Earnings Call: Q4 2013

Mar 10, 2014

Thank you, Patrick. Good afternoon, ladies and gentlemen, and welcome to our conference call on our full year 2013 results. 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 is being recorded and will be available for playback on our webpage in the Investor Relations section at events and presentations, where you also find the fact sheet and the presentation. After the presentation, we are open for your questions. I will now hand over to the CEO, Dr. Heinz-Jürgen Bertram. Ladies and gentlemen, welcome to our 2013 earnings call. Our CFO, Bernd Hirsch, and I look forward to present our results for the financial year 2013 and to give you an outlook for 2014. Following our presentation, we will open up the call for your presentations. Let us start on Chart 3. 2013 has been a very special year. Symrise celebrated its 10th anniversary. By combining two completely separate businesses with a rather regional scope, we have created a leading global player. Since 2003, we consequently expanded our global footprint, broadened our activities, and strengthened our customer base. Today, Symrise is among the world's leading global flavor and fragrance suppliers with a market share of 11%. 2013 was an excellent year for Symrise, with various highlights, which are presented on Chart 4. The strongest message certainly is we drove our sales and earnings to new all-time highs. Sales rose by around 6% to more than EUR 1.83 billion. At local currency, this corresponds to an even stronger increase of 10%. We once again outperformed the global flavor and fragrance market, which according to estimates, grew by 2%-3%. We benefited from very good dynamics in both divisions. From a regional perspective, the Americas were our strongest markets. Our EBITDA also reached a new record level. It grew by 10% to EUR 372 million. With a 20.4% EBITDA margin, we continued to deliver strong profitability despite additional strategic investments in growth. Our bottom line grew by 9% to an excellent level of EUR 172 million. Accordingly, we report earnings per share of EUR 1.46 in 2013 after EUR 1.33 in 2012. Based on our strong performance in 2013, the management and the supervisory board propose a dividend increase to EUR 0.70 per share, which represents another all-time high. Let us take a look at our sales development in full detail on Chart 5. We successfully continued our profitable growth track. This is quite remarkable given that global economic growth was actually slower and more volatile than originally expected. While several factors faced some headwinds in 2013, we were able to move ahead as planned. We capitalized on strong dynamics in both divisions and all regions. Symrise increased sales by 6% to more than EUR 1.83 billion. In local currency, we grew by 10% and clearly outpaced the market. Despite strong comparables from 2012, Scent & Care continued its dynamic growth and drove sales to more than EUR 960 million. This reflects an increase of almost 9% at actual rates and 13% in local currency. Scent & Care saw strong dynamics across all business units and benefited from three factors, high demand in fragrance, the acquisition of Belmay's scent activities in March, and expanded menthol business. Flavor & Nutrition increased sales by around 2% to almost EUR 870 million. This translates into an increase of 6.5% in local currency. The division benefited from growth across all business units and particularly strong demand in sweet, savory, and consumer health applications. Moving to the next chart, we will examine our regional sales development. North America was our strongest growth engine. In local currency, the region grew sales by 14%. Besides organic growth, especially in fragrances, aroma molecules, savory, and beverages, the region benefited from the acquisition of Belmay's activities, which we have fully integrated during 2013. With a sales increase of 12%, Latin America was our second strongest region, followed by Asia Pacific with a 10% sales increase. In both regions, we benefited from healthy demand in oral care and fragrances. In Asia Pacific, we also saw growth in sweets and savory. China, India, Indonesia, Japan, and Thailand stood out on a country-by-country basis. After a weaker prior year, EMEA successfully returned to the growth track. The region did very well and delivered a sales increase of 7%. In EMEA, we benefited from good dynamics in Germany and in the U.K., as well as Russia, Africa, and the Middle East. Applications with the highest demand were savory, consumer health, fragrances, and Life Essentials. Let's come to our emerging markets performance on the right side of this chart. In contrast to the widespread news about a slowdown in important emerging markets, Symrise grew sales by 11%. We delivered targeted solutions to the specific consumer needs and capitalized on our growing presence. Overall, emerging markets stood for 48% of group sales. In local currency, their share already exceeded the 50% threshold. All of you will agree that top-line growth is even better if it's supported by a strong bottom line. Please have a look at our earnings development on chart seven. Driven by our sales increase and the high capacity utilization, our EBITDA climbed by 10% to more than EUR 373 million. We're highly profitable, and we made strategic investments into further capacity expansion. Our group EBITDA margin increased to 20.4%, which is fully in line with our long-term margin guidance. Looking at the division, Scent & Care grew its EBITDA to around EUR 195 million. The EBITDA margin went up from 18.2% to 20.3%. Flavor & Nutrition delivered an EBITDA of EUR 179 million, with an EBITDA margin