Ladies and gentlemen, welcome to the Givaudan 2019 full year results conference call and live webcast. I am Alice, 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. Dear 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 2019 full year-end 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 full year results 2019 was published on our Givaudan website at 7:00 o'clock Swiss time this morning, 24th of January 2020. This is where you will also find the slides for today's presentation. Along with the investor news on our website, you will find also our 2019 Annual Report. I'd like now to start going through the presentation and invite you to turn to slide number three to go through our performance highlights.
As we enter into a new decade and into the last year of our 2020 strategy period, I am happy to report an excellent sales growth for the full year 2019, substantially above market. We are fully on track to achieve our ambitious 2020 goals and the integration of Naturex as well as all the other acquired companies, is making excellent progress. We continue to invest throughout the year in different parts of the world. At the landmark event on the 14th of June 2019, we inaugurated our new state-of-the-art innovation center in Zurich, so-called the ZIC, housing research activities for both divisions. This center is certainly second to none in our industry. On the 15th and 16th of October 2019, during our Investors Days, we presented it to the financial community. We are very proud of this cornerstone facility for our future success to come.
In 2019, we added close to CHF 680 million of sales and reached more than CHF 6.2 billion of sales. This represents a growth of 12.2% in CHF, thanks to an excellent like-for-like growth of 5.8% and to the contribution of the acquired companies. Both divisions contributed to this robust growth, which was supported by a further encouraging recovery of the high-growth markets. Our project pipeline and win rates improved strongly, testifying for the strong relationships and the good innovation momentum we have with our clients. We achieved an EBITDA of CHF 1.275 billion. This represents an increase of 11.4%. The comparable EBITDA margin is 21.5%. We delivered a very good free cash flow of CHF 787 million, which is up 11.9% compared to 2018. It represents 12.7% of our sales and is fully in line with our five-year guidance.
At the AGM on March 25th, the Board of Directors will propose a dividend of CHF 62 per share, which represents an increase of 3.3% year-on-year. Thanks to the powerful combination of continuous innovation and all the acquisitions we made over the last four years, we have a strong and broad portfolio fully aligned with consumer and societal trends. On the back of this set of our 2019 strong financials, we are fully on track to deliver on our 2020 guidance. Let's turn now to slide four. On a like-for-like basis, our Fragrance division grew 7.3% and our Flavors division 4.5%. We again saw an excellent growth with local and regional customers, while sales with our multinational customers continued to regain a good momentum. The excellent growth was achieved across all product segments and all geographies.
Alongside high-growth markets, all of our other strategic focus areas, namely Naturals, health and wellness, Active Beauty, and integrated solutions, strongly contributed to our growth. Our recent acquisitions contributed to the growth of both the Fragrance division and the Flavor division. Let's turn now to slide five. In 2019, high-growth markets lived up to our expectation by further improving to double-digit growth, four times the growth rate of mature markets. This is a clear improvement over the recent years. The emerging markets of Asia-Pacific grew very strongly, led by Indonesia, the Philippines, Thailand, and Vietnam. Eastern Europe, Africa, and the Middle East also contributed with double-digit growth, as well as Latin America. In the mature markets, we grew with a solid 2.4%, led by Southern Europe and Korea. High-growth markets make up 43% of our overall group sales, still below past levels.
This is the consequence of the acquisitions we made in mature markets, combined with the currency development 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. Let's turn now to slide six. I'd like now to highlight the sales development by region for the group. Sales in Latin America and Asia-Pacific continue to perform very well.
Latin America recorded another outstanding growth with 15%, driven by all the main markets of the region, be it Argentina, Brazil, Mexico, and Colombia. Volume growth contributed to 2/3s of the total 15% growth. The growth in Asia-Pacific was 5.6%, with high single-digit growth in the high-growth markets. North America grew 2%. EME grew 5.7%, with double-digit growth in Nigeria, as well as in the high-growth markets of Eastern Europe, Africa, and the Middle East. Let's turn now to slide seven. The Fragrance division grew 7.3% on a like-for-like basis and 10.9% in Swiss francs. This excellent growth was driven by the strong performance of new wins, as well as the price increases to compensate for higher input costs. Fine Fragrances increased 5% like-for-like. We continue to sustain our clear market leadership in Fine Fragrances in both mature markets and high-growth markets.
