Dsm Firmenich Ag

Good morning and thank you for joining today's call. I'm sitting here with Ralf Smijts, our CFO. We published this morning our third quarter trading update together with a presentation to investors, which you can find on our website. Here you can also find our disclaimers about forward-looking statements. Following Ralf's opening comments, we will open the line for questions as we usually do, and we have planned today 45 minutes in total for the call. Important to remind that the CELCET analysts who want to ask questions have to register via the questioner's link, which they can find on our website in the financial calendar. If they have not done so yet, they can still do that by switching now. And with that, I think we can start. Ralf, the floor is yours.

Thanks again, Dave, and good morning, everyone. Early start again of the day, but a pleasure you're taking the time to be with us on our Q3 earnings call. It's been yet another exciting quarter for us. We continue our journey. I'm pleased to see many of you virtually online again. Let's dive into the quarter. Like I said, an exciting quarter, but also a good quarter. And let me start with a couple of highlights on the next page. So overall, continued strong organic growth in the quarter for the company, driven by volumes. We see the performance of PNB and TTH continuing into the third quarter, similar to what we've seen into the second, which is good. And that obviously translates into a good step up in profitability as it's coupled with a continued step up in EBITDA as well in H&C and ANH. In our results, the contribution of synergies are clearly coming through, including the efforts from the vitamin improvement program. And we'll zoom into that when we look a bit at the business units as well. I do want to point out that we also see sales synergies contributing now to the growth. We talked about some initial contribution already in 23 and in the earlier year, but it's now more profound with at least 1% of that contributing to P&B and about 2% in TTH. We'll cover that when we get to the BU's. On the strategy side, we continue to make progress. We're well on track with the separation of the animal nutrition and health business. As said, that is continuing as per plan, but also pleased that we completed the transaction around the sale of our yeast extracts and marine lipid business that we announced just before the summer. In case you haven't picked it up, also our sustainability goals have been meanwhile approved by SBTI. So we're pleased that we continue that journey. And I'll come back to that at the end of the call when looking a bit at 25, what we want to do around the sustainability efforts and bring that narrative to you as well. Last but not least, we've upgraded our outlook towards 2.1 billion users. And we'll wrap up at the end of the call ahead of the Q&A, one of the key drivers for that as well. If we then turn to the next page, we can actually see what that means in terms of actual numbers. And here you can see that the strong organic growth that I was alluding to, overall 9% volume for the group. And we'll see in a minute what that translates to for each of the BUs because they all have got their own dynamic. But across the board, very good. pleased with the step up in performance. And that's obviously translating into a strong step up in EBITDA, which is further fueled by the contribution of the synergies and the programs as highlighted earlier. So overall, we see an EBITDA step up of 32% versus prior. But you also hear me say it's about sequential improvement as well, also versus Q2. We see on a like-for-like basis a step up of well over 6%, growing the EBITDA back to over 540 million, including an improvement in margin as well, which is sequentially improving every quarter by almost a percent. So we're very encouraged by that. If we then look at what does that mean year to date for the group on the next page, please. Overall, that brings the EBITDA for the group to over 1.5 billion, a step up of over 17% versus prior. At this point, I also want to highlight that overall, we've seen a strong step up in our cash performance as well. overall delivering 880 million of cash flow Q3 year to date. A big step up versus prior, but I think last year we didn't have the right phasing throughout the year. The step up half year through the year in Q3 is about 70% versus prior. But we've also guided you that it's our ambition to already meet the target that we communicated in the Capital Markets Day of 10% of sales. this year, despite the fact that we're still acting, including animal nutrition and health today. So also pleased with the progress there. And I'm sure you'll get some questions around the developments on working capital, which we can cover in the Q&A. Now, let's zoom in into the business units. Then we also can talk about the ongoing momentum there. If we go to the next page and start with perfumery and beauty, like I said at the introduction, at the highlights, Very strong organic growth again, well into the double-digit volume growth on average for the portfolio. With our fragrance business, our perfumery business showing a very strong volume growth again into the third quarter. Both fine and consumer fragrance continue to do very well. But we also see continued strong performance in our ingredients business and also beauty and care continues their growth trajectory averaging out at 11% for the business unit. What's also encouraging is the EBITDA quality of perfumery and beauty. Again, delivered almost 23% of EBITDA margin, which is nicely in the middle of our target that we communicated at Capital Markets Day. What is encouraging is that we see that continually, gradually improving, which is something that is encouraging for the quality of the business. It's not on the slide. I do want to call out the year-to-date performance of P&B as well. The volume growth there is well into the double digit for the business. And also the EBITDA step-up versus prior is well over 15%, which is a very strong performance for P&B. the business and we're happy with with that then moving on taste texture and health on the next page please also here we recorded a very strong