Symrise AG (OTCPK:SYIEF) Q4 2019 Earnings Conference Call March 10, 2020 8:00 AM ET
Tobias Erfurth - Head, Investor Relations
Heinz-Jürgen Bertram - Chief Executive Officer
Olaf Klinger - Chief Financial Officer
Conference Call Participants
Thomas Swoboda - Societe Generale
Isha Sharma - MainFirst Bank
Michael Schafer - Commerzbank
Patrick Schmidt - Warburg Research
Tom Wrigglesworth - Citi
Patrick Roques - Kepler
Heidi Vesterinen - BNP Paribas
Geoff Haire - UBS
…Full Year Results Conference 2019 for Analysts and Investors. We welcome our guests here in the Sofitel Hotel in Frankfurt and we also welcome our guests on the phone. With me are our CEO, Dr. Heinz-Jürgen Bertram; and our CFO, Olaf Klinger.
All documents have been published this morning on our website in the section Investors and Financial Results. In the same area, you will find the playback of this conference call in the course of the day. After the presentation, we are open for your questions.
I will now hand over to our CEO, Dr. Heinz-Jürgen Bertram. You may begin.
Thank you, Tobias. Good morning, ladies and gentlemen and welcome to the Symrise investor and analyst conference on the occasion of our 2019 results. Great to see so many of you here today in Frankfurt. A warm welcome also to everyone who joined us over the phone.
As in the previous years I'm joined by our CFO, Olaf Klinger. Together we will walk you through today's presentation. I will start by giving you a recap of our highlights in 2019. Olaf will then do a deep dive into the financials. Afterwards, we will look into the months ahead present some key strategic initiatives and give an outlook. You will, of course, have the opportunity for questions here in the room or via phone.
With this brief introduction let us dive right in. Chart 4 for our financial highlights. 2019 has been yet another year of strong and profitable growth. We have achieved all our targets and even more important continued to build on our foundation for sustainable growth going forward.
We benefited from good capacity utilization and strong demand across all segments and regions. Our top line grew for the 45th consecutive year. Overall sales increased by 8% in reporting currencies more than €3.4 billion. Organic growth was also strong with a plus of 5.7%. Despite a number of important investments we kept profitability high and outperformed our prior year figures.
Our normalized EBITDA increased by over 12% to more than €707 million. Our EBITDAN margin stood at 20.8% at a very healthy level. We also made good progress with regards to our business free cash flow. We increased by 53% to €476 million, which equals 14.1%. Net income for the period increased by 10% year-on-year and came in at €304 million.
Accordingly normalized earnings per share increased to €2.25 after €2.12 in 2018. We want our shareholders to participate on our success again this year. Management and Supervisory Board will, therefore, propose a dividend increase to $0.95 per share to the Annual General Meeting in May.
Let us move on to chart 5 and our sales development on group level. We continue to see strong demand and good capacity utilization in 2019 driven by all segments and regions. Adjusted for portfolio and the FX effects, group sales increased by an excellent 8% to more than €3.4 billion.
ADF/IDF, which was for the first time consolidated in November 2019 contributed €32 million. We also grew strong on an organic basis. Sales were up by a solid 5.7%. I'm proud to say, Symrise was once again one of the fastest growing companies in the industry.
An overview of sales contributions by segment on chart 6. Scent & Care increased sales by more than 7% in reporting currency over €1.4 billion. Organically the segment grew 5.6%. We saw a pleasing double-digit performance -- percentage growth with Fine Fragrance. Especially the regions EAME and Latin America showed very good dynamics. Momentum in Cosmetic Ingredients and Aroma Molecules was also good.
In reporting currency, Flavor achieved a plus of 5.6%, an increased sales to almost €1.3 billion. On an organic basis, the segment grew by 3.8% year-on-year, recorded a particular strong demand in the Asia Pacific region with organic growth in the high single-digit percentage range.
Application for sweet and beverage products, as well as meat alternatives were very popular especially in Indonesia, Malaysia and China. Nutrition increased sales by an outstanding 14.5% to over €730 million. ADF/IDF had a good start and contributed €32 million to this. Due to the initial consolidation of the group in November, the fourth quarter was particularly strong. Segment sales in Q4 grew by almost 29%. The Nutrition segment was also very good in growth and on an organic basis with a plus of more than 9%. Strongest growth driver was once again Pet Food.
Chart 7 for our regional performance. At a regional level, growth engines were Latin America and Asia Pacific. They benefited from very good dynamics and grew sales by 12.8% and by 7.4%, respectively. Over the year 2019, the EAME region also recorded good demand growing by 3.6%. In North America, we achieved sales growth of more than 4%. The emerging markets accounted for 44.3% of total sales, which was slightly above the prior year figure. We grew in these particularly dynamic markets by 10.7%.
Ladies and gentlemen, let us move on to a chart you are very familiar with on chart 8, one of our favorite ones as it illustrates our sales and EBITDA growth over the years. We can clearly conclude Symrise has a strong track record in generating sustainable and reliable sales and earnings growth. We have created significant value since our IPO back in 2006 not once, not twice but every single year.
We delivered no matter how volatile exchange rates or raw material prices were and irrespectively of political uncertainties. Since our IPO, we have recorded a sales CAGR of 8.6% with equally strong earnings development. We're not only one of the fastest growing companies within our industry; we are also one of the most profitable ones. Our EBITDA margin in 2019 stood at a very healthy 20.8%. And as you know, we will not stand still but have set ourselves ambitious goals for the future.
I would like to thank all our employees across the world. Their commitment, dedication, entrepreneurial thinking have brought us to where we are today. They are key contributors to our success story.
Let us now look at our share price development on chart 9. In 2019, we have yet again outperformed the DAX and MDAX. What I'm even more proud of is that we have simultaneously established a new all-time high. Our share price increased by 42% in 2019, a clear sign of the appreciation of our strategy and performance from the capital markets.
At Symrise we have a straightforward dividend policy. We want our shareholders to participate in our success. That is why Management and Supervisory Board will propose a dividend increase to €0.95 per share at this year's AGM. Our total shareholder return in 2019 stands therefore at more than 17%.
