Symrise Ag Ord

Thank you very much, Moritz, and welcome to everybody in the call or in the live stream to our presentation of the results of 2023. How nice to have you in the meeting. We published all related documents on our webpage this morning in the section Financial Results, where you probably entered the live stream to this meeting. With me today are Heinz-Jürgen Bertram, our CEO, Olaf Klinger, our CFO, and Jean-Yves Parizeau, our President for Taste, Nutrition and Health and incoming CEO. After the review of 2023 numbers and the outlook for 2024, we will open the lines for your questions. With this, I hand over to Heinz-Jürgen Bertram. Please go ahead.

Thank you, Tobias. Good morning, ladies and gentlemen, and welcome also from my side. I am delighted that so many of you have taken the time to join our call today. As usual, I will highlight the results of 2023. Olaf will provide a deep dive into the financials, and I conclude with our key strategic initiatives and an outlook for the road ahead. Before we look at the numbers, I would like to take the opportunity to address some personal words. Last week we announced the CEO change in our company. I will step down from the CEO position effective March 31st. This is based on a very close alignment and by mutual agreement with our advisory board. And I will step down, and I think after 15 years as CEO, it's now a good time for such a change. Jean-Yves Parizeau, our President, Taste, Nutrition and Health, and member of the Sumrise Executive Board, will take over as CEO. Jean-Yves was appointed by the supervisory board on February 29th and I am delighted that he is also here with us today. We will come back to the CEO change later in this call. Let us first look at our results 2023, starting with the financial highlights on chart 4 of our presentation. 2023 was marked by strong business growth in what was once again a challenging environment. And once again, we managed to outperform the market. At the same time, the economy has faced ongoing geographical and geopolitical challenges such as the war in the Ukraine and the crisis in the Middle East. Rising inflation and high raw material prices intensified the pressure on our business. On the other side, our diversified portfolio combined with our broad regional presence and our customer base yet again enabled us to continue on our strong growth path even in these difficult times. What did we achieve in 2023? Let's look at a few KPIs. We grew sales by 2.4% to over 4.7 billion euros. Organic growth was above 7.9%. Adjusted EBITDA was slightly lower, down 2% to 903 million euros. Therefore, the margin came out at 19.1%. This was lower than our guidance and below last year's. Our profitability suffered from increased raw material prices and operating costs. On top of this, we were hit in November and December by the unexpected currency devaluation in Argentina and an extraordinary sick leave rate in Holzmin of approximately 20%. These events we could not compensate. Net income of €340 million was 16% below previous year, which corresponds to €2.44 per share. Our dividend proposal amounts to €1.10 per share for fiscal year 2023. Let's be very clear about this. We have delivered for our shareholders year after year. And this proposal represents the 14th consecutive increase in our dividend. Let's take a look at our sales growth on chart 5. Group sales increased to over 4.7 billion euros, including 35 million sales contribution from M&A. On the downside, we experienced a negative FX effect of minus 290 million euros. Organically, the group achieved strong growth of 7.9%, driven by both segments. With this, we outperformed the market growth and we also outperformed our guidance of 5 to 7%. In both segments, we enjoyed good growth momentum and increased demand as slide 6 illustrates. The taste, nutrition and health segment generated sales of almost 3 billion euros. Organic growth amounted to strong 9.3%. A key growth driver was once again our pet food business, which we grew in the double-digit percentage range. Food and beverage applications showed also high growth areas. The segment benefited from broadening its competencies beyond flavors and nutrition. Our scent and care segment also performed well. Sales rose to around 1.75 billion euros and organic growth came in at 5.6%. Fine fragrance and cosmetic ingredients are experiencing ongoing strong growth. Let's move to the development of our regions on chart 7. We grew across all regions, with EME being the strongest one in delivering organic growth of more than 15%. Latin America achieved an organic growth of almost 15%. Asia Pacific also generated good organic growth rates of 4%. In North America, we faced the destocking effect and comparatively low project vitality. In addition, we missed sales due to the production incident in Colonel Island. All these effects resulted in a decrease of 1.8%. Overall, we can report a very sustainable performance, as you can see on chart 8, with constant strong growth in both of our top and bottom line. Since our IPO in 2006, we have delivered an annual compensated sales growth of 8.3%. Our EBITDA CAGR amounted to 8%. Allow me to thank all our employees across and around the world for their commitment and dedication. We all can be very proud of what we have achieved together. As chart 9 shows, given our strong momentum, we outperformed over time both the MDAX and DAX indices. We consider this value creation as a confirmation of the attractiveness and results. And also it reflects the trust investors put in our strategy and the long-term vision they share with us. We're very grateful for that. Let me stop here for the moment and hand over to Olaf. He will now provide the details on our financials.

