Givaudan S.A.

Ladies and gentlemen, welcome to the GIVODOWN 2025 Half-Year Results Conference Call and Live Webcast. I am Moira, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gilles André, CEO. Please go ahead.

Thank you. Dear ladies and gentlemen, welcome to our 2025 Half-Year Results Conference Call. Stuart Harris, our CFO, is sitting next to me on this call today, and we will take you through the presentation before answering your questions at the end. All relevant documents related to the 2025 half-year results, including the slides we are presenting now, have been published this morning and are available in the results center on our Givaudan website. So, we are very pleased with our continued strong financial performance in the first half of 2025, despite an environment with ongoing geopolitical and macroeconomic challenges. sales remain strong with good growth across all business segments, all geographies and customer groups against very strong prior year comparables. These results once again demonstrate the value that Givaudan brings to its customers through our highly specialized products and solutions. Now, let me give you some details with the performance highlights on slide four. In the first half of 2025, the group recorded sales of 3,864,000,000 Swiss francs, an increase of 6.3% on the like-for-like basis. As a reminder, prior year was 12.5%, and an increase of 3.4% in Swiss francs. Like-for-like growth was mainly volume-driven with a very slight contribution of pricing. The strong sales growth was achieved across all business segments, geographies, and customer groups, supported in particular by the continued outperformance in fine fragrances, the high-growth markets, and the sustained strong growth with local and regional customers across the two divisions. Our comparable EBITDA amounted to 973 million Swiss francs, leading to a record comparable EBITDA margin in a half year of 25.2% up from 24.8% in 2024. The net income amounted to 592 million compared to 588 million last year. The free cash flow in the first half was slightly negative. This is due to the timing effects of capital expenditures and tax payments, but we remain very confident to achieve our mid-term target of an average free cash flow greater than 12% for the five-year strategic cycle ending this year. Now, before Stuart will share more details about the operational performance, let me give you some more details. In the first half of 2025, sales remained strong with good growth in all business segments, geographies and customer groups, against the very strong comparable of 2024. The group's like-for-like sales growth was 6.3%, mainly volume-driven, while the contribution of pricing plus FX pricing was below 1%, a similar level in both divisions. Fragrance and beauty sales were 1,955,000,000, an increase of 8.6% on the like-for-like basis. As a reminder, the prior year was 15.3% and 7% in Swiss ranks. Taste and well-being sales amounted to 1,909,000,000, up 4.1% on the like-for-like basis. Prior year was almost 10%. And it was flat in Swiss francs. Well, we have not yet seen performance from our peers for the first half. We have clearly outperformed them during the first quarter by showing, on average, a life-or-life growth twice as fast. And despite the fact that we have been facing a much tougher comparison base. As you can see on slide six, High-growth markets continue to outpace mature markets by a multiple of three times, leading to an almost equal absolute size in sales in the first half year of 2025. Key growth markets such as India, Brazil, the Middle East market, and China continue to contribute to the strong performance of the high-growth markets. We also achieved a solid growth in mature markets of almost 3%, led by the continued solid performance in Europe and a sequential improvement in North America. Let's now have a look at the regions in more granularity on the next slide. We have seen a continued strong growth in LATAM of 9.4% on the like-for-like basis, driven by the underlying strong volumes growth as the FX pricing is abating. The largest region, Europe, Africa and the Middle East, EME, sustained a strong growth of 8.6% on top of the double-digit growth recorded in the prior year. Asia-Pacific grew by 5.3% on the like-for-like basis, with strong growth in Japan and China. And finally, North America continued to be volatile, but showing a sequential improvement in the second quarter, leading to an 1.7% increase in like-for-like for the first half. Turning on a divisional view on slide 8, starting with fragrance and beauty. Sales amounted to 1,955,000,000, up 8.6% on the like-for-like basis, again reminding the comparable of 15.3%, and 7% in Swiss francs. The strong like-for-like growth remained broad across all segments, regions, and customers with particularly strong performance in the high-growth markets and with local and regional clients. Fine fragrances continued its strong growth momentum at an impressive 18%, and while we continuously said that we shouldn't expect fine to continue to grow double-digit on top of a double-digit, We like to be proven wrong again. The remarkable success in this segment is underpinned by an over 12% growth cager since half year of 2019. In fact, we achieved almost as much sales in the first half of 2025 as we did for the entire year in 2019. In other words, we doubled our fine fragrance business in the last five years. The consumer products business maintained a strong performance despite the challenging comparison base of 17.3%. The 6.1% like-for-like growth aligned closely with the long-term CAGR for the segment, which is what has been around 6% to 7% from 2018 to 2025. Fragrance ingredients and active beauty cells increased 5.7% on the like-for-like basis, with continued strong double-digit growth in active beauty, but which was offset by a softer performance in fragrance ingredients. This reflects an overall softer demand from the market. Let's move now on the taste and well-being division on slide 9. Sales for the division amounted to 1,909,000,000, up 4.1% on the like-for-like basis and about flat in Swiss francs. the good growth was broad-based across regions and segments. On a regional basis, particularly Samia, South Asia, Africa, and Middle East, continued to show an impressive growth of 12.7% on the top of a similar high growth in the same period last year. Positive as well to mention that North America, where after a soft start in Q1, The growth momentum has sequentially picked up, leading to a 2% growth for the first half. Europe and Latin America continue to show solid growth of 4.2% and 4.1% on the like-for-like, respectively. Asia-Pacific experienced a more modest growth of 2.1% like-for-like. The prior year was 9.3%. And while we have seen a continued good growth in key markets such as China and Japan, this reflects the high comparison base from the previous year, particularly in the Southeast Asian markets such as Indonesia and Thailand, which are the two largest markets in Southeast Asia. Now let's shift from the financial highlights to key innovations which support customer needs and key consumer trends as shown on slide 10. Innovation is core and essential to us, enabling us to create unique solutions that tackle our customers' challenges while leading in biotechnology sustainability or digitalization. Our R&D efforts equip our creation and development teams with cutting-edge technologies and distinctive ingredients, ensuring that the tailored solutions we develop resonate with both our customers and the end consumers. Let me highlight just a few examples. MyRomi is an innovative tool developed by Givaudan, leveraging advanced technology to enhance fragrance creation processes. It combines artificial intelligence with deep consumer insights to help perfumers design unique and personalized fragrances that resonate with consumer preferences. As consumers increasingly seek natural options, particularly in the U.S., EverZero, Galderia stands out by offering vibrant, sustainable color solutions derived from nature. Notably, it has received FDA approval ensuring its safety and compliance for use in food and beverage applications. This aligns perfectly with the current regulatory changes and the growing demand for clean label products. With the new ingredient Sherry Scents, we empower perfumers to craft captivating scents that evoke sensuality in their creations. By blending artistry with advanced technology and a commitment to sustainability, we enable them to explore new dimensions of fragrances. And finally, last but not least, related to our active beauty business, Éve & Nartille transforms fresh algae into a high-precision beauty ingredient that combats skin aging and promotes youthful skin. This innovative formulation harnesses the power of nature, delivering exceptional benefits that enhance skin vitality and resilience. And with that, I now hand over to Stuart for more details on the operating performance.

