working capital, EUR 125 million of the working capital additions in 2022 came from recent acquisitions. If you look at the largest year-on-year organic improvement that came from improving working capital, practices of acquisitions completed in 2021 take some time. This has been a key focus for us. As we have mentioned consistently in the past, most of the companies we acquire typically come with a higher working capital level, which we optimize over time as they get integrated and align the financial practices with our group policies. The 13.8% at the end of 2022 also includes companies acquired in 2021 with higher working capital, That demonstrates the magnitude of the improvements in those companies, as well as the potential source of upside for future cash flow generation.
We will continue to focus on efficient working capital management as well as integration of acquisitions to optimize free cash flows. Overall, we are pleased with the progress we are making as our cash flows also helps us to manage our debt levels, which I've focused on the next slide. We ended the year 2022 with a leverage of 2.2 compared to 2.7 at the end of last year. This represents a combination of excellent growth in EBITDA while we had an increase in net debt to EUR 1.2 billion compared to EUR 870 million at the end of last year. The change in net debt during 2022 reflected a very strong operating cash flow and an M&A spend of approximately EUR 550 million.
As in prior years, we have been able to deleverage naturally because that is what our business model is like, and while continuing to invest in accretive acquisitions. As a reminder, our stated leverage policy is a ratio between 2.5 and 3 times, and we currently have headroom within this level to continue to execute our strategy. At the end of December 2022, we had liquidity of EUR 647 million in cash and unused credit facilities. We continue to evaluate opportunities to develop and strengthen our capital structure and completed a debut high yield bond issuance in 2022. Overall, we are pleased with the group financial performance of 2022. There is still much work to do, especially in driving margin expansion in our lower margin regions and improving cash conversion in the acquired platforms.
Our story is one of strong performance today, but also one of continuous improvement year by year. I will hand you back to Joachim for comments on the outlook of 2023 and beyond.
Thank you, Thijs. We hope to have given you sufficient details on last year's development and our performance. Our achievements last year are a solid springboard for even more achievements in the future. We see and will drive a further strengthening of our innovation capabilities. That will allow us to gain market share in many markets we serve. We have secured new mandates and expanded existing ones with our strategy, strategic principles in 2022, which serves us well going forward. We acquired companies that complement our activities and expanded our end markets and geographic footprint. Combination of these aspects allow me to remain confident of achieving our objective of delivering 8%-10% of revenue growth and 10-15 basis points of EBITDA margin expansion per year over the medium term. Very true.
There are many challenges ahead, but the proven resilience of our business model and the natural defensiveness of many of our end markets give me comfort that we will deliver on our guidance regardless of macroeconomic developments. Azelis is an asset-light company, even though all we accomplish relies on one intangible asset, the brains and the hearts of our colleagues, the Azelis family. I'm grateful to work alongside such dedicated professionals who have consistently demonstrated resilience and the ability to deliver regardless of challenges. With that, we are ready to open the floor to Q&A. Thank you.
Thank you. If you would like to ask a question, please signal by pressing Star and one on your phone. As a reminder, participants can also put questions through the webcast page using the Submit a Question button. We will pause for a moment to assemble the queue. We will take our first question from Steyn Demeester of ING. Please go ahead.
Yes, good morning. thanks for the update, and thanks for taking my questions. I have three questions, if I may. The first one is within your 8%-10% revenue guidance, which I assume you can apply to 2023. Is there any organic growth embedded as the market seems to have taken a bearish view on this? If so, how do you see volume versus pricing in 2023? The second question is on the pace of acquisitions, which has obviously been much stronger than what was implied in the 4%-5% acquisitive growth provided, during the IPO. Do you expect to keep up this pace, or should we anticipate some consolidation after these 2, 3 years of vigorous M&A activity?
The last one is a bit more open-ended one. It's on recent events in the industry. Do you consider there is eventually a case for large-scale M&A, or do you stick with the view that the specific nature of the specialty ingredients distribution market makes this very difficult? These were my questions. Thank you.
Thank you. First one on the growth. Yes, we remain confident that we will show also organic growth in the course of 2023. Why is that so? On one side, we have obviously, from the existing business, a lot of initiatives, customer projects ongoing in the labs, which eventually will translate into growth. They have been doing that over the last couple of years, I see no reason why this will stop. On top of that, we mentioned a couple of times we also win mandates, right? Go back to our website, you will see that we win them quite regularly. These mandates come with revenue. That's not an acquisition, but that adds to our, let's say, organic growth. Both elements give me the confidence that, yes, we will see growth also in 2023.
