Dsm Firmenich Ag

Good morning, and thank you for joining today's call. I'm sitting here with Rolf Smets, our CFO. This morning, we published our first quarter 2025 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 Rolf's opening comments, we will open the line for questions. Importantly, and as a reminder, sell-side analysts who want to ask questions will need to register via the questioner's link, which they can find on our website in the financial calendar. If you have not done so yet, you can still switch now. And with that, Rolf, please go ahead.

Well, thanks, Dave, and good morning. Good morning from sunny Maastricht. So at least sun is shining and happy that it's coupled with today. We'll take you through our quarter one results and a few of the strategic updates along the way as well. And we'll zoom in into the business units as usual. But let me start with the overall picture and framing of our performance to date. We started the year in a good way. Overall, you see already a couple of numbers on this slide. Overall, 8% organic growth. Very encouraging start of the year. And obviously, that translated into a very nice step up in profitability. We've seen a 40% step up in EBITDA and a margin of 20%. And we'll come back with some more detail, both for the group and the BUs in a little while. So bear with me on that. But very pleased with that start of the year. On the strategic side, we also made good progress at the full year results. We already talked about the sale to Novo Nises of the feed enzymes business. We're well on the way in completing that. We're waiting on the final go of two smaller jurisdictions. So Confident that that will close into the second quarter. Reminder, we sold the business for 1.5 billion, which will translate into a net cash of somewhat above 1.4 billion and will obviously drive a substantial book profit as well. We'll communicate that upon closing of the transaction. At the same time, we continue the exit of our animal nutrition and health business. Very encouraging results. We'll come back to that a little later when we talk the business units. But also from an exit process, we continue. I think it's been a public secret that we had the bids come in towards the end of April. And we're very encouraged by the interest and the conversations we have with investors. And we're now moving into the next phase where we start preparing for due diligence. our management presentations, and at the same time, we've narrowed the number of participants given the competitiveness of the process. So we're confident that we'll sell the business in 2025. Now, on the back of the sale of the feed enzymes, we also, and full year results, by the way, given our strong balance sheet, we also communicated the 1 billion share buyback program we've meanwhile started. I think up until today, we bought about 650,000 shares and spent a bit more than 60 million. So it's well on the way. We're buying as much as we can within the limits provided. And we'll continue to complete the process in 2025. Also, from a balance sheet perspective, you've seen us active in the debt markets. I think timing was nicely timed. just ahead of the volatility, and we managed to secure a 750 million bond at attractive rates, basically ahead of all the maturities, and we don't need to be in capital markets for the short time ahead. With that, I think the good start of the year, the contribution of our self-help programs. I'll allude to that when we deep dive on the numbers. Overall, 45 million of contribution in the first quarter. So self-help coupled with a good start basically makes us confirm the outlook for the year at at least 2.4 billion of EBITDA. And I'll show you a few of the moving pieces in a little while. Now, enough said at the beginning. Let's zoom in in a bit more detail on the next page, looking a bit at the group. So overall, let's start with top line. Overall, we've seen 8% organic growth, nicely split in between volumes and price. But you need to look a bit closer to that. The volume part is predominantly driven by the core business set, perfumery, beauty, taste, texture, and health, and H&C. Where the underlying growth is actually 6%, and the price is fully coming from A&H, as we'll see in a bit, where we see a normalization of the underlying conditions in the vitamin market, but at the same time, we also see a contribution from the temporary vitamin supply. impact of which is estimated at an 85 million for the quarter in line with the guidance that we gave. You also see a minus 2% from M&A. As a reminder, those are the divested yeast extracts business and marine lipids business. You'll also see that in the BU bridges on sale. So we'll continue to report transparently on the effect of that. You also see, by the way, that flow through in the EBITDA bridge because on the back of that strong growth, Very nice step up in EBITDA. And we've put the walk in at the left bottom of the slide. So overall, very nice increase on the back of the growth. We've seen a 24% increase in EBITDA. offset by the minus two from the decontamination of yeast extracts and marine lipids. So in the business, a 22% step up, then supplemented with that temporary vitamin effect of 85 million, which is another 18% step up in EBITDA versus prior, bringing the overall step up to 40%. And as said, with a margin that continues to improve as well and encouraging at 20%. Now, let's look a bit at the dynamics per BU because I think that's going to be helpful also for you. Starting on with perfumery