U.S. Markets close in 3 hrs 29 mins

Edited Transcript of SY1.DE earnings conference call or presentation 8-Aug-19 9:00am GMT

Half Year 2019 Symrise AG Earnings Call

Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Symrise AG earnings conference call or presentation Thursday, August 8, 2019 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Heinz-Jürgen Bertram

Symrise AG - CEO, Chairman of Executive Board & Labour Director

* Olaf Klinger

Symrise AG - CFO & Member of Executive Board

* Tobias Erfurth

Symrise AG - Head of Investor Relation

================================================================================

Conference Call Participants

================================================================================

* Alexandra Thrum

Morgan Stanley, Research Division - Equity Analyst

* Celine A.H. Pannuti

JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst

* Heidi Maria Vesterinen

Exane BNP Paribas, Research Division - Financial Analyst

* Isha Sharma

MainFirst Bank AG, Research Division - Analyst

* Katy Hutchinson

Davy, Research Division - Food Analyst

* Patrick Schmidt

Warburg Research GmbH - Analyst

* Patrick Rafaisz

UBS Investment Bank, Research Division - Director and Chemical Research Analyst

* Ranulf Orr

Redburn (Europe) Limited, Research Division - Research Analyst

* Thomas P Wrigglesworth

Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst

* Thomas Swoboda

Societe Generale Cross Asset Research - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. I am Francesca, your Chorus Call operator.

Welcome and thank you for joining the Symrise AG Half Year 2019 Results Conference Call. (Operator Instructions)

I now hand over to your host of today's call, Mr. Tobias Erfurth. Please go ahead.

--------------------------------------------------------------------------------

Tobias Erfurth, Symrise AG - Head of Investor Relation [2]

--------------------------------------------------------------------------------

Many thanks, Francesca. Good morning, and welcome to our analyst and investor call on the publication of our half year results for the period January to June 2019.

All corresponding materials, including the presentation, have been published on our website this morning.

A replay of this call will be available later today.

Today's call will be held by our CEO, Dr. Heinz-Jürgen Bertram; and our CFO, Olaf Klinger.

After their presentations, we are open for your questions.

With this, I hand over to our CEO, Dr. Heinz-Jürgen Bertram. You may begin.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [3]

--------------------------------------------------------------------------------

Thank you, Tobias. Good morning, and welcome, everyone. Thank you for joining our earnings call on the results of the first half of 2019.

Olaf and I will run you through the numbers and update you on the status of some key initiatives and objectives.

As usual, we will be happy to answer your questions following the short presentation.

Let us start with the big picture on Slide 3. All in all, we had a good first half year. We maintained our solid growth dynamics partly against strong prior year comparables.

Group-wide Symrise grew sales by 7.4% to almost EUR 1.7 billion. Our EBITDA has been adjusted for one-off effects in the connection with the planned acquisition of ADF/IDF.

Normalized EBITDA therefore came in at EUR 351 million.

Profitability remained at a high level with a normalized EBITDA margin of 20.8%. This is 0.7% higher than last year's figure.

Our normalized net income exceeded previous year's level by 7.8%.

Normalized earnings per share rose to EUR 1.14.

We specify our outlook. We now expect a normalized EBITDA margin of around 21% for the full year.

Despite the challenging market environment, Symrise again showed very good growth.

Slide 4. Please look at Slide 4, which provides the group sales bridge. We increased sales by 7.4% to around EUR 1.7 billion.

On an organic basis, sales grew by 6.2% to EUR 98 million.

The FX effect contributed about EUR 19 million to the top line. All segments benefited from strong customer demand and contributed to growth as you will see on the following charts.

Let's move to Chart 5, showing the performance of our Scent & Care business. The strong sales trend of the first 3 months continued in the second quarter. Sales in the first 6 months amounted to EUR 712 million. This represents a significant increase of 7.8%.

Organically, Scent & Care achieved strong sales growth of 6.3%. The main driver was the Fragrances business with an organic sales growth in the double-digit percentage range. The application areas Consumer Fragrances and Fine Fragrances showed a particularly good development.

Our comprehensive backward integration was once again a key success factor, providing secure access to renewable fragrance ingredients.

Please turn to Chart 6 for a sales breakdown of Flavor. The segment achieved sales growth of 5.4%, which is notable given the high comparables in the first half of 2018.

In total, segment sales reached EUR 637 million.

On an organic basis, Flavor grew sales by 3.7%. The segment generated double-digit sales growth in Asia-Pacific. Applications for Savory saw a very dynamic demand.

Chart 7 covers our third segment, Nutrition. Momentum remained very high. Nutrition increased sales organically by an excellent 11%; including FX, sales amounted to EUR 343 million.

