Earnings Call: Q4 2014

Mar 10, 2015

Ladies and gentlemen, thank you for standing by. I am Patrick Wright, your Chorus Call operator. Welcome, and thank you for joining Symrise AG Annual Report 2014 conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star, followed by one on your touch tone telephone. If any participant has difficulty hearing the conference, please press the star key, followed by zero on your telephone for operator assistance. I would now like to turn the conference over to Mr. Tobias Erfurth, head of investor relations. Please go ahead, sir. Thank you, Patrick. Good afternoon, ladies and gentlemen, and welcome to our conference call on our results 2014. My name is Tobias Erfurth from Investor Relations. Our management is represented by our CEO, Dr. Heinz-Jürgen Bertram, and our CFO, Bernd Hirsch. This call will be available for playback on our webpage in the Investor section at Events and Presentations. The same section where we published the press release, the presentation, the reports, and the fact sheet this morning. 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. Welcome to our investors' call for the fiscal year 2014. Our CFO, Bernd Hirsch, and I look forward to this session. Before we present our 2014 results, however, let me comment on last Friday's press release regarding Bernd Hirsch. The supervisory board and I personally, but also our management and employees regret his decision. Over the past five years, Bernd has done a brilliant job as our CFO, driving our major refinancing in 2010 and contributing to the success of a number of M&A transactions, especially Diana. However, we have to accept his wish and a very personal decision. Our supervisory board will initiate the search for an appropriate successor to ensure a smooth transfer. Over the next month, we will, of course, continue to work together as we did in the past, and I'm happy that Bernd will be around for the entire year. I would now like to open today's call. Let us turn to chart 3 and look at the highlights of 2014. A year which has been an absolutely successful one for Symrise. We have exceeded our objective and undertaken the largest acquisition in the company history. In July 2014, we completed the takeover and refinancing of French Diana Group. We are today the number 3 in the global fragrances and flavor market, with a market share of 12%. But size itself is not key. Most important to us is Symrise has consequently followed on its profitable growth path and has further driven sales and earnings. Excluding Diana, we increased sales by 5% and yet again outperformed the market. Including Diana, our sales grew by more than 18% to more than EUR 2.1 billion. Our EBITDA margin normalized for one-time effects grew to 21.9%. Our normalized EBITDA rose by 24% to EUR 465 million. Our net result normalized one-off effects grew by 23% to EUR 212 million. The reported earnings per share are EUR 1.48. In 2014, Symrise has again successfully created value. Despite the acquisition of Diana, our equity ratio amounts to 33%, which is a very healthy level. We want shareholders to benefit from Symrise's profitable growth and therefore propose to increase the dividends from EUR 0.70 in 2013 to EUR 0.75 for the fiscal year 2014. Let us come to the sales development on chart 4. Symrise, excluding Diana, grew sales by 3% to more than EUR 1.88 billion. In local currencies, this translates to a sales increase of 5%. We yet again clearly outpaced the market, which is remarkable given the various economic headwinds and political crisis in certain regions. Including Diana, our sales exceeded the EUR 2 billion threshold and rose to EUR 2.12 billion. This represents an increase of 18%. This performance was driven by strong dynamics in both segments and double-digit sales growth in all regions. In addition, we benefited from a strong fourth quarter. Moving to chart 5, where we examine the sales development in both segments. Scent & Care consequently continued to focus on high-margin business and saw good demand, especially in cosmetic ingredients. The segment grew sales to more than EUR 980 million, which represents an increase of 2% at actual rates. In local currencies, sales grew by 4%. Flavor & Nutrition, on a standalone basis, increased sales by 4% to more than EUR 905 million. In local currencies, this corresponds to an increase of 6%. The segment particularly benefited from good demand for beverages and savory applications. As you are aware, Diana has been part of Flavor & Nutrition since July 2014. Including Diana, the segment grew sales by 31% to EUR 1.14 billion. In local currency, sales increased by 34%. Diana contributed sales of around EUR 234 million for the six months between July and December. Let us come to the regional sales development of Symrise, including Diana, on Chart 6. Latin America was our strongest growing region in 2014. In local currency, the region grew sales by 27% and benefited from particularly good demand in Brazil, Mexico, Argentina, and Colombia. EAME has been our second strongest region, with a sales increase of 21% in local currency. The region benefited from organic growth, especially in Western and Eastern Europe, as well as strong contributions from Diana. North America was our third strongest region, with a sales plus of 17% in local currency, followed by Asia Pacific, with a 10% sales increase. In North America, we benefited from new business wins as well as from Diana. In Asia Pacific, emerging markets like Bangladesh and India, but also industry nations like Japan, developed very well. Let us look at our performance in emerging markets in detail. We increased