Good morning, everyone, and Welcome to Azelis Q3 2026 Trading Update Call. My name is Louis des Courtis. I am the new Head of Investor Relations and Corporate Finance at Azelis. Today, as usual, we have Anna Bertona, Group CEO, and Boris Cambon-Lalanne, Group CFO, presenting our Q3 results. I will give a high-level overview of our performance and a few words on the outlook at the end of the presentation. Boris will then walk us through the financial section. Note that during the presentation, we will be referring to year-on-year changes in constant currency, except stated otherwise. We will take questions after the presentation, but until then, you will be on listen-only mode. We would like to remind you that the presentation and Q&A may contain forward-looking statements that are subject to risk. Now let me hand over to Anna.
Thanks, Louis, and good morning, everyone. Thank you for joining us today. As always, we have structured the presentation into three parts, as Louis also was saying. I will begin with the main developments in the business for this quarter. Boris will take you then through the group and regional financial performance, including profitability and cash flow. Then I will return at the end to discuss the near-term outlook and our recently announced medium-term objectives. Let me start with the key takeaways based on our performance in the third quarter. The most important message is the continued organic growth momentum. In Q3, all the regions delivered positive organic growth, high single digit in EMEA and Americas, and double digit in APAC, resulting in group organic growth of 8.2% for the quarter. The improvement in the top line translated into even stronger profit growth.
Organic adjusted EBITA increased by 14.3% in Q3, and that is the highest level over the past six quarters. The strong expansion in conversion margin demonstrated positive operating leverage even as we focus on driving growth. Lastly, the growth momentum that we see in the near term is reflected in the working capital investment during the period, specifically in inventory. We are well-positioned to support current market growth and drive it when recovery happens in other markets. Overall, Q3 provides encouraging evidence that the green shoots seen earlier in this year are translating into stronger performance. But we remain attentive to continued volatility driven by the geopolitical tensions and uneven trends across end markets. Now let us have a look at the results in more detail, starting with the next slide.
Boris will take you through the numbers, and the most important ones I have already highlighted actually, which was the strong organic growth and the conversion margin. But what are the drivers behind these results? First, pricing dynamics remained positive across all regions, and the green shoots in volume that we observed in some markets in the first half have been sustained. Second, personal care continued to show strong momentum across all regions, and that was driven by volume growth and supportive pricing. Third, we have seen improved momentum in Industrial Chemicals in all regions, especially in CASE. Although recovery is underway in many of our markets, we continue to see some challenges. Some of our end markets in EMEA Life Sciences remain under pressure. We continue to see weak volumes and competitive pressure in food and nutrition, and our agri business is still reeling mostly from weather-related weakness.
But also the Middle East conflict has an impact, most notably on our business in Israel, where we have a significant agri business. Next to that, we see some slowdown in the momentum of F&F. Overall, the 8.2% organic growth we achieved is testament to the benefit of Azelis' diversified portfolio. As I said earlier, we are well-positioned to maintain our performance in the markets that are doing well and capture the growth when the recovery comes in the other markets. Now let me hand over to Boris to talk about the financial performance during the quarter.
Thank you, Anna. I will now take you through the group results, then moving to the regions, and finally to cash flow and working capital. In Q3 2026, group revenue increased by 8.5% to EUR 1.1 billion. Life Sciences revenue grew by 1.5% to EUR 671 million, while Industrial Chemicals delivered a strong performance, increasing by 21% to EUR 451 million. The difference in performance between these two segments is essentially due to the soft performance in EMEA Life Sciences, where, as Anna noted earlier, we are seeing challenges in some end markets, such as F&F, Food and Agri. Gross profit increased this quarter by 8.8% to EUR 263 million, with a stable margin at 23.4%, as positive pricing more than offset the normalization of our favorable Q2 inventory position.
Q3 2026 adjusted EBITA reached EUR 114 million, representing an increase of 14.6% versus prior year, and the adjusted EBITA margin expanded by 54 basis points to 10.2%, which drove a 219 basis point expansion in our conversion margin, standing at 43.4%. This quarter, we had EUR 6 million of change of provisions adjustments, mainly due to increase of variable compensation provision adjustment in 2026, reflecting the continued performance this year. Net of this impact and the FX Q3 EBITA growth would reach +22% versus prior year, supported mainly by gross profit increase while our 2025 cost-saving programs continues to yield favorable upside in our cost line. Let's now see the breakdown of this performance in our regions. All three regions delivered strong revenue growth in the third quarter. In EMEA, revenue increased from EUR 457 million to EUR 499 million.
