Symrise AG (SY1) Earnings Call Transcript & Summary

Good afternoon. Welcome to the Virtual Analyst Conference of Symrise. [Operator Instructions] Let me now hand you over to Tobias Erfurth.

Good afternoon or good morning, ladies and gentlemen. Many thanks for your time today and your interest in Symrise. We have a very tight schedule today, so I will keep this very short and hand over immediately to our CEO, Dr. Heinz-Jurgen Bertram.

Thank you, Tobias. Good morning, ladies and gentlemen, and welcome also from my side. I am delighted that so many of you have taken the time to join us today and that we are holding in this format for the call for the first time. As usual, I will highlight the 2022 results, Olaf will provide a deep dive into the financials and I'll conclude with our key strategic initiatives and an outlook for the road ahead. Before we look at the numbers, I would like to take the opportunity to introduce you to all members of our new and extended executive board. You have most probably read our communication that effective February 1, 2023, Symrise appointed 2 new board members. Stephanie Cossmann has taken on the newly created responsibilities for human resources and legal. Jorn Andreas will head the Scent & Care segment that I led temporarily. Jean-Yves Parisot will continue in his role as Executive Board Member for Taste, Nutrition & Health. And Olaf, you all know him very well, will continue as our CFO. Stephanie, if you want to start briefly to introduce yourself.

[Audio Gap]

Thank you, Stephanie. And now, Jean-Yves and [indiscernible]

[Audio Gap]

Jean-Yves and Stephanie both are contacted from Paris. Here in Holzminden, we have Jorn and Olaf. Jorn, if you would like to continue.

Hello from me as well. My name is Jorn Andreas. I've been working with the company for more than 12 years now, most of the time abroad in various international roads, including France and United States. Most recently, I served as the Global President of our Cosmetic Ingredients division. I'm very delighted to have taken over the Scent & Care segment from Heinz-Jurgen. And I'm very grateful for this trust placed in me. The Scent & Care segment is a wonderful segment with very motivated and talented employees. And together, we have big plans always with a clear goal in mind to develop products that are desired by the consumers, at the same time, contribute to sustainability, well-being and care.

Thanks, Jorn. And Olaf, now the best is last.

Okay, I'll keep it short. I think most of you know me very well. So a warm welcome also from my side to Stephanie and Jorn. Symrise has seen quite a dynamic development during the last few years. And we have a clear strategy for Symrise and know how to develop into the next level as a highly regarded player in the industry. Our extended board with 2 very skilled new colleagues, homes now a good team to move us into the future. So with that, before we get to that, we will first review our numbers. And for that, I hand back to Heinz-Jurgen.

