Givaudan SA (OTCPK:GVDBF) Q2 2024 Results Conference Call July 23, 2024 5:00 AM ET
Company Participants
Gilles Andrier - Chief Executive Officer
Tom Hallam - Chief Financial Officer
Conference Call Participants
Nicola Tang - BNP Paribas Exane
Alex Sloane - Barclays
Celine Pannuti - JPMorgan Chase & Co.
Daniel Buerki - Zürcher Kantonalbank
Arben Hasanaj - Vontobel
Georgina Fraser - GS
Matthew Yates - Bank of America
Gilles Andrier
Dear ladies and gentlemen, welcome to our 2024 half-year results conference call. The company news on our half-year results have been published earlier this morning on our website where you will also find the slides for today's presentation and the half-year report. Tom Hallam and myself will take you through the presentation before we answer your questions at the end.
Now I'd like to start the presentation with the highlights and invite you to turn to Page 3, and so before moving to any numbers, first thing first, and let me start with the last bullet first. As you have seen the announcement this morning. Tom Hallam has decided to retire and will hand over the CFO position to Stewart Harris, effective August 1, 2024. Along with my EC colleagues, I have very much enjoyed the great partnership with Tom as CFO over the last 8 years, driving our industry-leading financial performance. Many of you on this call know Tom and can testify the great CFO, he has been for Givaudan. I'm very confident it will continue with Stewart, who has grown in Givaudan over the last 15 years in many functions of our finance organization, and over the more recent past, driving the numerous acquisitions we made to their successful completion.
Finally, it demonstrates the strong quantity we have at Givaudan in succession planning. Let's move now to the numbers. So, I'm very pleased to present to you a strong performance in first half of 2024 driven by a high level of sales growth in volumes across all markets, all segments and all customer groups, which translates into a broad of industry-leading financial results. These results once again highlight the unique position of Givaudan and the strategic choice that we have made to focus on an extensive range of highly value-added products and solutions which matter to consumers and hence, support the growth of our customers around the world.
In the first half year of 2024, we have reached sales of CHF3.7 billion, a growth of 12.5% on a like-for-like basis and 5.7% in Swiss francs. The strong like-for-like growth was mainly driven by volume growth hence, supporting a high level of profitability and cash generation. Our comparable EBITDA amounted to CHF929 million, lifting the EBITDA margin to 24.8% from 22.7% last year. Our net income increased by almost 31% to CHF588 million, and our free cash flow amounted to CHF197 million, corresponding to 5.3% of sales.
Before Tom provides more details about our operational performance, let me focus on the sales performance in more depth on the following slides. Let's turn to Slide 4. On a like-for-like basis, our Fragrance & Beauty Group grew at a stellar 15.3%, and our Taste & Wellbeing division grew at a strong 9.9%. As mentioned, the growth was mainly driven by growth in volumes at 9.2%, while the remainder of the growth was almost entirely ex pricing, almost entirely due to Argentina. Real pricing was minor. Let's turn now to Slide 5.
The sales evolution by market type shows the continued excellent performance in high-growth markets. At the rate of 20.5%, high-growth markets continue to outgrow mature markets by 3 times to 4 times and now represents 46% of the total sales. In particular, almost all key high-growth markets, namely China, Southeast Asia, Argentina, Brazil, Africa, the Middle East and Eastern Europe continue to grow at a strong double-digit, while the remaining high-growth markets such as Mexico and India grew at the high single digit.
The mature markets grew like-for-like 6% against a low base of comparison, led by the continued resilient performance of Europe and a good recovery in North America. This demonstrates once again how Givaudan's geographical balance contributes to its natural hedges against demand cycles where timing and intensity can deferred by geography. For a more granular view by region, let's now turn to Slide 6.
Latin America continued to show the highest like-for-like growth with 31.5%, driven by FX pricing in Argentina. But as you can see, we also continue to grow in Swiss francs, roughly 6.4%, which is a good proxy for the underlying growth. In Asia Pacific, like-for-like sales growth continued to an excellent momentum at 11.4% with all key markets contributing to this growth, except for Japan.
This good growth was achieved across both divisions. The EMEA region grew 11.4% on top of a strong 8.5% in the prior year. The strong performance continued to be broad-based in mature markets like Italy and Iberia as well as in high-growth markets such as the Middle East. Finally, it's also encouraging to see North America posting positive like-for-like growth in the first half of this year. We have seen improving trends in the Consumer Products business, in Fragrance & Beauty, since late 2023. And now we also see that coming through in our Taste & Wellbeing business. Let's turn now to a division review on Slide 7, starting with Fragrance & Beauty.