A high level of new business wins across all customer groups, combined with an excellent market performance of recent launches, were the main contributors to these further outstanding results. Consumer Products grew 7.8% like-for-like. We delivered good growth in both high-growth and mature markets. Growth stemmed from all regions and customer groups with a remarkable renewed momentum of multinational customers. Fragrance Ingredients and Active Beauty grew 8.1% like-for-like. In Active Beauty, we achieved an encouraging double-digit sales growth driven by all customer types and active ingredients. Specialties in Fragrance Ingredients recorded a strong double-digit growth. Let's turn to the next slide, number eight. Sales of the Flavor division grew 4.5% on a like-for-like basis and 13.4% in Swiss francs. All of our strategic focus areas, Naturals, health and wellbeing, integrated solutions, as well as local and regional customers, contributed strongly to the overall performance.
Sales in Asia-Pacific increased 6.4% on a like-for-like basis. The division recorded double-digit growth in Indonesia, the Philippines, Thailand, and Vietnam. China and India achieved a strong single-digit growth. EME increased 4.4% like-for-like, with double-digit growth in Africa and the Middle East, driven by Egypt, South Africa, Nigeria, and Morocco. In the mature markets of Benelux, Italy, and Spain, a high single-digit growth was achieved. North America decreased 1.6% on a like-for-like basis, despite the good performance from local and regional customers. New wins and growth from the existing business in savory snacks and beverages were offset by the weaker performance of the dairy segment. Latin America increased 19.2% on a like-for-like basis, with two-thirds volume growth driven by a very strong growth in Mexico, Brazil, Argentina, and Colombia. Let's turn now to slide nine. A couple of slides on the acquisitions. The first one.
When we presented our 2020 strategy in August 2015, we clearly stated that acquisitions would be an important part of our five years' growth path. Since 2014, we have acquired 15 businesses for a total of over CHF 3.6 billion. Each one with a very strong and natural strategic rationale, as well as a perfect cultural fit. These businesses, once fully integrated, will have a yearly contribution of more than CHF 1.5 billion to our total group sales. Across all activities, Fragrances, Active Beauty, and Flavors, 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, integrated solutions, local and regional customers, as well as new adjacent business areas, such as the ones we brought by Naturex and Active Beauty, and with which we believe that we can further provide value to our customers and to our shareholders. Let's turn now to slide 10. When evaluating potential acquisition opportunities, we respect two hard criteria. First question, can we create value for our customers? Second question, can we create value for our shareholders? Very simple. You can see on this slide, our last 15 acquisitions were strictly aligned with our 2016-2020 strategy to increase our stake along five strategic themes, Naturals, Active Beauty, specialty ingredients, integrated solutions, local and regional customers.
You can see from this slide that some of the acquired companies actually ticked many of those themes. Let's turn now to slide 11. This slide gives a short follow-up on Anne Tayac's GBS update. As you know, Anne Tayac is the Head of GBS and IM&T sitting on our Executive Committee, that she gave on our Annual Investor Conference on April 9th, 2019 in Vernier. The transitions in EME, North America, and LATAM are now fully complete, and the two teams in Buenos Aires and Budapest are fully operational for these three regions. In Asia Pacific, the most complex region in terms of cultures, languages, and businesses, we have completed the phase I, and the implementation of phase II is ongoing and will be finished by the end of this year.
All our three delivery centers, the GBS delivery centers, Budapest, Buenos Aires, and Kuala Lumpur, work in an efficient way within the broader Givaudan organization. The projected financial benefits are fully being delivered according to plan. With this, I'd like to hand over to Tom, who will give you more granularity on our financial results. Tom, please go ahead.
Thank you, Gilles. I would also like to welcome you all to the call. As Gilles has taken you through the main aspects of the market and sales performance, on the following slides, I will focus on the operating performance, the cash flow, and the balance sheet of Givaudan. Let me start with the financial highlights on page 13. As Gilles mentioned, group sales increased by 5.8% on a like-for-like basis and by 12.2% in CHF, which includes the full year impact of Centroflora, Expressions Parfumées, and Naturex, as well as the partial impact of the acquisitions we completed in 2019, most notably Drom and Fragrance Oils. The underlying EBITDA margin was 21.5% in 2019, compared to 21% in 2018. We increased our free cash flow by 11.9%, resulting in a free cash flow as a percentage of sales of 12.7% or CHF 787 million.