Olaf. Thank you, Heinz-Jürgen, and also a warm welcome to everybody on the phone from my side. Let me add some details on our growth on slide 11. Our ongoing price increases helped us to compensate for the higher input cost we suffered from With around 80% pricing and around 20% volume, we achieved an industry-leading organic growth of 7.9%. As expected and communicated at the beginning of last year, pricing came down in the course of the year while volumes went up. In Q4, we saw 50% pricing and 50% volume growth totaling to 9.5% organic growth. The portfolio Impact for the full year was 35 million sales or 0.8% off for two acquisitions actually. Wing Biotechnology was around 20 million euros and Group Neroli Romani was around 15 million. Both acquired in 2022 and therefore no longer in the portfolio pillar in 2024. FX translation effects continue to be negative with minus €290 million for the full year 2023 and minus €112 million in Q4 attributable to multiple currencies across the world. Please turn to the group profitability on slide 12. The cost of goods sold increased slightly faster than sales. Raw material cost and production costs were still up. In addition, fire-related downtime costs of the Cullinan Island site and related revaluation of piled-up inventory, the revised scent and care strategy and costs for the cartel investigation caused high one-time effects in scent and care, which we adjusted for. Unfortunately, November and December delivered significant lower operating results, mainly due to revaluation and provisions for inventory, underutilization and downtime, as well as higher sales, general and admin costs. And the devaluation of the Argentinian peso. In December, we specified our margin targets to a corridor of 19 to 19.5%. Ultimately, we reached an adjusted EBDA margin of 19.1%, which is substantially below our own ambitions. On slide 32, in the appendix of the presentation, we give you an overview about all one-offs we adjusted for. Let's turn to taste, nutrition, and health on slide 13. We enjoyed a healthy organic growth of 9.3%. Driven by price, as already mentioned for the group, also in T&H, pricing came down while volumes went up in the course of the year. Q4 already showed around two-thirds price and around one-third volume, achieving 9% organic growth for Q4 in the segment. On the margin, the lower than expected volumes in the first nine months, especially in pet food, led to certain underabsorption and revaluation of inventories, including some scrubbing. The EBDA margin came slightly down from 21.6% in 2022 to 21.1% reported or 21% adjusted in the segment. Let's turn to sent in care on slide 14. For the full year, we reached 5.6% organic growth with around 50% for price and around 50% for volume. Frequencies achieved high single-digit growth and cosmetic ingredients enjoyed even double-digit growth. Aroma molecules was burdened from the fire-related stoppage in the colon and iron plant and a difficult market environment in the chemical sector, which together led to a high single-digit growth decline. Since the reopening of the plant in August, the volumes in aroma molecules have recovered. In Q4, organic growth in scent and care reached 10.6%, only driven by volume. The adjusted EBDA of the scent and care segment decreased 4.9% to 276.7 million. The adjusted EBDA margin reached 15.8% after 17.1% in 2022. Please turn to slide 15 for our bottom line. The financial result of minus 94 million was 22 million below last year, mainly due to higher interest expenses for financing, which was 19 million, and interest on pension provisions, which was another 16 million. This was partly compensated by higher interest income and FX gains. Our tax rate of 25.8% is almost unchanged and within our expected mid-term corridor of 25 to 27%. Net income was €66 million below last year, mainly due to the mentioned negative one-time effects. EPS decreased 16.2% to Euro 2.44 per share. On slide 16, I would like to comment the amortization from business combination, which was driven from the merger in 2003 and major acquisitions in 2014 and 2019. We saw the peak in 2022 and still had 99 million in 2023. Spreading the 99 million over around 140 million similar shares, it impacts each share with around 70 cents. This might be one reason for the huge bandwidth and EPS projections in the market. Working capital coming to slide 17. Working capital, I would like to mention that the huge increase in inventories in 2022 was necessary to ensure supply availability and reliability. In 2023, we could reinforce our working capital management and reduce the working capital quota to sales from 35.8% to 34.6%. And we have taken various measures already to further improve and to get us to 30% to 32% by 2025. On slide 18, you see the positive impact from the significant improvement of working capital on the business free cash flow. But let me start with the cash flow from operating activities, which was significantly above the level of the previous year. Lower earnings were offset by a reduction in working capital and lower tax payments. The operating cash flow rate relative to sales was 15.2% after 7.8% in 2022. Cash outflow from investing activities amounted to 358 million, mainly due to payments made primarily in connection with increasing the company's stake in Swedencare, as well as to payments for investments in intangible assets, as well as property, plant, and equipment. There were no new financing activities in the reporting year, and net cash flow outflow for financing activities amounted to 264 million, due primarily to payment of the dividend and interest on financial liabilities. As a result, the business-free cash flow increased 83.7% to $553 million after $301 million in 2022. This corresponds to 11.7% of sales after 6.5% in 2022. Our ambition is to further increase the business-free cash flow to around 12% in 2024 and to even 14% mid-term. Please also see slide 31 in the appendix for the bridge from the consolidated cash flow statement in the financial report to the business-free cash flow calculation, which I actually mentioned during the Capital Markets Day last year. Please move to our net debt development on slide 19. Our net debt came slightly down to 2.16 billion after Euro 2.23 billion in 2022. The debt ratio was slightly up due to weaker earnings performance and still high working capital. It is currently at 2.4 times adjusted EBITDA without pensions and leasing obligations and three times adjusted EBITDA including pension and leasing obligations. This is slightly above our mid-term net debt guidance, which is 2 to 2.5 times EBITDA, including pensions and leasing obligations. We are confident to get back into our self-defined corridor within the next 12 to 18 months' time frame. In summary, we are very satisfied with our debt profile. The group has sufficient credit lines available, i.e. in the form of a revolving credit facility, totaling to 500 million and that was not utilized as of December 31st, 2023. We have no covenants, very supportive and solid bank relationships and no major refinancing in 2024. All in all, we want to remain a strong investment grade profile. My last slide shows our solid balance sheet. Increase in assets were mainly from higher PPE Inventories came slightly down and our equity ratio is at a healthy level of 47% after 46.4% the year before. To summarize, 2023 was another challenging year for us with the fire and market-related growth and margin decline in aroma molecules and the unexpected market-related volume slowdown in pet food. Both could not be fully compensated by our very strong food and beverages, fine fragrances and cosmetic ingredients businesses. Nevertheless, we trust in our broad and industry-leading portfolio and we are confident to further outgrow the market in sales also in the future. With an increasing focus on efficiency and portfolio optimization, we are confident to return to our mid- to long-term EBITDA margin guidance soon again. And with this, I would like to hand back to Hans-Jürgen. Thank you very much.

