Symrise AG (SY1) Earnings Call Transcript

Ladies and gentlemen, welcome to the Symrise H1 2025 Analyst and Investor Call. I am Matilda, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Rene Weinberg, Head of Investor Relations. Please go ahead.

Thank you, Matilda. Good afternoon, ladies and gentlemen. Welcome to our first half 2025 results call. Thank you for joining us today. All related documents, including the press release and presentation we will reference on today's call are available in the financial results section of our website. With me today are our CEO, Jean-Yves Parisot, and our CFO, Olaf Klinger. After reviewing the results and the outlook for 2025, we will open the line for questions. With this, I will hand over the call to Jean-Yves. .

Thank you. Thank you very much, Rene, and thank you all for joining us today. Today, I will review first half performance highlights. Olaf will then cover our financial results in great detail. And then I will provide an update on our One Symrise transformation journey and the full year outlook. But before discussing first half results, I wanted to take the time to relet on my first 16 months of CEO of Symrise. In my conversation with SIM risers, customers, partners, investors and other key stakeholders, what is abundantly clear to me is that Symrise has a long heritage of market leadership borne out of a technical expertise, differentiated innovation, long-standing customer relationship and a passionate curious culture. Starting with our shift in 2024 to focus on deliver profitable growth, we have embarked on this journey to take the best of Symrise and transform into a company that generates durable profitable growth strong free cash flow and compounding returns. And it is just at a transformation as we need to increase accountability and under partnership to deliver top-tier results, operational excellence and shareholder value. We are in the early phases of our multiyear journey. And importantly, we are taking bold and decisive actions. We are seeing momentum build as we continue to execute to get our onetime transformation and the ONE Symrise strategy that we are beginning to activate. Now let me walk you through the key highlights of our performance and strategic progress on Slide 4. Over the past 12-plus months, we have implemented and began to activate our transformation. And today, we are seeing clear evidence that in transformation is gaining momentum. First, our results in the first half of 2025 are clear evidence of our efforts coming to fruition. We achieved solid organic sales growth in a challenging macroeconomic environment and delivered improved profitability. Our margin expansion underscores our focus on operational efficiency and disciplined cost management. And we are now entering the next phase of our NIM transformation. With the design and implementation phase complete, we are now shifting towards activation around optimizing our portfolio, delivering profitable growth and driving efficiency. We have also continued to strengthen our leadership team adding fresh expertise and global experience to support the execution of our strategy and achievement of our goals. Finally, we're updating our guidance to reflect both the current global demand environment and the progress we are making in executing our ONE Symrise strategy. More on that later. Together, these steps position us well for the second half of the year and beyond. Please turn to Slide 5. Before we go into the details regarding our performance in the first half of this year. I am very excited to announce the appointment of Michael Friede to Executive Board as President of the Scent & Care segment which I was leading at interim. Michael brings many years of broad market knowledge and a high level of industry-specific expertise in various growth areas. Additionally, he has proven international experience making him an excellent choice for Symrise as a company with global operations, focused on delivering exceptional experiences to our customers around the world. This