Thanks, Olaf. By expanding our executive board, we are sending an important signal for the further growth course of Symrise. Let us now look at our financial highlights on Chart 4 of our presentation. The year 2022 was clearly marked by a strong business growth in an ongoing challenging environment. We once again managed to continue our growth course. At the same time, the economy has faced persistent bottlenecks in supply chains. Rising inflationary effects and high raw material prices intensified the pressure also on our business. On the other side, our diversified portfolio as well as our broad regional presence and customer base from key factors in achieving strong growth. We are again looking back on a very satisfactory year 2022. We grew sales by around 20.7% to over EUR 4.6 billion. Organic growth was above 11%. EBITDA increased by 13% to EUR 922 million. Therefore, we achieved a margin of 20%. And this was lower than our guidance and below last year's. Our profitability suffered amongst others from an incident we encountered at our site in Colonel Island, I'm sure you heard about it. Net income grew by more than 8% to EUR 406 million, which corresponds to EUR 2.91 per share. Profitability and net income figures are adjusted for the impairment in the value of the associated company, Swedencare, which we faced in Q4 2022. Our dividend proposal amounts to EUR 1.05 per share for fiscal year 2022. And this proposal represents the 13th consecutive dividend increase. Let us have a look at our sales growth on Chart 5. Group sales increased to over EUR 4.6 billion, including EUR 154 million sales contributing from M&A. Organically, the Group achieved a strong growth of 11.4%, driven by both segments in all regions. With this, we exceeded our sales forecast which we had raised twice last year and also outperformed the market growth. In both segments, we enjoyed great project vitality and increased demand, as Slide 6 illustrates. The Taste, Nutrition & Health segment generated sales of EUR 2.9 billion. Organic growth amounted to excellent 15%. A strong growth driver was again our pet food business, which grew in the double-digit percentage range. Food and beverage applications showed similar high growth rates. The segment benefited from broadening the competencies beyond flavor and nutrition. Our Scent & Care segment also performed well. Sales growth is by 14% to around EUR 1.7 billion and organic growth came to 5%. Fine Fragrance and Cosmetic Ingredients experiencing ongoing strong growth rates. Let's move to our regions that allow us also to share good news on Chart 7. We grew across all regions with Latin America being the strongest one and delivering organic growth of almost 25%. Asia Pacific achieved organic growth of around 10%. EAME and North America also generated very good organic growth rates of around 8% and 8% respectively. Symrise is sustainable in more than one respect. We can report a very sustainable performance, as you can see on Chart 8. Since our stock listing in 2006, we delivered an annual compounded sales growth of 8.6%. Our EBITDA CAGR amounted to 8.7% on constantly high level. This makes us very proud. I would like to thank all our employees for their commitment and their dedication. At Chart 9, we show that we outperformed both MDAX and DAX and consider this one more time as a confirmation of our attractiveness. Also it reflects the trust investors put in our strategy and long-term prospects. The management and supervisory board will propose a 2022 dividend of EUR 1.05 per share. And this proposal represents the 13th consecutive dividend increase and forms another indicator for our commitment to long-term value creation. Let me stop here for the moment and hand over to Olaf. He will now provide the details on our financials.