Please turn to slide 14, which shows the exchange rate development. This slide shows the comparison of the average exchange rates of 2019 versus the average of 2018. Overall, major market currencies were relatively stable. We faced volatility in some emerging market currencies. However, our operation and geographical spread continued to provide good natural hedges, and our EBITDA margin remains well protected against these currency fluctuations. We continue to maintain a good cost discipline throughout the organization, as well as continuing to benefit from the savings from our GBS initiative and other productivity gains. You see that our gross margin declined from 42% to 41%, driven by the full year impact of Naturex, as well as the mechanical dilution as a result of the pricing actions to compensate for higher input costs.
The EBITDA was CHF 1,275 million in 2019 compared to CHF 1,145 million in 2018. We had a number of one-off items in both years, mostly costs related to the implementation of GBS of CHF 31 million. Acquisition and restructuring expenses of CHF 25 million. In the media release, you will find a table with more details of the adjusting items. The operating income increased to CHF 920 million in 2019, compared to CHF 883 million in 2018. On the next two slides, I would like to spend a few minutes on the operating performance of the two divisions. If you turn to slide 16, we can start with the Fragrance division. As Gilles has mentioned, the Fragrance division recorded a sales increase of 10.9% in Swiss francs. Acquisitions contributed CHF 127 million.
The EBITDA for the division in 2019 was CHF 555 million compared to CHF 508 million in 2018, driven by a strong sales growth and the contribution from the acquired companies, Drom and Fragrance Oils. The underlying margin was 21.3% in 2019, compared to an EBITDA margin of 20.7% in 2018. If you now turn to page 17, we will cover the Flavors performance. The Flavors division recorded a sales increase of 13.4% in Swiss francs. Acquisitions contributed over CHF 300 million. A continued strong focus on internal costs and continued productivity gains increased the EBITDA from CHF 637 million in 2018 to CHF 720 million in 2019, and compensated for the fact that the division was impacted by the lower margin of the Naturex business for the full year. On a comparable basis, the underlying EBITDA margin was 21.6% compared to 21.2% in the prior year.
Please turn to slide 18, which shows the amortization of intangible assets. I've included this slide, which has been updated to give you a perspective of the future amortization. This has now been updated to include all acquisitions included in 2019. Please turn to slide 19, which shows the net income. The net income before tax was increased in 2019 to CHF 808 million as a result of the strong business performance and a stable, non-operating level of expenses. Despite higher interest costs related to the recent acquisitions, the group incurred lower foreign exchange losses. As a reminder, in 2018, the group incurred increased foreign exchange losses, most notably as a result of higher foreign currency losses in Argentina. The effective tax rate in 2019 was 13%, compared to 14% in 2018. The net income was CHF 702 million in 2019, a solid increase of 6%.
Basic earnings per share was CHF 76.17 compared to CHF 71.92 in 2018. Please turn to slide 20, which shows the free cash flow. In 2019, we had, again, a strong free cash flow of 12.7%, exactly as we had in 2018, despite continued significant investments we made throughout the year. During 2019, Givaudan generated an absolute free cash flow of CHF 787 million, an increase of 11.9% compared to 2018. We had an extremely strong increase in operating cash flow, up by 24% versus 2018 to CHF 1.1 billion. Total net investments were CHF 246 million, and as a percentage of sales, net investments were 4%. As a reminder, in 2018, total net investments were 3.3%. Excluding the proceeds of the ZIC transaction, net investments were 5.1% of sales.
In 2019, we continued our investments to support the growth in high growth markets, most notably the construction of an additional fragrance facility in China and the completion of the flavors facility in India. Working capital was well managed, coming in at 24% of sales in 2019 compared to 26% in 2018. Please turn to slide 21. Over the last 20 years, the company has generated a cumulative CHF 8.6 billion of free cash flow. Including the proposed dividend for 2019, Givaudan has returned over CHF 5 billion to shareholders in the form of either dividends or share buybacks since its spin-off in 2000. This clearly underlines the strong commitment of the company to return surplus cash to its shareholders.
Based on the continued strong cash generation, the Board of Directors will propose an increase of the dividend to CHF 62 in 2019, an increase of 3.3% in the year. Please turn to slide 22. Our debt shows a long duration maturity. The weighted average interest rate of our debt portfolio at the end of 2019 was 1.3%, compared to 1.4% in 2018. At the end of the year, our net debt was CHF 3.7 billion. We have a well-balanced debt profile, with interest rates, which we have locked in at attractive rates. Please turn to slide 23, which shows the leverage ratio. At the end of the year, the leverage ratio was at 47%, compared to 41% at the end of 2018.
