Givaudan S.A.

Ladies and gentlemen, welcome to the Givaudan 2023 Full Year Results Conference Call and Live Webcast. I am Sandra, the course call operator. I would like to remind you that all participants have been listened on in mode and the conference has been 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, sir.

Thank you. Ladies and gentlemen, good afternoon, good evening to Asia, and good morning to the Americans. Welcome to our 2023 full year results conference call. Tom Hallam, our CFO, will also be on this call. We will take you through the presentation before answering your questions at the end. All relevant documents related to the fuel year and results, including the slides which will be presented now, have been published this morning and are available in the results center on our website. So I'm very pleased. to present to you a strong set of figures with a sustained growth and a record high free cash flow for 2023. This has been achieved despite the challenging environment that we have faced throughout the year with de-stocking in end markets, the impact of shrink inflation and the sustained high raw material costs. Those results have been achieved thanks to the strategic choices which have consistently guided us for the long and the short term. To name three of them. Our focus on high value added consumer differentiating supported by continuous innovation, ingredients and solutions. Our natural hedges across customers, geographies and product segments, which help deliver consistent results in the turbulent market. And finally, the proactive steps that we have taken to adapt to the broader environment and deliver a strong financial performance. Let's start on slide 3 to comment on our performance highlights. We have delivered total sales of 6.9 billion Swiss francs, a solid like-for-like growth of 4.1%, supported by the strong contribution of high-growth markets, growing at plus 10%. and the implementation of price increases to fully compensate for the increases in input costs in 2023. With the strengthening of the Swiss francs against all currencies, sales declined 2.8% in Swiss francs. The reported ABTDA in Swiss francs remains stable at 1.473 million Swiss francs compared to 2022, despite the strong currency headwind. Measured in local currencies, the ABTDA increased by 8.8%. This means the comparable ABTDA margin increased by 150 bps to 22.4% on the back of the positive contribution from the price increases across all businesses. The performance improvement program which we implemented early in 2023, and the continued effective cost management across the business. Last but not least, we have reached a record high free cash flow of 920 million Swiss francs, corresponding to 13.3% of our sales, and with that delivering on our target range of above 12%. Tom will elaborate in more details on the financial results shortly. Finally, the Board of Directors will propose a dividend of 68 Swiss francs at the AGM of 21st of March 2024, which marks the 23rd consecutive dividend increase for our shareholders. Let's have a more detailed look on the top-line performance on slide 4. In an operating environment which continues to be challenging in some key markets and segments, we sustain good business momentum in both divisions. We are very happy we are able to deliver on the things we can control, our pricing actions, our focus on performance improvement, and our project pipeline, as well as our win rates. The like-for-like sales growth for the group of 4.1% consists of a strong pricing element of 6.3% and a balance of 2.2% in volume decline. The reasons for the volume decline are well known. Destocking, shrinkflation, lower consumption, elements reflected in the numbers published by our own clients. The positive news is is that volume development in both divisions has sequentially improved in the second half. The group sales increased by 7.9% on a like-for-like basis in the fourth quarter. The strengthening of the Swiss franc continued to have a substantial negative translation effect of over 500 million Swiss francs, or 7.3% on ourselves. On a like-for-like basis, our fragrance and beauty division grew strongly at plus 7.6%, and our taste and well-being division was slightly up at 1.1% for the full year 2023, with similar pricing contributions across the two divisions. The divergence between the two divisions' volume growth can partially be explained by the fact that inflation in food and beverage prices has been particularly strong. And in fact, there are easier alternatives in the home kitchen than for fragrance and beauty products, such as laundry, household, or personal care. We'll get to more details by division shortly. But first, let's have a look at the performance from a geographic standpoint, starting on slide five. One of the differentiating traits of Giroudon that we have already mentioned, is really our natural hedges which come across the portfolio of product segments, regions, and markets. They allow to provide balance and protection in a difficult environment. Our strong global presence allows us to cope with the singular market issues which may occur from