Earnings Transcript for SY1.DE - Q2 Fiscal Year 2020

Operator: Good day and welcome to the Symrise Analyst and Investor Call on occasion of the First Half 2020 Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Tobias Erfurth. Please go ahead sir.

Tobias Erfurth: Thank you very much Molly. Good morning and welcome to our analyst investor call on the occasion of the publication of our H1 results 2020. All corresponding materials including the presentation have been published on our website this morning. A replay of this call will be available later today. Today's call will be held by our CEO, Dr. Heinz-Jürgen Bertram; and our CFO, Olaf Klinger. After their presentations, we are open for your questions. With this, I hand over to you Heinz-Jürgen. You may begin.

Heinz-Jürgen Bertram: Thank you, Tobias. Good morning ladies and gentlemen and welcome to our investor and analyst call on the results for the first half of 2020. Olaf and I will run you through the presentation and update you on the numbers and status of our objectives. Olaf will provide details on our financials following my overview on our first half year performance. I will also give an update on our outlook which have partially raised. Then, as always, you will have the opportunity to ask questions. The global corona pandemic has rapidly changed everyday lives around the globe. No matter if in the North, South, East, or West, people, politicians, and businesses have been dealing with the global health crisis on an epic dimension. The lockdown has caused consumer demand to significantly slowdown in some areas, while it created completely new needs in others. It required businesses to react quickly be it in manufacturing in servicing customers launching new products and protecting employees in regards to health and safety. This has not been any different for Symrise. We have introduced new production processes adjusted our supply chain and introduced new forms of virtual collaboration. If you ask me personally what our recipe of success for the past six months has been it is clearly the combination of our very diverse portfolio, our robust supply chain, our flexibility, and the commitment and the committed Symrise workforce. These four factors have been decisive to fully continue our operations worldwide and to supply customers in a reliable manner. These strengths are reflected in our half year one results illustrated on chart four. We increased our sales by 7.6%. On an organic basis this translates to sales growth of strong 3.4% in the current environment. Our EBITDA spiked by more than 12% to €393 million. We delivered an excellent profitability at an EBITDA margin of 21.6%. Our business free cash flow is up by more than 37% to more than €190 million. We are very pleased that these results and will on top of that increase our profitability target for the full year 2020. I will come to that later. Moving on to the chart five for our sales development. On group level, we grew sales to €1.821 million, up to 7.6%. Organic topline growth amounts to 3.4% within all segments contributing. In Q2 specifically organic sales grew by 4.6%. Please turn to chart six for the individual performance of our segments. Scent & Care achieved solid organic sales growth of 2.6%. On a reporting basis, sales have been stable and reflect predominantly currency effects. The segment benefited from strong demand in consumer fragrance and oral care each delivering high single and double-digit percentage organic growth. In addition our increased menthol capacities have been sold out given the strong need for hygiene products across the globe. Flavor amounted to €636 million. The topline has remained stable by and large both on a reporting and organic basis. Due to the lockdown, Flavor, particularly benefited from demand for applications used for cooking at home, whilst applications such as beverages and confectionary slowed down. The Nutrition segment continued its strong momentum. Organic sales rose by an excellent 10.5% to €474 million. On a reported basis sales grew by more than 38%. ADF/IDF contributed €106 million and exceeds our expectation. Our Pet Food business was once again a key growth engine for the segment. We are aware that it is key for you to better understand the dynamics in our portfolio due to the corona pandemic. Let me explain chart seven. It illustrates the changed order patterns for our customers and the shift in our portfolio during first half year. As you can see our three segments contribute to a very balanced business. Yes, there has been reduced demand for example in beverage applications, fine fragrance, and sun protection. On the other hand, demand for specific solutions went up for example menthol and oral care applications they are both used in many hygiene products. Also applications such as savory flavors and food nutrition saw very good demand due to consumers increased need to stay home and cook at home. Clearly, the upcoming month will remain challenging with the corona crisis given there is no vaccine yet and we do see individual hotspots occurring. Actually Symrise has been able to navigate through these times very successfully. We have compensated for lower demand in certain areas with increased orders in others. We have been diversifying our business early on in terms of regions customer types and portfolio. It is exactly this degree of diversification which makes us so resilient as a group but also the individual segments. Before we move on to our outlook let me hand over to Olaf. He will elaborate on some of the financial PPAs more in full detail. Olaf, please go ahead.