appointment follows other critical leadership additions we have made in 2025, including SVP of Global Operations, SVP for Global procurement VP for Global Quality and Regulatory and achieve digital and information officer. With that, please turn to Slide 6 to the first half performance highlights. Sales were EUR 2.554 billion, reflecting 3.1% organic growth. While Symrise continues to grow faster than the relevant market, we are observing a dynamic global environment with choppy consumer behavior across certain sectors. To that end, we are focused on controlling the controllable including delivering on a healthy pipeline of sales opportunities and project vitality with selected customers in key markets while managing tough year-on-year comparables. EBITDA for the first half of 2025 amounted to EUR 554 million, a 4.5% increase compared to the first half of 2024. The EBITDA margin improved to 21.7% and up 100 basis points year-on-year, driven by our focus on value-added products and recurring cost savings through efficiency programs. Net income for the first half of 2025 amounted to EUR 268 million, representing a 12% increase compared to the same period 2024. Earnings per share also saw a significant increase, reaching EUR 1.92, equating to double-digit growth. Business free cash flow for the first half of 2025 totaled EUR 226 million or a healthy 8.8% of sales. Lastly, we updated our guidance to reflect the current global demand environment and execution of our ONE Symrise strategy. For the full year 2025, we're moderating our organic growth range to 2% to 5% from 5% to 7% previously. We remain focused on driving above-market growth through a relentless focus on our customers, innovation and commercial rigor. Through our focus on self-help initiatives and value-added sales, we are increasing our EBITDA margin expectation from around 21% to approximately 21.5%. This is driven in part by identified annual cost savings and efficiency improvements amounting to EUR 40 million with EUR 20 million already realized in the first half of 2025 and the remaining EUR 20 million expected in the second part of the year. Let's turn now to Slide 7 for performance by segment. The Taste, Nutrition & Health segments achieved organic sales growth of 3.3%. Taking into account portfolio on exchange rate effects, cement revenue was EUR 1.564 billion in reported currency. The industry-leading growth in Food and Beverage was driven by higher volumes, beverage and savory applications. The Pet Food division maintained flat organic sales despite continuous cautious consumer sentiment across key markets. The Scent & Care segment achieved organic sales growth of 2.9%. Taking into account currency effects, segment revenue was EUR 989 million in reported currency. Fragrance continued to see strong organic growth across all application areas and especially in fine fragrances. We see significant recovery in aroma molecules due to increased capacities and ongoing market-wide inventory normalization. In the Cosmetic Ingredients division, we continue to content with a very strong demand level from H1 2024 and difficult prior year comparables. Let's move now to the results for the region in Slide 8. We grew particularly well in Latin America, delivering organic growth of 10.6%, Asia Pacific and EME also generated good organic growth of more than 3%. In the North American market, we are seeing weaker general sentiment, primarily due to macroeconomic uncertainties, persistent inflation and increasing political and regulatory and predictability. While these headwinds are affecting the broader consumer environment, it is important to emphasize that this is not a similar specific issue, but rather a reflection of the overall market environment in which we are operating. For the first half, we saw slightly negative organic growth of 1.4%. We continue to work with our customers as they work through consumer event challenges in the region. Let me stop here for the moment and hand over to Olaf, and Olaf now will provide you more details on financials.

