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Earnings Transcript for SY1.DE - Q2 Fiscal Year 2024

Operator: Ladies and gentlemen, welcome and thank you for attending the Investor and Analyst Conference Call on the publication of Symrise AG's Half Year Results 2024. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions]. The conference will not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Tobias Erfurth, Head of Investor Relations. Please go ahead, sir.
Tobias Erfurth: Thank you very much, Alice. A good and sunny day from Holzminden, and welcome to our today's Symrise call. All materials have been published on our website this morning and a replay of the call will be available later today. Today's call will be held by our new CEO, Jean-Yves Parisot; and our CFO, Olaf Klinger. After their presentations, we are open for your questions. I now hand over to Jean-Yves Parisot, please start.
Jean-Yves Parisot: Thank you, Tobias. Good morning. Good morning to all of you, ladies and gentlemen. Welcome from my side to our investor analyst conference call presenting our results for the first half of 2024. And thank you for taking the time to join us today. Let us start with our agenda for today, Slide 2. Together with you, I would like to look at the half year results. And Olaf Klinger will provide a deep dive into the financials and I will conclude by highlighting our growth and strategic initiatives, and giving you an update of our outlook for the remaining year. In the ongoing challenging political and economic environment, Symrise was able to continue its growth trajectory in the first half of 2024. We operate a proven and stable business model with comparatively low risk content. Over the years, we have diversified and positioned the group robustly. At the same time, high inflation persisted, which resulted to the increase of costs. Symrise managed to offset most of them by employing strict cost control, together with an efficiency program which we started end of January this year. Let's take a look at the financials on the Chart 4. The first half of this year was marked by strong business growth in a continuously challenging environment, and I'm glad to say we once again managed to outperform the market. We increased sales by 6.3% in reporting currency to €2.6 billion. Organically, we achieved a growth rate of 11.5%. The EBITDA increased also by 11.5% to €530 million compared to the normalized figure of the previous year. The group's EBITDA margin reached 20.7%, which an increase of 1% point compared to normalized last year figure. Our efforts for increasing efficiency are starting to pay off. 50% of our targeted efficiency savings of €50 million have been already realized. The business free cash flow amounted to €226 million, an increase of more than €120 million. Net income increased by €52 million and totalized €239 million. So earnings per share increased to €1.71 compared to €1.34 in the first half of 2023. R&D expenses amounted to €135 million, an increase of 3.2% versus previous year. We will encounter somewhat limited visibility due to geopolitical uncertainties and high inflation rates. However, our business model, our global structure and our unique portfolio are continuing to provide the strongest possible basis for sustained profitable growth going forward. Let's move into our sales growth for a moment on Slide 5. Group sales increased to 2.6 billion. We experienced a negative impact of €16 million from the divesture of our beverage trade business in the UK and around €110 million headwind from FX. Organically, the group achieved a very strong growth of 11.5%, driven by an excellent performance of both segments. Chart 6 illustrates the growth dynamics by segment. The Taste, Nutrition & Health segment achieved organic sales growth of 10% in the first half of 2024. Considering portfolio and exchange rate effects, the segment sales in the reporting currency amounted to €1,572 million and amounted to 2.9% above the previous year's figure in reporting currency. Once again, the key growth driver was our Pet Food business which grew in the double digit percentage range, driven by additional volumes. Food & Beverage applications demonstrates also high growth rate as well. The segment benefited from broadening its competencies beyond flavor and nutrition. The Scent & Care segment achieved an organic sales growth of 14.1% in the first half of the year. In reporting currency, that amounts to 12.1%. Sales increased to €993 million. Fine and Consumer Fragrance as well as Cosmetic Ingredients are continuing to grow strongly. Additionally, Aroma Molecules showed very good growth after the production incident in the U.S. last year. Let's move now on to Chart 7 for the performance by region. We grew across all regions, with Latin America being the strongest one, delivering organic growth of more than 30%. Asia Pacific and Europe achieved an organic growth of more than 11%. In North America, we had a more moderate growth rate of 2.2%. Let me now hand over to Olaf. He will go into more detail looking at the financials. Olaf?
