First, welcome to Robertet's first half 2024 results. As was just explained, I'm Jérôme Bruhat, CEO of Robertet, and together with me today, we have Julien Maubert, who is the Head of the Raw Materials division and the Chief Sustainability Officer, as well as Isabelle Pardies, who is the Chief Financial Officer of the group. Julien and I will comment on the key commercial development and business performance in the first half of the year. Isabelle will then go through the financial results in more detail. I will spend then a bit of time for the outlook of the rest of the year and more long-term perspective, then remind you of our strategic pillars and long-term ambitions. Moving on to slide number 3.
Robertet has delivered, as you've discovered, a solid financial performance in the first half of the year, with revenue and profit both up quite strongly. This reflects really the group's unique positioning in natural ingredients, as well as several positive cyclical tailwinds, including some restocking at our clients and lower raw material prices that were negotiated when demand was low a few months ago. So consolidated sales were up +10.1% compared to the same period in 2023, and up +9.6% at constant exchange rate and comparable scope. The EBITDA margin reached 21.4% in the first half, representing a 190 basis points increase compared to the same period last year.
Momentum was particularly encouraging within the raw material division, but I will let Julien comment on his division a bit later. The integration of Sonarome last year, December, is well on track, and we're quite pleased with the performance of the business since the start of the year. Finally, as you know, ESG is part of our strategy for a long time, and Robertet continues to be recognized as a leader of the industry. We have, as you know, a record of 55 supply chains certified, as well as a recent upgrading of Robertet to platinum status by EcoVadis. Now, turning to slide number four.
The sales of the period increased, as I said before, by plus 9.6% on an organic basis, and this organic growth was well balanced over the two quarters, with the second quarter organic sales up plus 8.1%, while quarter one was plus 11.1%. In addition to the good commercial momentum we are seeing across much of our portfolio, the sales in the first half have also benefited from a restocking at our clients. Unlike the prior year, sales growth was more balanced between volumes and pricing, with a much bigger part of the growth coming from volumes this year. First half sales also include six months of Sonarome revenues, which has been, as I said before, acquired in December 2023, and consolidated since December.
This part has added 2.7% to the organic growth. On the opposite, we had a currency headwind of minus 2.2 percentage points on sales, which is largely driven by the sharp devaluation of hyperinflation in Argentina, and lower, to a lower extent, some currencies like the Japanese yen. Overall, we reported sales of 415 million EUR, up 10.1% compared to the same period of last year. Let me now hand over to Julien, who will comment on the business performance by division and by region.
Thank you, Jérôme. Turning onto slide five, with sales by division. Starting with the Raw Materials, which account for 25% of the group sales. Sales has increased by 14.4% during the first half. The restocking effect has a positive impact on sales, and the strong performance illustrates our competitive positioning in natural ingredients with the widest portfolio of natural products of the industry, and we benefit from our vertically integrated supply chain, seed to sale. It's also important to note that Aromatherapy has stabilized, and it's not anymore a headwind. Fragrance, which is the largest division of the group, which account for 38%, sales has increased by 12.1% during this period, and the solid performance reflect the success in emerging brands and also continuous international expansion.
Flavors, which account for 34% of the group sales, increased by 6.7% during the first half. And we continue to experience solid demand across key consumer categories like beverages, dairy, and health, partially supported by increasing consumer awareness about the benefits of natural flavors in food and beverages. The division also benefits from the consolidation of Sonarome. Finally, Health and Beauty division, which account for 3% of the group sales, has declined by 2.5%, mainly due to the supply constraints, which we are currently working on. Turning to slide 6, to look at performance by region. It's important to note that all the region has contributed to the growth for the first half. Our core market, Europe and the US, together represent 73% of the group, compared to 75% last year, but with good growth.
... We note the increased contribution from newer markets, in particular Latin America, but also Asia Pacific, with the integration of Sonarome. International expansion remain an important long-term revenue opportunity for Robertet, considering that emerging markets account for nearly half of the global flavor and fragrance market, but only 27% for Robertet. To fulfill this potential, priority continues to be given to targeted acquisition of independent manufacturer in strategic markets. Sonarome in India is clearly a good illustration of this strategy, ensure our ability to integrate companies, partially thanks to our heritage and family ownership. Let me now hand over to Isabelle, who will comment on the financial performance in more detail.
Thank you, Julien. Turning now to slide seven, with a review of the income statement. Sales grew by 10.1% on a reported basis as previously commented. Gross profit increased by 15.2% over the first half of the year. The 250 basis point gross margin improvement not only reflects lower unit costs, but also a positive product mix, with high value add categories outperforming during the period. Personnel expenses grew by 11.4% in the first half of the year. This double digit increase is explained by both continuous hiring to support our growth plans, as well as wage increases following a period of high inflation. External expenses grew by 13.7% in the first half of the year. This line item was particularly impacted by rising energy costs in the period.
