Ladies and gentlemen, thank you for standing by. Welcome to DSM's Conference Call on the 1st 9 months of results of 2018.
First,
Now I would like to turn
the call over to Mr. Hasing. Go ahead, please, Sir?
Thank you, operator. Ladies and gentlemen, good morning and welcome to this conference call on our 9 month results, which we published earlier this morning. I'm sitting here with this is Geraldine Mabiot, Chief Financial Officer and a member of the DSM Managing Board. She will elaborate on the results and afterwards answer your questions. As always, I need to caution you that today's conference call may contain forward looking statements.
In that regard, I would like to direct you to disclaimers about Forward looking statements as published in the press release. And with that out of the way, Geraldine, it's yours.
Thank you, Dave. Good morning, ladies and gentlemen. It's pleasure to welcome you on this call on DSM's 9 months results for 2018. I will start by providing a few comments on the key Slide 5 of the presentation that we published this morning together with our press release, and then we will open the line for a Q and A session. However, before starting, I would like to point out again that in order to provide as much transparency as possible, we have reported separately Year to date, the estimated impact on our business was temporary higher vitamin price results resulting from the exceptional supply disruptions in the industry.
Therefore, what is referred to as the underlying business In today's call and in the press release are the normal business activities, excluding this temporary vitamin effect. As previously mentioned, This split is, of course, not our usual way of reporting and does require some estimates. Let's start with the financial highlights for the Q3 on Page 3. As indicated on this slide, we have had a very good Q3, building on the Strong performance we reported in 'eighteen. And as a result, we are well on track to making 2018 a very strong year, exceeding once again our strategy 2018 targets.
In our underlying business, we reported in Q3 a 5% organic growth despite the 2 comparable figures in the same period last And all businesses delivered above market growth. Adjusted EBITDA in the underlying business increased 7% in the Q3. Foreign exchange remained a negative effect in Q3 of roughly €10,000,000 which is substantially lower than the €50,000,000 impact in a given. On constant currency, the adjusted EBITDA growth in Q3 was 10%. The strong earnings performance resulted in a higher ROCE of 13.6%, up 100 and 30 basis points compared to the same period last year.
As for the temporary vitamin price effect, we saw a small residual EBITDA impact of about €15,000,000 in the 3rd quarter, bringing the total benefit in 2018 to €290,000,000 Before we take a closer look at the performance of each business in the Q3, let's first go to the outlook on Page 5. As indicated in our press release, we confirm our full year outlook. And as we are approaching the end of the year, We have just maintained the adjusted EBITDA growth guidance from towards 25% to approximately 25%, Recognizing the slightly higher benefits from the temporary vitamin effect, while maintaining the same outlook for the underlying business And assuming the same €70,000,000 negative FX headwind for the full year. With reference to each of our businesses, we continue to Good business conditions in nutrition. We have continued good momentum in all regions and segments for both animal nutrition and human nutrition.
In Materials, we continue to see good business conditions in both businesses, although we experienced softness in some automotive as well as building and construction markets, but we believe that some of these impacts could be temporary in nature. For all the other material businesses, as you said, we see ongoing good business conditions. Moving now to Page 9, The temporary vitamin prices indicated here in the middle table and as already mentioned, we still had In the Q3, a small residual €15,000,000 adjusted EBITDA benefit from the exceptional vitamin pricing effect. That brings the total additional adjusted EBITDA in 2018 from this temporary event to €290,000,000 For the remainder of the year, we do not expect any further benefit from this exceptional vitamin price effect as the market The disruption started in November 2017 and we already had begun to see a small positive effect at the end of last year. Now moving to the performance of the underlying business in Nutrition, let's go to Page 10.
Nutrition continued to deliver in quarter 3 on its above market ambition And another good quarter with 7% organic sales growth. Volumes increased 3% Despite a very challenging prior comparable period, oil prices were up 4%, reflecting in part Initiatives to offset higher input costs and negative foreign exchange effects. This contributed to a year to date organic sales growth of 9%. This good top line performance together with contributions from cost savings and efficiency programs contributed to a strong adjusted EBITDA growth of 10% in the underlying business for Q3, leading to an overall 8% increase year to date, and this despite the FX headwind. In both the quarter and year to date, this strong performance has resulted in a 90 basis points step up in margins.