For this division, sales amounted to CHF1.826 billion, up 15.3% on a like-for-like basis and 9.2% in Swiss francs. The strong growth was driven by continued excellent growth in Fine Fragrance and Consumer Products. Fine Fragrance continued to grow double digits against the strong comparable of last year with strong contribution from both the existing business and the high level of new wins. The strong like-for-like growth of 17.3% in Consumer Products is driven by volume growth, a strong level of new wins and achieved across all customer segments and all regions. The combined Fragrance Ingredients and Active Beauty sales increased 8% like-for-like with good demand for region specialties and continued solid good growth in Active Beauty.
Let's now have a look on the performance of the Taste & Wellbeing division on Slide 8. Sales in the division amounted to CHF1.8 billion up 9.9% on a like-for-like basis and 2.6% in Swiss francs. On a regional basis, sales in Europe showed a solid like-for-like increase of 5.5% and South Asia, Africa and Middle East, including India, continued to show a strong like-for-like growth at 12.5% on top of the strong double-digit prior year period. It's very encouraging to see positive like-for-like growth in North America, delivering 4.5% and Asia Pacific at 9.3%. Latin America continued to show strong double-digit growth, driven by FX pricing, but also with very solid underlying volume growth. From a segment perspective, double-digit growth was achieved in snack, beverages and good momentum in sweet goods, dairy and savoury.
Let me now move from the financial facts to other highlights around innovation and how we are addressing consumer need and consumer trends on Slide 9. Innovation is our lifeblood from creating differentiating solutions, address our customers' challenges, to leading the way in areas such as biotechnology, sustainability and digitalization. Our R&D activities allow us to provide our creative and development teams working on those bids with novel technologies, differentiating ingredients, which will make those bespoke solutions we develop with our customers, win the bride and win the consumer.
Let's highlight a few examples. In Fragrance & Beauty, we have launched Scentaurus Vanilla, consolidating the broader collection of fragrance recourses in the industry, creating a long-lasting, high-performing non-colouring vanilla note, specifically designed for liquid detergents. We launched Nympheal, a game-changing ingredient, create white floral fragrances now available on our perfumers’ creations.
In Taste & Wellbeing, we continue to work on new ingredients for alternative dairy enabling our customers to use natural proprietary ingredients that provide premium mouth fill and body for both alternative dairy and reduced fat and sugar dairy products. And we stimulate both divisions with the use of digitalization, for example, with our customer-centric health and nutrition hub, a new digital platform, boosting co-creative innovative wellness expenses that consumers will love.
And with that, let me hand over to Tom for more details on the financial results.
Tom Hallam
Thank you, Gilles. It has been a privilege to work for such a great company and with fantastic people. I wish Stewart all the best in the road.
As always, Gilles has taken you through the strong business performance of the group as well as the main aspects of the market and regional developments. I will focus on the group's financial performance and those of the two divisions. Let me start with the performance highlights on Slide 11.
Group sales for the first half of 2024 were over CHF3.7 billion, an increase of 5.7% in Swiss francs. The reported EBITDA increased to CHF906 million compared to CHF763 million in 2023. The strong EBITDA improvement also resulted in an impressive improvement in the underlying EBITDA margin, which increased to 24.8% compared to 22.7% in 2023. Net income was CHF588 million, an increase of 30.9% compared to 2023. The free cash flow as a percentage of sales was 5.3% compared to 2.9% in 2023. The absolute free cash flow was CHF197 million, which is a great improvement of CHF93 million.
Net debt to EBITDA was 2.9 times compared to 3.7times at the end of June 2023 and 2.9 times at the end of 2023. In the following slides, we will cover the Group's performance in further detail as well as the financial performance of both divisions. Please turn to Slide 12, which shows the exchange rate development for the period. This slide shows the comparison of the exchange rates in the first half of 2024 versus the same period in 2023. The Swiss franc has steadied against most of the major currencies in which the group operates, even though it continues to strengthen.
Overall, from a profit perspective, the impact has been very limited because our operational and geographical spread continues as always, to provide good natural hedges and our EBITDA margin remained strong and well protected against currency fluctuations. Please turn to Slide 13, which shows the group operating performance.
In 2024, the Group's gross margin increased to 44.1% compared to 41% in 2023. The gross margin in the first half of 2024 improved as a result of higher cost absorption due to the higher volumes as well as the margin improvement measures taken under the Group's performance improvement plan initiated in the first half of 2023. EBITDA increased to CHF906 million in the first 6 months of the year. However, in this period, the group incurred costs of CHF23 million, largely related to costs incurred for the footprint optimization as well as the competition authority litigation in the fragrance industry.
