Chemical Week • July 3/10 • DSM-Firmenich to restructure vitamin assets, Q2 earnings to fall

DSM-Firmenich AG, the company created from the merger between DSM NV and Firmenich International SA, said it will restructure its vitamin asset footprint, part of its health, nutrition and care business, in an effort to cut costs significantly and focus on reducing the negative impact from earnings volatility of the vitamins business.

The company expects a negative effect from vitamins on its full-year adjusted EBITDA of about €400 million and, as a result, it estimates full-year 2023 pro forma adjusted EBITDA between €1.80 billion and €1.90 billion, down from €2.28 billion in 2022.

The vitamin effect has been exacerbated by high vitamin inventories, produced at elevated costs, delaying an expected positive impact from lower input costs in the second half of 2023, the company said. DSM-Firmenich also expects a negative foreign-exchange effect of about €100 million on its full-year adjusted EBITDA.

DSM-Firmenich’s vitamin restructuring is expected to result in an estimated annualized saving of about €200 million, with the full run rate to be reached by the end of 2024. These savings will be in addition to the €350 million adjusted EBITDA merger synergies target, DSM-Firmenich said.

The planned restructuring includes the closure of a vitamin B6 plant at Xinghuo, China, and the refocusing of the company’s vitamin C activities on its specialty Quali^®-C product made only at DSM-Firmenich’s Dalry, UK, site, the company said.

Meanwhile, DSM-Firmenich is exploring a range of options for its Jiangshan, China, site, where the production of vitamin C had already been significantly reduced since the end of 2022 and was terminated in mid-May 2023, the company said. It added that it is considering partnerships or a repurposing of the site’s manufacturing assets.

The company also plans to create a separate vitamin unit within its animal, nutrition and health (ANH) business that will be tailored to the “changed market dynamics,” it said. “This will result in a simpler, more responsive ‘go-to-market’ model, and a more efficient and agile organization,” it added.

Accelerating the growth of ANH in its higher-margin performance solutions and precision services businesses, while optimizing its vitamin offerings using its strong premix base, also forms part of the planned restructuring, according to DSM-Firmenich.

The company said it would also reduce working capital/inventories, with extended shutdowns of the vitamin A and E plants at Sisseln, Switzerland, that are scheduled for the third quarter of 2023.

To deliver all these plans, the company will establish a new senior executive role, vitamin transformation program director, that will report directly to DSM-Firmenich CEO Dimitri de Vreeze, it said.

The company has separately announced that its ingredients plant at Pinova, Georgia, part of its perfumery and beauty business unit, which was seriously damaged by a fire in April 2023, will not be reopened. DSM-Firmenich said it will try, where feasible, to secure the supply of these ingredients by leveraging other production units.

All these actions will lead to an estimated impairment of €300 million-€350 million in the company’s first-half 2023 accounts, it said. “Total restructuring costs for 2023 incurred as a consequence of this announcement are estimated at about €200 million. These restructuring costs are additional to the already announced costs related to the merger synergies of €250 million.”

DSM-Firmenich also said it projects second-quarter adjusted EBITDA on a pro forma basis of between €400 million and €420 million, down from €521 million in the previous quarter and from €582 million in the year-earlier quarter.

The challenging conditions facing the vitamin activities deteriorated further during June, affecting pricing and volumes, where the company had expected stable to improving conditions in a normally strong month, DSM-Firmenich said. These difficult conditions in vitamins are primarily affecting the ANH business and to a lesser extent the company’s health, nutrition and care business, it said.

Pro forma adjusted EBITDA for the first half of 2023 will be €920 million-€940 million, lower than €1.18 billion in the first half of 2022, the company said. The estimate includes an expected negative vitamin effect of about €200 million as well as a negative foreign-exchange effect of about €50 million, it said.