sales by 17% in 2014 and benefited from the increasing demand for everyday products on one hand and luxury brands on the other. This confirms our strategic approach to constantly expand our presence in emerging markets. As you might remember, in 2014, we put a particular focus on Africa, where we set up a subsidiary in Nigeria and opened a new production site in Madagascar. In total, we generated 47% of our group sales in emerging markets, after 48% in 2013. The slight decline reflects the currently higher presence of Diana in Western markets. However, let us assure you, there is a lot of potential for Diana as well in the emerging markets. Let us come to our earnings development on Chart 7. Despite one-off costs related to the acquisition of Diana in the amount of EUR 29 million, we significantly grew our EBITDA. Major impacts come from the strong sales growth and the high utilization level. In addition, we continued our strong cost management. Our EBITDA, normalized for one of the effects related to Diana, increased by about 24% to EUR 465 million. Despite our strategic investment and the takeover of Diana, we continued to operate very profitably. Our normalized EBITDA margin rose by 1.5 percentage points to 21.9% and is thus on the upper end of our targeted range. Let's come to the segments. The consequent focus on high-margin business paid off for Health & Care. The division grew its EBITDA by 15% to around EUR 223 million. The EBITDA margin rose by 2.4% to 22.7%. Diana Group delivered an EBITDA of around EUR 49 million, which has been attributed to the Flavor & Nutrition segment. The normalized EBITDA of the segment increased to around EUR 242 million. The EBITDA margin grew to a very good 21.2%. Sustainability is a word often heard these days, maybe in the context of environmental aspects or earnings. Turn to Chart 8, please, which should be familiar to you. It is the evidence of sustainable sales, earnings, and profitable performance. Since the IPO in 2006, Symrise has delivered extremely solid figures. With our 2014 results, we have continued on this track. We have thus delivered a compound annual sales growth rate of 7.1% and a CAGR of 8.5% for the EBITDA. Ladies and gentlemen, let me now hand over to Bernd Hirsch, who will provide some more details on additional financials. Thank you, Heinz-Jürgen, and welcome to everyone joining our conference call on the full year 2014 numbers and performance today. You have heard already from Heinz-Jürgen about the highlights and the relevant numbers regarding our last year. Our performance in the fourth quarter was very strong in terms of growth and profitability, and thus we are happy to report that 2014 was a very challenging but also the most successful year in Symrise's history, with record values in sales and profit. We have in due time successfully completed the financing of the Diana acquisition, financial integration and the acquisition-related costs and accounting issues have also been completed and are fully reflected in the year-end financials of 2014. Before we now go into a few more details of the financials, let me briefly say something on a personal note here, and Heinz-Jürgen has mentioned that in the beginning. I have decided not to renew my CFO contract beyond the year 2015. I have to confess, it was really a tough decision for me, and it is purely based on personal reasons. I will be in charge until the end of the year, and this will ensure a smooth transition. You can be sure that all of us in the management team are committed to keep the pace and momentum that you have seen from us in the past. Please do not expect any retirement-like behavior from me. Last point before we go into the numbers is that we would like to thank our people for their relentless efforts to successfully close the year, despite all the additional work and challenges. Great job, and we are proud to lead such a dedicated team. Let us now have a look at slide 10. Revenue increased by around 18% in local currency and 16% in reporting currency. Without the effect from the Diana acquisition, local currency growth for the year was at 5%, so within our midterm guidance and target range. In Q4, we were able to accelerate growth to around 7% in local currency, excluding Diana. In reporting currency, the growth was even higher and reached 10% in Q4. Scent & Care grew the business in 2014 by 4% in local currency, with a very clear and strong focus on high-margin businesses. This led to an improvement of 240 basis points in margin, and the EBITDA margin achieved a record level of 22.4%. The flavor business, again excluding Diana, continued its strong performance with a growth rate of 6% in local currency and profitability increased by 70 basis points to an EBITDA margin of 21.2%, excluding the one-off effects related to the acquisition. The Diana business contributed nicely to our success with local currency growth of more than 5% and an EBITDA margin of nearly 21%. Normalized EBITDA increased by 24% to EUR 465 million and the normalized EBITDA margin reached 21.9% after 20.4% in 2013. Our EBIT before one-offs is up 19% to EUR 338 million and the normalized EBIT margin has reached 15.9%. To conclude this slide, I think it is obvious that despite the uncertainty that we still see in some parts of the world, our well-balanced portfolio of fast-growing businesses, each of them with high profitability, pays really off for us. Let us now move on to slide 11. The EBITDA bridge on this slide gives quite a good overview on the main profitability drivers. We talked already about the strong contribution from sales growth, which was, besides the Diana acquisition, to