Robertet: half year 2021 results analyst meeting and thoughts
A pragmatic family who is stepping up external growth initiatives which reinforces their offering
To sum up
The Maubert family appeared very dynamic and determined to keep their independence. The later will be achieved through growth. It is quite a paradigm shift that they are doing external growth as well as keeping their options open for the next CEO who will not necessarily be a Maubert. It strikes me as being very pragmatic. Their natural positioning is unique, they are focusing on it and are benefiting from a long term secular trend. The holding which regroups the Maubert family interests has operational and non-operational members which don’t have all the same aims. The dividend should be increased in time. Robertet is an extremely rare company and asset. There are no similar companies both in size, sales growth and natural positioning. Sure valuation is demanding but there is a regular growth, a recurring business and Robertet indicated that it wished to double in size within the next ten years (more or less 1 billion euros in sales target). FCF yield is at 3,9% with 2020 numbers at a 963 euros share price. The growth sales (both through organic and external growth) make the threshold of a 10% FCF yield quite doable.
Analyst meeting
Philippe Maubert is not here. Christophe Maubert replaced him and immediately indicated that he was not the next CEO. Julien Maubert is there too. There is a willingness to show that the Maubert family remains in control of the operational aspects.
Our competitors are arrogant but we are not. CSR is in our genes. It gives us a big advantage and thus we strongly believe in the future.
We are 7 to 8 times smaller than our biggest competitors.
We are to perfumery what electricity is to petroleum in the car industry. The competitors have 4/5 natural products while we have 1200 references and a depth of catalog that they do not have.
Natural expertise
- This is what sets us apart,
- No one can catch up with us, it cannot be learned.
- IFF bought a natural company 20 years ago, it no longer exists.
- Firmenich bought Davisco: 10 years after Danisco is no longer a competitor, we do not see them in any tenders.
Passion: we are at a size where we have a passion for the product.
Health and beauty: natural products have many other benefits. Market expectation = recycle waste.
We are number 1 in the world, excluding mint (toothpaste) and citrus.
We have 1200 plants.
Our job is to make mixtures, but we have 1,200 compared to 5 to 6 among our competitors.
Concerning sales number up to August 2021, aromas are impacted by drinks as bars were closed, the price of vanilla (which is very important component) and sales in pharmacy (products linked to the mouth so with a mask being used there were fewer pathology’s) dropped significantly;
Ingredients: perfumery was at a standstill due to the covid impact on travel retail which is an important channel.
Sales: at the end of September 2021, we are at + 10% // 2019. Robertet has good resilience.
Transport and supply chain will have a negative impact. There are going to be supply concerns and rising costs. But we won’t be more impacted than our competitors.
Robertet gained market share in Europe and North America. We are further behind in Asia and South America. We are now performing well in Asia. But in South America we are the last of the class. Outside of Mexico, its negative for us unlike IFF and Givaudan.
The North American perfumery is at + 38% growth in sales in 2021 to date. We have more growth than our colleagues.
Sales are 84% international so there is a currency impact.
The acquisitions are small and concern the natural sector in a targeted area. There is no growth to make growth.
Acquisitions allow us :
1 / to complete the offer in the natural and,
2 / to get to another level and pass a threshold.
We will have growth by remaining independent.
Robertet has an image of quality. We have our own perfume school, our job is to make perfumes, to have the ingredients is one thing, but it is also decisive to know how to use them.
Of the 45 Robertet perfumers, 35 started at Robertet. This allows us to consolidate our advantage in the natural sector.
Home care has taken advantage of the confinement, in particular the products for hand cleaning and greater use of candles. Strong growth was offset by the fragrance business.
Personal care = flat.
Shampoo, shower gel, detergent are products where there is a strong demand of more natural ingredients and a natural dimension. We are working with big laundry companies, they came to us to see if with natural products works and yes it does. Thus, we will be able to cover personal care, home care and perfumery.
For food flavorings, its the same trend. We have a very strong presence in drinks.
We are very strong in sourcing because brands seek history and transparency.
Geographical location: either we own the factories or we develop them through a partnership. If it is a historical, reliable supplier, there is no point in us going there, on the other hand if there is a financial risk or a political risk, we will invest in the supplier sector either alone or through a JV.
Ingredients from organic farming. Sirius contributes to this offer. There is a trend towards healthier, cleaner products there.
By 2030, we are aiming for 30% of our ingredients to be certified organic.