Second question was on the M&A and the pace you have seen over the last couple of years. Very true, we guided rightly so that about 5% of our growth will stem from M&A activities. We will not detour from that. However, as I stressed a couple of times in the past, the market is still highly fragmented. There still is 20,000 odd companies out there, and very many opportunities for us to do acquisitions. I don't think we will see a slowdown anytime soon. Opportunities are out there, and we'll continue to capture those opportunities. On the last one, that was on the large scale M&A. In here, I feel we will continue just what we have been doing, right?
We'll follow our strategy to move into markets where we feel we still can strengthen the lateral value chain, either with a smaller asset we acquire, with principals we work with elsewhere, or maybe like for example, when you look into OXEA, we do a little bit of bigger one where we feel we don't have the market presence and we need a springboard to further grow then in this market. That's will be our path forward. An industry combination of some of the behemoth, I don't see that being beneficial for anybody. I hope that answers your questions.
Yes. Yes. Understood. Maybe one-
Yeah.
Okay, cool.
Stan, maybe to add on your first one, obviously we did 12 acquisitions in 2021 and 12 acquisitions in 2022. These acquisitions are strategic and synergistic. Also the synergies, especially on the revenue growth, they will take time to come in as we work with our strategic partners, basically also generate revenue synergies. There is also an effect of that which we considered organic growth in 2023.
Okay, understood. Very helpful. Maybe one small follow-up. Can I try you on volumes versus pricing in 23? Obviously, we've been at a very strong juncture in terms of these two elements.
How do you see this going forward?
Well, we still do see a volume expansion, especially on the Life Sciences side of things. On the industrial side, depending on the markets we look at, we did not see a lot of growth in the fourth quarter. We see some silver lining that also volume is coming back, demand is coming back.
Stein, as I always said, it's very difficult for us to give a very granular level on volumes because you're comparing grams in pharma and tons in CASE. Overall, we still see volume growth. Although we see a more normalized picture towards Q4 especially in the Industrial segment, which is more prone to macroeconomic volatility. The Life Sciences is very resilient. We don't see that there.
Okay, thanks. Understood. Very helpful comment.
Thank you. We'll take the next question from Suhasini Varanasi of Goldman Sachs . Please go ahead.
Hi. Good morning. Thank you for taking my questions. Just two from me, please. On the organic growth, you've indicated that you normally win new mandates every now and then. But just given the concerns around potential growth slowed up for 2023, is it possible to quantify maybe how much new mandates can add to organic growth in 2023? Is it low single digits, for example, which you can then supplement with other volume expansion and innovation, for example? The second one is on margins, please. I think it's clear that on the medium term, you've reiterated the guidance 10 to 15 basis points of margin expansion. I think the concern in the market is that maybe that takes a step back in 2023. Do you have confidence on the margin expansion for 2023?
If so, why, given the rate inflation trends that you're seeing on the cost side? Thank you.
Thank you, Suhasini. On the organic growth for the year 2023 and your question, how much is coming from new mandates? Obviously, it's also this is a very mixed bag. Sometimes you win a mandate, and then until it's coming to full run, it will take months. Sometimes it's going quicker. There are a lot of unknowns in the equation. On average, I would say it's about 1%-2% of our total revenues we'll get from new mandates we win. This is sounds about right. We analyze. It's not a straightforward, very easy to calculate assessment. 1%-2%, I think this is what we always have in our business plan, and when we look back, this is what we have been doing.
On the margin, you want to take that one?
Suhasini, I think we think also in our year-end report, there's some pro forma guidance as well. Let's focus on the margin. If you take our EBITDA margin, which is, let's say, I'm talking about numbers, we have EUR 460 million in EBITDA for 2022. We have the M&A phasing, as we mentioned as well, be around EUR 45 million-EUR 55 million. Also, you have to include on the beginning of 2023, we announced three deals. Two have been closed out of the three, two are quite sizable ones. We come to the margin expansion stuff because obviously there are skill advantages. You only need one CFO, I would say.