The increase in the leverage ratio was due to the impact of the new acquisitions we completed during the year, and also due to the increase in lease liabilities, an impact of CHF 440 million due to the adoption of IFRS 16, the accounting standard on leases. Excluding the impact of IFRS 16, the leverage ratio would've been 44%. With this, I would like to conclude my section of the presentation and hand it back to Gilles.
Thank you, Tom. That, we had an excellent 2019, and we are proud of our achievements. We saw an encouraging pickup in high-growth markets with double-digit growth, and all our strategic areas are growing to expectations. Fine Fragrances, to our great pleasure, continues to strongly outperform the market and competition, and we finished the fourth consecutive year with outstanding growth, making us the clear number one in Fine Fragrances globally. Local and regional customers continue to be a strong growth driver across both divisions, and we have seen a substantial pickup from multinationals, mainly in household and personal care. Recent acquisitions and areas of strategic focus, namely health and wellbeing, Naturals, integrated solutions, all contributed positively to those good results. In 2020, we expect raw material prices to remain stable at the current levels.
Through the Ungerer acquisition, we enjoy an enhanced position in citrus and lime. Through Albert Vieille, we will be able to leverage natural fragrances ingredients for Fine Fragrances. Our focus in 2020 will be to deliver on our five-year guidance 2016- 2020, and the integration of all recent acquisitions will be a further area of occupation in 2020. Therefore, we expect CHF 50 million of restructuring costs in 2020. End of August 2020, we'll present our strategic roadmap for 2021- 2025 in line with our purpose, which we have communicated in November of last year. Let's turn now to slide 27. Our 2020 roadmap is centered on responsible growth with shared success. Our ambitions and the roadmap for this year and beyond seek to ensure responsible growth and shared success for shareholders, customers, and all key stakeholders.
We want 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 four years, we are fully on track with our ambitious financial targets, achieving an average 5.1% like-for-like growth and an average free cash flow as a percent of sales of 12.5%. I'm very confident to achieve a successful 2020, the last year of our strategic period, and to fulfill our ambitious guidance. Flavors and Fragrances are consumed every day around the world, and they are an essential part of successful consumer products for all our clients.
I'm confident about Givaudan's strength and our DNA built over the last 250 years to continue to create value to 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 strategy, and the right plan in place to continue on our successful path. Ladies and gentlemen, many thanks for your attention. Tom and I are looking forward to 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've 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 hands up for asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Celine Pannuti, JP Morgan. Please go ahead.
Good afternoon, everyone. A few questions. First of all, if I go back on the growth for the market in which you are exposed, you mentioned how well the emerging markets have done. I think China and India, you mentioned were mid-single digits, and a lot of your customers have been a bit more cautious since the end of last year about global demand. What do you see in terms of market demand, as you look into 2020, specifically when we look at Asia Pac and Latin America? My second question is about pricing. Is it possible to have an idea of how much pricing contributed to 2019, and would it be fair to think that there would be not much pricing in 2020 given your raw material outlook of almost flat, in fact? Lastly, I think a question for Tom.
Tom, I saw that the depreciation to sales ratio has increased a lot in 2019. Is there any reason behind that, and is around 3% the new level we should be looking at? Thank you.
Good afternoon, Celine. On China and India, more or less China represents 6% of our group sales and India a little shy of 5%. Actually India continued to grow very well and actually against a very high double-digit comparable that we had in 2018. Going forward, we have absolutely no indication that there is any slowdown. Actually, India has been one if not the most consistent high double-digit growth market for us for the last 10 years. I'm always very impressed by the stability and the strong performance of India, which reflects the position that we have in this country, actually for both Flavors and Fragrances. This is also why we invested largely in a new flavors plant, as you know, in Pune, last year.
As it relates to China, we have seen, again, as compared to 2018, high mid-single digit growth in China with some good performance for both divisions, maybe higher on the Flavor side. Certainly better than 2017, I would say. We've seen an improved momentum. Again, no signal of any slowdown. Actually on the Fragrance side, with the contribution of Drom. Drom, which actually, funny enough, despite the relatively small size vis-à-vis Givaudan, has a very large contribution with their Chinese business to Givaudan, and which will diversify further our clients and local clients portfolio that we have in China, and which will give us a very good position going forward. Still quite confident on both markets.
