ROBERTET T WO THOUSAND AND FOUR
ROBERTET
T WO THOUSAND AND FOUR ROBERTET move faster want to W e certainly . During 2004, we had to contend with a lack of any real growth in our market and the implications of an unfavourable euro/dollar exchange rate. These two factors, which significantly depressed our sales, had both been taken into account in our forecasts. Thanks to its balanced geographical sales mix and the quality of its fundamentals, Robertet performed reasonably well and posted stronger-than-expected results. Our sales increased by 6% at constant exchange rates, while our net margin remained broadly unchanged. The same trends have continued into the early part of 2005, and we will need to adopt an aggressive approach to post comparable results this year. To help us, we have some key assets, including our undisputed know-how in natural products, our strong positions in the world’s number one market, i.e. the US, and our longstanding market presence, which make our long-term plans credible. With this goal in mind, we have launched initiatives in Asia, where our positions are still not strong enough. Initial results, especially those in China, have been encouraging. We are also continuing to invest in savoury flavors, which represent a vital addition to our range of flavoring products. Other more closely targeted initiatives, such as in oral care, are currently being set in motion. Our investments in these products and markets represent the cornerstone of our future expansion and should pave the way for steady organic growth. We certainly want to move faster. We are definitely not happy with our sales performance, which has not shown any real growth for three years. Granted, our financial position is very impressive, but that is not an end in itself, and we intend to use it to seize acquisition opportunities in our core business, while making sure not to overpay. I firmly believe that we will succeed by continuing to pursue this strategy thanks to the vitality and expertise of our teams. On behalf of the Executive Board, I would like to pass this message to our customers, shareholders and employees, and I thank them for the trust they have placed in us.
Philippe MAUBERT SALES 203,9 EUR mil lions n e t P R OFIT 14 EUR millions MANAGEMENT REPORT
The Executive Board was deliberately cautious in its forecasts for 2004 given the competitive pressures in our industry, as well as the dull environment and the difficulties facing businesses operating in the euro zone. Actual performance during 2004 bore out this analysis, and its implications were even stronger than expected. A similar trend has carried forward into the early part of 2005. In our view, a two-speed economy has taken shape, with depressed consumer spending and a business world crippled by the ever more restrictive policies being pursued in France and the rest of Europe, on the one hand, and an increasingly dynamic dollar zone with genuine growth potential, on the other hand. Given this backdrop, Robertet’s top-line performance was relatively encouraging. It posted sales of s 203.8 million, representing a slight increase on 2003. At constant exchange rates, reflecting the Group’s actual volume trends, sales increased by 6%, ahead of initial forecasts. Consolidating the market share gains achieved in previous years, Robertet’s 2004 sales lay at the top end of the range recorded by the principal international players in the sector.
This decent top-line performance was backed up by an almost unchanged net margin.
Trends by product category were as follows: Robertet’s proud tradition in natural aromatic flavors constitutes its
brand image and represents the key factor setting the Company apart
from its competitors.
Leveraging its practically ancestral and intimate knowledge of these
products, the Company has consistently invested in new development,
analytical techniques, botanical research and manufacturing - in many
cases in the very places where its products are harvested.
As a result, it is able to offer its customers a unique range of raw
materials with innovative properties that are highly effective in flavors
and fragrance designs.
We firmly believe that consumers want natural products and that this
represents a long-term trend. We hope that decisions by European
legislators will be more attuned to this legitimate concern. Rather
than being restrictive and thus impairing the competitiveness of
European businesses, we hope that they will provide an incentive for
products, which have been historically used.
Robertet’s Natural Products division posted a decent 2004 performance,
with sales growth of 2.1% in euro terms, thanks in part to significant
market share gains. n atur a l ur a l Divisional sales, which advanced by over 10% at constant exchange
rates, masked major differences from region to region.
On the positive side, sales posted a spectacular recovery in the US,
growing by 28% in dollar terms thanks to substantial new business
in fine fragrances and the successful efforts to strengthen our
positions with strategic international customers. This good
performance was driven by the coordination of our efforts across the
principal business regions as part of our increasingly global
relationships with our customers.
On the negative side, the chronic lack of dynamism in the European
market led to a slight decrease in our sales in the region, with
European manufacturers apparently focusing to a greater extent on
cost-cutting to reach their financial targets rather than on expansion.
