Ladies and gentlemen, thank you for standing by. Welcome to DSM's Conference Call on the First Quarter Results of 2020. Throughout today's presentation, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask Now I would like to hand over the conference to Mr. Huysen.
Please go ahead, sir.
Thank you, operator. Good morning, and welcome to this conference call, which we do today in a typical COVID-nineteen setting. That means we're all doing this Call from our homes. I'm joined on this call by our 2 CCo CEOs, Geraldine Machet and Dimitri de Weze. Geraldine will give a short introduction, and after that, we will open the lines for questions.
As always, I need to caution you that today's conference This call may contain forward looking statements. In that regard, I would like to direct you to the disclaimers about forward looking statements as published in the press release, which you can find on our website. And with that, I hand over to Geraldine.
Thank you, Dave. Good morning, everyone, and welcome to this call on DSM's Q1 results 2020. Before I start, I just want to say that I hope that you are all healthy and well In these very unusual times, wherever you are dialing in from today, and that I hope the lines will be okay and stable. Back in mid February, on our full year 2019 results call, you may remember that we included in our outlook statement that With regards to any potential impact of the coronavirus, DSM will monitor the situation closely. Well, Much has happened since then, impacting all of our lives and impacting the way business can operate.
For our part at DSM, We took very early action, thanks to our 5,000 or so colleagues in China, who made us alert very early to the seriousness of the threat. This enabled us to focus on the health and safety of our people and partners and to ensure the continuity of supply of our products and solutions to our Many of which are classed as vital by national governments around the world. I have to say that we are extremely proud of how our people have worked through significant challenges to keep our operations running and at the same time finding ways of supporting the communities around us. With that said, let me turn back to our Q1 results And start with the financial highlights on Page 3 of the presentation that we loaded this morning with the press release. Despite this unusual context, we reported a solid first quarter with both stable sales And adjusted EBITDA.
Furthermore, our adjusted net profit was up 8% and our adjusted net operating free cash flow was up 152 Nutrition delivered a good performance with sales up 4% and the adjusted EBITDA up 3%, driven by a strong performance in Animal Nutrition. Included in these numbers, we estimate an overall 1% increase in sales coming from the COVID-nineteen effects, and I will come back to this in a minute. Materials also had a solid start to the year, but closed the quarter with volumes down 6% compared to prior year and an adjusted EBITDA down 7%. Demand deteriorated rapidly by the end of the quarter owing to COVID-nineteen, and we estimate the negative impact on the sales to be about 7% as customers' operations were severely impacted by government containment measures, especially in Europe and North America. In this context, it is important to highlight that we continue to benefit from a strong balance sheet And combined with our quick and decisive actions as well as our strong and growing Nutrition business, we feel well positioned to navigate Near term developments.
While we are taking all necessary short term measures, we also remain focused on our long term strategy to deliver above market growth, pursuing our innovation programs and growth initiatives. And this brings me to our statement on the full year outlook 2020 on Page 6. Overall, we are expecting the conditions we saw at the end of Q1 to continue into Q2. We have seen in April continued good underlying business conditions in Nutrition, while at the same time, The lockdown impacting all economies around the world, significant uncertainty persists in the near term over end user demand and thus limits our ability to estimate business activity for materials. We are taking all necessary actions to sharpen our focus on operational excellence across the company, and we are limiting capital expenditure and operating costs in materials to protect earnings and cash generation without compromising our mid- to long term potential.
This leads us to our statement on the full year 2020 outlook, which states DSM expects Nutrition to deliver at least a mid single digit increase in adjusted EBITDA for 2020 compared to prior year. But given current limited visibility in materials, it feels prudent not to express an overall earnings outlook at this time. To give you a bit more color on our trading conditions and performance by business, let's go first to Nutrition On Page 8. Overall, Nutrition delivered a healthy organic sales growth, up 2%, driven by higher volumes, predominantly in Animal Nutrition and supported by an estimated overall slight increase in sales related to COVID-nineteen of circa 1%. The adjusted EBITDA increased 3%, driven by higher volumes and the contribution from CSK, offset in part by higher logistics costs and a negative foreign exchange effect.
