Full year 2020 results. I'm Dave Huizing, Head of Investor Relations. I'm with our Co-CEOs, Geraldine Matchett and Dimitri de Vreeze. Firmenich also published this morning their second quarter 2022 results. Although we're now entering the final phase of the merger process, we are still fully independently operating companies, we can't take any questions about Firmenich today. As to our own results, Geraldine and Dimitri will give a short introduction by running you through a few slides of the presentation to investors, which we published this morning together with the full year press release, which you can find on our website. Here you will also find the disclaimers, among others, about forward-looking statements. After this introduction, we will open the line for questions from sell-side analysts. With that, Geraldine, you can start.
Thank you, Dave, and welcome everyone from me as well. Thank you for your time and for your interest in dsm. As you can imagine, we are indeed very excited about the merger... Shareholders to actively tender their shares in exchange for dsm-firmenich shares. Of course, today the focus is on our dsm results for 2022, which we published this morning. I will start with a few comments on some of the slides of the investor presentation. Then I will be handing over to Dimitri, who will add some color with regards to the business conditions that we are seeing at present and our performance in terms of our ESG ambitions. Then, as Dave just said, we will open for the Q&A.
As a reminder, of course, the year 2022 has been a year with a lot of transformation for dsm. Not only the announcement of the merger with Firmenich, but also finding new homes for dsm Protective Materials and dsm Engineering Materials. The disposal of DPM was completed in September 2022, and the divestment of engineering materials is now ready for closing and is planned for no later than April 2023. So pretty soon, which is, of course, an important step as well in relation to the merger. Reporting-wise, what does that mean? Well, it just means that our engineering materials business is reported as asset held for sale in the balance sheet and as discontinued operations in the income statement.
All our comments in the slides here are prepared with reference to the continuing operations as in Health, Nutrition and Bioscience. Having said that, let me indeed go to these continuing operations on slide 3, to give you the financial highlights for the year. As you can see on this slide, we've had actually a very solid performance in 2022, and that is somewhat despite all of the challenges in terms of supply chain volatility as well as the significantly higher costs, you know, be it energy costs, raw materials, et cetera. If I start with the full year performance, you will have seen in the press release and here that we have delivered a full year organic growth of 8%, driven by a strong pricing element, to counter, of course, the inflationary environment.
We have, up 7% on pricing, but also with solid volumes, consolidating the fact that last year we really had extremely high, close to double-digit volume growth. The +1 is versus a high comp and therefore really consolidating our performance here. Now, in 2 words, how did that pan out between the businesses? I'll come back to that. Well, Health, Nutrition & Care and food and beverage had strong pricing and solid volume. While our Animal Nutrition & Health business had to contend with a few additional factors, such as softer demand, particularly in China, low vitamin prices and towards the end of the year, and also in their case, actually a double-digit comparative set of figures.
In terms of our EBITDA performance, this has led us for the full year to deliver a 2% increase in EBITDA, which translates into a margin of 17.9%, which is down versus last year by 260 basis points. This is roughly relating, if I take big buckets, a half relating to the time gap between costs going up and our ability to price them through. The second half related to the mathematical effect of more top line to achieve the same earnings. About half half. Looking on the right-hand side, at the fourth quarter. In the fourth quarter, we saw overall continued resilient demand. Our organic growth, as you see here, of 3%, was driven by continued good pricing.
The volumes reflect actually high comparative figures for all of the businesses, as well as some destocking, which together make it this -3%. With regards to earnings for the quarter, we saw an acceleration in the inflation in raw materials. We saw lower prices for some of our vitamins. As you may recall from our Q3 earning call, we have taken some measures to reduce our inventory. All of this is reflected in this adjusted EBITDA of EUR 316 million, which is down 11% versus prior, and in the margin of 15.2% for the quarter. That of course, also carries here the mathematical effect that we have seen throughout the year linked to inflation.
Lastly, in terms of cash generation, these measures that we did take in terms of inventory management did enable us to have a good cash generation in the quarter, which was very helpful in ending the year with some free cash flow. Maybe last comments. That is more looking a bit into how did we get into 2023. We have seen pretty much the same business conditions that I've just described for Q4 going into Q1, meaning that we continue to see a time gap between inflation and cost with the residual inflation carryover into 2023. We also have those lower vitamin prices and the inventory reduction measures that we initiated in Q4 also are implemented in Q1. Pretty much expecting a similar Q1 to Q4 in terms of dynamics momentum.
