Symrise AG (SY1) Earnings Call Transcript & Summary

Good day, and welcome to the Symrise analyst and investor call on occasion of the first half 2020 results. Today's conference is being recorded. At this time, I would like to turn the conference over to Tobias Erfurth. Please go ahead, sir.

Thank you very much, Molly. Good morning, and welcome to our analyst investor call on the occasion of the publication of our H1 results 2020. All corresponding materials, including the presentation, have been published on our website this morning. A replay of this call will be available later today. Today's call will be held by our CEO, Dr. Heinz-Jürgen Bertram; and our CFO, Olaf Klinger. After their presentations, we are open for your questions. With this, I hand over to you, Heinz-Jürgen. You may begin.

Thank you, Tobias. Good morning, ladies and gentlemen, and welcome to our investor and analyst call on the results for the first half of 2020. Olaf and I will run you through the presentation and update you on the numbers and status of our objectives. Olaf will provide details on our financials, following my overview on our first half year performance. I will also give an update on our outlook, which have partially raised. And as always, you will have the opportunity to ask questions. The global corona pandemic has rapidly changed everyday lives around the globe. No matter, if in the North, South, East or West, people, politicians and businesses have been dealing with the global health crisis on an epic dimension. The lockdown has caused consumer demand to significantly slow down in some areas, while it created completely new needs in others. It required businesses to react quickly, be it in manufacturing, in servicing customers, launching new products and protecting employees in regards to health and safety. This has not been any different for Symrise. We have introduced new production processes, adjusted our supply chain and introduced new forms of virtual collaboration. If you ask me personally, what our recipe of success for the past 6 months has been, it is clearly the combination of our very diverse portfolio, our robust supply chain, our flexibility and the commitment and the committed Symrise workforce. These 4 factors have been decisive to fully continue our operations worldwide and to supply customers in a reliable manner. These strengths are reflected in our half year 1 results illustrated on Chart 4. We increased our sales by 7.6%. On an organic basis, this translates to sales growth of strong 3.4% in the current environment. Our EBITDA spiked by more than 12% to EUR 393 million. We delivered an excellent profitability at an EBITDA margin of 21.6%. Our business free cash flow is up by more than 37% to more than EUR 190 million. We are very pleased that these results and will, on top of that, increase our profitability target for the full year 2020. I will come to that later. Moving on to the Chart 5 for our sales development. On group level, we grew sales to EUR 1.821 million, up to 7.6%. Organic top line growth amounts to 3.4% within all segments contributing. In Q2, specifically, organic sales grew by 4.6%. Please turn to Chart 6 for the individual performance of our segments. Scent & Care achieved solid organic sales growth of 2.6%. On a reporting basis, sales have been stable and reflect predominantly currency effects. The segment benefited from strong demand in consumer fragrance and oral care, each delivering high single and double-digit percentage organic growth. In addition, our increased menthol capacities have been sold out, given the strong need for hygiene products across the globe. Flavor amounted to EUR 636 million. The top line has remained stable by and large, both on a reporting and organic basis. Due to the lockdown, Flavor particularly benefited from demand for applications used for cooking at home, whilst applications such as beverages and confectionary slowed down. The Nutrition segment continued its strong momentum. Organic sales rose by an excellent 10.5% to EUR 474 million. On a reported basis, sales grew by more than 38%. ADF/IDF contributed EUR 106 million and exceeds our expectation. Our Pet Food business was once again a key growth engine for the segment. We are aware that it is key for you to better understand the dynamics in our portfolio due to the corona pandemic. Let me explain Chart 7. It illustrates the changed order patterns for our customers and the shift in our portfolio during first half year. As you can see, our 3 segments contribute to a very balanced business. Yes, there has been reduced demand, for example, in beverage applications, fine fragrance and sun protection. On the other hand, demand for specific solutions went up, for example, menthol and oral care applications, they are both used in many hygiene products. Also, applications such as savory flavors and food nutrition saw very good demand due to consumers increased need to stay home and cook at home. Clearly, the upcoming month will remain challenging with the corona crisis, given there is no vaccine yet, and we do see individual hotspots occurring. Actually, Symrise has been able to navigate through these times very successfully. We have compensated for lower demand in certain areas with increased orders in others. We have been diversifying our business early on in terms of regions, customer types and portfolio. It is exactly this degree of diversification, which makes us so resilient as a group, but also the individual segments. Before we move on to our outlook, let me hand over to Olaf. He will elaborate on some of the financial PPAs more in full detail. Olaf, please go ahead.

