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

Welcome to everyone, and thank you for joining us on the short notice for this call on the trading update we published this morning. I'm Dave Huizing, Head of Investor Relations, and I'm joined today by our co-CEOs, Geraldine Matchett and Dimitri de Vreeze. You can find this trading update on our website. You will also find the disclaimers about forward-looking statements made in today's conference call. We will start with some introductory remarks by Geraldine and Dimitri. And with this, I can hand over to you, Geraldine.

Thank you, Dave. Welcome from me as well. And indeed, thank you especially for joining us given the short notice. I hope you had a chance to read the press release that we issued early this morning. Now we are today providing a trading update in light of the continued global macroeconomic turbulence and the impact on the market dynamics. There will be no slides today, and I'm sure you understand, given the speed at which we are required to make these announcements. Instead, Dimitri and I will provide some introductory comments before we will open the floor for the Q&A. Now in early May, at our DSM Q1 trading update, we knew that we would have a soft start to the second quarter of the year. As the challenging conditions that we had in Q1 were persisting at the time, but we were expecting a better second quarter for this year, especially June, which is typically strong ahead of the summer vacation months. Unfortunately, the usual strong end of Q2 for Animal Nutrition, in particular, did not materialize this year. In fact, it's the opposite. It has become clear that the Animal Nutrition volumes in June will be very disappointing and the vitamin prices have actually further declined. Now for this reason, we have made the immediate decision to issue this trading update for Q2. We now expect the total DSM-Firmenich adjusted EBITDA for Q2 2023 to be in the range of EUR 400 million to EUR 420 million, which is below the EUR 521 million of Q1 2023. All of this on a pro forma basis, meaning having the full period with both legacy DSM and legacy Firmenich together. In addition, in light of the more recent developments in vitamins and the move from the global macroeconomic outlook for H2, we now estimate the full year adjusted EBITDA to be between EUR 1.8 billion and EUR 1.9 billion versus the EUR 2.275 billion of 2022, again on a fully pro forma basis. We expect the drop in adjusted EBITDA to be driven predominantly by the current vitamin market conditions and the foreign exchange effect. This will be visible predominantly in our Animal Nutrition & Health business as well as but to a lesser extent in our Health, Nutrition & Care business. We are currently estimating the negative vitamin impact to be at about EUR 400 million for the full year, driven mainly by vitamins A and E and the negative foreign exchange effect for the year 2023 to be about EUR 100 million for the total DSM-Firmenich. And with that, I hand over to you, Dimitri.

Yes. Thank you, Geraldine, and thank you all for attending. First, the context. In light of this slower recovery of macro and a prolonged challenging vitamin market conditions, we are announcing an acceleration of actions. These are designed to increase our earnings quality as well as to reduce our exposure to vitamin earning volatility in general. It's, of course, unfortunate, that's such a combination of quite exceptional external factors for vitamins has conspired all at the same time, but there's also an opportunity to take strong actions and the actions today illustrate our commitment, our ability to do what it takes to deliver the highly attractive long-term potential of DSM-Firmenich. The measures around vitamins announced today will deliver an estimated saving of around EUR 200 million per year with the run rate to be reached by the end of '24. These actions will lead to an estimated impairment of about EUR 300 million to EUR 350 million in the first half of this year, with the total restructuring costs for '23 incurred as a consequence of the announcement are estimated at about EUR 200 million. Well, let me take you through the actions announced today to improve our performance to help restore our vitamin profitability, but also to reduce our exposure to vitamin volatility. First of all, organizational. First, we will create a new separate vitamin unit within Animal Nutrition & Health and one that is specifically tailored to the evolving market dynamics. This will lead to a more simple, more responsive, more efficient and more agile organization and, therefore, very quick to serve ANH's essential nutrition requirements. Secondly, we will prioritize. We will prioritize the businesses within ANH, which have a higher growth, higher margin profile. These are the Performance Solutions and Precision Services business. Action number three, we will restructure. We will deliver a comprehensive restructuring of our vitamin activities with an aim of delivering cost savings of EUR 200 million per year, with the run rate to be reached by the end of '24. These savings, to be clear, are not included in our merger synergy targets. They are on top of. Action number four, we will review our assets. And as an immediate first step, we announced the closure of our vitamin B6 plant in Xinghuo in China. And additionally, for our vitamin C, we will now purely focus on our Quali-C product in Dalry, Scotland. It's our intention to find other sources for our vitamin C production in China where we will already are not producing, and we're looking for different range of options for the Jiangshan site, we will discontinue operation. Five, we'll look at cash. With the step-up and our focus on self-help actions across the company, we will strengthen our focus on capital discipline and significantly improve our cash flow. This will be supported by reducing our working capital requirements. Six, we installed a program called Transformation Program for vitamins. And we also have announced today the creation of that new role with a new senior executive role who will report directly to me. That person will be Eros Carletti, who is already within our company. Seven, we will take a broader view on all business segments. That's not only for the vitamins, but across the portfolio of DSM-Firmenich to prioritize and accelerate our higher-growth, higher-margin segments and to tailor where we going to accelerate and where we're going to invest. Therefore, we are confident that principally with these actions taken, the targeted EUR 350 million EBITDA on integration and the synergies, the quality of our core activities that we will realize our midterm financial targets of 22% to 23% EBITDA margin and a 5% to 7% annual organic sales growth. And with that, back to you, Dave.

