Naturex Sales ‘Bolstered’ by Fruits and Vegetables Ingredients Market

01 Sep 2014 --- Naturex has announced its 2014 first half sales results, which it says have been bolstered by sales from its food and beverage division. The speciality plant-based natural ingredients company has reported of good medium-term growth prospects despite an adverse trading environment through 2014.

"Our results for the 2014 first half were directly impacted by a worldwide economic and geopolitical situation that has significantly deteriorated against the backdrop of a very unfavourable foreign exchange environment, resulting as a primary consequence in readjustments by our customers of their procurement plans and significant destocking. This in turn has limited the effects of measures adopted in connection with Group restructuring initiatives", commented Naturex's Chairman-CEO, Thierry Lambert.

"Despite this context, underlying trends in favour of natural ingredients remain positive and continue to offer important medium and long-term development prospects. This is particularly the case for the “Fruits & Vegetables” ingredients market where our position has been reinforced.

"In the 2014 second half, the Group expects to achieve modest organic growth in light of a more favourable comparison base, a good pipeline of projects that will include some noteworthy achievements, as well as the synergies that will start to be generated from Vegetable Juices. Furthermore, the foreign exchange environment is expected to be more favourable though volatile."

In a difficult macroeconomic environment that continued to deteriorate throughout the first half, exacerbated by particularly adverse foreign exchange effects, Naturex started to reap the benefits of its reinforced operating structure. It did this by focusing on developing products and solutions highlighting its R&D capacity and commercial know-how and also on executing new acquisitions in a sector in a phase of consolidation.

Naturex thus completed a major acquisition in the United States in the Fruits & Vegetables based ingredients segment offering significant growth potential. The integration of Vegetable Juices Inc., a key player in the vegetable-based ingredients market, has enabled Naturex to strengthen its position in the United States, the world's largest market for ingredients and trendsetter in the food processing industry. 

This acquisition makes it possible to benefit from an expanded offering that will complete the existing F&V (Fruits & Vegetables) line of ingredients and generate a significant number of potential synergies, particularly in terms of cross-selling to US customers. It furthermore represents an expansion of technical and market application know-how.

To support external growth, Naturex carried out a capital increase with preferential subscription rights for gross proceeds €67.2 million that was a resounding success2 and restructured with its banking partners its structured credit to align its financial structure with its development.

Finally, in the first half, Naturex pursued the development of Chile Botanics, the Chilean company specialised in Quillaja extracts acquired in December 2013: the production unit currently being completed, will come on line in September 2014. The acquisition in June of the operations of distribution and the formulation on extracts of Quillaja Saponaria and Yucca Schidigera from Berghausen Corporation (Chile Botanics' US distributor) has strengthened its position as a specialist in this market for highly technical ingredients.

Sales driven by strong contributions from Food & Beverage
Consolidated revenue for the 2014 first half amounted to €158.3 million, down marginally from last year's first half in a very unfavourable foreign exchange environment. Sales in the period also include a contribution from new acquisitions which is still limited (2%) and relating to the Food & Beverage business with the integration3 of Vegetable Juices and Chile Botanics.

Restated to adjust for Svetol in the United States and krill toll manufacturing sales, first-half revenue was up 2.8% at constant exchange rates.

The principal operating highlights for the period by business segment and geographic region are as follows:

• Food & Beverage bolstered sales for the 2014 first half with quarterly levels exceeding all quarters of the prior year, attributable in particular to a better structured commercial organisation more focused on market applications, and despite the weakness of demand in Western Europe.

• Nutrition & Health was adversely impacted in the period by lowered revenue forecasts and the impact of destocking by certain customers in the United States. The US market is moreover less buoyant than in the past (though the main contributor to this business), whereas market penetration continued in emerging countries through interesting projects. 

• Personal Care remains promising with the execution of new projects expected in the second half.

• Toll Manufacturing, restated to adjust for sales from krill toll manufacturing services, contributed marginally to sales in the period. Nevertheless, in light of the transfer of krill extraction operations to the joint venture with AKER BioMarine, development projects are currently underway.

