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 our third quarter trading update earlier this morning. We trust you have had the opportunity to review this press release, which is also available on our website and includes the disclaimers regarding forward-looking statements. Following opening remarks from Dimitri and Ralf, we will open the line for questions. As a reminder, 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, please go ahead.
Yes, thank you, Dave, and a warm welcome to everyone also on my behalf. I will begin with a few introductory remarks and then hand over to Ralf to give you a bit more color on the financial performance. Let me start with the key highlights, as you have seen on this slide. For the third quarter, it represented another important step. It created an important step for delivering the action plan, as we have presented to all of you at the Capital Markets Day earlier this year. We have a plan, and we are consistently executing on it. Our good performance has been marked by this consistency, with a volume-led-like sales growth of 5% in the quarter, which is in line with the first half, despite still a volatile operating environment in the world we are living in.
At the same time, for our EBITDA, our margin improved sequentially to 20.4% in the quarter, as you have seen. That is up from 19.5% in the previous quarter. If I remind you that the currency had an impact on that 20.4%, if you correct for the currency or if you report at constant currency, that 20.4% would have been 21.2%. We saw a good performance across all our businesses and also geographical areas during the quarter, once again highlighting the strength and resilience of the portfolio that we have chosen. Looking ahead, business conditions entering Q4 remain similar to those we have seen in the previous quarter, supported by a solid order book, good start of October, and we therefore expect our consistent performance to continue, and therefore have increased our outlook for the organic sales growth for 2026. We then go to the next slide.
These results year-to-date, but also for quarter three, are a good stepping stone for 2027 and 2028. Remember, we have the starting point for 2026 at around 5%, where we have indicated our business and our portfolio should grow between the 4%-6% during the strategic period and the announcement we made in the CMD. I think that is nicely aligned. EBITDA quality, we expect around 20% for 2026. The 20.4% for Q3 at constant currency is 21.2%. Also, the sequential improvement from EBITDA from 19.5% previous quarter to now, 20.4%, shows the trajectory towards the 21% for 2027, and then another step up in 2028. It is a good platform for implementing consistently our plan. Good to know that our cost and restructuring program is according to plan.
This basically means that we will see next to the cost restructuring program, which will help us in 2027 and 2028, maybe a little bit also already in Q4, with the ongoing pricing actions, with the portfolio mix, with leverage. I think you will see that we are well-posed for delivering on our action plan, not only for 2026, but also for 2027 and 2028. With that, let me hand over to Ralf.
Well, thank you, Dimitri, and good morning everyone as well. Dimitri already made a few comments around the total group, so let me keep that short and go through the business units in a bit of a moment later. Overall, looking at this, looking at the continued operation, top left, a nice 5% organic growth, as said, fully volume-driven, with a nice leverage in EBITDA, with a like-for-like step-up of 8% in the quarter. Also, from a margin perspective, was important to set the first step into the direction for the 2027, 2028 plan. We wanted to deliver well over 20%, and we have done so in the third quarter with a nice 20.4%, despite the headwind that Dimitri alluded to from FX, and a nice sequential step-up as we communicated and planned for throughout the year.
Overall, the EBITDA hit EUR 482 million, as said, an 8% step-up, and we have seen a nice growth in both top line and profitability, both in Q3 and Q3 year-to-date, so that is fairly consistent. As said, let's spend more time on the business units, so maybe on the next slide. Let's start with Perfumery & Beauty . There, we have seen a continued good momentum, as we have seen throughout the year. A very nice 8% step-up, again, all volume-driven in the quarter, with a step-up in EBITDA on a like-for-like basis of 10%. Also coming through nicely. If we look at the segments, fine fragrances continued good momentum at a high single-digit growth, and consumer fragrances continued at a double-digit pace, as we have seen throughout the year, largely driven by innovations, reformulations, and the fact that fragrance is a clear differentiating element in the growth.
Both businesses have delivered a double-digit growth year to date, both fine fragrances and consumer fragrances, reflecting the very good momentum and strong performance that we have seen consistently throughout the year. Looking at the other businesses, ingredients, very much in line with what we guided for at the beginning of the year. We have seen in Q3 a mid-single-digit performance in both businesses. Throughout the year, we are steering more to a low single-digit business, as we indicated that growth would normalize in our ingredients business. From a margin perspective, margin stable at 22%. Again, it reflects a 50% negative effect from FX, but as we communicate consistently, we embrace that, and we need to navigate through that. But margin continues to progress from that side very well as well. Maybe then moving to the next slide, please, to Taste, Texture & Health .
