Ladies and gentlemen, welcome to the Givaudan 2020 Full Year Results Conference Call and Live Webcast. I am Paolo, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is now being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Gilles Andriere, Chief Executive Officer, accompanied by Mr. Tom Hallam, Chief Financial Officer of Givaudan. Please go ahead.
Thank you. Ladies and gentlemen, good afternoon as well as good evening to Asia and good morning to the Americas. Welcome to our 2020 full year results conference call. Tom Hallam, our CFO, will also be on this call. We will take you through the presentation before answering your questions at the end.
The investor news on our full year end results were published on our Givaudan website at 7 o'clock this morning. This is where you can also find the slides for today's presentation. Along with the investor news on our website, Our 2020 Annual Report is now available. I would now like to start going through the presentation And invite you to turn to slide number 3 to go through our performance highlights for this year. 2020 was not only the last year of our 5 years strategic cycle, but like many others, we certainly did not expect Such a global pandemic, such an unprecedented situation.
About a year ago, very few people could figure out what would happen and Equally, how a company like Givaudan would have adapted so well and so quickly, certainly a very testing year for us. So with this context in mind, I'm very happy to announce an excellent set of figures. I'm also proud to report that we have fully Achieved our ambitious 2020 goals, a 5 year cycle, during which we also acquired 16 companies, A total of CHF 1,500,000,000 of sales, each one complementing Givaudan with a very strong strategic fit. And I would add the COVID pandemic did not slow us down in making good progress with the integration of the most recent acquisitions. With this 2020 cycle successfully completed, we started 2021 Fully committed to the next 2025 cycle for which we have presented last August 2020 a new set of ambitious targets Along with a sound strategy.
In the current environment, the strong 2020 results demonstrate our market leadership, The resilience of our business model and the important role we play in sustaining with our clients The global supply chain of many essential consumer product categories. I'm very proud of the entire Givaudan organization For their dedication and agility during this very challenging period and for enabling us to continue to support our customers To make products available to billions of consumers throughout the COVID-nineteen crisis. In 2020, we reached sales of more than CHF 6,300,000,000, a growth of 4% on a like for like basis And 1.9% in Swiss francs. Our sales growth for the full year 2020 is clearly ahead of the market. This strong growth was supported by many levers, once again, by the good contribution of high growth markets Secondly, by the strategic focus areas as well as the acquired businesses and the strong performance Of the resilient part of Givaudan representing 84%, which more than compensated the decline of the less resilient part, Namely foodservice and fine fragrances, which I will detail further in this presentation.
Even though launches of new products were slowed down because of the COVID environment, our project pipeline with our clients remains strong Despite the environment and our win rates are very healthy, we achieved an EBITDA close to CHF 1 point CHF4 billion increasing by 9.6%. The comparable EBITDA margin is 22.8%, up 130 basis points versus 2019. The free cash flow of CHF 811,000,000 is up 3% versus 2019, which represents A 12.8 percent of sales. At the AGM of March 25, 2021, The Board of Directors will propose a dividend of CHF64 per share, an increase of 3.2% year on year. And to complete those highlights, we have fully delivered on our 2020 guidance with an average annual like for like sales growth Of 4.9% and an average 12.6% free cash flow over the last 5 years, 2016 to 2020.
Now let's turn to Slide 4. Both divisions contributed strongly to our growth. Fragrance and Beauty reached more than CHF 2,900,000,000, Growing 5.4 percent and taste and well-being reached CHF 3,400,000,000 Growing 2.8%. Both growth rates are on a like for like basis. The good growth was achieved across most product segments with particularly strong performance in Household, Health and Personal Care For Fragrance and Beauty as well as in packaged foods, savory, snacks and immunity products for taste and well-being.
Thanks to the regained momentum of our multinational customers, they grew as fast as our local and regional customers In 2020, once again, all our strategic focus areas complemented by acquisitions have contributed To our growth, to name a few, high growth markets, health and wellness, naturals, plant based proteins and active beauty. Let's turn now to slide 5. This slide was developed specifically in the context of the COVID-nineteen. As the COVID started impacting China in Q1, rolling from East to West And as lockdowns and confinement measures were implemented, we have seen 2 distinct parts Within the portfolio of Giro D'An, each one with its distinctive dynamics. The COVID had a significant impact on the less resilient part of the business, which represents a total of 16% of group sales and which declined close to 15%.
Fine Fragrance, which represents 18% of the division after a sharp decline in the first half, especially the second quarter, Strongly recovered in the 4th quarter, totaling only a 6% decline for the full year. As for the Taste and Well-being division, the less resilient part, namely foodservice, was strongly impacted, Totaling a decline for the year of 23%. As you can see in this slide, the higher impacted categories Bottomed out in the Q2, but while Spine Fragrances has experienced a significant recovery, particularly in the Q4, Foodservice has only marginally recovered in the Q3, but has remained quite depressed throughout 2020. On the other hand, with increased sanitation and many confined at home, we have seen a very good Sales development of the resilient part of Giro D'Or, which totals 84% of group sales, namely Consumer Products and Active Beauty, Which represent 82% of Fragrance and Beauty, growing at 8.2% on a like for like basis. And the core business of Taste and Well-being consumed essentially at home, which represents 85%, Grew 7.4% with a continuous good momentum throughout the year.