Thank you, Heinz-Jürgen. Ladies and gentlemen, also a warm welcome from my side. As usual, I will walk you through our financial performance in some more detail. Let me start on Slide #9. Corona is a major challenge for the whole world, including our clients, our end consumers, our employees and our planning. We are very grateful and very satisfied. Despite all these challenges, we have achieved a successful 3.4% organic growth in H1 and could even further increase to 4.6% in Q2. The good organic growth is a result of our well-balanced and broad portfolio mix and our industry-leading backward integration. FX was negative with 2.1% in H1, mainly driven by Brazil, Argentina and Mexico, while the U.S. dollar was still supportive. A comment on ADF/IDF. The sales of EUR 106 million or 6.3% for full year growth. Our latest acquisition is running above expectations. All integration projects are fully on track, and the expected synergies are delivered. ADF/IDF benefited during corona as some of their offerings like Chicken Solutions supported the eating-at-home environment. A comment on price/volume. For the group, we saw around 20% price versus 80% volume in H1 and Q2. Please turn to Slide 10 for the profitability of the group. Gross profit increased 5.5% to EUR 730 million, mainly due to the contribution of ADF/IDF. Our gross margin came slightly down from 40.9% to 40.1%, mainly as a consequence of a different cost split at ADF/IDF. They operate with an above group raw material and manufacturing quota, but with a lower operating expense ratio. EBITDA for the group increased 11.9% and achieved EUR 393 million. Our EBITDA margin reached 21.6%, supported by strict cost discipline and lower operational expenses, for example, related to less business travels and limited trade fair activity. Please remember that we have not been in such a good margin situation for some time. Last time, before the raw material prices. Our backward integration proves again to be a safety net during volatile times, allowing for profitable growth. Our resilient and broad-based business model obviously gives us stability in challenging times. D&A increased to EUR 127 million for the first 6 months compared to EUR 110 million for the comparable period in 2019. The increase in depreciation is mainly related to CapEx investments during previous periods. The preliminary finalization of the ADF/IDF purchase price allocation contributed EUR 8 million to amortization and EUR 1 million to depreciation in H1. For the full year, we expect an ADF/IDF-related D&A effect of EUR 80 million before tax, of which EUR 60 million is amortization-related. For your modeling, please consider a D&A amount of EUR 255 million for the group for 2020. Let's now dive a little deeper into our 3 segments, starting with Scent & Care on Slide 11. Scent & Care reached an organic growth of 4% in Q2 after 1.2% in Q1, which brought them in total to 2.6% in H1. Price volume improved to 20% price and 80% volume, supported by the new menthol volumes. Scent & Care EBITDA came in at EUR 146 million after EUR 140 million, an increase of 4.2%. The EBITDA margin amounted to a solid 20.6% after 19.7%, mainly due to increased turnover and reduced cost in sales and marketing as well as in research and development. Turning to Flavor on Page 12. Flavor organic growth slightly declined by 0.3% in Q2 after 1.6% in Q1, which brought Flavor in total to an organic growth of 0.6% in H1. Price effects represented about 80%, while the volume increased during H1 overall, was a small positive. Flavor EBITDA increased 2.2% to EUR 147.5 million. The EBITDA margin reached 23.2% after 22.6% last year, mainly due to lower raw material cost and good SG&A cost management. On Slide 13, you can see that Nutrition has achieved the fastest organic growth with an impressive 14.7% in Q2 after 6.1% in Q1. In total, 10.5% for H1. Price volume in H1 was around 20 to 80, especially in Pet Food, we took advantage of the investments into capacity expansion over recent years. As mentioned before, ADF/IDF contributed EUR 106 million turnover. With the support of ADF/IDF, but also related to the strong performance of Pet Food, Nutrition was able to increase its absolute EBITDA to almost EUR 100 million for H1. Profitability strongly improved by 150 basis points to an EBITDA margin of 21%, which compares to 19.5% during the same period in 2019. Our strong momentum in Nutrition shows that building a portfolio beyond Flavor and Fragrances has been visionary to deliver superior growth to the best and broadest portfolio in the industry. Please turn now to Slide 14 for our bottom line. The financial result decreased despite high FX volatility by EUR 1.7 million to minus EUR 29 million, primarily related to higher interest expenses in connection with the ADF/IDF acquisition. Our tax rate remained stable at 27%, and therefore within our expected mid-term corridor of a 26% to 28% tax rate. EPS increased 9.6% to a new record level of EUR 1.25, mainly because of our increased operating profit. Slide 15 shows the development of our youngest key performance indicator, business free cash flow. Business free cash flow in H1 increased by 37% to EUR 190 million, which corresponds to 10.5% of sales. The good result follows the strong EBITDA growth, the working capital growth below the top line increase and lower CapEx compared to the previous years. For the full year, we expect business free cash flow to be around last year's good level of 14% of sales. Slide 16 represents our healthy balance sheet with an equity ratio of 41.2%. The full year 2019 figures shown on this chart, are restated and include now the impact from the preliminary ADF/IDF purchase price allocation. Overall, the balance sheet had no big changes. Worth mentioning, maybe the change in cash as we paid our full dividend following our virtual Annual General Meeting in June. Please move to Slide 17 to our solid net debt development. In the light of corona, we strengthened our liquidity position during the first half of 2020. Next to our existing revolving credit facility of EUR 300 million, we secured additional bilateral credit facilities amounting to EUR 250 million. All facilities are currently undrawn. Please, further note that we issued a EUR 500 million bond at an interest rate of 1.375% to early refinance 2 maturities, which are up for repayment in Q4. The related funds came in on July 1 and are therefore not reflected in our cash position as of June 30. As a consequence of these financing activities, we have established a very sound and solid liquidity situation for Symrise. A net debt position of EUR 1.65 billion results in a leverage of 2.2x EBITDA as of June 30. Net debt, including pensions, lease and similar obligations reflects a leverage of 3.0x. Despite the increasing pension provisions following lower interest rates over last years, our long-term net debt, including pension target remains unchanged at 2 to 2.5x EBITDA. And our clear goal is to keep a financial profile for Symrise, which supports our investment-grade rating profile. In summary, we provided a strong set of financial figures for H1 2020 during unprecedented times, which is giving us lots of comfort for the remainder of the year. And with that, I would like to hand back to Heinz-Jürgen. Thank you.

