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Good morning, ladies and gentlemen, thank you for standing by. I am Sherry, your Chorus Call conference call operator. Welcome, and thank you for joining the First Quarter 2018 Result's Conference Call of the Symrise AG. [Operator Instructions]I now hand you over to the host of today's call, Mr. Tobias Erfurth. Please go ahead, sir.
Many thanks, Sherry. Good morning and welcome to our analyst and investor Q&A call on the occasion -- publication of our Q1 statement. Today's call will be led by our CFO, Olaf Klinger. All corresponding materials, including the presentation, have been published on our IR website this morning. A replay of this call will be available later today.With this, I hand over to Olaf, to give us a brief overview of our Q1 numbers, before we start the Q&A session.
Thank you, Tobias. Ladies and gentlemen, good morning, and welcome to this Q&A session also from my side. Despite a challenging market environment that was dominated by very tight supply markets and volatile exchange rates, Symrise delivered, what I would consider, a very good set of results.As you can see on Slide 2, we had a dynamic start into 2018, with organic growth amounting to 7.5%. Our portfolio additions, Cobell and Citratus contributed another 1.9% to group sales. As expected, the strong euro continued to have a negative impact on our top line. The FX rate was EUR 60.4 million or 7.9%, residing in a reported growth of 1.5% and total group sales of EUR 776.9 million.Our EBITDA margin in Q1 2018 was 20.1% compared to 21.6% in Q1 2017. However, please bear in mind that we had a positive onetime gain of EUR 4.7 million back then, Q1 2017 excluding this onetime gain would have been 21% margin. The decrease in margin was mainly related to significantly higher raw material prices the whole industry faced in light of the ongoing raw material crisis as well as FX headwinds. Furthermore, our strong investment activities as well as the destocking at Probi impacted our profitability.Please turn to Slide 3. For our Scent & Care, Q1 was a particularly challenging quarter. Organically, sales rose by 6.9% with Aroma Molecules posting the strongest growth. The sales increase was led by our Fragrance ingredients business, former Pinova Renessenz, which was able to leverage its portfolio of 13 ingredients, like the [indiscernible] in the current market environment.As in prior quarters, Cosmetic Ingredients achieved strong organic growth in the high single-digit percentage range, with good dynamics coming from Asia and Latin America.Our Fragrance business continued at a moderate pace, encouraging was the revitalization in Beauty Care and Home Care that we saw in the first quarter as well as the ongoing good performance of Fine Fragrances especially in Latin America. The EBITDA margin of Scent & Care stood at 19.5% and is a reflection of the already mentioned raw material price situation and FX headwinds. Despite this exceptional situation, with many external pieces coming together, the unique situation for the whole Flavors & Fragrance industry, Symrise was able to retain full delivery capability, thanks to our industry-leading backward integration and our Aroma Molecules operation.In this current crisis situation, we have once more proven ourselves as a highly reliable partner, working closely with our customers on ensuring business continuity and finding solution on a product-by-product basis.Also, we continue to implement price increases in close dialogue with our customers to compensate for higher raw material cost. That said, we expect raw material markets to remain tense at least for the next quarter, most probably 2 quarters.Let's move to the next slide. Our Flavor business delivered outstanding numbers for the first quarter. Organic growth of 11% was driven by all 3 business units. The price/volume mix of 50% price and 50% volume that we saw over the past quarters normalized to 1/3 price and 2/3 volume is more typical for our company. In terms of revenue drivers, in EAME we saw a good momentum for Sweet and Savory applications and North America reported strong momentum in Beverages, stemming from new business winds.In APAC, the country markets China, Japan and Singapore, showed very good dynamics and in Latin America we saw good signs in Brazil and Mexico from our Sweet category. The EBITDA margin for Flavor was 20.9%, a slight decline compared to 2017, which was 21.1%, was related to the Cobell acquisition.Lastly, we come to our Nutrition business on Slide 5. That continued to be impacted by the customer destocking at Probi that we have seen for the past 3 quarters. Q1 organic growth for Nutrition amounted to 2.9%, excluding Probi though, the organic growth number would have been 8%, a clear sign that our Diana business, both Food and Pet Food continued to be a strong contributor to group performance.Those of you that took a look at the Probi numbers that were published on May 2, will not be surprised that we also saw an impact on our Nutrition bottom line. The EBITDA margin for the Nutrition segment came in at 19.5% compared to 22.7% in Q1 2017. Besides the Probi impact, which we also incurred ramp-up costs for the new Diana Food plant in Georgia, that will come on stream in the second half of 2018, faster than initially expected. For Q2, we continue to expect a negative Probi effect in comparison to prior year that should ease in the second half of the year.To sum up, please turn to Slide 6. Q1 2018, was not an easy quarter. Nevertheless, despite extensive investments, volatile exchange rates, higher raw material prices and the temporary destocking at Probi, we managed to deliver 7.5% organic growth and outstanding number if you ask me and an EBITDA margin of 20.1%, which is clearly within our guidance range.With this, we look ahead with great confidence to our business performance in the coming months. And affirm our growth and profitability targets.That said, I would now like to move to Q&A, and thank you for your attention until now. Tobias, please go ahead.
