Good afternoon, and thank you for joining us today for our third quarter 2022 trading update webcast. Since last year, we normally don't hold calls third quarter trading update. In this dynamic environment and given our amended full year outlook, we thought it would be appropriate to do so on this occasion and offer you an opportunity for Q&A. Our co-CEOs, Geraldine Matchett and Dimitri de Vreeze, will give a short introduction by running you through a few slides of the PTI, which we published this morning together with the third quarter press release, which you can find on our website. Here you will also find the disclaimers about forward-looking statements made in today's conference call. After this introduction, we will open the line for questions. That's the purpose of today's call. We've planned 45 minutes today for this webcast.
With that, Geraldine, you can start.
Thank you, Dave, and welcome everyone to this call. Thank you for joining us this afternoon. As Dave has said, we will do a few opening comments on the short presentation that we've posted, and I will be focusing in particular on our Q3 performance, and then Dimitri and I will be happy to take any of your questions. Now, maybe one first comment, please remember that all the commentary will be on a continuing operations basis, meaning health, nutrition, and bioscience, in line with the way that we are currently reporting for DSM. Now, to get us started, let's go straight to actually slide four. Now, on this slide, you have the key financials for both the Q3 and the year to date. If we look at these figures, as you can see in Q3, we continue to have a strong top-line development.
If we have a look here, you see that we've had a 9% organic growth in Q3, supported by 2% volume growth and a continued good momentum on pricing with 7%. Now, if you bridge to the left, that actually brings us to a double-digit organic growth of 10%, supported by 2% volume growth, which by the way, was against quite a strong comparative figure of 8% last year, and a continued strong momentum then across the 9 months of 8%. Now, looking at Q3, the conversion of this strong top line into adjusted EBITDA was a bit softer, I have to say, which is why you see here a step up of 3% in adjusted EBITDA to EUR 380 million compared to the 6% on a year-to-date basis.
Now, the main driver for this are actually this quarter, firstly, the rising energy and raw material costs, especially in Europe, that really accelerated much more so than we were expecting. At the same time, we have seen a bit of a moderating in the pricing for Animal Nutrition and Health, something that I'll come back to in a minute also. Now, if you combine these factors, what we have seen in Q3 is a bit of a widening or a bigger gap between cost increases and our ability to price in Q3, which has resulted in the lower margin here of 17.5% for Q3, which is a drop of 300 basis points.
Maybe good to highlight here that the 300 basis points is made up of the dilutive effect, the mathematical dilutive effect coming from this strong inflationary environment that we operate in, which is about 150 basis points. That is about half of the 300 that you see here. That's the big picture. Now, if we go to slide five, what you see here is that all three of our businesses. Yeah, here we go.
All three of our businesses actually contributed very nicely to the organic growth, both in the quarter and on a year-to-date basis, which really highlights the fact that we're seeing continued resilient end user demand, as well as, of course, the involvement, the component coming from all the pricing initiatives that we have put in place, to counter the inflationary environment. To give a bit more color, business by business, let me start on slide six for Animal Nutrition . Animal Nutrition & Health maintained or delivered this 6% organic growth that you see here, and it did that by maintaining volumes, versus prior, against actually what was a very elevated level in Q3 last year. We actually had a +14% in volumes in Q3 last year.
Now, overall, we have seen a robust demand continuing in animal protein, and where there has been a bit of shifting to more affordable options, such as, you know, in most geographies, chicken, eggs, and pork, this is actually to the benefit of DSM. What we've also seen is actually that the farmer economics have improved somewhat in Q3, partly from the fact that soft commodities or grain has come off a major peak caused by, of course, all the supply chain disruptions. We've also seen a rising in the price that they can get for the animal protein that they produced. This is actually this better farmer economics has actually underpinned the ability to price better Performance Solutions products in the quarter. In that sense, a good environment.
However, what we are seeing is that after a first half where we were able to have a pricing momentum of about 11%, +11%, we have seen more moderation of the pricing momentum, and we closed Q3 with +6% in price, as you can see here. This moderation comes from two drivers. First, lower cost of ingredients that we actually purchase and resell in our premix. We call those the pass-through ingredients, so the cost there have moderated. Also lower vitamin prices, and in particular, vitamin A. Those are the highlights for Animal Nutrition. Now, if I go to H&C on the next slide. Health, Nutrition, and Care delivered a strong organic growth, as you can see here, with 11% in Q3, with pricing up 8% and good volume growth, highlighting actually solid market demand.
