Givaudan S.A.

Dear ladies and gentlemen, welcome to our 2024 half-year results conference call. The company news on our half-year results have been published earlier this morning on our website, where you will also find the slides for today's presentation and the half-year report. Tom Hallam and myself will take you through the presentation before we answer your questions at the end. Now, I'd like to start the presentation with a highlight and invite you to turn to page three. And so before moving to any numbers, first thing first, and let me start with the last bullet first. As you've seen the announcement this morning, Tom Hallam has decided to retire and will hand over the CFO position to Stuart Harris, effective August 1st, 2024. Along with my EC colleagues, I have very much enjoyed the great partnership with Tom as CFO over the last eight years, driving our industry-leading financial performance. Many of you on this call know Tom and can testify the great CFO he has been for Givaudan. I'm very confident it will continue with Stuart, who has grown in Givaudan over the last 15 years in many functions of our finance organization, and over the more recent past, driving the numerous acquisitions we made to their successful completion. Finally, it demonstrates the strong continuity we have at Givaudan in succession planning. Let's move now to the numbers. So I'm very pleased to present to you a strong performance in the first half of 2024, driven by a high level of sales growth in volumes across all markets, all segments, and all customer groups, which translates into a broad set of industry-leading financial results. These results once again highlight the unique position of Givaudan and the strategic choice that we have made to focus on an extensive range of highly value-added products and solutions which matter to consumers and hence support the growth of our customers around the world. In the first half year of 2024, we have reached sales of 3.7 billion Swiss francs, a growth of 12.5% on the like-for-like basis, and 5.7% in Swiss francs. The strong like-for-like growth was mainly driven by volume growth, and supporting a high level of profitability and cash generation. Our comparable ABTDA amounted to 929 million Swiss francs, lifting the ABTDA margin to 24.8% from 22.7% last year. Our net income increased by almost 31% to 588 million Swiss francs. And our free cash flow amounted to 197 million, corresponding to 5.3% of sales. Before Tom provides more details about our operational performance, let me focus on the sales performance in more depth on the following slides. Let's turn to slide four. On a life-or-life basis, our fragrance and beauty division grew at a stellar 15.3%, and our taste and well-being division grew at a strong 9.9%. As mentioned, the growth was mainly driven by growth in volumes at 9.2%, while the remainder of the growth was almost entirely the FX pricing, almost entirely due to Argentina. Real pricing was minor. Let's turn now to slide five. The sales evolution by market type shows a continued excellent performance in high-growth markets. At a rate of 20.5%, high-growth markets continue to outgrow mature markets by 3 to 4 times and now represent 46% of total sales. In particular, almost all key high-growth markets, namely China, Southeast Asia, Argentina, Brazil, Africa, the Middle East and Eastern Europe continued to grow at a strong double digit, while the remaining high-growth markets, such as Mexico and India, grew at a high single digit. The mature market grew like-for-like 6% against a low base of comparison, led by the continued resilient performance of Europe and a good recovery in North America. This demonstrates once again how Givaudan's geographical balance contributes to its natural hedges against demand cycles where timing and intensity can differ by geography. For a more granular view by region, let's now turn to slide 6. Latin America continued to show the highest life-for-life growth with 31.5%. driven by FX pricing in Argentina, but as you can see, we also continue to grow in Swiss francs, roughly 6.4%, which is a good proxy for the underlying growth. In Asia Pacific, like-for-like sales growth continued to an excellent momentum at 11.4%, with all key markets contributing to this growth, except for Japan. This good growth was achieved across both divisions. The EME region grew 11.4% on top of a strong 8.5% in the prior year. The strong performance continues to be broad-based in mature markets like Italy and Iberia, as well as in high-growth markets such as the Middle East. Finally, it's also encouraging to see North America posting positive like-for-like growth in the first half of this year. We have seen improving trends in the consumer products business in fragrance and beauty since late 2023, and now we also see that coming through in our taste and well-being business. Let's turn now to a divisional view on slide 7, starting with fragrance and beauty. For this division, sales amounted to 1%. 1,826,000,000, up 15.3% on the like-for-like basis, and 9.2% in Swiss francs. The strong growth was driven by continued excellent growth in fine fragrances and consumer products. Fine fragrances continued to grow double-digit against the strong comparable of last year, with strong contributions from both the existing business and the high level of new wines. The strong like-for-like growth of 17.3% in consumer products is driven by volume growth, a strong level of new wins, and achieved across all customer segments and all regions. The combined fragrance ingredients and active beauty sales increased 8% like-for-like with good demand for ingredient specialties and continued solid good growth in active beauty. Let's now have a look on the performance of the taste and well-being division on slide 8. Sales in the division amounted to 1,911,000,000, up 9.9% on the like-for-like basis and 2.6% in Swiss francs. On the regional basis, sales in Europe showed a solid like-for-like increase of 5.5%, South Asia, Africa, and Middle East, including India, continue to show a strong like-for-like growth at 12.5% on top of the strong double-digit prior year period. It's very encouraging to see positive like-for-like growth in North America, delivering 4.5%, and Asia Pacific at 9.3%. Latin America continues to show strong double-digit growth, driven by FX pricing, but also with very solid underlying volume growth. From a segment perspective, double digit growth was achieved in snacks and beverages and good momentum in sweet goods, dairy, and savory. Let me now move from the financial facts to other highlights around innovation and how we are addressing customer needs and consumer trends on slide nine. Innovation is our lifeblood. from creating differentiating solutions that address our customers' challenges to leading the way in areas such as biotechnology, sustainability, and digitalization. Our R&D activities allow us to provide our creation and development teams working on those briefs with novel technologies, differentiating ingredients which will make those bespoke solutions we develop with our customers win the brief and win the consumer. Let me highlight a few examples. In Fragrance & Beauty, we have launched Santoris Vanilla, consolidating the broadest collection of fragrance precursors in the industry, creating a long-lasting and high-performing non-colouring vanilla note, specifically designed for liquid detergents. We launched Nymfeal, a game-changing ingredient to create white floral fragrances now available on our perfumers' creations. In taste and well-being, we continue to work on new ingredients for alternative dairy, enabling our customers to use natural, proprietary ingredients that provide creamy mouthfeel and body for both alternative dairy and reduced fat and sugar dairy products. And we stimulate both divisions with the use of digitalization, for example, with our customer-centric health and nutrition hub, a new digital platform boosting co-creative innovative wellness expenses that consumers will love. And with that, let me hand over to Tom for more details on the financial results.