Here, we've seen a solid performance in the quarter with some phasing across the quarters. As Dimitri said, we've seen some business slip into October with a very good start of the quarter. Overall, if we look at Taste, Texture & Health, we basically see around 4%-5% across Q2, Q3. Remember that we've seen some additional order intake at the end of the second quarter. But the way we look at it is that if you look at the H1 performance of around 4%, we also expect that to continue for the second half with a good Q4 ahead of us. If we look at the allocation between the main divisions, taste and ingredients, it's a bit boring, but we see consistently performance across the two, both contributing to the growth, and also synergies continue to find its way back into the top line.
In the third quarter, a nice leverage as well. The 3% volume led to a step-up of a 6% step-up in like-for-like EBITDA performance, and margin largely stable versus prior, reflecting largely a 90 basis point impact from currency. Also here, what we wanted to see is a continued progression of margin, starting with a little over 19% in Q1 to 20% in Q2, and now nicely towards the 21% in the third quarter. So also here, a continued good development in the business, in a market that is still reflecting softness in the U.S. So we see nice growth across all of the regions. The U.S. remains soft for us in Taste, Texture & Health. Last but not least, on the next page, please, Health, Nutrition & Care.
Also here, a very consistent performance throughout the year, reflecting a 5% organic growth in the quarter, 4% volume, 1% price, where we basically see the rounding tilt nicely to the 1%, with a very strong flow-through into EBITDA, driven by good focus on pricing and cost, and obviously mix. If we look at the segments in Health, Nutrition & Care, growth continues to be supported by a strong early life nutrition performance, obviously fueled by continued strength in our HMO business, but also Biomedical continues to perform well. If we look at dietary supplements, i-Health, also there we see a continued cautious behavior in the U.S. impacting that business, reflected in a low single-digit business performance or growth performance for those businesses. Very strong margin development on Health, Nutrition & Care, as said, a combination of pricing, mix, and good focus on cost discipline.
Also here, we've seen a very nice sequential margin improvement, similar as we've seen in Taste, Texture & Health, moving from 19% to 20% to 22% now in the quarter, despite a very strong headwind from FX, as a good portion of this business is exposed to U.S. markets. I think that summarizes the three businesses. Looking across all of the business units that we have, basically the quarter is a continuation of the story so far in the quarter. We're focused on the execution of the delivery of the results, and throughout the quarters, we've seen continued growth and continued market progression in line with plan. Maybe that's a good moment to leave it at that, Dave, and move to Q&A.
Okay, that's good. Before we start, just a reminder for the sell-side analysts, how to get into the queue. Remember that if you want to ask questions, you have to register via the questions link, which you can find on our website in the financial calendar. I hand it back to the operator and see if we already have first one for questions. Operator?
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 from BNP Paribas. Please unmute your line and ask your question.
Hi, everyone. Morning. Thanks for taking the questions. First, maybe to ask a little bit about current volume trends. It sounds like, as you said, the quarter has started well. I was wondering if you had any latest thoughts on the potential impact or whether there's any pre-buying still going on. I know it's been a topic that we've been discussing through the quarters this year, but it seems like even if there is pre-buying, we haven't seen any reversals. So, as we go into year-end, as customers kind of maybe want to clean up balance sheets, do you see any risk of a sort of destock? Do you have a view on sort of current balance sheet levels amongst your customers? That's the first one.
The second question, I was wondering if we could talk a little bit more about input inflation, what you've seen so far this year, especially with the oil price going back up again. Any early take on views for next year. I remember, I think in Q1, you had said that all else being equal at the time, maybe we were looking at EUR 100 million sort of incremental annualized cost before taking any price actions. I was wondering if that's a kind of relevant data point as we look into 2027, given the fact that oil has gone back up, or is that completely irrelevant? Thank you.
All right, Nicola, thanks for those questions. I will leave the input inflation part to Ralf because he is really fond of that one. Let me take the Q4 and your link to destocking, restocking. Indeed, like I mentioned, good start of Q4. October is behind us, so we will see that continues good momentum also in Q4. You could imagine, we have also raised our outlook on organic sales growth. We would not do that without having a clear confidence that Q4 will come in with a good start of October, but also good order and brief and innovation pipeline. Not only Q4, but also looking at the brief and innovation pipeline for 2027, we see good momentum. Coming back to your restocking story, indeed, we have indicated a little bit of restocking, predominantly in Perfumery & Beauty, if you recall well, in the consumer fragrances area.
