Koninklijke DSM N.V. (KDSKF) Q4 2022 Earnings Call Transcript

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Koninklijke DSM N.V. (OTCPK:KDSKF) Q4 2022 Earnings Conference Call February 16, 2023 8:00 AM ET

Company Participants

Dave Huizing – Head-Investor Relations

Geraldine Matchett – Co-Chief Executive Officer

Dimitri de Vreeze – Co-Chief Executive Officer

Conference Call Participants

Ranulf Orr – Citigroup

Andrew Stott – UBS

Martin Rödiger – Kepler Chevreux

Nicola Tang – BNP Paribas

Matthew Yates – Bank of America

Chetan Udeshi – JP Morgan

Isha Sharma – Stifel

Gunther Zechman – Bernstein

Dave Huizing

[Call Starts Abruptly] afloat twelvemonth 2020 [ph] results. I'm Dave Huizing and nan Head of Investor Relations. I'm pinch our Co-CEOs, Geraldine Matchett and Dimitri de Vreeze.

Firmenich besides published this greeting their 2nd 4th 2022 results. Although we are now entering nan last shape of nan merger process, we are still afloat independently operating companies, and we can't return immoderate questions astir Firmenich today.

As to our ain results, Geraldine will springiness a short preamble by moving you done a fewer slides of nan position to investors, which we published this greeting together pinch nan afloat twelvemonth property release, which you tin find connected our website. He will besides find nan disclaimers amongst others astir forward-looking statements. After his introduction, we will unfastened nan statement for questions from sell-side analysts. And pinch that, Geraldine, you tin start.

Geraldine Matchett

Thank you, Dave. And welcome, everyone, from maine arsenic well. Thank you for your clip and for your liking successful DSM.

Now arsenic you tin imagine, we are so very excited astir nan merger pinch shareholders to actively tender their shares successful speech for DSM Firmenich shares. But of course, today, nan attraction is connected our DSM results for 2022, which we published this morning.

So I will commencement pinch a fewer comments connected immoderate of nan slides of nan investor presentation. And then I will beryllium handing complete to Dimitri, who will adhd immoderate colour pinch regards to nan business conditions that we are seeing astatine coming and our capacity successful position of our ESG [ph] ambitions. And past arsenic Dave conscionable said, we will unfastened for nan Q&A.

Now arsenic a reminder, of course, nan twelvemonth 2022 has been a twelvemonth pinch a batch of translator for not only nan announcement of nan merger pinch Firmenich, but besides uncovering caller homes for DSM Performance Materials and DSM Engineering Materials. Now nan disposal of DPM was completed successful September 2022 and nan divestment of Engineering Materials is now fresh for closing and is planned for nary later than April 2023. So beautiful soon, which is, of course, an important measurement arsenic good successful narration to nan merger.

Now reporting-wise, what does that mean? Well, it conscionable intends that our Engineering Materials business is reported arsenic plus held for waste successful nan equilibrium expanse and arsenic discontinued operations successful nan income statement. So each our comments successful nan slides present are prepared pinch reference to nan continuing operations arsenic successful health, nutrition and bioscience.

Now having said that, past fto maine so spell to these continuing operations connected Slide 3, to springiness you nan financial highlights for nan year. Now arsenic you tin spot connected this slide, we've had really a very coagulated capacity successful 2022. And that is somewhat contempt each of nan challenges successful position of proviso concatenation volatility arsenic good arsenic nan importantly higher costs, beryllium it power cost, earthy materials, et cetera. If I commencement pinch nan afloat twelvemonth performance, you will person seen successful nan property merchandise successful present that we person delivered a afloat twelvemonth integrated maturation of 8%, driven by a beardown pricing constituent to counter, of course, nan inflationary situation pinch up 7% connected pricing, but besides pinch coagulated volumes. Consolidating nan truth that past year, we really had highly high, adjacent to double-digit measurement growth. So nan positive 1 is versus a precocious comp and therefore, really consolidating our capacity here.

Now successful 2 words, really did that cookware retired betwixt nan businesses, and I'll travel backmost to that. Well, Health, Nutrition & Care and Food and Beverage had beardown pricing and coagulated measurement while our Animal Nutrition & Health business had to contend pinch a fewer further factors specified arsenic softer demand, peculiarly successful China, debased vitamin prices, towards nan extremity of nan twelvemonth and besides successful their case, really a double-digit comparative group of figures.

Now successful position of our EBITDA performance, this has led america for nan afloat twelvemonth to present a 2% summation successful EBITDA, which translates into a separator of 17.9%, which is down versus past twelvemonth by 260 ground points, which is astir relating if I return large buckets half relating to nan clip spread betwixt costs going up and our expertise to value them through, and nan 2nd half related to nan mathematical effect of much apical statement to execute nan aforesaid earnings. So astir half-half.

Now looking connected nan right-hand broadside astatine nan 4th quarter. So successful nan 4th quarter, we saw wide continued resilient demand. Organic growth, arsenic you spot present of 3% was driven by continued bully pricing. And nan volumes bespeak really precocious comparative figures for each of nan businesses arsenic good arsenic immoderate destocking, which together make it this minus 3%.