Of course, we navigate this with all of the actions that we've taken in the past, which is continued pricing action, but also a focus on our cash generation and on cost management, as always. Before going into all the 3 different business group, let me just pause on the next slide, which is slide 4. Just briefly, to highlight the fact that our businesses have all delivered some good quality organic growth last year, really underpinning the fact that we are serving resilient end markets. This is despite, as you know, challenging macro and comps. Just a nice overall picture here of the contribution of all of the 3 businesses. Let me give you a bit more color business by business, and I'll start with Animal Nutrition on page 5.
Let me start actually with Q4. In the fourth quarter, Animal Nutrition saw good pricing momentum, particularly in Performance Solutions, coming on top of what was already a 7% pricing in Q4 last year. However, this has been partly offset by the lower vitamin prices, which results in this +2 for the whole of the business. +2 pricing in the fourth quarter. Volumes were down 2%, reflecting here the very high comp of last year comparative figure, as last year in Q4 we were at +11% in volumes. At the time when, if you recall, a lot of customers were actively building some stock, given concerns around supply chain reliability.
Demand for animal protein remained actually overall resilient and our Performance Solutions performed particularly well as farmers continue to try and increase particularly their feed efficiency. Looking at business conditions and for the full year. We saw full year Animal Nutrition deliver this organic growth of 6% mentioned already and very much in, you know, related to pricing. Poultry and eggs performed well. Pork also, sorry, pork also began to see a normalization on the swine market in China. Ruminant and aquaculture had a more challenging set of conditions owing to their relatively higher price points in an environment of course, weak consumer environment. In terms of EBITDA, Animal Nutrition and Health realized an adjusted EBITDA of EUR 546 million in 2022 with a full year adjusted EBITDA margin of 14.4%.
Which is approximately down 300 basis points versus prior, reflecting here, the drivers that I've described and of course the mathematical dilution effect. In Q4, the margin also suffered a bit more, given the full quarter impacts of the lower prices of some vitamins and the inventory reduction actions that we talked about. Maybe a few quick words on our key innovations. If we look here at the logos, let me start with Bovaer. For Bovaer we saw the launch of many commercial pilots around the world. Also of course the creation of our strategic alliance with Elanco for the U.S. market. We have gained many regulatory approvals during the year. In fact, I think we are around more than 45 countries now.
Really a great step, including the landmark approval of course in the EU, at the start of the year. We also for Bovaer in November began the construction of the manufacturing facility in Dalry in Scotland. When it comes to Veramaris, we saw strong increase in sales owing to a continued increased interest in sustainable algal-derived omega-3 in the salmon industry. We are also seeing continued good interest in the pet food and human nutrition segment. When it comes to precision services, one of the news is that we've introduced Sustell, our environmental impact management technology to the aquaculture space, and we also increased nicely our footprint in precision services by doing the acquisition of Prodap, Brazil's leading animal nutrition and technology company. That was for Animal Nutrition & Health.
Moving to Health, Nutrition & Care, so HNC. For HNC in quarter four, we saw good performance with this 6% organic growth, supported by very strong pricing of 11% to, of course, counter rising costs. Volumes were down 5% against, again, a strong comparative set of figures last year that had a +6. Also with the demand for immune-boosting dietary supplements normalizing somewhat versus the elevated level that we had during the peak of COVID, as well as some customer destocking. Probably worth reminding you that, of course, in 2020 and 2021, immunity-supporting dietary supplements grew significantly well into the double-digit CAGR.
It is not so surprising that now that COVID is better under control, particularly during the winter season, that we see this category take a bit of a breather. The demand in dietary supplements in the other categories actually has continued to be good. If we look at from a full year point of view, the performance by segment. Health, Nutrition & Care overall for the year delivered this strong organic growth of 9% with the 7% price increase. Demand overall was good, especially actually in the dietary supplements categories of gut health and women health. We also saw a good performance in pharma and in medical nutrition. Biomedical had a strong year and personal care and aroma as well, while early life nutrition continued its recovery.
When it comes to EBITDA, HNC delivered an adjusted EBITDA for the year of EUR 676 million, translating into a margin for the year of 23%, which is approximately 150 basis points down versus 2021. Carrying here as well, the dilutive effect of the strong pricing that you see here. A couple of news on the innovation front. Maybe I'll start with ampli- D. The ampli- D, which is the faster working form of vitamin D, continued to receive approvals in more countries around the world, really paving the way for customers to include it in their offerings. Good progress there. i-Health launched its first gummy for children under the Culturelle brand that supports not only immunity but also digestion and vision through combining its lutein-based vision health product, FloraGLO.