We have seen that in Q1 and Q2. We have not seen any restocking in Q3. We basically see on our customer side that they have normalized their stock levels, so we do not expect destocking either. I think everybody was a bit cautious on what was going on in the world, and therefore depleting their stocks. We also announced a little bit of destocking in 2025, if you remember well. So, we have been extremely consistent. We also wanted to be transparent on that. But we have not seen any restocking in Q3. We do not expect destocking to go to lower levels of stock. I think it is normalized level. However, as you have indicated, towards the end of the year, you normally have your end-of-the-year review, but that is everywhere, so every year. So, year-on-year, that will not make a change. So, normally, I would say it is a normalized level.
I think customers feel happy with the current stock level they see today. Then input inflation.
Yeah. No, and good morning, Nicola. Overall inflation, spot on. Initially, we guided for about EUR 100 million. We basically trimmed that down a bit on some easing in the second quarter, the half year. We moved that somewhat down. I think it is more relevant on what do we see in terms of inflation going forward for 2027. What we currently see is around 3% of inflation. Overall, I think a manageable number. I mean, it is something that we are used to dealing with, and we will have the usual levers, like pricing, reformulation. Obviously, yeah, focusing on growth on the high-growth segments, but at the same time, taking cost measures and efficiency. We will address that as usual going into the year. But a number in that range that you indicated is around accurate for 2027.
And as said, we will address that, and you will see a bit of pricing as well, so expect that to be positive going into next year.
Thank you.
Thank you. Our next question comes from Cathal Kenny with Davy. Please unmute your line and ask your question. Cathal, please press star six on your keypad to unmute. Cathal, your line is unmuted. Okay, Cathal, we will circle back to 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 three, if I may. The first one is a follow-up a little bit from Nicola's question on input inflation. I mean, year to date, your margins are on track, right, for your full year 2026 target. I know it is really early days looking into 2027, but how should we think about the key building blocks of your margin to next year, given you have performed very strongly in high-margin categories this year, such as enzymes, cultures, fine fragrances, and there is some volatility on the input dynamic? So, I would be very keen to get your thoughts there. Secondly, you had a very strong like-for-like result in the third quarter, but there were some small pockets of softness, such as in TTH North America.
I'd be very keen to hear what you're seeing in the market, especially in the light of consumer staple companies doing a little bit more innovation and renovation activity. Any thoughts on that would be great. Lastly, a quick one on Bovaer. Are you on track for starting up the U.K. Bovaer plant by year-end, and how should we think about the contribution of that plant into next year? Thank you.
Okay, thank you, Lisa, for those questions. I think all three, very nice questions. Let me go briefly over it. First of all, the input inflation, I think Ralf was alluding to it. Maybe try to my words on it, just to see if we are transparent. On the EBITDA margin bridge, I think it's clearly that Ralf indicated about EUR 100 million effect. Pricing will be a small part of that. I mean, we're used to that, but we have a few other levers where we feel very comfortable. First of all, remember the 20.4% EBITDA margin for Q3 is at constant currency 21.2%. There is already confidence that we have the capability to deliver that. For next year, we will have our cost and restructuring program. Remember, we announced EUR 100 million with a headcount reduction of about 1,000.
We expect EUR 50 million to be delivered for 2027 and about EUR 50 million for 2028. That will obviously help our EBITDA margin. We also expect growth to continue, with leverage on the EBITDA margin. Ralf indicated the bridge on his presentation, that will help us obviously also in 2027 and 2028. Last but not least, you indicated to that, we made deliberate choice in tuning our portfolio and accelerate the growth on the higher growth, higher end margin business, cultures, enzymes, probiotics, fine fragrances, et cetera, et cetera. That will also help the portfolio mix. We feel pretty confident that the trajectory which we've started at the beginning of this year on the EBITDA sequential improvement, there's a good bridge to the 21% for 2027, and another step up in 2028. Then to your question on TTH.
TTH, for year-to-date, so for the first three quarters, so end of September, we delivered about 4%, which is a good delivery according to plan. We've seen a good start of October, so we're confident for a strong Q4 as well. What we do see is North America indeed still be soft. That is the story for 2026 in general, not only for TTH, but also for Health, Nutrition & Care. Remember, Health, Nutrition & Care sales is about 40% in North America. Could you remember that the 5% delivery on HNC on organic sales growth is very strong in light of a big part of their sales is in North America, which is soft. Obviously helped by good sales for biomedical and medical nutrition, but also the HMOs and early life nutrition. I think overall, North America, we expect to remain soft for 2026.
We need to see what 2027 will bring. Then maybe Bovaer. Bovaer is a story where for this year, but also for next year, when we are waiting for the plant to come on stream in 2027, we will just sell what we have as interim capacity. That is between EUR 35 million and EUR 40 million of sales, which we already have, so it is not something we are building. That is the maximum we can sell for 2026 and 2027. We still expect that for 2026. You also see that for 2027 at around a flattish profitability. You really see when the plant will come on stream, which will be in 2027. When we get commercial volumes, it will have a predominantly impact for 2028 and further.