and beauty. Now, on the back of a strong 2024, where we've seen continued good demand for our products, resulting in a strong step up in sales, we basically continued the year with another strong quarter in perfumery. We've seen, again, a high single-digit organic growth in that part of the business with fine fragrance, continue to do very well with that, even up to a double-digit step up again. But also consumer fragrance is continuing a very encouraging growth, coupled also with a strong ingredient portfolio. So also there we've seen a very good growth in the first quarter. So overall, very encouraging results in perfumery and beauty. Now, you'll see the overall growth is 3% in volumes, and that is driven by beauty and care. We already flagged a weakness in the sun filters at the end of last year, and we also said that that is going to continue into 2025. And I'll elaborate a bit on that. In the sun filter business, we have seen an acceleration of demand in 2023, and the first half of 2024. However, 2024 was a disappointing year from consumer demand for sun filters, resulting in quite some inventory in the chain. And the unwind of that is something that you actually see in the first half of this year. And unfortunately, Q1 last year was a record sales for us in terms of sun filters. So the impact in the first quarter is the biggest one that we'll witness in this year. If you exclude the negative impact of some filters, the actual underlying volume growth is 6%, which is in line with the strong performance I just alluded to. Overall, from a margin perspective, BNB, a very good margin as well, close to 23% in the first quarter. Now, if you compare it to versus prior, you've seen a somewhat lower margin. I want to point out that last year we highlighted that Q1 was an exceptional margin, which also normalized in Q2 in that year. But also, obviously, the lower sun filters had pushed the margin somewhat below 23% for P&B. But it's an encouraging trajectory and it continues to improve as well. Then moving on to taste, texture and health on the next page. Again, here, continued strong volume growth. What we've seen last year, both in the first half and second half, a 9% volume growth actually continued nicely. into 2025 and encouraging to see that it's both the taste division and the ingredients division, both equally contributing to that 7% step up. which is also supported by Synergies. We see an about 1% to 2% contribution from Synergies starting mid last year. We've also started to call that out and I'm very pleased with this performance where you basically see another 2% of Synergies contributing to an above market growth in taste, texture and health. And I'll come back to the Synergies in a bit. Now, obviously, that volume growth translated nicely in some leverage on the EBITDA side. So overall, a 12% step up versus prior in terms of EBITDA. And also the margin moved nicely towards the 20%, and that continues to improve in TTH in line with the plan. Keep in mind, you'll see here a smaller part in the M&A effect in the top line because we're still providing the software with the yeast extracts volume. So there's still top line, but you don't necessarily see that in the margin and the 12% step up in EBITDA as net of the consolidation of the yeast extract business from a margin point of view. Now, looking at the regional lens for the business to give you a bit of color on that front as well. Overall, we see strong growth across the globe. However, U.S. is weaker. We've seen that already towards the end of last year and Q1 had a softer U.S. in those numbers. So, you know, we're very encouraged by the global business. You see here the strength of having a global business with a very strong local footprint. Now, I did want to come back to the synergies. As I said, the pipeline continues to build very nicely on top of the actual sales that we're invoicing. And on the next page, I wanted to bring back a couple of examples. And the first one, Kakoa Craze, I wanted to bring back to a wider audience. We also showcased it at the sustainability investor event we had. earlier in the year where we see sustainability as a clear value driver. And this is clearly contributing to that and it's getting some nice traction. It's replacing traditional cocoa in the food solutions of our customers, but it also comes with a much better footprint where it reduces both the carbon and the water emission. So a very nice product. Then in the middle, yet another recovery hydration drink. As you know, beverage is an important segment for us. It's about a billion in size. And the picture is one that we took from an image bank because we couldn't show the actual athlete, but a high profile athlete is launching it. And yeah, we were still a bit on the confidentiality. So we're happy to disclose that in the period ahead. But it's yet another example where we bring the solutions, not only the taste, but also the ingredients together in a launch of new products. And last, some instant noodles. I also wanted to show wherever I get excited about Synergies, it's a global opportunity. And this is clearly with a big customer in Asia, where we combine, again, the taste and ingredient solution in a new offering. And that is also a very nice win for us. Then moving on, looking again a bit at the financials, if we then go to the next page to health, nutrition and care. Also here, a continuation of the growth. We've seen the growth coming back as of half of last year, where we had 2% growth in the third quarter, 