Symrise Ag Ord

Ladies and gentlemen, welcome to the Trading Update January-September 2024 conference call. I am George, the chorus call operator. I would like to remind you that all participants will be least anonymous 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 Dr. Jean-Yves Parizeau, CEO. Please go ahead.

Thank you very much. Good talk. Good morning, all of you, ladies and gentlemen. Welcome to our nine-month call this morning, and thank you all for joining Olaf and me. We wanted to use this occasion to give you a brief update on our nine-month number. which will give you an idea of our trading statements at this time. While we do not usually do these calls for our first or third quarter numbers, we decided with Olaf to make an exception this time because we wanted to concentrate on all your questions about these numbers. After my remarks, Olaf will give you an overview of our price, volume, and hyperinflation-related pricing performance. Then we'll open the floor for questions afterwards. Now, in first nine months, we're once again strong ones. No surprise there. Solid top line growth. We grouped sales up to 11.1% organically to 3.8 billion million at the end of September. For the third quarter, that comes out as a plus of 10.2%. SEMRISE also continues to perform strongly on the bottom line. Again, no surprise there. As usual, in our nine-month performance, we are not reporting detailed EBITDA numbers for the period, but let me assure you that we are not deviating from our profitable growth course. And most importantly, Our solid performance in the third quarter has led us to specify, you might even say elevate, our full year guidance. We now expect sales to come in at around 7%. As you have come to expect from us, both of our segments have once again performed well in the third quarter, and both contributed to the overall strong results. And that is, despite the overall economic development around the globe, we still see significant geopolitical tensions and a relatively high inflation in many of our markets. In that context, the nine-month performance I just talked about is a real testimony of the resilience and strength of our business model. I'm really proud of our diversified portfolio and our broad international footprint. which makes us definitely unique. Let me share with you, our international setup is really quite impressive. I just visited our major operations in Asia, Latin, and North America. And in the coming days, I will be in Madagascar and make a quick stopover in Dubai. I couldn't wait so much for meeting our teams. It has been very inspiring for me to meet so many SEMRisers around the world in the last few weeks. They are all doing such a great job. I am convinced that our setup will continue to drive our success going forward. As we said in our trading update this morning, we are firmly convinced that we have set the right course for the future. With that, let me hand over to Olaf. which will give you some more additional context and the numbers we have reported this morning. Before we then, we will take all your questions. Olaf, thank you.

Thank you, Jean-Yves, and also a warm welcome to everybody on the phone, also from my side here. Let me give you an overview of our price, volume, and hyperinflation-related performance. There's a special emphasis on the latter one. Our strong organic growth of 11.1% in the first nine months was primarily driven by volume. While we experienced a marginal decrease in real pricing, this was offset by a low single-digit positive impact of 2.3% from hyperinflation-related pricing, leading to an organic growth without this impact from hyperinflation of 8.8%. In Q3, we achieved 10.2 percent organic growth, which was driven again by volume. A slight negative price impact was offset by an equal positive impact from hyperinflation-related pricing of 0.3 percent, leading to an organic growth without hyperinflation of 9.9 percent, i.e., stronger than in the first half. TAFE's nutrition hulls delivered 10.4 percent organic year-to-date growth. Compared to the first half of the year, the volume performance accelerated in Q3, leading to an organic growth of 11.3% for the segment. Specifically, pet nutrition continued to experience certain price decreases in Q3, resulting in a slight negative price impact on the T and H segment performance. This was offset by a positive low single-digit hyperinflation impact. 0.6%. Scent and Care achieved 12.2% organic growth in the first nine months, with all three divisions experiencing double-digit volume increases. The segment was a slight real price decline driven by aroma molecules. This was partially offset by hyperinflation, 1.0%. Q3. delivered organic growth of 8.4% for Cent and Care, driven by a high single-digit increase in volume. Alongside a continuing slight price decline, we saw slight hyperinflationary headwinds in Q3 for Cent and Care. Based on the good business performance of the first nine months, we are specifying our full-year organic sales growth target to around 7%. So furthermore, please note that hyperinflation-related effects will cause a specific negative impact on our organic growth profile in Q4. Especially the Argentinian peso has been subject to continuous devaluation for several years, which escalated actually in December 2023 by monetary policy measures of the newly elected Argentinian government. and caused a severe devaluation of the peso from 393 to 893 Argentinian pesos per euro. During the first nine months of 2024, the difference between current and previous year FX rates led to the earlier mentioned positive contribution to the organic growth from hyperinflation countries of 2.3% for the first nine months. At the end of 2024, the sharply depreciated exchange rate of the peso from the previous year will flow into the growth calculation and impact the organic growth negatively in a substantial magnitude as headwind in Q4. This will also significantly reduce the growth contribution from hyperinflation countries for the full year before our capping. An opposite effect in the same magnitude will be reflected in the FX-related sales growth. From a reported sales growth perspective, this specific impact will be kind of neutral. So I wanted to highlight this. I'm sorry for being a bit technical here, but I think it's important for you to understand where we are. I hope you appreciate these additional comments to understand our growth guidance of around 7% for the full year in a better way. And with this, I would like to hand back to Jean-Yves for some final comments.

