Press release

Kaiseraugst (Switzerland), Maastricht (Netherlands), July 30, 2024

Management Report

H1 2024 Highlights

• Strong improvement of financial results
• Synergies and vitamin transformation program on track, with €95 million delivered in the first six months
• Mid-term strategy defined, including financial targets and sustainability ambitions
• Portfolio fine-tuning progressing with divestments of yeast extracts and marine lipids already announced
• Animal Nutrition & Health separation well advanced
• FY 2024 outlook increased: Adjusted EBITDA around €2 billion

Key figures 

Key figures on an IFRS basis²

Dimitri de Vreeze, CEO, commented: “We are pleased with our achievements in the first six months of the year. We launched our strategic plan at our capital markets day in June and are making good progress with the synergies and vitamin transformation programs. The separation of the Animal Nutrition & Health business is well underway, and we already announced two divestments as part of our portfolio fine-tuning. 

At the same time, our relentless focus on operational excellence, combined with improving business conditions, resulted in better financial results. Perfumery & Beauty and Taste, Texture & Health both delivered a strong performance. Health, Nutrition & Care and Animal Nutrition & Health saw improved momentum.

We upgrade our full year outlook to around €2 billion based on the positive business momentum continuing into the third quarter and our commitment to deliver a €200 million Adjusted EBITDA contribution from a combination of synergy delivery and the vitamin transformation program, while we should remain cautious about the general economic conditions in which our customers operate.”

The company increases its outlook and expects an Adjusted EBITDA of around €2 billion in FY 2024.

At its capital markets day in Paris on June 3, 2024, dsm-firmenich defined its strategy to better leverage its unique portfolio and capabilities to further strengthen its position as a global leader in nutrition, health, and beauty, maximizing the synergistic potential of the merger.

The company will focus on its consumer activities after having announced plans to separate the Animal Nutrition & Health business from the Group. It will further fine-tune its consumer activities by deprioritizing certain activities, totaling more than €600 million in annual sales. To date, the company has already announced the sale of two of these activities, representing about €300 million in annual sales: the yeast extract business to Lesaffre and the marine lipids business to KD Pharma Group.

With these strategic actions, the company wants to accelerate its innovation-led growth by prioritizing the high-growth and high-margin segments of Perfumery & Beauty (P&B), Taste, Texture & Health (TTH) and Health, Nutrition & Care (HNC), with the following mid-term financial targets for dsm-firmenich in its new scope:

• Organic Sales Growth: 5-7%
• Adjusted EBITDA margin: 22-23%
  
• Cash-to-sales conversion: >10% 

By operating as a “Category of One”, with a strong focus on science and sustainability and our innovation and creation-led approach, dsm-firmenich seeks to create what is essential for life as well as desirable for consumers yet simultaneously more sustainable for the planet. Working closely with customers, dsm-firmenich is poised to bring progress to life for billions of people around the world.

dsm-firmenich is on track to achieve its target synergies of approximately €350 million Adjusted EBITDA per year. Around half of this is expected to come from cost efficiencies, with the full run rate achieved by the end of year 3. The remaining synergies are expected from incremental revenues of €500 million, generated by an acceleration of innovation with customers, with the full run rate expected by the end of year 4. These revenue synergies are driven by complementary capabilities and realized in all three business units of the Group’s new scope with roughly the following balance:

• 60% in TTH
• 25% in HNC
  
• 15% in P&B
  

In the first six months of this year, synergies contributed around €50 million to Adjusted EBITDA and dsm-firmenich expects to realize about €100 million for full year 2024.

Mid-2023, the company embarked on a major restructuring program in its vitamin activities to reduce costs and restore profitability. This program is expected to result in an estimated Adjusted EBITDA contribution of around €200 million per year with the full run rate to be reached by the end of 2024. These savings will be in addition to the previously announced €350 million Adjusted EBITDA synergies target. Neither of these targets will be disrupted by the separation of Animal Nutrition & Health. dsm-firmenich has already made strong progress in executing the program by closing the Vitamin B6 and Vitamin C plants in China and optimizing the premix sites, creating a more focused and agile organization model.

In the first six months of 2024, the program generated a contribution of about €45 million to Adjusted EBITDA. For full year 2024, dsm-firmenich expects to achieve a contribution of around €100 million to Adjusted EBITDA.

In February 2024, dsm-firmenich announced its intention to separate the Animal Nutrition & Health business from the company, having concluded a different ownership structure would best realize its full potential. Furthermore, through this process, the company would reduce its exposure to vitamins earnings volatility and reduce its capital intensity, in line with its newly defined long-term strategy.

Since then, the company has selected the team charged with preparing and executing the separation. The deal perimeter has been established together with the operational separation blueprint. The company expects to announce a transaction in the course of 2025.