Thank you, Gilles. I would like to add my warm welcome to all of the participants on this morning's call. On the following slides, I would like to give an overview of the group's operating performance and that of the two divisions, as well as the financial performance of the group. Let me start with the financial highlights on slide 12. As Gilles has already mentioned, group sales in the first six months of 2025 increased to 3,864,000,000 Swiss francs. an increase of 6.3% on a light-for-light basis and an increase of 3.4% in Swiss francs. The reported ABTDA increased to 945 million Swiss francs compared to 906 million Swiss francs in 2024, an increase of 4.4% in Swiss francs or 9.7% when measured in local currency. On a comparable ABTDA basis, the underlying ABTDA margin increased further to 25.2% compared to 24.8% in the first six months of 2024. Driven by this continued excellent operating profitability, the net income increased to 592 million Swiss francs, and the net income margin was 15.3% of sales. The free cash flow of the group was slightly negative in the first half year of 2025, mostly due to timing effects of investments and tax payments. The net debt to ABTDA was at 2.5 times at the end of June, compared to 2.9 times at June 2024 and 2.3 times in December 2024. Please turn to slide 13, which shows the overview of the exchange rate development so far in 2025. This slide shows the comparison of the key exchange rates in the first half of 25 versus the same period in 24. In the current year, the Swiss franc has again strengthened against all major currencies in which the group operates, with a corresponding impact on the group results in Swiss francs. However, the impact is mitigated due to our operational and geographical spread, providing good natural hedges, and our ABTDA margin remains well protected against currency fluctuations. Please turn to slide 14 for an overview of the operating performance of the group. The gross margin was stable at 44% in the first half of 2025 compared to 44.1 in the first six months of 24, with continued good operational leverage offsetting higher input costs, including those from global trade tariffs. The company is continuing to implement price increases in collaboration with its customers to offset such higher input costs, with a minimal mechanical dilution effect on the gross margin. On the ABTDA level, the ABTDA was 945 million Swiss francs in the first half year 2025, compared to 906 million Swiss francs in the same period last year, an increase of 4.4% in Swiss francs, or 9.7% when measured in local currencies. The comparable ABTDA margin after adjustment for acquisition, restructuring and project-related costs of 19 million Swiss francs and 9 million Swiss francs of costs related to the 2024 accident in Louisville was 25.2% compared to 24.8% in 2024. On the following two slides, I'll take you through the operating performance of the two divisions. And if you turn to slide 15, we'll start with Fragrance and Beauty. Cravenson Beauty recorded an ABTDA in the first half of 2025 of 525 million Swiss francs, compared to 500 million Swiss francs in 2024, an increase of 5.2%. The division incurred acquisition, restructuring and project-related costs of 15 million Swiss francs, compared to 14 million Swiss francs in 2024, mainly due to costs incurred in relation to the ongoing Competition Authority's investigations. The comparable ABTDA margin of the division was 27.6% in 2025 compared to 28.1% in 2024, a continued excellent result despite higher input costs and growth-related investments. If you would now turn to page 16, I will take you through the operation performance of Taste and Wellbeing. Taste and Wellbeing recorded an ABTDA of 420 million Swiss francs compared to 406 million Swiss francs in the same period in 2024, an increase of 3.4%. The division recorded expenses of 9 million Swiss francs in relation to the Louisville accident which occurred in November 2024. Acquisition, restructuring and project-related costs amounted to 4 million Swiss francs and were mostly related to some remaining costs for footprint optimisation. the benefits of which supported the solid improvement in the taste and well-being margin. As a result, the comparable ABTDA margin improved to 22.7%, compared to 21.7% in the first half of 2024. Please turn to slide 17 on the net income of the group. The net income before tax was 713 million Swiss francs in the first half, compared to 700 million Swiss francs in the corresponding period last year. The effective tax rate was 17% compared to 16% for the first half in 2024. The net income rose to 592 million Swiss francs in the first six months of 2025 compared to 588 million Swiss francs in the same period in 2024. The net income margin was 15.3% in 2025 compared to 15.7% in the corresponding period. Basic earnings per share was 64%. Swiss francs in the first half compared to 63.76 Swiss francs for the same period in 2024. Please now turn to slide 18 which shows the free cash flow performance. In the first half of 2025, the group generated free cash flow of minus 16 million Swiss francs or minus 0.4% of sales compared to 5.3% of sales in the corresponding period in 2024. with the difference largely driven by timing effects related to investments and tax payments. The net investments were 169 million Swiss francs in the first six months, representing 4.4% of sales, notably higher than the net investments of 3.4% of sales in the prior period. Net working capital was 27.1% of sales in the first half of 2025, compared to 29.1% in 2024, demonstrating our continued strong focus on the effective management of all aspects of working capital. Please now turn to slide 19. This slide shows that the group continues to have a well-balanced and stable debt profile, with interest rates which have been secured at attractive rates. At the end of June 2025, the net debt was 4.5 billion Swiss francs, with a weighted average interest rate of 1.9%. compared to 1.75% in December 2024 and 1.96% in June 2024. At the end of June 2025, the net debt to ABTDA ratio was 2.5 times, compared to 2.3 times in December 2024 and 2.9 times in June 2024. The improvement in our leverage is a result of our sustained focus on the balance sheet. whilst continuing to invest in the growth of our business and in shareholder returns. This concludes my section of the presentation. I would like to thank you for your attention and hand back to Gilles.