The adjusted EBITDA margin remained broadly stable at 20 point 6% versus 20.8% in the same period last year. Let's move to Page 9 to look at the details of Animal Nutrition. Animal Nutrition reported a 12% organic growth, fully driven by volumes with good business conditions across all species and geographies. China and Southeast Asia So good growth as the effect of the African swine fever started to recede. While the rebuilding of the swine population will be slow, The upward potential is significant given the scale of the devastation caused by the disease.
Additionally, Given that this rebuilding is led predominantly by the larger, more professional pork producers, This will increase even further the relevance of our portfolio of high value added solutions. With regards to COVID-nineteen, the rapid shift from fruit services to at home eating led to increased demand for easy to prepare proteins such as poultry and eggs. Additionally, we saw a positive impact during the quarter From the silo loading effect, which we mean by that additional purchases from feed producers who increased the stock of nutritional ingredients in anticipation of possible logistics disruptions as a result of the COVID-nineteen outbreak. We estimate this to account for about 4% to 5% of volumes increase in Animal Nutrition during the Q1. Now moving to Human Nutrition, let's go to Page 10.
As expected, human nutrition had a slow start to the year with the continuation of the softer conditions seen in Q4 in early life nutrition and food and beverage. However, as lockdown measures began to take effect In more markets, strong demand for packaged goods and infant nutrition altered business conditions from mid March, intensified by household pantry loading. Dietary supplements had a strong start to the year As the good business conditions of Q4 continued into 2020, the increasing demand for immune optimizing products led to further growth over the quarter. These effects continued into April. The overall price mix during the quarter was minus 6% owing to the continued lower vitamin C prices versus prior and expected lower contractual prices in early life nutrition.
Finally, our other nutrition businesses So overall a slight negative effect from COVID-nineteen as we are showing the details on Page 11. Food Specialties delivered good growth, especially in baking and savory on the back of increased consumer demand for processed foods. Personal Care had a weak quarter due to the soft demand for sun filters, while aromas was positively impacted by increased end demand for detergents and disinfectants. Moving now to materials. Let's go to Page 12.
Materials had a solid start to the year. However, as lockdown measures were enforced around the world, The operations of many customers were impacted and the closure of retail outlets significantly reduced demand. As mentioned earlier, we estimate COVID-nineteen to have a negative effect on sales of about 7% in the quarter. Engineering Materials saw increasing weakness in the global automotive segment, partly offset by stronger demand in packaging and medical applications. Resins volumes were slightly down in the quarter with good Coating sales in Europe, partly offsetting weaker volumes in Asia, while Functional Materials remained low, as expected, owing to 5 gs investment delays.
And Protective Materials, which is the new name for the division that sells Gynima, For lower volumes in the quarter as large government driven personnel protection projects were delayed. The adjusted EBITDA for materials was down 7% compared to prior year, fully driven by lower volumes, while margins were slightly up owing to lower raw material prices and lower costs. Regarding developments since quarter end, We have seen in April volumes drop by up to 30%, and we don't expect big improvements in May. And now to close off, let me go through some key financials on Page 16. DSM continues to benefit from a strong balance sheet and liquidity.
In the quarter, the adjusted net operating Free cash flow increased by 152 percent to €151,000,000 versus prior year, driven by limited cash outs on working capital. The operating working capital as a percentage of sales for Q1 closed ahead of last year at 25.9 percent with inventories slightly up being offset by higher payables. Net debt closed at €1,324,000,000 up €180,000,000 mainly resulting from the share buyback. I would like to point out here, however, that we also closed the Glykolm acquisition on April 1, raising our net debt to slightly above €2,000,000,000 We remain committed to our capital allocation policy And we'll continue to reinvest our capital to drive organic growth via disciplined CapEx. We are also committed to pursuing our existing policy Of distributing stable, preferably rising dividends and our dividend proposal for approval at our AGM tomorrow remains euros €2.40 per share, up 4% versus 2019, as communicated in February.