Thank you, Olaf. Ladies and gentlemen, let us look at our segments. Their strategic setup and initiatives, they started to keep the business dynamics very high and bring our profitability back to the target level. In both segments we operate clearly as a differentiator within our industry. Chart 22 illustrates our segment taste, nutrition and health and our ambition to extend our capabilities. Over the past years we successfully managed the transformation from being a traditional flavor house towards a solutions provider in food beverages as well as in pet food. Today we consider ourselves an augmented flavor house creating value along the whole food system by combining flavor expertise with nutritional and health ingredients. This setup is the result of a consequent portfolio and technology expansion which we did organically and through bolt-on acquisitions. In the segment, we will take different actions for further build our position for continued accelerated and sustainable growth, as you can see on chart 23. As a result of our consistent review of our portfolio, we have taken measures in our product lines do not meet our growth and profitability ambitions. As a consequence, we just sold 51% of our trading beverage business in the UK. Together with our distribution partner, TH Gaia, we formed a joint venture. And in this partnership, the business can be much better developed going further. In order to further expand our leadership position in pet food, we will build a strong ecosystem connecting internal and external expertise to understand our consumers and their owners. You all know that health aspects are playing an increasing role in our product solutions and is on top of our customers' and consumers' minds. Throughout the taste, nutrition, and health segment, we are going to further bundle competencies, cross-divisional and also interdisciplinary, to broaden our view towards solutions with a proven health benefit. SwedenCare is a good example for our efforts to add health and wellness competencies through joint projects. In the meantime, we hold a stake of about 42% in the company. Let us take a look at the scent and care segment on chart 24, which also enjoys differentiating factors. All three divisions, fragrance, aroma molecules, and cosmetic ingredients on the segment keep leading positions in the key application areas such as oral care, fragrance ingredients, or micro protection in cosmetics. The divisions are connected through joint innovation capabilities, manufacturing platforms, and backward integration. Please turn to chart 25 to give you a few examples of current initiatives to even expand our competitiveness and footprint. In fine fragrance, we managed double-digit growth rates in the last years. Here we expand our capabilities in Dubai and China with new creative centers. In aroma molecules, we successfully shifted our raw materials based towards natural food stock and feed stock, namely pine trees from FSC certified North American forests. Our next ambition level is to apply the 12 principles of green chemistry to a much higher extent by introducing a green chemistry score for our portfolio. In cosmetics ingredients, we currently are focusing on two growth opportunities with strategic partners. In Cobo, we increased our share to 49%, which is in line with the intensified innovation in mineral UV filters and decorative cosmetics. A few days ago, we signed together with Virchow Company in India a joint venture to bundle our strength to leverage the growth opportunities in the region of Asia. We will also include building high-volume production capabilities in India for cosmetic ingredients. SHA-26 highlights more selective projects to expand capacities as well as to build new sales and sites globally. In total, we saw capital expenses of 270 million euros, the same level as last year. We started, for example, new constructions in Brazil, Mexico, Spain and India, as just mentioned. We also started to expand capacities to leverage our growth opportunities in certain countries such as China, France, Netherlands, Spain and Mexico. As you all know, sustainability is and always has been an integral part of our strategy, as you can see on chart 27. Our approach is fully aligned with the UN sustainability goals and embedded in our entire organization. In accordance to the Corporate Sustainability Reporting Directive, which is 2024 in place, we conducted a double materiality and an assessment. The graphic shows the outcome and defines our priorities. CSRD will also lead into additional reporting and transparency requirements for ESG topics which we prepare to report. Our transparency is acknowledged through numerous ratings. CDB just recognized SEMRISE with A ratings for its environmental transparency in protecting the climate, water and forest. Only a few companies achieved that. A record number of 21,000 companies were assessed. Ladies and gentlemen, let me now draw your attention to the outlook on chart 28. We feel confident that we have positioned our company well to continue our growth course. Despite the current volatile market environment with all challenges, Sumrise is well positioned to continue to deliver growth above market growth. Therefore, we are targeting organic growth of 5% to 7% in line with our mid-term guidance. We had a really good start this year into 2024. which gives us again all confidence. As a consequence of the margin pressure in 2023, we started several cost-saving measures. In addition, we will accelerate our efficiency program to ensure a quick recovery of our profitability. For 2024, we expect the current environment and EBITDA margin of around 20%. In order to achieve this, the mentioned efficiency program will deliver around 50 million. In the mid-term, we are targeting a margin between 20% and 23%. At the same time, we are keeping our growth ambitions. Sumrise aims to generate sales between 5.5 and 6 billion euros until 2025. In addition, we recently extended our long-term growth expectations to 2028, aiming to generate sales of 7.5 to 8 billion. Before I conclude our presentation, I would like to draw your attention to chart 29. As we announced last week, I decided to step down at the end of March. I am very pleased that Joe Eve, an internally experienced manager out of the Sumrise Executive Board, will take over as a CEO. Joe Eve has successfully transformed Sumrise into a leading player in taste, nutrition and health. Our company will be led in best hands with Joe Eve. We both will ensure a truthful and smooth transition. Joiv, let me briefly hand over to you for a few words. Joiv.

