Ladies and gentlemen, thank you for standing by. Welcome to DSM's conference call on the first nine months of results of 2018. Throughout the presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. To register for questions, you may dial star one at any time. I would like to turn the call over to Mr. Huizing. Go ahead, please, sir.
Thank you, operator. Ladies and gentlemen, good morning, and welcome to this conference call on our nine-month results, which we published earlier this morning. I am sitting here with Mrs. Geraldine Matchett, Chief Financial Officer, and member of the DSM Managing Board. She will elaborate on the results, and after that, 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 the disclaimers about forward-looking statements as published in the press release. With that out of the way, Geraldine, it is yours.
Thank you, Dave. Good morning, ladies and gentlemen. It is a pleasure to welcome you on this call on DSM's nine months results for 2018. I will start by providing a few comments on the key slides behind both the presentation that we published this morning together with our press release, and then we will open the line for our Q&A session. 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 of 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 us start with the financial highlights for the third quarter on Page 3. As indicated on this slide, we have had a very good third quarter, building on the strong performance we reported in H1. 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 tough comparable figures in the same period last year, and all the businesses delivered above-market growth. Adjusted EBITDA in the underlying business increased 7% in the third quarter. Foreign exchange remained a negative effect in Q3 of roughly $10 million, which is substantially lower than the $50 million impact in H1.
At constant currencies, the adjusted EBITDA growth in Q3 was 10%. The strong earnings performance resulted in a higher ROE of 13.6%, up 103 basis points compared to the same period last year. Under the temporary vitamin price effect, we saw a small residual EBITDA impact of about EUR 15 million in the third quarter, bringing the total benefit in 2018 to EUR 290 million. Before we take a closer look at the performance of each business in the third quarter, let's first go to the outlook on page 5. As indicated in our press release, we confirm our full-year outlook.
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 EUR 70 million negative FX headwind for the full-year. With reference to each of our businesses, we continue to see good business conditions in nutrition, with 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 most businesses, although we experienced softness in some automotive, as well as building and construction markets, but we believe some of these impacts could be temporary in nature. For all the other materials business, as just said, we see ongoing good business conditions.
Moving now to page 9, the temporary vitamin price effects. As indicated here in the middle table, and as already mentioned, we still had in the third quarter a small residual EUR 15 million adjusted EBITDA benefit from the exceptional vitamin pricing effect. That brings the total additional adjusted EBITDA in 2018 from this temporary event to EUR 290 million. For the remainder of the year, we do not expect any further benefit from this exceptional vitamin price effect, as the market disruption started in November 2017, and we already had begun to see a small positive effect at the end of last year. Moving to the performance of the underlying business in nutrition. Let's go to page 10. Nutrition continued to deliver in quarter three on its above-market ambition, and with another good quarter with 7% organic sales growth.
Volumes increased 3%, despite a very challenging prior comparable period, and 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 the 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. This despite the FX headwinds. In both the quarter and year-to-date, the strong performance has resulted in a 90 basis point step-up in margins. 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 third quarter, with an organic growth of 7%.
Volumes were up 2%, which is good given the exceptionally strong prior 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 fever. These effects were largely compensated by increased demand for poultry, which highlights the benefits of DSM's diversified presence of species and geographies. 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 Tortuga plant operations following a tragic incident where sadly a subcontractor lost his life. When adjusting for 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 undertaken 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%, with volumes up 6%, despite tough comparables in the same period last year when volume rose 8%. Let's continue with Human Nutrition. Moving to page 12. The Human Nutrition business continued to deliver strong growth in the third quarter, with organic sales up 5% and with volume up by 3%, with good sales in Europe and North America, while Latin America and Asia were particularly strong. By segment, Dietary Supplements and Pharma performed strongly, while Early Life Nutrition maintained its good performance across all regions. Food & Beverage showed slightly softer sales in the developed markets, without changing the good momentum.