Thank you, Olaf. Finally, I would like to present our updated outlook for the upcoming month and our 2025 objectives. No doubt, the corona crisis remains a challenge, and the time we are in is special. But it is neither black nor white. It is about managing uncertainty on the one hand, and seizing opportunities on the other. We have done very well in the first half of this year and are therefore confident for the second half also. Even though we have limited visibility on the course of the pandemic, we consider ourselves well equipped. We therefore confirm our objectives to grow faster than the relevant market, which is expected to grow between 3% and 4% this year. With respect to profitability, we have changed our view. Based on the strong margin development during the first half of the year, we are raising our guidance for the EBITDA margin. We now aim at an EBITDA margin in the range of 21% to 22% for the year 2020. This reflects profitable growth and lower operational costs. Let me conclude with a view beyond this year on Chart 20. Our midterm targets, which range until fiscal year 2025 remain unchanged. We strive to remain amongst the fastest-growing players in our industry. Our targeted annual growth rate remains at 5% to 7%. In addition, we want to be amongst the most profitable players in our industry and aim at an EBITDA margin in the range of 20% to 23%. Our environmental objectives also remain fully in place. With these strong prospects, I would like now to open the call for your questions. Tobias, over to you.

Many thanks, Heinz-Jürgen. Many thanks, Olaf. Turning to Q&A, we are now happy to take your questions. [Operator Instructions] Many thanks, and first question, please.

[Operator Instructions] Our first question will come from Gunther Zechmann of Bernstein.

I'll start with 2 then, please. On the margins in H1 and expectations for H2, could you just give some detail around how much of that would be temporary cost reduction from lower travel, entertainment, fairs, et cetera, and if you think some of that might be sustainable going forward? And the second one, on the variable cost side, around raw materials, can you give an update what you see in your basket of raw materials at the moment? And if there's any scope for new price increases coming through?

Okay. Gunther. Thanks for the question. Olaf, feel free to hop in. I start with this. Margins in half year, yes, as we frankly committed and admitted. We of course mitigated through the crisis by being very, very careful on travel, entertainment, on all these things. So you rightfully suspect not all of this will be a permanent basis, but rest assured, some of it will. Honestly, it's beyond my knowledge at the moment to predict exactly how much it will be, but rest assured, and I think I'm speaking for pretty much all companies, the home office and travel policy and the use of video conferences, on the other hand, will be different after the corona crisis whenever it is there. And it's no question that everyone, including us, is committed to keep some of these savings going on, on a permanent basis. Having said that, raw material costs development. Yes, we see some decrease in some areas. On the other side, we see increases on the other. Please be aware that it's just a small amount of our raw material basis, which is dependent on mineral oil-based products. The larger part comes from natural-derived products. And there is -- with a big and broad range of different raw materials coming from mother nature, it's always some products up in price. And some going down in price. Just giving you one example, a question which we discussed in previous meetings was vanilla price that was going to record high. This is coming down significantly. But rest assured, there is a big range of products which are going up. To cut it short, we expect the raw material price development to be, all in all, flat and continue to do so. I hope that answers the question from my end. Olaf, you want to add something?

Yes, Gunther. I would just jump on that in a way that if we have a normal raw material situation, we of course will also work on price increases in a normal environment, which pretty much leads to coverage of inflation. So the ambition stays, the 5% to 7% growth, mid- to long-term is there. And 1/3 of that should be coming from price. And the same on the margin, Heinz-Jürgen elaborated on the ambition to keep some of the cost savings. Also here, the mid- to long-term expectation is that we move somewhere between the 20% and 23% margin. And if we can take some advantage from cost savings, we will take it.

Our next question will come from Thomas Swoboda of Societe Generale.