Thank you, Jean-Yves, and also a warm welcome to everybody tuning in today. Let me provide some details regarding our sales on Slide 10. In the first half, we delivered healthy organic growth amid an overall resilient but lower volume environment. Our organic growth of 3.1% was driven by a 1.9% increase in volumes and positive pricing of 1.2%. Strong demand in -- for beverages and fine fragrances supported our performance. Offsetting the growth, there is a portfolio effect of EUR 10 million related to the March 2024 divestment of 51% of our beverages trading in the U.K. In addition, we had negative FX of EUR 81 million driven primarily by the depreciation of multiple currencies. Turning to the second quarter. Organic growth was 2%. The growth is split by an 0.8% increase in volume and positive pricing of 1.2%. FX continued to be an even stronger headwind and contributing to a negative impact of EUR 63 million, representing 4.9%. Please turn to the performance of Patient Nutritional Health for the first half of 2025 on Slide 11. We continue to deliver solid results with organic growth of 3.3%, supported by both of our divisions. The growth is split by a 2.4% increase in volume and positive pricing of 0.9%. Food and Beverage developed positively with industry-leading mid-single-digit growth, which was primarily volume driven. The Pet Food business unit was able to maintain organic sales at the previous year level despite a very cautious consumer across key markets. The Pet palatability application area recorded solid growth with good volume and pricing growth [indiscernible] EBITDA increased by 4.7% to EUR 364 million. The EBITDA margin improved to 23.3%, up from 22.1% in H1 2024, an increase of 120 basis points, mainly driven by efficiencies and operational performance. Please turn to the performance of Scent & Care on Slide 12. The Scent & Care segment achieved organic sales growth of 2.9% in the first half of 2025. The growth is split by a 1.1% increase in volume and positive pricing of 1.8%. FX continued to be a headwind of 3.3%. The Scent & Care EBITDA increased 4.1% to roughly EUR 190 million in the first half of 2025. The EBITDA margin was 19.2%, 90 basis points higher than the previous year, which was also driven by operational efficiency efforts as part of the One SIM transformation. Let's now look at what drove our strong profitability performance in the first half of 2025 on Slide 13. In short, we delivered double-digit EBIT growth supported by both robust EBITDA margin and a significant improvement in gross profit. Our gross profit margin increased to 41.4%, up 250 basis points versus the prior year period. This substantial uplift was primarily driven by enhanced material utilization. Our transformation program is starting to contribute meaningful efficiencies and a key contributor has been our cost savings. In H1 alone, we delivered EUR 20 million recurring cost savings through efficiency improvements. As part of our ongoing transformation program, we are achieving efficiency across several key areas. For example, we are reevaluating our spending to define the most effective sourcing strategy, ensuring both a secure market supply and improve competitiveness. We are rolling out a new global sourcing approach for our businesses. In addition, we've made significant progress in raw material and packaging optimization. Through strong lean implementation, we've improved process yields, reduced material waste and enhanced first-time right performance. Together, these initiatives are driving substantial cost savings already. Notably, we achieved an EBITDA margin of 21.7%, up 100 basis points year-on-year. This improvement reflects value-added sales and recurring cost savings through efficiency programs. Of note, the 2024 gross profit was impacted by onetime effects, including EUR 17.9 million asset impairment in the U.S. for pet food last year. This had a neutral effect on EBITDA but explains as well the improvement of depreciation and the positive development [indiscernible] Lastly, I want to highlight the impact of extraordinary items on EBITDA. We had a EUR 4.2 million loss impact from the ACA divestiture a EUR 1.2 million legal cost environment and a EUR 4.5 million expense for the 1 SIM transformation program itself. This compares to EUR 17 million in onetime items in 2024. These included at that point, EUR 9 million in severances and a write-off of around EUR 8 million in connection with the legal dispute. Together, these results reflect strong execution and a clear focus on improving operational excellence, positioning us well to deliver sustainable margin expansion and operating leverage long term. Net income increased by 12% to EUR 268 million. This represents a 12% increase in EPS to EUR 1.92 per share. Moving forward to the business free cash flow on Slide 14. Business free cash flow remains stable, reaching EUR 226 million or 8.8% of sales. This reflects balanced performance across key drivers. We saw an improved EBITDA contribution. At the same time, there was a slight increase in capital expenditure from EUR 90 million in the first half of 2024 to now this period as we continue to invest in growth and operational efficiency. In addition, we are focused on effectively managing working capital. with an improvement in inventory efficiency, which helped offset some of the pressure from increased CapEx. Overall, this result demonstrates our ongoing focus on disciplined capital allocation and operational execution. For 2025, our aim for the business free cash flow is around 14% of sales. And for the midterm, we are targeting above 14%. Let's move to our balance sheet and net debt on Slide 15. Our balance sheet remains strong with an equity ratio of 48.3%, consistent with the previous year. This stability reflects our commitment to maintaining a healthy financial position and investment-grade profile. Net debt including pension and lease liabilities amounted to EUR 2.35 million or a leverage ratio of 2.4x, within our midterm target of 2 to 2.5x. And with this, I would like to hand back the call to Jean-Yves, and thank you for the moment.