If we go to the operational uplift based on our sustainability and digital initiatives and operational improvement programs, the 10 to 15 basis points is very conservative. Take, for instance, our bonuses. They are for the last 2 years at very elevated levels. Obviously, we have adjusted our budgets also forward upward to a much higher extent. We feel quite confident on the 10 to 15 basis points that you are referring to, and that is for us the base case.
Thank you very much.
Thank you. We'll take the next question from Chetan Udeshi of JPMorgan. Please go ahead.
Hi. Thanks for letting me on. Few questions. First, maybe a couple more financials. I was just looking at the deferred payments in the annual report for acquisitions have risen a lot from EUR 35 million at the end of 2022 to now EUR 115 million. Maybe can you just explain, I mean, exactly what is a deferred payment versus earn-out? Is this more like minority interest that you carry on the balance sheet because maybe you don't own 100% stake? But just wanted to understand the nature of that deferred payment that you have for acquisitions versus earn-outs. The related question is, where is this recognized?
I don't think this is in net debt, but, which line item on the balance sheet is the deferred payment recognized?
Sorry, the second one, can you repeat that?
Second, this was actually the first question. They're all tied together on deferred payments. The second question I had was just on interest costs, because again, on balance sheet, it says the financing interest rates have gone up in 2022 versus 2021. Also, of course, the absolute debt has gone up. How are we thinking about the absolute interest costs for 2023 versus 2022? These are the two financial questions I had, and one just on, you know, general market dynamics. Is it fair to assume that when you, when you talk about organic growth for 2023, that is also your expectations for Q1 2023? Because, you know, when I look at most chemical companies these days, you know, none of them are actually seeing any volume growth.
If anything, we are talking about something like mid to high single-digit or even low double-digit sort of volume declines even in Q1. I'm just curious why we don't see that in say the commentary from you guys in terms of volume weakness. I mean, even in Life Sciences, some of the companies are now talking about quite, you know, material destocking, especially in North America, which I think you also referred to. Just broadly speaking, how you see the dynamics in Q1 overall? Thank you.
Hey, let me take up your first two questions.
Let me take first one.
There are two elements into it. I think you are referring to the put options, and I understood that I fell away during the presentation for a couple seconds. Included within our financial expenses, and you can see that line item clearly in our business combination section as well, under financial expenses, there's EUR 17.6 million non-cash fair value adjustment related to put options over non-controlling interest arising from past acquisitions. These adjustments, they basically reflect outperformance delivered by those acquisitions. Yeah. You can say, we...
At the time of these interests that we acquired, we didn't pay, we paid a fair value for it, and right now they're overperforming, and it's a testimony to how our M&A machine works, where we bring in principals from our side, their side, and the M&A is very synergistic. Therefore, we have to take basically a EUR 17.6 million non-cash fair value adjustment in our P&L. If you look at the items there on the interest, that's clearly identified in our year-end report. Yeah, we'll take the back of line with investor relations. We can guide you to the right section there. Yeah. Maybe on the organic growth part.
Yeah.
Joachim can pick that up.
In general, what we said is true. We will see still growth also in Q1, but it will not be at the double-digit growth rate. What you're saying is correct. We have in some markets, we're still seeing that economy is not doing well, notably North America. As I said earlier, there's a silver lining we are seeing, not only on the flavor and fragrances which came back in January, but also more on the industrial side, early signs. This, though, is kind of compensated by a stronger than what might expect development in Europe, but especially also Middle East and Africa, which for us is a substantial region by now. It's almost Middle East, Africa contributes to about EUR 350 million-EUR 400 million of revenues with good profitabilities.
This helps us to compensate the sluggish environment we're seeing in North America. Asia-Pacific, as indicated also in the earlier section, Asia-Pacific has been doing well last year except for China. We now see China coming back. Yes, we have a confidence to see some growth. Not significant growth, but there's some organic growth also in Q1.
Thank you. Thijs, if I can follow up, my question actually was on deferred payments, not necessarily on the put options, because I was just looking at the deferred payments have risen quite a bit from EUR 35 million to EUR 115 million, I think, at the end of 2022. I'm just curious, where are these recognized in the balance sheet? Are they in the net debt figures? I don't think so, but I'm just checking.
Yeah. They are in the section of business combinations where you have the whole good deal, set up. I will take offline with you where you can exactly find them, but you can
Okay.
The deferred payments and the put options clearly separated.
Okay, thanks. Bye.
Thank you. We'll take the next question from Matthew Yates of Bank of America. Please go ahead.
