dsm-firmenich to separate animal nutrition arm in light of ‘unprecedented’ vitamin prices
In a statement released today (Feb 15th) the firm said that removal of the Animal Nutrition & Health (ANH) segment should strongly reduce exposure to vitamins earnings volatility and reduce capital intensity after witnessing unprecedented cyclical pressure on vitamin prices in the animal markets.
The news comes on the same day (Feb 15th) that the firm released its 2023 full year results, revealing "unprecedented conditions with very low vitamin prices and a continued destocking cycle” led to the requirement to review business segments.
Low prices come when cyclical stock moves in sync with trends in the economy - the price soar when the economy is flourishing and reduce in times of recession. Destocking in supply chain management is an active decision to reduce the inventory-to-sales ratio of a company thereby improving efficiency, freeing up cash and reducing costs.
ANH is driven by different dynamics to the rest of the group which became more apparent with the unprecedented challenges in the vitamins market.
dsm-firmenich said the full potential of the ANH business could be best realized through a different ownership structure for which all potential separation options will be considered with the expectation to separate in 2025.
“ANH is a fantastic business that over the years we have built to be a true leader in the industry,” commented Dimitri de Vreeze, CEO of dsm-firmenich. “This is a difficult moment, but we strongly believe that a separation would be better for both businesses and their employees, and ultimately generate better value for all our stakeholders.”
By fully focusing on developing its scientific research, technologies and manufacturing within Perfumery & Beauty, Taste, Texture & Health and Health, Nutrition & Care, the company hopes to boost commercial potential and synergies between these categories.
Given the group’s feed supplement Bovaer has a critical role in reducing emissions across the dairy industry, and its omega-3 fish feed supplement Veramaris has a significant potential in dietary supplements, it is expected that both those businesses will remain within the firm.
2024 financial outlook
As part of the vitamin transformation program announced in June 2023, the company continues to make progress on its cost reduction plan including plant closures, route-to-market simplification, and optimized service levels. It says it remains confident in realizing a contribution of €100 million in adjusted EBITDA in 2024 and the full benefit of €200 million in 2025.
The firm stated: “As the global political and economic environment remains uncertain, and given that it is early in the year, we feel it prudent to base our full year outlook for the entire company only on those elements which are under our control, namely a €200 million step-up in Adjusted EBITDA from a combination of synergy delivery and the vitamin transformation program.
“Considering that the full negative vitamin effect emerged only in Q2 2023, the effective Adjusted EBITDA run-rate in the period Q2-Q4 2023 on an annualized basis was about €1.7 billion, the company estimates for FY 2024 Adjusted EBITDA of at least €1.9 billion.”
The firm states it is on track to achieve its target synergies of approximately €350 million Adjusted EBITDA per year. Around half of this is expected to come from cost efficiencies, with the full run rate achieved by the end of year three.
"Initial benefits of about €15 million were delivered in Q4. The remaining synergies are expected from incremental revenues of €500 million, generated by an acceleration of innovation with customers.
“There has been good early progress and the full run rate is still expected by the end of year four. These revenue synergies are driven by complementary capabilities and realized in the three business units with the strongest strategic adjacency - Perfumery & Beauty; Taste, Texture & Health; and Health, Nutrition & Care - with roughly the following balance: 60% in TTH business unit, 25% in HNC business unit and 15% in P&B business unit.”
At the Annual General Meeting on May 7, 2024, the group's board of directors will propose a cash dividend of €2.50 per share for the financial year 2023.
