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

Ladies and gentlemen, welcome to the Givaudan 2021 Full Year Results Conference Call and Live Webcast. I am Alice, the Chorus Call operator. This conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gilles Andrier, CEO. Please go ahead.

Thank you. Ladies and gentlemen, good afternoon, good evening to Asia, and good morning to the Americans. Welcome to our 2021 full year results conference call. Tom Hallam, our CFO, is alongside with me on this call. We will take you through the presentation before answering your questions at the end. The company's news on our full year results were published on our Givaudan website at 7:00 Swiss time this morning. This is where you can also find the slides for today's presentation. Along with the company news on our website, our 2021 integrated annual report is also available. I'd like now to start going through the [ portation ] and invite you to turn to Slide #3 to go through our performance highlights. I'm very happy to announce another excellent set of figures. I'm equally proud to report that we are off to a good start to our 2025 strategic cycle as we closed the first year of this 5-year plan. In the current environment, the strong 2021 results demonstrate our market leadership, the resilience of our business model and the important role we play in sustaining along with our clients in the global supply chain of key consumer product categories. I'm once again very proud of the entire Givaudan organization for their dedication, their agility during this challenging period for the second year in a row and for enabling us to continue to support our customers to make products available to billions of consumers every day. In 2021, we reached sales of CHF 6.7 billion, a growth of 7.1% on a like-for-like basis and 5.7% in Swiss francs. Our sales growth for the full year 2021 remain clearly ahead of the market. This strong growth was supported by many levers, once again, by the good contribution of high-growth markets. The strategic focus areas as well as the acquired businesses, the continuing performance of the resilient part of Givaudan, representing 84% of our portfolio. And at the same time, the very strong recovery of the less resilient part, which have been impacted in 2020, namely fine fragrances and to a lesser extent, foodservice. Both segments, which I will further detail in this presentation. Launches of new products were higher levels than in 2020. Our new business pipeline remains very strong in anticipation for return to normality and our win rates have been very healthy. We achieved EBITDA close to CHF 1.5 billion, increasing 6% over 2020. This means an EBITDA margin of 20%, 20.1% (sic) [ 22.2% ] up from 22% in 2020. On the comparable basis EBITDA margin was 22.5%. The free cash flow of CHF 843 million is up 4% versus 2020 and represents 12.6% of sales. At the AGM of 24 March 2022, the Board of Directors will propose a dividend of CHF 66 per share, an increase of 3.1% in year-on-year. And to complete those highlights, all our 2025 strategic focus areas are on track and have contributed to these results. Let's turn now to Slide #4. Both divisions contributed strongly to our growth. Fragrance & Beauty reached almost CHF 3.1 billion, growing 6.6%. And Taste & Wellbeing reached CHF 3.6 billion, growing a record ever of 7.6%, both growth rates being on a like-for-like basis. The good growth was achieved across most product segments with a very strong performance in Fine Fragrances and Active Beauty for the Fragrance & Beauty division as well as in beverages, savoury and snacks for the Taste & Wellbeing division. We also benefited from a regained momentum of our local and regional clients compared to 2020, whilst our sales with global customers remain on a good momentum as in 2020. Once again, all our strategic focus areas, complemented by the acquisitions have contributed to our growth. To name a few, high-growth markets, health and wellness, naturals, plant-based proteins and Active Beauty. Let's turn now to Slide 5. On the left-hand side of this slide, you can see that over the last 2 years of the pandemic, we have been growing 5.5% on a like-for-like basis, faster than our guidance. Both divisions contributing with an average 6% for Fragrance & Beauty and 5% on Taste & Wellbeing. On the right-hand side of this slide, this table was developed specifically in the context of the COVID-19 pandemic. To visual the effects of the pandemic on the portfolio of Givaudan, showing the respective growth rates of both the lower and the higher impacted businesses. So starting with the lower impacted business. With increased sanitation and many confined at home in 2020 and in 2021, we have seen the more resilient part of Givaudan, which totaled 84% of group sales, strongly contributing to sales growth, namely Consumer Products and Active Beauty, which represent 82% of Fragrance & Beauty, which grew 3.5% in 2021, delivering an average 5.8% over 2 years, and the core business of Taste & Wellbeing consumed essentially at home, which represents 85% of the division, continuing to grow 7.4% in 2021, which makes an average of 7.2% over 2 years. On the other hand, the less resilient part of the business, which represents 16% of group sales, namely Fine Fragrance, which represents 