A strong driver was Pet Food with very strong double-digit organic growth. Probi also achieved double-digit sales growth.

In the food application area, the Asia-Pacific and Latin America regions enjoyed an increasing demand.

Let's have a look at the regional sales development on Slide 8. The fastest growing region was again Latin America with a sales increase of 13.3%. It was followed by Asia-Pacific with a sales plus of 9.1%. North America delivered good growth with 5.0% and the EAME region grew by a solid 3.5%. The share of sales generated in emerging markets amounted to 44% with an overall sales growth in these markets of 11.2%.

Let me now hand over to Olaf for the detailed financials. Olaf?

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [4]

--------------------------------------------------------------------------------

Thank you, Heinz-Jürgen. Ladies and gentlemen, also a warm welcome from my side.

As usual, I will walk you through our financial performance in some more details.

But let me start with some quick comments on our top line. We are very satisfied with our 6.2% organic growth in H1 and 4.4% in Q2, especially in light of the tough prior year comparison.

As you will remember, we showed 6.6 -- 10.6% organic growth in Q2 2018, which by far was the strongest quarter last year. Therefore, we are pleased with our current growth profile, which is supported on a reported basis by FX tailwind of 1.2% during H1 compared to a 7.2% headwind for the same period last year.

In addition, let me give you a special comment on raw materials. We confirmed that for this year, we expect a lower increase in raw material costs compared to last year. (inaudible) numbers, now 3% to 4% after 5% last year. But we see a diverse picture between the segments.

Scent & Care still suffers and continues to face higher prices for chemical-based raw materials. In the natural space, we see a mixed picture. Flavor enjoys stability and food and vegetable-based raw material prices, but on a high level, while Nutrition it faces higher prices for yeast and sugar family.

To compensate for these effects, we have increased prices and we still increase prices primarily in the Scent & Care and nutrition segment.

In H1, we saw the following price volume mix.

On a group level, we saw a price volume split of roughly 50-50. While Scent & Care was most affected by raw materials, the H1 growth was mainly pricing.

Flavor in contrast had almost only volume and Nutrition showed roughly a 40-60 price volume split.

Following these opening remarks, let us turn to the earnings development on Slide 10.

Group EBITDA came in at EUR 351.3 million after EUR 317.1 million in the comparable period 2018.

Reported group EBITDA achieved EUR 341.7 million. The difference of EUR 9.6 million are costs related to the acquisition, financing and the preparation of the integration of ADF/IDF, which we carved out and normalized for better comparison.

Some words on the implementation of the new IFRS 16 leasing standard. I mentioned in March that we expect a positive EBITDA impact of around EUR 15 million for this year. With now full visibility, we had a positive impact of EUR 9.8 million on EBITDA in H1. So around EUR 20 million for the full year would be a good assumption.

Let me explain the IFRS 16 impact and the ADF/IDF transaction impact in some more detail.

The first amounts to EUR 9.8 million, the second to EUR 9.6 million.

Due to the very similar amounts, both margins, the reported EBITDA margin and the normalized margin without IFRS 16 impact, are both at 20.2%.

The normalized EBITDA margin including IFRS 16 impact reached 20.8%.

Talking about the margins of the segments. Both Scent & Care and Flavor increased their EBITDA, Nutrition increased its normalized EBITDA.

Scent & Care was still impacted by a tense raw material situation.

Segment EBITDA came in at EUR 140.2 million after EUR 127.9 million, an increase of 9.7%. The EBITDA margin amounted to a solid 19.7%, including IFRS 16 impact or 19.2% without, due to high raw material costs slightly below the 19.4% from H1 2018.

The Flavor segment increased EBITDA by 13.6% to EUR 144.3 million. The EBITDA margin was at 22.6%, including IFRS 16 impact at 22.1% without compared to 21% last year. The good improvement is linked to product mix and better raw material handling.

Nutrition EBITDA normalized came in at EUR 66.8 million. There's an EBITDA normalized margin of 19.5% including IFRS 16; 18.8% without and that compares to 20% last year.

The slight decline is mainly caused by a delayed ramp-up of the new factory in Georgia and specific higher raw material costs for Pet Food, which I mentioned earlier.

Please turn now to Slide 11 for our bottom line. Following slightly lower pressure from raw materials and improvement of hedging cost, gross profit increased by 9.7% to EUR 692.3 million after EUR 630.9 million last year.

Depreciation increased by EUR 14.5 million due to the new IFRS 16 impacted by EUR 8.8 million and of course higher CapEx investments, which we have done over the past couple of years.

