Givaudan SA (GIVN.SW) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Givaudan 2021 Half Year Results Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Gilles Andrier, Chief Executive Officer; accompanied by Mr. Tom Hallam, Chief Financial Officer of Givaudan. Please go ahead, gentlemen.

Thank you, operator. Ladies and gentlemen, so welcome to our 2021 half year results conference call. I'll make this call together with Tom Hallam, our CFO. We'll take you through the presentation before answering your questions at the end. The company news on our half year results 2021 were published on our website this morning. This is where you will also find the slides for today's presentation. Along with the media release, you will find our 2021 half year report on our website. I'd like now to start going through the presentation. I invite you to turn to Slide #3 to go through our performance highlights. So I'm very happy to share with you both the excellent sales growth and the strong financial performance for the first half of 2021 we published this morning. For sure, going back 6 months ago, as we started the year, the outlook for 2021 was full of uncertainties, difficult to predict consumption patterns, and the world showing very mixed signals, both from an economic standpoint and from a pandemic standpoint. As our half year 2021 results demonstrate, our sales continued to benefit from a robust demand of the resilient categories while the 2020 pandemic-impacted categories strongly rebounded. These strong results demonstrate that our strategic choices for the coming 5 years make perfect sense. Actually, many of the consumer trends, if not all of them, on which we have built our 2025 strategic plan have been amplified by the pandemic. Health, beauty, home and personal care, wellbeing, naturals, alternative proteins to name a few. And the pandemic has certainly not stopped us to continue investing on innovation to continue to be best positioned to support those different growth spaces with our clients. We made as well an excellent progress with the integration of our recent acquisitions over the last months and for the full -- the rollout of SAP and GBS onto the acquired sites. In a nutshell, our 2025 strategy is well underway. In the first half of 2021, we reached sales of CHF 3.4 billion, a growth of 7.9% on a like-for-like basis, and 4.7% in Swiss francs. This was achieved across all markets, all segments and all customer categories, supported notably by high-growth markets, local and regional customers and many of our key strategic product categories. Like what many of our customers do, the true comparison for 2021 is versus the prepandemic levels, namely half year 2019. So I'm happy to share that Givaudan has grown 12.3% on a like-for-like basis versus 2019. In other words, despite the virus still being quite active in many parts of the world, the pandemic has not stopped us from growing faster than the prepandemic CAGR rate. We achieved an EBITDA of CHF 809 million, growing 10.2% compared to 2020. It represents an underlying EBITDA margin of 24.2%, improving from 23.7% in 2020. Free cash flow reached CHF 186 million, representing 5.5% of our sales, the same ratio as for the first half of 2020. So I'm very pleased with the strong performance of our business, with all parts contributing to these excellent financial results. In an environment which still contains many uncertainties, we have shown our resilience, our focus on supporting our customers and our ability to capture opportunities and serve our market leadership, whilst keeping our employees safe on the Givaudan side. Let's now turn to Slide 4. On a like-for-like basis, our Fragrance & Beauty division grew 10.1%, and our Taste & Wellbeing division grew 6.1% versus 2020. As I mentioned earlier, this performance was driven by the virtuous combination of the resilient categories, which continue to grow on top of the double-digit growth of last year and the very strong recovery of the more discretionary categories, namely Fine Fragrances and Foodservices. Once again, all our strategic focus areas, complemented by acquisitions, have contributed to our growth, namely health and wellness, naturals. Local and regional customers outperformed sales with our multinational customers, which also showed, by the way, a good momentum. When compared to 2019, this represents a growth of 15% for Fragrance & Beauty and 10% for Taste & Wellbeing. Actually, all customer categories, all regions and all product categories, with the exception of Foodservice, are above 2019 levels. Let's turn now to Slide 5. Since the start