Olaf Klinger: Thank you, Heinz-Jürgen. Ladies and gentlemen, also a warm welcome from my side. As usual, I will walk you through our financial performance in some more detail. Let me start on slide number 9. Corona is a major challenge for the whole world, including our clients, our end consumers, our employees and our planning. We are very grateful and very satisfied. Despite all these challenges, we have achieved a successful 3.4% organic growth in H1 and could even further increase to 4.6% in Q2. The good organic growth is a result of our well-balanced and broad portfolio mix and our industry-leading backward integration. FX was negative with 2.1% in H1 mainly driven by Brazil, Argentina and Mexico, while the U.S. dollar was still supportive. A comment on ADF/IDF. The sales of €106 million, or 6.3% for full year growth. Our latest acquisition is running above expectations. All integration projects are fully on track and the expected synergies are delivered. ADF/IDF benefited during corona as some of their offerings like Chicken Solutions supported the eating-at-home environment. A comment on price/volume. For the group, we saw around 20% price versus 80% volume in H1 and Q2. Please turn to slide 10 for the profitability of the group. Gross profit increased 5.5% to €730 million, mainly due to the contribution of ADF/IDF. Our gross margin came slightly down from 40.9% to 40.1% mainly as a consequence of a different cost split at ADF/IDF. They operate with an above group raw material and manufacturing quota, but with a lower operating expense ratio. EBITDA for the group increased 11.9% and achieved €393 million. Our EBITDA margin reached 21.6% supported by strict cost discipline and lower operational expenses for example related to less business travels and limited trade fair activity. Please remember that we have not been in such a good margin situation for some time, last time before the raw material prices. Our backward integration proves again to be a safety net during volatile times allowing for profitable growth. Our resilient and broad-based business model obviously gives us stability in challenging times. D&A increased to €127 million for the first six months compared to €110 million for the comparable period in 2019. The increase in depreciation is mainly related to CapEx investments during previous periods. The preliminary finalization of the ADF/IDF purchase price allocation contributed €8 million to amortization and €1 million to depreciation in H1. For the full year, we expect an ADF/IDF-related D&A effect of €80 million before tax of which €60 million is amortization-related. For your modeling, please consider a D&A amount of €255 million for the group for 2020. Let's now dive a little deeper into our three segments starting with Scent & Care on slide 11. Scent & Care reached an organic growth of 4% in Q2 after 1.2% in Q1, which brought them in total to 2.6% in H1. Price volume improved to 20% price and 80% volume supported by the new menthol volumes. Scent & Care EBITDA came in at €146 million after €140 million, an increase of 4.2%. The EBITDA margin amounted to a solid 20.6% after 19.7% mainly due to increased turnover and reduced cost in sales and marketing as well as in research and development. Turning to Flavor on page 12. Flavor organic growth slightly declined by 0.3% in Q2 after 1.6% in Q1, which brought Flavor in total to an organic growth of 0.6% in H1. Price effects represented about 80%, while the volume increased during H1 overall was a small positive. Flavor EBITDA increased 2.2% to €147.5 million. The EBITDA margin reached 23.2% after 22.6% last year mainly due to lower raw material cost and good SG&A cost management. On slide 13 you can see that Nutrition has achieved the fastest organic growth with an impressive 14.7% in Q2 after 6.1% in Q1. In total 10.5% for H1. Price volume in H1 was around 20 to 80, especially in Pet Food we took advantage of the investments into capacity expansion over recent years. As mentioned before ADF/IDF contributed €106 million turnover. With the support of ADF/IDF, but also related to the strong performance of Pet Food Nutrition was able to increase its absolute EBITDA to almost €100 million for H1. Profitability strongly improved by 150 basis points to an EBITDA margin of 21%, which compares to 19.5% during the same period in 2019. Our strong momentum in Nutrition shows that building a portfolio beyond Flavor and Fragrances has been visionary to deliver superior growth to the best and broadest portfolio in the industry. Please turn now to slide 14 for our bottom line. The financial result decreased despite high FX volatility by €1.7 million to minus €29 million primarily related to higher interest expenses in connection with the ADF/IDF acquisition. Our tax rate remained stable at 27%, and therefore, within our expected mid-term corridor of a 26% to 28% tax rate. EPS increased 9.6% to a new record level of €1.25 mainly because of our increased operating profit. Slide 15 shows the development of our youngest key performance indicator business free cash flow. Business free cash flow in H1 increased by 37% to €190 million, which corresponds to 10.5% of sales. The good result follows the strong EBITDA growth, the working capital growth below the top line increase and lower CapEx compared to the previous years. For the full year, we expect business free cash flow to be around last year's good level of 14% of sales. Slide 16 represents our healthy balance sheet with an equity ratio of 41.2%. The full year 2019 figures shown on this chart are restated and include now the impact from the preliminary ADF/IDF purchase price allocation. Overall, the balance sheet had no big changes. Worth mentioning maybe the change in cash as we paid our full dividend following our virtual Annual General Meeting in June. Please move to slide 17 to our solid net debt development. In the light of corona, we strengthened our liquidity position during the first half of 2020. Next to our existing revolving credit facility of €300 million we secured additional bilateral credit facilities amounting to €250 million. All facilities are currently undrawn. Please further note that we issued a€500 million bond at an interest rate of 1.375% to early refinance two maturities which are up for repayment in Q4. The related funds came in on July 1st and are therefore not reflected in our cash position as of June 30th. As a consequence of these financing activities we have established a very sound and solid liquidity situation for Symrise. A net debt position of €1.65 billion results in a leverage of 2.2 times EBITDA as of June 30th. Net debt including pensions, lease and similar obligations reflects a leverage of 3.0 times. Despite the increasing pension provisions following lower interest rates over last years, our long-term net debt including pension target remains unchanged at two to 2.5 times EBITDA. And our clear goal is to keep a financial profile for Symrise which supports our investment-grade rating profile. In summary, we provided a strong set of financial figures for H1 2020 during unprecedented times which is giving us lots of comfort for the remainder of the year. And with that I would like to hand back to Heinz-Jürgen. Thank you.

