Ladies and gentlemen, thank you for standing by. Welcome to DSM's conference call on the first half year results of 2020. Throughout today's presentation, all participants will be in a listen-only mode. After the presentation, there will be opportunity to ask questions. To ask questions, you may dial star one at any time. Now, I would like to turn the call over to Mr. Huizing. Please go ahead.
Thank you, operator. Good morning and welcome to the conference call on our first half 2020 results. I'm joined on this call by our Co-CEOs, Geraldine Matchett and Dimitri de Vreeze. Geraldine will give a short introduction, after which we will open the line for questions. As always, I need to caution you that today's conference call may contain forward-looking statements. You can find the disclaimers about forward-looking statements listed in the press release on our website. With that, I hand over to Gil.
Thank you, Dave. Good morning, everyone, welcome to this call on DSM's first half results 2020. I truly hope that you and your loved ones have managed to stay safe during these testing times. I must say that we continue to be amazed by the resourcefulness and determination, not only of our people, but also of our partners and customers. Together, we seem to be able to find new ways of working in order to keep our activities going, while at the same time, keeping everyone safe and healthy. In addition, within DSM, we have deliberately kept a strong focus on our long-term ability to deliver on our purpose-led and performance-driven strategy, seeking the right balance between short-term measures and continuing to build on our relevance for the future.
This is visible amongst others in the decision to go ahead with the Erber acquisition in Q2, which strengthens our long-term growth platform in specialty animal nutrition and enhances our diagnostic capabilities. It is also visible in Materials, where we have accelerated our existing profit improvement initiatives without hindering our readiness to serve our customers when the recovery starts. This being said, let me turn now to our H1 results and start with the financial highlights on page three. We're pleased to report a solid H1, especially given the extraordinary market dynamics, with an adjusted EBITDA slightly down on flat sales and a strong cash generation up 33% year to date. Nutrition delivered a good performance with sales up 6% and the adjusted EBITDA up 5%, driven by solid underlying performance.
Spikes in demand driven by COVID-19 did take place during the six-month period, with only a slightly positive overall effect. The first half was, of course, more challenging for Materials, with volumes down 14% compared to prior and an adjusted EBITDA down 28%. Customer operations and end-user demand deteriorated rapidly at the end of Q1 owing to COVID-19, with demand weakness persisting throughout Q2. Turning more specifically to the Q2 highlights. Let's go to page four. The market conditions during the second quarter developed broadly in line with the expectations as communicated during our Q1 earnings call. We have seen continued solid business conditions in Nutrition for Q2, resulting in a 9% organic sales growth and 8% adjusted EBITDA growth, this time led by Human Nutrition, while Animal Nutrition drove the Q1 performance.
Materials saw volumes down 21%, with a gradually improving momentum towards the end of the quarter. Market conditions impacted, in particular, our specialty portfolio, exacerbating the translation from volume to EBITDA. To counter these developments, Materials undertook measures to minimize operating costs and cash outflows, and as part of a broader restructuring initiative to improve performance, will implement a next phase of measures during the second half of the year. I'll expand on this a bit later, but let me give you first the update on Nutrition, starting on page nine. Overall, Nutrition delivered a healthy organic sales growth up 5%, driven by higher volumes, predominantly in Animal Nutrition in the first quarter and in Human Nutrition in the second quarter, and supported by an estimated overall slight increase in sales related to COVID-19. The adjusted EBITDA increased 5% and adjusted EBITDA margin remained stable at 21% versus last year.
The first half results were enhanced by two recent acquisitions, which accelerate our growth strategy, firmly focused on further building our DSM's specialty nutrition and health business, offering advanced and differentiated solutions. First, CSK, which brings taste, texture, and biopreservation solutions in semi-hard cheeses, strengthening DSM's food and beverage offering. Secondly, Glycom, the only fully integrated HMO supplier in the world, strengthening our innovation solutions in early life nutrition and with interesting developments in the areas of medical nutrition and pet food. Finally, in June, we announced the acquisition of Erber Group, expected to close in Q4. With this acquisition, DSM will gain market leadership in mycotoxin prevention, increase its strong market position in animal gut health solutions, add to its premix facilities, and add diagnostics and testing capabilities. Now let's move to page 12 for Animal Nutrition.