As you know, again, the signal that you hear maybe from multinationals on those two countries, sometimes obviously differ from our position because we have half of our sales in those two markets, which are with local and regionals. As it relates to pricing, this is also a very good achievement. We have fully compensated the accumulated raw materials increase that we have seen in 2018 and 2019, and which have strongly impacted the Fragrance division. In absolute value, happy to report that we have fully compensated, again in collaboration with all our clients, the increase of raw materials in absolute value. That means obviously that you have some dilution that we had to compensate for.
Going forward, as I said, basically the raw materials are at a stable level now, and we don't foresee any significant price increase going forward other than the ones which already had been negotiated in 2019 and which have just because of timing, a spillover effect on 2020, but which is minimal. Now maybe Tom.
Yeah. Thank you, Celine. On the depreciation, it's a good question. Actually, the devil is in the detail on these things. In 2018, we had CHF 127 million of depreciation. 2019 is impacted by the change in lease accounting. If you look at the depreciation, let's say on a comparable basis to 2018, it's CHF 147 million. You need to add the impact of IFRS 16. If you look in, when you have a second page, 77 of the Annual Report, you have the table which splits out the depreciation between the various asset classes.
Okay, that will continue to be the new base for 2020?
That's the new base for 2020, but it's simply a change in accounting, Celine. It's not a pickup in terms of expenses.
Maybe if I just could go back to my earlier question on market demand. Between Q3 and Q4, we've seen a slowdown in total group growth. What do you attribute this to?
Well, that's a good question and a very easy answer, Celine. Actually, we can attribute almost 80%- 90% to one single reason, which is Fine Fragrances U.S. with one single customer, where we had basically, what I would call a delay in orders from December to January. The reason I'm saying that is that we already have a view on January sales, so we can see that it's really a shift of sales from December to January in full. That, basically the Q4's relative slowdown, basically to the other three first quarters, that you can all see, is almost entirely attributed to this single reason.
All right. Thank you.
The next question comes from the line of Isha Sharma from MainFirst. Please go ahead.
Hi, gentlemen. Thank you for taking my question. Tom, this one's for you. Could you please give us the full year EBITDA bridge, first of all? Again, going back to Fine Fragrances, it saw organic decline of - 4% in the fourth quarter. I'm assuming that you already answered that question. Just trying to understand within Fragrances, the price effect and the volume, if you could please split that for us. If you could please talk about what you see in North America in the Flavors market. You mentioned that there's good momentum at local and regional customers. The organic decline of around 2% in Q4, does it come mainly from MNCs? Thank you. That would be my three questions, please.
Maybe I take the financial one first. Probably the simplest thing is I give you the split as I did at the half year. Starting first of all with the gross margin, and then we'll go to the EBITDA margin. Starting with gross margin, and just as a reminder, you know that in 2018 we had this one-off cost of what we called citral. That cost us CHF 50 million in 2018, that was not repeated in 2019. That has 90 basis points positive for the gross margin in 2019. The dilution impact that both Gilles and I referred to is negative 150 basis points in 2019, and then the acquisitions was negative 90 basis points. That's really the bridge on the gross margin. On the EBITDA margin, if I give you the same split. The citral issue was positive 90 basis points.
The dilution impact from the net price raw mats was negative 120 basis points. The savings from GBS and the impact of IFRS 16 is 100 basis points, so split 50/50. Acquisitions was negative 60 basis points. That really gives you, I think, all of the elements, both for margins, gross margins and EBITDA. I think also, the question that you have really on price is covered on that. Maybe on the North America performance between local and regional multinationals, I hand it back to Gilles.
Yeah. Again, on North America, we actually did well on the Fragrance side. You've seen a decline of 1.6% like-for-like, which have dealt more with the multinationals and also dairy, whereas local and regionals actually have performed well. We are basically confident that we will see an improvement of our Flavors business in North America, in the coming months. I think on Fine Fragrances, I think we answered the question. Again, it comes back to this single situation in North America Fine Fragrances, which, given the materiality, has translated into a significant slowdown of Fine in Q4, but also on the group. Again, very confident on Fine given the amount of new wins that we have won in 2019, which will have an effect on 2020.
Thank you very much.
The next question comes from the line of Jean-Philippe Bertschy from Vontobel. Please go ahead.
