DSM-Firmenich AG (DSFIR) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today. As you can see, we do this webcast from our home offices. So we're still in dark red in the Netherlands because, yes, our freedom date didn't turn out that successful so far. So hence, we're back home. We've chosen a new format for this half year results. So instead of our 4x a year, the same quarterly financial report reporting, we decided to focus more on half year and full year results but then also make a broader update, addressing also the progress we make on our strategic and sustainability journeys. That means that the interim quarters, we do file social, called short trading updates, as you've seen us doing already at Q1. With more information to share at half year and therefore, also a full year, we thought it also be helpful for you to move the call to the afternoon, which gives you more time to digest the information, but it also allows our U.S. investors to follow this conference live. So welcome to the U.S. investors for this first live conference for them. What's our agenda for today. First, Geraldine will run you as usual through the financial performance for the first half, but then also will give you a short overview of where we are with our innovation projects as well as with the strategic journey. And then Dimitri will follow with an overview of our sustainability journey and then also zoom in on the Animal Nutrition business. These presentations will take about 40 minutes, and the slides have been published already this morning. You can find them on the website. And the ones we're showing today are a little bit shorter than the ones we published, but they are identical, only a little bit shorter. After this 40-minute presentation, we move to the Q&A, which takes about 50 minutes, and that will be done with the sell side analyst. And before we move on, I have to do my usual thing. That means caution you that today's conference may contain forward-looking statements. You can find these disclaimers as usual in the press release, which we published on our website. And with that, I will hand over to Geraldine.

