Earnings Call: Q4 2015

Mar 8, 2016

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome and thank you for joining the Symrise AG's Full Year 2015 Results Conference Call. Throughout today's recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question-and-answer session. If you'd like to ask a question, you may press star followed by 1. If any participant has difficulty hearing the conference, please press star followed by 0 for operator assistance. We are now going live to the presentation room where you will listen to background noise or silence until the call begins. Thank you, Emma. Good afternoon, ladies and gentlemen, and welcome to our Full Year 2015 Results Conference. We welcome the guests here in the room in Frankfurt, and we welcome the guests on the phone. With me are our CEO, Dr. Heinz-Jürgen Bertram, and our new CFO, Olaf Klinger. All documents have been published this morning on our webpage at Events and Presentations in the section Investors. In the same area, you will find the playback of this conference call in the course of the day. After the presentation, we are open for your questions. I will now hand over to our CEO, Dr. Heinz-Jürgen Bertram. You may begin. Thank you, Tobias. Ladies and gentlemen, welcome here in Frankfurt to the Symrise Investor and Analyst Conference for the fiscal year 2015. We are happy to see you. I also would like to welcome participants who have joined us over the phone today. I am sure those who are here have already noticed the new face next to me. I am very pleased to introduce you to our new CFO, Olaf Klinger. Olaf has taken office on January 1st, and over the past weeks, he has intensively looked into our business and met colleagues from different divisions, and I am convinced that he is a very valuable addition to our management and most importantly, to Symrise. Olaf, welcome on board. We are looking forward working with you. Now, let us get started on today's results conference and turn to chart 3 of our presentation. It illustrates the highlights of the past financial year. 2015 has been another year of profitable growth for Symrise. We have increased our market position and strengthened our customer relationships. In addition, we completed the integration of Diana and acquired U.S.-based Pinova Holdings. Through targeted investments, we have become one of the strongest, if not the strongest player in functional ingredients, and we have developed a clear frontrunner position in new market segments, as I will explain later. Our 2015 results speak for themselves. We grew sales by 23% to EUR 2.6 billion. Our EBITDA reached EUR 572 million, while our EBITDA margin rose to an excellent 22%. Our bottom line grew by 17%, net income rose to EUR 247 million, and earnings per share increased to EUR 1.90. Our equity ratio stands at a healthy level of 38%. Let us now go into detail and begin with our sales development on chart 4. Including Diana, our sales grew by 23% to EUR 2.6 billion. However, we also realized significant organic growth. Excluding contributions from Diana, sales increased by 10% to more than EUR 2 billion. This corresponds to a 6% increase at local currency. We thus again outperformed the fragrance and flavor market, and we were one of the fastest-growing companies in the industry. Growth was driven by a high demand in both segments, as you can see on chart five. Scent and Care increased sales by 10% to almost EUR 1.1 billion. At local currency, this translates into a plus of 4%. We realized considerable growth in all divisions, especially in aroma molecules and cosmetic ingredients. Demand was particularly high in menthol applications and active cosmetic substances. Flavor & Nutrition achieved sales growth of 34% to more than EUR 1.5 billion. This corresponds to an increase of 31% at local currency. The top line was driven by particularly strong demand in beverages and savory applications. Diana contributed EUR 525 million. Excluding Diana, the segment group sales by 11% in reporting currency and 8% in local currency. Let me come to our regional performance on chart six. We recorded double-digit growth in all regions. Latin America ranks first with a sales increase of 36% at local currency. Second strongest region was North America with a plus of 19%, followed by EAME with 16% and Asia Pacific with 14% sales growth. In the mature markets, we performed particularly well in Western Europe. Amongst the emerging markets, we saw strong dynamics in countries such as Brazil and Mexico. We grew sales in emerging markets by an excellent 21% overall. Let us now turn to chart seven for our earnings development. At group level, we grew our EBITDA by 23% to EUR 572 million. Accordingly, our EBITDA margin rose to an excellent level of 22%. Key drivers clearly were the strong sales growth and the high utilization levels with consequent cost management. Let us also look into the segments. Scent and Care increased the EBITDA by 4% to EUR 231 million. The EBITDA margin came out at 21.5%. The decline compared to the prior year reflects one-time investment in specific R&D and marketing initiatives before. It also reflects transaction and integration costs coming from the Pinova acquisition. Flavor & Nutrition grew the EBITDA by 41% to EUR 341 million. Diana contributed EUR 114 million to this strong result. At an EBITDA margin of 23.3%, this segment again delivered an excellent profitability. Those of you who have accompanied us for a while know that we are not after short-term gains. Instead, we focus on the long term. We are committed to sustainable profitable growth as chart eight illustrates. Since our IPO in 2006, we have delivered annual sales growth of 8.7%, along with an EBITDA CAGR of 7%. The stock market appreciates our reliability and performance as chart nine shows. Over a period of 10 years, we have more than tripled our share price, outperforming the development of MDAX and DAX alike. In 2015 alone, our share price increased by about 25%. Today, we are one of the top values in the MDAX with a market capitalization of