Yes. Thank you very much. Again, a warm welcome from my side. Let me start with our sales development on Group level on Slide 11. First of all, we are quite proud to report a new all-time high turnover of EUR 4.6 billion. With this, we clearly overachieved our guidance of EUR 4 billion to EUR 4.5 billion for 2022, which we gave at our Capital Markets Day back in January 2019. Both segments in all regions contributed to an exceptional 11.4% organic growth. Unlike normal years when we target a sales split of 1/3 pricing and 2/3 volume, '22 was far from normal. We needed to pass through high cost to our customers and we were not -- we were, to a large extent, successful. We achieved around 75% pricing and around 25% volume growth in organic. The P&L on Slide 12 shows the absolute EBITDA increase from EUR 814 million to EUR 922 million, which is also in this case, a new all-time high when we exclude the Swedencare impairment. This corresponds to a 20% EBITDA margin after 21.3% in 2021. We continue our reporting approach in a way that we only adjust for large extraordinary items, like we did for the acquisitions of Diana, Pinova and ADF/IDF. This year, for the first time, we had to adjust for an impairment related to our 29.8% equity participation in Swedencare. The strong decrease in their share price in the second half of 2022 triggered an impairment test, which led to an adjustment of the book value in the amount of EUR 126 million. For comparison reasons, we generally removed this one-time effect from our reported financial figures. To be also transparent on other special items, we benefited from positive one-time effects in connection with the sale of the Velcorin business to LANXESS as well as the partial sale of the celery business in North America, each amounting to around EUR 18 million. Also on the positive side was an insurance reimbursement for the cyberattack of around EUR 3.6 million. On the other hand, M&A-related one-time cost in the amount of around EUR 9 million as well as downtime costs in Q4 and certain organizational optimization cost of in total additionally EUR 12 million impacted the EBITDA negatively. Higher energy costs, logistic costs and personnel costs, especially in the fourth quarter, led to a certain margin dilution on Group level. On top, strong raw material price inflation, which led to an increase in the raw material quota from 43.4% to 45.5% for the year, impacted the profitability shown at the end of the year. All in all, our price increases could not fully compensate the higher cost. As we expect, a continuing moderate increase of raw material prices in 2023, we will rely also on further price increases, which have partly been initiated already at the end of last year. From a portfolio perspective, we continue to invest into faster-growing and more profitable businesses. Let us now turn to the segments, starting with Taste, Nutrition & Health on Slide 13. The segment was driven by an ongoing excellent performance in pet food, the recovery of consumer behavior, mainly in food and beverages and successfully passed on necessary price increases to our clients. The organic sales growth of 15.3% for the full year came with a price volume split of around 2/3 price and 1/3 volume. Q4 was even stronger with an organic growth of 17.9% with 75% from pricing and 25% volume. The portfolio impact of EUR 99 million included additions from Giraffe, which we acquired in November '21; Schaffelaarbos and Wing Pet Food and disposals from Velcorin to LANXESS and the color business to Oterra. The absolute EBITDA saw a strong increase and grew by 18.7% or EUR 100 million to EUR 631 million for Taste, Nutrition & Health. EBITDA margin decreased to 21.6%, which compares to 22.7% the year before, mainly due to higher raw material costs. In half year 2, we saw an acceleration of raw material prices, also a weaker performance of Probi did not help in this semester. On to Scent & Care on Slide 14. Scent & Care achieved organic sales growth of 5.1% driven 100% by pricing and slightly negative volume development. While we benefited from Fine Fragrances and Cosmetic Ingredients with double-digit growth, we felt some destocking mainly in Consumer Fragrances and Oral Care, but also in Aroma Molecules and especially in the Terpene businesses. Q4 sales for Scent & Care came in lower than expected with 1% organic growth. EBITDA in Scent & Care increased by 3% or EUR 8 million to EUR 291 million. The margin totaled 17.1% compared to 19% the year before. The decline in margin was mainly due to higher raw material costs and an increase in manufacturing costs related to higher energy costs. In addition, margins were impacted, especially in Q4, due to the unexpected low growth rate in combination with some extraordinary cost in sales and marketing as well as downtime costs, including the incident in Colonel Island. Turning now to the financial results and bottom line on Slide 15. The financial results decreased by around EUR 30 million due to higher interest rates and related expenses. Our tax rate decreased slightly from 25.4% to 25.2% last year. Our tax rate, including Swedencare, was at 32.6%. Our EPS reached EUR 2.91 before and exactly EUR 2, including the Swedencare impairment. As stated by Heinz-Jurgen, management and supervisory board will propose a dividend increase to EUR 1.05 per share at the Annual Shareholder Meeting. Let's continue with our business free cash flow on Slide 16. The level for 2022 remains significantly below the levels of the previous years despite the strong EBITDA growth. One reason was a higher CapEx spending was EUR 270 million. We spent around EUR 96 million more than the year before. This corresponds to around 5.8% of sales. Adjusted for M&A-related CapEx of around EUR 50 million, the ratio was around 5.1% and according to our guidance. The other main reason was an increase in working capital in the magnitude of EUR 303 million. To support the very strong growth and to maintain our ability to supply, we needed to significantly increase our inventories. We are confident to get back to a higher business free cash flow soon with a target of 12% of sales in 2023 and a 14% mid-term. Net debt, as shown on Slide 17, increased from EUR 1.2 billion to EUR 2.2 billion, mainly due to the financing of acquisitions and higher working capital. The leverage ratio is at 2.4x EBITDA. Net debt including pension increased from EUR 2 billion to EUR 2.7 billion, reflecting a leverage ratio of 2.9x EBITDA. Our long-term target for net debt including pension is unchanged at 2x to 2.5x EBITDA. Our top priority remains, and you know that, to be an investment-grade profile. As shown on Slide 18, primarily working capital and acquisitions have lengthened the balance sheet total by EUR 1.1 billion to now EUR 7.8 billion. Inventories went up by EUR 338 million. Investments and acquisitions increased property, plant and equipment by EUR 242 million. And intangibles went up EUR 392 million. Thereof, EUR 271 million are goodwill. The increase was partially financed with a promissory note of EUR 750 million and a bilateral loan to -- for Giraffe of CAD 400 million. Our equity ratio stayed on a healthy level at 46.4%. And after this financial deep dive into a quite unusual and intensive year 2022, I now hand back to Heinz-Jurgen for our strategic initiatives and the outlook 2023.