Now pinch regards to net for nan quarter, we saw an acceleration successful nan ostentation successful earthy materials. We saw little prices for immoderate supra vitamins. And arsenic you whitethorn callback from our Q3 net call, we person taken immoderate measures to trim our inventory. And each of this is reflected successful this adjusted EBITDA of €316 million, which is down 11% versus anterior twelvemonth and successful nan separator of 15.2% for nan 4th that, of course, besides carries present nan mathematical effect that we person seen passim nan twelvemonth linked to inflation.

Lastly, successful position of rate generation, these measures that we did return successful position of inventory management, did alteration america to person a bully rate procreation successful nan quarter, which was very adjuvant successful ending nan twelvemonth pinch immoderate free rate flow.

Maybe past comments and that is much looking a spot into really did we get into 2023, well, we person seen beautiful overmuch nan aforesaid business conditions that I've conscionable described for Q4 going into Q1. Meaning that we proceed to spot a clip spread betwixt ostentation and costs pinch nan residual ostentation carryover into 2023. We besides person those little vitamin prices and nan inventory simplification measures that we initiated successful Q4 besides are implemented successful Q1. So beautiful overmuch expecting akin Q1 to Q4 successful position of dynamics momentum. Of course, we navigate this pinch each of nan actions that we've taken successful nan past, which is continued pricing action but besides a attraction connected our rate procreation and connected costs guidance arsenic always.

Now earlier going into each nan 3 different business groups, fto maine conscionable region connected nan adjacent slide, which is Slide 4. Just concisely to item nan truth that our businesses person each delivered immoderate bully value integrated maturation past year, really underpinning nan truth that we are serving Brazilian extremity markets. And this is contempt arsenic you know, challenging macro and comps. So conscionable a bully wide image here, nan publication of each of nan 3 businesses.

Now fto maine springiness you a spot much colour business by business, and I'll commencement pinch Animal Nutrition connected Page 5. Now here, fto maine commencement really pinch Q4. In nan 4th quarter, Animal Nutrition saw bully pricing momentum peculiarly successful Performance Solutions coming connected apical of what was already a 7% pricing successful Q4 past year. However, this has been partially offset by nan little vitamin prices, which results successful this positive 2 for nan full of nan business, truthful positive 2 pricing successful nan 4th quarter. Volumes were down 2%, reflecting present nan very precocious comp of past year, comparative figure. As past twelvemonth successful Q4, we were astatine positive 11% successful volumes. So astatine nan clip when, if you recall, a batch of customers were actively building immoderate banal fixed concerns astir proviso concatenation reliability.

Now request for animal macromolecule remained really wide resilient. And our Performance Solutions performed peculiarly good arsenic acold arsenic continued to effort and increase, peculiarly their provender efficiency.

Now looking astatine business conditions and for nan afloat year, truthful we saw a afloat twelvemonth Animal Nutrition, present this integrated maturation of 6% mentioned already and very overmuch related to pricing. Poultry and eggs performed well. And Pork besides began – sorry, Pork besides began to spot a normalization connected nan swine marketplace successful China.

Ruminant and aquaculture had a much challenging group of conditions, owing to nan comparatively higher value points successful an situation of, of course, [indiscernible] user environment.

In position of EBITDA, Animal Nutrition & Health realized an adjusted EBITDA of €546 cardinal successful 2022. And pinch a afloat twelvemonth adjusted EBITDA separator of 14.4%, which is astir down 300 ground points versus anterior year, reflecting present nan drivers that I've described and of course, nan mathematical dilution effect.

Now successful Q4, nan separator besides suffered a spot much fixed nan afloat 4th effect of nan little prices of immoderate vitamins and nan inventory simplification actions that we talked about.

Maybe a fewer speedy words connected our cardinal innovations. So if we look present astatine nan logos, fto maine commencement pinch Bovaer. So Bovaer, we saw nan motorboat of galore commercialized pilots astir nan world and also, of course, nan creation of our strategical confederation pinch Elanco for nan U.S. market. We person gained galore regulatory approvals during nan year. In fact, I think, we are astir much than 45 countries now. So really a awesome step, including nan landmark approval, of course, successful nan EU astatine nan commencement of nan year. We also, for Bovaer successful November, began nan building of nan manufacturing installation successful Delray successful Scotland.

Now erstwhile it comes to Veramaris, we saw a beardown summation successful sales, owing to a continued accrued liking successful sustainable algae-derived omega-3 successful nan salmon industry. And we are besides seeing continued bully liking successful nan pet nutrient and quality nutrition segment.

And erstwhile it comes to precision services, 1 of nan news is that we've introduced Sustell, our biology effect guidance exertion to nan aquaculture space. And we besides accrued nicely our footprint successful precision services by doing nan acquisition of Prodap, Brazil's starring animal nutrition and exertion company. So that was for Animal Nutrition & Health.

Now moving to Health, Nutrition & Care, truthful HNC. Now for HNC, successful 4th four, we saw a bully capacity pinch this 6% integrated maturation supported by a very beardown pricing of 11% to, of course, antagonistic rising costs. Volumes were down 5%, against, again, a beardown comparative group of figures past twelvemonth that had nan positive 6%. But besides pinch nan request for immune boosting dietary supplements normalizing somewhat versus nan elevated level that we had during nan highest of COVID, arsenic good arsenic immoderate customer destocking. Probably worthy reminding you that, of course, successful 2020 and 2021, immunity support successful dietary supplements grew importantly good into nan double-digit CAGR, and it is not truthful astonishing but now that COVID is amended nether control, peculiarly during nan wintertime season, that we spot this class return a spot of a breather. But nan request successful dietary supplements successful nan different categories really has continued to beryllium good.