In the first six months, Animal Nutrition delivered a good 10% organic growth with a 7% volume increase, partly driven by COVID-19 related stocking effects. The first half was, however, characterized by two very different quarters. Q1 was fueled by accelerated purchasing by feed producers anticipating supply disruptions caused by COVID-19, together with a beneficial shift to protein seen as easy to prepare for home cooking, being poultry and eggs. The second quarter saw some de-stocking slightly earlier than anticipated, especially in geography where lockdowns began to ease, leading to a more modest volume performance. The second quarter also saw a strong 7% price effect, although this was owed mainly to the pricing of pass-through ingredients and FX-related price increases in Brazil. Overall conditions remain solid, with shifts within geography, species, and channels playing to our broad portfolio and global footprint.
Additionally, the effect of the African swine fever continues to unwind in China, with DSM benefiting from the growth in professional swine production, although this was offset partly by new outbreaks in Vietnam and the Philippines. Moving to Human Nutrition. Please go to page 14. As with Animal Nutrition, Human Nutrition and Health was also characterized by very different quarters, resulting in an overall solid first half with 2% organic sales growth driven by volumes. At the end of a softer Q1, pantry loading effects caused customers to replenish their supply chain, therefore a strong demand through April and May for food and beverage and early life nutrition. The pandemic reinforced consumer attention to health and nutrition solutions, reflected in a continued strong demand in dietary supplements.
These market developments resulted in an 11% organic growth in Q2, with volumes up 13%, including the positive impact linked to COVID-19. By June, demand began to normalize with pantry unloading from households, but with demand levels for dietary supplements remaining higher than in 2019. Our other nutrition businesses saw an overall slightly negative effect from COVID-19, as we show in more detail on page 15. Moving to Materials on page 17. Overall, the first half of the year saw a 15% decline in volumes, with a 28% fall in EBITDA. Clearly, COVID-19 has significantly impacted our customers' operations and end user demand, and in particular, our specialty businesses in high-performance plastics, Dyneema, and foam.
Nevertheless, the long-term trends that drive our business, in particular our high-quality specialty businesses, remain in place, and we also see some signs of recovery, although the timing and shape of that recovery remain very uncertain. As mentioned earlier, to counter near-term conditions, we initiated strict cost control measures and minimized cash outflows in the first half. In the second half, we are implementing new actions as part of a wider set of restructuring initiatives aimed at improving business performance, which will deliver annualized recurring cost savings of EUR 25 million-EUR 30 million. With our balanced approach, we will not undertake reactive measures that compromise the growth potential of our business, but should we see persisting market issues in specific parts of our businesses, we are ready to take additional action. Switching to page 18.
During the second quarter, volumes were down 20%-25% in April and May, in line with our earlier communication, with a gradual improvement through the quarter, leading to June volumes down about 15%. Looking at the segments, engineering materials saw increasing weakness in the global automotive market, partly offset by stronger demand in packaging and medical applications. Resins volumes started to show some signs of recovery by the end of June, while functional materials continued to be affected by 5G investment delays. Protective materials saw orders being deferred as local and national governments focused their efforts on managing the pandemic. These market developments led to a 21% volume decline in the quarter, with the full EBITDA impact exacerbated by near-term adverse conditions in our specialty businesses, thus reaching -47%. Moving briefly to our Innovation Center on page 20.
Overall performance in the Innovation Center remained good in H1, with sales up 4%, supported by Biomedical. In Q2, however, we recorded an EUR 82 million impairment on our investments in the [Unity] project, following the decision by the POET-DSM joint venture to mothball the second generation bioethanol plant following continued technical challenges and the market deterioration recently. This brings us to the outlook on page 24. Based on our first half performance and given the continued limited visibility for our materials businesses, we maintain our outlook statement for the full year 2020 in line with our Q1 reporting. With this, I would like to open the floor for question and answer.