Now, from different segments, dietary supplements was a bit softer in the quarter, mainly in North America, while eye health actually continued to have a good trend, particularly when it comes to gut health and women's health. Early Life Nutrition conditions showed their continued positive momentum in Q3, and for Personal Care and Aroma, we saw a strong growth in the quarter. To finish off with Food and Beverage, let's go to slide eight. That's slide eight. Food and Beverage also saw a strong organic growth, as you can see here, with 14% in Q3. Now, consumer demand for packaged foods remained resilient in the quarter, actually unaffected by the change in preferences from branded to white label products. We also saw out-of-home channels perform well, and pet food demand remained good.
At the same time, dairy, baking, and beverages performed well, and we also saw hydrocolloids have a good quarter. Basically, 14% pretty much supported by all of the segments. As you can see here, the pricing momentum remains strong in the quarter with 11% contribution from pricing. Now, this takes us to the full year outlook, and the full wording is on the next slide, on slide nine. Now, as indicated earlier, during Q3 and into Q4, we have seen rising energy and raw material costs really accelerate, particularly in Europe, while at the same time, we have seen this moderation in the ability for us in Animal Nutrition and Health to price through that increase, particularly relating to the lower vitamin prices. Now, combined, this has led to actually a bigger gap between cost price time lag than we were expecting.
Now, let me put a bit of figures here to make it clearer. In H1, we had a time lag between cost inflation and our ability to price it in of about EUR 15 million per quarter, while in Q3, we have seen this actually stretch out to about EUR 30 million, including a bit for vitamin, but the majority actually relating to the time lag. Looking forward, we actually expect this to go from EUR 30 million to EUR 40 million in Q4, and of that 40, about half relating to the vitamin prices. In addition, we have taken measures on the production front. Now, given the current very high cost environment, we have decided to reduce our inventories going into 2023, and therefore are taking opportunities to actually limit production for some of our products to the contracted volumes.
Now, of course, taking this measure does have a temporary impact on our bottom line in Q4, but we really believe that that is the right thing to do in this environment. Now, putting together all of this, it leads us to a lower outlook for 2022, going from a high single-digit EBITDA growth to a low single-digit EBITDA growth. We also want to make it clear here that our midterm expectations are unchanged, and we're confident that we can bring back our margin into the range that it's usually in. Now, to do this, it will require actions, of course, on pricing initiatives to continue. Also, it will require closing that timing gap, you know, and that is helpful in an environment if inflation starts to abate somewhat.
Looking at, of course, at any production measures we can take and some cost efficiencies as we go along. Now, these are, you know, the key highlights that we wanted to comment on before we open the Q&A. Before we do so, let me just check. Dimitri, is there anything you would like to add before we open the Q&A session?
Yes. Hi, Geraldine. And hi, everybody. Indeed, let me try to bridge before we open the Q&A, and bridge from the midterm high level, what type of company are we building, to where we are today. Let's zoom out a few words on the strategic journey. As you've been with us for a long time, we have transformed the company from a diverse life science and material science company into a focused health, nutrition, and bioscience company. Today, we have a much more resilient portfolio with reduced volatility, with attractive end markets addressing the key challenges of the need of the global food system, topped up with a rich innovation pipeline and a strong growth profile. A true leader in sustainability. Purpose-led and a company with a strong culture and committed people.
Despite the real challenges of today's environment, on which we will be transparent, as we've always been, let me emphasize the long-term structural drivers of our business that are unchanged, exactly like Geraldine mentioned just before. We are focusing on improving health for people. We're helping on their immunity to gear more into curing than to prevention in the healthcare system, and we are focusing on the healthy planet, making farming more sustainable. These are both underpinned by exciting and a strong innovation pipeline, which continues to progress very well, and therefore, we are confident in our midterm targets. Being confident about the midterm doesn't mean we are sitting on our hands. Certainly not. We are currently confronted with very high input costs, not only energy prices, but also prices for intermediates and sourced ingredients.
In addition, we currently have a gap between the pace of these cost increases and the momentum of our pricing. This despite a strong price increase in our Health, Nutrition & Bioscience portfolio of about 8% year to date, with a good momentum throughout the quarters. To address this, we are taking action. First, we will continue our pricing initiatives. We will remain focused on our pricing to first restore the margin, and as mentioned previously, we are increasing our prices across the portfolio, while of course respecting our strong customer relations and contracts we have. Secondly, we are using our global production infrastructure to optimize margins. We will look where we're going to produce and where it's best to adjust our production of certain products where profitability today is currently not sustainable.
