Ladies and gentlemen, welcome to the Givaudan 2019 Half-Year Results Conference Call And Live Webcast. I'm Sandra, the conference 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, operator. 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 Half-Year Results. I'll make this call together with Tom Hallam, our CFO, who will take you through the presentation before answering your questions at the end. The investor news on our half-year results 2019 was published on our Givaudan website at seven o'clock Swiss time this morning, 18th of July 2019. This is where you also find the slides for today's presentation, along with the investor news on our website, you will find also our 2019 half-year report. I would now like to start going through the presentation and invite you to turn to slide number three to go through our performance highlights.
I'm very happy to announce an excellent sales growth in the H1 of 2019, substantially above market growth. Furthermore, we are fully on track to achieve our ambitious 2020 goals, and the Naturex integration is making perfect progress. As a landmark event, on the 14th of June, we inaugurated our new state-of-the-art innovation center in Zurich, housing research activities for both divisions. This center is certainly second to none in the industry. On the 15th and 16th of October, during our investor days, we'll show to the financial community why we are especially proud of this cornerstone facility for our future success. In the first half-year of 2019, we reached sales of more than CHF 3 billion, a growth of 6.3% on a like-for-like basis and 15.7% in CHF.
This means being on a good track to pass the CHF 6 billion mark by the end of the year. 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 the good innovation momentum we have with our clients. The strategic focus areas, as well as the acquired businesses, contributed substantially to the growth. We achieved an EBITDA of CHF 660 million, representing an EBITDA margin of 21.3%. The free cash flow was CHF 148 million, up by 31%, and amounted to 4.8% of sales compared to 4.2% in 2018. The implementation of GBS, Givaudan Business Solutions, is making excellent progress delivering all the planned benefits. We are satisfied with the overall performance in the H1 of 2019, making us further confident to deliver on our 2020 mid-term targets.
On a like-for-like basis, our fragrance division grew 8.6%, and our flavors division grew 4.4%. Again, we saw an excellent growth with local and regional customers, whilst sales with our multinational customers regained a very good momentum. Global demand for natural flavors and ingredients continues to remain strong. The multiple acquisitions we did in this area, namely Spicetec, Activ, Vika, Centroflora, and last but not least, Naturex at the end of last year, created a very rich palette of flavors and natural ingredients to perfectly satisfy this growing demand, making us the very clear leader in naturals. All other strategic areas continued to outperform in their respective markets. Health and wellness, Active Beauty, integrated solutions grew all from high single to double digits. Our high-tech encapsulated fragrances contributed again strongly to the good results of our Consumer Products in the fragrance division, especially in the household and personal care sectors.
Finally, after three years of very strong results, our Fine Fragrances achieved another outstanding performance with 8.5% increase with a balanced contribution of the broad range we have across geographies and customers. Let's turn now to slide five. In the H1 of 2019, high-growth markets lived up to our expectations by further improving to double-digit growth, three times the growth rate of mature markets, a clear improvement over the past years. The emerging markets of Asia-Pacific grew very strongly, led by Indonesia, the Philippines, Vietnam. Eastern Europe and the Middle East contributed as well to record growth levels, as well as Latin America. In the mature markets, we grew with a solid 3.5%, led by Southern Europe and Korea. 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. Mid-term, 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 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 16.2%, driven mainly by Argentina, Brazil, Mexico, and Colombia. Volume growth contributing to two-thirds of the growth in the Latin American region. The growth in Asia-Pacific was 5.6%, with double-digit growth in the high-growth markets. North America grew 3.8% on the back of last year's strong comparable. EMEA grew 5.4% with double-digit growth in the southern part of Europe, as well as in the high-growth markets, namely Eastern Europe, Poland, Africa, and the Middle East, which are all high-growth markets. Let's turn now to slide seven. The Fragrance division grew 8.6% on a like-for-like basis and 11.3% in CHF. Fine Fragrances increased 8.5% like-for-like. We continue to sustain our clear market leadership in Fine Fragrances.