Thank you, Stuart. Let me now come back to our 2025 strategy and the outlook on slide 21 and onwards. As we enter in the last six months of our 2025 strategic cycle, let's reflect on the remarkable transformation of Givaudan. Over the recent years, we have continued to focus on our core fragrances and flavors business, while expanding into adjacent spaces, namely health and wellness, establishing ourselves as the leader in naturals, and enhancing our portfolio with functional food ingredients. Additionally, we have further tapped into the world of beauty with skincare and color cosmetics, thereby leveraging new growth spaces whilst further strengthening our natural hedges. The strategic relevance of these decisions is reflected in our outperformance, not only in growth, but also in considerably higher operating margins and free cash flow generation compared to our peers, reinforcing our position as a market leader. Highlighting the continued execution of our strategy, we were excited about the recently announced acquisition of a majority stake in Bollman's Fragrances. This strategic move exemplifies our commitment to focus market strategies as it will greatly enhance our presence in Latin America and strengthen our partnerships with local and regional customers. Let's move now to slide 22. and look at our performance commitments for the 2025 strategy. Ambitious targets are an integral part of our DNA, of our strategy. With average like-for-like sales growth of 7.2% for the period 2021 to 2024, and the continued strong like-for-like growth in the first half of 2025 of 6.3%, Gibodon is highly likely to exceed the upper end of its average five-year sales growth target of 4.45% on a like-for-like basis for the period 2021 to 2025. We are equally on track with our free cash flow margin target and remain confident to achieve an average free cash flow greater than 12% by the end of the cycle. The group's 2030 strategy will be announced at the Summer Investor Conference to be held on 27 August 2025 in Zurich. Let me finish now with the 2025 outlook on the next slide. As just said, we are fully on track to deliver on our 2025 strategic commitments on both the average life-for-life sales growth and the free cash flow. Even in volatile market environments, our focus on execution, our focus on our customers, and our strong natural hedges across products, markets, and customers have served us well, providing us with the resilience needed to both navigate challenges and seize opportunities. We have slightly lowered our expectations for input cost increases, now anticipating around 3% for 2025. And in order to protect our business, we will implement price increases to cover increasing input costs, including tariffs in collaboration with our customers to fully compensate for the increase in input costs. For 2025, we anticipate non-recurring costs of 30 million associated with acquisition, restructuring efforts, such as the optimization of our taste and well-being footprint, which is nearing completion. and other project-related expenses. As Stuart mentioned, we have recorded non-recurring expenses of 9 million Swiss francs in the first half related to the incident in Louisville, and we expect a similar amount to be recorded in the second half. With that, we are at the end of the 2025 RPR results presentation, and I'd like to hand back to the operator for the instructions to open the Q&A. Stuart and I look forward to taking your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. The first question comes from the line of Celine Pannuti from JPM. Please go ahead.