Thank you, Dave, and welcome, everyone, from me as well to this earnings call, which is a new format, and we hope it's going to go smoothly and that it will be time well spent for you. As Dave just said, I will kick off, looking at basically the H1 numbers. And then looking at some of the progress we have made on the strategic steps that we have taken so far. And then I will hand over to Dimitri, who will then give a bit more color on our purpose-led journey. And actually, a bit of a deep dive on our Animal Nutrition, particularly precision services that we are rolling out and I'm just checking because I am not sure I'm seeing the right screen right now, but hopefully, you are. So let me start with the total group numbers, and that is going on our first slide with figures. So as you can see here, it's quite clear that we had a very good first half of the year. If we look at the numbers, starting from the left side, we delivered an 11% organic growth, which has led us to delivering an adjusted EBITDA up 22%. And that drops down nicely to the adjusted net profit, up 21% at EUR 444 million. Now all of these figures on the left side of the slide are actually the scope of continuing operations. And if I actually take the lens of total DSM, then here, you would expect -- you would see actually a net profit in excess of EUR 1 billion for the first half this year. That is because in the second quarter as from the first of April recorded the divestment of Resins & Functional Materials, which brought in again net of tax of EUR 567 million. So that is what makes up the EUR 1 billion of net profit for the first half this year. Now keeping the lens of total group. We've also delivered a nice step-up in cash generation. As you see here, the adjusted net operating free cash flow is up 11%. And if I should take a continuing operation scope, it would be plus 18%. Also worth highlighting here is our return on capital employed. Now if you look at the published number, the reported number, it's 12.2%. But given the number of acquisitions that we have done in Nutrition recently, that does actually hide the progress of the underlying return on capital employed, which is here, 15.7%, excluding M&A. And that is actually a step-up of 350 basis points on the ROCE. I have to say, helped quite a bit by Materials, but also progress in Nutrition. So you have to read here with the footnote. But this is what we are driving as an operational KPI. Now these total growth figures, of course, are the sum of many moving parts. And to start going through them, let's go to the next slide on total Nutrition. And what you see here are the figures for H1 and for Q2. So if we look first at the big picture, what it shows is that our Nutrition business overall delivered a 6% organic growth in H1, very much in line with our strategic midterm ambitions of mid-single digits, which resulted in an adjusted EBITDA, up 8% and a margin of 21.4%, up 50 basis points. So this is a very healthy performance. And also worth noting here that the contribution from the acquisitions that we have done, is still on Q1 and on Q2, offset by the foreign exchange headwind. And you see that in the small boxes at the bottom there, we have FX minus 6% and M&A plus 6%. So that's very much still a picture in Q2. But overall, very good business conditions throughout the 6 months. Now looking at the particular business dynamics in Q2, it's probably easier actually to go directly to Animal Nutrition to start off with. So on the next slide. And let me see if the next slide comes up on Animal Nutrition. Here we go. So here, if you remember, last year, we saw our Q1 that was very strong due to COVID with a lot of nervousness of our customers wanting to not run out. And therefore, we have seen in the Q1 of last year a 12% volume growth. That was followed by Q2 last year of a much softer quarter with only a 2% volume growth as there was some element of destocking and a bit of wait and see going on. So that was the picture last year. Now as you know, this year in Q1, we were expecting to struggle to deliver growth on the back of already the big Q1 of prior year, but we did, nonetheless, deliver 5%. And what we can say today is that in Q2, we have seen neither a major stocking or destocking effect. And as a result, you see here the 5% organic growth in Q2 for Animal Nutrition. And that is really on the back of good business conditions across the board, pretty much all species and regions whether it be poultry, pets, beef. In the case of beef, for instance, the strong exports out of Latin America continued towards China, helped by the Brazilian real being still relatively weak. We also saw a continuing good momentum with the African swine fever that continues to rebuild the herd. And we are seeing actually in Q2, the aquaculture space starting to recover as that was actually quite impacted by the eat-at-home phenomenon of the COVID phase. So good business momentum resulting in this 5% organic growth. Now if you look at the moving parts under that, you may wonder why is it that we have 10% volumes up and minus 5% price. And that is actually linked to last year. So last year, as I said, in Q2, we had very moderate growth at 2%. So here, you have a real comp effect. Hence, the 10% combined with, of course, the good business conditions. And the price minus 5 actually compares to a plus 7 in Q2 last year. And here, again, you may remember that we had some somewhat unusual movements in Q2 related to the pricing of pass-through ingredients of FX in Brazil, for instance, and also some element of mix. So you've seen here effectively a bit reversal of that plus 7 of last year. But as indicated on the previous slide, this is not really impacting our earnings and our margin. So it's a bit of noise, if you want, on the top line. So those are really the key highlights when it comes to Animal Nutrition. Now if we go to the next slide, and we are here on the Human Nutrition part. Well, in Human Nutrition, it was the reverse last year, right? So our Q1 was a relatively soft Q1. We saw the effects of pantry loading only start at the end of Q1, but Q2 was a very big Q2 last year. We had 13% volume growth. And of course, if you -- as you remember, there was the whole pantry loading. There was clearly the shift in food and beverage towards the whole eat at home. And we were seeing clearly a lot of immunity dynamics with dietary supplements being strong. So a very, very big Q2 last year. And as a result, it was always going to be a challenge for us to deliver any additional growth in Q2. And this is why you see here that for the second quarter in Human Nutrition, we are actually flat versus this high watermark, which is an excellent performance. What we're seeing is positive momentum pretty much across all of those segments with growth even in Dietary Supplements. And the only part of Human Nutrition that was a bit softer is Early Life Nutrition, which, as you remember, was already the case in Q1 and is very linked to the low birth rates not only in China, but actually across pretty much all geographies linked to COVID-19, so that continues. And Pharma and Medical are continuing -- actually have a strong performance in Q2. So when you combine strong Q1 and this Q2, which is in line with last year, it leads us to this very solid 5% organic growth in Human Nutrition as well for the first half year. And to complete the nutrition picture. If we go to the next slide, you will see there the other nutrition elements. Here, we are looking at Food Specialties. Food Specialties has had a good first half of the year with this 8% organic growth, pretty much supported by all the different business lines within that division, whether it be dairy, baking, the brewing part is very much coming back after the lack of out-of-home consumption and savory remaining strong. So a