Earnings Call: Q4 2018

Mar 13, 2019

Okay, I think we are ready to start. Good afternoon, ladies and gentlemen, and welcome to our full year results conference 2018. We welcome our guests here in the Frankfurt of Banffwater Hoof Steigenwager in Frankfurt Hotel. And we also welcome our guests on the phone. With me today are 3 of our five board members. Our CEO, Doctor. Antoine our CFO, Ole Plinger and our President for Nutrition, Doctor. Jean Yves Paredo. All documents have been published this morning on our page in the section financial results. In the same area, you will find the playback of this conference call in the course of today. After the presentation, we are open for your questions. I will now hand over to our CEO, Doctor Heinz Drum. May begin. Thank you, Tobias. Good morning, ladies and gentlemen, and welcome to the summarized investor and analyst conference on the occasion of our 2018 results. We are glad you have joined us here in Frankfurt. Of course, we would also like to welcome everyone who has dial these today. This year, Olaf and I are joined by another member of our board Some of you have already met Jo Yves Parison, our president of the Nutrition segment. Today, we will guide you through our today's results presentation. I would like to kick off with a brief overview of this year's highlights actually better last year's highlights and key developments. Olam will then take you through the financials in full detail. And Jean Eve is afterwards going to shed more light on our most recent acquisition of the U. S.-based ADS specialized producer of meat and egg based nutrition ingredients particular of pet food. I will continue with an update on our strategic initiatives and the outlook for the current year. And as usual, we are then opening the floor for your questions. Having said all that, let us now start with an overview of our full year performance. Chart 4 for our financial highlights. Ladies and gentlemen, the 5th year 2018 adds into our tradition of profitable growth. It has been another year of capitalizing on our resources and taking advantage of new opportunities. Sumrise has delivered on its full year target in spite of various strategic investments. And pressure from raw material prices and unfavorable FX effects. We managed to grow our top line for the 13th year in a row and kept profitability at a healthy level. In 2018, we further expanded on our market share and grew sales by more than 5% to almost 1,000,000,000. We saw particularly strong organic growth of 8.8%. As we are long term oriented, we have prepared for tomorrow and beyond by making strategic investments into growth initiatives. They pave the way forward and allow us to grasp the opportunities we see for our business. We maintained our solid earnings power despite investments and cost pressure. EBTIA came in at 631,000,000, while our EBITDA margin was with 20% as a very healthy level. Net income for the period grew to more than 1,000,000 which corresponds to per share. We would like to have the therefore proposed a dividend increase to $0.90 per share for the fiscal year 2018. Part 5 for the sales development on group level. We've seen good demand across all regions and segments for 2018. Our group sales for the full year adjusted for portfolio and FX effects increased by 5.3% to almost 3.2 1000000000. On an organic basis, we grew sales by almost 9%. Therefore, we not only outperformed the market growth, but also exceeded our targets which we raised during the fall. Turning care delivered strong organic growth of the 8.9 percent. The segment recorded sales of 1,000,000,000. Adjusted for a fixed effect and the Citratos acquisition growth came in at 4.8%. There was particular strong demand in cosmetic ingredients, aroma molecules and fine fragrances, which grew in the double digit percentage range. Our flavor segment grew sales by over 8% to around 1,000,000,000. On an organic basis without acquisitions and the fixed effects sales increased by a very good 9.5%. Growth was driven by all regions and all application areas. We recorded particular strong demand in sweet, savory and beverages. The nutrition segment So if increased sales by an organic basis of 7.4 percent to almost 1,000,000. Adjusted for unfavorable FX effects growth amounted to 1.2%. Pet food was again the strongest growth driver and with double digit percentage growth in certain regions. The application area, food also developed very favorably and recorded strong demand. Chart 7 illustrates our regional performance. As you can see, we saw a particular dynamic group development in Latin America and Asia Pacific with a growth in the double digit percentage. Also EMEA and North America recorded good demand. We grew sales in these regions by more than 6% each. Overall, we achieved around 13% sales growth in emerging markets. Ladies and gentlemen, Chart 8 underlines our track record of reliable delivering sales and earnings growth. And it demonstrates quite impressively. We are creating value. Every single year. Since our IPO in 2006, we delivered a compound annual sales growth of more than 8%. And equally strong earnings. We remain one of the most profitable companies in our industry. Our EBITDA margin of 20% is yet another indicator for our successful strategy and resilient business model. That makes us very proud in this context, I want to mention all our employees and thank them for their commitment. They have a significant role in the success on our path and remain committed to delivering profitable growth going forward. Let us now turn to share price development as Chart 9 illustrates. The similar share yet again outperformed the DUCs and MDDUCs. Our share price gained approximately 20% in the last 12 months. And supervisory board will therefore propose a dividend increase to $0.90 per share to the AGM, which will take place on May 15. I would now like to hand over dive into the financials. Ola, over to you. Yeah. Thank you very much. Hans Jurgen and also good afternoon. From my side here, to all of you in the room, but also on the phone. Following Hans Jurgen's initial remarks, I would like to give you a few more details on our 2018 financial performance. Let's start with group sales development on page 11. Bearing in mind that the industry is already nicely growing at around 4% a year and that we grew already organically 6.3% in 2017. We are proud to present an organic growth of 8.8 percent for 2018. With this, we are the number one growth player in our industry. Twothree of our growth came from new volumes and about 1 third from price increases. In Q4 raw material costs related price increases change duration to almost half half. It shows that first price increases have been successfully implemented. The portfolio effect of 1.3% comprises the acquisition of Cobel and Citaratus, Coobel is consolidated since July 2017 and accounted for 53,000,000 sales in 2018. Citratos is consolidated since December 2017 and accounted for 10,000,000 sales. These portfolio effects will vanish now in 2019. But before you delete this column in your models, the ADF IDF, we'll share this column in the course of this year. The negative foreign exchange effect of minus 4.8% for the full year was mainly driven by the Argentinian peso, the U. S. Dollar and the Brazilian real. But the headwind was with 1.7% already weaker in Q4 leading to a higher reported growth of 7.5% in Q4. Please turn to slide 12 to take a closer look at our bottom line. 2018 sales rose stronger than gross profit. Resulting in a margin dilution of 150 basis points from 40.9% in 'seventeen to 39.4% in 2018. This development was mainly related to the very strong increase in raw material costs. And you are all familiar with the shutdowns of some Chinese chemicals, factories due to environmental issues. The trial shortage due to fires and plants in Germany as well as in India followed by hurricanes and other climate related impacts like the hot summer in parts of Europe, with the corresponding effects like that harvesting or low water levels, especially on the Rhine, In other words, we mastered the perfect storm in 2018. Because of goods sold includes material costs without FX effects amounting to 1,400,000,000. 