Geraldine was also alluding to it, and we will do that in quarter four. Reducing production of certain products will therefore also help, as a spin-off, our working capital. Thirdly, needless to say, we'll continue strict cost management, and we're taking additional cost containment actions. Our successful journey will continue. Talking about our merger, we are very much looking forward to the closing of the merger with Firmenich. This process is progressing very well, and we expect to publish the offering circular in November, and we believe formal closing could occur somewhere early as quarter one 2023. As you know, we believe our combination, DSM-Firmenich, presents significant opportunities, strategically as well as synergy-wise. It will lead to the creation of a purpose-led creative and innovative partner in nutrition, beauty, and wellbeing. We are also well on track on the divestment of the materials business.
The divestment of Protective Materials closed in the third quarter as planned and communicated, and we expect to complete the sale of DSM Engineering Materials to Advent and LANXESS in quarter one 2023 too. This will conclude DSM's transformation in quarter one next year and will be the start of a new, bright future as DSM-Firmenich. With that, I think the context is clear. Dave, maybe we are ready for Q&A.
Yeah, indeed, it's time for Q&A. To remind everybody, we do the Q&A by adding an audio conference link to this webcast through which the sell-side analysts can ask questions. For any sell-side analyst who will want to ask questions who have not yet registered, you can do that via the link you find on our website. I think we're ready. If, operator, if you have a first person to ask a question, we can start.
Thank you. First of all, I would like to ask if the Q&A participants press star one to register for questions. The first question is from Matthew Yates with Bank of America. Please go ahead. Your line is open.
Hey, good afternoon, everyone. Can you hear me okay?
Yeah, we can hear you fine, Matthew. Welcome.
Thanks, Geraldine. A couple of questions just around the structure of the vitamin market and your business model. If you're not gonna be producing at capacity in Q4, when it comes to serving your customers, is the intent here to do that principally from inventory? Or to what extent will you be sourcing third-party vitamins or even walking away from business that has been deemed unprofitable? Would that have an impact on the volume development we'll see in the quarter? On a related matter, I believe there's only a handful of major Vitamin A producers. Can you give me a rough sense of, given how much capacity you're curtailing in Q4, what sort of impact would you expect that to have on the global market? One, a small technical one, I guess.
Apologies if I've missed this in the release, but can you give us the performance of the discontinued operations in the quarter? Thank you.
Yeah. Thank you, Matthew. Dimitri, do you want to start off with the vitamin questions?
Yeah, let's do that. Happy to have those questions. First of all, we will continue to serve our customers. In that sense, we've always been customer-focused. We'll continue doing so. However, what we see is that we do have inventories, and you've seen it also in the results we published. We continue to serve our customers from stock, where we want to reduce production. However, we will also re-review where to produce, because exactly, we have a global infrastructure, and we'll see whether we produce it either in Europe, in the U.S. or Asia, where there is a cost margin benefit. Thirdly, we will review our profitability. It could be that we walk away from some business.
We'll look at value over volume, because in the current markets we basically wanna see profitability in itself. Overall, we will not leave customers cold. I mean, we will continue to do so. We'll do that with an eye on where to produce and whether there is profitability for the total setup. Maybe Vitamin A. Indeed, there are a few players there. I hope you appreciate I'm not gonna say anything on the impact and the amount of it. We'll look at it on an overall basis. What we do see is that the market is picking up growth, so we also need to see where we produce. We also have stock, so we can also take that into account as an overall approach.
We will take that in an intelligent business-minded way where we stay close to our customers. Maybe back to you, Geraldine, for the discontinued.
Yeah. Matthew, correct. We don't provide in the press release any information on discontinued. This is just a trading update on the continuing operations. Maybe in a couple of words, as you would expect in that space, and here we're really referring to engineering materials, of course, is that they're seeing strong organic growth, but pressure on the bottom line. We don't go further into this given the current transaction ongoing.
Thank you both.
Thank you.
Our next question will come from Nicola Tang with BNP. Please go ahead.
Hi everyone. Thanks for taking the questions. The first was on pricing. Could you talk a little bit about how much of the 8% pricing we've seen in HNB year to date has been underlying price initiatives versus some of the surcharges that you might have put in place versus pass through that you've talked about in the Animal Nutrition business? I'm just thinking, you know, as we roll forward into 2023, it obviously sounds like you're putting through more price initiatives, but how much pricing could we get from some of the existing increases you've put through already? The second question is on cash flow. I know you don't give the figure for Q3, but from memory you were striving for an improvement in cash flow in H2.
