Impact from Brazilian meat scandal likely in Q2: CFO

Good volume growth in animal nutrition for DSM in Q1

© istock/ermetico72

DSM reported a strong first quarter for Q1 2017. Its adjusted EBITDA was up 17% to €345m (US$376m), while net profit increased 75% to €149m, partly achieved on the back of the nutrition business.

The company said its outlook remains unchanged.

The nutrition division had good volume growth. However, timing of orders also helped in this business’ performance, said CFO, Geraldine Matchett, on a conference call with analysts.

Q1 2017 sales in animal nutrition were up 18% versus Q1 2016, driven mainly by organic growth of 12%.

“All regions delivered good volume growth. Our Latin America business, where markets remained weak, benefited from a low comparable reporting period, when volumes were impacted by pre-buying in Q4 2015. Normalized for this effect, Q1 2017 volume growth was 4 to 5%.”

Prices were up in several vitamins and premixes, said the Dutch group.

However, the CFO does not see the benefit from higher vitamin prices to continue for the remainder of the year: “On the full year, we are looking at a bit of a neutral effect, and that is driven, mainly, by vitamin E.”

Exchange rate effects were driven by a stronger US dollar and Brazilian real, partly offset by the weaker Chinese renminbi, added the company.

Brazilian meat scandal

The Brazilian meat scandal, which started in mid-March, had little impact on DSM’s Q1 results, said the CFO. However, she anticipates it to have some effect on its Q2 2017 results due to the fact its ruminant business is very concentrated on Latin America:

We are watching it carefully; it is such an important part of the Brazilian economy that, of course, they reacted very fast, but we do believe there will be some impact. Although it is very difficult to estimate, depending on how quickly they respond, we are thinking, at this point, about 3% of animal sales, so we are looking at a topline impact of maybe €20m.”

In poultry, DSM has a very global footprint, so when one region has an issue, that is offset by the other markets’ growth being higher, she said. “On the poultry side, we would probably be, overall, okay, but ruminants is the area where we are keeping a tight look at.”

Matchett added that there would likely be nothing particularly sizeable as regards facility maintenance shutdowns in H2.

Joint venture with Evonik

The company’s plan to build a facility in the US under its joint venture with Evonik that aims to produce omega-3 fatty acid products derived from marine algae rich in EPA and DHA for the aquaculture sector was announced during the first quarter: “That has been very well received,” said the CFO.

The capex outlay for the facility, split 50:50 between the partners, will amount to around US$200m over the next two to three years, she added.

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