Thank you, Olaf. Ladies and gentlemen, let us now look at certain strategic initiatives within our segment. We started most of them in 2022 and they will bear fruit going forward. Chart 20 illustrates our segment, Taste, Nutrition & Health, and our ambition to extend our capabilities in Pet applications. We want to become the problem solution provider for Pet Care, a downstream move in the value chain. Swedencare represents a unique opportunity for Symrise to complement its health expertise and bring new downstream capabilities to get closer to the pet owner. Also with the market-related impairment loss we faced last year, we are fully convinced of the value and great potential of the Swedish company. On the Pet Food side, we are strengthening our backward integration in egg proteins with the recently announced joint venture with Sunner, one of the main poultry processors in China. In the Scent & Care segment too, we have taken different actions to strengthen our position to accelerate growth, as you can see on Chart 21. In 2022, we have further expanded our fragrance activities by acquiring the 2 French fragrance houses, Neroli and Romani, located near Grasse. The integration is on track and the business is fully meeting our expectations. In the next step, we will build a new site in Grasse under the heritage of Maison Lautier 1795. The brand combines Grassois savoir-faire with cutting-edge innovations to create a contemporary house with the sustainable vision for natural ingredients. A few weeks ago, we announced the strategic investment in Synergio, a biotech company specializes in the development of natural and sustainable solutions using advanced plant-based technology for consumer goods products. Symrise will participate in the Series A funding round of Ignite Venture Studio. The U.S. based company creates and invests in global innovative start-up ventures associated with beauty, health and wellness. By investing in Ignite Venture Studio, Symrise will broaden its expertise and its market environment and the growth alongside the creativity and speed the personal care industry. Chart 22 highlights some selected projects to expand capabilities as well as to build new sites. We started, for example, to increase capabilities in Germany, Canada and Spain to name a few. In 2022, we are also starting to build new production sites to leverage our growth opportunities in certain countries such as Mexico, Brazil, France and in the U.S. As you all know, sustainability is and always has been an integral part of our strategy. And as you can see on Chart 23, our approach is fully aligned with the UN sustainability goals and embedded in our entire operations. From sourcing thousands of new raw materials from all over the world, the basis for innovative product solutions to green production methods. Our road map and priorities are aligned with all our stakeholders through a materiality matrix we just updated. Our commitment is clearly recognized by example for the Carbon Disclosure Project who assessed 15,000 companies in 2022. Symrise was awarded AAA status for the third consecutive year in a row in all 3 categories; water, climate and forest. We are 1 of 13 companies worldwide who achieved that status. I want to conclude today's presentation with the outlook for this year on Page 24. Following strong growth, we estimate that the global economy will grow more moderately this year. One year after the start of the Ukraine-Russia crisis, one can hardly foresee the impact for all of us today. We expect an increase in energy prices and selective raw materials, which will impact our profitability, especially in the first half of 2023. At the same time, we are confident that we are very well positioned to continue our profitable growth course. Our robust business model with its diversified portfolio are far-reaching international presence from the basis of our successful business model. For 2023, we are targeting organic growth of 5% to 7% in line with our mid-term guidance. Also with headwinds from the raw material and energy prices, we aim at an EBITDA margin of around 20%. Our mid-term targets until 2025 remain fully in place. Ladies and gentlemen, thank you for your attention. I would now like to open the conference for your questions.

Thank you very much, Heinz-Jurgen. Turning to Q&A, we are now happy to take your questions after the operator's instructions.

[Operator Instructions] Mr. Matthew Yates, may we have your question, please.

I'd like to ask a brief question around the impairments that you took. Just to clarify on Swedencare, what share price has that now been marked down to just relative to the current share prices, I think it's SEK 26 as it stands? And can we do a similar exercise on Probi. What share price is that being carried on your books? Again, I think the current price is closer to 280. And I appreciate share prices can certainly be very volatile and often wrong. But given the respective results reported by these 2 companies, is it fair to say that the businesses are perhaps not developing as you might have hoped? If so, do you think those issues are temporary or is there a change in your investment case? And any thoughts about whether your shares will be better protected if you had more control and bought out the remaining minorities?

I'll start and I think Olaf will continue with some financial details. First, as I said, for Swedencare and as well as Probi, both fulfill our strategic initiatives and we are still convinced that this is the right move. Swedencare, mainly an impact was, yes, the share price was plummeting significantly as did on Probi. But again, our strategic alignment has not changed with this. On Probi, I do not see any risk because the value of the shares is probably a lot higher currently than in our books. But Olaf, you may have some more details on that one, right?