around EUR 7.5 billion. Over the years, we have shared our economic success with our investors, and thus management and supervisory board proposed a dividend increase to EUR 0.08 per share for the fiscal year 2015. This being said, I would now like to hand over to Olaf Klinger for more details on our financials. Olaf? Yeah. Thank you, Heinz-Jürgen. Welcome to everybody also from my side. As you can imagine, since I joined Symrise in January, I had some quite intensive weeks in the company. My initial focus was naturally on the year-end closing process and the preparation of our 2015 financial statements. Every new CFO probably does, it was important for me to turn stones and find out how clean the financial house at Symrise really is. By now, I am fully convinced that I joined a great company at the right time, and I would like to thank my predecessor, Bernd Hirsch, for his excellent preparation of a good handover. At the same time, it was important for me to meet quite a number of new colleagues from different areas across Symrise, which helped me to understand quickly what our company is all about. What I can say at this point, it is a privilege and a nice future challenge to work in such a highly successful company, which just finished the year 2015 with the best financial performance in its history. Rest assured that I have every intention to serve you with reliable and transparent information on our business development and financial framework as we go along and as you are used to from the past. Please also rest assured that the management team at Symrise, including myself, are highly committed to keep the pace and momentum that we have seen in the past and to move this company forward in the future. Before we start with further financial details, I would like to make two more general remarks. As you know, we closed the Pinova acquisition on January 7. Except for certain transaction costs, and I will get back to this, Pinova did not impact our 2015 financial statements. We are moving quickly on the integration, but it will probably take us until the end of the second quarter before we have a full picture on the initial purchase price allocation. The refinancing through Schuldscheindarlehen was successfully signed last year, and I will give you some more details on this towards the end of my part. In addition, the acquisition of Flavor Infusion beginning of June 2015, and the divestment of Diana Cat at the end of June 2015, had a net impact on sales of around minus EUR 6 million during the last quarter of the year. Starting now with slide 11. Full year revenues increased by 18% in local currency and 23% in reporting currency versus last year, and as you already heard. This is a combination of organic and external growth, with the majority of the external growth stemming from the full year inclusion of Diana. While 2014 only saw six months Diana impact. Without the effect from the Diana acquisition, local currency growth for the year was at 6%, clearly within our midterm guidance and target range. If we take into account currency developments, our reported growth, which is 10% even higher. Q4, we were again able to achieve growth of around 6% in local currency as well as in reporting currency, which is clearly beyond the average growth of the Fragrance and Flavors market. This is a strong outcome against the current political instability and volatility in some of our country markets. Scent and Care grew their business in 2015 by 4% in local currency. Aroma molecules, part of Scent and Care, grew high single digits, especially with menthol and special fragrance ingredients. Cosmetic ingredients showed good growth in China, Brazil, France, and Japan. Fragrances overall showed a moderate single growth with strong developments in Latin America, while North America was on the weaker side, especially in fine fragrance and household names. With the Q4 growth of 6% in local currency and 7% in reporting currency, the segment Scent and Care continuing to have a good growth momentum. In 2015, also the Flavor and Nutrition segment showed strong growth in essentially all areas. Diana division on a standalone 2014 comparison basis grew very well with 14% in reporting currency and 10% in local currency. By the divestment of the Diana Cat business, the growth for the fourth quarter was still at 9% on a reported basis. Diana showed strong growth in its Aqua business as well as in the pet food business in Latin America. North America was also positive, very much linked to some new customers. Flavor division, excluding Diana, grew 11% in reporting currency and 8% in local currency, with good growth rates in all regions, especially the beverage and savory business in Latin America grew strongly. In addition, savory in Eastern Europe as well as beverages in Western Europe showed good growth. Growth of flavors during Q4 reached 3% on a reported basis and 5% in local currency. With a good pipeline of innovative products and the increasing networking activities with Diana for joint product development, we see more and more of the benefits of our portfolio expansion in the past. EBITDA of the group increased by 23% to EUR 572 million, and the EBITDA margin for the group reached 22%, which is at the very high end of our long-term guidance. Absolute EBITDA of Scent and Care increased by EUR 8 million to EUR 231 million, resulting in an EBITDA margin of 21.5%. EBITDA of the segment is impacted by certain Pinova integration costs of in total around EUR 4 million in 2016. Flavor and Nutrition EBITDA amounts to EUR 341 million, with an EBITDA margin of 22.3% versus a normalized 21.2% in Q4. While our EBITDA performance in Q4 looks a little weaker compared to the previous quarter, which is actually from a seasonality perspective, is a quite normal pattern, it is actually also impacted by a few extraordinary items. One-off costs for the Pinova acquisition amounted to around EUR 2 million. We also booked a provision of around EUR 2 million in preparation of an announced move of our activities in China to different