Given the current situation, the Company needs to stay on the
offensive side. Robertet is launching a number of ground-breaking
initiatives predicated primarily on its specialisation in natural
products and is working hard to stay on or to gain access to the core
supplier lists of its target customers. FRAGRANCES RANCES
FLAV ORS
The Flavor Division is undergoing deep changes auguring well for the future, with an emphasis on pursuing a policy of strengthening its ability to innovate and to offer different solutions to its customers. Divisional results for 2004 were mixed, with further brisk growth in the US and a clear slowdown in sales in Europe owing to weaker consumer spending and the highly volatile trends in the vanilla bean market, one of the principal ingredients used to flavor dairy products. Investment continued in savoury flavors, with specific operating budgets being set aside. As a result, a team of specialists has been formed to diversify the activities of the savoury unit in Belgium towards more sophisticated flavors, while capitalising on the synergies with the Flavor Division’s resources. The first significant results can reasonably be expected from 2006. Other developments are in progress, and funds have been allocated to increasing Robertet’s share of flavors in the oral care market. The end of 2004 saw the departure of Guy Cassiera, who retired as head of the Flavor Division. He headed up the division for over two decades, and
Robertet owes him a great deal for this vital diversification. He will continue to provide Robertet with the benefit of his expertise as an Advisor to the Chairman. Oliver Maubert has been appointed as his replacement, and his experience of the US market will be particularly valuable. He will be assisted by Jean-Daniel Dor, who was previously Director of Development, who has taken over as Director of Operations. V ORS
The Group’s companies posted a mixed set of results.
ROBERTET GRASSE
The parent company, which owns all of the Group’s subsidiaries and accounts for around 50% of its production activities, posted a decline in its sales during 2004, while keeping up its margins at a very decent level. Its 2004 sales declined to s 95 million from s 100.2 million in 2003. A breakdown by product category shows that natural product sales increased by 3%, while fragrance sales were down 5% and flavors 10% particularly due to the instability in the vanilla market. Although its financial performance declined, it remained decent, with gross operating profit holding up at s 12.7 million or 13.5% of sales, and profit before tax and exceptional items reaching almost s 10 million. Robertet Grasse’s financial position is very sound, since it has net cash of over s 5 million, giving it scope to pursue acquisition-led or organic growth.
EUROPEAN SUBSIDIARIES
Robertet UK broadly posted positive results, especially in fragrances in spite of the trend towards the relocation of manufacturing facilities to Eastern Europe or even China. After several years of expansion, Robertet Spain posted a contraction in its sales, although the quality of its performance is not in doubt.
Robertet Switzerland posted tangible sales growth in stagnant economic conditions.
Robertet Italy recorded significant growth, while Robertet Germany posted encouraging results again thanks to the appointment of a young and highly effective team.
Robertet Savoury, the savoury flavors company based in Belgium, posted sales of s 9.7 million, down slightly as a result of the scheduled discontinuation of a major contract. This said, its business base remains robust and profitable thanks to the numerous improvements made over the past few years to its production and management. Investment is planned during 2005-06 to contend with the ramp-up in its new range of savoury flavors, which is vital for its development. These investments will be self-financed using the company’s own cash flow.
U S A
Business trends in the US were positive across all three operating divisions, with sales breaking above the $100 million mark for the first time and thus surging well ahead of forecasts.
Robertet Inc., which coordinates the Group’s international natural products activities and distributes them in the US, posted sales growth during 2004, building on the strong expansion seen in 2003. Given the general backdrop, this represented a firm showing. Robertet Fragrances, which had a tough year in 2003, prompting it to post a loss and to implement a savings plan and organisational and personnel changes, posted a spectacular recovery owing mainly to the positions it has established with certain international customers, which are strategically important for the Group, and to tangible gains in fine fragrances. Net sales grew by 28% to over $25 million. Its financial performance improved, and the company posted a significant operating profit in 2004.
Robertet Flavors again exceeded its initial targets. Its sales rose by over 16% to ¤60.5 million, although this figure included some business generating slimmer margins. This growth far stronger than that of the market at large was driven by its recognised creativity and expertise in natural flavors and its first-class positions with its customers, particularly in beverages. An investment program of around $25 million is still being studied, with a view to expanding its production capacities.
SOUTH AND LATIN AMERICA
Robertet has been present for several decades in these countries through representative offices and subsidiaries. Given the region’s importance, it intends to step up its development there in both flavors and fragrances.
In 2004, its three subsidiaries posted broadly positive business trends.
