Good morning, and thank you for joining today's call. I am sitting here with Dimitri de Vreeze, our CEO, and Ralf Schmeitz, our CFO. We published this morning our half-year 2026 results. We hope you have had the opportunity to review the press release and the investor presentation, both of which are available on our website and include the disclaimer regarding forward-looking statements. Following opening remarks from Dimitri de Vreeze and Ralf Schmeitz, we will open the line for questions. As always, sell-side analysts who want to ask questions have to register via the questions link, which can be found on our website in the financial calendar. With that, Dimitri de Vreeze, the floor is yours.
Thank you, Dave, and indeed, a warm welcome also on my behalf for our H1 results call. I am happy to report good traction of our strategic action plan as we have presented to all of you in the CMD in March, where we would focus, where we would act and execute. A good set of numbers for H1 and Q2 on organic sales growth, EBITDA margin, and cash, and an outlook unchanged, where Ralf and myself will give you a little bit of color a bit later in the call. Happy to say that our listing is active on the SIX Swiss Exchange as of May 21st, and that will be part of the SMIM index as of September 21st of this year. As you all know, as a reminder, the share buyback is still underway and progressing well.
If we then go to the next slide to give you a bit of background on Q2. Q2, a good growth, 6%, like-for-like improvement in EBITDA margin to 19.5%. If you would correct that 19.5% for FX, the dollar and the Swiss franc, we would be at 20.2%, with June in Q2 be a particularly strong month, reflecting improved customer sentiment around the Middle East situation, where at that time, there was a bit of easening, and we have seen that reflected in orders. These orders are not being put into our system with any label, whether it is restocking or pre-buying. But if you take the statistic pickup in June, we assume some restocking, and we need to see how that evolves over time. EBITDA growth was 10% in Q2, showing the operational leverage of our portfolio. Move to H1.
Give you a bit of color on H1. Overall, a 5% growth like-for-like. Go to the next slide. 5% growth like-for-like. EBITDA margin of 19.3% also here for the full year. Quite some headwind on FX. If you correct for that, it will be 19.9%. We also made in H1 good progress on our people and planet targets, which I refer to you in the investor presentation that is uploaded at the internet site of dsm-firmenich. Let's go to the next slide to accelerate financial performance. We presented this slide to you in March, and at our CMD, we now have made it actionable to act and execute. We had specifically mentioned a 1% margin improvement next to the portfolio, next to the leverage, also the cost and restructuring program.
We now have made that fully actionable, which will have a targeted reduction of about 1,000 positions at dsm-firmenich, where we simplify the organization and where we will adapt ourselves according to being the consumer-focused organization for the future. Let's move to that same action plan of the CMD into the next slide, just as a reminder, and I will zoom in a little bit on the 2026 because it's our first year of that action plan which we have presented. We're delivering a good set of results in Q2 and H1. Good like-for-like sales growth, a step up in EBITDA margin, and improved cash flow. That's really good progress. It has to do with the fact that we really stick to our grow what we have, anchor what we do, and deliver on our promises.
That approach, you've seen the first fruits in Q1 and now in Q2. Now, our targets for 2026, where we have an unchanged outlook, are therefore well underpinned with a few good levers. First of all, our just-announced self-help cost program, which we now made actionable. Second, we see ongoing good synergies and a strong innovation and a strong brief pipeline. Also a good start into Q3. We are now at the end of the month in July. We see a good month of July, so it's a good start into Q3. Let me remind you that the FX, which was a headwind in the first half, that is easing a little bit into the second half. Now let's focus on our outlook here. You see it in the green bar a little bit. As you've known, outlook, three components. Let me start with cash.
Good step-up in H1 2026, a 7% versus a 2% prior year. With last year, we ended at 10.5%, a clear trajectory to the 11%-12% cash generation, which is part of our outlook. Good progress on the working capital. You've seen that in our press release, to 27.9%, and with CapEx under control. Remember, CapEx is still including Bovaer, the last year that we have Bovaer investments in this year, and therefore, in that context, we feel very comfortable that apart from realizing the 11%-12% for 2026, we see a good step up into 2027. On EBITDA quality, we delivered on a sequential improvement. Q2 is 19.5%, corrected for FX would have been 20.2%. FX headwind fading into H2, and some early benefits of our cost program coming in, with additional leverage on the growth that will help our margin.