Thank you. Ladies and gentlemen, we will start the question and answer session now. If you registered for the question and answer two, please press star one. That's star one for your questions. Go ahead, please. The first question is from Mr. Thomas [Hakkelsberg]. Go ahead please, sir.
Good morning. Hi, Dave and Dimitri. Thanks very much for the presentation. Two questions, if I may. Just in terms of the 2% impact that you're calling out, can I read from your comments that that's now expected to completely fade out in the third quarter? I'm just trying to interpret the exit rate comments that you're making. Secondly, are there any updates on some of the innovation pipeline projects that are coming through? Any new color or information that you could share with us there would be very helpful. Thank you.
Good morning, Thomas. Dimitri, do you want to maybe add some color? He's asking about the exit rates for the materials business, I'm assuming.
Yes, mostly on the materials.
Okay. Yeah. There's a lot of background noise, but it could be me. Maybe on the materials play. Like you said, we have lack of visibility to give any insight. Therefore, we gave you a bit of a background on how it developed over the quarter, and we're now in August, so I can give you also a bit of an update on what July brought. Overall, we saw a 20%-25% reduction in volume in April and May, which was -15% in June, where in July, we do see a 10%-12% lower volume. You see some recovery. It's a different story per business segment, obviously. What we basically see is that the automotive remains down throughout quarter two, and we feel that it probably will take longer also because the value chain is a bit long.
It is a complicated value chain. If there's an abrupt demand fallout, it will take a while, even if demand is picking up for the value chain to be up and running. We expect automotive to be slow in recovery, not only because of demand and the lockdowns, but also because the value chain. On the other hand, if you've seen building and construction, I think we reported pretty okay improvements throughout quarter two because the value chain is shorter. If demand picks up, you can-
Conference is no longer being recorded.
That is basically a differentiation for the end use segments on material. I hope this gives you a bit of feel throughout the quarter two and the July rates on how we developed on the last performance.
Very helpful. Thank you.
On the innovation pipeline, of course, there's a lot to be said. Now we can start. Why don't you, Dimitri, do you want to start with some of the more human nutrition-based innovation projects?
Yeah, sure. I think Avansya is one of the key projects in stevia. In Avansya, we basically have supported the market with stevia-containing products in the test markets. During the last quarter, we said we expect impact in the summer. That is still out there. We do see, however, that some of the targeted customers were impacted by the lockdowns. Some of the development activities where they basically needed a lab are a bit delayed. Overall, there is still a clear, keen interest in our product. Also, the fermentation capacity is scaling up very successfully. I think it is all good. The only thing is that, hopefully, the development and activities with the labs, when they will be reopened, will go full speed ahead. In terms of other human nutrition innovations, I think you have seen that we have announced our joint venture with Avril on the plant-based developments.
CanolaPRO-related with great plant-based material, which is not only nice in terms of taste and texture, but it's also high in nutritional value. I think that is something that this is a unique combination. Just to give a bit of color, in addition to what we call the big innovation projects, I think there's a lot ongoing. Obviously, the COVID-19 development in terms of immunity, dietary supplements, probiotics, gut health absolutely plays not only during COVID, but also post-COVID. That is a bit of color, really.
Yeah.
The recorder is connected.
Oh, now we're re-recording, but that's okay. I'll add a little bit on the more animal nutrition side. Veramaris. What we're seeing is the year as well, the production is ramping up quite nicely. That's okay. What we're seeing is that, of course, with the COVID situation, there's less eating out, and so the consumption of salmon is a bit down. Interestingly, the number of fish in the water is actually a bit up, as a result. Feed consumption is still very much there, and our relevance is very good. In terms of basic news, we have a couple of things that have developed. For example, Auchan, the French retailer, is now selling trout with Veramaris. We're also working with one of the leading shrimp producers in the U.S. to develop a vegetarian shrimp. Your shrimp doesn't eat fishmeal.