The financial result decreased by EUR 7.4 million to minus EUR 27.3 million, primarily due to level of refinancing activity and the pre-financing of ADF/IDF as well as the interest component related to IFRS 16.

Net income grew to EUR 153.4 million and earnings per share normalized for ADF/IDF transaction-related costs rose to EUR 1.14 per share.

Our tax rate decreased to 27% and has therefore already positioned us in our new midterm guidance of a 26% to 28% tax rate.

Slide 12 shows the development of our new key performance indicator business free cash flow.

Business free cash flow in H1 was still impacted by increasing working capital but already achieved this EUR 131 million, an increase of EUR 60 million, which means a 14% improvement compared to H1 2018.

For the full year, we expect business free cash flow to be better than last year as the percentage of sales business free cash flow is expected to show a double-digit percentage figure.

Let's move to our cash flow analysis on Slide 13. Operating cash flow came down to EUR 141 million after EUR 151.3 million in H1 2018. The decline resulted mainly from higher inventories, the reduction of trade payables this year after an increase last year and higher income taxes paid.

Financing cash flow increased to EUR 947 million, which contains EUR 400 million from the capital increase in February, EUR 250 million from a new Schuldschein in March and EUR 500 million from a new Eurobond in May.

Please keep in mind that the cut-off date is June 30, so neither the cash outflow for ADF/IDF nor the payback for the old Eurobond of EUR 500 million is included.

Slide 14 represents our healthy balance sheet with an equity ratio of 37.8%.

Biggest changes were in cash, borrowings and equity, all significantly impacted by financing activities for ADF/IDF acquisition and the refinancing of our bond.

Please follow me on Slide 15 to our solid financing structure.

On the left-hand side, you see our maturity as of the end of June 2019. The 2019 bonds shown here expired in July this year and was already repaid at that time.

On the right-hand side, you see the traditional net debt leverage. The net debt including pension increased by EUR 113 million, which resulted from the EUR 400 million capital increase in February, minus higher leasing obligation liabilities of EUR 96 million from IFRS 16, dividend of EUR 123 million and higher pension provisions of EUR 93 million.

Despite the ongoing negative impacts from pension provisions following lower interest rates, our long-term net debt including pension leverage target remains unchanged with 2x to 2.5x and our clear goal here is to run Symrise with an investment-grade profile.

So all in all, I think we are on a very good way to deliver according to our strategy and our financial ambition, which we have presented to you during our Capital Markets Day early this year.

And with that, I would like to hand back to Heinz-Jürgen.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [5]

--------------------------------------------------------------------------------

Thank you, Olaf.

Let me spend a few more moments with some operational highlights on Chart 17. We are consistently executing on the 3 pillars of our strategy.

Let's start with our growth initiatives. Demand for Menthol remains high. We will therefore ramp up our production expansion in South Carolina in the U.S. in quarter 3.

Just last month, Flavor launched a production line for liquid flavors in the Russian town of Rogovo, south of Moscow.

In our headquarters in Holzminden, we continue investing in new technologies and capacity. In the first half year, we finalized an expansion project in Fragrances. We also opened a new development center for Cosmetic Ingredients in Holzminden to further build on our competencies.

Another initiative which I would like to share with you is Vanilla for Change. As you know, together with Unilever, we support vanilla farmers and young people.

For the first time, the Unilever ice-cream brand was -- is positioning our activities around vanilla directly at the point of sales, naming Symrise as a key contributor for truly sustainable vanilla products.

An important development in our portfolio has certainly been the announcement of the planned acquisition of ADF/IDF. The company is a U.S.-based producer of all-natural protein solutions, which will be a perfect fit to our existing food and Pet Food activities.

We expect to close this transaction in the second half of 2019.

Let's move on to Chart 18 with our updated outlook for the current fiscal year.

After a good first half of 2019, we're confident to continue growing faster than the relevant market. The annual global market growth is expected to be around 3% to 4%.

Based on our broad portfolio and our strong market positions, we aim for sales growth in the range of 5% to 7%, which is in line with our previous guidance.

We expect that the good growth dynamics will continue to a slightly higher profitability.

We specify our earnings outlook for the full year and raise the guidance for our normalized EBITDA margin to around 21%, also supplied by the effect from IFRS 16.

As Olaf explained, we have a strong focus on cash flow. Our objective is to achieve a double-digit business free cash flow in 2019.

Let me conclude with a brief outlook at our long-term targets. Chart 19 provides an overview of our objectives for the period until 2025.

We strive to remain among the fastest-growing players in our industry, therefore our targeted annual growth rate remains at 5% to 7%.