We feel comfortable with the outlook of around 20% for 2026, and it's also positioning us in a good spot for the step-up margin to 21% in 2027. Let me come to organic sales growth. Like you're seeing, good start of the year, Q2 at 6%, H1 at 5%. Good start into Q3. We see a good brief innovation pipeline important for future sales. With that, we feel confident for H2, and therefore reconfirmed our outlook and guide it towards the upper end of that range. This will be predominantly volume-driven. Let me also add a note to it. Please allow us to be a little bit conservative on our outlook for organic sales growth, because I think in the current environment, I think you can better be a little bit more conservative.
If you look at the underpinning, I could say that conservative is something where we feel it's better to do it at this stage. Looking at the business, I think we feel very confident on what's happening. With that conservative in positioning, Ralf, let me hand over to you to give a little bit more color on the financials.
Thanks, Dimitri, and good morning, everybody. I don't know whether conservatism was necessarily connected with me. As you said, let's run through a couple of financials in more detail, without being repetitive in some of the comments. A good start indeed. In still a very volatile environment, we're very pleased with that. On the back of a good set in Q1, I think we're presenting a good set again in the second quarter. Overall, as you say, 5% growth, showing a nice 7% in a like-for-like step-up in EBITDA. Some leverage. Keep in mind some of the one-off costs that we flagged in Q1, and that's also where you see in Q2, and I'll come to that in a second, on the top of this page. A 6% growth translating nicely into a 10% step-up in EBITDA for the group.
A bit of highlight and more detail around the FX result that Dimitri already alluded to. Overall, we see an impact of a little over EUR 60 million in the first half. We were just short of EUR 40 million in Q1, meaning that Q2 is impacted by a little over EUR 20 million. We see that fading a bit, but there'll still be a headwind into Q3 and Q4. We estimate that currently at around EUR 25 million now. FX rates are volatile as we speak. Let's see how that will evolve. It's a little less than what we originally flagged at the beginning of the year on a bit of a stronger dollar.
The reason why it's still a headwind is obviously that you have some hedge effects in there as well, and whilst we were benefiting from a bit of a tailwind in 2025, we now see that full effect continuing a bit into the second half. Another thing that we wanted to focus on is basically the drop-through of EBITDA all the way down to earnings per share. You see that at the bottom left on the page. A 14% step-up in adjusted earnings per share. Given also that where previously, last year, and we commented on that in our Capital Market Day in London, we had some one-off in 2025. We don't see that carrying back, and it's nicely to see that we can confirm that, showing a nice step-up. The same for ROCE at the bottom middle. A step-up of 20 basis points.
Also here, FX does have an impact. Overall, the impact on our earnings is bigger than on capital employed. Adjusting for that, we would have seen 100 basis points step-up that we're targeting for, and ROCE will be on a like-for-like basis, somewhat above 12%. Cash, we'll come back into that in a second. Definitely a nice step-up versus prior year, a 7% is a good start for the year, that gives us confidence in the 11%-12% target that we have. Let's look a bit more into the quarter and to the business units on the next page, please, operator, starting with the group. As said, we basically show Q2 and half year. I'll be commenting mostly on the quarter. The full details are, as usual, in the presentation on the website for you to take a look at.
Overall, top line, nice 6% volume-driven step-up. Pricing, more or less flat. There's a slight positive pricing impact where we started to pass on some of the cost that we've seen, but it's offset by a slight negative hedging impact in the top line. At the right side, you see that 10% flow-through into EBITDA. If we look at it from a margin perspective, overall, we were targeting a sequential improvement in margin. We've seen that first step into Q2, taking the margin to 19.5. When comparing to prior year, there is this bigger impact of FX. It's about 70 basis points in Q2. Comparing margin on a like-for-like basis with prior year, there is a headwind of 70 basis points from that FX, which will fade as we go into Q3 and Q4.
