Givaudan S.A.

Ladies and gentlemen, welcome to the GIVODON 2022 Fall Year Results Conference Call-in Live webcast. I'm Andre, the Corvus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gilles Andrié, CEO. Please go ahead, sir.

Thank you, operator. Ladies and gentlemen, so good afternoon, good evening to Asia, and good morning to the Americas. Welcome to our 2022 Fulia Results Conference Call. Tom Hallam, our CFO, will also be on this call. We'll take you through the presentation before answering your questions at the end. The company news on our full year results were published on our Givaudan website before 7 o'clock Swiss time this morning. This is where you can also find the slides for today's presentation. Along with the company news on our website, both our 2022 Integrated Annual Report and Sustainability Report are also available. I'd like now to start going through the presentation and invite you to turn to slide number three to go through our performance highlights. So I'm happy to announce another solid set of figures. We are very pleased with our performance in 2022, despite the challenging environment that we have operated in throughout the year. We have indeed been facing an unusual number of adverse external circumstances, ranging from high inflation in input costs to geopolitical tensions, persisting disruption in the overall supply chain, and a contrasted picture of the consumer and customer demand across geographies and segments. In this perfect alignment of headwinds, we have demonstrated three things. Our ability to focus on supporting the growth of our customers with innovative and differentiating solutions whilst ensuring an excellent supply chain performance. The second one, the natural hedges of Givaudan across clients, geographies and product segments has allowed to deliver a net positive growth. And finally, thanks to the collaboration with our customers, we are on track to fully compensate the sharp increase in input costs over 2022 and 2023. I'm therefore extremely grateful to all of the Givaudan employees around the world for their continued commitment to continue to deliver industry-leading performance. In 2022, we reached We actually passed the bar of 7 billion with 7.1 billion Swiss francs, representing a growth of 5.3% on the like-for-like basis and 6.5% in Swiss francs. This solid growth was supported by many levers. The strong contribution of high growth markets, which increased 9.9% on the like-for-like basis. the strategic focus areas as well as the acquired businesses and the implementation of price increases as already mentioned. The level of innovation has remained high and I will come back to this shortly whilst our new business pipeline remains strong. Finally, our new win rates have been very healthy. The ABTDA in Swiss francs was stable at 1 billion 476 in 2022 compared to 1 billion 482 in 2021. What is interesting to note is that we actually managed to protect our absolute ABTDA in Swiss ranks despite two headwinds. Raw materials, energy and logistics totaled an increase of 360 million CHF for the full year. And the CHF has further strengthened across all currencies, across many currencies. The ABTDA margin was 20.7% in 2022 compared to 22.2% in 2021. On a comparable basis, the EBITDA margin was 20.9% in 2022 compared to 22.5% in 2021. The free cash flow amounted to 479 million Swiss francs, representing 6.7% of our total sales. And as discussed before, this lower free cash flow rate, lower than usual, reflects the low EBITDA percentage and the higher levels of working capital we have to keep throughout 2022 in order to protect our service levels to our customers. At the AGM on March 23rd of this year, the board of directors will propose a dividend of 67 Swiss francs per share, representing an increase of 1.5% year on year. Let's turn now to slide four. Both divisions actually contributed equally strongly to our growth. Fragrance & Beauty reached almost 3.3 billion Swiss francs, growing 5.5%, and Taste & Wellbeing reached 3.9 billion Swiss francs, growing 5.2%. Both growth rates are on a like-for-like basis. The good growth was achieved across most product segments. For fragrance and beauty, it was driven by the sustained, strong performance of both fine fragrances and fragrance ingredients, combined with the return to a positive growth of the consumer product business, especially in the second half. For taste and well-being, the growth was strong, especially in sweet goods, beverages, and snacks, and more modestly in savory and dairy. We also benefited from the continued growth momentum of our local and regional customers, one of our strong 2025 strategic growth platforms, which grew again more than twice as much as with our global customers. Finally, all our strategic focus areas have contributed to our growth, including high-growth markets, health and wellness, plant-based proteins, and active beauty. Let's turn now to slide five. We're actually back to the usual picture of high growth markets growing four to five times the rate of mature markets. At the end of 2022, high growth markets represented 44% of our total sales, delivering 9.9% on the like for like growth. All high growth markets contributed with high to double digit growth rates to this result, except for China, which grew a low single digit given the continuous stringent COVID regulations prevailing in 2022 and also the double digit growth comparable in 2021. The Middle East contributed