Thank you, Gilles. It has been a privilege to work for such a great company and with fantastic people. I wish Stuart all the best in the role. As always, Gilles has taken you through the strong business performance of the group, as well as the main aspects of the markets and regional developments. I will focus on the groups, financial performance and those of the two divisions. Let me start with the performance highlights on slide 11. Group sales for the first half of 2024 were over 3.7 billion Swiss francs, an increase of 5.7% in Swiss francs. The reported eBTDA increased to 906 million Swiss francs compared to 763 million Swiss francs in 2023. The strong eBTDA improvement also resulted in an impressive improvement in the underlying eBTDA margin, which increased to 24.8 percent compared to 22.7 percent in 2023. Net income was 588 million Swiss francs, an increase of 30.9% compared to 2023. The free cash flow as a percentage of sales was 5.3% compared to 2.9% in 2023. The absolute free cash flow was 197 million Swiss francs, which is a great improvement of 93 million Swiss francs. Net debt to EBTDA was 2.9 times, compared to 3.7 times at the end of June 2023, and 2.9 times at the end of 2023. In the following slides, we will cover the group's performance in further detail, as well as the financial performance of both divisions. Please turn to slide 12, which shows the exchange rate development for the period. This slide shows the comparison of the exchange rates in the first half of 2024 versus the same period in 2023. The Swiss franc has steadied against most of the major currencies in which the group operates, even though it continues to strengthen. Overall, from a profit perspective, the impact has been very limited because our operational and geographical spread continues, as always, to provide good natural hedges, and our EBITDA margin remains strong and well-protected against currency fluctuations. Please turn to slide 13, which shows the group operating performance. In 2024, the group's growth margin increased to 44.1% compared to 41% in 2023. The gross margin in the first half of 2024 improved as a result of higher cost absorption due to the higher volumes, as well as the margin improvement measures taken under the group's performance improvement plan initiated in the first half of 2023. EBTDA increased to 906 million Swiss francs in the first six months of the year. However, in this period, the group incurred costs of 23 million Swiss francs, largely related to costs incurred for the footprint optimization, as well as the competition authority investigation in the fragrance industry. Excluding these costs, the underlying EBITDA margin improved an impressive 24.8% compared to 22.7% in 2023. On the next two slides, I would like to spend a minute on the performance of our two divisions, starting with fragrance and beauty on the next slide. The division recorded 500 million Swiss francs of eBTDA in the first six months of the year, compared to 383 million Swiss francs in 2023. The eBTDA margin was 27.3 percent on a reported basis, and an excellent 28.1 percent on an underlying basis, driven by the extremely strong volumes. If you turn to slide 15, we will continue with the taste and well-being performance. Reported EBTDA increased to 406 million Swiss francs from 380 million Swiss francs in 2023. The reported EBTDA margin was 21.3% in 2024, and on an underlying basis, the EBTDA margin was 21.7%. Please turn to slide 16, which shows the net income of the group. The income before tax increased to 700 million Swiss francs from 516 million Swiss francs in the first half of 2023 as a result of lower non-operating expenses compared to the prior year due to lower mark-to-market adjustments on marketable securities and a reduction in foreign exchange losses compared to the prior year. The net income was 588 million Swiss francs, or 15.7% of sales. The group's effective tax rate increased to 16% in 2024, compared to 13% in June 2023. Basic earnings per share was 63.76 Swiss francs in 2024, compared to 48.69 Swiss francs in the first semester of 2023. Please turn to the next slide for the cash flow performance of the group. During the first half of 2024, Givaudan showed a strong free cash flow when compared to the same period last year. The group recorded a solid free cash flow of 197 million Swiss francs or 5.3% of sales compared to 104 million or 2.9% of sales in 2023. The operating cash flow of the first six months of the year was 427 million Swiss francs compared to 340 million Swiss francs in 2023. an increase of 25.6 percent. The group continued its investments to support the growth in all markets. As such, total net investments was 127 million Swiss francs in the first half of the year, and as a percentage of sales, net investments was 3.4 percent compared to 3.6 percent in 2023. Working capital decreased to 29.1 percent of sales compared to 31.2 percent in June 2023, as the company continued to focus on reducing inventories whilst managing all other working capital items. Please turn to slide 18, which shows the debt profile. The group continues to have a well-balanced debt profile with a weighted average effective interest rate of 1.96 percent compared to 1.83 percent in June 2023. Furthermore, this slide shows the majorities of our debt profile. Net debt to eBTDA was 2.9 times compared to 3.7 times in June 2023, and was flat against December 2023. With this, I would like to conclude my part of the presentation and hand back to Gilles. Thank you, Tom.