Thank you very much. Good morning. My first question relates a bit to the deceleration sequentially in growth that we've seen, and clearly there's been a bit of a deceleration in pricing. So can you please To explain the different components on your pricing, I think there is FX pricing, which has been a hit. And you are mentioning as well lower co-inflation. At the same time, you're also indicating that pricing due to tariff will probably kick in in the second half. So if you could give us a bit of an idea of how much of an acceleration, if any, on the pricing front we will see in the second half of the year. And my second question relates maybe to volume performance, which has been a bit softer, but as well with the TAFO comp. Can we talk about two regions? First, on the U.S., clearly that has been a bit better sequentially. Can you talk about what has driven that and how confident you are for the second half of the year? And likewise for Asia-Pacific regions, You mentioned Southeast Asia facing tough comparatives. Do you expect this to bounce back in the second half of the year? Thank you.

Okay. Thank you, Céline. So first, as a reminder, let's not dissect too much pricing. Pricing is not a growth strategy at Givaudan. It's something you have to deal with when you have more input costs, whether it's a tariffs or ROAMATs. And unlike, you know, maybe other business models, it's not a growth strategy. So the first quarter, yes, you know, the first half, as I said, the whole pricing, if I add up everything, FX plus tariffs plus ROAMAT input costs are really shy of 1%. it was slightly greater than 1% in the first quarter, which means slightly lower in the Q2. But again, we are talking decimal points. So the first reason I would say would be or is the fact that we have a bit of carryover of pricing, especially in taste and well-being from 2024 into 2025. The second reason, and which basically has, you know, come to the one-year anniversary in Q2, so basically that's the first explanation. The second one is FX pricing, as you mentioned, is much, much, much smaller, especially when I think about LATAM, for example, where you see the comparable in growth for LATAM was much, much higher in the first half, or first quarter. It was in the range of 30% to 40%. So FX pricing is the second reason. The third reason is the fact that tariffs, as we mentioned again, I remind everybody, everything that we sell in the U.S., we make in the U.S. So the effect of tariffs are really on the ingredients that we have to buy from an import into the U.S., from all over the world. Yes, China for some fragrance-synthetic ingredients, but a lot of naturals from many, many different markets, many, many different countries. And so the tariffs have, in a way, as you've seen, been delayed in the way they've been implemented, have been quite minimal for Givaudan, even though we have put everything in place already with our clients to reflect the tariffs increase. So They've been minimal, you know, in the, let's say, close to zero in the first quarter and slightly, you know, in the second quarter. So certainly we'd accelerate, but yet to be seen given the discussions which are still ongoing. But we are fully committed and fully confident, again, to reflect the tariffs impact in the second half. So again, first, we are really slightly below and slightly up 1% in pricing, which is considered as marginal in the history of Givaudan. So let's not go too much deep into that. What's great about the first half overall is that it's almost all volume prices, volume pricing, sorry, volume growth, which is, I think, a great result. If we look at the two regions that you spelled out, but I'll add one or two, let's say, because I think it's pretty strong. So I'll start with Europe. In Europe, we are above 8% of growth, which is quite phenomenal because, again, against high comparables, but if you do the CAGR of Europe for the last three or four years, It's been very strong and not just led by fine fragrances because, you know, when I look at taste and well-being, for example, it has been doing quite well in Europe for the last few years. So the second one I'd like to call out before I answer your questions is Samea. Samea, again, we have an 18% growth, which is fueled – not again just by fine, but by fine, plus CP, plus taste and well-being. So you are close to 18% growth on top of 18%. You know, that becomes, obviously, one of the largest regions of Gibodon. And so then on the U.S., well, basically, I would say that, you know, in the U.S., we were almost flat. I mean, slightly, I think, 0.2%. 4 or 5% negative in the first quarter. So that means we grew close to 4% in the second quarter, which is encouraging. I would say one of the first reasons is the fact that Taste Wellbeing is really back on growth. We have a new leadership over there. We are back building the you know, strong relationship with our clients, filling the pipeline of briefs and so forth. So we see a good momentum there. But also the other parts are doing well. So nothing special other than basically coming back to a sort of a normalized level of growth in the U.S. And Asia-Pacific. So Asia-Pacific, obviously, it's not a double-digit growth that we are used to. when looking at the high-growth markets. So we have China, which is doing well in the high single-digit growth numbers, but also Japan, which is not a high-growth market. So it's really about Southeast Asia. And if you look at the two largest markets, which are really Indonesia and Thailand, Basically, overall, they are facing very high comparables. You're talking, for example, in Thailand, we had close to 30% growth in the first half of last year and close to 15%, 16% for Indonesia. So we are very confident to basically reverse this trend in the second half and come back to positive territory for the Southeast Asia. So quite confident there.

