Symrise AG Germany | Chemicals | MCap EUR 13,461m 11 March 2021 INITIATION Sustained sales and HOLD (na) Target price EUR 100.00 (none) Current price EUR 99.40 earnings growth, despite Up/downside 0.6% macro headwinds What’s it all about? Symrise reported reliable results in an exceptional year (2020), with a marginal miss in sales guidance amid the cyber-attack in late Q4 2020 and EBITDA in line. Organic sales growth is expected to accelerate this year, as pandemic-related headwinds are likely to ease and business activities have normalised following the cyber-attack. Moreover, mid-term targets seem achievable on an expanded portfolio and planned integration of MAIN AUTHOR the Flavor and Nutrition divisions, which may offer strong cross-selling opportunities. Thomas Wissler We initiate our coverage with a HOLD recommendation and a PT of EUR 100.00, based [email protected] on our DCF model. +49 40 309 293-58 IMPORTANT. Please refer to the last page of this report for “Important disclosures” alsterresearch.com and analyst(s) certifications. This research is the product of AlsterResearch, which is authorized and regulated by the BaFin in Germany. AlsterResearch Page 2 of 19 Symrise AG Germany | Chemicals | MCap EUR 13,461m | EV EUR 15,468m MAIN AUTHOR HOLD (na) Target price EUR 100.00 (none) Current price EUR 99.40 Thomas Wissler Up/downside 0.6% [email protected] +49 40 309 293-58 Sustained sales and earnings growth, despite macro headwinds Despite COVID-19-induced slippages in consumer demand across segments and cybersecurity attack in December 2020, Symrise continued to post healthy sales and earnings, given its highly differentiated business model. Strong operating performance and free cash flow (FCF) generation in 2020 prompted the company to increase dividends further. Moreover, the temporary shut down of major businesses from cyber-attack have been largely resolved and the operations are now restored. Symrise reported 3.3% yoy growth in 2020 sales to EUR 3.5bn (2% below analyst expectations), mainly driven by portfolio effect (+5.1%, with the total contribution from Source: Company data, AlsterResearch American Dehydrated Foods/International Dehydrated Food “ADF/IDF” at EUR 209m), partly offset by adverse currency effects (-4.5%). Organic sales also grew 2.7% yoy High/low 52 weeks 121.05 / 71.20 (as pre-announced; beating the industry average of ca +1%), despite COVID-19-led Price/Book Ratio 5.8x disruptions. However, it fell behind 3-4% guidance, due to slower sales development in Q4 as a result of the cyber-attack in mid-December. Consequently, organic sales Ticker / Symbols inched up a muted 0.7% yoy in Q4 (reported: -4.6% yoy to EUR 818m). The latest ISIN DE000SYM9999 company presentation and full year report can be found under www.research- WKN SYM999 hub.de. Bloomberg SY1:GR Segment-wise, in 2020, Nutrition witnessed the highest organic growth of 8.2% yoy Changes in estimates (reported: +26.6% yoy to EUR 926m, mainly led by higher contribution from ADF/IDF; Sales EBIT EPS Q4: +6.2% yoy organically) on strong performance of pet food, growing across 2021 old 00.0 00.0 00.0 regions. Organic sales in Scent and Care were up 1.5% yoy (reported: -3.5% yoy to EUR ∆ – – – 2022 old 00.0 00.0 00.0 1.4bn; Q4: -3.2% yoy organically), aided by pandemic-led solid demand for personal ∆ – – – care and hygiene products. Meanwhile, Flavor sales grew a mere 0.7% yoy organically 2023 old 00.0 00.0 00.0 (reported: -2.6% yoy to EUR 1.2bn; Q4: +1.2% yoy organically) on softer demand for ∆ – – – sweets and beverages. - continued - Key share data Symrise AG 2018 2019 2020 2021E 2022E 2023E Number of shares: (in m pcs) 135 Sales 3,154 3,408 3,520 3,711 3,918 4,148 Book value per share: (in EUR) 17.00 Growth yoy 5.3% 8.0% 3.3% 5.4% 5.6% 5.9% Ø trading volume: (12 months) 70,000 EBITDA 631 685 742 804 816 837 EBIT 434 455 488 560 592 626 Major shareholders Net profit 279 295 311 375 402 432 Horst-Otto Gerberding 5.2% Net debt (net cash) 1,365 1,599 1,325 1,097 826 564 Canada Pension Plan 5.0% Net debt/EBITDA 2.2x 2.3x 1.8x 1.4x 1.0x 0.7x Massachusetts FS 3.5% EPS recurring 2.15 2.19 2.30 2.77 2.97 3.19 Free Float 80.0% DPS 0.90 0.90 0.95 1.17 1.25 1.35 