So let me now come back to our 2025 strategy and the outlook on the next slide. As a reminder, allow me to highlight the key features of our 2025 ambitions. We are committed to growth with purpose creating for happier, healthy lives with love for nature. We are placing customers at the heart of our business, supporting them to grow and create products that are loved by consumers. The 2025 strategy is focused around three growth drivers, expand the portfolio, extend the customer reach, and focus market strategies. Now let me highlight the expanded portfolio as we recently announced the full acquisition of B-Color in Italy. Gibodon has already a strong exposure to the quote-unquote beauty world, with leading positions in the key traditional categories of fine fragrances and personal care. Ten years ago, we entered successfully in the space of skin care with active ingredients and as such building a business of roughly 150 million. with addition of B color. We continue expanding in skincare, but we will also now enter in the remaining space of beauty, makeup. This presents an exciting growth opportunity for Givaudan to leverage its deep market knowledge and establish relationships in the fragrance industry with our clients. On slide 21, you find the performance commitments of the 2025 strategy. We have completed now 3.5 years of our five-year strategic cycle, and our performance thus far reconfirms our strategic choices. Givaudan's 2025 strategy consists of ambitious targets aiming to achieve like-for-like sales growth of 4% to 5% and free cash flow above 12% on an average basis over the five-year period. In addition, the company aims to deliver on key non-financial targets around sustainability, diversity, and safety linked to our Givaudan's purpose. Our focus remains on implementing our 2025 strategic focus areas guided by our purpose. We remain confident in our plan and have the right foundations in place to continue growing with our customers. Let me finish now with the 2024 outlook on slide 22. We are very well positioned with our capabilities, the quality of our portfolio, and our creative strength to deliver on our 2025 strategy. Our natural hedges across the portfolio, segments, regions, and markets provide a healthy balance. For 2024, the increase in input costs for the group is expected to be minor, however, with continued pressure in some key naturals. Our proactive approach with the performance improvement program delivered first results in 2023 will maintain a strong focus on operational excellence, reviewing the manufacturing footprint, particularly in taste and well-being, in the next two years of the strategic cycle, whilst emphasizing business continuity to navigate in a volatile geopolitical environment. We expect the associated cost to this program of around 50 million in 2024. With that, we arrive now at the end of our 2024 half-year results presentation. Let me hand back to the operator for the instructions to open the Q&A. Tom and I look forward to taking your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and 1 at this time. The first question is from Nicola Tang from BNP Paribas Exxon. Please go ahead.