Excluding these costs, the underlying EBITDA margin improved to an impressive 24.8% compared to 22.7% in 2023. On the next two slides, I would like to spend a minute on the performance of our two divisions, starting with Fragrance & Beauty on the next slide.
The division recorded CHF500 million of EBITDA in the first 6 months of the year compared to CHF383 million in 2023. The EBITDA margin was 27.3% on a reported basis, and an excellent 28.1% on an underlying basis, driven by the extremely strong volumes. If you turn to Slide 15, we will continue with Taste & Wellbeing performance. Reported EBITDA increased to CHF406 million from CHF380 million in 2023. The reported EBITDA margin was 21.3%, in 2024. And on an underlying basis, the EBITDA margin was 21.7%.
Please turn to Slide 16, which shows the net income of the group. The income before tax increased to CHF700 million from CHF516 million in the first half of 2023, as a result of lower operating expenses compared to the prior year, due to low mark-to-market adjustments on marketable securities and a reduction in foreign exchange losses compared to prior. The net income was CHF588 million or 15.7% of sales. The Group's effective tax rate increased to 16% in 2024 compared to 13% in June 2023. Basic earnings per share was CHF63.76 in '24 compared to CHF48.69 in the first semester of 2023.
Please turn to the next slide for the cash flow performance of the group. During the first half of 2024, Givaudan showed a strong free cash flow when compared to the same period last year. The group recorded a solid free cash flow of CHF197 million or 5.3% of sales compared to CHF104 million or 2.9% of sales in 2023. The operating cash flow of the first 6 months of the year was CHF427 million compared to CHF340 million in 2023, an increase of 25.6 %. The group continued its investments to support the growth in all markets as such total net investments was CHF127 million in the first half of the year. And as a percentage of sales, net investments was 3.4% compared to 3.6% in 2023.
Working capital decreased to 29.1% of sales compared to 31.2% in June 2023, as the company continued to focus on reducing inventories whilst managing all other vital items. Please turn to Slide 18, which shows the debt profile. The group continues to have a well-balanced debt profile with a weighted average effective interest rate of 1.96% and compared to 1.83% in June 2023. Furthermore, this slide shows the majorities of our debt profile. Net debt to EBITDA was 2.9 times compared to 3.7 times in June '23 and was flat against December 2023.
With this, I would like to conclude my part of the presentation and hand back to Gilles.
Gilles Andrier
Thank you, Tom. So, let me now come back to our 2025 strategy and the outlook on the next slide. As a reminder, allow me to highlight the key features of our 2025 ambitions. We are committed to growth with purpose, creating for happier healthy lives with love for nature. We are placing customers at the heart of our business supporting them to grow and create products that are loved by consumers. The 2025 strategy is focused around three growth drivers: expand the portfolio, expand the customer reach and focus market strategies. Now let me highlight, the expand portfolio as we recently announced the full acquisition of B kolor in Italy. Givaudan has already a strong exposure to the "beauty" with leading positions in the key traditional categories of Fine Fragrances and Personal Care. 10 years ago, we filled the space of skin care with active ingredients and as such building a business of roughly CHF150 million. With vision of B kolor, we continue expanding in skin care, but we will also now enter in the remaining space of beauty makeup.
This presents an exciting growth opportunity for Givaudan to leverage its deep market knowledge and established relationships in the fragrance industry with our clients. On Slide 21, you find the performance commitments of the 2025 strategy. We have completed now 3.5 years of our 5-year strategic cycle and outperformed us, far reconfirms our strategic choices. Givaudan 25 strategy consists of ambitious targets, aiming to achieve like-for-like sales growth of 4% to 5% and free cash flow above 12% on an average base over the 5 years period.
In addition, the company aims to deliver on key non-financial targets around sustainability, diversity and safety linked to our Givaudan purpose. Our focus in on implementing our 2025 strategic focus areas guided by our purpose. We remain confided in our plan and have the right foundations in place to continue growing with our customers.
Let me finish now with the 2024 outlook on Slide 22. We are very well positioned with our capabilities, the quality of our portfolio and our creative strength to deliver on our 2025 strategy. Our natural hedges across the portfolio segments, regions and markets provide a healthy balance. For 2024, the increase in input cost for the group is expected to be minor. However, with continued pressure in some key naturals. Our proactive approach with the performance improvement program delivered first results in 2023, we'll maintain a strong focus on operational excellence, reviewing the manufacturing footprint, particularly in Taste & Wellbeing in the next 2 years of the strategic cycle, whilst emphasizing business continuity to navigate in a volatile geo-politic environment. We expect the associated cost to this program of around CHF50 million in 2024.
