Ladies and gentlemen, welcome to the Givaudan 2020 half-year results conference call and live webcast. I am Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Gilles Andrier, Chief Executive Officer, accompanied by Mr. Tom Hallam, Chief Financial Officer of Givaudan. Please go ahead, gentlemen.
Thank you. Ladies and gentlemen, good afternoon, as well as good evening to Asia, and good morning to the Americas. Welcome to this conference call on our 2020 half-year results. I'll make this call together with Tom Hallam, our CFO. We'll take you through the presentation before answering your questions at the end. The investor news on our half-year results 2020 was published on our Givaudan website at 7:00 Swiss time this morning. This is where you will also find the slides for today's presentation. Along with the investor news on our website, you will find our 2020 half-year report as well. I'd like now to start going through the presentation. I invite you to turn to slide number three to go through our performance highlights.
In the midst of this unprecedented global pandemic we are all going through, I am happy to announce both an excellent sales growth and a strong financial performance for the first half of 2020. With these strong results, I'm confident we will achieve, by the end of this year, our ambitious 2020 goals set five years ago. Furthermore, we made good progress with the integration of our recent acquisitions over the last months. In such a difficult environment, these strong results demonstrate our market leadership and the important role we play in sustaining the global supply chain in food and beverage, as well as in household, health, and personal care products.
I'm very proud of the entire Givaudan organization for their dedication and their agility during this challenging period, and for enabling us to continue to support our customers to keep those essential products available to billions of consumers throughout the COVID-19 crisis. In the first half of 2020, we reached sales of CHF 3.2 billion, a growth of 4% on a like-for-like basis and 4.1% in CHF. This was achieved thanks to the excellent performance of those parts of the portfolio which were not impacted by the COVID-19 pandemic, namely our Consumer Products fragrances and the vast majority of our flavors business, representing over 83% of group sales combined. The strong demand of these products more than compensated the less resilient part of Givaudan, namely Fine Fragrances and food services, 17% of our group sales, which experienced a very strong decline from March to June.
We achieved an EBITDA of CHF 734 million, up 11.3% compared to 2019, representing an underlying EBITDA margin of 23.7% compared to 22.3% in 2019. Free cash flow reached CHF 178 million, up 20%, representing 5.5% of our sales, compared to 4.8% in 2019. We are very happy with the overall performance in the first half year of 2020, making us confident to deliver on our 2020 targets. Let's turn now to slide number 4. On a like-for-like basis, our Fragrance Division grew 4.5%, and our Flavour Division grew 3.6%. In the context of the COVID-19 pandemic, we managed to deliver this good growth by maintaining our operations and global supply chain with minimal disruptions.
The good growth was achieved across most product segments and geographies, with particularly strong performance in household, health, and personal care segments within the Fragrance Division, as well as in packaged food, savory, snacks, and nutraceuticals for the Flavour Division. Once again, all our strategic focus areas, complemented by acquisitions, have contributed to our growth, namely high-growth markets, health and wellness, naturals, local and regional customers. Whilst sales with our multinational customers showed a good momentum. Let's turn to slide five. In the first half of 2020, high-growth markets delivered a 9% growth, continuing to show a regained momentum as we already saw it happening in 2019 and despite the current pandemic situation. Latin America performed strongly, led by Brazil, Argentina, and Chile.
Africa, Middle East, and Russia contributed with strong growth levels as well, as did most parts of Asia Pacific, including China, which recovered in the second quarter from a COVID-19 affected first quarter. The only market which was almost flat was India, given that the country has been heavily affected by the COVID-19 crisis. In the mature markets, we grew 0.5%, led by a strong development in Central Europe, Korea, and a single-digit growth in North America. This was offset by single-digit decline in Western Europe as a result of travel bans and severe lockdown measures. High-growth markets make up 42% of our overall sales, still below past levels. This is the consequence of the acquisitions we made in mature markets, combined with the currency situation in the high-growth markets.
Our presence in high-growth markets has always been a key driver for our growth and continues to be one of our key strategies for 2020 and beyond. Midterm, the demographics, the ever-growing middle class, and the strong urbanization trends will continue to support the growth of these markets, especially in Asia, where urbanization and the middle class are still below average. Our size and our operations footprint give 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 the first half of 2020 how critical our geographical balance is, creating natural hedges against a crisis like the COVID-19, where the timing of the pandemic has been quite progressive and with a different intensity depending on the geographies. Please now turn to Slide 6.