Thank you. Thank you very much, Olaf. And I propose to move now to the Slide 17. As I told you, I want to take this opportunity to walk you through the key elements of our multiyear ONE Symrise transformation. A journey we designed to enable profitable growth, enhance returns and ensure long-term value creation. And that ONE Symrise transformation is a prerequisite for the successful execution of our purpose-driven ONE Symrise strategy. Let's move directly to the Slide 18. And let's drill down into the onetime transformation on that slide. Since April 2024, we have been designing and implementing the road map to a stronger, more durable Symrise. This included defining our 1 similar culture of tomorrow and the values that will support our success. We established a transformation office to drive accountability and track progresses. We also conducted a portfolio-wide strategic review, identifying businesses that are strong, but they no longer fit with our future state criteria. Finally, we began our cost-saving program -- this is what we call Phase 1. We have now launched into Phase II and activating our plans. The goal is to create a steady drum beat of execution, which will take time on discipline. In the third phase, we will continue to focus on executing our road map and delivering strong performance to achieve our ambition to be unique. Let me now provide an overview of how we are going to do. Let's move now on Slide 19. Consistent with what I have communicated in April 2024, our ONE Symrise strategy is structured around 3 in portfolio growth and efficiency that are aligned to clear financial aspirations, durable profitable growth, robust business free cash flow generation and compounding returns. The strategy is purpose-driven guided by the clear strategic lens, where to play and how to win. Starting with portfolio. We are pursuing proactive portfolio management to sharpen our strategic focus and optimize capital allocation. Our approach balances global scale with local execution, positioning Symrise as a differentiated niche player in high-value segments across the industries where we participate. On growth, we are intensifying our customer focus, driving innovation that is rooted in our core capabilities and clearly differentiated in the market. Our goal is to deliver unique, value-added solution and deepen customer partnerships. This positions us to grow above market and more profitably. And finally, efficiency. We are focused on operational excellence strengthening our standard control across the value chain and exercising disciplined expense management. This will support sustainable margin expansion and help unlock further operating leverage as we scale. Please now turn to Slide 20. At our November 2024 Capital Market Day, we announced portfolio management as a key pillar of the ONE Symrise strategy. Through the strategic review, we identified a portion of the portfolio that are noncore and do not align with our focus on high margin and low capital intensity. Specifically, we are in the process of divesting the Aquafeed business. which specializes in the variation of tilapia and shrink by product. To date, we have sold our Costa Rica site and we are closing the Ecuadorian side. On the Q1 trading update, we announced a strategic assessment of the terpene ingredient business, part of the Aroma molecule. Today, we are formally seeking strategic alternatives. All these activities will contribute to our ONE Symrise strategy execution and position us for an improved business mix. And now let's move on to Slide 21, growth. I also want to highlight the progress and momentum we are building through our innovation ecosystem, which is and will continue to support our growth. Numerous product launches took place in the first half and all are examples of proprietary intellectual property. Just 1 example. Product we launched called metabolic Health by Probi, which is a solution developed to reduce the risk of metabolic syndrome while supporting cardiovascular health. Our innovations reflect our commitment for delivering science-backed products that meet the growing demand for effective health support. Our customers value our innovation through notable recognition, which made me proud of our R&D teams around the world. Our unique solutions are a clear differentiator to drive sustainable organic growth. Turning to Slide 22, efficiency. We have made meaningful strides in optimizing our processes, leadership impact and efficiency to drive profitable growth and shareholder value creation. In addition to the EUR 50 million in cost savings we achieved in -- we identified an additional EUR 40 million as part of our 2025 efficiency plan, which covers defined initiatives with clear focus areas and measures in sourcing and procurement, global asset management, increased productivity and a streamlined portfolio. In H1, we realized EUR 20 million and expect to achieve the remaining EUR 20 million by year end. Let's move now to Slide 24 and our outlook. As we look ahead to 2025, we acknowledge the evolving global landscape. One marked by both challenges and opportunities. Our outlook reflects these realities, yet we remain confident in the resilience and agility for Symrise. While the broader market is projected to grow at a moderated pace of 2% to 3% globally, the strength of our innovation pipeline and the vitality of our projects with strategic customers continue to set us apart even as we navigate tough year-on-year comparisons. We are not simply reacting to market changes. We are proactively shaping our future. These strategic actions are already yielding tangible results as seen in our recent margin improvement and our ability to deliver value despite headwinds. For 2025, Symrise is now targeting organic growth in the range of 3% to 5%, down from 5% to 7% previously but still outpacing the overall market and reaffirming our commitment to above-market growth. Our enhanced EBITDA margin target of approximately 21.5% reflects our efficiency gains and portfolio optimization. Furthermore, we are maintaining a robust objective for business free cash flow expecting it to be approximately 14% of sales. These targets are not isolated ambitions, but rather milestone on a longer transformation journey. We remain committed to the goals outlined at our November 2024 Capital Market Day, setting the course for profitable growth and financial discipline through 2028 and beyond. Therefore, we reaffirm our midterm targets, aiming for organic compounded annual growth of 5% to 7% and EBITDA margin in the range of 21% to 23%, and a business free cash flow of more than 14%. With that, I'm letting open the floor for your questions. Thank you.