With that, let's look at the performance of each of the business units in a bit more detail. Starting with Perfumery & Beauty on the next page, please. Here we see a continuation of the performance that we've seen in the first quarter. A very nice 7% volume-driven growth in Perfumery & Beauty, with a continuation of a very strong fine fragrance performance. Second quarter in a row, double-digit growth, continuing with very nice wins and good customer sentiment. We also see that at the consumer fragrance side of the house, where we had a high single digit in Q1, we were able to top that to double digit into the second quarter. Ingredients in our beauty and care business is more stable, in line with the guidance that we provided at the beginning of the year.
Very pleased with the commercial traction that we see in Perfumery & Beauty. The same from an EBITDA perspective, we see a nice like-for-like growth in EBITDA. Here we do see some impact of some one-off cost, especially in the second quarter. We had a fire in one of our sites, and we also have some elevated long-term maintenance, which is not necessarily recurring every quarter. This year we knew that we were having a bit of a lift up versus prior. Overall, the quarter was impacted by about EUR 10 million of non-recurring costs in the quarter. Adjusting for that, both FX and that EUR 10 million made the margin at 21.5 for the quarter, with an expectation to see that back up to the levels that we expect for this division going into Q3 and Q4.
Overall, a good step up, good momentum in the business. On the next page, if we look at our Taste, Texture and Health business. Also here, good growth in Q2. Overall, 6% volume-driven growth in the quarter. You see that at the top left on the chart, with a very nice flow-through into EBITDA, an 8% step up like for like. Here in the top line, 6%. There is a contribution of about 1% from Bovaer. If we go back to Q1, we called out a negative impact of about 1% of Bovaer because it's a bit more lumpy and we saw a bit of phasing. We're happy to confirm that on a half-year basis, that impact is neutralized, but we did want to call that out in terms of consistency that it's in there.
You see a nice flow-through also for EBITDA, because Bovaer is not adding calories to the bottom line yet. That's to come for the future. A 5% organic growth in the Taste and Ingredient division translating into a nice 8% step up on a like-for-like basis in profitability. You heard me say Taste and Ingredients. The growth is more or less similar in both divisions, with Europe and North America improving in terms of momentum and a nice rebound in Latin America. In the Taste division, if we look at it more from a segment basing, we see the strong growth that we've seen in Q1. Also again in the second quarter, dairy is absolutely benefiting from cultures and enzyme sales, and also beverage, of course, had a good quarter on the back of the world championship, always fueling a bit of that business, too.
Margin-wise, in line with guidance that we gave at Q1, back up to 20%+. Also here, there's a negative impact in the quarter from FX. That's a little over 0.5%. Adjusting on a like-for-like margin would be closer to 21%. As I said, we embrace the FX. It's something that's there. We'll continue to work through that, but at least we want to call that out. It's encouraging to see the margin going back up, and we expect that to continue. Maybe moving on to Health, Nutrition, and Care on the next page, please. Also here, a continuation of good growth. We've seen 4% in Q1. We've seen another 4% in Q2. A little bit of pricing coming through. We need to pass on some of the costs. We see that here coming through. A very nice step up into EBITDA margin.
Also back up to above 20%, in line with the journey. We want to have a consistent trajectory in terms of reestablishing growth and improving profitability. Here you see also the benefit of the portfolio focus that we have in growing in the high-value segments now. If we look at it a little deeper, growth is benefiting from a strong early life nutrition, obviously supported by continued good, if not very good traction in our HMO sales, clubbed with, obviously, the benefit from life'sARA. Also, biomedical continued to perform well already for quite some quarters in a row, and it's nice to see that continuing going forward. If you look at it in the U.S., we talked about that before. There you see dietary supplements and i-Health continues to be impacted by a bit cautious North American consumer behavior.
Also in eye health, we see some first positive signals on that front, where we're also benefiting from the repositioning of the strategy where, remember that in London, we called out that we want to focus more on the online channels, and we've also been basically upgrading the look and feel of our brands in terms of to fuel the growth going forward. Margin, as said, nicely up to 20%. The FX impact is here negative for more than 1%. There you can actually see that with the right mix, we have a very nice leverage into our results. A few words on cash on the next page, please. We wanted to zoom in. Overall, as said, a good step up versus prior year, 7% adjusted operating free cash flow into the first half of the year. That includes an elevated level of cash CapEx.