2017 was 1,260,000,000 This represents a material cost quota of 44.4 percent, significantly up from 42.2 percent the year before. Positively, the margin went not down by 2 twenty basis points, which is due to a high level of discipline and operating costs and to some significant price increases for selected categories. Overall, raw material prices were up at around 5% in 2018 after 4% in 2017, clearly at the upper end of our expectation and guidance. For 2019, we remain cautious. We're still increasing raw material prices, especially in Centene Care. But clearly below the 5% level of 2018 expected. Moving to earnings group EBITDA amounted to $631,000,000 and that was stable compared to last year. The margin of 20% meet precisely our margin target for 2018. As already explained, the earnings performance must be seen in the context of higher raw material expenses increased CapEx, high and good R and D spending as well as ramp up costs and strong headwinds from exchange. Foreign exchange. To give you an idea, the FX translation effect on an EBITDA level amounted to 1,000,000 on a full year basis, so quite severe. Group EBIT rose 0.6% to $434,000,000, resulting in an EBIT margin of 13.8% comparing to 14.4% in 2017. The slight compensation against the EBITDA margin comes from a lower amortization and a positive impact from a VAT tax credit in Brazil which fell into other operating income, which amounted to 1,000,000. Please turn to the next strong organic sales growth of 8.9 percent adding 0.8 percent from CitarTO's acquisition and an FX headwind of 4.9% leading to a reported growth of 4.8% for the full year. Reported sales were 1,324,000,000 for 2018. Looking at earnings, Centank Care EBITDA amounted to 254,000,000. The margin at 19.2 percent was slightly below the 19.6% level of the previous year. While Centene Care was strongly hit by the raw material crisis, we see this clearly as a good result. On Slide 14, we are coming to flavor The fastest growing segment in 2018 is an organic growth of 9.5% and additional 2.5% from the Co Bell acquisition But as unfavorable, minus 3.9% from foreign exchange, we increased flavor sales by 8.1% to 1,190,000,000. As expected, the price component, which was 50% in 2017 came down slightly. In total we saw 1 quarter of the growth related to price impact in 2018. Coming to the segment's earnings, flavor EBITDA amounted to 244 after 143,000,000 in 2017. The margin at 20.5% was below prior year's margin of 22%. But still at a healthy level and this despite the Quebel acquisition, which is as explained before, still below the overall flavor margin. And the higher raw material prices. Q4 margin has to be seen against a very strong prior year quarter. Let's move to Slide 15 for Nutrition. Nutrition reported sales of 639,000,000 Organic growth came in at 7.4 percent with about 50% price and 50% volume mostly eaten up by a negative FX impact of minus 6.2%. As you know, Proveen has been experiencing temporary destocking problem at one of its major clients for a while, but this ended last year in summer and we saw a strong turnaround in the second half last year. EBITDA for Nutrition achieved 132,000,000 or a margin of 20.7 percent, a decrease against 2017 because of the upfront costs for the new U. S. Facility. Ramp up costs here were at 1,000,000. Please let us continue with the P and L elements below EBIT. On slide 16, the financial result improved by 20 percent to 1,000,000, mainly due to the lower interest payments that came in with the convertible bond and lower negative FX impact. Income tax in 2018 increased by 9.6 percent to $109,000,000, mainly due to non deductible interest payments following the U. S. Tax reform. The tax rate was 28.1 percent after 26.6 the year before. And in line with our expectations overall. Please remember that we gave a new mid term guidance for the tax rate at the Capital Markets Day of 26% to 28% for 2020 and beyond. The net income of $275,000,000, we achieved an undiluted EPS of 2U12. Attributable to similar shareholders after 208 in 2017. As a result, we will propose a dividend of which is $0.02 more than last year at the Annual General Meeting in May. Please turn to Slide 17 for the review of our balance sheet. Total assets increased by $246,000,000 or 5.6 percent to now 4,900,000,000 over the previous year. On the asset side, this was mainly due to an related increase in property, plant and equipment because of the significant increase in sales of trade receivables and in inventories. The increase on the equity and liability side resulted in addition to $175,000,000 increase in equity from slightly higher trade payables and financial liabilities. The shift of $500,000,000 between current liabilities and non current borrowings is due to the maturity of the euro bond in July 2019. Provision for pensions and similar obligations decreased by 10,000,000 due to the increase in the discount rate for pension commitments. Branded primarily in Germany. That was from 1.7% to 2%. An equity ratio including the non controlling interest of now 39.5 percent at the end of 2018 Cimay has a very solid foundation for driving future business development forward in a sustained manner. Let's turn to slide 18. In 2018, we implemented business free cash flow as a new KPI. First, internally to focus stronger on working capital management. Despite inventory challenges and the acceleration of growth investment, which led to our highest ever CapEx of $226,000,000. The business cash flow as percentage of sales remained at prior year level of almost 10%. After this new KPIs now established within our organization, we are confident to steadily improve the business free cash flow as a percentage of sales over the next years. Let's turn to page 19 to our solid financing structure. Our net including pensions amounted to 3 times EBITDA or 2.2 times excluding pensions. This is slightly above what we expected for 2018, but our ambitions are unchanged. We target net debt including pensions to EBITDA level of 2 to 2.5 times. Now our top priority remains to run similar with a clear investment grade profile. Slide 19 was about a status quo from December 31, 2018, We were already very active in the 1st few months of 2019 since we announced the acquisition of ADS IDS. And on slide 20, you can see that the $800,000,000 purchase price is already partly financed. By a very successful capital increase of 400,000,000 beginning of February. And the term loan of $200,000,000, which we closed a couple