Now if we look astatine from a afloat twelvemonth constituent of view, nan capacity by segment, truthful Health Nutrition & Care wide for nan twelvemonth delivered a beardown integrated maturation of 9%, pinch nan 7% value increase. Now request wide was good, particularly really successful nan dietary supplements categories of gut wellness and women health, but we besides saw a bully capacity successful Pharma and successful Medical Nutrition. Biomedical had a beardown twelvemonth and individual attraction and aroma arsenic well, while Early Life Nutrition continued its recovery.

When it comes to EBITDA, HNC delivered an adjusted EBITDA for nan twelvemonth of €676 million, we're translating into a separator for nan twelvemonth of 23%, which is astir 150 ground points down versus 2021 carrying present arsenic good nan dilutive effect of nan beardown pricing that you spot here.

Now a mates of news connected nan invention front. So possibly I'll commencement pinch ampli-D truthful nan ampli-D, which is nan faster moving shape of Vitamin D, proceed to person approvals successful countries astir nan world, really paving nan measurement for customers to see it successful their offering. Saw a bully advancement there.

iHealth launched its first gummy for children nether nan taste marque that supports not only immunity but besides digestion and imagination done combining its lithium-based imagination wellness product, FloraGLO. And Hologram Sciences launched a caller customer brand. You spot nan logo present called Phenology that offers at-home diagnostics, hormone search and customer insights for women successful menopause.

And now going to nutrient and beverage connected Slide 7. That's nan one. So, nutrient and beverage successful nan 4th fourth delivered a bully capacity pinch an integrated maturation of 8%, driven, arsenic you tin spot here, by an 8% pricing to antagonistic higher costs. Volumes held up against anterior twelvemonth contempt nan truth that successful anterior year, we really had a 14% maturation successful Q4 which if you retrieve astatine nan clip that was nan 4th that benefited from nan reopening of out-of-home channels pursuing nan lifting of COVID restrictions.

Now connected a afloat twelvemonth basis, nan integrated income maturation reached 10%, led by pricing, but besides pinch nan volumes up 3%, representing a bully capacity again, against present a 10% anterior twelvemonth comparator. So nan comps were not easy.

Now from a conception constituent of view, Dairy, Baking and Beverage performed well. Savory was solid, and Hydrocolloids delivered a very beardown performance, while Pet Food besides had a bully performance.

From an EBITDA constituent of view, nan business delivered €266 cardinal of adjusted EBITDA, which translates into a separator of 17.2%, almost 300 ground points beneath past year, including nan dilutive effects of this beardown pricing that you spot here.

And erstwhile it comes to immoderate invention news successful F&B, while we person seen an fantabulous advancement successful our plant-based macromolecule capabilities done canola and successful – amongst others, nan preamble of nan textured pea protein, which is nan world's first textured rootlike macromolecule containing capable levels of each 9 basal amino acids to count arsenic a complete protein. So that was really a large method measurement here.

We besides launched a caller plant-based solution, a operation of nan Max Burger vegan food spirit pinch nan DSM Nutritional lipids, again, a very bully measurement there. And for Avansya here, we proceed to person bully advancement successful position of regulatory approvals successful different geographies, and we spot increasing liking from our customers for nan fermented stevia sweetener, EverSweet.

Now fto maine conscionable decorativeness pinch a mates of short comments connected different financials. Going to nan adjacent slide. So arsenic you person heard america opportunity passim nan year, we person been really holding alternatively precocious levels of inventory successful consequence to proviso concatenation concerns and to guarantee information of proviso for our customers. Now towards nan extremity of nan year, we took a somewhat different attack and decided to return immoderate inventory simplification measures. And this has really enabled america to create bully rate procreation successful Q4, but of course, for nan wide picture, nan mean superior employed for nan year, nevertheless carries these higher levels of inventory, hence, nan ROCE capacity that you spot here.

Now going to nan 2nd descent connected financial highlights, you spot present that we generated an adjusted nett operating free rate travel of €310 million. That was predominantly successful Q4, acknowledgment to these measures that we took. And if I harvester this rate procreation with, of course, nan proceeds of nan divestment of DPM, you spot present that we closed nan twelvemonth pinch a nett debt, conscionable nett indebtedness of €87 cardinal coming from €1 cardinal astatine nan extremity of past year. So, a very coagulated equilibrium expanse situation.

And possibly conscionable a mates of past words connected nan dividend. So you whitethorn callback that we paid an interim dividend successful August of €0.93. And upon nan successful completion of nan merger of DSM Firmenich it is intended that DSM Firmenich will salary a gross dividend of €423 million, which will beryllium almost €1.6 per stock arsenic a benignant of last dividend. And this is nevertheless taxable to shareholder support astatine nan wide assembly of DSM Firmenich and arsenic described successful nan offering circular.

And pinch that, Dimitri, I manus complete to you for nan latest business conditions and our sustainability performance.