Robertet Mexico strengthened its claim to being one of the Group’s key assets. It has posted steady growth for more than ten years in a country where many of the world’s leading companies are established. Its 2004 sales were up 15%, while it maintained strict financial discipline. Investment to increase its production capacity is now in progress.
Robertet Brazil has made substantial progress towards better meeting its customers’ needs. These efforts will be continued and stepped up, as the Group certainly intends to invest further in Brazil. The subsidiary’s 2004 sales were relatively firm, even though its margins eroded.
Robertet Argentina is emerging from a serious economic crisis that hit the country, prompting competitors affiliate facilities to be shut down. This said, the company preserved its strength and posted modest growth again.
ASIA
Overall, Robertet’s positions in Asia, which is the main area of economic expansion, are not strong enough. It is up to us to build up our positions significantly in the market-they need to generate 15% of the Group’s sales as rapidly as possible.
Robertet has operated in Japan for more than 50 years, and its unit was traditionally one of its top sellers of high-end products. The Japanese subsidiary has now diversified into flavors, but the Japanese market is not expanding, and so growth is relatively slow.
We have two representative offices in south-east Asia. The Vietnam office is very active and has produced first-class results, while the Singapore office, which specialises in flavors, covers the region’s other countries and has delivered steady growth in a highly competitive environment.
Robertet India operates in the fragrance market. We have high hopes regarding the market’s potential, which needs to be prospected regularly. Our results there should only be assessed from a long-term perspective.
In China, Robertet owns a high-quality manufacturing and service unit supplying both the flavor and fragrance markets. The progress achieved by our team augurs very well, and the first tangible results have already been recorded. China is set to become the third main pillar of Robertet’s business, serving both independent Chinese customers and international groups with a strong presence there. If we are able to seize the right opportunities, China will undoubtedly deliver the most spectacular growth of all our units.
CONSOLIDATED RESULTS
Currency fluctuations again had a negative impact on our sales and earnings performance during 2004. Trends in the key income statement indicators were relatively uniform, with sales up 0.8%, value-added stable, gross operating profit (EBITDA) down 2%, but still representing 15% of sales, and net profit down by less than 1%. A geographical analysis shows that average US margins, which have traditionally tended to be lower than in Europe, clearly made up ground and were on a par with European margins in 2004. During the year, Europe contributed 52% of the Group’s net profit, while the US contributed more than 36%. The consolidated balance sheet posted further improvement, with the Group ending the year with significant net cash, which will certainly facilitate our expansion policy. Taking these factors into account, the Executive Board has proposed a dividend of s 1.70 per share, the same level as in 2003, at the Ordinary General Meeting.
2005 FORECASTS
Prevailing trends in the industry and the genuine recession in Europe do not augur well for the future, especially when combined with the euro/dollar exchange rate, which remains a drag on European companies and has seriously distorted the competitive landscape. Even so, Robertet has a number of key strengths, which should enable it to grow at a faster pace than the sector at large, including its positions in the US and the remarkable success of the Flavor Division, the quality of its partnership with major groups and its strong presence in natural products.
It is extremely hard to make forecasts for 2005, but as things currently stand it seems reasonable to expect stable sales at constant exchange rates and a slight dip in the net margin. KEY FINANCIAL DATA 1150 1150 94,00 1050 1040 85,45 960 76,00 68,00 63,75 2003 2004 2002 2001 2000 2003 2004 2002 2001 2000
Share value at 31 december (euros) Staff Robertet group
S 22,00 6,9 9 % 30,60 14,20 % 29,90 6,8 6 % 13,0 1 % 19,80 2003 2004 2003 2003 2004 2004 2003 2004