Thank you very much, Olaf, for this clarification. Ladies and gentlemen, thank you for your attention. And before we open the call for questions, just let me invite you, all of you, to the upcoming Capital Market Day in Olsminden on November 19th and 20th. where we want to show you how we unleash the full beauty of SimRise. All my executive board colleagues will be present, and now I would like to open the floor for your questions. 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 the 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. Questions on the phone are requested to disable the loudspeaker while asking a question. Our first question comes from Matthew Gates and Bank of America. Please go ahead.

Hey, good morning, everyone. Thanks for doing the call and taking the questions. I'd like to ask about the consumer products business within Scent that continues to do double-digit growth. as we've seen from your peers as well. Can you disaggregate that as to what is really driving that growth? Do you see significant stocking behavior at your customers and in the channel? Or do you think there's something more underlying and structural about the dosage levels that are going into different product categories? Thank you.

Thank you for the question. So yes, scents, because I think you are focusing on scents for the consumer product. I think that first, it's difficult to answer the stocking question. Very often, I have this question about the stocking bag. I don't have the feeling that customers are stocking. I think this thing is behind us for a while. at least for the extra stocking or the overstocking. I think the market is really growing. What we see is definitely is a shift also in some customer portfolio structure. I'm just coming back from different visits, as I told you, from Asia, Latin America, North America, and we see very active local and regional players. And I think the market dynamic is still there, even if we see different places in the world some, OK, economical or consumption slow down, the consumption is really going up. So I don't see, to make it simple, a storage stocking effect. Concerning the structural part, if it's a change of dosage or things like that, also it's a very case-by-case impact. I think there is no one fit for all. It depends on the type of product. For fine fragrance, definitely the market is growing, and we are really eating market share, and the growth is really coming from that. Consumer fragrance, it is the same, but consumer fragrance is much more diversified than fine. Consumer, we see a very good growth, very nice growth in Fabriqueur. and also we are focusing on air care and cleansing and the market even if the market are not hyper you know growing because these are very stable market these are very resilient markets so they are really growing the right way so our growth is definitely coming from this structural growth and the fact that we are also gaining market share in some specific countries

Matthew, if I may add, I think we also should anticipate a little bit that the comps are getting tougher now. I think the recovery of the business started really in Q3 of 2023. It's not that we are seeing the slowdown yet, but I think at some point we need to assume that it will be a little bit more modest. Continuing with double-digit growth, I think, would be a surprise, let's say it this way.

All right. Thank you both for your thoughts.

Our next question comes from Ed Hawking and JP Morgan. Please go ahead.