Hologram Sciences launched a new customer brand, you see the logo here, called Phenology, that offers at home diagnostics, hormone tracking, and customer insights for women in menopause. Now going to food and beverage on slide 7. That's the one. Food and beverage in the fourth quarter delivered a good performance, with an organic growth of 8%, driven, as you can see here, by an 8% pricing to counter higher costs. Volumes held up against prior, despite the fact that in prior we actually had a 14% growth in Q4, which, if you remember at the time, that was the quarter that benefited from the reopening of out of home channels following the lifting of Covid restrictions.
On a full year basis, the organic sales growth reached 10%, led by pricing, but also with the volumes up 3%, representing a good performance, again, against here a 10% prior comparator. The comps were not easy. From a segment point of view, dairy, baking, and beverage performed well. Savory was solid and hydrocolloid delivered a very strong performance, while pet food also had a good performance. From an EBITDA point of view, the business delivered EUR 266 million of adjusted EBITDA, which translates into a margin of 17.2%, almost 300 basis points below last year, including the dilutive effect of this strong pricing that you see here.
When it comes to some innovation news in F&B, well, we have seen excellent progress in our plant-based protein capabilities through Canola and in, amongst others, the introduction of a textured pea protein, which is the world's first textured vegetable protein containing sufficient levels of all nine essential amino acids to count as a complete protein. That was actually a big technical step here. We also launched a new plant-based solution, a combination of the Maxavor vegan fish flavors with the dsm nutritional lipids. Again, a very nice step there. For Avansya, we continue to receive good progress in terms of regulatory path approvals in different geographies, and we see growing interest from our customers for the fermented stevia sweetener, EverSweet. Now let me just finish with a couple of short comments on other financials.
Going to the next slide. As you have heard us say, throughout the year, we have been actually holding rather high levels of inventory, in response to supply chain concerns and to ensure security of supply for our customers. Towards the end of the year, we took a slightly different approach and decided to take some inventory reduction measures, and this has actually enabled us to create good cash generation in Q4. Of course, for the overall picture, the average capital employed for the year nonetheless carries these higher levels of inventory, hence, the ROIC performance that you see here. Going to the second slide on financials highlights. You see here that we generated an adjusted net operating free cash flow of EUR 310 million.
That was predominantly in Q4, thanks to these measures that we took. If I combine this cash generation with, of course, the proceeds of the divestment of DPM, you see here that we closed the year with a net debt, just net debt of EUR 87 million coming from EUR 1 billion at the end of last year. A very solid balance sheet situation. Maybe just a couple of last words on the dividend. You may recall that we paid an interim dividend in August of EUR 0.93. Upon the successful completion of the merger of dsm-firmenich, it is intended that dsm-firmenich will pay a gross dividend of EUR 423 million, which will be almost EUR 1.6 per share as a sort of final dividend.
This is nonetheless subject to general, to shareholder approval, at the general assembly of dsm-firmenich and is described in the offering circular. With that, Dimitri, may I hand over to you for, you know, the latest business conditions and our sustainability performance.
Thank you. Thank you for that, Geraldine. Okay. All right. Thank you for that. I hope everybody can hear me. I still see the green line around you, Geraldine, so I don't know if you can hear me.
I can hear you fine, Dimitri.
I will give it a leap of faith. Off we go. You see on this enormously busy slide, which you're normally used to us, our proposition on what we expect for business condition. I think as you have seen from our press release and once again on this slide, given the proposed merger process is advanced, it is intended that we, as dsm-firmenich, will provide an outlook for 23 once dsm-firmenich have been consolidated and the combined business plan is approved. We expect similar conditions in Q1 as we saw in Q4 for dsm, with EBITDA being impacted by continued price cost gap, lower vitamin prices, and the effects of inventory reductions, as already indicated by Geraldine in the beginning.
We are navigating this volatility through pricing actions, partly to mitigate residual inflation for predominantly the first half, but also improve cash flow further through reducing inventories and focusing on the operational costs. The first half of 23 will be weak given the residual inflation, softer demand, and continued impact from vitamin prices. We expect a stronger second half of the year as the inflation overhang eases and volumes will pick up again after a period of destocking in the first half. The big question mark for all of us in 23 will be how inflation will develop, and there is a, still a wide range of possible outcomes, and let me not speculate on that outcome.