Hi, everyone. Thanks for taking the questions, and, Tom, big congratulations. I'm wishing you the best. The first question is on the margins. I was wondering if you could just remind us of the usual half-on-half seasonality, because I think H2 margins tend to be a bit weaker than first half. Should this same seasonality apply this year or not? Are there other factors around catch-up on net pricing and self-help still coming through in the second half, which might change that H-on-H dynamic? And specifically in fragrance and beauty, I think you typically have less half-on-half margin seasonality than on the taste and well-being side. Should we expect that to be the case this year, or are there exceptional impacts driving that super strong 28% EBITDA margin in the first half? And then maybe a second one, perhaps you could talk a little bit about volumes. We've talked about how customers this year are really focused on driving volume growth. I was wondering whether you think any of the H1 strengths might be linked to customers, you know, stocking or buying up ahead of promotional activity, or whether you think this is really a recovery in terms of underlying volume demand. Thank you.

So maybe, Nicola, I take the margin first, and then I hand back to Gilles on the volume. So you're absolutely right. I mean, in a normal, what we would call a normal year, you know, we normally have a stronger margin in the first six months than we do on the full year, you know, for a very, very simple reason that, of course, there's less invoicing days in December. If you look historically, our margins have been about 100 bps lower on the full year compared to the half year. And as I said, I think we're more in a normal year environment. There's nothing exceptional to come in the second half of the year. You know, we had a small tailwind of around 20 million in the first six months of the year, which was really related to the improvement program that we put in place at the beginning of last year. Just as a reminder, we had 40 million in the first, in the second half of last year, and 20 million in the first six months of this year. On the fragrance margin, you know, as you say, I mean, it's really an exceptional performance. You know, I think there's really two factors to consider. I mean, the volume growth is really significant, and that helps on the operational leverage. The second reason is, as you know, in our business model, we have quite a churn in the portfolio, and particularly on the fine fragrance business where the churn is higher. And this allows us to what we call reset the margin much more quickly on the fragrance side than we would expect on other parts of the business. So that's really the reason why the margin is so strong. the operational leverage, and the churn of the portfolio. On the outlook for fragrance and beauty, and we've talked about it in the past, I think we're very happy with where we are on the margin on fragrance and beauty. We have more work to do on the taste side. I think on the fragrance and beauty side, it's now more about investing in the growth opportunities, and we will continue to do that as we've always done in the past. And with that, I'll hand it back to Gilles on the volumes.

Yeah, Nicolas, thank you for your question. Yeah, I guess, you know, on the volume growth, I think, you know, rather than trying to generalize what's happening in the first half of the whole of Givaudan, I think what can be helpful is to split Givaudan in different parts which behave in different ways. Meaning, if you take the fine fragrance part, you know, as you know, which is roughly 10% of Givaudan, This is not a business where clients stock up. This is all driven basically by growth. I think the double digit growth that we have seen for the last four years is reflected by what our clients sell, reflected by what consumers consume. And given the fact that there was no sort of de-stocking in fine fragrances last year, you cannot argue that there is enough stocking or anything. So the dynamics are very different. And as you can see, the momentum we see on Givaudan with this double-digit growth still around 15%, again, you know, reflects a great performance driven by the market, but also driven by the fact that Givaudan has a very unique position where we are exposed to different areas of growth, whether on the prestige side, on the specialty side in the U.S., or the LATAM and especially Samea, which is growing very, very strong double digits with a lot of local and regional clients. So, again, you know, it's a healthy growth, which, you know, cannot call on, you know, it's very specific. then you have, I would say, the whole space of what I would call the things which we sell as ingredients, and that includes the fragrance ingredients, plus active beauty, plus the taste and well-being ingredients which are sold as ingredients, and in a way, which are very much a business which is not a just-in-time business, which is really following a different business model than the compounds on fragrance and taste. And this part is also, you know, very much driven, you know, especially by the supply chains of our clients. And I would not, you know, see them as, again, was not impacted by any destocking last year and upstocking this year, whatever those types of models. And that accounts for roughly, I would say, another 10% of Givaudan. So then you have the compounds business both on taste and well-being and fragrances. And there, I would say that, again, we have to split between taste and well-being, where you remember we saw a lot of destocking. Volumes were negative last year for the division. So the growth that we see now gets us into a sort of a over a three-year period, gets us into a normal pattern of volume growth. you know, so I would say that, you know, it's not about destocking, restocking. It's over time you see that, you know, we are back to sort of a more normalized growth of volumes in taste and well-being. And then the final part, you know, which is consumer products, which had less, which are in fragrances, which had less destocking last year. Actually, it was almost a break-even. We see a very strong increase let's say, market with our clients in HPC, in personal care. And so the growth that we have reflects a bit what our clients are seeing. So that's a bit what we can say. And the thing about the other element, promotion that you mentioned and so forth, which I call the reverse of shrinkflation. So two for one and those types of promotional, we benefit a lot from that because obviously as opposed to shrinkflation, where if you sell two for one, sorry, if you reduce the quantities in the product, there we got impacted last year. So it's the reverse of the shrinkflation, which where we benefit, so that's also something that is very much beneficial for us. So to finalize the answer, how much is restocking and so forth? Yes, maybe there is a bit of restocking because our clients believe that they need obviously to grow in volumes, you know. So certainly that has an element, but is that unhealthy? I don't think so. And also to finish on this, don't forget that we also have half of our business, actually more than half now, 55% of ourselves are with local and regional clients. and for the vast majority who don't publish their figures, and those clients are growing very much. So even though our global clients are growing, I would say that it doesn't reflect the entire dynamics of the market, and we are growing very strongly, again, with the L&R. So I hope it gives you a bit of a picture there on what's going on, but I think it's better to split the whole of Givaudan into at least three or four slices.

