Profit falls for the first time in twelve years

Dusseldorf The German fragrance and aroma manufacturer Symrise is suspected of having entered into illegal price agreements with its three major competitors. Both the EU antitrust authorities and the Swiss Competition Commission (Comco) have initiated investigations. In addition to the Dax group, the two Swiss companies Firmenich and Givaudan and the US group International Flavors & Fragrances (IFF) are also affected.

Symrise confirmed to the Handelsblatt that there had been searches at the company on Tuesday. You cooperate with the authorities. The four major fragrance and aroma manufacturers form an oligopoly and together control over 60 percent of the 39 billion euro global market. With a market share of ten percent, Symrise is number three in the industry.

Consumers come into contact with manufacturers’ products 20 to 30 times a day. These supply all major food and cosmetics manufacturers such as Nestlé, Beiersdorf and L’Oréal. Fragrances and flavorings ensure, for example, that toothpaste tastes like mint or ice cream like vanilla or are used in creams or detergents.

The Swiss authority Weko said there was a suspicion that the companies had coordinated their pricing policy, prevented their smaller competitors from supplying certain customers and restricted the production of certain fragrances. A spokesman declined to give further details when asked. The presumption of innocence applies until the end of the investigation.

The allegations were not well received on the stock exchange: in the morning, the Symrise papers lost up to four percent and were the clear losers in the Dax. Givaudan shares also fell by a good three percent in Switzerland. Firmenich is not listed on the stock exchange.

After twelve years, Symrise is no longer increasing its profits

Symrise was not only in the focus of investors on Wednesday because of possible price agreements. The company’s success story also got a small dampener because of the presented balance sheet. After twelve years of increasing profits, CEO Heinz-Jürgen Bertram had to present a lower result. Unadjusted earnings before interest, taxes, depreciation and amortization (Ebitda) fell last year by two percent to 795.4 million euros.

The main reason for this was a write-down of EUR 126 million on the investment in Swedencare, a manufacturer of nutritional supplements for pets. Symrise had to announce this in a profit warning in mid-January. The Dax group holds almost 30 percent of the Swedish biotech company. Without the value adjustment, profit would have increased by 13.3 percent to 921.5 million euros.

Fragrances and flavors from Symrise

The producer of flavors and fragrances was promoted to the Dax in 2021.

(Photo: Symrise)

Nevertheless, Symrise’s profitability fell short of expectations in the past year. The Ebitda margin is 17.2 percent due to the depreciation. Even without this, the return would have been 20 percent – 1.3 points less than in the previous year. Like its competitors, Symrise is suffering from rising costs for materials, energy and raw materials and from subdued consumer demand.

economic miracle of the 2010s

Symrise is considered the economic miracle of the 2010s: Since 2006, sales have grown by almost eight percent a year on average. Even during the pandemic, the group was highly profitable with a margin of around 20 percent. In autumn 2021, the company was promoted to the leading index Dax.

The architect of the success is CEO Bertram. The son of a farmer worked his way up to the top of the group after studying chemistry. He has been CEO of Symrise since August 2019. “2022 was another very successful fiscal year for Symrise. We continued to grow profitably despite inflation and volatility in our core markets,” he said on Wednesday. Symrise was able to increase its sales organically by 11.4 percent to 4.6 billion euros.

Symrise boss Heinz-Jürgen Bertram

“Despite inflation and volatility in our core markets, we continued to grow profitably.”

(Photo: Symrise)

Industry experts are more skeptical about the balance sheet. “The numbers are certainly a temporary setback after years of success,” said analyst Andreas von Arx from Baader Bank to the Handelsblatt. The write-off is “of course a scratch on the CEO’s image,” according to the expert.

>> Read more: Economic miracle of the 2010s: Why the unknown Dax newcomer Symrise has been growing for years

In fact, Bertram has had the right touch with numerous acquisitions in the past and has profitably integrated the companies into Symrise. The most daring and successful acquisition of 1.3 billion euros in 2014 was that of Diana, a leading French manufacturer of flavors primarily for the pet food industry. Symrise supplies companies like Mars, which are also large animal feed producers.

The aroma business with pet food has high margins and is growing by ten percent every year because many consumers do not save on their four-legged friends. In 2025, Bertram wants to turn over 1.5 billion euros in this area, currently it is 600 million euros.

Stock is under pressure

The write-down of Swedencare also put the share under pressure, it lost six percent after the profit warning and has not been able to recover to this day. In any case, the value of the Symrise papers is declining. At the end of 2021, the share was still trading at a good 130 euros, the current price is still around 92 euros. The profit warning has depressed investor confidence, says Baader Bank analyst von Arx as one reason for the weakening course.

Nevertheless, Bertram is sticking to his medium-term goals, the manager confirmed on Wednesday morning. The group wants to increase its sales by five to seven percent annually and thus grow faster than the market. By the end of the 2025 fiscal year, Symrise is aiming for sales of 5.5 to 6 billion euros and an Ebitda margin in the range of 20 to 23 percent. This year, Symrise plans to increase its dividend for the 13th time in a row.

Arx analyst considers Symrise’s goals to be realistic and achievable. The depreciation is a one-time effect, Symrise will be able to push through price increases. Symrise now generates a third of its sales and thus more than the competition outside the traditional flavor and fragrance sector, namely in high-margin areas such as pet food, health or personal care cosmetics. This allows Symrise to grow faster than its competitors.

More: Perfume via AI goes into series production: How the computer learns to smell

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