with strong double digit growth levels, as well as Latin America, which performed strongly, led by Argentina, Brazil and Mexico. Most of Asia have also recovered, including Indonesia and India, the Philippines and Thailand. Our size and operational footprint give us a unique exposure to the diversity of these high-growth markets, in which we continue investing both with additional talent and new facilities to service a wide diversity of customers. Mature markets. representing 56% of our sales in 2022, have also contributed to the growth, with a like-for-like growth of 1.9% led by an exceptional performance in Europe, an encouraging recovery in Japan, partly offset by a decline in North America. This demonstrates once again how Givredan's geographical balance contributes to the natural hedges against demand cycles where timing and intensity can differ by geography. Please now turn to slide six. You can see on slide six the sales development by region for the group in more details. So it's worth mentioning, EME grew a record 11.9% against the high comparable of 2021. It was supported by the strong recovery and expansion of various markets, particularly in France, Italy, Spain, the UK, Northern and Central Europe for the mature market of Europe, but as well as the Middle East for the high-growth markets parts of Europe. Sales in Latin America continued to perform very well. Latin America recorded another outstanding growth of 10.4%, driven mainly by Argentina, Mexico, and Brazil, volume growth and market share gains contributing to most of the growth. Sales in Asia-Pacific, as mentioned earlier, continue to recover despite a subdued performance in China, still impacted by the pandemic, as well as suffering from a very high 2021 comparable, as already mentioned. Overall, the growth in Asia Pacific was 5.2%, with India, Indonesia, and the Philippines contributing significantly to this result. Lastly, North America, which had reopened earlier than other regions in 2021, showed a decline of 5.4%. Our 5% growth in 2021 in North America was certainly not an easy comparable, but a certain amount of safety stock building by our customers followed by a significant destocking as weaker consumption was encountered by our consumers, was certainly amplified, certainly amplified the decline in the second half of 2022 in both taste and well-being, as well as in consumer products as part of the fragrance and beauty division. Let's turn now to slide seven. Fragrance and beauty sales were almost 3.3 billion Swiss francs, an increase of 5.5% on the like-for-like basis and 5.3% in Swiss francs. The good growth was driven by the sustained strong performance of fine fragrances and fragrance ingredients combined with the sustained return to growth in the consumer products business. In active beauty, the single-digit growth was achieved against a very high double-digit comparable growth in 2021. Across all businesses and customer groups, the good performance was also supported by the increased impact in the second half of the year of the pricing actions which had been implemented with customers to compensate for the increase in input costs. When looking on the business unit level, fine fragrances sales increased by 14.3% in 2022 on top of the very strong performance of 22.5% in the prior year, itself driven by the post-COVID rebound. In 2022, against any expectations, sales have continued this strong momentum due to the recovery of travel retail, an increased offering notably from independent brands in haute parfumerie, and broader distribution with the well-established e-commerce reaching out to more consumers. All this combined with a high level of new wins for Givaudan, So the CAGR, the competitive average growth rate for fine fragrances over the last three years, has been close to 10%. Western Europe, Asia Pacific and Middle East grew strong double-digit sales, while North America declined mid-single-digit against a double-digit comparable in 2021. The second business unit, consumer products. The sales increased by 2% on a life-for-life basis. This performance was driven by a solid performance with local and regional clients, which more than offset the decline of volume coming from large customers. On a regional basis, growth was led by Western Europe, South Asia, and the Middle East, while sales in North America declined. On a product segment basis, the sales growth was led by fabric care followed by personal care. The compounded average growth rate for consumer products over the last three years has been 4.2%. Sales of fragrance ingredients and active beauty increased by 10.2% on a like-for-like basis. Active beauty grew mid-single digit against a very strong comparable in 2021, as already mentioned, and fragrance ingredients delivered a strong double-digit growth in 2022, supported by the buoyant fine fragrance market demand for ingredients. The compounded average growth rate for active beauty and fragrance ingredients combined has been 9% for the last three years. Now let's turn to the next slide, number eight. Sales of the taste and well-being division grew 5.2% on the like-for-like basis and 7.5% in Swiss francs. This is a very good performance if we remind that it compares to the 7.6% growth which was achieved in 2021, actually the highest growth ever achieved by the division. Key growth pillars of the 2025 strategy, including alternative proteins and health and wellness, as well as all customer groups contributed