of weeks ago. This is our bank consortium. And the remaining $200,000,000, you financed this piece by a German. Schuldschein Dalian, which is currently marketed and which should be closed in the course of March, which then concludes basically all the refinancing activities for our recent acquisition. So from my perspective, can see that also, everything is on track when it comes to financials. And therefore, I hand back to Hans Jurgen. Thanks for handing it back to me. But, I voluntarily hand it over to my friend, Yohif. Okay. Thanks a lot, Olaf, and thanks a lot to answer again. No problem. Good afternoon, everybody. So I'm very pleased to have the opportunity present you the acquisition ADF IDF and I will take the opportunity also to explain you what's summarized nutrition. Before starting, I just would like to remind all of you that we are between signing and closing. It means that we are under antitrust rules applied also for communication events like today. And you all will understand that. Just as I told you, I thought it was very thing to remind to all of you what's summarized and efficient about. And summarized attrition is about 3 main IDs. Simrized Nutrition delivers natural ingredients based solution. Sumrized Nutrition is focusing on taste and health flow nutrition. And similar attrition is delivering to customers, clean level solutions. They can really satisfy the end users by having clean level, very natural products at the end to consume. This is what it is about. The way we're organized is a customer centric way. We're organized through 3 business units, Jana food, Jana pet food and Jana aqua, addressing the 3 markets aquaculture for the last one, which is the last market we're addressing. We have also, within Dina, an incubator operator of business, concentrating on health and nutrition. And on top of these activities, driven through the general organization, we are a subsidiary called Probi, Swedish subsidiary and with 100% focusing on probiotics. So to make it simple, summarized intuition is a combination of Diana with what I explained to you, organized by business unit and probably. We are addressing taste and health and nutrition, but we are also addressing 2 other functionalities, color and color and food protection. As was mentioned before, the segments is reaching 1,000,000 since last year with a very good 20.7% EBITDA margin on sales. On top of that, it's important also to understand that Dina with consumerized group is providing some synergies For example, we provide some raw material for making some flavor action in the flavor division for building some new taste on the market. Another example, we provide some probiotics to cosmetic ingredient for putting on the market both some products for kin based on probiotics. So in a nutshell, that is what I think you have to understand and to remember about the summarized nutrition segment. Now, what is Diana about? And I think by explaining you the business model, you will be very well understanding why we are focusing on ADF IDF acquisition. The business model of Dina is very simple. It's built on 3 main competencies. The first one is the raw material maturing. We are really maturing key strategic stream in meat, for example, the chicken stream in vegetal for some vegetables like onion, red meat, fruits, like acairola or strawberry. And last but not least, some lime or materials. So this is what we guarantee to our customers that we are really guaranteeing food safety, profitability. Of this raw material. The second competency is a technological competence. We are applying on this raw material a set of technologies and the value of Dina, which is a process based entity, is really to put together different technologies to create identities. And these technologies can be from cooking, concentration, drying, fair amounting, hydrolyzing. So we have a set of technologies, we are the know how for applying on this raw material. And the third pillar is really to provide to the summer this final functionality is asking for. Case, health and nutrition, color of food protection. And we are addressing this functionalities to 3 target markets, pet food, food, and aqua. And for addressing this market, we are also investing a lot in this in application labs, whatever for human being, but also for dogs and cats. So that is what is, what is, Dina about. We just put science and nature. And we convert this raw material through the process to unique solutions for the customers. Now that being said, what's ADF about? Identity count, identity count of ADF IDF, which has already been presented at 31st January. Is quite simple to read. ADF IDF is focusing on 2 main stream. The chicken stream. And when we say chicken, I should say the chicken carcasses stream and the egg by product stream. This entity is focusing on 2 target markets. The first one is a pet food. The second one is a food. And focusing on 2 key functionalities, taste and nutrition, health and nutrition. There are 13 sites in U. S, 11 for production, 2 for chicken and 9 for eggs, And there are also 2 R and D center, 1 for Chichannel and 1.8. Okay. This company was created by Builder, 40 years ago. And it is a real success story that has been built by being based in Springfield Misobin. At the end, what does it mean after 40 years of business development? The company will reach $220,000,000 sales consolidated sales in 2018 with a good profitability of 23%. EBITDA ratio on sales. Now you have been presented the business model of Dina. You will be much more familiar with ADS IDS about. ADS IDS shares the same DNA. They're sharing the same way of building the business of building solutions for the customers. And it is where the complementarity of the both business is. Okay. And the raw material they're focusing on chicken and egg. And the processing, they're focusing on cooking, concentrating, extra acting and drying and the functionality we are focusing on taste and nutrition. It is a perfect fit with the way Dana is providing solution and the market. And the two markets, end markets IDF IDF is addressing is primarily the food and the main strategic driver for making this acquisition is definitely to reinforce the presence, Diana, summarized as in the pet food market. And the second market addressed by ADF IDF is food market. That being said, you understood the roots. You understood the why the real strategic rationale. Now if we give you, the 5 main points of the strategic I should make it very simple. 1st, to reinforce the positioning in these full natural products on these two streams, which are eggs and chicken. Ex is totally new for Dana. Chicken, we are we were already there with a plant in France. The second point, which is the main one, is to leverage our current pet food activity by extending our compatibility offer to the premium nutrition segment. And definitely, we will be a key player proposing to the pet food manufacturer, a holistic approach for the solution for the pet food. The 3rd strategic rationale is also to better serve our customers. By having a better, wider footprint, we can definitely improve the quality of the service. The 4th is the partnership with the key customers. By crossing the expertise of the 2 companies, we can definitely propose to the key customers, key global customer or the fast growing regional 1, strong partnership for innovating together based our new capabilities. And last but not least, key strategic point is also to put together 2 very knowledgeable teams, the Dyna teams and the ADF IDA team for developing the future profitability of the nutrition segment. If we come back to the basics, customers and products Today IDF Edev is focusing on U. S. It's a U. S.