We guided that this year would be a bit of an elevated level as we're completing the investment in Bovaer, with the plant coming to operation towards the end of the year. Despite that, 7% step up, whereas we achieved 2% in last year. As an encouraging start. This may be a bit underplaying it, but we're happy with that. Also, a continued focus on working capital. We're not yet at the level where we want to be. We want to structurally move towards 27%, but also here, a 1% improvement. Not only for the first half of last year, but also the end of the year, we were closer to 29%. We're making tractions on that front as well. Where does that translate then into in terms of net debt? On the next page, please.
Overall, we landed at the half year at EUR 4.4 billion. Obviously, the first half is impacted by the dividend payment and also the share buyback, which is progressing well. As Dimitri mentioned, we've completed around 60% of that share buyback, so there's some nice tailwind in stock coming still in the second half. We do expect that net debt to overall normalize back to a level of around 1.9 x EBITDA in line with prior year. Our cash flow is seasonally much stronger in the second half, that will nicely here come in. We also have the planned proceeds from the transaction coming in, obviously offset with the remainder of the share buyback program. Let me wrap up so we leave time for Q&A. On the next page, please, in terms of outlook. Just want to finish on that one. Overall, three angles.
We're ahead of the target that we set ourselves at the beginning of the year from a cash perspective, 5% growth, as Dimitri explained earlier. A good start. EBITDA, we guided for a sequential improvement with the 19.5 in Q2. We anticipate a further step up into the second half, continue to progress on that. As said, the start of the year on the cash generation gives us confidence in the 11%-12%, at base, very comfortable with the outlook that we've given. Maybe a little conservative, as Dimitri mentioned on the sales side, which is good. With the restructuring, I think we're making the right choices in terms of the strategic program. Also there, we highlighted, and that will set us up for a continued improvement in financial performance going forward. Maybe with that, Dave, we open the floor for Q&A.
Thank you, Ralf. Before we start with the Q&A, just a reminder on how to get into the queue. Sales and analysts who want to ask questions have to register via the questioners link, which they can find on our website in the financial calendar. With that, operator, you can give us the first question.
Thank you. Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once your name has been announced, you can ask a question. If you want to withdraw your question, please lower your hand using the raise hand function in the Zoom app. Thank you. Our first question comes from Nicola Tang with BNP Paribas. Please unmute your line and ask your question.
Hi there. Hope you can hear me.
Yes.
I wanted to ask about the outlook and ask a couple of questions, all around the same topic. You mentioned there a few times that perhaps the guidance is on the conservative side from top-line perspective. Can you talk about which areas you're being most conservative in? I guess linked to that, you'd previously said that you expected P&B organic growth to be at the upper end of your group outlook, so I guess closer to four. Given you did seven in H1, that would imply quite a big slowdown in the second half. Does that commentary still hold, or has it changed? Perhaps you could give a bit more color around the divisional outlook. If I can squeeze a final one in around what you said that June could have potentially benefited from some restocking.
I appreciate it's hard to kind of quantify and understand why your customers are buying more or less, but you were helpful in Q1 in terms of quantifying a potential pre-buying last quarter. I was wondering if you could say anything about potentially quantifying that restock effect in June, and given the fact that the Middle East tensions are rising again, do you see any signs or are you anticipating, I guess, a bit more cautiousness from your customers with that in mind? Thanks.
Okay. Ralf, where are you conservative?
All right. Thanks, Nicola-
For the outlook for-
for that question, let's give a bit of an outlook. Overall, if you look at conditions also going into the third quarter, we see them similar. Adjusting for a bit of the extra that we've seen in June that Dimitri will call upon. Overall, continued good dynamics. We see in fine fragrance, very strong. We're benefiting from wins in that front, and good continued consumer demand, and we expect that to continue. We originally guided for the higher end, but with the traction that we've got, we're obviously pleased with that. If you look at it from a consumer fragrance point of view, now obviously a high single than double digit is at the higher end, so let's see. I think that will normalize a bit going into the second half.
On the one hand, continued good traction on fine fragrance, a bit maybe normalization towards a more mid-single-digit on the consumer. As said, ingredients we expected a bit more stable throughout the year, those will be the moving pieces within Perfumery & Beauty. If you look at taste, the same a bit holds for HNC when adjusting for the effects of Bovaer in Q1 and Q2, the underlying growth is very much around the 4%, in line with that guidance of the high end of the full year guidance. That's also what we anticipate going into the second half. If you package that, then you may come, and if you do the exact analysis and saying, "Where the 5% start?" If I start filling up the models, I come with a somewhat lower growth into the second half.
