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Record low vitamin prices drive down DSM-Firmenich results

DSM-Firmenich reported weak financial results in its animal nutrition and health (ANH) segment, driven by record low vitamin prices, in its third quarter 2023 report on October 31.

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DSM-Firmenich reported weak financial results in its animal nutrition and health (ANH) segment, driven by record low vitamin prices, in its third quarter 2023 report on October 31.

The company recorded a 7% organic sales decline with -1% pricing and -6% volumes, which includes the negative vitamin effect. Without this effect, prices would have been up mid-single digit and volumes would have been down low-single digit.

“In the current global economic environment, we are working hard to mitigate the effects through strong internal actions,” said CEO Dimitri de Vreeze. “To this end, we are driving a broad range of self-help measures, with the largest contributor being the vitamin transformation program. In addition, we have pushed harder on cash flow, a key priority for us, and see good improvements this quarter. At the same time, we remain relentlessly focused on the successful integration of the merger and the delivery of our targeted synergies.”

Overall global animal protein consumption has remained resilient, the company said, driven by poultry, with demand in China now stabilized, albeit with a slower recovery than expected. However, ongoing destocking of animal protein continues to lead to an imbalance in the global feed additive marketplace, it added.

ANH saw a continuation of the exceptionally challenging conditions of the first half, owing to the unprecedented low level of vitamin prices which slipped further during the quarter due to oversupply in a weak market.

Organic sales declined by 13%, comparing to the same prior year period, driven by weak sales of straight vitamins, partly offset by performance solutions that recorded another strong quarter. Performance solutions, such as enzymes, gut health solutions, and mycotoxin management, all benefit from farmers prioritizing feed efficiency yield management. The strong growth is supported by contributions from the Performance Solutions’ innovation pipeline, which includes Bovaer, Balancius, ProAct360, HiPhorius, Mycofix and Veramaris.

The continued unprecedented conditions in vitamins are being addressed by prioritizing cash generation through halting vitamin production in order to drastically reduce inventories, which will continue into the final quarter of the year. Lower input costs are booked but become evident with a delay through inventory.

The ANH team is fully focused on the vitamin transformation program, which was announced in June 2023. The EUR200 million (US$211.5 million) cost reduction program is well underway to deliver a contribution of around EUR100 million adjusted EBITDA in 2024, and the full benefit of the program in 2025.

The third quarter 2023 adjusted EBITDA was down 91% year-on-year, with a vitamin effect of about EUR120 million. The adjusted EBITDA margin remained at similarly low levels to second quarter 2023, because of lower vitamin prices, lower volumes and higher costs.

DSM-Firmenich has embarked on a comprehensive set of short-term and mid-term focused actions:

  • Cash focus: Addressing the challenging near-term conditions with a wide range of cost reduction and cash flow improvement actions such as decreasing inventories and optimizing capital expenditure
  • Vitamins: Improving the profitability of its vitamin activities and structurally reducing exposure to volatility from price fluctuations. The vitamin business transformation with a EUR200 million cost reduction program, including plant closures, route-to-market simplification, and optimized service levels
  • Integration: Driving the merger-related integration and revenue synergies according to the strict time plan as communicated, and accelerating the cost synergies
  • Strategic segment reviews: Looking across all segments to prioritize and accelerate high-growth and higher-margin businesses

DSM-Firmenich estimates for fiscal 2023, on a pro forma basis, an adjusted EBITDA of approximately EUR1.8 billion, which includes an estimated negative vitamin effect of about EUR500 million as well as a negative foreign exchange effect of about EUR90 million.

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