Profit over sales Profit over equities EBITDA Cash flow (EUR millions) (EUR millions) 1 , 7 0 1 , 7 0 2 0 7 , 4 1 4 , 0 1 4 , 0 2 0 3 , 9 2 0 3 , 1 2 0 , 1 1 3 , 4 0 1 , 5 1 2 , 4 0 1 , 4 0 1 7 8 , 3 0 1 0 , 9 1 , 2 0 2 0 3 2 0 4 2 0 2 0 3 2 0 1 2 0 4 2 0 2 0 1 2 0 2 0 3 2 0 2 0 4 2 0 2 0 1 2 0
Sales Net profit (EUR millions) Dividends (euros) (consolidated turnover in EUR millions)
15 % Raw materials France 16 %
34 % Fragrances International 84 %
51 % Flavors
Segmental analysis of sales Geographical analysis of sales
North America 39% • • 39% Europe 8% Middle East, Africa 4% • • Asia Latin America 10% •
Segmental analysis of sales in the world Supervisory board M. Jean Maubert, Président M. Joseph Rigucci M. Xavier Givaudan Mme Gilberte Lombard M. Dlawar Barakat M. Alain Moynot Mme Catherine Canovas M. Robert Nicol Mme Isabelle de la Celle M. Peter Lombardo
Executive board M. Philippe Maubert, Président M. Christophe Maubert M. Lionel Picolet M. Olivier Maubert
Auditors Deloitte Touche Tohmatsu M. Roger Novel CHAIRMAN OF THE SUPERVISORY BOARD'S REPORT
The report of the Executive Board highlights the external factors that again dragged down our sales performance during 2004, which included depressed conditions in Europe, with a strong euro penalising exporting companies, as well as groups consolidating their operations in the dollar zone, as is our case. On the other hand, we posted further quick growth in the US, but in a currency whose exchange rate against the euro continued to depreciate. Robertet provides a perfect example of this squeeze effect. For instance, our three US subsidiaries, which contributed 40% of our sales, posted impressive growth of 17% in their billings, but two-thirds of this increase disappeared when translated into euros in 2004 alone. The reason we are highlighting this deflationary impact in the short term is to emphasise that our solid positions in the US, the world’s largest market, remain a key asset for our Group from a medium - to long-term perspective. With consolidation and restructuring continuing across our industry, we share the Executive Board’s view that acquisitions are also needed to inject fresh impetus into the Group’s pace of expansion. They should be regarded as a strategic priority that the Company’s good financial health allows, and the Supervisory Board will support any such initiative. We consider the proposal of paying out a stable dividend to be wise following last year’s increase, with a view to mobilising our investment capabilities, Our share price continued to perform well in 2004, before experiencing much stronger, if not excessive demand in early 2005. The positive impact of Robertet’s inclusion in Euronext Mid-Small Caps 190 index, which gave mid cap stocks a boost, was certainly a contributing factor. Secondly, we saw strong demand from institutional investors who considered that Robertet shares were still undervalued based on current criteria, such as the Company’s long-term prospects. We ask you to vote in favour of the resolutions submitted for the approval of shareholders at this General Meeting.
Jean MAUBERT ROBERTET
CONSOLIDATED FINANCIAL STATEMENTS
Year ended 31 december 2004 CONSOLIDATED INCOME STATEMENT For the year ended 31 december 2004 (in thousands of euros)
NOTE 2004 2003
SALES 13 203 868 202 102
Other operating revenus 2 267 100
TOTAL OPERATING REVENUS 206 135 202 202
Purchases and change in inventories (84 967) (80 319) External charges (35 900) (36 493)
VALUE ADDED 85 267 85 390
Personnel expenses (50 974) (50 788) Taxes other than on income (4 425) (3 992)
GROSS OPERATING PROFIT 29 868 30 610
Depreciation, amortisation and provisions 14 (5 678) (5 283)
OPERATING PROFIT 24 189 25 327
Net financial income/(expense) 15 ( 924) (1 397)
PRE-TAX PROFIT BEFORE EXCEPTIONALS 13 23 266 23 929
Exceptional items 16 675 622 Corporate income tax 17 (8 901) (9 258)
NET PROFIT BEFORE MINORITY INTERESTS AND GOODWILL AMORTISATION 15 040 15 294
Goodwill amortisation 2 (1 054) (1 186)
CONSOLIDATED NET PROFIT 13 13 987 14 108
MINORITY INTERESTS 6 ( 9) ATTRIBUTABLE NET PROFIT 13 981 14 117
EARNINGS PER SHARE 6,40 6,60
25 CONSOLIDATED BALANCE SHEET
For the year ended 31 december 2004
(in thousands of euros)
ASSETS NOTE NET 2004 NET 2003
GOODWILL 2 14 648 15 701
INTANGIBLE ASSETS 38 33
Other 38 33
PROPERTY, PLANT & EQUIPMENT 3 34 842 36 509
Land 5 380 5 580