A high level of new business wins across all customer groups, combined with an excellent market performance of the recent launches, were the main contributors to these further outstanding results. Consumer Products grew 8.7% 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 new momentum of multinational customers. Fragrance Ingredients and Active Beauty grew 8.2% like-for-like. In Active Beauty, we achieved an encouraging double-digit sales growth again, driven by all customer types and active ingredients. With a little bit of tailwind, we will already achieve our 2020 target this year in 2019, sales of CHF 100 million. Let's turn to the next slide, number eight. Sales of the Flavor division grew 4.4% on a like-for-like basis and 19.4% in CHF.
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 by 6.2% on a like-for-like basis. Indonesia, Malaysia, the Philippines, and Vietnam, where the division recorded double-digit growth and achieved a good growth in beverages and savory segment. EMEA increased 2.8% like-for-like, led by double-digit growth in Spain and Portugal and a good single-digit growth in the U.K., Italy, and Switzerland. Segment-wide, the good growth was seen in beverages and sweet goods. North America decreased 1% on a like-for-like basis, despite the good performance from local and regional customers, as well as in naturals. Latin America increased 22.8% on a like-for-like basis, driven by a very strong growth in Brazil, Argentina, Mexico, and Colombia. Let's turn now to slide nine.
When we presented our 2020 strategy in August 2015, we clearly stated that acquisitions would be an important part of our five-year growth path. Since 2014, we have, including Naturex, Albert Vieille, AMSilk, and Golden Frog, acquired 11 businesses for a total of over CHF 2.5 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 to Givaudan of more than CHF 1 billion. 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 and successful acquisition strategy.
We aim at further value-creative acquisitions to complement our core capabilities and increase the portfolio of natural integrated solutions, local and regional customers, as well as new adjacent business areas with which we believe we can further provide value to our customers and to our shareholders. Let's turn now to slide 10 with a focus on Naturex. The acquisition of Naturex fits fully with our 2020 strategy to expand our offering to our customers with natural products, with integrated solutions, and with Active Beauty, as well as to further complement our customer base, especially with smaller and regional clients. Givaudan is the global leader in the area of natural flavors, and Naturex complements perfectly our capabilities with its strong portfolio of plant extracts and natural ingredients across the food and beverage, nutrition, health, and personal care sectors. In 2018, we completed the acquisition and developed an overall growth strategy.
We defined and communicated financial targets and put the new organization in place as of 1st of January 2019. We received, throughout this transformation, very good feedback from all customers. Already in the H1 year of 2019, we have improved significantly the service levels of Naturex and transformed the business back to growth. Strategies have been defined for each category, the preparations for cross-selling and integrated solutions are well advanced, supported by an engaged and aligned workforce. In the coming years, we aim at executing the exciting growth plans for Naturex and reach an annual growth rate of 10% in three years. Our objective is also to improve the Naturex financial performance up to the flavors division level by the end of 2021. Let's turn now to slide 11.
This slide gives us a short follow-up on an intact GBS update from our annual investor conference on April the 9th in Vernier. The transitions in EMEA and North America are now fully completed, the teams in Buenos Aires and Budapest are fully operational for these two regions. In Latin America, the transition is completed, and we are in the stabilization phase in Brazil. Argentina and Chile are now fully operational, and we are currently going live in Mexico and Central America as I speak. 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, to be finished by mid-2020. All our three delivery centers, Budapest, Buenos Aires, and Kuala Lumpur, work in an efficient way within the broader Givaudan organization, and financial benefits are delivering 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 our conference call. Gilles has taken you through the main aspects of the market development and the business performance of the group. On the next 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 page 13. As Gilles mentioned, group sales increased by 6.3% on a like-for-like basis, which excludes any currency impact as well as the recent acquisitions. In Swiss francs, sales increased by 15.7%. The absolute EBITDA increased to CHF 660 million compared to CHF 600 million in 2018. Our underlying EBITDA margin remains strong at 22.3%. Our net income was CHF 380 million or 12.3% of sales. The free cash flow as a percentage of sales was 4.8%, compared to 4.2% in 2018.
Please turn to slide 14, which shows the exchange rate development. Overall, the major mature market currencies in which the group operates were relatively stable against the Swiss franc in the first half of the year. Despite certain volatility in some emerging market currencies, 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 15. In 2019, the group continued its efforts to reach productivity gains and cost discipline. Nevertheless, the gross margin declined to 41.2% in 2019 compared to 44.2% in 2018 as a result of the higher input costs and the lower margin of Naturex.