That's great. Thank you so much.

The next question is from Alex Sloan from Barclays. Please go ahead.

Yeah, morning, gentlemen. Thanks for taking the questions too from me, please. Tom, congrats and best wishes on your retirement. I noticed Stuart has a background also in chairing a startup in pet care. I wondered, could we read anything into this in terms of increased appetite from Giverdan to become a bigger player in supplying this end market and any implications for M&A more broadly given his background? And the second one, just in terms of the packaged food end market, I mean, volumes here continue to be quite weak despite relatively easy comparatives from that destocking last year in terms of the end market. Do you expect improvement in end market volumes in the second half on the back of increased promotion investments by your customers? Do you think there's anything more fundamental behind the weakness in packaged food and market volumes perhaps relating to more scratch cooking, avoidance of processed foods or the GLP-1 weight loss drugs? Thanks.

Yeah, so on the first question, you know, well, pet food, as you know, is an interesting space. We are in pets, but not in pet food. You know, in the fragrance and beauty division, we take care of cat litters and things and applications such as that. So it's really, you know, on the pet food side, interesting space, which is growing strongly, as you know. So, yes, you know, we could have some... not necessarily to acquisitions, but it can be to innovations and basically offerings that we could make around that. Can't comment more about that. On the packaged food, I mean, as I said, we obviously have a low compromise on the volume growth, and today we are plus 6%, 7% in volumes in taste and well-being, which is very encouraging. I would say like, you know, let's see what our, you know, we're always publishing before our peers, before our clients. So let's see what they publish in terms of, again, reporting on the food and beverage clients, you know, how they do on the sales. But again, be very cautious that, you know, that those publications only give a very partial view of the market, because those usually are large clients, and you can't see what the local and regional clients are doing, and where we have a lot of exposure. So Givaudan is exposed to packaged foods, but again, it's also exposed to anything related to healthy food, nutrition, and all of that, where those trends are very strong, and that's why we are very confident in our positioning in the taste and well-being division going forward.

Thanks very much.

The next question is from Celine Panotti from JPM. Please go ahead.

Good morning, and thank you for taking my question. First of all, I would like to relay as well my gratitude to Tom for being a great CFO and great partner to the market. So I wish you, Tom, a very good retirement, and congrats to Stuart. My first question for Gilles, I wanted to know, given what you said on your comprehensive answer to the first question, if I look at the four or five-year stack on the volume side, it would mean that we should see quite still a strong volume growth in H2 above the single-digit growth that probably we see mid-term. for Givaudan. Would you agree with that? And then my second question may be more for Tom. The taste and well-being margin is rather weak, even though there has been volume growth, and you mentioned some of the cost saving activities. Could you explain exactly what's happening there and when we're going to see maybe an uptick in this margin? And also, could you help us understand the FX impact on pricing? Because the Argentine peso has been still weakening year on year. If I look at Q2 versus the weakness versus Q1, yet there's been a sharp deceleration. If you could explain that to us and how we should look at the full year impact on that basis. Thank you.