Dimitri de Vreeze

Thank you. Thank you for that, Geraldine. All right. Thank you for that. I dream everybody tin perceive me. I still spot nan greenish statement astir you Geraldine truthful I don't cognize if you tin perceive me. But…

Geraldine Matchett

I tin perceive you good Dimitri, I think.

Dimitri de Vreeze

Will springiness it a leap of religion disconnected we go. So you spot connected this enormously engaged slide, which you're usually utilized to us, our proposition connected what we expect for business condition. And I deliberation arsenic you person seen from our property merchandise and erstwhile again connected this slide, fixed nan projected merger process is advanced. It is intended that we arsenic DSM Firemenich will supply an outlook for 2023 erstwhile DSM Firemenich person been consolidated and nan mixed business scheme is approved.

We expect akin conditions successful Q1 arsenic we saw successful Q4 for DSM pinch EBITDA being impacted by continued value costs gap, little vitamin prices and nan effects of inventory reductions, arsenic already indicated by Geraldine successful nan beginning. And we are navigating this volatility done pricing actions partially to mitigate residual inflammation, ostentation for predominantly nan first half but besides amended rate travel further done reducing inventories and focusing connected nan operational cost.

The first half of 2023 will beryllium anemic fixed nan residual inflation, softer request and continued effect from vitamin prices. But we expect a stronger 2nd half of nan twelvemonth arsenic nan ostentation overhang eases and volumes will prime up again aft a play of destocking successful nan first half. The large mobility people for each of america successful 2023 will beryllium really ostentation will develop, and location is still a wide scope of imaginable outcomes and fto maine not estimate connected that outcome.

Looking beyond nan adjacent quarters, while we expect near-term conditions to stay challenging, we are assured and corroborate our midterm targets for DSM fixed our beardown pipeline of innovations and nan affirmative structural semipermanent drivers for our business, which is geared astir wellness for group and wellness for planet.

Let maine spell to nan adjacent slide. As you are utilized to for DSM, we are a PPP company, people, satellite and profit. Let maine usage nan past 2 slides to springiness you a spot of an update connected advancement made connected nan satellite position first. So present you spot nan slides pinch nan 3 cardinal targets astir our ESG ambitions. As a leader successful sustainability, we worth aliases what we tin do based connected advancement made. And I'm very happy to opportunity that we person accrued our target for cutting greenhouse state emissions from our ain operations, Scope 1 and Scope 2 for nan 2nd successive year. The caller target of an absolute simplification of 59% from 2016 levels by 2030 has been independently validated by sign-based targets and is aligned pinch limiting world informing pinch 1.5 degrees. Partly imaginable because a immense advancement connected our renewable energy. You tin spot that present 78% afloat committed to nan 100% renewal by 2030. And having these 2 coupled, it is creating a roadworthy representation to our committedness to beryllium nett zero by 2050.

Also proud to say, you tin spot it connected nan descent arsenic a 4th bulletin, we have, again, beryllium acknowledged by CDP, a starring evaluator of firm biology disclosures which awarded nan company's ambiance alteration strategy and h2o stewardship M&A rating, making DSM 1 of only a fistful of companies successful its assemblage worldwide to execute specified recognition.

Now let's move to wellness for people. Let maine commencement pinch safety. If you tin move this slide, fto maine commencement pinch information which we usually ever do wrong DSM. We commencement presentations pinch information because it's a instauration we are built arsenic a company. We're not happy pinch nan wave scale of recordable injuries, you've seen 0.28, which is simply a deterioration from anterior year, wherever we fundamentally person taken actions to make judge that we proceed to besides create a safe situation and a safe moving spot for each our employees, but besides each our contractors connected our sites.

In wellness, DSM implemented various initiatives passim nan twelvemonth to support our labor and their families from nutrition, immunity attraction to intelligence health. And I'm besides very happy to opportunity that we besides made bully advancement connected our diversity, equity and inclusion efforts and you tin spot that present pinch nan practice of women astatine executive level that improved again this year.

Overall, very happy to opportunity that our group demonstrated a awesome perseverance successful 2022. And I besides person to say, I'm very proud of really each our labor reacted to nan federation inaugural we started pinch our partner Wolfoo program, Turkish bid to conflict nan earthquake and rehab.

And pinch that, Dave, I think, now clip to unfastened nan level for questions.

Dave Huizing

Yes. Indeed, I deliberation it's time. So let's do that. Let maine punctual you that nan sell-side analysts who want to inquire questions person to registry via audio convention link, which they tin find connected nan website for illustration we ever do. And I deliberation we are fresh erstwhile I look astatine nan route. So operator, please, let's commencement nan Q&A Session.

Question-and-Answer Session


Thank you, Mr. Huizing. [Operator Instructions] The first mobility is from Ranulf Orr [Citigroup]. Orr, please spell ahead.

Ranulf Orr

Hi there. Thank you very overmuch for taking nan question. Firstly, please, could you conscionable thief america somewhat amended understand nan trajectory of measurement maturation for nan 3 Nutrition conception into Q1 and what your customers are taking astir destocking there?

And secondly, please could I conscionable inquire astir nan opportunity from China reopening. I deliberation backmost successful nan first half results past year, you said it was a 3% resistance on, connected EBITDA. Is that nan benignant of magnitude successful betterment we could expect if we do person reopening? Or fixed nan level of destocking and debased inventory levels successful nan country, we could spot a overmuch bigger uplift? Thank you very much.