Let me now hand over to Olaf, who will present to you the financials in more detail. Olaf?
Yeah. Thank you very much, Heinz-Jürgen, and good afternoon also from my side to all of you here in the room, but also on the phone. Following Heinz-Jürgen's initial remarks, I would like to give you the promised deep dive into the financials.
Let's start with group sales development on page 11. We had another year of strong organic growth. While the industry grows between 3% to 4%, we grew 5.7% with a price volume split of 50-50. ADF/IDF, finally contributed €32 million, since November 2019 portfolio effect of 1%. After negative FX impact in 2018, mainly the strong U.S. dollar supported our growth with €43 million or 1.3%.
Turning to slide 12 to take a closer look at our bottom line. In 2019, our profitability grew stronger than the top line, mainly due to under-proportional raw material price increases and good cost management. The cost of goods sold, includes material costs without FX effect amounting to €1,495 million. This represents a material quota of 43.9%, slightly eased from 44.4% in 2018.
Overall, raw material prices were up at around 3% in 2019, after 5% in 2018. For 2020, we expect overall stable raw material prices across the portfolio. As you probably noticed, during the past two years, we have a huge asset in our backward integration be it in natural, be it in chemicals, which helps to steer through volatile times, which we are facing again at the moment.
Moving to earnings. Normalized group EBITDA amounted to €707 million, an increase of 12.2% or €76 million. The margin of 20.8% meets our 2019 margin target of around 21%. The IFRS 16 impact on EBITDA was €20 million and the normalized integration cost for ADF/IDF amounted to €16.3 million. 2018 we benefited from a positive impact due to VAT tax receivables in Brazil, which some of you might remember that fall into operating income at that time amounting to around €10 million, and needs to be considered when measuring our good performance in 2019.
Group EBIT rose 10.7% to €481 million, resulting in an EBIT margin of 14.1%, which comes after 13.8% in 2018. Depreciation increased in connection with IFRS 16 accounting by €17 million, as well as the finalization of some larger investment projects.
Please turn to the next slide, slide 13 for the segment reporting. Scent & Care achieved an organic growth of 5.6% and benefited 1.5% from FX. While AM and CI had huge comparables in 2018, the year of the so-called Citral crisis, the growth in 2019 was mainly driven by Fragrances, especially Fine Fragrances. In Scent & Care, 90% was pricing and 10% was volume as volumes starting to pick up again in the fourth quarter.
Reported sales were €1,419 million. Looking at earnings Scent & Care EBITDA amounted to €278 million, which comes after €254 million the year before and the margin increased from 19.2% to 19.6%.
Looking at slide 14, we saw Flavor with a lower growth versus 2018 due to limited price increase opportunities. At the same time, we also saw an EBITDA margin recovery from 20.5% in 2018 to 21.4% in 2019.
Moving to slide 15 for Nutrition, an impressive 9.3% organic growth mainly achieved from our Pet Food business. Volume was one-quarter price and three-quarter volume. ADF/IDF added €32 million sales or 5% growth since the closing in November 2019. Nutrition EBITDA margin achieved 22%.
Some remarks on ADF/IDF. It was a late, but successful start. The integration is fully on track. The cultures fit very well together. And important for me as a CFO, the numbers sales and profitability-wise were as expected. Looking forward, we expect for 2020, a slightly positive sales growth and an EBITDA margin definitely above 23%.
Let us continue with the P&L elements below EBIT on slide 16. The normalized financial result dropped 24% to €56 million, when excluding a positive U.S. dollar hedge effect of €10 million for the ADF/IDF acquisition. Including this FX gain, we achieved the financial result on prior year level. Income tax in 2019 increased by 4.6% to €114 million, the tax rate was 27.1% after 28.1% the year before, mainly due to higher earnings in countries with lower tax rates. This is fully in line with our midterm guidance of the tax rate between 26% and 28% for the years to come until 2025.
Net income increased 10.2% to €304 million. Normalized EPS achieved a new record level of €2.25 that is attributable to Symrise shareholders after €2.12 in 2018. Consequently, we will propose a dividend of €0.95 to the Annual General meeting in May €0.05 more than last year.
Now turn to page 17. I'm glad to report that our increased focus on cash flow generation paid off in 2019. With a strong EBITDA, moderate working capital growth and a reduction of CapEx, we achieved a business free cash flow of 14.1% of sales in 2019, which is a huge improvement compared to the 9.9% in 2018, and what I also can say much better than we expected. For 2020, we foresee the business free cash flow at around 14%.
Please turn to slide 18 for the review of our balance sheet. Total assets increased by more than €1 billion or 21.1% to €5.957 billion over the previous year, mainly for the ADF/IDF acquisition. On the asset side, this was mainly due to an increased intangibles and PPE, mostly driven by the inclusion of ADF/IDF again. We expect the final purchase price allocation to be ready by mid of this year at which point, we will provide you with an updated amortization schedule for the group.
Borrowings went up €307 million for the financing of ADF/IDF, mainly through the €250 million Schuldschein promissory loan issue. And as an additional remark, you remember that we refinanced the expired Eurobond of €500 million in early summer last year and enjoyed an improvement in the interest rate of 0.5% comes to this 1.25% now.
Provisions for pensions and similar obligation increased by €92 million, mainly due to the decrease in the discount rates for pension commitments granted in Germany and that came down from 2% in 2018 to 1.2% at the end of 2019. Other liabilities increased by €96 million for IFRS 16 lease accounting reasons.
The final financing element for ADF/IDF was our €400 million capital increase in February 2019, when we sold 5.6 million of new shares at a share price of at that time €71.25. With an equity ratio including non-controlling interest of 41.4%, Symrise has a very solid foundation for driving future business development forward in a very sustained manner.
Let's now turn to page 19 to our financing structure. Our net debt amounted to 3.1 times EBITDA including pensions or 2.3 times excluding these pensions. Despite the acquisition of ADF/IDF this is only slightly above last year. Our ambitions are unchanged. We want to achieve a net debt including pensions to EBITDA level of two times to 2.5 times. Our top priority remains to have an investment-grade profile for Symrise.
