DSM-Firmenich AG (DSFIY) 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 first half 2025 results together with a presentation to investors, which you can find on our website. Here, you can also find our disclaimers about forward-looking statements. Following Dimitri and Ralf's opening comments, we will open the line for questions. Importantly and as a reminder, sell-side analysts who want to ask questions will need to register via the questioners' link, which they can find on our website in the Financial Calendar. If you have not done so yet, you can still switch now. And with that, Dimitri, please go ahead.

Thank you, Dave, and indeed, welcome to everybody on this, I think, very busy day for you guys. I appreciate you dialing in. And I want to start with a little bit the journey we're at before we're diving into H1 and 2025. So you know that we have depicted our journey, and we are moving rapidly towards the accelerate phase. I'm very happy to see that we made quite some progress during the first half. And we've also seen that we've closed the Feed Enzyme business in the whole exit of Animal Nutrition & Health and also something in the tuning portfolio. You've also seen that we've made quite some progress on the integration synergies. We promised EUR 200 million, EUR 100 million last year, EUR 100 million this year. We're delivering on that. The same for the vitamin transformation, 2 times EUR 100 million. Also, that is in progress to be delivered another EUR 100 million this year, and we made quite some progress on the portfolio. On the tuning, the agro ingredients still left. We're going to do that this year. And you've also seen the ANH separation. That exit process is advancing, and that's also the only comment I'm going to make on the ANH separation. I know you have lots of questions, but my comment will be it will be the only thing I'm going to say is that the exit process is advancing already, to make that clear upfront. Then we move to the accelerate phase, building a company where we will be consumer human-focused around well-being with the macro trends around nutrition, health and beauty and bringing progress to life by combining essential, desirable and the sustainable, and we are a people, planet, profit company. But moving in that accelerate on the core, very clear that the next priorities will be that we will grow what we have. So we'll show the potential of the portfolio we have in the consumer space. We'll anchor what we do. Remember, we are 2 years on our journey. We will anchor what we do to build a house for the future with strong foundation, and we're going to deliver on our promises. And just to -- as a reminder, those promises are linked to sales with 5% to 7% organic sales growth and adjusted EBITDA quality of between 22% and 23% in range and a cash-to-sales conversion of above 10%. And for the ones who think that's conservative, we also said that we'll review that after the exit of ANH. With that, let's give you some color on the 3 business units in the consumer space. Let me start with Perfumery & Beauty. Go to the next slide. You see 3 fantastic examples of innovations of fantastic developments in our brief and innovation pipeline. And just remember that Perfumery & Beauty has a unique business model. And this business model has to do with a fantastic ingredient toolbox coupled with creation capability. So we strongly feel that the future of Perfumery & Beauty is anchored in 2 competencies. One is the quality of the palette, so the ingredient toolbox, the palette. And one is the quality of the creation capabilities. Fragrance development managers, perfumers, very close to our customer. I think we've done a fantastic job on both. We have invested in our creation capabilities. But we also invested in the journey of Ingredients. And this lets you remind that we had an ingredient portfolio of EUR 1.1 billion in Perfumery & Beauty, where we have, last year, deliberately decided not to rebuild Pinova and exit that low-margin business. We also said that we will refocus our terpene business at the same time. And you also know that we're working on finding a new home for the agro business as well as the Aroma Ingredients to go with the ANH. That means that, that portfolio on the ingredient toolbox, 1 of the 2 anchors of this unique business model, has been tuned to around EUR 800 million of high-quality, high-margin ingredients, which we sell externally. And maybe remind you that is coupled with around EUR 700 million, EUR 750 million of Fine Fragrance ingredients also in the space of dsm-firmenich. So overall, we are pretty much an ingredient palette unique case, coupled with creation capabilities as we have. So very happy to see that for the future. If we look at the fantastic ingredient which we have developed, I would just want to highlight one. That's the middle one, it's Amberever. It's a fermentative ingredient, which we have developed and we have launched in the market. It's a dry woody, sensual amber smell. It's one of my favorites, and it's absolutely long-lasting, and it's really helping to grow and to win with our customers. So for the first half, we saw continued momentum in Fine Fragrance, Consumer Fragrance as well as in the Ingredients. We saw UV and Aroma not helped by the force majeure of the supplier. We expect that to normalize for the second half of the year. And that means that for Perfumery & Beauty, we feel very confident that we have a mid-single-digit growth level for the second half. Then let's move to Taste, Texture & Health. Also there quite some innovations in the pipeline. If you go to the next slide, you can see that on the slide, on the innovation, also here, the same unique business model: creation, uniqueness, customer intimacy, coupled with a fantastic ingredient toolbox. And that ingredient toolbox is also banking on what we call the blue ocean space, so a business where we see a lot of requests from our customers to reduce sugar, to reduce salt, to reduce all types of ingredients to add healthy ingredients to food. And we do see that those food markets are on the move. If you look at the brief, if you look at the innovation pipeline, the reformulation for healthier products while keeping a fantastic taste and texture profile because consumers not willing -- are not willing to compromise on that. That is where, I think, the strategic rationale of the merger of dsm-firmenich absolutely come to play. And you see that happening in the synergies with a 2% growth, which we have reported. A nice example here on the left side. We have developed an alcoholic flavor that is nonalcoholic. So I mean also here, consumers not willing to compromise. They would like to cut down on alcoholic ingredients in their drinks, but they would like to remain having that taste. So Novasense is that innovation, which we've put to market and is helping us to grow in the TTH area. Looking at our brief and our innovation pipeline going forward from H1 into H2, also here, we are confident we can continue the mid-single-digit growth for TTH, Taste, Texture & Health. And that brings us an inroad into Health, Nutrition & Care on the next slide. Also here, I'm very happy that we booked the fourth consecutive quarter of growth as well as an improvement on EBITDA, backed by growth through recovery in Dietary Supplements and in Early Life Nutrition. Here, an absolutely increasing awareness of consumers and customers of the importance of preventative health also coupled with the aging population, people do care more and more about their immunity, and we see that reflected in our innovation and brief pipeline. Also interesting to see that weight loss management trends are boosting our innovation pipeline. Good health, high-fiber content, muscle buildup, fatigue, probiotics are areas where we do see Health, Nutrition & Care are well positioned to continue their growth. And we see that if we look at our brief and innovation pipeline. A nice example here, fueling health from within. We all know that GLP-1 is a popular trend. However, you do see that, that creates gut health problems as well as probability of lesser muscle pickup. So protein drinks, and you see that if you go to the shelf at supermarkets, while remaining the taste, absolutely key, adding probiotics to improve your gut health is absolutely an area where we do see growth. So with that brief and innovation pipeline in Health, Nutrition & Care, really full of these innovations, we are confident we can continue the mid-single-digit growth also for the second half in Health, Nutrition & Care. And that brings me to the financial highlights for the group. If you go to the next slide, happy to say that we have booked 7% organic sales growth, that we have a step-up in EBITDA, also on our journey to improve on the adjusted EBITDA margin with, I think, a good trajectory going forward. The cash flow was a bit modest, but Ralf will highlight that a little bit, mainly because of timing of payments. Inventory was under control, so I think that's good news. And we are fully confident that we can deliver on our cash flow target for the full year. And with that, Ralf, over to you for a bit more color.