Heinz-Jürgen Bertram : Thank you, Olaf. Finally, I would like to present our updated outlook for the upcoming month and our 2025 objectives. No doubt the corona crisis remains a challenge and the time we are in is special. But it is neither black nor white. It is about managing uncertainty on the one hand and seizing opportunities on the other. We have done very well in the first half of this year and are therefore confident for the second half also. Even though, we have limited visibility on the course of the pandemic we consider ourselves well equipped. We therefore confirm our objectives to grow faster than the relevant market which is expected to grow between 3% and 4% this year. With respect to profitability, we have changed our view. Based on the strong margin development during the first half of the year, we are raising our guidance for the EBITDA margin. We now aim at an EBITDA margin in the range of 21% to 22% for the year 2020. This reflects profitable growth and lower operational costs. Let me conclude with a view beyond this year on chart 20. Our midterm targets which range until fiscal year 2025 remain unchanged. We strive to remain amongst the fastest-growing players in our industry. Our targeted annual growth rate remains at 5% to 7%. In addition, we want to be amongst the most profitable players in our industry and aim at an EBITDA margin in the range of 20% to 23%. Our environmental objectives also remain fully in place. With these strong prospects, I would like now to open the call for your questions. Tobias, over to you.

Tobias Erfurth: Many thanks, Heinz-Jürgen. Many thanks, Olaf. Turning to Q&A, we are now happy to take your questions. [Operator Instructions] Many thanks and first question please.

Operator: [Operator Instructions] Our first question will come from Gunther Zechmann of Bernstein. Please go ahead. Your line is now open.

Gunther Zechmann : Hi, good morning, Heinz. I'll start with two then please. On the margins in H1 and expectations for H2, could you just give some detail around how much of that would be temporary cost reduction from lower travel, entertainment fairs etcetera and if you think some of that might be sustainable going forward? And the second one on the variable cost side around raw materials, can you give an update what you see in your basket of raw materials at the moment? And if there's any scope for new price increases coming through? Thank you.

Heinz-Jürgen Bertram: Okay. Gunther. Thanks for the question. Olaf, feel free to hop in. I start with this. Margins in half year, yes as we frankly committed and admitted. We of course mitigated through the crisis by being very, very careful on travel, entertainment on all these things. So you rightfully suspect not all of this will be a permanent basis, but rest assured some of it will. Honestly, it's beyond my knowledge at the moment to predict exactly how much it will be but rest assured and I think I'm speaking for pretty much all companies the home office and travel policy and the use of video conferences on the other hand will be different after the corona crisis whenever it is there. And it's no question that everyone including us is committed to keep some of these savings going on a permanent basis. Having said that raw material costs development. Yes, we see some decrease in some areas. On the other side, we see increases on the other. Please be aware that it's just a small amount of our raw material basis which is dependent on mineral oil-based products. The larger part comes from natural-derived products. And there is -- with a big and broad range of different raw materials coming from mother nature it's always some products up in price. And some going down in price. Just giving you one example a question which we discussed in previous meetings was vanilla price that was going to record high. This is coming down significantly. But rest assured there is a big range of products which are going up. To cut it short, we expect the raw material price development to be all in all flat and continue to do so. I hope that answers the question from my end. Olaf you want to add something?

Olaf Klinger: Yes Gunther. I would just jump on that in a way that if we have a normal raw material situation we of course will also work on price increases in a normal environment which pretty much leads to coverage of inflation. So the ambition stays, the 5% to 7% growth mid- to long-term is there. And 1/3 of that should be coming from price. And the same on the margin Heinz-Jürgen elaborated on the ambition to keep some of the cost savings. Also here the mid- to long-term expectation is that we move somewhere between the 20% and 23% margin. And if we can take some advantage from cost savings we will take it.

Gunther Zechmann: Thank you.

Olaf Klinger: You are welcome.

Operator: Our next question will come from Thomas Swoboda of Societe Generale. Your line is open.

Thomas Swoboda: Yes, good morning everybody. I will take two questions, two please. The first is on flavors. I'm just wondering what should we think about the effect of the vanilla price pass-through that was obviously a tailwind for a couple of years. Now it has become a headwind. Could you -- are you able to -- are you willing to quantify how much does it hurt the flavors performance in Q2? And should we think about a negative base effect for the next three to four quarters coming from that? So that was my first question. My second question is hopefully rather quick is on your interest expenses. The refinancing of your bonds was not included in the financial result in Q2. What advantage do you expect on your refinancing costs going forward?

Heinz-Jürgen Bertram: Thank you Thomas. Let's do it this way. I'll take care of the Flavor question. Olaf is already nodding he does the interest thing. Olaf takes care about the money. Okay. Flavor vanilla price, frankly, I will not give you a detailed number on the vanilla the price impact. But obviously, us being leading in a key area with our initiatives in Madagascar it has an impact. No question about it. On the topline, yes we have seen it. It was a tailwind in the past years and it is now a bit of a headwind. We will be able to manage that and the Flavor division will be able to cope with that. No problem. We will see some of it in Q3 definitely going forward, but nothing which concerns us. In particular in view Thomas it has pretty much no impact on the bottom line as the vanilla business we have is not depending on that. We have a certain margin which we are getting and making regardless, if the price is high or low. So that's the good news and that's reflected in the very solid bottom line performance of Flavor. So to your question that much I would say. You will continue to see something in Q3, but you also have seen our confident guidance. So Symrise is very well prepared to even deal with these things and we will have other areas where we will make it up. Okay? Olaf, interest?