of the pandemic, a relevant way to look at our sales development has been to split our portfolio in 2 main categories: On one hand, the resilient categories accounting for 84% of our group sales, which include Consumer Products and Active Beauty and the core business of Taste & Wellbeing. It is worth highlighting that after 4 consecutive quarters of strong growth, we were back to single-digit numbers in Q2 2021 against a very high comparable of Q2 2020. Overall, the resilient categories grew 5.8% during the first half of 2021 with an equal growth between -- across the 2 divisions. On the other hand, we have the high impacted categories, accounting for 16% of group sales, Fine Fragrances and Foodservice. As you can see, these categories have grown 22.4%, strongly recovering, especially in the second quarter, against the strong decline of last year's second quarter. Fine Fragrances showed a very strong rebound in the first half of 2021 as retail activity picked up, customers maximizing the direct selling and e-commerce channels. Our Fine Fragrance sales were also certainly supported by consumers redirecting what they have not spent on travel, restaurants and entertainment to those beauty categories. Again, if we compare to prepandemic levels, Fine Fragrances is 13.1% above 2019 on a like-for-like basis. Foodservice has also strongly recovered in the second quarter but has remained below prepandemic levels for the half year as corporate hospitality, sporting and artistic events have generally not resumed in most geographies. Let's now turn to Slide 6. In the first half of 2021, high-growth markets delivered a 10.4% growth continuing on the regained momentum we already saw since the end of 2020. This was achieved despite the current pandemic still impacting major high-growth markets such as Latin America, India or Southeast Asia. Latin America kept performing very strongly in its 3 major markets, namely Brazil, Argentina and Mexico. Africa and Russia contributed with strong growth levels as well as Asia Pacific as a whole. China, which recovered from the pandemic as early as the second quarter 2020 continued on a very strong double-digit growth whereas India reported single-digit growth. In Southeast Asia, notably Indonesia and the Philippines remain more challenging. In the mature markets, we grew a more than healthy 6.1%. The recovery of Fine Fragrances and Foodservice supported the strong recovery in North America as the economy reopened faster than most other regions. Western Europe also recovered strongly as many markets reopened, whilst the mature markets of Asia, notably Japan, remain affected by the pandemic. High-growth markets made up 43% of our overall sales in the first half of 2021, a consequence of the acquisitions we made in mature markets, combined with the currency situation in the high-growth markets. Our presence in high-growth markets has always been a key driver for our growth and continues to be one of our key strategic strategies for 2025. Despite recent hiccups in some markets, structural demographic trends, the ever-growing middle class and the strong deurbanization trends will continue to support the growth of these markets, especially in Asia, where [ deurbanization ] and the middle class are still below average. Our market position and our operations footprint give us a unique exposure to these high-growth markets in which we continue to invest, both with additional talent and new facilities to service the wide diversity of our clients. We have seen in the past 18 months how critical our geographical balance is, creating natural hedges against the crisis like the COVID-19, where the timing of the pandemic has been quite progressive and with a different intensity depending on the geographies. Please now turn to Slide 7. I'd like to highlight the sales development by regions for the group. As you can see, all 4 geographies have contributed to our overall growth, none of them achieving a like-for-like growth below 5%, all of them significantly above 2019 level. Sales in Latin America continue to perform extremely well and remain ahead of the other regions with another outstanding growth of 21.2%, driven mainly by the 3 key markets of Argentina, Brazil and Mexico, volume growth contributing to 80% of this growth. Latin America is 36% above 2019 level on a like-for-like basis. North America is also delivering an outstanding growth with a 7.5% like-for-like sales performance, as a result of a much more favorable pandemic situation and a strong rebound of the economy and the consumer demand. The growth in Asia Pacific was 6.3% with