Thank you, Heinz Juergen. Thank you so much for your kind words. And I feel really honored and privileged to be your successor. Ladies and gentlemen, under the leadership of Heinz Juergen, we had tremendous achievements. Simrise today is built on a very strong foundation that is benefiting us in the current demanding business environment. And make no mistake, many in our industry envy us for that strong foundation. One thing is for sure, our entrepreneurial activities will continue to be characterized by setting the right strategic direction at an early stage to continue to grow profitable and sustainable i am grateful for the trust that the supervisory board has put in me i'm due to take over at the end of march and i'm looking forward to the collaboration with all of you some of you i will already meet in person during the upcoming roadshow next week in london And I look forward to meeting and talking to each one of you. Thank you. And my last words will be for Heinz-Jürgen. From my heart, I really thank you, Heinz-Jürgen. Danke und bis bald auch in Simreis zu Hause hier.

Thank you. Ladies and gentlemen, after this a bit emotional words, I would like to open the call for your questions. Tobias, it's your show.

Yeah, short show. I give to the operator many thanks for the presentations. We open for the questions and answers now. And Moritz, please help us with your introductions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to use only handsets and eventually turn off the volume from the webcast. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question comes from Lisa Deneve from Morgan Stanley. Please go ahead.

Good morning. Thank you for taking my two questions. My first question is on the pet food business. So your pet food business noted sequential improvements in the fourth quarter. Can you please share where you saw this improvement across the different regions and how you expect this margin to rebound through this year and how you expect your capacity expansions to contribute to the potential growth you foresee for this year in pet food? That's the first question. And the second one is on the margin. So regarding to a 2024 EBITDA margin of about 20%, can you please share what has been baked into this forecast in terms of different contributing factors such as cost savings and portfolio optimization? It would just be helpful to see what will drive you to 20% and what are the building blocks to that. Thank you very much.