Organic growth was +7.5%, and acquisition contribute an additional +1.7%. At gross profit level, EMEA grew organically by 2.1%. The slower growth in the region is due to the mix effect of higher contribution from Industrial Chemicals, which has a lower gross margin profile than Life Sciences. Within Industrial Chemicals, we saw a higher contribution from lubes and metal working fluids. Nevertheless, thanks to continued discipline, EMEA delivered a +6.1% growth at EBITA level, resulting in a 16 basis points adjusted EBITA margin contraction to 11.2%. In the Americas, revenue increased from EUR 361 million to EUR 405 million, corresponding to an organic growth of 8%. Gross profit grew by 14.9%, driven by a positive mix effect from improved performance in North America and supportive prices across the region.
Adjusted EBITA increased by 19.2%, delivering a margin expansion of 108 basis points to 11.8%, and conversion margin in the region widened by 169 basis points to 48.1%. Asia Pacific, once again, delivered the strongest organic revenue growth at +10.2%, with revenue increasing from EUR 197 million to EUR 218 million, driven mostly by personal care and CASE, as well as general positive pricing across most end markets. Gross profit grew by 14.2%, supported by strong top-line growth. Adjusted EBITA increased by 26% on the back of a strong conversion margin, widening by 466 basis points to 49%. The regional results show that the positive momentum was broad-based. Particularly strong profit progression in the Americas and Asia Pacific complemented the clear improvement in EMEA revenue growth. I will not spend too much time on that slide as it is self-explanatory.
It is provided simply to make it easier for you to see the split of the progress as well as the strong revenue growth being translated to higher profitability. Turning to cash generation, the free cash flow was EUR 67 million in Q3, representing a conversion ratio of approximately 59%. Out of an adjusted EBITA of EUR 125 million, the principal cash outflow came from about EUR 46 million of working capital investments in the quarter. Our working capital decisions are tied to the demand evolution, as reflected in the direction of our order book. The increase in inventory was targeted to support the stronger demand environment and maintain service levels to our customers as organic growth accelerated. The net position of DSO and DPO increased by 2 days while remaining well within their historical level.
The higher working capital intensity of 17.2% represents a temporary cash compression associated with the increased growth. We remain focused on translating profitable growth into sustainable cash generation, and we expect working capital to reduce in Q4 in line with usual seasonality and with discipline, supporting cash flow generation until year-end. We continue to focus on reducing our leverage ratio in line with the capital allocation framework we presented during our lab tour. While we expect to continue to reduce the net debt in the final quarter of the year, I remain confident of delivering positive EBITA growth for the full year, thereby reducing the leverage by the end of the year. With that, let me hand you back to Anna for some words on the outlook.
Thank you, Boris. Let me conclude with near-term outlook and medium-term objectives. For the near term, there are three points I would like to make. The continued organic growth momentum delivered in Q3 keeps us on track to achieve positive adjusted EBITA growth for the full year. We expect our working capital to reduce in the fourth quarter in line with historic seasonality. Together with EBITA growth, our leverage will be lowered towards our targets. We are determined to remain agile through these volatile markets, which we do not expect to ease anytime soon. Our focus remains on advancing our strategy through our three strategic programs: Customer’s First Choice, Winners of the Future, and Future Fit. Regarding the medium term, at our recent lab tour on 29th of September, we announced several mid-term objectives.
Our aim is to achieve mid to high single-digit annual gross profit growth and high single-digit annual Adjusted EBITA growth. This is reflecting the structural attractiveness of our industry and our business model. We also strive to double our EPS and achieve a return on capital employed of at least 11.5% by 2031. While our strong third quarter performance is encouraging, in this volatile market, our focus remains on disciplined execution, converting the improved momentum into profitable growth, stronger cash generation, and attractive shareholders' returns. With that, we are ready to take questions.
We are now opening the floor for question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. Again, that's star followed by one on your telephone keypad. We will pause for a moment to assemble the queue. Your first question comes from the line of David Symonds of BNP Paribas. Your line is now open.