good 8% organic growth there. And when it comes to Personal Care and Aroma, here, the background was, of course, that Aroma actually did quite well during the COVID months, with all of the Home Care business, but what we're suffering more is the Personal Care, in particular, of course, some filters, but some of the Skin Care. And what we are seeing is that, that is now coming back. Hence, this 13% organic growth. So that is really driven by Personal Care. So that is really the picture from a business development on Nutrition. Now if we switch to Materials going to the next slide. Here, this is really the quarter where we, of course, see a big step-up versus Q2 last year when everything pretty much -- not everything, but slowed down massively. Let me put it that way. And as a result, we, of course, see these very big numbers in terms of organic growth versus Q2 prior. However, I would like to point your -- get your attention or point out that actually, if you look at the comparison versus 2019, we are delivering growth versus 2019. So even if you ignore 2020 for a moment, -- and what you see there is that this very strong recovery has led to actually a volume growth of 11% versus H1 2019. And we actually see an EBITDA growth of 23% versus the first semester of 2019. So in all respects, an incredibly strong first half of the year. Now this recovery, if you recall, started in Q4 and became stronger and stronger throughout the quarters. And if we go to the next slide, here are some of the drivers. What we have here is, of course, a strong demand in automotive and electronics that you've seen with other companies, and that has continued from Q1 into Q2 with a strong order book. Here, it's a combination of end-user demand, but there is, of course, as well, particularly in the long value chains like automotive, a restocking effect of the supply chain. And I think importantly, we really need to emphasize here that in order to keep up and to deliver with customer needs has taken a huge amount of effort and we've had to run fast. And we are seeing increasing tension in the supply chain. This is not sustainable from a pace point of view, but we're also seeing inventory levels getting pretty low. And therefore, we are a bit cautious with the second half. Although the order book is good, the ability of the whole industry and supply chains to keep up this sort of momentum is a bit in question. So that's why we refer you to extremely tight supply chain conditions as we move into the second half for Engineering Materials. Now when it comes to Protective Materials, here, as you know, it's a business that has a very different dynamic and it was pretty soft for a few quarters, but we are seeing a gradual improvement from Q1 to Q2. And in fact, Q2 is pretty much back at pre-COVID levels, particularly in the Personal Protection. So a nice recovery there, and that should be a lot more progressive without necessarily as much of a potential stocking, destocking effect that we see more in our Engineering Materials business. So that's really the highlights for Materials. Now if we go to a few other financial highlights just to cover a few points. Here, I would like to refer to the working capital and operating working capital. So what you see here is that the ratios to sales are very good. So we have a total working capital to sales below 20% at 19%, which is down 180 basis points. And you see the OWC, also as a percentage of sales, coming down strongly at 24.9%. But I have to flag here, and you can see it in the press release that this is driven for a large extent, by our Materials business, which, as I said, is running a little bit on fumes when it comes to inventory levels, and that is reflected in our working capital. But Nutrition did a good job as well given the circumstances. Now the other number here is net debt. I've referred to this already earlier, but we have booked now the divestment of Resins & Functional Materials. So the cash came in, in Q2, which was EUR 1.4 billion, as expected, which brings us to this net debt of EUR 1.2 billion at the half year. Then just to be complete to mention, we are announcing an interim dividend of EUR 0.80 per share. Just as a reminder, this is not an indication of the ultimate dividend for the year. Our policy is to distribute 1/3 of the prior year dividend as an interim amount. So this is just 1/3 of last year's dividend. We also, in Q2, completed the cancellation of the shares that we bought back here. We did a share buyback that ended in February last year, and we have now canceled those shares that was done in Q2. And we also, in order to sort of keep the balance sheet clean, decided to do an early redemption of one of our bonds, which was due to mature in September 2022 of EUR 500 million. We decided to do an early redemption, which was also completed in Q2. So those are the other financial highlights. And now moving a bit more into -- no, sorry, I was going to forget that leads us to the outlook. So you will have seen in the press release that we have updated our outlook on the back of these developments. We remain very confident in our positive outlook for Nutrition, as was stated in the previous quarter. And on the back of the strong performance of Materials, we are now indicating that we expect to grow our EBITDA in the mid-teens as opposed to towards mid-teens, which really reflects this very strong recovery in Materials. So these were the financial highlights. And now switching a bit to our progress on our strategic journey. Here, there is a lot going on. So I will be brief, but still worth highlighting a few key points. And I will start with Nutrition. So here, innovation projects. You will hear more about this in a second from Dimitri, but progressing very nicely on pretty much all of them. So good progress there. We're also making mass strides in our third dimension of our very unique business model, which is the precision and personalization that you heard us talk about at the Capital Markets Day. And we will tell you a bit more about Sustell later on in this presentation. But we also launched Hologram Science, which is our personalized nutrition, consumer-facing entity that really helps individuals get a diagnostic and coaching and basically personalized nutrition guidance. So this is progressing. We have also, in the period, completed the acquisition of the F&F bio-based intermediates from Amyris. This has gone straight into our PCA business, which is really leveraging our bioscience capabilities and giving us critical mass. So that is going as planned and very well. And actually, in July, we also increased our ownership of Midori. We were already a 38% shareholder in Midori. It's a biotech start-up in the biotic space, a very exciting space because it has all to do with gut health and basically fighting the overuse of antibiotics in the production of meat. We've now increased our ownership to 100% and we're very excited about that. So that was done in July. Now going to Materials news. Here, of course, the divestments of resins is now completed, I've referred to that. With that divestment, if you recall, our solar business partly went to Covestro, but the back sheets did not. And we're pleased that we were able to actually sell that part of the business and our colleagues found a new home with water industries, and that was in June. So that sort of completes, if you want, partly that's divestment. And we're continuing to move our portfolio in the material space to the specialty part of the industry. As you can see, we have been able to really keep up the pricing momentum in Materials, and that really is clear, clearly related to the specialty nature of the portfolio that we have today. Then when it comes to our JVs and associates, you will have noticed also that just shortly after the midyear point, we actually