Now looking more specifically at Animal and Human Nutrition, let's first move to Page 11. Animal Nutrition continued to show good momentum in the underlying business in the 3rd quarter with an organic growth of 7%. Volumes were up 2%, which is good given the exceptionally strong prior year comparative period, which posted a 14% volume growth. We continue to see good business conditions across regions with especially strong sales in Asia. In China, there was a minor impact from the Outbreak of the African swine flu, but these effects were largely compensated by increased demand for poultry, which highlights the benefits of DSM's diversified presence of the species and geographies.
Volumes The
volumes during the quarter were
partly impacted by the residual effect of the Brazilian truckers strike at the end of the second quarter as well as from the temporary shutdown in the DSM to Turgor personnel operations following a tragic incident where sadly a subcontractor lost his life. When adjusting to these effects, the normalized volume growth would have been about 4% for the quarter. Prices rose 5% in Q3, in line with both Q1 and Q2. This was mainly the result of initiatives Taken to mitigate higher input costs and the impact of clearly less favorable exchange rates, especially the weaker Brazilian real. Furthermore, prices were supported by the effects of the Blue Sky policies.
Year to date, organic sales growth reached 12% Volumes up 6% despite tough comparables in the same period last year when volume rose 8%. Now let's continue with Human Nutrition, moving to Page 12. The human nutrition business continued to deliver strong growth in the Q3 with organic sales up 5% And volume up by 3% with group sales in Europe and North America, while Latin America and Asia were particularly strong. By segment, dietary supplement and pharma performed strongly, while early life nutrition maintained its good performance across all regions. Food and beverage showed slightly softer sales in the developed markets, but without changing the good momentum.
Our eye health business again delivered double digit growth in the quarter in line with the strong performance during 2018. Year to date, human nutrition performed strongly, supported by all regions and segments and resulted And an estimated 7% organic sales growth with volumes up 4% above market. Prices in this period were up 3% coming from the combination of a positive mix effect as well as higher Prices for premixed and advanced solutions are supported by the effects of the blue sky policies in China. Now for our Materials business, let's move to Page 13. Although we experienced organic sales growth, 3% adjusted EBITDA growth and an 18.3% adjusted EBITDA margin.
Let me talk through each of our businesses. DSM Engineering Plastics delivered a very strong sales Performance in the 1st 9 months of the year across all regions. Towards the end of Q3, automotive demand in China subsumes Automotive sales in Europe were temporarily impacted by the implementation of the new WLTP test requirement. Business conditions in all other segments continue to be good. DSM Resins and Functional Materials performance in coating resins in North America has a share year to date, while there was a gradual slowdown in Europe in building and construction markets.
Functional Materials are well on track to deliver a very good year, reflecting strong demand for these Products, high margin products in the IT infrastructure space. DSSI NEMA continued its strong performance throughout 2018 driven by high demand for personal protection. Overall volumes in materials were up 2% sorry, overall volumes in materials were 2% lower in Q3, Driven by resins, this 2% has to be taken in the context of tough comparable figures For the same period last year, when we reported a 9% volume growth, which was also driven by resins. The 5% price growth in the quarter largely reflects
the cost
rate of higher input costs. Looking at the 1st 9 months, so 2018 for materials, we see a strong performance with an organic sales growth of 7%, adjusted EBITDA growth of 7% and a breakeven point 5 percent. Now moving to Page 16 for a couple of quick comments on our innovation center. In addition to the business developments described on this slide, when looking at the results of DSM Innovation Center, please Note that the adjusted EBITDA line is impacted by special events. While we had a positive impact last year in Q3, This year, we will have a positive license income of approximately €5,000,000 in the 4th quarter relating to the exciting new DSM Technology partnership in Ophthalmology.
Now moving to cash flow and working capital. Please go to Page '18. Cash flow from operating activities amounted to €933,000,000 In the 1st 9 months of 2018, an increase of €314,000,000 or 51% compared to the same period in 2017. This is, of course, costly reflects the results of the temporary vitamin price effect. Average total working capital as a percentage of sales came down slightly at 18.5% during the period under review from 18.6 in the 1st 9 months of 2017.