Many thanks, Olaf. Turning to Q&A, we are now happy to take your questions. We kindly ask you to put only 2 questions. Many thanks, Sherry please go ahead.
[Operator Instructions] The first question is from Thomas Swoboda of Societe Generale.
I will take 2 questions, please. Firstly, on this acquisition of Frutarom we saw yesterday, I'm sure you guys have looked at Frutarom as well. So my question is, if you can comment what do you expect from this acquisition in the short to midterm? Do you feel under pressure to go for acquisitions yourself? How happy are you with your current structure? The second question is on profitability and the pressure from input costs. From your statements with the full year numbers, I understood that most of the pressure from Citratus due to the force majeure at BASF should already be fixed in Q1. Today, it doesn't sound so. Could you split the effect, if possible, between what is the actual input cost inflation from the market, and how much pain do you feel from Citratus?
Yes, thank you, Thomas. So on Frutarom, yes we recognized, of course, this transaction, and we know Frutarom for a long time. However, I think it's not up to us to comment on the acquisitions, which we have recently seen at [indiscernible] at IFF but for me, this is the best confirmation we could get for what we have done in 2014 with Diana, when we acquired the 13.5x multiple, a very high-quality portfolio of business activities. And in a second comment, I would say this is great confirmation of our strategy, which we have started to diversify out of Flavor & Fragrance from years ago, which puts us in a unique situation today. I think they have managed so far to focus ourselves on internal growth opportunities, that's where we're investing. And in this regard, I see Frutarom not as a challenge for us, I see it as a confirmation of our strategy, which we have started earlier than others and which helps us today to grow faster than anybody else in the industry and we want to continue this. On the input cost side, you referred to the Citratus situation. I would like to put this in a slightly broader sense. This raw material environment started basically in China last year, when certain raw material ingredient suppliers were shut down in China and some of them might not come back on stream. We had the fire at BASF at the end of October, and for those of you who follow this environment closely, you know well that there was a fire at DRT in India in February. Just last week, there was another fire at Privy, another major supplier to the industry in India. So putting this in a broader sense, we have currently the biggest raw material crisis in our industry. And I'm pretty proud of our teams to steer through this crisis at the moment. And with the outcome you see partly in Q1, we managed this extremely well in close collaboration with our customers, and we want to be an extremely reliable partner, and we get a lot of recognition -- positive recognition for that in the current environment. So in this regard, also our Renessenz acquisition helps us a lot at the moment, this is, I think the consequence of our backward integration strategy, which is a major element to steer us through this crisis. In the current environment, we need to expect that this will continue for some time. Again referring to the recent fires in India. So in a broader sense, yes, BASF will be back at some point. But in this environment, the utmost important point for us is to manage this customer's supply but also the respective necessary price increases. In that light, we expect that the raw material price situation will be with us at least for Q2, most likely also with Q3, again, supported by our own backward integration, which is very helpful in this current moment.
The next question is from Tom Wrigglesworth of Citi.
Two questions, if I may. First on the organic growth. If you could give us a sense of what the price component was versus the volume component both at the group and a divisional level, that would very -- be very helpful. Obviously, there was a strong recovery in gross versus a slightly softer base but some -- have you seen an acceleration of growth? Is that what we should take away from these first quarter numbers in terms of this organic greater growth? And yes, your comments around the sustainability of this rate of growth would be much appreciated.