Our profitability is already at a high level, however, we see potential for further increase in the coming years.

In 2025, we want to achieve an EBITDA margin in the range of 20% to 23%. The key driver of this planned margin increase will be an advanced product mix.

Let me stress that we're confident to achieve our ambitious growth targets. Chart 20 provides you with the outline of our growth journey until 2025.

Our plan is to almost double our sales to between EUR 5.5 billion and EUR 6 billion. We intend to achieve this through, first, organic growth by further leveraging market opportunities for existing business. Secondly, incremental growth coming from new technologies and capacity expansion. And last but not least, through strategic complementary acquisitions.

Utilizing these 3 levers, we see ourselves well positioned to achieve our goals. Thank you.

--------------------------------------------------------------------------------

Tobias Erfurth, Symrise AG - Head of Investor Relation [6]

--------------------------------------------------------------------------------

Many thanks, Heinz-Jürgen and many thanks, Olaf.

Turning to questions and answers, we are now happy to take your questions on the call. (Operator Instructions) Many thanks and first question, please.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

The first question is from the line of Thomas Swoboda with Societe Generale.

--------------------------------------------------------------------------------

Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [2]

--------------------------------------------------------------------------------

Two questions, please. First on Flavor and Nutrition. A very nice development on margin in the first half but the -- yes, I see the top line growth slowed down a little bit. Could you please talk a little bit more on the drivers? And am I mistaken in believing that the stabilizing vanilla prices are playing a role in this development.

As for the second question, in Scent & Care, if we strip out the IFRS 16 effect on the margin, the margin in the first half was still a little bit under pressure. How should we think about H2? Is this slowing down in the rate of inflation an indication that your margins could catch up or should we still assume that pressure is not easing?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [3]

--------------------------------------------------------------------------------

Thomas, thanks for your questions. Let's start with question one on Flavor. I think one of the key levers, the vanilla price development was a big contributor to some swings, yes. Last year, the high price contributed to some extent to the significant growth and the prices being stabilizing has also this year a positive impact on the bottom line. But that's not all of it. To quote one of you, we think this is just a seasonal or a momentary effect. It is not a structural challenge that the growth of flavors has been a bit slower in these period of time. Overall, we believe our Flavor business continues to enjoy a strong organic growth momentum and we believe that the bottom line continues to develop very healthy. But yes, one point for some upswings and changes was certainly the vanilla price and the vanilla situation, yes.

Having said that, let's turn to Scent & Care. We saw a certain improvement of the margin. We have always indicated that the raw material crisis is a big contributor to the pressure on the margin, but we also have flagged that we were able to increase prices. We will have to continue to do so. The raw material situation in fragrance, in Scent & Care continues to be on a very high level but however, we believe that we're very well positioned with our strong backward integration to cope with this situation. Having said that, we believe we have good reason to be confident for the margin development going forward.

Thomas, I hope these answers satisfy you with your question, okay?

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question is from the line of Heidi Vesterinen with exam BNP Paribas.

--------------------------------------------------------------------------------

Heidi Maria Vesterinen, Exane BNP Paribas, Research Division - Financial Analyst [5]

--------------------------------------------------------------------------------

So on flavors again, could you talk about what you're seeing in North America, please? We're hearing from many peers that there was softness with multinationals. Do you see that as well? And what are you seeing with locals and regional?

And then the second question. Maybe if you could talk a bit more about Cosmetic Ingredients. What are you seeing there? Here some peers have talked about softness in North America and China recently. Are you seeing that and what is your outlook?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [6]

--------------------------------------------------------------------------------

Okay. Thanks, Heidi for the questions. I'll come to that -- yes, flavors in North America. There is a certain softness but I wouldn't say it's being structural. As we said, it's always some seasonality in our business. We saw some softness, but to your question we believe this is just temporarily, we have no reason to believe that this is a structural thing. So that's why we have not specifically flagged it. There is nothing we are concerned about. No reason. And there is no difference -- at least no significant difference between the development of multinational flavor customers or local and regional. We believe we -- what we've seen is a temporary small effect and I -- or we believe that there is nothing which we should flag at this time and nothing which we should be concerned of.

Having said that, Cosmetic Ingredients goes in the same direction. There is nothing where we would see a significant softness in a particular market. We believe we have set up this very healthy portfolio of products and we believe that there is nothing which we specifically should flag. If there would be, Heidi, we promise we would have told you upfront. There is nothing at this point in time where we should be concerned. We believe the numbers, which we showed is pretty much in line with the expectations. No significant positive and no significant negative surprise.

So it reflects the way we set up our business in flavors particularly and also in Cosmetic Ingredients, nothing to be concerned of. Okay?

