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

Good morning, and thank you for joining today's call. I'm sitting here with Dimitri de Vreeze, our CEO; and Ralf Schmeitz, our CFO. This morning, we published our full year 2025 results on a restated basis, together with a presentation to investors, which you can find on our website. Here you can also find our disclaimers about forward-looking statements. Following Dimitri's and Ralf's opening comments, we will open the line for questions. [Operator Instructions]. Dimitri, the floor is yours.

Thank you, Dave, and welcome to everybody here in this call. Nice to see you yet again, a busy week for us, busy week for you. The ANH call last Monday, now the full year results, and you've seen that there are a lot of numbers there. So Ralf will lead you through in a minute. And then next week, our integrated annual report. And as you've seen in the press release, we're also looking forward to host our investor event on March 12 about the next phase of DSM-Firmenich as a consumer company. Now let me go through a few of the highlights of the divestment of ANH to CVC. We explained that on Monday, but it was an important piece of our journey. And I think it's clear to say that it's really focusing on DSM-Firmenich to become a key player in Nutrition, Health and Beauty. And that's also where the value creation is. So an important point was the signing of the divestment of ANH to CVC. And we constructed a deal where we have mitigated the downside risks in the ANH business as well as the volatility, one of the strategic reasons that we announced that we wanted to divest, and we have implemented on that. Now we have created a deal structure that is not only mitigating those risks on downsides, but also creates an opportunity on upside. And that is also what we have announced last Monday, together with a favorable long-term supply agreement on vitamins. The EUR 2.2 billion, we found a fair value for the ANH business. I think it's a great business, but it has its volatility. We'll get proceeds at closing of EUR 1.2 billion and remained a 20% retained stake because we wanted to cater for a possible upside. The solutions core business, the specialty business is a really good resilient business going forward. So that whole multiplier on value we would like to capture, as well as the Essential co, which is predominantly the vitamins business, where I think CVC Capital Partners are a partner we work on different businesses with, and they are very much catered to make that business grow and add value and want to capture that 20% as well. Well, in the grand scheme of thing, 20% of EUR 2.2 billion is around EUR 0.5 billion. So it is also in terms of risk mitigation, not the biggest number. So please don't see the 20% is something where there's a direct link to our business, not anymore. It's deconsolidated. It has been out of our numbers. The EUR 9 billion is the DSM-Firmenich consumer scope that we're talking about. Now the earnout, the earnout is linked to business on solutions scope, very good business. So in that sense, I think the earnout is pretty much secure. And the part of the earnout is linked to Essential core. And then if that's half of the earnout, I think it's all been mitigated with CVC working diligently to bring that business up to [ thrive ]. And I think there are lots of opportunities with normalization over the business as we speak. Now what are we going to do with the money? Although let's make it very clear, the money only comes in towards the end of the year. As a sign of confidence, we will start our share buyback already in quarter 1 in addition to the EUR 1 billion that we have started and executed and completed for the Feed Enzyme business. And at the same time, not resetting the dividend, it remains stable also after the carve-out of ANH at 250. Now if we then go to the next slide that shows with ANH out of the way, we are on our journey where we merged the company, we delivered on the synergies. We have tuned our portfolio, and we have signed the deal to divest ANH. We're now into the next phase of DSM-Firmenich, the consumer company, and we're going to grow what we have. We're going to anchor what we do and going to deliver on our promises. On March 12, we'll give you that accelerate route with our BU President to get a bit of a feel on what we're growing and how fast we were growing. Under that journey, we have grown organic sales growth of 6% in '24 in the scope of DSM-Firmenich consumer related. And this year, we have announced the 3 years full year result, 3% growth on 2025 for that business in the environment we are in. So we're showing the resilience of that portfolio going forward. Now we then go to the next slide, a little bit the financials of that DSM-Firmenich consumer scope. If you move to the next slide, I'm going to show you a few numbers. Yes, here we go. So here are the numbers. Here, you can see we're a $9 billion company. We have grown that company 3% in '25, as we said, 6% in '24, if you go through the restate apples-with-apples comparison. An adjusted EBITDA of EUR 1.7 billion, EUR 1.8 billion, which was a 5% step up like-for-like. By the way, that's the same from '23 to '24. So it shows the resilience of that portfolio that we've built. With the trajectory of EBITDA margin, I think many of you asked the question, how do you come to the '22, '23 midterm targets? Well, we started with 18%. We moved it up to 19%, 19.6% for 2025. If you take the last 2 quarters, we're more closer to 20%. So also that trajectory will continue with a good generation of cash flow, the 10.5% conversion over sales in 2025. I already alluded on the dividend and on the share buyback and on the investor event on March 12th, where we're going to give you some insight on what the next phase of DSM-Firmenich is all about. Now last phase, last slide before I hand over to Ralf. In that whole trajectory, we stay true to our sustainability program. If you can go to the next slide, please. Then it's clearly that we also have made quite some progress on sustainability. It's important for our customers. So some people will say, well, why do you still work on sustainability? Well, apart from the fact that it's part of who we are, it is in the market we play in with customers important, 100% renewable ahead of plan and also some recent ratings of CDP, AA for climate and water, but also platinum metal for EcoVadis. It does matter. It is the company we're building. And we are proud that we also continued that during that merger. So we're well positioned to go into the next phase, which we call internally the accelerate phase, with growing what we have, anchor what we do and deliver. But before we go there, maybe let's look back for one more time in what we've done in 2025 before we move forward. And with that, I hand over to Ralf.