Our i-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 in 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 premix and advanced solutions, supported by the effects of the Blue Sky policies in China. For our Materials business. Let's move to page 13. Although we experienced softness in some of the automotive and building and construction markets, Materials delivered a good performance in the third quarter with 3% 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 first nine months of the year across all regions. Towards the end of Q3, automotive demand in China softened. Automotive sales in Europe were temporarily impacted by the implementation of the new WLTP test requirements. Business conditions in all other segments continue to be good. DSM Resins & Functional Materials showed good performance in coating resins in North America and Asia 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 high-margin products in the IT infrastructure space. DSM Dyneema continued its strong performance throughout 2018, driven by high demand for personal protection.
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 pass-through of higher input costs. Looking at the first nine months for 2018 for Materials, we see a strong performance with an organic sales growth of 7%, an adjusted EBITDA growth of 7%, and a royalty of 21.5%. Moving to page 16 for a couple of quick comments on our DSM 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 EUR 5 million in the fourth quarter relating to the exciting new DSM technology partnership in ophthalmology. Moving to cash flow and working capital. Let's go to page 18. Cash flow from operating activities amounted to EUR 933 million in the first nine months of 2018, an increase of EUR 314 million or 51% compared to the same period in 2017. This of course, partly reflects the results of the temporary volume and 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 first nine 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 fourth quarter, as well as higher receivables in line with the higher sales level. Having said that, we 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 EUR 680 million, down from EUR 831 million at the end of June. Last but not least, the sale of our stakes in DSM-Sinochem Pharmaceuticals, as well as in Fibrant, the caprolactam JV with CVC. We have completed these in October. This will bring an estimated EUR 470 million in cash split over Q4 2018 and 2019. With this, I would like to open the floor for questions. Operator?
Yes, ma'am. Ladies and gentlemen, we'll start the question and answer session now. If you have a question or a remark, please press star one. Star one for your question or remark. Go ahead, please. The first question is coming from Mr. Martin Roediger, Kepler Cheuvreux . Go ahead, please.
Thanks for taking my questions. Good morning. 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 is not temporary. Staying at materials, you mentioned regarding the European building and construction market, a gradual slowdown. Maybe you can also give us more hints about the momentum at the end of Q3 and at the beginning of Q4, what you see. That would be very helpful. Thank you.
Hi. Yeah, good morning, Martin. Going first to your Engineering Plastics question. What we're seeing broadly in October, we're not seeing a big differentiated pattern compared to what we commented on for Q3. What we're seeing is that there is a softness in automotives, 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. As for the European slowdown in building and construction, I mean, what is interesting there is that if you look at the macro data, it's not as if the overall picture is poor. It seems that there may be an element of sentiment and caution out there that can be impacting the supply chain.
We will have to see how basically that unfolds over the coming months.
Thank you.
The next question comes from Mr. Andrew Scott, UBS. Go ahead, please.
Morning, Geraldine. Morning, Dave. Question on vitamin mechanics. I guess we're moving now from talking about exceptional profit to negative year-over-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 EUR 4 a kilogram again. When I think of your guidance for Q4, the implied guidance, is it already a negative expectation for pricing in nutrition in Q4?
Okay. Hi, Andrew. Let me just maybe, for the sake of completeness, rewind a little bit on the vitamin reporting, as you said. 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. Then for vitamin E and vitamin A, we said, "Well, these are the ones that are impacted by the supply disruption, let's calculate it further." As you know, this has led to these exceptional products, and we saw in Q3 a residual benefit there. Altogether, that's the EUR 290 million that we report. In Q4, we don't expect to see a benefit anymore. If you will, all parties are back in the market, the market's participants are normal again. Remember that this disruption actually took place in the beginning of November last year.
We had a small benefit already in Q4 last year. We will not be showing a benefit. If anything, the benefit last year was probably in the order of about EUR 15 million. Not something massive, but nonetheless there. That's the circumstances. Then while we're back in a market that we are used to being present in 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. I would say that market conditions are now what we are familiar with.
Just to clarify, you see a neutral impact in Q4 is I think what I'm hearing. I just wanted to clarify that.
Yeah. 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. Mutlu Gundogan, ABN Amro. Go ahead, please.