-based company and selling mainly in U. S. And it is a company selling to pet food industry and food industry, as I told you. Concerning the pet food, The kitchen based products are proteins, growth and fat. And these are high quality protein that IDF is proposing to the pet food industry. The second stream is egg and the egg proteins are very rich protein in amino acid, very high digit able protein. So these are very, very good protein for pet food industry. So by combining these two streams, definitely Dina is entering the new dimension for proposing new offers to the pet food industry. Concerning the food industry, we are only speaking about chicken. Why? Because the eggs are coming from greater eggs or breaking operations or unattached eggs from Broilers, which are considered in U. S. As unedible. So they are not used for the human beings business. It means that the company is focusing on Kitchen, also selling protein growth, fat, but also some bone growth or, you know, health benefits. It is what it is, what the company is about. Now what are the next steps again, everything is to meet to the clothing to antitrust. But the idea is to make a very smooth integration respecting people culture, competencies that is to make an eye to eye integration. The idea is also to deliver synergies and the main synergies are top line synergies. Definitely, there is a very good fit, geographical fit. ADS IDS is very strong in U. S. Summarized is very well organized worldwide. So this is the first lever we can really play. And the second one is also some selling, mainly in pet food where definitely we can propose jointly adaptability and answer and some very good news shows of high value pertains and creating an extended value proposition. These are very soft top line synergy we can deliver. On top of that, there are some cost synergy through raw material substitutions or also basically takes the best of all the organization in terms of competencies and neutralizing some of them. All in all, I feel myself very confident to have some cost synergies at Horizon 2020 of about $7,000,000 and top line synergy or is in 20,000,000 dollars, $21,000,000 or $15,000,000. I really think that this is a very strategic deal for Symrise, making us enter much stronger into the pet food industry. And you see it's a very complementary model in term of stream, but also in geographical presence in U. S. So I think that now you have better understood the strategic rationale. And I'm hoping that you are sharing my big enthusiasm to start the integration as soon as we can of this new entity. Thank you. And I hand over to Andrew. Ladies and gentlemen, with these insights into, our most recent acquisition, let us move on to the outlook for 2019 and our goals and objectives. Chart 29 shows the core of our business, our proven strategy more than a decade of sustainable and profitable growth is evidence that we not only have a very if set up, but also that our strategy is spot on. The results underline the consequent execution of our strategic priorities in terms of growth, efficiency and portfolio. All three are well proven levers and have contributed to our highly reliable performance over the years. Going forward our focus will B2, continue investing in our own resources and incremental growth projects. Maybe that we by expanding our capacities or adding strategically to them. Counterbalancing pressure on our margins by improving efficiency. A prime example is our backward integration and our investments in new tier tools such as artificial intelligence. And continue expanding our business into adjacent high margin growth areas that capitalize on megatrends. Let us move on to Chart 30 for an overview of some projects along our strategic priorities and investments. In 2018, we kicked off a number of growth initiatives. The most important ones are shown on Chart 30. We expanded our pet food facilities in France and Spain as well as our R&D facilities for perfumery in China. We furthermore invested in the new technology at our Branchburg flavors site in the U. S. And opened a new production facility in for Diana in Banks County. We significantly expanded our capacities for cosmetic ingredients and aroma molecules. And some of you know exactly what I am talking about because you had a chance to visit our few of our American facilities during our Capital Markets Day just a few weeks ago in January. Our Cap overall CapEx spending amounted to 1,000,000, which equates equals 2.7.2 percent of our sales. For the current year, we have planned additional investments in organic growth and will spend in the volume of about 1,000,000. In the future, we target a CapEx range of 5 to 6% of sales. The first projects are less lined up already amongst others new encapsulation plan for fragrances in Posmin. And the opening of the new site in Nantong in China. We also plan to double our mental capacities and already scheduled the 2nd phase of the cosmetic ingredient expansion. Both projects in Charleston. Before we move on to our recently announced updated midterm guidance, let me summarize what we expect We had a good start into 2019 and we are confident to again outperform the growth of the relevant market According to estimates annual global market growth will be around 3% to 4%. As usual, at this point of the year, we target an EBITDA margin of about 20%. I think that was clear enough now. So our confidence is supported by a promising start of the year and with strong demand across all businesses. Ladies and gentlemen, let us now turn to Chart32 for an overview of our ambitious financial and sustainably targets for 2025. At our Capital Markets Day in January, we have presented our updated long term financial goals. Until the end of 2025, we aim to almost double our sales to around 5,500,000,000 to 1,000,000. We want to achieve this increase by a new organic growth rate of 5% to 7% and complementary targeted acquisitions. We furthermore raised our ambitions in terms of profitability, long term, similar aims to achieve an EBITDA margin within the target corridor of 20% to 23%. To our environmental goals. Sustainability is an integral part of our strategy. In everything we do, we try to consistently improve our impact on the environment. May be by the way we source raw materials or the manner we reduce our ecological footprint. For which we have been recognized several times in the past. In December we were named Germany's most sustainable company. And we are proud to say that we are the only company awarded twice now. That clearly shows our commitment. Today's presentation with the illustration on Chart 33, it outlines our growth journey to individual stages. We will continue to drive organic growth by leveraging megatrends in a growing population, urbanization and the increasing demand in nutrition and care. Through integral incremental growth projects, we plan to expand our portfolio towards adjacent, fast growing and high margin applications, for instance, in the