DSM-Firmenich: Further Restructuring Underway Given Prolonged Vitamin Market Weakness

Narrow-moat DSM-Firmenich released a trading update for the second quarter of 2023, highlighting a further weakening in the vitamin market that is expected to result in a EUR 200 million hit to first-half pro forma adjusted EBITDA, projected to land in the range of EUR 920 to EUR 940 million, compared with EUR 1.17 billion for the first half of 2022. With the weakness now expected to continue in the second half of the year, amounting to a total adjusted EBITDA hit of around EUR 400 million for the full year, the company also announced an acceleration of post-merger strategic initiatives aimed at restructuring the vitamin business, which should ultimately reduce the share of revenue coming from the commoditized animal nutrition and health vitamin portfolio. Measures include the closure of some vitamin B6 and vitamin C plants and operations in China, reallocating part of the capacity to higher-quality, pharmaceutical-grade vitamin C, as well as extended shutdowns for the vitamin A and E plants in Sisseln, Switzerland, starting with the third quarter of 2023. Although we expect to reduce our fair value estimate after reflecting these short-term headwinds, we believe the announced strategic initiatives have the potential to lessen earnings volatility for the animal nutrition and health segment, as well as positively affect our economic moat assessment for DSM-Firmenich.