Givaudan S.A.

Ladies and gentlemen, welcome to the Givaudan 2023 half-year results conference call and live webcast. I am Alice, the Chorus 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 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gilles Landrier, CEO. Please go ahead.

Thank you, operator. Ladies and gentlemen, welcome to our 2023 half-year results conference call. I'll be on this call with Tom Hallam, our CFO. We'll take you through the presentation before answering your questions at the end. The company news on our half-year results 23 was published on our website this morning. This is where you will also find the slides for today's presentation. Along with the media release, you will find our 2023 half-year report on our website. I'd like now to start going through the presentation. I invite you to turn to slide number three to go through the performance highlights. So I'm pleased to report a solid performance in the first half of 2023, with particularly strong sales growth in three areas, fine fragrances, high growth markets, and Europe. In an environment where we are still facing demand challenges in some key markets and business segments, I'm very happy with our continued strong focus on supporting the growth of our customers around the world. With sustained higher input costs in 2023, Givaudan continued to implement price increases in collaboration with our customers to fully compensate for those increases. And finally, I'm happy with our delivery against our profitability improvement initiatives. As always, these results also demonstrate the resilience of our business supported by our natural hedges, be it across product categories, across types of customers, or thanks to the balanced geographic footprint Givaudan has. I'd like to highlight that the two largest potential growth areas we chose for our current 2025 strategic cycle are delivering to our expectations. Over the last two years, local and regional clients have averaged a growth twice as big as for the global's, They represent now 55% of our sales. And in the same way, the second strategic area, which are high-growth markets, have averaged a growth four times faster than the mature markets. In the first half of 2023, we reached sales of 3.5 billion Swiss francs, a growth of 2.4% on a like-for-like basis, and a decrease of 3.2% in Swiss francs. As I just said, this performance was led by fine fragrances, high growth markets and Europe against high comparables. Our pricing actions to recover the absolute amount of input cost inflation have been effective and they included two parts in the first half. The first part was the carryover effect from 2022 as well as the price increases for 2023 which were effective at the start of the year. As a consequence, pricing was the major driver for our like-for-like growth, a little more than 6% average price increases for the group, and a 4% decline in volume for the group as well. Decline in volumes was notably strong in North America, driven by a combination of customary stocking and weak consumer demand. We achieved a comparable EBITDA of 803 million Swiss francs, In local currency terms, this comparable ABTDA grew by 4.6% versus the prior half in 2022. It represents an underlying ABTDA margin of 22.7% compared to 22.5% in the first half of 2022. In January, we presented specific actions to help us recover by 2025 our margin ambition both at the gross margin level and at the ABTDA margin level, respectively in the range of 42% to 44% and 22% to 24%. Six months on, I can say that we have made good progress with those performance improvement initiatives, delivering both at the gross profit margin level and the ABTDA level. Finally, our initiative to restore a good cash conversion translated to a significant improvement of our free cash flow, which is reaching 104 million Swiss francs in the first half, which represents 2.9% of our sales. So overall, I'm pleased with the solid performance of our business, demonstrating the resilience of our company, our focus on supporting our customers, and our ability to capture opportunities. Let's now turn to slide four. On a like-for-like basis, our fragrance and beauty division grew 6.4%, and our taste and well-being division was slightly down at minus 0.9% versus the same period in 2022. As mentioned earlier, these numbers include a strong pricing element reflecting the ongoing recovery of our input cost inflation. By the end of 2023, we will have fully achieved our pricing objectives for both 2022 and 2023. Part of the difference in growth between the two divisions is explained by the difference of comparables, a record 7.6% for taste and well-being, and a more normal 4.7% in the first half of 2022 for fragrance and beauty. The other reason is the strong exposure of the fragrance and beauty division to the very dynamic beauty and luxury sector, which shows in the double-digit growth of our fine fragrance business. Let's turn now to slide five. In the first half of 23, high growth markets delivered 8.9% growth, maintaining a good momentum since the start of 23. Despite a high comparable in 22, Latin America kept performing very well, The Middle East contributed with strong growth levels as well. In Asia Pacific, we achieved a strong performance in India, partly offset by a slow recovery in China and a soft growth in Southeast Asia. In mature markets, sales decreased overall by 2.6%, almost entirely driven by the decline in North America, while the strong demand in fine fragrances fueled the good performance in