Thank you very much. First question, please. Could you talk about whether there's been any change in the order books as you moved through Q3? Were there any sort of notable monthly cadence change? Is October still looking quite good? Secondly, was there any increase in bonus provisioning in Q3 versus Q2? Finally, if I could maybe. I think there was obviously a COGS benefit in Q2 that you mentioned in the release. Was there any subsequent write-down in Q3, or was Q3 cleaner and more neutral? Thank you.
I'll take the first question. The second I didn't understand, so after I reply on your first, you can maybe repeat it. The third one, Boris, you can pick it on. Change in order book, I think, as we said, we see a bit of the continuation of the trends that we saw in Q2. We see them in Q3 and still continuing in the beginning of this quarter as we are in October. We have to be careful. We are still in a volatile market and so we see that the markets are not yet back to normal. As you know, we always look also at our order pattern. The order pattern, as I said in the previous quarter call, are getting back to a more normal pattern, but they are still not yet at, I would say, the level that we are normally used to.
And remember, we always look at order frequency and order size. In volatile times, the order frequency goes up, size of the orders goes down. During Q2, that improved. We see the same trend in Q3, but it is not yet back to normal. Can you repeat your second question?
Yeah. Thanks for that answer. The second question was on bonus provisioning and whether you are provisioning for a higher bonus in Q3 than you were in Q2.
Yeah. Okay. On the bonus provision. Yes. Boris, maybe you answer that one and the next one.
Yeah, sure. So as the performance continued to evolve positively, we had to slightly adjust our bonus provision in Q3. So, what you see on the bridge slide is indeed that impact of slightly increased provisions of bonus in Q3. I will also take the third question, which is about the COGS. So yes, indeed, we had a little COGS benefit in Q2. Given the fact that we were in the price increase quarter, we benefited from slightly cheaper inventory. This has been normalizing in Q3. So you can consider, I think your word was cleaner. Yeah, it is actually normalized, and it will be also normalized in Q4.
Great. Thank you very much.
Your next question comes from the line of Nicole Manion of UBS. Your line is now open.
Good morning. Thanks for taking my questions. Just two, please. Can you talk a bit more maybe about the improvement in CASE? Obviously, that has been a tricky market, and I think you have got a fair bit of construction exposure in there. Can you give any more detail on the magnitude of improvement, how sustainable you think that is, and any regional differences you have seen? Then secondly, just on the latest pricing trends. It maybe looks as though there has been a bit of a spike again in some kind of broader sort of pricing indices. Is that something you expect to have an impact kind of looking into Q4? Or is the outlook on sort of further price increases actually quite stable and measured after what you have seen earlier in the year? Thank you.
Yeah, thanks for your question. The CASE improvement is mostly driven by a favorable pricing environment and, yeah, say a portfolio where price increases have been possible and sustained. It is less based on volume, although it depends a bit on the end markets, because for APAC and EMEA, there was also a volume increase. We think that the current interest rates are not very helpful in, I would say, driving an increase in activity in the construction market. So that is also why in, for example, in the U.S., the improvement was mostly based on price. Regarding your question on pricing trends, I would say the larger price increases are behind us. It is stabilized now, but they seem also to stick, as you can also see in our results.
The big fluctuations that you might have seen in the market are more the portfolio of commodities. As you know, our very vast majority is on specialties. We do not expect to have a big change in pricing in the next months.
Thank you. It is very helpful.
Your next question comes from the line of Anil Shenoy of Barclays. Your line is now open.
Thank you so much for taking my question, and good afternoon. Good morning, sorry. Just the two from me, please. The first one is on leverage. You are right now at 3.5 times versus your target of 3 times. You mentioned in the past that you will not be pursuing acquisitions unless your leverage is below the 3 times. I was just wondering when you think your leverage could be below 3 times, and when would you start actively pursuing acquisitions? That is my first question. The second question is on costs and operating leverage, please. If you could give us some color on how you are thinking about costs, especially going into 2027.
Are you going to invest more in costs or do you think you're right now done with a lot of investments and now you will focus on growing gross profit and bringing in operating leverage to flow down to EBITA? In other words, for 2027, what kind of a gross profit growth would be required so that you see positive operating leverage and EBITA organic growth to grow faster than gross profit? Thank you.