Now I'd like to highlight the sales development by region for the group. As you can see, all four geographies have contributed to our overall growth, albeit at different rates. Sales in Latin America and Asia Pacific continued to perform well and remained ahead of the other regions. Latin America recorded another outstanding growth with 15.5%, driven mainly by Argentina, Brazil, and Chile. Volume growth contributing to half of this growth. The growth in Asia Pacific was 3.9% with double-digit growth in China and high single-digit growth in Southeast Asia. North America grew 2.7%, a good result considering last year's higher comparable and the consumer effect of the pandemic situation. EAME grew 1.7% with higher growth in Central and Northern Europe than in the Southern and Western part of Europe due to the weight of Fine Fragrances. Let's turn now to Slide 7.
In this challenging COVID-19 environment, and in line with the company's purpose published end of last year, Givaudan has been and will continue to be strongly focused on first protecting and supporting our employees, be it those on-site or those who are still working from home. I'm very proud of how the entire Givaudan organization responded with agility and dedication during this challenging period by enabling us to continue to supply our customers to keep essential products available on the shelves to consumers throughout the COVID-19 crisis. The majority of our manufacturing sites have been kept almost at full capacity, and our teams did a fantastic job, as well as managing the whole supply chain from sourcing raw materials to responding to delivery challenges in order to meet our customers' needs. Finally, taking care of the communities in which it operates.
In the very early stages of the COVID-19 pandemic, the company established a communities fund to enable our sites to support local communities that are being affected around the world. Givaudan committed to donate at least CHF 1 million to this fund, and to date, the fund has benefited over 120 initiatives across 40 countries. Let's turn now to Slide 8. The Fragrance Division grew 4.5% on a like-for-like basis, and 7% in Swiss francs. Fine Fragrances decreased 16.4% like-for-like. This part of the business has clearly been the most affected by the COVID-19 crisis due to the almost global lockdown and sharp reduction in all retail activities in many countries around the world. This was combined with an almost complete standstill in air travel, closing most of the business done through travel retail channels. Only marginal e-commerce activity has been able to continue.
On the other hand, Consumer Products grew an impressive 11.8% like-for-like. We delivered this strong growth in both high-growth and mature markets. Growth stemmed from all regions and customer groups with a remarkable momentum of local and regional customers. Consumption-led demand for hygiene and pandemic-related products like household, health, and personal care was the most significant. Fragrance ingredients and Active Beauty was broadly flat on a like-for-like basis. Active Beauty performed relatively well in such difficult market conditions, thanks to a well-balanced portfolio of customers and products. In the meantime, sales of fragrance ingredients grew low single digits. Let's turn to the next slide, number nine, on flavors. Sales of the Flavour Division grew 3.6% on a like-for-like basis and 1.9% in CHF. The division has proven to be very resilient despite the impact on the sales to food service and the reduction in out-of-home dining.
It is worth highlighting that all of our strategic focus areas, namely Natural, Health and Wellbeing, Integrated Solutions, as well as local and regional customers, contributed strongly to the overall performance of the division. Sales in Asia Pacific increased by 2.4% on a like-for-like basis. China and Thailand recorded double-digit growth, while India and Indonesia have seen decline in sales. In the mature markets, Japan, Korea, and Singapore were leading growth. Savory snacks and sweet products were the leading segments overall in Asia Pacific. EMEA increased 3.4% like-for-like, led by double-digit growth in North Africa and the Levant, and a good single-digit growth in the Middle East. France, the Benelux, and Northern Europe have seen also a good momentum. North America increased 2.8% on a like-for-like basis with a good performance from both global and local and regional customers in the Beverages, snacks, and Sweet Goods segments.
Latin America increased 10.6% on a like-for-like basis, driven by a very strong growth in all markets and segments, notably Brazil, Argentina, and Colombia, and segment-wise in dairy, beverages, savory, and sweet goods. Let's turn now to slide 10. When we presented our 2020 strategy in August of 2015, we clearly stated that acquisitions would be an important part of our five-year growth path. Since 2014, we have acquired 16 businesses for a total of over CHF 3.6 billion, including most recently, Ungerer, Indena Cosmetics, and Alderys, each one with a very strong and natural strategic rationale as well as a perfect cultural fit to Givaudan. These businesses have a combined annual yearly contribution of more than CHF 1.5 billion to our total group sales.
Across all activities, our success in providing winning solutions to our customers and creating value is also a demonstration of our efficient acquisition strategy. We aim at further value-creative acquisitions to complement our core capabilities and increase the portfolio of Naturals, Health and Wellbeing, Active Beauty, Integrated Solutions, and Local and Regional Customers, as well as new adjacent business areas or technologies like biotechnologies, with which we believe we can further provide value to our customers and shareholders. Let's turn to the next slide, number 11. What you can see on this slide is a recap of those 16 acquisitions mapped against our strategic priorities, namely Naturals, Active Beauty, Local and Regional Customers, Integrated Solutions, and ingredients to support our Fragrance and Flavors compound business. You can see that each of those acquired companies contribute, and for some of them, such as Naturex and Ungerer, contribute in multiple parts.