Good. Well, thank you, Dimitri, and you covered already quite a few highlights, but let me zoom in a bit of detail and immediately zoom in. You already said, it's a busy day, so I really appreciate everybody online. And I think it's not only a busy day, but a busy week for you guys. So let's zoom in. Yes, overall, a good performance in the first half year. Overall, 7% organic growth, as highlighted on the slide you've just shown, with a continuation of a good performance in our Taste, Texture & Health business and Health, Nutrition & Care, both reflecting a 6% growth throughout the half. And also in Animal Nutrition, a continuation of an improvement of the underlying business conditions, which is something that we have been focusing on, on the back of normalized pricing in the industry. And of course, the business was supplemented or supported by the temporary vitamin effect in the first half, and I'll comment on that a little later. Also, our Perfumery & Beauty business continued to see good conditions with good growth, as Dimitri highlighted, in our Perfumery business, our Fine Fragrance, Consumer Fragrance and Ingredients. And in our Beauty & Care business, we've seen the destocking effect of the UV filters. We guided for that. We also explained the reasons and the rationale for that destocking effect in our Q1 call, and we've seen that in -- continuing into the second quarter. But with that fading out, we'll see that mid-single-digit growth also on a reported basis in our Perfumery & Beauty business going into the second half. From a margin perspective, a 3% step-up in margin. We're now well into the 19% both in Q1 and Q2, but also the absolute EBITDA step-up is very encouraging with an over 20% step-up in our organic performance, supplemented with the benefits of the temporary vitamin effect. Now if you look at that organic performance of over 20%, over EUR 100 million is coming from organic growth in our businesses. And then there's another EUR 95 million contributing in the first half, which is perfectly in line with our committed contribution from the synergies from the merger and our vitamin improvement program. As said, the temporary vitamin effect in the first half is around EUR 125 million. And at the same time, we've seen FX deteriorate into the second quarter. So we had a hit of about EUR 25 million, which was a bit bigger than what I originally guided for, which was around EUR 15 million, but we've seen the rates worsen further. And also, the deconsolidation effect of the divestments has an impact of about EUR 30 million in the half. And let me remind you there, this relates to the yeast extracts business that we sold in our Taste, Texture & Health business; the marine lipids that we divested in our Health, Nutrition & Care; and also the deconsolidation of the Feed Enzyme business that we sold to Novonesis, which completed as per the start of June. Then zooming in a bit more on the dynamics of the most recent quarter. On the next page, looking at Q2. And we've seen very much broadly consistent dynamics across all of our business into the second quarter. So same growth momentum and same element supporting that growth. Overall, the quarter has shown a 6% organic growth, so very much consistent throughout the half. And the main difference really versus the first quarter is the headwind from FX that started to play. And at the same time, we've seen the temporary vitamin effect leveling off throughout the quarter. In Q1, we had a contribution of EUR 85 million to EBITDA; in the second quarter, EUR 40 million on the back of the unwind of that price uplift related to that force majeure. Also from a margin perspective, a strong step-up on margin. Overall EBITDA margin is up 19%. Now coincidentally, that's also the EBITDA margin. We see a continued improvement on that front. And we guided earlier, I expect about 1% step-up in margin over the years, and this is perfectly in line with that plan. Again, looking at the building blocks of that step-up in margin. Again, here on the page, you see at your bottom left, the 20% organic performance. Again, over half driven by our organic top line performance, the other half coming from our commitment around synergies and vitamin improvement program. And the temporary vitamin impact in Q2 of about EUR 40 million was basically offset by the negative impact of FX. The EUR 25 million that I alluded to earlier was fully recorded in the second quarter. And also here, we see an M&A effect of about EUR 20 million in the quarter. As said, margin stood at above 19%, which is an encouraging trajectory and in line with where we want to go. But let's zoom in into the businesses on the next page, starting with Perfumery & Beauty. And here, we've seen a good demand across Fine, Consumer Fragrance and Ingredients as alluded to earlier. We saw the weakness in Beauty & Care on back of the destocking in sun filters, so that has been impacted. We talked about that at our Q1, and we've seen a similar dynamic into the second quarter. Hence, our reported organic growth is 1%. And you see that the impact of FX is marginal in the first half of the year. Adjusting for the destocking effect in UV filters, our reported organic growth would be mid-single digit in line with the strong dynamics that we've seen in our fragrance and Ingredients business. Then zooming in a bit on Q2. Now the investor presentation has all the quarterly bridges for ease of reading. So it's nicely built up on the halves and quarters. In the interest of time and leaving enough time for Q&A, I'll just voice it over in this presentation. Looking at the second quarter, again, favorable conditions in Perfumery. Beauty & Care was impacted by UV filters, as I said before. What we also saw was a bit following the force majeure at a supplier. Also, our Aroma sales were impacted by lack of availability of material. Again, when you adjust for that, we have a mid-single-digit performance in our Perfumery & Beauty business. Margins, nothing to mention, largely