of 20.5%. Let us come to chart eight, which is one of my favorites. It highlights our creation and sharing of values, which is also the title of our new annual report for 2013. Over the past years, we have successfully driven sales and earnings growth, and we delivered a robust performance even in extremely difficult years like 2008 and 2009. Since our IPO in 2006, we have delivered a compound annual growth rate of 6%. We have successfully improved our operating cash flow and strengthened our equity base. Bernd Hirsch will now explain our 2013 financials in detail. Dan? Thank you, Heinz-Jürgen, and good afternoon to everyone joining our conference call on the full year 2013 numbers and performance today. You have heard already from Heinz-Jürgen about the main topics and the relevant numbers regarding the last year. Overall, our performance in the fourth quarter was strong again, and thus, we are happy to report that 2013 has been the most successful year in our 10 years history, with record values in sales and in profit. At this point, let me just briefly mention that we would like to thank our people for this achievement, which is based on everyone's commitment and dedication in the Symrise organization around the globe. Let's now have a look at slide 10. We were able to keep the high pace in top-line development throughout the year and achieved an industry-leading sales growth in 2013. Local currency growth of nearly 10%, and despite the relative strength of our reporting currency, euro, versus the U.S. dollar and many of the emerging markets currencies, 5.5% growth in reporting currency is a great result. Our performance was strong in all regions and across both divisions. The Flavor & Nutrition business had a very good year with local currency growth of 6.5%, which is the highest in the industry. The Scent & Care business had some tailwind from the acquisition of Belmay, but even by excluding this, the local currency growth was 9% and thus also industry leading. In addition to our focus on growing the business faster than the market, we also kept in mind the quality of growth is very important. That the existing and new business has a high quality can be derived from the fact that we were able to grow our EBITDA by 10% and to improve our EBITDA margin from 19.5% last year to 20.4% in 2013. Our EBIT is up 12% to EUR 283 million, and the EBIT margin has reached 15.5%. Let us now move on to slide 11. On this slide, you can see the EBITDA bridge, which gives a quite good overview on the main drivers of our profitability. We spoke already about the strong contribution from sales growth, which was to a big extent driven by volume increases. Moving on to our raw materials, we had some improvements over last year. In this respect, please keep in mind the one-time cost from ramping up our menthol capacity last year. When excluding this, we have seen slight cost reduction for chemical raw materials and, as usual, a very diverse picture in natural raw materials. Naturals net net were slightly up versus the year before. 2013 was clearly a year that offered benefits to those who buy mainly in the spot market. In other words, with a one-year perspective, we had a slight cost disadvantage from long-term relationship with suppliers of major natural raw materials. But we are still convinced that our strategy of backward integration in the long run offers substantial benefits in terms of high predictability when calculating our prices and in terms of traceability of our products. Manufacturing costs grew by more than EUR 20 million, driven by the rise in energy costs for major production sites in Germany. We invested in the expansion of our sales and marketing organization and spent about EUR 30 million or 8% more than the year before in this area. The highest increase, percentage-wise, about 12%, we had in R&D. This reflects our strong commitment towards innovation and indicates that we have a strong pipeline of new projects as the majority of R&D is development work based on existing customer briefs. Administration expenses grew at only 5%, and the main driver for the under proportional increase are further investments into IT. Currencies had a minor impact in terms of transaction with about EUR 4 million. On the other hand, in the second half of the year, we have seen a substantial devaluation of many emerging markets currencies, and the impact from translation is about EUR 9 million, which is twice as high as the transaction risk, and as you know, hard to manage. We will remain attentive with respect to the foreign exchange development in emerging markets like India, Brazil, Russia, Venezuela, and Argentina, to mention just some examples. The financial result on slide number 12 has improved by nearly EUR 3 million versus last year. We were again able to repay debt, and the interest rate for discounting the pension obligation is slightly higher than the year before, which also had a favorable impact here. The P&L, as reported, is shown on slide number 13. Sales growth of 6% translates into 10% gross profit growth. EBIT is up 12%, and profit before tax grew 16%. in 2013, we had a quite remarkable increase in tax expenses. The tax rate is at 29.9% versus 26% last year. The main drivers are the profit distribution across individual countries, the write-off of deferred tax assets in Singapore after we have been granted a reduced tax rate, and an increase in tax accruals to reflect potential risks from future tax audits. We might be overly cautious in this respect, but we estimate that risks in the area of taxation generally will increase, and we observe globally that authorities become more and more restrictive. However, we reiterate that