I think that's in general where the conservatism a bit holds. We look at the outlook for the year, Nicola, as a balance across the three. A good start or run with the cash flow in the first half. We continue to build and work on that margin, and you can look at it in isolation in terms of top line, that's why we also said on balance, we feel comfortable with the outlook that we gave with maybe a bit conservative at the top line. On balance, we're good. Expect a bit similar conditions as we've seen throughout, on average, in the year going into the third quarter, and maybe Dimitri, you balance it a bit with the outlook and a bit what we've seen in terms of extra volumes coming in in June.
Yeah, indeed. Like Ralf was saying, we don't expect a change in business conditions. We also assume that the North American market remains a bit cautious in the consumer behavior. That is all baked in. To your point on restocking, said it before, our customers are not labeling their orders based on pre-stocking, restocking or pre-buying and the likes. Obviously, if you look at the statistic analysis on the pickup on your order rate, plus a little bit of market knowledge, you can derive a little bit of a feel on what it could be. I want to remind you that we said something indeed in March, that was up to maximum 1%. That didn't rewind in Q2. In that sense, it could also be that there's a bit of restocking of the value chain.
Remember, we called out de-stocking in the second half of 2025. With, I think the world being more resilient than many of us thought in terms of economic results, I think that is also creating a bit of the sentiment of restocking. Like I said, it's not been labeled as such. If you take that for our June month, we calculated up to maximum 1% of that being restocking, with a little bit of the value chain and the supply chain uncertainty, and we need to see how that evolves for the second half. That's baked in into our outlook.
Let me also add to that, if you look at our brief and innovation pipeline, which I think is apart from the current market condition, plus the proxy for the future on what you can expect for Q3, Q4, but also next year, I'm very happy to say that we have a strong brief and innovation pipeline. Also with the global product launches, as well as the regional customers are still growing as such. It means that it now is to throttle. Remember initially we said, "Hey, the global accounts are slowing down a little bit," and that is also helping our growth going forward.
In that sense, we feel we are slightly conservative on the organic sales growth, not only based on the current condition, but also if you look at our brief and innovation pipeline, and if you put a number on the restocking, but don't ask me for the scientific trail, it will be up to maximum 1%.
Just to clarify, thank you for the detail. When you say the stocking on 1%, it's a comment on Q2?
Yeah. Correct.
Okay, perfect. Thank you.
Operator.
Our next question comes from Victoria Nice with Bernstein. Please unmute your line and ask your question. Thank you.
Hi there. Thank you very much for the question. I just wanted to ask a bit more on the restocking. If you see that coming from more low stock levels in the second half of last year, is it fair to think that that doesn't potentially unwind, if not to the full extent, through the latter half of this year or even into next year? Can you talk us through the strong growth in fine fragrances in the quarter, and what you think is driving those higher win rates, and how sustainable you think that is looking into the second half? Thank you very much.
Yeah, thanks for those questions. Restocking, unwinding, that we don't know. We don't know exactly how much is restocking. We made our analysis with a bit of a view on the history. Remember in March, we also flagged a 1%, which was indeed was not unwinding in Q2. We need to see. That will be difficult to predict. I think if you take H2 2025, there was definitely de-stocking ongoing. There needs to be some restocking over time. Maybe that has happened. Maybe you can ask me the question yet again on Q3, then we have progressing insight. That is a background. On fragrances, I think what is really fueling the growth is a few things. Remember that our global accounts in fine fragrance is about 60%, and 40% is local.
That was 50/50, and we're moving towards more into local, global 50/50 by inventing and investing more in the regional accounts. What we have seen is that those regional accounts are really continuing to grow. In addition, we've seen our global accounts coming with new innovations, new product launches, and that our brief pipeline and the win rate is really helping that growth. It's next to the regional accounts, we now also see that we have a good brief pipeline win in the global accounts and fueling the growth in the fine fragrance area. That was double digit. Ralf was alluding to it. Can we do that till eternity?