Okay. Thank you, Céline, for your question. So on the first one, Well, as you know, we don't and we can't give a precise outlook for H2, if that is your question. Obviously, we started very strongly with the first half of this year. The things I can say, because we measure them and we have a view on them, and two or three things. One is the fact that the business momentum continues, as I speak. Now, it doesn't mean that... it will be at the same pace of six months, because I don't know, but based on the orders intake, based on the activity, based on the outlook that we have, it remains strong. The second thing I can say is that not only the brief pipeline, but what we call the projected new wins, meaning all the new wins that we win, are substantially increasing on both divisions and that testified for two things. One is the activity of our clients and their confidence in the future because you innovate, you launch new products, you have confidence in the future. And two is the ability of Givaudan to basically win more than our fair share in terms of briefs, which is You know, let's see how competitors are doing with the first half, but obviously if you look at Q1, clearly we were gaining market share. You know, we are confident that continues in the Q2, but the amount of new wins is also a good indication, good proxy, and that's what we are committed on is to re-outgrow the market as well. So that's the elements we control, the elements we measure, the elements we know. Now, your comments on the four to five years back, I'm not so sure I understood your question, but it's true that if you look at the long period of time, the CAGR is like a Swiss clock. Yes, there is a lot of regularity. Even if you take out price increases, we are always delivering actually today more than 5%. So that gives us a lot of confidence into the future and also because of the unique position that Givaudan has.

Thank you, Gilles, and Celine, thank you for the comments and the two questions. So, firstly, on the eBTDA margin for taste and perhaps a bit of a comparison to fragrance and beauty, you know, the first point to really mention is, you know, and I think Gilles already highlighted, if you look on the volumes on taste today, you know, we've got a fantastic growth, but Of course, last year we had negative volumes, so we're really just back to almost like a normal level in terms of capacity compared to fragrance and beauty where we have really a very strong growth, and that helps on the operational leverage. On the taste side as well, even in the first six months of the year, we have a small amount of price increase because we have raw material inflation mainly on naturals, And so there's a slight dilution on the margin, simply as we are protecting the absolute EBTDA. Now, to your question on the outlook, and I think we've been pretty consistent on this, you know, we are taking a number of steps, and Gilles outlined them already in terms of the footprint. We expect the margin to improve over the next 18 months. You know, historically, the two divisions have had similar margins. Now, I don't think you should be putting taste margins where the fragrance margin is today. But if you look over the long term, you know where our sweet spot is in terms of the margin. And that's typically somewhere between 22% and 24% over the long term. On Argentina, maybe I'll just give you the numbers so that it's transparent for everybody. So in Q1, we had FX pricing of 3.4%. In the half year, we had FX pricing of 2.9%. So that implies that for Q2, the FX pricing was around 2.5%. I think what we said in the Q1 conference was if the peso stays where it is, and that's a big if, then we would expect something like 2% to 2.5% for the full year in terms of FX pricing.

And to add on Tom's comment, that also means that we have a sequential improvement in volume growth in Q2 versus Q1.

The next question is from Daniel Burkey from ZKB. Please go ahead.

Hello, Gilles. Hello, Tom. Also, Tom, congratulations on your great career. You made it. Now to my questions. First, the non-operating income. This is always difficult to model. It was 30 million plus. Could you elaborate a little bit on this? What can we expect for the second half and maybe also for 2025? And then regarding the optimization of the footprint. So far, you just announced that you sold a factory in Valencia. Will you announce more measures, or is this just something happening in quiet over the next 18 months? Thank you.

Yeah, thanks, Daniel, for the two questions. So on the non-operating, so perhaps I split between, let's say, the financial expense, which is mainly interest, And for this, you can more or less take the first six months and double it for the full year. Then on the other non-operating, as you said, it's mainly FX. So you're right, we had a $30 million gain in the first six months. If we look at the positions that we've taken today and where we stand from a balance sheet perspective, that probably is going to be something like $45 million for the full year income. But that's, you know, of course, it depends then what's going to happen from a currency perspective over the next six months. But where we sit today, that $30 million income would be $45 million for the full year. Then on the footprint, as you said, we mentioned one closure, actually the sale of a site. You know, what we tend to do is, you know, we've done some silent closures. We will have probably some more public announcements over the next few months. So it's a bit of a mixture, but we have a very, very clear footprint plan that we plan to execute over the next few months. And that's, as I said, what we're working on from a margin perspective today.

Thank you. The next question is from Arben Azanay from Von Tobel. Please go ahead.

Good morning, gentlemen. And also my best wishes to you, Tom, for your retirement. I would have two questions. The first one would be around the North American market in taste and well-being. So there I was wondering if you can provide any color on the channels, especially retail and food service, if there are any differing trends there and what is the exposure of Givaudan in terms of those channels? And the second one related to those improvement measures. So do you have any, let's say, run rate of savings that you expect by the end of this year and maybe also next year, if you can share anything? Thank you.