Buildings 16 969 17 796
Plant & equipment 9 654 10 303
Other 2 839 2 829
FINANCIAL FIXED ASSETS 4 1 826 1 659
Investments carried at cost 654 654
Other 1 172 1 005
CURRENT ASSETS 111 063 105 627
Inventories 5 32 910 34 859
Trade receivable 6 35 933 36 004
Accrued income and prepayment 7 5 598 4 399
Deferred taxes 17 1 716 1 695
Marketable securities 19 13 972 13 236
Cash and equivalents 20 934 15 434
TOTAL ASSETS 162 415 159 529
26 CONSOLIDATED BALANCE SHEET
For the year ended 31 december 2004
(in thousands of euros)
LIABILITIES AND SHAREHOLDERS’ EQUITY NOTE 2004 2003
SHAREHOLDERS’ EQUITY 107 505 99 570
Share capital 5 460 5 345
Additionnal paid-in capital 8 443 6 967
Consolidated retained earnings 93 521 87 101
SHAREHOLDERS’ EQUITY (GROUP SHARE) 107 424 99 413
MINORITY INTERESTS 8 82 157
PROVISIONS FOR LIABILITIES AND CHARGES 9 5 650 3 519
LONG TERM DEBT 10 18 802 24 092
Borrowings 14 942 21 075
Other debt 3 860 3 017
CURRENT LIABILITIES 30 458 32 348
Trade payable 11 747 11 827
Tax and social security liabilities 9 654 10 874
Accruals and deferred income 11 6 717 7 322
Deferred taxes 17 2 340 2 325
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 162 415 159 529
27 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Additional Consolidated Shareholders’ Number of shares Paid-in Retained Translation equity Ordinary Non-voting Share Capital Capital eamings reserve Group share
BALANCE AT 31 DECEMBER 2002 1 974 094 149 456 5 309 6 440 82 512 285 94 546
Net profit for the year 14 117 14 117 Dividends (3 301) (3 301) Stock-options exercised 14 282 36 527 563 Change in currency translation (6 486) (6 486) Other changes (27) (27)
BALANCE AT 31 DECEMBER 2003 1 988 376 149 456 5 345 6 967 93 301 (6 200) 99 413
Net profit for the year 13 981 13 981 Dividends (3 616) (3 616) Stock-options exercised 46 212 115 1 476 1 591 Change in currency translation (1) (2 875) (2 875) Change of method (2) 161 161 Correction of error (3) (1 230) (1 230)
BALANCE AT 31 DECEMBER 2004 2 034 588 149 456 5 460 8 443 102 597 (9 075) 107 424
(1) The variation in change in currency translation is principally explained by the USD curency variation between end of 2003 and end of 2004. (2) The change of method is about the application of the preferential method relared to the booking of the differences arising on translation of assets and liabilities in consolidated profit. The first application of this method has an impact of 161KÛ on shareholder’s equity and an impact of -62KÛ on the net profit. (3) It is an adjustement related to the retirement benefits provision for Robertet UK. This provision was under valued when the change of method was made in 2002. The adjustement before taxes amounts to 1872 KÛ.
CONSOLIDATED STATEMENT OF CASH FLOW
31/12/2004 31/12/2003
Cash flow generated by operating activities Consolidated net profit 13 981 14 117 Minority interests 6 (9) Depreciation of property, plant and equipment 6 030 5 847 Goodwill amortisation 1 054 1 186 Deferred tax assets/(liabilities) 481 1 347 Net increase in provisions (708) 105 Gain/loss on disposal of assets 10 (568)
CASH FLOW 20 854 22 025
Increase in inventories 1 002 (5 434) Increase in accounts receivable (3 054) (1 962) Increase in accounts payable 669 (448)
INCREASE IN WORKING CAPITAL REQUIREMENT (1 383) (7 845)
CASH FLOW GENERATED BY OPERATING ACTIVITIES 19 471 14 181
Cash flow used by investing activities Capital expenditure (5 576) (4 577) Acquisition of investments (481) 250 Disposal of assets 325 646 Impact of changes in the scope of consolidation - (173)
CASH FLOW USED BY INVESTING ACTIVITIES (5 732) (3 853)
Capital increase 1 591 563 Dividends (3 616) (3 301) New borrowings 319 8 107 Repayment of borrowings (5 803) (6 348) Net change in other long-term debt 479 241
CASH FLOW GENERATED BY FINANCING ACTIVITIES ( 7 031) ( 738)
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH FLOW (944) (1 470)
INCREASE IN CASH DURING THE PERIOD 5 764 8 119
Opening cash position 27 676 19 557 Closing cash position 33 440 27 676
LIQUID RESOURCES 31/12/2004 31/12/2003
Cash and equivalents 20 934 15 434 Marketable securities 13 972 13 236 Bank overdrafts (1 466) (994)
TOTAL 33 440 27 676
28 NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
A. Accounting principles
The consolidated financial statements of the Robertet Group have been prepared in accordance with generally accepted French accounting principles.