divested with our partner, CVC, our remaining share in AOC. This was a 17% shareholding. The cash will come in sometime in the second half of the year, but that is another piece of the divestments of some of these associates shareholdings that we still hold. And last but not least, on our journey to the net zero by 2050. In terms of greenhouse gas, We're pleased today to add it to our bullet points, the fact that we are actually increasing our ambitions with the horizon in 2030. I mean it's very important to have a 2050 net-zero target but of course, milestones along the way are pretty much essential, and we have just upped that with all the road maps behind it to reducing by 50%, our emissions from Scope 1 and Scope 2 by 2030. Then now moving more on to the innovations, which is always an important part of our growth strategy for DSM. And this slide should be familiar because it's the slide that we showed at the Capital Markets Day in November. And it's an important slide because it really links up the pipeline of innovations and themes with our growth platforms. And this is exactly how we steer our capital allocation and what underpins our ambitions in terms of growth generated by innovation. These are 4 categories: the 4 Ps, precision, prevention, proteins and pathways. Now I've already mentioned today a number of these items, whether it be Hologram Science and Sustell, whether it be the integration of the recent acquisitions like CSK, which is nicely integrated now or on the animal gut health. That's the whole new biotics platform. We had [ balances ] already. Then we had acquired Erber, which also has a strong offering in new biotics and now we're adding Midori. So as you can see, these are all the different combinations of partly organic, partly acquired where we get more speed of innovation and really underpinning these important growth platforms. Now as I know you're all interested in the updates on some of the -- what we used to call big-ticket items within that whole portfolio of innovations. Let me give you a very quick update on 4 of the key ones. Going to the next slide. So let me start with Bovaer. So the news on Bovaer is that we are still in this critical year of expecting EU approval, first with an asset clearance, hopefully, shortly after the summer. And then the EU commission approval. So if all goes to plan, this should be a 2021 moment. Then on the back of that, we are ready to launch our commercialization, whether it be in Europe or in New Zealand and then potentially in Australia. And it's important to know that we basically have customers that are signed up to do this as soon as the clearance comes through. And the market interest remains really strong, and particularly, of course, in the dairy and with dairy players. Now the potential remains the same at EUR 1 billion to EUR 2 billion. And when we look at the estimated sales, now this is new space, as you know, which makes the estimation always a bit of a challenge. But here, we're really looking at an estimate of about EUR 100 million in the next 3 to 4 years. With the disclaimer that it is a bit difficult to say, it could go faster, but we don't know. Veramaris, here, last time we spoke, of course, we were discussing the fact that the salmon industry has suffered quite a bit during the COVID period. Now we are seeing that the reopening of the economy is helping. And we're seeing the salmon industry basically getting more positive momentum, which is, of course, very helpful. We also see that the salmon industry is increasingly in the spotlight for its own environmental footprint. And here, the conversation really becomes very focused on what is called the FFGR, which is the forage fish dependency ratio, sorry, it's a real mouthful. But in short, it means how many fish from the wild do you have to catch to produce one fish for consumers. So it's really -- and most salmons, it takes 66 tons of wildfish for 1 ton of salmon. So this is very much in the spotlight and is very helpful because, of course, Veramaris oil comes directly from the [indiscernible]. So we can very much help the farming, the fish ponds be able to respond to these requirements. The capacity of the production is ramping up. So we've gone from, if you want, start-up phase to ramp-up phase. And what we're seeing here is with the current capacity, we're looking at about EUR 150 million sales for the JV with account capacity, which should be reached in about 2 years. Market potential is unchanged at EUR 1 billion to EUR 2 billion. Then moving to our next slide. Here, we are looking at, of course, the plant-based space with our CanolaPro, a plant-based protein. Now this is a space which is strong in terms of momentum. Where we are at is that our production site is being finalized in India. We should be able to produce during 2022. So it will be start up here next year. But in the meantime, we do have samples that are going to customers, looking at all sorts of applications from basically milk to yogurts to meat alternatives. And this creates a very strong, solid prework so that hopefully, the sales can ramp up nicely once the plant is up and running, which basically means that we should see a few dozen million of sales in the next couple of years, post commercialization. And the potential here for specialty alternative proteins remains EUR 1 billion to EUR 2 billion. So we haven't changed that estimate. And last but not least, Avansya, our fermented Stevia. Again, last time we talked, we were very much mentioning the fact that the COVID markets were not helpful for the launch of products. We are seeing a bit better momentum now, although not as strong in terms of product launches than pre-pandemic. But the Eversweet is very much appreciated as a leading artificial sweetener in the space. And we, therefore, have a good momentum, and we are already in double-digit million sales from this. So again, going from startup to ramp up, and we estimate the sales to be about EUR 100 million in the next 3 to 4 years from this as well, with a market potential of EUR 1.2 billion. Now these are only 4 examples of the long list that you saw on the 4P slide. And what's important is to point out, which is at the bottom here in blue, that if you take the whole pipeline of innovation, we are very confident that our innovation momentum will be able to help us add 1.5% to our top line growth and 2.5% to our EBITDA growth, going forward up until 2025, a combination of these projects and the rest of the pipeline. So this is really in terms of our innovation. And last but not least, for me, this is the slide that you should also recognize from the Capital Markets Day. This is what we said would keep us busy on our journey forward. On the left side, it's all about keeping up a good performance with the business as it is today. I've talked quite a lot about it in terms of business performance, innovation promise and how we're doing with our acquisitions, which are nicely integrated. Dimitri will be giving some more color on our purpose-led journey going forward and how we're doing on this third dimension of precision. So it just leaves me to comment a bit on the fourth box at the bottom there, which is the alignment of our organizations. Now following the divestments of Resins & Functional Materials, but also the many acquisitions that we have done in Nutrition. We had said from the beginning that we would look at aligning our organization. This is something that needs to be done on a relatively regular basis. We're making good progress, and the next phase of the rollout will actually be in September. And maybe actually we'll arrange a short call. Although it's not always of that much interest to the outside world, maybe a short call summarizing the key changes could be after the summer to give you a flavor. And with that, Dimitri, over to you.

