Robertet Group 177 Management Report
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FINANCIAL PERFORMANCE REPORT 2019 FISCAL YEAR ENDING 31 DÉCEMBER 2019 SUMMARY MANAGEMENT REPORT 3 CORPORATE SOCIAL RESPONSIBILITY 16 CONSOLIDATED ACCOUNTS 75 CORPORATE ACCOUNTS 118 CORPORATE GOVERNANCE REPORT 141 CERTIFICATION BY THE PERSON RESPONSIBLE FOR THE ANNUAL FINANCIAL REPORT 2019 162 STATUTARY AUDITORS REPORT 164 ROBERTET GROUP 177 MANAGEMENT REPORT FISCAL YEAR ENDING 31 DECEMBER 2019 MANAGEMENT REPORT 2019 has been a year of intense commercial activity but also one of questioning, allowing us to better envisage future growth and the optimal framework preserving the best interests in the Long Term. Revenues were up to 554.3 million, an increase of 5.6% (3.3% at constant exchange rate) largely in line with initial objectives. Product gross margins improved slightly with partial normalization of supply chemicals for the Fragrance industry, which was in crisis last year. There have been positive developments in the three main divisions, especially in the Raw Materials Division, despite the sharp decline in its Aromatherapy sales. This once again confirms the soundness of Robertet's strategy, making the most of its undeniable expertise in this type of product. This is inherited from its history associated with R&D and a sustainable supply policy that make the Group the undisputed leader in this market. This contributes to the natural differentiation of all Robertet's offers in Fragrances and Flavors. The Health and Beauty Division, which now accounts for more than 3% of Group sales, benefits fully from this accumulated knowledge, combined with successfully targeted acquisitions. The year 2019 was also marked by the Group's acceleration in its range of organic products. SAPAD is the main vector, guaranteeing the credibility of the Group around its strategic and perfectly concrete approach to CSR, which has been the subject of a reinforcement of its resources on the Grasse site focusing on the search for new supply channels, a guarantee of long-term collaboration with major customers. Added to this is the investment in Sirius, a company specialising in organic essential oils, whose distribution is rather atypical with end users such as pharmacists' groups. This operation was carried out under reasonable conditions preserving the originality of this offer and the historical management of the company. This all contributes to shaping the Group as a very homogenous whole. Thus, the reaffirmation of One Robertet's strategy confirms the real complementarity of all the Robertet's activities. Health and Beauty is the main beneficiary of this undertaken approach. For 2019, by Division, in addition to Raw Materials up 1.9%, the Compositions division is up 4.4% and Food Flavors up 9.2%. The Raw Materials Division represents 27% of the Group's consolidated sales, Fragrances 36% and Aromas 35%. By geographical area, the United States accounts for 35% of the total, Europe 34% and Asia 18%. Next come South America 8%, Africa 4%. It should be noted that growth in the first half of 2019 had been stronger and then slowed down, in line with Group Management's forecasts. The turnover is spread over a wide range of customers, which is considered a strength for the Group. The first customer represents 4.8% of sales, the second 3% the third and the fourth 2.4% each. The top 20 customers account for 35.4% of sales and the top 50 customers account for half of sales. ROBERTET 2019 4 In terms of results, European companies contributed 64% of consolidated profits and the United States 30%, their evolution is relatively homogeneous. In October 2019, a renowned competitor, Firmenich, bid for a stake in Robertet's capital, (for 22% of the capital and 11% in voting rights) claiming a long-term vision. A few months later, Givaudan joined in to take 4.7% of the share capital (3% in voting rights). We are much honored by the interest of these undisputed leaders in the profession, validating, as recognized professionals, Robertet's position and performance. On the other hand, we are convinced that for Robertet's long-term well being and future growth, its independence is an essential and unavoidable element to preserve its original substance. We have therefore, through various communications, reaffirmed that deep conviction. The Maubert Family holds, mainly through its family holding company, Maubert SA, plus 67% of Robertet's voting rights. The strategy of the Maubert family, which has been running the company for five generations, has therefore been firmly reaffirmed, wishing to remain at the helm of the Group and not give in to financial sirens. Since the beginning of 2020, Robertet SA has operationally merged its subsidiary Charabot into its own. Charabot was 100% controlled by Robertet for more than 10 years and was 100% consolidated. So it's not a big change. However, this merger will bring more consistency in the organizational structure and clarity in its management. Significant synergies will undoubtedly result. They will give us more resources to develop new markets, new products and strengthen our position in