That's my preference, but I think in all fairness, you need to be fair to the whole industry and the normal growth rate, that will be more into high single digit, and we expect that will moderate towards time into high single digit. Don't get me wrong, if we can do double digit for a few quarters in a row, we're all geared up to that. Have a look at our brief and innovation pipeline. I feel pretty confident, but let's see. Next.
Thank you. Our next question comes from Lisa De Neve with Morgan Stanley. Please unmute your line and ask your question.
Hi, thank you for taking my questions. I have two. First and foremost, how should we think about the main EBITDA bridge items into the second half to get to sort of around 20% EBITDA margins for this year? You called out already very helpfully some one-off costs in P&B in the second quarter. It would be great to get sort of an idea of any other plus or minus factors. Secondly, on TTH, you called out about 200 basis points of growth from synergies. Can you sort of share what you're seeing in a broader market environment? Is this very strong growth that you are delivering, clearly well ahead of peers, driven by market dynamics such as higher renovation activity, or are there other notable factors that are really DSM specific, that are sort of worth calling out? Thank you.
The EBITDA bridge-
Yep.
You do, the synergies.
Yep.
Overall, thanks for the question, Lisa. What we said at the beginning is that we'll see that gradual margin improvement for a few reasons. The easiest one is that, of course, FX is fading out. As you said, on the half, overall, it has an impact of a little over half a percent on margin. That, of course, will come down. At the same time, we also see is that, throughout the year, we normally see a bit of a step up in terms of margin that's also related to the mix in the underlying portfolios. The one, of course, that we also alluded to. If you look at purely Q2 from a Perfumery & Beauty point of view, a fire will not come back, and also that the bit elevated maintenance that is recurring every 18 - 24 months is also not recurring.
In that sense, you'll have already a natural growth on that front. The same a bit in Q1, we had a bit of those one-off costs in terms of in TTH that we called out of EUR a couple of million. That gradual improvement will come. Do expect a step up in margin going into the third quarter on the back of those two events. At the same time, we continue to focus on growth, and we'll see the first benefits of our tighter focus around cost. We've obviously started with that. We announced it today, but we'll expect a bit of benefit from that impacting us in terms of margin. A few levers all contributing to the right direction.
At the same time, if you look at it, for example, ANH has seasonally always a stronger mix element with i-Health in the second quarter. There's a few dynamics in each BU. P&B, absence of non-recurring with a continued good mix. You've seen the leverage come through. TTH, with the continued growth also, there a very nice leverage. Looking at Q2, a 5% growth ex Bovaer translating into an 8% step-up in EBITDA, and we do expect that to continue and with that margin to improve further towards the 20% that we guided for.
Then indeed, TTH. Let me remind you, a big rationale, strategic rationale on the merger was bringing the taste, texture, and health businesses together, where we had really the hero ingredients like enzymes, probiotics, cultures, and those are really making a difference into trying to get more healthy food. However, if you don't have that coupled with right taste and the flavor, even if it's very healthy, a lot of people don't take it. The consumers expect both, and the combination is being relevant for taste, texture, and health, and that's the synergy component. We do see enzyme sales, probiotic sales, culture sales really taking off, because we can add the flavor and the palatability and the taste component to it.
Secondly, if you look at our segments, Ralf was alluding to it, the dairy segment, which is a very important segment in TTH, it's about 25% of that segment, is benefiting from that trend to more healthy food, low sugar, low fat, low salt, but also benefiting from the GLP-1 trend, where we look for more proteins, more fiber, more gut health improving elements. That coupled is really fueling the growth on TTH. This is structural. This is something which we will continue to see, and we will report that part of synergy, but overall, it's part of the strategic direction of TTH going forward.
If I may supplement that, overall, TTH was the heart of where we will realize the synergies. Whilst we have good traction overall, with about 45%-50% of synergies realized, the traction in TTH is very good, but there's more to come. That will continue to support us going forward.
Thank you very much for that.
Thank you. Our next question comes from Chetan Udeshi with JP Morgan. Please unmute your line and ask your question.
Hi, can you hear me?
Yep, loud and clear, Chetan.