the long-term tax rate is expected to stay below 30%. Net income increased to EUR 172 million, and EPS is up 9% to EUR 1.46. The net operating cash flow on slide 14 increased by more than 25% to nearly EUR 275 million. Changes in working capital are in line with business development. All dynamic ratios like DSO, DPO, or DOH are at or better than prior year's level. Net debt to EBITDA ratio is at 2.0, including the pension obligations, and thus, within the targeted range. Slide number 15 shows a summary of the main balance sheet positions. Trade receivables are moderately up by 6%, and so are inventories. The intangible assets increased in the course of the Belmay acquisition in March. Our borrowings decreased by about EUR 10 million due to our strong cash flow, which overcompensated investments in CapEx, mergers and acquisitions, and the payout of the dividends. With an equity ratio of about 43%, we maintain our healthy and strong balance sheet. So much about the numbers. Heinz-Jürgen will now focus on the outlook. Thank you, Bernd. Before we take a look at the strategic initiatives ahead, let's turn to page 17, which shows the relevant AFF market in which we now hold a share of 11%. Our applications represent only a fraction of the total cost of a final consumer product. However, they often determine whether a product, be it a beverage, ice cream, or perfume, succeeds on the market or not. In other words, our flavors and fragrance give products their distinctive character. The AFF market offers attractive growth opportunities for Symrise. They are based on global mega trends, increasing wealth in emerging markets drives demand both for everyday products and functional health and wellness solutions. As most of you know, the business model and strategy of Symrise is perfectly aligned with mega trends and the opportunities they offer. Symrise combines profitable growth with sustainable operations, and our strategy is founded on three pillars: growth, efficiency, and an innovative portfolio. Let me fill those strategic pillars with life. Chart 19 shows our business with individual customer segments. Over the years, we have developed a well-balanced customer portfolio of global, regional, and local players. Each group stands for about one-third of our sales. This is a very healthy balance, which we will strive to maintain. It goes without saying, however, that we want to further increase our market share and maximize our business with new and existing customers. Let us now take a closer look at prospects and dynamics in established and emerging markets on Chart 20. The left side on this chart shows growth at a different pace in various markets. With an estimated CAGR of 5%-8% between 2010 and 2020, emerging markets remain important growth drivers for our industry. Let me stress here, this continues to hold true, although you have recently heard more news about a slowdown in emerging markets. We might not see annual GDP growth rates of 15% or more like in the past. However, emerging markets with their growing consumer base and increasing wealth will remain a major driving force for Symrise and the global economy. Our investments have and will always focus on developing and mature markets, but with a particular emphasis on emerging markets. Since 2009, we have allocated a significant amount of our annual CapEx towards the fast-growing countries. This paid off. Within our four years, we grew our share of sales from emerging markets from 41% to 48%. In local currencies, we already crossed the 50% mark. By 2020, we expect two-thirds of our sales to come from emerging markets. Efficiency is the second element of our strategy and has different aspects. One aspect relates to the reliable supply chain of key raw materials in excellent quality and at stable prices. As you know, vanilla is one of our most important ingredients. We told you about our successful backward integration strategy for vanilla before. To meet the growing demand and to continue this successful approach, we have taken further actions. Just a few weeks ago, I opened a new fermentation site in Madagascar, and this summer we will open a new extraction plant. In addition, we joined forces on the ground with Unilever and the German Society for International Cooperation, GIZ. Together with these partners, we support community work as well as health and education programs to improve the local infrastructure and strengthen Madagascar's role as one of our key sourcing countries. A second example. Savory has been one of the fastest-growing application areas this year. Those of you who have already attended our capital markets day in November know onion is a key ingredient, basically, in every savory application, be it crisps, soups, or sauces. We have therefore taken additional steps to secure and expand our onion supply. Last year, we expanded our cooperation with certain farmers to increase our capacities in onion processing. In addition, our F&M team has defined a number of new projects such as optimization the value chain and developing new innovative flavor profiles. Innovation leads directly to the third pillar of our strategy. Let's turn to page 22, which deals with our unique portfolio. Especially our competencies in consumer health and Life Essentials will provide solutions for major consumer trends. These solutions will cover a number of application areas for cosmetics with additional benefits, functional food, and organic products. The two business units are constantly expanding their expertise and portfolio. Diversification of our portfolio is an ongoing effort. In 2013, we have taken a number of steps. Two of them are presented on Chart 23. Just a few words on