in line with last year despite a negative impact from FX and some one-off costs related to that force majeure. So encouraging results. Now with the normalizing effect of the Aroma given that the force majeure is lifted, at the same time, that destocking effect of UV filters will not come back. You heard Dimitri say that we are comfortable in -- with an outlook of mid-single digit for Perfumery & Beauty going into the second half. We'll be able to also then show that as recorded organic sales growth with a continuation of the strong margin performance in P&B. Then looking -- or moving on to Taste, Texture & Health on the next page, please. Continued strong growth. As a reminder, last year, we've seen a 9% growth throughout the year. Q2 had even 11% growth with even stronger volumes. Looking at the overall growth in Taste, Texture & Health, a 6% organic growth continuing, reflecting also the benefit of the combination and the benefits of the merger. In that growth of 6%, 2% is coming from synergies. We see that nicely coming through. As a matter of good practice, I keep on repeating the pipeline, 2/3 of our synergies will be delivered by our Taste, Texture & Health business, and that is growing very nicely. Meanwhile, that pipeline has increased to over EUR 375 million of leads. The win rate, I commented on that earlier, we see that above average in the pipeline. So with a very good win rate, the wins are well over the EUR 135 million, and we meanwhile invoice over EUR 125 million. And just to put that in perspective, we meanwhile delivered about 40% of the targeted synergies in Taste, Texture & Health in this period, which is very encouraging to see, and it's great to see the confidence in the sales teams in our business. Now looking at the overall dynamics in the market. Strong growth in Beverages and Dairy. And again, local and regional accounts are fueling our growth. Q2, same dynamics, a 5% growth. Again, keep the comps in mind. We had 11% growth in the second quarter of last year. So again, continuation of the good dynamics in our Taste, Texture & Health business. And encouraging to see the constant margin development as well. There, we also wanted to see a constant upgrade of margin. We've seen that with a step-up of 1% year-over-year. Overall, the margin in the second quarter landed at 20.5% on a reported basis. I do want to stress that we're still selling the material to Lesaffre at cost when -- which will be ended by the end of the year. If you discount that sales with -- that don't add calories to the bottom line, the margin is actually exceeding 21%, which is nicely in line with the guidance that we gave, and it fits the plan that we have for this business. So continued good conditions in Taste, Texture & Health. And also there, we made a good start of the third quarter in July. Then moving on, on the next page to Health, Nutrition & Care. Also here, strong conditions. Dimitri stole a bit my text with 4 consecutive quarters of good growth and strong growth, where you see Dietary Supplements moving up and also Early Life Nutrition on the back of a good demand for our HMOs. Dietary Supplements, very driven by preventative health, but also here, you see the conversion of marine lipids to algal-based oils, getting good traction and supporting that overall growth. So in the first half, 6% organic growth, all volume driven in Health, Nutrition & Care. And we see a constant margin improvement as well. The half was at 18%. If we then look at the dynamics for the second quarter, again, you have the details in the investor presentation. Same growth profile, good growth across all the categories and regions. Also, a 6% organic growth in our Health, Nutrition & Care business, and margin was at 18.5%, and that will continue to improve going into the second half, where we will hit the 19s as well. And again, here, great trajectory in terms of margin improvement. We said with the volume coming back in the business, we'll also see that moving upwards. As a reminder, we started at 15% at the start of '24, and we're meanwhile moving into the 19% into the second half of the year. So a good continuation of the journey in Health, Nutrition & Care. Then last, but not least, on the next page, Animal Nutrition & Health. Overall, very strong growth, as one would expect. I always look at the pricing effect through a different lens. I look at it how much is related to a restoring and the normalization of pricing and how much is supported by the temporary vitamin effect. In the half, that's about 50-50, and you see that shifting into the second quarter, where that impact of the force majeure is fading out, but you see also a continued strong performance in the second quarter on pricing. Now overall that we also see a good volume uptick, and I do want to call out Performance Solutions continues to deliver a high single-digit growth on the back of a high single-digit growth last year. So another strong performance in the first half of that business. Margin-wise and absolute EBITDA, a great step-up overall, the percentage is something that is difficult to pronounce in terms of an EBITDA step-up. I look at that in terms of absolute numbers. Over EUR 250 million step-up in EBITDA, of which half is related to the force majeure, but the other half is really about improving the underlying conditions in the business. Overall, the margin profile is healthy. If you discount the impact of the force majeure, margins have meanwhile restored to 14%, and we continue to improve on that front, too. Maybe also a voiceover dynamics there, very much similar conditions in the second quarter as we have seen in the first quarter, with a strong organic growth as well. And as I said, a pricing effect of 15%, of which 2/3 is related to the underlying business. Then on the next page, what does that mean for our KPIs across the board? You see a strong improvement there as well. And what you see is that the increase in sales and organic growth and the resulting EBITDA