We are also hopefully going to be able to announce an additional European retailer distributing Veramaris salmon in addition to Kaufland, Much, and Tesco, which we already had on board. It's progressing quite nicely. On Balancius, which is the good health enzymes. If you remember, we had launched that in Latin America first. Now in the first quarter, we have launched in Europe, and hopefully still within this year, we will be able to launch in the APAC region. That is also progressing nicely. When it comes to [Thinkcal], the EFSA process is unfortunately a bit long, particularly when it comes to a new ingredient, something quite novel. They have been asking quite a bit of additional clarifying questions and for some additional data.
We remain confident that our filing is of very good quality with over I think 35 peer-reviewed studies. We now look at probably a registration in 2021, given the additional questions being asked. This is always one of the question marks with how long the registration process takes. We're going through it step by step. That's for highlights projects, but of course, there's a whole lot of other innovations within the portfolio.
Great. Super helpful. Thank you for that color. Excellent.
The next question is from Mr. Mutlu Gundoga . Go ahead, please.
Yes. Good morning, everyone, and thanks for taking the question. The first one is on FX. Can you tell us what the impact of negative currencies was on EBITDA in the second quarter, and what you would expect the full year impact to be, assuming flat exchange rates going forward? Secondly, is on the POET joint venture. I know it's just a small part of your investment case, but you explained already why you mothballed the plant. Can you elaborate a little bit on why you still believe you will be able to license out your technology? Thanks.
Good morning, Mutlu. Let me take those two. First, indeed, it's good to remember that in the second quarter, we had about EUR 10 million of FX headwind, and we had flagged that, and it's predominantly actually related to the Brazilian real, that devalued strongly already in Q2. We've seen, of course, the foreign exchange change quite a bit in the last two weeks or so, particularly with the U.S. dollar weakening. As you know, we tend to be long U.S. dollar in materials and in nutrition. We're probably looking at a headwind with today's exchange rates of between EUR 30 million and EUR 40 million for H2. Unfortunately, not a small headwind from FX at this point.
When it comes to POET, exactly what I tried to say in the introductory comment is that the impairment is of the Liberty 1 assets which are in the U.S. What we have learned from this journey, is actually a lot in terms of IP on enzymes and yeast. We have actually proven our technology, which is relevant to first-generation 1.5G and 2G, and that is applicable to a number of sources. Unfortunately, we've come to the conclusion that corn stover is actually a quite a difficult cellulosic source to manage because it's so full of grit amongst others. That basically has a real physical impact on the processing plant. The technology from an IP point of view can be very much applied to sugarcane bagasse or rice or straw, something more homogeneous.
We currently, of course, have already some licensing income from the 1.5G space. We do preserve the IP and the on-site manufacturing technology related to that. Unfortunately, the physical assets in Iowa, we've had to impair.
That's very clear. Thank you, Geraldine.
The next question is from Mr. Laurence Alexander, Jefferies. Go ahead, please.
Good morning. Can you give a sense of scale for what you characterize as more specialty businesses within nutrition, how you group that? Also the total sales going into plant-based proteins, now that you've put it as a product family? Secondly, can you talk a little bit about trends in working capital and how you can bring working capital down as a percentage of sales?
Sure. Thanks, Laurence. Dimitri, do you want to start with the first two questions?
Yep.
Your question about specialty business, I think we don't segment our business in business specialty and business non-specialty. As you know, our business model is pretty unique in combining our global product portfolio with an enormous amount of ingredients, I think unheard of, and are still working on adding ingredients to it. Apply that to, in the animal nutrition space, to regions and species, then in the human nutrition space to regions and end markets. That translation capability is creating this differentiation factor. That is how we segment our business and with some transparency on some of the regions and in terms of human nutrition, in terms of the end-use market. That's how we look at it. Overall, I think in our strategy, we've also indicated that the [evident quality] for nutrition space is above 20%, and that creates that specialty business.
That as a background. In terms of plant-based, obviously the plant-based development is a relatively new development over the last years. We basically, with our competence, think that we should play a role in that plant-based area, especially in the DSM specialties area, looking at meat alternatives and at dairy alternatives with our yeast extract and gellans and our premix solutions. That's a key area where we're beefing up the innovation part. You've also seen that we've announced a joint venture with Avril in terms of CanolaPRO. It is an emerging market, so I wouldn't put any sales turnover ticket to it, but it's certainly an area where we feel that it adds to our nutrition and health growth.