sites. We also saw a slightly higher spend level for marketing studies as well as additional research activities, especially in our Scent and Care business, which you actually can consider as a strong investment into the future of our market positioning, our product development and our customer relationships. At this point, I would like to mention that we will normalize our 2016 figures for the Pinova integration costs starting with Q1 2016. Also notice that Pinova joins us with lower EBITDA margins compared to Symrise legacy, which might somewhat dilute the overall Symrise group EBITDA margin in 2016. Our EBIT is up 17% to EUR 395 million, and the EBIT margin has reached 15.2%. Depreciation increased from EUR 58 million in 2014 to EUR 76 million in 2015 due to higher investments in previous years and the full year inclusion of Diana. Amortization increased from EUR 71 million in 2014 to EUR 101 million in 2015 mainly because of the purchase price allocation of Diana. Please be reminded that we booked the purchase price allocation of Diana in Q4 2014 for six months. That was EUR 37 million, including EUR 10 million related to the one-time inventory step-up. The EBIT Q4 2015 is only impacted by the quarterly amortization effect of EUR 13 million, plus an impairment related to the GPS closure of EUR 4 million. The overall strong performance in 2015 proves again that our strategy of well-diversified activities, as well as our expansion into fast-growing businesses, each with high profitability, continue to pay off. On slide 12, you find the EBITDA bridge, which you are all familiar with, and which shows the main profitability drivers. There is again a strong contribution from sales growth, which was driven by the Diana acquisition, but also strong organic growth in all other businesses. Price volume mix remained relatively stable over the year, with about one-third coming from price and two-thirds driven by volume increases. Moving to raw materials, we had overall a slight increase, but as you can see, the impact is rather moderate. We have seen some cost reductions for chemical raw materials, but by far not in the magnitude of the oil price reduction. The picture in natural raw materials is more diverse, and in total, slightly up versus the year before, driven by the U.S. dollar development and certain raw materials price increases, including vanilla. Overall, our strategy of backward integration offers substantial benefits in terms of predictability, quality, and traceability of our products, which we actively use in our procurement strategy. Manufacturing costs grew by EUR 57 million, driven by higher volumes and personal cost increases. The percentage of sales to quota increased slightly, mainly due to the fact that Diana has higher manufacturing costs as a percentage of sales compared to legacy Symrise. However, productivity gains in the year 2015 reduced the manufacturing cost as a percentage of sales for Symrise legacy without Diana. Our SG&A expenses grew in line with our top-line growth but have slightly increased as a percentage of sales versus the year before. Especially, G&A costs are slightly inflated due to one-time costs in connection with the lawsuit in Q1, due diligence costs in Q2 and Q3, as well as the already mentioned Pinova-related transaction costs. Total amount of this one-off is around EUR 10 million. Consider these items all in all being part of our ongoing business activities. We have not carved them out in our external reporting in 2015. Currency had a net impact of around EUR 8 million, with a positive contribution from translation and a slightly negative contribution from transactions. In principle, we benefit from the devaluation of the euro and the strong U.S. dollar is in our favor. All impact from transactions proves again that we have a well-balanced natural hedge environment in place. The positive translation effect of EUR 9 million is very much influenced by the strength in U.S. dollar versus the euro in 2015. That is negatively counterbalanced by the devaluation of emerging market currencies against the euro, like the Russian ruble and the Brazilian real. For 2015, the financial results shown on slide 13 amount to minus EUR 44.3 million versus minus EUR 48.4 million the year before. When deducting the extraordinary items of EUR 7.8 million in 2014, we actually saw a negative development of EUR 3.8 million in our financial results, which is mainly driven by the full-year interest impact of the euro bond and the long-term debt facility related to the financing of the Diana transaction, partly counterbalanced by lower interest on the pension. Our average interest rate, including pensions, amounted to 2.4% in 2015 after 2.9% in 2014. On slide 14, you find the P&L as reported. The sales growth of 25% translates one-to-one into a gross profit growth of also 25%. EBIT is up 17%, which is driven by the full-year impact of the Diana-related depreciation and amortization. Tax rate is at 28%, exactly on the same level as the year before, which is within our longer-term expectation of a tax rate below 30%. We achieved the reported EPS of EUR 1.19, which is an increase of 21 cents or 13% versus the normalized EUR 1.69 in the year before. Net operating cash flow on slide 15 increased by around 9% to EUR 375 million. Changes in working capital are slightly higher, driven by increased receivables and partly price-driven higher inventories. Tax settlements early in 2015 led to EUR 35 million extraordinary tax money outflow. Increased tax payments were also driven by higher operating income, as well as only six months Diana-related tax payments in 2014. The net debt to EBITDA ratio is at 2.8 times including pension accruals, down from 3.2 times the year before. Without pension accruals, the leverage ratio was at 2 times EBITDA at the end of the year. Slide 16 shows the main balance sheet items. Cash and cash equivalents increased due to the partial payout of the Schuldscheindarlehen, which we launched in 2015 in an amount of EUR 500 million in connection with Pinova. The