18% of the Fragrance & Beauty division and foodservice representing 15% of the Taste & Wellbeing division. As you can see in this slide, the higher impacted categories have grown 16.5% for the group and are back to the level of 2019 pre-pandemic. Fine Fragrances growing 22.5% in 2021 means a CAGR of 6.9% over 2 years, significantly higher than expected. And foodservice has also recovered in 2021, growing 8.8%, but both later and slower than Fine Fragrances. So as restrictions in relation to out-of-home food and beverage consumption started to be eased in certain markets. Foodservice overall is still below 2019 level and is expected to continue to recover in 2022. In summary, the strong 7.1% growth for the group in 2021 has been supported by 2 factors: one, a sooner and stronger-than-expected recovery of Fine Fragrances; and two, a sustained strong growth in 2021 of our resilient business against the strong comparable of last year. Let's now turn Slide 6. Mature markets, which represent 57% of our sales, have significantly contributed to the growth with a like-for-like growth of 6.3%, led by the strong rebound in Europe and in North America in 2021. Meanwhile, Japan was slightly down, yet not recovering from 2020. High-growth markets, representing the other 43% of our sales, continued to deliver the highest growth with 8.3% despite the current pandemic situation still ongoing in many large markets around the world. Latin America performed strongly, led by Argentina and Mexico. The Middle East and Russia also contributed with strong growth levels as well as in China, which maintained a double-digit growth throughout 2021. The other parts of Asia have also recovered, including Indonesia and India, while the Philippines and Thailand were generally more heavily impacted by the COVID crisis. Our size and operations footprint give us a unique exposure to the diversity of these high-growth markets in which we continue investing both with additional talent and new facilities to service a wide diversity of customers and markets. As in 2020, we have seen in 2021 how critical our geographical balance contributes to the natural hedges against the prices where timing can be very progressive with a different intensity depending on the geographies. Please now turn to Slide 7. I'd like to highlight the sales development by region for the group in more detail. After many years of double-digit growth, sales in Latin America continued to perform very well at those levels. Latin America recorded another outstanding growth of 14.4%, driven mainly by Argentina, Mexico, Colombia and Brazil. Volume growth and market share gains contributing to most of the growth. Sales in Asia Pacific as mentioned earlier, recovered from 2020 despite part of the region still being impacted by the pandemic. Overall, the growth in Asia Pacific was 5.7%, with China achieving another double-digit growth after 2020. And India and Indonesia back to growth. North America, which reopened earlier than other regions in 2021, grew at a healthy 4.8%. EMEA grew a record 7.8%, supported by the strong recovery of various markets, particularly France, Italy and Spain and Germany for the mature part of Europe, Russia and the Middle East for the high-growth part of Europe. Let's turn now to Slide 8. The Fragrance & Beauty division grew 6.6% on a like-for-like basis and 5.8% in Swiss francs. This sales growth was mainly driven by the rebound of the Fine Fragrances and Active Beauty businesses, which were both particularly impacted by the COVID-19 pandemic in 2020. Fine Fragrances increased by 22.5% on a like-for-like basis against a sales decline of 6% in the prior year. After the significant negative impact of the COVID-19 pandemic in 2020, sales rebounded across all regions and all customer groups, driven by the high performance of the existing portfolio of perfume and by a significant level of new wins. All regions delivered strong sales performance with both mature and high-growth markets delivering double growth. The Western Europe and Middle East regions had the most significant results with both recording strong double-digit growth. Consumer Products sales increased by 1.5% on a like-for-like basis against the strong comparable growth of 9.1% in 2020. It was driven by an increased demand for household, health and personal care products related to the COVID-19 pandemic. The sales growth in 2021 was achieved mainly in the high-growth markets and across all customer groups. On a regional basis, Latin America reported double-digit sales growth spread across most subregions and led by international customers. In Asia, the sales growth was driven by local and regional customers, with China delivering high single-digit growth. Europe, Africa and the Middle East sales were flat against the high prior year comparable, while sales in North America declined slightly also against a double-digit comparable growth in 2020. On a product segment basis, the sales growth was led by Fabric Care, followed by Personal Care. Sales of Fragrance Ingredients and Active Beauty increased by 14.2% on a like-for-like basis. Active Beauty saw a very strong rebound in 2021 and reported a strong double-digit growth in both high-growth and mature markets, most notably driven by the strong double-digit performance of the premium active