Hey, good morning, everyone. I had a couple of questions really around strategy. The, the 1% - 2% annual growth that you guide from new mandate wins, obviously acquisitions have made the business 40% or so bigger than it used to be and more global in nature. I would imagine that scale gives you credibility with suppliers that in turn leads to more mandate wins. Has there been any notable change in the trend of your win rates given how you position the business or from year- to- year is this too lumpy and random to draw conclusions from? The second question, again, just sort of around the M&A that you've executed and the synergies delivered.
If I recall, the IPO prospectus talked about a typical, I think, more than 20% uplift in profit once you got your hands on the assets. Given how many deals you've done recently, can you give us a sense as to whether you're delivering in line with that sort of number or whether there's been any, let's say, significant outperformance or underperformance around the M&A execution? Thank you.
Thank you, Matthew. On the first one, on the win rate and whether you really can say it has increased or not. Well, obviously, with the increase of size, we have more opportunities, and yes, we're becoming more attractive to our principal partners. Because what we have to offer is, besides all of our lab, which are a key value prop, with driving innovation with their product portfolio, we strengthen our lateral value chain. They see that. If their chemistry is a hole in our lateral value chain, right? We have, let's say, a completion of 70%-75% of the lateral value chain, and their piece gives us another 85%. They understand, look, this is very good for a customer. This is good for a formulation we offer.
We will generate with this a market pull from our service offering, so he more readily gives us a mandate. Innovation, then yes, we're, as we stressed, a leader when it comes to sustainability in the industry. That's also very important. It becomes increasingly important for our principal partners. When they do undergo their selection process, this is what they're looking at. Last but certainly not least, we offer to our strategic principal partners our digital principal portals, where they can see live all the time what are the projects we are working on, where are the projects embedded. This generates a lot of information for them, which they then can channel back to their own development work because they see what is needed in the market.
We really have a clear interaction between their digital landscape and our digital landscape. That also helps us because obviously, smaller firms who don't have these type of principal portals, for them, they can't offer this service. Going back to the original question, has it accelerated or is it too lumpy to say? I would say it has not de-accelerated, and the industry trend that principals, and that's a general trend, principals don't wanna work any longer with couple of hundred of different distributors worldwide. This trend is still very much intact. I remain confident, and then also going back to the BCG study published on that this industry will outperform not only specialty chemicals growth for many years to come, but also actually outperform a GDP growth.
GDP growth times 1.5 of specialty chem. Our industry will continue to outperform that because our principal partners will give us more business going forward. Now to you.
Yeah. On the M&A synergies, I don't think we ever said 20%, but we say we buy high single-digit multiples, and we take about 2 to 3 turns out over time. Our M&A is very synergistic because we bring our partners to parties, and they bring their partners to the parties. It's a very commercially synergistic play. They come in all flavors and sizes, these acquisitions. When you have a platform acquisition, for instance, in a new country like Colombia, yeah, you obviously have many more opportunities than, for instance, in a more mature market, like Italy. Still, the principle is exactly the same. We buy across a very diverse portfolio. These synergies are also different by nature.
You can take accordingly those numbers what you have, you can take them roughly into account. This also doesn't happen overnight, that takes. You're not buying a company immediately of principals, but obviously it takes some time, normally 1 to 2 years. Yeah, the 2020, if you have an elevated M&A picture from 2020, 2021, 2022, yeah, obviously there's more uplift towards the future.
What these platforms do, maybe if I chip in on that. When you look into the acquisition we did, I think 2 and a half, 3 years ago in Mexico, right? If you look at the business today, without spending any additional money on M&A, we got multiple new mandates and the business today is double the size. This is kind of the playbook when you enter into a new geography, have a platform and then try to entice, convince existing partners to work with you in the new country. Does that help you?
Yes, it does. Thanks both.
Thank you. The next question we will take from Hans Feenstra of Van Lanschot Kempen . Please go ahead.
Hi, good morning, all, and thank you for taking my questions. I have two questions remaining. The first one is on your gross margin. Judging from the comments from you on this call, it seems like there are still a lot of efficiency gains to obtain across the business, even though we enter a sort of, yeah, a more normalized operating environment. Meanwhile, you know, your margin sits at 23.4%. You already mentioned that on an organic base, it's at 23.8%. Meanwhile, your largest listed peer reports margins closer to 25%. I'm just wondering, do you see any room to grow your gross margins further in 2023, even though we enter this, yeah, more normalized pricing and volume environment?