However, we believe we have now passed the peak. EBITDA increased by 20.9% in the first half of the year. This represent a 21.4% margin on sales, an improvement on 190 basis points compared to the same period last year. The improvement in growth margin was partly mitigated by the slight negative operating leverage. Group share of net income increased by 29.4% during the period. In addition to the increase in EBIT, the non-recurrence of currency adjustments, as well as some provision recording in the first half of last year, also contributed to the increase in the net income. Now turning to slide eight, with cash flow generation.
The group generating net operating cash flow of EUR 46.1 million in the first half of the year, an improvement of over 40% compared to the same period last year. Besides the increase in EBITDA, the rise in net profit cash flow is explained by further improvement in working capital efficiencies. CapEx came out EUR 15.6 million in the first half of the year. The increase compared to last year is principally due to some phasing of projects. We expect this trend to continue in the second half of the year. Looking ahead, we assume CapEx should normalize with a range of EUR 25-30 million per year. Part of the increase is linked to our growth ambition following a few years of relatively low CapEx post-COVID.
Part of the increase also relates to IT spend, which are now more increasingly capitalized as opposed to expense, when most IT capabilities were still managed in-house. Free cash flow before acquisition and financial investments stood at EUR 30.4 million in the first half of the year, an improvement compared to EUR 23 million over the same period last year. Let me now hand it back to Jérôme for the outlook and closing remarks.
Thank you, Isabelle. Let us now switch to slide number 10. So, as you saw from the previous charts, we are quite pleased with the first half of the year, and it's encouraging us as we now start the second half of the year. It demonstrates first, the long-term differentiated positioning of the group in this natural ingredients market. But it's also fair to say that we are, we have also benefited in this first half from several cyclical factors. As I said before, in particular, the restocking of our clients and particularly favorable raw material prices since the end of last year and the beginning of this year. Now, when we look at this second half of the year, we anticipate those cyclical factors that will normalize.
With the start of the second half, we won't comment on the numbers, but they have been quite encouraging in July and August, and our objective for the year 2024 is now to target an organic growth of sales at +7%. Regarding margin, we've experienced some increasing raw material prices in recent weeks, so we have to stay cautious. We expect, nevertheless, a positive development for EBITDA margin over the full year 2024 compared to the full year 2023. But we should also anticipate some cost pressures in the second half of the year. Coming now to the final slide, and I would like to take this opportunity to reiterate our confidence in the long-term potential of the group, so Robertet's model, first, is fairly unique in our industry.
First, because several generations have made this model. The family has had a consistent vision of putting natural ingredients at the heart of the growth strategy, has anchored the company in Grasse and has vertically integrated this company. This consistency and the family ownership guarantees our independence, but also has allowed the group to earn trust from our customers, but also, very importantly, from our suppliers. Today, we have a very diversified portfolio of clients of all sizes and a partner of choice for those established, but also those more emerging brands, and we are convinced that our market's leading portfolio of natural extracts and our vertically integrated business model give us a long-term competitive advantage in the market. It allows us to be well-positioned towards clients asking for clean labels and more sustainability.
Looking ahead, we continue to see plenty of growth opportunities. First, the penetration of natural ingredients in flavors and fragrances is rising. In fact, at the end of the chain, consumers become increasingly aware of the benefits of natural ingredients, and many fragrance and flavor brands are making it an important pillar of their initiatives. Second, we see growth opportunity outside our core European and North American markets, where we are, as you know, very, very, exposed. But we will tap into this new potential, thanks to targeted acquisitions of independent ingredients manufacturers, as we demonstrated with Sonarome in India recently. And third, we continue to invest. We invest across the value chain. We, we invest in creative capabilities, we invest in industrial capabilities, we invest in IT capabilities.
That is to secure our long-term supply of raw material, but also increase the value of our product portfolio. The potential of the group is definitely there. We are confident that we can reach over EUR 1 billion of sales by 2030, and increase gradually our profitability compared to the level seen in previous years. Yet, we are quite mindful that our industry is subject to business cycles, subject to new regulations, geopolitical and macro risk, as well as fluctuations in raw material prices. This means that our growth and margin trajectory is unlikely to be completely linear over the long term, as in the case for the whole industry. But we remain optimistic and at the same time, as always, cautious for the future. Thank you very much to all of you for listening.
We can now open a session for Q&A, and I will hand it back to our operator.