Dividend yield 0.9% 0.9% 1.0% 1.2% 1.3% 1.4% Company description Gross profit margin 39.4% 39.9% 39.5% 41.0% 41.0% 41.0% Symrise AG is a Germany-based EBITDA margin 20.0% 20.1% 21.1% 21.7% 20.8% 20.2% supplier of fragrances, flavorings, EBIT margin 13.8% 13.4% 13.8% 15.1% 15.1% 15.1% ROCE 10.2% 8.6% 9.3% 11.3% 11.8% 12.4% cosmetic active ingredients, raw EV/EBITDA 24.3x 22.9x 20.8x 19.0x 18.4x 17.7x materials and functional ingredients, as EV/EBIT 35.3x 34.4x 31.7x 27.3x 25.4x 23.7x well as sensorial and nutritional PER 46.2x 45.4x 43.3x 35.9x 33.5x 31.1x solutions. The Company operates FCF yield 1.9% 2.3% 2.8% 2.3% 2.9% 3.1% through three segments: Flavor, Source: Company data, AlsterResearch Nutrition, as well as Scent and Care. AlsterResearch Page 3 of 19 Although gross margin narrowed to 39.5% (-40bps yoy), EBITDA increased 5.8% yoy to EUR 742m, leading to a margin of 21.1% (vs normalized margin of 20.6% in 2019; in line with management guidance of low end of 21%-22%). Contributions from ADF/IDF and lower travel and research & development costs amid the pandemic supported the EBITDA growth. As a result, EPS reached a record high of EUR 2.27 (+3.0% yoy). Business FCF was up 18% yoy to EUR 564m (16.0% of sales vs 14.1% in 2019), 2% ahead of consensus, as it benefited from lower working capital due to a decline in inventory and impact of the cyber-attack. Management raised its dividend per share by 2.1% yoy to EUR 0.97 for 2020 (43% payout, in line with the long-term target of 30%-50%), anchored by strong business development. Guidance: For 2021, Symrise is targeting organic sales growth of 5-7% yoy, EBITDA margin of 21%, despite rising raw material costs, and business FCF of more than 14% of sales. Management reiterated its outlook on annual sales growth at 5-7% and EBITDA margin at 20-23% over the medium term (by 2025E). Conclusion: Symrise reported reliable results in an exceptional year (2020), with a marginal miss in sales guidance amid the cyber-attack in late Q4 2020 and EBITDA in line. Organic sales growth is expected to accelerate this year, as pandemic-related headwinds are likely to ease and business activities have normalized following the cyber-attack. Moreover, mid-term targets seem achievable on an expanded portfolio and planned integration of the Flavor and Nutrition divisions, which may offer strong cross-selling opportunities. We initiate our coverage with a HOLD recommendation and a PT of EUR 100.00, based on our DCF model. Half year reporting table P&L data 2H2017 1H2018 2H2018 1H2019 2H2019 1H2020 2H2020 Sales 1.481 1.575 1.579 1.692 1.716 1.821 1.699 yoy growth in % na 4,0% 6,6% 7,4% 8,7% 7,6% -0,9% Gross profit 597 631 611 692 668 730 660 Gross margin in % 40,3% 40,0% 38,7% 40,9% 39,0% 40,1% 38,9% EBITDA 307 317 313 342 343 393 349 EBITDA margin in % 20,8% 20,1% 19,9% 20,2% 20,0% 21,6% 20,5% EBIT 207 220 214 232 224 266 222 EBIT margin in % 14,0% 13,9% 13,6% 13,7% 13,0% 14,6% 13,0% EBT 174 200 189 204 206 237 187 taxes paid 44 56 54 55 57 64 45 tax rate in % 25,1% 28,0% 28,3% 27,0% 27,5% 27,0% 23,9% net profit 130 142 137 146 149 169 142 yoy growth in % na 0,4% 5,0% 2,6% 8,8% 15,9% -4,9% EPS 1,00 1,10 1,02 1,09 1,10 1,25 1,05 Source: Company data; AlsterResearch AlsterResearch Page 4 of 19 Company background THE COMPANY Symrise is a global supplier of fragrances and flavours, cosmetic ingredients, functional ingredients and solutions for food production based on natural raw materials. With sales of €3.4 billion in the 2019 financial year and a market share of around 10%, the company is one of the world's leading players in the fragrances and flavours market. The group, headquartered in Holzminden, is represented worldwide with more than 100 locations. The Symrise Group was originally formed by the merger of the two German companies Haarmann & Reimer and Dragoco in 2003. Symrise's roots go back to 1874 and 1919 respectively, when the predecessor companies were founded. Symrise AG went public in 2006. Since then, Symrise has been listed in the Prime Standard of the German Stock Exchange and, with a market capitalisation of around 12.7 billion euros at the end of 2019, is one of the companies listed in the MDAX.