Let's turn to slide 12 with a focus on Ungerer. As we explained at the time of the acquisition in November, Ungerer is a leading independent company in the F&F specialty ingredients business, headquartered in New Jersey in the U.S., offering a rich palette of natural ingredients and a strong position with L&R customers, especially in the U.S. Sales in 2019 were more than $250 million. This acquisition perfectly fits our strategic priorities such as specialty ingredients, local, and regional customers, and we've enjoyed from day one an excellent cultural fit. I'm happy to report that the acquisition is now completed. Integration streams are fully engaged in all functions and regions, and quite importantly, growth and synergy targets have been established and are in progress to be delivered. Finally, we have had extremely positive feedback from customers.
With this, I'd like to hand over now to Tom, who will give you more granularity on our financial results. Tom, your turn.
Thank you, Gilles. I would also like to welcome all of you to our conference call. Gilles has taken you through the main aspects of the market development, the business performance of the group, as well as the recent acquisitions. On the following slides, I would like to focus on the operating performance of the group and the two divisions. Let me start with the performance highlights on slide 14. Group sales increased by 4% on a like-for-like basis, which excludes the impact of acquisitions as well as any currency impact. In Swiss francs, sales increased by 4.1%. The absolute EBITDA increased to CHF 734 million compared to CHF 660 million in 2019, and the underlying EBITDA margin remains strong at 23.7%. The free cash flow as a percentage of sales was 5.5%, compared to 4.8% in 2019.
In the following slides, we will cover the group's performance in more details. Please turn to Slide 15, which shows the exchange rate development. Once again, in moments of crisis, the CHF has again strengthened against all major currencies in which the group operates. The impact is less pronounced in major mature market currencies and more pronounced in some emerging market currencies. Once again, our operational and geographical spread continues to provide good natural hedges, and our EBITDA margin remains well protected against these currency fluctuations. Please turn to Slide 16, which shows the group performance. In 2020, the group continued to achieve productivity gains and demonstrate a strong cost discipline. We also delivered on the final CHF 15 million of GBS savings, all accumulating in a gross margin, which improved to 42.2% in 2020 compared to 41.2% in 2019.
The EBITDA increased to CHF 734 million in the first six months of 2020. In this period, the group incurred costs of CHF 24 million related to acquisition and restructuring costs, compared to CHF 11 million in the previous period. We also incurred CHF 4 million related to our GBS project, compared to CHF 19 million in the same period in 2019. As you see on the bottom right of the chart, our underlying EBITDA margin was 23.7% in 2020 compared to 22.3% in 2019. The increase is driven by the productivity gains and the cost discipline, as explained before. On the next two slides, I would like to spend a moment on the operating performance of the Fragrance and Flavor divisions. Please turn to Slide 17. We will start with the Fragrance division.
The Fragrance Division recorded a sales increase of 7% in CHF and 4.5% on a like-for-like basis. The division recorded CHF 333 million of EBITDA compared to CHF 270 million in 2019. The margin showed a good increase compared to last year, driven by higher sales as a result of the recent acquisitions in the division and our actions taken to contain expenses, as mentioned before. The EBITDA margin was 22.9% on a reported basis and 23.4% on an underlying basis, bringing us back to historical levels and a reflection of the high levels of innovation and consumer insight that we bring to our clients. If you now turn to Page 18, I will comment on the Flavor performance. The Flavor Division recorded a sales increase of 1.9% in CHF and 3.6% on a like-for-like basis.
The reported EBITDA increased to CHF 401 million from CHF 390 million in 2019, again, as a result of continued productivity gains and cost discipline. The reported EBITDA margin in 2020 was 22.7%, and on an underlying basis, the EBITDA margin was 23.8%. Please turn to Slide 19, which shows the net income of the group. The income before tax increased to CHF 480 million from CHF 437 million in 2019. The non-operating expenses were flat compared to the prior year, CHF 52 million in 2020 compared to CHF 54 million in 2019. The net income was CHF 413 million or 12.8% of sales. The group's effective tax rate increased to 14% in 2020 compared to 13% in June 2019. Basic EPS increased to CHF 44.81 compared to CHF 41.24 in the first semester of 2019.