The absolute amount of operating working capital increased somewhat compared to Q3 2017. The increase was due to higher inventories in Nutrition ahead of the scheduled maintenance stops in the Q4 as well as higher receivables in line with the higher sales level. Having said that, we know that we you know that we believe inventory levels in Nutrition are too high, And we are working on structurally improving this over the coming strategic period. Net debt closed at €680,000,000, coming from €831,000,000 at the end of June. And last but not least, the sale of our stakes in DSM Sinochem Pharmaceuticals as well as in Fibrant, The Caprolactam JV with CBC.
We have completed these in October. This will bring an estimated €470,000,000 in cash split over Q4 2018 2019. And with that, I would like to open the floor for questions. Operator?
What does your order book tell you for engineering plastics in October and For the upcoming November, maybe you can differentiate between the demand in China and in Europe so that we understand What is more temporary and what's not temporary? And staying at Materials, You mentioned the regarding the European Building and Construction market, a gradual slowdown. Maybe you can also Just more things about the momentum at the end of Q3 and at the beginning of Q4, what you see That's very helpful. Thank you.
Hi. Good morning, Martin. So coming first going first to your engineering Good question. So what we're seeing broadly in October, we're not seeing a big differentiated pattern compared to what we contemplated on for Q3. So what we're seeing is that there is softness in automotive In China mainly, what is less clear in Europe is how long will the WLTP impact will be.
We're not seeing a very different pattern looking towards the year end than we have seen recently. And as for the European slowdown in building and construction, I mean, what is interesting There is that if you look at the pro data, it's not as if the overall picture is poor. So it Seems that there may be an element of sentiment and caution out there that can be impacting the supply chain. And we will see how basically that unfolds over the coming months.
Thank you.
The next question comes from Mr. Andrew Stott, UBS. Go ahead please.
Morning, Geraldine. Morning, Dave. Question on Vitamin Mechanics. I guess we're moving now from Tugramax sectional profit to Negative year on year. I guess we were never really privy to your exact assumptions on what is normal and what is Abnormal, but I'm just mindful of vitamin E pricing being well below €4 a kilogram again.
So when I think of your guidance for Q4 of the implied guidance, is there already negative expectation for pricing in Nutrition in Q4?
Okay. Hi, Andrew. Let me just maybe, So the safety of completeness, rewind a little bit on the vitamin reporting, as you said. So as I indicated from Q1, what we did to try and provide as much transparency as possible is look at the pre disturbance prices and volumes in vitamins. And then for vitamin E and vitamin A, we said, well, these are the ones that are impacted by the supply disruption.
So let's So, as you know, this has led to these exceptional products. And we saw in Q3 a residual benefit there. Now altogether, that's the €290,000,000 that we report. And in Q4, we don't expect to see a benefit anymore. If you will, all parties are back in the market.
So the market Participants are normal again. And remember that this disruption actually took place in November in the beginning of November last year. So we had a small benefit already in Q4 last year. So we will not be showing a benefit. If anything, the benefit last year was probably in the order of about €15,000,000 So not something massive, but nonetheless Later.
So that's the circumstances. And then while we are back in a market that we are used to being Presenting with pluses and minuses. Now we, as you know, have a broad portfolio of ingredients. We sell a lot of our ingredients through our premix. And I would say that market conditions are now what we are familiar with.
So just to clarify, so you see a neutral impact in Q4 is I think what I'm hearing. I just want to clarify that.
Yes, broadly that's the picture. And of course, it's all embedded in the outlook that we provided this morning.
Perfect. Thank you, Geraldine.
The next question comes from Mr. Mottel Gundogan, ABN AMRO. Go ahead please.
Yes, good morning. A question on what you said on the Innovation Center, you talked about a €5,000,000 royalty income in Q4, if I'm not mistaken. Just to be certain, is that a of a one off, an upward payment or a recurring number per quarter as Royalty income. So that's the first question. And then secondly, on your balance sheet, your share price is down, I think, something like 20% in the last month.
Has that improved the chance of a share buyback?
Okay. Good morning, Mehdi. So first with your first question on the Innovation Center. So the about €5,000,000 income in Q4 is actually a first initial
payment that we're getting from our partners with whom we're doing
the So payment that we're getting from our partners with whom we're doing this development in ophthalmology. It's by the way a polymer that's loaded with APIs, taking glaucoma. There was a press release such as in the during Q3. Yes, I can't remember exactly the date. And then what we have is we have an ongoing relationship with them and we will then have milestone payments along the way.