Good afternoon, gentlemen. The first one would be on the full year 2020. After two years of really a nightmare with regards to the raw materials and the supply chain disruption of citral, as well as numerous acquisitions and GBS. It looks like you have not an easy year, but it looks quite promising. My question is with the savings, how much you want to invest into growth R&D capacity expansion, if you can maybe share some words on this one. The second one would be on M&A. I think it was as well several acquisitions. Leverage ratio is sitting only almost 50%, and that will be of three times. Do you have some targets of some goals to reduce that? What would be this ratio?
Last but not least, just in terms of guidance for the tax rate, I think, Tom, you were guiding for 16%-18%, and now again, 100 basis points lower than last year. If you can share as well some insights in this topic. Thanks.
Jean-Philippe, on your first question, basically I gave a bit of insight about, let's say, our agenda for 2020 and the coming years. It's going to be, one, to finish GBS, but also, and we have seen, actually, as you've seen, the inventory is going down. For example, end of last year, this was really thanks to GBS. When you have three GBS centers, it's actually very helpful to drive in a very efficient way without any impact on the service of our clients. The inventory is down. That's one example of the benefits that we see with GBS in addition to the savings that Tom referred to.
Going forward on GBS, it's going to be very much about continuing to use and to implement new digital tools, new type of AI type of tools, which will help those three platforms improve continuously our efficiency and agility to our clients. The second topic will be very much, as we mentioned, to start integrating some of the acquired companies into SAP and into GBS, but also to drive, let's say, savings, which again, will help us lift some of these acquired companies to the level of the EBITDA of Givaudan. That's obviously our commitment for Naturex, but also for such acquisitions as Drom. That's why the work is starting as I speak now, and will translate obviously into some costs, CHF 50 million going forward.
As it relates, I'm not so sure I understand your question about reinvesting into the business. Essentially, we have no plans to actually use some of those savings to reinvest into the business. I think the size at which we are at Givaudan allows us to have enough operational expenses to drive growth in the different strategic areas that we have going forward.
Just on the two financial questions, Jean-Philippe. If you look at the balance sheet, we continue to have a strong balance sheet. If you look at, let's say, net debt EBITDA, we have headroom. We have strong cash flow generation as well in 2019. If you look really at the pipeline from a portfolio perspective, as Gilles mentioned at the beginning, we have a very strong portfolio. Of course, we're always looking for some opportunities to add on. In 2020, we will already close on Indena and Ungerer in the first quarter. We have flexibility. Ultimately our objective is to maintain our investment grade rating. On tax, it's a very pertinent question.
If you look actually in the two countries where we have our biggest operations, the U.S. and Switzerland, both countries have gone through significant tax reform over the last two years, which clearly has a benefit and an impact on Givaudan. If you look now at, let's say, the guidance for 2020 and onwards, we would guide to an effective tax rate between 12% and 14%, so for 2020 going forward.
Very helpful. Thanks.
The next question comes from the line of Gunther Zechmann from Bernstein. Please go ahead.
Hi. Good afternoon. Just from my side, on Naturex, we haven't spoken too much about. Can you just disclose what the growth in the Naturex business is and what margins you've seen there, and what you expect for 2020? The second question is on free cash flow for 2020. Do you expect any one-off?
Maybe I can take both questions, Gunther. On the sales, we had low single digit, which is really, if you look at what we forecast for 2021, we expect to get to 10% growth for Naturex, very much in line with the growth of our Naturex portfolio. On the dilution, given you really the dilution impact on the acquisitions, it becomes more and more difficult to split out Naturex as we continue to integrate it into our business. I think, as I say, 0.6% negative on the EBITDA. Clearly we would expect over the next couple of years as well, the working capital within Naturex to come down. That's really on the, let's say, on the P&L side of things. On free cash flow, nothing exceptional for 2020.
As both Gilles and I said, we feel very confident in our long-term guidance, and in hitting what we set out in 2015.
Thank you.
The next question comes from the line of Patrick Rafaisz, UBS. Please go ahead.
Yeah, thanks. Thanks for taking my questions. The first would be on integration and GBS charges. You've guided for CHF 50 million integration charges. According to plan, you still have a bit left for GBS as well. Again, 2019 was a bit higher. How should we think about the charges from GBS in 2020? With the current portfolio, where would you see the integration charges evolving to in 2021 after the CHF 50 million. That's the first question. The second one would be just a follow-up on Fine Fragrances in Q4 and your comments that this was a timing issue with a large U.S. customer. Would you say that you will have a full reversal of that in the first quarter, we're looking at a very strong quarter for Fine Fragrances then in Q1? Would you confirm that?