the field of natural products. In addition, the balance sheet of the Grasse part of the Group is reinforced by the fact that Charabot was debt-free, benefiting from a very positive cash position and valuable fixed assets. These very favorable elements on the Group's fundamentals cannot conceal a dramatic and major event of the Covid-19 Pandemic affecting the whole world, first of all on a human level, but also on an economic level. As soon as this pandemic and its first consequences were confirmed, the Group's Management reacted without delay, deliberately prioritizing the safety of its personnel. Security measures were put in place without delay and the Grasse sites were reorganized to minimize points of contact between employees. The aim was to make the barrier measures more effective in preventing the virus from spreading. This has also been achieved through the widespread development of telecommuting, the cessation of all business travel, the suspension of staff while avoiding, for the time being, technical unemployment measures but continuing to maintain salaries and preserve the Group's workforce. The priority was also to preserve the working system and to maintain in a fully efficient way the operational chain in France and abroad. This requires a high level of employee confidence in decisions made in an extremely difficult environment. So far, there have been no major failures or delays in the supply chain. To give you an idea, at the Robertet Grasse site, out of 850 employees, 425 work regularly in the factories mainly ensuring production, purchasing, supply, quality control, logistics and shipping. The result is a strong peformance, a not insignificant turnover, ensuring the respect of commitments to customers but also assuming our civic commitment to the community. ROBERTET 2019 5 Our line of business is indeed primary in supplying products that meet the essential needs of the population (Food, Sanitary.) It is strongly hoped that all these efforts will lead to the fastest possible recovery. However, at this stage, any assessment or forecast is illusory and we should anticipate that there could be a very negative impact on the financial year 2020 in terms of sales and results. LEADING INDICATORS in thousands of euros 2019 2018 Variation Sales revenue 554 273 524 901 5,60% Gross operating profit (EBITDA) 94 324 85 822 9,91% Current income 73 044 68 848 6,09% NET INCOME (Group share) 53 045 51 751 2,50% Shareholders' equity (Group share) 456 108 409 770 Net current cash * 15 293 -1 170 Current assets - Current liabilities 315 330 304 215 * Net cash position = cash and cash equivalents + other current financial assets - financial liabilities INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES ORGANIZATION The reduction in the number of hierarchical levels, the existence of short decision-making circuits with a direct reporting of operational levels to Executive Management, combined with corporate values widely disseminated throughout all Group entities and a commitment to continuous improvement of operational processes, ensure a strong and reliable control environment. Control activities are carried out at all hierarchical and functional levels of the Group. IInternal control is therefore organized with a view to contributing in particular to ensuring that the parent company and consolidated financial statements reflect in a fair and objective manner the Group's financial position and provide a reasonable assessment of any risks of any kind that it may face that could affect the achievement of the objectives assigned to internal control. OBJECTIVES AND MEANS The defined policy aims to meet the legal requirements and to ensure, as much as possible, a homogeneous, systematic and formalized monitoring of the risks incurred. This approach associates operational managers without burdening the Group's internal operating methods. Risk monitoring is part of reporting (security, social and environmental, accounting and financial). ROBERTET 2019 6 In order to : • Identify the main sources of identifiable risks, internal or external. • Evaluate the criticality of these risks on a qualitative scale, taking into account their potential impact, the probability of occurrence and the degree of control of the various events that constitute them. With regard to the processes for preparing published financial information, specific procedures are implemented, mainly including: • A standardized system of financial reporting and consolidation that enables the preparation of financial statements in accordance with the Group's principles. • A formalized process for reporting and analyzing other information published in the Group's reference documents. The responsibility for implementing these procedures rests with the Finance Departments of each of the Group's entities. The General Management and the Group Finance Department regularly visit the operating subsidiaries to monitor performance,procedures, audits of specific topics, set up or folow action plan. RISK FACTORS The audit committee has put in place a mapping of potential risks incurred by the company which is reviewed each year.