Okay, thank you very much.
Thank you. Our next question comes from Cathal Kenny with Davy. Please go ahead. Cathal, your line is unmuted. Please go ahead. We will move on to our next question. Our next question comes from Alex Sloane with Barclays. Please unmute your line and ask your question.
Yeah. Hi, morning all. Thanks for taking the questions. Two from me, please. The first one, maybe a bit of a follow-up, just on TTH North America. Could you give a little bit more detail on what has driven the incremental softness there in Q3? Was it cost, customer destocking, just weaker end markets, delayed projects? And maybe any kind of color by, are there any particular categories that were more affected than others would be the first one. The second one, just on the 2027 targets, which obviously unchanged today, which is welcome. I mean, clearly, you will have a tougher comp in 2027 than you had assumed when you laid out those targets in March, given that you are going to grow 5% rather than the 2%-4%.
I guess the question would be what is giving you confidence in sustaining that 4%-6% target on this higher comp base? Is it from the already secured pipeline wins? How much visibility comes from that? Thank you.
All right, let me try to give some color on TTH North America, and then Ralf can take the 2027. I would take 2027 together with 2028, because we have a plan for 2026, 2027, and 2028. TTH North America, let me be very clear. We have not seen any weaknesses in segments. I mean, at the end of the day, year to date, we have grown 4%. I think, compared to what you see in the food markets, 4% growth is outperforming the food market growth in itself with the innovation in the markets we are in. North America is a bit of a softer segment, but it is not specifically one segment above the other. What we have seen is that dairy is a very strong segment. That is a strong segment overall in all regions.
Savory, which is a smaller segment for us. Obviously, we see a bit of a less growth. There is still growth, but we see less growth. That has been in Q1, Q2, Q3 as well. What you have seen is in Q3 for TTH, we have seen also some deliveries delayed into Q4. You will always see that a little bit throughout the quarters. We have seen October being very strong, so I would not say there is any one segment where we are particularly concerned about. We basically see that throughout the year, we will reach a very solid growth on TTH. We are only flagging North America. If that comes back on stream, we will see another plus based on the good performance for TTH. That is what I wanted to give as a bit of color.
For us, be aware that dairy is a very important growth factor, also linked to GLP-1, yogurt developments, and the likes, and that is a global trend.
All right, good. Let me follow up with the 2027 targets, and maybe it's a 2027, 2028 answer overall. When we also communicated our journey in Capital Markets Day earlier in the year, we also obviously did that looking at the pipeline and the wins that we see coming through, and I think the good performance in 2026 is a good testimony of that. So, our ambition and target for 2027 and 2028 are clear. Pipeline is developing well. We're happy with the wins across all the categories. But also, if you look at our 2026 performance, Alex, it's not that we're firing on all cylinders equally hard. As Dimitri just answered your earlier question around the U.S., I think U.S. is still a market that is not performing at its potential. Same in Asia, we see markets slowly turning there. Not all countries within Asia are performing equally.
But also, if we look at our own portfolio, we're very happy with the momentum that we see in fragrance, and that is continuing. But we also guided there that even with the very strong performance that we see in 2026, markets there have the ability to grow well also into the period thereafter. But there are certainly areas across our portfolio where we can see a further step up. Based on that, we look ahead into 2027 and 2028, and we were clear on where our ambition and targets are, and we feel good about that.
Thank you.
Thank you. Our next question comes from Fernand de Boer with Degroof Petercam. Please unmute your line and ask your question.
Yes, good morning. Fernand de Boer, Degroof Petercam. One question is coming back on the next year, 2027 margin guidance. How much tailwind would you have from forex given the, if you assume the forex to stay where they are today?
Well, let me take that. It is a good question, and good morning, and thanks for that. I mean, the FX effect will be easing and leveling off now. FX remains very volatile, and that changed almost from week to week. Let us see what the news of yesterday has an impact, but where the dollar is today, a dollar of $1.12 always makes me happier than a dollar of $1.17. That is clear. With the rates as they are today, we should basically anticipate a more neutral effect into next year, which is completely different from what we have seen over the last two years, where we had a net win of about EUR 80 million-EUR 90 million. That should help next year in the delivery of 2027.
Okay, thank you.
Thank you. Our next question comes from Victoria Nice with Bernstein. Please unmute your line and ask your question. Victoria, your line is unmuted. Please unmute and ask your question. We will move to our next question. Our next question comes from Artem Chubarov from Rothschild & Co Redburn. Please unmute your line and ask your question.
Thanks, and morning, everyone. Just checking you can hear me well.