I will take 2 questions, too, please. The first is on flavors. I'm just wondering what should we think about the effect of the vanilla price pass-through that was obviously a tailwind for a couple of years. Now it has become a headwind. Could you -- are you able to -- are you willing to quantify how much does it hurt the flavors performance in Q2? And should we think about a negative base effect for the next 3 to 4 quarters coming from that? So that was my first question. My second question is hopefully rather quick, is on your interest expenses. The refinancing of your bonds was not included in the financial result in Q2. What advantage do you expect on your refinancing costs going forward?

Thank you, Thomas. Let's do it this way. I'll take care of the Flavor question. Olaf is already nodding, he does the interest thing. Olaf takes care about the money. Okay. Flavor vanilla price, frankly, I will not give you a detailed number on the vanilla, the price impact. But obviously, us being leading in a key area with our initiatives in Madagascar, it has an impact. No question about it. On the top line, yes, we have seen it. It was a tailwind in the past years, and it is now a bit of a headwind. We will be able to manage that and the Flavor division will be able to cope with that. No problem. We will see some of it in Q3, definitely going forward, but nothing which concerns us. In particular, in view, Thomas, it has pretty much no impact on the bottom line, as the vanilla business we have is not depending on that. We have a certain margin, which we are getting and making, regardless if the price is high or low. So that's the good news, and that's reflected in the very solid bottom line performance of Flavor. So to your question, that much, I would say. You will continue to see something in Q3, but you also have seen our confident guidance. So Symrise is very well prepared to even deal with these things, and we will have other areas where we will make it up. Okay? Olaf, interest?

Yes. So as I said, we will refinance 2 maturities, which are due in Q4. They have higher coupons. The savings on this EUR 320 million repayment volume, around EUR 6 million to EUR 7 million, which you can incorporate in our interest expense number going forward. And this is based on the bond refinancing, which we did in June.

Our next question will come from Lisa De Neve of Morgan Stanley.

Two questions from my side. First of all, your Nutrition division delivered 14.7% like-for-like growth in the second quarter, with double-digit growth seen in Pet. I wonder if you could provide some detail on the performance across the regions, which was positive across all regions, I understand, but a little bit more detail there would be helpful. And also your expectations for the second half. And then secondly, on the CapEx budgets. CapEx was a little bit lower in the first half. I'm just wondering in terms of project pipeline, if you could give us a sort of granularity of what will take place given COVID disruption in the second half and sort of what we should think about in terms of budget?

Okay. Lisa, I'm happy to take your question. First, Nutrition. I believe it shows our early moving in Nutrition with the acquisition of Diana, followed by ADF/IDF is paying off and proves to be the right thing. The regional growth in Nutrition, I'm happy to report pretty much in all regions, there was no weak region. There was nothing where we could specifically say this was a weak region. So having said that, it was solid growth. And imagine, with these numbers, organic growth in the double digits with a growth rate of 37% in total, you cannot have a region falling back behind expectations. So it was, in all regions, everywhere, beyond what was expected. Looking in maybe some areas, compared to the first quarter, we saw also a good bounce back of food ingredients with a strong continued performance of Pet Food and with a delivery beyond expectations of ADF/IDF. All in all, there is no reason for us to be concerned about the second half year. We expect solid continued performance of Nutrition also in the second half of the year. And as you see, we are pleased to report, it shows the acquisition of ADF/IDF was, again, the right one, and it is contributing. Leading to the second question, CapEx. I think no one should be surprised. We always have said that the 7.2% CapEx rate was an exception because it raised a lot of questions on your end. And we firmly believe that some investments will be the right ones and what's happening now, it is a proof that this is coming in. We would not be able to cope with the strong organic growth in Nutrition if we would not have built the capacities for that. We would not be able to serve the strong demand in personal care and oral care products if we wouldn't have built the additional capacities in menthol. The message, Lisa, to you is we are doing this stuff when the time is right. We're not looking on cyclic or whatever things we think long term. And looking on this year, we still have ambitious growth expectations. The one thing, which we hope will help us is the additional, again, increased capacities of menthol will come in fourth quarter of this year. So third quarter, no change in that respect. All capacities are used up. But we continue to heavily invest and complete the investment programs, which we have clearly outlined in our Capital Market Day beginning of last year. Having said, going forward, expect us to have a CapEx ratio of, say, around 5%. Sometimes a bit more, sometimes a bit less. Nothing staggering. But rest assured, Lisa, we will invest wherever and whatever makes sense. I hope that answers your question.

We will take our next question from Matthew Yates of Bank of America.

A couple of questions. The first one on the performance of ADF, which you said exceeded your expectations. I'm just wondering if you can disaggregate the uplift from the overall market growth, which seems to have benefited during lockdown versus the specific actions you've taken to realize synergies? And then the second question is on the Flavor division and -- is there any visibility you have on the second half as to growth improving, particularly if things like food service outlets begin to reopen again?