As a summary, in 2019, we saw good improvement of our financials all in the right direction. We steered successfully through the raw material crisis. This will support our strong backward integration strategy. And finally, we closed the highly attractive portfolio addition ADF/IDF. And together with many of you, we enjoyed an inspiring Capital Markets Day in January of last year, where we gave our new guidance and which leads the way into our Symrise future.
With this, I would like to hand back to Heinz-Jürgen.
Thank you Olaf. Ladies and gentlemen, let us now look at the road ahead. Chart 21 reiterates the basis of our success, our proven corporate strategy. You're all familiar with those three strategic pillars: growth, efficiency and portfolio. Based on our values embedded in our sustainability approach, they are the levers to make our vision come true to create meaningful and sustainable value for all Symrise stakeholders. Our track record and our 2019 results are clear proof our strategy is spot on.
Today we will specify the individual levers for 2020. In terms of growth, we will put a particular focus on exploiting the full potential of our customer base and target markets, by cross-selling expanding our capacities or making strategic additions like we did with ADF/IDF.
Our efficiency efforts will focus on further advancing internal processes. Artificial intelligence, for example, will support our efficiency programs. And with the help of Green Chemistry we will further advance our production technologies. Our portfolio-related initiatives will focus on the ADF/IDF integration. We will also facilitate innovation through the networking of our competencies especially in the U.S.
Let us look at these initiatives in a bit more detail. Chart 22 shows an overview of our client and sales distribution. The key points are here. We have a globally balanced presence and variety in the very diversified product and client portfolio. We have multiple touch points with our clients as the graphic on the left shows. Nine out of our 12 largest customers are clients of more than one Symrise application, five of them are clients in more than one segment, and two of them are clients in all our segments.
In 2020, we want to work specifically on further increasing our customer penetration across all our segments and markets. There is still a lot of potential. As Symrise has proven over the years a balanced business is a resilient business. This does not only account for our client portfolio.
The right-hand side clearly demonstrates that this applies to our entire business from sales distribution by segment and region up to our customer type and market. 2020 will therefore be about -- all about further leveraging our position and fully exploiting our potential.
Let us move on to our strategic pillar number two on chart 23. As outlined before, our focus in terms of efficiency will be on improving processes and expanding access to raw materials. When it comes to processes, we will remain committed to our disciplined cost and efficiency management. For instance, we will expand purchasing projects with cross-divisional potential.
Our goal is to keep raw material prices stable. Our R&D efforts on the other hand side will concentrate on simplifying our formulas. The overall aim is to reduce the number of raw materials being used.
On the raw material side, we will further invest in our backward integration in order to secure access to high-quality raw materials at all times and realize cost and planning efficiencies in our sourcing. Our raw material platform for Green Chemistry plays a crucial role in this. Its focus lies on innovation and continued improvement for safe eco-friendly processes and products. On top of that, it also increases the positive social and environmental impact of our products.
Last but not least, our portfolio pillar on chart 24. In today's fast-paced world, the degree of innovation and reinvention in consumer brand product is crucial. Our customers rely on us in their efforts to strengthen their product lines and expand their value proposition. They highly appreciate our innovation drive and the ongoing additions to our own portfolio, be it in the traditional Flavor and Fragrance business or in new areas, such as Care and Nutrition.
Over the years, we have successfully expanded our competencies. We already generate one-third of our sales outside the traditional Flavors and Fragrances business with leading positions across numerous categories. Our focus going forward will be to further leverage opportunities within our existing application areas and foster innovation by cross-linking our competencies.
Ladies and gentlemen, let us now move to another integral part of our strategy, our sustainability efforts on chart 25. As you all know, climate protection and biodiversity are two focus areas. In terms of climate protection, I'm proud to say that we managed to further cut our ecological footprint in 2019.
Since 2016, we have been reducing our carbon emissions successfully every year and we are fully committed to continue on this part and become climate positive by 2030. By 2025 already, we will source all our electricity from renewable sources. Our climate protection efforts have yet again been recognized by the Carbon Disclosure Project. We were awarded A ratings in all three categories: climate, water and forest. Symrise therefore remains a global sustainability leader within its industry.
Our second focus area is backward integration. To us it is a prerequisite for long-term commercial success. We use thousands of raw materials from all over the world. We are therefore dependent on sustainable source procurement. And it is -- ensures availability, quality and price stability. We work very closely with our partners and farmers. The most popular collaboration is probably of vanilla production in Madagascar. But as the map on the right side illustrates, there are many more collaborations in very different parts of the world; in Sulawesi for clove and patchouli, for Calabria and Sicily for sustainable citrus.
One thing that is important to us, all our collaborations are two-way street. We are working closely with communities and farmers to improve living and working conditions in the countries, we source from.
Chart 26 provides an overview of our key investments and growth initiatives. We've achieved a lot in the past two years alone, an investment heavy 2018 followed by an intense and busy 2019. In both years, our focus was on capacity expansion to meet the high demand and to lay the basis for growth.
Our CapEx spending stood at 7.2% in 2018 alone, exceeding the original target of 5% to 6% of sales. We will certainly continue to dedicate significant resources to growth initiatives, but this will be more -- at a more normal level. We managed to work towards this target already in 2019 where CapEx was back at 5.3%.
Among our key investments in 2019 were a brand-new manufacturing site for Fragrances and Flavors in Nantong in China, the expansion of production capacity for Menthol and Natural extracts in the U.S. and then additional Pet Food facility in Colombia and in France just to name a few.
As you can see there are more new projects lined up already. One project that I'm particularly proud of is our investment into meat alternatives. Around the world consumers want food and beverages with alternative proteins. This includes primarily meat and dairy products. And their desire keeps growing, both out of conviction and for health reasons.
Using our in-depth know-how Symrise has developed taste solutions of culinary well-rounded and protein-rich alternatives. We managed to provide products made of pea, soy or rice protein, all of them with a taste profile that includes all consumer-preferred aspects.