Yes. Thanks, Geraldine, thanks for that and that quick update. Bear with us for a couple of minutes more and then we let the gate lose. But we'd like to give a bit of context on people, planet and profit. I mean, we were certainly a people-planet-profit company. You talked -- Geraldine talking about a lot about the people aspects. And the profit aspect, we also would like to have another time with the people and the planet aspects to it. And everything is linked to what we call the sustainable development goals. So it is a core value, but it's also a business driver. And we're not doing that on our own. We do also with partners, and we see that below on what type of partnerships we have done. And with these sustainable development goals, we developed a purpose-led, performance-driven strategy. And you see that on the next slide, and most of you have seen this slide. This purpose-led performance driven slide is built on capabilities and competencies. And if someone can move to the next slide, and that would be appreciated, yes. Here you can see that the sustainable development goals to a little bit the trends in the world, the megatrends in the world, and we compare that with what type of competence do we have. And with that capability, we also have responsibility around [indiscernible] focus on it. And you know that we always talk about nutrition and health, climate and energy and resources and circularity, nicely linked to the sustainable development goals to create a growth company to create a growth need for now, but also for the future. If we then go to the next slide, this strategy and this execution of it is also clearly recognized. We have an ambition to be top ranked in the ESG companies. We do quite a bit to enlarge our exposure to create responsibility for what we do. I'm very happy to say that most of them are also being recognized, and we're proud on that recognition. That recognition doesn't come for free. You need to deliver on it. So let's go through the progress on sustainability ambitions in the next slide. In the first half of the year, we have made quite some progress on the 3 key planet sustainability ambitions. Let me highlight 2 of them. Also, closely linked to the commitment and the upgrade of our commitment to half our greenhouse gas reductions by 2030. Remember that we started the greenhouse gas target reduction already years ago. And we were pretty unique in that whole setup. We were pretty unique also by asking SBTI to validate these targets. And we've made since then, enormous programs. And you can see in the realization that on the greenhouse gas production, we have reduced 19%. And with that path and that track record going forward, we have reviewed our commitments going forward. And you know DSM a little bit. We just don't put a nice marketing statement out there that we're going to reduce the greenhouse gas. No, we also want to develop a science-based road map to deliver what we promise. And I'm very happy to say that the road map now leads to a 50% reduction in ( -- in 2030, helping the 2050 commitment to be net carbon zero. And you've seen many companies out there in the world. You've seen many CEOs out then in the world who easily committed to net carbon zero in 2050. But the directory starts now. And I think DSM wants to show the way and therefore, I'm very happy to say that today, we have committed ourselves externally as well to reduce our greenhouse gas by 2030 with [15%]. It is helped by purchased renewable electricity. Remember, 5 years ago, our renewable sources were about zero. And it shows that if you want things to happen, you can make things happen. And that is something which we have done over time and 69% of our purchase efficiency today is already renewal. Now let's go through the other progress on sustainability ambitions in the next slide because it's not only the planet part, it also has to do with people part. And you see a few of these ambitions here, employee engagement, safety, and one of our foundations of DSM, but also diversity. I would like to highlight the brighter leading solution, that is a metric to look at how much positive support we bring towards our customers, towards the value chain in helping them to create brighter lives. And I'm also here happy to see that we are at 62%, but it's the start of the journey. And we obviously would like, with all our innovation, that percentage to go up quickly. Then with the measurements on sustainable ambitions, but we will continue reporting on sustainability. If you go to the next slide, you clearly see that the net zero by 2050 is one of our key drivers going forward, but it's backed up by a few sharp commitments. So 2050 indeed is our end goal. But we do have by sign-based target by looking at Scope 1 and 2 for 2030 already, but also by applying an internal price on carbon. We just recently agreed to move it up from EUR 50 to EUR 100 from top. Just to further guide our investments and operational decisions towards a carbon-neutral approach. Next slide, please. If you then look at our reporting, I think we're one of the few companies out there who already have reasonable assurance on our sustainability reporting. Remember, reasonable assurance sounds media reasonable assurance, but reasonable assurance is the highest level of assurance you can get on sustainability reporting. We feel that over time, there will be a reasonable assurance. They will be assured, there will be [indiscernible] on all elements of how to run the company on people, planet and on profit. In that, evolution of sustainability reporting, we will be proactive in creating more transparency going forward with new and future requirements. So also here, it's a journey that we will certainly be directed in that and create more transparency. That all been backed up by the reasonable assurance by the audited numbers on sustainability for people and planet, like it is important for project. Next slide, please. And overall, I think to close the look on our purpose-led journey. I think it's key to understand that the sustainable development goals are key for all we do, not for all sustainable development roles, but we pick the sustainability development goals where we have something to offer, where we have the capability and therefore, have a responsibility. Next slide, please. Then let's move from the overall context to the context of Animal Nutrition and Health. And let me put that in a broader context. What do we see happening out there in the world? What is it where we want to build our company towards in the nutrition and aspects? We see that helpful people and helpful planet is absolutely key and that is depicted by 3 key trends we see. From a consumer perspective, we see changing behavior. We see preferences changing, and we see increased awareness on our nutrition could positively impact your health. This is the help people expect. Let's also look at the environmental part. You have clearly seen that there is more and more pressure on the emissions and the exposure of emissions at farming. Farming needs to become more sustainable. This is the health for planet point. The emissions and waste in the whole food production should have a price. It contains the cost and, therefore, should be related to a price so that the innovation could work its way towards a sustainable farming environment. And then the society at large is playing a bigger, bigger role. They expect different things. The global population growth requires a food system revolution. It requires to think differently. Because in the world today, there is now nutritional hunger on the one side, and there's obesity and overweight on the other side that has to change. It also has to change because we need to think about affordable health care. And these -- all these 3 topics, all these things together bring people, planet profit closely together. And if we look -- if you go to the next slide, if you look at 2050, that's forward to 2050, where we had 9.7 billion people, that is almost impossible to secure. Not only from a food security but also from a health care perspective. So we need to move to healthy diets. And that healthy diets have 2 parts to it. And if we move to the next slide, it has 2 parts to it, which I would like to highlight. A lot of people think that animal-based proteins will be substituted by alternative proteins. I think animal-based proteins will go hand-in-hand with alternative proteins. I think the global population growth needs proteins and alternative proteins are absolutely key to the future. But it's still small, but it will have huge potential, and DSM plays a role there. Not in the Animal Nutrition and health part but within the food specialty food and beverages part separately. And we will play those, these [indiscernible] to play on all of these legs. So it's [ and-end ]. However, the animal-based protein production needs to become far more sustainable. And if you go to the next slide, you will understand that, that will be an important role to play. It needs to be more sustainable, it needs to be more efficient and affordable. But it's also a key societal or economical factor. A lot of people work in agriculture activity, it's about 30% of the world population. And here, the dilemma comes. And here, sustainable farming is the solution. And if you go to the next slide, I will show you that it has to become more sustainable. It has to become more sustainable out of a mission perspective, but also out of a biodiversity perspective. This cannot go on. And quality and safety needs to improve as well as food loss, the waste. About 1/3 of the food produced is going into waste. That's no longer acceptable. So that must change. And if we then go to the next slide, I'm also having a positive message here. This not only must change, it can change. It can change with the innovation ongoing. It can change with the innovation, DSM is offering and working on. From a productivity perspective and an economic perspective, from a health perspective, on a nutritional perspective and from an emission perspective and in this case, a methane inhibition perspective, but also nitrogen and also ammonia. So if we then go to the next slide, I will describe a little bit what are the key business drivers for this Animal Nutrition & Health business. It has 6 business drivers because it makes good sense. It makes good societal sense. It creates responsibility for the future, but it also creates business. And there are 6 drivers. I will not go through it, you have seen the pack, but I would highlight 3 of these drivers with some specific examples. And let me go through the third example, the first example, and that's helping to tackle antimicrobial resistance. And if you go through the next slide, you will see what the issue is here. 50% to 70% of all antibiotics are used by the lifestyle farming industry. That's no longer sustainable. Our ambition is to replace that, to replace the antibiotic growth promoters with neobiotics with others. And we have a few of the innovations already. We have a few already on the market on which balances is one. But in this case, I would like to highlight [indiscernible]. The beauty is that it's not only a sustainable aspect to it because it lowers ammonia and nitrogen emission, but it also helps the farmer to improve feed efficiency. So here, it is end-to-end. It is possible. Then the second driver I would like to highlight that is making efficient use of natural resources. That's the next slide. There, the natural resources are absolutely scarce and we need to work accordingly to see how we work around this. And I think Veramaris, I think Geraldine already highlighted it, it's a fantastic innovation going forward. And the interesting is that the [ LC-based ] solution is the way to go. Instead of fishing the ocean empty, you can create [ LC-based ] fish port. I find it amazing. I don't know if you are planning any holidays to the Mediterranean Sea, but it's amazing that if we make Veramaris to life, we can prevent wild catfish, which are annually caught from the Mediterrannean Sea. I think that is a fantastic ambition and incentive to make this work. Then the last example I would like to share with you, that is reducing emissions from livestock into the next slide. There is 14.5% of all greenhouse gas emissions today come from livestock that also has to change and the opportunities are there. There are plenties out there. I will not highlight all that. I think Geraldine already mentioned and I think you are aware of it. I would highlight maybe a product and innovation made by DSM, which you are not so familiar with [indiscernible]. It's an ubiotic, which here again, increases the economics, the feed efficiency but it's, at the same time, also reducing ammonia and nitrogen emissions by up to 20% in [ swine ]. So all these elements are there. These are the drivers for the future to go for sustainable farming and innovation is there to play. So if we then go through the next slide, I would highlight one of the key muscles, which Geraldine and myself explained to you last time at the Capital Markets Day. And that was about precision in Animal Nutrition. It was about personalization in human nutrition. It's about precision in Animal Nutrition. And that's the next step in that journey to sustainable farming. I would like to show you a quick video to understand why this is really the future. [Presentation]