Please turn to Slide 20 for the cash flow performance of the group. During the first half of 2020, Givaudan generated a free cash flow of CHF 178 million or 5.5% of sales, compared to CHF 148 million or 4.8% of sales in 2019. The operating cash flow for the first six months of the year was CHF 359 million, an increase of 33%. The group continued its investments to support the growth in high growth markets, most notably in China. As such, total net investments were CHF 139 million, and as a percentage of sales, net investments were 4.3% in 2020. Compared to 4.6% in 2019, if we exclude the impact of the sale of the Zurich Innovation Center. Working capital increased to 27.9% compared to 27.3% in 2019 due to slightly higher temporary inventory increases and accounts receivable levels related to the COVID-19 pandemic.
Despite the ongoing crisis, I'm very happy with the overall financial performance of the group and the free cash delivery in the first six months of the year. Please turn to slide 21 to look at the debt profile of the group. During the first semester of 2020, the group issued two new bonds for a total of EUR 1 billion, increasing the net debt position of the group as well as its leverage ratio. However, the group continues to have a well-balanced debt portfolio with a weighted average effective interest rate of 1.43%. Furthermore, on this slide, you will be able to find the maturities of our debt profile, as well as the respective average interest rates for each debt maturity. With this, I would like to conclude my part of the presentation for the first six months of 2020 and hand back to Gilles.
Thank you, Tom. Growth outlook. We have delivered a strong first half in 2020, and we are proud of our achievements in this period, all the more given this unprecedented context that we are all going through. Once again, the resilience of our business and the consistency of our results have been demonstrated. All our strategic areas are growing to our expectations. High growth markets, L&R customers, health and well-being, naturals, Integrated Solutions, and recent acquisitions add to the breadth and the resilience of Givaudan. Visibility is limited for the remainder of the year, both on the ongoing pandemic, still very active in many parts of the globe, and its potential economic consequences. Nevertheless, our half year results put us in a good place to confirm our 2020 guidance on which the entire organization is focused on delivering.
Short term, our focus remains on keeping our operations supply our customers, leverage our business continuity action plans as required, whilst our first priority is to protect and support our employees, of course, keeping our current discipline on costs throughout the business. Our focus is also to continue integrating the recently acquired businesses in our Givaudan operating platform. Integration costs of CHF 50 million are confirmed in 2020, half of which have already been spent in the first six months of 2020. Finally, we are finalizing our new strategic roadmap for 2021 to 2025 in line with Givaudan's purpose, which we confirm unveiling on August 27th, both live in Zurich for those of you who will be able to travel, and via a live webcast for the others. Let's now turn to slide 24. Our 2020 roadmap is centered on responsible growth, shared success.
Our ambitions and the roadmap have sought to ensure responsible growth and shared success for shareholders, customers, and all key stakeholders. Building on the success of 2011 to 2015 Strategy, we wanted to create further shareholder value through profitable, responsible growth with the additional contribution of acquisitions. To create long-term value, we will capitalize on our market leadership and most importantly, continue to build close partnerships. Givaudan's 2020 Strategy is built on the pillars of growing with our customers, delivering with excellence, and partnering for shared success. After nine semesters, and still one to go, we are fully on track with our ambitious financial targets.
Thanks to an average of 5.1% like-for-like growth and an average free cash flow of 12.5% at the end of 2019, and the strong results we announced today for the first half of 2020, that gives us confidence that we will deliver on all aspects of our 2020 strategy. Flavors and fragrances are consumed every day around the world, and they are an essential part of successful Consumer Products for our clients. I'm confident about Givaudan's strength and our DNA built over the last 250 years to continue to create value for our customers, our shareholders, and all our stakeholders. With the significant contribution Givaudan's employees around the world make every day, I'm convinced that we have the right people, the right strategies and plans in place to continue on our successful path. Ladies and gentlemen, many thanks for your attention.
Tom and I are looking now forward for your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Celine Pannuti from JPMorgan. Please go ahead.
Yes, good afternoon. My first question is on the trend throughout the quarter. You delivered a balanced quarter with good growth, but then you had a 15% of Fine Fragrances and food service, or 13%, that was down sharply. Could you give us a bit of a scale how these have progressed throughout month by month and how we should look at the balancing of those two extremes, if I may say, in the second half of the year? My second question is on the EBIT performance, which was quite strong. You mentioned productivity gain a few times, and as well as the CHF 15 million savings from GBS. Could you give us a bit more granularity on the different building blocks that have delivered that performance? Finally, the effects have been quite negative in the first half of the year.
I was wondering whether we should expect pricing, or if you have already seen a pricing implementation, especially in Latin America. Thank you.