positively to this sales growth. From a segment perspective, the good sales performance was achieved across all segments, but mainly in beverages and savory and snacks. From a geographic perspective, as you can see, the growth performance was quite impressive in Europe, South Asia, and the Middle East, and in Latin America. Sales in South Asia, Africa, and the Middle East increased by 17.6% on the like-for-like basis. This double-digit performance was achieved in India, as well as across African markets and the Middle East region, where Givaudan has a strong footprint. Sales in Latin America increased 16.7% on a like-for-like basis, led by high single- to strong double-digit volume growth in Brazil, Argentina, Mexico, and Colombia. Sales in Europe increased by 11.1% on the like-for-like basis. The mature markets of Spain, Germany, and Italy achieved double-digit growth, followed mid-to-high single-digit growth in the UK and France. In the high-growth markets of Europe, there was excellent business momentum, especially driven by Poland. Sales in Asia-Pacific increased by 5.3% on the like-for-like basis. Growth in Asia Pacific was strong despite COVID-19 impacting performance in China in 2022. In the high-growth markets, Indonesia, the Philippines, and Vietnam delivered the strongest performance. And finally, in the mature markets of Asia Pacific, the growth was driven by Korea. On a like-for-like basis, sales in North America decreased by 6.4% after growing a strong 5.8% in 2021. In addition to the strong comparatives, this situation can be explained by customer destocking and more cautious inventory planning following the safety stock building as supply chain disruptions and high inflation prevail, especially in the first half of the year. Let's turn now to slide 9. As you all know, our company purpose is about creation. the cornerstone of which is innovation. Innovation is what our customers expect from us. The core of our innovation is about working on the more than 300,000 briefs a year and winning more than our fair share of those multiple briefs is the only way to compensate more than the average 10% erosion of our business so that we can deliver our average sales growth promise of 4% to 5% on the long term. We continually seek new ways to anticipate consumer needs and help solve their customers' challenges and create value for them, while developing creations that contribute to happier and healthier lives, which is our purpose, and this is whilst reducing the impact that we have on the environment. Our research and development activities allow to provide our teams working on those multiple briefs with novel technologies, differentiating ingredients, which will make those bespoke solutions we develop with our customers win the brief, but also, and more importantly, win the consumer. In 2022, we invested 522 million Swiss francs in R&D in line with what we had spent in 2021, but let me give you some of the key outcome examples that stemmed out of our research programs. In taste and well-being, it's about shaping the future of food and creating food experiences that consumers love. Our new PrimeLock, a natural vegan-friendly solution that mimics animal fat cells, encapsulates, protects, and locks in both flavor and fat in plant-based meat substitutes. This integrated technology enables companies to enhance the food experience of plant-based meat products while having 75% less fat and 30% less calories when compared to a full-fat, full-protein plant-based product. A good example of how a plant-based protein can not only provides the benefit of being more sustainable, but also being healthier than the animal version. Bio-Nutketone, a breakthrough ingredient that responds to the demand for sustainable, natural, clean label citrus flavor without the cost and supply volatility of traditional citrus extracts. Made from a non-GMO sugar source as the starting material, The ingredient does not require the use of any citrus ingredients and originates from a renewable, natural starting material. This material is used in thousands of flavor applications. In the other division, in fragrance and beauty, sustainability is a key driver for creativity and innovation as well. We launched Patchulop, an eco-design upcycled active for hair and scalp. It is sourced responsibly in Indonesia and is crafted through green fractionation from distilled patchouli leaves after their use as a raw material in fragrance creation. This is a very good example of how we can use waste and upcycle. In the field of delivery systems, a major breakthrough was the launch of Planet Caps, the first biodegradable and biosourced fragrance core shell technology for fabric softeners, laundry sanitizers, and scent boosters. And finally, AmbricSolid, a sustainable alternative to the widely used musk, Ambretolid. This biodegradable and naturally derived molecule exclusively available for Givaudan perfumers is obtained by an innovative process using Nobel Prize winning technology. Finally, in terms of artificial intelligence, we developed Customer Foresight, a proprietary digital engine leveraging big data, artificial intelligence, and Givaudan's deep expertise to detect signals and emerging trends to anticipate future potential food solutions, opening opportunities to enhance the current development processes. With this, I'd like now to hand over to Tom, who will give you more granularity on our financial results. Tom, please. Thank you, Gilles.