Looking beyond the next quarters, while we expect near-term conditions to remain challenging, we are confident and confirm our midterm targets for dsm, given our strong pipeline of innovations and the positive structural long-term drivers for our business, which is geared around health for people and health for planet. We'll go to the next slide. As you are used to for dsm, we are a triple P company: people, planet, and profit. Let me use the last two slides to give you a bit of an update on progress made on the planet perspective first. There you see the slides with the three key targets around our ESG ambitions. As a leader in sustainability, we evaluate what we can do based on progress made.
I'm very happy to say that we have increased our target for cutting greenhouse gas emissions. From our own operations, Scope 1 and 2, for the second successive year. The new target of an absolute reduction of 59% from 2016 levels by 2030 has been independently validated by Science Based Targets and is aligned with limiting global warming with 1.5 degrees. Partly possible because of huge progress on our renewable energy. You can see that here, 78%, fully committed to be 100% renewable by 2030. Having these two coupled, it is creating a roadmap to our commitment to be net zero by 2050.
Also proud to say, you can see it on the slide as a fourth bullet point, we have again been acknowledged by CDP, a leading evaluator of corporate environmental disclosures, which awarded the company's climate change strategy and water stewardship an A rating, making dsm one of only a handful of companies in its sector worldwide to achieve such recognition. Now let's move to Health for People. Let me start with safety. If you can move the slide. Let me start with safety, which we normally always do within dsm. We start presentations with safety because it's a foundation we are building, builder as a company. We're not happy with the frequency index on recordable injuries.
You've seen all point 28, which is a deterioration from prior year, when we basically have taken actions to make sure that we continue also create a safe environment and a safe working place for all our employees, but also all our contractors on our sites. On wellness, dsm implemented various initiatives throughout the year to support our employees and their families from nutrition, immunity care, to mental health. I'm also very happy to say that we also made good progress on our diversity, equity, and inclusion efforts. You can see that here, with the representation of women at executive level, that improved again this year. Overall, very happy to say that our people demonstrated a fantastic perseverance in 2022.
I also have to say I'm very proud on how all our employees reacted to a donation initiative we started with our partner, World Food Programme, to battle the earthquake and recover. With that, Dave, I think now it's time to open the floor for questions.
Yeah. Indeed. I think it's time, so let's do that. Let me remind you that the sell-side analysts who want to ask questions have to register via an audio conference link, which they can find on the website, like we always do. I think we're ready when I look at the room. Operator, please let's start the Q&A session.
Thank you, Mr. Huizing. First of all, I would like to ask the Q&A participants to press star 1 to register for questions. Sorry. The first question is from Ranulf Orr. Orr, please go ahead.
Hi there. Thank you very much for taking the questions. Firstly, please, could you just help us slightly better understand the trajectory of volume growth for the three nutrition segments into Q1, and what your customers are saying to you about destocking there? Secondly, please, could I just ask about the opportunity from China reopening? I think back in the first half results last year, you said it was a 3% drag on EBITDA. Is that the kind of magnitude in recovery we could expect if we do have reopening or given the level of destocking and low inventory levels in the country, we could see a much bigger uptick? Thank you very much.
Thank you very much, for your questions. Appreciated. Dimitri, do you wanna start, on the volume developments?
Yeah. Let me.
I was just checking if technology was working.
It is working. Indeed. I couldn't follow the full question, but it was what we see in terms of volume development from last year into this year. At least what I understood. First of all, what we have seen is overall conditions for quarter four, we should continue in quarter one, and that has to do with the vitamin prices, it has to do with the time gap, and it has to do with some of the destocking we see. That is overall what we see going into 2023. We also indicated that maybe the first half we'll see a different setup than the second half based on some of the ranges of outcome on inflation. We need to see how that looks at.
For volumes on animal nutrition, there is an interesting piece there. There are lots of people who say, "Hey, you don't see any change on your resilient demands in terms of volumes?" You've seen that we have pretty resilient demand in 2022, it has to do with different species. What we have seen is downtrading in that segment. We've seen that poultry and eggs have grown faster than, for instance, ruminants. That is something which is linked to the inflationary context. Secondly, I'm bridging to your second question on China. Indeed, China is a key element for animal nutrition and protein demand for 2 reasons. 1 is, China is the biggest country in terms of protein consumption.
If China is opening up, and we see some signs of China opening up, although, slowly, in itself, we still need to see how that evolves. Secondly, if China is opening up, you also know that China is the biggest producer of vitamins. I've clearly indicated last time also in our calls that there is a cost comparison where we are lacking compared to China, if you look at the energy pricing. China could have two positive effects, but we don't see that as we speak. We see some bits and pieces, but certainly not consistently. I would move this more into the second half than in the first. But hey, this is something which will evolve throughout the next coming months. Let me pause here.
