Dsm Firmenich Ag

Good morning and thank you for joining today's call. I'm sitting here with Dimitri de Vreze, our CEO, and Ralf Smijts, our CFO. This morning we published our first half 2025 results 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 Dimitri's and Ralf's opening comments, we will open the line for questions. Importantly, and as a reminder, self-help analysts who want to ask questions will need to register via the questions 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, Dimitri, please go ahead.

Thank you, Dave. And indeed, welcome to everybody on this, I think, very busy day for you guys. Appreciate your dialing in. And I want to start with a little bit of the journey we're at before we're diving into H1 and 2025. So you know that we have depicted our journey, and we are moving rapidly towards the accelerate phase. I'm very happy to see that we made quite some progress during the first half, and we've also seen that we've closed the feed enzyme business in the whole exit of animal nutrition and health, and also something in the tuning portfolio. You've also seen that we've made quite some progress on the integration synergies. We promised 200 million, 100 million last year, 100 million this year. We're delivering on that. The same for the vitamin transformation, two times 100. Also, that is in progress to deliver another 100 million this year, and we made quite some progress on the portfolio. On the tuning, the agro-ingredients still left. We're going to do that this year. and you've also seen the A and H separation, that exit process is advancing. And that's also the only comment I'm going to make on the A and H separation. I know you have lots of questions, but my comment will be, it will be the only thing I'm going to say is that the exit process is advancing, already to make that clear up front. We move to the accelerate phase, building a company where we will be consumer, human-focused around well-being with the micro-trends around nutrition, health, and beauty, bringing progress to life by combining essential, desirable, and sustainable. And we are a people, planet, profit company. But moving in that accelerate on the core, very clear vision. that the next priorities will be that we will grow what we have. So we'll show the potential of the portfolio we have in the consumer space. We'll anchor what we do. Remember, we are two years on our journey. Well, we'll anchor what we do to build a house for the future with strong foundation. And we're going to deliver on our promises. And just as a reminder, those promises are linked to sales with 5% to 7% organic sales growth and just 3% in range, and a cash-to-sales conversion of above 10%. And for the ones who think that's conservative, we also said that we'll review that after the exit of ANH. With that, let's give you some color on the three business units in the consumer space. Let me start with perfumery and beauty. Go to the next slide. You see three fantastic examples of innovations, of fantastic developments in our brief and innovation pipeline. And just remember that Perfumer in Beauty has a unique business model. And this business model has to do with a fantastic ingredient toolbox coupled with creation capability. So we strongly feel that the future of Perfumer in Beauty is anchored in two competencies. One is the quality of the palette, so that the ingredient toolbox, the palette, and one is the quality of the creation capabilities. Fragrance development managers, perfumers, very close to our customer. I think we've done a fantastic job on both. We have invested in our creation capabilities, but we also invested in the journey of ingredients. This lets you remind that we have an ingredient portfolio of 1.1 billion in perfumery and beauty, where we have last year deliberately decided not to rebuild Pinova and exit that low-margin business. We also said that we will refocus our terpene business at the same time, And you also know that we're working on finding a new home for the agro business, as well as the aroma ingredients to go with the A&H. That means that that portfolio on the ingredient toolbox, one of the two anchors of this unique business model, has been tuned to around 800 million of high-quality, high-margin ingredients, which we sell externally. And let me remind you, that is coupled with around 700, 750 million of fine fragrance ingredients, also in the space of these amphibians. So, overall, we are pretty much an ingredient, palette, unique case, coupled with creation capabilities as we have. So, very happy to see that for the future. If we look at the fantastic ingredient which we have developed, I just want to highlight one. That's the middle one. It's Ember Ever. It's a fermentative ingredient which we have developed and we have launched in the market. It's a dry, woody ingredient. Sensual ember smell is one of my favorites, and it's absolutely long-lasting, and it's really helping to grow and to win with our customers. So, for the first half, we saw continued momentum in fine fragrance, consumer fragrance, as well as in the ingredients. We saw UV and aroma not helped by the force majeure of the supplier. We expect that to normalize for the second half of the year, and that means that for perfumery and beauty, we feel very confident that we have a mid-single-ditch growth level for the second half. Then let's move to taste, texture, and health. Also