As you can see, Thanks to the natural hedges throughout the portfolio of Giraudon, but also thanks to the market share gains we have continued to achieve this year, The resilient part more than compensated significantly more, the less resilient part leading to this 4% growth. Actually, when comparing the performance of both divisions, it's interesting to notice that the sharper decline of Foodservice, Minus 23% versus Fine Fragrances minus 6% entirely explains The 2.6% difference of growth between the two divisions. Let's turn now to Slide 6. In 2020, high growth markets, which represents 42% of our sales, delivered a 7.4% Continuing to show a good momentum despite the current pandemic situation. Latin America Performed strongly led by Brazil, Argentina.
Africa and Middle East and Russia contributed to with strong growth levels as well as the China, Which actually recovered very fast already in the Q2. The other parts of Asia have grown moderately. Indonesia and India have posted declines, both more heavily impacted by the COVID crisis. Our size and our operations footprint gives us a unique exposure to the diversity of these high growth markets in which we continue investing both with additional talent and new facilities to service the wide diversity of our clients. We have seen in 2020 how critical our geographical balance contributes to natural hedges against the crisis Like the COVID-nineteen, where the timing of the pandemic has been quite progressive with a different intensity depending On the geographies.
In the mature markets, representing 58% of sales, we grew 1.5% Led by a strong development in North America. This was offset by single digit decline in Western Europe And in Japan as the result of travel bans and severe lockdown measures. Please now turn to Slide 7. I'd like now to highlight the sales development by region for the group. Sales in Latin America continued to perform incredibly well.
Latin America recorded another outstanding growth with 17.6 percent driven mainly by Argentina, Brazil, Mexico and Colombia. Volume growth and market share gain contributing to 2 thirds of the total growth. This means more than 12% Sales in Asia Pacific were certainly patcher with the region going through various situations with regard to the pandemic. Overall, the growth in Asia Pacific was 0.6% with China achieving a double digit growth Throughout the year, whilst India and Indonesia posted sales declines. North America Grew a very healthy 5.7 percent, which I believe is an excellent result.
EME grew 1.1% With high single digit growth in the high growth markets of Eastern Europe, Africa and the Middle East, more than offsetting The softness of mature markets, notably France, Italy and Spain. Let's turn now to slide 8. The Fragrance and Beauty division grew 5.4% on a like for like basis and 4.5% in Swiss francs. This excellent growth, given the context, was driven by the strong performance of our consumer products throughout the year And further supported by a good recovery of the Fine Dragons business in the second half of the year. Overall, Fine Dragon sales decreased by 6% on a like for like basis with sales impacted by the global COVID-nineteen pandemic, Whilst the Q2 experienced a strong reduction in demand due to restrictions in retail and travel retail channels In the major fine fragrance markets, performance improved gradually in the second half of the year, especially in the U.
S. With an overall worldwide growth of 4.2% compared to the same period in 2019. Consumer Products sales increased by 9.2% on a like for like basis against the strong comparable growth of 7.8% in 2019, driven by strong gains in new wins and continuing strong demand for household, Health and Personal Care Products. This excellent growth was delivered in both high growth and mature markets And across all customer groups and regions. Finally, Fragrance Ingredients and Active Beauty increased by 2.5 on a like for like basis with low single digit growth both in Fragrance Ingredients and in Active Beauty despite Now let's turn to the next slide, number 9.
Sales of the Taste and Well-being division grew 2.8% on a like for like basis and remained flat in Swiss francs mainly due To the negative currency impact. Taste and Well-being experienced weaker demand in foodservice and out of home food consumption categories Due to lockdowns and severe restrictions on mobility, hospitality and outdoor activities, It also experienced an increased demand for existing products in categories such as immunity products, Juice based beverages, culinary solutions, nutritional bars, savory and snacks. In the key strategic focus areas, Sales increased double digit in Health and Wellness, plant based proteins and mid single digit in Naturals. From a segment perspective, beverages, dairy, sweet goods, savory and snacks all contributed to the positive sales performance driven by An increased demand for traditional center of the store foods. Sales in Asia Pacific Decreased by 1% on a like for like basis.
In the high growth markets, China delivered strong double digit performance Followed by a solid single digit growth in Thailand, whereas the markets of Indonesia, Malaysia, Philippines and India We're strongly impacted by the COVID-nineteen crisis as mentioned earlier. Sales in Europe, Africa and Middle East increased by 2% on a like for like basis. The mature markets of France, Germany, Benelux and Northern Europe achieved good single digit growth, Whilst in the high growth markets, enjoyed continued excellent business momentum driven by double digit growth in Russia, Turkey, Maghreb and The growth was mainly achieved in the segments of dairy, savory and snacks. On a like for like basis, Sales in North America increased by 4.3% across all customer segments And the performance was a result of new wins and the growth of existing business in beverages, immunity products, snacks And sweet goods. Finally, sales in Latin America increased 10.7% on a like for like basis, led by Strong double digit growth in Brazil, Argentina and a good single digit growth in Mexico.