You know, those are the comments at H1 stage. Bearing in mind the kind of earnings, but also your comments around managing or targeting the focus on working cap in Q4, could you talk a little bit about expectations in second half? Thank you.
Mm-hmm. Yeah, absolutely. I'll start with the cash flow. The line was a bit difficult. Yeah, Dimitri, you struggled as well. Can you just then come back? I'll answer the cash flow and then maybe we'll ask you to come back on your first question 'cause we missed, I think, the first few words. So on.
Maybe a question about ANH, but I couldn't. It wasn't. I heard ANH, but then it lost.
Okay. Why don't you repeat your first questions and then we'll provide answers. Sorry about that.
Maybe it's better now. Does it sound better?
Yeah, it's better. I think it was very scrambled at first. Sorry.
Sorry. The question was, within the 8% pricing you've seen year to date in HNB overall, how much of that has been underlying initiatives versus maybe shorter term surcharges versus pass-through in Animal Nutrition?
Okay. Mm-hmm.
Just, you know, in terms of when we roll into 2023, it sounds like you're putting through more price increases. You know, if we were basically rolling it through, what would be the annualization from existing price increases that would slip into next year?
Yeah. Okay. Okay, that's fine. Let me start with cash flow, and then Dimitri, maybe you take that one. Indeed, from a cash point of view, if you remember at the half year, we were already flagging that the working capital is a bit of a challenge this year. Now Q3 is quite similar. In fact, working capital is a little bit even higher. We're not publishing the balance sheet, but I can give you a few pointers. DSO, very stable, not a problem. DPO fine. It's the inventory level that is quite high. We're at about 154 days, which is a good 15-20 days higher than what we would normally have.
We've seen that over time, which basically means that from an operating cash flow, that we will not have a strong operating cash inflow, on a full year basis. Now, having said that, luckily we do have a strong balance sheet. In the quarter of course, we got the proceeds in, from the divestment of Protective Materials. That was EUR 1.35 billion. That is in. You know, this is something that we're gonna continue to work on, which partly is an element in our decision to also look at very, you know, smartly at our production, in this environment. That's broadly the cash generation picture. Maybe over to you, Dimi, on the pricing.
Yeah. Thanks for that question. Indeed, pricing. Let me go through business by business. HNC, a bit longer term contracts basically beefed up their pricing from 3% in Q1 to 5% in Q2 to 8% in Q3. It's also the momentum I was referring to. That includes longer term contracts which overlap. Not all the contracts are renewed at the beginning of the year. It's a sort of an overlapping, some in quarter one, some in quarter three. That includes raw material increases, in some of the cases also energy, in all types of formulas and agreements. Food & Beverage, the same setup, the same momentum, 3%, 7% in Q2, 11% in Q3. That includes some of the energy surcharges.
They've been out there with some specific energy surcharges out there. We have Animal, and I think Geraldine alluded to in the beginning. We have 11% for the first quarters in the first half, which includes pass-through pricing, which have moderated a little bit in Q3, so therefore the 6%. That also includes all types of contract negotiations, of which energy, but also container shipping. That may be the only cost lever which has come down in Q3. Container shipping costs have come down. Overall, the cost elements on our raw materials and the energy obviously went up. We have the momentum, which includes energy and also surcharges where needed.
All right. Thank you.
Thanks.
We'll go next to Martin Roediger with Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Thanks for taking my two questions. First, on your expectations for energy costs next year, which I heard seem to be clearly higher than this year and more than twice as high as last year. Can you tell us how your hedge is designed? Is that more a physical hedge or a financial hedge? And what happens if the current hedge is running out? Should we expect an even higher energy bill in 2024? And the second question related to energy costs is how do you see your competitive situation versus other competitors in China as well as in the U.S., given the fact that you have a large production footprint in the high-cost region Europe?
Mm-hmm. Thanks, Martin. Dimitri, do you want to take those? Oh, you're on mute.
Yep. Okay, here we go. What we see indeed on the energy costs, we basically say it's not only energy costs, it's the inflation costs. If that continues, we will see a run rate for 5% next year, which includes energy. Like we also indicated, it's not only energy. We are not using energy as a feedstock. We use energy to run our heat pumps and steam, et cetera. That has gone up from EUR 200 million to EUR 350 million bill. We think that with all the measures taken, maybe that's leveling out, but we need to see. I think visibility on these prices for 2023 are low.