a big extent driven by further volume increases in our core businesses. Moving on to raw materials, we had some improvements versus the year before, but it is obvious that the impact is rather moderate. We have seen slight cost reduction for chemical raw materials, but by far not in the magnitude of the oil price reduction, and we do not believe this will change in the current year. In addition, the picture in natural raw material is much more diverse, and in total, these were slightly up versus the year before. However, we are convinced that our strategy of backward integration offers substantial benefits in terms of predictability, quality, and traceability of our products. Manufacturing costs grew by EUR 69 million, driven by higher volumes. As a percentage of sales, the quota improved slightly based on productivity gains in 2014. The consolidation of Diana limits the comparability with the prior year numbers and ratios. That is why we give a little bit more insight details in this call, and I am sure also later on in the Q&A session. Our expenses grew only moderately versus the year before on a like-for-like basis. Currencies had a net impact of around EUR 2 million, with still negative contribution from translation and a positive contribution from transaction. This demonstrates that in principle, we benefit from the devaluation of the euro and the strong US dollar is in our favor. One-off effects from the acquisition, such as transaction and integration costs, had an impact of around EUR 18 million on the operating profit, and thus we clearly stayed well within our guidance of up to EUR 20 million given at the time of the signing. In Q4, we had a one-off related to the mandatory step-up of finished goods out of the purchase price allocation for Diana. This impacts operating profit and is reflected in the Q4 COGS position. We do not expect any further substantial extraordinary costs from the Diana acquisition and integration in 2015. Slide 12 is an additional slide that we have put in here to give you more transparency on the individual EBITDA impact, and it summarizes the details I have just mentioned. I think this doesn't need further explanation. The financial result is outlined on Slide 13. In 2014, our financial result amounts to minus EUR 48.4 million, versus minus EUR 37.3 million the year before. The non-recurring items have not changed since Q2, and thus are known and communicated already. Without the one-offs, our financial result is around EUR 3 million below last year. Net interest expenses are the main driver, and those are mainly impacted by the debt financing of around EUR 900 million in connection with the Diana acquisition. But all in all, we were able to finance the transaction at very favorable conditions. The P&L as reported and also the normalized P&L, excluding the one-offs, is shown on Slide 14. On a normalized basis, sales growth of 16% translates into 17% gross profit growth. EBIT is up 19% and profit before tax grew 21%. The tax rate is at 28.2% versus 29.9% last year, mainly due to regional profit distribution. That is again, within our longer term expectation that the tax rate will stay below 30%. Net income increased by 23% to EUR 213.4 million and EPS is up 16% to EUR 1.69. After all these record numbers, we should have a look on the reported numbers. As you can see, even when not eliminating the one-offs, we did pretty good. Without going through that line by line, we achieved a reported EPS of EUR 1.48, which is an increase of EUR 0.02 versus the year before, despite the 10% increase in share capital and despite the extra cost related to M&A. The EPS bridge on Slide 15 summarizes again the main topics I have just mentioned and which had an influence on EPS, and also doesn't need further explanation. The net operating cash flow on Slide 15 increased by around 25% to EUR 343 million. Changes in working capital are basically in line with the business development. Net debt to EBITDA ratio is at 3.2, including the pension accruals. Apart from the financing related to the Diana acquisition, the pension accruals increased by more than EUR 110 million just based on the low interest rates and the corresponding effect from discounting future obligations. Without pension accruals, the leverage ratio is currently at 2.3 times EBITDA. Slide 17 shows a summary of the main balance sheet positions. The main impact on the balance sheet, again, came also from the Diana acquisition. The purchase price allocation is in the meantime finalized and increased the goodwill by about 570 million and intangible and tangible assets net of deferred taxes by about 450 million. With an equity ratio of 36%, we maintained a healthy and strong balance sheet. So much about the numbers for the moment, and I'm sure there will be more questions in the Q&A session later on. Heinz-Jürgen will now focus on the outlook. Thank you, Bernd. Let us now come to the outlook, our strategy, and what lies ahead of us. The business model of Symrise on Chart 19 combines entrepreneurship with sustainable operations, and our strategy aims at profitable growth based on three pillars: growth, efficiency, and an innovative portfolio. The key to our long-term success is to address major global trends. Sustainability, urbanization and economic progress, naturalness, and wellbeing are underlying growth drivers for our business. They influence consumer preferences and thus requirements for new solutions. Our comprehensive R&D, which not only relies on traditional disciplines but also capitalizes on green and white chemistry, delivers tailored solutions. We constantly expand our portfolio on applications