Olaf Klinger: Thank you very much, Jean-Yves, and also a warm welcome to everybody on the phone from my side. Let me add some details to our growth on Slide 9. Last year, our growth was primarily driven by pricing. As anticipated, we are seeing a strong return in volumes this year. Our organic growth this year of 11.5% was positively impacted by a 9.4% increase in volume, while we experienced a slight decline in real pricing of around 1%. This was offset by the impact of a positive 3.3% hyperinflation-related effect, mainly stemming from Argentina. In Q2, we achieved 12.1% organic growth compared to 10.9% in Q1. While we saw a hyperinflation-related pricing impact of 4.4% in Q1, the impact came down to 2.2% in Q2 and is expected to further decrease during the coming two quarters. Already at this point, I want to confirm that our organic growth guidance of 5% to 7% for 2024 excludes the hyperinflation-related pricing. We announced the divestment of the UK beverage trading business to Th. Geyer effective March 1, as part of our portfolio optimization. This divestiture resulted in a €60 million reduction in sales for the last four months or a minus 0.7% impact on our overall top line performance. FX continued to be a headwind in the second quarter, contributing a negative impact of 41 million, following a negative 69 million in the first quarter. This resulted in a total negative impact of 110 million in the first half of the year, representing minus 4% of our sales. Let's turn our attention to Slide 10, which highlights our group profitability. As you can see, we've experienced an improvement in gross profit reaching 998 million, a 13.5% increase compared to the first half of 2023. This growth is primarily driven by the fact that our cost of goods sold has increased at a slower pace than our sales revenue. This positive development resulted in a 2.5 percentage point improvement in our gross margin rising from 36.4% to 38.9%. Furthermore, we achieved a €55 million increase in EBITDA, driven by our profitable sales growth and strict cost measures. Our broad-based efficiency program is paying off. Against budget, we realized cost savings of 25 million until the end of June. Next to cost savings on T&E as well as consulting services, we are benefiting from a very cautious rehiring approach across the organization. Process optimization and the utilization of economies of scale through our One Symrise approach contributes not only short term, but more importantly, the program is only a starting point for us. We are aiming at a lasting increase of our profitability in the long run. The program is closely monitored on a monthly basis. While we achieved strong performance, our EBITDA was impacted by certain extraordinary expenses. These include 9 million severances and a write-off of around 8 million in connection with the legal dispute. We have not adjusted for these expenses in our reported EBITDA. Despite these additional costs, we were able to increase our EBITDA margin by 1 percentage point to 20.7% compared to the adjusted 19.7% for the first half of 2023. Moving on to EBIT. We experienced a 10.4% increase, reaching 366 million compared to 331 million in the first half of 2023. While our EBIT margin of 14.3% is showing a 0.6 percentage point increase versus last year, it did so at a slower pace than our EBITDA. This difference primarily attributed to an impairment of 17.9 million on plant and machinery as well as assets under construction in Taste Nutrition & Health. I'm coming back to this. In conclusion, despite facing some headwinds, we have achieved a strong improvement of our financial performance in the first half of 2024. Let's turn to Taste, Nutrition & Health on Slide 11, where you can see an organic growth of -- for H1 of 10%. This performance was mainly driven by volume of 6.1%, reflecting robust demand across both our Food and Beverage as well as Pet Food division. The Pet Food volume growth has returned, particularly in the area of palatability. Since hyperinflation impacted TNH more than Scent & Care, we saw a positive mid-single digit hyperinflation-related pricing impact. Real price decreases in Pet Nutrition led to a slight peak line here. The organic growth of TNH in Q2 was 12.6%, i.e. stronger than in Q1. The divestment of the U.K. trading business had a negative impact of minus 1% of sales from 2024 for TNH. For the first half of the year, our EBITDA saw an increase of 3.8%, reaching 348 million from 335 million the year before. This represents an industry-leading EBITDA margin of 22.1% for H1, which compared to 21.9% for the same period last year. Our EBIT declined by 7 million to 229 million, resulting in an EBIT margin of 14.5%. This decrease was driven by the 17.9 million impairment charge related to the mentioned plant machinery and assets under construction for our Pet Food business. This impairment stems from our previously communicated decision to part a pet food project in the U.S. due to revised market expectation and the subsequent review of our CapEx project road map impact. Let's turn to Scent & Care on Slide 12. The Scent & Care organic growth of 14.1% in H1 was driven by double-digit volume growth in all 3 divisions. Despite a challenging market environment, Aroma Molecules saw a significant increase in volume, primarily driven by the resumption of production at Colonel Island. Terpene prices experienced a decline. Hyperinflation related pricing had a small positive impact on Scent & Care. The organic growth in Q2 was 11.2%. The Scent & Care segment saw a 30% increase in EBITDA to EUR182 million, up from the normalized 140 million last year. This translated to a strongly recovered EBITDA margin of 18.3% compared