Thank you. That was a sneak preview into the future. Measure, simulate and improve. This is what precision nutrition is all about in the animal nutrition space. And this is done throughout the value chain. This is from feed to farm, to food to fog. And if we go to the next slide, 2 elements because is why we are so strong on this treasury because it's happening today. The time is today. We do see today that there are eco-scores being developed. Retailers are experimenting with sustainability food labeling. And if you go to the next slide, you will see that this sustainable food labeling goes hand-in-hand with a nutritional information labeling, and it's happening while we speak. This is not far, far future. It is future that starts today. And the time to change is now we are absolutely seeing it is happening. DSM is part of it because we have the capability. I mean we have the capability, we also have the responsibility. And if we go to the next page, I can't say it better than what we said in the movie. If not us, who? If not now, when? We make it possible. Thank you.

Thank you, Dimitri. Indeed, time to start the Q&A session. We're running a little bit behind, I think, about 15 minutes, but that's not a problem from our perspective. So I hope that the audience can bear with us for that time. We've got 17 sell-side analysts in our Zoom meeting for this Q&A. You will see these analysts when they ask a question, but there will be a short delay between, let's say, them coming up and you get it through on your screen. All the other viewers who are not participating from the Zoom meeting will be in a listen-only mode. And before we now can start, maybe, operator, you can give a short instruction to all the Zoom participants how we're going to operate.