through organic measures as well as strategic bolt-on acquisitions. In addition, we constantly drive efficiency, be it our raw material supply or our operations. Our 2014 financials demonstrate this strategy has paid off and has delivered sustainable results. We therefore consequently continue on our strategy going forward. Let me fill those words with life and give you an outlook on our strategic initiatives on Chart 20. Over the next 24 months, we will expand capacities and R&D and implement new measures to increase efficiency and reduce our ecological footprint. In both emerging and mature markets, we will set up new facilities to meet the growing customer demand for our applications. In Holzminden, for example, we will expand again our extraction and distillation facilities and build a new cosmetic ingredients plant this year. In the U.S., we will expand our spray drying capacities. Furthermore, we will begin the extension of our regional hub in Singapore, which will become the innovation center for the region. As part of our efficiency efforts, we will also invest in a new energy plant and a state-of-the-art logistics center in Holzminden. Our CapEx guideline remains fully in place. We invest about 5% of our annual sales into new projects. Let us come to our perspective for 2015 and beyond on chart 21. The fundamental drivers of our business are fully intact, and we expect good growth opportunities in both segments. Economic conditions vary in different countries, and we currently face a number of unsolved political conflicts around the world. However, we expect solid demand and good growth opportunities in all regions. On the cost side, some foreign exchange rates and raw material prices will remain volatile. Although the oil price has significantly decreased, a number of agricultural commodities such as citrus have increased. Symrise, however, is well positioned for profitable growth and will therefore fully capitalize on its global market presence and portfolio. In 2015, we aim at yet again outperforming the global flavor and fragrance market, which is expected to grow by 2%-3%. In addition, we aim at an EBITDA margin of more than 20%. Our long-term targets, which are defined until the end of the fiscal year 2020, also remain fully in place. We aim at an average annual growth rate of 5%-7%, and we want to generate more than 50% of our sales in emerging markets. Furthermore, we remain fully committed to high profitability. We strive for annual EBITDA margin between 19% and 22%. Ladies and gentlemen, thank you for your attention. Tobias, now the call is open, and we can open the call for questions. Thank you very much, gentlemen. We are now happy to take and answer your questions. We kindly ask you, as always, to put only two questions, please. If we cannot take all your questions during the conference call, we will answer the remaining questions later today. Many thanks, and first question please. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who has a question may press star followed by one on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. Our first question today comes from the line of Heidi Vesterinen of BNP Paribas. Please go ahead. Hi. Good afternoon. I saw some headlines on M&A this morning. Could you just clarify what you were saying? Do you actually see assets available for a decent price in these markets? The second one is on growth rates by region. Could you give us a sense of what the growth rates were excluding Diana, please? Thank you. Okay, I think I start. Yeah, Heidi. First, I hope today we fulfilled your requirement for breaking out Diana and reporting on the local, the annual growth, just in an organic way. I hope we did a decent job there. Yes. We appreciate that. Thank you very much. We read your report. We saw that, and I hope you are happy with what you see. Talking on M&A, I think I picked that, Bernd, if you want to talk on the regional stuff. M&A, honestly, that was also the headline this morning. There is nothing special which is worthwhile to report and to leverage upon. We just said it has changed. Also, after the acquisition of Diana, we are constantly looking at 5-10 targets, and that is the message we always have been putting out. Financially, we would have the headroom to do certain acquisitions up to a certain level. There is nothing in the line which we are having clearly earmarked now, and the message has not changed to what we have said in the past. The only question this morning was, "Are you looking after Diana's acquisition still on other potential targets?" In the attempt to be honest and straightforward, yes, we do. That is not something which is different from the past. Heidi, you know the areas which we are looking into and the regions which are of interest to us. Nothing has changed. Okay? Bernd, do you want to talk about some growth rates by region in local? Yeah. There is a reason, Heidi, this is Bernd. There is a reason why we did not put that into the report, because we have I would say it is not that easy to take out the Diana contribution. I think we found a way now within our reporting system. To be precise and specific on the question, growth for India, and I think that was the question in the former Symrise business without Diana impact, we had around 5% growth in Europe, Africa, Middle East, so that is the EMEA region. Also around 5% in local currency in Asia Pacific. North America was slightly below in the magnitude of 3%, and we had again 10% or slightly more than 10% in Latin America. I would say all in all, the picture has not changed substantially for the core business. Okay. Thank you very much. Thank