Our mission, getting consumers to discover and develop their love of plant-based food, let me show you an excellent example of protein alternative in the beverage application of -- on Chart 27. Our subsidiary Drinkstar developed and launched mid-2019 a new and innovative beverage range under the brand Princess and the Pea.
Drinkstar offers vegan sugar-free protein and calcium-rich milk alternative distributed in Germany and Austria. The pea-based milk drink is comparable to classical milk products and comes in five different flavor varieties, coffee, chocolate, vanilla and original and which you can get un-sweeted or with dairy fiber. In Germany, the concept is very well received and perceived and highly rated for its innovative uniqueness by the trade community.
Ladies and gentlemen let us conclude today's presentation with the outlook for 2020 and beyond. Chart 28 please. We are yet again to outperform the growth of the relevant markets. In fact we expect all our segments to grow faster than the global market which is projected to grow around 3% to 4% this year.
At the same time, we anticipate an EBITDA margin of more than 20% in all segments assuming that raw material costs and the euro-U.S. dollar exchange rate remains stable.
We believe that Symrise is very well positioned to achieve these growth ambitions. We will continue to build on our global presence, diversified product portfolio and proven strategy. In this context we plan to expand into fast-growing high-margin business areas. We will do so by combining organic investments with targeted acquisitions. Of course, we will also remain committed to our disciplined cost and efficiency management.
Chart 29 gives an overview of our financial and sustainability targets for 2025. At our Capital Markets Day, we have presented our updated midterm financial goals. We have increased our sales target to around €5.5 billion to €6.0 billion by the end of 2025. We intend to achieve this ambitious goal by means of an organic growth of an annual rate of 5% to 7%.
Our EBITDA target was also raised long-term. Symrise intends to achieve an EBITDA margin within the target corridor of 20% to 23%. On financial -- final chart Page 30, we would like to introduce to you new face -- two new faces. Michael König and Peter Vanacker have been nominated to stand for Supervisory Board election at this year's AGM.
Both managers have extensive internal -- international experience in various management positions. Michael König is the CEO of stock listed Elkem ASA, a leading supplier of silicon-based advanced materials with headquarters in Oslo. Previously, he spent four years as CEO of China Bluestar, a nutrition of chemical materials and animal nutrition.
Michael began his career in 1990 at Bayer where he has held a number of management positions in Germany and China for 25 years. For 2013 to 2015, he served as a member of the Board of Management and he was responsible for technology, HR sustainability in the Asia Pacific Africa and Middle East regions. Michael with his experience in Green Chemistry and product design, as well as his extensive expertise in the Chinese market will be a very valuable member of the Board.
Peter Vanacker is President and CEO of the Finnish Neste Corporation. Neste is the world's leading manufacturer of sustainable product solutions such as renewable fuels, road and aviation transport. Previously he gained experience in the flavor fragrance and cosmetics industry as CEO of CABB Group, a provider in the field of specialty chemicals.
Peter began his career in 1990 at Bayer where he spent over 20 years in Germany, the U.S.A., Brazil and Belgium. His last position was Chief Marketing and Innovation Officer at Bayer Material Science. Peter is recognized as an expert in developing sustainable processes and product solutions. As you all know we have very high ambitions to further advance our sustainability efforts in Symrise and therefore he will be an excellent addition to our Board.
With their individual knowledge both candidates will be valuable contributors to our corporate strategy. The Symrise Supervisory, as well as the Executive Board are pleased to introduce both managers for election at our Annual General Meeting on May 6.
With these latest news, I would like to conclude today's presentation. Olaf and I are now happy to answer your questions. Let us start with our guests here in the room.
A - Tobias Erfurth
Many thanks Heinz-Jürgen. Many thanks Olaf. Turning to Q&A we are now happy to take your questions. We will start here in the room in Frankfurt and switch to the phones afterwards. [Operator Instructions] Many thanks and first question please.
Thomas Swoboda from Societe Generale, I have two questions please. Firstly, on raw materials, you have a number of raw materials you source from China. Sometimes it's single sourcing. Do you see any indications of short -- for shortages increasing raw material prices because of the current situation? So that was number one.
Number two, a little bit more strategic, if I may? While its a bold move IFF could have started a consolidation in the wider specialty ingredients space. My question is do you see pressure to further consolidate? Is the combination of flavors and fragrances and bigger ingredient players something you see as a strategic rationale for the sector? Thank you.
Okay. Thomas, thanks for the question, I think I'd take them both. First, raw material, of course, the challenges we see at the moment coming from China are challenges, but we are proud and happy to say, we have built the most robust and stable supply chain in our industry.
Two years ago when the raw material crisis hit us, we were proud to say, we are pretty much the only ones who can deliver the material. And, rest assured, the same situation is here again. We spend a lot of time thinking to a very stable and robust supply chain. Yes, we have issues, but if someone can deliver product it is us.
So, I still recall the times back when I came up in our industry with the idea of backward integration and I had to explain why we do this and the questions came from your community, is it because of a higher margin? And I had to say, no, not really. Well, why do you do it then? Like an insurance. And these are the times when you need an insurance and we have one.
So, yes, challenge at the moment. We have not used the China challenges in our comment to bail out of any outlook any guidance or anything. So far, so good and that, again, rest assured, you are talking to the most robust supply chain in our industry. So that is immense work.
Second point, IFF and DuPont. Things change all the time. And the industry is moving. And it would be boring if things wouldn't change. So, yes, we will see probably new challenges, because of that move. We will see challenges, because the rest of the competition is now trying to copy our strategy. That is fine.
I think we take pride in it. If something like the backward integration, which also means taking on more responsibility for the materials you source, has helped to make the world a bit better I think we can all be proud of it. But it is by far and we are by far away from losing our feet from the ground. We have to adapt our strategy.
Yes, there will be challenges, but so far we have been able to cope with all challenges and we will cope with these challenges as well. For me, challenges are opportunities and that is what I like to talk a lot more. So these mergers also pull opportunities for those who want to see it. And I can tell you, I will be in that camp.