Yes. So on the impairment side, we of course took the requirements and we did the impairment test. So there are 2 values. One is the actual share price and the value we applied is the value in use. And the concept here is our business case behind Swedencare, we have the respective expectations. The remaining share price average is SEK 93. So that is the environment for Swedencare. For Probi, actually I don't know, because since 2016, we are already consolidating Probi to the full extent. And therefore, there's no relevance anymore from a share price perspective. Business development, as Heinz-Jurgen commented on that, there's more controlled help in a certain way of course, but we see the opportunities already today. We are working actively with Probi for years now. Jorn is on the board. Jean-Yves is on the board of Probi. And on the board of Swedencare, we have now Jean-Yves. So there will be further interaction on the management level. I see Jean-Yves now in the picture. So if you want to comment on that, please feel free.

Jean-Yves is on mute, then I may hop in again, Matthew. On Probi, that started before even Olaf arrived, but we as a [ dinosaur ], we started buying Probi shares when the share price was at SEK 35 and we started buying from there on. So there is a lot of room, no question. On Probi we had some questions about the performance that led to the change in CEO on Probi. And on Swedencare, we believe it is a temporary item. We have only limited visibility, but we are in regular contact with the CEO. And Hakan Lagerberg, the CEO of Swedencare, has confirmed his long-term goals and objectives. And there's no reason for us to not believe in this.

And maybe if I can have a second question. I apologize if I missed the first few minutes of the call. Are you able to comment at all around the EU investigation that has come to light around the fragrance pricing?

No, sorry, this was Charles, but we did not get the beginning of your question.

So Charles, could you repeat your question? We just got the last 2, 3 words of your question. [Audio Gap] So Matthew, could you repeat your question. Obviously, Your line is still open.

Sorry, gentlemen. I hope you can hear me okay. I apologize I missed the very start of the call. I wasn't sure if you made any comment on the EU investigation on the fragrance pricing that has come out in the last 24 hours or so. If you had any comments there that would be helpful?

Matthew, we have not made any comments yet, but we are clearly expecting that question. We got a visit yesterday unexpected and caught us by surprise as well. Obviously, there's an investigation on price fixing, all going on in the fragrance industry. We are fully supporting the officials in their investigation. We are providing all the documents they require. Status is that we are being looked at this thing as a witness so far and we wait what is happening. We do not know more about what's going on than what was released in the press. As I said, status is we are being considered witness in this thing at present.

Mr. Charles Eden, may we have your question, please.

This is Charles Eden from UBS. I think there's some technical issues on the webcast. I'll limit myself briefly strictly on the top-line guidance of this year, so 5% to 7% organic sales growth is consistent with your medium-term. Could you discuss your expectation on volume versus price within that this year? And also, any comments you can give us around the trading in Q1 so far given your [indiscernible] booking commentary around Q4? And then the second question is on the margin outlook for this year, obviously, broadly flat is the expectation per the guidance. Can I ask, is that the typical Symrise prudence at the start of the year around the margin? And maybe you could comment on the vision, because obviously, the Scents & Care margin came in below expectations [ since market ] due to the fire in the U.S. But I would assume that's one-off in nature and would rebound. So are you assuming a deterioration in your Taste, Nutrition & Health margin in order for margins to be broadly flat for the year? That's my 2 questions.

Charles, I'll start and Olaf feel free to hop in. So the top-line for the whole year, we gave the guidance as we typically do, 5% to 7%. So what we can say at present, the business dynamics, which we have faced in the first 2 months and what we see on March going on is healthy and top-line makes us confident that we will be achieving the guidance for the full year. So that is top-line. At present, top-line will not be the challenge as we have a very broad portfolio with strong dynamic businesses going on. The margin, however, it is not the typical Symrise sandbagging, as you highlighted, Charles. We have a lot of unknown things currently ongoing. And Olaf pointed out, we have passed on price increases, but it is obvious that we have to do more price increases to meet our expectation. And it is becoming more difficult going further because we have already increased prices, but energy prices keep going up. Raw material prices will go up this year again, not as deep as in the last year, but we expect on a low-single-digit range raw material prices to go up. So that is the scenario we see, very volatile for the first half year, very bumpy. We are more optimistic for the second half of the year because then we should have accomplished price increases and have -- should have adjusted to the new environment. Last question you had is volume and price increases. In the last year, the majority, the far majority was coming from price increases. However, different than the one or the other in our industry. We also faced some volume increase, but the majority came from price increase. And this year, we see a return to a more normal situation, say, half-and-half; half price, half volume. That is what we foresee for this year. Olaf, do you want to allude to this?