B. Consolidation rules
The financial statement of the subsidiaries on which Robertet has an exclusive control are fully consolidated starting from the effective date of transfer control. Full consollidation takes into account all the assets, liabilities and income statement items of the companies concerned, after eliminating intra-groups transac- tions and profits, and the share in earnings and equity attributable to the group is identified separately from the attributable to minority interests.
Investments in companies which although answering to the criteria mentioned above are not included in the consolidation area, are recorded as shares in sub- sidiaries. The consolidation of these companies would not have any significant impact on the consolidated financial statement.
All material transactions between consolidated companies and unrealised profits on inventories carried by consolidated companies are eliminated upon conso- lidation.
C. Foreign currency translation
Transactions denominated in foreign currencies Assets and liabilities denominated in foreign currencies are generally recorded on the balance sheet at the year-end exchange rate, with the exception of those that have been hedged, in which case they are translated at the hedging rate. Foreign exchange gains and losses are recognised in the income statement under financial income or expense.
Translation of financial statements denominated in foreign currencies Balance sheet items are translated into euros at the official year-end rate. Income statement items are translated at the average rate for the year. Exchange dif- ferences resulting from the translation into euros of the financial statements of foreign subsidiaries denominated in foreign currencies are recorded directly under shareholders’ equity under “change in currency translation” and have no impact on consolidated net profit.
D. Intangible assets
Goodwill
At time of the purchase of shares in fully consolidated companies, the purchase price of these shares is allocated to the assets and to the liabilities bought valued at the fair value. The variance between the purchase price and the group’s equity in the fair value of the assets and liabilities bought is the goodwill. It is recor- ded on the balance sheet on the line called “Goodwill” for all fully consolidated companies. Goodwill for foreign companies are valued in Euro’s.
They are amortised over a period of 10 to 40 years according to a schedule that reflects as accurately as possible the assumptions, targets and prospects antici- pated at the time of the acquisition.
At every closing, the Group reviews these criteria and determines if there is a rating of economical loss. The factors used are the decline of the operating pro- fit or the loss of market shares. In this case, the present value of the goodwill would be determined and would be the highest amount between the fair value and the use value. The use value is determinded on the basis of updated forecasted cash-flows or on the basis of segment results. The fair value is the net sales price which could be achieved by the Group in normal market conditions.
Other intangible assets
Licences, trade marks and leasehold premium are recorded at the purchase cost. They are amortised on a straight-line basis over economical useful life.
E. Tangible fixed assets
Tangible fixed assets are stated at cost and depreciated on a straight-line basis over the following periods:
- Buildings 20 years - Plant & machinery 5 years - Other assets 4 to 8 years
When events indicate that a tangible fixed asset has lost value, the Group studies the present value of this asset. The present value is the highest value between fair value and use value. The use value is determined by the updating of future forecasted cash-flows from this asset in use conditions provided by the Group. The fair value is the net sales price which could be achieved by the Group in the normal market conditions. An exceptionnal depreciation is recorded when the present value of a tangible fixed asset is durably lower than its net book value.
29 F. Financial fixed assets
Investments in companies are recorded on the balance sheet at the acquisition cost including if necessary net tax expenses of the acquisition. Where appro- priate, these investments are written down to an amount corresponding to their fair value. This fair value is determined on different criteria such as market value, profitability forecast and revalued shareholder’s equity.
Other investments are also stated at cost. Where appropriate, these investments are written down to an amount corresponding to their fair value.
G. Inventories and work in progress
Inventories are valued at the lower of the cost price or net realisable value. Cost price is weighed average cost. Allowances for obsolescence are recorded where appropriate.
H. Accounts receivable
A ccounts receivable and other receivables are stated at their nominal value. Allowances may be set aside either for the risk of non-payment or, in certain countries, for political or currency risks.
I. Marketable securities
Marketable securities are valued at the lower of cost or market value.
J. Deferred taxation
Deferred income taxes are recorded on differences between tax basis value and accounting value of assets and liabilities, except the goodwills. Using the lia- bility method, deferred income taxes are recognised on the tax rate known at the end of the period.
Deferred tax assets on carried forward tax deficits and on timing differences are allowanced as soon as their collection is more uncertain than certain.
K. Provision for liabilities and charges
Provisions for liabilities and charges are set aside for clearly identifiable risks, when the amount and the maturity can be estimated reliably and when the out- flow of resources is probable.