Key figures and indicators

Key figures and indicators on an IFRS basis²

dsm-firmenich H1 2024 and Q2

H1 2024

• Strong performance of Perfumery & Beauty (P&B)                                                                       
• Good performance of Taste, Texture & Health (TTH)                    
• Gradually improving business conditions for Health, Nutrition & Care (HNC)
• Increased profitability for Animal Nutrition & Health (ANH)

The company saw the overall business momentum improving during the first half. P&B had a strong performance throughout the entire period. TTH saw demand accelerating throughout the first half. HNC saw destocking effects fading with demand for dietary supplements picking up in the second quarter. ANH started to benefit from improved profitability in vitamins from Q2.

Adjusted EBITDA was up 5% with a contribution of €95m from the vitamin transformation program and cost synergies. The Adjusted EBITDA was still impacted by a negative vitamin effect, estimated at €65 million, and by negative foreign exchange effects estimated at about €25 million. The Adjusted EBITDA margin was 15.5%.

Gross free cash flow amounted to €460 million in H1, showing a 61% improvement versus the prior year. Inventories came down versus the prior year, despite ensuring sufficient stock levels to support an improving business momentum.

Q2 2024

•  Very strong growth in P&B, including good contribution from recovery in Ingredients
  
• Strong performance of TTH
  
• HNC returned to volume growth on higher demand for dietary supplements
  
• Significantly improved results in ANH with strong growth in Performance Solutions and higher vitamin profitability  
  

The second quarter saw P&B delivering exceptionally strong results across all its three business lines, with a good recovery in demand for Ingredients. TTH saw a further acceleration following a good first quarter, driven by higher demand for both Taste and Ingredient Solutions. HNC benefited from an improvement in demand for dietary supplements, while Early Life Nutrition saw continued customer destocking. In ANH, Performance Solutions delivered another strong quarter, while profitability in vitamins started to improve.

Adjusted EBITDA was up 26% with a contribution of €50 million from the vitamin transformation program and cost synergies. The Adjusted EBITDA included a negative foreign exchange effect, estimated at about €10 million, compensated by improved vitamin profitability, estimated at about €15 million. The Adjusted EBITDA margin was 15.9%.

Note for editors: 

The full text of the press release is available here.

The presentation to investors is available here.

Definitions

This press release includes information that is presented in accordance with IFRS as issued by the International Accounting Standard Board and alternative performance measures (APMs). Please refer to the section below for the definitions as applied. The comparatives in the management report to this press release contain information that is presented on a pro forma basis (‘pro forma’), which includes the Firmenich results as if the merger had occurred on January 1, 2022. The pro forma figures represent the results from continuing operations – please also refer to the Integrated Annual Report 2023.

Alternative Performance Measures (APMs)

In monitoring the financial performance of dsm-firmenich, management uses certain Alternative performance measures (APMs) not defined by IFRS. These APMs should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used as supplementary information in conjunction with the most directly comparable IFRS measures. APMs do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies.

To arrive at the Alternative Performance Measures (APMs) Adjusted EBITDA, Adjusted EBIT, and Adjusted net profit, adjustments are made for material items of income and expense arising from circumstances such as acquisitions and divestments, restructuring, impairments and other events (i.e., APM adjustments). Other APM adjusting events include site closure costs, environmental cleaning, litigation settlements or other non-operational (contractual) arrangements. Other than items related to acquisition and integration costs incurred in the first year from the acquisition date (including non-recurring inventory value adjustments) as well as adjustments due to previously recognized APM adjusting events, the threshold is €10 million.

The APMs used throughout this press release are:

Organic sales growth (OSG)

Organic sales growth is the sales growth excluding the impact of acquisitions, divestments, and currency impacts.

Earnings before interest, tax, depreciation and amortization (EBITDA)

EBITDA is defined as IFRS metric operating profit plus depreciation, amortization, and impairments.

Adjusted earnings before interest, tax, depreciation and amortization (Adj. EBITDA)

Adjusted EBITDA is the EBITDA adjusted for material items of profit or loss, as defined under ‘APM adjustments’.

EBITDA margin

EBITDA margin is EBITDA expressed as a percentage of net sales.

Adjusted EBITDA margin (Adj. EBITDA margin)

Adjusted EBITDA margin is adjusted EBITDA expressed as a percentage of net sales.

Adjusted operating profit (Adj. EBIT)

Adjusted operating profit (Adj. EBIT) is the IFRS metric operating profit adjusted for material items of profit or loss, as defined under ‘APM adjustments’.

Core adjusted EBIT (Core adj. EBIT)

Core adjusted EBIT is calculated as the IFRS metric operating profit adjusted for material items of profit or loss, as defined under ‘APM adjustments’, and adjusted for the impact of the Firmenich purchase price allocation (PPA).

Adjusted net profit (Adj. net profit)

Adjusted net profit is the IFRS metric net profit adjusted for material items of profit or loss, as defined under ‘APM adjustments’.