Thanks, Dimitri. On working capital, absolutely. Here, if I look at the performance of the second quarter, of course, I'm particularly happy with the step up in cash generation of 33% for the six months. That's good. This was, of course, the result of a very deliberate focus on cash outflows, but also a very big focus on accounts receivable. If I look at our DSO is down and our overdues have never been as small as a percentage of sales. We've been very active here to make sure that we're not losing out. We also see that on the payables, it's looking pretty good. Where it's a bit high currently is on inventories, and I have to say it's partly deliberate. Given the disruptions to the supply chain, now is not the time to try and tighten them too much.
It's, of course, on materials linked to the lower sales that is to be expected. To your question of where do we improve WC to sales from here, inventories remains the bigger number in this. I think when the world becomes a little less unpredictable, we will push harder on bringing inventory levels further down. That's on the working capital.
Okay. Thank you.
The next question is from Mr. Matthew Yates, Bank of America. Go ahead, please.
Hey, good morning, everyone. Just a couple questions on the nutrition division, please. The first one was just the fact that the profit growth was a touch less than the revenue growth in the quarter for nutrition. Just wondered why there wasn't a better drop through on the margin. Did FX or mix go against you a bit here? The second question is specifically on the animal part of the portfolio. As you said in the intro, two very contrasting quarters so far this year. It still sounds like there's some downward pressure on feed demand from the restaurant closures and the meat processing bottlenecks. Just wondering what you were seeing in Q3 in terms of volume and pricing so far on the animal side.
Yeah, thanks, Matthew. Let me maybe tackle both of these. First, when it comes to the nutrition margin, there's a couple of things to remember here. One is the animal nutrition. If you look at the quarter, we had a 7% price effect on animal nutrition, but that includes a couple of things that don't go down to the bottom line. One is the pricing on pass-through ingredients. That's nearly 3% of that seven. The other one is actually foreign exchange effects in Brazil. We invoice in Brazilian real, but the prices are set in dollars. That created more of an FX impact within the price column. That was about 2%. Of the seven, we've got about 2% positive pricing in animal nutrition. That's not obvious to see when you look at the numbers at first.
Of course, the other part is the foreign exchange effect that was asked earlier of about EUR 10 million in the quarter. When you factor those two in, that's why you sort of end up to, I would call it stable, but maybe a couple of basis points down on the margin on nutrition. That's on margin. Yeah, animal nutrition in these very contrasting quarters. You remember the big sort of accelerated sourcing in Q1. We saw that starting to unwind actually from May. What we are seeing overall going forward is good business conditions, I would say. We do expect a bit of continued normalization and destocking in Q3. If you remember, the Q1 effect was around 6%. And here we are estimating that in Q2 it was 2%-3%.
Logically we would have another piece of destocking in the Q3, with normalized conditions thereafter. It doesn't really change the fundamentals of the business. It's more a little bit the spikes linked to the corona stuff.
Very clear. Thanks, Geraldine.
The next question is from Mr. Martin Roediger . Go ahead, sir.
Hello. Good morning, Geraldine, Dimitri, and the whole IR team. Three questions. First is on materials. You plan restructurings in the second half leading to annual cost savings of EUR 25 million and EUR 30 million on an annual basis. Can you talk about the actions you're planning, the related costs, and also the timing of the benefits? The second question, again, on materials. You have high-value added products there, so you might have benefited from low raw material prices in the second quarter. Can you quantify them, these benefits, and the effects going forward? Finally, a question on animal nutrition. I heard there is a new regulation by the Dutch government to cut CO2 emissions.
If the Dutch farmers do less proteins in their feed, there might be an impact on DSM, either on your feed additives or once your Clean Cow product is registered next year, maybe a very quick adoption for that product. Maybe can you comment on that?
Thank you, Martin.
Okay.
Start, Dimitri?