If you're merging and doing a big merger, it's a lot of internal distraction. A lot of people are concerned about their jobs, closures and all these things. So it is wise to think what business opportunities could be up for grabs. So there will be also opportunities. Look, for me, the glass is always half full. It's always half full. So, you're right. But that is what makes life interesting and not boring, that things change and move. And for us, it will be full of challenges and I prefer to see the challenges, okay?
There is a long debate that there will be mergers in the industry. For us, what could we get out of it? We are one of the fastest-growing companies in our industry. So it seems that we are doing something not too bad. We're not concerned at all. You see that. That is not something which concerns me. I look at and look at this, it's an interesting move and a way to do something, but fine. Okay.
Hi. Thank you for the presentation and for taking my questions. I have two please. Your growth and EBITDA guidance is based on the IMF global economic growth of 3.3% in 2020, things have changed a little bit since then and on the other hand, also on stable raw material prices. So, given the current situation around COVID-19 and also the falling oil prices, how can we better estimate how to look at this guidance from today's perspective, please?
It's difficult. Yes. First your assumption is correct. Our guidance is based on the raw material prices as they are. And you're right; this coronavirus, whatever we have seen so far is in there as well. And if there is nothing which is totally unexpected, we should be able to cope with this thing and we should see no reason to use this as an excuse to move away from our guidance.
We should be able to make it up. We have seen somewhat slower start of the year. What a surprise. Our total turnover in China is 6% and the visibility of the business in China is somewhat limited. Yes, again, but we see us being able for the rest of the year to make this up, again, if not something totally surprising happened. Talking raw material prices, which is close linked to this.
As we said, the China crisis has so far very limited impact on our supply chain. We have taken our time to make it pretty robust. Raw material prices change and change all the time. As we use 10,000 raw materials typically, typically, some disclaimer, but typically most of this levels out.
Oil, we just learned these days, is plummeting. Vanilla is still high. There is other prices also high. So this levels out to some extent. That is what makes a big part of the beautiness of our business. It is, if you do it right, pretty robust, because a lot of these effects level themselves out.
Having said that, in our guidance, there is quite some comfort level in raw materials, as so far it levels out. There's also one thing else and which, again, I spoke a bit in Thomas' previous question. The raw material issue can have also opportunities. If no one else can deliver materials, but just us, that can also put a smile on your face.
So a crisis has winners and losers. And what I think, if we are among the winners, it can also be possible. So, Isha back to your question, there is some uncertainty. But for us, there's no reason to be too skeptical and there is somewhat level of comfort in this raw material price fluctuation, okay? I don't have a crystal ball, but at least this is not something where I would change my guidance tomorrow already, just because the oil price has changed.
Thank you. And the second one, please. Could you talk about the trends that you see at Flavor, because we talk about strong growth in Asia, but how do you see Europe and North America developing? If you look at the margin progression, in the first half we have seen a significant improvement in the EBITDA margin, but we didn't see that in the second half. Are there specific reasons for this, or is it the usual seasonality? That's it from my side. Thank you.
Well, in Flavors, we had seen in the last second half year some slowdown, yes, no question. On the other side, we had seen a strong momentum in the first half of the year. So there may be some destocking somewhere. Talked with -- some of our competitors was talking about, it may very well be. At this point in time, Isha, nothing what I would be concerned of.
Let's recall what you were after last year, you were so concerned about our Fragrance division that it's not moving. And I kept, hey, nothing, which I should tell you, which I'm concerned about. It's a bit of a cyclical business. This year, no one is complaining about the Fragrance, just happy about the numbers. And the same will come true on Flavors.
So Flavors will be back on track. And some of the stuff straightforward, I don't know, even better. It's tentative explanation, some destocking. But if someone is destocking, if that is the explanation from a certain point on you have to start buying again. There's nothing which we are concerned of at the moment. Okay?
Next question, please
Two questions from my side. Michael Schafer, Commerzbank. First one, coming back to Scent & Care, which had a strong finish basically of the year with the organic growth you've reported. Basically you touched upon that basically 90% in 2019 was price driven 10%, volume with a catch-up basically in volume side in the fourth quarter.
So going into 2020, how should we read, let's say the volume ammunition you have already visible basically in terms of capacity which is there? So how comfortable are you with Scent & Care growing 5% to 7%? So what's the volume contribution there already visible in this regard?
And the second one is on the free cash flow side. Congrats, a great achievement in 2019 with a strong contribution from working capital management. So just getting a bit of a feeling how 2020 may look like on the working capital side because 2019 looks to me that you really wanted to deliver on this – on this end. Is there some catch-up or reversal effect we should think about heading into 2020, primarily also with ADF/IDF coming to the table basically? Thank you.
Yes. Thank you Michael for the question. So on the Scent & Care organic growth. Just as an additional explanation, we are coming out of this cycle of strong raw material price increases and Scent & Care has worked a lot in this regard. I think we are at the end of this cycle. And as we indicated we see stable raw material situations pretty much across the portfolio. That should lead to a more normal situation which for us is the 5% to 7% growth ambition.
Out of that one third price, two third volume. This is what we would expect in a more normal world and that's what we also expect for Scent & Care. And as I hinted to in the fourth quarter, the volume part in Scent & Care was already at 40%. So we are on track to this more normal situation which we connect to our 5% to 7% growth ambition.
And as Dr. Bertram said, we are not moving away from our ambition and that holds true for all three segments. There's no reason to put any question mark behind this. However, we have and you know that very well very strong comparables. In 2018, all four quarters were above 8% organic growth. The fourth quarter 2019 was above 8% organic growth. So keep that a little bit in mind since we are missing this price element in the current environment given the high level of raw materials. That's what I would refer to also specifically to Scent & Care.
Yes free cash flow. I'm of course very happy that this moved finally. And I think we did a lot of internal work to change the mindset in Symrise in this direction. I wouldn't have mind if we would have seen this nice improvement in two steps. So it was huge. I guided for 14% this year in 2020. And if you look at the parameters of our business free cash flow it's well understandable where we are coming from with the CapEx guidance and our ambition that the working capital grows slower than the growth itself, the top line growth and that in combination would give us a 14% level, which we foresee as a very good level for the moment.