areas of naturalness and health. Digital business processes such artificial intelligence will also contribute to growth and profitability. All these levers will allow us to further drive our top line growth and even more so further expand profitability. As we did with ADF, IAF, where it makes strategic sense we will With this positive outlook, we see ourselves well positioned to achieve our goals. We would now like to hand over for you Good from my side. Thank you very much, gentlemen. We'll start here in the room with a Q and A session you're all waiting for and we will turn to the phones to the telephones afterwards. Due to time constraints like always, there will be a Natee's stories to tell. I kindly ask you to put only one question. And another thing I have to ask for, please give your name and your company that everybody on the phone knows who you are and please try to speak precisely and clearly that everyone on the phone also understands Thank you very much. First question from Thomas Swoboda. Thank you, Thomas Swoboda from Susquehanna. A question on your margin development in Q4. I mean, Q4 is seasonally week quarter, you have turned around your margin performance, some 200, maybe even 300 basis points against this negative seasonality. The question on that is could you just give us an idea what happened there? Are you passing passing through the you increase input costs to your clients. Is there anything else we should be aware of that has driven this strong performance in Q4? Thank you. Yes. So I think the main driver is really that price increases are coming through. As I indicated in the price volume picture, we see clearly that this is helping now. It's not over yet, but we have worked a lot on this in the course of the year and we out of the year, you might remember that we almost had no price element in our Centimeters Care environment. And now it's moving towards the 50% and even more So that is helping a lot. You have seen that there is the one time element, which reflect a VAT credit of 8,000,000 in the 4th quarter, which is related to a reimbursement in Brazil. I think some of you might know that Brazilian companies have started, law cases because there was a double taxation and this was, moved in our favor. So we released 8,000,000 in the 4th quarter on this topic. Overall, I think the, the climate has improved and let Jean Yves comment on Diana for the fourth quarter. But I think the improvement is a good sign that we have worked a lot in 2018 in a very tough environment. Hopefully we can carry this now forward? I would say now to everyone. It's clear why we have backward integration. I think everyone in the room saw now that we obviously suffered a bit less from the raw material crisis. And what we have been telling you constantly, it's not a snapshot overall in this critical times this will pay off. And I think this is a clear evidence. The numbers speak a clear language We had some extra effect, but overall, let's put it this way. The bottom line was slightly better than you had expected. And so the backward integration clearly pays off and joe if isn't with the Nutrition division, clear, clear supporter and lever for the backward integration as the Diana. That's natural ingredients being used in other application areas. You want to comment a bit on Yes. Just I should add also that a very important point for raw material management in terms of price or cost is we are synchronizing a lot our raw materials in term of quantity and price. But we are also buying a flexibility, meaning that we are also working on some kind of substitutions, we are discussing with our customers, which are making also the business of our customers very sustainable. We are a lot of actions also to really go through these raw materials, increase our capacity. So it's as I said, during the business model presentation, the raw material mastering is also going in the direction to be capable to replace by really, you know, working hand in hand is a customer. I think your question answered, okay, Tobias. I'm going to take all the questions. Yeah. Thank you for taking my question. Mr. King, you touched upon your new KPI cash flow. And we also stated very clear target for CapEx to sales. Do you have also a guidance for us more when it comes to net working capital intensity. So it's roughly about 35% right now and ahead been in the past below 30% even. So what's your expectation going forward? Thank you. Yeah. I mean, 1st of all, we have put the business to cash flow in place exactly for this reason. Working capital is our topic in Sunrise We have put respective KPIs also for management in place for 2019 to work on this. And I'm sure that we have a lot of mindset change and summarize in the meantime that's working capital matters. The business free cash flow is hopefully improving through this attention, which it gets now. Having said that, keep in mind, first of all, our business model is demanding when it comes to working capital. We have, in general, long supply chains with the backward integration, that is an explanation. The second explanation is we are growing very fast and so that also the working capital is growing along with that. So I hope and ambition is clearly that, we can improve the working capital with the ambition that it should not grow faster than top line. Thanks, Suresh. Michael Schmidt from Commerzbank. Since we have Jean Yves with us a question, I recall 2015 at this DMD in France we talked about the very early stages of the aqua business unit. I wonder what it can provide us a bit of an update on the journey since then and maybe also kind of quantifications or what's how does the business develop since then? Where are we now? What are the targets in terms of all the growth going forward? Okay. Thanks for the question. I like very much with Aqua Business because it's a new business unit. It's the smallest among the 3 business units. And from the time of 2015, we did a lot for, you know, fixing the operation. So we have 3 plans today, delivering the aqua products, 1 in Thailand, 1 in Costa Rica and 1 in Ecuador. And each plant is specialized on some type of raw material coming from shrimps or tuna or Tilapia And we are seeing that, as a growth promoter or Palatin to the aquaculture. And one thing I will tell you from 2015 to now, we gained the trust of key players. We gained the trust of key payers in salmon Industry And Shrimp Industry. So now we are working with a yearly contract with some very sustainable delivery plan. And also we are starting to really enter some R&D GDA where we are also investigating a lot in health nutrition through mineralization of proteins who are So we make very nice business now still small compared to the others and profitable and also we are also star thing to make innovation. Definitely, it is a business unit. I really, I love your question. And I should be very happy to, to applies you and around the road because I'm very confident with the customer feedback on the future of this business. That's reemphasized. It's still very small. We're still in the learning curve, but we're still in there. And as soon as we are out of the learning curve, we'll let you know to promise. So over there, there was a question. Thank you. And Lev Kone from Davy. And just if we go back to the pricing, the pricing realization in H2 and