to an adjusted 15.8% in the previous year. Let's move to Slide 13 to discuss our bottom line. Our financial result improved by 3 million to minus 42 million. This was primarily due to a slightly improved interest result, lower expenses related to hyperinflation effects, particularly in Argentina. We also made progress in our tax efficiency, reducing our tax rate at 25.3%, a decrease of 0.8 percentage points. This put us at the lower end of our midterm tax rate guidance of 25% to 27%. Despite the decline in financial results, our net income saw an increase of 502 million compared to last year, reaching 239 million. The key driver for this is the improved profitability as well as the negative onetime effects posted in Scent & Care last year. As a result, our EPS increased by 27.7% to EUR1.71 per share, up from 1.34 per share in the previous year. Coming to Slide 14, it is worth mentioning that we significantly increased our business cash flow by more than doubling it from 106 million to 226 million. This represents 8.8% of sales compared to 4.4% in H1 2023. This improvement was driven primarily by enhanced EBITDA and better working capital management. Additionally, the slightly lower CapEx by 5 million compared to the previous contributed to the improvement. Our cash flow from operating activities for the first half of 2024 increased by 144 million to 288 million. Our guidance for the business free cash flow of 12% for 2024 and our midterm guidance of 14% remains unchanged. Please move to our net debt development on Slide 15. Our net debt-to-EBITDA ratio is currently at 2.3x adjusted EBITDA without pensions and leasing obligations and 2.9x adjusted EBITDA including pensions and leasing obligations. This is slightly above our midterm net debt guidance, which is 2x to 2.5x EBITDA, including pension and leasing obligations. We are very confident in our ability to return to our self-defined corridor within the next 12 to 18 months. Furthermore, our debt profile remains strong. No covenants or imminent maturities supporting very solid investment grade rate. As you can see on Slide 16, the total assets to reflect a slight increase, and the increase in assets is primarily driven by higher trade receivable, the high result of our increased sales. It is offset by a decrease in cash and cash equivalents, is mainly driven by the dividend payment as well as the acquisition of further shares in Scent & Care, which was around 48 million and lower inventory. The changes on the equity and liability side are primarily stemming from an increase in retained earnings. The effect of the higher net income of the period exceed dividend payment to shareholders. Our equity ratio consequently remains on a healthy level of 48.2%, indicating a strong financial position. Overall, we continue to benefit from our well-diversified, streamlined and broad portfolio, which provides a stable foundation for continuing profitable growth beyond market growth. And with this, I would like to hand back to Jean-Yves. Thank you.
Jean-Yves Parisot: Thank you very much, Olaf. Thank you. So ladies and gentlemen, before we move on to our outlook, allow me to highlight some strategic initiatives of our segments. In both, we are differentiating ourselves in the industry. Let me start with Taste, Nutrition & Health on Slide 18. Two weeks ago, the Food & Beverage division opened its digital emersion co-creation center in Asia, pioneering the future of innovation. The center represents an investment in the Asia-Pacific innovation and technology center in Singapore. Here, we aim to drive end-to-end product development with customers and industry partners through the blending of market, consumer and sensory insights, with disruptive technology and prototype development, from evaluation to validation. Also in Asia, we opened the facility in Beijing to expand our footprint to be closer to our clients and better leverage growth opportunities in this part of China. In July, we are constantly reviewing our portfolio to have capabilities. On the other hand, if a product line does not fit anymore to the competencies we want to build or does not meet our expectations concerning growth or profitability any longer, we will exit. In the second half of this year, we intend to divest our Aqua Feed business to focus more on our core expertise. Annual sales of business to be sold amounts for around €20 million. We will look for a new owner who can further develop the business. And I have already mentioned that in the first half of this year, we sold our business trading -- our business trading in U.K., following the same strategic rationale. But the Marine ingredient world remains very appealing for us. And in the future, we concentrate on high-value natural substances coming from Marine to be used in Taste & Nutrition. Symrise is recognized as a leader in sustainability. This is why I'm also especially proud to share an initiative that our Pet Food operations employees at different locations started, and they did an excellent approach. They simply are themselves, where can we save resources such as electricity, energy or water. The results are remarkable as far as the efficiency gains versus last year are concerned. You can see some figures on the slide. Finally, in the last month, we launched several new product concepts covering nutritional and health aspects, such as GlucoZen balancing blood glucose levels, VitaPro, supporting the immune system. All results of our unique augmented flavor house approach. In Scent & Care, we are continuing to invest in our competencies and capabilities, and let me highlight a few achievements under Slide 19. We successfully closed with our Indian partner, Vizag Group, the