Yes, there I've got it. Thank you, Dimitri. I guess, we have quite some questions. There are already people raising their hands in the room. So yes, let's move to that session. [Operator Instructions] I think with those, we can start. So operator, let me give you the floor and you can let the first person ask the question.

Thank you, Mr. Huizing. [Operator Instructions] And our first question will come from Ranulf Orr.

Just a couple of questions for me, please. So firstly, regarding the vitamin EBITDA impact, can you please give an indication of what the contribution to that solely from higher input cost is and the time frame at which you might expect that to normalize? Secondly, what is the expected level of EBITDA generated by vitamin this year post kind of the EUR 400 million impact? Is that now close to 0? And then thirdly, just regarding the long-term guidance, organic sales growth 5% to 7%, EBITDA margin target, what vitamin assumptions do you have in that? That would be my 3.

Okay. Thanks. I think the first question, if we heard you correctly, is about the input cost factor in the EBITDA impact of vitamins. So when do we see the input cost increasing, right? Okay. So maybe, Dimitri, do you want to take that, and I'll take the margins and the targets?

Yes. Maybe a few things. First of all, as you've seen on the actions which we've taken, we are not waiting for the macro to help us. We take actions in our own hand. Obviously, we do see input costs going down, but that will take 4, 5 months to help us in our P&L because we have stocks for about 4, 5 months. So that will be towards the end of the year. That is one. Secondly, in terms of your vitamins' EBITDA and then I asked you, Geraldine to make the bridge. The vitamins' EBITDA, you're asking, what is the EBITDA? Well, let's go a bit more granular. So the total vitamins is about 15% of our total, around EUR 2.2 -- between EUR 2 billion and EUR 2.3 billion, depending on what the pricing are doing today and they are all time. So if we take the EUR 2 billion to EUR 2.3 billion, what we have said is that there is a negative vitamin effect for the full year of about EUR 400 million. Let's assume if you normalize the vitamins, you normally had about the same percentage on quality on vitamin was about 20%. So that means around EUR 460 million. So if you then have a EUR 400 million delta, you see that there's still a little profit left, and that is what we have covered in. So to that extent, it also shows the unusual circumstances with the EUR 2.3 billion vitamin category, and that's also why we take very stringent actions. Maybe with you, Geraldine that the bridge.

Yes, absolutely. And maybe looking at the journey from where we're likely to end this year to midterm targets. And midterm, we're talking 4 to 5 years here. But if we look at the current insights that we have, we're probably looking here at an overall margin for the year of around 15%, 15.5%. Now what we want to do and Dimitri said it correctly, is not just wait for the market to recover, although one can really say that currently, we are facing very much an exceptional situation in the context of vitamin. So some of that will unwind. But let me bring you to the bridge. So from about 15%, what you will see is a 2% up coming from these actions that we have just mentioned. So we're looking here at driving about EUR 200 million of savings with a full run rate being achieved by the end of next year, by end of 2024. Then, of course, you've got the synergies that we're going to be generating via the merger. That brings you another 2% and then we got 1% on the growth and the mix and the innovations. So from the 15%, you get to the above 20% through our own actions. Now in order to get from this '21 to -- 2021 to the '22, '23, one does need a bit of normalization. And what we mean by normalization is a bit of a recovery on price and on market conditions. So that brings us from the 15% to the 22%, 23% of margin. So that's probably the most relevant bridge for today.