Yes, good morning. A question on what you said on the DSM Innovation Center. You talked about a EUR 5 million royalty income in Q4, if I'm not mistaken. Just to be certain, is that more of a one-off, like an upfront payment or a recurring number per quarter as this royalty income? That's the first question. Secondly, on your balance sheet, your share price is down, I think something like 20% in the last month. Does that improve the chance of a share buyback?
Good morning, Mutlu. First with your first question on the DSM Innovation Center. The about EUR 5 million income in Q4 is actually a first initial 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, I think glaucoma. There was a press release that came out during Q3. I can't remember exactly what date. What we have is we have an ongoing relationship with them, and we will then have milestone payments along the way. We just wanted to highlight that this is because the press release went out in Q3, we're actually getting the payment in Q4.
As for share buybacks, 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&A, and then should that then not result in making good use of the balance sheet, then share buybacks. In itself, it's not triggering a higher likelihood of a share buyback.
No, I know your priority. Just wondering, if your share price, for example, declines much more than some of your potential targets, would that change the priority? That may be the question I wanted to ask.
We really look at the fundamentals of the business when we're looking at where we deploy the capital. The market's, sorry to say, a little bit all over the place right now, at least in my view. When we're looking at where do we deploy capital, we truly look at five, 10-year horizons and what makes sense. It's not having a big impact.
Okay. Thank you.
The next question comes from Ms. Laura Lopez Pineda, Baader Bank. Go ahead, please.
Good morning. Thanks for taking my question. First, you highlighted on the press release that your Early Life Nutrition business continues to perform good across all regions. Some of your end customers reported a strong slowdown of the market, especially in China. Can you give us some insight into this difference? Is it more that you maybe saw some restocking in the third quarter, keeping the good results for this business, or are you maybe seeing local companies gaining market share that you also supply? 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. This could potentially have a clear positive impact on amino acids, but do you also expect some positive impact in demand for vitamins?
Sorry, we missed the first part, Laura. What product are you referring to?
The first question or the second question?
The second question. You were saying.
China is set to put new standards on animal feed, lowering the protein levels. Do you expect it to have a potential positive impact on amino acid demand? I don't know if you also expect or you're saying that maybe this should also trigger or accelerate positive demand for vitamins.
Okay. Yeah.
Thanks, Laura. Got that. 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. We are conscious that some companies have been actually coming out with very different pictures as to how the market is evolving. If we take it and we serve this 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. There is the new regulation coming potentially early next year in terms of channels to market. 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.
From our perspective, nothing very much there to report. As for China and the soybeans, it is indeed something that seems to be moving as we speak. The exact implications we still need to figure out. One thing is for sure is whatever the bulk commodity is, particularly when it shifts, it can create opportunities to then provide the solutions for the producers of meats to mitigate that. A little early for us to be more specific on that comment, but we are seeing how that will lead to what is sizable and very positive animal nutrition business in China.
Thank you.
Thank you.
The next question comes from Watson, ING. Go ahead, please.
Morning, Geraldine, Dave. One of the notable features of the results seems to be that your margins are well ahead of where consensus expected them to be. Looking through the waterfall charts, 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?
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 Capital Market Day in terms of all the trends supporting our Animal Nutrition & Health and our Human Nutrition & Health business. In terms of our ability to grow above market, we're very confident in that. 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 there was a general inflationary environment, particularly with our input costs. As you know, in our premixes, et cetera, we also have ingredients that we source. We also saw the foreign exchange effect that we had to sort of offset through pricing.
Given that we probably see both of these to sort of normalize, it would be relatively logical that the pricing up would normalize as well in the coming quarters. That's broadly the picture.
Right. Okay. This is just the sort of the elastic band snapping back in terms of the margin expansion you're seeing.
What's important, we're not expecting the margins to have an issue, but as what your question was, are we expecting to see the pricing up continue at these kinds of paces? There I would say we're expecting it to normalize somewhat given that we're starting to hit the comps where we already had in there the inflationary and the FX effects.
Okay, that's great. Thank you.
The next question comes from Mr. Paul Walsh, Morgan Stanley. Go ahead, please.