At the same time, having bought back €745,000,000 of shares since Q1 last year, We believe it prudent in the current environment to pause the remainder of our €1,000,000,000 share buyback program. Finally, as a reminder, DSM has committed undrawn revolving credit facilities of €1,500,000,000 not subject to any financial covenant or a MAC clause, and we have no bonds maturing in 2020 or in 2021. And with this, I'd like to open the floor for questions.
Thank you. We will start the question and answer session now.
Good morning, Geraldine, Dimitry and Dave. So first question is on pricing. It's on both segments of Nutrition. So first question is on the Human Nutrition side, the minus 6% in Q1. Just wondering how much of that is the ELN contract Reset, if you want to call it that.
And how do they work? Is that a one off every few years? Is it an annual adjustment that's bigger this year? Just to understand a bit more about those contracts. And then the other pricing comment or question was vitamin E.
There's no tailwinds in Q1. It's a zero number. But how are you thinking about Q2 on vitamin E on pricing. And if I can steal a second question, this is on volumes. I just wondered if you could somehow scale the improvement you're seeing in March April in Human Nutrition volumes.
Thank you.
Thank you, Andrew. Dimi, do you want to kick off with the pricing?
Yes. On Human Nutrition, Specifically on the price component. So what we've seen is that the minus 6% On pricing, you basically can link to vitamin C for about 3% And the ELN is about 2% and then you have 1% pricing on product mix left. To your follow-up question on ELN, These are contracts we have with our partners. You know that the ELN states works with big key accounts.
We have an agreement with these key accounts, long term supply agreements, where we share the cost benefits we take. We obviously are always in R and D and innovation to see if we can optimize the strain. And if we do so, we have agreements In these long term supply agreements that we share these savings, and that will basically lower the price, but will certainly not Lower on margin impact. So that's about 2% out of that 6%.
Thanks, Jimmy. And then maybe, Andrew, to your questions on vitamins. I mean, you're homing in on vitamin E. But let me first start with our usual cautionary statement, Which is that movements in spot prices do not equal movements in contract prices. And in fact, you can see it quite clearly in Q1, within animal nutrition, we had a net neutral in Q1.
And as Dimitry just mentioned, vitamin C was Minus 2% to 3% in our H and H numbers for H1. Now Looking at the current market trends around vitamins, we do expect to have a bit of a positive effect overall, Maybe in the order of EUR 10,000,000, EUR 15,000,000. But please remember that at the same time, Vitamin C will remain a headwind in Q2 in 2 ways. I mean, the comps remain tough in Q2. They will fade In Q3, Q4.
But also, we definitely see a longer time for any price movements to get into the contractual prices, Particularly in human nutrition, as you know, where it's annual contracts. And on top of that, we do need to remember that We will be most likely facing some higher costs going forward, both in terms of our source materials And in terms of logistics, and we expect a negative foreign exchange impact.
And then maybe the question on human nutrition. What we see for April, May, if I'm not mistaken, was also one of the questions. So what we've seen is that towards the end of quarter 1, we saw this change in terms of Household country loading as well as the lockdown measures became into effect, predominantly with a positive effect on the demand for packaged foods And infant nutrition, we've seen that being continued in April sales and May looks good as well. So we see a continuation of that. Maybe as a bit of a reminder, you've seen the household pantry loading.
Is the retail selling out to consumers? The retail is buying From our customers, and obviously, they destock their chains. And therefore, we will see the impact predominantly in Q2 because they need to reach Restock, they have changed. So that's why you see the full effect in Q2.
Okay. Thank you very much.
Next question is from Mr. Muttje Groenbrand from ABN AMRO. Go ahead please.
Yes, good morning. Some of my questions have already been answered. So the main question that remains is on the share buyback. You're pausing that. Is that for the full year?
Or is it just for Q2? And what would make you Resume that buyback. And perhaps also relating to this, given your capital allocation priorities, M and A is higher on the agenda than the share buyback. How do you see that market at the moment? Has valuations come down?