this. Whatever step we take, creating value is the underlying principle for all our initiatives. With our acquisition of Belmay, we added value through new customers and complementary fragrance applications. Through our R&D partnership with Swedish Probi, we expanded our know-how in the fast-growing segments of probiotics, a key functional ingredient for health and well-being product solutions, especially in the area of dietary supplements and functional foods. We underlined the partnership with an initial investment. We have even increased our share and crossed the 30% threshold. Therefore, a mandatory public offer was launched about four weeks ago. As the tender period is still ongoing, I cannot present a result yet. Frankly, we will be happy about every share we acquire, but we have not set our targets very high. Irrespective of the outcome, we see ourselves in a comfortable position, and we are invested in a profitable business and have secured access to complementary expertise in the area of health and nutrition. Let us come to our financial objectives and strategic initiatives. Our long-term targets, which you find on the Chart 25, remain fully in place. We aim at increasing our 2012 sales by more than EUR 1 billion by 2020. This is translated into an annual growth rate of 5%-7%. We remain dedicated to a high profitability and aim at an annual EBITDA margin between 19% and 22%. This translates into an EBITDA of more than EUR 500 million by 2020. In our operations, we will continue to grow our business within all customer segments and in all regions. A particular focus will be on the emerging markets, where we want to generate two-thirds of our group sales by 2020. We are committed to sustainability. We want to generate 40% of our strategic raw materials through our backward integration. In addition, we will work on constantly reducing our environmental footprint. Our financial goals are underlined with the strategic initiatives, some of which you will find on chart 26. Over the next years, we will successively expand our growth platform through targeted investments in emerging and mature markets. In that context, we will focus on three areas: raw material supply, capacity expansion, and R&D. In addition to pursuing organic growth, we will also continue to monitor the market for value-adding bolt-on acquisitions or strategic partnerships. In 2014, a special focus will be on the increased backward integration for vanilla and onions, as just explained. In addition, we will set up a new extraction plant for natural materials. From 2015 onwards, we plan to increase capacities in Shanghai. In the U.S., we will further expand our North American menthol plant. Additional projects include a new regional development center in Singapore and expanded fragrance facilities for the Latin American market. Our overall outlook for the current financial year and the global AFF market remains positive. We expect good dynamics in both divisions and in all regions. Of course, we may see some regional uncertainties and impacts from economic or political turmoil. However, we expect the overall market conditions to remain favorable. On the other hand, volatility and some price increases, certainly in raw materials, will continue, and some currencies, especially from the emerging markets, will remain under pressure. All in all, with our resilient business model, our balanced setup, and our proven strategy, we see ourselves extremely well-positioned. We look forward to continuing our dynamic growth and aim at outpacing the market again in 2014. Ladies and gentlemen, thank you for your attention. We now would like to open the lines for your questions. Thank you very much, gentlemen. We are now happy to take and answer your questions. We kindly ask you to put only two questions. 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. Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star and one at this time. Our first question today comes from the line of Fabio Lopes, Bank of America Merrill Lynch. Please go ahead. Hi. Good afternoon. Thanks for taking the questions. I will limit it to two questions. In terms of growth in North America, it looks like ex-Belmay growth was kind of flattish. I would like to ask if you could provide some context of what you see in terms of demand in North America, and if you could give us an idea of the growth rate from Belmay. The other question would be, could you comment on the articles today on Bloomberg about acquisitions of Wild Flavors and Diana? The article was mentioning about $1.5 billion of value for Wild, and with management mentioning about EUR 300 million to EUR 400 million in new debt that would be issued. Would that make sense? Thank you very much. Okay. Fabio, thanks for the question. I think I picked that up. Growth in North America, ex-Belmay flattish, not really. Let us put it this way. The Belmay business has expected as scheduled. The integration went as scheduled, very well on track. The business is healthy. However, the rest of our business in North America also developed healthy, so it was not flattish as you might have deducted from the numbers. North America, the overall numbers, as we believe, are impressive growth, and it is not just Belmay. Belmay developed as expected. The article from Bloomberg, pretty easy to comment, Fabio. The Bloomberg article was not accurate. We did not confirm any interest in specific targets. We just said, and we also said that we usually look at five to eight targets always, and that you may recall. What we also have said that we would have the firepower for larger acquisitions. That is what has been said. I hope that answers your questions. Yeah, that's what