Yeah, loud and clear.
Thank you. Two quick questions, please. First, could you please update us on your performance in HMO, and particularly in the arachidonic acid, which I believe was a bit of a tailwind for you this year? How did that develop in Q3? Equally, on synergies in TTH, you have been consistently reporting strong contribution from synergies. So, how did that develop in Q3? Thank you.
Take those.
Yeah. No, happy to take those, and good morning. Overall, as indicated earlier in the year, ARA contributed about 1% of tailwind throughout the year. We've seen an acceleration and effect in Q1 on the back of the events from another supplier, where we basically worked with our customers and we supported them as much as we could. We see continued good traction throughout the year, because obviously, it gave us more volume. Reading through on the question for next year, we've worked on longer-term contracts, securing the majority of that volume also going forward, and that obviously contributes to the overall strong performance that we see in early life nutrition, but coupled together with the HMO. Moving to synergies, overall, we see that coming through. TTH continues. We've seen about a 1%-1.5% contribution throughout the year. That's baked into the numbers.
Traction remains very active. We regularly quote, when we have a bit of an extended call, on some of the examples, but they keep on coming through, whether they're in beverages, where we combine nutritional ingredients together with taste profiles, or whether we have baking solutions. We regularly call out customers, and most recently, again, where we basically increased the overall, how do you say that, longevity in fragrance. We make sure that our cookies and cakes remain fresh, and that's a clear combination and synergy. They continue to come on all fronts. Overall pipeline stands still at a level of around EUR 400 million, and there's also well over EUR 100 million of business that we want still to come to market. We'll continue to see that. We'll continue to track it for now and report out, because it's an important metric.
Also in the other businesses, both in P&B and HNC. P&B, we had already some earlier wins, and they're less profound as in TTH, so we don't specifically call them out, but also in beauty and care. We often say that our competitive position has certainly changed post the merger, and that is giving us additional business on that front. We also see the first wins coming through in HNC, which is helpful, and contributing to the sales performance overall. So, remain confident on the delivery of that synergy, and we see it back in our numbers and pipeline. More importantly, also in the level of engagement that we have with our customers. This is clearly a benefit from the merger.
And maybe just to conclude—
Thanks so much.
—because I remember you also had an ARA HMO-linked question, so let me give you a bit of color on the HMO. I think it is a fantastic development for this year. HMOs, remember, we are the only one approved in China. We also have eight products, HMO-related products, approved around the globe. This is not a one-trick pony. This is a continued development of these HMOs, and we already have new ones in the pipeline. Very happy to see that. Remember, on that question, what type of business could become, we said this will generate EUR 100 million plus sales as a category over time, additional sales in itself. And we said that for 2026, you will see that more than half of that is realized in 2026, and that will continue into 2027.
We are extending capacity in Ashburg, our plant, as we speak, just to fulfill all these demands. Very happy to see that. And it will also help us in 2027, obviously, with a tougher comparison than in 2026. But this is a good pipeline momentum, and we really see that the early life nutrition category is benefiting from that. It is a premium gain category, and you have seen that in the growth of HNC. You have seen that reported year-to-date around 4%, Q3 about 5% sales for HNC. And that is with, like we earlier said, with a soft North American market, which represents 40% of the sales of HNC. So it shows really the strength of the portfolio, and when North America will normalize over time, and it will, it will even help HNC going forward.
Thank you very much.
Thank you. Our next question comes from Victoria Nice with Bernstein. Please unmute your line and ask your question. Victoria, your line is unmuted. Please select a microphone and ask your question. We will move on to our next question. Our next question comes from Usama Tariq with ABN AMRO - ODDO BHF. Please unmute your line and ask your question.
Hi, good morning, team. I just want to ask, am I audible?
Yes.
Yes. Hi, thank you for the opportunity. I have just three small questions. The first one on pricing for Perfumery & Beauty. This quarter was volume-driven. Can you give a little bit of color on pricing, and what do you expect, if you expect any pressures in 2027 going forward? My second question would be on buybacks. The current one is complete. Any color there would be very grateful for your expectations in future. And my final question would be, any update on the ANH disposal? Thank you.
Yeah. All right, Usama, thank you for those questions. By the way, I thought that dsm-firmenich was a long company name, but you even have a longer company name. So, interesting to see how your email address—
Yes, indeed.
Yeah. Let me go through your questions. Indeed, pricing perfumery. I mean, first of all, let's be very clear here that the Perfumery & Beauty business is managed on margin. So if ingredients or costs go up and down, that will be in our system, in the ingredient toolbox, in the palette, and we will take that when we come for brief and creation possibilities. So, it could even be the case, it's a bad idea, but there could be the case that you reduce price and still have a higher margin. So, this is the business model around fragrances. Now, what do we expect indeed? Ralf was saying, we have this EUR 100 million of part will be in the Perfumery & Beauty art. We will work accordingly. We will see substitution and reformulation briefs. Which, by the way, is also good.