Yes. Hi, good morning. Let me take those. So firstly, the pausing of the share buyback, we will have to see how the market develops. As you know, our capital allocation policy is unchanged.
So it's organic growth, 1st dividend, 2nd third, M and A 4th, giving cash back to investors. And so it feels prudent to pause that, which means that EUR 255,000,000 left on the EUR 1,000,000,000. How long will depend a bit on how the world develops Going forward, this was always the we do it when we can and when we feel it's prudent to do so. And right now, we think it's best to pause. As for M and A, I mean, you know our strategy is predominantly organic, but we are always keeping a look for potential M and A targets.
And that is something that we will continue to do, bearing in mind That with current market condition, one has to be extra careful.
Thank you.
Next question is from Mr. Matthew Yates from Bank of America. Go ahead please.
Hey, good morning, everybody. I just had a question on the Animal Nutrition business And generally around your order visibility. So there seems to be growing evidence, particularly in the U. S. Market that some bottlenecks around meat packing or processing And the closure of restaurants is actually leading to reduced demand for meat.
And potentially now we're seeing livestock farmers reduce the size of their herds In various categories. So I'm just wondering what sort of leading indicators do you track for the animal nutrition business And whether the issues we're seeing in the U. S. Market around meat processing are different to what you've been seeing in Europe and LatAm? Thank you.
Yes, good morning, Matthew. Maybe let me take this one on Animal. Now indeed, we have seen these disruptions with some of the slaughterhouses closing. And so that we, by the way, believe to be very short term. It's more of an operational issue.
Now you also refer here to the shift between the sort of food service industry. So in the case of the U. S, there's quite a lot of chicken going The outlets like the Kentucky Fried Chicken type outlets, but it's actually quite a U. S. Phenomena because what we're seeing internationally Is that the demand for poultry and for eggs is actually stronger because it is a very easy to cook and prepare Protein and, of course, eggs are also an important part of sort of household diets pretty much worldwide.
So We're obviously keeping an eye on this development in the U. S. Now just to give you a reminder, the U. S. In our animal nutrition is about 12% -ish Of our sales.
And so I think the impact there will be moderate. But these are the kind of things and we can see indeed these types of if you're asking what kind of KPIs we track, We clearly look at the whole chain.
All right. Thanks very much, guys.
Next question is from Mr. Martin Roediger, Kepler Cheuvreux. Go ahead please.
Yes, Thanks. Actually, most of my questions have been asked already. But maybe on Materials, You said you saw 30% lower volumes in April and you do not
see
You are negative on May. Can you shed some light on by differentiating this minus 30% volume by the end markets. And you certainly have some order book for May. So maybe you can give us a certain kind of sense How you see May evolving compared to the business you saw already in April? Thanks.
Thanks, Martin. Jimmy, do you want to take that?
Yes, let me take that one. Yes, yes, we have an order book for May because we are already in May. So let me contextualize that a little bit. To your point, indeed, towards the end of quarter 1, we saw a huge impact, predominantly with customer operations Shutdowns, I mean, you've seen it in the news for GM, BMW, all our value chain partners. We have seen that continued in April, with volumes down up to minus 30%.
For May, we don't see any different pattern in our order book. So we don't see any big improvement, Especially in the European and North America, although there are some announcements, BMW smaller production sites have started up, But we don't see that in the order book, so there is still low visibility on going forward. I think it would be a bit weird to exactly Pinpoint where we will end up. We see some activity, but April May, we see the same impact. So that is a bit on the order book, then maybe a little on the end market.
So automotive is an important end market for us, about 6% of PSM sales, 18% for the material cluster. Although with a relatively strong start, and with China coming up in towards the end of quarter 1, We were hopeful, but then North America and Europe were really hit by the lockdowns, and we saw that impact at the end of quarter 1. Market decline in automotive, depending on whom you ask, are in the range from 20% to 40% going down, and We also see that in our order book. Then building and construction, another important end market for us, also around 6% Of sales for DSM, 18% for the materials cluster. Large construction companies Basically, we're impacted by lockdowns.