Very clear. Thank you.
Okay, your next question will come from Andrew Stott with UBS. Please go ahead.
Good afternoon, Geraldine, Dimitri. Thanks for taking the questions. First one was just a bit more granularity on your Q1 commentary, just given there's the absence of guidance for the year as well. Geraldine, I'm just re-quoting what you said. You said that you expect a similar Q1 to Q4 in terms of dynamics. Can we talk absolute EBITDA? If you look at the last three or four years, you've typically made EUR 30 million-ish extra EBITDA, I guess, because of selling days. You know, just normal seasonality. Is the comment you're making specific to normal seasonality, or are you really sort of suggesting that absolute EBITDA will be similar to Q4? That's the first question. The second question is around cash conversion.
I see obviously the work you've done has improved the cash release in Q4, as you mentioned, what do you think is a normal level of working capital to sales for the nutrition business? I guess we just don't have a lot of historical data to go on. How would you put that 12 months in a sort of longer term framework?
Thank you, Andrew, and thanks for your question. Let me start indeed with what we're seeing in Q1. Here, you know, we also realize that given the circumstances, we can't give you a full year outlook. We also normally don't talk to the quarter. Here I think it's fair that we are in a position to sort of be quite clear that basically the elements that brought down the EBITDA, both absolute and margin in Q4 are gonna be similar in Q1. We're looking, if you remember, the vitamin A, for example, on a full quarter basis, has currently an impact of EUR 20 million-EUR 25 million. You can expect to see that happen in Q1.
As you can imagine, the prices actually are not yet coming back up. We have the time lag, which is the second important element that we have been running after inflation. We see a time lag of a similar sort of amount going into Q1. And the inventory measures are also... You know, we started in Q4, but actually a lot of the measures are in Q1. When you put that together, these are the elements that you can expect to be, you know, that we're picking up in Q1. It is gonna be from, if you think, a margin evolution point of view, as we saw maybe in Q2 in 2022, we saw our margin sort of go down as the year progressed.
We will be starting from the low base, and then progressing upwards out of the momentum that we took out of Q4. That's really what I can share at this point. You know, a gentle start to the year would be the best way of describing it. Now, when it comes to cash conversion, you're absolutely right that we have not had a clear picture for quite a while now. If you think of all of the COVID disruptions, for two years and then all the supply chain issues last year, we are now in the motion of bringing down the working capital bit by bit. It will take us a bit more time.
Maybe in terms of figures, I do wanna point out the fact that our DSO is actually pretty normal currently. It's in the 60s, so it's actually 66 days. Our payables are in the 80s, so that's also pretty normal. What is on the high side is inventory. We closed the year with 145 days of inventory. Here you have a component of volume, which is about 1/3, in terms of the growth versus previous position. 2/3 is actually the inflation that's in the balance sheet value of inventory, and the FX. To give you an absolute sort of, what would be the right number, is a bit difficult.
What we do expect, though, is to have a limited outflow on working capital as we unwind this position during the year 2023. From a cash generation, I know we should be seeing hopefully, probably still a bit of an outflow because of growth, but a small one for the year 2023.
Thank you.
We'll take our next question from Martin Roediger with Kepler Cheuvreux. Please go ahead.
Thank you. Coming back to the guidance, assuming there is no merger with Firmenich, would you say that the current consensus estimates by Vara Research for dsm on a standalone basis for 2023 are accurate? Does your answer refer to all levels of the P&L or solely on EBITDA? The second question is on the depreciation charges, which were in the second half of 2022, 10% up year-over-year and 12% up versus the first half. What was the reason for that? Is that driven by depreciation or by amortization? Thanks.
Hi, Martin, and thanks for your questions. I have to say, we very seldom comment on the great work done by the sell side when it comes to consensus. It is a dangerous thing to do, and you can imagine we didn't give an outlook for the year, so me commenting on how we appreciate the consensus would be a similar kind of thing. Let me not do that. What I can say is, of course, answer your question on depreciation and amortization. What we are seeing is actually a combination of both. If we look, we actually closed, I think, with EUR 165 million per quarter depreciation and amortization. Here you have both included. The increase has come from the amortization of acquired intangibles through the acquisitions.
That also fits in there. To some extent, a kind of a sustained depreciation level. You know, on a, on a standalone, this is broadly what we would expect to see going forward, as well.