There are some extraordinary items like in the menthol area where we have pre-stock material for our new production that will slowly but surely phase out now. So this will further support our, hopefully ongoing improvement of better working capital management.
However and I also want to say that and we all see that at the moment, the supply chains in the world are pretty much relying on just-in-time. You see interruptions here and there. We don't have that. And one reason is a reasonable stock level, which we can use at the moment to keep going. And that is the other part of the coin that if you have a certain stock situation you can see us through crisis situations. Goes in the same direction as the backward integration which we have discussed.
Okay. Last question from the room maybe.
Thank you very much. It's Patrick Schmidt from Warburg Research. Could you maybe elaborate a little bit on your situation in Latin America? We saw some volatility. Q1 you were up 21%, came down to mid-single-digit in Q2 and Q3 and it's now back at 20% in Q4. That will be my first question. And the second one. It seems like your gross margin came down in the second half a little bit. But despite that you were able to keep your EBITDA margin. And I was wondering where you were able to make up this cost savings? And why are you not a bit more let's say confident about 2020 on your margin? Thank you.
Okay. First I'll take this LatAm thing. LatAm for me actually is a miracle. You'll see and hear about the challenges and the economic crisis going there. Actually we're doing surprisingly well there. For me it like most of you is surprising. We're doing fine. And there is no sign that this will change this year.
It's a typical case for what I'm saying, challenges are opportunities and it is challenging. It is an environment where you have all problems in a country – in a continent like that. It is a logistical nightmare. It is a lot of political unrest and the economic situation changes. But what is important as well is great people, great countries, it's a great area to be. I was there end of last year again visiting. And we are committed to that area.
A clear sign is that we're doing something which we haven't even talked about in current conference. We're building the first-ever green factory in Symrise in Colombia. It's a clear sign. We have all confidence in the stability of that continent. We have strong dedication in our company to help young people, young talent grow, and we have what we call future generation.
And one project where the young talents were working in our company was how to build a green factory. And our company, its culture, if the project work of these young talents is convincing enough the company has committed we're doing that. And so these young talents did such a great job and they came up with a good concept. And the next plant to be erected was the one in Colombia.
And so we have no reason to be concerned about the economy in South America. It will be challenging. I cannot even give you a clear example or prove or why this is – we have a good team there. I'm particularly proud of our team. And it shows even challenging environment, is not a reason not to deliver good and solid business performance. And that is what we use as a highlight in these challenging times with challenges coming from China. Do you want to take the next one?
Yes just to add on this one. Of course, we have some impact first coming from the Pet Food business, which is very well established in Brazil as well as in Argentina. Dr. Bertram talked about the new facility in Colombia. So good volume growth there.
We have secondly, the U.S. dollar pricing environment, which is with us. In Scent & Care, 100% of the business is in U.S. dollars. So we had some tailwind from this angle. In Flavors, it's around 50%. And Pet Food wise 70%, 80% with an increasing ambition to move it to U.S. for the pricing environment, especially in countries like Argentina. So that supported the growth profile.
Plus we work also in this U.S. dollar pricing environment on price increases in situations where raw material prices go up. So that explains a little bit. There is some volatility but I think it gives you a good feeling that besides what you've mentioned. There are different reasons why we see this very good growth.
The second question was on the gross margin improvement I think, which is of course connected to raw material improvements.
It was on the deterioration in the second half of the gross margin. But despite that you were able to make it up the EBITDA level?
At the SGA level?
No at group level.
Okay. So, we had some influencing factors coming on the cost side. As I mentioned, the extraordinary items in 2018 played a role here. So, that helped. I think, we had good cost management overall across the group. There's a little bit of impact coming through the two months of ADF/IDF consolidation which changes a little bit the profile, the mix overall for the group. So, I think you will understand this better, when we go into 2020 and see the quarters going including ADF/IDF. So, most I would refer to the mix effect you have.
Yes. And EBITDA guidance, you found very conservative. But hey friends, you are with us since a while. At the beginning of the year, we're always cautious. And we talked with some of you. Typically, we said about 20%. We heard that is too conservative. So, we increased it to more than what we typically do so to above 20%. And we believe that's the best we can do at the moment. We simply have no visibility of the year.
On the other side, you have to give us credit. We were not looking for an excuse for the China thing or whatever. We have not bailed out and we have not find any reason to or shy away from any guidance, but also it is our good practice not to promise you something which we don't know. And I can guarantee you at this time of the year no one has a clue what the final end profitability will be. The only point and again also to Heidi on the phone, I'm sure she's on the phone at least it's confident. But for the moment, that is what you get.
Okay. Time flies. Ladies and gentlemen, I think, we still have -- I hope we have some listeners still on the phone. So, I would love to switch to the phone. Elaine, our operator, please go ahead.
[Operator Instructions] We will take our first question from [indiscernible].
Hi good afternoon [Technical Difficulty] the antitrust process. The second question is more shorter term in nature, just around the Fine Fragrance business, which you said grew double-digit last year. I would imagine quite a lot of sales go through airports and travel. I just wondered if you've seen any impact from that in Q1 so far.
You're still there or did you fall -- it was a bit low? Anyway, thanks for the questions. Synergies ADF time line none. The second Fine Fragrance. Let me start with the second because it's quick. We have seen a strong momentum in Fine Fragrance. So, you see we actually have a good momentum there. What we've seen so far does not reflect anything going on what you mentioned at the airports and these things. We will not exclude that this will become visible, but so far so good. And we believe, over the year, we should be okay in that segment. If we over the year see double-digit needs to be seen, but so far we're not concerned and we have not seen any major negative impact to put it down there, so to that question.