What we expect is that at the current run rate, we will see another 5% inflation for the 2023 going forward. That's the assumption we have made, which includes. We have hedged some of the energy. Looking at Geraldine’s, about half, if I'm right. So it's about 50%. And depending on where the prices are today, you could see it would be wise, a lot wiser to hedge, but we basically wanted to create more stability, and we will review that on a continuous basis. On the energy setup and the European positioning, well, indeed, well put. That's also why we've mentioned specifically our global infrastructure. Today, we see that we are disadvantaged in Europe from an energy position. However, we can sometimes produce in different places.
Let me take a Vitamin E, for instance. Not A, but E. We can produce that in Europe, and we can produce that in China. Based on the cost comparison and the optimization of the margin, we can produce a little bit more in China, and produce then a little bit less in Europe. I mean, we have the two production sites. It's more like optimization than anything else. That's on the short term. On the longer term, we need to see how that spells out. Be aware that scale, but also technology is absolutely key in these type of production processes. It's not only about the energy costs, it's also about scale, it's about the technology, and where do we produce at the lower cost scale.
Of which, energy is a relatively small part of the overall setup. It's clear that we review it, but I think it's too early to say whether that impacts the overall optimization for the longer term.
Yeah. Thank you, Dimitri. Martin, maybe to your question of are they financial hedges or physical hedges? This is predominantly contractual hedging. In some sites, there's been as well, and Dimitri, some switch of energy source. We have sites where we're able to switch from gas to oil, for example, to de-risk. The percentage of hedging is quite a dilemma at some point when the markets are so high. If you start locking in, because we had at some point 80% locked in, but then you may be locking in at a price that you will regret. There's always this the dilemma with hedging, right? Too much can also be a problem. Beyond that, we don't have a crystal ball as to how this is all gonna normalize itself over time.
Thank you for your question, Martin.
Thanks a lot.
Mm-hmm.
Thank you.
We'll go next to Andrew Stott with UBS. Please go ahead. Your line is open.
Yeah. Good afternoon, Geraldine and Dimitri. A couple questions. I wonder, come back to vitamins. I mean, obviously in the past, you've had a lot more sensitivity to Vitamin E. Can you just walk through what's going on in that particular market? Price is obviously well above break-even levels, unlike Vitamin A. Just really your confidence that there isn't another problem in the future, on Vitamin E. That's the first question. Shall I hold that or do you want me to ask the second one as well?
Yeah, go ahead, Andrew, and then we'll take them on.
Great. Thank you. The second one is on the pipeline. Just thinking back to August and commentary around HMO approval in China, and also about Bovaer. I wondered if you could update me on both of those projects. Thank you.
Yeah. Absolutely. Dimitri, you want to start with Vitamin E?
Yep. Absolutely. Andrew, thanks for that question. Remember that we always look at our vitamins from a basket perspective. And we also clearly shown that they are unrelated, so they have their own variations, and they're linking to different processes, different technologies, different supply and demand set up. Over the years, we've always managed that with pluses and minuses within a certain range, and I think we've always been very transparent on that. You know that overall our basket exposure is about 30% sales of vitamins, of which we source 5%. So there's no real risk in terms of profitability. 25% then is the exposure, of which 65% we sell in pre-mix and formulations. That's the whole basket.
We have particularly mentioned Vitamin A because it's out of the basket, like we've done in 2018, where there were over earnings. Now there's under earning, and we'll be transparent on that. What we've seen is that all the vitamins, there are pluses and minuses to it. Particularly on Vitamin E, just to say that if you look at the pricing over the last period has been relatively stable. And be aware that on these vitamins, we are clearly the cost leader. So in that sense, it is the basket which makes the difference, and Vitamin A is the one who is really deviating from that, with such a huge effect that we wanted to make that transparent. Overall, the basket is absolutely in line.
If you look at Vitamin E, Vitamin C, Vitamin D, with ups and downs, I think it's Vitamin A who is getting out of the basket with such an effect that we make that specific. Overall, the basket is holding.
Mm-hmm. Dimitri, do you want to comment to, HMO.
Yeah
I'll take Bovaer. Yeah?
Yep. Absolutely. Yeah. On ELN, early life nutrition, and certainly on HMOs, I'm very happy to say that we see good progress on that market. Remember that on early life nutrition, we obviously have a comparison. There are some correcting factors to take. I think it was relatively slow prior year comparison. We've seen some supply chain issues also with specifically the U.S. That's helping us. Also the innovation part is really picking up. Remember that during COVID, we were a bit concerned that the customers were slowing down innovation. It's really picking up. All the main players also in China are really going for the premiumization, of which HMO is a great lever for us.