ingredients. Fragrance Ingredients delivered a strong single-digit growth in 2021. Now let's turn to the next slide, #9. Sales of the Taste & Wellbeing division grew 7.6% on a like-for-like basis and 5.7% in Swiss francs, with a moderate negative currency impact. Let me mention that this performance is to date the highest ever achieved by the division since the spin-off of Givaudan in 2000. The strong sales performance was driven by new wins and good business momentum across all regions and customer growth. Whilst the sales performance was still impacted by the pandemic across many countries, there was a continuing recovery from the second quarter of 2021 onwards as increasing vaccination rates and progressive reopening resulted in a higher demand for foodservice products, which had been the most impacted business in 2020. In the meantime, in key strategic focus areas, sales increased double digits in health and wellness, plant-based proteins and mid-single digits in naturals. From a segment perspective, the strong sales performance was achieved across all segments and mainly in beverages, savoury and snacks. Sales in Asia Pacific increased by 7.4% on a like-for-like basis. In the high-growth markets, China and Malaysia delivered strong double-digit performance, followed by solid single-digit growth in Indonesia and Vietnam. And in the mature markets, the growth was driven by Singapore, Australia and Korea. Sales in Southeast Asia -- sorry, South Asia, Africa and the Middle East increased by 6.1% on a like-for-like basis. Double-digit growth was achieved in India, Cameroon and Nigeria. Egypt and South Africa, which were still heavily impacted by the COVID-19 pandemic, showed mid- to high single-digit performance. Sales in Europe increased by 6.3% on a like-for-like basis. The mature markets of Italy and Ireland achieved double-digit growth followed by mid- to high single-digit growth in Germany, Belgium and Spain. In the high-growth markets, there was excellent business momentum driven by the double-digit growth in Russia and Poland. The growth was achieved in beverages, sweet goods, savoury and snacks. On a like-for-like basis, sales in North America increased by 5.8%, driven by the strong performance in the Beverages and Savoury segments. The performance was a result of new wins, a rebound in Foodservice and the growth of existing business in Beverages, immunity products, Savoury and Sweet Goods. Finally, sales in Latin America increased 19.3% on a like-for-like basis, led by strong double-digit volume growth in Mexico, Brazil, Colombia, Chile and Argentina and across all segments. Let's turn now to Slide 10. Acquisitions have been an important part of our historical growth trajectory and are all well aligned with market trends and strategic priorities. Since 2014, we have acquired 20 businesses for a total of over CHF 4.1 billion, including most recently in 2021, DDW, The Color House and Custom Essence in the U.S. and Myrissi in artificial intelligence. Each one with a very strong and natural strategic rationale as well as a perfect cultural fit to Givaudan. In the case of DDW, it makes Givaudan now the leading player globally in natural colors space, which is part of the functional ingredients market and is critical to the success of our customers. Custom Essence is a very valuable addition to our local and regional customers in the U.S. Those 20 acquisitions represent an annual yearly contribution of more than CHF 1.6 billion to our group sales. We continue to aim at further value-creative acquisitions to complement our core capabilities and increase our portfolio of naturals, health and wellbeing, Active Beauty, Integrated Solutions and local and regional clients as well as new adjacent business areas or technologies with which we believe we can further provide value to our customers and our shareholders. 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 all of you to the call. On the following slides, I would like to focus on the operating performance, the cash flow and the balance sheet of the group. Let me start with the performance highlights on Slide 12. Group sales increased this year to CHF 6.7 billion, an increase of 7.1% on a like-for-like basis and 5.7% in Swiss francs. This result includes the full year impact of Ungerer as well as 1 month of sales from DDW and Custom Essence, the 2 companies that we acquired in December 2021. The group's EBITDA increased by 6% to CHF 1.5 billion, and the reported EBITDA margin increased from 22.1% in 2020 to 22.2% in 2021. The underlying EBITDA increased to CHF 1.5 billion, and a margin of 22.5% in the year compared to 22.8% in 2020. The group achieved a free cash flow of CHF 843 million or 12.6% of sales. Our net debt-to-EBITDA was 2.97% at the end of the year, compared to 2.89% at the end of December 2020. Please turn to Slide 13, which shows the exchange rate development. This slide shows the comparison of the exchange rates of 2021 versus 2020. In the prior year, we saw the Swiss franc continue to strengthen against all major currencies in which the group operates. This resulted in unfavorable exchange rate effects in the prior year. In the current year, however, we see some relief, especially with the development of the U.S. dollar and the British pound against the Swiss franc. Overall, the impact has