Thank you, Celine. Good afternoon. I guess that you're referring to the trend in the second quarter, because essentially, the first effects of the lockdown we observed in the second half of March. That was clear when we announced our first quarter results. We saw that hitting basically the Fine Fragrances business. That was the second half of March. Essentially, April, May, and June, we've seen a very, let's say, consistent decline, I would say, across the three months for Fine Fragrances and food service. The only thing is, we've seen in the month of June, a recovery of Fine Fragrances in the U.S. simply because retail stores, especially on the specialty retail business, have reopened quite aggressively, and we saw the immediate positive effect on our Fine Fragrances business in the U.S.
Essentially, this is, I would say, a direct consequence of the stores which were closed during those three months in many countries around the world. Food service, essentially, it has followed the same trend. A very consistent balance across the three months, except for the month of June, where we saw an improvement in the U.S. On the 85%, the one which is growing nicely, Consumer Products and the rest, it's also been very consistent on flavors. There is no peak and valleys for flavors, and in the same way for Consumer Products across the second quarter. Tom will add to it. On the improvement of the EBITDA, yes, productivity gains, but you have also obviously the synergies, which are carved out from the acquired companies.
We have always very clearly stated that we would bring, step by step, the acquired companies to the levels of Givaudan. The third element obviously is, I don't consider the level of EBITDA of the Fragrance Division in 2019 being the norm. That's basically being improved thanks to price increase and the number of measures. Finally, people have not been traveling at all, so that also helps around the world. That basically explains the 1.5% improvement. You also obviously have an operational leverage. The growth of 4% is all volume, so that also helps on improving the EBITDA. I'm not so sure about the pricing, what you mean the pricing implementation. The pricing, basically, as we said, there was a lag of pricing for fragrances in the first quarter. That was clearly communicated at the time of our full year results.
We have a pricing effect in Latin America. We said that the growth in LatAm is roughly half of the growth in LatAm is volume, that's basically the other half is pricing.
Yeah. On the last question, I was referring to the weakening effects of in Latin American currency, whether we should expect further pricing benefit in the second half of the year.
Well, in the end, Celine, it depends very much on the currencies. We have pricing mechanisms in these countries, particularly in Argentina and in Brazil. As the currencies fluctuate, we have agreements with our customers to pass price, which we're doing on a constant basis. Just to come back, a couple of incremental items on the EBITDA, as Gilles mentioned. I think as he said, most of our facilities were operating at 100%, so we're getting very good capacity utilization. As Gilles also mentioned, we have less travel, less discretionary expense.
Clearly, our freight costs are up. As you know, in general, the tariffs for freight are higher in the first six months of the year. Very happy with what we've done in the first six months. Some of it is really, let's say, short-term, and some of it is as a result of, as Gilles says, of the acquisitions and the investments we've made on things like GBS.
Thank you.
The next question comes from Heidi Vesterinen from Exane BNP Paribas. Please go ahead.
Thank you. I first wanted to ask about Fine Fragrances, please. If travel retail, which is a big channel, remains depressed for quite a long period of time, do you think it'll take longer for this business to recover to pre-pandemic levels? Or do you think consumers will just shift to other channels? What is your view on the future of Fine Fragrances?
Heidi, thank you for the question. That's a CHF 1 million question. For sure, the travel bans, travel traffic is having a big impact. Depending on the source of what you hear, it's estimated that 20%-30% of Fine Fragrances are being sold through duty-frees. That obviously has an impact if consumers don't go elsewhere. The elsewhere can be obviously stores. Let's see how consumers behave. I would say the online and sales on the Internet is something that has clearly been growing quite strongly, even if it represents today a small amount.
That could certainly be the alternative, which not only replaces the duty-free but also allows consumers not having to go to stores when you have all those measures which are there to protect the consumers in the stores and so forth, which is not made easy, especially to smell Fine Fragrances. Let's see how things go. To go back to the pre-COVID-19 levels, in terms of 2019, is certainly going to take a little time.
Thank you. I have another million-dollar question then next on food service. Just based on what you know now and the conversations you have with customers, do you expect this to bounce back, or do you think that it could be worth de-emphasizing this, perhaps, as you think about your new strategy? I just wondered about your current thoughts. Thank you.
Well, I would say that food service is, in a way, by nature, less volatile than Fine Fragrances because it's less discretionary. In a way where food service is different than Fine Fragrances is that you could argue that people not going to food service points of sales replace that by eating at home and maybe buying packaged foods and so forth. There's been a shift from one side to the other, where I can't say the same for Fine Fragrances. If you miss a sale of a perfume bottle, you won't compensate by something else, maybe a deo. I'm quite confident that the food service will come back. At what speed, I don't know, but certainly will come back strongly as stores and shops and restaurants open.
Thank you.
The next question comes from Patrick Rafaisz from UBS. Please go ahead.