Yeah, thank you. So on North America, so, you know, the exposure, so basically what are we doing? So we are, you know, essentially, again, you know, acting on what we can influence and control, which is really the activity on briefs, on pipeline, and winning those projects with our clients, you know, and winning more than our fair share. And this is really... very instrumental and the only way to do better than what the market does and we are making great progress on that uh with all the the wide range of of clients uh so this is very uh this is very encouraging uh very encouraging project in terms of market you know the channel you're referring to What I see, what we hear, is that there is a bit of softness on the out-of-home type of consumption, which deals with, obviously, food service. But as you know, anything that we flavor, when food service slows down, the in-home, in-house sort of packaged foods increases. One compensates the other in a way. But the amount of food service versus the rest is actually not minimal, but it's really the minority of what we do in the U.S. and overall in the world. So that's a bit what we can say. You know, still a lot of activity also around, yes, you know, packaged food, but really about the health, you know, and wellness type of platforms. You know, on nutrition, yes, the... Whole protein, obviously, alternative proteins had slowed down in 23, but more on the animal proteins replacement as opposed to the dairy proteins replacement, which is still very active and where we have a lot of projects. So that gives you a bit of color, you know, very, as I said, you know, quite good momentum overall, not only in the U.S., but around the snacks and the beverage market. segments of the taste and well-being division.

And having just on the margin, I mean, we try and keep it simple for ourselves and for you as well. Maybe the best indicator is what we've said in terms of where we want to be on margin. So, you know, we like to be at this sweet spot of somewhere between 22%, 24% on the margin. We expect to get there over the next 18 months. And that's in, you know, as I've mentioned quite often, that's in both divisions. So, you know, we have opportunity on the taste side. And I think, you know, we've got a strong track record of delivering on what we say. And if you look at our results, even over the last 18 months, you know, we made – we took some actions on – in the first half of last year. and we deliver the savings. And as I said, we're continuing to do that on the taste side as we speak.

Thank you.

The next question is from Georgina Fraser from GS. Please go ahead.

Hi. Thank you. Hi, Gilles. Hi, Tom. And yes, also to extend my thank you to Tom and all the best for the next chapter. I've got two questions. the first is could you please talk about your raw material procurement strategy highlighting if you've got any particular geographical dependencies and where you're buying raw materials from and if there are any measures that you're already taking given the rising possibilities of global tariffs of goods around the world and then my second question is looking at the balance sheet would you agree We're making quite a good dent in improving your leverage position this year. So, Tom, you're handing over to Stuart quite a healthy-looking balance sheet. If you could just talk us through how Givaudan is thinking about its capital allocation priorities in the context of delivering very strong growth, what would you see as the best usage of your balance sheet going forward? Thank you.

Yeah, thank you. So I'll take the first question. You know, our raw materials procurement strategy, you know, first what you have to take into account is that we are in an industry which is highly specialized. You know, so ourselves, we buy 15,000 different ingredients, but for any of those ingredients, you don't have 1,000 different sources. Obviously, every natural, you have to source it from very specific countries because that's basically with... what nature governs in a way. And on the sensitics, obviously there is a high dependency on China where you have a lot of suppliers, but you see a lot of diversification on the synthetic sourcing with India or even in Europe. The way we, because it's so specific, the way we do it is that the first criteria is not necessarily the geopolitics. It's really to make sure that we build alternative supplies, that we have backup plans, that we have to actually make sure that not only we protect our supply chain, but we are also effective at creating a competitive environment with our suppliers. So that's really what... what we do with the procurement strategy. It doesn't mean that we don't look at geopolitics, because obviously we cannot interrupt supply chains. If you remember the whole situation, which was not driven by geopolitics, but the Citral with BASF a few years ago really had put the whole industry upside down. And therefore, we had to find a lot of alternatives. So we are doing that on a continuous basis, proactively building business continuity plans, alternative supply chains, and so forth. And so far, I think we've been very good, you know, protecting our clients in the first place, making sure that the service levels, you know, are not dented by any disruptions in our supply chains. And Tom, on acquisitions?

Yeah, thank you, Gilles. And so, Georgina, thanks for the question. I hand the purse strings over to somebody like yourself, a fellow Scot, so in very, very safe hands. You're absolutely right on the balance sheet. You know, we've continued to deliver. You know, even in the first six months, it's reassuring to see the strong cash flow generation. You know, the net debt EBITDA is 2.9 times higher normally, which is actually flat compared to December 2023. Normally, the net debt goes up because we pay the dividend, but actually, we're flat net debt June to December. Now, in terms of capital allocation going forward, you know, I think the first one, as you've seen historically, very, very strong practice of returning cash to the shareholders. with a year-on-year increase in the dividend. Then the second element is really the bolt-on acquisitions, and I think we've had a fantastic track record of the M&A. If you look at where we're focused from an M&A perspective, three areas. The first is local and regional clients, as Gilles mentioned a couple of times. We've had fantastic growth in the first six months of the year, driven by local and regional customers. and that will continue to be an area of focus for M&A. On the fragrance and beauty side, you know, bee color is a great example of us moving more into the beauty space where we see growth opportunities. And then on the taste side, natural ingredients, you know, again, consumers spending more on natural ingredients, and this is a great space to be. Then Clearly, I can't comment for the long term, but if you look historically, if you go back sort of 10, 15 years, when we delivered the balance sheet below a certain level at a certain point with no M&A opportunities, we, of course, increased the dividend to shareholders.