With that, we arrive now at the end of our 2024 half year results presentation. Let me hand back to the operator for the instructions to open the Q&A. Tom and I look forward to taking your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. The first is from Nicola Tang from BNP Paribas Exane. Please go ahead.
Nicola Tang
The first question is on the margins. I was wondering if you could just remind us of the usual half-on-half seasonality because, I think H2 margins tend to be a bit weaker than the first half. Should this same seasonality apply this year or not? Are there other factors around our catch-up on net pricing and self-help, so coming through in the second half, which might change that H1 dynamic?
And specifically, in Fragrance & Beauty, I think you typically have less half-on-half margin seasonality. Should we -- then on the Taste & Wellbeing side, should we expect that to be the case this year? Or are there exceptional impacts driving that super strong 28% EBITDA margin in the first half?
And then maybe a second one, perhaps you could talk a little bit about volumes. We've talked about how customers this year really focused on driving volume growth. I was wondering whether you think any of the H1 strengths might be linked to customers stocking or buying up ahead of promotional activity or whether you think this is really a recovery in terms of underlying volume demand?
Tom Hallam
So maybe, Nicola, I'll take the margin first, and then I hand back to Gilles on the volume. So, you're absolutely right. I mean in a normal -- what we would call a normal year, we normally have a stronger margin in the first 6 months than we do on the full year. For a very, very simple reason that there's less invoicing days in December. If you look historically, our margins have been about 100 bps lower on the full year compared to the half year. And as I said, I think we're more -- in a normal year environment. There's nothing exceptional to come in the second half of the year. We had a small tailwind of around CHF20 million in the first 6 months of the year, which was really related to the improvement program that we put in place at the beginning of last year.
Just as a reminder, we had CHF40 million in the first -- in the second half of last year and CHF20 million in the first 6 months of this year. On the -- on the Fragrance margin, as you say, I mean, it's really an exceptional performance. I think there's really two factors to consider. I mean the volume growth is really significant and that helps on the operational leverage. The second reason is, as you know, in our business model, we have quite a churn in the portfolio. And particularly on the Fine Fragrances, where the churn is higher, this allows us to, what we call reset the margin much more quickly on the fragrance side than we would expect on other parts of the business.
So that's really the reason why the margin is so strong. the operational leverage and the churn of the portfolio. On the outlook for Fragrance & Beauty, and we certainly -- we talked about it in the past. I think we're very happy with where we are on the margin on Fragrance & Beauty. We have more work to do on the day side. On the Fragrance & Beauty side, it's now more about investing in the growth opportunities, and we will continue to do that, as we've always done in the past.
And with that, I'll hand it back to Gilles on the volumes.
Gilles Andrier
Yes, Nicola, thank you for your question. Yes, I guess, volume growth. I think rather than trying to generalize what's happening in the first half of the whole of Givaudan, I think what can be helpful is to split Givaudan in different parts, which we have in different ways, meaning if you take the Fine Fragrance up, as you know, which is roughly 10% of Givaudan. This is not a business where clients stock up or this is all driven basically by growth. I think the double-digit growth that we have seen for the last 4 years is reflected by what our clients sell. Reflected by what consumers consume.
And given the fact that there was no sort of destocking in Fine Fragrances last year, you cannot argue that there is enough stocking or anything. So, the dynamics are very different. And as you can see, the momentum we see on Givaudan, we did double-digit growth still around 15%, again, reflects a great performance. driven by the market but also driven by the fact that Givaudan has a very unique position where we are exposed to different areas of growth, whether on the prestige side, on the specialty side in the U.S. or LatAm and especially SAMEA, which is growing very, very strong double digits with a lot of local and resort clients.
So again, it's a healthy growth, which cannot call on its very specific. Then you have, I would say, the whole space of what I would call, the things which we sell as ingredients, and that includes the fragrancing regions, plus Active Beauty plus the Taste & Wellbeing ingredients, which are sold as ingredients. And in a way, which are very much a business which is not a just-in-time business, which is really following a different business model than the compounds on fragrance test. And this part is also very much driven especially by the supply chains of our clients, and I would not see them as again didn't -- was not impacted by any de-stocking last year and up stocking this year, whatever those types of models.
And that accounts for roughly, I would say, another 10% of Givaudan. So, then you have the compound business both on Taste & Wellbeing and Fragrances. And there, I would say that, again, we have to split between Taste & Wellbeing where you remember, we saw a lot of destocking volumes were negative last year for the division. So, the growth that we see now gets us into a sort of over a 3-year period gets us into a normal pattern of volume growth. So, I would say that it's not about destocking, restocking. It's over time, you see that we are back to sort of a more normalized growth of volumes in Taste & Wellbeing.