double-digit growth in China and single-digit growth in most other parts of Asia, with the exception of Southeast Asia. Finally, Europe, Africa and the Middle East grew 5.5% with a very diverse situation across the various markets, but generally supported by the strong recovery of Fine Fragrances. Let's turn now to Slide 8. The Fragrance division grew 10.1% on a like-for-like basis and 7.4% in Swiss francs. This double-digit sales growth was mainly driven by the strong rebound of the fine fragrances, particularly impacted by the COVID-19 pandemic and the acceleration of the Active Beauty business. Fine Fragrances sales increased by 34.5% on a like-for-like basis against the first half of 2020, when sales declined by 16.4%. In the first 6 months of 2021, there was a strong rebound of the existing business across all customer groups. In addition, new business wins contributed to the strong performance. All regions delivered strong double-digit sales growth including Western Europe, where prestige brands showed a very strong rebound after having suffered strongly from the COVID-19 pandemic, particularly in the first half of 2020. North America and high growth markets also recorded strong double-digit sales growth. Consumer product sales increased by 4.1% on a like-for-like basis against the very strong prior year comparable of 11.8%, which was driven by an increased demand for household, health and personal care products related to the onset of the COVID-19 pandemic. The growth in the first half of 2021 year was achieved in both high-growth and mature markets and across all customer groups. The sales growth was led by Fabric Care, followed by Personal Care and Home Care. Sales of Fragrance Ingredients and Active Beauty grew by 14.4% on a like-for-like basis against flat sales in the prior year. Active Beauty saw a very strong rebound in the first half of the year and reported mid-double-digit growth in both high-growth and mature markets. Fragrance Ingredients reported strong single-digit growth driven by key international and local and regional customers. Now let's turn to the next slide, #9. Taste & Wellbeing sales were CHF 1.8 billion, an increase of 6.1% on a like-for-like basis and an increase of 2.5% in Swiss franc. The strong sales performance was driven by new wins and good business momentum across all regions and mainly with local and regional customers. Whilst the sales performance was still affected by the impact of the COVID-19 pandemic across many countries, there were positive signs of recovery in certain markets where increased vaccination rates and progressive reopening resulted in higher demand for food service products, particularly in the second quarter of 2021. In the key strategic focus areas, sales increased double-digit in plant-based proteins and high-single-digit in Health & Wellness and Naturals. From a segment perspective, the positive sales performance was mainly driven by Beverages, Savory and Snacks. Sales in Asia Pacific increased by 5.1% on a like-for-like basis. In the high-growth markets, China delivered strong double-digit performance, followed by solid single-digit growth in the Philippines and Vietnam, whilst Indonesia and Thailand were still impacted by the COVID-19 pandemic. In the mature markets, growth was driven by Australia, Korea and Singapore. In South Asia, Africa and Middle East, the business grew by 3.5% with double-digit growth in India, Algeria and Nigeria, offset by primarily a sales decline in South Africa. The growth was driven by beverages and dairy for the region. Sales in Europe increased by 1.7% on a like-for-like basis. The mature markets of Germany, Italy, Spain and Sweden all achieved good single-digit sales growth whereas in the high-growth markets, there was excellent business momentum, driven by double-digit growth in Russia and Poland. Throughout the first half of 2021, the region was still impacted by the restrictions related to the COVID-19 pandemic with some relaxation in those measures being seen only more recently in a number of countries. On a like-for-like basis, sales in North America increased by 6.1% across all customer segments. The strong performance was a result of new wins, a rebound in food service and the growth of existing business in beverages, immunity products, savory and sweet goods. Finally, sales in Latin America increased 23.4% on a like-for-like basis, led by a strong double-digit volume growth in Mexico, Brazil, Colombia, Chile and Argentina and across all segments. With this, I'd like now to hand over to Tom, who will give you more granularity on our financial results.