I thought. Very clear. Thank you. Our next question comes from the line of Evgenia Molotova of Berenberg. Please go ahead. Hello, ma'am. Ms. Molotova, can you hear us? Yes. Sorry. Go ahead. Thanks a lot for taking my questions. Congratulations on strong results. I had the question on EBITDA bridge as the first one, which is your inflation in sales and marketing costs. As far as I understand, looking at your P&L, most of it comes from fragrance division. I just wanted to, if you can give more granularity, where exactly and why did you increase the cost and what kind of inflation we can expect going forward in this particular area? The second question, if I may, on Wild Flavors. Wild Flavors, such acquisition would be margin dilutive for Symrise because they have margins which are considerably lower. I was wondering whether it will be an impediment for you considering these kind of acquisitions. Just a bit of more clarity on potential acquisition targets and whether you would be interested in the company which is mostly in the developed and not developing markets at all. Thank you. You pick the EBITDA. I pick the other one. So this is Bernd speaking. Thank you for your question. First of all, inflation in sales and marketing, as you called it, I prefer the word investment. That sounds a little bit nicer. The impact is the same. So we spend about EUR 30 million more in sales marketing than the year before. To the second point, it is not that we are spending substantially more in the Scent and Care division. I think it is an equal investment in both divisions. Actually, towards the end of the year, it was a higher investment in Flavor & Nutrition with a specific focus on Asia-Pacific as we are ramping up capacity, I would say, as we go. So we hire new sales people whenever and wherever the opportunity is. So we are not focused or condemned to only invest in certain areas, certain divisions. I think we are investing there where we see the opportunities. Going forward, I don't expect any kind of substantial changes to that growth pattern. As I said, the growth in sales marketing expenses in 2013 was overall about 8%. That's still below top-line growth and indicates that we obviously see a lot of untapped potential for our organization. Second point on Wild, Heinz-Jürgen, you want to pick that? That's your favorite. Okay. Yes, Evgenia, I'll pick that up. Thanks. When we saw the articles in the newspaper this morning, at least I was as surprised as you were. As we said earlier this morning being asked about this, we would have at least that much we can say, the firepower for larger acquisitions. Having said that, we also confirmed that we constantly look at five to eight targets. Yes, presently there are a few larger targets which will materialize, Diana being one of them, Wild being the other one. But Evgenia, as you rightfully said, an acquisition of Wild, for example, would be dilutive for a company like us. It is at a very early stage. We will, of course, carefully and exactly look at all those deals which affect our industry, but we are far away from any concrete or defined actions. Your point is absolutely right. It would be margin dilutive, and that's why we are very careful in looking at these things, and we would be very careful in moving forward. Very early stages and nothing defined in the articles which you saw this morning. In particular, the one were not correct. I hope that answers your question. Yes. Thank you so much. Thanks a lot. Our next question comes from the line of Norbert Barth of Baader Bank. Please go ahead. Yes, hello all together. The two questions from my side. One is, can you elaborate a little bit how the first two months of the year started? So a little bit volume-wise and price-wise and also perhaps by the main region, especially what you already mentioned. We hear always a little bit that emerging markets, especially Latin America or also other ones, are coming a little bit back. Do you see that at least slightly in your business? The second question regarding Russia. Can you give us a little bit of feeling what sales volume you are currently doing there? And if you see a risk there, if really from the political issue, the conflict perhaps will also be bigger in the next month. So could that impact your business there? What you expect on that? Norbert, thank you for your mandatory question. The first two months, let's put it this way, we did not see any A major slowdown or downturn in our business. It developed healthy. That is what I would say. Coming to the regions, you pointed on LATAM coming back. Actually, last year, at least if it comes to our business, in our company, Latin America was not gone even. You saw a healthy growth of, I think, 12% is what we reported. So that is healthy. Latin America is well on track and continues to be well on track. The other part is a bit trickier. Russia, we see, yes. I do not give you detailed numbers, but all in all, our business in Russia is around, say, roughly EUR 20 million. So it is not small, but it is also not something which is absolutely inevitable, and it is the normal challenge we have to deal with. We keep talking about our exposure to emerging markets, and we say also there will be some challenges in some markets, and there will be larger opportunities in other markets. The last conference or a year ago, we have talked about the issues we see in the Near East, and we have been able to handle it because we have different production sites, and that is how we look at the situation in Russia as well. So yes, we observe it, but we feel well prepared to cope with the challenges. I hope that answers your question. Okay, thanks. Yep. Our next question