been limited because our operational and geographical spread continues to provide good natural hedges, and our EBITDA margin remains well protected against currency fluctuations. Please turn to Slide 14 for an overview of the operating performance of the group. The gross margin increased from 42.1% in 2020 to 42.7% in 2021 due to continued efforts to increase productivity gains and strong cost discipline. The EBITDA was CHF 1.5 billion in 2021 compared to CHF 1.4 billion 2020. We had a number of one-off items in the year, amounting to CHF 22 million, mostly related to the integration of the acquired companies and the optimization of our manufacturing footprint. The underlying EBITDA margin was 22.5% compared to 22.8% last year. On a high level, we estimate that we have incurred approximately CHF 30 million of incremental costs related to COVID-19 in 2021, as we continue to focus on ensuring that we keep our customers supplied. These costs are mainly people related, for example, temps, overtime or related to freight and transportation. The operating income increased to CHF 1.1 billion in 2021 compared to CHF 996 million in 2020, which is an excellent increase of 9.3% versus the prior year. On the next 2 slides, I will spend a few minutes on the operating performance of the 2 divisions. If you turn to Slide 15, we will start with Fragrance & Beauty. Fragrance & Beauty recorded a sales increase of 6.6% on a like-for-like basis and 5.8% in Swiss francs, mainly driven by the excellent rebound of the Fine Fragrance business during the year. EBITDA for the division in 2021 was CHF 696 million compared to CHF 677 million in 2020. The underlying EBITDA margin was 22.6% in 2021 compared to 23.6% in 2020. The decrease in the margin is explained by the increased pressure on our supply chain costs, which I have previously referred to. If you now turn to Page 16, we will the performance of Taste & Wellbeing. Taste & Wellbeing recorded an outstanding sales increase 7.6% on a like-for-like basis and an increase of 5.7% in Swiss francs. As Gilles also mentioned, the division showed a strong recovery from the COVID pandemic, especially in the second half of the year. A continued focus on internal costs and continued productivity gains increased the EBITDA by 9.2% if we look at the local currency perspective. The division recorded EBITDA of CHF 786 million compared to CHF 720 million in the prior year. On a comparable basis, the EBITDA margin was 22.4% in 2021 compared to 22.2% in the prior year. Please turn to Slide 17, which shows the amortization of intangible assets. This slide has been updated to include the acquisitions of DDW and Custom Essence in 2021, and it gives you a perspective of the future expected amortization, most notably, the CHF 160 million expected for 2022. Please turn to Slide 18, which shows the net income. The net income before tax increased in 2021 to CHF 965 million, mainly as a result of an increase in the operating income and stable nonoperating expenses despite slightly higher interest charges related to the recent acquisitions. The effective tax rate was 15% in 2021, exactly the same as in 2020. The net income was up to CHF 821 million in 2021, which is a solid double-digit increase of 10.5%. The net income margin was 12.3% in the year. Basic earnings per share was CHF 89 compared to CHF 80.59 in 2020. Please turn to Slide 19, which shows the free cash flow. In 2021, we had again an excellent free cash flow of 12.6% of sales, very similar to the 12.8% in 2020. During 2021, Givaudan generated an absolute free cash flow of CHF 843 million compared to CHF 811 million in 2020, an increase of 3.9%. Total net investments were CHF 247 million. And as a percentage of sales, net investments were 3.7% of sales compared to 3.4% in the prior year. The main increase in the investments was the program to implement our global IT operating systems in the acquired companies. Working capital was 24% of sales, a slight improvement compared to 24.4% in 2020. Please turn to Slide 20. Over the last 21 years, the company has generated a cumulative CHF 10 billion of free cash flow. Including the proposed dividend for 2021, Givaudan has returned CHF 6.4 billion to shareholders in the form of either dividends or share buybacks since its spin-off in 2000. As mentioned in previous years, this clearly underlines the strong commitment of Givaudan to return surplus cash to shareholders. Based on the continued strong cash generation, the Board of Directors will propose an increase to the dividend to CHF 66 per share from CHF 64 in 2020, an increase of 3.1%. Please turn to Slide 21. This slide shows a well-balanced debt profile with interest rates, which we have locked in at attractive rates. At the end of the year, the net debt was CHF 4.4 billion with a weighted interest rate of 1.4% at the end of 2021 compared to 1.5% in 2020. Finally, please turn to Slide 22, which shows the leverage ratio and the net debt-to-EBITDA ratio. At the end of the year, the leverage ratio was at 51% compared to 50% at the end of 2020. The net debt-to-EBITDA ratio was 2.9x compared to 2.89x in the prior year, with a small increase driven by the acquisitions of DDW and Custom Essence at the end of the year. With this, I would like to conclude my section of the presentation and hand back to Gilles.