Thank you, Gilles. I would also like to welcome you all to our conference call. Gilles has taken you through the business performance of the group as well as the main aspects of the market and regional development. On the following slides, I would like to focus on the operating performance of the group as well as the 2 divisions. Let's start with the performance highlights on Slide 11. Group sales increased by 7.9% on a like-for-like basis, which excludes the impact of acquisitions as well as the currency impact. In Swiss francs, sales increased by 4.7%. The reported EBITDA increased to CHF 800 -- 809 million, compared to CHF 734 million in 2020, and the underlying EBITDA margin remained very strong at 24.2%. Net income was CHF 481 million or 16.3% of sales compared to CHF 413 million in 2020. Finally, the free cash flow as a percentage of sales was 5.5% compared to 5.5% also in 2020. In the following slides, we will cover the group's performance in more detail. Please turn to Slide 12, which shows the exchange rate development. Once again, the Swiss franc strengthened against some major currencies in which the group operates, but is more stable against others in comparison to the prior year. The impact is less pronounced in major market -- major mature market currencies and more pronounced in some emerging market currencies such as the Brazilian real. We still believe that our operational and geographical spread continues to provide good natural hedges, and our EBITDA margin remains well protected against these currency fluctuations. Please turn to Slide 13, which shows the group operating performance. In 2021, the group continued to achieve productivity gains and demonstrate a strong cost discipline. This resulted in a gross margin which improved to 43.9% in 2021, compared to 42.2% in 2020. Referring to the previous slide, although we are naturally hedged at the EBITDA margin level, currency movements can cause some fluctuations on individual lines of the income statement, including the gross profit. As I mentioned, the EBITDA increased to CHF 809 million in the first 6 months of 2021. In this period, the group incurred costs of CHF 7 million related to acquisitions and restructuring, compared to CHF 24 million in the previous year. As you can see on the bottom right of the chart, our underlying EBITDA margin was 24.2% in 2021 compared to 23.7% in 2020. This increase is driven by productivity gains and a strong cost discipline. On the next 2 slides, I would like to spend a moment on the operating performance of the 2 divisions. Please turn to Slide 14. We will start with Fragrance & Beauty. The Fragrance & Beauty division recorded a sales increase of 10.1% on a like-for-like basis and 7.4% in Swiss francs. The division recorded CHF 375 million of EBITDA compared to CHF 333 million in 2020. The margin showed a good increase compared to the prior year, driven by higher sales as a result of the recent acquisitions in the division, and our actions taken to contain expenses as mentioned at the group level. The EBITDA margin was 24% on a reported basis and 24.2% on an underlying basis. If you now turn to Slide 15, I will comment on the Taste & Wellbeing performance. The Taste & Wellbeing division recorded a sales increase of 6.1% on a like-for-like basis and 2.5% in Swiss francs. The reported EBITDA increased to CHF 434 million from CHF 401 million in 2020, again as a result of continued productivity gains and strong cost discipline. The reported EBITDA margin was 20 -- in 2021 was 24%. And on an underlying basis, the EBITDA margin was 24.3%. Please turn to Slide 16, which shows the net income of the group. The income before tax increased to CHF 566 million from CHF 480 million in 2020. The nonoperating expenses were slightly lower compared to prior year, CHF 47 million in 2021 compared to CHF 52 million in 2020. The net income was CHF 481 million or 14.3% of sales. The group's effective tax rate increased to 15% in 2021 compared to 14% in June 2020. Basic earnings per share increased to CHF 52.19 in 2021 compared to CHF 44.8 in the first semester of 2020. Please turn to Slide 17 for the cash flow performance of the group. During the first half of 2021, Givaudan generated a free cash flow of CHF 186 million or 5.5% of sales compared to CHF 178 million, also 5.5% of sales in 2020. The operating cash flow for the first 6 months of the year was CHF 415 million compared to CHF 389 million in 2020. The group continued its investments to support the growth in all markets. As such, total net investments was CHF 120 million. And as a percentage of sales, net investments were 3.6% in 2021 compared to 4.3% in 2020. Working capital increased to 28.3% of sales compared to 27.9% in 2020, due to temporarily higher inventory and accounts receivable levels related to the good business momentum and the continuing COVID-19 pandemic. Overall, the group showed a strong financial performance in the first semester of 2021. I'm very happy with these results and the free cash flow delivery in the first 6 months of this year. Please turn to Slide 18 to look at the amortization of intangibles. We've updated the projection here to reflect the latest acquisition in Myrissi, which we completed in the first 6 months of 2021, and it gives you a future perspective of the expected amortization. If we turn to Slide 19 to look at the debt profile of the group, the group continues to have a well-balanced debt profile with a weighted average effective interest rate of 1.48%. Furthermore, on this slide, you see the debt maturities -- the maturities of our debt profile as well as the average interest rates for each debt maturity. With this, I would like to conclude my part of the presentation and hand back to Gilles.