5% in the fourth quarter. Now you see an 8% volume growth in health, nutrition, and care. Pleased to see the volumes coming back with a continued recovery and good growth in dietary supplements, also driven by the algae, lipids, and the vitamins. And at the same time, a strong performance in early life nutrition, where we've also went back to growth already starting last year. And that is continuing, including contribution from HMO. But if you generally look at the agency portfolio, it's actually encouraging all of the segments are showing good growth, contributing overall to an 8% performance. Also from a margin perspective and in EBITDA, so you've seen an absolute step up of 16% in EBITDA. You see that the volume is triggering the leverage. Keep in mind that the 16% step up is clearly a net of the deconsolidation of the marine lipids business. You've seen that in the top left where you see a minus 7% for M&A. Obviously, that had an impact on the EBITDA as well. Overall, the deconsolidated EBITDA in the first quarter is somewhat around 10 million. From a margin perspective, continued recovery. Keep in mind that Q1 is never the strongest quarter for H&C. So it's an encouraging path and we'll continue to see an improvement on the margin side in H&C as well. Then maybe last but not least on the next page, animal nutrition and health. Whilst we're continuing to make good progress on the sales side, as I commented in my introductory comments, I'm very pleased to see that the business is performing very well as well. So overall, a quarter with strong growth, overall 19% of organic growth. Now, if you look at the pricing effect, you see a step up in pricing of 17%. If you back out the impact of the temporary vitamin effect of about 85 million, you allocate that fully to price, which is largely the case. But if you were to back out that fully, then you'll see that two thirds of that price effect is related to that effect. But one third is really about normalized conditions in the space. At the same time, at the volume side, you see a continued good growth in our performance solutions business. The high single-digit growth on the back of a strong 2024 continues with the mycotoxin solutions contributing, but also precision nutrition firing on all cylinders on that front. The volume growth in the essential product is somewhat lower, where on the one hand, there's a clear focus on value. At the same time, what we've seen, and we've already seen that starting last year, is that we resell less volumes, given the volatility. So we focused on unproduced in that sense. Now, on the back of this strong growth and the vitamin impact, you see a massive step up in EBITDA. So overall, we've done 186 million in the quarter, a step up versus Q4 again. whilst the vitamin impact is more or less the same at 85 million, and the absolute step up in EBITDA is over 150 million in the business, meaning also that the underlying business is now above 100 million, and that is something that we wanted to target as well and grow from here, also driven by the contribution of the vitamin improvement program. So I do want to complement the A&H business with that trajectory and performance as well. Then let's look at how that all translates into an outlook on the next page. Given that we had a good start of the year, a continuation of business conditions in April and a solid order book for May, we maintain our outlook of at least 2.4 billion. And if you look at our portfolio, we're uniquely positioned and well-placed to deal with the current volatile economic environment. If you look at it from a tariff point of view, we're well placed to mitigate those effects. We're working together with our customers and suppliers to mitigate it to a minimum, looking at alternative supply chains and other measures. And where we can't mitigate it, we'll pass it through. I think that is something that is within our abilities. Hence, we're confident in being able to mitigate that. And that combined with the self-help measures where you see the synergies contribute from a top line, we see the synergies contribute from a cost line, and we have good traction in the vitamin improvement program. All that leads up to an outlook of at least 2.4 billion. Having said that, in that 2.4 billion, there's now an upgrade of the temporary vitamin impact. We guided at the beginning of the year for at least 100 million. Given the performance in Q1 of 85 million and our commitment that we would update you as we go, we're now increasing that to 150 million, so a step up of 50 million. At the same time, given that we now have visibility on the closing of the feed enzymes business, we've also done the technical deconsolidation of that EBITDA, which is about 40 million. So technically it's a plus 50 million from vitamins and a minus 40 from the deconsolidation of the sole business, more or less a wash, and hence maintaining our at least 2.4 billion. And with that, let me pause there. I'm sure there's questions out there. So Dave, maybe time to open for Q&A.

Indeed, as said at the beginning of this call, CELCET analysts who want to ask questions in this Q&A session should have registered via the questioner's link, which you can find on our website in the financial calendar. So for, let's say, CELCET analysts who have not done it yet, they can still switch now. All the other participants can listen into this Q&A session by staying in this Zoom meeting. And with that, I think we're ready to start. So operator, please, let's have the first question.