With this, I think we'll take the last question.

Today's last question is from Matthew Yates from Bank of America. Please go ahead.

Hey, thanks very much for putting me in. I think it was in response to Nicola's question earlier. He encourages us to dive into a little bit of the sub-segmentation, so I wanted to follow up on that on two aspects. The first was beverages with the double-digit growth. Is there any kind of thematic driver behind the strong growth in the category and in areas where Givaudan is particularly well positioned to capitalize on that? And the other part of the business was really consumer products within fragrance. My numbers might be a little outdated, but I think something like 40% of that business was fabric care. Can you talk about that as a category? Are you seeing strong growth in terms of dosage levels, reformulation, or anything that would reassure you that this simply isn't just a restocking phenomenon at play?

Thank you. Yeah, so the first question, you know, on beverages, historically, actually, it's in the DNA of Giraudan. Givaudan is very strong in beverages. You know, that's a bit, not only our legacy, but it dates back many, many, many years ago. That was really the very strong positioning of Givaudan at its heart. You know, then we diversified with savory and with the help of the acquisition of FIS from Nestlé 20, plus 20 years ago. So beverage is really at the heart of Givaudan. What does it mean? It means, you know, the knowledge that we have, you know, with our flavors, the applications, but also fueled by all the things that went on on health and wellness, taking sugar out, you know, sweet, but also nutrition and sports drinks and then alcohol, you know, shots that we saw in the U.S., you know. So basically it's a space where we have always been very strong, fueled also by a very strong relationship we have with a lot of beverage clients. that we have entertained and maintained for many, many years. So this is really a strong position. The fact that it's double-digit has a lot to do also with the fact that the market is growing nicely in beverages. And I would say that we are very well positioned in an attractive market going forward. It's roughly 30% of the whole taste and well-being. On consumer products, so yes, as you can see, it's a very strong momentum. So the fabric care that you mentioned is less than 40%. It's more in one-third of the consumer products. And there, Giraudan has also a very strong position around fabric care, fabric detergents, powder, liquid, fabric softeners. And there, we say that the environment is certainly fueled by the fact that as we have, as our HPC clients, looking at volumes growth, understanding fully the importance of fragrance to attract consumers, basically, and then we don't have the transparency, but we suspect that they increase the dosage level, and we also see that, let's say, they put more value into the, what we call into the juice, because we see that with briefing pricing points and so forth. So there is certainly an environment today where a very positive environment around fabric care, but not only fabric care, you know, it applies also with the other segments, where as you want to attract consumers, as you want to fuel volumes growth, you know, smell and fragrances being the leading attribute for a consumer to re-consume the same product, All our clients are putting their effort there and that's very welcome and we see that. So there's certainly a very positive trend. And to that I have to add technology which applied especially on the fabric care with two things. One is encapsulation where Givaudan has a very leading position in encapsulation technologies and especially biodegradable capsules which makes the whole fragrance much more effective. something called precursors. We have at least 10 precursors that we launched, new precursors, which are a bit doing the same as seeking the same goal as an encapsulation technology where precursors are there to, when they cleave on fabric or even on hair with healthcare applications, boost the fragrances. And this is, again, technology that we have worked for many years and which now comes fully embraced by our clients. So all of those things, you know, gives us a good momentum and a very good position in this space.

Thanks so much.

Okay, so that concludes our Q&A session. Thank you very much for your interest and questions. I'd like to remind you that we look very much forward to welcome you at our Summer Investor Conference on the 28th of August, 24th. in the traditional Wider Hotel in Zurich. This year we'll talk in more details about our active duty business. I think it's been a formidable, I would say, entrepreneurial story that we have embarked 10 years ago, building a great business, and now embarking into a similar, let's say, journey with Makeup, with the acquisition of Bicolor. A very interesting topic to discuss and present to you at the end of August. In the meanwhile, I wish you a very good summertime and inviting you, obviously, to register for the events on our website or send an email to our investor relations team. Thank you very much.