maybe looking into then 2019, So the pricing achieved, does that cover the inflation expected in 2019? And then secondly, just on the flavors margin. So Cobel in particular, we all know that that's been a little bit of a drag on flavored margin in 2018. So if you could just please provide an update on that for 2019. One more question, sorry. The acquisition, does that require a level of investment in terms of CapEx or R and D? In terms of I know you mentioned cost synergies, but is there an investment required in CapEx? Thank you. Okay. You have to wait the longest so you were allowed to ask more than one question, okay. Pricing, it In some areas, we got hefty price increase, but overall, I would not say it covered the whole inflation. The deal is like the years before. We get price increase and we can push price increases for raw materials typically on with the delay, which we see now. But we also have to gain some efficiency in our processes. Which means we are obliged to gain 1%, 2% efficiency in our processes per year. And the good news is so far we always achieved it. And I do not see a reason why we shouldn't achieve it for this year. Bear in mind in our strategy, the 2nd pillar is efficiency because of that reason, if we were not to always improve our processes. We would not have a disease sustainable and long term stable business. So coming back to your first question, if we see raw material price increases in a transparent world, us and our customers know what raw material price increases we face. And with the delay, it's possible to shift this on, but increases in energy, salary or whatever that goes pretty much as a rule of thumb on us and that has to be covered by efficiency increases, which we're pretty good at and typically we achieve. So That is the first question. Cobel. Cobel was as you mapped it out right away. It was not a brilliant strategic, far sighted move. It was just a good occasion, which we pragmatically grabbed. So the margin was very low, but the price was very attract. And we know this business from something we do in a location here in north of Germany in Brunswick to be precise. So we know that and we knew it would cause a margin dilution. The margin was below 10% when we bought it and it is now 10% plus, but to in the sense of being honest, will it ever be at 20 plus percent like some other pockets of our business. I doubt it because the German part we are doing it is not there either However, if you do the total cost, Cobel is a juice based beverages And it extends our supply chain of along the value chain. And indirectly, we have a lot of benefits in our flavor business. So if we add that coming as a consequence of our capabilities in Cobalt, it very well adds to a nice bucket. So coming there to your question, I think this dent in the profitability of the flavor business, which we saw last year should be should be over pretty soon. So going forward from now on, I would say Cobalt is not a reason for any excuses. I think that was as clear as it can be. And last one, it's a bit a tricky one. 2 investments come with the planned acquisition of ADF IDF. I would like to reiterate what Jo E4 is said. We have to be a bit careful here. We're still in the due diligence antitrust clearance process, which puts us under some legal requirements. And we have not been allowed to look into this case, but let's put it this way. So from everything we know and we can say it's very well manageable. Let me put it this way. Okay. Next question to be a 2 year job pick someone. One is start the second question here. Okay, one more from us. And then I would like to switch over to the phone. [SPEAKER JEAN FRANCOIS PRUNEAU:] Let's only ask one question. So all of the rules that we can If I cut through 2 more, right? [SPEAKER JEAN FRANCOIS PRUNEAU:] It's a single question. Thomas Souwater from Societe Generale again. And if I may, again, to the CFO, On the Capital Markets Day, you said that whatever happens in terms of acquisitions you would like to have comfortably met the investment grade rating. After acquiring Diana a couple of years ago, you ended you ended the year. Was 2.7 times EV EBITDA. If I'm if I model this correct, you will and this year was 33.1 times EBITDA. Is this according to your expectation and to what you framed at the Capital Markets Day or will you be a little bit above it? That's a little bit difficult to answer because I don't know the contribution on the EBITDA side, which you will get from ADF IDF. The reason is I don't know when the closing will be. So I'm missing a piece to give you a clear expectation on the leverage ratio. But the environment states, we have done the capital increase in a very, conservative way. Let's say this way, we just asked for what we needed. It was 50% of the purchase price. So we will add another 400,000,000 on the debt side, to the picture. And now it really comes down to the EBITDA contribution from our new baby. Range I see from my perspective and I mentioned it this morning to the press is somewhere to 2.8 to 3 at the end of 'nineteen. And if I may sneak can follow-up. In terms of the closing, I mean, you don't know the date that that's completely clear, but what should we? What should we? Have on our agenda some sometimes around midyear or is it would it be too early? I would give this to Ron Yves because he's closed. Okay. I had the question during, just before the meeting. Difficult to answer. We are in, in front of the department of justice. We're making their job very the right way. We are answering the the questions and like every kind of antitrust exercise, it's difficult to get you any state. But I should say we are optimism, but not we are not in a rush. So sorry to give you a better answer, but that's where we are. But let's put it this way. We're first web by far not in the position pushing or telling the American authorities what to do or what not. If you were to assume mid of the year closing, the valuation you did was not too far off I think that says it as much as I can put. Alrighty? Okay. Any more questions in the room? One more for me to do it. And with regard to current, So the strong chronic growth has partly eaten up by currencies, especially in nutrition. I get you a lot of business in Latin America. Is there something you can potentially do about it in the future or do you just accept these movements there? Pretty much it's 20. As I mentioned, the number is very high with 35,000,000 last year. Quite an impact, but you can't do anything against it at the end. It's the conversion of the currency. So The good news is that, it seems now that we will not see any major currency headwinds in the first quarter of 2019. I mentioned, Q4 was -1.7. At the moment, we are pretty much neutral when it comes to the currency environment. So it should be a good driver of the reported gross number. Okay. I think that's from the moment. We have some opportunity after that at the coffee. So I would be happy to switch over to the people on the phone. There are some waiting in queue and I'll give over to the operator Lee and please continue. Thank And we'll take our first phone question from Gunther Zechmann with Bernstein. Hi, good afternoon. Can I just ask on the 20% margin target? What your assumptions are within that? Specifically, what do you assume for price versus raw material costs for 