Patrick, good afternoon, everyone. I have three questions, please. The first would be around working capital. Tom, you talked about the impact of COVID-19 on inventories and receivables. How much of that would you expect to unwind in the second half of this year? The second question would be on synergy potential. You talked about the integration charges for this year. You talked about the revenues of acquired businesses. If you think about cost synergies over the next two to three years, how much do you think these acquired businesses could add just from integrating the assets? The last question on M&A strategy. I'm sure this will again feature prominently in the next strategy cycle, where we'll hear more about end of August. You also talked about adjacencies. What do you think about natural colors here?
Is that maybe a business that could feature more prominently in your portfolio at one point? Thank you.
Maybe I can start, Patrick, on the working capital, then I'll hand over to Gilles. Typically, our working capital is higher anyway at the midpoint of the year just because of the availability of materials, crops, and so on. Traditionally what we do is we decline in the second half. As I mentioned in my notes earlier on, we certainly have seen that we are being very conservative with our inventory levels.
The situation continues to be tense from a supply chain perspective, as Gilles mentioned. Just as a couple of examples, India continues to be a big supplier on the fragrance ingredient side. Of course, the situation is difficult. Of course, none of our customers want to miss on this opportunity today of when consumers are in shops and buying. We have increased our levels of inventory. Where would we expect to be is probably around 25% of sales by the end of the year, which is where we've been traditionally. Clearly we would expect to come down over the next few months. On the cost synergies, typically the way that we think about the business is, and you remember what we said we would do with Naturex, is we would bring the whole Flavour Division back to pre-acquisition levels by 2021.
I think our half-year results are clearly a good demonstration of that, and that's typically what we would expect with any of the acquisitions. Some of the companies that we've acquired have margin levels that we would expect to increase to Givaudan levels. Others have very strong margin levels, and we would actually expect to continue to get synergies anyway. We have targets for each of those companies. Maybe just on the M&A point, I'll hand it back to Gilles.
Yeah. Certainly in terms of M&A, we will continue to be what we have been over the last few years, which means being opportunistic, disciplined, and diligent, and making sure that every acquired company fits both basically the strategy of Givaudan, but also the cultural fit. We are not going for size at all costs. Certainly, whether it's the COVID-19 or post-COVID-19 or beyond, will create opportunities. I don't know if it's going to be more opportunities or less, but we'll still be opportunistic. As it relates to natural colors, there is no mystery that Naturex actually provided roughly a CHF 50 million business of natural colors, which is doing well. That could be obviously a space in which we could be interested to expand, to be the leader, for example.
That would be obviously for what it is, meaning that Integrated Solutions is not necessarily always the primary reason to buy an adjacent business. The adjacent business needs to be meeting our requirements in terms of growth, profitability, meeting also our purpose, I would say, in terms of clean label also on the label. An Integration Solution is basically an additional benefit. Yes, natural colors could be a way to expand, to basically be in the leading position around this space. Thank you very much.
The next question comes from Tom Wrigglesworth, from Citi. Please go ahead.
Thanks very much. Couple of questions, if I may. Just points of clarification, largely. Firstly, on the Ungerer deal, I don't think I've fully understood what's kind of unique about that and, if you could help understand that, what that's going to do for your business that you weren't able to do yourselves, would be super helpful as a first question.
Do you want to take it?
Yeah. Ungerer is a very interesting asset because it's multifaceted. I mentioned $250 million. About 40% of that is really what we call essential oils, in the space of lime, as an example, which are truly a complement to what Givaudan has as a portfolio. They are really things that we did not necessarily have. We have a small business in Florida around lime and citrus, but this is really complementing that with unique essential oil products which have been developed over time by Ungerer. You have a very interesting business as well around chemical ingredients to serve our fragrance business, being manufactured in the U.S. or Mexico. This is also complementing our ingredients that we are making in-house. Finally, the other 40% is really about what we call compounds.
Compounds for fragrance and flavors, with local and regional clients, especially in the U.S., also in the U.K. Which again, complements our portfolio of L&R clients, given the fact that this is a promising set of clients. Ingredients, natural essential oils, and L&R clients for both F&F.
Thank you. The second question is, you've helpfully given us a number of kind of the building blocks of the EBITDA margin. I'm trying to understand the implications of that. If things normalize, do we expect growth to maintain at these kind of levels and margins to kind of maybe come off a little bit because some of those other costs will come back and utilization rates might drop? Is there another sequence out there where actually growth accelerates and you can maintain and grow this margin from here?