step-up found its way in all of the metrics. You see that step-up in EBITDA nicely flowing through into EBIT. We don't have any leakage on that front. So a good step-up, and that has also flown through into the net profit line. Now we do want to make a comment on the earnings per share. There is about a EUR 0.30 impact there related to an accounting entry at the associates, KD Pharma. Remember that we sold the marine lipids business to them. Now they had a delay in processing everything in there. And hence, we took some accounting and a noncash adjustment, so that's a one-off adjustment in terms of some value adjustments at their side, but we had to reflect that in our numbers as well. So it's a noncash adjustment. It's not recurring, but it did have an impact on the earnings per share in the first half. So just want to make sure that, that was understood as well. But the rest, you see the nice business results flowing through all the way down to the bottom. That also improved our ROCE substantially. So overall, our core ROCE is up into the double digits. We mentioned that in the voiceover that we saw that improvement at the start of the year, and it's all related to our improvement of our EBITDA and margins. And also when you adjust for the force majeure, we're close to a double-digit core ROCE performance for our business. Our cash flow was a bit softer than last year. Dimitri highlighted that, and give you a few insights on that on the next page. Overall, our operating free cash flow was about EUR 200 million below prior. And it was merely around timing of payments where we saw some payment runs that got accelerated into the half, not necessarily, but we don't actively stay on that, so that will unwind throughout the year. And also our STI payments are usually made in the first half of the year, and that obviously reflected the strong performance over '24, whereas '24 was only reflecting 3 quarters because that's related to the short-term incentive payment for our employees for the period after the merger. Now that effect will normalize throughout the year. If you look at some of the underlying drivers, all very much under control. You've seen that working capital as a percentage of sale improved versus prior year, but it's somewhat elevated versus the year end. Now part of that is seasonal. We always see that. We land at the end of the year below 28%. And I wouldn't see a reason why we would not be at that point. So you'll see all these effects normalizing. We control our cash-out around CapEx, whilst we continue to invest for the future, and that came in also in line with the guidance of 6% of sales. So the underlying metric is good. I do want to highlight that we make continued progress in reducing our inventory, although in the first half, we did allow ourselves a somewhat higher level to make sure that we deliver upon our commitments to our customers and help them navigate through a bit of a volatile economic environment. But as I said, also that will unwind again in the second half, and we've seen the first effects of that already at the end of June. Then for good housekeeping, also on the next page with the net debt. Overall, net debt continues to decrease as well. Now you would expect that on the back of the merger proceeds -- sorry, the divestment proceeds from the sale of the Feed Enzyme business. So overall, we collected EUR 1.4 billion, in line with guidance. At the same time, as you know, H1 is characterized by a good dividend payment because we maintain that as well. And at the same time, we've seen the first outflow for the share buyback, and we bought back minority stake of our Andre Pectin business. So all in all, continued progress in net debt as well. Looking into that -- going into the second half, we will see a continued good step-up in our operating performance. Remember last year as well, where we delivered over EUR 1 billion of operating cash performance in the second half, but I also do want to call out that we will be paying for the remaining part of the share buyback in the second half. So when you model that, please take that into account. A housekeeping notice. When I look at net debt, I include the hybrid. IFRS doesn't always listen to me. So they classify that as equity. But we will be redeeming that in August. So when you look at here, when I talk about net debt, I always include the hybrid, so our leverage is then around 1.3, 1.4. But don't be surprised that in Q3 or when we come out with the full year that 0.8 redemption will then also be reflected in IFRS definitions of net debt. Last, but not least, our outlook on the next page. Outlook, unchanged. We're targeting around EUR 2.4 billion. Now the careful reader this morning has seen that we changed at least to around, and that's purely related to the volatile environment around our currencies. As said, I guided for about EUR 15 million of impact in Q2. That came in at EUR 25 million. If that were to materialize for the rest of the year, then we're looking at an impact of a little over EUR 75 million for the year, which is bigger than what we guided for at Q1. Hence, if that were to materialize, we could be slightly below EUR 2.4 billion, hence the change in wording. But I want to stress that the underlying business conditions have not changed. So we're perfectly in line with the guidance that we started the year. In Q1, we technically updated it for the increase in the force majeure, in line with our commitment and transparency around that. At the same time, we sold our Feed Enzyme business, so we deducted that. That leveled off, and now in the second quarter, it's only the FX that is a bit uncertain. And again, you can see how volatile it is. On the back of the trade deals, they started moving again, but we expect for the quarter a bit of a similar impact. Housekeeping is there for your convenience, but the models can stay as is. There's no change, very consistent, delivering in line with that. Maybe with that, Dave, we leave enough time for Q&A.