Excellent. Thank you.

The next question comes from the line of from Berenberg. Please go ahead.

Yes, good morning. Thank you for taking my questions. So I've got two. The first one is on fine fragrances. where the business grew by, I estimate, around 19% for the second quarter. Can you provide a split? It can just be ballpark figures on the growth drivers, i.e. how much was driven by market growth, how much was contributed by new business wins, and if there's been any phasing, i.e. customers buying ahead of product launches in the second half. So that's my first question. And then my second question is, you mentioned some growth investments that have contributed to the EBITDA margin contraction in fragrance and beauty. Can you just give us some examples of what those growth investments are? Thank you.

Yeah, thank you. So, yeah, so in fine fragrances, basically to split fragrances, The market growth versus our growth is a bit complicated first because we don't have the numbers of our competitors yet. But if I just look at the first quarter, but even if also I look at the full of 2024, you know, clearly we are growing much faster for the group, for the two divisions, but also in fine fragrances. You know, the way we sort of indirectly measure our performance is by looking at what we call the published numbers with the NPD or the retail figures of growth that we have in Europe. And clearly, we are outpacing what we call the sellout market. So that's also another indication. and the third indication is just look at we were at the FIFI Awards in June and basically we won I would say a great majority of all the FIFI Awards which basically is also you don't grow yourself with FIFIs but it's a good indication on how much clients love you so basically it's also a very strong testimony to the number of large wins that we win. So that has a lot. So back to your question on finance, the growth of Gmodan is, in finance, you know, the churn is much higher than the rest of the business. So in a normalized year, you are at, let's say, 20% new business versus 15%. So when you grow 18%, yes, the market is growing more than ever. than normal, but the whole engine of growth has a lot to do with the new business. And lastly, on fine, it has a lot to do also with the growth in high-growth markets, because Samea, to call it out, Samea in fine is almost the size of LATAM plus the U.S., just to give you an idea. of hundreds of millions over the last five years in Samaya, not in an artificial way because a lot of those clients are serving the region, but also today are exporting to the other parts of the world. So this is also a phenomena, but which nobody sees because those clients are local and regional clients and don't publish their numbers. But this is quite strong as well. So that gives you, but also to finish on fine, absolutely zero phasing of whatever tariffs, implications, this is all going to basically our clients and reflecting the trend on the sell-out. So growth investments, well, first you have to put everything relative. I think we are just declining by just dozens of basis points of ABTDA. We are at a very high level, which is quite satisfactory. So we went, you know, on the half-year to half-year basis, we went from 28.1 to 27.6, so you're talking 50 basis points. That has a lot to do with, when we say investment, it's obviously not capex investment, otherwise it's not in fact the ABTDA, but that has a lot to do with putting more boots, what we call in a vulgar way boots on the ground um you know because as you grow you need obviously uh incrementally a bit more resources to serve to serve our clients to serve all those local and real clients and so forth so but it's also future investments on growth leveraging the very strong uh position that we have in the market the great uh let's say um welcome from our clients who like to work with Givaudan. So this is really about OPEX investments on sales, creation, and development.

Thank you very much. Very helpful.

The next question comes from Daniel Berkey from ZKB. Please go ahead.

Yeah, hello. I would have one question regarding the two thorns in your side, the collusion case on one hand and the U.S. accident you had last week. Could you give an update and maybe looking forward, what might it cost you in the future? Thank you.