• In terms of performance by geographic markets, the United States (restated to adjust for Svetol sales), Latin America and the Asia/Pacific region showed solid growth in sales whereas Europe/Africa was adversely affected by difficult economic conditions in the euro zone as well as direct and indirect effects of the Ukraine-Russian crisis. Emerging countries accounted for 18% of Group sales with 7.7% growth at constant exchange rates for the period.

Operating indicators significantly impacted by an unfavourable foreign exchange environment

Naturex was adversely impacted by the negative effects of a foreign exchange environment that continued to deteriorate in the period; the weakness of a number of currencies, including the US dollar and certain emerging country currencies, relative to European currencies (EUR, GBP, CHF) continued to weigh on Naturex's margins, with its products originating from production sites in Europe exported worldwide throughout our sales network.

• The gross margin as a percentage of sales improved, up from 60.9% in the 2013 first half to 62.5%, confirming the positive realignment of the product mix and reflecting measures taken by the Group to drive further gains in productivity, building on the forward momentum of 2013.

• The decline in other operating income, from €4.4 million in the 2013 first half to €1.5 million, that included a €0.5 million variation on gains and losses from asset disposals as well as a decline linked to the exceptional sale in H1 2013 (€1.0 million) relating to inventory for the "Yeast" range.

• Staff costs rose by €2.6 million (+7.4%). Restated to eliminate changes in Group structure linked to the integration of Chile Botanics and Vegetable Juices Inc., this line item increased by €1.9 million (+5.6%). This trend reflects mainly the sequencing of recruitment in connection with Group structuring measures launched at the end of 2012 and completed in the 2014 first half.

• External charges decreased by 8.5%, reflecting in part lower logistics costs, in line with the decline in sales. This line item was more efficiently managed with for example, a reduction in recruitment fees after certain recruitments were insourced and lower insurance expenses.

• Recurring EBITDA amounted to €24.2 million compared to €28.4 million in the 2013 first half; recurring EBITDA margin represents 15.3% of sales. Current operating income amounted to €14.4 million, compared to €19.9 million for the 2013 first half, for a current operating margin of 9.1% compared to 12% one year earlier (11% at 31 December 2013) reflecting the decline in revenue, amplified by a very unfavourable exchange rate effect and the weight of fixed costs.

• Net income attributable to the Group amounted to €7.5 million compared to €10.1 million in the 2013 first half, after a tax expense of €3 million compared to €5.2 million in H1 2013.

A sound financial position

At 30 June 2014, net financial debt totalled €213.9 million compared with €150.7 million at 31 December 2013. After taking into account net proceeds from the capital increase of €65 million paid on 3 July 2014 as well as repayment on 7 July 2014 of the €50 million bridge loan obtained in connection with the Vegetable Juices Inc. acquisition, restated net financial debt at 30 June 2014 stood at €149 million.

Subsequent events

Appointment of a Chief Executive Officer - Naturex announced in July the appointment of Olivier Rigaud as Chief Executive Officer of the Group. The purpose of this appointment is to strengthen the Group's senior management to address the next phases of its development and prepare for the future. Thierry Lambert will remain Chairman of the Board of Directors and will assist Olivier Rigaud in order to facilitate the assumption of his duties in fall 2014. 

Following this transition period, Olivier Rigaud will be in charge of Group management and Thierry Lambert will work on missions relating to business development, including the study of acquisitions and specific projects, in addition to the Chairing of the Board of Directors.

Rationalisation of the manufacturing base in the United States – Naturex closes the Shingle Springs production site in California by the end of August 2014. This decision concerns 17 employees. Naturex has operated this site since it was acquired from Brucia in 2002, with the main industrial site in the United States being the one located in New Jersey (South Hackensack) since the acquisition of Pure World in 2005. The California site had limited capacity that was devoted exclusively to blends of nutraceutical extracts coming from the New Jersey site.