No, I think it's fair, 50-50 on price volume. And of course, there's a good carryover from last year also moving into this year. So I think this is the assumption we should take for the moment.

So the next question is from Celine Pannuti.

So I have a follow-up question on the previous question. And you said that growth would be half the impact price. So -- because you've seen it accelerating in the fourth quarter. And I presume that the beginning of the year has been better from a volume standpoint. And could you give us a bit of -- are we expecting low-single-digit in [indiscernible] I think that you need to put through for this year? And second question is on Pet. What has been a strong quarter [indiscernible]. And I just wanted to see the growth [indiscernible] in this division. A lot of your [indiscernible] but at the same time, the question is with the [indiscernible].

You were very hard to understand, Celine, but I'll try to sort out at least what I got. First one was Q4 versus Q1. Q4 undoubtedly was miserably, but due to some exceptionals, as you would call it, perfect storm, we had an explosion. We had downtime. The explosion in Colonel Island led to downtime not only in Colonel Island, but also in Jacksonville, also Bushy Park because that is linked. The production has not occurred, which means there was a reduction in turnover. All in all, this is something which we do not expect this year and which we didn't see the first 2 months. So I do not expect such a bad performance in Q1 than compared to Q4. So far, January was pretty good, February was okay, but still a high volatility in the bottom line. Not a bad situation, but a volatile situation because the situation is at the moment very challenging. Top-line, as I said, is good compared -- to your question, Q1 is a lot better compared to Q4 last year, but the situation will probably improve through the second half of the year. You asked also for the CapEx, if I got it right, 6%. That takes that relatively high CapEx ratio like in the past for our good sign of conviction in the stability and the development of our business. Most of the investments -- CapEx investments are geared for growth and building the business. Just to name a few, Jorn is building a Cosmetic Ingredient plant and expansion of the Cosmetic Ingredient plant. Similar blueprint like what we did in the U.S., we wouldn't do it if we were not convinced of the future of the business. The largest investment this company has at the moment is a big investment in the Pet Food factory in the U.S. We wouldn't do it if we were not convinced. We are building a liquid flavor plant, a big one, expansion here in Germany and also a spray drier in Germany. We are expanding our capacities in France and we are looking to expand our footprint in Asia. So you see there's a lot of investments going on and we would not do it if we were not convinced and that's what we did in the past as well. We had typically a higher CapEx ratio spending compared to our competitors. The typical viewing rate in CapEx is 4% to 5% and we had higher ratios. And we're not going that high in the percentage of CapEx spending as we did in the past, up to 7% or more until Heidi even asked, does management even care about cash, but at least take this even in these volatile times as a sign of confidence in our business model.

So our next question comes from Isha Sharma.

I have 2 questions, please. So could you help us understand the sub-segment trends within Scent & Care that led to the volume and margin decline? I know you mentioned some one-offs, but if you could please help us on the business level to understand the volume and the margin decline? The second question is again on margins. You mentioned you are more upbeat in the second half, but you also said that you saw a good start to Q1. So how should we think of the margin development between the first and the second half, please?