Thank you, Tom. So now let me now come back to the 2025 strategy and the outlook for 2022, which I'll comment further in the next coming slides. So now let's turn to Slide #24. So let me quickly remind you the main features of our 2025 strategy. The company's 2025 ambition is to deliver sustainable value creation for all stakeholders. Givaudan's 2025 strategy is fully in line with our purpose, whilst placing customers at the heart of our business, supporting them to grow and create products that are differentiating for their brands and loved by consumers. The 2025 strategy is focused around 3 growth drivers: expand the portfolio, extend customer reach and focused market strategies. 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 now to Slide #25. Ambitious targets are an integral part of Givaudan's 2025 strategy and culture with the company aiming to achieve organic sales growth of 4% to 5% on a like-for-like basis and a free cash flow of at least 12%, both measured at an average over the 5-year period of the strategic cycle. In addition, the company aims to deliver on key nonfinancial targets around sustainability, diversity and safety, all linked to Givaudan purpose. As I mentioned at the start of my presentation, 2021 has been off to a good start of our strategic cycle, but a lot more needs to be done by 2025 and the environment is by definition the critical unknown in the equation. Let's move now to Slide #26, our 2022 outlook. We are confident in our capabilities, the quality of our portfolio, our creative strength and our ability to build on the strong start of this strategic cycle. For 2022, visibility remains short as the pandemic is still around as we speak. As discussed in the last few months, we clearly anticipated high inflation in raw materials. We plan for raw material price increase of about 9% in 2022. As you know, we purchase more than 12,000 different raw materials around the world and most, if not all the categories of materials are increasing. We have ongoing pricing actions to compensate for the higher input costs, which will allow us to recover the absolute value over the next 18 months. The entire organization will keep focusing on maintaining operations and supply chain performance at high levels to support our customers whilst keeping cost and cash discipline throughout the business. Secondly, we will continue our focus on integrating the recently acquired businesses in our Givaudan operating platform. The integration costs should be in the range of CHF 25 million in 2022. And finally, we keep focusing on implementing our broad-based ESG objectives in line with Givaudan's purpose. With that, we have arrived at the end of our 2021 full year results presentation. Ladies and gentlemen, many thanks for your attention. And now Tom and I are looking forward to your questions.