Morning, both. Thank you very much for taking my questions. My first question is to clarify on the FX pricing effect for this year. I'd been thinking it would be around 2% contribution to 2024. Can you tell us what your updated thoughts are for the FX pricing effect will be in the year as a whole and maybe clarify on the magnitude of the headwinds that you're talking about for Q4. And just to check as well that your guidance for around 7% organic sales growth for this year is still excluding that FX effect. And then my second question, please, is on the bit of a slowdown in scent and care in Q3. whether you can break this down a bit by consumer fragrance, fine fragrance, aroma molecules, and cosmetic ingredients. It looks on the face of it like there's been some slowdown in cosmetic ingredients. Could you just clarify if that's been the case and your thoughts on the growth going forward? Thank you.

Okay, let me take the first one. So, first I confirm that our guidance excludes the impact from hyperinflation. The magnitude is a little bit difficult because we still have not the FX rates in the fourth quarter for Argentina specifically, but what is currently 2.3% as I flagged for the first nine months will likely go more towards 1% or even a little bit less in the fourth quarter. The magnitude for us, and you can do easily the math, is 40, 50 million. So it's quite substantial, and that's why we reflected today. We anticipated this, and this is why I communicated on this impact all year long to clarify where our real organic growth is. So please take that into consideration when looking at our around 7% guidance. Jean-Yves, you want to take the Scented Care?

I will take the second one concerning the slowdown in Scented Care. We have to be very careful about slowdown or not slowdown because we made a very good Q1, Q3, so we cannot overperform all the time. We have to be very careful to follow the market. We had a very good Q1, Q3, and specifically, you have seen, in cosmetic ingredients, we got significant orders, which is the proof that we are also really gaining confidence of key customers on the market. And these orders cannot be happening every quarter. So I think it's very important to see the average evolution year after year. And to see quarter by quarter is always a little tricky because, as I told you, we can have a specific quarter with significant orders and not the following month. But the reason why I think that it's important to see this slowdown as a kind of constant evolution and growth of the turnover. And I answered your specific question about CI with a very nice, you know, a win in the first half of the years, which was really impacting our figures the right way and which will be also have an impact certainly on the comparable next year. So something also to keep in mind. But the average growth is really impressive, I think, and overperforming the market growth.

If I can add to this, specifically on cosmetic ingredients, you know that we are running different activities around actives, the microprotection and UV filters. Specifically, the UV filters are a little bit softer at the moment, while the other parts are going at least with the same dynamics. So there's a little bit of split within cosmetic ingredients. Why? Because they look a little bit softer. but it's really coming from the UV filter side.

Thank you.

Our next question comes from Charles and UBS. Please go ahead.

Hi, good morning. Thanks for taking my question. Excuse me. Just one left. On the margin this year, obviously, you don't specifically mention around 20 in the press release, but I know your comments in the prepared remarks around continuing the profitable growth Should we just take that as sort of saying that you do expect the margin this year to be in that 20% to 23% will be, I guess, at the lower end of that range corridor for 2024, if you could just clarify that. Thank you.

Yeah, good morning, Charles. So we consider this nine-month release as a trading update, and therefore we didn't talk about the margin. We reserved that for the capital markets day. But let's say the third quarter was definitely also a good one for us and therefore no change in our guidance on profitability for the moment. Naturally, you also know that the fourth quarter is always the weakest quarter and therefore we will update you on the capital markets.

Thank you. You're welcome.

Our next question comes from . Please go ahead.

Hi. Good morning. Thank you so much for the details on the call. So just to clarify, obviously you did 11% growth in the first nine months. And then you are saying that 2.3% out of it was FX pricing from inflation. And now you are guiding for 7% through the full year. Still a bit of slowdown in Q4 that you are assuming. Is that right? Sorry, I'm a little bit slow this morning. I just wanted to understand the 7% that you are guiding is without the FX inflation, so it should be, then we have to take the 1% out, so it should be, so that the real with hyperinflation guidance is close to 8%.

Ja, Escher, good morning, first of all. And thank you for the clarifying question. Yes, the 7 percent is excluding this hyperinflation impact. You've rightly said 8.8 is the run rate at the moment. We are guiding around 7 with the expectation that Q4 is always the softest quarter for SEMRISE. Naturally, we're a little bit careful after last year's experience. So take that for the moment. The tricky part is always the month of December where it's kind of difficult to predict how the order positioning will be from the customer side. So it might well go into December. It might well go into January. And therefore, I think we feel comfortable with this around 7%, which gives some leeway, of course. Hope this helps.