Morning, Geraldine. Morning, Dave. I just wanted on the first question to come back to Andrew's point around vitamin prices and as we look into 2019. It's a simple question really, I think it's just to try and understand if the current vitamin pricing complex is a plus or a minus in the underlying EBITDA bridge at current prices moving into next year, i.e., just sort of stripping out the 2019. I think I understood you correctly, Geraldine, that current pricing is more or less in line with the pre-escalation levels. Moving into next year, I just wanted to be clear on whether or not it's a plus or minus given where current prices are. My second question, just coming back to the materials business. Good pricing as we've seen and very strong spreads in the nylon 6,6 chain as well.
Again, moving into next year, are you still confident of being able to grow that business?
Okay. Hi, Paul. Let me start first with the vitamin question. Indeed, what we're seeing is that we did to the best of our ability carve out the abnormal environment. 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, what I'm saying is that broadly, we are not flagging at this stage any big differential in the current pricing versus pre-disturbance.
Okay.
Broadly we don't comment at this stage on 2019. We will do that when we come out with the full year results. Broadly, you understood the answer correctly early on. Then to your second questions on materials, I'm afraid I didn't quite understand where you were commenting.
Just basically the volumes are negative in the third quarter, and you flagged the issues around China auto and the construction markets. I think you just mentioned that in terms of the pricing momentum generally, that starts to ease on the comps. What I'm thinking about, it's been a very good year for the materials business. Are you just still confident of making progress in that business next year is the question.
Absolutely. What we're seeing is, here actually in materials, we grew 9% volume-wise. You clearly have a comp effect going on here in materials. 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. There may be a little bit of timing delay. That can always happen. Now, really 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 represent 5%, 6% of total group sales. We also have to put that into perspective. We have very in operational materials, in Dyneema. We have actually the ENE is also. Overall, we're pretty confident.
We'll have to see, of course, how things unfold in the weeks and months to come, so far, we're confident.
Thanks a lot, Geraldine.
The next question comes from Ms. Theodora Lee-Joseph, Goldman Sachs. Go ahead, please.
Hello. Hi. Good morning, Geraldine. Thanks for taking my question. I've got two short ones. The first one is trying to understand the kind of shift in 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 influence this range for the fourth quarter. My second question is trying to understand the operational drop through in vitamin A pricing. Of course, it's a EUR 50 million contribution to sales, and the way we think of it's largely pricing. We would expect the drop through to EBITDA to be much higher. A little bit of clarification on that would be great. Thank you.
Hi, Theodora. In terms of the outlook, I don't think I can be a lot more explicit. The only thing is, of course, when we gave the outlook at the half year, we still had one half year to go, and we said towards 25%. We were just fine-tuning it a little bit and saying approximately 25, but this is taking in everything. I can't really put any more color to that other than it's the overall outlook for the company. 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.
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 environments. During Q3, we did a slight valuation adjustment on those inventories, which creates a bit of a netting, 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.
Good morning. Thanks for taking. Three little questions. First one, just to make sure that I understood from your answer to Paul that your auto exposure overall at DSM is about 5%-6%. First question. Second question, on the cash inflow from disposals, could you be a bit more precise on Q4, out of the EUR 470 million you're expecting, how much would be there? A bit more also precise on the timing of the compensation in 2019. The last one, any updates on our favorite three big projects that you can talk about? Thanks. Sorry.
Hi, Patrick. Clarification on automotive sector. 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, sort of impacted a little bit the normal volume flows. If I take those areas, that's actually 3%. The building and construction, if you look at the exposure there of the softening in Europe, that's another 3%. If you put the three and three-
Okay
that's the 6 I was referring to, but it happens to also be 6 that we clarify. In terms of the disposals, indeed, there was officially yesterday and one this morning. Together, EUR 470 million cash will be coming our way. In the case of DSP, it's quite straightforward. It's coming in Q4. That's around EUR 270 million. In the case of Fibrant, 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 a bit in discussion and is at the discretion of the overall ChemicaInvest joint venture. We will clarify during Q4 how much falls in Q4 and what will be then in 2019. It will be a split, and I don't have it here. You were saying, what is the news on our innovation big tickets?
I'm assuming you were saying.
Exactly.