Thank you. As a reminder, to ask a question, please press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, that's star one and one if you wish to ask a question. We will now take the first question. One moment, please. The question is from the line of Julien Onillon from Stifel. Please go ahead. Your line is open.
Yes. Hi, good morning, everyone, and thank you for this conference call. I got plenty of questions, but I would like started with the results themselves and come back a little more on some details. First, could you come back a bit on the operating margins of the different division, how they have evolved? You already mentioned that overall they have a strong improvement. You mentioned also in raw materials, but could we have a little more numbers? I know we will have the details later on the numbers, but by division, where we stand in terms of margins. My second question will be more specific on the depreciation provision and reversal. You have a big increase in H1 from 12 million EUR to 16 million EUR.
Four million increase, which is very significant. I guess it's provision. We historically, we're more on the twelve every semester. So what happened there? What has the provision, if there is a provision, to explain and what we could expect eventually for the second half year? And my third question is below the EBIT. You mentioned that there is a significant improvement. In fact, if you take or it is from the financial costs or eventually from the tax rate. You mentioned that there is maybe some currency effect positive. So could you come back a little more details below the operating profits to the net income? What has been the main improvement here, in H one? Thank you very much.
... So thank you, Julian, for the question. On the division margin, we will publish the margin by division in our annual report, so we do it once a year. What I can just tell you on that is, all divisions have improved their margin, especially obviously the raw material division because of the positive evolution that for us is a big news because after two years of decrease, this raw material division is now in positive territory. Again, partially because the headwinds have normalized, like aromatherapy, and because the control, I would say, restocking of clients has helped the division. But they're always pretty good numbers, so that drives particularly up the raw materials margin.
But again, because we are positioned in high margin categories, both the flavor division and the fragrance division have improved. I will give you again on annual report some numbers, but they are all in line with the group, to give you a short answer. Then you had more financial questions on depreciation, so maybe Isabelle can give you a bit of context.
Yes, I did, and, yeah, I give you a bit of context on this point. First, we can expect the same level of provision for next year, for next semester. Last year, there was some significant reversal, actually, on inventory. So, this year 2024, we have a normalized level of provision, and with a slightly increase in amortization of intangible assets, linked-
And the final question you had was, the good EBIT progression, but the even better net income progression. If I'm not mistaken, this is mostly due to financial results, because as you could see, we have on one hand, the cost of the debt that has been created by the OPAS operation in 2022, on which we've added extra debt in December 2023 to purchase the company Sonarome. The good news that has impacted this first half, the first one is we had less negative effect on exchange rates from the business.
And the second very positive news is that we have been able to invest our treasury more aggressively, thanks to the good interest rates in this first half, that has produced a much more financial benefits and products than in the past. Well, so that means that on a better EBIT, we have been able to also improve or let's say, like, that have a less negative impact of the financial cost.
And no change in the tax rate, it's been quite similar to next year?
No, no, very similar.
Okay.
Very similar.
Thank you very much. I will have more questions, but I will leave my colleagues to ask more questions later.
Okay. We have a bit of time, so maybe we can take a few questions and come back to you, if you have more. Maybe I will leave it back to the operator for the voice question.
Thank you. As a reminder, if you wish to ask a question, please press star one and one if you wish to ask a question. That's star one and one, if you wish to ask a question. We will now take the next question from the line of Julian Onillon from Stifel. Please go ahead.
Right. So sorry, so if there's no more question, I have more question now on the outlook. You mentioned very clearly, effectively, the slowdown, which is more a normalization of volumes after H1, which was very, very strong. What I wanted to go is a little more on the margin side. Effectively, you are mentioning that effectively, you are seeing some raw material cost increase, and then effectively that could squeeze a bit the margins. We are very strong in H1. However, my question is when you're looking at your guidance, you mentioned that you might have slightly lower margins, EBITDA margins in H2 this year compared to H2 last year.
If I understand correctly what you mentioned, last year was, however, already a slight decline compared to the previous year, in terms of margins. So I was considering the levels, however, of very good margins you had, the fact that effectively, even the raw material price increase. Could you say, are you really hoping—is it a conservative, let's say, assumption, or do you really hope to get something a bit similar in terms of EBITDA margins? In H2, in the second half compared to the second half of this year, and a bit the same in terms of, let's say, growth. I mean, you mentioned 7% growth in H2.
If you take all in for the full year, which will mean only 4% of growth in H2, is it something you hope to do better, even of course, is you want to be cautious? Or is it... What I will say behind that, is it more a floor, or is it something you feel already a challenge to achieve? That probably my question in the second half.