The growth was driven by the segments of Beverages, dairy, sweet goods and savory. Let's turn now to Slide 10. In this challenging COVID-nineteen environment and in line with the company's purpose issued end of 2019, Givaudan has been and will continue to be strongly focused on doing 2 things. The first one is servicing best our customers and the second one is doing so while protecting and supporting our employees, Be those on-site or those who are still working from home, I'm very proud of the entire Givaudan organization who responded Overnight, with agility and dedication during this challenging period by enabling us to continue supply essential products to our customers. The vast majority of our manufacturing sites Have been kept almost at full capacity and our team also did a fantastic job managing the whole supply chain From sourcing raw materials to responding to delivery challenges in order to meet our customers' needs, whatever.
It is worth saying that our GBS organization has been a powerful enabler. With respect to the communities, the company established a communities fund to enable Givaudan sites to support local communities that are being affected With this, I'd like now to hand over to Tom, who will give you more granularity on our financial results.
Thank you, Gilles. It's also my pleasure to welcome all of you to the call. As Gilles is taking you through the main aspects of the sales performance as well as the market and the impact of COVID-nineteen. I'll take you through the following slides with a focus on the operating performance, the cash flow and the balance sheet of the group. Let me start with the performance highlights on Slide 12.
Group sales increased by 4% on a like for like basis and by 1.9% in Swiss francs, which includes the full year impact of Drome and fragrance oils As well as the partial impact of the acquisitions we completed in 2020, most notably, Hungara. The group's EBITDA increased by 9.6 percent to CHF 1,400,000,000 And the reported EBITDA margin increased by 150 basis points from 20.6% in 2019 22.1 percent in 2020. The underlying EBITDA margin was 22.8% in 20 Compared to 21.5 percent in 2019. The net income was CHF 743,000,000 Or 11.8 percent of sales. And once again, the group achieved a free cash flow of more than 12% of sales, 12.8 percent of sales or CHF 811,000,000 Please turn to the next slide, As we have already Seen with our half year results, the Swiss franc continued to strengthen against all major currencies in which the group operates.
This resulted in unfavorable exchange rate effects, which are reflected in the growth figures in Swiss francs. Nevertheless, Overall, the impact has been limited because our operational and geographical spread continue to provide good natural hedges And our EBITDA margin remains well protected against these currency fluctuations. Please turn to Slide 14. The gross margin increased from 40.8% in 2019 to 42.1% this year due to continued efforts to increase productivity and cost discipline. The EBITDA was CHF 1,400,000,000 in 2020 compared to CHF 1,275,000,000 We had a number of 1 off items in the year, most Lead costs related to the acquisition and restructuring of CHF39 1,000,000, well within the budget of CHF50 1,000,000 that we had communicated to you at the beginning of the year.
Secondly, we incurred costs for the implementation of €6,000,000 for GBS. And with that, the implementation has been successfully completed in 2020. The underlying EBITDA margin was 22.8% compared to 21.5% last year. I would like to mention that the improvement in the EBITDA margin was a result of the many initiatives and projects that we have implemented over the last few years. GBS, synergies on the acquired companies and maximizing the use of our operations footprint with the strong customer demand.
The operating income increased to CHF996 1,000,000 in 2020 Compared to $920,000,000 in 2019. On the next two slides, I would like Spend a few minutes on the operating performance of the 2 divisions. If you turn to Slide 15, we can start with fragrance and beauty. As Gilles mentioned, Fragrance and Beauty recorded a sales increase of 5.4% on a like for like basis And 4.5% in Swiss francs. Acquisitions contributed CHF 191,000,000.
The EBITDA for the division was CHF 677,000,000 in 2020 Compared to CHF555 1,000,000 in 2019, driven by a strong sales growth And the contribution from the acquired companies, DRONE, Fragrance Oils and Angora. The underlying EBITDA margin was 23.6 percent in 2020, up from 21.3% in 2019. If you now turn to Page 16, we can cover the performance of Taste and Well-being. Taste and Well-being recorded a sales increase of 2.8% on a like for like basis And a decline of 0.2 percent in Swiss francs. Acquisitions contributed CHF 115,000,000.
A continued strong focus on internal costs and continued productivity gains increased the EBITDA by 8 point Underlying EBITDA margin was 22.1% in 2020 compared to 21.6% in the prior year. It's worth noting that in taste and well-being, we are back to the margin levels that we had before the acquisition of Naturix And 1 year ahead of plan. Please turn to Slide 17, which shows the amortization of intangible assets. This slide has been updated to include all acquisitions in 2020 and it gives you a perspective of this Future expected amortization. Please turn to the next slide for the net income.
The net income before tax was increased in 2020 to CHF 876,000,000, Mainly as a result of the strong business environment and stable non operating expenses, Despite slightly higher interest charges related to the recent acquisitions. The effective tax rate in 2020 was 15% compared to 13% in 2019. The net income was up to CHF 743,000,000 in 2020, a solid increase of 5.8%. Basic earnings per share was CHF 80.59 compared to CHF 76.17 in 2019. Please turn to the next slide to show the cash flow.
In 2020, we had again a strong free cash flow of 12.8% of sales, Similar to 2019, which is at 12.7%. During 2020, Givaudan generated an absolute free cash flow of CHF 811,000,000 compared to CHF 787,000,000 in 2019. Total net investments were CHF217 1,000,000 and as a percentage of sales, Net investments were 3.4%. As a reminder, in 2019, total investments were 4% of sales. In 2020, we continued our investments to support the growth in high growth markets, Most notably, the construction of an additional fragrance facility in China that was completed during the year.