We have successfully increased prices in collaboration with our customers in the H1 of 2019 and continue to do so in the second half. As a reminder, this has a diluted impact on the gross margin. The EBITDA increased to CHF 660 million in the first six months of the year. In this period, we incurred costs of CHF 19 million related to our GBS project, compared to CHF 25 million in the same period in 2018. As you can see on the bottom right of the chart, our underlying EBITDA margin was 22.3% in 2019, compared to 23.4% in 2018. On the next two slides, I would like to spend a few minutes on the operating performance of the two divisions. Please turn to page 16. The fragrance division recorded a sales increase of 11.3% in CHF and 8.6% on a like-for-like basis.
The division recorded CHF 270 million of EBITDA, compared to CHF 250 million in 2018. Including the CHF 19 million of GBS costs mentioned before, the EBITDA margin was 19.8% on a reported basis and 21.3% on an underlying basis. The margin showed a slight decrease compared to last year as a result of the higher input costs and the dilution of pricing actions with our customers. If you turn to page 17, I will comment on the Flavors performance. The Flavors division recorded a sales increase of 19.4% in CHF and 4.4% on a like-for-like basis. The reported EBITDA increased to CHF 390 million from CHF 351 million in 2018, an increase of 11.1%. The reported EBITDA margin was 22.5%, and on an underlying basis, the EBITDA margin was 23.1%.
The margin decreased compared to last year, mainly as an impact of the lower margin of Naturex. Please turn to slide 19, which shows the forecasted amortization of intangible assets. At the year end 2018, we showed you the forecasted amortization. The projections shown here have been updated, or the projections shown here have been updated to reflect the latest acquisitions of Albert Vieille and AMSilk. Please note that this chart will be changed again once we have completed the acquisition of Golden Frog. Please turn to slide 19, which shows the net income. The income before tax increased to CHF 437 million from CHF 431 million in 2018. The non-operating expenses were relatively flat compared to the prior year. The group incurred higher financing costs as a result of the increase in debt of the group. These were offset by 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 net income was CHF 380 million or 12.3% of sales. The group's effective tax rate decreased to 13% in 2019, compared to 14% in June 2018. Please turn to slide 20, which shows the cash flow performance of the group. During the first half of 2019, Givaudan generated a free cash flow of CHF 148 million, or 4.8% of sales, compared to CHF 113 million or 4.2% in 2018. The operating cash flow for the first six months was CHF 271 million, almost flat when compared to 2018. Of course, as in the prior year, this includes the cost that we incurred with the implementation of GBS.
As both Gilles and I have previously commented, 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. As such, total net investments were CHF 94 million, as a percentage of sales, net investments were 3% compared to 5.3% in 2018. Excluding the proceeds of the sale of the Zurich Innovation Center, net investments were 4.6% of sales. Working capital remained relatively flat compared to 2018, despite higher inventory levels of Naturex. I'm very happy with the free cash flow delivery in the first six months of the year. We are preparing for the growth of Naturex and are thus building inventories, we have significant investments in high-growth markets.
With this, I would like to conclude my part of the presentation of the half-year results, I hand back to Gilles.
Thank you, Tom. We had an excellent start in 2019, we are proud of our achievements in the first half-year. We saw an encouraging pickup in high-growth markets, all our strategic areas are growing to our expectations. Fine Fragrances, to our great pleasure, continues on its successful journey, strongly outperforming the market and the competition. We have entered the fourth consecutive year of outstanding growth, making us the clear number one in Fine Fragrances. High-growth markets are back to double-digit growth. Local and regional customers continue to be a strong growth driver across both divisions, we have seen a substantial pickup from multinationals, mainly in household and personal care. Recent acquisitions and areas of strategic focus, health and wellbeing, naturals, integrated solutions, all contributed positively to those good results.