Yeah, like giving that, you know, your largest peer sort of operates at 150 basis higher than you currently.
You wanna take that? Yeah, we still have Room to go with regard to gross margin. Efficiency gain, as we indicated also when we spoke and presented our results, there is still a lot of initiatives ongoing. What we do with regard to pricing, and obviously the moment you strengthen your lateral value chain through mandate, new mandate wins or through an acquisition, you have the ability to compound new chemistries in a formulation you offer to a customer, which gives you higher pricing power. Yes, we will expand. On what you phrased, the margin of our closest listed peer. It's very true. They're significantly higher, especially through an acquisition they did about 3.5 years or 3 years ago, which came at a very high EBIT margin in India.
When you look into the other regions, EMEA and Americas, there is not so much of a differential. As said before, and Tejs, I think, mentioned it earlier today, there is good room to grow also on the margin side in Asia-Pacific, and we have been lifting that up over the last couple of years, and we'll continue to do so. There's no reason that over time, we will not approach the level of our closest listed peer.
Okay. That's, that's clear. On working capital, second question. It seems that you made quite an efficiency gain there, given that you ended the year lower than at the start. At what kind of level do you expect this working capital position to trend towards over time? Also, can you confirm that you still factor out about 25% of your receivables? Thank you.
I think our operational gains, of course, coming largely from the M&A, that we buy at elevated working capital levels, and we bring them in line with corporate policies. I think our ultimate gain for this industry to be working capital is around 12%-13%, which is achievable. On the factoring, Let me be very clear. This is only recourse factoring. It's only in EMEA where we do this. I think the percentage that you state is also on the higher end. Yeah. Yeah, I would look into our year-end report where you can figure those numbers in more detail out, but it is also an operational program. We have our credit teams are in place.
We have a very low overdue percentage. Have a look at that. We made significant improvement from 2021- 2022 in a very challenging environment. If you see the buckets in our year-end report, we made improvements on all levels there. This is just purely the outcome of operational programs that we are putting in place with, for instance, a uniform ERP landscape, those kind of things, centralized credit practices, shared service centers, et cetera. It sounds all very easy, a number to get from A to B, but it is not, of course, in reality.
Right. That's very clear. Thank you.
Thank you. The next question we will take from Laurent Favre with BNP Paribas Exane. Please go ahead.
Yes. Thank you very much. I've got two follow-up questions, mostly around margins. Number one, I think you said that 2022 is not a high-water mark for margin. I was wondering if that's mostly because of the upside in Asia, or do you also think that margins in Europe and North America can be up in 2023? The second question, I think, Thijs, you mentioned lower variable costs, you know, given that you've adjusted the targets, I guess, for 2023. When I look at the annual report, it seems that compensation for employees was up about 23% year-on-year in 2022, but your headcount was at 20%. It doesn't strike me that you had a huge increase in variable comp per employee.
Can you maybe help me reconcile those numbers? Thank you.
Let me take the first one. You take the second one. On the margin. Yes, when you look at our margin profile in APAC, as I said earlier, there's some room to go. And also mentioned earlier, a lot of initiatives are ongoing, also now more intense in China to get us to a more equal level playground with the other regions. Will we be able, and this was your key question, will we be able to do a margin expansion in North America and in EMEA? Absolutely, we continue to see that our programs and obviously the continuously strengthened lateral value chain adds stickiness to our value proposition, which allows us to expand margin. From this point of view, EMEA, yes, and also the Americas, a clear yes.
The years will continue to drive up margin. This is the commitment we gave.
Joachim, sorry to interrupt, but this is a comment for 2023 or more a medium-term comment?
No, that's a comment for 2023. That's medium-term going forward.
Okay. Thank you.
Your bonus question, basically variable compensation. Okay. Our P&L is relatively variable by nature. We pay per pallet. We have a very asset-light business model. Our main asset are our people. We have various compensation programs in place. Variable compensation is, of course, to a large extent part of that compensation picture. We already had elevated bonus levels in 2021 and in 2022. In that respect, it was already elevated for a couple of years. Yeah, obviously, our targets, we put them higher as well. As such, we will see that you have some inflow in there. I just want to make...