Our next question will come from Isha Sharma with Stifel.

I have a couple of questions. Could you please break up for us how the underlying business for DSM has developed? And if we compare sequentially from Q1, did we also see a sequential decline at Firmenich numbers because we have the Q1 numbers just to compare there? And on vitamins, in general, how should we think about the EUR 400 million between the different vitamins? Because I did make some calculation based on your capacities of vitamins and it seems like EUR 400 million is really on the higher end. So is this mainly because of the cost side of the problem? Or are we talking about prices going down to even below the historical levels? If you could please break them down for us?

So I'll do the vitamins and then you do the first question. So let me do the second one on vitamins. So basically, the vitamins, I'm happy that you did the calculation, let me help you with your calculation. So overall, I said that with the EUR 500 million delta on the vitamins with a EUR 2.3 billion, normally 20%, there is still some profit left. It means basically that we're not making money on none of the vitamins, we only still make a bit of money on vitamin E. And that's what you've seen. Then on your pricing question, you've seen vitamin A and E pricing going down. Vitamin E was beginning of the year, EUR 895. It gone down in May to EUR 810. And at the end of June, we're now looking at EUR 755. Vitamin A was EUR 24 in May 1. It was EUR 22 on June 1. And as we speak today, its EUR 21.75. So it's a pricing component. However, it also is a cost component. I think the initial first question in the call was about how do we see the input costs are changing. We are still relatively high, but input costs are going down, but you see a delayed effect because it needs to run through the very high priced stocks, which we have, which is about 4, 5 months. So it's a combination of both. And I hope you get a bit of a feel on your modeling on the vitamins. Geraldine?

And maybe to your question of the sequential developments, which is fair enough. So what you're seeing is that -- and by the way, we also today are publishing all of the pro forma numbers. And so if you haven't had a chance to click and you've got the tables that give you the full of last year by quarter, et cetera. So Q1 of this year, if you take DSM-Firmenich, we were at EUR 521 million EBITDA. And so we're basically now flagging EUR 400 million to EUR 420 million, so say about EUR 100 million lower. Now sequentially, the breakdown is as follows. So the vitamin headwind has increased. If you remember in the legacy DSM, of course, we had about an EUR 80 million headwind in the first quarter. That has gone up to EUR 120 million, EUR 130 million, so EUR 50 million more. So that's half, if you want, of the Q1 to Q2. Then we have the foreign exchange, which has got a bit worse about EUR 10 million versus Q1. And then there's actually seasonality, and that is more from the legacy Firmenich business and particularly Perfumery & Beauty where there's a seasonality, which is a normal one during the year between Q1 and Q2, and that's about EUR 40 million. So that brings you to the delta of Q1 towards Q2.

And maybe I can just add on that one and say, we have a vitamin issue and a FX issue. FX issue make very transparent. We have a vitamin issue, which we addressed with actions and like Geraldine said in the beginning, we're not banking on full normalization. But with the current profitability, on your earlier question, you will see some rebound. So the question is when. The other businesses are holding. So if you correct for vitamins and FX, and I know that if you correct only for negative, you always come into a positive territory, but the other businesses are holding. So it's really a vitamin issue, and we addressed the vitamin issue. The fundamentals of our business, the fundamentals of the integration and the synergy of DSM-Firmenich absolutely still hold and we're very strong and even confident. But you don't see it. Even in ANH, the Performance Solutions and Precision Services business are doing really, really well. The issue is that the impact of the vitamin issues is so big that you don't see it. And that's why we decided to make that very transparent and also take actions accordingly.

If I may just follow up with one last question. If I take the Q2 and extrapolate it to the second half, your guidance is still above that. So what is it that you're expecting to change in the course of the year?