Like in 2018, raw materials prices will increase by another 5%- 6% in 2019. We are very confident to fully compensate these increases by further implementing price increases in collaboration with our customers. The implementation of GBS and the integration of Naturex are fully on track as previously communicated. We are very confident to deliver the respective benefits. Let's turn to slide 23. Our 2020 roadmap is centered on responsible growth and shared success. Our ambitions, and the roadmap over the next two years seek to ensure responsible growth and shared success for shareholders, customers, and all key stakeholders. Building on the success of the 2011/2015 strategy, 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. Most importantly, continue to build those 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 three years, we are fully on track. Our ambitious financial targets, an average 4.9% like-for-like growth, and an average free cash flow of 12.4%, puts us in the right frame to achieve our goals. Flavors and fragrances are consumed every day around the world. They are an essential part of successful consumer products for our clients. I'm confident about Givaudan's strengths 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 am 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 forward to your questions now.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered a 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 Patrick Rafaisz, UBS. Please go ahead.
Thank you, good afternoon, everyone. I have three questions, please. The first one would be on the GBS update. You mentioned you are fully on track here, but the costs you have booked for the first half of CHF 19 million are already almost the budget for the full year of CHF 20 million. Did you bring forward some costs, or are we seeing some additional costs? Could you tell us how much savings you already had in the first half from GBS? Second question on Naturex. You disclosed the sales amounts that the business contributed to the first half of the year. Can you also talk about the EBITDA contribution? We understand that it is dilutive on the margin, but it would be nice to know the absolute number. The last question is on cash flow and working capital.
Tom already talked about inventories and the buildup in anticipation of Naturex's growth. Can you also talk about receivables and payables? Both metrics went up quite significantly from H1 2018. Thank you. These are my three questions.
Thanks very much. I will take the first question on GBS. As you noted, we have CHF 19 million of costs. We guided CHF 20 million, actually, we guided CHF 11 million, Patrick, for 2020. If you look, as Gilles mentioned, we are making good progress, which means that actually it is more cost moving into 2019, so it is not really overspend, it is just more the phasing of the costs coming into 2019 from 2020. From a savings perspective, as in previous years, really, we expect one-third of savings in the first half, 2/3 in the H2 of the year. Always incremental, of course, to the prior year. On Naturex, the dilution on the group is 0.8% on the EBITDA margin. Just on the cash flow, as you mentioned, we have quite a significant increase in inventories for Naturex.
As always, I remind you, particularly with inventory, it tends to be seasonal, particularly with flavors. It depends very much on the crops, we have relatively high inventories certainly in mid Q2, early Q3, then it tends to go down towards the end of the year. The receivables and payables, as you remarked, receivables depends very much on the timing of sales, also, as Gilles mentioned, we have very good sales growth. We have seen that all the way through the first six months, of course, that means that we have higher receivables at the end of June. Those are really the three points on your questions.
Yep. Super helpful. Thanks, Tom.
The next question comes from Celine Pannuti, JP Morgan. Please go ahead.
Yes. Good afternoon, everybody. I wanted to ask first a question on the market. You seem to be talking about a pickup in high growth. Could you specifically tell us where do you think it comes from and in which countries? It's a bit surprising given some of your competitors, not direct competitors, I think, commented on a potential slowdown. If you could comment on that. Still on the market, the North American market has slowed down quite substantially for flavors. Could you as well give us some color of what's happening in the demand there? Finally, Tom, I think you partially answered my question on Naturex, but my question is on growth margin, the 300 basis decline. Could you give us the breakdown of what is the Naturex impact, the impact from raw material cost?
Because it seems that there was quite an elevated impact from the raw material inflation in H1, if that's really what it was. Thank you.
Okay. Thank you, Celine. What I said is that we are a bit back to the sort of normal or at least growth rates we're used to in the past on high-growth markets, which is roughly 10%. I would say that all of them are growing strongly. The first one being obviously Latin America, which has a very strong growth. Two-thirds of that, two-third of the growth, is really about volume growth. This is not just about pricing and on foreign exchange rates. You have a very good growth in the whole of Southeast Asia. There's not one single market part of Southeast Asia which is not growing. The whole Southeast Asia, which is again, very substantial. It's two or three times the size of China in Asia Pacific.
You have the whole region now which is quite substantial, which is basically the Africa, Middle East, which is also growing strongly. That has never really slowed down. Again, this is contributing to the overall growth. Finally, even the Eastern Europe, Turkey, Poland are also growing strongly. The only one which is not growing as strongly as we wish is China. China is roughly 6% of the overall group sales of Givaudan. There is no sort of structural issue there. The first reason is that to do a bit with comparables, because we are growing against a high comparable. Our confidence in China remains intact. We are building, as you may know, the largest compounding plant for fragrances in China as I speak, and the market has many opportunities going forward.