That's okay. Firstly, Veramaris 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 stevia, the product going to market, you remember that was the big next milestone in the second half in North America, actually Mexico and North America. It's going well. Products are out there with our materials in it. We will see how that goes. As for Project Clean Cow, it's still very much. This one is going through the regulatory hoops. Nothing in particular to report in Q3. It's all ongoing and very much in line with what we discussed at Capital Markets.
There's no milestones to be noted in terms of.
Nothing further.
performance for this product? Okay.
Yeah.
Thanks, Geraldine.
The next question comes from Mr. Andreas Heine, MainFirst. Go ahead, please.
I have a question first on the materials, basically two questions here. The margin is very high, you said that you were able to transfer higher raw material costs with price increases. Usually that has a kind of margin dilution effect if it comes to the margin to sales. I would like to know whether the lower contribution of resins had a positive mix effect to the margin. Maybe you can share a little bit, not too precise, but rough order of magnitude, how big the Functional Materials sales meanwhile are.
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 this vitamin effect leading to higher receivables and also due to the preparation in Latin America for potential hiccups in the supply to customers due to the introduction of the SAP system. 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 that too positive? Lastly, on i-Health, you had a strong growth always in the U.S. and intended to broaden the 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 i-Health?
Okay. Good morning, Andreas. To your first question in terms of materials and is there a mix benefit, indeed, there is a bit of a mix benefit currently. What we're seeing is actually that the input cost inflation is a part of the pricing environment that you're seeing in the development in Q3. That's why you have a margin benefit, is that it's not entirely just reflecting input costs, but there is also a margin benefit there. It's a combination of both, which is leading to this nice margin position for the quarter. When it comes to working capital, it's indeed actually famously difficult to carve out on a balance sheet position, what is the vitamin effect versus what is underlying. We've done to the best of our ability to split in terms of the income statement.
What we will be seeing is an unwinding, which is a logical one because of the higher sales levels, the receivables will come down. It's 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. 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 has worked its way through the system and the business conditions in Latin America are good. 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 fourth quarter, we will be seeing OWC coming down over time. In terms of i-Health, double-digit growth once again. The split actually between U.S. and the other markets, I don't have at hand, but it's an extension of the business and is doing well. I'm afraid I don't have the split at hand for you here. I think there was one part that I forgot. Sorry, it was your.
That was whether you could give any flavor how big meanwhile the Functional Materials business within resins is.
Yeah. Normally we don't sort of split it out per se, but to give you a bit of a flavor, we're talking around EUR 150 million sales in Functional Materials.
Quite a bit. Thanks.
The next question comes from Mr. Chetan Udhas, J.P. Morgan. 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 just thinking on Q4 specifically, if I just take 25% growth for full year, it does imply Q4 will be down year-over-year. 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.
I think here, as we indicated in the opening comments, but it's probably worth reiterating, we have to be a little bit careful that in Q4 last year, we already had the vitamin disruption, 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 EUR 15 million benefit from the vitamin effect in your prior Q4 numbers. When you're doing the bridge Q4 to Q4, then you have to watch out for that. Actually, as just mentioned regarding working capital, probably good to bear in mind that the shutdowns this year are a bit more substantial in Q4, and that can also have a slight impact on that bridge.
Just a quick follow-up. Sorry to be coming on this question again on vitamin prices. Of course, we don't know what was your assumption on the undisturbed pricing, but if you look at the vitamin E price, it seems the spot price has come down quite a lot from the undisturbed price from last year. Vitamin E is still well above the first half levels for this year. Are these different moving parts that make you think that maybe vitamin E might be lower, but offset by some other vitamin prices? Or is it a fact that you never sold at the highs of vitamin E prices last year and that's why your impact is not as much as might be visible from the spot market pricing?
I think there's a couple of comments to be made with vitamin E. Firstly, when it comes to the vitamin effect, please remember that it was E and A, but primarily A. As I think everyone knows, there is in vitamin E actually quite a lot of supply. There's more supply than there is demand. What happened when the disturbance came is that some of the smaller producers saw the dynamics in the price of vitamin E, and therefore more capacity came on the market. What you see is the spot prices tend to overshoot both ways. They overshoot on the upside versus our real prices, and they 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 itself.