Thank you, Tom. The company's 2025 ambition is to deliver sustainable value creation for all stakeholders of Givaudan. Givaudan's 2025 strategy is fully in line with its purpose, and places customers at the heart of its business, supporting them to grow and to create products that are loved by consumers. Let me remind you the main foundations of our current strategic cycle. The 2025 strategy is focused around 3 growth drivers. First one is about expanding our portfolio. It's about extending our customer reach and it's to have a focused market strategy. And it is supported by 4 growth enablers, which are aligned with the company's purpose domains, namely creations, nature, people and communities. These 3 growth drivers and 4 enablers are all underpinned by a commitment to excellence, innovation and simplicity in everything we do. Let's turn to Slide 22 on our performance commitments until 2025. We have initiated our new 5-year strategic cycle. And as I mentioned earlier, so far business strength, customer needs, and consumer behavior in an environment impacted by the pandemic, are confirming and reinforcing our strategic choices. Ambitious targets are an integral part of Givaudan's 2025 strategy, with the company aiming to achieve organic sales growth of 4% to 5% on a like-for-like basis, and free cash flow of at least 12%, both measured as an average over the 5-year period strategic cycle. In addition, the company aims to deliver on key nonfinancial targets around sustainability, diversity and safety linked to Givaudan's purpose. I'm confident we are on the right path to deliver this ambition. Let's turn to Slide 23. Let me now give you some facts about the coming months. H1, the first half has demonstrated a strong recovery of the categories most affected by the pandemic, and the further development of the categories which revealed as being resilient in 2020. We are quite confident in our choices, our capabilities and the important role that we play in the global value chain for food and consumer products. The pipeline of [ briefs ] with our customers is strong, demonstrating their appetite for innovation and the trust in Givaudan. However, there remains a high level of uncertainty related to the continuing COVID-19 pandemic. We clearly remain focused on operations by protecting and supporting all Givaudan persons, by focusing on maintaining operations and supply chain performance at high levels to support day-to-day our customers, and continued cost discipline throughout the business. Finally, integration of the acquired companies onto the Givaudan's operating platform continues as planned, and we are progressing further with the implementation of the 2025 strategy. So now ladies and gentlemen, many thanks for your attention. Tom and I are looking now forward for your questions.