I would say that all high-growth markets, maybe except China, are really delivering great growth. On North America flavors, for sure this is not to the level we wish. Minus 1% for flavors. I would say that the key areas which are really naturals, but also locals and regionals are delivering up to expectations. By difference, it's more on the multinationals that we see a decline, which basically, we hope will turn back in the next months to come. I will hand over to Tom to give you the breakdown on GPM. Obviously one of the elements which is important is the whole raw mats and pricing. I would like myself to again reiterate two things. On the raw mat side, we said 5%-6% increase in 2018 and the same increase in 2019.
If you add both, you have roughly CHF 200 million of additional raw materials over two years that we have to compensate for. As I speak now, we have fully compensated with all the negotiations and the work we have done with our clients, this total amount. Obviously, the largest portion was in fragrances as compared to flavors. I would say on both sides, we are fully compensated with price increase. The only thing is, obviously, it's a question of timing. As I said, on the CHF 200 million, let's say, of price increase, we had a number in 2018 which had already been implemented, which was roughly 1% of the growth in 2018. The lion's share is in 2019, and the slight tail end will be in 2020. That has to do with contractual terms, timing of negotiations, and all of that.
The lion's share is in 2019. If we look at specifically 2019, first half against second half, we have a bit of a, let's say, different timing when looking at raw mats and pricing. All the raw mats increase is very much front-loaded in H1. The whole raw mats increase of the whole year is much more front-loaded in the first half. The price increase, we have a lot of price increase in the first half, but much more to come in the second half. Both will be, the price increase will fully compensate the raw mat decrease again. Again, there's the question of timing or differences between the two halves. This is really looking at it from a commercial hand.
Thank you, Gilles. Celine, maybe I give you the elements both on gross margin and on EBITDA margin. As a reminder, last year we had this so-called Citral issue. It cost us CHF 50 million, 2/3 in the first half, 1/3 in the second half. This, of course, was a one-off. If we add this back, this is 1.2% or 120 bps on the gross margin. If we look now at the net price raw materials, it's negative 270 bps on the gross margin, and acquisitions is negative 130 bps. There's obviously currency makes up the difference. If I translate that into EBITDA margin, the 1.2% on gross margin for Citral is exactly the same on EBITDA. The price increase raw materials net impact is minus 240 bps.
The GBS savings and the impact of IFRS 16 is 100 bps, half and half. As I already mentioned to Patrick, the acquisitions is negative 80 bps. I think, with both gross margin and EBITDA margin, I gave you all of the elements.
That's super clear. Thank you. Just one thing. Could you share as well China growth? You said you are a bit disappointed. What was the growth in China?
Well, it's actually flat. Low single digits. The previous year was plus 11%.
All right. Thank you so much.
The next question comes from Theodora Joseph, Goldman Sachs. Please go ahead.
Hi. Thank you very much for taking my question. My first question is actually, it would be helpful if you could provide some breakdown of volumes and pricing by each of the division. Also just to clarify in terms of what Gilles explained before in terms of pricing and raw material headwinds that we should actually expect. Is it fair for us to actually expect net positive impact from the pricing actions you have taken, especially in the H2 of this year, considering that actually you will be able to recoup some of the raw material headwinds that in 2018, which you didn't recoup last year? My second question is on some of the actions which you have taken in terms of pricing.
As your business shifts towards more natural raw material ingredients, one would expect that actually there's going to be more volatility in raw material prices. Just curious to hear if there's any lessons that you've learned over the last two years or any changes in your business model, which you might consider implementing from this episode in order to kind of mitigate future volatility. Thank you.
I'll start with yours, from your last question. Actually the volatility has been more on the synthetic ingredients than the natural ingredients. Your question is still valid, what have we learned? Obviously, anything which has to do with improving our vertical integration, but also securing long-term contracts with everyone. Basically this is in works, but applies more on the synthetic ingredients. Again, which go more onto the fragrance side. We don't disclose the pricing increase for the respective divisions. Obviously by what I referred, the raw mats increase was much higher on the fragrance side, therefore the price increase was also higher on the fragrance side than on the flavor side. Maybe Tom,
Yeah, I can only reiterate what Gilles said. If you look at the split of raw materials and price, most of the raw material is front-loaded and there is price increases in the first six months, and the majority of the price increase to come in the H2 of the year. When Gilles talked about recuperating over a three-year period, that's going into 2020. As we mentioned, we have raw materials 2018, 2019, and we have price increases 2018, 2019, and into 2020.