We are working with all players, and I'm very happy to say that today we have 31 customers already buying from us on HMOs in different levels of different intensity. Remember that we, when we acquired Glycom, there was one customer, which was Nestlé, which was our foundation customer. They're still buying from us obviously, but we added 30 customers to the whole portfolio. The innovation speed is really picking up. The third one, which I think is important to mention, is that we also are very advanced in the regulatory approval in China. If we will get that in 2023, obviously we need to start formulating with customers to get the approval, including the HMO ingredient. We already see that that is starting as we speak.
That's a bit faster and earlier than what we originally expected. When we will get that, obviously we will communicate that specifically. With that, go from early life infant nutrition to the cows, Geraldine Matchett.
The cows. Yeah. Let me take Bovaer. Andrew, I was just trying as Dimitri was covering HMO where to start on Bovaer, not restart the whole story. Let me give you a bit of news maybe, because I know you know our progress well. Firstly of course, the attention being placed on methane from animal and from agriculture is increasing and increasing and increasing. From the methane pledge at COP26 last year in Glasgow going into COP27, we effectively have an increasing number, particularly of dairy companies, that are not only interested, but introducing the product to their farmers. You've seen some announcements go out, whether it's with FrieslandCampina or Arla, et cetera. This is clearly relevant.
When it comes to the production, as you know, we're working on the Dalry site. If all goes well before year-end, there will be the groundbreaking of the actual start of the construction. Of course, a lot of time and effort on the engineering work has been going on. We should have basically Dalry kicking in in the course of 2025, exactly when we need to see. Maybe from a regulatory approval point of view, the number of countries, the list that approve Bovaer, is getting longer. One of the couple latest on the block is Israel and Uruguay. Of course, Uruguay I think has more cattle than Israel, but nonetheless important.
Maybe I'll take this opportunity to remind everyone that we signed a deal with Elanco. North America, the US is an important geography. Elanco is very excited by this deal. It's a licensing deal, and they are the ones who are going to be effectively building capacity in the US. When that happens, it will double the capacity compared to Dalry, and we'll be able to really accelerate the reach of Bovaer, you know, on the back of that much, much faster and much bigger. Basically it's all steam ahead, full steam ahead on Bovaer.
Thanks a lot.
We'll go next to Isha Sharma with Stifel. Please go ahead.
Hi. Good afternoon. Thank you for the presentation. I have a couple of questions, please. So firstly, could you help us a little bit with the bridge for Q4? How should we think about the volume development given even higher comparable than Q3 in Q4, because a positive development would require a quarter-over-quarter acceleration. And would you expect that from today's perspective? My second question is on the EUR 60 million headwind on EBITDA that you have called out year-over-year, that brings us to EUR 300 million, but the guidance implies a little bit over that. So what are the positive effects that we should think about going into Q4 on the EBITDA, please? And the last one is on Vitamin A. As I understand it, Vitamin A usually has longer term contracts.
Is it fair to assume that this EUR 20 million impact that we have seen or we are expecting in Q4? Should we expect this to continue at least into the first half of next year if the prices stay where they are?
Yeah. Thank you for your questions. Let me first address a couple of them. First, actually I'll take it in reverse order. The Vitamin A impact is indeed about EUR 20 million in Q4, as we see it now. We do expect this to go into next year with about, you know, EUR 20 million-EUR 25 million per quarter. Now it's also important to know that at these kinds of price levels, nobody is really able to sustain this. We need to see how long, of course, that lasts. To be clear, this is not just a Q4. There's gonna be a carryover into 2023. When it comes to the bridge for the Q4 EBITDA, here you have two moving parts.
Of course, there is continued growth coming, so the positive is a continued strong momentum, particularly in our human nutrition business. This is offset by the vitamin effect and the plant stops that we've talked about for Q4. The net-net, if you do a Q4 to Q4, we're probably looking at about a EUR 30 million delta, Q4 to Q4. That's on the EBITDA. I think your question also was around growth momentum. I think it was growth momentum in Q4, but maybe Dimitri, did you catch that one?
Yeah. I think it was Q4 and certainly compared to the high comparison, and indeed, in animal, that's absolutely the case. Coupled with the fact that we will also review a little bit, where to reduce production. Remember what we looked at. I think it will be. If it will be stable, it already will be quite an achievement. It could be that even a bit below, depending on where we lower down production based on the stock and based on the profit margin optimization strategy we're gonna apply for quarter four. That is a bit of guidance on the volume for ANH.