Geraldine Matchett

Thank you very overmuch for your questions. Appreciate it. Dimitri, do you want to commencement connected nan measurement developments, I was conscionable taking our exertion was working.

Dimitri de Vreeze

Yes. It is moving indeed. I couldn't aliases nan afloat question, but it was what we spot successful position of measurement improvement from past twelvemonth into this year, surely is what I understood. So first of each what we person seen is wide conditions for 4th four, we spot proceed successful 4th 1 and that has to do pinch nan vitamin prices. It has to do pinch nan clip gap, and it has to do pinch immoderate of nan destocking we see. So that is wide what we spot going into 2023. We besides indicated that possibly nan first half will spot a different setup successful nan 2nd half based connected immoderate of nan ranges of Adcom connected inflation, but we request to spot really that looks at.

For volumes connected animal nutrition, location is an absorbing portion there. There are tons of group who say, "Hey, do you don't spot immoderate changes connected your resilient request successful position of volumes." You've seen that we person beautiful resilient request successful 2022, but it has to do pinch different species. What we person seen is down trading successful that segment. We've seen that poultry and eggs person grown faster than for instance, ruminants. And that is thing which is linked to nan inflationary context.

Secondly, I'm bridging to your 2nd mobility connected China. Indeed, China is simply a cardinal constituent for animal nutrition and macromolecule request for 2 reasons. One is China is nan biggest state successful position of macromolecule consumption. So if China is opening up, and we spot immoderate signs of China opening up, though slow successful itself. So we still request to spot really that evolves. And secondly, if China is opening up, you besides cognize that China is nan biggest shaper of vitamins.

And I've intelligibly indicated past clip besides successful our calls, that location is simply a costs comparison wherever we are lacking compared to China, if you look astatine nan power pricing. So China could person 2 affirmative effects, but we don't spot that arsenic we speak. We spot immoderate bits and pieces, but surely not consistently. So I would move this much into nan 2nd half than successful nan first but hey, this is thing which will germinate passim nan adjacent coming months. So fto maine region here.

Ranulf Orr

Very cleat. Thank you.


Your adjacent mobility will travel from Andrew Stott pinch UBS. Please spell ahead.

Andrew Stott

Hey. Good afternoon, Geraldine and Dimitri. Thanks for taking nan question. So first 1 was conscionable a spot much granularity connected your Q1 commentary, conscionable fixed your – there's nan absence of guidance for nan twelvemonth arsenic well. Geraldine, I'm conscionable requoting what you said. You said that you expect a akin Q1 to Q4 successful position of dynamics; but tin we talk absolute EBITDA? Because if you look astatine nan past 3 aliases 4 years, you've typically made 30 million-ish other EBITDA, I guess, because of trading days conscionable normal seasonality. Is nan remark you're making circumstantial to normal seasonality? Or are you really benignant of suggesting that absolute EBITDA will beryllium akin to Q4? So that's nan first question.

The 2nd mobility is astir rate conversion. I see, obviously, nan activity you've done has improved nan rate merchandise successful Q4, arsenic you mentioned. But what do you deliberation is simply a normal level of moving superior to income for nan Nutrition business. I conjecture we conscionable don't person a batch of humanities information to spell on. So really would you put that 12 months successful a benignant of longer-term framework?

Geraldine Matchett

Thank you, Andrew, and acknowledgment for your questions. So fto maine commencement so pinch what we're seeing successful Q1. And here, we besides recognize that fixed nan circumstances tin springiness you a afloat twelvemonth outlook. We besides usually don't talk to nan quarter. But here, I deliberation it's adjacent that we are successful a position to benignant of beryllium rather clear that fundamentally nan elements that brought down nan EBITDA, some absolute and separator successful Q4 are going to beryllium akin successful Q1. So we're looking – if you remember, nan Vitamin A, for example, connected a afloat 4th basis, has presently an effect of 20 million, 25 million. You tin expect to spot that hap successful Q1.

As you tin imagine, nan prices really are not yet coming backmost up. We person nan clip lag, which is nan 2nd important constituent that we person been moving aft inflation. We spot a clip lag of a akin benignant of magnitude going into Q1 and nan inventory measures are besides – we've started successful Q4, but really a batch of nan measures are successful Q1. So erstwhile you put that together these are nan elements that you tin expect to beryllium – that we're picking up successful Q1.

So it is going to beryllium from, if you deliberation a separator improvement constituent of view, arsenic we saw possibly successful 2022, we saw our separator benignant of spell down arsenic nan twelvemonth progressed. We will beryllium starting from nan debased guidelines and past progressing upwards retired of nan momentum that we return – we took retired of Q4. So that's really what I tin stock astatine this point. So a gentle commencement to nan twelvemonth would beryllium nan champion measurement of describing it.

Now erstwhile it comes to rate conversion, you're perfectly correct that we person not had a clear image for rather a while now, because if you deliberation of each of nan COVID disruptions for 2 years and past each nan proviso concatenation issues past year, we are now successful nan mobility of bringing down nan moving superior spot by bit. I don't – it will return america a spot much time. Maybe successful position of figures, I do want to constituent retired nan truth that our DSO is really beautiful normal currently. It's successful nan 60s. So it's really 66 days. Our payables are successful nan 80s. So that's besides beautiful normal. What is connected nan precocious broadside is inventory. So we closed nan twelvemonth pinch 145 days of inventory.