you, Heidi. You're welcome. Our next question comes from the line of Rakesh Patel of Goldman Sachs. Please go ahead. Hi there. Good afternoon. Just a couple of questions from me. First of all, I wonder if you could give us a little bit of color on how we should think about the Flavor & Nutrition margin going forward. Just to know if there are any integration charges that we should expect in Q1 and Q2. I was just slightly surprised that the margin tailed off a little bit in Q4, so perhaps you could talk about what was impacting that. Secondly, sorry to keep going on about this, but perhaps you could give us a view of where you think inventories are, again, amongst your customers. I think previously you said it was lower than average, but you're posting quite phenomenal growth rates, much more than some of the big customers that you have. I just wondered if there was a big stockpile of vanilla somewhere, and someone was looking for it. That would be great. Thanks very much. Okay, this is Bernd again. Let me try to answer that also quite straight. The Q4 Flavor & Nutrition margin, I wouldn't read too much into that, frankly speaking. It has been a very successful year, exhausting year to some extent also for the flavor organization, so there's no structural deviation. I think going forward, we expect again this year that the flavor business is delivering very strong on margins. As I said in the beginning, we do not expect any substantial effect from further integration or integration-related costs. Most likely you won't see any normalization in 2015 because we're done with the integration work. Apart from the longer-term projects that will continue for another one or two years, specifically harmonizing the backward integration strategies of the two companies including the materials from Diana into the flavor formulas of Symrise, et cetera. But going forward, you can expect strong delivery on margins from the flavor business. Inventory levels at customers, I would say very difficult. You have to look really into the individual account. I would not say that the inventory levels are substantially below or above the historical average, so the picture has normalized again. Of course, we see a little bit of, let's say, micro-speculation because of the oil price and chemical-related or chemical-based products. But I think the market has understood now that specifically in our industry, I would say anticipated or expected positive impact from the drop in oil price will not materialize, and thus there's nothing we can give to our clients. I think discussions on pricing went pretty well. Inventory levels are normal, and the big driver for us remain these, I would say, the small local and regional clients which still follow very aggressive growth path, and that's our explanation. No change to what we said in the past. Great. Thank you very much. You're welcome. Our next question comes from the line of Patrick Lambert of Nomura. Please go ahead. Good afternoon, everybody. Congratulations for Q4. Two questions, I guess. The first one regarding the effects impact and if you could comment a bit more on your net exposures, meaning sales minus cost in terms of currencies. Remind us of any change of hedging strategy that you think of into 2015. That's question number one. Question number two, the Diana margin in Q4, I know it's only a quarter a bit weaker than Q3. Is there any seasonality in the business we should be aware of in terms of maybe I would not expect so at the end of the day, but anything that you can help us in trying to get the quarters a bit more in line. Thanks. Okay, let me try to answer the first question on FX. I think we will not substantially change our hedging strategy, which is relatively boring anyhow. What we continue to do is that we hedge our net exposure, which is in the magnitude, I would say, on an average month, we are maybe EUR 10 million long. We are long in dollar. Yep. We hedge that with a six- to nine-month horizon, and we typically hedge between 50% and 75% of the net exposure. We are relatively straight, I would say. No intent to change that, because I keep saying internally and externally, I think our job is not to speculate on or anticipate currency development and then speculate sometimes into the right direction, sometimes into the wrong direction. It's to secure and save the business, and that's why I don't expect any substantial changes here. Frankly speaking, to put a number behind that, if we see a drop in the euro versus the dollar of about 10%, the impact, roughly speaking, is about EUR 10 million on an EBIT level. That's as precise as we can be at this point in time. It has a favorable impact, but it will not change our world. Heinz-Jürgen, are you going to pick up the seasonality question? I will. Yes. Thanks, Bernd. The seasonality, Patrick. The Diana business indeed has a seasonality, which is slightly different to what the Symrise, say, seasonality is. And typically, strong quarters tend to be the first and the third one. There is a lot of different reasons, harvest seasons and all this kind of stuff. This is what we have seen so far and what we have learned from Diana. But you have to give us some credit, as we just have the company on board for half a year. We still need to get a deeper look into this, where the root cause of all the seasonality is. But to your question, there is a certain seasonality, and at the moment, the business should be pretty strong, because this first quarter typically is a strong one. Okay? Excellent. Thanks. You are welcome. The next question comes from the line of Bernd Pomrehn of MainFirst Bank. Please go ahead. Yes, good