DSM-Firmenich presents first H1 results post-merger, negatively impacted by challenging vitamin markets

02 Aug 2023 --- Marking a significant milestone in the successful completion of the merger between DSM and Firmenich, the combined company is revealing its half-year results for 2023. The total sales for the first half of the year amounted to €6.15 billion (US$6.76 billion), indicating a 5% decline compared to H1 2022.

The company says this is due to headwinds faced by the Animal Nutrition & Health (ANH) segment as a result of weak vitamin market conditions – due to high input prices and elevated inventories –, which also had a lesser impact on the Health, Nutrition & Care segment. 

Key financial figures for H1 2023 were presented on a pro forma basis, reflecting the combined results of the newly merged entities.

“We are well advanced in the integration phase of the merger and excited by the positive response of customers to our enhanced business proposition, giving us even greater confidence in the delivery of our synergy targets,” says co-CEO’s Geraldine Matchett and Dimitri de Vreeze.

However, the company further states that it does not anticipate a substantial improvement in business conditions during this period.The company expects that the recent merger will lead to greater future revenue.

The vitamin effect
The projected results take into account a negative vitamin effect of around €400 million (US$439 million) and a negative foreign exchange effect of approximately €100 million (US$110 million). These factors have been exacerbated by high vitamin inventories, produced at elevated costs, which have delayed the expected positive impact from lower input costs in the second half of 2023.

Beyond financial figures, DSM-Firmenich says it is actively working to advance its strategic goals and foster a sustainable, purpose-led approach. 

The business is working toward restructuring the vitamin asset footprint, creating a new separate vitamin unit within ANH, reducing working capital and inventories and establishing a new senior executive role, the Vitamin Transformation Program Director. 

These savings will be in addition to the previously announced €350 million (US$384 million) adjusted EBITDA integration synergies target.

Merging portfolios
According to the company, the merger, which was completed in May, brings together complementary portfolios of nutritional, natural and renewable ingredients, alongside science capabilities and technologies that are set to deliver innovation-led growth.

DSM-Firmenich highlights that the integration process of the two companies is progressing smoothly, in line with the planned schedule and has already begun yielding early benefits in terms of synergies, with some segments displaying resilience in a volatile macroeconomic environment.

“The performance of our Perfumery & Beauty and Taste, Texture & Health units in the first six months demonstrates the quality of these businesses and the synergy potential of the merger,” the co-CEO’s affirm. 

Matchett and De Vreeze further reveal that the dip in some segments was forecasted and measures have already been taken to reduce the impact.

“As communicated in our trading update of June 28, 2023, market conditions in our vitamin activities weakened throughout the first half, impacting in particular ANH, leading to an acceleration of our plans aimed primarily at structurally improving the earnings quality and reducing the volatility of our vitamins business.” 

“We expect these measures to deliver savings of around €200 million (US$220 million) annually. These are on top of our integration synergy cost savings.”

Looking toward future growth
The adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for H1 2023 reached €929 million (US$1.02 billion), representing a significant decrease of 21% compared to the same period last year. Consequently, the Adjusted EBITDA margin stands at 15.1%, reflecting a negative foreign exchange impact and an estimated €200 million (US$220 million) vitamin effect.DSM-Firmenich restructuring efforts will realize a savings of US$220 million.

The pro forma results for Q2 2023 mirrored similar trends as sales declined to €3.03 billion (US$3.328 billion), marking a 9% decrease, while the organic sales growth rate dropped by 7%. Adjusted EBITDA for the quarter was €408 million (US$4.48 million), representing a 30% decrease.

In response, the company says it has expedited plans to structurally improve performance and ensure future growth, noting that, despite the prevailing macroeconomic challenges, it remains cautiously optimistic about its outlook for the second half of 2023.

Therefore, the company projects a pro forma FY 2023 Adjusted EBITDA in the range of €1.8 to 1.9 billion US$1.98 to 2.09 billion), compared to €2.28 billion (US$2.5 billion) in full year 2022.

“Through principally the quality of our core activities, our targeted synergies and the decisive and impactful actions recently announced, we are confident that we will realize our mid-term financial targets,” Matchett and De Vreeze underscore.

“All of this is underpinned by the attractive opportunities presented by our highly complementary portfolio of ingredients, science and technologies enabling us to deliver superior innovation-led growth as the world leader in nutrition, health and beauty.”

Edited by William Bradford Nichols

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