Europe. particularly in France and Italy. North America has been experiencing a decline in sales due to customer destocking in the context of an improving supply chain, compounded by the shrink inflation and weaker consumer demand overall for both divisions. Our presence in the high-growth markets has always been a key driver for our growth and continues to be one of our key strategies for 2025. Structural demographic trends, the ever-growing middle class, and the strong urbanization trends will continue to support the growth of these markets. Our market position and our operations footprint give us a unique exposure to these high-growth markets in which we continue to invest both with digital talents and new facilities to service the wide diversity of our clients. Please now turn to slide six. I'd like to highlight again the sales development by region for the group. As you can see, EME has delivered a very strong growth, followed by Latin America. EME grew 8.5% on top of a record 13.7% in the first half of 2022, when it was supported by the strong post-COVID recovery of most product segments. It is also worth mentioning that Middle East is contributing to this performance and has enjoyed continued very high growth within EME for both divisions. Sales in Latin America continued to perform well despite another high comparable in 22 with a growth of 11.1% driven mainly by Argentina and Brazil. The growth in Asia Pacific was 3.2% with flat sales in China, double digit growth in India, and a more subdued growth in other parts of Southeast Asia, notably Indonesia, Vietnam, and Thailand, and the mature markets of Australia and Japan. Finally, North America growth was a negative 10.6% like-for-like sales performance in 2022, with similar trends for both divisions. I have already mentioned the reasons for this volume decline, which affects the two divisions in all parts of the business. Let's turn now to slide 7. Fragrance and beauty sales were 1.672 million Swiss francs, an increase of 6.4% like for like and an increase of 1.6% in Swiss francs. The good growth was driven by the very strong performance in fine fragrances with sustained high levels of new business as well as the positive impact of price increase across all businesses. On a business unit basis, fine fragrances sales increased by 16.2% like for like against a high prior year comparable growth of 17.9%. This strong growth was maintained across prestige both in Europe and in high growth markets with regional customers as well as a good traction in travel retail. Consumer product sales increased by 3.7% like for like, with some improved momentum in the second quarter. And sales of fragrance ingredients and active beauty increased by 4.4% on the like for like basis, against a high comparable of 8%. Now let's turn to the next slide, number eight. Taste and well-being sales were 1.863 billion Swiss francs, a decrease of 0.9% on the like-for-like basis, and a decrease of 7.1% in Swiss francs. On a regional basis, sales in Europe increased by 3.6% on the like-for-like basis. In South Asia, Africa, and the Middle East, sales increased by 19.1%. In North America, sales decreased by 11.7%. In Latin America, sales increased by 10.5%. And finally, Asia-Pacific, sales decreased by 5% on a like-for-like basis, impacted by the weaker performance in Southeast Asia and the strong comparables of the prior year. Within the product segment, there was strong double-digit growth in snacks and good momentum in sweet goose. whilst weaker volumes in other segments resulted in a reduced sales level compared to the same period in 2022. With this, I'd like to hand over now to Tom, who will give you more granularity on our financial results. Tom, over to you.

Thank you very much, Gilles. It's also my pleasure to welcome you all to our conference call. As always, Gilles has taken you through the solid business performance of the group, as well as the main aspects of the market and regional development. I would like to focus on the group's financial performance and those of the two divisions in the first six months. So let me start with the performance highlights on slide 10. Group sales for the first half of 2023 were over 3.5 billion Swiss francs, an increase of 2.4% on a like-for-like basis, which excludes the impact of acquisitions as well as the currency impact. In Swiss francs, sales decreased by 3.2% all due to the impact of currency. The reported EBITDA decreased to 763 million Swiss francs compared to 816 million Swiss francs in 2022. However, the underlying EBITDA margin remains strong and increased to 22.7% in 2023 compared to 22.5% in 2022. Net income was 449 million Swiss francs, an increase of 2% compared to 2022. When measured in local currency, net income increased by an excellent 9%. The free cash flow as a percentage of sales was 2.9% in the first six months of the year, compared to minus 4% in the first six months of 2022. Absolute free cash flow was 104 million Swiss francs, which is an outstanding improvement of 250 million Swiss francs. Net debt to eBTDA was 3.7 times compared to 3.1 times at the end of the year. and 3.45 times at the end of June 2022. In the following slides, we will cover the group's performance in further detail, as well as the financial performance of both divisions. Please turn to slide 11, which shows the exchange rate development. This slide shows the comparison of the exchange rates in the first half of 2023 versus the same period in 2022. In the current year, mainly due to the ongoing geopolitical instability and