[Operator Instructions] The first question comes from the line of Celine Pannuti with JPMorgan.

So first, I would like to ask about the growth outlook. I mean, what -- you said that what was the resilient part of the business has been resilient. If I look on the 2-year average, sequentially, we have seen a slight deceleration -- or a deceleration. So my question is, is it possible to -- for you to give us an idea of what is the underlying demand, now maybe that we are entering some form of normalization? And the corollary to that question is in emerging markets, I think that sequentially, there has been a deceleration. So any views that you have when we hear that some of your customers need to raise prices a lot, and maybe there could be some elasticity on demand? So that's my first question. And my second question is on raw material inflation. So you have reiterated 1% cost inflation for the year. If you could confirm the good visibility that you have on that? But more importantly, how should we look at your cost base, maybe as we look a bit further out when a lot of the other industries are seeing cost inflation, is there something -- I mean, do you think that your raw mats are specific that you would not see that? So if you could comment on that, that will be very helpful.

Okay. Thank you, Celine, for your questions. So well, I'll start maybe by the latter. So on raw material inflation, we can confirm that we are within basically the range of what we originally stated in January, so 0% to 1% of raw materials increase for 2021. And the confidence that we have in this visibility is driven by the fact that we have a number of contracts with suppliers, and we obviously have managed to source ingredients throughout the year 2012 with those sort of levels of prices. So for sure, we see inflation with other categories. Now the question was what will happen in 2022, and that's a bit too soon to articulate a number, because a number of contracts need to be negotiated and the year is not finished. So we make sure that we give an outlook on the raw material development next year towards the end of the year. On the first question on the growth outlook, I'm not so sure I have the same reading of our own figures because actually, if you take -- however you take it, Celine, on the resilient business, and if you take, for example -- I think the question was, especially on the consumer products, one has to look at half year to half year. So whether you take a CAGR over -- from '19 to '21 or from '20 to '21, we actually are on a very regular pace of 8%. So the only thing that you could argue is the difference between Q1 and Q2. And it's true that we have had a very strong growth in Q1 which sort of decelerated in Q2. But overall, the half year still has a good growth. And I would say the same thing has happened a bit in Asia Pacific. So I'll give you in a way that it's the same reason for both cases, meaning that in Asia and especially on Taste & Wellbeing, we have seen a very strong growth in the early part of the year, so in Q1, which sort of was lower in the second quarter. But in both cases, that has to be put on to the account of the fact that we have seen maybe a number of clients sort of preparing on a sort of -- in a hasty way, an urgent way, preparing maybe the -- for the post-COVID by ordering a lot in the first quarter and then slowing down in the second quarter. But this is not from what we hear from our clients, what we see driven by sort of a difference in consumer demand across Q1 and Q2. So it's really an order pattern, which has sort of been stronger in the Q1 versus the Q2. But overall, if we read our figures half year to half year to half year over 3 years or 2 years, the pace is really the same. So nothing to be, I would say, concerned about. The only question in terms of outlook, which is difficult to make for the second semester, is simply the fact that it's really to look at the comparables of Q3 and Q4 of last year. And for that, you have all the figures. So that's basically what I can say for those 2 questions.

Yes. Thank you. Just on the point I was making about price being right across the board, it's not only in EM but as well in BMs by some of your clients or many. Do you expect this could have an impact on consumption, and therefore, on demand ultimately, for you?

Do you mean the price increase of our own plants, is that what you're saying?

Yes. Yes. Like the elasticity of consumption given higher prices.

Yes. Well, so far, we have not seen any trends in this direction, any effect to this. And anyway, I count on the sort of the, I would say, the natural hedges that we have because we don't forget, we are again across all class, all categories and so forth. So when you have consumers trading down to other categories at lower prices, we are still there. So -- and we have seen that in the financial crisis, we have seen that in economic crisis. We have seen that every time, where those natural hedges help us to recapture consumers on other categories, other class when they leave the sort of more pre-owned categories. But so far, we have not seen any effect of that. And in a way, we could argue that fragrance, flavors, sort of value-added ingredients around Active Beauty, again, are critical to the consumer choices. The way brands communicate around those consumer benefits and in a way, help supporting the basically, the sales and whatever happens from a pricing standpoint. We have never seen this effect of elasticity on ourselves from an overall standpoint.

The next question comes from the line of Jean-Philippe Bertschy with Vontobel.

The first question would be on your comment, Gilles, that you are like investing in new facilities. And when I look at the strong growth over the first -- over the past 3 years, if you take like LATAM or Active Beauty, if you still have some capacity or if you have to invest in additional capacities or facilities in those areas, I think LATAM is like 1/3 more volume than H1 '19, as an example. And the second one is on M&A. If you can give some color on the impact on both growth and gross margin improvements, especially on Naturex, which probably was outperforming in this crisis. And the third question would be on your ambition in the makeup. You spent quite an amount on b.kolormakeup, and what is your plan with that stake in this company, please?