Our first question comes from the line of Ms. Lisa De Neve with Morgan Stanley.

So you mentioned this morning that some of these price increases you have pushed through may have some impact on volumes. Can you please elaborate whether you already have seen some change in demand or less elasticity from your customers? And if so, whether a particular segment of your portfolio may be a little bit more vulnerable, perhaps given the relatively sharper inflation. So what I'm also trying to garner is whether you are specifically expecting some of your customers to be more cautious on the increase since they buy the volume element of that because of the degree of inflation? Or whether you're just more cautious on the end consumer perhaps tightening its wallet more broadly this year?

So I guess there's been a bit of a misunderstanding or misquotation of what I said at Bloomberg. So I actually never said that price increase would not have an impact on our volumes. What I just said is that our clients were seeing inflation across many, many different categories of products of ingredients that they are buying, not just the ones we are selling, and they are increasing their prices. And I'm just saying that you could put a bit of pressure on the volumes, there's absolutely no indication on any volumes decline because of that, and this is just a general comment. So no specifics about us as it relates to price increase influencing our volumes growth.

Okay. That's super helpful. And my second question is you guided for 9% around inflation for this year, which you expect to lap at about 18 months. I mean could you give us a bit of a rough guidance what you expect to see for pricing this year in the next 12 months? And similarly to that, are you just pricing through raw material inflation or also able to keep some of the trade and specifically this year, labor cost increases you may see?

Yes, Lisa. So just on the 2 points, as we've said, I mean, we expect to fully recover the impact of the raw materials with price increases over 18 months. We've done that in the past. And if you look at previous cycles, we've been very, very consistent in terms of our ability to deliver. On the 9% -- so the 9% is raw materials in specific markets where we also have other inflationary elements, we also have pricing actions to offset. But that's very, very specific markets.

The next question comes from Heidi Vesterinen with BNP Paribas.

I wondered if you could talk about the pluses and minuses as we think about the 2022 margin please. Can we, for example, add back the CHF 30 million that you had talked about, which was a cost in 2021? Or do you still have these costs? That's the first question.

I think that if you look at the costs that we have incurred and as I mentioned it before, I mean it's temporary labor, it's overtime, it's freight and transportation. By definition, they are temporary and we should get them back. I think the timing is really out of our hands. It depends very much on when governments are lifting restrictions. So I think you've got 2 variables. The first is when people -- the rate at which people are recovering and the second is when governments are lifting restrictions, which is a little bit out of our hands. But as we said, it's a temporary cost, and we would expect to get those costs back as restrictions are lifted by governments.

And then in terms of other moving parts, are there any M&A synergies or anything else that we should be thinking about?

I mean I think if you look at the big picture items, I mean, as we've talked about in the past, you've got the raw materials, the price pass-through, the mechanic of what we would call the mechanical dilution. I mean, as Gilles has referred to, our objective is to recover the absolute raw material impact with price increase. And then, as I said, the timing of the CHF 30 million. And then the other item is, as you mentioned, on acquisitions. It depends very much on our ability to integrate and the speed at which we can integrate particularly some of the later acquisitions. But I think those are the main items that you picked out.

And then the other question is on M&A. You talked about looking for further opportunities. Your leverage is on the high side at the moment. How far are you willing to take it, please?

Yes. Sure. I mean I think if you look historically, we've been much higher at some points. We would like to at a certain point, delever, but that's also because that gives us the flexibility and the opportunity to do acquisitions. But we feel very comfortable with anything up to, I would say, 4x net debt to EBITDA. And that's what we're prepared to do, I would say, if we are convinced by acquisitions. Maybe I'll just also hand it to Gilles to talk about the 3 areas where we continue to focus in terms of M&A.