afternoon, gentlemen. Thank you for taking my question. Firstly, on China, what is your view on China? Many of your customers are currently reporting about difficult demand development in China. Secondly, on Latin America, do you expect your double-digit growth to continue in Latin America despite Brazilian economy getting more demanding? Thank you. Yeah. Okay, Bernd. I think I pick that one. China. Yes. The times of very dynamic growth seem to be a bit behind us, but on the other side, we still see healthy growth. That is, at least if it reflects our business. We read all the reports, and we see that the economy has slowed down to some effect. Now I think you also see that our business model is based on many customers, many different segments, so we still see some nice growth in China. It has slowed, though, but we also expect for the future, healthy growth momentum. One example for that is reflected in the fact that we just currently start building a new site in China. I think that answers our viewpoint to this one. Latin America. Latin America is not a lot different than it was in the past. It was always a bit more volatile than other areas and other regions, but challenges on the one side are also opportunities. So despite all the turbulence we've seen in this region and these markets, we also have seen healthy growth in that region. We do expect that to go on. I think our current intention to build also a new site in Brazil reflects our confidence in the Latin American market. If we always are able to deliver double-digit growth, I cannot answer. Do we expect healthy opportunities in that region as well? Yes, for sure. Okay? Okay. Thank you. Very helpful. Our next question comes from the line of Jaideep Pandya of Berenberg. Please go ahead. Thank you. First question is on your bridge that you provide, and thank you so much for this, on Chart 11. If I compare this bridge to the 9-month bridge, the two questions that I have here are, sub-questions really, is why are raw materials seemingly up or negative in Q4? Because you had EUR 18 million tailwind in 9 months, and you have EUR 11 million as a full year. Then on the manufacturing block, there is a significant increase for Q4 compared to 9 months. Again, I'm really confused what's going on there. If you can shed some light. The second question is really a little bit more structural on your business. A lot of your peers refer to the market growth of 2%-3%. Most of you guys are now having 55% sales in developed world and 45% in emerging markets. I'm just wondering, what are you really seeing in developed world versus emerging markets in terms of growth rate? Because, for the last couple of years now, you've told us about 2%-3%, but you obviously are growing double that. How long is this market share story going to continue if you believe it's 2%-3% underlying growth? Do you actually feel that the last couple of years has actually been stronger than 2%-3%? I'm referring to the market. Thank you. I take the second one. You start with your bridge first. Yeah, we can start. You paid the price for the bridge. Now I pay the price for the bridge. Yeah. First of all, on raw materials, it's definitely the case that we have seen in Q4 a pickup in raw material prices, mainly in the space of natural. I can give you extreme examples, like for example, citrus products are up, I think in the magnitude 25% versus the year before. That's a substantial increase in prices. Vanilla is up quite substantially versus the year before. But we see also other categories where the picture is a little bit more favorable. That's what I said in the beginning. It took quite some time to educate the customer base on the fact that what you read about the 50% reduction in oil price has not necessarily an impact on citrus prices, vanilla prices, et cetera. Indeed we have seen in the fourth quarter an uptick in raw material prices. We track that with a long-term average, and this does not look concerning. It's more that we go back into the, let's say, typical channel of slight increases across the whole portfolio, which we can then really handle in terms of, or compensate with price increases and productivity gains. The second point, manufacturing cost. This is because we have another quarter of Diana included there. That's the main driver for this increase. Then of course, that's what I said also in my speech, that percentage-wise for the core business, former Symrise business, we actually have seen an improvement of the manufacturing quota because of good utilization. In the Diana organization, the picture is slightly different. Heinz-Jürgen Bertram referred to that already, that specifically for food ingredients, you sometimes have quite substantial underutilization because there's one point for harvesting, one point for processing, one point in time for processing, one point in time for selling. That's why quarter-over-quarter comparisons are difficult. We have not found yet a perfect solution how to give you more transparency and comparability, excluding the seasonality effect. We need a little bit more time, but there's nothing concerning in that number. Thank you. You are welcome. Let me pick your second question. I think what you just brought up as a question proves that we are telling the truth. Yes, all the competitors from the tier 1 in our industry report growth rates significantly higher than the 2%-3% market growth. But we have always said that the big players have an advantage to scale effects, increasing market entry barriers, increasing regulatory requirements. We should be, all of us, gain market share, which you see is the fact. Who is not? If