Mm-hmm.
I was hoping that was the question.
I thought that was the question as well, but we can.
Well, I like the answer, which is true on the ANH part. I don't know whether I covered it all. Maybe you come back if you wanted more.
If we didn't address your question, please clarify. Yeah.
Yeah.
Mm-hmm.
No, thank you very much. I was just wondering also on the group level, and if we could talk about health nutrition as well in terms of volume, because there also we have a difficult comparable in Q4 last year.
Yeah. That's also the case. I mean, indeed, if you look at HNC and Food & Bev, I think the reference in terms of volume are very high. I think we were at 10% overall in Q4, including animal. The reference is relatively high. However, if you look at Q3, that was also the case. We see that our businesses are holding up. Although, in that sense, I think the high comparison, compared to prior year, need to be taken into account.
Yeah. Maybe as you're zooming in on Q4, let me just maybe clarify the margins. We probably expect, you know, Q4 to give us an exit rate of 15%-16% in terms of EBITDA margin. Just to help the modeling. Okay.
Very helpful. Thank you so much.
Welcome.
Great. We'll go next to Chetan Udeshi with JP Morgan. Please go ahead.
Yeah. Hi. Thanks. I'm just curious on your comment on high inventory level also in Q3, because like Geraldine, you mentioned this was something we already discussed in first half results. I think back in July, you guys were talking about better exit rates. I'm just curious why is the inventory level still relatively high at the end of Q3? Was it the case that maybe some of the markets where you guys expected stronger growth did not materialize? Because clearly otherwise, you know, we should have probably seen a lower inventory level. Thank you.
Yeah. Maybe I think let me clarify first from a financial point of view, because we were talking about that in the context of cash generation. When I look at the value of the inventory on the balance sheet, it's actually made up of three pieces, volumes, the unit cost of each volume and foreign exchange. When I actually look at that, it's about a third, a third, a third in terms of the step up in the inventory value on balance sheet. It's partly volume, but two-thirds has to do with the cost of each unit, and that really speaks to the acceleration in costs that we saw this year throughout the supply chain, indeed including the raw materials. Then we have a foreign exchange component.
Here we have to be a bit careful not to bridge necessarily from the high inventory on balance sheet to the high inventory in the warehouse. When it comes to production, of course, we have maintained our production schedules, and this is partly one of the reflections, knowing that we were in places going a bit beyond demand, given current market developments. This is what is guiding our decision in Q4 to take a different approach. Dimitri, I don't know if you want to comment in particular on that.
Yeah. Indeed, I think you heard me saying that we were there to serve our customers, but we're also there to, well, make some money, right? What we have seen is that during disruptive supply chains, we're taking a little bit of additional stock. You've heard us saying that throughout the quarters this year. What we now see in the high-cost environment, there's another reason to review that. Certainly, if you have product which you produce where the pricing today is not compensating for the margin you would like to make. We review that in an optimized way, and therefore, I think we also need to look at the stock. For two reasons. One is like Geraldine was saying, on the unit costs, which is directly impacting the value of the working capital.
Also in terms of stock is a service for our customers. If they don't see it as an added value, then I think we need to review whether we would like to keep those stock levels. We've answered that with the answer today is no. Not for all products, but for those products where we think the margin is not sufficient to continue.
Clear.
We'll go next to Fernand de Boer with Degroof Petercam. Please go ahead.
Yes, good afternoon, and thank you for taking my questions. I have two. One, could you give a little bit an indication about the restructuring charge you're going to take for bringing down your production? And the second one, if I look at your guidance, you say, okay, we maintain, let's say, our ambition for the midterm of, I think, high single-digit EBITDA growth and margins above 20%. Is it still the case for both? Because if you now look for the margin for 2022, you are at around or below 17%, at least in my calculation. Moving them back to above 20% would give you much more EBITDA growth than the high single-digit.
Yeah.
To integrate in that one.
Let me have a first go at this. First, to your question of what is the impact of these production decisions in Q4, and that's about EUR 20 million on the quarter. That's what we are factoring in in terms of also adjusting our outlook, because we had to take that into account. Now, I think here when it comes to midterm, let me be clear, we're talking here three to five years, so we're not commenting on 2023. We really believe that the quality of our businesses, the underlying trends, the underlying momentum, the way that we are addressing all of the issues in the markets, as Dimitri commented, too, in his opening comments, that the inherent quality is a 20% margin plus.