Yes. Definitely, Tom. Thank you for the questions. So on the price volume situation and Flavors, I already commented, this is more back to normal now with 1/3 price and 2/3 volume. In Scent & Care, we continue to see pretty much no major price in Q1. This should change in the coming quarters because we are actively working on the price increases with our customers and they will come through over the coming quarters. So Q1, no price, more or less, and/or volume. And for the Nutrition business, especially in Diana, we see the more normal situation for the group of 1/3 price and 2/3 volume. So that's in order. As you have seen, I think taking out Probi 8% growth, and Nutrition, is very good outcome. Exceptional growth in Flavor and even in Scent & Care, I think, organic growth numbers are quite impressive. So a strong start into the year. We are working extremely hard to continue this growth story. We are very confident, we will bring our new Cosmetic Ingredient facility on stream in the middle of this year, and we are working very actively on other investments, including the Diana Food ingredients facility in the United States. All this will have to support the growth story and therefore, you see us pretty confident to continue with our growth environment.
So just as a quick follow-up. So you think you're taking share at the moment, is that a fair assumption with these growth rates or is it, this is the rates at which your underlying markets are growing?
I think that from the situation that we are still growing as the fastest in our industry. So from that, I would say, at the moment we are best positioned with our backward integration to manage and steer through the crisis situation. And we have done a lot when it comes to the diversification of our portfolio outside of Flavors & Fragrance and this is paying off now. We are starting to see the attractiveness of Symrise is increasing, we're getting more and more attention from customers because of this. And I think from that perspective, I would support your statement.
The next question is from Heidi Vesterinen of Exane BNP Paribas.
So I think you mentioned in your commentary that you have speeded up the start-up for your Diana Food plan. Does this make you more confident for the year in terms of organic growth because you are ramping up capacities in capacity-constrained area, so the volume should come fairly quickly? And I think, is there scope for you to speed up other start-ups? I think you had been talking about trying to speed up Menthol, for example, on the back of the crisis, so comments on that, please. And then maybe, on the raw material shortage, where you talk about an advantaged position, do you think others in the industry may have had issues supplying the volume? And do you think -- have you had inbound calls from customers asking for more? Do you think you've gained share on the back of this situation?
Yes, so thank you, Heidi. Yes, you're right, we are accelerating the activities around Diana Food's. The new plant, this will be in Q4, where we see the first sales coming in. You should expect a full ramp-up of the facility and the major impact from this new plant in 2019. But it's nice to see that we managed this program, this investment, very well and for that, yes, it's good to see that we will be ready this year, faster than expected. Menthol is still scheduled for next year, so no change in time line there. The other big element which will come on screen this year is in Cosmetic Ingredients, the investment which we do in the United States. It's built in a way that we can start this -- a first capacity and if needed, we can easily expand it at less cost over the coming years. So it's a very flexible approach, which we took there to further expand if needed. And on the raw material situation, hard for me to comment on the situation of our competitors. I think we work extremely hard to really secure supply to our customers. Given what we have in-house and given this flow of products, the effort we do to bring products in the right place to serve the different production sites around the world at the right time. I would imagine that others will have probably similar, if not more challenges than we, and that makes us comfortable that we are best positioned in this regard to manage through the crisis at the moment.
The next question is from Gunther Zechmann of Bernstein.
Can you help us break down how much of the margin headwind that you experienced in the first quarter was due to raw materials and how much due to FX headwinds? I think that's the two main effects you mentioned in your opening speech. And the second question I have is on demand outlook for the rest of the year, were you surprised to see double-digit growth in Flavors in Q1? And how quickly do you expect that part to normalize? Whilst probably Nutrition, I would expect to ramp-up as Probi stabilizes.