But we just wanted to highlight that this is because of virtually flat in Q3, we're actually getting the payment in Q4. And as for Schaeberdex, it doesn't impact our priority in terms of capital allocation, which as you know is to first Support our organic growth, then the dividend, then M and A and then should that then not result in making good use of the balance sheet than share buybacks. But in itself, it's not triggering a higher likelihood of a share buyback.
Yes. I mean, some of your priorities are wondering if your share price, for example, declines much more than some of your potential targets, would that suit the priorities? That would
be the question you wanted to ask.
We really look at the fundamentals of the business when we're Where we deploy the capital, the market, sorry to say, a little bit all over the place right now, a Houston, in my view. And when we're looking at where do we deploy that, so we truly look at 5, 10 year horizons and what makes sense. So It's still having a big impact.
Okay. Thank you.
The next question comes from Ms. Laura Lopez Pineda,
Liberbank. Go ahead please.
Good morning. Thanks for taking my questions. So first, you highlighted on the press release that your Early Life Nutrition business Continues to perform good across all regions. But some of your customers reported a strong slowdown of the market, especially in China. So can you give us some insight into this difference?
Is it more that you maybe saw some restocking in the Q3, keeping the good Results for this business? Or are you maybe seeing local companies gaining market share that you also supply? And secondly, also due to the imposed tariffs on U. S. Soybean prices have increased in China.
And as a result, China's new animal feed standard is set to lower protein levels in feed for pigs and chicken. So this could potentially have a clear positive Impact on amino acids. But do you also expect some positive impact on demand for vitamins?
We missed the first part, Laura. What What are you referring to?
The first question or the second question?
The second question, you were saying.
Okay. Yes, China
is set to Could you stand on animal feed lowering the protein levels? So this has taken to have a potential positive impact on Amino
acid demand.
But I don't know if you also expect or you're seeing that maybe this should also trigger or accelerate positive demand for vitamins?
Okay. Thanks, Laura. I got that. So maybe starting with Early Life Nutrition. I think what I have to say is really reiterate what's in the press release, which is that we're seeing very stable, solid Market dynamics on early life nutrition.
Now we are conscious that some companies have been actually coming out with very different pictures As to how the market is evolving. But if we take it, we serve the part of the market, so many of the players. And if you put it all together, we're not actually seeing a very different dynamic at all. Now there is the new regulation coming Potentially early next year in terms of channels to market. But even there, we don't see a big issue in the sense That it should not overall impact our ability to serve the market because we have a good mix between international and local players.
So From our perspective, nothing very much there to report. As for China and the soybeans, and It is indeed something that seems to be moving as we speak. The exact implications we still need to figure out. But one thing is Sure. And whatever the bulk commodity is, particularly when it shifts, it can create opportunities to then provide the solutions to For the producers of meat to mitigate that.
So a little early for us to be more specific on that comment, but we are Seeing how that will lead to our what is sizable and very positive animal nutrition business in China. Thank you. Thank you.
The next question comes from Mr. Patrick Watson, ING. Go ahead please.
Good morning, Geraldine and David. One of the notable features of the results seems to be that your margins are well ahead of where consensus Expected them to be. And looking through the waterfall parts, pricing has been strong, but volumes are perhaps a little weaker, but with a net Effect of better margins.
How much longer do you
expect this trend to continue?
Okay. Let me see if I got your Question right. So what we're seeing is in terms of volume developments, the business conditions we see as Really very much in line with what we were discussing at the Castle. I would say in terms of all the trends supporting our animal nutrition and our human nutrition business. So In terms of our ability to grow above market, we're very confident in that.
And we're seeing the market dynamics remain very solid. Now when it comes to pricing, we have, of course, seen since the second half last year that we there was a general Inflationary environment, particularly with our input cost through costs, as you know, we have premixes, etcetera. We also have ingredients that we source and we also saw the foreign exchange effect that we had to sort of offset through pricing. So Given that we probably need both of these to sort of normalize, it would be relatively logical that the pricing Up would normalize well in the coming quarters. So that's broadly the picture.