Working capital was 24.4 percent of sales, almost flat compared to 2019, which was 24%. Over the last 20 years, the company has generated a cumulative CHF9.4 billion of free cash flow, Including the proposed dividend for 2020, Givaudan has returned CHF5,800,000,000 to shareholders in the form of either dividends Or share buybacks since its spin off in 2000. As mentioned in previous years, This clearly underlines the strong commitment of Givaudan to return surplus cash to the shareholders. Based on the continued strong cash generation, the Board of Directors will propose a further increase of the dividend To CHF64 per share, an increase of 3.2%. Please turn to Slide 21.
As you can see from this slide, we have a well balanced debt profile with interest rates, which we have locked in at attractive rates. At the end of the year, the net debt was CHF 4,000,000,000 with an average interest rate of 1.5% Finally, please turn to the Slide 22, which shows the leverage ratio. At the end of the year, the leverage ratio was at 50%, up 300 bps compared to the end of 2019. The increase in the ratio was largely driven by currency swings on the currency translation adjustment in equity, As well as by the acquisition of Angora at the beginning of the year. With this, I would like to conclude my section of the presentation And hand back to Gilles.
Thank you, Tom. Let me now come back to our 2020 Strategy achievements, which are shown on Slide 24. So after 5 years of repeating continuously our 2020 I'm sure by now you are well aware of what we had set out to do 6 years ago and I'll summarize those results. Givauda successfully achieved an average sales growth of 4.9% on a like for like basis and an average Free cash flow of 12.6 percent of sales for the 5 year strategy period from 2016 to 2020. In addition, we made 16 acquisitions, which I will comment further in the next Slide 25.
Indeed, acquisitions have been an important part of our 5 years growth path and are all aligned with market trends And our strategic priorities. Since 2014, we have acquired 16 businesses for a total of Over CHF 3,600,000,000 including the most recently acquired Angoura, Indina Cosmetics and Alderis, Each one with a very strong and natural strategic rationale as well as a perfect cultural fit. Those 16 acquisitions represent an annual yearly contribution of more than CHF 1,500,000,000 to our total group sales. We aim at further value creative acquisitions to complement our core capabilities and increase our portfolio of naturals, health and well-being, Ingredients contributing to ingredient integrated solutions and local and regional as well as new adjacent business areas of technologies like biotechnology, with which we believe we can further provide Value to our customers and our shareholders. Let's turn now to slide 26.
Let me now briefly walk you through some of the key highlights of how we successfully delivered on our 2020 strategy. Let's start with the first pillar, growing with our customers. We have significantly expanded our product And customer portfolio in key growth areas, namely naturals, active beauty, health and well-being And significantly expanded our local and regional customers, both organically and via acquisitions. We have also developed further our integrated solutions business through existing and acquired capabilities. Let me quantify some of our key achievements in our strategic segment.
We have doubled our business In sales of naturals to almost CHF 2,000,000,000. We have achieved the number one position in fine fragrances with a 20 sixteen-twenty 20 CAGR of 4.7%. We have developed an active beauty business of CHF 100,000,000 And an alternative protein business in excess of CHF 100,000,000. In our health and well-being portfolio, we have achieved a 20 In 2020, CAGR of 11.4 percent of sales, which are reaching close to CHF 1,000,000,000 And our portfolio of local and regional customers represent now 54% of our group sales. The second strategic pillar was about delivering with excellence, and it was all about the successful Global implementation of Givaudan Business Solutions, GBS, which has been completed in 2020 And delivered not only the targeted benefit, but also fully revealed its full potential and agility in crisis times Such as last year with the COVID.
GBS will continue to be of critical importance as we further integrate, As I speak, the systems and supply chains of the acquired companies. Finally, automation, digitalization, the use of Artificial intelligence and continuous improvement of our key business processes will continue to be a priority And have taken many forms throughout the organization. And finally, the 3rd pillar of our strategy was around partnering For shared success. The objective of strengthening our global innovation ecosystem made a major leap forward With the opening of new flagship innovation center in Zurich, during the 20 sixteen-twenty 20 period, We doubled sales from innovation linked to external collaboration. We launched the Connect to Win program to accelerate innovation in partnership with suppliers and last but not least, we improved significantly Our employee engagement and safety performance.
Finally, our sustainability commitment has been well recognized and Givaudor earned Many awards including the CDP Leadership Scores and EcoVadis Gold Status. These are just a few examples, but each of these objectives Has been materialized by many other achievements in our operations around the world. Let's move now to slide 27, Our 2021 outlook. With this 2020 testing year, We are very confident in our capabilities and the critical role Givaudan plays in the global value chain of food and consumer products. For 2021, visibility remains short as the pandemic is still around and further lockdowns are still on the agenda of many countries around the world as I speak.
Our view on the raw material price environment Is that it should show moderate increase of about 1% throughout the year. The entire organization will keep focusing In the short term, protecting and supporting our personnel and keeping our operations and supply chain at high levels to support our customers, Whilst at the same time making sure we keep the current discipline on costs throughout Secondly, we'll continue our focus on integrating the recently acquired businesses in our Givaudan Operating platform. Integration costs should be in the range of CHF 45,000,000 in 2021. And finally, we'll focus on implementing our new strategic road map for 2021 to 2025 In line with Givaudan's purpose and strategy. Let me now turn to slide 28 to remind you the highlights Committed to growth with purpose, this company's 2025 Ambition is to deliver sustainable value creation for all stakeholders.