Okay, so the first question is about the investigation from the antitrust authorities. So again, I mean, no news, but essentially reminding everyone that it's a multi-juridical investigation, the US, Europe, UK, Switzerland, and a few others. We basically, let's say, reconfirmed that we fully collaborate with the investigation. It's been going on now for a little more than two years. but we have no indication neither on the timing nor on the findings so basically I can't say more than just the fact that we are collaborating and the US accident basically I would hand over to Stuart yeah thanks Daniel for the question so I think you know if you remember in 2024 we had the impairment of the

the facility in the US and in the first half of 2025 we have around 9 million of costs in relation to essentially the clean up of the aftermath of the accident as Gilles indicated we expect around the same in the second half so a full year about 20 million Swiss francs for this year. We still have a small portion of self-insured exposure which will come through in 2026 And beyond that, we should be, you know, fully covered by the insurance coverage we have for any remaining costs.

Thank you very much.

The next question comes from the line of Alex Sloan from Barclays. Please go ahead.

Yeah, hi, morning all. Thanks for taking the questions. Two from me as well, please. The first one on natural colors, clearly a big trend in the U.S. right now. so that you can remind us of your capabilities here. DDW, obviously, historically very strong in caramel brown, but is it fair to assume that with Naturex and other investments, you have the full spectrum of natural colour offering across blue, red, yellow, et cetera? And, you know, do you have sufficient capacity to meet the potential needs of your customers in the US over the next few years if, you know, big food companies which have come out with pledges really do deliver on those pledges to remove synthetic colours. That would be the first one. The second one, I appreciate it's a smaller business for you, but you called out the slower performance in fragrance ingredients. Should we think of that as a kind of a leading indicator at all for fine fragrance or consumer products, fragrance and market demand outlook potentially slowing, or is that the wrong read? Thank you.

Okay, so on the natural colors, I would say perfect timing. Sometimes you have to be a bit lucky in life. So what I'm saying is that, yes, first, it has nothing to do with the colors that we manufacture through DDW in the U.S. around brown and caramel colors. When I say perfect timing, it's because Yes, thanks to Naturex that we acquired back then in 2017-18, but also the further developments that we have had that I mentioned, you know, the blue color. So we have the red and the blue, which puts us in a very unique position because they are all naturals and ready to replace the synthetic version. So this is really a good place in time, and we are fully... you know, we have the full spectrum basically in terms of colors to replace the synthetic colors. And as you know, we don't have synthetic colors, so we're not cannibalizing ourselves either, you know, just to make sure. And then on the fib, so yes, basically the active, so as you know, we publish our numbers by combining active beauty with fragrance ingredients. So as a matter of reference, ActiBeauty is roughly 200 million overall, and Fragrance Ingredients is roughly 10% of the division. So what we see is basically double-digit growth on ActiBeauty, which is really very good and very encouraging because it's fueled by all those new ingredients, solutions that we provide with our clients and is a testimony to the position that we have, a leading position that we have with highly specialized ingredients which actually do the job and staying away from commodities. But FIB is slightly declining. So it has nothing to do with, I would say, with the end market. Most, basically most of our fragrance ingredients are sold, or I would say most, a good majority are sold to our competitors. So that might give you an indication on basically the, you know, basically the, yeah, the pace at which our competitors are growing in fragrances.

Okay, thank you. Just sorry, just on the natural colors, the capacity point, if this switch really does happen to the extent that's been promised.

Yeah, so the capacity, you know, after this, obviously, this tragic incident. So, basically, we have managed, you know, right away to activate our global network of sites that we already had at DDW. And therefore, you know, yes, we have lost a bit of sales from the U.S., but we are able to compensate that with other sites that we have to provide the same services. And so basically the impact on us is minimal, and we are providing, you know, full service to our clients who buy those very specific color ingredients.

Thank you.

The next question comes from the line of Charles Eden from UBS. Please go ahead.

Hi, thanks for taking my questions. Also two for me, but mainly clarifications, please. So first on the pricing, when you talk about 3% monetary inflation, I guess also potential tight headwinds, you're likely to need somewhere between 1.5% and 2% of pricing to fully offset that in absolute terms. So is it fair to assume you're telling us to expect sort of over 2% pricing in the second half of the year, or do you think it's going to take a little bit longer to fully compensate for those two buckets of cost tailwinds? And then, again, following up on fine fragrances, obviously strong underlying demand, but there's also a structural tailwind in the increasing fragrance oil content in these SKUs, which you helpfully focused on in Paris last year. I wonder if you've done any analysis which shows sort of what percentage of the SKUs you supply have already reformulated to include higher fragrance oil levels over the last, let's say, three years. Ultimately, I guess what I'm trying to get a sense of is where we are along that penetration curve of this shift. Thank you.