Well, thanks, Dimitri. And good morning, everybody. Before diving into all of the numbers, every number presented is, as Dimitri said, in accounting terms, a continuing operation. It represents the company we've been building over the past 2 years. And it's all about Perfumery & Beauty, Taste, Texture & Health; and our Health, Nutrition & Care business. As you'll see, ANH is not very much coming forward in the slides. It's now part of discontinued and the Dimitri and myself will be managing that business for cash until the closing has finalized, which we anticipate towards the end of the year. It will be positive in cash flow generation as well, and that's what we'll steer up on, and we'll continue to report on the cash performance going forward. Now a few things. Happy with the announcement on Monday, where obviously triggered the whole event of all of the restatements and we've been releasing the new numbers on Monday afternoon. So it is a lot to take in. We appreciate that. I think also if you look at our press release, we have been as elaborate as possible, giving you the full P&L, the balance sheet and the cash flow ahead of our annual report. In the Annex we've tried to bridge also between the total group and the continuing operations and show you all of the moving pieces. But we also appreciate that in a busy reporting season, maybe not everybody has restated it. In the Annex, on Page 21 and 22, we've basically also included a reporting as per the old world, including the divisions before restatement to accommodate you as much as possible. Now Dave and the team are happy to take your questions. The annual report next week, that Dimitri alluded to, will also be based on continuing operations that will allow you also to all adjust to the new world and then we move from there. Now let's dive in a bit how that new world has performed. But before we move there, I think this slide is an important one for me, where overall, you've seen the work and the outcome of all the activities around tuning of the portfolio, where on a group perspective, we've developed the group towards a 22% margin. It's very much in line with the trajectory that we envisage. But also you see the 3 BUs with P&B, TTH coming towards the lower end of our guidance, also very nice progress on those fronts. And HNC really showing a strong recovery towards that trajectory as well. And I'm happy, although that the restatement is a lot to take in, it does show that also going into '26, we've got the right reference on how we're doing as a company. Now let's dive in on the next page, please. Overall, the group, Dimitri already highlighted it, for full year overall 3% organic sales growth in not the easiest environment with a stronger H1 than H2, but encouraging growth throughout the year with the leverage in EBITDA, so a 5% step-up in EBITDA and has set the margin of 19.6%, very nice. But for me, it's more relevant as we're on a trajectory that the second half is at 20%. And that's something that we'll continue to improve on. If we look at Q4 specific for the group, overall, a 2% organic growth and a 3% step-up in EBITDA and a margin very much in line with prior. But I think it's more relevant to zoom in into the business units. But before we go there, also a highlight on cash. We delivered overall, remember that when we guided for a 10% target that, that was for the group. We've delivered upon that for the total group. So the total group was just over 10%, but also in the continuing operations, we've delivered upon that, and I'll comment that towards the end of my voice over. Another metric that I want to call out is that we talk about our capital returns. Overall, the core ROCE for continuing operations stood just over 11%, showing also the quality improvement on that front over the period. Now let's zoom in on the next slide, please, into the businesses, starting with Perfumery & Beauty. Overall, a 3% organic sales growth. Keep in mind that throughout '25, we obviously had the headwind in sun filters, where we've seen some softer conditions. Overall, adjusting for that, the sales growth is 1% to 2% higher throughout the year. And going into Q4, we've seen an improvement in sequential conditions with an overall 4% organic sales growth with a strong contribution of Fine Fragrance with a high single-digit growth and a more mid-single-digit growth and a more mid-single-digit growth in our Consumer Fragrance & Ingredients business, whilst the recovery in B&C did not come through yet, overall delivering a solid performance in our Perfumery & Beauty business. Margin