2019 to include any synergies? You mentioned 7,000,000 cost synergies, clearly not fully this year yet. But also do you adjust for any costs to realize those synergies? And finally, if you could just clarify if that includes or excludes IFRS 16? Thank you. Before we answer anything, who is on the phone? Please be so kind and who is there? Of course. I thought the operator had mentioned it. It's Gunther Flechmann from Bernstein here. Ah, perfect. Now you get an answer. So no problem. Basically, our CFO will hop in as well. We talked about this IFRS effect is in all synergies and all everything we can see at the moment is in. But on the other side, this 20% at this early point in the year we always will put it out and last year you were reading it. It's the profit warning. It is a number because we're supposed to give you a guidance If you read how we communicated the business, the year has started pretty well, pretty okay. And giving you a detailed guidance on the margin at this point in time, we're just misleading you the message, it has started healthy. Our business is healthy. And if you look back on how 2018 was closing and how we delivered actually it's better than you expected. So with that, I would say, I gave you all the necessary information to make your calculation. But IFRS is in all of us to add something. Let me add to that point on the IFRS 16 impact. So the EBITDA will see a positive impact of 15,000,000 estimated at this point in time. The EBIT will see positive impact of just 2,000,000 just by moving the D and A part. And the financial result, given the interest component, which plays the role, will be probably a negative impact of close to $3,000,000. So, bottom line will almost be neutral. The balance sheet will be extended by around 1,000,000 out of this IFRS 16 environment. Now just to avoid any confusion, our guidance does not include the IFRS 16 impact. So the 15,000,000, which you have just heard, comes on top of our guide, just to be clear. That's great. And if I can just follow-up on the first point of my question on price versus raw materials, you said you haven't quite compensated due to the time lag for the inflation of the last year or years, do you expect to do that within 2019? Yes. I mean, we saw the 5% last year as the headwind, as you have heard, we are working heavily on price increases. We are working heavily with customers to secure supply. And as Hansira indicated, Over time, we will, make sure that we can get the price element also to compensate on the raw materials side And as I also said that 2019 should be less raw material headwind than 2018. Okay. Thank you both. You're welcome. And we'll take our next question from Alexandra from with Morgan Stanley. Good afternoon. It's Alexandra from Morgan Stanley. Thanks for the presentation and for taking my question. You've answered most of the details around the guidance for 2019. Just one further point of clarification. You incurred some ramp up costs in 2018. Can you just give some more detail around what your expectations are for ramp up costs year on year 2018 versus 2019? Yes. So the 5 maybe saw last year, we would expect a similar amount this year, not because of the Diana facility, but more related to China. So we are making good progress with our new facility. And by the end of the year, this should be ready to get to product out. Let's first turnover then in 2020. And in 2019, for the ramp up, we expect around $4,000,000 to $5,000,000 additional costs. Thanks very much. And then just on the organic growth number, for the full year in 2018, there there was a small benefit from US dollar pricing in Latin America. Should we expect that to reverse in 2019? And could you clarify what the impact was in 2018 as well? Yes. So like with other companies, given the currency developments in Brazil and especially in Argentina, we have seen some impact on the organic growth. But more importantly for us was that there was extremely good volume growth also in Latin America. So the business serve is running very well and is supporting this very high growth number, extremely well. The hyperinflation in Argentina is having a positive impact on the organic growth. That's correct. But it also has a negative impact on the bottom line, just by the mechanism, if we would take the hyperinflation impact in Argentina, to EPS, it would basically add $0.02 to the EPS number, just to give you an idea most of the impacts, the negative impact from the hyperinflation Argentina is ending up in the financial result. Thank you very much. And we'll take our next question from Heidi Zester Vennan with VNB Paribas. Hi. It's Heidi from you were talking about increasing your presence in premium pet food. Could you talk about what your current exposure is? And when we think about premium, super premium and I guess other, I guess non premium pet food, are there big differences in terms of growth rate of the market or profitability from your perspective? Thank you. Heidi, you had the incorporation of our capital markets. They asked the question. Does management care about cash at least would like to notify Olaf has included that in our target. So I hope that you're happy about that. So we do care about cash. Yes, we are seeing that today. Thank you very much. We try to listen to the opinion of the analyst, as you can see. And Jo' Eve will shed some light on premium with super premium and hyper premium pet food going into the stage. Thanks for the question. First for answering the first question. And today, we are not exposed very much to the nutrition part in pet food. We are selling some peptides, we are selling some fibers, but in a very small business in the pet food business unit. We should definitely enter a very sustainable way and a strong way in this nutrition side. Why premium or super premium? There are a lot of supplier of protein in pet food. You can supply different type of protein. Meat based or vegetable based. And the one we're speaking about are meat based. And among the meat based, the chicken one are very high grade of protein and the egg 1 are even higher grade of protein with a very high value amino acid constitutions and with a very high digestibility. And you know that in the pet food manufacturer world, There are some pet fooders who are selling more low hand products and some manufacturer who are selling more high hand products which are corresponding to the breed or some pathologies or some age of the animals. And the market we want to address are the 2nd, the high end market whereas dogs of the cat are really needing some specific type of nutrition model. So that's and we are already a very good contact with the key players in this high end so called premium products through our palatable enhancer. And by keeping is a very good context we have established and by providing now a more holistic approach through palatable and answer and high value protein We can definitely address this what we call premium or super premium market. And we are speaking here about really new value. It is value that end consumer will be ready to pay for all that has already done. Yes. It's more than nutrition. It is health through nutrition. Okay, Heidi. Thank you. You're welcome. Best regards to are you in London? Yes. I'm sorry I couldn't make it over Thank you for the presentation. No problem. No