Right.
Okay. So the so this is just the sort of the elastic band snapping back in terms of the margin expansion you're seeing?
Well, what's course, we're not expecting the margins to have an issue. But as was your question was, are we expecting to see the pricing up Continue at these kinds of basis. Today, I would say, we're expecting it to normalize somewhat, given that we're starting to start Hitting the comps where we already had in there the inflationary and the FX.
Okay. That's great. Thank you.
The next question comes from Mr. Paul Walsh, Morgan Stanley. Go ahead please.
Good morning, Geraldine. Good morning, Dave. I just wanted on the first question to come back to Andrew's Point around pricing. And as we look into 2019, it's a simple question really. I think it's just Just trying to understand, if the current vitamin pricing complex is a plus or a minus in the underlying EBITDA bridge with current Moving into next year, I.
E. Just sort of stripping out the 2.90. I think I understood you correctly, Geraldine, the current price it's more or less in line with the pre escalation levels. But moving into next year, I just wanted to be clear on whether or not it's a positive minus given where the current prices are. And my second question, just coming back to the Materials business, good pricing as we've seen and In the nylon 66 chain as well.
Again, moving into next year, are you still confident of being able to grow that business?
Okay. Hi, Paul. So let me start first with the vitamin question. So Indeed, what we're seeing is that we did to the best of our ability carve out the abnormal environment. So that was done.
And now everybody is back on the market. And the market is, I would say, in that sense, having normal dynamics. Now without going into vitamin by vitamin, I'm saying that broadly, we are not flagging at this stage any big differential In the current pricing versus pre disturbance.
And I
really we don't comment At this stage, on 2019, we will do that. We will come out with a full year results. But broadly, you understood the answer correctly early on. And then to your second question on materials, I'm afraid I didn't quite understand The way you were commenting on that?
Well, just so basically, the volumes are negative in the Q3, and you've had the issues around China auto and the construction markets. And I think you just mentioned that in terms of the pricing momentum, You just mentioned that in terms of the pricing momentum generally, it's faster to ease on the comps. What I'm thinking about, it's been a very good year for the materials business. You just feel confident of making progress in the business next year is the question.
Yes. Yes, no, absolutely. So what we're seeing is that the comps remember, last year, actually, in Materials, we grew 9% volume wise. So you clearly have The comp effect going on here in Materials. And also what we have seen in the past is that if input costs Tend to rise.
We have an ability to push it into our pricing, maybe a little bit of timing delays, but some always happen. Maybe one thing that I would highlight, just to put things a little bit in perspective is the parts of our Materials business where we see softness Together represents 5%, 6% of total group sales. So we also have to put that in 2 perspective. So we have in our commercial materials, in Bimera. We have actually the E and E is So overall, we're pretty confident.
We'll have to see of course how things unfold in the weeks months to come, but so far we're confident.
Thanks, Geraldine.
The next question comes from Ms. Theodora Lee Joseph, Goldman Sachs. Go ahead please.
Hello. Hi, good morning, Geraldine. Thanks for taking my questions. So I've got 2 short ones. The first one is trying to understand the kind of Shifting the phrasing that you said about full year 2018 outlook growth of approximately 25%.
I was just wondering if You could provide more color around that. And how you think about the factors that actually influenced this range for the Q4? And my second question is Trying to understand the operational drop through in vitamin A pricing. Of course, it's a €50,000,000 contribution to sales and The way we think it is largely pricing, we would expect the drop through to EBITDA to be much higher. So a little bit of clarification on that would be great.
Thank you. Yes. Hi, Soudera.
Unni, in terms of the outlook, I don't think that can be a lot more explicit. The only thing is, Of course, when we gave the outlook at the half year, we still had half year to go, and we said towards 25%. Now we were just fine tuning it a little bit and saying approximately 25, but this is taking in everything. So I can't really Put any more color to that other than the overall outlook for the company. Now as for the drop through in terms Of the vitamin effect, what we see is that anyway, as you saw in Q1 and Q2, you don't have a full drop through from sales to earnings.
And in this in Q3, because it was the residual effect, what we saw is that we had to purchase some of vitamin E to meet market demands in these Environment and during Q3, we did a slight valuation adjustments on those inventories, which creates a bit of a Hence, the gap is a bit bigger than in Q1 and Q2.