So on the margin headwind, what I can tell you and we have done that before, is that the translation effect that we saw was around EUR 12 million EBITDA impact, so that is a substantial number. Raw materials were definitely a major impact. The combination of the two at the end is probably balancing out somehow, which, yes, it's the current headwind we get on both sides and it's very critical for us to manage through the price increases and as we said, there's hard work going into this, and we should see the counter measures coming through in Q2 and Q3, and it still remains to be seen, how at the end this raw material crisis will play out because it's the day-to-day effort to make it happen and serve the customers. So from that, FX will be with us also in Q2. Clearly when you look at the U.S. dollar development, we can expect a similar impact from foreign exchange at least in the second quarter. Your question regarding the demand outlook, I think the exceptional growth which we see in Flavor is something which we would definitely describe as a positive surprise. The environment which we are working in is, the 5% to 7% growth expectation which we have, and everything beyond is I think something which is hard work and should not be considered as the new normal. Probi, as you said, will normalize in the second quarter. There will be still some impact with respective customer, which impacted Probi and started to order. And therefore, we also should expect to see a normalizing effect on the Probi side.
The next question is from Patrick Schmidt of Warburg Research.
There's only one left now, and that's just referring to your EBITDA margin in terms of your upcoming ramp-up costs, do you expect any more to come in towards the end of '18 or do you have any idea about the magnitude of that impact?
So we were running quite a few large investments at the moment, which we have outlined in our full year presentation, next to the Cosmetic Ingredients, it's Menthol, it's the Diana Foods, it's the new facility in China, which will also come mid of next year. All this will lead to some additional costs and some margin impact in the cause of this year, which should then ease in 2019. I expect a similar picture, maybe slightly higher picture in the remaining part of the year. But nothing, which should really go beyond the Q1 impact.
The next question is from Knud Hinkel of equinet.
Yes. First one on Probi. Do you consider the destocking we've seen in the first quarter as an isolated event that only effect the Probi or is it something that you see throughout your customer industries or at other customer industries as well? That would be my first question. And secondly, on raw materials, again, I would like to know which raw materials are affected? So you mentioned, Citratus, as one raw material that's affected. Are there other areas where you've -- where you face similar challenges?
Yes, so Probi is affected by -- especially there's one specific customer, the largest customer they had in the United States and the destocking effect was quite severe. This customer ran some campaigns in the Q4 2016 and Q1 2017. As I said, they see first orders coming back, so the situation should normalize. Overall, Probi also said that the North America market is a little bit weaker at the moment and there is quite some activities through towards online channels going on in this market at the moment. But the confidence that Probi is clearly there, and therefore, the situation should ease in the coming quarters. Otherwise, I would prefer to refer to Probi themself, they are stock listed and definitely are the better source to ask if you would like to ask on the information.
Sorry to interrupt you. I meant your customer, do you see some destocking at your customers as well?
No, no. Nothing in this magnitude at all. No, clearly, no. So on the raw materials side, the crisis we have is affecting basically the whole Fragrance industry and the portfolio around it. There are some key ingredients not only provided by BASF, but also coming from the mentioned facilities in India, and that puts a heavy constraint on the ingredients side at the moment. So it's pretty broad, what needs to be managed there. And again, the good part for us is that we have the backward integration in our Aroma Molecules space, where we can at least replace quite some ingredients and make sure that we can serve our customers. All this happens in close collaboration with customers. On the more natural Flavor side, we continue to see high vanilla prices going on, that we mentioned. We're seeing how the next harvesting will go. It will start in June when there's more visibility coming, the demand for vanilla is continuing on a very high level, so we stay on a high price level, similar to last year for the moment, and the rest will be shown in the course of this year.
The next question is from Jean-Baptiste Rolland of Bank of America.
Just one actually for me. On the Cobell, it looks like growth has been quite strong there. Could you maybe shed some light on what happened and maybe give us some color on the breakdown of growth between volume price and potentially FX?
So Cobell, I think was the acquisition last year in the U.K. You can see the impact from Cobell pretty much in our bridge, which we provide in our fact sheet, was EUR 12 million, I think this Q1 effect is in line with what we communicated around what we -- sorry, Cobell last year. It's fully integrated by now, it's helping us a lot to build a new platform in the U.K. for Beverages, and we continue to drive it. I think there's nothing special which I would refer to in the Cobell situation. We have now, pinpointing to the Brexit situation, no sugar reduction whatsoever. It's as planned and moves nicely and fits well into our Beverage environment.