there, quite some innovations in the pipeline. If you go to the next slide, you can see that on the slide on the innovation. Also here, the same unique business model. Creation, uniqueness, customer intimacy, coupled with a fantastic ingredient toolbox. And that ingredient toolbox is also banking on what we call the blue ocean space. So a business where we see a lot of requests from our customers to reduce sugar, to reduce salt, to reduce all types of ingredients, to add healthy ingredients to food. And we do see that those food markets are on the move. If you look at the brief, if you look at the innovation pipeline, the reformulation from healthier products while keeping the fantastic taste and texture profile, because consumers are not willing to compromise on that. That is where I think the strategic rationale of the merge of these and family absolutely come to play. And you see that happening in the synergies with the 2% growth, which we have reported. A nice example here on the left side, we have developed an alcoholic flavor that is non-alcoholic. So, I mean, also here, consumers not willing to compromise. They would like to cut down on alcoholic ingredients in their drinks, but they would like to remain having that taste. So, InnovaSense is that innovation which we've put to market, and it's helping us to grow in the TTH area. Looking at our brief and our innovation pipeline going forward from H1 into H2, also here, we're confident we can continue the mid-single-digit growth for TT, TTH, base spectrum, and health. And that brings us an inroad into health, nutrition, and care on the next slide. Also here, I'm very happy that we booked the fourth consecutive quarter of growth, as well as an improvement on EBITDA. That's by growth through recovery and dietary supplements and in early life nutrition. Here, an absolutely increasing awareness of consumers and customers of the importance of preventative health, also coupled with the aging population. People do care more and more about their immunity, and we see that reflected in our innovation and brief pipeline. Also interesting to see that weight loss management trends are boosting our innovation pipeline. Good health, high fiber content, muscle buildup, fatigue, probiotics are areas where we do see health, nutrition, and care are well positioned to continue their growth. And we see that if we look at our brief and innovation pipeline. A nice example here, fueling health from within, we all know that GOP1, is a popular trend. However, you do see that that creates good health problems as well as probability of lesser muscle pickup. So protein drinks, and you see that if you go to the shelf at supermarkets, while remaining the taste, absolutely key, adding probiotics to improve your gut health. is absolutely an area where we do see growth. So with that brief and innovation pipeline in health, nutrition, and care really full of these innovations, we are confident we can continue the mid-single-digit growth also for the second half in health, nutrition, and care. And that brings me to the financial highlights for the group. If you go to the next slide, happy to say that we have booked 7% organic sales growth, that we have a step-up in EBITDA, also on a journey to improve on the adjusted EBITDA margin with, I think, a good trajectory going forward. The cash flow was a bit modest, but Ralph will highlight that a little bit, mainly because of timing of payments. Inventory was under control, so I think that's good news, and we are fully confident that we can deliver on our cash flow target for the full year. And with that, Ralph, over to you for a bit more comments.

Good. Well, thank you, Dimitri. And you covered already quite a few highlights. But let me zoom in in a bit of detail and immediately zoom in. You already said it's a busy day. So really appreciate everybody online. And I think it's not only a busy day, but a busy week for you guys. So let's zoom in. Yes, overall, a good performance in the first half year. Overall, 7% organic growth as highlighted on the slide you've just shown. with a continuation of a good performance in a taste, texture, and health business, and health, nutrition, and care, both reflecting a 6% growth throughout the half. And also in animal nutrition, a continuation of an improvement of the underlying business conditions, which is something that we have been focusing on on the back of normalized pricing in the industry. And, of course, the business was supplemented or supported by the temporary vitamin effect in the first half, And I'll comment on that a little later. Also, our perfumery and beauty business continue to see good conditions with good growth, as Dimitri highlighted, in our perfumery business, our fine fragrance, consumer fragrance, and ingredients. And in our beauty and care business, we've seen the destocking effect of the UV filters. We guided for that. We also explained the reasons and the rationale behind for that destocking effect in a Q1 call, and we've seen that in continuing into the second quarter. But with that fading out, we'll see that single-digit growth also on a reported basis in our perfumery and beauty business going into the second half. From a margin perspective, a 3% step-up in margin. We're now well into the 19%, both in Q1 and Q2. but also the absolute EBITDA step up is very encouraging with an over 20% step up in our organic