overall, slightly impacted by FX and the mix effect as a result of that on a full year basis, very much in line at 22% on average despite a difficult exchange rate environment. Moving then on to the next page, please, to Taste, Texture & Health. Overall here, a very strong year. Again, 4% organic growth. Keep in mind, the comps of last year on the back of a very strong 2024, that translated again in a very nice step up in EBITDA of 7% year-over-year when adjusting for the FX. And also here, the margin is something we continue to improve margin positively, as said, towards the 21%, the lower end of the range, and we continue to progress from there. If we look at Q4, a bit impacted by softer conditions in the U.S. mainly. Overall, a 2% organic sales growth, still reflecting the contribution of synergies and very well positioned in the market, but we see, especially with our key accounts in the U.S., a bit of weaker. Overall, if you look at it from a segment basis, beverage, a bit softer, but dairy, baking at very strong and that continues. EBITDA quality very profound. Q4, a very nice step-up. Overall, a 10% step-up in EBITDA. And when adjusting for currencies and also the margin showed a very strong step-up versus prior, in line with the ambition that we have for this business overall. Then moving to Health, Nutrition & Care on the next page, please. Overall there, we often talk about the journey of Health, Nutrition & Care and also that journey continued. So on a full-year basis, continued growth of around 3% organic. A continued strong performance at the EBITDA side, a 4% step-up when adjusting for currency and also the margin continues to improve. You also see that in Q4, we again delivered a 20% margin for the business. The growth was somewhat impacted by timing of a bit more lumpy order in our pharma business. There is a bit of a shift there that overall, adjusting for that, the organic sales growth stood at 1% for the quarter, where we see a continued strong environment for Early Life Nutrition and our HMO business, but we also see the uncertain consumer behavior impacting a bit of higher dairy supplements and Eye health business in the fourth quarter. Overall, margin more or less flat as said in Q4. But overall, a continued trajectory of growth also in Health Nutrition & Care. Maybe then last, but not least, looking at cash, overall, important on the next page, please. Our cash performance -- sorry, before we go there, there was one more slide. I think here a lot of detail. I did want to come back on the overall performance of the group as well because I think that's important. It's a bit of a busy slide, but it's coming out of the press release. I think the key highlight here are two things. On the one hand, our adjusted EBITDA for the group, overall will land just below EUR 2.3 billion, in line with the guidance that we gave, set aside for a bit of weakness in Animal Nutrition in the fourth quarter and a deteriorating FX environment. Overall, we came in at EUR 22.80 billion for the total group, so very much in line from an overall perspective as well. And also on the tax side, you see that our rate is normalizing at 21% for the continuing operations where we aim to improve a bit further, I think, as relevant going forward. Then to the next page to our cash conversion. So overall, I think looking at a few drivers. Overall, working capital was below 29%, a little up versus prior when we talked about cash and the unwind of inventory in the second half. I'm pleased to report that our second half performance was very strong. Remember that we came out with the half year numbers with a softer performance in the first half, so happy to see that rebound. However, in the current environment, we were not able to fully absorb the uplift of inventory on the back of the tariffs and the carve-out activities that we've done. So that is to further unwind in '26 and causing us a bit of a percent in working capital. Overall, our sales to cash conversion for the continuing operations was also well above 10%. And there, we alluded to that in the first half, a bit of a shift, where in '24, you had a bit of a benefit from some timing of payments, including incentives, which is obviously then impacting '25. So -- but across the two years, a 12% performance, and we'll come back on that in the March 12th event where we will be stretching ourselves a bit further in terms of target setting on that front. But overall, an encouraging performance. And a good momentum going into '26. And maybe with that, Dave, we pause with the voice over and move to Q&A.