first part of this Schuldschein, the amount of EUR 179 million, was already paid out in 2015, while the difference of EUR 321 million was drawn in 2016. An equity ratio of 38%, we maintained a healthy and strong balance sheet. The Pinova acquisition, which we closed on January 7th, 2016, will impact the equity ratio as well as our leverage. For 2016, we expect a leverage ratio of slightly above 3 times EBITDA. On Slide 17, you find some further detail on our highly successful Schuldschein launch. Due to a high oversubscription, we were able to double the volume from initially EUR 250 million to EUR 500 million. We used the additional proceeds to repay our revolving credit line. The average interest rate of, at the moment, 1.25%, and the high oversubscription shows that Symrise is a very attractive asset also on the debt capital market side. With this, I would like to hand back to Heinz-Jürgen Bertram for an update on recent acquisitions, our strategy, as well as our 2016 outlook. Thank you, Olaf. Let us now come to an update on our most recent acquisitions and upcoming strategic initiatives. Please turn to Chart 19. The chart illustrates the project along the integration of Diana, which included additions as well as divestments. We integrated, for instance, our probiotics business Probi into Diana. Furthermore, we added new competencies in the field of mushroom concentrates by acquiring a majority stake in Dutch company, Skerda. However, we also exited selected parts of the business, which we considered as non-core. We sold Diana's pork activities to French Jean Floc'h group and disconnected some of the plant sales research in the U.S. Following all these measures, Diana is now well-shaped in our Flavor & Nutrition segment with clearly defined competencies in food, pet food, and aquaculture. As you might recall, we announced another strategic acquisition in September, Pinova Holdings. Please turn to Chart 20 for the cornerstones of this transaction, which will significantly strengthen the Scent & Care segment. Pinova is headquartered in Georgia and generated $273 million in sales last year, which are obviously not yet reflected in our numbers. The company is a leading supplier for natural and renewable raw materials, all widely used in fragrances, oral care products, and food applications. We acquired the group for about $412 million and closed the transaction early this year. We have immediately afterward kicked off the integration process. In Q1, we have installed a new management team. In addition, we have started to consolidate financials. Throughout the year, we will work on the harmonization of IT structures, and we will realize process optimizations as we see significant potential in this. Overall, we expect EUR 15 million-EUR 20 million of transaction and integration costs by 2020, and we expect synergies of EUR 20 million. We will incorporate Pinova's former business units into our aroma molecules division. As you can see on the right, the activities of Renessenz will become part of the fragrance and sensory ingredients. The former Pinova unit will be added to our performance specialties business. The integration of Pinova will give us a significant competitive advantage. Let us now take a look at our business model as it evolved over the time. Please turn to Chart 21. You know that we have a long tradition in the flavors and fragrance business. In fact, we are today amongst the top players in the global flavor and fragrance market. That's not it. We have very early on gone much further. As a first mover, we have started systematically exploiting new areas of growth. We expanded into market segments outside our traditional home turf. Today, we develop solutions that serve the growing demand for functional ingredients and products with additional benefits. In numbers, we generate about one third of our total sales outside our traditional business areas, beyond flavors and fragrances. With a front-runner position, which we have further strengthened with Diana and Pinova. Let me assure you, we will best possibly use this competitive advantage going forward. Let me continue with our strategy and upcoming initiatives. Please turn to chart 23. Most of you are familiar with this chart. I will therefore only briefly elaborate on it. Symrise is fully oriented towards profitable growth. Thus, our strategy is based on the three pillars: growth, efficiency, and portfolio. Most importantly, it combines economic and financial success with sustainability. Let us move to chart 24, which gives specific examples on what this means in relation to our strategic priorities. The chart illustrates the initiatives to achieve additional growth, all while increasing efficiency and further differentiating our portfolio. We will mainly focus on three areas. First, further capitalize on our strong portfolio and core technologies. Second, further drive efficiency and build on renewable resources, and in that context, leverage Pinova. Third, drive initiatives to increase market presence and capacities both in mature and emerging. Our capital expenditures are connected to our growth ambitions. We will invest around 6% of our annual sales into new projects. Now let me conclude this presentation with an outlook on chart 25. It will come as no surprise to you that we expect the global economy to be more challenging this year than 2015. This is particularly true in light of the volatility of certain raw materials prices, but also considering the tense financial situation in some countries, and also the untold political conflicts in regions such as Middle East. Nonetheless, we are certain to be well-positioned to navigate through this environment. We have a proven business strategy and a balanced portfolio, as well as a global presence. Following a good start into the first quarter, we are overall positive for 2016. We aim at outperforming the global flavor and fragrance market and deliver an EBITDA margin of around 20%. Against this background, our midterm targets, which range until the end of 2020, also remain