Symrise: Interim report for the 1st half of 2011

Symrise_LogoSymrise AG increased sales and maintained profitability at a high level in the first half of 2011. The Group increased sales by about 3 % at local currency despite the strong comparables from the previous year; it benefited from business with major customers and Emerging Markets. However, the marketenvironment turned gloomy in certain segments and regions in the second quarter. Earnings were affected by high raw material costs and negative currency effects. Nonetheless Symrise achieved an EBITDA margin of 20 %. The primary contributors were persistent cost management and the conscious divestment of less profitable businesses.

Dr. Heinz-Jürgen Bertram, Chief Executive Officer of Symrise AG, said: “Following the enormous catch-up effect during the previous year and a good first quarter, market growth slowed in the recent months. Whereas the flavor business continued to grow, the demand for fragrances declined. Nonetheless, Symrise continued to grow throughout the first half of the year. We achieved the targeted EBITDA margin of 20 %. We consider this to be a respectable achievement in view of the continually high raw material prices and unfavorable exchange rate effects.”
Bertram added: “Our statement from the first quarter that consumer spending is being affected by uncertainties on global markets still holds true. Despite the somewhat subdued outlook we are striving to achieve sales growth of around 3 % and an EBITDA margin of 20 % for the full year 2011. The fundamental drivers of our business will remain intact in the mid-term. We are therefore continuing to pursue our strategy of focusing on innovation, Emerging Markets and major customers.”

Continued above-average growth in Emerging Markets

In the first six months of the current financial year Symrise posted an increase in Group revenues of approximately 2 % to € 811.8 million (previous year: € 797.5 million). The sales increase was 2.6 % at local currency. The Asia/Pacific region exhibited the strongest growth followed by Latin America and EAME. Emerging Markets did not continue their extraordinarily high growth rate of the previous year, but continued to grow above average in H1. Sales generated in Emerging Markets as a whole rose 4 % and accounted for 46 % of Group sales.

The Asia/Pacific region reported 5 % sales plus (4 % at local currency). Both divisions benefited from continuous high demand. Latin America, which grew quite strongly during the prior year period, continued to grow but at a more moderate rate. This region achieved a 4 % sales increase (4 % at local currency). Sales in EAME rose 3 % (3 % at local currency), whereby business in Western Europe made a strong contribution. North American sales declined 7 % over the strong results of the previous year, primarily due to the slower economy and significant currency effects. At local currency, revenues declined by 2 %.

Both divisions grew business with major customers

The strategic focus on business with internationally active food and consumer goods companies in the first half of the year paid off again. Both divisions benefited from their good core list positions; and grew business with top ten customers above average: Flavor & Nutrition realized top 10 customer sales growth of 6.5% and Scent & Care of 3.4 %. In the first six months 2011 Symrise generated about 30 % of Group sales from business with its major customers.

Strong profitability despite pressure from raw material costs and currency effects

In the first half of the year Symrise’s earnings picture was primarily affected by high raw material costs and currency effects. Initial price increases helped to compensate for these negative factors and Symrise nonetheless met its EBITDA margin target of 20 % (previous year: 22.3 %). Persistent cost management and focus on business with attractive margins significantly contributed to keep profitability at a high level. In absolute terms, earnings before interest, tax, depreciation and amortization (EBITDA) declined by 8.6 % to € 162.5 million (previous year: € 177.7 million).
Net income for the period amounted to € 77.4 million (previous year: € 88.8 million). This corresponds to earnings per share of € 0.65 (previous year: € 0.75).

Strategic raw material inventory give more planning security

In the first half of 2011 Symrise temporarily built up inventory of raw materials in a move to cushion price increases and shortages of certain raw materials. The Group believes that increased inventory levels will give significantly more planning security in the second half of the year. Despite increased working capital requirements Symrise generated a positive cash flow from operating activities of € 34 million (previous year: € 74.7 million).
The Group’s net debt (incl. pension provisions) as of June 30, 2011 was € 798.8 million (December 31, 2010: € 733.7 million). The ratio of net debt (incl. pension provisions) to EBITDA amounted to 2.5 at the end of the reporting period (December 31, 2010: 2.2).

Scent & Care

Scent & Care generated sales of € 409.5 million in the first half of the year (previous year: € 411.9 million). The division’s sales remained largely stable even in comparison to the strong catch-up effect that characterized the previous year and despite the divestment of less profitable businesses. At local currency sales slightly rose by 0.3 %.

The application segments Life Essentials and Aroma Molecules continued their positive development, especially in the area of fragrance ingredients. The menthol business of Scent & Care enjoyed double-digit growth. The Group has made significant investments and is currently expanding production capacity here. In the application area Fine Fragrances demand developed positively in Emerging Markets.
Latin America remained the fastest-growing region for Scent & Care with a sales increase of 5 % at local currency. In Asia/Pacific and North America sales rose 1 % at local currency. Sales in the EAME region declined 2 % at local currency over the extraordinarily strong previous year.
The division reported an EBITDA of € 76.9 million (2010: € 85.5 million) for the first half of the year. The EBITDA margin was 18.8 % (previous year: 20.7 %).

Flavor & Nutrition

Flavor & Nutrition continued its growth path in the first half of 2011 with a 4 % sales increase to € 402.3 million (previous year: € 385.6 million). This corresponds to 5 % at local currency.
Flavor & Nutrition posted the largest sales increase of 8 % (at local currency) in the EAME region. Here Symrise benefited from the high demand in all national markets. Beverage applications in particular developed positively as did the new application segment Consumer Health. Asia/Pacific was the second strongest region with sales growing by 7 % at local currency. In Latin America Flavor & Nutrition increased sales by 3 % at local currency despite the strong previous year figures. In North America the slow economic environment and customer procurement delays led to a sales decline of 6 % at local currency.
The EBITDA amounted to € 85.6 million (previous year: € 92.2 million). The profitability of the division remained at a high level with an EBITDA margin of 21.3 % (previous year: 23.9 %).

Outlook: Symrise continues to target an EBITDA margin of around 20 %

Following the more restrained business development in the second quarter, Symrise anticipates that the business in the coming months will continue to be influenced by macroeconomic uncertainties such as the debt crises in Europe and the USA, inflationary tendencies and growing interest rates in Emerging Markets. This could lead to greater volatility with respect to demand.
Nonetheless, Symrise is targeting sales growth of around 3 % for the current year. Stable growth in the Flavor & Nutrition division is expected to be a primary contributor here, while the Scent & Care division is not expected to experience any noteworthy growth in 2011 for reasons which include the conscious divestment of less profitable businesses.
Symrise wants to remain amongst the most profitable companies in the sector and therefore targets an EBITDA margin of around 20 % for the current financial year. Symrise anticipates that raw material prices will remain at a high level and that exchange rates will continue to be volatile in the second half of the year. Approved
price increases and persistent cost discipline should support Symrise in achieving its objectives for fiscal year 2011.

[Text/Logo: Symrise]