Yes. So if I bridge from an H1 to an H2 and here, of course, we cannot be overly scientific. But what we're seeing is that we're guiding in H1 at about EUR 920 to EUR 940. Now if you look at our full year guidance, it's EUR 1800 to EUR 1900. And that puts us broadly if you take all the different moving parts to a bit of a flattish type of development going into the second half. So again, what we're seeing and Dimitri said it very well. We've seen solid performance from our businesses given the context. If we park vitamin for a second, the rest is going pretty well. They are feeling a little bit the foreign exchange headwind, so that is true. But what we will see is hopefully that will continue. We do not expect at this point a positive trend in terms of pricing on vitamins. So that is going to stay with us. So what you will see in the second half is pretty similar conditions overall. So that basically underpins the guidance that we have just given. But maybe one thing that I would like to point out is indeed that if we look at Perfumery & Beauty and TTH, Taste, Texture & Health for the second half, we are expecting a continued high single-digit growth in EBITDA for those business if I take at constant currency. Now the headwind of FX is across the business. So that takes it from high single digit to low single digit, but we are seeing growth, and we're seeing solid performance there.

Our next question will come from Nicola Tang.

It seems like the restructuring in vitamins is very radical, I guess, versus what you've done in the past, I don't know, 5 to 10 years in terms of changing that portfolio. So firstly, I wanted to ask, compared to some of your comments earlier this year where you talked about some of the issues being more temporary in nature, what's changed your mind to make you think that they are more structural in nature and, therefore, need to take these more radical measures? And then secondly, on the same vein, can you talk a little bit about how this will impact how you sell in the Animal Nutrition business? Because I think you talked about improving or simplifying sort of working capital -- or simplifying the business and improving working capital. So can you talk a little bit about what that means for how you sell, particularly on the kind of premix side of things?

Thanks, Nicola. I think over to you, Dim.

Yes. Thanks for that question. So indeed, we think it's temporary. However, the impact is so big that we don't have a luxury to wait. Secondly, I would rather have macro recovery while we have to take our own actions. And that's why if you look at while Geraldine covered the bridge, it's partly on micro, which is about 5% improvement. And it's 2% to 3% on some of the normalization. So that has changed. Secondly, what also has been very revealing in this unusual circumstances is that apparently, our customers giving us a clear signal that they are not willing to pay for that premium in terms of what we always have done. So then you also need to listen very carefully. And that's why on the vitamin part and certainly on the straight sales, we will review our route to market, it will be more standard. We will review our service levels. We will review our stock and safety stock levels. We'll review our on-time in full. We will review how we operate the plant. And that will have cost savings because we don't get the premium, which we would like to see. So indeed, that is a radical change. But I think it's also a change which is absolutely needed because with an impact of 500 -- EUR 400 million negative in the year, I think it's a clear signal that you need to change, and that's why we take this radical action.

Our next question will come from Martin Roediger.

I have 3 questions. You said you want to create the separate vitamin unit within Animal Nutrition. Is it an option to carve out that business and finally sell it? Or is it not possible because the production is interlinked to Human Nutrition, Food & Beverage? Secondly, you do not expect an improvement in the vitamins business in Animal Nutrition in the second half. Is it because there is absolutely no visibility? Because I'm struggling, you talked previously also about destocking, which already started at the end of last year. So why is demand so weak? And thirdly, can you provide a bit more color on the adverse FX effects? Is that largely U.S. dollar driven? Or is that because of the Swiss franc because you have a big cost exposure to Switzerland?

Last one first, Geraldine?

I'll start with foreign exchange. Thanks, Martin. So good -- let me give you a bit the split. The EUR 100 million is about EUR 40 million ex legacy DSM, if you want, and EUR 60 million is more legacy Firmenich. Now interestingly, both parts of DSM-Firmenich have a very similar picture when it comes to foreign exchange, which means a bigger cost base in Swiss franc and long in terms of sales in dollar and in euros. So it's actually the relationship between those currencies that is effectively a headwind -- creating a headwind for us this year. Maybe one thing to know is that on the legacy Firmenich side, they didn't have a hedging policy like us, which is why the impact is a bit bigger currently on Firmenich. So that's the FX part. And I just want to reiterate what I said earlier, which is a constant currency. The legacy Firmenich business are doing very well, P&B and TTH with high single-digit EBITDA growth. Unfortunately, with that headwind of currency from high single digit, it gets closer to low single digit. And this is something that we will, of course, look into as we aggregate the 2 companies, the exposures to see how we can implement a similar hedging approach probably as was done in DSM before. So that's from FX. And then...