Olaf Klinger: Yes. So as I said we will refinance two maturities which are due in Q4. They have higher coupons. The savings on this €320 million repayment volume around €6 million to €7 million which you can incorporate in our interest expense number going forward. And this is based on the bond refinancing which we did in June.

Thomas Swoboda: Its perfect. Thank you.

Olaf Klinger: Welcome.

Operator: Our next question will come from Lisa De Neve of Morgan Stanley. Please go ahead.

Lisa De Neve: Good morning everyone. Two questions from my side. First of all your Nutrition division delivered 14.7% like-for-like growth in the second quarter with double-digit growth seen in Pet. I wonder if you could provide some detail on the performance across the regions, which was positive across all regions I understand, but a little bit more detail there would be helpful and also your expectations for the second half? And then secondly on the CapEx budgets, CapEx was a little bit lower in the first half. I'm just wondering in terms of project pipeline if you could give us a sort of granularity of what will take place given COVID disruption in the second half and sort of what we should think about in terms of budget? Thank you.

Heinz-Jürgen Bertram : Okay. Lisa I'm happy to take your question. First Nutrition. I believe it shows our early moving in Nutrition with the acquisition of Diana followed by ADF/IDF is paying off and proves to be the right thing. The regional growth in Nutrition, I'm happy to report pretty much in all regions there was no weak region. There was nothing where we could specifically say this was a weak region. So having said that it was solid growth and imagine with these numbers organic growth in the double digits with a growth rate of 37% in total you cannot have a region falling back behind expectations. So it was in all regions everywhere beyond what was expected. Looking in maybe some areas compared to the first quarter, we saw also a good bounce back of food ingredients with a strong continued performance of Pet Food and with a delivery beyond expectations of ADF/IDF. All in all there is no reason for us to be concerned about the second half year. We expect solid continued performance of Nutrition also in the second half of the year. And as you see we are pleased to report it shows the acquisition of ADF/IDF was again the right one and it is contributing. Leading to the second question CapEx, I think no one should be surprised. We always have said that the 7.2% CapEx rate was an exception because it raised a lot of questions on your end. And we firmly believe that some investments will be the right ones and what's happening now it is a proof that this is coming in. We would not be able to cope with the strong organic growth in Nutrition, if we would not have built the capacities for that. We would not be able to serve the strong demand in personal care and oral care products, if we wouldn't have built the additional capacities, in menthol. The message Lisa to you is, we are doing this stuff, when the time is right. We're not looking on cyclic or whatever things, we think long-term. And looking on this year, we still have ambitious growth, expectations. The one thing which we hope will help us is the additional, again increased capacities of menthol will come in fourth quarter of this year. So third quarter no change, in that respect. All capacities are used up. But we continue to heavily invest and complete the investment programs which we have clearly outlined in our Capital Market Day, beginning of last year. Having said going forward, expect us to have a CapEx ratio of say around 5%. Sometimes a bit more sometimes a bit less, nothing staggering, but rest assured Lisa, we will invest wherever and whatever makes sense. I hope that answers your question.

Lisa De Neve: Thank you very much.

Heinz-Jürgen Bertram: Oh, you're welcome.

Operator: We will take our next question from Matthew Yates of Bank of America. Please go ahead.

Matthew Yates: Hey, good morning everyone. A couple of questions, the first one on the performance of ADF which you said exceeded your expectations. I'm just wondering if you can disaggregate the uplift from the overall market growth, which seems to have benefited during lockdown versus the specific actions you've taken to realize synergies? And then the second question is on, the Flavor division and -- is there any visibility you have on the second half, as to growth improving, particularly if things like food service outlets begin to reopen again? Thank you.

Heinz-Jürgen Bertram: Okay. Matt, now I'll start, Olaf you take the second one. Synergies ADF/IDF, first we have to admit the situation in the U.S. is not fully transparent to us. So we're navigating through chaotic times. And so far we have done obviously very well. But rest assured be it in ADF/IDF or be it in chemistry, our production locations, our locations are in the mid of the crisis hotspots of corona. I have to clearly tell you that. And that gives us limited visibility. And we navigate through this on a daily basis. Speaking about that, we were happy to report the just recent hurricane did not affect one of our sites. So you see what area we're in. Having said this disclaimer, the good news is despite all these challenges the bottom-line is the, ADF/IDF acquisition even in difficult times to prove it was the right one. It was the right one which contributes to our business. And it's -- rest assured, a lot of the synergies which reflect are still out there, in particular the extended product range the ag-derived product basis using in other product applications, which are unique to similars, in Pet Food or in Aqua, that is just where we scratch the surface. So in that respect, I would say it's a bit overconfident. But yes best is yet to come there. So having said that, I would leave it there with ADF/IDF at the moment, not lead you in any speculation, but at least give you the firm confidence that was a good acquisition and the contribution is very obvious. Second, growth serving and growth in Flavors, in particular with respect to food service, yes food service was impacted, also in Symrise. No question about it. I think overall our business in Flavors was about 10% to 20% something in that range. But it is over-seeable but it was impacted. No question about it. But we're happy to report, we have built such a resilient portfolio that we are able to cope with this. We have delivered a stable turnover development, despite these challenges and a very healthy bottom-line performance. Going forward, food service will come back no question. But it's clearly linked with the development of corona crisis. And Matthew none of us has a clue, how long this will go on. None of us has a clue, how long this will go on. But we are optimistic also for this business, whenever the corona crisis will be over. And -- but frankly we expect this crisis to go on for at least the rest of this year. And rest assured the Flavor division at Symrise is prepared to cope with that. Matthew, I hope that is for the moment as precise and honest, as it can be, okay?