Yes. Thanks, Ralf. Indeed, it is a good moment to start with the Q&A. [Operator Instructions]. And with that, operator, we can start.

[Operator Instructions] Our first question comes from Nicola Tang with Exane BNP Paribas.

I want to start a bit with the outlook. I know you didn't give an outlook and we have to wait until 12th of March to get a bit more color. But I was wondering if you could talk a little bit about how the year has started across each of your continuing divisions. And you've given us a restatement for the past year, but is there anything to be aware of in terms of any changes in seasonality versus what we're used to for old DSM-Firmenich. I'll leave it there. Those will be my questions.

Okay. Let me respond on that. Indeed, on March 12th, we'll give the formal outlook, but I can give you a little bit of color, and then you can prepare your outlook yourself before we go on March 12th. What you can expect from us on March 12 is that we'll go a little bit to industry standards. So we'll give you a bit of a range on where we see organic sales growth, the EBITDA quality as a percentage, and obviously, the cash percentage of which you were clearly indicating, all of you, that we felt that the 10% was right, conservative. So we're going to review that and come back to you in March on that. Well, a bit of color. What we have seen overall, before I dive in a little bit to the 3 business units and the 3 businesses. We've seen a bit of a cautious consumer behavior around the globe, but predominantly in North America, which is an impact on the Taste part of TTH and certainly dietary supplements and the eye health part in HNC. We'll come back to that in a minute when I'll give you a bit of color for BU. I think a 3% growth of the consumer in scope business for DSM-Firmenich is a good growth in the current market context, considering also the 6% growth we've done in the same scope in 2024. Now organic sales growth, 3% if that is in this current setup, we didn't see any change in trends from Q4 into Q1. So I think you can see that Q1, certainly for now half of February, we will not see a huge change from Q4 to Q1. We will know a little bit more in March. We'll give you the input, I think at the end of the day. A 3% in a year 2025 is a little bit the range where we've seen in a difficult market context, is what our business can bring, with a nice pipeline and growth going forward, still to the midterm target of 5% to 7%. And the BU presidents will also be there at March 12th to give you a bit of a feel of what is in the pipeline, what are the drivers? The fundamentals of the businesses are absolutely the same. We've all seen human mankind when uncertainty is there, they will start to be a bit more cautious. And there are two things of it. They either pile the stock or they destock. Pile stock, we saw during COVID. Now we see that destocking happening and then it normalizes over time. When it exactly will normalize, we don't know, but that normalization will take place, I think that is clear. Now, some color per business, Perfumery & Beauty. I think a good result in Fine Fragrance, high single digit. We see that continue. Mid single-digit growth in Consumer Fragrance, also there, with that trending doing well. Ingredients, for us, very good. Remember, mid single-digit growth after we've tuned the portfolio. We had a EUR 1.2 billion portfolio. We've tuned it, made deliberate choices where we want to grow. That ingredients we have are a big part, are specialty ingredients with mid single-digit growth in Q4. And Beauty & Care, the destocking effect fading out in Q4 and moving that into 2026, where we will see normalization going on. Now Taste, Texture & Health. Here, overall, a 2% growth in Q4, 4% for full year, with a 10% growth in the year before. So let's look a little bit about the 1 to 2 years trending with the comparison. Very good growth in pet food, in bakery and dairy. Also, dairy as a segment linked to healthy food. GLP, we really see a pickup there, a bit slow in beverages, but above all, in the North American region, that uncertainty has caused cautious behavior of consumers and therefore, also our customers, so we have seen North America being soft with destocking. Now then Health, Nutrition & Care. Health Nutrition & Care grew 3% for the full year, minus 1% for Q4, but you have to correct for that specific pharma order, which is sometimes in 1 quarter to another, it would have grown with 1%. Also here, predominantly the North America bit Dietary Supplement and Eye Health, Early Life Nutrition, Pharma, really, really doing well with good growth also on biomedical. So the fundamentals are still there. We've shown, build on what Ralf said, a 3% growth in a difficult market is creating a bit of confidence. So we're not giving an outlook, but we are giving you a lot of color to understand where we are heading for.

Second question, Ralf?