And indeed, Martin, thanks for that question. So vitamin unit, yes, we do that within ANH. Indeed, you already hinted on it. This is a shared integrated infrastructure where there are also bits and pieces in HNC, where we have a different setup with higher margins and higher growth. So this is really within ANH. On the vitamin business, we will restructure and improve that part by really managing a more simple structure. And like I said earlier, also with the different service levels and different ways on how we approach things, we will also make sure by doing so, that we anticipate longer term. So we want to continue look at reduction of exposure and volatility. So we take the short-term actions to cover an improved performance. We also will take a look for the future so that we build also long-term reduced exposure and reduced access to volatility. So that is what we do on the vitamin unit, so separate within ANH. Then your question on no improvement in the second half and why is the demand so low? Yes, that's a good question. I would wish the demand will be better, but we all know that China is still struggling. I mean they are in recovery mode, but at a very, very slow pace. You also need to know that the biggest animal protein market in the world is China. And that's not helping. And on top of that, if the animal protein domestic market in China is slow with 75% of vitamins in the world produced in China, they basically can't sell around the corner. So they're going to sell in the western world. And we see that in the price pressure throughout the whole categories going on. You could debate whether it's a smart idea from the world to depend fully on 75% of vitamin production in China. But I believe that aside. That is something which we need to think about. I think on vitamin C, what we have announced is that we refocus our vitamin C activities on the Dalry Quali-C material. That's the only vitamin C production outside China where we do get a premium, and we still make money on vitamin C. So back to your question, but it starts with China. It also starts with indeed a bit of destocking with insecurity, people have very high stocks. So a destocking is continuing. Remember that we wanted to see the end of destocking in Q2. We also said that in our order book in May, we didn't see it, and we don't see it yet in June either. So yes, this should come in into it, but the question is when, and we didn't want to wait for it and therefore, we took action.

Yes. And Martin, maybe lastly this is, of course, a picture of multiple things. You're also probably very much aware that the cost of feed is remaining very high, which is a challenge across the board. And what we're seeing is that there's a lot of insecurity around. And so it's very last minute, yes. There's very much a sort of -- so there is no view from the market. Everyone is very much last minute in their orders, which is also the reason why normally we would have a very strong June. But what we're seeing is it's becoming much more hand-to-mouth type behavior at present.

Our next question will come from Chetan Udeshi.

I'm a bit confused about your comments that you've not assumed any recovery in vitamin prices from current levels because if I look at your guidance for Q2, you're guiding to about EUR 410 million, EUR 415 million of EBITDA. If I look at your run rate implied in second half, it's like EUR 460 million. So clearly, there is a decent step-up. And given that you are talking about week 2, I'm just curious, what will drive that step-up in second half that we are expecting. And the other question was more a bigger picture question. I think in the last few years, we're all starting to believe that the vitamin exposure of DSM has reduced dramatically. And what we've seen actually maybe that was in the case. I'm just wondering even you keep talking about your straight business, which makes sense. But I'm pretty certain that there is an economic profit that is also included in your premix business from vitamin. Can you sort of discuss how that gets impacted structurally when you have such low vitamin prices? Because I presume some of your premium customers or premium competitors are buying these vitamins straight from their -- from either you or one of your competitors. So I'm curious does premix business also structurally suffer in terms of profitability for DSM because of what's happening in vitamin market.

Thanks for your questions. Let me start with the first one to clarify the bridge.

Could you repeat the first question because I...

Yes, I think it was -- we're guiding Q2 for EUR 400 million, EUR 420 million. The full year estimate would point out to a bit of a step-up in Q3 and Q4, where does that come from? And this is actually remember that when I explained the delta Q1 to Q2, there's also a seasonality in Q2. So that seasonality backs out. That's about EUR 40 million in Q2. So you -- just that will bring us back. The rest is actually a sum of moving parts, which, unfortunately, when you add it all up, looks pretty flat, so not really a recovery. So that's how the bridge works in terms of our expectations for the second half of the year. Now the...