That's very helpful. Just one more question on pricing. You mentioned there was still obviously negative pricing in Q3. Do you think that we have reached the bottom there, especially for pet nutrition, or do you think that there's still a couple of quarters to go before we start to see the bottom in pricing there?

So I will take this question. So as I said last time, so this price decrease in pet food is mainly due, yes, to the nutrition and sometimes on a case-by-case for palatability where there's very substantial price increase the last two years. So we are still in a period where we are stabilizing the business in term of pricing. So I think the Q4 will still see effects on that for the pet business as a whole. But next year should be definitely coming back to a much more stable business in terms of price. So certainly will be still an impact in Q4. But next year should be, again, stabilized and back on track to normal market rules. and not compensation to any kind of price evolution which has been done in an urgent mode due to the raw material evolution.

That's helpful. Just some indication on volume side. Do you see the volumes are still positive?

Yes.

On the pet food side?

Yes. Yes, definitely pet food. Again, pet food population is increasing year after year by 2% globally. And we are also having a very strong relationship with pet food customers, whatever is for palatability, nutrition, or food protection. And we see in different parts of the world some slow down, but slow down means still an evolution. It's not going down minus, it's really to slow down, but the evolution is there. So the volume will continue to increase in the coming months and my perspective in the coming year.

And if you could help us with a bit of magnitude, like just an indication.

So if I take my crystal ball, it should be definitely between 5% to 10% volume growth.

I'm sorry for being so pushy, but what is the current trend rate, Joanne, if I may ask?

Sorry?

Where are the volumes right now? What kind of volume increase did we see in Q3 for Bedford?

Very similar to what we saw in the first half, and it's to the upper teams at the moment. Sometimes, depending on look at nutrition or at eligibility, above or a little bit below the teams.

That's very helpful. Thank you so much, guys.

As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Nicola Tang and BNB Paribas. Please go ahead.

Hi, everyone. Thanks for taking the questions. I wanted to ask a little bit about your innovation pipeline and the discussions that you're having with customers around innovation. I think there's been a narrative around potentially a step up in innovation with customers. Is there anything to call out? Are you seeing anything in particular and in which divisions or areas? And the second one, could you just give us an update on input costs more generally and what you're seeing, both on the natural side and also if you could comment on whether the outage or the extended outage with the ASF is potentially having any impact either positively or negatively on you. Thank you.

Okay, so thanks, Nicolas. So concerning innovation, by the way, that will be a focus. for our Capital Market Day to explain to all of you the way we are structuring innovation based on our R&D. And we made a meeting with 130 leaders last two days, and one of the main topics was also the way we will accelerate innovation. And the way we'll accelerate innovation will be through an ecosystem we will build internally. We have a lot of capabilities in the company. whatever it is, agronomy, technologies of extraction, reaction, biotechnology, and the way to apply our solutions to the customers. The more we go, the more we are creating an ecosystem and proposing an ecosystem rather than products or solutions to our customers, which is much better for co-building the solutions and sustainable solution for the customers. So again, that's something we want to go more in detail during the next capital market day. But the very good thing for Simrise is definitely a very strong R&D in taste, in nutrition, and in fragrance. So it's a driving force, but we want really to capitalize much more on that. Concerning your input cost, okay, any impact? And I will hand over to Olaf. Is there anything to add? But we did not see any major impact on our business.

No, I think in general the input cost, the driver, of course, on the synthetic side, while our portfolio is very much geared towards natural, so kind of neutral, and at the same time the synthetic side probably has bottomed out now. We are in the phase of doing a lot of negotiations for next year, so it's a little bit too early to guide already for next year, which we typically do then in March latest. And we have in all here a picture how input costs might play out.

All right. Thanks very much.

Our next question comes from Charles Bentley in Jefferies. Please go ahead.