Any change in regulation, any change in ingredients, any change in pricing will create reformulation, but we'll also see some pricing effect when we pass through the pricing. Now, that normally, pricing is we have formulas with customers, with the regional customers that goes a bit quicker. If we have a new brief, we price the new pricing in. If it's logistics and warehousing, there's immediately surcharge. So it's a pretty flexible business model where we do feel that the margin management is key, and we can tap in pricing relatively quickly with different measures. Maybe share buyback and ANH for you, Ralf?
Yeah, happy to take those. So, I think we're clear in our capital allocation policy on that. As you said, indeed, we completed the share buyback at the end of September, or at least first week of October, reported on that. Maybe good as a reminder, capital allocation, first focus on growing our business, and we have CapEx as a priority to fuel future growth. That's baked into our cash share target, so we're well covered on that front. Dividend, we continue, stable, preferably rising, so that's clear as well. Then you get into the space that you just alluded to, first money for M&A. There, we've been very clear, don't expect any transactions from our side in the period ahead of us. We focus on the execution. Our financial targets are clear, and that is priority number one for us, which leaves the share returns aspect.
We remain disciplined there. We have a clear guidance on our debt level between 1.5x - 2.5 x EBITDA. At the end of the year, we expect to be at a little over 1.9 x EBITDA. Focus is now on completion of the ANH transaction. If that is out of the way, we remain disciplined in the way we look at our balance sheet. Hopefully, that gives some color from that perspective. Then maybe turning to ANH, where are we progressing there? It was clear that we needed to split the company as part of the transaction. We have released the new names of the two businesses a little earlier this month, so markets can familiarize with that. For the rest, we are focusing on completion of those activities.
There is a clear plan in place, and we are on track in the delivery towards a closing at the end of the year for ANH.
Thank you.
Thank you. Our next question comes from Matthew Yates with Bank of America. Please unmute your line and ask your question.
Hey, morning, everyone. Just checking, can you hear me okay?
Yep.
Morning, Matthew.
Perfect, thank you. Dimitri, I've just got one question around the governance of the group in light of Richard taking over as Chairman. I guess it's only been a few weeks, so maybe this is a premature question. I know you've already articulated a multi-year strategy, but is there any impact or change of emphasis on the way the group is being steered as a result of this change in chairmanship? I know Richard's been on the board a few years, so you've probably got a close working relationship with him, but just in terms of his focus, his attention, culture, anything that you want to expand about what that change may lead to. Thank you.
Yeah, thanks for that question. I mean, no, not really. I mean, Richard has been 3.5 years with us in the board before he was at Firmenich, so there's a clear continuity and consistency. He has been part of the board who approved on the strategic plan, our Capital Markets Day plan, which I think is a good plan anyway, so apart from that. So it's more about continuity. Remember, after the integration of the DSM and Firmenich, we thought it was a very natural way going to the next phase. So you should see this as continuity, not something there is a change of approach, change of strategy, and the like. We have a clear focus on delivering according to our plan on a consistent basis, quarter after quarter. I think Richard is bringing that same rigor as we have.
Nothing to add to that. I think you should see it as a sign of consistency of the company we're building.
Very good. Thank you both.
Thank you. Our next question comes from Eric Wilmer with Kempen. Please unmute your line and ask your question. Eric, your line is unmuted. Please unmute your line and ask your question.
Can you hear me?
Yes, loud and clear.
Super.
Great. Thanks. Thanks for taking my question. I've got one. Within HNC, I was wondering if you could comment on Veramaris, given where fish oil prices have headed. Can you perhaps talk a bit about pricing and volume dynamics for the business, and to what extent ongoing and anticipated customer contract renewals may be supportive of HNC margins going into 2027? I realize it's not a very large business, but it could be just looking, glancing at fish oil prices, could this be something that would act as a surprise for HNC into 2027? Thank you.
Yeah, thank you, Eric, for that question. Well spotted. Welcome to our beautiful business. Indeed, Veramaris is a joint venture with Evonik, fermentation of omega-3 algae-based fish oil. This is an area where we will benefit from natural fish oil prices rising. Remember, algae-based fish oil has a few goodies, so to speak, a few benefits. One, it's a constant supply of algae-based fish oil. If you depend on what you fish from the ocean, it depends when it comes, and you need to take stock the moment that the harvest is there. Two, it has pure quality, and it has consistent quality over time because you basically have an algae-based fermentation setup. And three, you can scale the algae-based fish oil, and therefore, also in terms of pricing, you have a good price point.