[Operator Instructions] The first question comes from the line of Matthew Yates from Bank of America.

A couple of questions, please. First one, just to get out of the way. Olaf, to clarify, on Slide 13, you've got about EUR 10 million or so of identified items. Can I just double check? Are you saying those are within the EUR 554 million of reported EBITDA and you haven't adjusted for them. I'm just really trying to get a sense of the second half given seasonality versus the momentum you have in the business, but you haven't adjusted the numbers for those items. Is that correct?

It's all in, Matthew.

Okay. Fine. Right. Second question, sorry, a bit more open-ended and complicated. Same slide, but I'd like to ask about the 250 basis points of gross margin improvement because it's a very big and impressive number. And the question is basically how you talked about EUR 20 million of cost saves, but I'm guessing some of that relates to things like operating expenses rather than just COGS. And maybe you can describe and elaborate in a little bit more detail what you've been doing to get those gross margins up so much? And I know you've given a midterm EBITDA margin target, but I wonder where I could push you to also talk about where gross margins may ultimately go because the more gross profit you have, obviously, the more flexibility you can actually reinvest in the business? And then finally, just to tag on, is there any trade-off here when you talk about prioritizing mix and profitable growth that is clearly coming through in the gross margin, but possibly is at the expense of the top line development.

So I propose Olaf to answer your question, Matthew.

Yes. So first, again, Matthew, everything is in the 21.7% margin you see -- the 250 basis points on the gross margin is, first of all, impacted what we mentioned that in the prior year, we had the EUR 17 million impairment, which is part of the COGS picture. So you need to balance that out. That's the first comment I would make. The second, you rightly caught the EUR 10 million extraordinary items. They are primarily ending in sales and marketing and G&A. While the efficiency gains, which we have identified, the EUR 20 million are primarily in the Cox picture. So you have a trade-off between the different P&L lines, which are impacting this P&L picture and help to show the 250 basis points gross margin improvement. . I think the efficiency program, which we have flagged in the capital markets last year around sourcing and procurement around global asset management, the increased productivity and also the streamlining of the portfolio, the mix, which we are achieving and where the focus is, is going into the COGS, the gross margin improvement. And that is, of course, a big driver also going forward that we can further improve our gross margin situation by putting these efforts exactly in the areas I just flagged. So I would hand over to Jean is for the trade-off, the mix, which we have achieved.

Okay. So concerning the different mix and trade-offs. The question today is how do we improve the profitability and we are working, as we said, with different levers, different buckets. And first, on the sourcing of procurement, we are realizing economies of scale. And we are really optimizing our position for key raw materials and Olaf mentioned Citrus. And we have buying citrus across different segments. And the idea now is really to gather and have a common way of buying this type of raw material. Concerning Global Asset Management. We are also optimizing the way we are organizing the tender for the freight, organizing the logistics -- so we are really gaining a lot of momentum in these different 2 big buckets. So you can really see the impact already in the gross profit.

The next question comes from the line of Lisa De Neve from MS.

This is Lisa from Morgan Stanley. I have one on Pet. Can you please provide us with some detail on the level of price concessions that you're making in impact food and really pet nutrition. And to which extent do you feel confident that the negative pricing will subside towards the end of the year and basically that we won't see this anymore from 2026 -- that's my first question. And then secondly, and maybe that follows on a little bit from Matt's previous question, but more focus on free cash flow is -- can you share how you're thinking about free cash flow generation for this year in the second half, especially in the light of your net working capital build in the first half? . And more broadly, I mean, how should we think about your net working capital intensity structurally, especially if we already see an improvement in your gross margin in the first half of this year.

Okay. So thanks, Lisa. It's a very good question concerning the petfood. And as you know, Pet is a key growth driver and a key pillar for Symrise. And I will let Olaf answer for the free cash flow generation. Concerning the Pet food, it is still for us for a long time, still a very strong strategic growth driver. Now as we explained at the beginning of the year, we are in the normalization year. I should say summarizing that it's not the year of Pet food. And you know that during COVID, pet food was really benefiting from the spike during the comment. Now during this normalization, we see some shift on the market. and we see some shift global customers moving now to in terms of market share to local and regional, and we are actively working on it. And we see also some pressure on prices, specifically on nutrition from key accounts. So what is the price impact on the pet food? So definitely, the prices are up palatability, but we are suffering in Nutrition. As I mentioned also in the former quarterly call, and we are still in the price adjustment for Nutrition. Concerning our projection for '26. A big piece of this price adjustment unfortunately will have been done in 2025. We can never project what will be happening next year. But definitely, the price at the end of the year will be normalized. So that's also something which is making us feeling comfortable for the next year after this -- as I told, a normal -- what I call a normalization year. So I will hand over to Olaf for the free cash flow question.