time to time, whilst at the same time benefiting from the sustained excellent growth that we have seen in certain high-growth markets. So the continued strong life or life growth at plus 10% in high growth markets was driven by Latin America and the Middle East, leading to a novel sales share of 46% of group sales. Our presence in high growth markets has already been a key driver for our growth and continues to be one of our key strategies pillars for 2025. Mature markets, like folic cells, were slightly down by minus 0.6%, almost entirely driven by North America. On a positive note, we have seen continued solid growth in Europe, in particular driven by strong demand for fine fragrances in France, Iberia, and Italy. Slide 6 shows the geographic cell development on a more granular basis by region for the group. As mentioned before, Latin America continued its strong growth trajectory at plus 15.1%, supported by key markets like Brazil and Argentina in both divisions. Life-or-life sales growth in Asia Pacific remained modest at plus 3.9%. The double-digit growth in India and the mid-single-digit growth in China was combined with a soft growth in Southeast Asia mainly driven by the weakness in taste and well-being. The life-for-life performance in North America was minus 6.8% for the full year, with similar declines in all business segments. We have, however, seen a stabilization in the second half on the back of easy comparables. Sales were slightly up for both divisions for the fourth quarter over a week comparables. Overall, our positioning in the U.S. remains strong, and whilst it is too early to say when the turnaround will gain traction, we are very well placed to respond when market conditions improve. Finally, we have seen continued good momentum in the EME region, growing like-for-like at plus 8.4%, even amidst record growth at the previous year of over plus 11% in 2022. As mentioned before, the strong performance was broad-based in mature markets such as France, Spain, Italy, as well as in high-growth markets such as the Middle East. Turning to a divisional view on slide 7, starting with fragrance and beauty. Sales amounted to 3,312,000,000 CHF, up 7.6% on a like-for-like basis, and plus 1.7% in CHF. The strong Life4Life growth was driven by the impressive progression in fine fragrances and an acceleration of volume growth in the consumer products business in the second half of the year, as well as the positive impact of price increases across all segments. Fine fragrances showed a continued excellent Life4Life growth of plus 14%, a double-digit increase for the third year in a row. We are well positioned across prestige fine fragrances, specialty retail, and we have seen a pickup in travel retail in 2023. Volume growth accelerated in consumer products in the second half, together with the already implemented price increases leading to a sound life or life growth of plus 7.1% for the full year. Fragrance ingredients and active beauty increased by plus 1%, like for like, on the back of a strong prior year. The active beauty part continued to show positive growth in the mid-single-digit range, particularly given the high comparables of the recent year. Let's have a closer look at the performance of the taste and well-being division on slide 8. Sales in this division amounted for $3. 603 million Swiss francs, growing 1.1% on the like-for-like basis, and a decline of 6.7% in Swiss francs. The positive pricing impact to compensate for higher raw mats was partially offset by the weaker demand in North America and some markets in Asia-Pacific. Overall, the strategic focus areas with high-growth markets and local and regional customers continue to contribute positively to the division's performance. Looking at the regional performance, the way the division is managed, like-for-like sales remain solid for Europe with plus 3%, and continue to be very strong in Samia, which includes India, with plus 13.2%. Latin America increased by 16.8%, and as mentioned before, North America like-for-like sales declined by 7.5% due to destocking and shrinkation, whilst Asia-Pacific declined by 2.6% on the back of consumers opting for solutions from their own kitchen as opposed to packaged food. From a segment perspective, double-digit growth was achieved in snacks and growth momentum in sweet goods further improved. This was offset by weaker volumes in the other segments. Let me now move from the financial facts to other highlights around innovation and other purpose-led targets, starting with slide 9. Innovation is our lifeblood from creating differentiating solutions that address our customers' challenges to leading the way in areas such as biotechnology, sustainability, and digitalization. Responding to more than 300,000 individual customer briefs annually and winning more than our fair share lie at its core our ability to deliver unique innovations. Imperative, not only to offset the industry's average 10% erosion, but also to meet our long-term sales growth targets of 4% to 5% annually. Our R&D activities. allow us to provide our creation and development teams working on those briefs with novel