DSM’s Q1 results missed expectations but F&B boosted by dairy, baking, beverages and hydrocolloids

02 May 2023 --- Ahead of the imminent completion of DSMs merger with Firmenich, the Dutch business has disclosed a difficult first quarter where the company’s sales and margins have declined. The company reports 6% lower sales than in Q1 2021 – sales of €1.89 billion (US$2.07 billion).

“Our first quarter results are reported against a comparable period that had not yet been impacted by the high rate of global inflation, the effects of which remained elevated into 2023,” say DSM co-CEOs Geraldine Matchett and Dimitri de Vreeze.

DSM-Firmenich stock has been trading on Euronext Amsterdam since April 18, after it cleared all regulatory hurdles, and the companies expect to conclude the merger on May 8.

Sales comeback
DSM expects to return to the path of growth during the second half of the year, with the company expecting to raise prices to boost profitability.

“Low vitamin prices, especially vitamin A, have also remained, despite resilient end-user demand. In this environment, our focus across businesses remains on pricing actions and prioritizing profitability over sales volumes. This approach has supported our margins, which improved sequentially into the first quarter of this year,” explain Matchett and de Vreeze.

“We do not foresee a significant improvement in these conditions in the second quarter. However, we anticipate a stronger second half of the year across all businesses as inflationary pressure eases, as volumes recover, especially in China, and vitamin prices start to normalize,” they continue.

DSM expects the Chinese market business to recover as the country lifted its tight COVID-19 restrictions late last year.

The company explains that demand for dietary supplements was weak during the quarter.Analysis by segment
DSM F&B sales declined less than the company’s general sales, at 2%. Nevertheless, the company’s F&B sales volume declined by 11% in the quarter.

According to the business, these lower volumes reflected destocking in the value chain, as well as the decision by DSM to step away from some low-priced vitamin volumes to protect profitability.

“F&B once again demonstrated resilience. End-use demand in Dairy, Baking, Beverages, Savoury and Pet food markets was solid. Hydrocolloids demand remained strong,” flags the business.

Similarly, its Health, Nutrition & Care segment also delivered -2% sales, compared to an 11% growth in 2022, with the company explaining that demand for dietary supplements was weak during the quarter.

The company saw more interest in its i-Health portfolio for gut health, brain health and women’s health, as well as robust demand for its Pharma, Medical and Early Life Nutrition.

DSMs Animal Nutrition & Health segment underperformed when compared to the other business divisions of the company, as the “soft” demand in China burdened the business. The company sales declined 12% even with lower prices (-4%).

DSM-Firmenich
Firmenich also reported its financial results for Q1, with the company generating revenue of CHF1.23 billion (US$1.37 billion), with the company achieving to offset the effects of inflation and high raw material costs through price increases.

When merged, the combined companies expect to provide access to “unprecedented” R&D and application creation capabilities.

Amid the merger, DSM has kept pursuing other business moves, with the company entering negotiations last month to purchase Adare Biome from Adare Pharma Solutions in a US$300 million deal.

By Marc Cervera