Now, if fish oil from natural source will go up, obviously algae-based fish oil will benefit from that. We will see that into 2027. Now, this business is around EUR 100 million for the total, of which we have 50%. So, it's not huge. The EUR 50 million sales turnover is reported by us. Now, what we do see is that the whole human algae-based fish oil in the human application, less to the animal part, the human is sold via HNC, via the sourcing from Veramaris. So, this is something where I think we will benefit in 2027, but I don't expect huge miracles because at the end of the day, it's a EUR 50 million business. But hey, if we have 20 of those EUR 50 million businesses with positive momentum, then obviously it helps. So, you're absolutely spot on.
It will help a little bit 2027, but it will not be major.
There is a nice above average margin.
Okay.
I hope you understood what Ralf was saying, with a nice above average margin, he was adding.
Thank you. Our next question comes from Cathal Kenny with Davy. Please unmute your line and ask your question.
Hi, can you hear me?
Yes.
Yes.
Cathal, great to hear you.
The effort is rewarded.
It is actually Chetan from JPMorgan. I do not know how the names got mixed up because I was told to unmute my line.
Okay.
Twice before, but no, it wasn't my name.
Don't take it personal.
Maybe this No, it seems like a better name than mine. I had two questions. One was, it's very unusual to see consumer fragrances growing faster than fine fragrances, and I was just curious if you can highlight which are the key product segments where you see the strength right now in consumer fragrances. Fine fragrances, at least we can see the end market, which is high-end perfumes, also very strong, whereas consumer fragrances growing double digit is very unusual. Maybe if you can shed some light on where you see that strength coming from in terms of product categories, that would be useful. The second question I had was just looking into the cost bridge for next year. You highlighted EUR 50 million savings from the restructuring program. I think I heard EUR 100 million of raw material cost inflation for possibly next year.
Can you also remind us how much does your fixed costs, excluding raw materials, which is more variable, but how much of your fixed costs actually grows every year, just to get all of the key moving parts in the bridge for cost next year? Thank you.
Okay. Let me do the consumer fragrances, and then Ralf can give you a little bit of color on the cost and the inflation there. On consumer fragrances, let me remind you that year-to-date, fine fragrances has grown double digit as well as consumer fragrances. So, they are both doing very, very well. Now, we do think over time, fine fragrances will normalize to a high single digit and consumer fragrances will normalize towards mid-single digit. But while I am saying that, I remember I already said that for four quarters in a row, but I do just want you to remind you that the current levels are exceptional, but we are happy that we are taking it. Now, if we look at the brief and innovation pipeline, we do not see any softening as we speak. For fine fragrances, that is pretty clear. That has to do with geographical growth.
It has to do with the younger generation taking a wardrobe of perfumes instead of one or two. I do not know how many perfumes you have at home, but at least the average number of perfumes have went up quite a bit. And our customers started with flankers, so not only the fine fragrances in perfumes, but also bathing soap, all types of deodorants and the likes, mist, body mist, and the likes. And that helps, obviously, the sales. In consumer fragrances, this is about superiority. It is our customers are looking for differentiation in their category, and they see fragrances as one of the key levers to do that. And we do see that in our innovation and brief pipeline, so where they look for higher concentrates, but also looking at different fragrances as a differentiating area, but also new technology like popscent, which is the encapsulation.
which have a delayed release of your fragrance, so that you do not only feel the fragrance at the moment that you open your washing machine or anything else. It is throughout the period where there is a delayed release. That is boosting sales quite a bit. But also, new ingredients. I think we said it last time, we have a few new ingredients to market, which Dreamwood is one of them, Ambrox [ Ever] is one of them. So, it is also fueled by new innovation ingredients which we built with our key customers. And last but not least, you do see that the regional accounts are really picking up the pace, and that is also why we see above average growth at the regional accounts, and we are benefiting from that.
All right, let me take the other question. Maybe elaborating a bit, Chetan, on how I look at it, because for me, mixing the cost program with the regular inflation is not something I do. The cost program is really geared at improving our overall profitability. It is part of a series of actions of improving the margin in line with our plan for 2027 and 2028, where we said half of the step-up in margin is to come from really taking cost out. That is why we also announced the headcount reduction overall, and we are performing well on that front. We have aligned with the works councils and the like, and progressing well on that area. Now, the second question then, and that is for me, there are two topics because I do not want to mix it. The program is not in place to address the regular inflation that we see.