I would also like to welcome you all to the call. As always, as Gilles has taken you through the business performance of the group, as well as the main aspects of the market and regional development, on the following slides, I would like to focus on the group's operating performance and those of the two divisions. Let me start with the performance highlights on slide 11. Group sales increased this year to 7.1 billion Swiss francs, an increase of 5.3% on a like-for-like basis, and 6.5% in Swiss francs. This result includes the full year impact of DDW and Custom Essence, the two companies that we acquired in December 2021. The group's EBITDA is 1.476 billion Swiss francs compared to 1.482 billion Swiss francs in the prior year. And the reported EBITDA margin is 20.7% in 2022 compared to 22.2% in 2021. The underlying EBITDA is 1,486 million Swiss francs, a margin of 20.9 percent in 2022 compared to 22.5 percent in 2021. The net income increased to 856 million Swiss francs, an increase of 4.2 percent compared to 2021. and the net income margin was 12% of sales. The group achieved a free cash flow of 479 million Swiss francs, or 6.7% of sales. The group's net debt to EBITDA was 3.1 times at the end of 2022, compared to 2.97 times at the end of December 2021. Please turn to slide 12, which shows the exchange rate development. As always, this slide shows the comparison of the exchange rates in 2022 versus the average in 2021. In the current year, mainly due to the geopolitical instability and economic uncertainties, we have seen major fluctuations in the main currencies that the group operates in. especially in the development of the US dollar, GBP sterling, and the euro against the Swiss franc. Although the movement in currencies can have an impact on the various lines of the income statement, the net impact on the EBITDA margin is fairly limited given the operational and geographical spread which provides good natural hedges to our business. Please turn to slide 13 for an overview of the operating performance of the group. The gross margin decreased from 42.7% in 2021 to 38.8% this year. Due to, on the one hand, a mechanical margin dilution effect of the pricing, as well as the timing of the price increases, to offset higher raw material, energy, and freight costs. On the EBTDA level, the impact of the higher raw material, energy, and freight costs was mostly offset by price increases and a lower operating expense due to the strict cost discipline, resulting in an EBTDA of 1,476,000,000 Swiss francs in 2022. compared to 1,482,000,000 Swiss francs in 2021. We had a number of one-off items in the year amounting to 10,000,000 Swiss francs, all relating to the integration of the acquired companies and the optimization of our manufacturing footprint. As such, the underlying eBTDA margin was 20.9% this year, compared to 22.5% in 2021. The operating income increased to 1,112,000,000 Swiss francs in 2022 compared to 1,089,000,000 Swiss francs in 2021, a small increase versus the year, a good performance considering a very challenging operating environment. On the next two slides, I would like to spend a few minutes on the operating performance of the two divisions. If you turn to slide 14, we will start with fragrance and beauty. Fragrance and beauty recorded a sales increase of 5.5% on a like-for-like basis and 5.3% in Swiss francs, mainly driven by the sustained good growth of fine fragrances and of the fragrance ingredients business during the year. EBITDA for the division was 698 million Swiss francs in 2022 compared to 696 million Swiss francs in 2021. The underlying EBITDA margin was 21.6% in the year compared to 22.6% in 2021. The decrease in the margin is a result of the higher input costs partially compensated by price increases. If you now turn to page 15, we will cover the performance of taste and well-being. Taste and well-being recorded a sales increase of 5.2% on a like-for-like basis and an increase of 7.5% in Swiss