Lisa, thanks for your questions. I start with this, and my fellows from the board, feel free to jump in. So, pet food improvement, as you rightfully said, we saw. a slight improvement already in q4 and this improvement and of the total business in pet food will continue to go on for this year as we go forward and joe eve can hop in but one strong area of Bouncing back was clearly Europe. In Europe, we saw it. And North America being a bit slower, but we expect pet food to be back on the historical growth and profitability levels because the mega trends are still intact. First improvement, Lisa, to your question, was in Europe. The other regions slowly following, as we can see, and we will see more of this in the course of this year. Second question, 20% EBITDA. we have always said, of course, we consider ourselves as the growth engine in the industry with an unsurpassed growth momentum. But we also consider ourselves... guards of the quality of the business, and we always have said that if our margin approaches 20% or goes below, we will take measures. First, we have announced already on the Capital Markets Day that One part of this action is we will revise and review our portfolio a lot more strict than we have done before. And as a clear consequence of this, today we announced that the trading business in England will go And it's in the documents. It's about 40 million turnover. And let's put it this way. The EBITDA margin currently is in the very low single digits. And as I said, Lisa, we have reviewed the portfolio. And in this situation, of course, the plans were presented how to get it back on the expected margin level. But in this situation, the decision must be we have to let it go. And we did that. As we also have announced in the Capital Markets Day already that there will be – ended out another piece of business in a similar magnitude with a similar profitability expectation where we, after reviewing the business, decided it will go. The only point why I cannot announce it here and will not announce it here what it is, first, the carve-out is not that simple because this business is related to another piece of business which we definitely want to keep. And the other point is, and so it's affecting a few sites. And we always said one of our core values is also our attention and high appreciation of our employees. And we do also this with that asset. But expect this asset to go in the course of the year and maybe second quarter, end of second quarter, you can see already what it is. Divestitures and exited of portfolio will have already a perceivable benefit on our profitability. In addition, we have under the helm of Jean-Yves embarked with an efficiency program which we expect to bring in this year approximately 50 million. Key drivers are leveraging stronger synergy effects. I may remind you when we bought Diana. We had lots of consultants coming to us and offering us their help in leveraging more synergies between traditional flavors and new child on board, Diana. Intentionally, we didn't do that because we knew we did the best acquisition in the industry anyway, so it was more the priority building trust and not disrupting the wonderful momentum of the business. But now, several years later, it is the time and Jean-Yves is the right man to take care of it. to bring the efficiency in. For example, we identified pockets for that in purchasing, in indirect purchasing, in processing, so it's a lot where we can generate savings without laying off people. That is important for me to stress. Having said that, I talked about Exiting portfolio and business, I talked about improvement of current processes. And let me briefly mention also business we bring sooner or later on board like Swedencare. Swedencare had published their numbers. They have shown an organic growth rate of 25% with an EBITDA margin of 25%. So on the one side, we exit business which doesn't fulfill our needs. On the other side, we have already paved the way that new business with an accretive profitability comes on board. All this together makes me very confident, Lisa, that we will get back to our guidance and our targeted profitability pretty soon. Okay, Lisa?

Thank you very much.

You're welcome.

And the next question comes from Charles Eden from UBS. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. I'll limit myself to two, but also many congratulations on the retirement, Heinz Jürgen. So on my two questions, firstly, could you update us on the trends on aroma molecules, please?

Yes.

I believe you're back to volume growth in Q4 for this business. Are you continuing to see volumes recover there and And maybe you could just sort of frame what the total sales, where the margin was for that business in 2023, and some thoughts on where the sustainable recovered margin of that business could get to in 24, 25, when volumes have recovered. And then my second question, just on the efficiency program, you're saying 50 million of savings for 24. Is that the total scope of the savings, or would you expect, potentially some additional cost savings in 2025 and beyond. And just tied to that, I guess $50 million savings is about a percentage point to your margin. I guess that kind of gets you back to 20% without any underlying improvement in the business, any operating leverage, et cetera. So is the ambition 20% sort of a flaw, and hopefully if things go well, you could exceed that target? Thank you.