Okay. So thank you, Jean-Philippe. So yes, new facilities, CapEx expansion. Well, if we look back where we are growing extremely strongly. I mean, first, I would say, China, India, those 2 markets, we actually have invested quite a bit and actually the largest investment we ever made was for the Fragrance compounding room in China. And every time we make those very significant investments, it gives us -- well, depending on the growth rate -- but it gives us 5 to 10 years of capacity to grow within those sites and then you increase capacity as you go by adding equipment and so forth. So in Latin America, for sure, we have plans to further expand some capacity, but this will be within the range of what we spend in terms of CapEx, 3% to 4% for the group. We can re-accommodate for those types of facilities. But it's a good problem to have, in any case, adding capacity to sustain growth. But so far, we are well equipped in terms of capacity. So then the second question about M&A, I'm really happy about the fact that we did not comment that, but it's true that if you look at the -- already at the end of 2020 or if you look at the first half of 2021, that especially the acquisitions which went into Taste & Wellbeing but also the one like Drom going under fragrances, you can see from the EBITDA level that we already brought most of them to the level of the division, pre-acquisitions. And that includes also Naturex, which basically -- yes, there is still some things to be done in terms of rolling out SAP, GBS and so on. So still a bit of savings to be made. But so far, so very good, bringing all those assets and that's to name a few, Dorm and Ungerer, obviously Naturex, Expressions Parfumees basically to the level of the division. Then we are very happy also about what Naturex brings in terms of growth when you think about immunity products, immunity -- natural extracts from Naturex represent roughly 40% and all -- and let's say, 80% of that is in the U.S. That has been booming in 2020 and continues to do extremely well. So those types of -- when we talk about 2025 and when I talk about portfolio expansion, that includes those types also of products, which in such an environment with the pandemic really plays a very good role. So in terms of M&A, we are really, really happy. I mean, if you just think about the value creation, as you've seen, obviously, we passed the CHF 40 billion mark in terms of market cap. I would say that acquisitions and the way we have created value through them has contributed nicely to this increase. As it relates to b.kolor, well, it's a very interesting step into a category which is part of beauty. If you just think about let's say, beauty -- the market of beauty in terms of retail, I would say, to make things simple, it's 1/3, 1/3, 1/3. So 1/3, fine; 1/3, skin care; and 1/3, makeup. We are quite active, obviously, in Fine Fragrances. We have made great progress with Active Beauty in the skin care. I know it's really -- with all those -- I mean, Active Beauty is also a success story for Givaudan. It's going to hit more than CHF 100 million this year. It's growing high double digits, it's really a success story. So makeup is really about exploring how we can participate with high value-added not on ingredients, but solutions. Actually, what's very interesting with b.kolor is that, in a way, they have the same sort of business model, combining ingredients to create solutions which are specific and customized bespoke for the brand. So this is really something that we want to explore, build upon alongside of b.kolor. So very happy about this step into this sort of third leg of beauty where we never really participated. So yes, that's -- I hope I answered your 3 questions.

The next question comes from the line of Heidi Vesterinen with Exane BNP Paribas.

So the question -- the first question is on Taste & Wellbeing. If Foodservice keeps improving, should we expect retail to slow further? Or are there any new initiatives that could keep retail growing regardless of what happens out of home? And then on inflation, you had said 1% for the full year, could you tell us what it was in H1? And I wondered if you plan to add strategic stock in H2, given it is an uncertain environment out there. And then another one lastly on margins, a related question. Given that many of your customers are warning on margins given high raw material costs, do you see incremental appetite to reformulate or perhaps even price pressure or resistance to take pricing from customers? What's the outlook there?

Thank you, Heidi. So inflation on raw mats, essentially, it's across the two. We've seen the 1% in the first half, and we continue to have the same level in the second half, so overall 1% of inflation. We usually don't play too much building stocks to play the market in a way because that's also eating a lot of free cash flow. But those strategies are used in a sort of a minimal way. And so then your questions about margins -- sorry, you said -- I did not understand -- on the margin, you said...

On reformulation.

Reformulation, sorry. So on the reformulation, we have not seen any ask, any request so far to reformulate. The -- again, this demonstrates that it's the importance of those ingredients in the -- basically in the consumer liking, in the consumer behavior. If you start to play around with the whole sensory profile of a product for cost reduction reasons, you really take a risk on the performance and the success of the brand. So it's -- and plus, we account for so little in the end products, it's whatever it doesn't really help on the whole cost of the formulation. So this is really not something we have [ bill ]. We can -- this is something which is being used when you have an increase of our own raw mats and there we work with Artland sometimes to reformulate and try to mitigate some of the cost increase. Then on Taste & Wellbeing, so your question, you said Foodservice is improving, is that what you said?

If Foodservice improves...