fully in place. We plan to achieve a CAGR of 5%-7%, and we aim at delivering ongoing high profitability with an EBITDA margin between 19% and 22%. Ladies and gentlemen, thank you for your attention. Let's now open the conference for your questions. Thank you very much, gentlemen. We are now happy to take and answer your questions. We will start with the participants here in the room, and we will switch to the telephone afterwards. We kindly ask you to put only two questions. If we cannot make all your questions during the conference, we will answer the remaining questions later today. For those participants in the room, please give us your name and company name first before asking your questions. Thank you very much. Thomas with Société Générale. I will take the opportunity to ask two questions. On Pinova, thank you for providing the 2015 sales number. I think you were historically a client of Pinova, so there will be internal sales and some of your competitors have been also clients of Pinova. So what kind of de-synergies on the 2015 numbers on the sales level would you expect? What should we put in our models? That is the first question. The second question, also on Pinova, I would like to get a better feel on the performance specialties. This is now a totally different business to what you have in your portfolio. I will not ask the obvious question. I want to try it differently. Do you plan to eventually grow this business more aggressively, or would you just like to keep it like it is? Thank you. Yeah. Thanks, Thomas. Yeah, you are right. Pinova was a supplier to Symrise and vice versa. But it was very well overseeable, the amount of it. So Pinova has never been, at least not in the last few years, been buying menthol from Symrise. Particularly, you are talking about menthol, we actually were about to gain the menthol business with Pinova, but it stopped at that point for an obvious reason. So it is very overseeable. It is primarily very complementary. So Symrise is strong in menthol, has not been selling to Pinova, but could as well as now this business for all the cooling agents. Pinova was, as the largest supplier of carvone, to some extent, buyer of Symrise. But the overall impact of this, what was former external business becomes now inland business, is very well overseeable. It is single digit million. It is not something which we are talking about the business we have with. That is not actually, which is existing indeed, but that is not something which is new. Our aroma molecule business is selling to all the other major flavor fragment houses, and by the way, we are buying from them as well. In that respect, very pragmatic, so we do not expect. My recommendation was, if that was one point, my answer would be, I would not include essences as part of QFC. All the time. Performance specialties, your second question. Indeed, there is some of the business in there which definitely not core business. So we will definitely, that part, not unnecessarily extend in the near future. Looking at all options in that segment. But in that segment, that business, there is a lot of portion which is definitely core business. Adhesives, but there is also this portion of emulsifiers for beverages, extra ones for chewing gum. So it is a lot of stuff which, if you put that on the right angle, indeed becomes core business. So back to your question, the amount of what is in the sense of straightforward is probably not total core business in the end. Very overseeable. That is not something which is not happening today. Aroma molecules business has also some agro business when it makes sense, when the chemistry is there and the business opportunity is very pragmatic to do this. But have we in the past over and disproportionately expanded this business? No. Just a question of capabilities. Are there investments made? We plan to also do this with the. Tom Ran, Mirae Asset Securities. One question for Olaf, please. Obviously, you are now CFO of Symrise just for 2 months, but as you already mentioned, it was already a very intense time. What have been the major surprises for you so far? Positive surprises, where do you see improvement potential? Thank you. Actually, I followed Symrise for quite a while already, and great story, I must say. I was even more positively surprised when I joined. We had a tour, Jürgen gave me a tour of the R&D environment in Holzminden. I was very surprised how broad the spectrum is we are going into and where we can go into now with the benefits from the 2 transforming positions, especially with Diana. You see that now coming through and that is probably the biggest positive surprise. Negative surprises, cannot say anything at the moment. It is a big organization now, so we need to work a little bit on the organization. That is for my part. Otherwise, as I said, Bernd Hirsch did a very good job in preparing the transition and from that, only positive. Simon, my first question is on the EBITDA margin for 2016. Could you provide the bridge from the 22% we have seen in 2015 to the 20%? What are the components, how this comes down? The second question is on these cosmetics and sun protection. What is roughly the sales you think you will make in 2016 on that one? What you see as this kind of critical mass to be successful in this business, which is pretty new to you. I am ending up with the first financial question. We got to work on this thing. I am happily taking that. Currently have an EBITDA margin of about 22%. Not break out any inflation related costs, special items. That is the starting point at the moment. Pinova for at least the first time of this year, let us put it this way, will dilute the margin of about 0.8%-1%. That we do not see any affecting our business negatively. What we said, 20% some headroom. On the other side, it still is with what we said, we always said our business is good enough for 20%-22%. At the moment with some of our competitors enjoying something with special items and everything up to 25%, that is the best and the most of it was decreasing raw