transaction of Vizag Care Ingredient in July, buying 51% of the shares. We strategically expand our production capacities for high-value cosmetic ingredient in the Scent & Care segment. As the first chemical production site of Symrise outside Europe and North America, the new facility represents a great milestone for us to accelerate future growth in Asia for this business. And there's a brown LAUTIER 1795, we bundled our expertise in developing the finest fragrance materials such as tuberose, Jasmine or Orange Absolute in Grasse. Also in Grasse, we are constructing a new site, hosting R&D, creation and production of natural ingredients as well as fragrance composition in line with the LAUTIER brands and the extensive efforts to increase and consolidate our footprint in Southern France, including the latest acquisitions of Romani and Néroli. Under the brand Holzminden Lab, we are focusing on fragrance molecules produced under the principle of green chemistry that are biologically degradable and have a low carbon footprint. Here, we use our expertise in renewable wood mastering, upcycling and our comprehensive synthesis know-how, a large portfolio of unique properties produced under high sustainable principles. That brings me to an overview of our sustainability agenda, and please turn now to Slide 20. Our ambition is to embed sustainability in our entire value chain from sourcing to delivery. In each of the different value steps, we run important projects. It starts with sourcing sustainably cultivated raw materials by applying good agricultural practices at ensuring human rights. Applying sustainability in product development and operation is also key for us. I mentioned [indiscernible] such as Lautier and Holzminden Lab, where sustainability is an intrinsic driver. Utilizing green chemistry and focusing on circular economy is very material for us, as is protecting environment also. Our clients and their consumers are for transparency and environmental-friendly products. The increasing awareness of health, nutrition and personal care drive also our innovation agenda. Ladies and gentlemen, let me now draw your attention to the outlook on Chart 21. Despite the current volatile market environment because of geopolitical tensions and continued high inflation overall, Symrise is well positioned to continue its growth path. We are, therefore, confirming our growth targets and continue to expect to grow faster than the relevant market, with an organic growth rate between 5% to 7% for 2024. In terms of profitability, we are seeking to achieve an EBITDA margin of around 20%. As explained already by Olaf. Concerning the business free cash flow, we are aiming now for a rate relative to sales of around 12% for 2024. Let me conclude by affirming our corporate strategy and long-term target 2028, which you can see on the Slide 22. Symrise aims to increase its sales to EUR7.5 billion to EUR8 billion by 2028, with an annual organic growth rate of 5% to 7% and targeted acquisitions. The profitability should meet the target corridor of 20% to 23% in the long term. Ladies and gentlemen, thanks for your attention. Before we open the call for questions, I would like to invite you to our Capital Market Day in Holzminden on November 19 and 20, where we want to highlight not only our strategic direction for the coming years, but also some important innovation and growth projects at our Holzminden headquarters, the site where it all started 150 years ago. Now I'm very pleased to open the floor for your questions. Thanks a lot.
Tobias Erfurth: Many thanks, Jean-Yves, and many thanks Olaf. After the instructions from our operator, Alice, we're happy to take the questions, ideally limited to two questions each. Many thanks. Please go ahead, Alice.
Operator: Thank you. [Operator Instructions]. Our first question comes from the line of Lisa De Neve with Morgan Stanley. Please go ahead.
Lisa De Neve: Good morning. Thank you for taking my two questions. My first question is, can you please share the moving parts towards currently sticking to your 2024 EBITDA margin guide of 20%? How do you see the second half EBITDA margin evolving? And should we apply fairly normal seasonality where first half margins are typically a bit better in the second half? And are there any incremental exceptional elements that we should take into consideration? That's my first question. And the second one is on CapEx. Can you provide us with an update on your growth CapEx pipeline in TNH? And which expansions you're currently scheduling to come online in the next 12 months? And can you also share on the impairment you took, whether this is a temporary suspension of the North American pet food plant? Or it's a permanent suspension and you're not targeting to bring that back over time? Thank you.
Jean-Yves Parisot: Okay. So thank you for the two questions. And I propose to hand over to Olaf to complement, if necessary. Thanks, Olaf.
Olaf Klinger: Yes. Hi, Lisa. Thanks for your question. So on the EBITDA margin guidance, we are sticking to the around 20%. We are being a good picture in the first half. And as you stated, the second half is always a little bit softer for us. So therefore, I think the guidance is still good for the year. Nevertheless, of course, we are working very hard at the moment and clearly ambitions around it. When it comes to your point on exceptionals, so far we have not foreseen any specific exceptionals for the second half of this year. I mentioned two specific items for the first half. The growth CapEx for TNH, Jean-Yves, if you want to talk about the pipeline of CapEx projects. Jean-Yves visited our liquid plant here, the new one in Holzminden yesterday. So over to you.