So, Charles, I couldn't have asked more for such a question. Of course, 20% is the floor, and we're only taking a bit more accelerated action as you are not satisfied with this achievement of 19.1%. First, let me just readdress one point again. A bit embarrassed to have to come back to you folks in December to update our guidance for the year. Two effects played an important role which we did not have on the radar screen on the Capital Markets Day. Clearly, let me put it this way. Capital Markets Day we were at, Olaf, 19.9%. Olaf is nodding. Then, and there was no reason not to believe that our original guidance was intact. What hit us was first the devaluation of the currency in Argentina, and me not being the financial guy, but at least I tried to. The total impact on the top line was a lot more than $30 million, and on the bottom line a lot more than $10 million. And then sickness leave rate in November and November. December mainly triggered by the corona crisis in Holzminden led to the effect similar magnitude and that's why we decided okay we didn't have that on the radar screen when we met in the last year we have to update our guidance having said that Charles you see the underlying Business performance is just healthy. Bringing it back to your question, the potential of bringing in synergies without laying off people is tremendous. Again, most of the synergies of the acquisition of Diana had not been leveraged so far. I stress that. The other point is on portfolio measures. There is a lot of room. Simply the two measures I mentioned for exiting the business will bring a positive impact. And Olaf has calculated that one of the exiting business. I think it's 0.2% for the total company, just that alone. And the other one happening in the mid also this year will not have for this year such a big impact, but it will be perceivable. Then the next one, whenever we do it, bringing in new business, which is accretive, and we talked about it, will also help overall. And that is, I guess, the question of you. Our business quality. is absolutely intact, absolutely not questionable. So that's why, again, there is no reason to be concerned. And you're right, Charles, with our business portfolio, 20%, that is definitely the very lowest bottom of where we can have the business today. And if more is possible, I'm not afraid to take that as well. Having said that, I would take the first question, aroma molecules. So if it's good, I'm still around. So aroma molecules, talk about that. I have to say, Charles, aroma molecules in sunrise hit the perfect storm last year. In end of 2022, our... site in Colonel Island faced a severe incident and we have used the whole last year to get that back. A few weeks later In the same region in Florida, one of our competitors, Firminich, had a similar accident. They decided to bulldoze and scrap their factory. We have re-erected it for the simple point we believe in the future of that business. And I just can quote one of our former employees, Fred Kreitzer, who has given an extensive interview with the Bank of America. I'm sure all of you guys have read it. And Fred clearly said in that interview, Aroma Molecules business... was accretive for Sumrise. The only difference, the conclusion he drives going forward, it will not be accretive anymore. I do not share that, but to the credit of Fred, he's out of the company since several years, so he doesn't know the latest developments. So, Charles, the factory which we rebuilt is back on stream, and the good news, it's sold out. At the moment, we have no underutilization in aroma molecules. At the moment, the price is still not there where it should be, but it will get there on the other side from the significant devalue and revaluations we did last year. The division will benefit. So, Charles, with all the steps we've done, preparing the ground for a sustainable green chemistry in sunrise, strengthening the backward integration, having a safe supply. then Sumrise is perfectly suited to the challenges of the future. And, Charles, on top of this, some possible upsides are not even factored in. Imagine America elects and they elect Donald Trump and he puts customs on imports. There is simply only one customer who is producing menthol in North America. So if Donald Trump wants to clean his teeth, if he wants or not, he has to buy our stuff. So you see, there is a lot of reasons to be optimistic, and there's not one single reason to have doubts about aroma molecules. I think we have the worst behind us. I hope that answers your questions, Charles.

It does. Thank you very much for the detail. Can I just quickly ask, in terms of how big that business is, obviously it declined this year, just in terms of the sales?

Around 400 million. I didn't look up in detail, but the magnitude is about that. And yes, it has declined a bit, mainly because Colonel Island, it was around a bit more than 30 million. When the incident happened, we notified to you that that will be the negative impact. That assessment was pretty much right on track. We have, Olaf and myself, we have totally been off in assessing the cost impact of this thing. We estimated 20 million and it was easily twice as much. It was twice as much as we decided that we don't want to see this happening again. So we did a lot of more precautions to make sure that this unpleasant event doesn't happen again. I hope that answers the point.

It does. Thanks again.

You're welcome. And the next question comes from Nikola Tang from B&B Paralympics. Please go ahead.

Hi, everyone. Thanks for taking the questions. And firstly, big congratulations both to Heinz-Jürgen and also to Jean-Yves. First question, well, they're both actually related to your organic growth outlook. Firstly, to get to the 5 to 7, you refer to a market growth rate of 3 to 4%. I think you've had this market growth rate assumption for a long time, but it kind of implies a more normal end market demand this year, 2024. So could you just talk a little bit about what gives you confidence that we're in a more normal situation in terms of demand this year? And you referenced a really good start to 2024, so perhaps you could give us a little bit more color, either by geography or by region. And the second question is on pricing. Maybe you could talk a little bit about within that five to seven, what are your expectations for pricing and your expectations for input cost this year.

Thanks. Okay, so I'll try to take it, and Olaf, you hop in again if I'm totally off with mine. So 5% to 7% for this year. If it's getting more, fine, we'll take it. But let's point out, 1st January, we had an all-time record January, just to let you know. So we have some reason to be confident. The reasons for being confident is we continue to see the strong growth momentum in cosmetic ingredients. And we're building the largest single investment we're currently doing is in Granada for cosmetic ingredients. A similar plant like what we did in the U.S., 3,000 metric tons. And this thing is already sold out. So I can't wait that this thing is ready. And the same background, that's why we built Granada. and formed the joint venture in India where we, by the way, hold 51% and where we build additional capacities What we have in these business types is already sold out the day the production is ready. So that shows we have a very young and very dynamic product range, and the best is still ahead in that one. Also, a good reason for being confident is, and Joe Eve reassured it, pet food is getting back on track. As I said just before with Charles Eden, in Europe we clearly see it, in North America it's slightly behind, and Asia a bit more than North America, but behind clearly EMEA, and Latin America is okay. Big driver for us, as we have notified you, pet food will be a business, including pet food, pet care, everything around pet, of $1.5 billion next year. Must not forget when we teamed up with Diana in 2015, the pet food business at Diana was max $250 million. So next year, $1.5 billion, I think that's a strong statement. and pet food was not even the strongest growth driver in our company, in our business in the last year and its cosmetic ingredients. So, and it was a pleasure for me, Nicola, to see you guys being on the Capital Markets Day and having pet food present and our other growth driver cosmetic ingredient highlighted and many of you said, hey man, we were not aware what dynamic you have there. So, unbroken dynamics in these big drivers and these are the key pillars that our growth dynamics will continue to go on as both of these segments are delivering on some megatrends and you must not forget, Nicola, we are the only pet food guys you're talking to and all the others you talk to don't have it so it is a clear differentiator and with the SwedenCare we enter and expand that even the Swedencare has published their numbers and just to remind you 25% organic growth EBITDA margin 25% so we're present in those growth segments by regions that was your second question your second point clearly we can see a strong continued momentum in Europe we see a healthy good momentum still in Latin America North America, slower, but will get back. And Asia, clearly, will get back with the open question to see what's in China. But the rest in Asia is just fine. Pricing, Olaf, my shot. We get back to the historical pricing volume thing. Typically, two-thirds were China. driven by volume and one-third by pricing. And if I look at January and February, we can clearly see a good and strong increase of volume. So I guess for this year, that is pretty close to what's going to happen. And we predicted that at the end of the year. Nicola, does that answer all your questions?