Matthew Yates: Thank you very much.

Heinz-Jürgen Bertram: You're welcome.

Operator: We will take our next question from Heidi Vesterinen of Exane BNP Paribas. Please go ahead.

Heidi Vesterinen: Good morning. Thank you for the detail on slide 7, where you talked about the trends by sub-segment. Going into Q3, have you noted any major changes, in any of these buckets? And then the second question is on, the Latin America. You said in your press release that, the region is unaffected by the pandemic. We do hear a lot about issues in Brazil, from other peers and just reading the news. What is the outlook there …

Heinz-Jürgen Bertram: Okay.

Heidi Vesterinen: … at the moment? Thank you.

Heinz-Jürgen Bertram: To be honest, I don't know. So Olaf, please go ahead, if it is fine.

Olaf Klinger: Hi. Thanks for the question. Good to have you in our call. So Chart 7. Yeah, I think Bertram has done an excellent job, putting that together. It shows the situation on one slide. And honestly there was no big change from half -- quarter one to quarter two. And we do not expect a significant change in Q3 to happen. So we have to navigate with this. Expect this to be the picture at least for the next few months to be. And we'll see what then happens. The message is also clear, Heidi. So far there is always an area to pickup, weaknesses in some areas. But we didn't want to leave you with the impression. If you see our overall figures we have not been impacted. We have clearly been impacted. And we just adjusted our processes accordingly. Having said that, leads us to a situation in Latin America. And that is also pretty much the same situation like the previous calls. Heidi, we hear the news as well. In Latin America, it's chaotic. The situation is really dramatic also for us. And I can tell you honestly, we're surprised, how well we continue to navigate through this. But if I would be able to tell you exactly in numbers where and what, I would mislead you. And I'm far away from doing that. I have to say, I have to give credit to our team, which is obviously very committed, dealing with this chaotic situation. We had so far no downtime, no downturn and the business is just keeping to go stable. And, honestly, as per now, despite of the crisis there, I come to believe, there’s no reason to believe that in the coming quarters we see a slowdown. But the rest would be speculation. The visibility we have there is really limited. The people cannot get out due to quarantine and corona and we cannot get in. So as honest as it is, Heidi, I would never lie at you. Okay?

Heidi Vesterinen: Thank you for that.

Heinz-Jürgen Bertram: You’re welcome.

Operator: Our next question will comes from Isha Sharma from MainFirst. Please go ahead.

Isha Sharma: Hi. Good morning, gentlemen. Thank you for taking my question. I have just two please. Regarding Lat Am, just a follow-up. How much of the growth that we have seen which has been very strong in Q2, especially, is attributable to dollar pricing, if you can give us some color there? And the other question would be around acquisitions. Do you see increased opportunities, given the current crisis? And, if yes, which area should we expect you to be more active in? Thank you.

Heinz-Jürgen Bertram: Thanks, Isha. Also, good to have you in the call. I would say, as you were not too happy with my answer for Heidi on the Lat Am, so I give that to Olaf to give you some numbers. So, Olaf will make you happy with that and I take the care on the acquisitions, if you allow. So acquisitions.

Isha Sharma: Yes, please. Thank you.

Heinz-Jürgen Bertram: Of course, we continue to look in acquisitions. It's a part of our strategy as well. But our ambition is, if possible, to surprise you and to catch you or get you with acquisitions, which are not on the market offered to everyone. And we look in all areas where we're active. No question about it. We continue to do so. We think long term in our acquisitions. So we do not just grab the opportunity because someone is in trouble or something is in trouble. If it is a good acquisition, we are ready to go on, whatever and how -- and wherever it is and we continue to look on candidates. That much, I can say, has not changed to the past. But when everyone was busy in acquisition bonanzas, we stayed out of it, but we stay cold headed and it's a promise. If there is a good opportunity, we'll be there, like we were at ADF, like we were at Diana like we were at Pinova. So expect us to be active in that area on an ongoing basis. But we will stay cold headed and not make short term, not thought through moves. It is a lot of money we are talking about and we are very conscious in doing the right step at the right time. So expect us to be in that market whenever the time is right and whenever it's there, in all segments where we're active. Olaf, now some numbers for Isha.

Olaf Klinger: So, Isha, I hope I can make you happy from an answer perspective…

Heinz-Jürgen Bertram: I'm sure you can.