[Operator Instructions] So we will take our first question from Andrew Stott.

I had 2 questions. First one was on the supplements business, it seems to be outperforming some of the data from competitors and customers. I was just wondering if you could explain how you think you're doing that in Q2. And also if you can wrap out the second half thinking as well around the whole supplements business. And just staying with this area of human nutrition, is there any way you could quantify the ELN performance? I assume it's negative in Q2 year-on-year. But if you can quantify it in some way, that would be helpful. If you can't, can you give me an idea of how it performed versus Q1?

Thanks, Andrew. Dimitri, do you want to jump in?

Yes. Let me do that. Thanks. Nice to see you, Andrew. It's a bit of trial and error with the technology, but I think it will work. So thanks for that. In the Dietary Supplements, I think a good observation. I think we are very positive on what is happening in the Dietary Supplement front. I think it's fair to say that what we see in terms of growth is a clear mirroring of the immunity awareness of many of us in the world. And we still feel that, that is there to stay. So what we do see is that with the opening up of the economy, people still realize that vaccination is not immunization. So it still makes it worth to think about your health. And I think what we've seen is that the dietary supplement space and a pre-COVID growth of around mid-single digit, we now feel that at least mid-single digit because of the more health awareness going forward. And that is absolutely key. But the growth is from a higher base because we made a step-up in that. So it's a double plus from that perspective. The second half, we also see solid order portfolio. We see that continue. We also know that in the dietary supplement space, we have our i-Health business, which is very strong. It's about 30% of that dietary supplement sales. That is very strong. We're also globalizing that i-Health business, which was predominantly U.S.-based in the past. And thirdly, we are working on market-ready solutions. So we work with customers to quickly bring immunity-optimizing ingredients to the market. So it's surely also a path forward, not only banking on the good trending of the dietary supplements, we also take specific actions on it. Then your second question was on Early Life. Well, you know that, that space is a space with a few players. So I need to be refraining from a lot of information in that perspective other than macro trends having an impact on the global birth rates. And that is basically -- the growth is not helped by the ELN segment for us, and the ELN segment is about 20% to 25% of the total H&H sales overall.

Yes. Sorry, Dimitri. Do you -- can you just spell out whether you've actually seen an improvement in Q2 relative to Q1 on a year-on-year basis or not, given an idea of the direction?

For ELN?

Yes.

No, we didn't see a change from Q2 to Q1.

So similar to Q1. Okay.

Thanks, Andrew.

We will now take our next question from Nicola Tang, Exane BNP Paribas. Next, we will take Sebastian Bray from Berenberg.

Okay. Now we have Nicola and Sebastian. So Nicola, if you unmute, maybe we'll start with you.

I wanted to ask 2 quite separate questions. The first was, I guess, shorter term and the dynamics in animal nutrition in the second half. In your remarks, you talked about no stocking or destocking. But I was wondering what you expect as in the second half. Do you expect a kind of normalization of the logistics issues and perhaps sort of stockpiling that we've seen, especially as, I guess, some of the temporary supply issues that we've had in the space start to normalize? And then the second question was a longer-term one. On your scope 1 and scope 2 emissions targets. I was wondering if you could talk about the relative emissions from Nutrition and Materials. On an absolute basis, your emissions profile, scope 1 and scope 2 is not necessarily high. But certainly, relative to the rest of the ingredients space, it's a bit higher. So I'd infer from that, that the majority or larger share of the emissions was coming from Materials. And if that's the case and given your more ambitious targets and also your sort of higher carbon pricing assumptions, does that change at all how you're thinking about earning Materials or how you think about managing Materials over the long run?

Okay. Great. Thanks very much, Nicola. And let me maybe kick off with animal nutrition. So here, exactly, so what we're seeing is good business conditions are pretty much across the board, which is, of course, helpful. And also, if you think of Q3, we have actually a similar situation in terms of the comps in terms of a relatively weaker comp in Q3 normalized in Q4. But of course, what we also know is that in Q1, we saw this sort of stocking on top of the high Q1 and a little bit when do we see this normalization of inventory levels. So we are factoring in, in our overall outlook, the fact that we expect that to unwind progressively. It's difficult to call out when, I have to say. So is it Q3? Is it Q4? But maybe we're going to see something like a 2%. If we imagine it's split a little bit over the remainder of the year, maybe it's about a 2% across Q3 and then across Q4. So those are the [ big parts ]. So all in all, that still puts us pretty nicely probably in the mid-single digit for animal nutrition. So that's how we are looking in terms of those pieces. And then Dimitri, you want to cover the scope 1, scope 2?

Yes. My pleasure. So the total scope is at the current scope of DSM. So 80% is Nutrition & Health, 20% is engineering materials and Dyneema. The differentiating factor on where to reduce greenhouse gas has more to do with some of the plans and where they basically use energy. And you know that also some of the plants we have in Nutrition & Health are the big plants. So there, we have enormous energy saving programs running. These are small investments, and then we have a huge outcome. The second element, which the big part of that progress is that what we have seen is that if we acquire companies, then they normally come in with the worst environmental emission status than the standards of DSM. And you've seen that we have done quite some acquisitions. So as part of the acquisitions, we always ask ourselves the question, how does that impact our sustainability profile? How does it impact the greenhouse gas emissions? And if they go up, there needs to be a mitigating plan. So that's always part of the acquisition approval when it comes to Geraldine and myself. So what we do see is that in certain big M&As, and certainly big M&As in China, we have a huge progress to be made. So that is also driving that target. And then thirdly, what you do see is that renewable energy is absolutely key to reach that target. We were at 0%. We're now at 69%. We've made huge progress in Europe and in the America. Our next step needs to be in China, where we have a very good manufacturing footprint, then we need to come to renewable energy as well. So it has partly to do with M&A, partly to do with region and to a lesser extent, your question on where is the Nutrition and Materials. Does that give you a bit of a background?

We will now take a question from Sebastian Bray from Berenberg.