The second one, I could hear. So the vitamin exposure has reduced over time. I think what we've done in the past, I think we have 35%, even 40% in the cost on the total. We continue to reduce that. All the acquisitions we've done and the innovation we've done were outside the vitamin area. So we reduced that exposure over time. Today, with the last step in our journey, DSM-Firmenich, we are around 15%. So that's the EUR 2.3 billion I was talking about. You also have seen that over the last 8 years or so, we never built new factories. We basically changed course and we also started sourcing vitamins. So part of that is also sourced materials, where you have a reduced risk of volatility because you buy at price X and you sell at price X plus a small percentage. So back to your point, but you don't see that reduction. It definitely has happened, and you've also seen that in the strategic actions we've taken. And like I said, we will continue that journey. And maybe accelerate that journey to also be prepared not only short term, but also for the longer term. That's one. Secondly, I think a very fair question on premix. Normally, premix is quite differentiating in terms of capability because it's one ingredient. It's a premix you add mycotoxin as always to, you add minerals to, enzymes to it. It's more service solution oriented than just straight sales. However, if you have a continued time of lower vitamin prices, obviously, you also need to secure that the premix solution is an overall -- is in a cost-effective mode. However, it is far more directly impacted than straights. So it covers you an additional barrier to do so. So I think the premix mixing margin is still pretty okay. But if you have this long time effect, then obviously, over time, it could also impact the premix. Be aware that about 1/3 of the ANH part is straight. And part of the ANH is Performance Solutions and Precision Nutrition and part is premix. So it's about 1/3, 1/3, 1/3. So you get a little bit of a feel on why that's impacted.

And maybe I was triggered by the comment. So we're seeing no recovery in the second half of this year. Now we also need to say that the current vitamin pricing environment is not sustainable. And therefore, we do expect that there will be normalization at -- driven by 2 things. At some point, demand will pick up again. To the question that was asked earlier in terms of the value chain, destocking, low levels of stocks, et cetera, will, at some point, run back. So you have an economic reason why prices will recover. And the demand side, but the problem that we see in -- while we having this call today is that we don't see that happening in the course of this calendar year. Operator, do we have other question in the call.

Our next question will come from Matthew Yates.

I have just a couple of questions to continue the conversation. Your message on working capital and the focus on cash, can you just clarify, is that a short-term reduction of excess stock or actually, you think there's something more structural here? I think Dimitri mentioned carrying less buffer stocks going forward if customers aren't willing to pay for that. And any idea or quantify what that could do to working capital ratios? It feels like that's something we've talked about for a long time that structurally struggled to see an improvement. Just on the restructuring, if I understand correctly, from an asset perspective, you're really just talking about vitamin B and C, not A and E, which is obviously where you've lost the majority of the money. Why is that? Is the cost savings on A and E more related to the route to market? And then final question if I can, separate -- slightly different issue. You recently had some management change on the Firmenich side moving the head of fragrance. And so you don't now have that dedicated Integration Officer. Why did you decide not to replace that role?

Maybe let me start with working capital and then hand it to Dimitri for the more structural. So as you know, working capital has been a challenge and has been at high level ever since COVID. So ever since we had to prioritize delivering to our customers in a very unpredictable supply chain. So we've been at a high level of working capital for a while. Now you can imagine that with the soft demand that we're seeing now, we are not being successful at lowering inventories, although we have been doing some stops and this is something that we're going to continue to do, do shutdowns to really manage our production levels versus demand, knowing that when you do that, you pick up some idle, right? So it's never an easy equation. That's the short-term point. And here, we're really looking at trying to drive down our working capital by a few hundred million, by effectively managing supply/demand and coordination better. But you're right that there is a more structural approach as well to this. And Dimitri, I don't know if you want to comment to that.