Jean-Yves Parisot: Thanks, Olaf. So concerning the EBITDA, I think Olaf summarized very well the perspective for the second part of the year. Concerning CapEx, so we are really being very prudent about CapEx, the way we spend the CapEx. The question today is not only to deliver growth, but profitable growth and return and the CapEx. So we are today more and more taking -- making sure that we are utilizing the CapEx the best way in terms of return on investment. I will start with your question about the Pet Food. We had two years, three years ago we had a very strong Pet Food sales development in North America during the COVID period and the market was asking for a big increase of volume. So the volumes are still increasing, but not at the pace it was increasing two years or three years ago. So we have decided with Olaf to really -- and with the team, of course, we have decided with the team to really make a pause on disinvestment. And you will see the impact for the first semester on EBIT, but it's only a pause. And of course the volumes are there, but what we want to be sure we want to be sure that we are really filling the assets, the most rapid way as possible. So that's the reason why we're also visiting the global clarification of our different sites in the world. So that is explanation for the Pet Food, just a way to be realistic and not to overspend and not to spend too early. Concerning the CapEx for TN&H, again, the volume as mentioned by Olaf are there. And Olaf mentioned an investment in Holzminden. So we invest close to 30 million for the time being in the liquid blending facility I was visiting yesterday is on track. And we definitely meet this volume capacity. So the answer is to say we are really making sure that our CapEx spendings are following strictly our volume forecast.
Lisa De Neve: Thank you very much.
Operator: The next question comes from the line of Charles Eden, UBS. Please go ahead.
Charles Eden: Hi, morning. Thanks for taking my questions. My first one is just could you comment on the trends you're seeing in July? Are they broadly similar to Q2? Have you seen any -- I'm just sort of wondering, I guess, following on from the previous question around the margin guide. On the top line again, you're running even FX pricing sort of 8.5% organic in the first half, yet you've obviously retained the 5% to 7%. So I just want to understand if there's anything you've seen in July too sort of urge you to be a bit more cautious? And then my second one, just on the impairment charge in the first half of about 17 million. Why didn't you strip that out and report it sort of a normalized EBITDA given that is a clearly a one-off or is that sort of a signal that you're trying to not use that normalized EBITDA metric that you used last year and really want to just focus on absolute EBITDA?
Jean-Yves Parisot: Okay. Thanks. So I will take the first question and hand over to the second to Olaf. Concerning the trend in July, my answer will be with two parts. The trend in July for us is quite good. I try to avoid to say very good, but we see still a very good trend in terms of volume increase, so which make me to be very confident for the second part of the year. That being said, I'm also always very realistic. One month is only one month. We never know what the market can do in the different regions and industries. And we have also to anticipate where the FMCGs are going themselves. So -- but concerning the growth, it is really still there. And I'm also confident for the margin. You have to know that we are still on a way to increase the prices in the main part of our businesses. We are making some concession when necessary because of the big cost material decrease which is a very mechanical impact. But all the time, we are keeping the gross profit. In any case we are really keeping the gross profit. So even if it has an impact on the top line, it has no impact on the growth profit. So that's why also we have a very strict rules internally. So having the -- I think I answered the first question. If not please come back later on. And I hand over for the second for the impairment form to Olaf.
Olaf Klinger: Yes, Charles, thank you for the question. And I think you know each other for quite some time and you know that I'm not a friend of just mentioned carving out whatever. There's always something in a company like us via global environment and we have operational and sometimes some specific items, but we need to deal with that. And therefore, I prefer very much not to normalize the EBITDA, but I flag them in a way that you can understand this. I think we have done well with this approach except for last year where the magnitude of the special items, especially in connection with Colonel Island was too big that we decided to make an adjustment last year. But in the normal circumstances, I try to avoid it. I hope that answers your question.
Charles Eden: It does. Thank you.
Operator: The next question comes from the line of Nicola Tang, BNP Paribas Exane. Please go ahead.
Nicola Tang: Hi, everyone. Thanks for taking the question. The first I wanted to touch a bit more on the organic growth outlook for the second half. You talked about July being quite good. But if I look at your full year guidance, it does imply a bit of a slowdown in the second half of the year. So are there any specific areas where you're seeing a bit of a slowdown or are you just trying to maintain a bit of caution given the low visibility? And then the second question, I wanted to ask a bit more about the cost efficiencies that you've been delivering so far. I think Olaf in your remarks he mentioned a few examples to T&E and consulting services. I wonder whether you could give a bit more color on what's behind that 50 million plan for the year? And also how you're thinking about further efficiency opportunities beyond 2024 as well?