So on the first part of the margin, I think what we can just say is that we've been observing recent increases in the cost of goods by our purchasing department. Again, to put a bit of perspective, last year, end of last year especially, had been relatively a low point of the cycle in the F&F industry, which had put some good news on the purchasing side. So less demand means generally less pricing. So we were able to buy at a moment, and we've mostly consumed those raw materials in the first half. And what we see since, let's say May, June, is a gradual increase of the raw material.
You saw yourself the good results of many F&S players in this first half, which obviously has put a lot of demand, especially driven by volumes, unlike last year, which means there is a pressure on demand for raw materials. So again, it's very hard to predict. That's why we, as you said, want to improve the EBITDA margin versus last year. We have decided, because of this volatility, not to put any precise target on that. I personally believe we will be above, but how much can we be above the average EBITDA margin of last year? It's very difficult to predict at this stage. For your second part of the question, was more on the sales part.
As you remember, last year, and that's why I think you're right to say, we have first half plus 9.6% organic margin. We plan for the year plus 7%, given the fact that our industry is slightly cyclical, I mean, slightly seasonal, with generally a bit bigger first half than the second half. It means the second half, as you said, will be roughly between 4% and 5% organic, which is very in line with what we've seen over the past three, four years in organic sales. So again, we don't plan to decrease. We plan to land more or less, which is our usual pace. Last year, second half, was a mixed bag of a relatively weak Q3 and much stronger Q4.
I think it's not a strong, neither a weak base of sales for this year, for the growth of this year. And again, I think we just plan to be basically facing a cycle post-restocking of the clients, normalization towards 4-5%, which should give us a base for a total organic growth of +7% for the year. Which again would mean a very strong performance compared to the average of the past years, where organic growth has always been between 4% and 5%.
Thank you. Very clear. A final question from my side. We have generated a very strong free cash flow this first half, reducing your net debt significantly, I mean, from EUR 130 million to EUR 139 million. So if you take your debt levels been reduced quite significantly, which is a good news, and putting that in this prospect of M&A, is there could we expect. Obviously, you mentioned that it's part of your strategy, and your debt level declining quickly make you again open new possibilities. Are you seeing opportunities in a short term?
I mean, could we see some acquisition really in before the end of the year or beginning of next year, considering effectively this, the good, let's say, debt levels and good free cash flows that you have right now?
So thank you for the question. As you mentioned, this is part, I would say, of a long-term strategy. As you know, before the OPAS operation, this company had zero debt, so we are not looking for high debt. We are more on the conservative side, in a way, by culture. We are now down to 1.04 times the EBITDA when it comes to debt, which is relatively low. We consider that a good leverage level. If you speak about targets, it would be to remain on midterm between one and two times the EBITDA, which, as you said, gives us some. I would say, a range of debt in order to make acquisitions.
So just to give you our targets in debt, we will not go above twice the EBITDA. One is relatively low, but this is the current level, and anything between gives us more or less the money to buy and to make acquisitions. When it comes to acquisitions, we are constantly looking for acquisitions. Our strategy is to look in three directions. One is to consolidate our leadership in natural. The second is to complete our geographical footprint, and the third is to look for high-level technologies when it comes to our core business, which is extraction. But we are not, I would say, on the M&A, I would say, big player market. We are more on the market of targeted mid-size acquisitions.
Our sweet spot is always to target companies between 5 and 20 million euros, and we are actively working on it. I cannot obviously disclose anything at this stage, but I would say over the next 6 to 12 months, you should expect some acquisitions as we've done last year with acquisition of Sonarome, which is a good example of geographical footprint to strengthen Robertet in India, where we had no flavor of operation. And another acquisition, Aroma Esencial, which was made in February 2023, where we are more on the other chapter, which is to buy high-quality extraction equipment, as well as reinforcing our leadership in naturals. So these two, I would say, big pillars will continue.
We have obviously always a flow of targets that we are discussing with. It's too early to say if it's going to happen this year or in the first half of next year. But yeah, I think you can expect some moves in this direction.
Thank you very much.
Thank you. There are no further questions on the phone at this time. I would like to hand back over to Jérôme Bruhat for webcast questions.
Yes, thank you very much. So I will take now one by one the written questions. So one question from Julien Badoureaux was, will you stay active as previous years on M&A? So I will just repeat what I just said, which is, it's difficult to plan M&As on a regular basis. We are probably too small for that. But again, our three big objectives and strategy of targeted I would say small to mid-sized companies is still on. And it's more a question of finding the right nuggets rather than absolutely wanting to buy anything to fuel the growth.