Givaudan's 2025 strategy is fully in line with our purpose Whilst placing customers at the heart of our business, supporting them to grow and create products that are loved by consumers. The 2025 strategy is focused around 3 growth drivers: expand the portfolio, Extend our customer reach and focus market strategies. And it is supported by 4 growth enablers, Which are aligned with the company's purpose domains, namely creations, nature, people and communities. The three growth drivers and the 4 enablers are all underpinned by a commitment to excellence, innovation and simplicity Let's turn now to Slide 29 that shows the performance commitment of the 2025 strategy. Ambitious targets are an integral part of not only our Givaudorf 2020 strategy, but also of our culture.
With the company aiming to achieve organic sales growth of 4% to 5 on a like for like basis and the free cash flow of at least 12%, both measured as an average over the next 5 years' period In addition, the company aims to deliver on key non financial targets around Sustainability, diversity and safety linked to Giraudin's purpose. With that, We have arrived at the end of our 2020 full year's presentation. Ladies and gentlemen, many thanks for your attention. Tom and I are now looking forward to your questions.
The first question comes from the line of Celine Panuti from JPMorgan, please go ahead.
Good morning sorry, good afternoon, everyone. So my first question will be on Fine Fragrance, which had a very strong year end. To which extent you think there was
a bit
of stocking ahead of the Christmas seasons and how you feel about the year even if we still have some lockdown in some key developed markets And Travel Retail, as I understand, has not yet really picked up. The second one is on Some of the market performance, I mean, Latin America has been very strong. On the contrary, we've Seeing that Southeast Asia was very weak. So what is your feeling about the consumer as we enter 2021 in Brazil? And equally, I think you spoke about down trading in some key markets.
How Fast, do you think we can see a return of demand in countries like India and Indonesia? Thank you.
Thank you, Celine. Good afternoon. So on 5 Trigrams, I would like to say the first thing is that, Yes. Minus 6% throughout the year is a very good result. I think it combines 2 things.
1 is the fact that We certainly have gained market share. But the second important reason is the diversity Of the clients and portfolio that we have in our Fine Fragrance business, which has a lot to do, yes, with the diversity of clients, but also Indirectly of the distribution channels. Yes, we are exposed on the sort of more prestige fine fragrance perfumes, Which are being sold in stores, in travel retail and so forth. But on the other hand, we are also very well exposed To the other distribution channels, obviously, indirectly on the Internet, but also the door to door specialty retail in the U. S.
And that's especially true for both Americas, North America and Latin America. Essentially, I would like to really explain this good result by, again, those natural hedges that we have Already inside Fine Fragrances. The reason, yes, the whatever shape, we can call it maybe a V shape, going down, really down in Q2, starting to recover in Q3, especially In the U. S. And then a strong finish in Q4, I would not put that With the explanation of that you're proposing on the stocking up for Christmas, Christmas season in fine fragrances is prepared already in May or June.
So it's a bit too late to plan for Christmas when you are in the Q4. And I don't see any stocking for Q1. I don't see that happening either. So I would say that again this has to do with you've seen a bit of The effect of sort of coming out of lockdowns, especially in the end of Q3, Q4, that has maybe had an impact. But also again a strong rebound, especially in the U.
S. And in Latin America. From what we hear, the Christmas season has been okay around the world. So I don't see a sort of Negative sort of effect that, if I remember correctly, happened in 2,009 that you usually have in Fine Fragrance, I think the supply chain of Fine Fragrance is quite well managed and we don't have stocking In a different step. One thing to mention is Q4 2019.
So the comparable Q4 2019 in fine fragrance was actually Quite weak. So we had also an easy comparable for Q4 2020. The second question about, yes, Latin America and Southeast Asia, difficult To read on Latin America, we are given the fact that we have had a very continued performance, very good Not only in 2020, but the years before. So even in a COVID environment, so This for sure, I can explain part of it, which is strong market share gain with very strong wins. So that is obviously helping.
That is very clear. What's going to happen going forward, difficult to read, but we stay confident in Latin America. Southeast Asia, for sure, Southeast Asia and especially, If you look at India, India for Givaudan has been a fantastic track record with double digit growth in a very, very for years years until it was hit by COVID. So I believe that once And hopefully soon, we'll come out of the whole pandemic. We'll come back strongly in India to those levels.
When is that going to happen? This is all going to depend on obviously the development of the COVID in India. I would say the same for Indonesia, which has been especially hit in this region. So the timing is really defined by Basically, the environment around COVID, but I'm quite confident given the portfolio, the diversity of clients that we have over there that
The next question comes from the line of Matthew Yates from Bank of America. Please go ahead.
Hi, good afternoon gentlemen. A couple of questions please. The first one is maybe for Tom around free cash flow. So you had conversion just below 13% in 2020. Can you comment about your expectations for 2021?
I'm just thinking that your flagging raw materials may become a bit more inflationary. Capital expenditure look quite low in 2020. Should we expect free cash flow conversion to be lower in 2021? Or are there any offsets I may be missing? The second question maybe, Shijo, is around the partnership you announced with Novozymes late last year.