I think if you look in the first six months of the year, it was a very British term, I would call it swings and roundabouts in terms of cost and cost avoidance. Clearly, as Gilles said, we were not traveling as much as we would normally be traveling. On the other hand, we had higher distribution costs. As you said, if we go back to a more normal world, maybe the only guidance that I can give you is that typically between the half year and the full year, our EBITDA margin is 100 basis points lower. One of the main reasons is that in December, we typically have a shorter shipping month, so we miss probably a week of sales. That's probably the only guidance that I can give you based on, let's say, 10 years of history in a normal world.
Very helpful. Thank you both.
The next question comes from Matthew Yates from Bank of America. Please go ahead.
Hey, good afternoon, everyone. Thank you for taking the questions. I've got a couple. The first one is around foreign exchange, which we can see the big negative impact on the top line, but has seemingly been mitigated on the bottom line. I think in the introductory remarks, you talked about the natural hedges in the portfolio. I guess, just given all the changes you've had around acquisitions, around the GBS, if you wouldn't mind just giving me a bit of a refresher there as to your transaction exposure on the group. The second question is around your Active Beauty business, where I think you said it was flattish in the first half. I'm guessing the overall category was probably down much more substantially than that. You talked about having a diverse portfolio and customers.
Could you just elaborate a little bit as to how you're able to do so much better than the end market in beauty?
Yeah. I'll start with the Active Beauty, and maybe Tom will take over the thing on the natural hedges. Yeah, I would say the beauty of this Active Beauty business, if I may say so, it's the way we've built it. We are really specialized in the high value-added ingredients of the skincare ingredients business, and not in the commodities or in the less value-added ingredients. In a way, that's the first reason that this portfolio is doing well, because it's really driven by technology. It's also a portfolio which is very much, I would say, in fashion, because it's biotechnology driven. It's essentially renewable resources. The latest acquisition we are making, Alderys, is also going to contribute for that. They are really products which are very successful.
We've been winning the Gold Award on Active Beauty ingredients every year in terms of innovation for the last four or five years. Obviously, yeah, it's also the diversity of clients. I would say it's a bit the unique position we are taking with our portfolio, which is differentiating. That explains the, as you said, the relative performance to the market, because if we look at the way the category has been performing, it's not Fine Fragrances, but it's not been great. Tom, maybe on that.
Yeah. Absolutely. Thanks, Gilles. Thanks for the question on the FX. Maybe what I'll do is I'll split it into two parts. Firstly, on the transaction part. We invested significantly in our IT platforms over the last, well, probably 10 years now. If you look, actually, we have a very good visibility on our exposure at a group level to all of the currencies around the world, which allows us to hedge our transaction exposure on a daily basis. You see, actually in the non-operating expenses in the first six months, that we have very little FX exposure that is not hedged. Of course, that depends afterwards on some of the currencies. Particularly places like Argentina, where we find it very difficult to hedge.
That's really on the first part, which is transactions, where we're hedging our exposure from the moment that we have our exposure on the balance sheet. On the translation, so as you mentioned, you see the impact on the top line of the strengthening Swiss franc. Maybe a couple of points. The first is that if you look at our exposure, of course, our biggest exposure is on raw materials. Around 37% to 40% of our sales is raw materials, which is very closely matched to the currencies in which we sell. Our manufacturing footprint is a global footprint, because we want to be close to our customers and close to consumers, which means that we're also producing in the markets in which we sell, which provides that natural hedge.
What I have done in the past is I have given a sort of rule of thumb, mainly on the dollar, which is the most important currency.
Typically what we would say is that a $0.10 movement in the dollar-Swiss franc is somewhere between $50 million and $60 million of absolute EBITDA on an annual basis. As you mentioned, and as I mentioned in my speech earlier on, we are naturally hedged at the margin level. There is an impact on the absolute EBITDA.
That's very helpful. Thank you. If I can just squeeze in a follow-up. I think it was on Tom's question about the margin and your comment that usually it would be down about 100 basis points in the second half. Given some of the cost-saving effects you did in the first half seemingly look temporary, would you expect the second half this year to be down more than 100 basis points?
No, I don't think so. If you look at where we are today, we continue to have the savings, and so I would expect it's going to be pretty much a normal year in terms of the EBITDA margin.
Very good. Thank you all.
Next question comes from Gunther Zechmann from Bernstein. Please go ahead.
Hi. Good afternoon, gentlemen. On the margin point, just to continue on that, you mentioned productivity gains, cost discipline, and the more temporary effects that help the margin. I was more wondering the 100 basis points on the gross margin improvement, how much of that was from raw material costs, if any? Following up from that, what is your expectation for raw materials for the rest of the year? Thank you.