problem. And we'll take our question from Patrick Roca with Kilfer. Yes, good afternoon, everybody. My name is Patrick Roca from Kepler Cheuvreux. I have two questions for Jean Yee from ADF, IDF. Firstly, could you clarify the historic sales level of the company because in an, article in the local press, it was indicated that the company had sales of around 1,000,000 And you recently indicated that the company grew sales by 4% to 5%. So that's the first question. And then secondly, could you provide some more information on the ISO Novae JV with Ren Brown? How big is it, how profitable and also will you continue with it? Thank you. So, I should say that's 3 questions in 1. The first one is the turnovers, the revenues So we are speaking about a consolidated revenue of $220,000,000, okay? And you have to know that the ADF IDF also a joint venture, which is for which turnover is not consolidated. So that's the difference between the 220 and the 250 or 260 you should have seen somewhere else. So that's the first question to answer. The second question is concerning the rate, the growth rate. The current growth rates until now is 4% to 5%. And it is, I think, a very nice growth rate in U. S. Market. The pet food industry and the food industry are growing, but pet food is much more growing in APAC or Latin America than in U. S. Market. So what we think is that by joining the competencies of the both company, we can increase this CAGR from 4% to 5% to 6% to 7% just by taking advantage of the summarized network and taking advantage of the cost optimization of the people knowledge for providing new value proposition to the customer. And that is for the second question concerning Eyesonova. Eisonova, until now, he's a joint venture with Robon. Robon with the Ag manufacturer in U. S. And the idea is to have the full, the full is another activity in the new entity. And the idea is to continue to buy from our brands, some byproducts, some eggs coming from, you know, breaking eggs or, you know, other kind of X that they are, you know, don't utilize, they don't utilize for human, human field. And the idea is to keep the relationship with Ramon as a key supplier and to take over all the business. That's clear. Thank you very much. And we'll take our next question from Patrick Schmidt with Warburg Research. Yes. Hi. It's Patrick Schmidt from Warburg Research. Thanks for taking my question. Already, lots of questions have been answered. So, I might take the topic of D And A. So what can we expect in terms of your amortization in 2019, especially because you've invested slightly more than in recent years? And is there potential indication of the IDF ADF IVF acquisition in terms of PPAs probably too early. I know, but maybe an indication. Thank you. So, unfortunately, I can't give you any idea at the moment on the PPA impact. That is definitely way too early. Hopefully, we have a base, at the end of June, but no indication there at the moment. And given our higher investment spend at the moment, you should assume that the D will go up slightly not dramatically, but a little bit. The amortization in 2019 should be pretty much stable. All right. Thank you very much. And we will take our final question Kamisha Arma with MainFirst. Hi. This is Arma from MainFirst. Just one question for me. Please Could you please throw us some light on the positive margin development, especially in Centon Care that we have seen in Q4? And you indicated that the CMC that you aim for 20% margin at Pinnova, where are we there at the moment? Thank you. Okay, I'm going to take it. Centric Care, the margin is different by segment, as you rightfully said, CentenCare is a compilation of fragrance, the aroma molecules and cosmetic ingredients. And it's it's fair to assume and to say the margins in the different segments First, are different and have a different, seasonality to put it this way. Cosmetica Greens tends to be above the Centrel Care Average Margin fragrance, depending by the business units. You talk about can have a lower or a higher margin and the aroma molecules with the acquisition of Pinova has a margin increasing. Having said that, let's look in the detailed picture. You asked for on aroma molecules in particular, inova with started with the acquisition of Pinova and it was roundish 10% EBITDA. That's what we communicated and we said always at the point of time of acquisition, it will take us 3 years to get it to the rest and we're happy to say by this year, Pinova is contributing. So it is pretty much there where it should be. At this point in time and it will definitely be at the end of this year, which we always said. But we're happy to say we're a bit ahead of the integration schedule and what the Pinnova contributes you can you can also assess if you look at the final numbers which we published for last year and Centene Care and the Relatively good stability of the EBITDA margin has contributed big deal to our backward integration where Pinova was a big element for which helped us to get around the central crisis at least we had material. It is difficult always to separate where is the contribution to the bottom line and where is the contribution to the top line. The contribution is there. The good news is that the fact we always had the material when others did not have it and you see it in the accelerate top line growth, not always on the bottom line because in Innova, like in aroma molecules, we have long term contracts and it doesn't help us that the material is short and we're the only supplier. We're bound to some long term contracts. So we can leverage to in such a time to a limited extent on price peak. But the good news is at least we're able to pass on when the time is there. Price increases definitely. Overall, to sum it up and answer your question on Pinova. Pinova was the right decision at the right time And we would always do it again. And the good news also is we delivered on our integration plan. That's why we have the Investors Day in Charleston because we're seeing is believing everyone can look and I think everyone who was there. So now there's anything nothing to be concerned of and it seems to be very well on back. I hope that answers your question. Thank you very much. Ah, you're welcome. So that was the final question, as we said, we would like to thank everyone for being either on the phone in this call or course, everyone here in this room and new folks here in the room will have the privilege to ask a few more questions when I have my coffee. So having said this to be us, difficult to have the last word after the CEO, what I have to do This brings us to the end of the conference. And before we all leave the room and the phone, I need to repeat a comment on our financial reporting. We are doing now for more than a year. Q1 and Q3 will be reduced to sales statements, in line with competitors, in line with clients. So just to repeat this here in this occasion that you are not surprised at the 30th April that there's something missing and you have too much free time. So that's from my side. Many thanks for your participation. We're looking forward to having a coffee with you here in the room. And many thanks to all of you on the phone. Maybe we see each other in the next weeks in terms of roadshows conferences, etcetera. Thank you very much. Have a good day and goodbye.