And then the final part, which is Consumer Products, which had less -- in fragrances, which had less destocking last year, actually it was almost breakeven. We see a very strong, let's say, market with our clients in HPC, in Personal Care. And so, the growth that we have reflects a bit what our clients are seeing. So that's a bit what we can say. And the thing about the other element promotion that you mentioned and so forth, which I call the reverse of shrinkflation, so two-for-one and those types of promotional, we benefit a lot from that because obviously, as opposed to shrinkflation, where you sell two for one -- sorry, if you reduce the quantities in the product data, we got impacted last year.
So, it's a reverse of the shrinkflation, which where we benefit. So that's also something that is very much beneficial for us. So, to finalize the answer, how much is restocking and so forth. Yes, maybe there is a bit of restocking because our clients believe that they need obviously to grow in volumes. So certainly, that has an element, but is that unhealthy? I don't think so. And also, to finish on this.
Don't forget that we also have half of our business, actually more than half, now 55% of our sales are with local and regional clients. And for the vast majority, we don't publish their figures and those clients are growing very much. So, it's -- even though our global plants are growing, I would say that it doesn't reflect the entire dynamics of the market, and we are growing very strongly, again with the [indiscernible]. So, I hope it gives you a bit of a picture there on what's going on, but I think it's better to split the whole of Givaudan into at least three or four slices.
Operator
Next question is from Alex Sloane from Barclays. Please go ahead.
Alex Sloane
Thanks for taking my question. Two from me, please, Tom. Congrats and best wishes on your retirement. I noticed Stewart, as a background also in sharing a start-up in pet care. I wondered, could we read anything into this in terms of increased appetite from Givaudan to become a bigger player in supplying this end market? And any implications for M&A more broadly given his background.
And the second one, just in terms of the packaged food end market. I mean volumes here continue to be quite weak despite relatively easy comparatives from that destocking last year in terms of the end market. Do you expect improvement in end market volumes in the second half on the back of increased promotion investments by your customers? And do you think there's anything more fundamental behind the weakness in packaged food and market volumes perhaps relating to more scratch cooking avoidance of processed foods or the GLP-1 weight loss drugs?
Gilles Andrier
Yes. So, on the first question, well, pet food, as you know, is an interesting space. We are in pet, but not in pet food. Fragrance & Beauty division, we pet care of [indiscernible] and things and applications such as that. So, it's really on the pet food side, interesting space, which is growing strongly as you know. So yes, we could have some appetite, not the see to acquisitions, but it can be for innovations and basically offerings that we could make around that. Can't comment more about that.
On the packaged food, I mean, as I said, we obviously have a low comparable on the volume growth. And today, we are at plus 6%, 7% in volumes in Taste & Wellbeing, which is very encouraging. I would say let's see what are -- we're always publishing before our peers, before our clients. So, let's see what they published in terms of again, reporting on the food and beverage clients how they do on the sales.
But again, be very cautious that those publications only give a very partial view of the market because those usually are large clients, and you can see what the local 100 plants are doing. So -- and where we have a lot of exposure. So, Givaudan is exposed to packaged foods, but again, it's also exposed to anything related to healthy food, nutrition and where those trends are very strong. And that's why we are very confident in our positioning in the Taste & Wellbeing division going forward.
Operator
The next question is from Celine Pannuti from JPM. Please go ahead.
Celine Pannuti
Good morning and thanks for taking my question. First of all, I would like to relay as well my gratitude to Tom for being a great CFO and a great partner to the market. So, I wish you a very good retirement. Congrats to Stewart. My first question for Gilles. I wanted to know, given what you said on your comprehensive answer to the first question. If I look at the 4, 5 years back on the volume side, it would mean that we should see quite still a strong volume growth in H2 above the mid-single-digit growth that probably we see midterm for Givaudan. Would you agree with that?
And then my second question may be more for Tom. The Taste & Wellbeing margin is rather weak, even though there has been a volume growth and you mentioned some of the cost saving activities. Could you explain exactly what's happening there and when we're going to see maybe an uptick in this margin? And Also, could you help us understand the FX impact on pricing, to the Argentine peso has been still weakening year-on-year. If I look at Q2 versus the weakness versus Q1, yet there's been a sharp deceleration.
If you could explain that to us and how we should look at the full year impact on that basis?
Gilles Andrier
Okay. Thank you, Celine, for your questions. So, on the first one, well, as you know, we don't and we can't give a precise outlook for H2 if that is your question.