Second point is synergies time lines ADF/IDF. That was something I was -- you're right, I was really concerned of because when we announced to you that we are particularly proud of the acquisition ADF/IDF, we had no clue that it would take more than 10 months to get this thing sorted out for various reasons. The guidelines in America that's what we learned over the process have changed in around April last year and they are different now. The good news is we got it done. We always told you we are confident, we will get it done, but we knew it won't be easy. So after 10 -- more than 10 months, we got it done.
But leaving a company, which you have agreed on a price for more than 10 months alone, absolutely right, you go a high risk and I was very, very pleased to see that what has been agreed, what has been communicated to you came true. And so to your question the synergies which we have indicated the time line, which we have indicated all this will be still come true and with no delay. The only delay we faced was this 10-month breakout period, so nothing which we have a reason to pedal back or bail out at all.
Having said that, we see this, as a confirmation of our long-term strategy and belief in sustainability. Sustainability is not just saving the planet and taking care of better climate. What we say is being a good neighbor. And actually, that is a big value which we also sometimes are pleased to see, some of the value coming back. We are known in our industry to be a good home, a good owner, a good business owner.
When we bought Diana, you did not hear anything negative in the press, German company and French company. That is not always easy. And you never heard anything negative in the press. You heard our friends from Diana now saying, that's the best which could happen to us. People tend to forget. We sold 10% of the whole Diana business in France. You saw never anything negative of the press because we took care to our former employees to find a good new home.
Pinova was even more risky. We bought a company and sold on one-third of the company because we were convinced of the chemistry -- the green chemistry basis. And when we bought ADF/IDF, it was a family business. It was the work of a lifetime from the owner, Bill Darr. Of course, he wanted the full price. We paid including the tax rebate about 13 times EBITDA which is a good price, but not overpaid.
But more important, Bill wanted his work of a lifetime to be in good hands. And my take on your question now is we benefited over these 10 months that he felt responsible to make sure that his work of a lifetime gets safely in good hands. That's the only explanation I can find that a company for 10 months -- more than 10 months left on its own is in good shape. For you, for us, for all of us, we were simply lucky and we got payback for something a lot of trust. And the good thing is there is no disclaimer to your question on the synergies. They will come in full extent with this 10-month delay as originally indicated. Nothing to bail out. Okay.
We will now take our next question from Tom Wrigglesworth from Citi. Please go ahead.
Okay. Thank you, very much. Sorry, there has been an echo on the line. Two questions from me. Interested by the subsidiary, the Princess and the Pea idea, is this part of a bigger ambition for Symrise to move further downstream? Do you have more of these subsidiaries? How would you exit your -- the Princess and the Pea project or would you look to keep that over the medium term?
And the second one, a bit more mechanical, can we just go through the price and volume dynamics by division in the organic sales growth for the fourth quarter? That would be super helpful. Thank you.
Thomas, I'm going to take this thing. First, our Princess and the Pea. I have to say, I like the concept I did not want to even take it in there, but I liked this idea. And to your question, clearly we will not expand our approach to the market. DrinkStar is running nice. It is well-run company. The guy who is doing it is I keep always telling in our company the emperor of Wyoming. He is far away and he's doing as I said a great job. It shows that we can do ready -- market-ready concept. DrinkStar is in the market penetration limited primarily to Northern Bavaria and Austria.
So we will not go in competition with our major customers in that area. This was just an exercise as everyone is talking about proteins. Our competitors are making a big fuss out of proteins where they're in and what they're doing and what is. So we showed something right in the market, which is as I believe pretty creative. It is a concept and it is made from the right protein bases. It's not soy as the composition of proteins and minerals. And pea is to a big extent better. So it's a very creative concept, but it will not be expanded more than necessary. On the other side, for us, it's a good learning exercise also kind of a show car for our customers what can be done, okay?
Aroma Molecules. You alluded to your question to margin and performance in the last quarter. Yes, Aroma Molecules has a tough time and they keep having a tough time at the moment. But it is -- like all businesses we have, there like cycle -- it is cyclical. And we had few questions about Flavors a bit lower. And last year, we had a lot of concerns about Fragrance, which is not an issue as per today. I would guarantee you Fragrance will be another quarter of concern in the future.
Overall, it's doing well. Aroma Molecules, the way we have set it up is a long-term successful way. That's why we invited many of you to our Charleston plant to see how we are doing things sustainable green chemistry. And if Aroma Molecules suffers, Fragrance benefits as they are their customers. So it is oversimplified just looking at one side of the coin. We're fortunately in the good situation. If one business unit suffers the other one benefits from it.
Overall, you've seen our Scent & Care picture is pretty healthy around 20%. Growth is nice. There's no reason at the moment to paint a negative picture. But you're right, Aroma Molecules first quarter will also be very challenging, does not change our long-term view on this business and our general business. I hope that is clear.
So Tom, I think you also asked about the price volume in Q4, if I got that, right?
So for the group it was one-third price and two-third volume. Flavor basically had no price in this quarter 100% volume growth, nutrition more normal one quarter price and three quarters volume. And Scent & Care I already mentioned it's 60% price and about 40% volume growth. So that's a very mixed picture still, but on its way to be more normal.
Thank you both. Very helpful.
Welcome. Next question please.
We will take our next question from Patrick Roques from Kepler. Please go ahead.
Yes. Good afternoon gentlemen. Thank you for taking my questions. I've got two. The first one is on meat alternatives, how big of a business is that for you today and how big will that become as part of flavors and also is there only an opportunity for you or is it also causing let say some pressure in other parts of your business? Second question is on nutrition. Could you kind of give us the growth rate of nutrition like-for-like Q4 excluding the impact from Probi? Thank you very much.
Well. Okay. The growth rate for nutrition excluding Probi. Olaf, I think you have the number.
I would give you a number, but he has the more correct number or accurate number. Let me talk first about meat alternative opportunity. Sure, it's an opportunity and we're very well represented. For example a big burger of big Swiss multinational company is made by us. Probably say you guess what this company is starts with an N as you are in Switzerland. So you see we're pretty good at this. We are into this and it is an opportunity. But it's like any other things. It will -- the consumer pattern will shift away from other consumption. So it is not new. It is like sugar replacement. It is meat replacement.