Now of course, in the current environment, we have this dilutive effect of inflation, which is mathematically bringing us down by 1.5%-2%. There's the production stops, of course. Then there's the time lag, which is we're running after the cost inflation, but at some point as inflation starts to ease off, that gets closed. Structurally, we're seeing very strong demand for, you know, all of our products. We are very confident that structurally nothing has changed. We are at a point in time when we are, you know, facing a pretty unprecedented environment with a lot of disruptions linked to energy and the ripple effects of that in our raw materials, as well. That's what we mean by that.
Now this is midterm, and of course it's too early to talk about 2023. It's a pretty dynamic environment out there, so we need to see how Q4 unfolds, and of course, we'll be sharing more as we go into next year.
Operator, we have time for one last question.
Maybe on the hedge, I get that the transactional impact is. Sorry?
Oh, sorry. Two voices. Can you repeat?
Maybe the transactional impact of the Swiss franc, I think that's also ahead. To the euro, that must have to come in also next year. Is that correct?
I'm not sure I understand what you mean by the transition to the Swiss franc. Currently, of course.
Okay
The Swiss franc is high. I don't know if you're referring to that.
Yes. Yes.
Yeah. What.
Okay. I forgot about it, but never mind.
Okay. Okay, over to you.
Yeah, I think that's Fernand. I think we now have time for one last question. Operator, do we have one person still in the queue?
Yes. Our last question will come from Sebastian Bray with Berenberg. Please go ahead.
Hello, good afternoon, and thank you for taking my questions. I would have two, please. The first is on the demand side. I appreciate that the reduction in inventories is basically playing out as a measure to improve cash flows. But was there any area in Q3 or moving into Q4 where demand undershot the expectations that you set out in August? And my next question is on the balance of pricing versus raw materials. Are there any further pricing increases going through at DSM at the moment, or are you relying largely on raw materials normalizing to get the margin back up? Thank you.
Yeah. Thank you, Sebastian, for your questions. I think, Dimitri, do you want to actually take both?
Yeah. Let me start on pricing first and then come back on the demand. Let me make it very clear, we are not relying on raw material costs to ease to make our margin to improve. We need to do it ourselves, because I think the world doesn't know what the raw material cost will be going forward. We need to act now, and we do it as we speak. I gave you a little bit the ramp up of the pricing for our businesses. 3%, 7%, 8% for H&C, 3%, 7%, 11% for Food & Bev, and 11%, 11%, 6% for ANH, which basically is also a good pricing momentum if you put it excluding the pass-through prices. We are clearly continuing our price initiatives.
Obviously, we were hoping that it would level off, but we've clearly not seen that. We are, as we speak, including price initiatives. It will have the same time lag as we've seen before. Certainly on the H&C and Food & Bev area, it takes time. You've seen it, 3% in Q1, 11% on Food & Bev in Q3. We will respect those contracts. I think in that sense, we're a company who are respecting contracts. We will see pricing going up, but with a lag, because it follows the contracts. We will see price initiatives for 2023 for H&C and Food & Bev going forward. On ANH, we are implementing price increases already for Q4 as we speak. That will continue also in 2023.
In that sense, it is a pricing momentum and the time lag is really for us taking action on the pricing front. On the demand side, I think what we have seen is that all our businesses have been pretty resilient. I think lots of people were expecting animal just to drop off in the current environment. The animal protein demand has been very resilient even at those prices as we speak today. I think that has shown the strong business model for animal nutrition. On the health, nutrition, and care part, we've seen very good growth in Early Life Nutrition, personal care, aroma, medical, and pharma in line with expectations. Dietary supplements, we have seen a little of a softness.
Compared to a high comparison, remember that we've always said that during the COVID, there was a step up, and that the new reference would be the reference which we set today, and then we grow. If you take that growth momentum versus 2019 to get a real comparison, then we grow that category with more than 5%. That category is also holding, although at a very high comparison. In that sense, also for Health, Nutrition & Care, we saw demand keeping. On Food & Beverage, what we've seen is, for dairy, for beverages, for savory, really good momentum.
I think a small segment for us, which is pet food, which is about 10% of the Food & Bev unit, basically outperformed on growth quite a bit. On the demand side, we have seen that it's going to expectations. I think what we have tuned into was more the cost price plus time lag, which is creating a momentum where we need to continue to improve on pricing.
Helpful. Thank you for taking my questions.
Yeah. I think.
Yeah. That brings us to the end of the Q&A session. Thank you for participating in our conference call today. As usual, any further questions, please reach out to my team and myself. We can answer any questions. I wish you the rest of a good day. Thank you very much, and have a nice day.