Isha, sharp questions as usual from your end. I'll do the segment and will take margin. The sub-segment in Scent & Care, you asked for. Fine Fragrance was very healthy, very good dynamics, double-digit growth, nothing to complain. Of course, also the margin could be as a tendency higher, but because also there was an impact to some extent on raw material costs, but Fine Fragrance was clearly a driver for strong growth. The other one was Cosmetic Ingredients; clear driver for growth, clear driver for healthy margin, nothing to complain, doing well. And that is one of the reasons the high confidence we have in that business that we really built big capacities in Cosmetic Ingredients. There we clearly saw the turnaround, thanks to Jorn. And so we will allude to that. We saw some weakness and that is in line with what we have seen from the competition in Consumer Fragrance. That was very low growth. We had the comparison the year before when the corona pandemic was and everyone was looking for disinfectants and on all this, we were back to normal last year. So there was a lower dynamic -- growth dynamic. And last but not least, Aroma Molecules as well. We see these 2 areas being impacted by energy cost. 70% of the energy cost we carry in the chemical, which is Aroma Molecules, to a large extent, division. So there we see some big impact. And also, we see increasing competition from China. So that is what you heard from the rest of the chemical industry as well. So that gives you the 4 areas in Fragrance, Scent & Care and Oral Care was okay. So that gives you a highlight on the segment I guess top-line and growth dynamics as well as bottom line. Margin development this year, again, we have a mixed picture so far and that is not unexpected. We said already last year when we said, well, we will face some challenging times because a steep increase in raw materials, a steep increase in energy costs. And with the different challenges in supply chain and all this, it will take a certain time to get back in a balanced situation. We will be able to pass through increasing -- price increases, but it will take a while, as we have said. And we will need quite a few months until we have passed all of that. Having said that, going back to the question from Celine, the first 2 months we saw this year were not as bad as Q4 where we missed growth, where we missed bottom line, where we missed pretty much everything as we haven't seen in the first 2 months of this year any special incidents. The only incident which we have is the need for further price increases and the volatility which we see coming back from the volatile situation. And that leads to the situation that we say first half of the year we will see some pressure on the margin, as we said and second half of the year will be better. And overall, we're confident that we will be able to meet our guidance for this year. I hope, Isha, that clarifies and answers your question.

Mr. Oliver Schwarz, may we have your questions, please.

The good operational questions have already been asked. So what remains for me is to tease you about Swedencare, sorry for that. My 2 questions on Swedencare are; firstly, obviously, you recognized the participation in Swedencare as right to use. So basically, that is not, let's say, in connection with the actual market cap, but with your expectations on future cash flow. Could you elaborate on what changed in your view of cash flow generation from Swedencare that led to the EUR 126 million impairment on your participation? That would be my first question. And if -- the second question would be, if let's say, the market cap of Swedencare continues to go down, it's like -- it's down more than 10% since your last assessment on the 31st of December, 2022. Are we likely to see more of those impairments? And lastly, third question. You could buy the remainder of Swedencare for less than the EUR 500 million you shelled out for the first 30% as of now given the current share price. Why not go for it? That would be my 3 questions.

Olaf will probably add a bit more on the detailed financial stuff, this cash flow, whatever contribution, that is the Olaf's case. But the strategic part, I'm more than happy to highlight. One of the largest assets we have in our company is the unique positioning we have in Pet Food. The unique positioning. And going forward, looking forward, what could be a big further driver for even more value in our company would be expanding the broadness and application range in Pet. The current status we have in Pet is we are very well entrenched in vectoring cats and dogs. So being the partner for good pet food and pet feed. But as I keep saying, the Pet has made a formidable career. The dog in the 50, 60 is behind the house; 10, 20 years later in front of the house; then turn of the century in the house and now in the bed and the pets start to develop the same non-communicable diseases like the pet owner, which is obesity, diabetes, oral care problems and all this. So in other words, the pet has become a fully blown member of the family and just feeding the pet is not enough. We have to treat it as a fully blown member of the family. And this is -- this area is not consulted as a unique opportunity for us to broaden our capabilities in a unique spot. That is in short words the strategic asset, which we want to pursue, and we are uniquely positioned to grab this opportunity. And we would be looking back 10 years from now and say, why did we miss this opportunity. You see me very convinced of where we have to go. Cash flow, Olaf will say a few words on this, like impairment. We did what we had to do at the moment. It's hard to say what we can -- what has to be done in the future, Oliver. And we are committed and we have said that always that we are not excluding to increase our shareholding. So what you outlined is something which we see as well. We are not confirming it now, but we are also not excluding it. Having said that, that is from my end. The part, Olaf, if you want to add some financial numbers, feel free.