Yes. Indeed, so 2 effects, sort of short term, as Geraldine alluded to. So I think we have too high stocks because the demand itself was forecasted a bit higher. Secondly, I think coming from COVID security supply issues, I think we have maintained very high safety stocks overall. So we're going to address that, we're going to monitor that and we're going to optimize on that. So that's the short term. Long term, like I said, certainly on the vitamins. And you know that vitamins are basically going around the globe because we have assets where we interchange sort of an internal infrastructure. We're going to review that overall because at the end of the day, the more simple structure will also require that we will look at our OTIFs, we look at our credibility and reliability of supply in terms of logistics. And therefore, we will look at safety stock levels, which will come down because at the end of the day, if you don't get a premium for that, then you need to review that. And that is also why I make that link to, I think, the right restructuring question you said on vitamin A and E. It is in the press release. I didn't highlight it in the summary notes just while starting, but we will do have extended shutdowns on A and E on our plant and system. In Q3, as we speak: a, to focus on the working capital; b, to streamline and standardize some of the processes just to make sure that in terms of server levels, OTIF stocks, we will look at a different way on how we do this. We need to be careful there because we also want to maintain the higher vitamin A and E quality levels for HNC with relatively good margin. So you can't just shut down the plant. I don't know if you've been in Sisseln, it's not a small operation. It is something where we produce A and E, where we produce [indiscernible], where we produce pharma grade where we put medical nutrition in place. So we will do that in an orchestrated way. But we will have extended shutdowns, and we will take measures to standardize and lower cost also on these activities. Then to your last point on management changes. Indeed, Ilaria has moved to a CEO job in a fantastic company with nice watches. That was a dream job. We could debate about timing. We were expecting that she had the ambitions to move. But in terms of timing, that was unfortunate. We were very happy to have Emmanuel Butstraen already. He's our Chief Integration Officer, as you know. And we also knew that the integration would end somewhere towards the end of the year. So we always have the plan to move Emmanuel into the business area. So that was a bit accelerated. And in terms of integration, let me make it very clear. The moment that there is a closing and you had ample time to prepare the integration and maybe a bit longer due to the India reference than we were hoping for. We had the whole integration plan ready and the integration synergies are not owned by the Chief Integration Officer or by the Integration Management Office. The Chief Integration Officer is monitoring and aligning there. All the targets on the synergy deliveries are owned by the BU presidents and by the Chief Purchasing Officer. Remember that we had sourcing as one of the cost element and the revenue synergy. And the revenue synergies are part of the budgets for the BU presidents. So as of next year, they are baked in and they also signed off because of the accountability to it. And the sourcing savings were also defined. So in that sense, the chief integration role was less needed. And in often at the moment that you do a closing, the real Chief Integration Officer is the CEO. So in that sense, I think, while you do the preparation and you have the A of accountability lended where it would be, I think we could make that move with Emmanuel. Not having said that the integration management office is still there. So the integration management office is still there and is in that sense, having a direct line to me. So I think that is what we did. And I'm happy to say that the transition with Emmanuel in the important Perfumery & Beauty business has gone very well. So I'm happy to see that.

Our next question will come from Gunther Zechmann.

Gunther Zechmann from Bernstein. Two questions, please. First one, could you just talk about your cost position in vitamins in China? What is it about the vitamin C and B6 specifically where you feel that with your Chinese footprint, you are not competitive? Is it plant size? Is it feedstock? Or is it something else? And what does that mean for the other vitamin plant? You did not mention, for example, the Nenter plant in vitamin E or any of the other plans that you have. So some color around the cost position would be helpful. And the second one, Geraldine, just a comment I wanted to clarify. I think I heard you say that the Firmenich business has got EUR 40 million seasonality from Q1 sequentially into Q2. Did I hear that correctly? Just to clarify that point, please.

Yes. So let me start with the last one. Indeed, you heard that correctly. And of course, this is something that Firmenich was not providing quarterly figures before. So it's something that we will now be showing as we go along a little bit that seasonality pattern within their business. So you did hear me right. And Dimitri?