It almost does. There was a tiny bit more around inputs and your expectation for input cost this year.

Olaf, now you. He has been sitting around all the time.

No, it's up to you. Yeah, and Nicola, we assume that we will have flat input cost overall for the group. So that's the driver. And as I said, we are working on the efficiency environment quite a little bit forceful and stringent. And that should definitely, in combination, lead us back to this around 20% margin.

Great. Thank you and congratulations again.

Thanks. And the next question comes from Ed Hawking from JP Mark. Please go ahead.

Hi all. Thank you very much for taking my question and also just to echo the congratulations to both Heinz-Jürgen and Jean-Yves on your next chapters. I have one question please on fragrances. So I was wondering how you see the growth in fragrances progressing. Obviously it looks like another very strong performance. for fine fragrance in Q4, but really how you see both fine fragrances and consumer fragrances progressing into 2024. And maybe just to zoom in on the fine fragrances, clearly the overall market has been strong. But how do you see your market shares developing here? And with your acquisitions, whether you're seeing good revenue synergies? And just to clarify how big this business now is for you. And if I could just Also, drop in one quick second one, which is your EBITDA margin here in scent and care of 15.8%. Is it possible to get an idea maybe of how this looks, excluding aroma molecules, how your fragrances and cosmetic ingredients profitability is trending?

Thank you. Sure. More than happy, Ed. First, fragrances growth is... Good and healthy yes aroma molecules we need to separate and I will do so first Exceptional year 23 so negative growth in aroma molecules so 5.8% organic growth for the whole segment so you can make the calculation and with the amount of aroma molecules and the drop in turnover so the rest of fragrances must have been a reasonably good year overall and Second point, yes, fine fragrances, we have seen since a few years double digit growth. I've seen also that our major competitors have seen in that segment a good growth. And, yeah, no secret, if you talk with Givaudan, Gilles André asked about our fragrance business. I quote Gilles for that. We're much, much, much, much smaller. That's what he said. But, frankly, not in all segments. We pick our battlefields very carefully. And in fine fragrances, we are still smaller, but not to such an extent. And obviously, we definitely did not lose market share. I would say we continued to win market share. And a new situation for our big competitors that in fine fragrance, even the big iconic brands, you find the name of Simrise on it. So, having said that, fine fragrance, and that's why we talked about our ongoing investments in fine fragrances. Yes, we have done some acquisitions, but also the organic growth momentum in fine fragrance is wonderful. and the team is just doing the right stuff. No reason to be concerned. I would say assessment, Djiboutan's fine fragrance business is probably approximately twice the size as ours, but ours is significantly bigger than the second tier. So we are getting there, we are making progress, and we are closing the gap even in size to the other ones. It may take a while, but we are better underway than... All the others expected from us. Having said that, consumer fragrance has seen some difficult time because to overstocking and destocking. And we see this coming to an end. Project Vitality is picking up and the business momentum is picking up in that as well. And we have good reason to believe, sooner or later, that this business will also be a solid growth contributor. And our entry, when I took for some time the responsibility for the scent and care division, one thing, and we talked about that, was clearly also entry in the household sector. I would say we are making an inroad, we are getting there, we are making progress. And the one or the other competitor has reported some difficulties. We are okay there. And the last question is what would be our margin expectation in scent and care? if Aroma Molecules would not have experienced these exceptional problems this year, let me put it this way, it would be very close to what we expect for the businesses in our company to be. So I think you can make the calculation out of that. It clearly shows the rest of the business is healthy. Aroma Molecules has faced the perfect storm, what I call it, but it'll go back to the situation that aroma molecules, as historically also, will be an accretive business segment. All reason, Ed, to be optimistic and positive. Aroma and care will have a good year 2024. Thank you very much. You're welcome.