To your point about will the second half be easier from a profitability standpoint as opposed to the first half, this is true given, as I mentioned, there were much more raw mats increase in the first half than price increase, and it's going to reverse in the second half.
Okay, perfect. Thank you very much.
The next question comes from Katy Hutchinson, Davy Research. Please go ahead.
Hi. Two questions from my side, please. Just firstly, the decline in North American flavors, could you give an indication as to what channels you're seeing that decline in? I know you called out dairy, but if you could explain the moving parts in more detail, please. Secondly, you seem to have experienced a recovery in flavor in the second quarter in APAC. You might explain some detail behind that. Thank you.
Yeah. As I mentioned, in terms of channels, in terms of clients, that has a lot to do with more on the multinational side. In terms of segment, that has more to do with the sweet side, which includes beverages and dairy. That's where we've seen the headwind. On the rest, on savory and again, on local and regionals and naturals in general, it was much better.
The next question comes from Jean-Philippe Bertschy from Vontobel. Please go ahead.
Good afternoon, gentlemen. I would have two questions. The first one is on Expressions Parfumées. What is going on there? You invested, I think, CHF 20 million post-acquisition, and based on my assumptions, it looks like in H1 you are growing like 30% or 40%. What is going there? Maybe the second one for Tom, in terms of free cash, can you maybe disclose the cash cost for GBS in H1? It looks like you purchased some own equity of CHF 50 million, CHF 51 million in H1. How you see that in the second part of the year, because it was a major development in H1. Thanks.
Jean-Philippe, on the Expressions Parfumées, essentially, as you may notice, we actually operate Expressions Parfumées almost as a standalone business within Givaudan, but at the same time providing with all the means and capabilities of Givaudan. The result is that you are correct, we are actually growing at 30%. This is a very good success, very happy with the way the two companies have been plugged together, which gives us confidence again on this whole strategy of locals and regionals with additional companies.
Jean-Philippe on the other question, firstly on the purchase of own equity instruments. As you know, we have a long-term incentive plan, which we fund through purchase of shares on the open market. We purchased all of the requirements for 2019 in the first six months, we will have nothing coming in the H2 of the year. Actually, if you look at last year, it was more loaded towards the H2 of the year than the H1 of the year. That was the CHF 51 million is all done for this year and nothing more to come for the remaining six months. Then on GBS, on the cash costs, you can imagine that the project cost is all cash. That falls very much straight through to free cash flow.
If you look, we had around CHF 19 million remaining of cash impact, that's probably split 50/50 between H1 and H2.
Thanks a lot.
The next question comes from Thomas Wrigglesworth of Citigroup. Please go ahead.
Thank you very much. Strategic question, if I may. You mentioned about having a complete palette in naturals. Are there any technology areas in the naturals that you feel that would be interesting or you need to have? In addition to that, you're always going into active ingredients in beauty. Would you consider actives within the health and wellness trend going forwards? Just a point of clarification on Naturex, CHF 235 in the first half, can you help me with seasonality in the second half for sales? Are you saying it's growth on the CHF 235 that we should kind of bake in going forwards? Just some color there would help. Thank you.
We certainly expanded our palette from strictly flavors. Flavors, as you know, which are highly concentrated ingredients, which have a high impact as compared to the concentration that you put a flavor into a formula. What Naturex brings us is obviously, for one-third, a whole range of natural extracts, which are helping on taste, but which are not necessarily considered as flavors. It is really natural extracts, which contribute to taste and which in combination with flavors, again, does a superb job on taste. And the beauty with Naturex is that because Naturex by history, and let's say through their knowledge, they master all those sourcing of naturals. Once you master, I will give you an example, rosemary, you can extract rosemary for its taste, but you also have rosemary, you can extract it also for antioxidants and preservatives and all sorts of applications.