technologies, differentiating ingredients, which will make those bespoke solutions we develop with our customers win the brief and win the consumer. In 2023, we have increased our R&D spend in local currencies by plus 6%, corresponding to an absolute amount of 519 million Swiss francs, So let me share with you some examples of the outcome. In taste and well-being, we have introduced OatWell, a unique prebiotic fiber ingredient harnessing the natural goodness of oats to support gut health. With consumers actively seeking ways of optimizing well-being and increasingly aware of the crucial role of gut health, OatWell delivers nutritious and delightful food experiences with scientifically proven benefits in every bite. In fragrance and beauty, we expanded the boundaries of skin hydration. Prime Mile Hyal, our new cationic hyaluronic acid crafted by White Technology, is a unique cosmetic active outperforming standard HA hydration benefits by at least a factor of two. And finally, we stimulate both divisions with the use of digitalization and generative AI, for example, with e-commerce solutions for local customers, which are being piloted in Indonesia and China, for the use of proprietary AI models, supporting the creativity of our perfumers and flavorists. Let me share now some highlights on our ESG achievements on slide 10. In addition to the financial targets, we also aim to deliver on key non-financial targets around sustainability, diversity, safety, linked to Givaudan's purpose. Let me highlight today our progress against our nature ambitions targets. At Givaudan, we are committed to being the change that we want to see in the world and showing our love for nature in everything we do. Our decarbonization roadmap has been in place since 2010. It's an integral part of our purpose commitments to become climate positive before 2050 with clear set interim milestones. And our ambitions are closely aligned with stakeholders, customers and shareholders through the long-term incentive plan. Our climate journey is already well underway and in 2023, we have made further progress towards those ambitions. Our scope 1 and 2 emissions have been reduced by 43% compared to the 2015 baseline. Converting to renewable energy sources is also part of our emissions reduction strategy, and by the end of 2023, we reached a level of 94% renewable electricity being used across all our sites. We are proud to have achieved and received the prestigious Enterprising Leader Award at the RE100 Awards in New York in 2023, recognizing our leadership in the industry by embarking on the renewable electricity journey. And with that, I now hand over to Tom for more details on the financial results.

Thank you, Gilles. I would also like to welcome you all to the call. On the following slides, I would like to focus on the groups, financial performance, and those of the two divisions. Let me start with the financial highlights on slide 12. Group sales increased this year to 6.915 million Swiss francs, an increase of 4.1 percent on a like-for-like basis, and a decrease of 2.8 percent in Swiss francs. The decrease in Swiss francs is solely due to the currency impact of the strong Swiss franc in comparison with the other major currencies the group operates in, as we will see on the following slide in the presentation. If we exclude the effect of currencies, sales growth in local currency would have been 5%, including acquisitions. The net income increased to 893 million Swiss francs an increase of 4.3% compared to 2022, and an increase of 14.3% when measured in local currency. The net income margin was 12.9% of sales. As Gilles has mentioned, the group achieved a record free cash flow of 920 million Swiss francs, or 13.3% of sales. Our net debt to EBTDA was 2.9 times at the end of the year, compared to 3.7 times at June 2023, and 3.1 times at December 2022. Please turn to slide 13, which shows the exchange rate development. This slide shows the comparison of the exchange rates in 2023 versus 2022. In the current year, mainly due to the ongoing geopolitical instability and the economic uncertainty, the Swiss franc has continued to strengthen against most of the major currencies in which the group operates, with an impact on the sales in Swiss francs as previously mentioned. Overall, the impact has been limited because of our operational and geographical spread, which continues to provide good natural hedges and our eBTDA margin remains well protected against currency fluctuations. For instance, eBTDA increased by 9% on a currency-neutral basis, but was flat on a reported currency basis. Please turn to slide 14 for an overview of the operating performance of the group. The gross margin increased from 38.8% in 2022 to 41.2% this year. The gross margin dilution effect of the pricing actions to compensate for higher import costs, as well as the lower cost absorption due to lower volumes, were more than offset by the price increase and by the margin improvement measures taken by the group's performance improvement program launched at the beginning of the year. On an eBTDA level, the margin improvement measures taken also resulted