Jean-Yves Parisot: Okay. So I will start answering and let Olaf complete. Concerning the organic growth outlook as I just mentioned we are quite confident for the second part of the year. And I think that even if we have a double-digit growth for the first part of the year which is including also some hyperinflation impact pricing-wise. And myself I am confident that we can reach the 5% to 7%. And I should say minimum, but the idea is not to change the agenda all the time. And the idea is to remain realistic and not to change the lease market. So -- but no slowdown to answer your question, Nicola, straightforwardly I don't see the main slowdown, but I will let Olaf give you some more color about the hyperinflation impact we could see. The second point concerning the cost efficiencies, and as we mentioned also, I think in the first call when we put in place this program, there are two parts. The first part is really a very strict cost management T&E and so on which is delivering a lot short term. And as we mentioned, we already delivered half of the 50 million which is a tremendous performance from the team in terms of commitment. But there is a second part which will deliver short term, but mainly midterm, long term which are efficiencies program concerning indirect materials, concerning raw material, concerning operational asset efficiency. And behind the indirect you have the logistics, you have the energy. We have a lot of other stuff behind the raw material we are close to 2 billion procurement we are buying on the market. And behind the plant efficiency we are running more than 80 plants and exactly linked also to the CapEx message I was giving earlier. We are also making our best to optimize more and more globally our operations. We are a very agile operation company and we are very close to the customers is buying a new lab opening, but we want also to be more and more leveraging our scale globally through our operations. So it is a second part of the rocket which is today difficult to measure. We are now putting in place different programs, but it is giving us a good perspective for the 20% to 23% midterm target. So -- but perhaps I will let Olaf also complement on the top line on the hyperinflation effect for which we had myself, I had some questions last time and also Olaf.
Olaf Klinger: Yes. So we carved it out clearly to make sure that you understand where the organic growth for Symrise is out this effect which primarily comes from Argentina, Turkey. If you take that out, we are more in the range of 9, 9.5 at the moment. So that is volume-driven growth and I think it's remarkable that we discussed here, double-digit growth rates and we should not forget that. We have Symrise for a long 5% to 7% as an ambition, an ambition to deliver above-market growth and we clearly stick to that. We also need to recognize that this growth continues for quite a while already. And therefore I think we need to be realistic in our assumptions and that's why we feel quite comfortable with the current guidance and we will do everything to over deliver as we have always done. And if it's happening, if it's possible then we will definitely show it.
Nicola Tang: Okay. Thank you.
Operator: The next question comes from the line of Matthew Yates, Bank of America. Please go ahead.
Matthew Yates: Hi. Good morning, everyone. A couple of questions really for Olaf. Just coming back on the exceptional items. Obviously, if you were to add back that 17 million you talked about that gives you, what, 60, 70 basis points of extra margin. Are you suggesting that would probably be too aggressive because inevitably every year, there are going to be some items of this magnitude? Or would you say actually that is fair to say underlying margins were comfortably over 21% in the first half? And then I wanted to push you a little bit on the cash flow guidance. As you show in the slide, first half roughly double what you achieved a year ago. Yet your full year guidance of 12% is not that far away from what you did a year ago. So was there something about timing volatility in the second half that you need to highlight? Or can we come to the conclusion that you are well ahead of budget in possibly exceeding that 12% cash flow guidance for this year?
Jean-Yves Parisot: Olaf, I propose you start and I will complement what's necessary?
Olaf Klinger: Yes. So I think it's important to note that we had some exceptionals in the first half, which were -- as is already said, probably pushing the margin a little bit higher than we showed this the 20.7%. However, I come back to what Lisa said at the beginning and the second half from historical perspective is always a little bit softer. We all know what happened last year in November, December and we were scrutinized by you on this picture. So we remain quite confident, very confident in this regard. But definitely, we do not want to over-promise and this is what you have in the picture at the moment. As for guidance, I'm with you that we have made very good progress in this regard. And -- but this current guidance is probably on the more conservative side at the moment. We are working very, very hard also on the working capital. TNH has made tremendous progress in the last two years already. And Scent & Care is now in the situation that they can further improve this and therefore definitely comfortable that you can at least deliver on our guidance.
Jean-Yves Parisot: Yes. So I think that Olaf told everything. I should just say myself as a new CEO. I am really not only confident but I'm also realistic. And as Olaf mentioned, last year beginning of the year, we were very pushy, I think. And we don't want also to disappoint you. So the confidence is also for us with a piece of realism. What we want is to be totally transparent. What Olaf explained, we also want to avoid a lot of restatements or whatever. So you have everything in terms of we are accountable for everything the running and the exceptionals. And be sure that if we can increase the results and the performance, we will do it, never by sacrificing also the future of the company. So the idea is really to make it the right way always delivering what we commit to. So that's really the rule. And again, the questions that you are very pertinent and the cash flow generation is a very good one because we had exactly the same question between ourselves. So let's see what will be the end of the year but don't forget that the midterm are 14%. So if we can reach the midterm sooner, we will do it.
Matthew Yates: Okay. Thank you both.
Operator: The next question comes from the line of Edward Hockin, JPMorgan. Please go ahead.
