Its Q2 2016 animal nutrition sales showed 14% organic growth compared to Q2 2015.
But DSM noted that growth in the year-on-year (YOY) comparison was helped by a one-off effect in the Q2 2015, when its animal nutrition sales was impacted by a key raw material supply interruption at Tortuga due to a fire in the port of Santos in Brazil.
Adjusting for this effect, the group said volume growth for its animal nutrition business would have been 6 to 7%.
Its Q2 2016 animal nutrition related prices showed a 4% hike on the same period last year.
Part of this jump, explained DSM, was linked to the implementation of price increases in local currencies in Latin America while list prices are in US dollars. It added that, as a result, margin levels as reported in euros were protected during the quarter.
The group also reported that prices for vitamins were slightly up overall compared to the same quarter last year, with some of the B-vitamins showing an increase. However, it reported that contract prices for vitamin E were still slightly below the average of Q2 2015, despite clear increases in spot prices during Q2 2016.
Business to farmer strategy
In terms of its animal nutrition innovation platform, DSM said its new business model to increase market share, such as the implementation of a business to farmer (B2F) approach for swine and poultry in China, is progressing well. It also flagged up strong growth in eubiotics for antibiotic-free poultry in H1 2016.
Reporting on overall company performance, DSM said its group net sales for the quarter were slightly higher than Q2 2015, coming in at €1,994m (USD$2,233m), with 5% organic growth, and earnings before interest, taxes and amortization (EBITDA) up 18%.
Revised outlook
And the vitamin maker has revised upward its outlook for 2016. Despite some ongoing concerns about the global macro-economic developments, DSM said it aims to deliver increased full-year EBITDA and ROCE in line with the targets set out in its Strategy 2018.
Davy Research analyst, Declan Morrissey, told us DSM’s revised full year guidance looks secure in light of the vitamin pricing tailwind in the second half and cost savings. He said enhanced earnings visibility is not fully reflected in valuation multiples as of yet.
“There was only a €10m EBITDA benefit from vitamin pricing in H1 – spot prices were up significantly in vitamin A and E in H1 but due to the timing of DSM’s contracts it will not see the benefit of higher pricing until H2.
“If full year EBITDA grew by 14% YOY to €1,225m it would imply H2 EBITDA of €601m versus €548m in H2 2015 or +€53m YOY. DSM is guiding cost savings of around €50m in H2 along with a vitamin pricing tailwind of €20 to 30m, partially offset by shut down costs of €10 to €15m.
“Guidance implies little or no underlying growth in the second half which looks unlikely given the momentum in H1,” noted Morrissey in a review posted after this morning’s DSM earnings call.