If you can maybe just talk about some of the addressable And what should our expectations be for seeing the financial impact of this and the results?
Okay, great. So thanks for the question. On the free cash flow, I think just a couple of elements and You mentioned, first on the CapEx, I would say. Look, I think if you look, and Gilles really took you Through Slide 5 and you see the strong demand that we had in our factories. Most of our factories are operating at 100% or close to 100% To 100 percent, with the enforced sanitary conditions, what is the implication for that is it means it's very difficult To take down parts of the facility, to do capacity expansion projects or even in some cases To carry out routine maintenance has been difficult in 2020.
So really since the start of the pandemic, we expected that we Be slightly lower on CapEx for 2020. And if you look really at 2021, I would say probably, As Gilles has commented very much on the markets, until we see some sort of relief in the markets, it will be the same very much On the operations footprint. So I think certainly for 2021, CapEx is probably going to be very, very similar to 2020. With that in mind, we if you look particularly at inventories and working capital, again, supply chains It's been challenging in 2020. We had a strong focus on reinforcing our supply chain in the year.
We've actually been holding a little bit higher inventory to meet the significant changes in customer demands through the year. And the other thing really just to comment on is, of course, Brexit was on everybody's minds up until the end of the year and a very late signing of The Brexit deal. So we actually had extra inventory at the end of the year just as an additional buffer. So I think there is a bit more opportunity on the working capital in 2021. The CapEx, I would expect, would be Very much in line with 2020.
And your question on the partnership with Novozymes, we are very happy and Very much looking forward to this partnership. So this is really about Partnering together with the champion of enzymes in which supplies especially on the Home Care with ourselves leading in the fragrance world for home care and really exploring together with our clients How we can make, let's say, and optimize the respective offering that we have on the fragrance with the enzyme So that the whole basically mix and solution has a better performance for our clients. So it doesn't mean that it's neither a merger, an acquisition, a capital or whatever. It's really a go to market partnership exploring the possibilities Together and giving this opportunity to our clients. What's the financial impact?
Too soon To say, let's explore together in the 1st place. Just to give you a reference point, Consumer Products represent more or less 2 thirds of the Fragrance division and a third of the Consumer Products is Home Care. So that's basically the landscape That we have around fabric care, home care, which where you can apply that. But yes, so very excited about this partnership
Maybe sorry, Matthew, I just missed one part of your question was on the raw materials. As Gilles said, We expect a raw material environment of around 1% in the year. So I think No significant pressure on free cash flow from that side.
Thank you, both. Have a good day.
We now have a question from the line of Jean Philippe Perchie. Please go ahead.
Thank you. I have a question with regards to sustainability. And if this is related to acceleration of the market share gains Over the past quarters, is that sustainability or the innovation or the execution? And the second one would be on your R and D priorities the coming years, if you can share that with us as well, please.
Sorry, Jean Philippe. The second, on the R and D, what?
What are your priorities for the coming years? Sorry. Yes. If you saw some changes with the different consumer behaviors and the consumer changes In the past months, if that would trigger some changes of the priorities.
Yes. I mean, so The market share gains the fact that we have high win rates and again, which I think is behind great growth in those markets, Has to do with many things. In our world, as you know, it takes many things to actually to win a brief From having great creativity to great ingredients to great molecules to great encapsulation systems to have a great relationship Consumer insights. So sustainability starts to play a role because our clients are more and more Committed, if not vocal, about what they want to achieve in terms of making their offerings renewable, their offerings And this is very much part of our agenda, which again was launched more than 1 year ago without purpose. So yes, you see a sort of an influx and a trend around having briefed, which become more and more and who have to meet more and more sustainability criteria, which I believe is great going That means that in terms of priorities in the research innovation, It's on many fronts.
Obviously, the sensitivity plays a role. How can we, for example, for the sort of Fragrance ingredients which start from the crude oil feedstock, which by definition is not a renewable resource. How can we make Those ingredients are sustainable from a renewable feedstock and So we have already made many steps. We have a very successful fragrance ingredient called Ambrophix, Which has become the most sold and used fragrance ingredients, which is 100% renewable. And that's a good example where it's the result of Biotechnology partnering and doing some parts internally.
So the road is Ahead of us and very much expected and awaited by Heartland. So biotechnology on the fragrance Play, but also on the flavor is going to make an important role. Then obviously, the whole encapsulation system in fragrance is also a second part in the agenda which is extremely important. How also can we make those Biodegradable, for example, also part of the agenda. And then many Great exciting part on the taste and well-being agenda around naturals, around Immunity ingredients around preservatives, around making some of those, Let's say, again, applying biotechnologies.
So that's a pretty exciting agenda We are ahead of us because at the end of the day that's what our clients are expecting from us innovation, differentiating points,
The next question comes from the line of James Targett from Berenberg. Please go ahead.
Hello, good afternoon. A couple of questions from me. Firstly, just on thinking about the margin outlook for 'twenty one. Maybe you could just talk about some of the cost buckets, the balance of the cost buckets this year, The COVID costs you incurred in 2020, how they how you expect them to compare in 2021? Any normalization of business costs, GBS, etcetera, that will be helpful.