performance with with volumes again up 13 well into the double digit again pricing continues to be strong as well And here, what I alluded to in the highlights as well, we see the synergies kicking in. The pipeline in TTH continues to develop positively. We see part of that already being translated into wins, but moreover, we also see it translating into actual invoiced sales, which me as a CFO, I'm always keen on measuring that as well and We do have both monitoring the pipeline, but at the same time, pleased to see that we start to invoice sizable numbers towards our customers as well, which is reflecting the combination and the power of the combined offering that we now have. If we look at it a little deeper at the segments, both the taste business and ingredients is doing well. albeit keep in mind the ingredients compared to an easier comps given the destocking of last year. What's also encouraging is the development of the EBITDA margin. First of all, the absolute EBITDA is up to 162 million, which is a very strong increase versus prior heads over 20% step up. But also the margin quality is improving with almost delivering 20% margin in the business. Also here, year-to-date, very strong performance with our taste business up double digit and also ingredients showing continued strong performance. And year-to-date EBITDA step up of well over the 10% as well. Then turning to the next page, our third business, our health, nutrition and care. Here we see continued further gradual improvement of the momentum and the markets. We turned positive growth in Q2 and we see that increase further into the third quarter with a 5% organic growth. which is fairly consistent across all of the businesses. So both our dietary supplements business, our aisle business, biomedical business, all growing at a similar pace, which continues to encourage us in the direction that we're taking. What's good to see is that we see a stronger growth in early life nutrition that moved into the double digit phase. However, here a word of caution as well. It's obviously against an easier comps where we saw some profound destocking at the end of the year. Nonetheless, the momentum is improving there as well and also further fueled going forward with our HMOs where we have good traction on the regulatory front. Versus prior, EBITDA is up 28% in agency as well. And we continue the trajectory of continuously improving our EBITDA and our margin in health, nutrition, and care. I do want to highlight here as well, I should have done that at TTH as well, where we have completed the sale of our yeast extracts in TTH. That is not contributing in Q4, the same we have in health, nutrition and care. Pleased to see that we were able to close the deal with KD Pharma as well. We will be no longer consolidating our marine lipids business as we've sold our business in exchange for a 29% stake in the combined company. of KD Pharma, and obviously that contribution will no longer then be visible in Topline or EBITDA, as you'll see it in the result of associates going forward. Then last but not least on the next page, our animal nutrition and health. Also here, good growth in the quarter. We see a 7% organic, fully volume-driven, With performance solutions continuing a strong year, year to date, I do want to call that performance high single-digit growth for performance solutions on the back of a strong growth last year. But what's encouraging to see in these numbers is that also premix is picking up and we see traction there. We see an improved environment, but the EBITDA is very much driven by our own efforts around the vitamin improvement program, which is on track. Overall, absolute EBITDA now at 80 million. It's not having any significant tailwind from the force majeure. That's something that we'll come in Q4. We've also been guiding you for that. And we've translated that into our outlook. But let me remind you why that is and why. We had a volume and pricing commitments made ahead of the force majeure, and we're adhering to our commitments to our customers. That is important for who we are as the SM family. So the first opportunity there is Q4, and we'll see that benefit come through as well. Now, to what does that all translate to in terms of outlook? And that's on the next page. So overall, we've upgraded our outlook towards 2.1 billion. We see good business conditions going into the fourth quarter. We're closing October today, so we have visibility on top line developments there. That's all baked in. At the same time, we'll see the regular seasonality in our P&B and TTH business, which is largely impacting December. So nothing out of the ordinary there, but the momentum is continuing with respect to pipeline and order book. At the same time, the fourth quarter will see a bit more of a negative impact than from FX that we've seen before. You've seen the impact into the third quarter of about 15 million. We expect something similar going into Q4, which is a bit more negative than what we originally had foreseen. And keep in mind that we will no longer have the EBITDA contribution of our marine lipids and yeast extract business. Nonetheless, we're upgrading towards 2.1. We're including the high end of the guidance of the impact of the force majeure. So we're firm around the 80 million, and that brings the total outlook to 2.1. At the same time, we've included the regular housekeeping for your modeling purposes, but there's no supplies there, and that's been very consistent. We're delivering also in line with that in the third quarter. And I think with that, we want to leave ample time for Q&A. So maybe with that, back to you, Dave.

Yeah, indeed. Good moment to start. I think we all, probably most people now know what a drill is. But let me remind everybody. So it's basically the sell side can ask questions. And the sell side analysts who want to do that have to be registered via the questioner's link, which they can find on our website in the financial calendar. And if you have not done so, you can still do it now. All the other participants can listen into this Q&A session simply by following this Zoom meeting. Operator, are we ready to start with the first person to ask a question?