I would have two, please. The first is on forecast growth in meat consumption. If I take the figure that Dimitri mentioned earlier of EUR 1.7 trillion, and you take that out to EUR 3 trillion by 2050, the implied CAGR is about 1.1%, which, if you assume, let's say, we have 1% a year pricing inflation would imply no volume growth in the market to meet over that period. Is that an assumption you're comfortable with? And if so, is 5% per annum organic growth in animal nutrition achievable in the long term? That's my first question. The second is a financial one. JV and financial expenses have been rather volatile over the last few quarters. Could you give us any hints on what we should expect on an annualized basis from these?

Okay. Let me start with the easy one, and that is the JV and the financial expense. Well, it's not that easy, actually. Because there is no straight line on those lines. What happens on the financial interest line, by the way, is that some of the contracts on energy create quite a lot of volatility because of fair value adjustments. So what you're seeing there is typically, that's the swing. But if we look at, from a guidance point of view, the financial expense for this year, we're looking at EUR 110 million to EUR 120 million versus prior year, we were at EUR 67 million. And the movement there is not actually the cash out on interest, it's the fair value adjustments that now under IFRS go through that line. So probably good to know that the cash element is closer to a steady sort of EUR 60 million. So sorry about the noise, but that is IFRS. Now when it comes to the associates there, what we had last year, by the way, was the impairment of POET. And that's why you had a onetime negative. So you see a nice step-up in our associates' performance. But that one, I would say, is a little steadier, but we can give you a bit of a breakdown off-line, if that is helpful. But that is why you had such a jump between prior year and this year for H1. Now when it comes to the meat dynamics, Dimitri, do you want me to take it? Or do you want to take it?

Yes. No, my pleasure. So be aware that we are not in meat production ourselves. We are in the ingredients, right? So we basically are in the ingredients to make it more sustainable, more healthy going forward. So that is an area which is growing faster than just the meat production because we are in the specialty area. So by the nutritional values or minerals or the enzymes or the ingredients, which replace antibiotics who reduces emissions probably will even be in regions there will be services. So we feel very comfortable with the mid-single-digit organic growth in the expense because it is in specialty part. It's an innovation part. It is driving some of the trends going forward. So you should not compare the meat production with the growth with what we have to offer. So you need to distinct those two.

And next, we will go -- we will be taking a question from Sebastian Satz from Barclays.

And I've got 2 questions as well, please. And the first one would be on Bovaer, and just on your guidance of a couple of hundred million revenue -- sorry, EUR 100 million revenues in 3 to 4 years. You said it could potentially be higher than that. Assuming that the demand shapes up a bit more positive than you assuming it in your business case at the moment, what kind of capacities do you have in place already? And how much revenues could you generate from those? And assuming you would need to build a few new capacities, how long would that take? And what kind of CapEx implications would that have, please? And then the second question is on Glycom. Unless I've missed this, I don't think you provided an earnings number for this quarter. You did that in past quarters. Could you just tell us how the business has done and also how the performance has been? And how you think about approvals both in China and the U.S. going forward?

Sure. So first on Bovaer. So indeed, it's a little bit -- because it's a new space, it's not easy to be certain how we're going to be able to ramp this up now, the capacity we have in place in order to meet the commercial launch. So we are able as soon as we have clearance to get going. And we will, over time, then see the pace at which we go and determine the kind of capacity expansion and CapEx. So we haven't yet disclosed what sort of investments we will be looking to make in order to reach the kind of ramp-up that we're getting to. So one step at a time, we're first getting that regulatory clearance. We do have though some customers signed up, which is really great. So it's not just hypothetically wait till the clearance and then discuss. All of that is happening in the background. We also see basically that the environment is very, very supportive with EU Green Deal amongst others. So it's all looking very good. And then as we progress on using the existing capacity, we will share a little bit what the trajectory will be in terms of capital investment and ramp-up. So that's where we are on Bovaer. And then Dimitri, do you want to give the Glycom update?

Yes. Super. Indeed, Glycom is now fully integrated in our Early Life Nutrition business. So it is now integrated in the ARA, DHA space. You also know that we have approved HMOs in Culturelle. So this is a year after integration went well. So that's the reason why we don't report it separately. But I can give you a bit of background on the numbers. So in 2020, we had about EUR 7 million EBITDA per quarter. In 2021, you've seen quarter 1 around EUR 10 million and quarter 2 about EUR 8 million. So let's say, on average, a EUR 9 million EBITDA per quarter, so quite a step up in the quarter. And we expect a step-up of around EUR 15 million from 2020 to 2021. Important point is the approvals. We're already approved in the U.S. So we're working with customers for HMOs containing launches. And in China, we have required regulatory approval, and we expect that somewhere in 2023, it's a bit of a black box, obviously, but there's a lot of push to make that work also from a China perspective. So we need to have that regulatory approval before we can start launching products. But overall, a bit of a delay in initial phase of COVID, where people were a bit hesitant to go into all types of approval processes in their labs. But I have to say that it's slowly opening up, and we see quite some traction now also on the approvals and network. So overall, I think a step-up versus where we started from last year.

Next, we will have Matthew Yates from Bank of America.

I had a question about what you call your other Nutrition business, which is EUR 1 billion of revenue. It's not a small business. My question very simply is, why do you call this other because it gives a bit of the impression of being somewhat miscellaneous and noncore? So I'm just wondering about internally how this business fits into your kind of matrix model to leverage the benefits of the Nutrition platform. So is there a distinction here between how it's run internally versus how maybe it's presented externally to the financial markets?

Very nice question, Matthew. I see you smiling, Dimitri. Do you want to take this one?