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [7]

--------------------------------------------------------------------------------

If I may, Heidi, since you referred to China also, you've seen our strong growth in Asia-Pacific, [good orders in] China and we enjoy good growth in China. So from that perspective, on a good track in the region, which we expect to grow faster in the coming future.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

The next question is from the line of Alexandra Thrum from Morgan Stanley.

--------------------------------------------------------------------------------

Alexandra Thrum, Morgan Stanley, Research Division - Equity Analyst [9]

--------------------------------------------------------------------------------

Just one question on free cash flow. Could you talk us through the increase in working capital in the half and the impact on free cash flow? And as far as I understand, you recently added free cash flow to your management incentives. So how is that flowing through to your sales staff, are they also incentivized by free cash flow metrics or is it more around growth?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [10]

--------------------------------------------------------------------------------

Do you want to...

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [11]

--------------------------------------------------------------------------------

Yes, I'd like to take that. So working capital, if you look into the details, you will see that the impact is primarily on the payable side where we had some impact last year on the positive side, very positive impact, which we did not see this year again. So that is one part of the explanation. Nevertheless, it's a topic which we are addressing at the moment. So business free cash flow is a key indicator. It's on Board level implemented. It's also on the management level implemented as a KPI. So we have a balanced KPI environment coming from top line, EBITDA and also business free cash flow as an indicator. And clearly, there is a lot of focus on this topic.

Keep in mind, we are growing fast for a number of quarters by now. So of course, the working capital is growing with the top line. And of course, we have the ambition to continue and improve step-by-step the business free cash flow, therefore we gave the guidance for the end of the year that it will be double-digit. It was slightly at the high-end of single-digit at the end of last year. So optimistic that we will see this go in the right direction.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [12]

--------------------------------------------------------------------------------

Okay. Alexandra, does that answer your question?

--------------------------------------------------------------------------------

Alexandra Thrum, Morgan Stanley, Research Division - Equity Analyst [13]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Your next question is from the line of Ranulf Orr with Redburn.

--------------------------------------------------------------------------------

Ranulf Orr, Redburn (Europe) Limited, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

Firstly, just wondering if you could help with the price volume splits specifically for Q2 firstly.

And the second question is on the margin outlook. And does that assume any contribution in Q4 to earnings revenues from the ADF/IDF acquisition?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [16]

--------------------------------------------------------------------------------

So the second question, no. This is like-for-like as this -- the guidance, there is no potentially positive effect from ADF/IDF incurred, as you said, we are still working on the closure of this, which is ongoing on a constructive basis but as it's not done yet, we have not included that price volume. I would say, Olaf, you give some detailed numbers on this one.

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [17]

--------------------------------------------------------------------------------

Yes. So of course, this was one of the worries last year that we are not getting through with price increases. I think what we see at the moment is that in Q2, the price element was even stronger than in Q1, which is a clear indicator that we see these price increases coming through in different segments. As I said, in Scent & Care, very much price-driven environment and also Nutrition is increasing prices given the raw material pressure we have. So clear signal we are successful in getting through those price increases and we should see more of this in the second half of the year.

--------------------------------------------------------------------------------

Ranulf Orr, Redburn (Europe) Limited, Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

Okay. But no negative volume growth for any of the divisions in Q2?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [19]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [20]

--------------------------------------------------------------------------------

No.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

The next question is from the line of Patrick Rafaisz with UBS.

--------------------------------------------------------------------------------

Patrick Rafaisz, UBS Investment Bank, Research Division - Director and Chemical Research Analyst [22]

--------------------------------------------------------------------------------

The first one would be on ADF/IDF. You just mentioned that the talks continue in a constructive manner. Can you update us on the schedule where we stand with the likely closing? And potential worries maybe around FTC push backs?

And then the second question would be just on the Georgia delay in the start-up. Could you quantify that effect for the second quarter and should we assume that there will be more one-offs related to that happening in the third quarter before you actually start up the plant?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [23]

--------------------------------------------------------------------------------

Okay. Patrick, thanks for the questions. Very specific, not unexpected to be precise. I would say I take the ADF/IDF. Yes, we face a certain delay. Altogether, we have originally, beginning of the year, expected the closure by mid-of this year. We now expect the closure maybe of the deal by I would say end of third quarter. That's at the moment where we are.

The good news is no change in message. We expect a successful closure. We are currently in very constructive discussions with the Department of Justice. We are obliged not to tell anything about the details. But what we can say, it's very constructive and we expect the closure of the deal successfully around end of third quarter. So in your terms, it's a delay compared to our original calculations of 3 month, but nothing which fundamentally changes these things.