Okay. Matt, I'll start. Olaf, you [indiscernible] synergies, ADF/IDF. First, we have to admit, the situation in the U.S. is not fully transparent to us. So we're navigating through chaotic times. And so far, we have done obviously very well. But rest assured, be it in ADF/IDF or be it in chemistry, our production locations, our locations are in the mid of the crisis hotspots of corona. I have to clearly tell you that. And that gives us limited visibility, and we navigate through this on a daily basis. Speaking about that, we were happy to report the just recent hurricane did not affect one of our sites. So you see what area we're in. Having said this disclaimer, the good news is despite all these challenges, the bottom line is the ADF/IDF acquisition, even in difficult times to prove, it was the right one. It was the right one, which contributes to our business, and it's -- rest assured, a lot of the synergies, which reflect are still out there, in particular, the extended product range, the ag-derived product basis using in other product applications, which are unique to similars in Pet Food or in Aqua that is just where we scratch the surface. So in that respect, I would say it's a bit overconfident, but yes, best is yet to come there. So having said that, I would leave it there with ADF/IDF at the moment, not lead you in any speculation, but at least give you the firm confidence, that was a good acquisition and the contribution is very obvious. Second, growth serving and growth in Flavors, in particular, with respect to food service, yes, food service was impacted also in Symrise. No question about it. I think, overall, our business in Flavors was about 10% to 20%, something in that range, but it is over-seeable, but it was impacted. No question about it. But we're happy to report, we have built such a resilient portfolio that we are able to cope with this. We have delivered a stable turnover development despite these challenges and a very healthy bottom line performance. Going forward, food service will come back, no question, but it's clearly linked with the development of corona crisis. And Matthew, none of us has a clue how long this will go on. None of us has a clue how long this will go on. But we are optimistic also for this business whenever the corona crisis will be over and -- but frankly, we expect this crisis to go on for at least the rest of this year. And rest assured, the Flavor division at Symrise is prepared to cope with that. Matthew, I hope that is, for the moment, as precise and honest as it can be, okay?

We will take our next question from Heidi Vesterinen of Exane BNP Paribas.

Thank you for the detail on Slide 7, where you talked about the trends by subsegment. Going into Q3, have you noted any major changes in any of these buckets? And then the second question is on the Latin America. You said in your press release that the region is unaffected by the pandemic. We do hear a lot about issues in Brazil from other peers and just reading the news. What is the outlook there at the moment?

Thanks for the question. Good to have you in our call. So Chart 7. Yes, I think [ Bernard ] has done an excellent job putting that together. It shows the situation on one slide. And honestly, there was no big change from half -- quarter 1 to quarter 2, and we do not expect a significant change in Q3 to happen. So we have to navigate with this. Expect this to be the picture, at least for the next few months to be, and we'll see what then happens. The message is also clear, Heidi. So far, there is always areas to pick up weaknesses in some areas, but we didn't want to leave you with the impression. If you see our overall figures, we have not been impacted. We have clearly been impacted, and we just adjusted our processes accordingly. Having said that, leads us to a situation in Latin America, and that is also pretty much the same situation like the previous calls. Heidi, we hear the news as well. In Latin America, it's chaotic. The situation is really dramatic, also for us. And I can tell you honestly we're surprised how well we continue to navigate through this. But if I would be able to tell you exactly in numbers where and what, I would mislead you and I'm far away from doing that. I have to say I have to give credit to our team, which is obviously very committed, dealing with this chaotic situation. We had so far no downtime, no downturn and the business is just keeping to go stable. And honestly, as per now, despite of the crisis there, I come to believe there is no reason to believe that in the coming quarters, we see a slowdown. But the rest would be speculation. The visibility we have there is really limited. The people cannot get out due to quarantine and corona, and we cannot get in. So as honest as it is, Heidi, I would never lie at you.

Our next question will comes from Isha Sharma from MainFirst.

I have just 2, please. Regarding Lat Am, just a follow-up. How much of the growth that we have seen, which has been very strong in Q2, especially is attributable to dollar pricing, if you can give us some color there? And the other question would be around acquisitions. Do you see increased opportunities given the current crisis? And if yes, which area should we expect you to be more active there?

Thanks Isha. Also good to have you in the call. I would say, as you were not too happy with my answer for Heidi on the Lat Am, so I give that to Olaf to give you some numbers. So Olaf will make you happy with that, and I take the care on the acquisitions, if you allow. So acquisitions. Of course, we continue to look in acquisitions. It's a part of our strategy as well. But our ambition is, if possible, to surprise you and to catch you or get you with acquisitions, which are not on the market offered to everyone. And we look in all areas where we're active. No question about it. We continue to do so. We think long term in our acquisitions. So we do not just grab the opportunity because someone is in trouble or something is in trouble. If it is a good acquisition, we are ready to go on whatever and how -- and wherever it is, and we continue to look on candidates. That much I can say, has not changed to the past. But when everyone was busy in acquisition, Bonanza's, we stayed out of it, but we stay cold headed, and it's a promise. If there is a good opportunity, we'll be there, like we were at ADF, like we were at Diana, like we were at Pinova. So expect us to be active in that area on an ongoing basis, but we will stay cold headed and not make short term not thought through moves. It is a lot of money we are talking about, and we are very conscious in doing the right step at the right time. So expect us to be in that market whenever the time is right and whenever it's there in all segments where we're active. Olaf, now some numbers for Isha.