Obviously, we started very strongly with the first half of this year. The things I can say because we measure them and we have a view on them and two other things. One is the fact that business momentum continues, as I speak. Now it doesn't mean that it will be at the same pace of 6 months because I don't know. But based on the orders intake, based on the activity, based on the outlook that we have, it remains strong. The second thing I can say is that not only the big pipeline, but what we call the -- as you know, the -- what we call the projected new win meaning old and new wins, meaning all the new wins that we win are substantially increasing on both divisions. And that testified for two things. One is the activity of our clients and their confidence in the future because you innovate, you launch new products, you have confidence in the future; and two, is the ability of Givaudan to basically win more than our fair share in terms of risk, which is -- let's see how competitors are doing with the first half.
But obviously, if you look at Q1, clearly, we were gaining market share. We are confident that continues in the Q2. But the amount of new wins is also a good indication, good proxy and that's what we are committed on is to really outgrow the market as well. So that's the elements we control, the elements we measure, the elements we know. Now your comments on the 4 to 5 years back, I'm not so sure I understood your question, but it's true that if you look at the long period of time, the CAGR is like the [indiscernible], yes, there is a lot of regularity. Even if you take out price increases, we are always delivering actually today more than 5%. So that gives us a lot of confidence into the future and also because of the unique position that Givaudan has.
Tom Hallam
Thank you, Gilles, and Colin, thank you for the comments and the two questions. So firstly, on the EBITDA margin for Taste and perhaps a bit of a comparison to Fragrance & Beauty. The first point to really mention is, and I think as Gilles already highlighted, if you look on the volumes on taste today, we've got a fantastic growth, but of course, last year, we had negative volumes. So, we're really just back to almost like a normal level in terms of capacity compared to fragrance and beauty, where we have really a very strong growth, and that helps on the operational leverage.
On the Taste side as well, even in the first 6 months of the year, we have a small amount of price increase because we have raw material inflation, mainly on naturals. And so, there's a slight dilution on the margin simply as we are protecting the absolute EBITDA. Now to your question on the outlook, and I think we've been pretty consistent on this. We are taking a number of steps, and Gilles outlined them already in terms of the footprint. We expect the margin to improve over the next 18 months.
Historically, the two divisions have had similar margins. Now I don't think you should be putting taste margins where the fragrance margin is today. But if you look over the long term, where our sweet spot is in terms of the margin, and that's typically somewhere between 22% and 24% over the long term.
On Argentina, maybe I'll just give you the numbers so that it's transparent for everybody. So, in Q1, we had FX pricing of 3.4%. In the half year, we had FX pricing of 2.9%. So that implies that for Q2, the FX pricing was around 2.5%. I think what we said in the Q1 conference was if the peso stays where it is, and that's a big if, then we would expect something like 2% to 2.5% for the full year in terms of FX pricing.
Gilles Andrier
And to add on Tom's comment, that also means that we had a sequential improvement in volume growth in Q2 versus Q1.
Operator
The next question is from Daniel Burki from ZKB. Please go ahead.
Daniel Buerki
Also, congratulations on your great career, you achieve at Givaudan. Now to my question. First, nonoperating income, this is always difficult to model it was CHF30 million plus. Could you elaborate a little bit on this? What can we expect for the second half and maybe also for '25? And then regarding the optimization of the footprint, so far, you just announced that you sold a factory in Valencia. Will you announce more measures? Or is this not something happening in quiet over the next 18 months?
Tom Hallam
Yes. Thanks, Daniel, for the two questions. So, on the nonoperating, so perhaps a split between, let's say, the financial expense, which is mainly interest. And for this, you can more or less take the first 6 months and double it. for the full year. Then on the other nonoperating, as you said, it's mainly FX. So, you're right, we had a CHF30 million gain in the first 6 months. If we look at the positions that we've taken today and where we stand from a balance sheet perspective, that probably is going to be something like CHF45 million for the full year income, but that of course depends on what's going to happen from a currency perspective, over the next 6 months.
But where we sit today, that CHF30 million income would be CHF45 million for the full year. Then on the footprint, as you said, we mentioned one closure, actually the sale of the site. What we tend to do is we've done some silent closures. We will have probably some more public announcements over the next few months. So, it's a bit of a mixture. But we have a very, very clear footprint plan that we plan to execute over the next few months. And that's, as I said, where we -- what we're working on from a margin perspective today.
Operator
Next question is from Arben Hasanaj from Vontobel. Please go ahead.
Arben Hasanaj
I would have two questions. The first one would be around the North American market in Taste & Wellbeing. So there, I was wondering if you can provide any color on the channels, especially retail and food service if there are any deferring trends there? And what is the exposure of Givaudan in terms of those channels? And the second one related to those improvement measures. So, do you have any, let's say, run rate of savings that you expect by the end of this year and maybe also next year? If you can share anything.