We have seen demand dropping also in the building and construction area Around 20% to 30% in April, so in line with market dynamics. May June will depend a little bit on reopening of the countries. This is a segment which could recover more quickly than the value chain of automotive because it's shorter. So this is to be seen, but we've seen April 20%, 30% lower. And then we have, obviously, our Dyneema market, personal protection, which is now called DSM protective materials.
What we've seen in the Protective Materials business is that that has indirectly linked To COVID is that we have seen tenders for personal protection, small tenders for law enforcement offices, which have been delayed Because they're busy with some other priorities and one of the main priority obviously is battling COVID-nineteen. So this is A delay is not a reduction, but it's a delay because of a change of priority. So that is a bit of a quick overview of 3 important end markets. Hope that gives a bit
of color.
Thanks a lot.
Next question is from Mr. Thomas Vogelzowitz from Citi. Go ahead please.
Thanks very much for the presentation, opportunity to ask questions. 2, if I may. Just following on from the Comments on materials, is there any reason to think that there should be the drop in volumes that we're talking about should have a more or less proportional impact On the drop off on profitability. And secondly, just kind of around the innovation kind of pipeline. Veramaris, could you shed any color as to how that product project is coming on stream, utilization rates?
And how the COVID impact might affect the kind of or not the time lines for the 2 other key projects, the sweetener and clean cow. Thank you.
Thank you very much, Thomas. Back to you, Dimitri O'Matero.
Yes. I think a fair question, difficult to answer because there are it's a mixed bag of activities. But With volume down up to 30%, we do see lower input prices, which We prefer we like trying to hold on. Normally, we have spread management where we can hold on for a while. So that will give us a bit of a Positive in Q2, limited because we also see that logistic costs are going up.
We have an FX effect. We have Cost actions which we have initiated, so we already started in quarter 1 initiating actions on materials to protect earnings, Which annualized will be in the order of tens of 1,000,000. And obviously, the product mix play into game With Dyneema with some delay. So it's difficult to put a 1 on 1 comparison. But giving a bit of color on the components, I hope you get a bit of Lucio.
Thanks, Jimmy. And thank you, by the way, for asking about our big tickets because we continue to be very on our innovation projects. So given that these 3 big tickets are pretty much in ramp up Phase, we haven't seen a big impact from the COVID disruptions on those projects. So what we're seeing is, And I'll run through briefly the 3 of them. So in terms of Veromaris for the aquaculture space, this is very much Hitting the milestones in terms of increasing the productivity, as you remember, this is a gradual curve as we get those big fermentors running, And we're pretty much on track.
So there we will be fine. Then in terms of Avancias, that is Also, on the same side, getting its production going and in terms of course, the relevance of both remains perfectly Supported. And so there again, we're pretty much on track. And for Clean Cow, If you recall, the big milestone is the regulatory clearance with the EU, and we have seen no delay in terms of getting that to progress. So that is remains the big milestone for 2020.
So pretty much in line with what we would have Shared with everybody with our full year results in February. Great.
Thank you both very much.
Next question is from Mr. Watson from ING. Go ahead, please.
Good morning, all. Sorry, Math is
on my strong point. So Jonathan, perhaps I could ask you as the accountant. With the 1% positive COVID impact quoted for the Nutrition segment as a whole. I'm just wondering how the animal silo loading of Effective 4% to 5% translates to 1% for the overall segment taken together with human. That's the first question.
Okay. So what you're saying is the 4% to 5% volume on H and H That we're seeing there estimated versus oh, yes, yes, sorry. You mustn't forget in there That we also have Personal Care. So here we're looking at total nutrition. So it's a net of a number of So you've got 4%, 5% in Animal Nutrition, but then in our Human Nutrition Plus, which is the €2,000,000,000 of Human Nutrition and the other, We had in their personal care that took quite a step down.
You remember in my opening comments, we referred to the sun filters, Yes. But clearly, that was a negative. So and we also saw a mixed bag when it comes to Hydrocolloids, for example, where our 3 plants are in China. So they were clearly disrupted during the Q1. And we also saw in the food specialties, so when you put that together, it's a negative net, negative effect On, for example, the beer, the brewery, where clearly that's more of a foodservice space as opposed to in home.