The last question is on dollarized pricing, obviously still a theme in LATAM in 2019. I know you cannot do any currency forecasts, but from where we are today, what are your views on dollarized pricing benefits in 2020? Thanks.
On your first question, in Fine Fragrances, the reason that I could say that it was a timing effect on one single plant in the U.S. is exactly that, is that we see a full reversal in January. Don't ask me to commit on what's going to happen for the first quarter, but as it relates to your question, yeah, there's a full reversal in January. Yet, we are obviously confident for the full year, but don't ask me to commit on any growth for the first quarter yet. I don't have this visibility. Tom, you want to-
Yep. Absolutely. Patrick, on the integration costs and GBS costs, as you're right, we have a little bit higher than what we'd forecast at the beginning, simply because of the speed of the project. If you saw from the slide that Gilles presented, we're accelerating and we're doing very well in terms of the implementation of the project. For next year, we'll probably have costs of less than CHF 10 million, I would say, at this point, for GBS. For the integration costs, as I said, CHF 50 million for next year. It's probably going to be half cash, half non-cash, because it really depends on the speed at which we can go, and probably you can take the same number for 2021 as well. About the same amount, but again, half cash, half non-cash.
Argentina, or let's say dollar pricing in Latin America, as you say, in the end, your guess is as good as mine. The markets continue to be very volatile. We saw a lot of volatility in the market, I would say, in the second half of the year. I think what is comforting from the results, and you see it actually in the 2000 we are protecting our business in that market, by taking appropriate actions with customers and suppliers. We have a very good monitoring in place, and we're really making sure that despite the volatility, there is very little impact on the group.
Okay, thanks. Very useful. Thank you both.
The next question comes from the line of Andreas von Arx from Baader. Please go ahead.
Yes, thank you very much for taking my questions. I'll start with organic growth, 5.8%. Could you give an indication how much of that growth comes from acquisitions being done in the last three years? Or alternatively, could you provide a number how much acquisitions have been growing in 2019? The second question would be to continue on the integration costs. If I look at the last three years, I think integration costs amount to around 10% of the acquired sales. Is that kind of the figure we should expect going forward? Is 10% restructuring cost also the figure that we should take into account when we look at return on invested capital of the acquired companies?
Does that also mean that with these significant restructuring costs that you have with your acquisitions, should the benefit from that then lead to margins which are clearly above group, or is that 10% cost what you need to just reach the group average in terms of profitability? Just lastly, on GBS, you now indicated for higher costs. Does that also mean that you have higher benefits from GBS given now higher costs? Thank you.
Maybe I start with the acquisitions. Obviously, we did 15 acquisitions, and that started four years ago. For some of those, it's actually easy to answer your question because we track them almost independently. Some for others, when I say track them because they are managed independently, and for the others, they already are fully integrated into Givaudan. I can give you some specifics. Active Beauty, which is basically almost a combination of two acquired companies, has been growing double digits now for the last three years. Expressions Parfumées, which is kept independently, is growing strong double digits in 2019, and that's really for local originals in Fragrances.
I can even give you the example of Drom, even though it was acquired only towards the end of last year, has been delivering a double-digit growth in 2019. You have, let's say, an indirect indication when we talk, for example, Naturals. Naturals is growing double-digits for Givaudan, and that obviously includes a lot of acquired companies. The Vika, the Spicetec, the Naturex to a certain extent. All of those contribute to double-digit growth in naturals. I'm very confident to say that almost all our acquired companies are actually driving very good and very strong growth for Givaudan.
Andreas, on the integration cost on and on GBS. If you look at the original scope of GBS and the original cost, we are on track. Where the additional cost has come from is simply now as we start to integrate some of the acquired companies and put them onto our platforms. Conversely, if you look at some of the, let's say, the integration costs that we have, these may not necessarily be related to acquired companies. We are constantly looking at our operating footprint, taking into account the growth in the market, where we want to be present with our customers and with our clients. It becomes very difficult to start to split out on a single project-by-project basis. I think we've been very clear, and I think Gilles has also been clear earlier on in the call.
We expect that the acquired companies come back to Givaudan margins within three years, and very much in line with our long-term guidance.
Do I get any additional benefits from the CHF 50 million integration costs to be booked in 2021, like the benefits that you show with GBS? Is this just costs necessary for the normal business?