And that leaves to the second question, Georgia, Olaf, you want to take that one?

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [24]

--------------------------------------------------------------------------------

Yes, so as indicated, we have a slight delay in our ramp up, which is nothing dramatic. There's nothing which I would specify at the moment. When it comes to the normalization of transaction-related costs, yes, we will continue to do so.

I can't give you a number at the moment. You've seen EUR 9.6 million so far. There will be some more, of course, related to the time after closing when we do the integration but it's a little bit too early to say how the magnitude will be.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

The next question is from the line of Thomas Wrigglesworth with Citi.

--------------------------------------------------------------------------------

Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [26]

--------------------------------------------------------------------------------

Quick ones hopefully. The ongoing cost for the deal, could you give any guidance for how that's going to play out in the second half?

And then secondly, just on your guidance of the 5% to 7% organic growth for the full year. Should I interpret from the comments you've made so far that any softness in 2Q you expect to eventual recover in the third quarter?

And secondly on the growth that you've clearly highlighted, how much of that 5% to 7% organic growth do you think will come from the growth projects that you've cited including the Carolina facility ramping up?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [27]

--------------------------------------------------------------------------------

Okay. So Tom, as we said the ADF/IDF acquisition is not included in the reported figures and in the outlook so far. So that is -- as we cannot specify exactly when the closure of the deal finally will take place. I gave you my best guess at the moment but we felt it's fair enough to not include it in any of the outlook numbers. So that's purely what we reported here today without that.

Having said that, the organic growth, which you flagged is, yes, some of the initiatives, which we have started are expected to pay off in the second half of the year. Just let me mention one of the things, which are currently in the process of being started. That's the Menthol expansion, that we expect of course to contribute to some effect to the organic growth and that's why we're -- one of the reasons amongst others, why we are optimistic that our growth momentum will continue to be very healthy in the second half of the year.

It's -- of course we could try to peel the onion and say how much comes from this and that initiative because the one or the other is a bit delayed or is a bit earlier than expected. I would say we leave it with the message, organic growth will be within 5% to 7%, which is very healthy and we believe the good news is there is no takedown on the message that our growth momentum will remain healthy. Okay?

--------------------------------------------------------------------------------

Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [28]

--------------------------------------------------------------------------------

Okay. Just a quick follow-up. So I was looking for obviously the EUR 9.6 million that you incurred in deal costs. Is that something that we should assume each quarter going forwards until closing because obviously, there will be incremental transaction costs.

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [29]

--------------------------------------------------------------------------------

No. Of course, some of this EUR 9.6 million is related to the acquisition itself, which is behind us so we have signed the contract, all the legal work is done. Everything is done. Financing done. What we see at the moment is we are looking forward to the closing. So of course, only when we have seen the closing, the integration work will start. So we will not see the same magnitude of cost until the closing.

Afterwards, as I said in my previous statement, it's a little bit too early to specify the amount of transaction and integration-related costs. This will come, and once we have the better understanding, I will give you a number.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [30]

--------------------------------------------------------------------------------

But for here and today, the good and key message is we are confident that the acquisition will come. The message is it's slightly delayed as most of you have figured out anyway. And from the positive impact, which we expect from the acquisition, there is no change in the key message. Okay?

--------------------------------------------------------------------------------

Thomas P Wrigglesworth, Citigroup Inc, Research Division - Director and Chemicals and Basic Materials Analyst [31]

--------------------------------------------------------------------------------

Sure. Very clear.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

The next question is from Isha Sharma with MainFirst Bank.

--------------------------------------------------------------------------------

Isha Sharma, MainFirst Bank AG, Research Division - Analyst [33]

--------------------------------------------------------------------------------

Quickly -- most of them are answered actually. But quickly, on the CapEx project. So I just wanted to get an update on the new site in China; and Menthol, when should we expect the start up?

Also quickly on Flavor. In Q1, you said that you don't see -- in Q2, you don't really see this as a structural problem in the region, has it changed in the -- let's say in July?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [34]

--------------------------------------------------------------------------------

Okay. Isha, so I pick the first part of your questions, Olaf will have the second. So good to have you in the call by the way.

So we start with the CapEx project. As we said, the big ones, ADF/IDF we already had, it's -- according to now, it's 3 months late. The Menthol to be specific as far as we can see, it is 4 weeks late, which is nothing to be reported. So it's on track pretty much for a project of this magnitude, it's 4 weeks late. We're in the process of ramping it up and nothing negative to be surprised -- to be represent -- reported. So that's the good one.