material prices. We do not expect that to go on. The raw material prices are not decreasing anymore. In contrast, like vanilla, the prices are going up. To pay a headwind as a consequence of that. Do we expect any more tailwind as a consequence of it? No. Take our current margins, take out that the tailwind with which everyone in our industry enjoyed is also fading out, and I think that the mobile will dilute the margins for this year up to 1%. For a non-finance guy, not too bad. Perfect. I am going to give you answer questions next year. Hola. What I experienced, of course, you see this range of 19%-22% is our long-term guidance, and that is where we move. That is also true for 2016. Hans-Joerg mentioned the impact from the Pinova, and that is the main driver for our guidance, which we have given. It is really on this range, a little bit up, a little bit down, but otherwise, nothing special. There was one more question on the cosmetic ingredients. Can you repeat it? Then I need the microphone. I would like to know how sizable this business in 2016 is and whether you think you have to do more to be, let us say, in a kind of having a critical mass to be successful in this business. See, that is the problem if you ask more than two questions. I have only asked one. I have to automatically a cut-off after question two. Okay, now we go for that one. Cosmetic ingredients. Let us do it this way, as every one of you has a calculator. As we said, one-third of our business is beyond flavors and fragrance. When you have some idea how big Diana is, then you have some idea how big cosmetic ingredients is as a whole. You see it is a lot bigger than what some of our competitors do with EUR 30 million acquisition or whatever. So you see, it is definitely in the few hundred million turnover. Calculation is pretty easy to do, and I am sure you have done it. That comes to the point that I would say to be a serious player, to be having the critical mass, not just a boutique business, but leading the player, being a leading player, EUR 250 towards the EUR 300 million turnover, that is what you need to have, and probably what Croda would tell you as well. Separate on that. In some areas, we have actives where we are leading. In sunscreen, so that is globally number 2, so that comes with a significant business. Lars Hettche here from Metzler. Another question on your emerging markets business. We hear some very worrying, sometimes even disastrous news, especially from Brazil, when we look at macroeconomic indicators. You still have fantastic growth rates, as you could see in the 2016 results. Does this mean that you are gaining more and more market share there? If the answer is yes, how long can this continue? Is it something that will continue for the next, I don't know, 5, 10 years? How much room do you have here to grow if the macroeconomic environment does not improve in these markets? Thanks for the question. I will take it on. In Brazil. Okay, I hope this is better now. I take here. I hope everyone understands me now. Now we take the normal conventional microphone, and I hope everyone is on board now. In Brazil, let's start with that question. Yes, you have seen fantastic growth rates. Sometimes I am even myself surprised. But let's look in fragrance. Globally, we are still number 4. In Brazil, we are number 2 or 3. In India, number 1 or 2. So we have some markets in fragrance where we are particularly strong. So we have obviously some competence to address the emerging markets. Overall in the business, yes, talking about emerging markets, we keep hearing this message, emerging markets is more volatile. Emerging markets are a problem. But let's be realistic. The growth in population was, is, and will continue to be in the emerging markets. The volatility in the emerging markets actually is also not anything new. There is always some markets who are doing well and some others which are not doing that well. Talking China. China, everyone is worried about it at the moment for the data, at least, which I learned from a leading economist, 5%-6% growth. It is not double digit anymore than in the past, but it is healthy. That is why we do not change our long-term strategy, the commitment to emerging markets. How long will it go? I would say at least for the next decade and more, because the growth in population will continue to be in the emerging market. It is just a question of the markets who will do well, and some others will not do well. That is what the main driver is. So we are convinced that our business model will continue to hold up. We are not concerned at all that it is changing. As the Japanese keep saying, challenges are opportunities, and we look at the opportunities. Okay. Thomas Horder from Société Générale. A follow-up question on this LATAM growth. Obviously, part of the organic increase must be price increases in local currency. Could you give us a rough feel how much of the 27% in Q4 is volumes and how much price is that? That would be helpful. The second and more strategic question, you obviously won't like it when I compare you to Givaudan. My apologies for that. There is some margin gap between you and Givaudan. I think that this is well understood. But what is wondering me is the free cash flow generation power. The gap between you and Givaudan is much, much bigger cash-wise than EBITDA margin-wise. This is a question for you, Mr. Klinger. As a new CFO, what ambitions would you have on free cash flow generation? I mean, 9% free cash flow to sales at Symrise versus 16% at Givaudan. I know it's not apples with apples. It's rather apples with oranges, what I'm comparing here, but still there seem to be upside. What would be your ambition for the next two to three years? Where would you see free cash flow generation going forward? Thank you. First one on the LATAM growth. I said in my speech that we have the picture of one-third price and two-third volume. In Latin America, this is different. Especially in the last quarter, it's more two-third price and one-third volume. I think that is