The next question is from Ranulf Orr of Redburn.
Two for me. Firstly, could you perhaps help us a little bit to understand the working capital impact on cash flow from the ramp-up of the new plants over the next year, in a year or 2? Secondly, I just have a question on the growth in health in Flavor & Nutrition. Could you perhaps help us understand how much comes from your Health and Wellness platform such as Symlife, on what the growth with those products are?
Yes, so the working capital, I think is something we would want to prefer to comment on in the half year environment because this is a core, it's a streamlined reporting and I would actually like to stick to that because otherwise we would break with the numbers in a way. The health environment is, I think a big contributor from a growth perspective at the moment. I think that is what I can comment at the moment.
The next question is from Geoff Haire of UBS.
Most of my questions have been asked. I just want to re-ask a question of confirmation. In the Scent & Care and Nutrition are you suggesting that the margins should be back to historic levels by the time we get to the end of the year as the impact of destocking and raw materials wins in the second half or will it take longer than that to restore margins?
So for Scent & Care, I think the big challenge is the raw material crisis and assuming that we can manage through this in Q2 and Q3, well we expect, of course, a gradual improvement of the margin situation. Again, it's a very, very unique situation that you are facing at the moment, so try to manage this carefully, and once we are through, we also expect that the margin environment will further improve. On the Nutrition side, clearly the impact is coming from Probi as an exceptional situation and partly from the investments, which we are doing, these investments as we said will come on stream in the fourth quarter and should be good a contributor as of next year and that should then bring also the margin environment and Nutrition back to what we have historically seen.
The next question is from Daniel Buchta of MainFirst.
The first one is on Cosmetic Ingredients. Of course, very good number with high single-digit organic growth. Just to understand, is that number also the UV filters business included? And how is the repositioning progressing, given the tick up as you had, especially last year on that one? And the second one is a bit technical. If I remember correctly, last year in Q2, you had a negative impact from -- you had strong and volatile FX movements of the euro, U.S. dollar turning, so that, if I remember correctly especially receivables and we had to make some write-offs. Now we had also this relatively pronounced FX movement from $1.25 to below $1.20. Might there be another issue again that's under -- is something on the receivables side given the strong FX movements or how do you see the situation here?
Yes. So on the UV filters side, UV filters are contributing nicely also to the overall organic growth of Cosmetic Ingredients. So from that, definitely a different picture from last year. I think that's as far as I would comment on this. On the FX impact last year, there's no similar situation at the moment when it comes to trade receivables, I think we have further increased the hedging ratio to support the inter company flow and to avoid any transactional impact so that is changed from last year. No impact expected at the moment.
The next question is from Liz Coen of Davy.
Just 2 questions from my side, please. Firstly on the Asia-Pacific region within Flavors. Just if you could comment please on the very good performance and if there are any particular business winds or market you would call at there. And secondly, just a more broader question relating to CPG customers. Just in terms of the innovation pipeline, would you say that, that's getting stronger? Quarter-on-quarter, would you view an improvement there?
Yes, so you're right. The Flavor of business in Asia-Pacific has a very good run at the moment in several countries like in Japan, like in Singapore, but also Australia. China is doing very well. If not related to any specific business wind, it's pretty broad what we see and I think a lot is related to the fact that we have a very good management team in Asia-Pacific working very closely with customers. We get some good experience on board with extremely good customer knowledge. So all this helps at the moment to support the nice development of Flavors and Asia-Pacific. On the CPG customers in general, what we see is that our teams are extremely busy at moment when it comes to working on projects and briefings. It's an incredible busy time for us and it's for me, again, the confirmation of the effectiveness of Symrise, which turns a lot of attention to us. So that's a -- it's a positive, and that holds true for the Flavor segment as well as the Fragrance environment, where hopefully, this will turn into additional business over the coming months.
The next question is from David Simmons of JPMorgan.
It's actually Chetan Udeshi from JPMorgan. Two questions. One is, can you give us an idea of how much the expansion that you're doing in Diana and Menthol, et cetera, will result in terms of incremental capacity from next year onwards or 2020 onwards? Just think what is the benefit in terms of growth from the expansion which are ongoing. And second question was, there have been more talks from ingredient suppliers including, yourself and many of your peers about the demand of naturally soft ingredients. Can you give us indication of how much of your sales come from naturally sourced ingredients at the moment given that it seems there is some sort of structural push from customers towards that direction?