comes from the line of Rakesh Patel of Goldman Sachs. Please go ahead. Hi there. Just a couple of questions, if I could. Two. Two. It will be only two, I promise. The first one is just on leverage, a lot of questions on acquisitions, but perhaps you could remind us of how you think about leverage in terms of, is there a floor for where you'd like net debt to EBITDA to be. The second question was, I wonder if you could talk a little bit about your outlook on raw materials at the moment. Would it be fair to say that on balance, it's more likely to experience a tailwind this year rather than the headwind you experienced last. Thanks very much. I take the second. You take first. Yeah, I take the first one. That's excellent. So, yeah, thank you for your questions. I think with respect to leverage, you know that the published target range for whatever it stands for is 2 to 2.5 times EBITDA. I think, because what you're asking is more or less also with respect to how much firepower is available to us in terms of acquisitions before we really run into a problem. I think what our No, it's not an official guidance, but our internal firm belief is that we want to keep the company at investment-grade level. Because we spent a lot of time on building up the reputation and the stability, and we don't want to sacrifice that for just a quick and unthoughtful M&A move. On the other hand, if we stick with the criterias of rating agencies, that would allow us a leverage of 3x EBITDA. We are currently at 2x, and that is where the number of EUR 400 million is coming from, and that gives us another EUR 400 million of firepower in terms of additional debt capacity, which would bring the company then close to the 3x EBITDA leverage. That is something we can really do within a very short period of time. Other than that, I think everything else, Heinz-Jürgen mentioned that around bigger M&A is early stage and really speculation at this time. Okay, I will pick up your second question on raw materials. Tailwind, I would say that is too far-fetched, and that is me overdoing. If someone from our competitors is talking about that, well, we are not. With 10,000 raw materials, you have some materials which always develop upwards, other ones downwards. Let us put it this way. We expect at least not an increase on chemical and oil-based products. I would say remain stable, more or less. On the natural end, saying the prices will come down, it would be far too far-fetched, I would say. Example to illustrate that is wheat. 2 weeks ago, everyone was giving an outlook on wheat prices getting down or being on a low level. Now they have all of a sudden come up because speculation on shortage due to the turmoil in Ukraine and the hard winter in North America. That shows you it is hard to predict, and there will be always issues. Overall, we expect the raw materials on the natural end to remain on a high level. We do not expect any major tailwind from raw materials. Hope that answers that question. That is perfect. Thank you very much. Our next question comes from the line of Dominik Frauendienst of Citigroup. Please go ahead. Thank you very much. Sorry, I have to come back to the M&A question. You already said that you had about EUR 400 million in debt left. But the press reports mention numbers significantly above the EUR 400 million. How willing would you be to issue capital to make a large acquisition? That's the first question. Secondly, on working capital and looking at the cash flow, comparing your working capital to sales ratio to your Swiss competitor, it's about 400 basis points higher than Givaudan. Is there a program in place that tries to actively reduce your working capital needs? If so, what do you think is achievable in the medium to long term for Symrise? Thank you. Okay, thank you for the question. Let me pick that up again on the M&A question. I think, as I said in one of the earlier questions, I think it's really early stage and speculation. That's why I think it's even a bigger speculation to talk about financing something that is already a speculation. Of course, in bigger transactions, we would think about alternative financing involving equity. But again, it's too early to talk about that and pure speculation. The second point on working capital, yes, it's probably at a higher level than those of our Swiss competitors. On the other hand, it brings us in a position to really react fast, to win business overnight, and to extend our market share. Frankly speaking, if I have to make a choice between sitting on relatively high inventory levels, financed at interest rates below 1% versus being in a position to steal business from others, then I keep stealing and sacrificing the working capital efficiency. That's why at the moment we don't have a program in place because it's not a focus area. It's cheap financing available, and it puts us in a very good position, and growth rate is substantially higher than the one of our competitors in Switzerland. Okay, just to follow up. But the 400 basis point improvement that is, maybe if we take Givaudan as a sort of a benchmark, that would be about EUR 70 million in cash you could generate, and that's just shy of what you pay out in dividends. So the shareholders could directly benefit from such a program. Or do you think that is being outweighed by your flexibility in the win of market share, et cetera? Absolutely. That's what I'm saying. It's outweighed because at the moment, I think we're paying a very attractive dividend. 