performance, supplemented with the benefits of the temporary vitamin effect. If you look at that organic performance of over 20%, over 100 million is coming from organic growth in our businesses, and then there's another 95 million contributing in the first half, which is perfectly in line with our committed contribution from the synergies from the merger and our vitamin improvement program. As I said, the temporary vitamin effect in the first half is around 125 million. And at the same time, we've seen ethics deteriorate into the second quarter. So we had a hit of about 25 million, which was a bit bigger than what I originally guided for, which was around 15 million, but we've seen the rates worsen further. And also the deconsolidation effect of the divestment has an impact of about 30 million in the half. Let me remind you there, this relates to the yeast extracts business that we sold in our taste, texture, and health business, the marine lipids that we divested in our health, nutrition, and care, and also the deconsolidation of the feed enzyme business that we sold to NovoNesis, which completed as per the start of June. Then zooming in a bit more on the dynamics of the most recent quarter on the next stage, looking at Q2. And we've seen very much broadly consistent dynamics across all of our business into the second quarter. So same growth momentum and same elements supporting that growth. Overall, the quarter has shown a 6% organic growth, so very much consistent throughout the half. And the main difference really versus the first quarter is the headwind from FX that started to play. And at the same time, we've seen the temporary vitamin effect leveling off throughout the quarter. In Q1, we had a contribution of 85 million to EBITDA. In the second quarter, 40 million on the back of the unwind of that price uplift related to that force majeure. Also from a margin perspective, A strong step up on margin. Overall EBITDA margin is up 19%. Now, coincidentally, that's also the EBITDA margin. We see a continued improvement on that front. We guided earlier, expect about a percent step up in margin over the years, and this is perfectly in line with that plan. Again, looking at the building blocks of that step-up in margin, again, here on the page you see at the bottom left the 20% organic performance. Again, over half driven by our organic top-line performance, the other half coming from our commitment around synergies and vitamin improvement program, and the temporary vitamin impact in Q2 of about 40 million. was basically offset by the negative impact of FX. The 25 million that I alluded to earlier was fully recorded in the second quarter. And also here we see an M&A effect of about 20 million in the quarter. As I said, margins stood at above 19%, which is an encouraging trajectory and in line with where we want to go. But let's zoom in into the businesses on the next page, starting with perfumery and beauty. And here we've seen a good demand across fine consumer fragrance and ingredients as alluded to earlier. We saw the weakness in beauty and care on the back of the destocking and sun filters, so that has been impacted. We talked about that at our Q1, and we've seen a similar dynamic into the second quarter. Hence, our reported organic growth is 1%, and you see that the impact of a fix is marginal in the first half of the year. Adjusting for that desucking effect in UV filters, our reported organic growth would be mid-single digit, in line with the strong dynamics that we've seen in our fragrance and ingredients business. Then zooming in a bit on Q2. Now, the investor presentation has all the quarterly bridges for ease of reading, so it's nicely built up on the halves and quarters. In the interest of time and leaving enough time for Q&A, I'll just voice it over in this presentation. Looking at the second quarter, again, favorable conditions in perfumery. Beauty and care was impacted by UV filters, as I said before. What we also saw was that following the force majeure at a supplier, also our aroma sales were impacted by lack of availability of material. Again, when you adjust for that, we have a mid-single-digit performance in our perfumery and beauty business. Margins, nothing to mention, largely in line with last year, despite the negative impact from FX and some one-off costs related to that force majeure. So encouraging results. Now, with the normalizing effect of the aroma, given that the phosphogeal is lifted, at the same time that the stocking effect of UV filters will not come back, You have Dimitri say that we are comfortable with an outlook of a single digit for perfumery and beauty. Going into the second half, we'll be able to also then show that as recorded organic sales growth with a continuation of a strong margin performance in P&B. Then looking or moving on to Teeth, Texture and Health on the next page, please. Continued strong growth. As a reminder, last year we've seen a 9% growth throughout the year. Q2 had even 11% growth with even stronger volumes. Looking at the overall growth in taste, texture, and health, a 6% organic growth continuing, reflecting also the benefit of the combination and the benefits of the merger. In that growth of 6%, 2% is coming from synergies. We see that nicely coming through. As a matter of good practice, I keep on repeating the pipeline, two-thirds of our synergies will be delivered by our taste, texture, and health