DSM-Firmenich ramps up restructuring plans amid challenging vitamin market’s effect on half-year results

28 Jun 2023 --- DSM-Firmenich has announced the acceleration of initiatives to structurally improve its performance in vitamins in light of market challenges. The second quarter has seen a further weakening of the vitamin markets, predominantly impacting the performance of Animal, Nutrition & Health, and therefore also affecting expectations for the second half of 2023, the company says in a trading update released today.

The company is looking to restructure its vitamin business, which includes plant shutdowns, and an acceleration of growth of its ANH business. Additionally, it predicts these actions will enhance earnings quality and reduce exposure to vitamin-related earnings volatility.

“There is a persistent soft demand in the market, with continued low animal feed demand in China – and we have not seen real recovery,” a spokesperson from DSM-Firmenich tells Nutrition Insight. “Vitamin producers are sitting on high (and expensive) stocks, and customers are discouraged to buy at these prices.”

“At the same time, there is uncertainty in supply, as new capacities are added to the markets, further impacting prices at a time when there is limited or no profitability left for the industry.”

Challenging Q2 conditions
The second quarter saw a further deterioration in the vitamin markets and the downturn has also affected the company’s expectations for the second half of 2023. DSM-Firmenich had anticipated stable to improving conditions in June, historically a strong month for the industry. However, the pricing and volumes in the vitamin sector experienced significant challenges.

DSM-Firmenich will restructure its vitamins businesses and accelerate its growth strategy for Animal Nutrition and Health.Given the adverse trading conditions, DSM-Firmenich expects a pro forma Adj. EBITDA in the range of €400-420 million (US$438-US$460 million) for Q2 2023. This estimate reflects a decline compared to the €521 million (US$571 million) results in the previous quarter (Q1 2023) and €528 million (US$578 million) in Q2 of 2022.

“We will adapt our strategy and focus on growing our Performance Solutions and Precision Services activities,” explains the spokesperson. “Vitamins will remain an essential part of our offering, but with a lower earnings volatility in the future compared to today.”

Looking ahead
Considering the prevailing weak macroeconomic outlook and the anticipation of continued low vitamin prices throughout the year, DSM-Firmenich says that it does not expect a material improvement in business conditions in the second half of 2023.

To address the challenges posed by the vitamin markets, DSM-Firmenich has decided to expedite its post-merger plans and take targeted actions to reduce the impact and volatility associated with vitamins with some key restructuring initiatives.

These include a restructuring of its vitamin asset footprint which will induce “significant” cost reductions. This includes the closure of the Xinghuo vitamin B6 plant in China and a refocus on specialty Quali-C production from the Dalry site in the UK. The vitamin C production facility in Jiangshan, China, has also been shut down.

The company has also moved to create a separate vitamin unit within ANH to establish a more responsive and efficient “go-to-market” model by tailoring the vitamin business to adapt to the changed market dynamics.

“This will be an efficient and agile fit-for-purpose, dedicated unit within ANH which will focus on ensuring cost competitiveness and protecting our ability to supply our customers with competitively priced, high-quality vitamins,” says the representative.

Closing of Pinova plant
DSM-Firmenich will also permanently close its Pinova ingredient plant, located in Brunswick, Georgia, US, following a fire that occurred in April. This plant was a supplier for the company’s Perfumery & Beauty business unit.The restructure will include the appointment of senior level Vitamin Transformation program director.

“The fire destroyed core production assets and infrastructure and caused all site operations to shut down,” the representative emphasizes. “Reopening the site would require substantial demolition and reconstruction.”

“After a careful review, it was decided to invest and add capacity in other production sites within the DSM-Firmenich network. We will try, where feasible, to secure the supply of these ingredients by leveraging other production units.”

Focus on animal nutrition and health
DSM-Firmenich intends to conduct extended shutdowns of its vitamin A and E plants in Sisseln, Switzerland, in Q3 2023 and appoint a Vitamin Transformation program director to oversee the implementation of performance plans and drive vitamin-related initiatives.

Furthermore, the company plans to significantly grow its ANH division by focusing on what it sees as its higher-margin creating Performance Solutions and Precision Services businesses.

“Animal Nutrition & Health is an attractive business for DSM-Firmenich with a strong strategic fit, tackling some of the biggest challenges related to sustainable food supply,” the spokesperson concludes. “Our objective, to help the animal farming industry navigate – and accelerate – the all-important transition to sustainable food, is unchanged.”

By William Bradford Nichols