Naturex Reports Disappointing Results for Nutraceutical Business on Poor US Market

01 Dec 2014 --- Naturex has reported its 2014 nine-month results. Sales in the period were affected by a continuing adverse global economic environment and exacerbated mainly by worsening market conditions for Nutrition & Health in the United States.

These factors were compounded by an unfavourable foreign exchange environment.

Sales declined 5% like-for-like (constant exchange rates and perimeter). with Svetol sales in the United States accounting for half of this decrease. In this context. the integration of Vegetable Juices Inc. as from 1st June 2014 limited this negative trend for sales.

In light of changes in perimeter (integration of Vegetable Juices Inc. and the deconsolidation of the Krill extraction operations). nine-month sales remained stable (-1.7% at current exchange rates and +0.2% at constant exchange rates).

In consequence, the Group's current operating margin was squeezed by the combined effect of a steady gross margin in conjunction with increased fixed costs corresponding to the Group's new structure.

Despite this. business fundamentals remain solid. with a sharp improvement in foreign exchange trends since the end of the last quarter. Efforts to reposition the product ranges and achieve cost efficiencies have started to produce results.

The commercial reorganisation and targeted investments have yielded results in the Food & Beverage activity. our largest market

Measures implemented in 2013 have produced renewed momentum for Food & Beverage:
- The optimisation of the commercial offering;
- Re-energising teams;
- The creation of regional application labs.

The Food & Beverage division has thus begun to reap the benefits of these measures despite an unfavourable market environment and after two difficult years. This trend is expected to continue notably through emerging country growth drivers. Recent investments. the completed construction of a fruit and vegetable powder plant in India. the development of Chile Botanics' industrial capacity in Chile and the commissioning of an industrial base for liquid Fruit & Veg in Poland. will support this growth. Furthermore. the development of a solutions/concepts driven-approach supported by our seven regional application laboratories will make it possible to accelerating growth by promoting our application expertise and responses to underlying market trends (naturalness and “clean labelling”).
In addition. this positive outlook has been strengthened by the recent acquisition of Vegetable Juices Inc. in the United States. by expanding the Group's offering and know-how in a particularly promising segment.

Personal Care has generated very good growth. In this sector. the repositioning of the offering around Naturex's strengths (sourcing and technical expertise) has boosted growth in this segment which still occupies a limited position in the business mix though with strong medium and long-term potential.

The disappointing performance in the period originated from Nutrition & Health that experienced weakness in the United States, the main contributor to this business, after years of very strong growth. This sector was adversely affected by base effects from exceptional conditions in 2013 for the green coffee bean extract with slimming effects (Svetol in the United States) and slower growth in the US market for dietary supplements in capsule and tablet form. This slowdown reflects the combined effects of customer destocking and increased competitive pressure.

In this context. Naturex's offering is in the process of being repositioned by focusing on the creation of value added nutraceutical solutions (reinforcing the offering of products objectivated by targeted clinical studies. as our cranberry range. for example) and on adjacent categories such as dietary supplements in the form of functional foods (offering in this way significant synergies with the F&B activity. as with the fruit and vegetables range. for example). Finally. strengthening our positions in markets outside the US will allow us to regain momentum in a very responsive market characterised by demand for innovation.

The structural and organisational changes implemented within the Group over nearly two years were indispensable. They have provided solid foundations for Naturex's next phases of development on a still buoyant market. bolstered by increasingly pronounced trends in favour of the natural. the “clean label” and well-being.

Under Olivier Rigaud's leadership. the Group will concentrate on addressing major operational challenges necessary to achieve sustainable and profitable growth by pursuing the following lines of action:
• Boosting commercial efforts to drive quality organic growth
By returning to growth in our major market. Food & Beverage. ramping up investments in emerging countries. launching the action plan to reposition the Nutrition & Health offering. continuing penetration of the Personal Care segment. between now and 2015 we will be able to achieve a better level of organic growth. and on that basis. profitability.
• Maximising the efficiency and profitability on industrial assets
The Group intends to leverage existing capabilities resulting from recent investments but also pursue the ongoing program to rationalise and optimise its industrial facilities. Along the lines of the Shingle Springs site closure in California in August 2014 resulting the recognition of a non-current expense in the third quarter (see below the detailed comments on the 9-month accounts).
• Strengthen controls over operating expenses
The results of initial efforts to reduce external charges are already visible for the period and are expected to remain ongoing throughout the Group.
• Significantly reduce working capital requirements
An action plan has already been launched with the prerequisites and organisation now in place and having as primary focus a significant reduction in inventories in the medium-term.

"These results are in line with those announced in the 2014 first half. They are disappointing as they do not yet reflect the first positive effects of the Group structuring measures that are masked by unsatisfactory performances of the nutraceutical segment in the United States". commented Naturex's Chairman. Thierry Lambert. "The Group is pursuing a broad-based program to return to profitable organic growth and strengthen our operating indicators and I am confident in our capacity to successfully execute this unifying project for Naturex.”

Olivier Rigaud. Naturex's Chief Executive Officer who joined the Group on 1st October 2014 added: "Since my recent arrival. I have been able to attest that Naturex's excellent image in terms of dynamism and know-how was fully justified. One of my priorities is to return to a path of organic growth and improve profitability. I will contribute my experience in these areas to Naturex teams focused on achieving this common objective that is essential to the future development of our Group."