business, and that is growing very nicely. Meanwhile, that pipeline has increased to over 375 million of leads. The win rate, I commented on that earlier. We see that above average in the pipeline. So with a very good win rate, the wins are well over the 135 million, and we meanwhile invoice over 125 million. And just to put that in perspective, we meanwhile delivered about 40% of the targeted synergies in taste, texture, and health in this period, which is very encouraging to see, and it's great to see the confidence in the sales teams in our business. Now, looking at the overall dynamics in the market, strong growth in beverages and dairy, and again, local and regional accounts are fueling our growth. Q2, same dynamics, a 5% growth. Again, keep the comps in mind. We had 11% growth in the second quarter of last year. So, again, continuation of the good dynamics in our taste, texture, and health business. and encouraging to see the constant margin development as well. There we also wanted to see a constant upgrade of margin. We've seen that with a step up of a percent year over year. Overall, the margin in the second quarter landed at 20.2, 0.5% on a reported basis. I do want to stress that we're still selling the material to Le Saffre at cost, which will be ended by the end of the year. If you discount that sales that don't add calories to the bottom line, the margin is actually exceeding 21%, which is nicely in line with the guidance that we gave, and it fits the plan that we have for this business. So continued good conditions in taste, texture, and health, and also there we made a good start of the third quarter in July. Then moving on on the next page to health, nutrition, and care. Also here, strong conditions. Dimitri stole a bit of my text with four consecutive quarters of good growth and strong growth, where you see dietary supplements moving up and also early life nutrition on the back of a good demand for our HMOs. Dietary supplements are very driven by preventative health. But also here you see the conversion of marine lipids to algal-based oils getting good traction and supporting that overall growth. So in the first half, 6% organic growth, all volume-driven in health, nutrition, and care. And we see a constant margin improvement as well. The half was at 18%. We then look at the dynamics for the second quarter. Again, you have the details in the investor presentation. Same growth profile, good growth across all the categories and regions. Also a 6% organic growth in our health, nutrition, and care business, and margin was at 18.5, and that will continue to improve going into the second half, where we will hit the 19th as well. And again, Here, a great trajectory in terms of margin improvement. We said with the volume coming back in the business, we'll also see that moving upwards. As a reminder, we started at 15% at the start of 24, and we're meanwhile moving into the 19% into the second half of the year. So a good continuation of the journey in health, nutrition, and care. Then last but not least, on the next stage, animal nutrition and health. Overall very strong growth as one would expect. I always look at the pricing factor through a different lens. I look at it how much is related to a restoring and a normalization of pricing and how much is supported by the temporary vitamin effect. In the half that's about 50-50 and you see that shifting into the second quarter where that impact of the force majeure is fading out, but you see also a continued strong performance in the second quarter on pricing. Now, overall, we also see a good volume uptick, and I do want to call out performance solutions continues to deliver a high single-digit growth on the back of a high single-digit growth last year, so another strong performance in the first half of that business. Margin-wise, an absolute EBITDA, a great step up overall. The percentage is something that is difficult to pronounce in terms of an EBITDA step up. I look at that in terms of absolute numbers, over 250 million step up in EBITDA, of which half is related to the force majeure, but the other half is really about improving the underlying conditions in the business. Overall, the margin profile is healthy. If you discount the impact of the force majeure, margins have meanwhile restored to 14%, and we continue to improve on that front too. Maybe also as a voiceover, dynamics there, very much similar conditions in the second quarter, as we have seen in the first quarter, with a strong organic growth as well, and as said, a pricing effect of 15%, of which two-thirds is related to the underlying business. Then on the next page, what does that mean for our KPIs across the board? You see strong improvement there as well. And what you see is that the increase in sales and organic growth and the resulting EBITDA step-up have found its way in all of the metrics. You see that step-up with EBITDA nicely flowing through into EBITDA. We don't have any leakage on that front, so a good step up, and that has also flown through into the net profit line. Now, we do want to make a comment on the earnings per share. There is about a 30-cent impact there related to an accounting entry at the Associates, KD Pharma. I remember that we sold the marine lipids business to them. Now, they had a delay in processing everything at their end, and hence we took some accounting and non-cash adjustments. That's a one-off