So that's where you have the mix there.
I understand. Remember as
well, yes, that the positives in our Human Nutrition have a bit of a time delay. So our customers saw the pantry loading effect sooner than we do. And now as Air Refill, their supply chain, we see the pull coming through in order to clearly a good order book into Q2. I hope that answers that mathematical issue.
Yes. Thank you very much for explaining it. It's very clear. Okay. And then how have your FMCG orders changed?
Because obviously, this was an area of weakness last Yes. Which led you to reorganize the sales platform with Fit for Growth? And has COVID had an impact on what you've seen from that particular segment of your customer base?
Jimmy, do you want to take
that? Yes. Right. Yes. So the human nutrition space has different segments.
So Let me try to combine that with the trends because that's basically what you're asking for. Let me first show and share a bit what we see in terms of trending. So What we do see for our Human Nutrition business is that we see a lot of move from food services to eating at home, right? And that has an impact on packaged foods for human nutrition. It has an impact on animal nutrition, like Geraldine explained, in terms of The species to be used, but for human nutrition, there was an increased demand for packaged food, which will impact our food and beverage.
Then we saw very solid growth for vitamins and immunity boosting ingredients, right? Because of all the COVID and the community optimizing products where people do take care more of their health than ever before, We saw further growth over the quarter, and we also saw these effects continue to in April. And then the 3rd trend we've seen is pemtree loading. And exactly like Geraldine said, it's a bit for human attrition, a bit with delay. So we've seen towards the end of quarter 1 that Our customers were selling to the retail and therefore need to restock their value chain In quarter 2.
So we will see having that impact in quarter 2, and that has an impact on early life nutrition and food and beverage. So then you see a little bit of trends with our businesses. Hope that's a bit of color to your question. Okay.
That's really clear. Thank you, Dimitri. And Dimitri, while I've got you on the line, you asked An earlier question about the you gave some color on materials in April May, but one area you didn't touch on was Semiconductors and the electronics value chain. I was just wondering what you're seeing in terms of What happened in April? And what your visibility is to me?
Well, it's very interesting that you asked because that's Predominantly, the segment where we were a bit worried, also in line with automotive, but we have seen electronics and electric Not too bad. I mean, it's not brilliant, but it's not as severe hit by COVID as automotive. So we've seen and you've seen that Mobile phone producers have launched new models at a lower cost. You've seen that electrical components And electronics in health instruments are really needed. It's also one of the reasons Why?
Predominantly, all our sites are still up and running because we've seen it's vital for the world. So we've seen electrics and electronics Holding up pretty okay. There's no growth, I mean, don't get me wrong, but it's not in a decrease as severe as we've seen in the automotive and building Construction market.
Okay. Okay. Fantastic. Thank you. And final question from me.
Thank you for your patience. This is when I think we Look at your Q3 results last year, you've taken another leg down in Animal Nutrition due to African swine fever. And at the time, you had expected that, that impact would last for a full 12 months. Obviously, in today's release, there appears to be some Move away from that. I'm just wondering if you could provide us some more color please in terms of what you're seeing at that In terms of guidance now versus what you thought you were seeing at the end of Q3 last year?
Yes, absolutely. This is An important effect for our Animal Nutrition business. So indeed, for about 5 quarters, we had a headwind. And if you remember last year, In Q1, Q2, we were able we saw the offsetting effects with other geographies and other needs Kicking in, but then in Q3, Q4, it was too much, and we had the negative effect. Now what we are seeing now is that, particularly in China, The rebuilding of the swine herd is starting.
It's going to be a gradual process. It's not a jump up. If you remember the culling, The estimates were between 40%, 50% last year, and it takes 18 to 24 months For female breeding animal to be ready to breed. So this is gradual. But in terms of The momentum for us, it is as we were expecting, which is that it has led to a professionalization Of the production of pork, so we're seeing the professional farms getting started earlier.