Okay. So I'm not sure I captured totally your question. You're saying the pricing, if you add up the raw mats plus FX plus tariffs amounts to Is that what you're saying, when you add up everything?

I'm just saying, if you've got 3% raw material inflation on a 40% round numbers gross margin, then a bit of additional pricing to compensate for tariffs, you're probably looking at somewhere between 1.5% and 2% to fully compensate to keep gross profit flat for those cost headings.

Yeah, I mean, okay. So first, the raw mass at best, or at worst, let's say, for the full year is 3%, so that doesn't increase if you do your math into a substantial price increase. The second thing on tariffs, I don't know where you're picking the number from, but again, we don't give away basically the tariffs, but it's basically not as material as you're ending up there, let's say, when you add everything together. So on fine fragrances, I would say that, yeah, I mean, be careful with the tailwind on concentration. So maybe we overplayed, not overplayed, but I mean, source perfume is not quote-unquote reformulated. You know, existing fine fragrances are not reformulated like you would see that in more in the consumer products where sometimes, yes, they increase the dosage level or they increase, you know, so a perfume which is already sold you don't change the concentration but yes in certain parts of the world I'm thinking of Samia for example you see higher concentration of sorry of oil of perfume oil for new launches but with the churn you see with the churn you need a few years until it has a material effect on the whole cell so the tailwind of concentration I would say is not material enough to explain the 18% that we enjoy today so then basically I would say that again it's a combination if you look at fine fragrances you really have to look at And when you think in the first place of penetration, so it's, I would say, almost penetration with three, let's say, reasons. The first one has to do with basically the Gen-G, you know, Gen-alpha generations, which are really, have been a whole cohort of new consumers in all parts of the world consuming more perfumes. So that's one. And I can't tell you how sizable it is in the whole in our growth, but I can tell you it's quite material. The second reason is about geographies where, yes, the whole Samia with a lot of new clients, local and regional clients have grown tremendously. And that would say another cohort of new consumers which, you know, were not necessarily consuming a lot of fine fragrances. And then the third reason is basically winning more briefs than the others, basically, which is more about market share again. So that's really the three core reasons. But we, yeah, that's basically it. And I would not see that as a tailwind.

Understood, thanks. Maybe next time I'll ask you what the average weight of fragrance oil content is of your portfolio today than a couple of years ago, but I'll leave that for next time. Thank you.

Thank you.

The next question comes from Matthew Yates from Bank of America. Please go ahead.

Hey, my name's Ron. I'd like to ask Stuart about the cash flows, if that's okay. obviously minus 16 million doesn't sound like a good number as a headline. And when I look at the swing in capital investments and the delta in cash taxes, I think I'm probably only getting about a 75 million delta versus cash flow down about 200. So the statement suggests there's about 150 million swing in other non-cash items. I was hoping you could maybe dissect that a little bit more to understand some of these phasing or lumpiness about it. And then maybe a second question for Gilles, if I can. Just back on fragrance ingredients, just curious about your sort of strategy towards this business. You know, I'm sure there's some things you produce in-house, some things you source from third-party suppliers. When you look at changes in the supply-side landscape, but also the potential tariffs coming to effect, How do you think strategically about the amount of capital that you want to have exposed to the fragrance ingredients part of the value chain? Thank you.

So I'll let Stuart answer the first question.

So thanks for the question, Matthew. You've obviously looked into the details. So as we called out, certainly we've had higher investments in the first half versus where we would expect to land for the full year. So full year we would expect to be around 3.8% of sales, something in that postcode versus the 4.4% we have in H1. And similarly on taxes, about two-thirds of the tax payments that we expect to make in the year, we already covered in H1. And that's driven by, as you've seen, the sort of higher tax rate that we have under the minimum tax environment. The other topics in terms of the movements in the other non-cash items is technical insofar as it relates largely to FX movements on the respective lines within the balance sheet elements of working capital. So we're not able to attribute those to the individual lines but that's essentially what that means. And the last part relates to a further movement in other current liabilities which to a large extent relates to the timing of the incentive plan outcomes for 2024, which were settled in the first half. So that tries to unpack a bit the core elements of the movements in the free cash flow in H1. I think if you look at it in simple terms, we are confident, as Gilles said, of getting to our average 12% over the five-year cycle. And in very simple terms, if we generate the same amount of free cash flow in the second half of 25, as we did in 24, then we'll be fine.