Yes. On the vitamin part, so let me start with vitamin C, and indeed vitamin B6, the China actions we are taking, has not a lot to do with the costs. Has more to do with the pricing development. Remember that the vitamin C in Jiangshan is a different story than a vitamin C in Dalry. It's a different proposition. It's also called Quali-C. We get a premium for the Dalry production. We don't get a premium for the Chinese material. And therefore, if you look at the profitability, this is not something which you would like to do short term and in line with preparing for the future, we now also decided that this is not something which we should do for the longer term either, because we want to reduce our exposure and reduce to the earnings volatility. And that's why we decided for B6 and vitamin C to discontinue. Then on vitamin E. We can produce vitamin E in Nenter in China and in Sisseln in Switzerland. So 2 different regions and 2 different technology routes. Very happy to see that. And at the end of the day, A and E is something which we look at from different perspectives. And as you've seen, vitamin A, with also out-of-shelf life production coming on to the market, we need to see when that normalizes. Vitamin E is a vitamin we still make a little bit of money because at the end of the day, in terms of scale but also in terms of process, we are definitely costly there. So we take that in a holistic view. And therefore, vitamin A and E, we've reduced and do extended shutdowns in Sisseln and other in Nenter in China.

Our next question will come from Sebastian Bray.

I'll ask them one by one. The Pinova facilities that have turned down in the U.S. Did this have any impact on the EBITDA of Firmenich in Q2? What exactly the facility do such that it can just not be replaced and have no impact on the Firmenich operations?

Do you want to ask all your questions or we...

I'll ask them one by one, but if you want me, I can give you.

You can do them one by one if you prefer. So when it comes -- so I think your first question was the Pinova impact on the Q2 performance is not the driver. It's not Pinova that was driving the delta on seasonality. So -- but indeed, the force majeure was declared due to the fire. And I didn't quite get, sorry, the second part of your question.

What was the facility doing? It feels odd that it can just be shut down and have no impact on the wider Firmenich business.

Do you want to take that, Dimitri?

Yes. I mean, if this will be a hugely profitable site, maybe it will be different. So you also need to be aware that reopening that site would require a huge demolition and repair. So -- and that in the broader context, we decided not to reopen but use the existing production network we have. So we have alternatives. So it doesn't mean to say that we will stop selling the product. We basically use our other production units in our infrastructure to do so. And that is why we decided to make the decision not to restart and reopen Pinova.

And on the financial impact, you will see the impact more on the top line than on the bottom line.

That's helpful. My second question is on the organic EBITDA growth or the development of Firmenich and legacy DSM, excluding vitamins, in Q1 versus Q2. So just to interpret your earlier comments, Geraldine, all I can say is that excluding the impact of seasonality, the underlying EBITDA of Firmenich Q3 versus Q1, the calendar year was roughly flat and DSM was down slightly but not huge amounts, excluding vitamins. Is that fair?

Okay. You have a lot of moving parts in your question.

Excluding vitamins...

We consider that this is the last question. So we'll be running out of time, but go ahead Geraldine.

Yes. So let me try and bring back the pieces that we have. So the main delta for us between Q1 for legacy DSM, sorry, is basically the vitamin. So that's the increase in the headwind by about EUR 50 million. We saw the FX, which is an extra EUR 10 million versus Q1. And then we have the seasonality from the legacy Firmenich business. So if you were saying, if I back all of these factor out, would we have had a decent performance? Yes. But of course, when one does that, by definition, we do. But what we are seeing, I think, as a key message is actually the businesses. If you really say, put vitamin aside for a moment and the increased FX headwind, actually the business is holding up pretty well. And when we are looking at organic growth, basically, we expect that they have to put everything in. We expect a negative high single-digit, negative organic growth for Q2 with actually a double-digit on Animal Nutrition, which really shows where the main pain is coming from, as we said. And then probably from an H2 point of view, we probably are going to be looking at slightly negative organic growth may be flat. It really depends on the Animal Nutrition developments in the second half. But that's how I can help in terms of top line organic. I see Dave has appeared on the screen, which is usually...

Yes. So I think we are approaching it over now. So I think that concludes the Q&A session. Yes. Thank you, Geraldine. Thank you, Dimitri. Thank you all, by the way, for attending today's call. It was a short notice we realized. So therefore, the more appreciated. That means we conclude now the webcast. If you have any further questions, as usual, please do not hesitate to reach out to the Investor Relations team. And with that, I hand back to the operator.