So Isha, I hope I can make you happy from an answer as far as…

I'm sure, you can.

Okay. So Lat Am, around 35% to 40% of the business was volume-driven, and the other part was price-driven. You know that on the price side, we work, luckily, from my perspective, in the U.S. dollar price environment, and that holds true for top line as well as for the cost side. It's more Scent & Care, where U.S. dollar is more prominent, Flavor partly. But that, of course, helps in the current environment, not to fall into big traps in situations where currencies are devaluating big times. That's the Lat Am situation, which is a good contributor, but good message here is a lot of the growth is volume-driven.

Our next question will come from Katy Hutchinson from Davy.

Congratulations on a good set of results. My first question is on mix. So could you just give us an idea as to the mix component within the Q2 number and what divisions were driving that? And given you've raised guidance on margins, are you baking in any assumptions on positive mix that could boost that margin, for example, a rebound in fine fragrance? And then secondly, my second question is on probiotics. So we're seeing good Probi delivery. And I wonder could you explain kind of your ambitions behind probiotics and where you can deploy some of that technology into the core Symrise business?

She was talking to Tobias and Olaf. So go ahead, guys.

Yes, so from a mix perspective, I think the big change we see at the moment are shifts in the portfolio. This is, of course, which comes along with the crisis. We have explained where they are. The contribution definitely comes at the moment from the Pet Food business. As you know, it's a good profitable business, which also supports our margin environment. We are very happy with the ADF/IDF development. As I said in my -- with the speech, we have pretty much finalized the purchase price allocation. The effects are in there. That should be a good contributor going forward, also from a margin perspective. In fine fragrance, I would leave that to Heinz-Jürgen to comment on his view how the fine fragrance business will develop. And I'm sure he's also on Probi.

So Katy, surprisingly, I'm also in the call, and Olaf is looking at me. So I'll take care of that one. Fine fragrance, we'll bounce back. Our commitment to fine fragrance is unchanged. We have just opened in Paris, a new place for mainly fine fragrance. It shows our long-term thinking. Will we see a significant positive impact for fine fragrance after the significant slowdown in second half -- in second quarter for quarter 3, I don't expect it. And for quarter 4, when the Christmas season is, it's questionable, to be frank. But sometimes, you have to think longer term. Bear in mind, first quarter, our fine fragrance growth was about 15%, has gone down pretty much to nothing in the second quarter. It will come back probably within the next year. So that -- having said that, is the mix on fine fragrance. Our commitment to this business segment has not changed. And we will deal with this change of products as we have done with the other ones. Leading to probiotics. Okay, I think I take that one as well. Your question was probiotics seem to be a promising area. And it's good that we are one of the few companies in our industry who have a strong probiotic wing in there. But the idea of taking an anchor investment in Probi was primarily not changing something in Probi. Probi is doing very well, as you know, but it's getting access to a world-class probiotic technology platform and using it for the applications, which are not, so to speak, not traditional probiotic application areas, and we are very successful in that. So we start in Cosmetic ingredients. We do it in other areas. Just to be a bit more specific, we have developed a product in skincare called SymReboot based on probiotics, which is doing very well, which is performing excellent. Customers love it. We're working on a dandruff -- anti-dandruff product. A product for oral care based on probiotics will be launched in the second half of this year. We're just in the clinical trials -- the final clinical trials, but it looks very good. We're rolling out this probiotic platform to Aqua and Pet Food. And this is one of the very few technologies, key technologies, which have the power to replace chemistry by biology. And that is why we are on the forefront of this technology. So you see we're full steam moving ahead, and we, rest assured, we will get our share of that pie. Okay. Katy?

Our next question will come from Geoff Haire of UBS.

I just wanted to ask a very simple question. Obviously, with IDF -- or I should say, ADF/IDF coming into the mix, you've got a bigger U.S. exposure. Can you just help us understand what the FX impacts would be, given the strength of the dollar that we've seen recently?

Olaf?

You're saying this is a simple question. That's a complicated question.

You get a crystal ball.

Nevertheless, I think you saw in our half year report, we're working with an average rate of 110 currently. So for the next few months, it will be decisive where the U.S. dollar goes. As a big indicator, I would say that EUR 0.01 movement on the average rate means around EUR 12 million, EUR 13 million top line and corresponding around EUR 3 million in EBITDA. As you all know, we have -- our cost also in the country of where we sell. So there's a good natural hedge environment. So margin-wise, we are doing fine. But the impact, as I described, it's really linked to the U.S. dollar environment. For the first half, we still had tailwind from the U.S. dollar. And it depends now how it continues, might be a slight headwind as it moves in the second half based on current market conditions.