Yep. On the materials bit, indeed, we've announced in addition to the program which we already started last year, remember 2019 was already a slow market demand for materials. Now with COVID-19 impacting the materials, we basically accelerate that program with restructuring and organizing around EUR 25 million-EUR 30 million annualized savings. That has a few elements. One is in the operations, as well as in the supply chain. Continuous improvements, certainly in aligning the supply chain on some of the areas where we think that recovery will be slow. Secondly, in the sourcing area, where we will share sourced materials, reach out to our suppliers. Sourcing savings are a second element of that program, and the third one will be in efficiency and effectiveness of R&D. We expect that that will have a sort of an inciting time in Q3, Q4.
The savings will come in towards the end of the year, and predominantly in next year, because we need to go through consultation processes and before that has been implemented, we are at the end of Q3. That's basically the color of timing. In terms of raw materials, indeed, we had lower input prices in Q2. Remember that within the materials field, we have a strong portfolio where we feel that raw materials input prices going up or down are not the main driver. They basically scale from margin, and that basically means that if raw material prices go up, we try to hold on it for a while, and if raw material prices go down, we'll try to hold on it for a while. If prices go up, we immediately try to integrate it in our pricing. I think we've been very successful in that.
Raw material input prices are not the main drivers. Be aware, by the way, if there is a lower input price, then you also need to reevaluate your stocks. It's opening a little bit. Q2, yeah, there was a lower input price, but it didn't really impact our EBITDA to that extent. Then I think ANH for you, Geraldine.
Yeah. Let me comment. Thank you for your question on the Dutch government. It's actually a reflection of something a bit broader in Europe. When I gave the Clean Cow update, I should also have mentioned that while the registration is going on, the creating the market activities are still very much progressing. What we're seeing in particular is that the Green Deal, the EU Green Deal, is changing the landscape quite a bit. For instance, there's quite a lot of talk around a new climate law that would make it binding to get to net zero by 2050, and maybe even a binding target by 2030. That can be helpful. Then there's the whole sort of Farm to Fork Strategy in Europe, where basically the EU is starting to integrate the agricultural space in the climate-related strategies.
That does include, of course, methane emitted by livestock. The developments not only of the Dutch government, which are very much in line with this broader EU concept, is very relevant and actually helpful for us. Very fair point.
Thanks.
The next question is from Mr. Patrick Rafei, UBS. Go ahead, please.
Thank you, and good morning, everyone. A few questions, please. Two quick ones on materials. You mentioned in your introductory remarks the delayed contracts in Dyneema. You also quickly mentioned the 5G. Can you talk about when you would expect these contract delays to come back, and how do you see the scale-up opportunity for 5G in 2021? A third question on nutrition. You provided some very useful monthly trends for materials, including July run rates. Can you do the same for nutrition, please?
Okay, Dimitri, take the first one.
Yeah. You can dig out the monthly elements of nutrition. I'm just joking. On materials, thanks for the questions indeed. Let me give some background on the protective materials business. The Dyneema, formerly Dyneema business. The Dyneema business, you need to distinguish between two elements. One is the contracts portfolio. Those are commitments to call off certain contracts throughout a multiple-year period. The contract portfolio is very strong. They've added two new umbrella contracts also in quarter two. The market is pretty strong. The issue is that the call off by the national and local governments on law enforcement protection is done via the governments. They are currently handling another crisis, which is COVID-19, and therefore have not focused yet on calling off on those contracts. The call offs is the key issue.
What we've seen is that was low in Q2. What you see with opening up of some of the regions and the countries, now that is improving. In that sense, we are thinking towards the end of the year where that maybe could normalize a little bit, although it has COVID-related impacts. We certainly think that the call offs on the portfolio will normalize a little bit to the second half of the year. In terms of 4G, 5G networks, indeed, we are one of the main players in fiber optic materials. Demand is steadily. Certainly with COVID-19, this has initiated a new wave of activities. I mean, it was already there that 4G will be replaced by 5G in a sort of transition mode. That was delayed a little bit. People were waiting for investments on 4G because they wanted to go to 5G.