L. Retirement benefits
Group retirement benefits are stated by using an actuarial retrospective method which is in line with economical conditions of each country. These commitments are hedged by pension funds or by provisions on balance sheet recorded progressivly in line with the employees aquisition rights.
M. Foreign exchange hedging instruments
In order to manage its foreign exchange exposure, the Group uses financial instruments listed on financial futures market or settled on wholesalemarket with first-rate counterparties. The Group’s policy is to not make trading transactions on financial markets. The incomes and expenses resulting from derivative financial instruments are recorded in the income statement symmetrically with the incomes and expenses relative to hedged items. Exchange losses or gains on hedging contracts with probable issue are recorded when the transaction is resolved. When financial instruments are not accountingly exchange hedging instruments, they are stated at their market value at the closing period and gains and los- ses are recorded in the income statement.
N. Turnover
Turnover is recorded at the time of products property transfer. Turnover is stated taking into account rebates and allowances granted to the customers.
O. Research and development costs
Research and development costs are expensed as incurred.
P. Exceptional items
Exceptional income and expense comprise material items which owing to their unusual or non-recurring nature cannot be considered as an integral part of the operating activities of the Group, such as capital gains and losses on asset disposals, restructuring costs and exceptional asset write-downs.
Q. Earnings per share
Earnings per share are calculated by dividing the net profit by the average number of shares outstanding during the period, after deducting shares held by the Group. Dilutive earnings per share are calculated identically, after taking account of the weighted average number of shares which would result from the exercice of the option of the subscription plan or of the purchase plan.
R. Use of estimates
The preparation of financial statements in compliance with generally accepted accounting principles requires management to make certain estimates and assump- tions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities in the notes at the date of the financial state- ments and the reported amounts of revenue and expenses during the reporting period. It is possible that the facts could be different from these estimates and these assumptions.
30 NOTE 2 - GOODWILL
Goodwill can be analysed as follows:
31/12/2004 31/12/2003 SUBSIDIARY Gross Amort. Net Gross Amort. Net
ROBERTET FLAVORS 10 846 3 310 7 537 10 846 2 967 7 879 ROBERTET FRAGRANCES 12 319 5 208 7 111 12 319 4 497 7 822
TOTAL 23 165 8 518 14 648 23 165 7 464 15 701
Goodwill gross value and amortisation can be analysed as follows:
Other Gross value 31/12/2003 Acquisition Disposals movements 31/12/2004
ROBERTET FLAVORS 10 846 10 846 ROBERTET FRAGRANCES 12 319 12 319
TOTAL 23 165 23 165
Amortisation Other Amortisation period 31/12/2003 Charges Disposals movements 31/12/2004
ROBERTET FLAVORS 40 2 967 343 3 310 ROBERTET FRAGRANCES 20 4 497 711 5 208
TOTAL 7 464 1 054 8 518
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Opening Translation Acquisitions Disposals Closing FIXED ASSETS value difference on value opening value
Land 5 580 (200) 5 380 Building 33 836 (930) 1 394 34 300 Plant and equipement 54 139 (1 223) 3 277 130 56 064 Other 7 011 (76) 887 192 7 630 Fixed assets in progress 2 2
TOTAL 100 565 (2 428) 5 562 321 103 377
Opening Translation Charges Write-backs Closing DEPRECIATION value difference on value opening value
Buildings 16 039 (322) 1 614 17 332 Plant and equipment 43 836 (964) 3 636 98 46 410 Other 4 182 (2) 770 157 4 793
TOTAL 64 057 (1 287) 6 020 255 68 535
NET VALUE 36 509 34 842
NOTE 4 - FINANCIAL FIXED ASSETS
2004 2003
Investments carried at cost 654 654 Security deposits 126 135 Intergroup indebtness 321 306 Other 502 336 Loans 223 228
TOTAL 1 826 1 659
Investments carried at cost can be analysed as follows:
Shareholder’s Gross Value Allowance Net Value % of holding equity Net profit