And is that your major currency exposure? Or are there others that might be backlog?

Yes. It's not definitely our major currency exposure, it's about 1/3 of total.

We will take our next question today from Andreas von Arx of Baader.

First one is on industry dynamics. I imagine that in time of lockdowns and with the pandemic, clients priorities do shift. I mean, maybe away from innovation and more on business continuity. I mean, we see the numbers of the large players, but could you please describe a bit the industry dynamics you have seen in the first half between maybe you, the large caps and the small and mid-cap players? Has this been a time where you have been rather gaining share or not? That's the first question. And then the second question for Heinz-Jürgen Bertram. Congratulations on reaching a share price above EUR 100. I imagine you're very pleased with that development. Since I'm covering your stock, that is a multiplication by 5. Now looking at the next 2 years, could you maybe share what your key priorities will be in those 2 years, so continuing the business or making it larger or keep bringing up the profitability to peers or maybe prepare the structures for the future? So in other words, what is Heinz-Jürgen Bertram working on in preparing his legacy at Symrise?

I think I take both questions. The development of the customer environment. First point on -- in between the lines, the question was, do we reshuffle our costs on development on all these? No, they are not -- unchanged. So the long-term research projects have not been slowed down. We believe in our long-term view and long-term thinking directly related to Katy's question on probiotics. So all this commitment has not changed. The briefing activity, on the other side, that's the short-term development with some clients is down in these crisis times. Absolutely. And so some of these development activities have to be shifted around in other areas where it's doing better, but the message is, again, nothing dramatic, if we talk on development. The basic research, long-term research projects have not changed or will not change at all. Short term, depending on the briefing activity in the one or the other area we would be foolish not to shift some of these activities where the demand is. Having said that, I'm not in the camp that major customers gain share at the cost of small customers. I think there's just customers who have done their homework. And there's other customers who have not done their homework. And be it big or small customers, they will gain market share in these crisis times and we see small customers gaining market share at cost of other small customers and big customers losing or gaining market share as well. And Andreas, that's the same in our industry. You have seen from the one or the other flavor and fragrance supplier, solid numbers, one being us and there may be others. And let's see how the others are doing, and then you make your calculation who is winning and who is gaining market share. I'm not talking about the competition. I prefer talking about our cases. I believe that's good enough. That leads us to me personally what is my priority for the next 2 years. The good thing is, first, obviously, a strategy, a plan and you would summarize as you indicated since a long time, we had to start everything from fresh. We were the losers in the industry. When we started -- when I started, there was by one of our competitors out, what means Symrise. It means save your money, reinvest somewhere else. And how wrong they were? So obviously, we had to change everything. We had to come up with what we call backward integration, which is obviously now a new role model. We came up with expansion beyond Flavors and Fragrance in new areas. And I'm far away from saying how smart have I been. I was simply lucky. It all worked out in the right way. But Andreas, that is general management. No one needs an unlucky guy. So looking forward, my priorities is not losing track, not losing ground. There's a lot still to do. And yes, the share price is at record high, but the sky is the limit here. And there is a lot of fresh ideas, which I still have in mind, including maybe some surprising moves in one or the other area. So that is my ambition. And I think there's still something to come. So I would leave it there for the moment. I think that's good enough, Andreas, I hope so.

Our next question will come from Adam Collins of Liberum.

I have a couple, please. Nothing as exciting as the last one, but a couple here. So first of all, on raw materials. You mentioned you expect Naturals to be flattish, and we discussed vanilla sharply down. If I'm not mistaken, citrus, after several years of weather and blight-related issues, is also down. So could you say what is up such that the balance overall is sort of flattish? And then the second question was on Nutrition. Obviously, very strong second quarter, 14% organic. You're talking about being very happy with ADF and IDF, of course. But to what extent was there some benefits from pantry hoarding?

Okay. I'll take the first one. What is up? Yes, vanilla is down. You're right. Mineral is sometimes up, sometimes down. That is not the driver. Citrus is going down for the moment. In particular, several spices are going up. Olaf just brought up the picture where prices are going up. Spices, rest assured, and some extracts, floral extracts are going up. So overall, we remain -- the situation of raw materials because we buy 10,000 different raw materials. The main driver is not decline in raw material prices. So overall, it is, right, as you said, it's not citrus. It is not vanilla. It's not mineral oil. It is some spices. It is some flower extracts. Overall, flat as we see. So what is going down there?

Yes. So we have increases in fruits, for example. We have increases in the raw material base of what Pet Food needs. So that is -- which balances out at the end the whole portfolio across the group and makes it pretty much flattish for Symrise.

Second question was on pantry hoarding and Pet?

Pantry hoarding and pet? Okay. Okay. No, I got it. Sorry. So no, there is no stocking, nothing perceivable. The situation, it is just a healthy market. The mega trend is intact and will remain intact, and you have seen us not withholding at all for the second half of the year. We do not see any inventory building, pantry building there. So no, don't include that in your model, okay?