Edward Hockin: Good morning, all. Thank you very much for taking my question. The two questions really are on Pet Food growth and on Scent & Care. So on the Pet Food growth, still strong growth in H1 and double digits and in Q2 as well. I was wondering, please, if you could break down a bit the nature of this growth by volume and pricing and how much FX pricing contribution there is in there? And what you're looking really for the Pet Food segment to deliver in terms of growth as you head into H2? And my second question, please, on Scent & Care, is some easing in the total organic sales growth in Q2 versus Q1? And wondering if you can elaborate on some of the drivers of this easing by Fine Fragrance, Consumer Fragrance, Aroma Molecule and Cosmetic Ingredients? Is it right to see that Fine Fragrance and Cosmetic Ingredients were somewhat slower in Q2? And what the prospects for the two businesses are for the rest of the year?
Jean-Yves Parisot: Okay. So I will take the questions concerning Pet Food. Pet Food growth a big difference Pet Food today versus 2 or 3 years ago, is today, Pet Food is including the palatability business the legacy business of Symrise coming from Diana and the nutrition business coming from the acquisition of ADF/IDF. So in both business the trend is good. But the situation of the market is different. Concerning palatability, where we have a very strong historical position, we are definitely in terms of volume rebounding with the market. The market is really there. By the way, also the Swedencare, we have some shares in the Swedish company, Swedencare showing a 10% organic growth for Q2. For the Pet Food, it gives you an idea of the volume growth for Pet Food for the palatability part where we are increasing volumes in every part of the world. And concerning the price, we're very keen to defend the pricing in our palatability business. So concerning the nutrition part it's a totally different picture because the nutrition part, we were seeing a very high price increase in the last 2 years, which we were really handing over to carry him over to the market and now the prices of egg protein are going down. So we are following the market trends, very transactionally. So there are 2 different pictures. So in all the cases the volumes are there. But in terms of price, price are maintained for the palatability as much as we can. And when we do some price concession it's really a one-to-one approach for really respecting our customers, for which we have a very strong partnership. And concerning the nutrition, we are coming back to a more reason we are sticking to the egg market mainly in North America, where the main part of our operations are. So in a nutshell, the growth is there, and there is no reason to see the same dynamic for the second part of the year volume wise and price wise. Concerning Scent & Care, Scent & Care did a very good first part of the year, a very good starting point. And we are growing in every part of the business. I will start by cosmetic ingredient. Cosmetic ingredient was definitely very strong differentiated positions and it is a fast-growing market, where we are also facing like every actors of competition. So we are also screening the market in terms of price adjustments but the volumes are definitely there. And concerning Fine Fragrance and Consumer Fragrance, we are very, very proactive concerning Fine Fragrance, we have reinforced our team and competencies. And we are winning more and more big deals with big brands. And concerning Consumer Fragrance, we have done an exercise of reshuffling our target industry meaning shampoo, meaning cleansing, meaning fabric care. So we are really now wanting also to enter more in big deals and to more strategic partnership with customers. And for finishing with Aroma Molecules, as mentioned previously, we are also coming back to very good growth mainly due to the fact that we have recovery sales after the problem we had last year in North America. So Scent & Care growth was in H1 will continue in H2. And again, realism, we need to be realistic and to make sure that we are always fitting with competitiveness in terms of value pricing.
Tobias Erfurth: In the view of time, I now ask for only one question per participant, please. Thank you very much.
Operator: Our next question comes from the line of Isha Sharma with Stifel. Please go ahead.
Isha Sharma: Hi. Good morning. So if I'm left only with one question, here it goes. Could you please give us an overview of your planned investments? Apart from the Pet Food in U.S., are there any planned delays? How should we think of the CapEx run rate, please?
Jean-Yves Parisot: The plan for Pet Food in U.S.? Are there planned delays? No. The question of -- again, as I said, I think we said is the delay of Pet Food in U.S. is really in the frame of the efficiency and the return on capital employed. We could have done the investment in U.S., whereby having a slow ramp-up, and we decided not to make it that way. So it's really a way to execute with discipline the capital expenditure. So we have no other type of delay because growth, the volumes are really there. And even I was -- as I mentioned to you in our investment in Holzminden for the liquid blending. I can tell you, the liquid blending capacity today is on its top. So we're using some tolerance or some partners, and we are making some optimization of batches. So we are pushing for investment and everywhere and in every part of the world. So it's not a trend of volume decrease. The trend is contrary. The trend for us is a strong volume increase. And the U.S. experience is also a way to make things with discipline. And we have to pay the bill sometime. But again, with a big amount of money, which we have mentioned, perhaps some money will come back. But we're prepared to be transparent and to really be very disciplined in the way we use the cash. So no negative signal. I think it's a signal of disciplined way of using the cash. Did I answer the question?