ROBERTET CHINA 976 500 476 50% 1 423 144 ROBERTET INDIA 12 - 12 100% 10 ROBERTET IRAN 200 100 100 49% 731 OTHER 66 - 66
TOTAL 1 253 599 654
31 NOTE 5 - INVENTORIES
2004 2003
Raw materials 22 756 21 938 Work in progress and finished goods 15 074 15 201 Gross 37 830 37 139 Allowances (4 920) (2 280)
NET 32 910 34 859
Changes in valuation allowances during 2004 and 2003 can be analysed as follows:
2004 2003
Opening value 2 280 6 533 Additions 2 951 137 Amounts written back or used (299) (4 325) Translation difference (13) (64)
CLOSING BALANCE 4 920 2 280
NOTE 6 - ACCOUNTS RECEIVABLE
GEOGRAPHICAL ANALYSIS 2004 2003
Europe 17 872 18 322 North America 8 843 7 837 South America 5 100 5 380 Asia 4 759 4 600 Rest of the world 1 902 2 990
GROSS TOTAL 38 476 39 129
Valuation allowances 2 543 3 125
NET TOTAL 35 933 36 004
All receivables (trade and other) fell due in less than one year at the outset. Changes in valuation allowances during 2004 and 2003 can be analysed as follows:
2004 2003
Opening value 3 125 3 876 Additions 723 1062 Amounts written back or used (1 273) (1 702) Translation difference (32) (111)
CLOSING BALANCE 2 543 3 125
NOTE 7 - ACCRUED INCOME AND PREPAYMENTS
2004 2003
Prepayments 1 463 2 013 Deferred costs 34 49 Tax receivable 1 930 1 086 Other current assets (1) 2 170 1 251
Total accrued income and prepayment 5 598 4 399 Deferred tax assets 1 716 1 695
TOTAL 7 315 6 094
(1) more than one year: 462 Ke
NOTE 8 - MINORITY INTERESTS
2004 2003
Opening balance 157 192
Translation adjustment - (14) Minorities buy out (12) Correction of errors (81) Net profit for the year 6 (9)
Closing balance 82 157
32 NOTE 9 - PROVISIONS FOR LIABILITIES AND CHARGES
Opening Additions Write-backs Allowances Other Closing value not used Changes value
RETIREMENT BENEFITS 1 909 84 2 1872 (2) 3 863
Restructuring measures 215 215 - Currency risks 147 (47) 100 Other risks (1) 1 247 927 102 353 (32) 1 687
LIABILITIES & CHARGES 1 610 927 102 568 (79) 1 787
TOTAL PROVISIONS 3 519 1 010 104 568 1 793 5 650
Net impact of additions, write-backs and allowances not used can be analysed as follows:
Operating profit 81 Financial profit - Exceptional profit 257
TOTAL 338
(1) Other risks are essentialy social risks, tax risks and trading risks. (2) See note (3) on “Consolidated Statement of Changes in Shareholder’s Equity”
The Group is involved in establishing the employees retirements in accordance with the laws of the differents countries in which its subsidiaries are set up. There is no actuarial liability relative to contributions paid to independent pension funds or legal institutions. The Group has contractual commitments relative to supplementary pension and retirement indemnities. These commitments are hedged by pension funds or by provisions on balance sheet recorded progressively in line with the employees acquisition rights.
The main actuarial assumptions for the valuation of these commitments can be analysed as follows: - employees turnover and mortality, - retirement date: 65 years, - rate of return 4.5%-7%, - rate of increase in salaries 2%-3.5%, - inflation rate 2%-2.75%.
NOTE 10 - FINANCIAL DEBTS
ANALYSIS BY CATEGORY 2004 2003
Long- and medium-term debt 14 942 21 075 Bank overdrafts 1 466 994 Other 2 394 2 023
TOTAL 18 802 24 092
MATURITY PROFILE 2004 2003
Under one year (1) 9 216 9 210 One to five years 8 490 11 734 Over five years 1 096 3 148
TOTAL 18 802 24 092
EUR 10 899 14 195 USD 5 513 7 861 Other currencies 2 390 2 036
(1) THE PORTION OF LONG-TERM DEBT MATURING IN LESS THAN ONE YEAR CAN BE ANALYSED AS FOLLOWS:
2004 2003
Long- and medium-term debt 5 356 6 193 Other 2 394 2 023 Bank overdrafts 1 466 994
TOTAL 9 216 9 210
The portion of fixed rate and floating rate can be analysed as follows:
2004 2003
Fixed rate loans 2 944 5 467 Floating rate loans 11 998 15 608
TOTAL 14 942 21 075
Average interest rate for 2004 is about 3%.There is no security granted for loans.
33 NOTE 11 - ACCRUALS AND DEFERRED INCOME
2004 2003
Accruals 6 263 6 409 Deferred income 454 725 Differences arising on translation of liabilities - 189
TOTAL 6 717 7 322
The Group applies the preferential method related to the booking of the