Okay. Thanks, Ralf. [Operator Instructions] So with that, I think we can start. So operator, please let us have the first question.

[Operator Instructions] Our first question comes from Alex Sloane with Barclays.

Two from me, please. The first one, just on Perfumery & Beauty. Clearly, some exceptional impacts in the first half, you highlighted, and also tough comps in Q2, in particular weighing on the reported organic sales growth. Could you maybe give a bit more context on what's driving your confidence levels in P&B returning to mid-single-digit organic in the second half and '26 and maybe key end market assumptions behind that? You also talked about a good start to July in TT&H. I wonder if the same is true in P&B. That would be the first one. And the second one, I appreciate you're not going to talk more on the ANH process. But as that enters final stages, is it still fair to assume you have no material plans for acquisitions in 2026?

Yes. Thanks for those questions, Alex. And let me take P&B and then Ralf, made for the second part. P&B, indeed, let me give some context here. So what we've seen is good growth for Fine Fragrance, Consumer Fragrance and for Ingredients. And indeed, as we explained, Beauty Care was a bit soft due to UV and the force majeure of the supplier in Aroma. So if you look at the growth of H1 about 1% and you would correct for that on the normalization of UV and for Aroma, you will be around 5%. And that is, against, as you indicated, indeed, a high comparison of 10% volume in the first half, 17% even in Q2. So what we look at in our brief and innovation pipeline, and you know that our brief pipeline is sort of a synergy check on what we see for the second half, with the normalization on UV, remember, UV was destocking because it was -- our customers were stocking really on the bank of a very strong 2023. Going into '24, still were a very good half year of double-digit growth in the first half, and then it slowed down in the second half. So they were preparing for continued growth, and they took action in the second half last year. You've seen that Q1 and Q2 have the last bits and pieces of it. So the second half, that will moderate. Same on Aroma on the force majeure, that will also be sold throughout the second half. So if we take that, we're back in the as-is comparison to around 5%, so mid-single digit. And we see that being reflected in our brief and innovation pipeline going forward. And to your point, on July, yes, we can also confirm that next to TTH, also Perfumery & Beauty have seen a good July going forward. So overall, on Perfumery & Beauty, we're, indeed, confident on the mid-single digit. A bit to the trends. Fine Fragrance, Consumer Fragrance, Ingredients, we do see that the younger generation is really pushing that growth. I think compared to pre-COVID, we see quite a change in how people look at fragrances, maybe also to do a little bit with more attention to well-being. In this strange world today, people are going back to themselves and looking for well-being in themselves, and fragrances do play a key role there. You see the use of fragrances in end products going up. So the concentration of it, which obviously helps our growth. So we feel confident that, that continues for the second half. And therefore, you've seen that we are confident on the mid-single digit for the second half. Then about cash, the owner of cash is Ralf, so I'll give it back to you, Ralf.