Then secondly, on sort of customer innovation, you're just talking about some of the exciting technologies and sort of categories that you have there. In terms of your customers sort of pulling the trigger on new product launches, are we back to where we were pre crisis yet? Or are we still more muted doubles? And maybe just a quick housekeeping one on the tax rate as well, if you could just confirm where we stand for this year. Thank you.
Okay. James, maybe I'll take the first one on cost and I'll cover the tax and then I'll hand it to Gilles. So I think if you look at and you a lot of detail in the financial report on the various cost elements. I think overall, I would say neutral 2021 versus 20, I mean, clearly, we had savings in 2020 related to travel. But you've seen particularly the articles Increased cost of freight.
So particularly as we had a very challenging environment with customers, We had a significant increase in freight costs in 2020. So I think that overall, we're fairly neutral For 2021, I think you should always look at both sides of the story. You can't we clearly highlighted the more Questionary part of our business from a top line. And so once we can travel as a company, that also means that consumers can travel and therefore, would expect a pickup in on the discretionary side. So overall, I think it's probably pluses and minuses on cost, Which makes it neutral for 2021.
On the tax rate, we had a couple of one offs in 20 20%, which puts us at 15%, but long term, we have a guidance of between 12% 14% For the effective tax rate.
And then your second question about, I would say, the rate of innovation. So I mentioned the risk pipeline Has remained strong for us, meaning the COVID-nineteen environment did not sort of see it decline because Many of our clients' teams responsible for developing products with us have been active. Obviously, being remote or home office doesn't help, but I would say that the work around those, Though a bit slowdown, I've still been very active. Now it's more the rate of launches, as you say. If I take fine fragrances, for Sure.
Clients did not dare launching new perfumes when stores are closed. That's pretty obvious. So some of those have been delayed As well as some other opportunities like we like to call cross selling opportunities, for example, between Naturex and Zhivaudan where you have opportunities to sell some of the Naturex products 2 Zhihuadon clients and vice versa. We had built up a very nice pipeline of opportunities. But because of COVID, that actually Slow down the materialization of those types of initiatives because clients don't dare taking those decisions Whilst you are in the COVID environment.
So those opportunities are sort of pushed a bit into the future. On the other hand, In our world, when you have usually less new launches, you also have less erosion because at the end of the day, What defines the growth is what consumers consume, whether it comes from existing products or it comes from new products.
Thank you.
The next question comes from the line of Charles Aden from UBS, please go ahead.
Hi, good afternoon. Just a quick question for me in terms of The makeup of your organic sales growth into 2021. Clearly, in 2020, if I'm right, about 80% of your Reported organic sales growth came from volume growth. Just as we look to 2021, you've talked about some modest raw material Inflation, so there will be a bit of delay in taking pricing, but could we expect some positive pricing to return to your Organic sales growth in 2021. Thank you.
Charles, thanks. So as you said, I mean, about 80 percent of our growth in 2020 was volume. Then of course, as you remember, we had some price increase In Q1, on Fragrance and Beauty. And then of course the FX, what we call the FX pricing Throughout the year, as we were really pricing in Latin America. I think as we said, raw materials at around 1% increase For the year, of course, it's fairly simple to calculate the price increase and that we will have with customers.
And but that's really the only element I think you need to take into account.
Thank you.
The next question comes from the line of Thomas Wrigglesworth from Citi, please go ahead.
Tom, thanks for the opportunity to ask a couple of questions. The first one is, could you just remind us, given the net debt to EBITDA, where you're comfortable going to So Paul, going to both on the upside and the downside case, noting that obviously value creation through acquisitions remains Ongoing focus, I assume, for management. That's my first question. And then my second question, Double digit growth in China in the Taste business, wasn't clear to me if that's The market rate of growth or if you're taking share in China? And can we unpack that a little bit?
Are there is that a one time effect that China is taking share out of other geographies in Southeast Asia or is there a factor in China that Means that this high rate of growth is sustainable. Thank you.
Maybe I'll start by your question and then And over to Tom. In China, there's not such a thing as taking share from Southeast Asia to In China, I mean, essentially, we don't see I mean, I can't relate To any one time effect that you would explain to China, I think a double digit growth is essentially what I would expect from China. So maybe you had a bit of catch up for the the impact of COVID was about 2 weeks 2 to 3 weeks on our sales, so maybe you had a bit of catch up in the course of Q1. But essentially, those Good sales developments are simply good share development, good launches of products and that's So no other specifics.
And then just on net debt, so minimum and max. I mean, if you look historically at where we've been and where we've been comfortable, we've been up to 4 times net debt EBITDA And even probably slightly higher at one point after the Quest acquisition. And minimum has been, I think, at one point, we were low as one times net debt EBITDA. So I think when we've been low, it's really to look at opportunities. And that's really if you look, as Gilles, we mentioned, The 16 acquisitions where we had a strong balance sheet and we're able to execute those acquisitions over time.
And I'd say, if you look at where we are today, very comfortably within that range. So we're just under 3x net debt to EBITDA At the end of 2020, which is very much in line with the 2 strong ratings that we have.
And just kind of in that context, is the current environment enabling The M and A pipeline, are there more opportunities coming in either because of distress or people wanting to sell because asset valuations have been Compelling. And how do you compare that with where you are in, obviously, having had a very active kind of last 12 to 18 months?