Yes. So Oliver, of course, as you rightly mentioned, we applied discount cash flow model for this case and came with the assessment into the impairment. It took all the internal and external information to consider, which we have. Of course, we have a lot of knowledge around the pet food market, its development that went into the case. We even used some external support to come up with this business case. So that is built on all the information which is available. Of course, it -- down to also that Swedencare delivers on their own promises, which is fast growth and good margin development. And then we need to see in the course of the coming 12 months where this business case brings us. This is the situation from an accounting perspective. And as far as I can say, Swedencare delivers on these assumptions, then we have definitely no further impairment in front of us. If not, then we need to review the situation on a half year basis. This is pretty much what we need to do.

Mr. Andrew Benson, may we have your question, please?

You announced your profit warning at the end of January. And no fault of Tobias, as he perhaps was unable to explain clearly the rationale behind that. I was wondering if you are -- what changes to your systems that you're planning to enable you to react faster to events or to be able to see them and communicate them earlier? That's the first question. The second. You mentioned a number of exceptionals, obviously including the big Swedencare write-down, but the others seem to come to about a plus 28%, I don't know whether that's right or wrong. But on a sort of a clean underlying base, can you just give us an update on what your EBITDA is? So I think some of your peers IFF, [ Givaudan ] have announced productivity cost-cutting plans in the face of significant cost pressure. Just wondering what you're doing there as well?

Yes, let me take the beginning, Olaf you hop in if you want. So profit warning. We can talk about that for as long as we want. We might be late on this and taking the criticism myself. We could have issued it a few days earlier. But again, a few drivers I mentioned. And this explosion, this incident in Colonel Island with implications on Jacksonville and Bushy Park and on the top-line was something which hit us surprisingly. Also, not mentioned here yet, but also valid, there was this [ Freestone ] where the pet food plant was down. All in all, we missed top-line and we also missed bottom line, not only because of it, but these were big contributors to that. Having said that, and Olaf can happily bring up some additional things, but the last one, you mentioned second question. Yes, competitors of us have already initiated or announced big cost-cutting plans. We will have cost optimization programs ongoing as well and we have already started. So far in our guidance, this is included. But yes, in this current environment, it's needless to say that we have to initiate measures to improve our profitability beyond price increases. Having said that, I would like to hand over. Olaf?

So to your question on the exceptionals and what we have communicated, I think we have moved pretty much what you also find in our compensation report. So you can debate in length what is an exception and whatnot. The ones we have mentioned to you would lead to an EBITDA margin of 19.3%, 19.4% in that range, if you include it. That is pretty much coming from the 2 positive exceptionals, which we mentioned, Velcorin and also the partner sale of the celery business. And then we had all the one-offs on the negative side, especially in the fourth quarter, which impacted us. When it came to the profit warning, the timing, of course, we needed to be safe on the numbers, which we mentioned to you. So it took us a few days also in alignment with the auditors to make sure that we communicate properly. And that drove pretty much the timing of this profit warning. So I think this is what we needed to do from a legal perspective, making sure that you are informed and also compare it to the consensus expectation. And we came out with this information as soon as we were on the safe side to communicate it. So that is what I can add to the picture.

I think -- I don't know if you're still here, but it was really the cause of the profit warning. And I think at the time it was announced, you released a press release, gave the numbers, but the cause is -- this is the first time I've heard the details of the causes of the breakdown and that's sort of a communication exercise just put that out there. But it would be helpful if the underlying reasons, the disappointment were expressed as well at the time of the pre-announcement?

Yes, remember, I mean, the first triggering point was the impairment on Swedencare, which we realized, and of course, it was accreting a deviation to the consensus expectations, especially on the margin side, which led at the end to this profit release earlier than we would normally have done it, actually today. And then, of course, we saw the first view on the margin situation for the year without having all the explanations. This was an exercise we had to go through, and therefore, maybe Tobias could not give you all the information details at the time of the announcement. But we felt from an obligation perspective that we had to communicate to the market properly what it will be without being able to give you all the details. That's why we sit together today actually.

Well, thanks a lot. We are coming to the end of this conference call. Thank you very much for your time, for your interest in Symrise today. We are looking forward to seeing you in person in the upcoming meetings, be it in person or virtually. Thank you very much. That's it for today. Thanks and good bye.

Thank you.

We'd like to thank all the participants of this wherever you are. Thank you, and good bye.