you look in tier 2 and tier 3, and I am not giving you the names for tier 2, tier 3 players, but some of them are publicly listed and publish the numbers, be it in North America, be it in Asia, and they have no growth or negative growth. I am sure you can find the names yourself and look it up, but you see the growth rates there are at or below the 2%-3% market growth. It shows clearly the big ones, and we are one of them, all gain market share. Having said that, leads me to the second part of your question, how long can this go on? Currently, the big four have a market share of altogether about 53%, and with the higher growth momentum compared to the market growth, my calculation comes up that we easily can continue this story for 20 years or more before we have to reconsider this again. But the simple calculation shows still very long. Okay? Thank you so much. Thank you. You're welcome. Our next question comes from the line of Jean Meymandi of UBS. Please go ahead. Hi. Good afternoon. Thanks for taking the question. The first is on Diana. It looks like your Q4 year-on-year gross margin is down. Is that because of this? Are there some special effects on the gross margin? At the same time, the Diana EBITDA margin seems to be roughly comparable to your overall group gross margin. Is there a mismatch in the gross margin/cost to serve between Diana and the overall group to calculate that? The second one is on the acquisition front of what you said of the potential EUR 500 million for acquisitions. You've done something quite disruptive for the group this year. Don't you think it would be a stretch for the organization to integrate more and more in such a short period of time? You start. Yeah, let me start with the first question. The only explanation I have, and I am not sure if you looked into the normalized or not normalized numbers, because we get this EUR 10 million step up in inventory, that is reflected in the cost of goods sold position. That is clearly, I would say, a negative one-off effect in the Q4 gross profit that you will not see starting from the first quarter of this year. In addition to that, I would confirm, yeah, gross margins of Diana are more or less the same than for Symrise, with a little bit more fluctuation due to seasonality over the year. With respect to the And the cost to serve is the same, roughly? Pardon? The cost to serve is the same? Yes. Pretty much the same. Yeah. If you look into the individual cost positions, what you will find out is that allocation is not yet 100% harmonized, so they have a little bit lower R&D expenses, a little bit higher administration expenses, everything as a percentage of sales. But we are in the course of harmonizing that, so I think it will become a one-to-one comparable starting 2015 with the reporting in Q1 and following quarters. On the M&A question, this was more a high-level question, how much firepower, and this is what I calculated on the back of an envelope in the press conference. That does not mean we are going to spend the EUR 500 million tomorrow. Your question is a good one, actually, because as you rightfully pointed out, it was quite a challenge for all of us to integrate such a big acquisition within such a short period of time. On the other hand, don't forget, we have a long track record and successful history in integrating businesses. And it always depends on the individual case. The easiest case is a cost synergy case where you just buy something. You essentially buy the assets, you integrate it into the own organization, and leave everything else behind. Diana was, I would say, from a complexity perspective, a rather complex case with a full integration of a big organization, 33 countries and legal entities. So it depends a little bit also on the individual case. I think, just from my personal perspective from looking here at my colleagues, I would not say we are paralyzed. I think we are done with the Diana transaction and ready for new things. It always depends on opportunities, of course. And there, what do you think about current multiples? Because it is true that at current multiples, you are buying between EUR 100 million and EUR 150 million of revenues for EUR 500 million. Yeah. I am not so much concerned about the sales multiples. We look at EBITDA multiples because the profitability is the knockout criteria. And frankly speaking, even if you go into categories with low profitability, the multiples are low. The problem is it is currently a seller's market for high-quality businesses. And therefore, we have to be disciplined, cautious, and we need to calculate the synergies because the synergies are always determined by the question, who is the best owner? And that is why it is a very individual question. But you are absolutely right. It is a seller's market, and we remain disciplined on that. Thank you very much. Ladies and gentlemen, we have 10 more minutes and three more people waiting in line. If you ask only one or two questions, we can make it. Thank you. Our next question comes from the line of Sebastian Satz of HSBC. Please go ahead. Yeah. Thank you very much. Just two quick ones from my side. Dr. Bertram, you were quoted on Reuters that an EBITDA margin of more than 22% was unsustainable in the long run. Now, you are at 22% at the moment, and consensus sees you doing even a little bit more in the coming two years. What do you think exactly will eventually drive your margin lower again? Is it the business cycle? Is it your customers' bargaining behavior? If you could just elaborate on that. The second question is really on Europe, where we've seen quite a few positive data points over