And because we were very good in terms of our hygiene measures at our measures at our production facility for the premixes, we were able to supply the market nicely. So We will be seeing basically what we expect to be a continued and probably Accelerating recovery quarter on quarter. So this will be a positive for us throughout 2020 for sure. And we would expect I indicated earlier, we think that out of the 12% volume growth, we had about 1% year on year comparison. One could expect that to be bigger going forward.
Okay. Thank you. That's really clear. So would it be fair to say that the Professionalization recovery.
Greg, Dave here. I mean, you've only got 5 questions. So yes.
Next question is from Mr. Bastian Bray from Berenberg of Berenberg. Please.
Good morning and thank you for taking my questions. I have 2, please. The first is on the exposure to end markets within the food and beverage part Human Nutrition. If I'm not mistaken, this is a touch over 25% of sales. Is most of this end category exposure to packaged food?
How much of it is packaged food? And what are the other categories within this segment? My second question, I believe, has already been touched But I just wanted to check, I missed the first part of the call. Is the base case for meat production at the moment that poultry enjoys above trend demand growth, Pork is sort of in line with 2% to 3% forecast at the start of the year and beef below. Is that a right assumption?
Thank you.
Thanks for your questions. Do you want to start with food and beverage?
Yes. So indeed, Food and bath, we have in our human nutrition space. That is predominantly related to packed foods And not to Food Services. The Food Services part is partly in our DSM Food Specialties part, where Geraldine, we're referring to the Personal Care and the Ademput Specialties. So the H and H part is predominantly Apex Groups.
Yes. And then indeed, in terms of the species, we referred to it earlier a little bit, but I can cover that. So We are seeing worldwide an increase indeed in poultry and in eggs, so our easy to prepare proteins, With pork holding up well and clearly, the meats that tend to be more eaten in restaurants, Beef, for instance, being probably more on the down. So those are the main trends. Now probably worth Reminding everyone on the call that for us, we have a very strong position in poultry.
It's about 40%, 45% of our animal nutrition has been historically. Then swine is about 20%, rumen in 20% and then the rest is aqua and pet. So we have a very strong position in poultry. Now there is one caveat that came up in the questions earlier, and that is in the U. S, There's currently some disruption on the market due to the slaughterhouses having closed with some of the big players and also The big proportion of sort of fast food chicken, like the Kentucky Fried Chicken, that are down at present.
But for us, North America is about 12%. So we don't and we see this as most likely to be somewhat of a temporary effect.
Thank you for taking my questions.
Next question is from Mr. Chetan Udeshi from JPMorgan. Go ahead please. Yes, hi, thanks. Two questions.
First, just thinking long term, there is this talks about China possibly getting stricter on consumption of wild meat in China, is that something which can have any material impact on DSM over the mid to long term perspective? And second question, just to clarify, Within the nutrition guidance, is it fair to say there is no assumption of major benefit from vitamin pricing for full year? Thank
you. Okay. Well, maybe first in terms of a brief comment on my side. To be fair, we haven't got a house view on the changes in China when it comes to the meat markets and the way that they are managed. But when it comes to our business, of course, our products and solutions go To grow particularly pork and poultry.
So I don't know whether any changes will be around those types Of animals in those live markets, but we don't have a house view other than we don't believe it's going to impact consumption, particularly Certainly not in the midterm. And then when it comes to vitamin prices, I think we covered it earlier. But in short, looking at the current trends and I look at all the vitamins put together, we probably expect a bit of a positive, Maybe in the order of EUR 10,000,000 EUR 15,000,000, but with a cautionary reminder that vitamin C will remain a headwind In Q2, from a comps point of view and also that in Human Nutrition, the translation Market pricing into contract pricing is obviously a much slower and more gradual process, and that we also have increased costs to bear in mind In terms of our sourced ingredients, but also we expect the logistical costs and also the foreign exchange to be negative given current exchange rates.
Understood. Thank you. Next question is from That's Gunther Serhmann from Bernstein. Go ahead please.
Hi, good morning. Thanks for taking my questions. 2 as well. Firstly, On the Nenter side in China, this is something that you had originally planned to start up towards summer of this year. Can you just give us an update if there's been any delay due to COVID and how the ramp up is going on that side?