Okay, yes. No, supplementing, I think Dimitri gave a better call. I think overall, Nicola, I think also, if you look at the Annex, then the impact of the restatement is very limited. So the regular seasonality will remain in place. Not that, that is very big, but on the back of the restatements, there's no fundamental change on that. Other than that, is that you now see the quality of the tuned portfolio. And if you look at the overall margin, fairly stable throughout the year and also from a growth perspective, not much of a deviation. Other than that, some of the a more volatile and weaker segments have now been restated. So that generally lifted the performance a little up.

Our next question comes from Charles Eden with UBS.

My first question is more of a follow-up around sort of comments on Monday around the stranded cost of EUR 75 million that you mentioned. Would you expect this to mean that you start '27, I guess if we assume the deal closed at the end of '26, with a EUR 75 million headwind to continuing op EBITDA? Or do you expect to announce sort of another sort of top-up cost savings program to offset this amount, either fully or partially? And then second one, I'm just kind of follow up on the '26 guidance. And can I pressure a bit on the decision not to provide the guidance today. I guess, given the initial plan was to announce last summer, you've known the scope for a while when Ralf, as you mentioned, the restatement are pretty small for the continuing ops. So I'm slightly surprised you're waiting until March to give us that outlook. It just feels like it adds another period of uncertainty for your shareholders who've been patient and waiting for the disposal. So can you just help us understand that?

Okay. Let me do the first one and then Ralf could explain the outlook. By the way, 12th of March is three weeks away. But apart from that, that's Ralf to respond. On the stranded costs, thanks for giving me the opportunity to elaborate on that. The stranded cost will have zero effect on our EBITDA. So we will compensate it for that. We have programs ready. We know when the TSA will run out. We'll take actions before. We've done it several times with many of the divestments we've done. So the EUR 75 million will be fully compensated for that. Maybe you see some small effects from one month to another, but we have road map, a road book where we exactly know what to do and how to phase that out. So that will not have any effect on our bottom line throughout the period.

All right. And let me then comment a bit further on the guidance. The short answer was of the Dimitri, it's only three weeks away. Now but on a serious tone, Charles, it's something that we looked at as well. But as you'll appreciate, we just closed the transaction literally over the weekend and then the restatement and the announcement of the deal. Obviously, when we want to guide, we want to guide for continuing operations. But I think also through the color that Dimitri gave is that we will be giving that guidance in full, including the BUs, but also about what is comprising of the businesseses, I think also a guidance today would kind of land in a territory where there's a lot of -- where people are still digesting all of the changes and going through. I mean, if you look at it, there's not even a consensus out there in terms of that around that new company. But rest assured, we are managing the business for growth. You said that it adds a period of uncertainty. I don't think so. I think with the voice of Dimitri, I mean, the color that we gave is in a difficult environment in '25, how we managed to deliver at least 3% growth. We will be managing the business for growth going forward. We will be tilting -- what Dimitri clearly said is that our guidance will be very much around organic growth, EBITDA, quality and cash where the cash target we will be uplifting, I think that is clear. And at the same time, the margin is a continued improvement story as well. We are happy with that the actions of tuning, also, if you look at the bridges that we presented at Capital Markets Day, there was a step-up of 2% of that. We have delivered on that. We're now at a 20% margin, but it's clear that we want to continue that trajectory also going into '26. So I think overall, there is comfort around that, managing the business for growth. We continue our margin trajectory and we'll be uplifting our cash performance. But then zooming in onto the full details and everybody had time to digest also the new reality and then we'll be bringing also the BUs that can then elaborate a bit more on our growth ambitions or innovation-driven ambitions. And with that, I think then, there's more purpose of giving you the outlook then on March 12.

Appreciate the color. I guess my point would just be we're going to recalibrate consensus now. And then maybe in 3 weeks, it needs to be recalibrated again. So it just creates a netbook. Anyway. I appreciate the color.

Yes. All right.

Our next question comes from Matthew Yates with Bank of America Merrill Lynch.