All right. No, I appreciate the question, Alex. And if you look at the company that we're building and Dimitri did that at the start of the presentation as well, we're very happy with the portfolio that we created. We said that before. We've got everything we need to deliver a strong growth and a strong margin profile, and that is something that we are committed to. That's our promise, and we will deliver upon that promise, and we also want to focus on that. That's also the reason why we said we will focus on growing our business and delivering upon the targets that we set ourselves. And M&A, therefore, is not a big focus area for us. I think there were questions around it. You're not going to do M&A in '25? But well, '25 is nicely progressing. So we trust you on that. But going into '26 will be the same. So it's not a focus area for us. Internally, I sometimes make the joke, if I stumble across something nice and it has the right, nice profiles, and it's a smaller bolt-on, we'll look at it. But like I said, this is not a priority for us. We've got a great portfolio, and we'll focus on delivering the growth and the margin ambition that relates to that also in '26.

Our next question comes from Nicola Tang at Exane BNP Paribas.

First one on the outlook. I think you're very clear that the sort of slight change in wording is not due to any change in underlying business conditions. I know some of your peers have been flagging slightly weaker end market trends. So I was wondering if this is something that you're seeing as well and if that's also baked into the guidance despite the fact that you're still able to reiterate that kind of mid-single digits for the second half. And the second question, I was keen to understand a little bit more the trends in the HNC business. I was just trying to understand how much is due to the end markets themselves and decent growth there versus sort of dsm-firmenich-specific dynamics, whether it's around HMOs or algal lipids as you called out.

Okay. Ralf, you take the outlook, and I will give you some color, Nicola, on HNC.

Yes. No, thanks for the question, Nicola. So overall, no, if you look at the overall dynamics in the markets, I voiced it over a bit. Dimitri just responded to Alex's question around P&B. So I think the dynamics are there. There are some specific events in H1 that are not recurring. And we also see the development of the order book. And if you look at it in P&B, that's developing nicely. And meanwhile, we have July under the belt, although today is the last day, but we know how that is going to look like, and we made a good start on that front. TTH, very much driven also by the synergies. So we have a 2% contribution of synergies. You hear me speaking with confidence around the pipeline, but I always remind everybody, it's more important that Patrick and the team are talking about that with confidence, and we had the business review with them. And I mean, the number of examples are numerous, so very strong dynamic. And that makes us confident that we see that mid-single-digit growth confirmed also going into the second half. And HNC is a recovery. And Dimitri will zoom in a bit of the end market dynamics there, but we're very much focused on growth. Part of that is market related, but also the actions that we're taking. And the momentum in HMO is good. We said that we're well placed for the second half, but I'll leave that to Dimitri to comment a bit more. But these dynamics are baked in into our outlook, and outlook is always balanced, but I also want to remind ourselves that if you look at the buildup of the original outlook that we did, there's also a contribution from the vitamin improvement program and the synergies. And I think that is something that is fully within our control, and we continue to focus on the delivery of that, and that is obviously supporting our outlook statement that we made. And with that, Dimitri?