the big difference in this region. As you said, not comparing us to Givaudan. I think we are in a different situation with the growth we are showing at the moment. Somehow, we are investing into this growth, and therefore, we expect that we will continue to use some of the cash flow into growth opportunities, one being CapEx. You have seen that already in 2015, the CapEx ratio went a little bit higher. So we were at around 5.6%, 5.7%. We might even bring that slightly higher to 6%, around 6%, in 2016. Jürgen showed you the slide with all the projects which are going live in the next few years. So that just requires that we are investing a little bit more than Givaudan does at the moment. One explanation. Give me a little bit of time when it comes to the free cash flow generation. I think we said in the past it should be ideally double digit. I don't want to change that at the moment, but of course, there is attention also on the free cash flow. Hope that answers the question. Are there any more questions in this room? If not, I would switch to the telephone. There are some in queue waiting to do some Q&A. I think the first one I see is Evgenia Molotova from Berenberg. Yes, thank you very much for taking my questions. On sales and marketing expenses, I was just trying. Because I remember in 2012, 2013, when you were investing in the sales organization and your sales and marketing were growing at much higher rates than sales. I saw that we are already kind of done with this expansion. If you could just talk about 2016, 2017 a little bit, what will be the rate of growth? Also in Q4, if you could. Because you named sales and marketing and research as one of the reasons why EBITDA was a bit lower than consensus. If you can quantify how much extra was it in Q4. The second question is on Pinova and organic growth, because you gave us number sales for 2014 and 2015. If you could tell how much was X currency. Thank you. Okay. I'll try to start with the sales and marketing expenses. We have seen a slight increase. Do not expect for the next years to come an over proportional increase of the sales and marketing costs as we have seen for a while in the past. We should be done with the measures which we have done, and you should not see in that point a proportional increase. On the other side, don't expect a too dramatic decrease as a percentage of sales. I think that at least covers that question you're looking at. Yes. R&D, it's a different point, and you're absolutely right. We've seen an increase there as well, and I owe you an answer. R&D in Q4, we've seen something, and it would be around, hard to say, but around 4, 5 million something, and mainly linked to the Pinova acquisition, and that is actually a good news. You see, we didn't lose any time. We started working, developing new processes to exactly deliver on what we promised, transform the way how the chemistry is done at Pinova to green chemistry, the new platform. That requires some development, but it shows you also we have a pretty good idea what we need to do. That is, at least as I see it, also a good answer, and it is a positive answer, as it shows we did not have to lose too much time to figure out what needs to be done. Does it mean that in 2016, it will also be at higher level? Expect R&D costs to be at least at a slightly higher level than in the past as well. Yes, we will continue to develop on processes, and for 2016, that is valid as well. Thank you. Okay. Yeah. Organic growth for Pinova? Organic growth of Pinova. Eugenia, we will be pretty much flat on the Pinova growth at the moment. We do not have the ex currency number because we are very early on in the process. Yes, of course. Please, if I can postpone this to the Q1, maybe even Q2, I think it will be helpful for us to really understand the business and get you the right guidance for this Pinova integration and what it all means for us. Sure. Thank you. Thanks. We bear that in mind, Eugenia. We owe you an answer Q1. We haven't seen a fully blown income statement Yes, of course. so far, and we would just mislead you. Do not expect a significant sales increase in this first year. At least our numbers do not include that, and that's the business plan for the moment. Thank you. Okay. You are welcome. Next question comes from line of Martin Roediger of Kepler Cheuvreux. Please go ahead. Yes, good afternoon, gentlemen. Thanks for taking my questions. First question of my two would be if you could elaborate a little bit on the latest developments that you have seen in raw material prices. The main categories, what kind of movements you have seen there, and what you think is the best guesstimate from today's point of view with regards to the likely outlook for 2016. That would be my first question. Then, second question would be on customer order behavior. Are you expecting any changes given the, as you would call it, the more challenging environment on either the Flavor & Nutrition Scent & Care side? Do you see what people could perceive as a leading indicator in consumer confidence? Are you seeing any of that impacting order behaviors or overall briefs that you are being confronted with? Thank you very much. Yeah. Thanks. I am going to pick it up. For the last question, for a yes/no question, it was a pretty long question, so the answer is no. So no changes so far. I do not know if in half a year or whatever, the behavior will change, but as we said, the year has started pretty healthy so far. I think that is a clear answer. No changes whatsoever so far. The other one is more tricky to answer. Raw material prices, and you asked by category. So mixed picture. Vanilla is really going up significantly. Citrus is high. So we see some of the natural raw materials pretty high. The only thing which is at the moment pretty inexpensive is wheat, rice, this kind of stuff, in particular wheat, but that is not a main raw material, but some of the products, starch and whatever, are at least based on wheat. Mineral oil derived products, which is also not a big thing in our portfolio, but