And here, you person a constituent of volume, which is astir a 3rd successful position of nan maturation versus erstwhile position and two-third is really nan ostentation that's successful nan equilibrium expanse worth of inventory and nan FX. So to springiness you an absolute benignant of what would beryllium nan correct number is simply a spot difficult. What we do expect though is to person a constricted outflow connected moving superior arsenic we unwind this position during nan twelvemonth 2023. So from a rate generation, we should beryllium seeing, hopefully, not a large – astir apt still a spot of an outflow because of growth, but a mini 1 for nan twelvemonth 2020.

Andrew Stott

Thank you.


We'll return our adjacent mobility from Martin Rödiger pinch Kepler Chevreux. Please spell ahead.

Martin Rödiger

Thank you. Coming backmost to nan guidance. Assuming location is nary merger pinch Firmenich, would you opportunity that nan existent statement estimates by [indiscernible] Research for DSM connected a stand-alone ground for 2023, are accurate? And does your reply mention to each levels of nan P&L aliases solely connected EBITDA?

And nan 2nd mobility is connected nan depreciation charges, which were successful nan 2nd half 2022, 10% up year-over-year and 12% up versus nan first half. What was nan logic for that? Is that driven by depreciation aliases by amortization? Thanks.

Geraldine Matchett

Hi Martin, and acknowledgment for your questions. So I person to say, we very seldom remark connected nan awesome activity done by nan waste broadside erstwhile it comes to consensus. It is simply a vulnerable point to do, and you tin ideate we didn't springiness an outlook for nan year. So maine commenting connected really we admit nan statement would beryllium a akin benignant of thing. So fto maine not do that. But what I tin opportunity is, of course, reply your mobility connected depreciation and amortization. So what we are seeing is really a operation of both, and if we look we really closed, I deliberation pinch 165 cardinal per 4th depreciation and amortization. And here, you person some included nan summation has travel from nan amortization of acquired intangibles done nan acquisitions. So that besides fits successful location and to immoderate extent, benignant of a sustained depreciation level. So connected a stand-alone, this is broadly what we would expect to spot going guardant arsenic well.

Martin Rödiger

Thank you.


We'll return our adjacent mobility from Nicola Tang pinch BNP Paribas. Please spell ahead.

Nicola Tang

Hi everyone. Thanks for taking nan question. And nan first one, talk a small spot astir destocking successful quality wellness and Geraldine, you mentioned successful your provided remarks. Can you conscionable clarify, is that conscionable successful directory settlements? Or is that besides successful different markets successful humans? And would you expect wrong nan benignant of comments you've made astir guideline to nan grade you've fixed comments connected guidance outlook. Do you expect to spot destocking benignant of grow into different markets arsenic well?

And past nan 2nd mobility connected pricing pinch nan 7% value operation successful 2022. Was location immoderate benignant of surcharges successful unit wrong that number? I'm conscionable reasoning astir into this year, really assured are you successful position of still implementing pricing, assuming I guess, against this backdrop of weaker bitumen prices and possibly benignant of destocking environment? Thanks.

Geraldine Matchett

Yes. Thank you for joining, and acknowledgment for your 2 questions. I deliberation both, of course, captious successful looking into really nan marketplace will create going forward.

Dimitri, do you want to comment?

Dimitri de Vreeze

Yes. Thanks for those questions. In nan Health Nutrition & Care, your destocking question. Let's look astatine what are nan segments of Health Nutrition & Care. So we've sewage Medical Pharma, Personal Care & Aroma, Early Life Nutrition, Biomedical that consciousness they person their ain dynamics of nan destocking portion and nan softening request is predominantly successful dietary supplements arsenic a conception and predominantly successful North America, wherever location is immoderate softening successful nan unit chains successful North America.

Remember that dietary supplement has benignant of 3 categories. So we person dietary supplement, which is iHealth which is B2C which is strong. We person probiotic income for nan bully health, which is strong. And past we person nan 3rd conception wrong nan dietitians, which is called multivitamins. And evidently we've seen a immense step-up successful multivitamin income during nan COVID play that is normalizing still astatine a higher full turnover versus 2019.

But you do spot wrong ostentation and ostentation unit besides connected nan purchasing. You do spot immoderate effect connected that portion of our business, and we do spot a spot of destocking successful that unit chain. So that to your question. And we request to spot really that further continues going guardant besides depending a spot connected nan multimillion-dollar mobility connected really ostentation corrects itself passim nan year.

Then your mobility connected pricing. Indeed, very bully pricing momentum. You besides spot that we will proceed to do so. And we've besides benignant of started further value increases because of nan residual ostentation we spot predominantly successful nan first half. Part of that 7% is and has been surcharges – power surcharges, freight surcharges but that already – freight surcharges were already partially lifted successful Q3 and Q4 erstwhile nan instrumentality and carrier prices went down. And I'm very assured that those prices will proceed to summation because we now not only return surcharges, but we make much basal ostentation valid statement prices in. So it has been portion of surcharges, but now being portion of nan structural value summation going guardant into 2024 [ph].