I indicated on the back of the volatility that we currently see around 3% overall on our raw material. As you are aware, I think you have a good understanding of the P&L. We have about a little over EUR 2.5 billion in terms of raw materials. That is where this really relates to. On the inflation piece, on the rest of the cost, I always say it is always around 2%-3%. Whenever we make the plan going forward, it always balances out on that, looking a bit at the average payroll and the like. This is something that we normally address through a series of actions that Dimitri alluded to earlier on as well, whether it is pricing, reformulation, growth, and continued discipline in areas beyond the normal program and efficiencies that we have in our plan. So, that is a manageable number. We see that coming through.
On top of that, we have the program to structurally improve our profitability going forward.
All right, thank you very much.
Operator, is there still someone in the queue? We only have time for one last question.
Yes, we have a final question from Victoria Nice with Bernstein. Victoria, please unmute your line and ask your question.
Hello, can you hear me?
Loud and clear.
Yes.
We can.
Yes.
Yes? Okay, excellent. Fine. My question was on, in fine fragrances, you call out obviously a strong position in prestige, and we have heard from some listed customers recently how prestige has been driving growth. You said at the Capital Markets Day that this was an area that was growing faster. I just wondered if you could talk us through what you are seeing there, and then your developments in that segment. My second question was just on TTH. Can you quantify the impact of the order delays from Q3 into Q4, please? Thank you very much.
Yep. Good to finally hear you, Victoria. Fine fragrances, let me take that one. First of all, fine fragrances, we have indicated that it is partly linked to briefs. The number of briefs we get in are really good. What we do see is that we have seen an improved win rate because of new innovation we bring to the table. Normally, if you win a brief, you need to wait for a year to really, when the product is launched, that we get the business. We do see that coming in. We also expect, not only for this quarter, but for the next years to come, for the next quarters to come, a good brief win pipeline, which will generate the business. That has to do with new innovation, some new technologies, but also new ingredients.
I think we said last time that Ambrox [Ever], which is a very intense ambery note, has been launched into the market, into the palette for our perfumers to work with. Over the last 20 briefs which we won, a big part of that was due to the new ingredients being introduced, being Ambrox [Ever]. That it shows that new innovation ingredients is appreciated by our customers, and it also increases your win rate. That is why fine fragrances is doing very well, apart from the more generic trends, where I think everybody is benefiting from, and I just mentioned it, like a wardrobe of perfumes, flankers in the categories, but also superiority growth in higher concentrated fragrances. Then maybe TTH for you, Ralf?
Yeah, happy to take that. Overall, we said we have seen some phasing across the quarters, both Q2, Q3, but your question was more how much move to Q4. I think generally, the rounding would probably have been 4% growth for TTH rather than the 3%. That probably give you an indication on how much we have seen slipping. I mean, we focus on sequential growth, continued progression, and margin improvement. That allowed also some movement that we do not necessarily push it out in the last days. That is what we have seen. With that effect, growth would have been 4%.
Okay. I think that brings us to the end of our Q&A. Dimitri, do you have some closing remarks to make?
Well, not really closing remarks other than I hope you appreciated the new setup, semi-new step-up. We were really brief in our presentation and leave predominantly room for Q&As. I clocked it this time. We are a Swiss company, so we should start on time, and we should end on time.
Yeah.
Our presentation stopped at 9:13 A.M. I think that was a key performance in itself. We also think the exchange is important, and we appreciate all the questions you have raised. Let me briefly close. Like I said in the beginning, Q3 was a good performance with year-to-date, a good performance with good growth, and a sequential improvement on EBITDA margin. We didn't say anything about cash, but it's clear that we're confident on the cash delivery between 11% and 12% as well, building on what we've seen year-to-date in terms of cash developments. Overall, we are on track with our CMD plan. We do have a plan, 2026, we will deliver in line, maybe even above what we have presented in terms of the growth.
I think there was a question of Alex, so how does that 4%-6% works to a bit the 2%-4% original in terms of organic sales growth as an outlook? This business should grow 4% - 6% year on year on year on year. So, this is a business which has the potential to grow year on year in 4% - 6%. We will see a brief innovation pipeline with a clear step-up towards that 2027- 2028 in terms of margin and cash, with an organic sales growth of the markets with the portfolio we have between the 4% - 6%. So, Q3 was a nice confirmation of the execution of the plan, reaffirming the outlook with an upward on the outlook on organic sales growth, with a clear trajectory towards 2027 and a clear trajectory towards 2028. With that, let's close the call.
Yeah. That brings us to the end. Thank you all for attending today's call. As usual, any other questions you have, please address it to the investor relations team. Always happy to take your calls. With that, I hand back to the operator to finish and close the call.
This concludes today's call. Thank you, everyone, for joining. You may now disconnect.