Okay, perfect. Thank you very much.
The next question comes from Mr. Patrick Lambert, Raymond James. Go ahead please.
Hi, good morning. Thanks for taking. Three little questions. First one, just to make sure that I understand from your answer to Paul that your auto Exposure overall at DSM is about 5%, 6% First question. 2nd question, could you on the cash inflow from disposals,
could you be
a bit more precise on Q4 And the €470,000,000 you're expecting, how much would be there? And a bit more also Precisely on the timing of the compensation in 2019. And the last one, any updates on
Okay. Hi, Patrick. So clarification on automotive sector. So indeed, if I take total DSM, Automotive is broadly 6% of sales, but actually what I was referring to is that we're not seeing softness across the whole of the sector automotive. It's more China at this stage and this impact of the testing going on in Europe, which we saw in the quarter, it backs a little bit the normal volume flows.
And if I take those areas, that's actually 3%. And then the building and construction, if we look at the exposure there of the softening in Europe, that's Another 3%. So if you put the 3% and 3%, the 6% I was referring to, but it happens to also be 6% that we clarified. Now in terms of the results, so indeed you can see the first release today and one this morning. So together, €470,000,000 cash will be In the case of DSP, it's quite straightforward.
It's coming in Q4. And that's around 2 €70,000,000 in the case of Vibrant, because it is the divestment of assets within an associate rather than directly by us, The timing there between Q4 and next year is still in written discretion and is at the discretion of The overall Chemica Invest joint venture. So we will clarify during Q4 how much was in Q4 and what will be then in 2019? It will be a split and we don't have it here. And then you were saying what is the news on our innovation big ticket, I'm assuming you were saying.
Okay. So firstly, VERA is progressing very well. As you know, we're in full construction phase. That is on schedule and we should be seeing that progressing nicely into next year. In the case of fermented Stevia, The market products going to market, you remember that was the big and new milestone in the second half in
North America, actually Mexico and
North America. Mexico and North America is well supported out there with our materials in it. So we will see how that goes. And as for Clean Cow, it's still very much in this one is going through the regulatory hoops, nothing in particular to report In Q3. But it's all ongoing and very much in line with what we discussed in the Capital Markets.
There's no milestones to be noted in terms of
comments or just for the No,
no, yes.
Okay. Yes, yes, yes.
Thanks, Charlene.
The next question comes from Mr. Andreas Heine, MainFirst.
Yes. I have a question first on the materials. Two questions here. The margin is very high and you said that you were able to transfer higher raw material costs with price increases. Usually that has then Kind of margin dilution effect if it comes to EBITDA margin to sales.
I would like to know whether the lower Contribution of resin had a positive mix effect to the margin. And maybe you can share a little bit, not too precise, but rough Order of magnitude how big the functional materials sales meanwhile are? And then looking to Q4 and the cash flow, Last year, you had quite an increase in net working capital in the last quarter due to these vitamin effects leading to higher receivables and also Due to the preparation in Latin America for potentially gaps in the supply to customers due to the introduction of the SAP system. So looking now into Q4, I would expect that you can run down net working capital significantly so that you do not have to have much more than you had last year. Is it too positive?
And then lastly on I Health, you had a strong growth always in the U. S. And intended to Broadened business outside the U. S. Could you give an update where you stand here and how much of the sales meanwhile are outside the U.
S. Of Ihealth?
Okay. Good morning, Andreas. So to your first question in terms of materials and Is there a mix benefit? Indeed, there is a bit of a mix benefit currently. And what we're seeing is actually that The input cost inflation is a part of the pricing environment that you're seeing in the Q3.
So that's why you have a margin benefit. This is not entirely just reflecting input cost, but there is also a margin benefit So it's a combination of both, which is leading to this nice margin position for the quarter. Now when it comes to working capital, it's indeed actually famously difficult to call that on a balance sheet position What is the item in effect versus what is underlying? We've done to the best of our ability to split in terms of the income statement. And what we will be seeing is an unwinding, which is a logical one because of the higher sales levels
And the
receivables drop down also is probably worth flagging that the inventory is also a bit high due to the stops. We have somewhat bigger stops in Q4 this year, and we anticipated that by building up some inventory. So It is a fair assumption that in that respect, we will be seeing a decline in our working capital in Q4. The SAP implementation in Latin America has been very successful and that is Actually, in itself, now not an element that we that has worked its way through the system and the business conditions in Latin America are good. So there we are seeing actually a very Good.