We do believe that at these prices, for some of the producers, it will be difficult to continue. Therefore, we very much believe the vitamin E price currently is at the trough type of level. 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. At these levels, we believe that for some producers, it is not sustainable.
Is vitamin A price of EUR 60-EUR 65, you think, is that the new normal at this point? Or would that come down as well, at least as a spot price?
Yeah. 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 on the market. Therefore, the extraordinary disruption situation with a big producer under force majeure is now not happening. We are now in, I would say, dynamics of markets and players which are without disruption. Let's call it that way. Vitamin A, if I start giving comments on pricing of certain ingredients, it's commercially not very wise. I would make the comment here that please remember vitamin A is actually very well balanced on the market in terms of supply and demand and has quite substantially different dynamics than the vitamin E. That I think 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 how you think about the FX and productivity run rate at the end of the year going into next year? The comments, can you give a little bit more granularity on the softness you're seeing in Food & Beverage, where it is or which regions? 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&L? If you could just touch on those three things.
Okay. Hey, good morning. Let me maybe start with Food & Beverage. We had, at the Capital Markets Day, quite a discussion about the Food & Beverage segment and the fact that it's going through quite a lot of transformation as a 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. What we're seeing there is actually entirely in line with what we were discussing during the Capital Markets, where softness tends to be more in the mature markets. Also with the larger players at this stage, we're seeing more positive dynamism in the emerging markets, where urbanization is basically supporting the development of food which is bought from shops as opposed to markets. And where we are also seeing very strong growth with local and regional players.
All of that picture remains unchanged, of course the investments that we have made to have a very good geographical footprint with local and regional development centers, et cetera, really supports our ability to tap into the higher growth part of the Food & Beverage, while continuing, of course, to serve our traditional markets and large clients. That's really the Food & Beverage dynamics. I didn't quite understand your run rate questions in terms of foreign exchange. Maybe I can clarify here that what we have seen is that in H1 we had about a EUR 50 million headwind. In Q3, we have broadly a EUR 10 million headwind. In our outlook, we sort of put EUR 70 there. Of course, it's a bundle of currencies. The stronger US dollar the last few days is a positive news for us.
At the same time, the Swiss franc strengthening is more of a cost currency for us. Of course, we also have quite a few emerging currencies in our basket, the Brazilian real being quite an important one as we also present into the geography. 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. For stevia, it really is too early to comment on scale of revenues, et cetera. At this stage, we are still in the phase of piloting the materials. 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.
Thank you.
We have time for only one last question, a short question. Let's do that. Liz?
Who gets the last question?
Who gets the last question? Operator?
Yes. The last question comes from Lisa De Neve, go ahead, please.
Good morning, Geraldine. Good morning, Dave. Thanks for taking my question. This is more of a broad question really in terms of your Human Nutrition & Health segment. The pricing in Q3, you're saying that it's supported by the effects of the Blue Sky policy in China. Maybe you could just give us an update 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.
Indeed, just to be very quick, we ride on the Blue Sky policy. What we see is enforcement of environmental regulations in China causing some disruption with some of our competitors, but also producers of some of the ingredients that we have as what we call pass-through ingredients, and that has had a bit of this inflationary element within our pricing. To my comment earlier, this inflationary environment started already in sort of H2 last year. 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.
Therefore, we expect that ongoing this will be operationally and within our space, a factor to be kept in mind as we go forward.
Great. Thank you, Geraldine.
Okay. That brings us to the end. Geraldine, you want to make some closing remarks?
Yeah. Just to summarize, we are pleased with the fact that we've reported a very good third quarter. With growth above markets in all of our businesses, 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 had set for ourselves in our Strategy 2018. 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. We remain confident that we are very well positioned to deliver on our targets 2021, that we discussed earlier this year. 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. As always, if you have any further questions, don't hesitate to contact the investor relations team. With that, I hand back the call to the operator.
Ladies and gentlemen, this concludes the DSM conference call on the first nine-month results of 2018. Thank you for attending. Have a nice day.