I see it as an opportunity. I see it for sure not as a threat; I see it even in some areas as a gift. We can contribute to make food healthier to make the world a bit better. I think that is great. And whoever does the job finally and provides the meat alternative that's of secondary priority at least we're part of it. And second, we have a big share in contributing to healthier food and making things in food a bit better. So that's how I look at it. And I would say for the moment that should be enough for the question. All of you do the nutrition deduct it from -- Probi publishes the numbers anyway. So it is something you could also calculate at home, but Olaf did some calculation.
Sorry Patrick I need to do a follow-up with you. I don't have the number with me here.
No worries. That's okay.
But Patrick, you can easily -- we have disclosed the nutrition numbers and Probi is published. So they publish their stuff as well. So it can be calculated.
Thanks. I'm just a lazy analyst.
And with the follow-up I will do it. We will get back.
Olaf, I'm disappointed. I thought you...
Yes me too. But there it is.
You got us. Patrick you got us. So we will deliver this number and proudly provide it to you.
Thank you very much.
We will now take our next question from Heidi Vesterinen from BNP Paribas.
Hi. There is a bit of an echo. So I hope you can hear me. Thanks for the earlier margin comment and the free cash flow bio. So first question on the coronavirus. Could you talk a bit about the demand side please? So we're hearing that travel retail is down. So do you have big exposure there? And we also see that there is stockpiling going on in certain areas like food and cleaning products. Do you see this at all? Are you exposed?
And then the second question is on Aroma Molecules. I'm a bit confused here because you're saying Q1 is weak, but at the same time you seem to be alluding to the fact there might be an opportunity here given your back-integration. So could you clarify your expectation for the year? And related to that, how is Genova doing? It was quite interesting to see one of your competitors make a similar move? Thank you.
Okay. Heidi good to have you in our call and we hear you loud and clear here. So first, we answered your question from last year does management care about cash? So we do. Okay. Thank you.
The coronavirus as we said in our outlook so far what we see is included -- including some changes in retail behavior. It is too early to say do we benefit or suffer on this or that. But at least we were not in the camp just trying to bail out. And it is so terrible and it is a problem here and there. So, you're right in some areas because of changing consumer habits, we even may benefit because some of our products are then used. It is too early to give a clear picture. Honestly, it would mislead you. So far, our guidance is even if there will be a certain impact and we see that in China that is clearly the case, we should make it up.
Our total business in China is 6% and the visibility in our Chinese business is simply not good enough to give a detailed answer here today. But at least we're confident if this comes to rest within the next time we should be able to make it up. Having said that, I would -- I'm sorry not to give you a more detailed view on it. It is just not clear enough as is. But the impact on us so far was manageable.
The other point is also interesting. Aroma Molecules is down, but you're absolutely right, this crisis also puts opportunities as we have built the most robust supply chain in our industry. We're benefiting from it. And in Aroma Molecules that may be one of the areas. And actually we already got some customer calls from customers which we haven't seen in a long time. And we have to make sure that we're using our resources wisely.
So, Heidi, you're absolutely right, it could be an opportunity, but also still too early to say there will be an opportunity. At least too early to anticipate that these will be significant. There are already some small opportunities, but nothing where I would make a big fuss out at the moment.
If it continues to go on the crisis, there will be bigger opportunities for sure and one area will be, of course, in Aroma Molecules for sure. And you're absolutely right, we observe the market. It is interesting, but obviously, others are trying to do a similar move. But so far, we're proud to say we did the best deal.
Heidi, you're welcome. Any time.
[Operator Instructions] We will take our next question from Geoff Haire from UBS. Please go ahead.
Good afternoon. I was wondering if I could just ask about gross margin. In a flat raw material environment, I was wondering what you expect the gross margin benefit to be in 2020 versus 2019.
And then just secondly, on China, I think you were quoted on Reuters today saying that we can write off the Q1 China business and you can catch up later in the year. Where do you expect that catch-up to come from given a lot of your business is discretionary consumer spending?
Okay. I'll take the second one and you take the -- okay. As we said the crisis in China has also opportunities as China as a supplier is in some areas not existing anymore. We have built a very robust supply chain which can cope with this situation as it is at the moment totally. We have -- we are not depending on China as a supplier. So, we're making some of it up already.
Then in other areas we see a shift in consumption where we also have opportunity to make it up. And even in China as I said the first call of the year I didn't say we have to write it off totally, but at least there will be an impact no question about it.
The good news is and people always have to eat and drink and people always eat and drink. The question is only what do they eat and drink. And that is the big thing the big point. So, consumption patterns will change. But it's opportunities for those who are agile enough to see the new opportunities. And for sure, there will be new opportunities and that is what makes me very optimistic that we will cope with these challenges. We have proven that in the past. 2009 when the big crisis hit. When the big crisis hit and everyone was concerned.
First point is we had no idea where this will be will hit and will our industry be hit. It turned out we were hit. But I was surprised at the very end of 2009 at this crisis we won the prize Best of European Business award -- you recall it when we were in Berlin. I was surprised even after a tough start of the year, big mess, we even had to start with layoff program.
At the end of the year, we had 3.5% growth. And we're far away from that crisis. So, Geoff that's what we are saying. We see an impact at the moment but we're far away from using that as an excuse to redo our forecast and outlook for the year. We're far away from that at the moment. Okay?
Gross margin given that we have the ADF/IDF situation not even for a full quarter, I need to ask for a little bit of time. As I said by midyear, we will have the purchase price allocation in place and then the picture will be more clear.
In general ADF/IDF comes with in proportion higher production cost manufacturing cost when compared to the rest of the group. If I take that out from a legacy perspective, I would expect that the gross margin will slightly improve for the group legacy-wise.
I think there are no more questions on the phone. So, ladies and gentlemen, this brings us to the end of our 2019 results conference and conference call. Thank you very much for your patience. This was 90 minutes' call, the longest I think we ever had. So, maybe not traveling also has some advantages, but this is just a side remark. Good bye from Frankfurt and have a nice day. Bye-bye.