in an eBTDA margin increase from 20.7% in 2022 to 21.3% in 2023. In absolute numbers, eBTDA was 1473 million Swiss francs in 2023, compared to 1.476 million Swiss francs in the prior year. We had a number of one-off items in the year, amounting to 74 million Swiss francs, all related to restructuring and project-related expenses, and mainly related to the group's performance improvement program and footprint optimization. The underlying EBTDA margin was 22.4% this year, compared to 20.9 percent in 2022. Operating income increased to 1.116 million Swiss francs in 23 compared to 1.112 million in 2022, an increase of 0.3 percent, which represents an excellent increase of 11 percent when measured in local currency terms. On the next two slides, I will spend a few minutes on the operating performance of the two divisions. If you turn to slide 15, we will start with fragrance and beauty. So fragrance and beauty recorded a sales increase of 7.6% on a like-for-like basis, 1.7% in Swiss francs, mainly driven by the continued excellent growth of fine fragrance. and an acceleration in volume growth in the consumer business products business and price increases in all units. EBTDA for the division in 2023 was 769 million Swiss francs compared to 698 million Swiss francs in 2022. The underlying EBTDA margin was 24.7% in 2023 compared to 21.6% in 2022. If you now turn to page 16, we will cover the performance of taste and well-being. Taste and well-being recorded a sales increase of 1.1% on a like-for-like basis and a decrease of 6.7% in Swiss francs. Sales continue to be good in Europe, South Asia, Middle East, and Africa, as well as Latin America, but are challenging in North America and Asia Pacific. The division faced lower cost absorption due to lower volumes and recorded an EBITDA of 704 million Swiss francs in 2023 compared to 778 million Swiss francs in the prior year. On a comparable basis, the underlying EBITDA margin was 20.3% flat when compared to 2022. Please turn to slide 17 for the net income. The net income before tax was 989 million Swiss francs in 2023 compared to 928 million Swiss francs in 2022, with the increase due to lower non-operating expenses compared to the prior year. Although interest expenses increased, the group incurred significantly lower realized and unrealized losses on FX derivatives. The effective tax rate increased to 10% in 2023 compared to 8% in 2022. Net income was up to 893 million Swiss francs in 2023, which is a solid increase of 4.3%. Measured in local currency, net income increased by 14.3%. Net income margin was 12.9% in the year, and basic earnings per share was 96.81 Swiss francs compared to 92.83 Swiss francs in 2022. Please turn to slide 18, which shows the free cash flow. I'm particularly happy with the strong improvement in our free cash flow driven by the various actions that we have taken in the year. This resulted in a free cash flow conversion of 13.3% in 2023 compared to 6.7% in 2022. The increase is mostly explained by the lower cash investment in working capital especially the positive impact of inventory management as part of the group's performance improvement program. During 2023, the group generated a record 920 million of free cash flow compared to 479 million Swiss francs in 2022. Total net investments were 270 million Swiss francs, And as a percentage of sales, net investments was 3.9% compared to 4.1% in the prior year, as the group continues to invest in growth opportunities. Working capital was 24.1% of sales compared to 26.8% in 2022. Slide 19 has been updated to include the final acquisition values of Ameris, acquired in 2023, and it gives you a perspective of the future expected amortization for 24 and 25. Please turn to slide 20. Since the year 2000, the company has generated a cumulative 11.7 billion Swiss francs of free cash flow. Including the proposed dividend for 2023, Givaudan has returned 7.6 billion Swiss francs to shareholders in the form of either dividends or share buybacks since its spinoff in 2000. As mentioned in previous years, this clearly underlines the strong commitment of Givaudan to return surplus cash to shareholders. The Board of Directors will propose a further increase of the dividend to 68 Swiss francs per share from 67 Swiss francs in 2022, an increase of 1.5 percent. Please turn to slide 21 to look at the debt profile of the group. This slide shows a well-balanced and stable debt profile, as in the prior year, with interest rates which have been locked in at attractive rates. At the end of the year, net debt was 4.3 billion Swiss francs, with a weighted average interest rate of 1.7 percent at the end of the year, compared to 1.7 percent in 2022. Finally, please turn to slide 22, which shows the net debt to eBTDA ratio. At the end of the year, net debt to eBTDA was 2.9 times, a significant improvement compared to 3.7 times in June 2023 and 3.1 times in December of 2022. We continue to focus on deleveraging the balance sheet using our stronger profitability and lower working capital to reduce our net debt. With this, I would like to conclude my section of the presentation and hand it back to Gilles.