adjustment in terms of some value adjustments at their side, but we had to reflect that in our numbers as well. So it's a non-cash adjustment. It's not recurring, but it did have an impact on the earnings per share in the first half. So we just want to make sure that that was understood as well. But the rest, you see the nice business results flowing through all the way down to the bottom. That also improved our ROCHI substantially. So overall, our core ROCHI is up into the double digits. We mentioned that in the voiceover that we saw that improvement at the start of the year, and it's all related to our improvement of our EBITDA and margins. And also, when you adjust for the force majeure, we're close to the double-digit core ROCHI performance for our business. Now, cash flow was a bit softer than last year. Dimitri highlighted that and gave you a few insights on that on the next page. Overall, our operating fee cash flow was about 200 million below prior, and it was merely around timing of payments where we saw some payment runs that got accelerated into the half, not necessarily, but we don't actively stay on that. So that will unwind throughout the year, and also our SDI payments are usually made in the first half of the year, and that obviously reflected the strong performance over 24, whereas 24 was only reflecting three quarters because that related to the short-term incentive payment for employees for the period after the merger. Now, that effect will normalize throughout the year. If you look at some of the underlying drivers, all very much under control. You've seen that working capital as a percentage of sale improved versus prior year, but it's somewhat elevated versus the year end. Now, part of that is seasonal. We always see that. We land at the end of the year below 28%, and I wouldn't see a reason why we would not be at that point. So you'll see all these effects normalizing. We control our cash out around CAPEX. whilst we continue to invest for the future, and that came in also in line with the guidance of 6% of sales. So the underlying metric is good. I do want to highlight that we make continued progress in reducing our inventory, although in the first half we did allow ourselves a somewhat higher level to make sure that we deliver better. upon our commitments to our customers and help them navigate through a bit of a volatile economic environment. But as I said, also that will unwind again in the second half, and we've seen the first effects of that already at the end of June. Then for good housekeeping, also on the next page, a bit of net debt. Overall net debt continues to decrease as well. Now you would expect that on the back of the merger proceeds The measure proceeds are the divestment proceeds from the sale of the feed enzyme business. So overall, we collected $1.4 billion in line with guidance. At the same time, as you know, H1 is characterized by a good dividend payment because we maintain that as well. And at the same time, we've seen the first outflow for the share buyback, and we bought back the minority stake of our under-infecting business. So all in all, a continued progress in that debt as well. Looking into that, going into the second half, we'll see a continued good step up in our operating performance. I remember last year as well, where we delivered over a billion of operating cash performance in the second half. But I also do want to call out that we will be paying for the remaining part of the share buyback in the second half. So when you model that, please take that into account. A housekeeping notice, when I look at NetDebt, I include the hybrid. IFRS doesn't always listen to me, so they classify that as equity. But we will be revealing that in August. So when you look at here, when I talk about NetDebt, I always include the hybrid. So our leverage is then around 1.3%, 1.4%. But don't be surprised that in Q3 or when we come out with the full year, that 0.8 redemption will then also be reflected in IFRS definitions of net debt. Last but not least, our outlook on the next page. Outlook unchanged. We're targeting around 2.4 billion. Now, the careful reader this morning has seen that we changed at least to around And that's purely related to the volatile environment around our currencies. As said, I guided for about 15 million of impact in Q2 that came in at 25. If that were to materialize for the rest of the year, then we're looking at an impact of a little over 75 million for the year, which is bigger than what we guided for at Q1. Hence, if that were to materialize, we could be slightly below 2.4%. Hence the change in wording. But I want to stress that the underlying business conditions have not changed. So we're perfectly in line with the guidance that we started the year. In Q1, we technically updated it for the increase in the force majeure, in line with our commitment and transparency around that. At the same time, we sold our feed enzyme business. So we deducted that. That leveled off. And now in the second quarter, it's only the FX that is a bit uncertain. And again, you can see how volatile it is. On the back of the trade deals, they started moving again, but we expect for the quarter a bit of a similar impact. Housekeeping is there for your convenience, but the models can stay as is. There's no change. Very consistent delivering in line with that. Maybe with that, Dave, we leave enough time for Q&A.