Thanks for taking my questions. I just wanted to ask, firstly, on the aroma molecules business, you're talking about still slightly negative pricing. Just any indication on the direction of travel on margins? I know it's been a tangible headwind. And whether that's improving with the volume leverage? I mean, is it reasonable to think that that can get back to 20% margins? And then secondly, you kind of answered before just in terms of the kind of overall momentum in scenting care. It looks like fine has stepped down in Q3 versus Q2. Some of your peers are obviously reporting a lot stronger growth than that. So is that order phasing? Just talking, just kind of any thoughts on market share and direction of travel. Thanks.

So the negative pricing in AM results from the last year's negotiations. Typically, we have annual contracts. So that's now the time when we also negotiate for next year's volume. And it's always a balance between using our capacity and good demand, which we see for our products. So definitely the period to determine now. And I think it's fair to say that we will definitely not see any kind of substantial price concessions in aroma molecules going into next year. So let's keep it there for the moment. I think when it comes to the march in aroma molecules, it's progressing, of course, very nicely compared to what we saw last year. So extremely good progress. Let's see how we can drive this further next year.

And myself, I will jump on the second question concerning the scent and care. Thank you, Free, and any kind of effect of order phasing or not. The first thing is it's a good news. It's even a very good news that we see all the players around us making good performance on fragrance. The fragrance business is growing, one. which is for all of us a very good news. Whatever is home care, laundry, beauty care, personal care, growth is there. And growth is even more important in the so-called developing countries. That's the first very good news. The second thing is, is there any impact on order phasing? Yes, I told that there was an order impact, specifically on the cosmetic ingredient part. Olaf was also mentioning, you know, some slowdown in UV filter, which is also a seasonal business, by the way. But globally, we see the trend very positive. And now to be more specific to Simrise, we made a very strong restructuring, mainly in consumer care and consumer fragrance. And we also see, you know, the impact, even short term. You know, when you change an organization, it takes some time for seeing some impact. But we definitely made a stronger organization during last month in our Elevate 27 program. We launched now one year ago, even two years ago. And we see the impact in terms of customer perception and in terms of wins. So the order phasing is there. But as I mentioned previously, what is important for me is to see the yearly improvement. And the yearly improvement is definitely there.

Maybe just to add on the fine fragrance, it's also a little bit project related. We had some nice winds in Q3 last year. And then you're, of course, going against the high comparison if you have these nice winds. I think Jean-Yves was taking part in the opening in our penthouse in New York last week, which was, I think, a nice opening, attracting a lot of customer interest. So the colleagues in Pine Fragrance are very, very motivated and I think doing a tremendous job at the moment for Sumerize. We are really positioned for growth here.

Our next question comes from Oliver Schwartz with Workbook Research. Please go ahead.

Oliver?

Sorry, I think you have been muted. Sorry about that. My question is, good morning, gentlemen. Sorry for the delay. My question is basically you're guiding on an organic growth of around 7%, stating that the organic growth was 11.1% after nine months, which basically strictly mathematically speaking leaves only room for give or take 0% organic growth in Q4. That's probably not the message you wanted to convey. if I get your remarks in this call right. So what's deducting the hyperinflation number would be the correct organic growth for the first nine months of 2024 that is comparable to the 7% target for the full year? And why- 8.8.

Say again please? 8.8. This is the- 8.8. The picture I described that we have 11.1 percent for nine months organic growth, and we have 2.3 percent impact from hyperinflation as the tailwind currently brings us to 8.8. And in Q4, we will see a substantial headwind from hyperinflation as described, so 8.8 and 7 percent. That's the around 7 percent as the comparable.

Yeah. Wouldn't it be more, let's say, convenient for the financial markets to get that number also in a written form in your press release? Because otherwise, people might compare the 11.1% to the 7% and come to the same conclusion that I just did, which is not really helpful.

Yeah, that's why we have to call, Oliver. And actually, my hope is that the whole topic of hyperinflation will just disappears in the past. We are in a very specific situation right now based on what we saw in Argentina last year in Q3 and Q4, sorry, and which will have an impact this year in Q4. And then hopefully we can all forget about this again. We wanted to have this call exactly for this reason to clarify with all of you, where are we? and make clear what hyperinflation means to us at the moment.