A couple of questions, please. The first one on the Perfumery & Beauty business. If I take the sort of continuing operations, I think the margins were down 80 basis points year-on-year. Can you just help us disaggregate that a little bit? You know, what was the FX impact on that? You talked about negative mix, but Fine was actually growing quite well. So, I guess, the mix isn't obviously a headwind unless, you're suggesting that beauty is a very, very high margin. And then the second question for Ralf around the cash flow. And I apologize, I'm not really sure how to phrase it because I haven't been through the accounts in a lot of detail. Your cash conversion was down about 3 percentage points year-on-year. It looks like about half of that is probably explained by working capital and then there's another half that I think, in your introductory remarks, you talked about timing. I'm just trying to understand, you're saying you're aiming to raise the cash flow conversion target. You've just done 10.5%. Like how would you honestly assess the cash conversion last year? What -- are there things that you think was depressing that conversion that we wouldn't necessarily extrapolate going forward? Just trying to get an assessment really about how much cash the business is generating?

Yeah. You want to take P&B? I'll take the cash.

Yes. I think on P&B, it's rather clear. You basically said it's FX and it's mix. So remember that Fine Fragrance is around EUR 600 million out of the total. So obviously, we had a growth there. But Beauty & Care was lagging behind, softening, waiting for normalization. So it's a mix effect. That's about half and the other half is FX.

All right. And then building on the cash, and I appreciate the question, Matthew. Let me -- I think your assessment -- your quick assessment is a good one. So there's a few moving pieces around working capital. I commented on that in the opening words, around inventory, that we're not able to manage everything through. So we're carrying a bit about an elevated level. Inventory is about 1% differential. Last year, we continued to make good progress. This year, whilst the efforts were there to reduce it, I think, overall, the tariff environment and our carve-out activities cost an elevated level. Obviously, with a somewhat softer demand environment in the second half. So that's about EUR 100 million and accounts for half of it. The other moving pieces in working capital, generally on the payable side, I'm happy if you look at our DPO, it's slightly above 100. We're very much in line with prior. Receivables have been elevated as well. I think everybody is carefully managing the cash flow and that costs us a bit of half a point as well. So I think that assessment is absolutely fair. Half is working capital, and then I'm confident that we will be able to rebound that. And that's how I am also looking more at the cash flow over the 2-year period. If you look at the continuing operations, we included that in the press release, was 13% last year, now with 10.5% now on average, that lands very much at a 12% rate over this period. Now, what do I mean in terms of timing of payments? There's always a bit of an overflow from year-to-year. And sometimes that allows you to slightly perform better in one year, and then you see the rebounds next year. That's what we've seen. But if you go back to a half year call, I also explained that the incentives had an impact on that as well. On the one hand, '24 was a strong year, but the actual cash out is actually the year thereafter. So whilst at the same time, you have a bit of an elevated level of cash generation in '24 because you got the strong business results, but then obviously, you see a bit of a higher outflow in the first half of the year thereafter. So I think that's why you need to balance the cash over the 2 years to really see the current earnings performance, but at the same time, we have a continued step-up that we want to do in terms of working capital, but also CapEx. If you look at it, when we gave the prior guidance was always for the full group. We guided for 6% of sales. We landed spot on, on that figure. If you look for the continuing operations, it's slightly elevated because we're finishing the Bovaer plant, so that has, still a cash outlet this year and next year. But there's a potential that, that will normalize back to the 5% for the continuing operations, so that in itself was also 1.5% improvement. So I think we've got the levers. We'll elaborate a bit more on that on March 12th as well on what the programs are in place and where Dimitri and myself are focusing on and steering on, but there is a potential uplift for that target, and we know where that needs to come from.

Our next question comes from Alex Sloane with Barclays Bank PLC.

Two questions from my side. First one on HNC, could you remind us roughly how much of the division ARA oil sales make up? And if you were to see significantly increased demand there from market share gains, given everything that's been happening, you know, can you talk to your capacity to service that demand and what that could potentially mean for HNC in '26? And then just the second one, just going back to Perfumery & Beauty and Matthew's question on the margin. I mean, was there any of that margin pressure that may be related to the kind of increased price competition in perfumery ingredients that we have seen at some of your peers. I think so far, you haven't really called that out, but just wondering if you can maybe touch upon that? Are you seeing any pressure on that front? Would you expect to see any pressure on that front?