Gilles Andrier
Yes. Thank you. So, on North America, so the exposure -- so basically, what are we doing? So, we are essentially, again, acting on what we can influence and control, which is really the activity on bridge on pipeline and winning those projects with our clients and winning more than our fair share. And this is really very instrumental and the only way to do better than what the market does.
And we are making great progress on that, with all the wide range of clients. So, this is very encouraging product. In terms of market, the challenge you're referring to. What I see, what we hear is that there is a bit of softness on the out-of-home type of consumption, which deals with obviously food service. But as you know, when anything that we flavor when food service slows down, the in-house sort of packaged food increases, one compensates the other in the way.
But the amount of food service versus the rest is actually not minimal, but it's really the minority of what we do in the U.S. and overall in the world. So that's a bit what we can say. Still a lot of activity also around, yes, packaged food, but really about the health and wellness type of platforms on Nutrition. Yes, the whole protein, obviously, alternative proteins had slowed down in '23, but more on the animal protein replacement as opposed to the dairy protein replacement, which is still very active and where we have a lot of projects. So that gives you a bit of color very, as I said, quite good momentum overall, not only in the U.S. but around the snacks and the beverage, let's say, segments of the Taste & Wellbeing division.
Tom Hallam
And Arben, just on the margin. I mean, we -- we're trying to keep it simple for ourselves and for you as well. Maybe the best indicator is what we've said in terms of where we want to be on margin. So, we like to be at this sweet spot of somewhere between 22%, 24% on the margin. We expect to get there over the next 18 months. And nothing as I've mentioned quite often, that's in both divisions. So, we have opportunity on the Taste side. And I think we've got a strong track record of delivering on what we say. And if you look at our results, even over the last 18 months, we made -- we took some actions on -- in the first half of last year, and we delivered the savings.
And as I said, we're continuing to do that on the Taste side as we speak.
Operator
The next question is from Georgina Fraser from GS. Please go ahead.
Georgina Fraser
And yes, also to extend my thank you to Tom and all the best for the next chapter. I've got two questions. The first is -- could you please talk about your raw material procurement strategy, highlighting if you've got any particular geographical dependencies on where you're buying raw materials from? If there are any measures that you're already taking given the rising possibilities of global tariffs of goods around the world? And then my second question is, looking at the balance sheet, would you agree we're making quite a good dent in improving your leverage position this year. So, Tom, you're handing over to Stuart, quite a healthy-looking balance sheet. If you could just talk us through how Givaudan has been thinking about its capital allocation priorities in the context of delivering very strong growth. What would you see as the best usage of your balance sheet going forward?
Gilles Andrier
Yes. Thank you. So, I'll take the first question. Our raw material procurement strategy, first, what you have to take into account is that we are in an industry which is highly specialize. Ourselves, we buy 15,000 different ingredients. But for any of those ingredients, you don't have 1,000 different sources. Obviously, very natural you have to source it from very specific countries because that's basically with what nature governed in a way. And on the synthetics, obviously, there is a high dependency on China, where you have a lot of suppliers, but you have -- you see a lot of diversification on the synthetic sourcing with India or even in Europe.
So, the way we -- because it's so specific, the way we do it is that the first criteria is not necessarily the geopolitics literally to make sure that we build alternative supplies that we have backup plans that we have to actually make sure that not only we protect our supply chain, but we're also effective at creating a competitive environment with our suppliers. So that's really what we do with the procurement strategy. We -- it doesn't mean that we don't look at geopolitics because obviously, you -- we cannot interrupt our supply chain.
We are -- if you remember the whole situation, which was not driven by geopolitics, but the [indiscernible] a few years ago, really put the whole industry upside down. And therefore, we have to find a lot of alternatives. So, we are doing that on a continuous basis, proactively building business continuity plans, alternative supply chains and so forth. And so far, I think we've been very good protecting our clients in the first place, making sure that the service levels are not dented by any disruptions in our supply chain. And Tom, on acquisition.
Tom Hallam
Yes. Thank you, Gilles. And so, Georgina, thanks for the question. I hand the first strings over to somebody like yourself, a fellow Scott, so in very, very safe hands.
You're absolutely right on the balance sheet. We've continued to delever. Even in the first 6 months, it's reassuring to see the strong cash flow generation. The net debt-to-EBITDA is 2.9 times, normally, which is actually flat compared to December 2023. Normally, the net debt goes up because we pay the dividend, but actually, we're flat net debt June to December.