The point that I wanted to make is that we are applying very prudent accounting policies, and obviously I've been stating that numerous times. From that perspective, we are fully accrued.
Okay. If I may, as a follow-up. When you put together everything that I've heard on this call, it seems that you may be more than 10% above consensus for 2023 EBIT. If that was the case, would you need to have a specific guidance at this stage of the year?
Not yet. We'll check.
Thank you.
Thank you. The next question is from Madelaine Ronner of Morgan Stanley. Please go ahead.
Hi. Thank you for taking my questions. Just two from me, please. The first one is, you mentioned destocking mainly in the U.S. in Q4. Would you be able to give us some color on how you're expecting to see this phased through 2023? That was my first question. Secondly, are there any areas of the chemical supply chain that you wanted to highlight in terms of either seeing any easing or tightening in the last quarter? Maybe how you expect this to develop going forward. Thank you.
Okay. On the U.S. and the destocking, we have been seeing, yeah, that went through different industry in phases and is still, to some extent, ongoing, combined with subdued demand in some of the markets we serve. First of all, to the Life Sciences part of our business, there, we didn't see anything. Not at end. That's still going on and doing well. On the industrial portion of it, obviously, CASE was doing pretty well until the middle or so of the fourth quarter, we did see somewhat a dampened demand from the market, which we have far biggest early signs that it looks like end of March, early April, the uptick is coming.
Again, this is a very A picture looking on the entire markets we serve, reckon that we have a lot of sub-markets. They have all different patterns. The overlay is, we're expecting that the second quarter will be looking better under the assumption that the U.S. is not entering a further recession. Second one on you. Madeline, just to add, like we mentioned the F&F segment specifically in our thing, there it's more in line with the industrial players that we represent, which are also reporting similar patterns. We of course, we have our open orders. We track exactly what is happening. We have 3 months visibility. We've been very open and transparent about that, we see it is basically already picking up again. Since January, yeah.
There was a market uplift in January. You basically asked about supply chain disruptions, et cetera. Yes, there's still supply chain disruptions left and right. What the beauty of the Azelis portfolio is we serve so many segments, there will always be areas where we have shortages or supply chain constraints. Overall, if I take, for instance, our goods in transit as a measurement, I've been also communicating that. We see basically the goods in transit, that's basically the numbers of ships and freight, what is basically stuck on the ocean or on the road. It has come gradually down towards the end of the year. That gives you maybe a bit of an indication that it is easing.
Great. Thank you.
Thank you. The next question we'll take from Luuk van Beek with Degroof. Please go ahead.
Yes, I have 2 small questions left. One is on the supply chain issues which played a role in most of 2022, and which may have allowed you to allocate more product to areas where you got higher gross margins for them. Should we expect any mix effect of that in 2023? My second question is on the bonuses. Can you give an absolute number for the amount of bonuses you pay every year?
I'll take the Second one, the supply chain. Whether we were able to allocate that in 2022 to other regions where we might get more money for the goods. That's not what we usually do, Luc. We have contracts per region, per country, mostly per country, then for some of our principal partners per region. Usually we tie it like this, that we order goods for projects we are foreseeing for a specific country. We're not of a full liner or where you can shift, okay, you have some DPO sitting here, okay, it's needed in this country, just shift it to another country. That's not us. We're really on the specialty side. We don't move that around.
Having said that, obviously, for some of the markets we have, when we have wider mandates, we have hubs, in Rotterdam or in Antwerp, in Europe or elsewhere in Asia, from where we then deliver. Also here, we have customer projects running where then when we deliver to those, we can't say, "Oh, sorry, you don't get the product. We're shifting it elsewhere." It's just not our business model.
Okay. Thanks for it.
Luke, variable compensation, we are a sales-driven technical service organization where we have many feet on the street, basically. What you can say here is that in an elevated year, obviously, the main components are their growth, EBITA growth, working capital growth margin growth. We pay around bonuses between EUR 50 million and EUR 60 million. In a more normalized pattern, if we look back in time, it's between EUR 20 million and EUR 30 million.
Okay. Thank you.
Thank you. We'll take the next question from Nicole Manion of UBS. Please go ahead.
Hi. Good morning. Thank you for taking my questions. I have a couple left, I think. The first one on pricing. I know you've already made some useful comments there, but if you could maybe indicate where that pricing level is tracking versus 2019 levels, that would be very helpful. Secondly, a more sort of general kind of market dynamic question, I guess. Are you seeing customers come back to you to ask to find formulations, different formulations that help them find lower input costs given the environment? Just wondering if that's something you're seeing in the market at all. Thank you.