Yes. So starting with your last point, the natural ingredient is around 70% of the portfolio by now. It has increased over the years to this number and as you know we are clearly driving our environment into the natural space including the very strong push towards backward integration. So it should further increase over the years, at the same time, we wish there were some synthetic activities, which are important, especially on the Menthol side, you see that and it will not be replaced in the big magnitude. So 70% is the number. The capacity expansion, different areas, I will not specify at the moment the increasing capacity, of course, and I would describe it in a way that these are investments which really mean step changes for us. We can support our superior growth story and hopefully we can drive, not only within the range of 5% to 7% and if it gets to more than it's related to the step change in investments which we are doing at the moment. I hope that answers...
Sorry -- so are you saying that there is a chance that there may be -- the growth may be higher than your 5% to 7% range when you see all of these expansions coming on stream. Is that what you're trying to say?
No. Look at the market. I mean, the market itself is growing with 3% to 4%. So what we have done over the years consistently is to deliver in the 5% to 7% bracket and sometimes more. To achieve this 5% to 7%, we need to do something else and this is reflected in the internal growth opportunities, the investments which we are doing. And that helps us to grow in this environment. Everything else on top would be very nice and we take it of course, but I will not change our guidance at the moment. I think it's high ambition which we are supporting year-after-year and if we can deliver that to you, I think this is an extreme good performance.
And last is question is from Mr. Thomas Swoboda, a follow-up, Societe Generale.
Firstly on the capacity expansions. In your Q4 reporting, you presented a charge with a schedule and there was a plant -- in Pet Food. In France, you wanted to ramp-up in April, if I remember correctly. So is this plant up and running already? The second question is on the profitability time line of this capacity additions. How fast do you expect those capacities to contribute to profits? I mean, do you need a very long time to ramp-up those plants? Make it 4, so they generate -- as they generate not only revenues, but also profits, or is it just a rather short period of time?
Yes. Thomas. So to your first question, the spray dryer environment at Diana in France was opened as planned beginning of this year. It's fully utilized by now. As you remember, we had some constraints last year to supply our customers, and for this reason, Diana needed this capacity. Virtually, it's now fully ramped up and fully utilized. The same is expected for the new Cosmetic Ingredients environment, which we are building and which we will bring on stream in mid of this year. As I said, this is a modular approach, where we could add additional capacity if we see the demand which we actually planned already. So that could be easily expanded if needed. For this first piece, I expect a full ramp-up in the course of this year already. And for the Diana Food ingredients plant, as said, it will open in Q4, and we expect that this will be quickly ramped up beginning of next year so that we should see the full benefit coming soon in 2019 for this facility. China, major investment, is also scheduled for mid of next year. We have capacity constraints in our current facility in Shanghai, and therefore, I also expect that we can use the facility in China quickly and bring it up to a high level of utilization. So as you hear from me and my words, we are really sensitive, we are investing into capacity expansion, that's where the money goes and we do it in a very sensitive way that we are not creating overcapacity that we basically follow the demand which we see for our portfolio. So very sensitive to spending, and I think this is the right approach in which we are working.Good. So if there are no further questions. Ladies and gentlemen, I would like to make one final remark to bring this today's session to an end. As an early announcement, we will change slightly our reporting as of next year, for the Q1 and Q3. And In line with our competitors and also our clients, we have decided to move to trading updates for Q1 and Q3 from the year 2019 onwards. This is to inform you more promptly to the end of the quarter and to further emphasize the long-term nature of our business. I think this is the right step to do and we wanted to make this as an early announcement so that you're not surprised next year. There's nothing which we want to hide, but I think it's a reflection of our business environment to give you more trading update going forward.So with this, thank you very much for your time and interest in Symrise. We look forward to meeting you in person in one of the upcoming conferences and/or our vouchers. Thank you very much, and have a nice day. Thank you.
Ladies and gentlemen, the conference has now concluded. You may disconnect your telephones. Thank you for joining. And have a pleasant day.