Fair enough. Thank you for that.

You're welcome. Our last question comes from Amy Leon in Barclays. Please go ahead.

Hi, thanks for taking my questions. Two, if I may. One, again, sorry on the guidance. So this 7% excluding hyperinflation, should we consider that as kind of vaguely locked in because of your order books and contracts or is there still um leeway just trying to understand what the upside or downside risk here is um into q4 and then secondly on your taste nutrition and health business um i guess looking at probiotics specifically prob reported quite a soft quarter um last week or earlier this week and they mentioned a lot of weakness in china and the north american market just wondering about something that's very specific to probiotics or if that's building over into other business lines um as well thank you very much

So let me start with the 7%. So we've phrased it consciously, and it's around 7%, which indicates there is leeway. And the reason is just what I said. In a certain way, it's not predictable how the order flow will be in December. That has always an impact, and you might see the orders coming in for December or in January. Not always in our hands, and therefore, Let's keep it there with the question mark how we will end the year. What we can say is we had a good continuation into the month of October, which is basically continuing the trends. So as I explained also to Isha, let's see how we can run the end of the year. The around 7% is a certain leeway from our perspective.

And I will complement and take the second question about probi, but just to complement what Olaf said, you know, myself, I'm very confident about the end of the year, even if perhaps it will be not as strong as, you know, the beginning of the year. But I want also to remain all the time realistic. So when you say 7%-ish, it could be 8%. could be six okay so we do not want to disappoint you don't forget the bracket is five to seven but definitely it will be the upper hand of some of these brackets which is i think already a very good performance without any kind of hyperinflation impact as explained by olaf now concerning hobby so taste nutrition and health is showing a very nice growth and i just take the opportunity to emphasize the fact that food and beverage is performing very well. We very often speak about pet food, and people are following very carefully pet food, but food and beverage, which is a substantial piece of taste, nutrition, and health, is doing very well. Now, concerning Probi, which is consolidated through taste, nutrition, through food and beverage, yes, we are like you. We see the results. So myself, I'm a strong believer of these probiotics slash prebiotics slash symbiotics slash probiotics, all these biotics type of products, which are definitely very important for the healthy aging. We see, like you, you know, a weakening in China, again, to compare with the very nice performance of Probi last year in Asia Pacific. China, like every actor, is showing a slowdown. Now concerning the way that China, and I'm coming back from China, I was there three weeks ago. So as a Simrise, overall Simrise point of view, we are really going very well there because we are also a new entrance. We are not a Chinese-born company, but we invested a lot in pet food. We are also investing in a new, you know, studio for fine fragrance. I was also... You know, in the Little Red House, Olaf mentioned the new studio in New York, but you have also a studio in China for fragrance. So all together, Semrise is developing quite well in China, even if the market is fierce. And now probiotics, coming back to probiotics, the results of Probi. The competition is fierce in the U.S. also, where Probi is making more than almost 80% of its sales. You know, the market is not growing as before, even if, I repeat to all of you, I really am a strong believer about the potential of the probiotic for the future.

Thank you very much.

Welcome. Ladies and gentlemen, this was our last question. I'll hand back over to the management for any closing remarks.

I really thank you very much. I know you understand a little better when I was mentioning to you the reason why we, Olaf, we decided to make this call rather than sending the results like that, you know, and to compare. You could say we compare peers on Apple, so 11.1% with the 7%, but as last year it was creating, you know, this Q4 hyperinflation impact or surprise was creating a lot of confusion. We have decided with Olaf to really take the time with you today to clarify this hyperinflation impact, which will be, and again, even if Olaf was a little technical, I think it's important for you to anticipate and to understand that there will be also this hyperinflation impact in Q4, and also to, I hope, to go for a much easier way to read our books again. and starting next year. We thank you very much for your time, for your questions, and again, we are waiting for you in Olsminden for the Capital Market Day starting the 19th and for the full day, the 20th, for presenting you not only the innovation, as I mentioned to you, but the way we want to unleash the full beauty of Simrai. Thank you very much.

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