Thank you for those two questions. Let me elaborate on that. Thanks for the ingredients China part. You didn't hear us calling that out because it's not an issue for us. Now then you could do a follow-up question. Yes, but why are the others talking about it? Because we have tuned our portfolio already 2 years ago. Remember, we had a EUR 1.2 billion ingredient portfolio, where we have made deliberate decision not to rebuild Pinova. We have sold the aroma business. We have tuned down our portfolio. We've upgraded our portfolio and we have an EUR 800 million portfolio left in the ingredients, apart from the CapEx. So that EUR 800 million is predominantly specialties, fragmented, small molecules. And the pressure on China is on the big molecules, the menthol, the citral we were not in those big molecules because these big molecules, scale is important, cost is important, commodity type of elements are there. We don't want to play there. It's not our profile. We are in the Fragrance ingredients, in the fragmented ingredients, and therefore, you don't hear us call us out. And if you see at the results, the ingredients grow mid-single digit, and we're very happy with that. So that's why you didn't hear us calling it out because it's not an issue for us. Now then on your HNC part, I will be less specific because obviously, this is also a customer as well as competitive -- sensitive. We are the best-placed player in Early Life Nutrition. I think nobody would debate that. We are in ARA, we are in DHA. We now are absolutely the first entrants in HMO in China, but also more than HMOs in the pipeline to follow. And obviously, what we have seen on ARA is helping the story we tell Early Life Nutrition. Innovation is super important. Quality is super important. Credibility and reliability is super important. And I think DSM-Firmenich is always have -- always been that type of partner for our customers. And obviously, what is happening on the Early Life Nutrition market is helping us a little bit, and we will see a little bit of tailwind for that because I think it hints to what we want to be for the Early Life Nutrition phase. Now HMO, I spelled out earlier, that's a category where we see more than EUR 100 million-plus segment moving towards. And Early Life Nutrition, as part of our HNC business is around 25-plus percent of the portfolio. So it's definitely an area where we want to play, where innovation is important, where premiumization is important. Just to give you a bit of reference, everybody is always asking, oh, Dimitri, Early Life Nutrition is bad because birth rates are going down. The issue is that the premiumization with new ingredients is going up, the ingredients play into the Early Life Nutrition has seen very, very healthy growth in the last two, three years if you're there with the right innovation. Let me pause here.

Our next question comes from Fernand de Boer with Degroof Petercam.

Yes, I also had a question on Early Life Nutrition, but that was answered. But on the new company of the continuing operations, how much of your cost base is actually in Swiss franc?

Great question. Overall, our FX profile improved. Well, normally, you get a slide from me with the housekeeping indicating that a bit as well. I think overall, the dollar exposure came down to about [ $13 million ] , that was previously closer to [ $15 million, $16 million ]. So that has somewhat improved. And on the Swiss franc, our overall exposure was CHF 800 million, it's now CHF 600 million exposure. Overall, the impact of [indiscernible] is about CHF 6 million, I think that was previously CHF 8 million. So somewhat improved profile on the FX side. Obviously, the current environment is not very helpful. So we will see an impact of that. But overall, the sensitivity has improved with the separation of ANH.

And maybe to come back on the guidance question. The fact that you don't give a guidance today for '26, absolutely does not mean that you are going to change your midterm guidance of ambitions?

The answer is for 2, yes, and for 3, no. OSG, no change midterm. EBITDA, no change, midterm. And you wanted us to change the midterm guidance on cash because we said above 10%. And we got so much comment that, that was absolutely conservative, et cetera, and Ralf and myself, said listen, we are also building a company, so we start with more than 10%. And I think during that event, I also asked for a little bit of patience. Now, we have delivered 2x above the 10%. And I think I've heard Ralf saying that we would upward adjust that cash target. But let's have that for March 12. So 2 out of 3, absolutely, yes. And the third one, a yes, but it will be changed upward.

Midterm still the starting point is '24?

The midterm starting point in '24...

Because actually in 2022 you gave the guidance for midterm and then in '24, you did actually the same for a smaller company, but not that you now mean with midterm, okay, we're going to have midterm targets, and then the starting point is '26.

No, because we're already in '26. By the way, we've always said a midterm target starting run rate into '28. So that is what we said and that's still consistent. It's not a moving target. Yes, it's not like my son saying, I will pass my exam, but not this year, but next year.

Okay.

You don't sound very convinced.

Well, what I said, we had '22 and then it was midterm and then in '24, it was also still midterm, and that's why I'm asking that -- okay, the answer is very clear, thank you.