Yes. Thanks, Lisa, for the question on the free cash flow. Actually, I'm quite positive on the second half. We have benchmarked ourselves a little bit over the past months. And I think there are 2 areas where we clearly put a lot of focus now with our ambition for a global procurement environment in place. There's definitely upside on the procurement terms and conditions, which we are addressing. That's 1 area of improvement. And the second 1 lots of focus on inventory management with a different approach. We have all divisions with an action plan to address the inventory situation summer natural and [indiscernible], we are taking actions with the sourcing strategy. And all divisions, there is a clear agenda, how to bring the inventory level down by the end of the year. And that's, as I said, makes us quite positive that there will be further cash flow generation coming. .

The next question comes from the line of Alex Sloane from Barclays.

Two questions from me also, please. Just firstly, in terms of the reason given for the lower organic sales growth guidance this year, you talked about a global demand environment that's more challenging than expected, now expecting 2% to 3% market growth, which obviously you hope to outperform. I guess, what gives you confidence that market growth accelerates in '26 and which of the areas you're expecting most reacceleration in and why please would be the first one. And the second, I mean at the CMD, you talked about a need to reinvest some of the ONE Symrise savings over the transformation period. Is there any reinvestment of the EUR 40 million planned this year? And can you perhaps share in more detail in terms of the size of the total reinvestment that might be required to 2028 now that you've done more work on analyzing this, please?

Yes. Thanks a lot, Alex. So I will take the 2 questions for the concerning the lower growth guidance for this year. We had initially a 5% to 7% guidance. based on what we were perceiving last year from the market. And a proof point is today the market is not at the level of growth as we were expecting. And I think it's also something we share with our big customers, right? The market is slowing down in some sectors, in some regions, it's not throwing down everywhere. So we are reworking for moving and capturing where we can capture value means customer shifts mean fastest-growing regions like Middle East, Africa and also through innovation. And as you have seen also in the deck, I wanted to share also with you, we are really launching innovative products. So it means that we are prudent and we prefer to say 3% to 5% for end of this year. We already reached the 3%. So the second part of the year, first, we have some products which will be launched. The second is the comps, the comparables for the full semester are not so tough for the second semester. And we prefer to give you a transparent signal about that rather than doing impossible or price decrease or crazy things on the market. So it's a way to be prudent but very confident. And the confidence is for 2026 and beyond. So we have no reason and we see no reason to change the guidance. And every key market, we see potential growth and petfood, we see still massive opportunities, food and Beverage, we see very strong competitive edge. In fragrance, the growth is a very growth. And today is aided by a poor cosmetic ingredient performance. You know what, because the Q1 was very strong last year. And last but not least, we are building also this One Care division with cosmetic, probiotic health actives, where we see a lot of traction from the market. So we see no reason not to believe in an acceleration of the growth in 2026. Now coming back to the CMD and the need to reinvest. Yes, we are building the future. and we need really to balance the way we are using our capital. So -- and the cash we are generating. So on the EUR 40 million we will generate this year through cost savings. The idea is to range best part of them for preparing the future through digitalization, which is definitely a road map we are also implementing. We are accelerating our digital road map and the digital road map is not only digitalization or AI or thing that add it's also strengthening our internal processes, our internal database, our internal data sharing. And it's part of ONE Symrise organization to really share much more data across the organization. So part of it will be reinvested also in R&D or sales development. We cannot tell you today what -- which percentage will be reinvested or not. We have -- as I said all the time, we are on mid-topline where we have a clear forecast of what we want to gain and what we want to reinvest. But today, it's so volatile everywhere. But depending on if we gain more or less, we will invest more or less. We'll be very prudent also in the way we reallocate the cash we will deliver from the savings. So more to come, and I'm sure that on a quarterly basis, I can give you more details on the way we will really allocate this capital.