50% of the net profit we're paying out as a dividend. And obviously, we have enough ideas to continue to invest into the business. I see you're absolutely right. Others are in a different position. If you pay out more than 100%, it obviously shows that growth potential is limited and therefore. But we're in a different situation. Thank you very much. You're welcome. Our next question comes from the line of Patrick Lampert of Nomura. Please go ahead. Good afternoon, Patrick Lampert, Nomura. Congrats for the good 2013. Two questions, I guess, like everybody else. The first one, I'm looking at the EBITDA bridge 2014. I think you commented already on raw materials movements. Could you comment a little bit on manufacturing costs, sales and marketing, and research and development, where you see these boxes going into 2014? That's question one. Related to that, I've seen the new plants that are coming on stream in 2014. Could we expect already EBITDA contribution for these plants in 2014 or is it more a start-up cost type of mitigation there? Thanks. Yeah, let me pick that up. I think on the factories and the pictures here, the pictures demonstrate that we're just on a continuous road to invest. I think it's wise in our industry to invest continuously, so we don't have a big wave of untapped investments in front of us. To your question, yes, there will be EBITDA contribution as we're speaking. Because again, this is not just ramping up new factories with a greenfield approach. That's why it's a continuous investment program, and it's a continuous EBITDA stream from them. No one time or substantial one-time cost expected. No one-offs, no nothing. Okay? Okay. The second point on the bridge and the individual cost boxes. The manufacturing expenses, I think a common picture in our company is that we typically have to live across the board with let's say 3% inflation with respect to personnel expenses, and we are usually compensating that via increase of productivity. That's not here the driving force. We have added capacity also in manufacturing, specifically in emerging markets, but that's a smaller part. A bigger part is actually a substantial cost increase, again, in energy costs in Germany, where we're For obvious reasons, everybody knows the political situation here. We're not entitled to any subsidies or easing of costs, so we pay the full 9 yards. That is why energy costs and efficient use of energy costs going forward will be a stronger focus point. Nothing that concerns us or nothing that keeps us awake at night. In the other cost positions, administration expenses, that is my part of the expenses and that is bad expenses as everybody knows. That was growing at 50% pace with respect to the top line, so I think we have done a good job. Sales marketing was growing in line with top line, so that is more or less also continuous investment into our distribution organization. R&D is always a little bit less depending on from the existing revenue contribution, because that is more or less the investment into future revenue contribution. So indicates high spending here, indicates that we are working on a full pipeline of new projects. Nothing unexpected for 2014 and the years beyond. Similar type of outflows looking into 2014. Maybe higher on manufacturing cost but- No, I do not think it is going to be much higher on manufacturing cost and the rest is as we go. As I said in earlier calls, the easiest exercise is to cut back costs to improve short-term performance. But the downside is in the longer term, and that is why we keep investing. I think we have earned the right to invest if you look into the 2013 numbers. Yep. Thank you. You are welcome. Our next question comes from the line of Jesko Mayer-Wegelin of HSBC. Please go ahead. Yes, thanks. I also have two questions. Firstly, on the comments you made, Mr. Hirsch, you made in your presentation on the impact on the raw material costs from your long-term contracts. Could you explain this again, I did not understand it completely. You said you have a negative impact there, I think. Then the second question, on the margin improvement or margin guidance for next year. Maybe you could give us some indication or some details why I do not see an increase in the margin. Is it due to the investments into the sales force or are there any changes because you said raw material costs are flat and there should be no integration costs for Belmay anymore? So maybe some indication what is your goal for the margin here? Yeah. Thank you for the questions. Let me pick the second one first. Because the margin target or the outlook for 2014, yes, I agree, it may sound a little bit weak at this point in time. We have not set, at least I have not heard that from you, Heinz-Jürgen, that you said margin will not improve or decrease. I think it is just too early. I haven't said that. Yeah, I know. It's just too early. What we try to do at this point in time, you will get a more precise guidance as usual when we publish Q1 numbers. What we want to convey as a message at this point in time is that we're confident by looking into 2014. Heinz-Jürgen said we had a good start into the year. We're moving ahead. That's what can be said at this point in time. The second point on long-term contracts with respect to backward integration, that's what I meant with that comment, is indeed, 2013 was a year where speculations in the spot market or speculative buying in the spot market would have brought a slight advantage. However, we accept that there are periods where we have a slight cost disadvantage from being in long-term contracts because we see that really as a long-term investment, which brings us higher stability, better traceability of our products and our raw materials. That's why we have to accept that there's also times of downside. It's always a question what timeframe we're looking at. If