Dsm Firmenich Ag

Good morning and thank you for joining today's call. I'm sitting here with Dimitri de Vreese, our CEO, and Rolf Smijts, our CFO. I hope you will have had time to look through our Q3 trading update and the presentation to investors, which you can find also on the website. As usual, you'll also find the disclaimers about forward-looking statements in these documents. Important is that sell set analysts who want to ask questions in the Q&A session should have registered via the questioners link. So that's different from what we did in the past. You can find that link on the website in the financial calendar. And if you have not done so, you still have plenty of time to do that. And with that, I hand over to Dimitri and Rolf. First, Dimitri, to talk you through the results. Dimitri, go ahead.

Thank you, Dave, and welcome to all of you. It's a great pleasure to be with you again. And I'm delighted to have the first time Rolf Smites sitting alongside me today as our chief financial officer. Rolf and I have worked together for many years in materials and in pharma, where we worked on major portfolio upgrades and divestments. And last year, Rolf was active as group controller. And we know each other very well. I'm delighted to have him here as our CFO. Before we jump into the financials, if we go to the next slide, I would like to share some context and clarity on how we execute in a challenging near-term environment. And indeed, if you can switch to the next slide, thank you. I would like to review a little bit where we are today from a macro, what you can expect from us on the micro, what we're doing in terms of portfolio review and how we look towards the future. Let me start with saying that it's a tough environment in which we operate and we see no inflection yet. There's weakness in China, although the recovery is there, but it's relatively slow. We see dynamics in vitamins, which basically we see continuing in Q3. And what we do see is that also there is destocking ongoing, although there are a few segments where we perhaps see destocking fading away. And we'll give you a bit of light and transparency later. We do see normalization of input prices, which will go through our stocks before it helps our bottom line. But the story is that the macro is there and will not bank on a strong recovery. We'll take actions as we speak. Micro will recover. This is an unprecedented situation. It will normalize. But in our actions, we basically take the destiny in terms of actions taking ourselves. And let me go through a bit of the micro. And you've seen that we have accelerated the integration synergies. which will give about 100 million of savings for next year. And you see already a little bit in Q4. We've launched in June our vitamin program with follow up in August, where we will see 100 million savings also for next year. And some of that already executed in Q4. And Ralph will read you through the cash numbers where we really focused on cash with an improved cash conversion rate and around 229 million of cash generation in Q3. In addition, we've announced that we will do a portfolio review to look at the high segments, high growth segments, high margin segments to prioritize where we put our money in terms of science and research, innovation, as well as CapEx resources and possibly M&A. And we will lead you through that in full transparency. We'll finalize that towards the end of the year and we will ring you through in the Capital Markets Day on that portfolio review. Or if you take that into account with a macro that will normalize and we don't bank on it, we take action ourselves, but it will normalize over time. The question is when. The micro way we will deliver on the actions which we have agreed with a two times 100 million for 2024. A portfolio review on the go with high growth, high margin segments where we put our money on. we do feel there's a strong future ahead for TSM Fibonacci. And I know that as a CEO, I may perhaps be slightly biased. And with that, Ralph, maybe we can run through the financial numbers. Over to you.