Isha Sharma: Yes, you did. I just was wondering what is the run rate, should we take H1 as a good benchmark for CapEx going forward?
Olaf Klinger: Yes. Normally, we have a higher spend, CapEx spend in the second half of this year. So you should add a little bit, Isha, to the picture you see for H1.
Jean-Yves Parisot: Yes. Isha, the reason why we're also careful for the free cash flow, we have to be balancing. Yes.
Operator: The next question comes from the line of Amy Lian, Barclays. Please go ahead.
Amy Lian: Hi. I was wondering if you could talk a bit more about the terpene environment because that seems like where you're having the biggest pricing headwinds in Aroma Molecules within Scent & Care. Why is pricing so weak? And are you seeing any perhaps structural changes to demand for natural versus synthetic terpenes? Are you concerned about that? Thank you.
Olaf Klinger: So I think we are very close to the chemicals pricing environment in the terpene space. That is where we play. There was a lot of additional competition coming after China, especially reopened after the pandemic, and that has still an impact on the price situation. Now we are using this material internally. We are selling it also to our competition, and the price weakness for the time being in terpene continues. At the same time, as you know, we had an incident in our Colonel Island site last year, and we were piling up some raw materials. We of course have long-term supply contracts for this, which is important. And these contracts are still sitting on some higher raw material costs. So that influences terpene at the moment, we are dealing with. But looking forward, the element should come now together, which makes us more positive for this environment, and we are very happy to have this backward integration in our portfolio. And it's important to have access to the natural-based fragrance ingredients more and more. And that's how we have positioned Symrise in this market environment. And continue with this strategic ambition being in terpene.
Amy Lian: Thank you very much
Operator: Our next question comes from the line of Ranulf Orr, Citi. Please go ahead.
Ranulf Orr: Hi, thanks taking with the question. Just sticking with Scent & Care. I'm just wondering if you could please give a bit more information on the margin there. I mean, it feels like conditions for many parts of that division are as close to as good as it gets, the exceptional volume peers reporting very strong margins, yet you're still at about 18%. So maybe just some information by the sort of subsegments would be useful. And then also if you could just bridge the path where you see to get from that 18% up to a kind of 21% margin would be very interesting to hear.
Jean-Yves Parisot: Yes. So I will start the answer, and I will let Olaf complement, if necessary. So yes, definitely, there is a big difference between Scent & Care performance and TNH performance. TNH, we are Symrise a strong player, and by the way, the best delivering in the market. And Scent & Care, we are small compared to some competitors, which is not the case for TNH. So this is the starting point. Being small and competing with companies which are bigger, we need to put on the market more or less the same operating cost. So -- and that has in terms of scale, that has a direct impact on the profitability, that is the first thing. The second thing is also an operating cost. Second thing is also in terms of the more the business is sizable, the more you can play and have better cost of goods sold in terms of efficiency, size of batch, globalization, networking. So this is the second part of the puzzle with its product portfolio optimization, and it is not negligible there. The third part is also which is part of the story of Scent & Care today. We are reorganizing Scent & Care, so there are also some exceptionals, which are impacting Scent & Care performance today. So when you add A, B, C, and I will let Olaf complement, if I missed a key element. It does not justify a 10% difference or whatever. But it explains that the performance of Scent & Care today, but it also gives you a perspective of the improvement we can do quite rapidly and substantially by growing the right way, by addressing the right solution to the right customer and leveraging our scale. Scale, not only also across Scent & Care, but also across the full Symrise organization. So it is definitely for us a challenge, but it is a positive challenge in terms of perspective to improve the profitability as a whole. Olaf, if you want to complement?
Olaf Klinger: No, I think you said a lot around it. Maybe as an additional element, you know that we have built the cosmetic ingredients business to a very remarkable size at the moment, continued to invest into this fast-growing and higher-margin business. So that's also a differentiating factor, as it's an opportunity to develop the Scent & Care journey. And the other statement I wanted to make is that Jean Andreas is very much behind bringing this -- the next level. The program is called Elevate 27 on purpose. So he's addressing the different parts of his portfolio in a very stringent, also cost comfortable way. So that gives another perspective that there is more opportunity for us in building and advancing Scent & Care.
Tobias Erfurth: Okay. Ladies and gentlemen, we are running out of time, and we will answer all remaining questions in the next hours and days. This brings us to the end of our conference call. Thank you very much for your interest in Symrise and your time today, especially as we are, again, not the only presenting company today. We are looking forward to seeing you in person soon. Many thanks. That's it for today. All the best. Have a nice day, a great summer and ideally a wonderful vacation. Thank you very much, and goodbye.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call [ph] and thank you for participating in the conference. You may now disconnect to lines. Goodbye.