we look into a quarter or into a year or into a 10 year, let's say a decade, I think we're more or less looking into a five to 10 years time horizon because we're doing that now for nearly a decade and we have overall, over this period, very positive impacts. We have to live with smaller periods of, let's say, slightly negative impacts. That's what I meant with the comment. Okay. The comment was more based on 2013. Yes. Not much further along. On the current natural raw material prices, would you have an advantage or disadvantage currently? In the current environment, it is hard to predict. That is what Heinz-Jürgen said, because we are still depending on harvest deals and things like that. If we run into a year with very adverse climate and weather conditions, I think we again have an advantage. We have advantages in situation where the short-term volatility increases. I hate to say that, but in an unstable world, we have an advantage. Now you can do your own estimate whether you think 2014 is going to be an unstable or stable year. Okay, great. Thanks a lot. Our next question today comes from the line of Jean-Francois Meymandi of UBS. Please go ahead. Hi. Good afternoon. Thanks for taking the questions. I have two really. The first one is a follow-up from the question of Fabio Lopes on Belmay, because you say it doesn't read correctly that North America was flattish in Q4, which seems to suggest that Belmay had some sales outside of the U.S. And how much of the EUR 35 million for the full year was outside of the U.S., so we can back up the U.S. organic growth rate. The second one, you had a comment on the EEG surcharge early on. Well, on electricity prices, so I assume on EEG surcharge. Is that becoming at a point when you're thinking to go outside of Germany, or you want to have new investments for manufacturing outside of Germany, or that doesn't impact investment decisions at this point? Yeah, thank you for the questions. On the Belmay transaction, I think that's really the area of confusion. Belmay indeed has sales outside the U.S., so it was mainly U.S.-based. I would say about probably 25% of their business is outside the U.S. In the course of the integration, we may distribute that further. That's more an organizational question. But for the first year of integration and to do the calculation, about 25% of the business is outside the U.S., and that's why Hansjoerg said in his first answer, yes, we had growth in the U.S. And for Q4 and full year, approximately? Yes. To the second question. First, I give you the answer of a patriot, and then I give you the answer of a CFO. As a patriot, I'm telling you we stay in Germany. That's I think not really something we're really debating. On the other hand, when it comes to capacity expansion, when it comes to allocating our business and footprint, then, of course, energy costs have an impact and have an impact on future investment decisions. So it's not that we're leaving Germany, but it's definitely a hot discussion point in all of our current and future investments. In the meantime, it has become a substantial cost factor. I have to say, five years, three years, four years ago, we didn't have that high on the list. It was neglectable, but in the meantime, it's a decisive point. Yeah. Just to think about it, how much is on a new plant energy cost out of your manufacturing costs? That's hard to predict because it depends on the product. The only thing I can tell you is that we, in the last three years, had on average between 2 million and 3 million EUR cost increase only from energy costs in our German manufacturing sites. So that's just a ballpark number. But it shows that we're talking seven-digit numbers, so this is not peanuts. Okay, thanks. You're welcome. Due to time limitation, our last question today comes the line of Jack Gorman of Davy Research. Please go ahead, sir. Thank you for taking the questions, gentlemen. I won't focus on M&A questions, you'll be glad to hear. My first question relates to Life Essentials. I was wondering if you could give us a small update and indeed outlook on the performance in that unit. Secondly, my second question relates to future investments, which Bernd you mentioned, and you detail a slide on. I refer back to slide 20, where you see that CapEx increases over the last number of years in emerging markets have been running at 3 to 4 times the rate of growth in developed markets. I was wondering, as you look over the next couple of years, whether that weighting will be similar or whether it might change. Okay. Let me just answer the second one, because that's a quick one. Yes. You will see, and that's why we put in that slide. It indicates that we, over the years, really shifted our CapEx spending and investments into emerging markets. I think that's going to be a picture that you also see in the next 5 to 10 years up to my estimates. That's in line with the long-term plan we have. Yeah. Jack, I'll pick up the Life Essentials part. We've seen strong growth above the average or our general growth. So a healthy development as in the past in Life Essentials and also a healthy margin. Reason for that being, we have a very strong product pipeline. We have informed you earlier that we have about 70 products in the pipeline, and we have early enough prepared ourselves for the animal test ban, which is in place since about a year now. So this pays off, and Life Essentials is benefiting from this. Thank you. You are welcome. You are welcome. Ladies and gentlemen, this brings us to the end of our conference call. Our next results will be the Q1 results that we will publish on May 6. Thank you very much for your time and your interest in Symrise.