economic uncertainties, the Swiss franc has continued to strengthen against most of the major currencies in which the group operates. with a corresponding impact on the sales in Swiss francs, as mentioned earlier. However, overall, from a profit perspective, the impact has been limited because our operational and geographical spread continues to provide a good natural hedge, and our EBITDA margin remains solid and well-protected against currency fluctuations. Please turn to slide 12, which shows the group operating performance. In 2023, the group's gross margin increased to 41% compared to 40% in 2022. The gross margin dilution effect of the pricing actions to compensate for higher input costs, as well as the lower cost absorption due to lower volumes, was offset entirely by the first results of the performance improvement program announced and initiated at the beginning of the year. The program is aimed for operational excellence and margin improvement through organizational simplification, working capital improvement, as well as footprint optimization. The EBTDA decreased to 763 million Swiss francs in the first six months of 2023. However, in this period, the group incurred costs of 40 million Swiss francs, mainly related to the group's performance improvement program. Excluding these costs, the underlying EBTDA margin improved to a solid 22.7% in 2023, compared to 22.5% in 2022, an increase of 5% on a currency neutral basis. On the next two slides, I would like to spend a moment on the performance of our two divisions, starting with fragrance and beauty on the next slide. Fragrance and beauty sales increased by 6.4% on a like-for-like basis and 1.6% in Swiss francs to 1.7 billion Swiss francs. The sales growth was driven by a continuous strong performance in fine fragrances, as well as the impact of price increases across all businesses to compensate for the higher input costs. The division recorded 383 million Swiss francs of EBTDA in the first six months of the year, compared to 362 million Swiss francs in 2022. The EBTDA margin was 22.9 percent on a reported basis, and an excellent 24.3 percent on an underlying basis. If you now turn to slide 14, we will continue with the taste and well-being performance. The Taste and Wellbeing Division recorded a decrease of 0.9% on a like-for-like basis and 7.1% in Swiss francs due to lower volumes in 2023. Total sales recorded were 1.9 billion Swiss francs. The reported EBITDA decreased to 380 million Swiss francs from 454 million Swiss francs in 2022. The reported EBITDA margin in 2023 was 20.4%, and on an underlying basis, the EBITDA margin was 21.3%. The margin was impacted by lower volumes, which could not be fully compensated with other savings. Please turn to slide 15, which shows the net income of the group. Income before tax increased to 516 million Swiss francs from 512 million Swiss francs in 2022 as a result of lower non-operating expenses compared to the prior year. Although interest rates, although interest costs increased due to higher borrowing costs, the group incurred significantly lower realized and unrealized losses on FX derivatives. The net income was 449 million Swiss francs or 12.7 percent of sales. The group's effective tax rate decreased to 13 percent in 2023 compared to 14 percent in June 2022. Basic earnings per share was 48.69 Swiss francs in 2023 compared to 47.74 Swiss francs in the first semester of 2022. Please turn to slide 16 for the cash flow performance of the group. During the first six months of 2023, Givaudan demonstrated an outstanding free cash flow when compared to the same period last year. The group recorded a solid free cash flow of 104 million Swiss francs or 2.9% of sales compared to minus 147 million Swiss francs or minus 4% of sales in 2022. The operating cash flow for the first six months of the year was 340 million Swiss francs compared to 131 million Swiss francs in 2022. The increase is partly explained due to the improvement in working capital cash flows, which is one of the aims of the performance improvement program. The group also continued its investments to support the growth in all markets. As such, total net investments were 128 million Swiss francs in the first six months of the year. And as a percentage of sales, net investments was 3.6% in 2023 compared to 4.5% in 2022. Working capital increased to 31.2% compared to 29.6% in June 2022, with the increase mostly due to the negative currency effects of the reported sales in Swiss francs. When measured in local currency, net working capital was 29.3% of sales, therefore an improvement compared to the prior year. Please turn to slide 17 to look at the amortization of intangible assets. This slide simply gives you a projection of the perspective of the future expected amortization as we stand at the end of June 2023. Please turn to slide 18 to look at the debt profile of the group. The group continues to have a well-balanced debt profile with a weighted average effective interest rate of 1.83% compared to 1.74% at the year end. Furthermore, this slide shows you the maturities of our debt profile. In 2023, the group exercised its first option to extend its multi-bank committee credit facility for an amount of 1.25 billion Swiss francs with one additional year until June 2028. And if you turn to the next slide, slide 19, you will see that the net debt to EBTDA was 3.68 times compared to 3.07 times in December 2022 and 3.45 times in June 2022. With this, I would like to conclude my part of the presentation and hand back to Gilles.