francs. with excellent sales growth recorded in Europe, Southeast Asia, Middle East, Africa, as well as Latin America. The division was particularly impacted by higher raw materials, energy, and freight costs, and recorded an EBTDA of 778 million Swiss francs, compared to 786 million Swiss francs in the prior year. On a comparable basis, the underlying EBTDA margin was 20.3%, compared to 22.4% in the prior year. Again, the decrease in the margin is as a result of the higher input costs, partially offset by price increases with clients. Please turn to slide 16 for the net income. The net income before tax was 928 million Swiss francs in the year. compared to 965 million Swiss francs in 2021, with the decrease caused by higher non-operating expenses compared to 2021. Although interest expenses remain stable, the group incurred higher realized and unrealized losses from fair value fluctuations of its financial instruments caused by the economic uncertainty in the financial markets particularly during the first half of 2022. The effective tax rate decreased to 8% in 2022 compared to 15% in 2021. The net income was up to 856 million Swiss francs in the year, which is a solid increase of 4.2%. The net income margin was 12% in 2022 and basic earnings per share was 92.83 Swiss francs compared to 89.03 Swiss francs in the prior year. Please turn to the next slide, which shows the free cash flow. In 2022, we had a free cash flow of 6.7% compared to 12.6% in 2021. The decrease is mostly explained by the higher cash investment in working capital driven by the need to manage the inbound supply chain disruptions that the group has been facing throughout the year in order to continue to deliver and to satisfy the needs of its customers. During the year, the group generated an absolute free cash flow of 479 million Swiss francs compared to 843 million Swiss francs in the prior year. Total net investment was 289 million Swiss francs and as a percentage of sales, net investments were 4.1% of sales compared to 3.7% in the prior year as the group continues to invest in growth. Working capital was 26.8 percent of sales compared to 24 percent in 2021. Please turn to slide 18. This slide has been updated to include the final acquisition values of DDW and Custom Essence acquired in 2021 and it gives you a perspective of the future expected amortization. I would like to remind you that on page 101 of the annual report, we provide a split of the changes in amortization on the various income statement lines. As an example, amortization of intangibles decreased by nearly 20 million Swiss francs in R&D between 2021 and 2022. Please turn to slide 19. Over the last 22 years, the company has generated a cumulative 10.7 billion Swiss francs of free cash flow. Including the proposed dividend for 2022, Givaudan has returned 7 billion Swiss francs to shareholders in the form of either dividends or share buybacks since its spin-off in 2000. As mentioned in previous years, this clearly underlines the strong commitment of Givaudan to return surplus cash to its shareholders. Based on the strong, resilient business model of Givaudan, it is with confidence that the Board of Directors will propose a further increase of the dividend to 67 Swiss francs per share in 2022 from 66 francs in 2021, an increase of 1.5%. Please turn to slide 20 to look at the debt profile of the group. This slide shows a well-balanced and stable debt profile compared to the prior year. with interest rates which have been locked in at attractive rates. At the end of the year, the net debt was 4.5 billion Swiss francs with a weighted average interest rate of 1.7% compared to 1.4% in 2021. Finally, please turn to slide 21, which shows the net debt to EBITDA ratio. At the end of the year, the net debt to EBITDA ratio was 3.07 times, relatively stable compared to the 2.97 times at the end of 2021. With this, I would like to conclude my section of the presentation and hand back to Gilles.