Again, we are here for the long term, so we are not obsessed by the short-term impact it has on our sales. When the good opportunity comes in, we will seize it. If not, we will wait. Another question came from Pierre Buron, from Midcap Partners. Regarding the growth mix, what was the price and the volume effect? So here again, we do not disclose those numbers, not because we don't want, but also because it's very hard to decode in our type of business, especially in the raw material division. It's, you know, raw materials have always different evolutions.
It's very hard to compare the sales from one year to the other because the product mix is different, with very variable prices from, I would say, relatively low price to very high margin and high price commodities. But again, to give you some direction, the vast majority of the growth this year has been driven by volumes, vast majority. Whereas last year, it was the absolute opposite, with almost the entire growth being driven by price. I would say here we are talking of a very high portion of volumes. Another question was how much M&A sales are you able to add per annum?
So we don't disclose the pipeline, but if you look at the average, we were able in average to generate roughly 2% of inorganic growth. Our model, on average, again, is more or less two-thirds of organic growth and one-third of inorganic growth. Again, this is a model average over many years, because on any given year, again, we are too small, and we are again not looking absolutely to acquire any company. We are generally speaking in long-term conversations with family businesses that we find are very good, where the owner is able to sell, where the owner is generally wanting to stay at the helm of his company and to continue to contribute.
So we have a lot of conditions, and that makes generally those discussions a bit longer. Then we had a question from David Robinson of Polar Capital. So, the question was: Can you provide more details on restocking? Was this broad-based or concentrated by region or division? So, I will maybe, since it has, in particular, affected the raw material division that you saw has been turned around in this first half, I will hand this question over to Julien Maubert.
What is important to mention is that before the restocking of the first quarter and the first half of twenty twenty-four, we need to remind that we had a strong destocking effect end of twenty twenty-three, especially on the second half that was combined third and fourth quarter. So the good surprise was really we saw almost like January first order to come in very intensely from our supplier, from our customer, sorry. And the good news was that this restocking effect has continued over the second quarter. That's mainly for the ingredient division. For the three other division, I think it was a little bit more normalized, and they also had some destocking effect on twenty twenty-three, and the restocking effect pushed the sales on the first semester, 2024 .
Okay. So we'll take the next question. So a question from Andrea Beneventi from Equita, who asked: Please share more details on the health and beauty situation and outlook. So as you see, health and beauty is the youngest and smallest division of Robertet, with 3% of the sales. It's down at the end of H1, which is obviously quite disappointing for us. It has been mostly due to production issues. We are producing natural active ingredients of very high value and margin, but they are extremely complicated to produce, and we have faced some industrial issues, technical and availability of personnel, of very, very highly qualified personnel, to be very transparent, which we expect to get better in the second half. Our long-term perspective of health and beauty is still extremely positive.
There is a strong customer demand for natural actives, which is our specialty. We have a few blockbusters in this arena that we sell mostly today in Europe and in the U.S. Again, we've had some negative news in production in the first half of mostly for Europe and U.S. Nevertheless, we are strengthening our division. We have added some commercial power in the U.S. We have created a new business unit in Asia for this division. We remain very bullish and confident in the long run, but we're facing short-term headwinds, to be clear. Philibert Vessière, sorry, has asked a question about H2. Last year had a positive one-off, which has boosted EBITDA by EUR 7 million.
And the question is: Do you include this one-off effect of last year in the comparable basis for this year, when we say that the EBITDA margin will decline? So that's more a question for Isabelle Pardies.
There will be a positive impact this year, but with a lower level. Last year, the impact in H2 was EUR 7.7 million. For H1 this year, the impact is about EUR 2 million and, in my opinion, it would be the level for the full year, EUR 2 million. So the impact, the difference would be roughly EUR 5 million.
And to complete the answer, yes, it's all included in the basis. We don't adjust EBITDA, and so it's a current EBITDA with exactly the same basis, so it's all included, the seven million of last year, as well as the two million of this year. Aurélien Favre from Zadig asked: Do you see the H2 EBITDA margin down year on year or down versus H1? So the answer is versus H1. Again, we have benefited in this first half from very positive effects, both on the sales, on the category, and on the positive cost of goods. But again, this boosted sales and very low cost of goods will normalize in H2.
So we expect H2 to be lower in EBITDA margin than H1. But the average, which is going to be the full year, again, we are targeting a better EBITDA margin than in 2023. And how much of the growth in H1 was due to customer restocking? We cannot evaluate precisely this number. We are already talking about discussions with customers, but we have not been able to quantify precisely what was the normal business and what was restocking versus last year.
Okay, I am looking at the questions, but most of them have been already answered. So since we have reached now the end of the session, I will hand it back to the operator and close the session.