Yeah. On the pricing side, I'm afraid comparison versus 2019 is super difficult. How many products are we selling?
Take the algorithm. We have about 2,500 principals, 65+ countries, 12 end segments, 55,000 customers and 70,000 products. Yeah, that's very difficult to give you a general answer on that.
Yeah. It's again, on the commodities, you can do these type of things. On the specialties, I think I would lead you into a direction which it doesn't help you, and by the way, would also not be correct. I'm sorry, I can't really comment in an educated manner on your, on your first question. On the second question, yes, Nicole, we do see some examples where customers come to us and say, "You know what? Can you do something? Because with rising inflation, disposable income, people are not so open to buy this product, this price. Is there an opportunity for us in there?" I just wanna highlight one example which crossed my mind, which is, without going specifics of the country, but it's here in Europe where we were asked, "Can you help us?
Meat is becoming too expensive for some of our customers, minced meat. Can you help us on that?" What we did, I mentioned the pea proteins before. We formulated a mixture between minced meat, 75%, 25% then pea proteins, added some magic to it in the lab, eventually, the product has not only advantage that is cheaper, because obviously you don't have to convert the proteins from the pea into the proteins of the animal. It's not only cheaper, but it's also more sustainable because obviously, you're having 25% of something which is grown and didn't have to go through this chain of an animal. From this point of view, yeah, we're seeing that, and that was just one example.
We're seeing that in the care side of things. We're seeing that on the CASE side of things. Also there, depending on the markets and how people feel about how their current disposable income is. Yeah, certainly a trend we are observing. Does that answer your question, Nicole?
Yeah, it does. Thank you for the very, yeah, very helpful example as well. Thanks.
Thank you. The next question is from David Kerstens of Jefferies. Please go ahead.
Good morning, gentlemen. I've got 1 question remaining on your conversion ratio. You highlighted your digital achievements as best in class with the 100 customer portals and e-labs, and you already showed us that to some extent when we were over in Paris. Does that explain the positive development in the conversion ratio in the fourth quarter, which was up very strongly by 630 basis points, whereas I think your Dutch peer showed softening conversion in the fourth quarter, I think because of an seasonal weaker quarter with a slowdown in organic growth? What explains that difference? Maybe related to that, what are the cost headwinds you are seeing going into 2023 impacting that conversion ratio? Thank you very much.
Have that one.
to give you maybe more holistic picture on what we do with Azelis as a platform. We always have invested in our business to be efficient in operation and drive operational improvements. There are many improvement points in this business because we run basically a country/regional sort of corporate model. Take for instance an ERP platform. Sounds all very easy. We worked for this for two and a half years. We talk about digital, we worked already for this for five years. We're just at the tipping point where we're starting to see the benefits coming from this. Take, for instance, the first one on ERP. Usually, it leads to more operational efficiencies.
You can implement your service centers, you can do centralized credit management, you can help your credit managers in the countries, those kind of things where you can think. Also M&A integration, it can go much faster onto the platform. There are obviously all kinds of operational benefits, and we have compiled all those operational benefits when it comes to logistics, when it comes to commercial initiatives, when it comes to digital. Yeah, we have compiled them all, and we take a very conservative stance with our 10 to 15 basis point margin expansion. Obviously, that is our external ambition, not our internal ambition. On the digital side, for instance, yeah, this of course attracts. What we are doing here is serve the customer better, serve the principal better, and basically connect our labs in a better way.
The more efficient you do that, yes, there will be a Conversion Margin uptick. To say that it was reflected in the Q4 numbers, I would not wanna go there. This is more a longer-term journey where we are, where we're working on our strategy. As always, what we do with basically our customer growth, our principal growth, and our operational initiatives around sustainability and digital. Will that help you a bit?
Yeah, no, that sounds great. Well, how do you explain the difference in the conversion ratio in Q4 then relative to your peer? Is it timing differences in terms of cost increases?
We don't-
Okay, I'm not gonna comment on my peer. I think you need to do the analysis yourself. We are running Azelis, and we're doing our things. We're very transparent in our strategy. I think this is what we're doing. I cannot comment on that. Sorry.
Great company, but they have to explain what they do.