Thanks indeed, Ralf. And I think, Nicola, what I think you need to be aware of that we are a company, will be focused on well-being with nutrition, health and beauty. And we made the deliberate choices strategically to grow in the area where there is growth. So on well-being with fragrances, on health with more healthy food and also on nutrition, I mean, more healthy ingredients while not compromising on the taste. And we do see that happening. I think we gave some color on the Perfumery & Beauty. Let me add a little bit to TTH before I go to HNC. So also in TTH, I think with the 6% growth, we clearly outperformed the market. It has to do with the synergetic effects we've seen. So adding healthy ingredients while not compromising on the taste and the texture, and that's almost like an art. It's something where consumers and our customers are not willing to give into. And that is fueling also the synergies. It's been one of the strategic rationales of the merger. We do see that growth yet again also for TTH against a very high comparison. So if you look at the comparison for H1, it was 8% and 11% for Q2. So it's really solidifying. Beverage and Dairy segments did very well, and we see also that continuing in H2. Almost in all regions, maybe the only one was -- maybe the U.S. was a bit soft on our global key accounts. Although I also say that our regional accounts and our regional customers are growing very confidently over the first half and into the second half. So couple that, you see the confidence for mid-single digit and to be continued. Then on HNC, indeed, good growth, 6% organic sales growth. We're building it up in parallel with an improvement on the EBITDA. So it's not only top line growth. It also comes with an improved EBITDA from 16.8% in '24 to 17.9% in H1, of which 18.4% in Q2, and we're confident we will be in the 19% range to the end of 2025. The growth indeed supported by Early Life Nutrition. Obviously, with HMOs as a key category, we're well placed -- I would say, we're more than well placed. I will not give too much background because there's some competitive reasons, for customers are very close to launching their products. So I hope you appreciate and accept that. Park that question. I will give you more background on the HMO launches going forward. We are very well positioned in the stage 1, 2, 3 products in Early Life Nutrition to grow that category to over EUR 100 million of sales in the coming years. Then Dietary Supplements. Also here, interesting synergy. Dietary Supplements are great, but sometimes it's just those are pills or any other formats out there in the market. Now with the taste and flavor experience we have, we're building dietary supplements, gummies with the flavors on different age categories we can help. So we do see that is also helping the Health, Nutrition & Care growth as well as all the segments, pharma, medical based on aging population and the like. So it's across the board with Early Life and Dietary Supplements in recovery with a good brief and innovation pipeline. So overall, to your point, our outlook maintained. It's just like Ralf was saying on the technicality on FX. And because we've chosen to play in the segments where there is growth, I sometimes mention that blue ocean growth, but Dave, our IR Head, is saying, nobody understands what blue ocean growth is, so I need to explain that. That is growth where you don't compete on market share that we call that red ocean. We also like that, and we do that. But blue ocean is play in the space where there will be growth going forward, new growth, new innovation. And I think we do both. And with that, I think let's go to the next.

Our next question comes from Charles Eden with UBS.

First one is, if I look at your organic growth, and I'm looking on an ex ANH basis, so I think it's about 3% in Q2, maybe 4% for the half. Given concerns around the volume challenges, some of the -- or many of the listed staples companies continuing, could you remind us of the split of your sales on an ex ANH basis between global customers and local and regionals and, if you can, what the growth looks like by customer type so far this year? And then my second question is more of a follow-up on P&B. I guess it's probably a 2-part question, but both quite short. Could you give us an indication of what the growth is in Fine Fragrance either in Q2 and in the first half? And then secondly, obviously, you're looking to exit Aroma business. But given your opening commentary, Dimitri, I wonder whether further down the line, there may be other components of that division that may not be viewed as core. So could you just confirm whether that was the intention or not?

I did miss the last question. Could you repeat that third question?

Yes. Sorry, I was just wondering, given your opening remarks, and obviously, you're exiting Aroma business, but within P&B, I just wonder whether there's any other components to that business, which may not be core further down the line.