Yes. '22, the company didn't exist as we are today. So we started in May '23, that is...

Our next question comes from Chetan Udeshi with JPMorgan Securities.

I have two. The first one is quick. Is there any implications on your tax rate, excluding animal? I mean, I suppose animal wasn't making much money anyway. So -- I would guess, but just to clarify, the second question is your cash target, and I appreciate you'll probably upgrade that conversion target, which is good to see. But it's based on your adjusted numbers. And I'm just curious, as we go past this phase of restructuring and separation. What is the level of APM that we should have in mind that sort of leaks out from your adjusted cash? Because when I look at what you give us in terms of adjusted free cash flow versus what we can derive just taking your cash flow statement, the numbers are pretty different, and I would hope, over time, that gap reduces. So I'm just curious what would be the normal level of APM that we should have in mind?

Yes. Thanks for questions, Chetan. So on the tax side, overall, I made a quick comment in the opening statements. So overall, our effective tax rate for the continuing operations is at 21%. I think previously we guided for 21% to 22% for the total group. Happy that we came in on 21%, and we continue to aspire to minimize the leakage on that front, but this is very much in line with the guidance that we gave before. So the impact of the separation of ANH despite having, of course, its base in Switzerland didn't adversely impact the company, which is good. And again, I think that's also going to be the guidance going forward, in that same range that the tax will be around that 21% level. Now then, with respect to your APM questions. I think in the Annexes of the press release, you can actually see the APM development as well. Now obviously, throughout these tuning activities, you're rightly so, we had a bit of leakage. And normally, when you transform, there is a bit of a cost associated to that. We took that into account in the company that we want to build. But over time, from a cash perspective, you see it coming down. It's a constant point of attention, also for Dimitri and myself, we don't want any leakage on that front. We have substantially reduced it over the years from '23 to '24 to '25 also with some of the merger costs flowing out. And the guidance for '26 is that it should come down to below EUR 100 million, but we continue to stay focused on it to reduce it as much as we can. So the adjusted number comes closer and closer to the nonadjusted figure.

We're now at the end, I think we are at the end of the Q&A session. Maybe closing remark, Dimitri, you want to make?

No. Thanks, Dave. Indeed. Thanks for your time. Thanks for your understanding. Let's dive into the numbers. Please reach out to IR to really understand. I understand there's a little bit of pushback why we don't give an outlook. Now, you need to establish a full understanding of the base before you give an outlook. Imagine we've given an outlook, you would have asked based on what? So let's do step 1 first, March 12 is around the corner. We gave color on the business. I think at 3% in a difficult year. That's what we inspire to. So even to the midterm target, when business is normalizing, is absolutely in play with an EBITDA trajectory starting from 18% to 19%, close to 20% and we will not stop after 20%, we move towards the 20% to 23%. And I think with the cash we clearly indicated that we'll listen to you and that we'll come with a new midterm target on the cash as well as in the outlook for 2026. Now with all that, over the last 2.5 years, I think we worked diligently to bring DSM-Firmenich into the next phase, a EUR 9 billion business with today already at 20 -- around 20% EBITDA with good cash flow generation. To the point on what's a normalized APM is also linked to what is the next phase? The next phase will be accelerated. We will not go for big M&A, we're going to grow what we have. So we're happy with that portfolio. We're going to show that potential with an improved step-up still from the EBITDA from 20% to the range of 22% to 23% with good cash flow generation and with a clear understanding for our investors. We have paid around EUR 2 billion of dividend over the last 2 years. It is important to us. If we have additional leverage on the balance sheet, we are doing share buybacks. We finished the EUR 1 billion. We'll add another EUR 0.5 billion already in anticipation of the close towards the end of the year. So we also take that very seriously, and I hope we all see you on March 12 to show that what we have built has huge acceleration potential. And with that, let's close the call.

Okay. Thank you, Dimitri. Thank you all for attending today's call. And with that, we can close the webcast. Any questions, as the gentleman already said, make times, please reach out to Investor Relations. We will pull a consensus ahead of 12th March, so that also we will then give basically an outlook on basis of that you've referenced to your estimates. Back to the operator, please.

This concludes today's call. Thank you, everyone, for joining. You may now disconnect.