We will take our next question from Charles Bentley of Crédit Suisse.

I just wanted to ask on the Nutrition EBITDA margins. Half on half, they were lower. I mean, should we be thinking -- how should we be thinking about margins in the second half. Should they be more like the first half or more like H2 '19? And can you explain the moving parts there? On Flavor, you said, the price effects were 80% and volume is 20%, and it's obviously basically flat. So just to be clear, that both of them are essentially 0 in the first half? And then finally, can you give any indication of what the contribution of CapEx projects was to organic growth in the first half?

Okay. I'll start with the Nutrition EBITDA, expected to be similar in the second half as it was in the first half. There is no big uplift or down lift to be expected. Growth in flavors. Yes, it was, if I got this correct, it was flat, stable, but also flat. But as we said, there have been some significant impacts on the one area, some others contributing on the other one. And we will continue to see certain portfolio shifts going on, but nothing significant, short term as Heidi asked. So expect pretty much the same picture for second half year. CapEx, CapEx contribution in some areas, there was the Cosmetic Ingredients factory. The second expansion phase you have seen on the Capital Markets Day beginning last year. The first phase of expansion, the second phase now is up and running as well. So that is a big one, which contributed the fragrance increase of capacity, which we have done here in Germany, helped us to cope with the increased demand in some areas. And also, as I indicated, the CapEx investment in Pet Food, additional capacities has helped. So the question, what will we see significantly for the rest of the year? In terms of CapEx investment currently we're doing and where we hopefully see the benefit in the fourth quarter is the menthol expansion. The second expansion, we're doubling our capacities in the U.S. again. And as per now, we're fully on track with that one. So we should enter the market in the fourth quarter, and that's why we still are guiding to this ambitious growth rate. We expect the contribution if the menthol expansion goes on as expected in fourth half year to support that one, okay?

Great. Can I just ask you a quick follow-up on that? So I guess, how important is that ramping up in Q4?

Well, we will not fall off the cliff in Q3. But with the growth rate of, say, 3% in this year and us having the ambition growing faster than the market, which is 3% to 4%, something has to happen. And so it is significant in Q4, the menthol expansion, because it is very big. And many of you have seen already the distillation tower next to the one, which we currently use for distillation, and it was obvious to every one of you who was part of our Capital Markets Day, this is big, okay? So yes, it's significant. And as for now, the good news is it looks as if we will make it in the course of quarter 4 to the market. The good news is it's sold out.

Our last question will come from Ranulf Orr of Redburn.

Two from me. So firstly, I'm just wondering if you could help me understand what happened to volumes in Nutrition food in Lat Am. I guess if the dollar pricing impact was so strong, volumes must have been very negative for sales to decline, possibly double-digit in the first half. And my second question sort of follows up on the previous one. Can you give a bit more of an indication of the new capacity in Pet Food in Latin America and how much that contributed to both Nutrition's volume growth, but also the volume growth in Lat Am in total?

So the Pet Food environment, capacity-wise, as Heinz-Jürgen just elaborated, is also related to a new facility in Colombia. As mentioned before, this facility is in a region where we have customers, and we're currently serving this region out of Brazil. So we're transferring volume from Brazil to Colombia and don't expect this to be a step change in this regard. It's a replacement of something, which we source from somewhere else at the moment. But it opens up further capacity for the region going forward. So it supports our growth story for Pet Food. That is the background for Pet Food Lat Am. I think when we get into the Food Lat Am business, it's getting very nitty-gritty at the end of the day. I don't know how you derive to this conclusion at the end of the day. We see also for the food environment, a good second quarter, as Heinz-Jürgen developed. Customers are sitting across the world, and we are serving out of [ Chile ] different supplies for food. I would really need to dig into the details if you want to have that answered.

Let me hop in. As I would really be honest and tell the same as I said to Heidi, in this region, with these challenges, we have limited visibility. Each number you would get would be something we don't know better. We are surprised as you -- how good it comes out. We're really thankful to our workforce that they obviously have managed to hang in there. And we have no -- we can, on the phone or internet, connect with our people. There is no way to get in or out there. So that's the situation. We may like it or not. The good news is, obviously, we are successful in this region, and giving you a number would just mislead you and would lead you to make wrong models. I think that should be it for the moment. We have been answering your questions for about 1 hour. That was more than the normal. But everything, even the best things should come to an end. So Tobias, close this.

Yes. We are happy about -- so big number of participants and questions there. So ladies and gentlemen, this brings us to the end of our conference call. Thank you very much for your time and your interest in Symrise. We are really looking forward to seeing and hearing you in the upcoming virtual meetings and hopefully to meet you in person soon. We will publish the results for the 9 months third quarter on October 29. That's it for today. Goodbye, and have a nice day or maybe a nice vacation. Thank you.

Goodbye.

Goodbye.

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.