So there we are seeing actually a very much a normal flow in terms of inventory levels. The long and short is that as we approach the year end and in the Q4, we will be seeing OWC coming down over time. And then in terms of eye health, double digit growth once again. And yes, the split actually between U. S.
And the other markets, I don't have a chance. But it is the it's an extension of the business and is doing well. But I'm afraid we don't have the split at hand for you here. And I think there was one part that I forgot. Sorry, it was your
Yes. With whether you could give any flavor how big meanwhile the functional materials within
Yes. So normally we don't sort of split it out per se, but to give you a bit of a flavor, we're talking around €50,000,000
sales. Thanks.
The next question comes from Mr. Kaitan Dhanushy, JPMorgan. Go ahead please.
Hi, thanks for letting me on. I know you commented you won't give any more color on full year beyond your comments, but thinking on Q4 specifically, if I just take 25 Growth for full year, it does imply Q4 will be down year on year. So is that the thinking maybe it's small down or At this point, you don't see Q4 declining from what you see in the order book? Thank you.
Yes. I think here, as we indicated in the I couldn't comment, but it's probably worth reiterating. We have to be a little bit careful that in Q4 last year, we already had the vitamin This is Russian because it started beginning of November. What we saw in animal nutrition, in volumes, not in price, but there was Additional orders clearly already in Q4. And we've sort of broadly quantified that means last year, We had about a €15,000,000 benefit from the vitamin effect in your prior year Q4 number.
So when you're doing the bridge Q4 to Q4, then you have to watch out for that. And actually, as just mentioned regarding working capital, Probably good to bear in mind that the shutdowns this year are more substantial in Q4 and that can also have a slight impact on that bridge.
Can you just follow-up, sorry, to be coming on this question then on the item in prices? And of course, you don't know what was your assumption of the Pricing, but if you look at the vitamin E price, it leaves the spot price has come down quite a lot from the undisturbed price from last year. Well, to me, you still well above the first half levels for this year. So, are these different moving parts that make think that maybe Vitruvili might be lower but offset by the some other white milk prices? Or you think you Is it the fact that you never sold at the highs of vitamin E prices last year and that's why your impact is not Has been FID visible from the spot market pricing?
Yes.
I think there's a couple of comments to be made with vitamin E. First, When it comes to the vitamin effect, please remember that it was E and A, but primarily A. So as I think everyone knows there is in vitamin E actually quite a lot of supply. There's more supply than there is demand. So what happened when the disturbance came is that some of the smaller producers So the dynamics in the price of vitamin E and therefore more capacity came on the market.
So what you see is that spot prices overshoot Both sides. The overshoot on the upside versus our real prices and the overshoot on the downside as well As now all the capacity is on the market and it will take a bit of a time delayed for that to normalize Now we do believe that these prices for some of the producers, they will be difficult to continue. And therefore, we very much believe the vitamin E price currently is at the trough type of level. So it's a combination in your comment of the fact that the spot prices are not our prices, But on top of that, they move quite substantially. And at these levels, we believe that for some producers, it is not sustainable.
And is vitamin A price of $60,000,000 to $65,000,000 you think is that the new normal at this point or would that come down as well at least at the spot Yes.
I mean, we're not going to go vitamin by vitamin as to what is normal and what is not normal. What we're Saying is that now all players are not on the market. And therefore, the extraordinary disruption Situation with a big producer under force measure is now not happening. And we are now in, I would say, Dynamics of markets and players which are without disruption, let's call it that way. Now vitamin A, if I start giving comments on pricing of certain ingredients, it's Commercially, not very wise.
But I would make the comment here that TASER versus vitamin A It's actually very well balanced on the market in terms of supply and demand and has quite substantially different dynamics than the vitamin E. That tactic is a fair statement.
Thank you very much.
The next question comes from Mr. Laurence Alexander, Jefferies, go ahead please. Mr. Alexander, your line is open.