Let me take these two questions. Thanks for asking about the leverage. This is a recurring question, and I understand the importance it has for you, but it has even more for me. Indeed, we are focusing on getting the leverage back to the band that we communicated during our lab tour, which is between 2.5 and 3.0. Realistically, by the end of the year, what I have been saying, and I repeat, we are focusing on getting it back to 3.0 - 3.1, and we are working on that. The main lever, there are two actually. One is reducing, adjusting, with the normal seasonality to working capital. Two, there is another element in the equation, which is the EBITA.
Since we expect EBITA to end up on a full year basis on positive organic growth, we think that will also contribute to bring the leverage where we want it to be. On costs and operating leverage, you ask questions about 2027, so I am sorry, I will not give any quantified number for 2027 at this stage. What I can tell you, because you ask about our cost investments, yes, we will continue to invest. In our lab tour, let me refer back to that. We mentioned that we will continue to invest mainly in digital, in IT, in AI, and that will drive efficiency across our teams. Frontline and back offices as well.
Great. Thank you.
Your next question comes from the line of Annelies Vermeulen of Morgan Stanley. Your line is now open.
Hi. Good morning. Just two questions, please. Firstly, you mentioned deceleration of momentum in F&F. Could you unpack that a little bit in terms of is that consumer weakness? Is that more price, more volume? Also in which regions you're seeing that. Secondly, just on the Middle East. You mentioned obviously your business in Israel still impacted. How has that developed through Q3 versus Q2? I know we all see the headlines in the news, but just wondering what the situation is on the ground there that you're seeing. Thank you.
Yeah. First your question on deceleration of F&F. We see a price pressure. We've been able to hold on mostly to the volumes, but price is challenged. We see that in the different regions. On Israel, Q3 was worse than Q2. It's very difficult to predict, especially this part of our business, for the next quarter. We expect that it's probably going to stay on the level that we have seen in Q3. But it is a very tough environment, as you can imagine.
Very clear. Thank you.
Your next question comes from the line of Suhasini Varanasi of Goldman Sachs. Your line is now open.
Hi. Good morning. Thank you for taking my questions. Just a couple from me, please. Life Sciences in EMEA, would you expect it to remain weak in the next couple of quarters? That's my first one. Do you see any concerns around shortages in any particular area yet, or not really? The last one is probably on the impairment, please, that you've taken on the U.S. acquisitions. Probably includes Flagsoft, Megafarma, Rocsa, Vogler, et cetera. I think performance also been much below expectations just because of the market dynamics. Just to be clear, no further impairments expected in EMEA and APAC? Thank you.
Let me first answer your question on Life Science and main expectations. There's, as I said, three main drivers in there, which is agri, the F&F, and food. I expect that these will continue. On the other hand Personal care, pharma, nutra, home care, Industrial Chemicals are doing well, and that trend is also continuing. So I expect a bit more of the same. For the moment, we don't have very big shortages anywhere. Where needed, we are, of course, building up our stock in the last months. We are in very close contact constantly with its principals to ensure that if they expect somewhere some shortages, that we are very much aligned in building up stock if that's needed. Boris, maybe you can talk about the impairment.
Yeah, sure. On the impairment. First off, it is a yearly exercise that we did, and we did this on the three regions. It happened that in America, we had an impairment indication. The macroeconomic environment resulted in higher discount rates across all three regions, and it happened that in America, it has an impact, having us to recognize this impairment. This is related to acquisitions we did mainly in 2021 and 2023 period. At the time, the market conditions were different from what they are today. Again, as I said, mainly, but not only, but mainly also on the interest rates, the valuation parameter had a meaningful impact in this impairment. Now, whether we would expect other impairment in the future, again, as of now, we do this yearly, and we have headroom in the other two regions.
As a matter of fact, as of today, it is only about Americas.
Thank you very much.
Again, if you would like to ask a question, please press star followed by 1 on your telephone keypad. That is star followed by 1 on your telephone keypad. Your next question comes from the line of Philip Ngotho of Kepler Cheuvreux. Your line is now open.