Yes. Okay. Yes, so let me respond on the organic sales growth. So indeed, we are 3% to 4%, if you take the core part of it, by the way. That's also -- I think the EBITDA quality will move towards the 20% region to the end of the year. So I think it's in line with the steps we're taking. What you need to be aware of is that staple companies are not always the right reference for us. We can even grow if there is no growth of the overall market. Let me explain that. I would rather have growth in the overall market because it makes it easy to grow. But we are supplying ingredients to our customers. So even in a space where there is no growth, we see substitution of different ingredients with our ingredients. Let me give you an example on food and beverage or dairy on yogurt. If we can replace sugar or salt or any other ingredients by our ingredients, we still grow. So the innovation in change appetite is, for us, a better metric to see if we can grow. So obviously, if staple companies and our customers are growing, it's a bit easier, but it helps the innovation power. So that also see why we are still growing and maybe sometimes even growing faster than some of the references. Then in terms of global and regional accounts, let me not go through all the details that go. But I think one clear indication, and I think I hinted on it, the regional customer, the localization of the proposition in the briefs are growing very rapidly. So these customers are growing faster than our global accounts. And therefore, the local-to-local presence with application labs, with creation labs is absolutely key. And I think we have built that over the last 5 to 10 years, and that helps our growth in our 3 businesses going forward. Then Fine Fragrance, yes, I think we clearly indicated that we're happy with the growth in Consumer Fragrance, Fine Fragrance as well as Ingredients. We've clearly indicated that if you correct for -- of -- not correct. If you don't take into account the FX and the hyperinflation, I think we have a very good organic sales growth. It means that we are growing in line with industry on Consumer, on Fine and on Ingredients in itself. And then last but not least, on Aroma, and you linked it a little bit to the portfolio of Ingredients. Let me go back a little bit to the Ingredients portfolio when we started. So first of all, we have ingredients for fragrances, which we use as input material for our Fine and Consumer Fragrance division. We call that internal ingredient sales. That's about EUR 700 million. That is top end and which differentiates ourselves to customers and help them to win in the market. Second, we had about EUR 1.1 billion sales of ingredients when we started the merger. You can deduct about EUR 100 million, EUR 150 million for the Pinova event 1.5 years ago, which were commodity like of ingredients. So we also deliberately decided strategically not to rebuild that. We will divest our agro ingredient. It's about EUR 50 million -- EUR 40 million, EUR 50 million on sales, and we will bring Aroma into the ANH exit. And they will bring the external sales of the ingredients from EUR 1.1 billion, close to EUR 800 million. And that EUR 800 million is really high-specialty, higher-margin business. So we feel completely comfortable, and it's absolutely key to keep that. So within that EUR 800 million, there is about 20% which is what we call industrial. And that is something where -- we will phase out over the period by growing the fragrance ingredients because it has to do with scale. It has to do with security supply. It has to do with the assets. So we will keep that, but we will grow faster in the fragrance ingredients. But the portfolio we have, after all the bits and pieces done on Aroma, on agro and on the Pinova part, we feel very comfortable and then we go into the accelerate reason, and that means that we want to grow that business and that we are happy with what we have. So that, to your point, is there more to be tuned? The answer is no. We want to grow what we have for the next coming years.

If I may I add to first question on that, Charles, when you said what's roughly the split there, so if you look at the underlying, if you also adjust for the UV effect, then we're more mid-single-digit volume growth. But I think where you see is the big growth and the volume drivers is in the regional and local accounts. Remember that when we started the journey, we explained that 70% of Perfumery is corporate account, 30% local. You see that move to 60-40. And the opposite is in Taste, Texture & Health, very much local and regional driver, where 30% is corporate and 70% -- you see that actually moving into a 20-80, reflecting that strong volume growth in regional and local accounts, which is already with us for quite some time.

It leaves us limited time. So let's do a last questioner. Yes, so last person, and then we move and close the meeting, yes. So last question, please, operator.

Our last question comes from Artem Chubarov with Rothschild & Co Redburn.

Just as a follow-up on the previous one. Just to double-check that, so Aroma Ingredients will go together with the ANH divestment. Is that because they actually share the same production infrastructure, so you're selling vitamin assets, which in old -- in legacy DSM, used to also produce aroma ingredients as a byproduct? Just to confirm my understanding here. And also, could you explain why the force majeure in Aroma was a negative? So is that also referring to the BASF situation? And if it was a negative, why was that the case compared to the vitamins, which was more of a positive? Forgive me for that question, but that would be helpful to understand the moving parts.

Yes. No problem. So everything you said under question one is correct. So that brings me to question two. Aroma has nothing to do with BASF neither on the vitamins. Aroma had to do with a supplier who supplies us for ingredients to make aroma, and they went into force majeure, and therefore, they couldn't deliver some of the ingredients, and therefore, we couldn't make the aroma, and therefore, we couldn't sell the aromas going forward. So that is that effect, and that will unwind in the second half. We'll be back on track. So with that, back to you, Dave.

Yes. I think now we basically -- operator, we conclude now the Q&A session. And maybe, Dimitri, you can make a few closing remarks before we close the whole session.

Yes, with pleasure. So -- and also respectful of your time in this busy period. I just want to -- a few key points. You see it on the slide. Let me not go through all of them. We will continue our journey on 2025. I think H1 is a sort of evidence of the fact that we are on track. We are building a future-proof growth company. We are fully committed in the accelerate phase to grow what we have, anchor what we do and deliver on our promises with innovation, with synergies being delivered, focused on the right segments, the blue oceans, the market trends. That's our focus with growing what we have, anchor what we do and delivering on our promise. With, I think, a very clear and transparent path forward, we will continue to do so. That's also part of the company we're building with transparency, with the discussions we all have, and we appreciate that. And I think finally, with a confident outlook for the second half of the year, which has been reflected in our outlook for 2025, around EUR 2.4 billion. And with that, I think back to you again, Dave.

Thank you. That leaves me to thank you all for attending today's call, indeed, on a very busy day. Please reach out to us if you have any additional questions. We're there to answer your questions. Maybe a reminder, we have updated our ESG FactBook. For those maybe have seen it, we make a very extensive fact book that can easily help you understanding our sustainability position. That was published earlier month, and I think it's worth checking that out. And with that, let's conclude today's webcast. So back to the operator.

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