slight increase. So overall, to draw the line, the bag of raw materials, we see a slight increase in raw materials. It is still too early to give you a warning sign, but the question was over there, the EBITDA bridge of this year to what we have handed out, I made already the remark, raw material prices, you never know. So we are not giving any sign of warning, but as I said, the tailwind which we all enjoyed from decreasing raw material prices, this is certainly over. In fact, we see a slight increase for the overall. I hope that answers the questions well. Thank you very much. Next question comes from the line of Jaideep Pandya of Goldman Sachs. Please go ahead. Thanks. First question is really on China. If you can give us some color on what are you seeing there, given a couple of your competitors, one of them is having issues and the other one saw quite a nice increase in growth rate throughout the year, last year in flavors. Is some dynamic around, have you picked up some market share as well because one of your competitors is facing issues with production? That is my first question. The second question is just on your customer mix. We are hearing that the top 10 customers are being a bit more cautious, and destocking around these days. But then the more regional and the local customers are doing well. What kind of growth rate have you seen in 2015 within your top 10 and your regional and local customers? If you can give us some color regarding that. Then finally, if you can give us some color also on the Pinova, the margin expectations for 2016 and going forward, where do you see margins for this business? Do you think that it is potentially possible in two to three years that this business is at Scent & Care margins? Thanks. That was more than two questions. Sorry. It will cause difficulty for me not to forget one. I am going to try to do it. So China. We have seen growth of 6% to 7%, and as I said in the beginning, the growth in China, economic growth is 5% to 6%, so we were doing okay. Nothing to complain. Yes, one competitor has difficulties in that market, but that was not related to market issues. That was related, as far as I know, to some requirements and things linked to a certain site or whatever. So the market was okay, and we did pretty much okay as well as you just learned from the numbers. Second question was linked to customers. Top 10 customers destocking. Yeah, at least I do not see it that significant at the moment. Top 10 customers, our growth rate was in the high single digits. I think that said it all. To talk about destocking there would be probably a bit misleading you. We are doing very well. Also in the emerging markets, I do not see anything different than in the past that the local customers are grabbing more market share from the global customers than what we have seen in the past. Actually for us, nothing has changed. We are seeing and getting the opportunities where they are, be it in the emerging markets or with the mature markets. That is why we kept saying we have a customer portfolio and a customer mix of one-third global, one-third local, one-third regional, and I think in these times, this pays off. I think that is a clear proof of it. Last one, Pinova. Pinova margin was 13% normalized, what was also published end of last year. Normalized said, the real margin, taking aside the normalized, was even below, but we will get Pinova business to definitely 2% margin increase this year, definitely not less than 2% next year and definitely not 2% next year, the year thereafter. To your question, do we get this to the healthy margin of the rest of our business in the time horizon of, say, around three years? Yes, we are totally convinced of it. Okay, very clear. Thanks. Thank you. Next question comes from the line of Bartek Pasa of Schroders. Please go ahead, sir. Hi, good afternoon. I may have missed that earlier, but, if you can just confirm the, I guess partially answered the question, the EBITDA expectations for Pinova for this year and also your CapEx plans and acquisition plans, if you can maybe repeat that in terms of CapEx being 6% of sales. What does that include? How do you think about that? Okay. You missed that. I talked about Pinova. Talking about the margin. Last year was 13% normalized. Taking aside the normalization, 11%, 12%. This year, definitely not less than 2% margin increase. Next year, not less than 2% margin increase and the year thereafter. Our statement is it takes us three years to get it to the rest of the business, but it also, you see us from today not moving, not uncertain at all. In three years, it will be there where the rest of the business is. I think that is chief clear. What was the other question? CapEx. The CapEx, yeah. 6%, yes. That is pretty much also included Pinova, otherwise we would have to tell you. Also one reason why the CapEx ratio has slightly increased. Our calculation, as the rule of thumb, says EUR 15 million per year investment in Pinova is necessary. Detailed enough. Okay, thank you. What was the sales for Pinova, please, last year? The number was $273 million. Okay, thanks a lot. As you will ask that question as well, before we close the session. For this year, we do not have any growth in Pinova included in our business plans. That is at the moment the calculation scenario without having any income statement. That is what we calculate at the moment for Pinova. 2%. Thank you. Bottom line. Thank you very much. Okay. Thank you. Mm-hmm. I guess that is pretty much it, the Q&A session, at least the part of the conference. Ladies and gentlemen, this concludes today's investor and analyst conference for the, say, official part, as we now would like to invite you who are here in Frankfurt with us for some coffee and snacks now, as there's got to be some reward for you guys who made it here. To those on the phone, I will now say goodbye and thanks for joining us today on the phone. Next time, I hope to see you soon in person. Thanks to you and bye-bye. Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.