So I think, Thomas, firstly on distressed, I mean, generally, we are not distressed And that means that many of the companies we're looking at are not distressed. If they are, that probably means that we're not looking at them because what we're looking for If businesses that are resilient and have survived some of these tests and this is something we certainly look at, We look at the pricing power of the companies. We look at the technologies. And so I don't think we would be Interested in distressed assets as such. The pipeline is good Overall, very much as we've done in the past, bolt on acquisitions.
And Of course, sellers always have expectations in terms of valuation, but we also have an expectation in terms of price And in terms of creating value for our shareholders. So as I say, a strong pipeline, but we remained disciplined going forward.
Okay. Thank you very much. Just on. Thanks, Joe.
Sure.
Next question comes from the line of Daniel Yeflofkan from Mirabaud. Please go ahead.
Yes. Good afternoon as well. The first question is in terms of the consumer products, which grew very strongly. Obviously, as you said, also because of COVID, you think that this will be sustainable maybe because people just change The attitude or is that growth going to set back a little bit? That's the first question.
Yes. Of course, you could consider that it becomes a high comparable for 2021. But at the same time, as I referred, We grew 9% in Consumer Products this year, but compared already to an 8% in 2019 where there was So that reflects also the fact that we are gaining market share strongly in Consumer Products. So yes, it's been bit supported by the COVID environment, but it's also because we are doing well in this segment. So going forward, we stay confident That is not going to go into a sharp decline simply because we had a 9% growth.
Yes. And second question is, I mean, your 4th quarter with 4.8 percent organic growth was outstanding when you look at the 2 listed peers. And one of the listed peers argued with the less selling days and you are gentlemen not to disclose that, but I think without the 4 less selling days for Christmas and New Year, according to my calculation, your growth would have been even double digit kind of In the Q4, is that the correct assumption? Or you don't care too much?
Well, your question is a bit too complex. No, we're not playing and explaining all sorts of So the year is what the year is and that's it. So, yes, You also have a different number of days by quarter. If we start to explain every quarter because of the number of days from 1 year to the other, it starts to be complicated.
Okay. And the last question, thanks very much for the Slide 5, which is very interesting. So is it fair to say when you mentioned that the lower impact in business grew 7.7% Last year, is it fair to say that, let's say, you're just hypothetically without COVID, your business would have grown maybe even More than that? That's the better assumption.
On the taste and well-being?
No, in general for the group.
In general. Yes, but you see what you have to Well, okay. So the two things are not exactly the same. So you could argue that the dynamics I think on Fragrance and on sorry, taste are a bit different. If I look at the Fragrance, you can argue that, okay, you have shops which are closed, duty People can't travel, so that has a direct impact on the fine fragrance sales, but this is not sort of Shifting to consumer products, the two things are absolutely decoupled.
People, yes, staying at home, they consume more consumer products. They can't go to perfume stores and they don't buy products. So 2 things are a bit decoupled, whereas on the taste and well-being, it's a bit different. The fact that people can't Eat outside home, well, they're going to be more inside home. And so that's why the food service going down has an on the good growth of the rest of the business.
So the two things are more coupled in Taste and well-being as opposed to fragrance, if that is clear.
Yes. Sorry, it's quite clear. And can you do anything about food service decline, small adjustments that you offer more to, I don't know, takeaway So, within a restaurant or whatever, is there any adjustments or you have No.
You have small alternative models obviously of Restaurants delivering at home with yes, out of the kitchen of restaurants delivering at home, which compensates Slightly, but it's not enough to compensate just the fact that restaurants are closed. So the only thing that can help hotel is Reopening restaurants, having more events. You have to imagine obviously that also the fact that People are not traveling around the world. There's also a big impact on foodservice everywhere. So all those things sort of In the way of having a good development of foodservice.
But again, at the end, people still have to eat something. So that helps on the non foodservice side. Thanks. So I think that was the last question or maybe we have a last one.
The next questions come from the line of Georgina Iwamoto from Goldman Sachs. Please go ahead.
Thank you. This is Georgina here. Hi, Jill. Hi, Tom. This is my first call in Chobadan, and I was really hoping to make a good impression, but I have some amusing construction going on next door.
So I apologize for the drill noises. I've just got one question left, and it's specifically on Flavors and the growth outlook there. It seems to me that natural is still going strong, health and wellness is still going strong and the plant based opportunity is starting to become more visible It's certainly becoming more material. So is it fair to say that we'll continue to see more innovation and therefore more growth in flavors going forward?
Thank you. You mean more in favor than well. So for sure, plant based proteins and naturals are trends That we are focusing on and this is, as I said, clearly part of the 2025 strategy. We More than CHF 100,000,000 of sales for the plant based alternatives and this is going to grow fast in the coming years. The whole Health and Wellness platform is going to continue to grow.
So all those trends are there to fuel the Taste and Well-being division. I don't know if you can say that it's going to mean that the flavor and the taste and well-being division will grow faster than the But essentially that's what we can say at this point.
Okay. So just to clarify, maybe it can grow faster than history and more towards the rate that we see in fragrance In taste and well-being.
The future will tell.
Okay. Thank you.
Thank you very much. That was the last question. I thank you very much for your attention, your questions. I'd just like to remind you that we will publish our Q1 2021 sales On the 13th April of this year. And you are welcome to register to the investor event, which will be and will take place on the same day.
Thank you again and have a great day.
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