the last couple of weeks and months. Do you see that already reflected in your business in any shape or form? Thanks very much. Okay. I start with the margin. Yes, we believe there is a certain ceiling. If it's a sharp 22%, we don't know. But there is definitely a ceiling, and it is definitely not 25%. That much is our firm belief. It's the simple fact of psychology and purchasing behavior, as you rightfully pointed out. If you would have an EBITDA margin of far more than 22%, the EBITDA margin would be nearly 10% higher than our customer space. Imagine the price negotiations, which automatically will kick in. What we always say, what we do is very important and very decisive for the success and the acceptance of our customers' products in the market, which means we are permitted a certain healthy margin. But from a certain point on, if the margins we generate are far higher than our customer's margin, a typical human behavior starts and it kicks in, and we have an issue. It is a self-correcting process, and it is our firm belief that somewhere in the area of 22% or higher, but the 22% was a benchmark guideline, this will kick in. We did not want to promise you something and mislead you to calculate in your model something which we do not believe is sustainable. If others believe it differently, fine. That is our clear belief, and that's why we have pointed out our guidelines, short and mid and long term. The effects of Europe, if I understood your question correctly, are factored in our guideline as good as possible. Of course, you can always see certain changes, short, mid, and long term. But what we handed out to the market is what we see so far today for mid and long-term development, and honestly, it feels good. We believe we did not make an outline, an outlook, overconfident, but very well-balanced with upsides and risk. I hope that answers the question. Very clear. Thank you. Thank you. Our next question comes from the line of Laurent Favre of Bank of America, Merrill Lynch. Please go ahead. Yes, good afternoon. I just have one question around investments. Dr. Bertram, you mentioned that investments could be around 5% of sales, and you were talking or mentioning, let's say, projects that were related to what I would call core Diana, so U.S. cosmetics, et cetera. If I remember correctly, you were saying that there was a big potential rollout program for Diana into emerging markets. I was wondering if that 5% of sales in CapEx is reflecting very high CapEx requirements for that Diana rollout, or whether you think that even without that, you could hit that 5%. Because historically, you've spent less than 4%, so this seems to be a significant step up in investments. Thank you. Yeah. Thank you. I start, and if you want to, Bernd, you look as if you want to say something as well. Absolutely. I correct you. Yeah. So, we believe at the moment this 5% gives you a good guideline. Yeah, it may be a bit more than we have done in the past. But see that not as a consequence of us having to invest more in Diana and Diana rollout. I think that the business plans and the initiatives Diana has devised are perfectly in line with what we do. See that as a sign of our firm belief in some of the technology platforms which we have established also on the Symrise end in the past, that they are ready for rollout now. Just to give you some highlights, in April, we will open our newest, the biggest plant for a cosmetic ingredient, which will be then online. We will build up a new spray drying factory in Holzminden. We are about to erect a new big spray drying tower, yes, this Diana core in the U.S. So there is a lot of projects where we now benefit from some technology platforms which we have developed and implemented in the past. And that is the pure logical consequence that we increase our capital investments as we want to fully capitalize on these opportunities. It does not have to do anything with a disproportional big need for a Diana rollout or something like that. Okay? Okay. Thank you. Ladies and gentlemen, we are getting close to the end of our conference call. There is one more question to come. Please go ahead. The next question is a follow-up question from the line of Patrick Lambert of Nomura. Please go ahead. Hello. Thanks for taking the last one. Can you comment a bit on Probi, your stakes, your investments there? Do you want to raise a bit more your ownership? More importantly, how the business is developing there. Thanks. Well, Probi is doing extremely well. Yes, we have around 50% shares. We feel very confident with our shareholding there. We have increased it over the past. We are not saying we are not increasing it. We are not saying we are selling it. With what we have at the moment, we feel very comfortable, and the management of Probi does an extremely good job. For what we want to do with Probi at the moment, we can do with the shareholdings, which means we develop, as we are speaking, a new product for oral care based on probiotics. We develop a new cosmetic ingredients and cosmetic green product line based on probiotics. So you see a lot of new, fresh ideas which are new to the market. It is only possible because we have exclusive access to their technology platform. For the moment, we feel very comfortable and good. The financial results of Probi, I think, speak for themselves. Okay. Thank you. Ladies and gentlemen, this brings us to the end of our conference call. Many thanks for your time, for your interest. Thank you very much to the gentlemen in this room and to Pat operating. Thank you and bye-bye. Thank you. Bye. Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.