That is why in the remaining two-thirds of Naturex, you find natural colors, natural preservatives, and also functional ingredients in the space of Health and wellness, which is what you just referred to. Already with Naturex, we are in the space of active ingredients for Health and wellness, even with a small business in pharma. The intention, yes, is to be opportunistic to further grow, not only on naturals for taste, but also in other areas as we find opportunities going forward. Those things are what we call the adjacent spaces of Givaudan Flavors, which go to the same clients of food and beverages, but without losing our soul of who we are, which is really about pulling together customized solutions in a very intimate way with our clients, backed by a lot of innovation.
By saying this, I am not putting myself into commodities or things like that, which also go into food and beverage. You are talking about Active Beauty, which is also a very good success story. As a reminder, we started in 2014 from zero sales. We acquired Soliance, acquired Induchem, grew double-digit. With the addition of 10 million of Naturex and Silk, we are going to hit the 100 million mark, which puts us now in a very good position in terms of leading this segment of the cosmetic industry. And again, that fits the whole purpose around Health and wellness, but more on the fragrance side. And we see all the synergies that we have, the commercial synergies that we have, where the fragrance people give access to the Active Beauty, with all sorts of clients. Going forward, again, opportunistic across those different segments.
And maybe I can just take the Naturex question. I will start backwards, or I will start at the end and work backwards. As Gilles mentioned, we are targeting sales of 10% per year in 2021. It is not a hockey stick, I think you can work back from that and say, "Okay, what do we need to achieve in 2020 and in 2019?" If you look at the first six months, the early part of the integration on the front end, on the customer end. We grew low single-digit, which is very good. Particularly if you look historically, Naturex on a standalone basis was not growing. And of course, we would expect that to accelerate in the H2 of the year.
Just as I refer back to one of the other questions, we are building inventories now in Naturex in anticipation of accelerating the growth into the H2 of 2019.
Okay. Thank you.
The next question comes from Daniel Jelovcan, Mirabaud. Please go ahead, sir.
Yes, hello. Just one small question left. You mentioned in flavor in Latin America, you grew 22.8% like for like, and in the Q1 you grew 9.2%. That implies that your growth in the Q2 was more than a third actually. You mentioned the four countries, but can you be more specific? Was it a big order from a multinational, or what was the reason behind that?
Yeah. As we mentioned, in Latin America, that was very much 2/3 volume and 1/3, I would say pricing, because as you know, we price in hard currencies, in dollars.
Latin America is really very much about, let's say three large countries. Mexico, Brazil, and Argentina. I would say on the flavor side, you really have a very strong growth in Argentina. I would say it's all double digit, whether I look Argentina, Brazil, Mexico, Colombia. There is not much left, in fact. Once you've covered those four countries, it's almost 90% of Latin America. It's an excellent result, if we compare on the fragrance side, Argentina and Brazil are all double digit, and so is also Mexico. Both divisions are doing very well in the region. It's not just pricing. That's what I want to reaffirm. It is very much about volume gains, meaning wins and driving market share gains.
Mm-hmm. My question was more why it was so extraordinarily strong in the Q2 .
Oh
Growth of more than 30%. That's quite high, even for your terms, right?
Yeah, that has to do with comparables, timing of introduction of new wins.
Okay.
It starts to be a science that we refrain from going into splitting quarters is like splitting hair. It doesn't lead you anywhere.
Okay, thanks.
Okay, now we have the last question.
The last question comes from Ranulf Orr, Redburn. Please go ahead.
Hi. Yes, just one last one from me. Just to help us understand the growth in flavors again a little bit more, could you please just give an indication of what proportion of sales or earnings comes from your health and wellness products, your integrated solutions, et cetera? Thank you.
If you go back to what we've said in the past, if you look overall, it's around 50/50 split between what we would call natural or health and wellness. Obviously, sometimes there can be double counting within that, but that's more or less the split on a pro forma basis. Natural is around 50%. If we look at our health and wellness, it's another 15%, actually. As I mentioned, sometimes there's a bit of a double counting in there. That gives you an indication of the split.
Great. Thank you.
Thank you for your questions today. As you know, I just remind you, we have our half year conference in Zurich in the Widder Hotel on the 29th of August. You'll have an opportunity actually to look at what we are doing in Active Beauty. That's going to be interesting. We all look forward to seeing you there. Thank you.
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