We've been very consistent and will continue to be consistent on raw mats. It's essentially we are forecasting them to be flat against last year. You had no material effect on the gross profit margin to explain the 1% improvement. The improvement has a lot to do with, obviously, the price increase that we have made. As mentioned to the, again, the improvement that we have done on the acquired companies, because some of those synergies, if I take for example, the synergies on purchasing that we are having with the acquired companies, that has an effect on the gross profit margin. The efficiency gains that we talked about, where we had a very good volume being produced, with all sites being at 100% capacity, as Tom mentioned. That explains basically the improvement of the gross profit margin.
The next question comes from Jean-Philippe Bertschy from Vontobel. Please go ahead.
Good afternoon, gentlemen. I would have a question on the market share gains. From the numbers, it looks like you are clearly gaining market share. I would like to know where or in which segments are you gaining market shares and why, in your view? The second one would be on the flavors in North America. It seemed that you had an acceleration in the second quarter, and I would love to know what is it coming from, this acceleration in second quarter, as we had the tendency to see a slowdown in Q2 for the foods players. Thanks.
Okay. Thank you, Jean-Philippe. Basically, I'll start with your last question. In North America, I believe that has a lot to do with almost those categories which have been helped in a way by the confinement, by having consumers actually go back to traditional categories such as savory canned soups and so forth. Some of those categories actually, which had been suffering for the last, whatever, 3 to 4 years, came back almost thanks to the situation in the U.S., but in other parts of the world. That explains, I would say, the improvement of our flavors business in the U.S. for the most part. Your question on market share, well, it's a bit early to say. Let's wait for our competitors to report their numbers. It depends who you're talking about. I guess IFF and Symrise are the two ones publishing their numbers.
Yeah, on the IFF side where we've been gaining market share for the last four years, so maybe that continues in the first half. Let's see. Symrise, let's wait for their results. I would say that overall, if I refer to market share gains done in the past, clearly a market share gain in fine fragrances, that was clearly the case, and in fragrances overall. Also the Flavour Division started to really pick up an incremental better growth than IFF and even Symrise end of last year on the Flavour Division. I can't tell you exactly where, because I don't manage any of those companies. We have basically I believe that overall this has a lot to do again with what we call our natural hedges, where we really have the widest spread in terms of portfolio of products, thanks to the acquisitions.
Portfolio of clients, thanks also to the acquisitions, and the way we have always developed and made choices in terms of growth strategies at Givaudan. It's a matter of execution. We are integrating those companies without any disruption on our core business. We have made 16 acquisitions, none of them have interrupted or made or distracted any of our operations. I believe that is also quite helpful. On the contrary, it helped accelerate, obviously, on the sales, on the commercial synergies. All in all, I think we are happy with the development.
Thank you very much, Olivier.
Now, Operator, we'll take the last question.
The last question comes from Katy Hutchinson from Davy. Please go ahead.
Hi. Good afternoon, and congratulations on a good set of numbers today. My first question is on Latin America. It seems that the Q2 flavor outturn for the region was relatively weak and notwithstanding a challenging comp. Could you please explain what categories and what specific countries you're seeing the slowdown in relation to Q2, and how has the region performed since the end of June? My second question is on the flavors business in China. Could you help us to understand the categories that you think will likely be strong in the second half, and if you think that the growth trend towards multinationals in the region is sustainable over the coming few quarters? Thank you.
In Latin America, this is all relative, the slowdown in Q2 for flavors, because yes, we were tracking, I think, at 18%, and that means the second quarter was more in the range of +3% or 4%. This is a relative slowdown from that double-digit growth that maybe we have been too used to. I would say the essential reason is Mexico, because on the other markets of Latin America for flavors, they did well. It's Mexico, and I believe this has a lot to do with the whole COVID situation. For China, well, it's a bit difficult to predict what's going to happen in the second half. We have, and I've been personally very well, let's say, surprised by how fast China rebounded and picked up again with our business on both fragrances and flavors.
We have no reasons to believe that will not continue to be the case in the coming months. China has been, again, strong in both divisions and across different clients. Your comment about is the, let's say, the accelerated growth of global and international companies sustainable. I would say that I hope so, and I wish for all our global clients. I would say that part of the explanation, especially on the flavor side, has a lot to do with those categories which have been supported in a way by the COVID-19, the confinement, traditional food categories, which have seen a strong growth, and I was mentioning the U.S., but in other parts of the world, and that was very much so with global and international clients. Let's see how this is going to be sustained in the next months to come.
Thank you.
That was the last question. I thank you, and thank you everyone for your attention and your questions. I'd like to welcome you obviously at our next, let's say, next milestone, which is end of August, on 27th of August, which will be the disclosure and the publication of our 2025 Strategy, that we'll have some sort of a hybrid event, both virtual and physical in Zurich. One way or the other, we look forward to seeing you on the 27th of August. Thank you again for your attention.
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