Okay, so Matthew, question on FIB. So I don't want to be too long, but it's an interesting topic, you're asking all the right questions. Okay, so why do we have a FIB business? You have to start by the beginning, meaning that for our perfumers, you need a great palette for basically to fuel and to sustain their creativity. So for that, you need, and we have a research which is looking for new molecules, and that includes also the transition, for example, to a biotechnology source, biotechnology, sorry, route to make some of those fragrance ingredients more sustainable. So when we talk about the innovation of Givaudan in fragrances, Yes, it's about the creativity of the perfumers, the knowledge of consumer insights and all of that, but it's also fueled by our ability to find great molecules, but also to develop new naturals like we do, for example, with this new investment we have in Graz on the House of Naturals. So then you end up with new molecules which are patented and so forth, and that, by definition, we are the only ones who can manufacture them. And we prefer to manufacture them in order to protect our IP. So that's why we have chemical factories. That's why we have a research and that's why we have chemical factories around fragrance ingredients. And then usually we prefer to keep them for ourselves than to sell them. Because if they are clearly differentiating, we don't want to give that to our competitors, you know, to be basically... giving a competitive advantage. So we prefer to keep them for a while, as long as possible, for ourselves. And also we like and prefer to include those, what we call those captives, into compounds, into formulas, than to give them, than to sell them as individual ingredients, because the business is more sticky, because it protects more IP, and it also protects our formulations. So that's why we have research, that's why we have manufacturing, and that's why at some point we have the commercialization of those ingredients when, for example, it's less of a competitive advantage or we need more volumes to also decrease the total cost. So that's also a way to be more cost effective by selling volumes which combine with our own internal usage. and and and basically to drive the the cost down so that's why the strategy of gibodon is yes to internalize but not to internalize too much because if you and then when you ask your question about capital expand capital expenditures around fragrance ingredients um over the A long time ago, we used to basically let go on what we call commodities. When the fragrance ingredient at some point after 20 years becomes a commodity, we would rather let that go and outsource that rather than keep that in our chemical factories. But then that was in a way sort of slowed down by the fact that we managed to be cost competitive by, for example, creating a joint venture in China where we were keeping the production of those ingredients while still being competitive, or Pedro Escobedo, which is something that we got from Quest. So we managed to slow down the, you know, basically the abandoning some of those commodities. So that's really what we call the sweet spot, meaning that we want to be about the capital exposure. So we don't want, for example, to internalize more commodities because if you do that, then yes, we can have a slight cost advantage by internalizing production of chemicals. The little problem is that it's market dependent and you have a big party when the prices go up, but the misery when the prices go down because volumes go down, prices go down, the chemical plants are not fully utilized, and the margin of Givaudan is something of the same. So that's why the sweet spot is about keeping the production of ingredients overall at the right level so that we both keep the competitive advantage, but at the same time are not exposed to this volatility of the market. So that's a bit the story about Givaudan and fragrance ingredients.

Thank you both.

Last question.

Today's last question is from Arvin Asanay from Fontobel. Please go ahead.

Hi, everyone. Thank you very much. My question would be if you have seen any meaningful changes in the behavior of your customers over this second quarter with a lot of macro changes. And related to that, it seems that many of the global customers, they expect an acceleration in the second half year based on the growth initiatives that they have. So new product launches, innovations. Is that something that you also see based on the wins that you've had specifically for the second half year? Is there any meaningful ramp in new product launches? Yes. that could also impact you. Thank you.

Yeah, thank you. So I would say the best read for us is really looking at what you mentioned, the pipeline of reads that we have and also the amount of wins that we get. So on the pipeline for us, it's very strong. It's very good across all businesses, which again reflects the positioning of Givaudan around its score on taste on fragrances that our clients are really welcoming um and being a sort of a leader in terms of a of a partner so so that is really uh in good shape it's also uh if i dissect a bit more uh you know for example i mentioned the momentum that we see in the u.s really uh you know, capturing all opportunities in the U.S. or in the other parts of the world or other parts of the business, like consumer products. So we see, and obviously the continuous momentum we see in fine fragrances. So we see a good momentum, and also then how does it translate into new wins? For me, that's the most important thing that we look at at Givaudan at all levels, and which is basically... measuring our ability to be better than competitors, basically. And then that's the warranty that we will continue to outgrow. So that also is in very good shape across the different segments. And yes, you know, so it's about the global challenge, but again, the global challenge now accounts for 40%. Don't forget about the 60% of the local regions where it's fueled with a lot of different briefs and new wins, which is also quite encouraging. Okay, so that was the last question. I'd like to remind everyone before we close the call, so we have... in a little more than one month on August 27 in Zurich. We'll share our 2030 strategy, which is the next five-year cycle until 2030. We will have on the 7th and 8th of October this year, we will host the investor field trip, which will be taking place actually in the US this year. And on October 14, we will publish our nine-month sales performance. With that, I look forward to seeing you and hearing you again at one of the events, at each of those events. And I thank you and wish you a great day and a good end of the summer.

Ladies and gentlemen, the conference is now over. Thank you for choosing Carle School and thank you for participating in the conference. You may now disconnect your lines. Goodbye.