Good morning. Could you clarify just quickly, sort of how you think about the FX and productivity run rate At the end of the year going into next year, can you give a little bit more granularity on the softness you're seeing in food and beverage, where it is So which regions? And then with Stevia, can you give a sense for how the first capacity when it ramps up, What the sales of that facility might be or how we should see it flowing through the P and L? If you could just touch on those three things.
Okay. Hey, good morning. Let me maybe start with Food and Beverage. We had a Capital Markets Day discussion about the food and beverage segment and the fact that it's going through quite a lot of Information of the space, seeing where the growth is coming from between the larger global players versus regional players and how important Having solutions plays in that space. So what we're seeing there is actually entirely in line with what we were I think during the capital markets where softness tends to be more in the mature markets And also with the larger players at this stage, we're seeing more positive dynamism in the emerging markets where urbanization It's basically supporting the development of food, which is bought from shops as opposed to markets.
And And where we are also seeing very strong growth with local and regional players. Now all of that picture remains Unchanged and of course the investments that we have made to have a very good geographical footprint with local and regional development centers etcetera Really supports our ability to tap into the higher growth part of the food and beverage, while continuing, of course, To serve our traditional markets and large clients. So that's really the prudent bridge dynamics. Now I didn't quite understand your run rate questions in terms of foreign exchange. I mean maybe I can clarify here But what we have seen is that in Q1, we had about a €50,000,000 headwind.
In Q3, we have broadly €10,000,000 headwind. And in our outlook, we sort of put €70,000,000 there. Of course, it's a bundle of currencies. The stronger U. S.
Dollar the last few days is a positive news for us. But at the same time, Swiss francs strengthening is And that is more of a cost currency for us. And of course, we also have quite a few emerging currencies in the basket, The Brazilian real being quite an important one, but we also presented in the geography. So always a bit difficult to read the whole basket, But that is the momentum that we're seeing and we're trying to provide as much transparency there as we can. And then for Stylvia, it really is too early to comment on scale of revenues, etcetera.
At this stage, we are still in the phase of piloting the materials. So I'm afraid you will have to wait a little longer Until we're in a position to talk about specifics in terms of revenues.
So we have time
for only one last question, a short question. So let's do that. Liz?
Who gets the last question? Operator?
Yes. The last question
comes from Ms. Liskan, Davy. Go ahead please.
Good morning, Jerzy and good morning, Dave. Thanks for taking my question. It's just more of a broad question really in terms of your Human Nutrition and Health segment. And the pricing in Q3, you're saying that it's supported by the effects of the Blue Sky policies in China.
Maybe if you could just give
us a couple of days on whether we should expect to see this trend continuing for the next few quarters and then more broadly The update on the, let's say, the regulatory landscape in China for your nutrition business?
Thank you. Yes. Thanks, Liz. So indeed, Just to quickly run on the blue sky policies. So what we see is consensus of incremental regulations in China Causing some disruption with some of our competitors, but also producers of some of the ingredients We have what we call pass through ingredients and that has had a bit of inflationary Elements within our pricing.
So to my comment earlier, we are this inflationary environment started already in sort of H2 last year. And what we would expect is that we will start seeing from a comps point of view a bit more of a normalization in that space. However, what we're not saying is that this effect is going away. We believe that Chinese authorities will continue To be stringent and to up the standard of the industry in that sense, which is something that we, of course, welcome. And therefore, we expect that ongoing, this will be operationally and within our space a factor to be kept in mind as we go forward.
Okay. That brings us to the end.
Julien, you want to make some closing remarks?
Yes. Just to summarize, we are pleased With the fact that we've reported a very good Q1 and with growth above markets in all of our businesses, and that is reflected in the Strong EBITDA development. We are well on track to delivering a very strong 2018, once again exceeding the strategic targets that we have set for ourselves in our strategy 2018. And we of course reiterate our outlook for the whole year. And we are very confident in achieving this.
We are in general positive about the business conditions and we remain confident that we are very well to deliver on our targets 2021 that we discussed earlier this year. And with that, I thank you all and wish you a good day.
Thank you, Geraldine. This concludes our conference call for today. Thank you very much for your attention and your questions. And as always, if you have any further questions, don't hesitate To contact the Investor Relations team and with that, I hand back the call to the operator.
Ladies and gentlemen, this concludes