Olaf Klinger: Okay. So, Lat Am, around 35% to 40% of the business was volume-driven and the other part was price-driven. You know that, on the price side, we work, luckily from my perspective, in the U.S. dollar price environment and that holds true for top line as well as for the cost side. It's more Scent & Care, where U.S. dollar is more prominent; Flavor, partly. But that, of course, helps in the current environment, not to fall into big traps in situations where currencies are devaluating big times. That's the Lat Am situation, which is a good contributor, but good message here is a lot of the growth is volume-driven.

Isha Sharma: Thank you very much.

Heinz-Jürgen Bertram: You’re welcome.

Operator: Our next question will come from Katy Hutchinson from Davy. Please go ahead.

Katy Hutchinson: Hi. Good morning. Hi, Olaf and Tobias, and congratulations on a good set of results. My first question is on mix. So could you just give us an idea as to the mix component within the Q2 numbers and what divisions were driving that? And given you've raised guidance on margins, are you baking in any assumptions on positive mix that could boost that margin, for example, a rebound in fine fragrance? And then, secondly, my second question is on probiotics. So we're seeing good Probi delivery. And I wonder, could you explain kind of your ambitions behind probiotics and where you can deploy some of that technology into the core Symrise business? Thank you.

Heinz-Jürgen Bertram: She was talking to Tobias and Olaf. So go ahead, guys.

Olaf Klinger: Yes. So, from a mix perspective, I think, the big change we see at the moment are shifts in the portfolio. This is, of course, which comes along with the crisis. We have explained where they are. The contribution definitely comes at the moment from the Pet Food business. As you know, it's a good profitable business, which also supports our margin environment. We are very happy with the ADF/IDF development. As I said in my -- the speech, we have pretty much finalized the purchase price allocation. The effects are in there. That should be a good contributor going forward, also from a margin perspective. In Fine Fragrance, I would leave that to Heinz-Jürgen to comment on his view how the fine fragrance business will develop. And I'm sure he's also on Probi.

Heinz-Jürgen Bertram: So, Katy, surprisingly I'm also in the call and Olaf is looking at me. So I'll take care of that one. Fine Fragrance will bounce back. Our commitment to Fine Fragrance is unchanged. We have just opened, in Paris, a new place for mainly Fine Fragrance. It shows our long-term thinking. Will we see a significant positive impact for Fine Fragrance after the significant slowdown in second half -- in second quarter for quarter three, I don't expect it. And for quarter four, when the Christmas season is, it's questionable, to be frank. But sometimes you have to think longer term. Bear in mind, first quarter, our Fine Fragrance growth was about 15%, has gone down pretty much to nothing in the second quarter. It will come back probably within the next year. So that -- having said, that is the mix on Fine Fragrance. Our commitment to this business segment has not changed. And we will deal with this change of products as we have done with the other ones. Leading to probiotics. Okay, I think, I take that one as well. Your question was, probiotics seem to be a promising area. And it's good that we are one of the few companies in our industry who have a strong probiotic wing in there. But the idea of taking an anchor investment in Probi was primarily not changing something in Probi. Probi is doing very well as you know, but it's getting access to a world-class probiotic technology platform and using it for the applications which are not so to speak not traditional probiotic application areas and we are very successful in that. So we start in Cosmetic ingredients. We do it in other areas. Just to be a bit more specific, we have developed a product in skincare called SymReboot based on probiotics which is doing very well which is performing excellent. Customers love it. We're working on a dandruff -- anti-dandruff product. A product for oral care based on probiotics will be launched in the second half of this year. We're just in the clinical trials -- the final clinical trials, but it looks very good. We're rolling out this probiotic platform to Aqua and Pet Food. And this is one of the very few technologies key technologies which have the power to replace chemistry by biology. And that is why we are on the forefront of this technology. So you see we're full steam moving ahead and we rest assured, we will get our share of that pie. Okay. Katy?

Katy Hutchinson: That's great. Thank you very much for that color.

Operator: Our next question will come from Geoff Haire of UBS. Please go ahead. Your line is open.

Geoff Haire: Good morning. I just wanted to ask a very simple question. Obviously with IDF -- or I should say ADF/IDF coming into the mix you've got a bigger U.S. exposure. Can you just help us understand what the FX impacts would be given the strength of the dollar that we've seen recently?

Heinz-Jürgen Bertram: Olaf?

Olaf Klinger: You're saying this is a simple question. That's a complicated question.

Heinz-Jürgen Bertram: You get a crystal ball.

Olaf Klinger: Nevertheless, I think you saw in our half year report, we're working with an average rate of 110 currently. So for the next few months, it will be decisive where the U.S. dollar goes. As a big indicator, I would say that €0.01 movement on the average rate means around €12 million €13 million top line and corresponding around €3 million in EBITDA. As you all know, we have -- our cost also in the country of where we sell. So there's a good natural hedge environment. So margin-wise, we are doing fine. But the impact as I described, it's really linked to the U.S. dollar environment. For the first half, we still had tailwind from the U.S. dollar. And it depends now how it continues might be a slight headwind as it moves in the second half based on current market conditions.

Geoff Haire: And is that your major currency exposure, or are there others that might be backlog?

Olaf Klinger: Yes. It's not definitely our major currency exposure, it's about one-third of total.

Geoff Haire: Okay. Thank you.

Olaf Klinger: Welcome.

Heinz-Jürgen Bertram: Welcome.