On Cosmetic Ingredients, which we shared with you in the Capital Markets Day this year, it's also on track. We'll be pretty much ready by end of this year. That's the latest we know so far. So nothing negative to report.

And then China, greenfield, it is a bit delayed as well. But it's nothing because we screwed up or something like this, it's just some additional requests. Nothing negative but just some additional requests and requirements from Chinese officials, which we fulfill. Nothing negative to report in any of these projects with the exception of what I just said. The one or the other is a bit delayed or slightly delayed but the key message, positive message on all these projects remains positive and that's why in the previous question, we believe that some positive growth momentum for the remaining month of the year will come from the one or the other of these project. Okay?

Having said that, Olaf, the second part of the question.

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [35]

--------------------------------------------------------------------------------

Yes. So to your question about the Flavor Q2 situation. Yes, I think a lot was cut-off related, what we saw, so no change in our message here. The 5% to 7% ambition stands for the group and we have a very good portfolio to make that happen. Keep in mind that Flavor was extremely strong last year and I refer again to the high comp in this situation, which should not be forgotten.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [36]

--------------------------------------------------------------------------------

Okay. Hopefully, Isha, that answers your questions.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

The next question is from Celine Pannuti from JP Morgan.

--------------------------------------------------------------------------------

Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [38]

--------------------------------------------------------------------------------

I have 2 questions and a follow-up. So my first question is on pricing. Could you give us on Latin America what is the pricing contribution to the number you reported? And given what you gave, I calculated or estimated rather, that you had a pricing contribution of 4 in Q1, 3 in Q2, and a tougher comp in the second half of the year with -- is it fair to say that we will see maybe less pricing contribution in H2.

My second question is on your margin, the 21% new target. So I understand that you have the 60 basis point also impact from IFRS. Is there anything else within your business performance that we should take into account to see the change between 20% and 21%?

And then the follow-up I have, sorry it's on Flavor. I hear you on the tough comparative, however, in Q2, the comp in Flavor was as elevated as in Q1 and we saw almost a 600 basis point top line deceleration. So could you explain where is this coming from?

And in H2 you have slightly less tough comparative. Should we expect an acceleration from the H1 growth level, which is around 3.8%?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [39]

--------------------------------------------------------------------------------

Olaf, this was so much about numbers, so you know I have...

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [40]

--------------------------------------------------------------------------------

I heard at least 5 questions.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [41]

--------------------------------------------------------------------------------

Olaf, you deal with all the numbers.

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [42]

--------------------------------------------------------------------------------

Yes, so pricing contribution, as I said, we have a very mixed picture at the moment and of course the headwind in raw materials is specifically on the Scent & Care side and to a good part also in Nutrition, specifically Pet Food.

We are dealing with this through price increases and of course, this comes with a delay. We have price headwind for quite some time and the price increases have very much been put in place. So we will see the effects coming soon and therefore I can't confirm at the moment that pricing will be less important in the second half. That is the comment I can give you on this side.

When it comes to the margin situation, the 20% change to 21%, 0.5%, 0.6% of that is related to IFRS 16. And the delt is pretty much our impression of the better profitability for this year compared to the beginning of the year. So take that as a positive that we are optimistic about our performance for the remainder of the year.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [43]

--------------------------------------------------------------------------------

Latin America prices?

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [44]

--------------------------------------------------------------------------------

Exactly so Latin America, you see us with 13% organic growth in the region. The impact, which comes from hyperinflation, Argentina is excluded from this number. So we just wanted to give you a clear picture on this.

What we have seen also in connection with the raw material headwind is that we saw price increases also on the U.S. dollar side, which is not a given, and therefore a good indicator also that we are able to increase prices of course in a region like Latin America.

And last, I would state good volume growth in the region, coming especially also from Pet Food, which we have there 2 sides, 1 in Brazil, 1 in Argentina, nicely contributing to the growth in Latin America.

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [45]

--------------------------------------------------------------------------------

Okay? I hope that was to all the numbers in your questions, a little bit to deal with.

--------------------------------------------------------------------------------

Celine A.H. Pannuti, JP Morgan Chase & Co, Research Division - Head of European Food, Home & Personal Care and Tobacco and Senior Analyst [46]

--------------------------------------------------------------------------------

Yes, there was another part of the question, which was on Flavor to understand why there was such a deceleration despite the same comparative?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [47]

--------------------------------------------------------------------------------

Well, it was, as Olaf said -- I pick that up, it's just more seasonal effects and closing effects. So nothing to be concerned of. So it's just a monthly seasonal stuff to the largest extent. As I said, nothing to be concerned of. Okay?

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

The next question is from the line of Patrick Schmidt with Warburg Research.