If 5G will not take off, they needed to accelerate 4G investments. COVID-19 has accelerated that decision process on projects. We've seen projects now being started, and that means that there is normally a lead time of six to nine months before that requests more materials. Certainly towards the end of the year and in 2021, we expect that business to pick up.
Thanks, Dimitri. To your question on a monthly split for nutrition, I think it's probably worth me mentioning here that we are only providing a monthly split because of a lack of guidance on materials, and we fully understand that you're trying to understand the dynamics in that space in particular. Of course, in nutrition, we provide an outlook for the year. That's a bit different. We'd rather not go into the monthly split. I mean, nonetheless, add a little bit of color maybe to what has already been said. On animal nutrition, you remember we said there was clearly a stocking effect in Q1, destocking in Q2, and we expected more of that going forward in Q3. That's on animal nutrition. On human nutrition, we saw clearly the big acceleration being at the start of Q2, the first two months.
In June, we started seeing a normalizing. That is particularly the case for food and beverage and early life nutrition, while dietary supplements remain strong. That is the dynamics in terms of the split within Q2. If I add to this, because there's a lot of moving parts in nutrition. Our personal care and aroma business continued to have a negative impact. That is mainly the sun filter business that clearly is still COVID impacted, while the aromas, particularly when it comes to going into detergents, is doing okay. We saw in food specialties a broadly neutral impact. That has very much continued to be a strong momentum for savory and for packaged foods and dairy, whereas beverages did recover a bit in Q2, particularly brewing. Still impacted by the lesser eating out of home demand.
Finally, hydrocolloids was clearly impacted in Q1 because of operations in China. Actually a good Q2 on the back of that. We'll probably normalize in Q3. That's the simplest summary I can provide.
Thank you very much.
The next question is from Katie [audio distortion], go ahead please.
Hi, good morning, Geraldine. Good morning, Dimitri. Two questions from my side, focusing on human nutrition. Given the strength of the human organic growth number, did you gain share in dietary supplements or in immunity-related products in the first half? Secondly, relating to that, I'd just like to get your thoughts on your medium and long-term outlook in the broader dietary supplement space, maybe some specifics around the different subcategories within that, particularly on the probiotic side. Thank you.
Thank you for that. Let me take those. I think building on what Geraldine just said, I think we have seen three trends in the human nutrition space, and then I'll come back to the dietary supplements. What we see is definitely the supply chain uncertainties related to factory loading. Basically, that has impacted quite the value chain, but that is obviously a short-term impact. The whole balance between food service and home eating is an element that maybe that will rebalance. There's a third element where we think that bulk is there to stay, is the continued elevated demand for immunity optimizing products, and that's where dietary supplements are medical. It's very difficult to say whether we gain market share. I think in terms of what we have done in terms of sales growth, I think it's quite impressive what we have shown.
With our global portfolio and our capacity to market in dietary supplements, I do think that we have strengthened our position. What do we expect from dietary supplements? We basically have seen that these whole COVID circumstances have created awareness on how nutrition helps your health, and we think it's there to stay, obviously with vitamins, with probiotics, with all elements of ingredients which improve nutrition and health. That is something where we work hard on and where we feel that it is a positive impact. In terms of probiotics, obviously probiotics in improving your immune system helps. I think we have a very good position via i-Health in our [Prince Well brand], not only in the U.S. but also into Asia. That's absolutely a category which is benefiting in combination with dietary supplements as a space.
Very clear. Thank you.
The next question is from [audio distortion] . JP Morgan, go ahead, please.
Yeah. Hi, thanks. Just coming back to the write-down on the POET JV, I think it's a broader question. The DSM Innovation Center capital employed was just around EUR 600 million, plus or minus a few million, as of the end of 2019. Is there a change in terms of how there is a sort of focus around monetization of that capital employed on the DSM Innovation Center projects? To some extent, the group returns at the moment are being diluted from that DSM Innovation Center capital employed. Any change in how you guys monitor progress around monetizing some of the spendings on innovation projects? Thank you.