Good, and thanks, Dimitri, for your kind words. And good morning, everyone. Happy to be here. First time taking you through the numbers. I've been in the background in these calls, but very pleased to also engage with you and meet many of you in the roadshow ahead and the teaching sessions on P&B and taste, texture, and health that are coming up this month. Typically, this is a trading update at the third quarter, but we've also been providing you with some insights in the business performance and provided you with the EBITDAs of the business units, which I think is helpful in the context where we are. Dimitri painted overall the picture for the quarter. We don't see a change in trading conditions versus our second quarter. And overall, the micro is impacting our numbers, predominantly a vitamin impact, which you see in two of our four business units being animal nutrition and health and HNC. Overall, EBITDA is impacted by Vitamins FX. If you, however, adjust for that and compare on a like-for-like basis versus Q3 last year, you will see a growth in our business results. uh pleased with the cash performance uh in a sense that we've seen a turnaround and i think that was needed uh dimitri alluded to 229 million of cash uh uh conversion in the in the quarter that's a 56 which is a good step up and that is something uh that we want to take forward going forward then let's take a look at a couple of numbers on the next page Overall, you see organic growth down 7%, impacted by vitamins, pricing of about minus one. However, when you back out the vitamins, we actually see a mid single digit price growth. We see good pricing continuing in the majority of our businesses, which is helpful. And also the volume would be a modest decline when adjusting for the vitamins. Obviously, you see that translate into our EBITDA numbers with an increased vitamin impact of 170 million in the quarter. I'll explain that a little later when we get to animal nutrition and health, nutrition and care. However, when adjusting for an FX impact of about 30 million in the quarter, coupled with the vitamin impact, you actually see the organic growth in the business that I just earlier alluded to. It's going to be helpful to talk through a couple of the business units and provide you with some further insights, but good to stress that we have an organic performance in our businesses as well. If we then turn to the next page to perfumery and beauty, Here we see a good quarter, encouraging results. If you look at it from an organic point of view, overall, there is an organic growth of about 2% when you adjust for the Pinova sales. Let me remind you, that's the plant that got lost in a fire earlier in the year and will not restart. That has an impact of about 2%. And here you see that actually strong performance in the perfumery business is more than compensating. a weaker volume in ingredients, especially in the industrial segment, where volume and demand was low. Obviously, that translates into a strong mix, and we're very pleased with the EBITDA quality in this business. Fine fragrance showing a good growth in the quarter. Consumer fragrance, a very good growth in the quarter. And here we might actually see the first signs of destocking coming to an end. That translates into an overall 6% step up in EBITDA on a like-for-like basis compared to Q3 last year when adjusting for a negative impact of EVIX. Overall, a quality of 23%. So we're very happy with the performance in perfumery and beauty in the third quarter. Then looking at taste, textures, and health on the next page. Overall decline in volumes also related to predominantly ingredients, which is linked to the vitamin impact in taste, texture, and health, and weak volumes in predominantly our yeast extracts. offset by a very strong performance in our taste business, and also cultures and enzymes are growing well in the quarter. Obviously, that translates into a good EBITDA performance. We see 130 basis points step up in in margin to to over 18 which is is demonstrating the quality in this in this business there is an a negative epic impact and a small vitamin impact as you'll appreciate that now you see the full effect coming through of also stepping out of the the vitamin C business in space but overall taste texture and health is very resilient throughout the quarter and we actually see a continuation on what we saw in in the second quarter in in this business Then turning on the next page to health, nutrition and care. Here we had a weak core and it's a bit of a combination with a few things coming together. We see a continued impact from vitamins on the back of low demand in dietary supplements, especially in the US. That coupled with weak volumes in early life nutrition. We see continued declining birth rate. I think it's at a record low level today. And that coupled with some destocking effects in the quarter has caused relatively low volumes in the quarter. Obviously that has a flow through in the bottom line and there you see the vitamin impact and that has increased versus prior quarter because we're also adjusting our volumes produced to meet the demand and the destocking environment. And in our quest to optimize cash, we are adjusting that down and that obviously has caused a slightly bigger impact in the quarter. Now, overall, we do also see positive developments in health, nutrition and care. As you might have noticed, we're very pleased with the approval of two of our HMO solutions in China. That puts us in a very good leading position in that space. Let me remind you that overall 40-50% of the early life nutrition, the high value segment is coming from China. So we're actually pleased that we got the approval as one of the first into that market. Then last, turning to animal nutrition and health, there we basically don't see any trading conditions change versus the previous quarter in Q2. The micro continues to heavily impact these numbers with a sizable vitamin impact. Also in animal nutrition, we're adjusting our production volumes. We're optimizing and we want to bring our inventories down. We see continued destocking and with that we've adjusted production plans. We already announced that, but we're also extending the shutdowns in further places in this business. It's a bit of a shame that this vitamin impact overshadows the strong performance in our performance solutions business. It represents about 25% of the animal nutrition portfolio. And actually throughout the year, that's consistently growing at a high single digit pace, which is supported by a rich innovation pipeline. So we see positive developments on that front as well. At the bottom, you see the fall through in EBITDA. Sizable vitamin impact of about 120 million in the quarter. That's taking out the profitability of animal nutrition. But I do want to stress the organic increase in EBITDA as well, which is solely driven by a performance solutions portfolio. And there we're actually very pleased with that performance. As announced at the half year, we are addressing the vitamin impact. We've launched a series of measures. We are well on the way with that program, and we should see the first contributions to that in the fourth quarter of this year. Overall, FX had a negative impact in this business as well, but we are addressing the vitamin impact, and we'll see an improvement there. Now, what does that all translate to? And maybe then if we go to the next page, So for the remainder of the year, we don't anticipate a real change in trading conditions. We previously guided for an FX impact of about 100 million. We actually see that slightly more positive on the back of recent developments in the exchange rate. So we're forecasting now around 90 million for the year. The vitamin impact in the year increased from 400 to 500 million. It's on the back of right-sizing our production volumes. We see an increase in idle cost and undercoverage cost, and that is the main driver on why the vitamin impact moved from 400 to 500 million, coupled with a bit of volume and pricing impact, as in our previous outlook, we anticipated a bit of improvement in the second half, and that is what we currently don't see. Overall, we see an organic performance in our other businesses, and that takes the outlook for the year to around 1800 million of EBITDA for the full year 2023. Now to guide you further on the next page, we also translated this outlook into an earnings per share outlook. I think it was a question of many of you. And given that we're obviously a new company, we want to provide a further guidance on a couple of other line items. down to earnings per share. We expect the earnings per share to be around €1.90 per share in 2023. You'll appreciate that there are quite a few moving pieces, so there could be some small deviations on these line items, but I think you'll find that helpful in sizing that right. If you compare to the prior year where we did the pro forma, then the impact is predominantly driven by the vitamins again. then turning to the next page talking about our cash performance we provided you with a net debt bridge at the half year but i first want to talk a bit about cash flow we talked about that we see a turnaround in our cash performance overall a 56 cash conversion within the quarter and we're doing a few things we're prioritizing our inventory reductions versus the peak towards the end of Q1. We see inventories coming down by 200 million. not yet where we want to be we'll continue to be very disciplined around our inventories going forward but you'll appreciate that in an environment of these talking it it will take a bit of time to work our way through that but asset will will prioritize and will be disciplined in in our actions to bring that down Also at the Capex side, we're prudent in our spend and we've done a bit of reprioritization in order to improve our cash generation within the year and we'll continue to focus on that going forward. overall our net debt is estimated to be around 3.1 billion at the end of the year let me remind you there's two things in there one is the buyout of the minority shareholders it's a merger related element that we're committed to we don't know the exact timing but that might actually slip into next year and there's also a small placeholder for some m&a where we're bound to to buy out a minority stake that might also slip into 2024. So actual reported figure at the end of the year will probably come in a little lower around the 2.5 or 2.3, depending on that placeholder for M&A. But when we look at that, we obviously take these elements into account. So happy to report that there is a turnaround in that cash performance. We will continue to focus on that going forward as a priority. also important to talk a bit about the programs but dimitri maybe you take us through that