And today's last question for this conference comes from Isha Sharma from Stiesel. Please go ahead.

Hi, good afternoon. First of all, all the very best to you, Hans-Jürgen. Thank you for the lively discussion over the years. And congratulations, Jean-Yves, of course, for your new role. I have two remaining questions, please. One is on menthol. You mentioned that there is increased competition. Could you please elaborate on whether menthol There are new capacity additions, or is it just a function of lower demand at the moment? And what are your expectations going forward as far as business dynamics are concerned? And the second one is just a housekeeping one. CapEx was a bit lower than expected. Is it just a phasing effect in 2024? How should we model it for 2024, please?

Isha, thanks for the question. I was hoping that you asked something so that we have opportunity to talk a bit together. So CapEx. Of course, when we saw the challenges in the business environment, we switched a bit our focus to protecting the cash position and business-free cash flow. Olaf alluded to it. So we have reviewed some of the CapEx projects. Just to mention one is in pet food, where the market did not develop as we expected. So we put a few of these investments under scrutiny, and we found ways that we – some of them we – could avoid at least for a certain period of time and probably also not for this year. Isha, for this year our capex spending is planned to be pretty much in the same magnitude like last year. So do not expect in your modulation and calculation that this year now a big overload from last year will happen. No way. So that is the capex simple explanation with a business performance environment. It was just highest time to review some of these capex spending. And then menthol. Isha, you have read the interview of, obviously, Fred, and I'll talk about it because it was focused mainly on menthol. Okay. Fred said in that the menthol faces new competitors. Yes, one competitor entering from China is NHU. But, Isha, it's not a new situation that new competitors enter a market segment. And talking about menthol, it's not a new situation for menthol. Fifteen years ago, the biggest suppliers for menthol in the world were Indian suppliers with natural menthol, Takasago, and Tsimris. Then the market has developed and a new competitor has entered the market, BASF. And the two largest mental suppliers today is Simrise and BASF. And by the way, as Fred says, NHU has entered the market as a new competitor. Fred has mentioned the capacity of Simrise of 10,000 metric tons and BASF as well. I don't know where Fred has the know-how from and the knowledge from the competition, but let me put it this way. The magnitude, the number is in the right ballpark. NHU, he said, 5,000 metric tons. The whole menthol market in the world is about 40 or more 50,000 tons. The menthol demand in the world increases 4% per year because the growth of population in the world and the amount of people who clean and brush their teeth daily is increasing. So 4%, which means with the total volume of approximately 50,000 tons, 4% is around 2,000 tons per year increase. So if 5,000 tons of additional capacity like NHU are in the market, They are used up easily in two years, just in two years. So this is a non-event. Second, Fred has said because of this new competitor, we will face a drop in our company margin or EBITDA 2%. Actually, if I calculate, I don't know how this is possible. Our menthol capacity, we use the numbers of FRET in the Bank of America quote, is around 10,000 metric tons, S-P-A-S-F. The average sales price of menthol is between 15 and 20 euro per kilogram. That amounts to a total business of 15 to 20 million for us in our company. In a company of close to 5 billion turnover, we end up with less than 0.3% of our total business is menthol related. Isha, and we must not forget, Sumrise is not only the largest menthol supplier in the world, It is also the largest customer, goes in oral care. Must I remind all of you, we are number one oral care in the world. So, we use one third of our mental supply for our internal consumption in oral care or conversion into cooling agents. Cooling agents go into cosmetic ingredients and oral care. So, it ends up with less than 0.2%. of our total turnover, external menthol sales at max. How we can generate out of changes in the menthol market a downturn of 2% in our total EBITDA margin, someone else has to calculate. So you see, it is a no-brainer for us. We have coped with new competitors. It's a natural thing. We welcome new competitors because it's Challenge is always opportunity. And you see, I'm far away from being concerned, Isha. I hope that answers your question on menthol.

That was a very comprehensive answer. Thank you so much.

I really appreciate it. You know, I wanted to be sure. So to make some ground, so Jean-Yves still has to find his way into menthol. So I just wanted to kill this cat for once and ever.

Thank you.

Well, thank you very much. This was a strong speech. It was a nice teaching into mental to everybody who is not a mental specialist yet. Thank you very much. Usually it's my task to end this conference, but today everything is a little bit different. So I hand over to Hans-Jürgen for the final remarks. Thank you very much.

Thanks, Tobias. Please permit that I have a few words because, again, I would like to thank all of you for your support over the years, for your challenging but always fair questions. Some of you, we almost got friends. We had great times together, and I really appreciate that. And I don't want to step down finally without having questions. thanks to all of you for your continuous support and I hope that you are also as supportive to my successor and I have to say friend, Jean-Yves. Having said that, thanks to all of you.

Thank you.