Hi. Good morning, and thank you for taking the questions. Most questions have been asked already, but maybe one follow-up on the goodwill impairment, and also generally the capital allocations with M&A, given that it is also such an important growth item as well also to achieving the doubling of EPS by 2031. I am wondering to what extent have also acquisition criteria or returns thresholds now changed in light of the current impairment that you have put through also in light of your ambition to achieve a ROCE above 11.5% by 2031?
Hi. Thanks. Yes, indeed, as we discussed during the lab tour, our capital deployment is now anchored on a minimum return target, as you know. Acquisitions will have to yield an even higher ratio than that. Of course, synergies will be expected to accelerate the returns of acquired assets over time. But indeed, yes, we will look very strictly on returns on the acquisitions in the future, for sure.
Have the criteria changed versus the past?
I would say, and this is repeating what I said during the lab tour, we reinforced the focus on the return even more than it was in the past. The criteria is the one we mentioned during the lab tour. We aim at having a ROCE above 11.5%, and that's a reinforced metric that we'll be focusing on from now on.
From a strategic perspective, the criteria have changed.
Okay, great. Thank you.
Your next question comes from the line of Usama Tariq of ABN AMRO - ODDO. Your line is now open.
Hi. Thank you for the opportunity. I have two questions. Firstly, on housekeeping, with regards to your leverage is around 3.5 times. How much undrawn bank liquidity do you guys still have? Does it have any impact on financing cost going towards the year-end? Just a little bit of color on it would be really, really grateful. My second question will be more generic with regards to the Asian competition, especially from the Chinese front. Do you see some dynamics change in Q3 versus Q2? I believe there was some reprieve in Americas previously, if I am correct. Do you see some competition returning or some evolution there? That would be really great. Thank you.
I will start maybe with your last question, and Boris, you can take the first question on the leverage. Asian competition, of course, the moment that the tariffs were installed and then reinforced by the Hormuz conflict, some of the streams of goods changed, and therefore, there was ending up less in the Americas. But here and there, more in other regions. So I would say us as a global company, the competition is still there, but we might feel it slightly less in some places and a bit more in other places. Most notably, I would say competition shifted towards Latin America and Middle East Africa and Asia Pacific in certain areas.
On liquidity, no change in the facilities we have. On debt, you know what the debt fixed debt is. On liquidity, we have our RCF, and it is largely undrawn, as you know. So, no change on the facilities. We have ample liquidity in case the business requires that. Today, this is not a matter of concern for us.
All right. Thank you. Very grateful.
Your next question comes from the line of Stijn Demeester of ING. Your line is now open.
Yes. Good morning. Thanks for taking my question. First one is on, do you see any risk of demand destruction in certain end markets due to the current pricing dynamics, which I would consider was quite strong, but considering still fragile underlying demand? The second question on the supplier base, has there been any change recently with regards to in or outsource? You remember the horse trading comments earlier this year. What would be the impact on your mandates of an expected consolidation rate in the European chemicals industry? That is it. Thank you.
Yeah. On the risk of the demand destruction, it is a volatile market, and as prices increase, yeah, on the longer term, will they be able to be absorbed by the market or not? Will it hamper in the midterm, the growth? It depends a lot on what is going to happen also geopolitically, so it is very difficult. I do not have a crystal ball on that. For the moment, we see the same trend in Q3 as in Q2, and we expect that to continue in the next quarter. But it is very difficult to predict on the longer term what that will do. On the supplier base, I think we explained that there is always in and outsourcing. The bigger trend has not changed. Its principals are still looking to distributors for having to deal with their business and to grow their business where they cannot.
You have sometimes customers taken back. On the other hand, we also have enough opportunities where the principals are reviewing their route to market, especially in difficult market circumstances, and they decide to give more of their tail to distribution. I would say this effect is continuing. Yes, there is, of course, consolidation happening in the European industry and globally as well. That is something that has been there for a long time. The chemical industry is very well known for spinning off and, I would say, recombining different parts of different companies. It can create opportunities. It can create risks. We are, I would say, well equipped to deal with that as we have had in the past as well.
Thank you. That is very helpful.
There are no further questions on the conference line. We have come to the end of this call. I will now hand over to Chief Executive Officer, Anna Bertona, for his closing remarks.
Thank you, and thank you for taking the time to join us today. As usual, our team is available for any follow-ups you might have, and I look forward to speaking or seeing some of you shortly. Thanks again, and wishing you a good day.