This is a mixture of, say, for normal business plus the acquisitions that we've made. We have a commitment to bring the acquired businesses up to the Givaudan levels, and that's the cost that is related to that.
Thank you.
The next question comes from the line of Matthew Yates from Bank of America. Please go ahead.
Hey, good afternoon. Just a couple maybe that haven't been touched on already. Are you able to be any more explicit on the margin trajectory in 2020? As you suggest, there's incremental benefits from GBS to come through, your 60 basis points of acquisition dilution is slowly getting less dilutive, I guess. Are there any sort of headwinds you're facing that would maybe offset some of that? The second question is maybe just to get an update on your position in plant-based foods. That was something I know you showcased quite a bit of at the event, in October, and I'm sure you saw IFF use that as part of their rationale around the DuPont acquisition. Can you just talk a bit more about how material it is to the group and what your outlook for that segment is going forward?
Okay. I can take both questions. The answer to your first question, as for now, we don't see any headwinds going against basically the list of positives on our margins that you just listed. No headwinds as for now. Then the second question on plant-based protein, this is for sure an exciting segment, but we started really working on this segment four years ago, essentially, with, let's say, homegrown organic innovation, because this territory, as it relates to plant-based proteins, is actually quite virgin. There was no, at the time, existing ingredient play in plant-based proteins. What we have done is developing a whole set of natural solutions which help those plant-based alternatives actually taste good.
Again, this is very similar to what we did on health and wellness, where when you remove salt, sugar, fat, essentially, it tastes not as good when you remove all those "baddies". The whole health and wellness segment that we have developed in 10 years, which is reaching now CHF 700 million, has been started from basic research with what we call taste modulators and flavor solutions. At minimum, what we can anticipate on plant-based protein is to follow the same logic to make those solutions taste good. What we have in addition is obviously all the naturals, the spices, all the different ingredients that we acquired through those companies, which will help even going beyond just those simple flavors and taste modulators. Let's say very positive and very well-positioned going forward.
We didn't need to do a very large acquisition to be dealing with this exciting segment.
Great stuff. Thanks very much.
I think we have the last question.
Last question for today comes from the line of Charles Bentley with Credit Suisse. Please go ahead.
Hi, Gilles. Hi, Tom. I just had a couple. If you add back that delayed customer in Fine Fragrances, can you give an indication of what organic growth would've been? other than that, in Fragrances, it appears as like a sequential slowing across the other subdivisions. Is that exit rate something that we should be looking at for 2020? just thinking about leverage, post-Ungerer and Indena, we're looking at greater than three times net debt to EBITDA. What would you say is the upper end of the comfortable range for this metric? Thanks.
On your first question, on the slowdown of what would have been the growth if I guess I answered your question by saying 80%-90% of the difference vis-à-vis the normal growth rate that we had up to now in Fine Fragrances was due to this single plant. I think you can do the math and get a picture of the magnitude and the materiality of the impact in Swiss franc sales, because I don't have the figure off my head. Basically, we are growing roughly at 7%-8% in Fine Fragrances. In Fragrances, we slowed down at 4% in the fourth quarter, you can make up the difference. Then I'm not so sure understood the sequential slowdown. What was your question?
If I look at Consumer and Fragrance Ingredients and Active Beauty, it feels like the Q4 run rate was below the nine months. I guess, is that the rate that we should be thinking about for 2020, or was there anything that we should?
No
Consider as a one-off?
No, there is nothing to say about Fragrance Ingredients because Active Beauty, it's been running quite strongly throughout the year, and there's nothing sequential going down about it. Tom, do you want to?
Yeah. Just on the leverage, if you look at the company over the last 10 years, we've clearly had higher net debt to EBITDA levels. We've felt comfortable going to those levels where we have attractive acquisition targets. We've also been able to very clearly demonstrate that we would deleverage the balance sheet over time. If I look today at what's in the pipeline, I think we have a very strong balance sheet. We have the capability to execute on any potential deals that come through, and a strong cash flow generation to deleverage over time.
Okay. Thank you everyone for your questions and your attention. Just a message, essentially on April the 8th, we will have our Investor Conference, which this year will take place in Kemptthal, close to Zurich in our new ZIC, the Zurich Innovation Center. It's going to be an exciting day because this is going to be very much about showcasing all the product portfolio, the solutions that we, let's say, got through the acquisitions and the new ventures that we have. I think you will have a wonderful day to really understand essentially what are in terms of products contained in those 15 acquisitions we made. Thank you again.
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