Yeah. Hi, morning. I was just wanting to ask on the comment in the release about, I think it was 1,000 job cuts that you are looking to put through. Firstly, the one-off expense of EUR 100 million associated with that, has that been provisioned? That's one s econd. Is it also fair to assume that the upside that you see from these savings is not yet in the numbers and will be seen probably in the next 12- 18 months? Second question is, I'm a bit puzzled a little bit, and don't take it in a negative way, I'm just trying to get a better sense. In March, you talked about pre-buying because of conflict, and then you said in June you saw a step-up when the conflict eased. It seems you've seen some sort of a positive on both sides.
What I'm trying to understand is maybe there is an element of underlying strength rather than just pre-buying. Then if you are benefiting on both sides, when the conflict starts, you benefit, when the conflict is easing, you benefit. Maybe there's an underlying strength in momentum itself rather than just pre-buying. Would you have any comment on that? Thank you.
Shall I take the cuts and then you comment on winning at both sides? Overall, indeed, Chetan, 1,000 people, we make progress on that front. Today, that's not reflected in the numbers. We just went out and obviously we'll go through the regular processes, including all the works councils and the like. We'll do that carefully, because people are involved around that and it affects individuals, so we'll do that with the right caution. That will continue to firm up. We're actively working on that now. The benefit will come gradually, as you say. We'll see a bit of impact in 2026, but the majority in 2027. We also said is that if you look at the overall margin improvement that we want to achieve is that part will come from the improved portfolio. We're working on that. Grow the right segments.
We want to improve on the growth trajectory. I think there, with the sets presented, we're well on the way, but we also indicated that we want to support the margin with this wider program. That will carry mostly into 2027. In terms of one-off costs, also that is then more to come. Today it's not provisioned in the numbers. We'll do that as we go, and normally in accounting world, you can do that once it's communicated and the individuals are notified. I said we want to do that process carefully and in consultation with the relevant works council. Once we do that and include it, we'll make that very transparent in the numbers that we report.
In terms of one-off cost overall, the cost will likely end up part in 2026 and part in 2027, with the cash maybe phasing a bit more to 2027 than 2026.
Indeed on your restocking, pre-buying, what's in a word, I think I clearly indicated that we don't know either. The only thing, if you take the statistic analysis on the order pattern and you see a ramp-up, I think you can conclude, certainly with the know-how of the market we have, that it could be restocking. We didn't see the unwind in Q2. Also in June, we saw that picking up. In this strange world, things happen all the time, but we can check the data. We want to be very transparent on that. We reported that for Q1. We've done it yet again for Q2. We saw that predominantly in June happening. Like you said, could this be structural? Yeah, the answer is could be. We want to show that we don't know it exactly yet.
I think our customers don't know it exactly yet either. If you look at the order pattern, I think we find ourselves, in terms of transparency, that we need to share that with you. I have a preference that it will not unwind, and I don't know. We'll see. Like I said, let's ask the question yet again in Q3, then we can tell you what we've seen in Q3 going forward. Your theory could be true.
Yeah
True, I would have a preference for your theory.
Appreciate the transparency. Thank you.
Our next question comes from Matthew Yates with Bank of America. Please unmute your line and ask your question.
Hey, good morning, gentlemen. It's a bit of a high-level question, really. I'd like to hear your perspective on how you're capitalizing on these pipeline opportunities that are coming in. Is this reformulation of existing products to try and save cost or tweak labels? Are we seeing new product launches with more functionality? Obviously, the end consumer environment doesn't look great, particularly in Western markets. Just interested to get your perspective on the strategy of brand owners turning to leveraging your technology, your portfolio to drive innovation rather than discounting and promotional activity. Thanks very much.
Yeah, Matthew, a great question. Indeed, what we do see is normally in an inflationary environment, we see a lot of substitution briefs. I said it also last year. The issue is that we do see substitution briefs, also substitution briefs in TTH, where the down-trading is a little bit our friend because it will require our customers to reformulate, and then they need our competence yet again, and to see how we could make the ingredients formulation work with different ingredients. Yes, indeed, we do see substitution briefs, like that in TTH predominantly. Less so in Perfumery & Beauty. Perfumery & Beauty, we really see new product launches. Like I said initially, I think in my presentation, we do see regional accounts growing, topped up with new product launches of global brands, global accounts.