Now in terms of capital allocation going forward, I think the first one, as you've seen historically, a very, very strong practice of returning cash to the shareholders. with the year-on-year increase in the dividend. Then the second element is really the bolt-on acquisitions. And I think we've had a fantastic track record of the M&A.
If you look at where we're focused from an M&A perspective, three areas. The first is local and regional clients, as Gilles mentioned a couple of times, we've had fantastic growth in the first 6 months of the year, driven by local and regional customers, and that will continue -- that will continue to be an area of focus for M&A. On beauty side B kolor is a great example of us moving more into the beauty space where we see growth opportunities. And then on the taste side, natural ingredients, again, consumers spending more on natural ingredients and this is a great space to be. Then clearly, I can't comment for the long term. But if you look historically, if you go back sort of 10 years, 15 years, when we delivered the balance sheet below a certain level at a certain point with no M&A opportunities, we, of course, increase the dividend to shareholders.
Gilles Andrier
With this, I think we'll take the last question.
Operator
The last question is from Matthew Yates from Bank of America. Please go ahead.
Matthew Yates
I think it was in response to Nicola's question earlier, you just to dive into a little bit of the sub-segmentation. So, I wanted to follow up on that on two aspects. The first was beverages with a double-digit growth. Is there any kind of thematic driver behind the strong growth in the category in areas where Givaudan is particularly well position to capitalize on that? And the other part of this is really consumer products within fragrance. My numbers might be a little outdated, but I think something like 40% of that business was [indiscernible]. Can you talk about as a category are you seeing strong growth in terms of dosage level, reformulation or anything that would reassure you that this isn't just a restocking phenomenon at play?
Gilles Andrier
Yes. So, on the first question on beverages, historically, actually, it's in the -- Givaudan is very strong in beverages. That's a bit not only our legacy but data many, many, many years ago. That was really the very strong positioning of Givaudan at itself, then we diversified with savory with the health addition of [indiscernible] from the say plus 20 years ago.
So, beverage is really at the heart of Givaudan. It means the knowledge that we have with our flavors, the application, but also fueled by all the things that went down on health and wellness, taking sugar out for nutrition and sports drinks and then alcohol shots that we saw in the U.S. So basically, it's a space where we have always been very strong, fueled also by a very strong relationship we have with beverage clients. That we have entertained and maintained for many, many years. So, this is really a strong position. The fact that the double digit has a lot to do also with the fact that, yes, the market is growing nicely in beverages.
And I would say that -- so we are very well positioned in an attractive market going forward. It's roughly 30% of the whole base on well-being. On Consumer Products, so yes, as you can see, it's a very strong momentum. So, it's -- the part that you mentioned is less than 40%. It's more in 1/3 of the consumer products. And there is also a very strong position around fabric detergent powder, liquid, fabric softeners. And there, I would say that the environment is certainly fueled by the fact that as we have -- as our HPC clients looking at volume growth, understanding fully the importance of fragrance to attract -- basically -- and there, we don't have the transparency, but we suspect that they increase the dosage level that they -- and we also see that, let's say, they put more value into the -- what we call into the juice.
Because we see that with briefing pricing points and so forth. So, there is certainly an environment today where a very positive environment around fabric care, but not only fabric care, it applies also with the other segments. Where as you want to attract consumers that want to fuel volumes growth, smell and fragrances being the leading but for a consumer to re-consume the same product all after that are putting the effort there, and that's very welcome, and we see that.
So that's certainly a very positive trend. And to that, I have to add technology, which applies actually on the fabric care with -- two things. One is in capsulation where Givaudan has a very leading position in interstation technologies and especially biodegradable capsules, which is the whole fragrance much more effective. And two, something called Pegasus -- we have at least 10 precursors that we launched new precursors and which are a bit doing the same as seeking the same goal as an in-capsulation technology where precursors are there to -- when they clear on public or even on [indiscernible] with [indiscernible] boost the fragrances. And this is, again, geology that we have worked for many years and which now come fully embraced by our plans.
So, all of those things gives us a good movement a very good position in this space.
Matthew Yates
Thanks so much.
Gilles Andrier
Okay. So that concludes our Q&A session. Thank you very much for your interest and questions. And remind you that we look very much forward to welcome you at our summer investor conference on the 28th of August '24 in the traditional bidder Hotel in Zurich. This year, we'll talk in more details about our active duty business. I think it's been a formidable, I would say, entrepreneurial story that we have embarked 10 years ago, building a great business. And now embarking into a similar, let's say, journey with makeup with the [indiscernible].
So, a very interesting topic to discuss and present you at the end of August. In the meanwhile, I wish you a very good summer time and inviting you obviously to register advance on our website or send an e-mail to our Investor Relations team. Thank you very much.