Sometimes it takes a crisis to remove the blinkers from the eyes. In the world of investment, much emphasis is placed on profit maximisation and cashflow generation. This enables ‘sufficiently’ examined and certified individuals to make pin-point forecasts, whose accuracy, as history tells us, is often far from reality’s result. One of our companies, Symrise (http://www.symrise.com/), has been slated time and time again for not paring back its working capital and criticised for its sub-optimal capital allocation. That was until COVID, when Symrise suddenly found itself praised for its wisdom in bedding resilience into the business model to confront an increasingly difficult challenge – its supply chain.
Symrise is one of those extraordinary companies whose products adorn our shelves and cupboards without us having any idea of their existence. Listed in 2006, German Symrise was founded in 2003, and is now one of the top three global suppliers of fragrances, flavourings, cosmetic active ingredients and raw materials. Its clients include the perfume and cosmetic industry, food and beverage manufacturers, pharmaceutical companies and nutritional supplement players. It also makes pet food. With over 10,000 employees, Symrise has global presence in 40 countries, serving customers in 160 nations around the world.
Symrise sits in the portfolio as a High Quality company. Extremely well managed, Symrise’s product portfolio of 30,000 products are made from 10,000 raw materials. This means that Symrise needs to commit to sustainability and very high levels of backward integration, so its reputation with suppliers such as Madagascan vanilla farmers, French beetroot growers and valuable and fragile ingredient sources from the Amazon basin, are fundamental. The company has a Sustainable Sourcing Policy in place which not only focuses on traceability but also adopts a scorecard approach measuring KPIs such as water use intensity, greenhouse gas emissions and biodiversity issues. Symrise subscribes to the recommendations of the Roundtable on Sustainable Palm Oil and is a signatory to the UN Global Compact.
Symrise has said it wants to have 100% backward integration through some form of ownership of its strategic ingredients (these include pepper, cinnamon, cloves and vanilla). After the fire at BASF’s Citral factory in October 2017 caused a global shortage of the raw materials, the decision taken by the board to ensure continuity of its supply chain looked wise. (Citral is an important raw ingredient for essential oils like lemongrass verbena and citronella). Again, the analyst community thumbed their noses at the notion of what is now considered to be a practical way of building resilience into business models.
The company is sensible to pursue this avenue. In seeking to work shoulder to shoulder with vanilla farmers, onion, pepper and citrus fruit producers, Symrise can have a sustainable impact on all of its stakeholders. Not only can the company influence and enhance production, but it also is on the ground and can help provide work and improved living conditions for local communities. Circular production methods are becoming more prevalent with production by-products finding valuable use. Symrise intend to halve greenhouse gas emissions by 2025 from 2019 levels and be better than carbon neutral by 2030.
Symrise’s CEO is not just another suit. Dr Heinz Bertram also is also a farmer. He understands the hard work that goes into the production of a crop that is subject to weather and plague. All the farmers I have ever known have one eye on the horizon looking for rain or another form of risk. In a recent meeting with the company, we were told that Bertram has stated he would be the first to take a pay cut if necessary, a move reiterated by the Finance Director. We like this lead by example approach. Social performance is increasingly important. I wonder if those clever analysts, so quick to criticise Symrise’s business model, might learn a thing or two if they raised their eyes from their spreadsheets and looked towards the horizon.
Information is accurate as at 02.07.2020. Opinions constitute the fund manager’s judgement as of this date and are subject to change without warning. The officers, employees and agents of CIP may have positions in any securities mentioned herein. This material may not be distributed, published or reproduced in whole or in part.
Sources and References
 Company meeting note 200403
 Company meeting note 200403