Nicola Tang

And possibly if you wouldn't mind america travel up successful position of connected that mobility astir your expectations for input inflecting this year?

Geraldine Matchett

Sorry, nan statement was not great. Could you conscionable repeat?

Nicola Tang

The mobility was what are your expectations for input ostentation this year?

Geraldine Matchett

Oh, input inflation? Yes. So if you remember, we had astir 10%, 11% ostentation successful our costs guidelines successful 2022. Now we spot nan carryover to beryllium astir 5% into 2023. With, of people each of nan disclaimers that 1 has to put connected this taxable successful position of really things are going to develop. But of course, erstwhile you person nan benignant of inventory rollover that we have, we cognize that we person astatine slightest 5% inflation, and that's why we expect to proceed to spot pricing required successful bid to adjacent nan value spread – nan value costs spread successful a mates of quarters coming still, yes.

Nicola Tang

Yes. Thank you.


And we'll return our adjacent mobility from Matthew Yates pinch Bank of America. Please spell ahead.

Matthew Yates

Hi. Good day everyone. I'd for illustration to travel up connected Andrew's mobility earlier, Geraldine, you mentioned you're evidently trying to trim inventory towards year-end, but we are struggling a spot by not having benignant of pro forma equilibrium expanse here, excluding nan materials business. So that 145 days of inventory you mentioned, tin you conscionable explain what you deliberation a normal level is?

And past possibly for Dimitri, since we past spoke, we had nan announcement from Novozymes and Chr. Hansen astir a combination. You've sewage various relationships pinch those 2 companies. Do you expect immoderate disruption from alteration of power clauses successful peculiar is location immoderate interest astir your sourcing of LGG probiotic for iHealth? Thank you.

Geraldine Matchett

Okay. Thanks, Matthew. Let maine commencement pinch inventory. So, what we've managed to do is trim nan inventory time count from Q3 to Q4 and astir 10 days. That brought america to 145. Now if I look astatine versus anterior year, we're closing, past twelvemonth it was 135, truthful that's a 10-day up versus 2021. But of course, what we are still surviving against is that this was nan COVID years. So location was besides a batch of uncertainty connected proviso chain, and that's why nan large mobility astir levels of banal successful nan concatenation and including our ain levels of inventory and supply.

So to springiness a patient number arsenic to what would beryllium a patient one, difficult astatine this point, but what I tin opportunity is that 1 should astatine slightest beryllium capable to travel successful – to bring it back, and retrieve successful location it's not conscionable volume, it's inflation. So it's nan costs per portion connected nan equilibrium sheet. So we person an inflationary facet that's sitting there. But we should beryllium capable to bring it backmost down to astatine slightest anterior twelvemonth 135 and past return it from there. So that's nan benignant of granularity that I tin supply connected inventory.

And Dimi?

Dimitri de Vreeze

Yes. Novozymes, Chr. Hansen fto maine not remark connected nan woody different than nan operation will make a very beardown exertion player. And there, wherever we partner pinch either Chr. Hansen and Novozymes, I deliberation nan operation will make nan business only stronger. On your spec petition connected alteration of power successful each ineligible environment, fto maine not spell into that. We will touch guidelines erstwhile that will beryllium connected nan table. We transverse that span erstwhile we're there.

Matthew Yates

Thank you, guys.


And we'll return our adjacent mobility from Chetan Udeshi pinch JP Morgan. Please spell ahead.

Chetan Udeshi

Yes. Hi. Thanks. I conscionable wanted to travel up connected immoderate of nan different comments you made earlier successful nan call. But I deliberation nan first mobility I wanted to possibly touch upon was DSM has been benignant of cutting accumulation since Q4 you've seen immoderate of nan different participants successful nan vitamins concatenation cutting production, but yet nan prices are still sinking little and lower. So I'm conscionable funny successful your thought process, what is driving nan weakening inclination that we still spot successful nan pricing? Because intelligibly nan request for provender ingredients to immoderate grade has been weaker successful immoderate parts of nan world aliases from 2nd half. So I'm conscionable curious, contempt accumulation cuts why are we not seeing prices stabilize?

And nan 2nd associated mobility is do you deliberation location is simply a benignant of a structural constituent now for DSM and nan accumulation capacities that you person successful Europe successful this high-cost situation that you mightiness person to reconsider whether you request to beryllium producing immoderate of these ingredients needfully successful Europe? Or you deliberation nan profitability astatine nan infinitesimal is still patient capable for DSM to prolong nan accumulation successful Europe, particularly successful Switzerland? Thank you.

Geraldine Matchett

Thanks for those questions. Appreciate it. Dimi?

Dimitri de Vreeze

Yes. Thanks for those. So first of all, nan vitamin you're referring to, which is been nether unit Vitamin A for nan remainder of nan vitamins we spot stabilization, and I'll travel backmost to your mobility connected Europe versus nan remainder of nan world. So connected nan Vitamin A, this is intelligibly an area wherever astatine existent prices cipher is making money to your point. Secondly, what you person seen is that location is Vitamin A successful nan market, which is moving retired of support life. And past you person a prime whether you waste nan merchandise aliases whether you impair and depreciate connected it.