Health and beauty: the outlook is very good. We have been working on this for 5 years. Within 10 years, we are aiming for a turnover of 100 MEUR (but we will see later that the time frame is shorter).
Willingness to accelerate external growth, for 10 years we have been very calm, there we have accelerated a lot in the last 6 months.
Astier acquisition: 30 MEUR in turnover and produces Vetiver which we did not have. It is also a distribution expert and allows him to reach out even more to small and medium-sized customers.
Ecom Food Industries acquisition: salty products because we are behind on salty aromas and it will be integrated with the American entity.
Fleur de Vie stake: we took a minority share because it allows us to work on an active ingredient (spirulina) which could bring strong growth?
Problems
- Logistics (Sea, Air, Land)
- Factories have been idling so stocks are low.
- China: stricter on pollution. A factory can be closed overnight and therefore less availability of raw materials (for synthesis). So all the actors could have some problems with the supply of raw materials.
Q&A
Q: profitability (one-off gains linked to the covid), M&A, is Robertet sticking to small acquisitions? Less capex, small M&A, improved profitability what type of returns to shareholders could be expected.
Succession plan
A: external growth is a question of opportunity. People come to us with the idea of a long-term partnership; we do not go through banks. We want to increase the share of external growth. We are attractive to small companies to take a step forward. This was particularly the case with Astier. This allows us to have access to files and prices that others do not see or have.
Profitability: good overall margins on products and optimized logistics.
Less capex, more returns to the shareholder: the covid imposed to us a rigorous exercise on the holding company where some shareholders are operational and others, which are not. We learned to manage the holding company and the various problems.
Q: new CEO in 2022?
A: There will always be a Maubert at the positions of responsibility. Will Julien Maubert be the next CEO? No guarantee. It does not have to be a Maubert. We will take the best candidate. This is a significant change.
Q: transportation costs?
A: Chemicals come from India and China. But we are not able to quantify it. But there will be an impact.
Q: How long will this situation last?
A: we're talking about a year.
Q: transfer to clients ofprice increases? And how to make sure that there is no child labor?
A: between 30 to 40% of our clients are international and they do important and thorough audits.
Transfer of price increases: it will be “war” but as our competitors will be discussing first with the clients, customers will be ready.
Complicated year, we will lose a little margin. In the core list clients, we cannot transfert all the increases.
Q: CBD market?
A: we were among the first with a partnership with an american company. We are making progress in the USA: in 2019 and 2020 the market has worked well and is slowing down in 2021.
In Europe, we are trying to be an actor to put in place rules. Its going on pretty well. Everyone is waiting for stable regulation.
CBD is a major growth relay.
Q: were there price increases for you during the first 6 months of 2021?
A: Not yet in 2021 because we are covered by 2020 contracts. Transport: the impact will only begin now (it did not start in the first half of the year).
Q: Share of products impacted by logistics problems?
A: huge in Europe 80% of the products are concerned.
Q: Problem of transport costs or delays?
A: Transportation cost increases as well as availability over time can be problems. For the moment, not affected because we are on our 2020 inventories. The problems will be felt now. It is in H1 2022 that we will have the first availability problems. Two product launches were postponed by customers due to bottle availability problems. In the US, they had to switch from plastic to glass for packaging.
Our raw materials can be kept for one year so no risk. There is no time for the products to be out of date.
H1 2022: increase in logistics costs and risk of not producing as much (but we are doing everything to get there), otherwise we will do it at a higher price. But we have already faced that in the past.
Natural products will be the last to be impacted, unlike synthetic products.
Personal care and home care: there is a high margin for improvement in the penetration of natural products. The share of natural products continues to increase.
Q: China's share in sourcing?
A: 70 to 80% for synthesis. For synthesis there is nothing new, there are no more patents. For cost issues, these products are made in Asia.
For perfumery, 100% natural synthesis mix.
Q: Why has North America worked out so well in perfumery?
A: North America has benefited from home sanitation products. We are strong in home care where we took advantage of this.
This year in 2021, personal care and flagrance have helped us a lot.
So 2020 has turned the tables, we outperformed with large customers and underperformed with small customers. In 2021, we kept the momentum for large customers and resumed the momentum for small customers.
Q: ambitions in health care?
A: 100 MEUR in sales within 3 to 5 years. It will also depend on the CBD but also on the spirulina. We can make small acquisitions.
We do not run after the CA.
The industry is concentrated. Actors which have sales between 100 and 300 MEUR are few in number and are valued at crazy prices. Our growth policy will be organic and external growth, but we will not tell you our organic growth objectives.