Yeah, thanks for this question. I have to say that this impairment of POET doesn't really change the way that we look at innovation. We're very conscious that if you want to be a science-based, innovation-driven company, you do have to invest in innovation projects. We've put together the innovation center in order to facilitate that. Unfortunately, in the case of second generation biofuels from corn stover, to be precise, has turned out to be a real challenge from a mechanical engineering point of view.
As we said, the IP that we developed there is actually the backbone of, and our capabilities, is the backbone of some other big projects that we have, such as Avansya and Veramaris, that are all biotech-based, and has strengthened our biosciences capabilities and our biotech center in Delft in particular, that is now enabling us to develop in many different aspects of our nutrition and health space, our biosciences. No, it doesn't really change. Of course, we do want to try and get as much return on capital as we can from these growth areas. Like with innovation, it's always the same pattern. At first, you have to invest, and then you get the returns. It is the part of the group where that KPI will always look a bit challenged.
I do believe that we have a very rich portfolio of innovation coming through. In this case, unfortunately, we've had to impair this one.
Thank you.
That leaves us basically probably for a last question. We're closing now to 10 o'clock. Operator, let's do another last question.
Okay. The last question is from Mr. [audio distortion] , Bernstein. Go ahead, please.
Thanks very much for squeezing me in. I'll keep it to one then. Can I ask you on the materials business, please? It's been pretty mixed performance, especially contrasted to the resilience of the nutrition cluster. You mentioned at the beginning as well that you expect a recovery to be relatively slow. Does that change in any way your view strategically on that business, please? How do you see the longer-term trajectory in the materials business develop? Thank you.
Yeah, let me take that one. Thanks for that question. I think for me today, these circumstances are unprecedented. Sadly, there is no proxy for quality of any activity today. Certainly, no reason to review our strategic course. I think what has hit the materials business is not GDP related. This is COVID-dependent. Certainly, it doesn't have any proxy for a value of any business. To your point, we expect a slow recovery. That is only for the automotive part, which is 18% of materials. I think building and construction, electronics, the Dyneema bit, the fiber optic materials for the medical space, we do feel that there is a quicker recovery. We need to sub-segment.
That's also one of the reasons why, in terms of our restructuring program, we're basically not implementing any of the cut moves, because that would be relatively unwise, to put it politely, to restructure and save costs where you jeopardize the long-term future. We still strongly believe in that future. We've also seen that there is huge innovation potential, and we just need to weather the storm and to create visibility to do the right action. In that sense, it's a bit of a long answer to your, I think, fair question. No, we don't see at this moment in time, no reason to review our strategic course.
Great. Thank you.
Any internal second question? You still have the opportunity. No? Okay. That brings an end to the Q&A for today. If you have any additional questions, as you know, please don't hesitate to reach out to the investor relations team. Dimitri, do you want to make some closing remarks?
Yes. Thank you, Dave. Thank you, everybody. Just to wrap up, we have delivered a solid result in a fairly dynamic environment. Nutrition continues to do well with solid business conditions in animal and in human, definitely confirming our long-term growth levers. Remind you, Materials is a quality business. The current environment is not derailing us from achieving the potential for these businesses. We will continue to take a balanced approach to manage near-term challenges while pursuing at the same time our strategic goals. While COVID-19 could be quite disruptive on our lives and business, we also feel that as a science-based company with a strong focus on sustainable innovation, we are very well positioned for the future. Dave, before we wrap up, shall we remind our audience about our virtual Investor Day?
That would indeed not hurt. You're right. We unfortunately have to decide to abandon the original plan. As you probably recall, we planned our investor event in London on the 4th of November. Nicely arranged venues, et cetera, COVID is changing also this plan. Indeed, we have to change it to a virtual event, and that means that the Capital Markets Day, which then will be actually only a half day Capital Markets Day, will be done virtual. The information you can find on our website, that investor event will focus on our nutrition growth strategies and our innovation pipeline in that space. With this said, we have to conclude today's conference call. As said earlier, any further questions, please reach out to us. The rest we need to thank you for participating today, back to the operator.
Thank you. Ladies and gentlemen, this concludes DSM's conference call. Thank you for attending. You may now disconnect your line. Have a nice day.