Operator: We will take our next question today from Andreas von Arx of Baader. Please go ahead. Your line is open.

Andreas von Arx: Yeah. Good morning. First one is on industry dynamics. I imagine that in time of lockdowns and with the pandemic clients priorities do shift. I mean, maybe away from innovation and more on business continuity. I mean, we see the numbers of the large players, but could you please describe a bit the industry dynamics you have seen in the first half between maybe you the large caps and the small and mid-cap players? Has this been a time where you have been rather gaining share or not? That's the first question. And then the second question for Heinz-Jürgen Bertram. Congratulations on reaching a share price above €100. I imagine you're very pleased with that development. Since I'm covering your stock that is a multiplication by 5. Now looking at the next two years, could you maybe share what your key priorities will be in those two years, so continuing the business or making it larger or keep bringing up the profitability to peers or maybe prepare the structures for the future? So in other words, what is Heinz-Jürgen Bertram working on in preparing his legacy at Symrise? Thank you very much.

Heinz-Jürgen Bertram: Okay. I think I take both questions. The development of the customer environment. First point on -- in between the lines, the question was do we reshuffle our costs on development on all these? No, they are not -- unchanged. So the long-term research projects have not been slowed down. We believe in our long-term view and long-term thinking, directly related to Katy's question on probiotics, so all this commitment has not changed. The briefing activity on the other side that's the short-term development with some clients is down in these crisis times. Absolutely. And so some of these development activities have to be shifted around in other areas where it's doing better, but the message is again nothing dramatic, if we talk on development. The basic research long-term research projects have not changed or will not change at all. Short term depending on the briefing activity in the one or the other area, we would be foolish, not to shift some of these activities where the demand is. Having said that, I'm not in the camp that major customers gain share at the cost of small customers. I think there's just customers who have done their homework. And there's other customers who have not done their homework. And be it big or small customers, they will gain market share in these crisis times and we see small customers gaining market share at cost of other small customers and big customers losing or gaining market share as well. And Andreas that's the same in our industry. You have seen from the one or the other flavor and fragrance supplier, solid numbers, one being us and there may be others. And let's see how the others are doing and then you make your calculation who is winning and who is gaining market share. I'm not talking about the competition. I prefer talking about our cases. I believe that's good enough. That leads us to me personally what is my priority for the next two years. The good thing is first, obviously a strategy a plan and you would summarize as you indicated since a long time. We had to start everything from fresh. We were the losers in the industry. When we started -- when I started there was by one of our competitors out what means Symrise. It means, save your money, reinvest somewhere else. And how wrong they were? So, obviously, we had to change everything. We had to come up with what we call backward integration, which is obviously now a new role model. We came up with expansion beyond Flavors and Fragrance in new areas. And I'm far away from saying how smart have I been. I was simply lucky. It all worked out in the right way. But Andreas that is general management. No one needs an unlucky guy. So looking forward, my priorities is not losing track, not losing ground. There's a lot still to do. And yes the share price is at record high, but the sky is the limit here. And there is a lot of fresh ideas, which I still have in mind including maybe some surprising moves in one or the other area. So that is my ambition. And I think there's still something to come. So I would leave it there for the moment. I think that's good enough Andreas I hope so.

Operator: Thank you. Our next question will come from Adam Collins of Liberum. Please go ahead.

Adam Collins: Yes, good morning. I have a couple please. Nothing as exciting as the last one, but a couple here. So first of all, on raw materials. You mentioned you expect Natural to be flattish and we discussed vanilla sharply down. If I'm not mistaken, citrus after several years of weather and blight related issues is also down. So could you say what is up, such that the balance overall is sort of flattish? And then the second question was on Nutrition. Obviously very strong second quarter 14% organic. You're talking about being very happy with ADF and IDF of course. But to what extent was there some benefits from pantry hoarding?

Heinz-Jürgen Bertram: Okay. I'll take the first one. What is up? Yes, vanilla is down. You're right. Mineral is sometimes up, sometimes down. That is not the driver. Citrus is going down for the moment. In particular several spices are going up. Olaf just brought up the picture where prices are going up. Spices rest assured and some extracts floral extracts are going up. So overall we remain -- the situation of raw materials because we buy 10,000 different raw materials. The main driver is not decline in raw material prices. So overall it is right as you said, it's not citrus. It is not vanilla. It's not mineral oil. It is some spices. It is some flower extracts. Overall, flat as we see. So what is going down there?

Olaf Klinger: Yeah. So we have increases in fruits for example. We have increases in the raw material base of what Pet Food needs. So that is -- which balances out at the end the whole portfolio across the group and makes it pretty much flattish for Symrise.

Operator: Our next question will come from…

Adam Collins: Okay. Second question was on pantry hoarding and Pet?

Heinz-Jürgen Bertram: Pantry hoarding and pet? Okay. Okay. No, I got it. Sorry. So, no, there is no stocking, nothing perceivable. The situation, it is just a healthy market. The mega trend is intact and will remain intact and you have seen us not withholding at all for the second half of the year. We do not see any inventory building pantry building there. So, no, don't include that in your model okay?

Operator: We will take our next question from Charles Bentley of Credit Suisse. Please go ahead. Your line is open.