Core adjusted net profit (Core adj. net profit)

Core adjusted net profit is the IFRS metric net profit (from continuing operations) adjusted for material items of profit or loss, as defined under ‘APM adjustments’, and adjusted for the impact of the Firmenich purchase price allocation (PPA).

Adjusted gross operating free cash flow (AGOFCF)

Adjusted gross operating free cash flow (AGOFCF) is defined as the IFRS metric operating profit plus depreciation, amortization, and impairments, adjusted for material items of profit or loss, as defined under ‘APM adjustments’, corrected for changes in the working capital, minus capital expenditures. This metric is based on continuing operations.

Adjusted earnings per share (Adj. EPS)

Adjusted earnings per share (Adjusted EPS) is calculated as the net profit available to holders of ordinary shares adjusted for material items of profit or loss, as defined under ‘APM adjustments’, divided by the average number of ordinary shares outstanding.

Core adjusted earnings per share (Core adj. EPS)

Core adjusted earnings per share (Core adjusted EPS) is calculated as the net profit (from continuing operations) available to holders of ordinary shares adjusted for material items of profit or loss, as defined under ‘APM adjustments’, and adjusted for the impact of the Firmenich purchase price allocation (PPA), divided by the average number of ordinary shares outstanding.

Capital employed

Capital employed is the total of the carrying amount of intangible assets and property, plant and equipment, inventories, trade receivables and other receivables, less trade payables, other current liabilities, investment grants and customer funding. Average capital employed is calculated as the average of the capital employed at the end of the preceding five quarters, including the current quarter.

Core capital employed

Core capital employed is defined as capital employed, adjusted for the impact of the Firmenich purchase price allocation (PPA). Average core capital employed is calculated as the average of the core capital employed at the end of the preceding five quarters, including the current quarter.

Return on capital employed (ROCE)

Return on capital employed (ROCE) is the adjusted operating profit (from continuing operations) as a percentage of average capital employed.

Core adjusted return on capital employed (Core adj. ROCE)

Core adjusted return on capital employed (Core adj. ROCE) is core adjusted EBIT as a percentage of average core capital employed.

Operating working capital

The total of inventories and trade receivables, less trade payables.

Capital expenditures (CAPEX)

Capital expenditures include all investments in intangible assets and property, plant and equipment.

Net debt

Net debt is the total of current and non-current borrowings less cash and cash equivalents, current investments and the net position of derivatives.

Statement of the Board of Directors

This document represents dsm-firmenich’s half yearly report containing the management report as well as the condensed consolidated interim financial statements for the purpose of the Dutch Act on Financial Supervision (Wet Financieel Toezicht), section 5:25d.

Per the Dutch Decree on Transparency for issuing entities subject to the Dutch Act on Financial Supervision (Besluit Transparantie uitgevende instellingen Wft) article 10, the Directors declare that, to the best of their knowledge:

• The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as issued by the international Accounting Standards Board
  
• The interim management report gives a fair review of important events during the first six months of the financial year that impact the Company’s business.

Thomas Leysen, Chairman of the Board of Directors

Dimitri de Vreeze, Chief Executive Officer

Financial calendar

October 31, 2024, 7:00 CET – publication of dsm-firmenich Q3 2024 trading update

February 13, 2025, 7:00 CET – publication of dsm-firmenich FY 2024 results

Additional information

Today dsm-firmenich will hold a webcast for investors and analysts at 9:00 am CET. Details on how to access this call can be found on the dsm-firmenich website, www.dsm-firmenich.com.

For more information:

dsm-firmenich media enquiries:

Robin Roothans:
tel. +41 (0)79 280 0396
email: media@dsm-firmenich.com
 

dsm-firmenich investor relations enquiries:

Dave Huizing:
tel. +31 (0)45 578 2864
e-mail investors@dsm-firmenich.com

About dsm-firmenich

As innovators in nutrition, health, and beauty, dsm-firmenich reinvents, manufactures, and combines vital nutrients, flavors, and fragrances for the world’s growing population to thrive. With our comprehensive range of solutions, with natural and renewable ingredients and renowned science and technology capabilities, we work to create what is essential for life, desirable for consumers, and more sustainable for the planet. dsm-firmenich is a Swiss-Dutch company, listed on the Euronext Amsterdam, with operations in almost 60 countries and revenues of more than €12 billion. With a diverse, worldwide team of nearly 30,000 employees, we bring progress to life™ every day, everywhere, for billions of people.

www.dsm-firmenich.com

Forward-looking statements

This press release may contain forward-looking statements with respect to dsm-firmenich’s future (financial) performance and position. Such statements are based on current expectations, estimates and projections of dsm-firmenich and information currently available to the company. dsm-firmenich cautions readers that such statements involve certain risks and uncertainties that are difficult to predict and therefore it should be understood that many factors can cause actual performance and position to differ materially from these statements. dsm-firmenich has no obligation to update the statements contained in this press release, unless required by law. The English language version of this press release prevails over other language versions.