Yes. And those areas are very much aligned with our 2025 strategy as you have seen in the nature of what we have acquired in the 2020 -- sorry, the 20 companies that we acquired over the last few years. It's mainly when we look at the core business of, let's say, fragrance and flavors. It has a lot to with the local and regional clients. And as you've seen with Custom Essence, we are very happy to -- this is one of the first assets actually we buy in the U.S., where the market of L&R clients is one of the largest in the world. So very good to see Custom Essence combined with what we have achieved and really create a force to capture growth with L&R. So L&R is one. The second one is really clearly about the space beyond, the adjacent space beyond on the Fragrance side, still to build on the Active Beauty. Active Beauty has been really, I would say, a success story. I mean we started from zero 6, 7 years ago, and the combination of acquisition with double-digit growth for the last 7 years has led us to actually achieve our initial goal, which was to reach more than CHF 100 million by 2020. Now we are at CHF 130 million. So a great asset, which is still growing in Active Beauty. You -- so continuing in this space as opportunities arise. There are not many, but clearly, we are committed to continue growing this business, which is adjacent to Fragrance. Then it's really about on the Taste & Wellbeing side where the adjacencies are actually even larger if we consider the markets we are looking into. If you remember, in our 2025 strategy, we said that for the Taste & Wellbeing division, we are looking at an additional market of CHF 14 billion of highly specialized ingredients, the starting point being Naturex. With DDW coming in, that adds to our portfolio in natural colors. But we can still look for acquisitions in the space of those, let's say, those ingredients, which are not necessarily flavors, but are clearly highly differentiating, again, for clients. So that's another one. Then you've seen that we've also acquired companies in technologies. Myrissi, which is really an interesting artificial intelligence expertise that is helping us also on the Fragrance side. We can look into delivery systems. And then anything that would help us also increase our ability to manufacture ingredients especially on the Fragrance side. It's also something to add to our chemical plants, making our own ingredients. So -- and that includes biotechnology. So the different spaces, we are looking into. And I would say opportunities come along. The market is still very interesting. We have a good pipeline, and we remain opportunistic.

The next question comes from the line of Matthew Yates with Bank of America.

Maybe a couple of questions, please. One for Gilles around the plant protein investments you've been making. So you've opened these 2 Asian centers. I'm curious, when you do a project or an investment like this, can you help us scale what the additional revenue upside is? I don't know if you've made any similar investments in the past in other areas? Or how incremental would you expect this to be to the CHF 100 million or so plant-based revenue you have that's grown very strongly. And the second question, maybe more towards Tom, just coming back to as Heidi was alluding to margins for next year. I'm guessing just the mechanical margin dilution from the price increases is going to be 100 basis points plus, plus there might be a lag effect in fully recovering. Can you help us perhaps more quantitatively, how much are you expecting margins to be down next year?

So I'll start with plant-based proteins. This is really an interesting area because we were, I would say, the first to really invest. And the investments you're talking about started, let's say, 5 years ago are already in technology developing solutions, natural ingredients, which would be helping to make those offerings actually taste good and be not only acceptable by consumers but loved by consumers. And so investments were very much around the innovation. Remember, we spent 9% of our sales on research, and that started a few years ago. So the plant-based proteins business has now reached circa CHF 120 million, CHF 130 million of sales, so it has been growing strongly, very strongly. And we through the year opened, let's say, a resource and application center where we actually develop solutions with our clients, one in Kemptthal in Zurich. Those investments are not very big because they are already part of the Zurich innovation center that we have enjoyed, which we had invested into a while ago. But in terms of sales and growth opportunities, as I said, we're already at CHF 130 million. How can -- how big can the market of plant-based proteins be? That's the big question. For sure, it can be big, but how big. If I make maybe an analogy. When we invested, we started growing our Health and Wellness business, which was all about making healthy diet, let's say, food offerings and beverages, taste good. We started with innovation, taste solutions and so forth well, 15 years ago. We had no idea about how the market, how big the market could be. And remember, those solutions were fully incremental to flavors because those solutions are actually things which helped modulate the taste, and they were not cannibalizing anything. They're just additive and incremental. This Health and Wellness business is roughly CHF 0.5 billion, CHF 600 million of sales today. So I would be surprised that the plant-based protein business could not be bigger than this in the next coming years. So that's what we are looking. But this is all -- the unknown is all about how acceptable those solutions can be by consumers. And so we contribute to that, but we are not the only ones to contribute to that because, as you know, we are not, for example, in the protein space, we are just helping, we're just part of the solution, but not on the full solution. So -- but maybe, Tom, you will answer the thing about the mechanical dilution.