And then secondly, on your 2nd generation bioethanol business, given where the oil price and the ethanol price Do you see any risk there for an impairment? And what's the capital that you have employed in that business, please?
Sure. Jimmy, do you want to kick off with Nenter?
Yes. Nenter, so as you've seen, we have our in the Hubei which was locked down. We had our net facility, which we had basically stopped immediately after having the joint venture Just to upgrade it according to DSM standards. Unfortunately, with COVID-nineteen, obviously, nobody was allowed on the site, Look, we obviously continued our work on engineering. You can do that from home with computers, etcetera.
So what we're trying to do is To try to make up the lost time, it's too early to say how that will look, but we're confident that We didn't lose too much time on it because we could continue working from home on the engineering part. Obviously, with the Ube province Today, with limited restrictions, we still take care of safety and help our people on the site, but we feel that We could reasonably well make up for the lost time due to the restrictions earlier.
Thanks, Dimitry. And on the biofuels, so bioethanol, now what we have done there in the autumn of last year Is that we switched our focus to predominantly the research and development part and the technology testing More so than the sales. So we're not seeing a direct impact of the current prices movements. Having said that, the R and D is all about validating the licensing business model, which was always the original intention. So we don't have much in terms of cash outflow on our joint venture on biofuels at present this year.
And but we are watching, of course, the lower oil prices, but also the blending rates. So There's a legislation around blending that keeps some of the biofuel volumes going. And in terms of exposure, we have about €60,000,000 to €70,000,000 I think euros on the balance sheet at present.
Great. That's very helpful. Thank you both.
Okay. That leaves us for one last question if I look at the time. So who has the last questions, operator?
That's Mr. Adam Bubes from Jefferies. Go ahead please.
Good morning. So just wanted to Sorry, Laurence Alexander from Jefferies. Two questions on Protection. How much of that is actually PPE? And secondly, for The overall Materials segment, should we expect any significant work inventory work down burden in the second quarter?
I'm not sure I heard your second question. Well, do you mind repeating?
Sorry. So on in the second quarter, should we expect in materials a burden from inventory work down or inventory
Okay. Dimitri, do you want to take those?
Yes. If you can take the 2nd, I will take the first. So on the DSM Protective Materials business, About half is personal protection and the other half has to do with commercial marine, Sports, fabrics, so half is personal protection. That is predominantly personal Section of law enforcement officers. So that's really, bullet resistant tests and the likes.
So I don't know If you want to compare that with other markets, but we are in bullet resistant fast. So personal protection is about half Of the composition of the protected material business.
Yes. And then on inventory, I think you're referring here Potential inventory revaluation. Now of course, we are currently seeing a lower input cost trend. With that, we always, along the way, adjust our inventories according to IFRS requirements. And similarly, of course, at the same time, the lower input costs is something that we reflect in our pricing dynamics, And it's something that we have shown with the portfolio of our Materials business becoming increasingly specialty related, But this is something we've been handling pretty effectively over the last year.
So at least at this point, we don't nothing specific to report on that subject.
Thank you.
Okay. So that brings us now to the end of the Q and A. Dmitri, do you want to make some closing remarks?
Yes. Thank you, Dave. Firstly, I would just like to reiterate what Geraldine said earlier. We are very thankful for the continued effort of our We're all together taking necessary actions to address the recent challenges in the markets, and we remain focused on driving growth, costs and operational excellence throughout the company. We remain well positioned to manage Near term development with a growing nutrition business and a strong financial position.
We stay focused on our long term strategy to deliver above market growth Our innovation programs and supported by the execution of our shelf health actions. As such, we expect Nutrition to deliver At least a mid single digit increase in adjusted EBITDA, but given the current limited visibility materials, we suspend the overall earnings outlook. And having said that, back to you, Dave.
Thank you, Dimitri and of course Geraldine. This concludes today's conference call. If you have any further questions, don't hesitate to reach out to our team. We're all sitting at home waiting for your calls. Thank you.