--------------------------------------------------------------------------------

Patrick Schmidt, Warburg Research GmbH - Analyst [49]

--------------------------------------------------------------------------------

I have to annoy you once more with the ADF/IDF and what do you define as successful deal? So do you assume that 100% of the deal will be finalized or is there a chance that you might have to dispose part of the business as a requirement to fulfill the deal?

And a second question is when -- just follow-up on your Argentina and Brazil Pet Food volume. Why doesn't it help on the margin side then if the FX effect is or the hyperinflation is such dominant. And don't you export from there or what is your cost basis, and which currency is that predominately?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [50]

--------------------------------------------------------------------------------

First 2 -- thanks, Patrick, for the question. ADF/IDF, as I said, we believe we were specific enough in the context of what we can say today. We believe successful completion of the transaction by end of third quarter that includes that basically then we can start with the integration. The rest of this thing and the rest of the deal is currently part of the discussion with the Department of Justice what we believe we can close the deal without having to change anything under the successful assumptions, which we have shared with the market before.

That's where I would leave it. I don't want to interfere with the current discussions with the Department of Justice as we are -- by legally bound to these restrictions. And please, let's respect that we follow the American guidelines.

Having said that, Olaf, you want to deal with the second part?

--------------------------------------------------------------------------------

Olaf Klinger, Symrise AG - CFO & Member of Executive Board [51]

--------------------------------------------------------------------------------

Yes, Patrick, also from my side, the Pet Food environment showed a good performance. So the LatAm business is of course not the majority of the business which is still in the U.S. and Europe. I just refer to that as a nice contributor on the volume side for the region.

The Pet Food business is performing very well, growth-wise but also profitability-wise. The pressure we see, and you're probably referring to the Nutrition margin situation, is more on the food side. And we gave you the indication that this is related to the ramp-up situation in Georgia. Again, Pet Food is very positive contributor to us.

--------------------------------------------------------------------------------

Operator [52]

--------------------------------------------------------------------------------

The next question is from the line of Katy Hutchinson with Davy.

--------------------------------------------------------------------------------

Katy Hutchinson, Davy, Research Division - Food Analyst [53]

--------------------------------------------------------------------------------

Two questions from my side. Firstly, on the production delays in the DIANA foods new site in Georgia, you called that out as a headwind to margin for Nutrition. So how is this progressing so far into the second half? And how should we look at margin -- Nutrition margin for H2?

And then secondly, I see you called out Aqua in the statements. I know some of your peers are present in that space already, so given your position in Pet Food's -- and there with the ADF/IDF acquisition, I'd be interested to hear how you see that business developing and your plan for that segment going forward?

--------------------------------------------------------------------------------

Heinz-Jürgen Bertram, Symrise AG - CEO, Chairman of Executive Board & Labour Director [54]

--------------------------------------------------------------------------------

Okay. Yes, Katy, thanks. Yes, the delays in the Georgia plant caused some headwind. We believe that we're -- with most of it out of the woods, it's a big -- very big plant. So we expect not to see as much what we can say today as the same headwind in the second half of this. That's where I would leave it at the moment.

The second part in Aqua, that business as we always said, it's nice. It's a unique part in the Diana thing and it's developing very healthy but it's small so we didn't flag it specifically as we don't want to mislead anyone. It is not something which changes the financial performance in Diana significantly. But overall, the top line was healthy in the healthy double digits in the first half of the year. And there's no sign that this will change at the moment. So I would say at the moment, that's where I would leave it.

We had quite some start-up project problems with this business but it appears that this is now stabilized and it's developing very healthy. It's a nice contributor. Actually, Diana has made a third business unit, separate business unit, so it shows it's now on a solid, very healthy growth path in a very interesting indication, as we all know, aquafarming is an area which has a bright future ahead, and we're happy enough to be as one of the very few players being active in that area.

I hope that is enough of the information for Aqua at the moment. As soon as there is more to report, we'll specify it more. And I hope on the delays of the Georgia, that was specific enough. Okay?

--------------------------------------------------------------------------------

Tobias Erfurth, Symrise AG - Head of Investor Relation [55]

--------------------------------------------------------------------------------

Many thanks. Ladies and gentlemen, this brings to the end of our conference call. Thank you very much for your time and your interest in Symrise.

We are looking forward to seeing you at upcoming conferences or road shows. We will publish our trading update for the 9 months and third quarter on October 29.

Thank you very much. Goodbye and have a nice day.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

Ladies and gentlemen, your conference has now concluded and you may now disconnect your telephones. Thank you for joining and have a pleasant day. Goodbye.