Yeah. Okay. The headwinds going into 2023, in terms of labor costs, for example, what type of increases are you going to pay?
Actually, what we did for some of the economies around the globe who faced substantial inflation pressure, we had first time and probably or maybe for the last time, depending on inflation development, we have increased salaries in the course of last year and the end of the 3rd quarter, for everybody. Not a lot, but at least for some of, and obviously not for senior management to the extent. It was really geared towards some of our sellers, because for them, some of them, we just did not wanna sit still while they face 15%, 20% inflation.
Well, some of the countries inflation has eased, still is high, but we have all factored what we anticipate to do in for the remainder of the year and with this we are still confident to deliver to promise what we have said we will deliver.
In our 2022 numbers, there's already an extra salary run in there.
Yeah. Yeah.
Okay. Thank you. Thank you very much, gentlemen.
Thank you.
Yeah, that's it.
Thank you. The last question is coming from Stefano Toffano of AN. Please go ahead.
Yes, good morning, everybody. Thank you for, well, for your patience. A few very quick questions from my side. Just for my understanding, I don't know if it's possible to say, if you wouldn't have any headwinds from the China lockdowns, would you be able to say what the conversion margin for Asia Pacific would have been, just out of curiosity? A couple of questions very quickly on M&A, because you mentioned that you do not expect a slowdown in your inorganic growth. What does that exactly mean? Are we talking about the total amount spent for acquisition or maybe on the annualized revenue that you bought? I'm just thinking about this year where you say annualized revenue was, say, EUR 600 million.
Do we have to think about that number maybe also for 2023? The last question related to that is, the impact of, you know, very rapid rising interest rates and how that might impact your M&A and the multiples paid. Thank you.
Okay. First of all, on the conversion margin in APAC and how that would have looked if China would not have had, I'm afraid no. I can't really answer that. At least not. We cannot really pick that number out, but I don't have that.
I can give you some numbers. China is roughly EUR 250 million business for us, and we're roughly at a standstill, actually to a decline. That was actually not a good thing in 2022, despite such a fantastic year. On the margin level, obviously under a benign top line, we have the cost. We kept people, we kept investing in all these operational initiatives, so it didn't really help us. You should see it as a potential upside and we get actually already quite some positive signals from the reopening of China as you can say.
Yeah. On the M&A side, what I've said, we don't see a slowdown on activities, but we can say it will be EUR X million by the year-end, because obviously these are all negotiations and as somebody recently said, it's only done once the deal is signed. Well, yeah, the pipeline is solid, I can talk about that, and we will continue to develop the pipeline for many more years because there are so many opportunities.We can't comment on will it be at the same level or will it be slightly lower or will it be a little bit higher. That wouldn't be true.
Interest rates, please note that we are a very asset light business. Take for instance, the last funding we arranged in a short time were very competitive rates. We have sufficient cash flow generation there. That the interest rates and the impact on multiples, I think, that's more macroeconomic analysis that somebody can make. We are continuing to execute a strategy by delivering organic growth and synergistic M&A and working on our operational initiatives, as we mentioned during the call.
Okay. On your point on the multiples.
Thank you very much.
Okay.
Yeah.
On the multiples, we don't see them moving. It's just all over the place. As I indicated before, for larger targets, the multiples are slightly on the higher side, or on smaller targets, they're on the lower sides. Will it have an impact on those? Mid-term, maybe. What has probably more impact on the multiple expectations of the sellers is, like, what they foresee for in the economy, what they expect.
Everybody was, for the last couple of years, did see good results, so expectations are high, but also everybody is kind of thinking, "maybe we're reaching the end of this super high growth rate, so maybe it's not justified to ask so much." All in all, we remain confident, as Taze phrased it before, to a single-digit multiples for the assets we buy.
Thank you, gentlemen.
Thank you. Definitely.
Thank you. Thank you. There are no further questions, and we have come to the end of this call. I'm gonna hand over to Chief Executive Officer, Joachim Müller, for his closing remarks.
Well, thank you all for staying with us for the last one and a half hour or so. Thank you for your interest in the firm. Azelis, and I said that before, is dedicated to underpromise and to overdeliver. We're operating with a clear mindset that everything can be improved everywhere at all times, which will give us good run rate for the quarters and years to come. Thank you for your interest and your trust in Azelis, and looking forward to talking to you next time. Thank you.