DSM reports temporary vitamin price benefit in Q1, raises 2018 outlook

The company has confirmed its increased full-year outlook and expects an Adjusted EBITDA growth towards 25 percent and a related higher ROCE growth.

Feike Sijbesma, CEO/Chairman DSM Managing Board, commented on the results: “We are very pleased that the strong underlying performance of our business continues, with growth well above market. Also, we are currently benefitting from substantially higher prices in some vitamins due to exceptional supply disruptions in the industry, which are expected to be temporary and heavily weighted towards the first half of the year. These two combined resulted in a significantly higher outlook for the full year 2018, which we announced with our preliminary Q1 2018 results on 12 April 2018.”

Temporary vitamin effect
Also, due to the exceptional supply disruptions in the industry, the first quarter also benefited from an estimated €220 million (US$260.4 million) additional sales effect and an estimated €165 million (US$195.3 million). Additional Adjusted EBITDA contribution from an exceptional vitamin price environment, which is expected to be temporary and heavily weighted towards the first half of the year. This temporary vitamin price effect is mainly related to animal nutrition, according to DSM.

Last month, the company raised its 2018 forecast for adjusted EBITDA growth to “towards” 25 percent, as it expects sales to keep rising and costs to drop, while the effect of high vitamin prices will likely ebb in the second half of the year.

The vitamin price benefit added €165 million (US$195.3 million) to EBITDA in the first quarter, with the total effect for 2018 estimated between €250 million and €300 million, according to Reuters.

Nutrition continues to outperform its Strategy 2018 aspirations with ongoing strong momentum in its underlying business, delivering above-market growth with an increasingly higher-value portfolio of feed and food solutions.

Q1 2018 organic sales growth in the underlying Nutrition business was an estimated 12 percent, driven by continued strong volume growth of 8 percent, well above market. Higher prices in the quarter of 4 percent partly off-set the 11 percent negative foreign currency effects and higher input costs.

Q1 2018 Adjusted EBITDA growth in the underlying business was estimated at 8 percent compared to Q1 2017, despite significant negative foreign exchange effects. The estimated Adjusted EBITDA margin was 19.4 percent, a further step-up versus 18.4 percent in Q1 2017.

Human nutrition & health
Q1 2018 organic sales growth in the underlying business was an estimated 8 percent. Volumes were up 5 percent, with good growth across all regions and market segments, well above the market. Volume growth was significantly strong in premix sales as well as in the i-Health business.

Prices were up 3 percent resulting from a combination of a favorable mix due to strong growth in premix and i-Health, as well as benefits from higher prices for premix and advanced formulations, supported by the effects of the ‘Blue Skies policies’ in China.

Food specialties
Q1 2018 sales volumes were stable as growth in especially enzymes was offset by lower volumes in savory due to production interruptions.

Earlier this month, FoodIngredientsFirst's sister publication NutritionInsight, reported that DSM is to shut down its vitamin C facility in Jiangshan, China, to implement an extensive series of upgrades aimed at improving quality, safety, sustainability and production efficiencies at the site. The prolonged shutdown will start in July and is expected to take four months. DSM has assured the security of supply of vitamin C to its contracted customers during the shutdown. You can read the full story here.