So that marketplace – that stock, which is moving towards nan extremity of nan support life still needs to beryllium sold first earlier normalization takes place. We've mentioned that earlier. We don't spot that normalization yet successful Q1. We don't expect it successful Q2. So we'll request to spot really that useful retired passim nan remainder of 2023. Then specifically connected your infrastructure. We are a world institution pinch world infrastructure. So we, connected a continuous ground look astatine wherever we request to nutrient and wherever it's produced to beryllium best.

But astatine nan power prices, predominantly successful nan opening of nan year, we evidently person seen that Europe has a disadvantage. However, it's not only input prices successful power what counts. You besides request to look astatine your full infrastructure wherever there's exertion optimization, location a exertion advantage going forward. So this is thing which is continuously connected our mind, which we person indicated we person reviewed.

For nan vitamin wherever we've seen that location is simply a very precocious input price, we person reduced immoderate of our accumulation lines successful Vitamin C and besides connected Vitamin A successful Sisseln [ph] temporarily wherever we look astatine really nan effect will besides look connected Vitamin E. So this is not an wide alteration of approach, it is fundamentally waiting for support life, which is pulling nan marketplace going guardant is normalizing and past I expect we tin beryllium having a normalized level wherever we tin look astatine world infrastructure going forward.

Chetan Udeshi

Thank you.


We'll return our adjacent mobility from Isha Sharma pinch Stifel. Please spell ahead.

Isha Sharma

Hi. Good afternoon. Thank you for taking my question. I conscionable person 1 left, please. Could you talk a small spot astir your hedges successful position of energy? Do you person immoderate hedges into 2023 already? Or do you spot a alleviation from little power costs already starting successful Q1.

Geraldine Matchett

Yes. Thank you, Isha. Yes, I tin remark connected that. So arsenic you know, of course, we saw power costs spell up a batch successful 2022. Just to springiness you an bid of magnitude, successful 2021 we're astatine astir 200 million, 2022, 350 million, and we expect for 2023 astir 100 cardinal more, truthful astir 450 million. Now 80% of that is hedged. So pinch hedging, it's bully and it's bad. It's bully because it provides immoderate certainty. Of course, should location beryllium a bully improvement connected AAG cost, we will not use from it successful nan short-term. It's besides important to retrieve that successful 2022, we besides had immoderate hedging that protected america a bit. So that's why you spot nan delta from 2022 to 2023.

Isha Sharma

Thank you very much.

Dave Huizing

And I deliberation we person clip for 1 past question. So possibly you tin put nan past mobility through.


Certainly. We'll return our past mobility from Gunther Zechman pinch Bernstein. Please spell ahead.

Gunther Zechman

All right. Thanks for squeezing maine in. Can I conscionable travel up connected nan destocking point, please? What's your visibility then? And what gives you nan comfortableness and nan assurance to opportunity that nan measurement effects you've seen towards nan extremity of past 4th and into nan opening of nan caller twelvemonth is destocking versus request reaches please?

Geraldine Matchett

Dimi, do you want to comment?

Dimitri de Vreeze

Yes, that's a bully mobility because successful each fairness it is evidently besides a spot fuzzy for our customers. So astatine nan infinitesimal that we discussed pinch them and they say, "Hey, there's immoderate request softness, and we asked them, well, is it destocking? Or is it request softness? Yes, i.e., that's almost for illustration a theoretical component, right? But location is immoderate destocking because of nan inflationary context. There is immoderate destocking because of nan uncertainty successful that segment.

However, nan request itself has shown to beryllium very resilient going forward. So we besides spot besides successful different segments that if China is opening up that will create an further request going guardant for nan animal space. So it is simply a spot of a theoretical discussion. Let's look it that group will say, this is only because of destocking aliases this is request softness I find that difficult. I mean, successful nan marketplace for a agelong time. It is sometimes linked and sometimes it's besides self-filling prophecy, right? And group are uncertain and their station itself.

But location is immoderate destocking going connected because you tin look astatine your ain banal levels, look astatine our banal levels, and we are portion of that worth chain, and we deliberately decided to destock because customers don't want to salary for further reliability arsenic we had during nan COVID time. So I deliberation everybody is reviewing that strategy a small bit. So there's decidedly immoderate destocking ongoing. Whether nan soft request is portion of nan stocking aliases not, I deliberation that's a theoretical question, and we will spot if we travel nan way passim 2023.

Dave Huizing

Yes, I deliberation pinch that, I deliberation we are astatine nan extremity of nan Q&A, we're besides approaching nan afloat hour. Dimitri, possibly a short clip for a fewer closing questions earlier we adjacent off.

Dimitri de Vreeze

A fewer closing questions perhaps. I deliberation we person had a very bully coagulated 22022 pinch conditions, which we saw successful Q4 going into Q1. We person made advancement connected people, satellite and profit. And we besides made advancement connected nan merger towards DSM-Firmenich.

And pinch that, I'm going to manus backmost to you, Dave, truthful you tin officially close.

Dave Huizing

Okay. Thank you. By nan way, besides convey you, Geraldine. Thank you all, each nan assemblage for attending today. And pinch that, we're concluding today's webcast. And arsenic usual, if you person immoderate further questions, please don't scope retired to my squad and myself. And pinch that, convey you, and I springiness it backmost to nan operator.

Editor: Naga

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