Charles Bentley: Hi, Heinz-Jürgen. Hi, Olaf. Thanks for taking my questions. I just wanted to ask on the Nutrition EBITDA margins. Half-on-half they were lower, I mean should we be thinking -- how should we be thinking about margins in the second half. Should they be more like the first half or more like H2 2019? And can you explain the moving parts there? On Flavor, you said the price effects were 80% and volume is 20% and it's obviously basically flat, so just to be clear that both of them are essentially zero in the first half? And then finally can you give any indication of what the contribution of CapEx projects was to organic growth in the first half? Thanks.

Heinz-Jürgen Bertram: Okay. I'll start with the Nutrition EBITDA, expected to be similar in the second half as it was in the first half. There is no big uplift or down lift to be expected. Growth in Flavors, yeah, it was, if I got this correct it was flat stable, but also flat. But as we said, there have been some significant impacts on the one area, some others contributing on the other one. And we will continue to see certain portfolio shifts going on, but nothing significant short term as Heidi asked. So expect pretty much the same picture for second half year. CapEx. CapEx contribution in some areas, there was the Cosmetic Ingredients factory. The second expansion phase you have seen on the Capital Markets Day beginning last year. The first phase of expansion, the second phase now is up and running as well. So that is a big one, which contributed the fragrance increase of capacity, which we have done here in Germany, helped us to cope with the increased demand in some areas. And also as I indicated, the CapEx investment in Pet Food, additional capacities has helped. So the question what will we see significantly for the rest of the year? In terms of CapEx, investment currently we're doing and where we hopefully see the benefit in the fourth quarter is the menthol expansion. The second expansion we're doubling our capacities in the U.S. again. And as per now, we're fully on track with that one. So, we should enter the market in the fourth quarter and that's why we still are guiding to this ambitious growth rate. We expect the contribution if the menthol expansion goes on as expected in fourth half year to support that one, okay?

Charles Bentley: Great. Can I just ask you a quick follow-up on that? So, I guess how important is that ramping up in Q4?

Heinz-Jürgen Bertram: Well, we will not fall off the cliff in Q3. But with the growth rate of say 3% in this year and us having the ambition growing faster than the market which is 3% to 4% something has to happen and so, it is significant in Q4, the menthol expansion because it is very big. And many of you have seen already the distillation tower next to the one which we currently use for distillation and it was obvious to every one of you who was part of our Capital Markets Day, this is big, okay? So, yes it's significant. And as for now, the good news is it looks, as if we will make it in the course of quarter four to the market. The good news is, it's sold out.

Charles Bentley: Thanks.

Heinz-Jürgen Bertram: You are welcome.

Operator: Our last question will come from Ranulf Orr of Redburn. Please go ahead. Your line is open.

Ranulf Orr: Good morning. Thanks. Two from me. So firstly, I'm just wondering if you could help me understand what happened to volumes in Nutrition food in LatAm. I guess, if the dollar pricing impact was so strong, volumes must have been very negative for sales to decline possibly double-digit in the first half. And my second question sort of follows up on the previous one. Can you give a bit more of an indication of the new capacity in Pet Food in Latin America and how much that contributed to both Nutrition's volume growth, but also the volume growth in LatAm in total? Thanks.

Olaf Klinger: So the Pet Food environment capacity-wise as Heinz-Jürgen just elaborated is also related to a new facility in Colombia. As mentioned before, this facility is in a region where we have customers and we're currently serving this region out of Brazil. So, we're transferring volume from Brazil to Colombia and don't expect this to be a step change in this regard. It's a replacement of something which we source from somewhere else at the moment. But it opens up further capacity for the region going forward. So it supports our growth story for Pet Food. That is the background for Pet Food LatAm. I think, when we get into the Food LatAm business, it's getting very nitty-gritty at the end of the day. I don't know how you derive to this conclusion at the end of the day. We see also for the food environment, a good second quarter as Heinz-Jürgen developed. Customers are sitting across the world and we are serving out of Chile different supplies for food. I would really need to dig into the details, if you want to have that answered.

Heinz-Jürgen Bertram: Let me hop in. As I would really be honest and tell the same as I said to Heidi, in this region, with these challenges we have limited visibility. Each number you would get would be something we don't know better. We are surprised as you -- how good it comes out. We're really thankful to our workforce that they obviously have managed to hang in there. And we have no -- we can on the phone or internet connect with our people. There is no way to get in or out there. So that's the situation. We may like it or not. The good news is, obviously, we are successful in this region and giving you a number would just mislead you and would lead you to make wrong models. I think, that should be it for the moment. We have been answering your questions for about one hour. That was more than the normal. But everything even the best things should come to an end. So Tobias, close this.

Tobias Erfurth: Yes. We are happy about -- so big number of participants and questions there. So ladies and gentlemen, this brings us to the end of our conference call. Thank you very much for your time and your interest in Symrise. We are really looking forward to seeing and hearing you in the upcoming virtual meetings and hopefully to meet you in person soon. We will publish the results for the nine months third quarter on October 29. That's it for today. Goodbye and have a nice day or maybe a nice vacation. Thank you.

Heinz-Jürgen Bertram: Goodbye.

Olaf Klinger: Goodbye.

Operator: This will conclude today's conference call. Thank you all for your participation. You may now disconnect.