That is really helping and fueling the growth in P&B, obviously with a good brief pipeline and a good win rate that is helping your growth. On TTH, it is more the substitution briefs coupled with new area of business. I call that the blue ocean. The probiotics, the enzymes, the cultures in the dairy segments and some other products as well, where really the more healthy trend, coupled with good taste and good flavors is fueling the growth on TTH. It's a bit of both. Like I said, it's now the substitution briefs coupled up with new product and innovation launch. That helps the strength of our brief and innovation pipeline.
Thank you. Our final question comes from Alex Sloane with Barclays. Please unmute your line and ask your question.
Yeah. Hi. Thanks for taking the questions, two from me, please. Firstly, some peers have discussed passing back a portion of U.S. tariff refunds to customers. I wondered if that was a relevant feature at all for dsm-firmenich, as we think about pricing for the second half. I think you called out a sort of EUR 150 million hit from tariffs from memory last year, offset by pricing, but I might have that wrong. Maybe, yeah, is that relevant? How should we think about pricing in general, in the second half versus the first half? Would be the first one. The second one, just on the balance sheet, obviously, net debt moved higher in the first half, but the underlying cash performance, you're pleased with, you're reiterating the full year target on cash conversion and obviously an ambition to step up beyond that.
As the ANH proceeds are received and leverage falls as planned, how should we think about capital allocation priorities in 2027? Would another share buyback be the most likely route for any excess cash return? Thank you.
The tariffs-
Yep
...capital allocation. Thanks for the question. Your number collection is good. We indicated that that could be on a run rate basis, on a full year basis. At the same time, we said that's a gross impact and we will work with our customers and start redirecting. The net impact was much lower. We brought that well below the EUR 100 million back then with the actions that we've done. We also said is that we continue to work with through that. If you look at the overall net tariff impact that we incurred, we managed that down to a pretty low number. It's a few tens of millions, I think in line with any other companies.
We filed for some returns, where we passed it on or where we had to pass it on to customers, we'll obviously work closely with them in terms of seeing how to do that. On an overall basis, it may negatively impact the growth into Q3 and Q4. We expect that to be maybe up to 0.5%, maybe a little lower. On a net basis, we expect the net pricing, if you like, pricing where we pass on part of the inflation out of tariffs to come out on the positive side of things. Overall, tariffs is there. I think the teams have done well in minimizing that impact.
With that, certainly looking at the first wave of impact, it's not necessarily impacting the numbers much today, we'll see how much of growth impact it will have, it's not really material as we see it today. Net debt or the capital allocation, I can do that as well. We'll bounce back to the 1.9 leverage on the back of the strong cash flow in the second half. Now, in terms of capital allocation policy, no changes. We want to be disciplined in CapEx. 2026 is still an elevated level with Bovaer and some runoff in 2027. We also said that in London, we will normalize towards 5% on that front. That's baked into our operating ambition and focus. We secure that, but that will normalize. Second dividend, we continued. You've also seen that at the beginning of the year.
Expect for next year a similar proposal in terms of dividend. We're confident that we will grow well back into the normal distribution rates, but I think 2027 is still planned for stable dividend on that front. That leaves the other two components, M&A and capital returns. M&A, very consistent in the story, maybe even boring. Focus is on improving the financial performance. I think you've seen that in the narratives, you've seen that in the comments. This is what Dimitri, myself, and the whole executive team is focused on. The announced cost restructuring program fits in that. We're disciplined in the actions we're taking there. That also means we'll be disciplined when it comes down to M&A.
Capital returns, we've got a good program running that will run until the end of Q3, we'll take that topic by the hand again once we close the year. We'll remain disciplined. We want to have an efficient balance sheet. I think we communicated that. We're clear in the EBITDA range in terms of leverage that we want to keep. It's the 1.5-2.5, and I think a 1.9 is a nice leverage. With the continued focus on improving our cash performance, it's a topic that we'll carefully look at again following that.
Very helpful. Thank you.
This concludes the Q&A session. I will now hand back to Mr. Huizing.
Thank you, operator. Thank you all for attending today's call. Please do not hesitate to reach out to the investor relations team with any remaining questions. With that, we conclude today's webcast. Operator, back to you to close it.
This concludes today's call. Thank you everyone for joining. You may disconnect.