Naturex Reports Strong Return to Growth in 2015, Progress in Debt Reduction

31 Mar 2016 --- Naturex delivered sales for the year of €397.8 million in 2015, up 21.5%. Organic growth also registered solid and healthy gains of 5%, versus a decline of 4.3% in 2014, and with the consolidation scope effect from Vegetable Juices Inc. sales for the first five months representing 4.7% growth. 

The positive exchange rate effect of 11.8% for the year, linked primarily to the dollar's rise relative to the euro, allowed the company to leverage its strong presence in the United States and to increase the share of its revenue in US dollars.

In January 2015, Naturex rolled out a plan for commercial redeployment designed to put organic growth back on track, after being adversely impacted by four consecutive quarters of negative growth in 2014 for the Group's historic structure.

"In 2015, we implemented targeted action plans, combining discipline and responsiveness, indispensable for recapturing our markets and rebuilding solid and lasting growth on a sound financial footing. Bolstered by several initiatives in terms of governance and commercial organization, aligning our offering with customer expectations and maximizing the value of our innovations, we were able to create a new impetus to activate the main operational performance drivers, putting us back on track for a return to profitability" commented Olivier Rigaud, Chief Executive Officer and Director of Naturex.

"Having laid these solid foundations, for 2016, the first year of execution of the Bright2020 plan, Naturex will move forward with the implementation of the three “Care, Execute and Grow” strategic lines of action and our six core pillars. With this objective, our priorities will be to ensure every NATUREX employee is fully engaged in meeting our objectives and the success of our mission, to improve the industrial capacities of our sites through continuing simplification measures, and to occupy key positions in our major markets, by combining three growth engines: innovation, consumer focus and emerging markets."

Specific governance measures adopted as part of the "cash" component of the plan combined with strong commitment by all teams to financial discipline had a very positive impact on the key balance sheet aggregates, the company claims:
• The sharp improvement in Working Capital Requirements to €156.0 million, down from €181.6 million at 31 December 2014, resulted primarily from the significant reduction in trade receivables (-9 days on average for the year to 55 DSO) and, also efforts to optimize the product portfolio and reduce the number of references. This in turn led to a spectacular reduction in inventory levels to 41% of sales from 49% one year earlier;
• Free cash flow, of €56.0 million, up from €10.8 million in 2014 was driven by a strong growth in Group cash flow, the reduction in Working Capital Requirements and excellent cost controls for investments (6.1% of sales);
• Net financial debt, declined €30 million to €130.1 million, significantly reducing leverage (2.5 times current EBITDA vs 4.4 in 2014) and bringing gearing (net financial debt/equity) down to 35.4% of consolidated equity compared to 45.6% at 35.6% at 31 December 2014.

Now back on a sound financial footing, Naturex was able to focus efforts on increasing the value generated by the product mix, optimizing its cost structure and rationalizing its industrial footprint in order to activate the performance drivers essential for returning to operating profit.

The gross margin amounted to €229.7 million, up 18.4% from 2014, and slightly less than growth in sales. As a percentage of sales, the gross margin reached a near standard rate of 57.7% compared to 59.3% one year earlier. Whereas the 2015 first half was impacted by destocking measures and the strategic decision to limit production levels (55.9% of sales), the 2015 second half showed a sharp improvement (59.7% of sales), boosted by a product mix with higher value-added products and increased production volume.

Staff costs increased 16.5% to €90.0 million, less than the growth in revenue, and represented 22.8% of sales compared to 23.6% one year earlier, reflecting namely €3.7 million from a consolidation scope effect from Vegetable Juices Inc., and €5.2 million from a foreign exchange effect.

Excluding these effects, staff costs rose 4.9% to €81.1 million. This increase results primarily from annual salary negotiations, the implementation of annual performance-based bonuses and targeted recruitments for specific operational posts.
External charges, representing 23.1% of revenue compared to 25.4% one year earlier, amounted to €92.0 million. This limited increase of 10.6% in relation to growth in sales was primarily attributable to Vegetable Juices Inc. (with a consolidation scope effect of €2.8 million) and a significant foreign exchange effect (€5.9 million).

In 2015, Naturex launched a review of its industrial footprint for the purpose of maximizing the efficiency ratio and returns on strategic assets used by the Group. This initiative follows from the closing of the Shingle Spring site in California in August 2014 and is largely underpinned by the "Execution & Simplification" pillar of the Bright2020 strategic plan to achieve a better use of the industrial capacities contributing to operational excellence.

The main measures taken in the year included:
• Reorganising manufacturing operations devoted to the Group's pharmaceutical activity within a single production site in Reyssouze (France), involving, on the one hand, the closure of the Palafolls plant in Spain and, on the other hand, the Milan site's (Italy) specialisation in nutraceutical applications. This industrial plan generated non-current operating expenses of €2.7 million resulting primarily from the redundancy plan for 34 employees at the Palafolls plant in Spain and costs linked to the despecialisation of the Milan site, and namely staff costs associated with the transfer of pharmaceutical activities to the Reyssouze site as well as expenses from the impairment of intangible assets (EDMF files, etc.).
• The specialization in progress of industrial sites of the Group into centres of expertise fully aligned with the four key product categories identified within the framework of the Bright2020 plan (fruit and vegetable-based ingredients, natural antioxidants, natural colours and phytoactives);
• Full divestiture of Naturex's interests in the joint-venture2 devoted to krill extract production created in February 2013 with the Norwegian group AKER BioMarine Antartic. A loss of €2.8 million is shown under the line item "Net income from discontinued operations" (IFRS 5).

Net borrowing costs for 2015 amounted to €7.2 million (1.8% of sales), down from €8.3 million (2.5% of sales) in the prior year. Readers are reminded that the Group refinanced the structured loan in June 2014 to take advantage of longer maturities and financing lines that were better adapted to the Group's structure. Debt issuance costs to be amortized under the preceding structured loan agreement in the amount of €1.1 million were expensed in the period.

Other financial income and expenses included expenses of €1.2 million, up from €0.6 million in 2014, reflecting the impact of the significant depreciation of several currencies.

Finally, net income from continuing operations of €3.3 million was recorded for the period compared to a loss of €3.6 million in 2014, after a €11.3 million tax charge resulting from the non-recognition of a portion of deferred tax assets from results in Spain and France representing a charge of €7.1 million.

Net income attributable to Group shareholders amounted to €0.6 million, after including a net loss from discontinued operations of €2.8 million corresponding to the divestment from the joint venture with Aker BioMarine.