Thank you.
We'll take our next question from Nicola Tang with BNP Paribas. Please go ahead.
Hi, everyone. Thanks for taking the questions. First I wanna talk a little bit about destocking in human health. Geraldine, I think you mentioned it in your provider remarks. Can you just clarify, is that just in dietary supplements or is that also in other markets in human? Would you expect or within the kind of comments you've made around to the extent you've given comments on guidance or outlook, do you expect to see destocking sort of expand into other markets as well? The second question on pricing with the 7% price mix in 2022, was there any sort of surcharges and stuff within that number?
Just thinking about, you know, into this year, how confident are you in terms of still implementing pricing, assuming, I guess, you know, against this backdrop of weaker vitamin prices and maybe, you know, sort of destocking environment? Thanks.
Yeah. Thank you for joining, and thanks for your two questions. I think both of course critical in looking into how the market will develop going forward. Dimitri, do you wanna comment?
Thanks for those questions. Indeed, Health, Nutrition & Care, your destocking question, let's look at what are the segments of Health, Nutrition & Care. We've got medical pharma, personal care, aroma, early life nutrition, biomedical. They in that sense have their own dynamics. The destocking part, the softening demand is predominantly in dietary supplements as a segment and predominantly in North America, where there is some softening in the retail chains in North America. Remember that dietary supplements has sort of three categories. We have dietary supplement, which is i-Health, which is D2C, which is strong. We have probiotic sales for the good health, which is strong. Then we have the third segment within the dietary supplement segment, which is called multivitamins.
Normally, we're seeing a huge step up in multivitamin sales during the COVID period. That is normalizing. Still at a higher total turnover versus 2019. You do see with inflation, and inflation pressure also on the purchasing, you do see some impact on that piece of our business, and we do see a bit of destocking in that retail chain. That to your question, and we need to see how that further continues going forward, also depending a bit on the multimillion dollar question on how inflation corrects itself throughout the year. Your question on pricing. Indeed, very good pricing momentum. You also see that we will continue to do so.
We've also have started further price increases because of the residual inflation we see predominantly in the first half. Part of that 7% is and has been surcharges, energy surcharges, freight surcharges, but that already freight surcharges were already partly lifted in Q3 and Q4 when the container and transport prices went down. I'm very confident that those prices will continue to increase because we now not only take surcharges, but we make more fundamental inflation valid contract prices in. It has been part of surcharges, but they're now being part of the structural price increase going forward into 2023.
Maybe if you wouldn't mind if I follow up, in terms of on that question around your expectations for input inflation this year.
Sorry, the line was not good. Could you just repeat?
The question was, what are your expectations for input inflation this year?
Input inflation. Yeah. We had about 10%, 11% inflation in our cost base in 2022. Now we see the carryover to be about 5% into 2023. With, of course, you know, all of the disclaimers that one has to put on this subject in terms of how things are gonna develop. Of course, when you have the sort of inventory rollover that we have, we know that we have at least 5% inflation, and that's why we expect to continue to see pricing required in order to close the price gap. The price cost gap in a couple of quarters coming. Yeah.
Yep. Thank you.
We'll take our next question from Matthew Yates with Bank of America. Please go ahead.
Hey, good afternoon, everyone. I'd like to follow up on Andrew's question earlier, Geraldine. You mentioned you're obviously trying to reduce inventory towards year-end, but we are struggling a bit by not having a sort of pro forma balance sheet here excluding the materials business. That 145 days of inventory you mentioned, can you clarify what you think a normal level is? And then, perhaps for Dimitri, since we last spoke, we had the announcement from Novozymes and Chr. Hansen about a combination. You've got various relationships with those two companies. Do you anticipate any disruption from change of control clauses? In particular, is there any concern about your sourcing of LGG probiotics for i-Health? Thank you.
Okay. Thanks, Matthew. Let me start with inventory. What we've managed to do is reduce the inventory day count from Q3 to Q4 by about 10 days. That brought us to 145. If I look at versus prior, we're closing, last year was 135. That's a 10-day up versus 2021. Of course, what we are still living against is that this was the COVID years, there was also a lot of uncertainty on supply chain, and that's why the big question about levels of stock in the chain and including our own levels of inventory and supply.
To give a firm number as to what would be a healthy one, difficult at this point, but what I can say is that, you know, one should at least be able to come in to bring it back. Remember, in there, it's not just volume, huh? It's inflation, so it's the cost per unit on the balance sheet. We have an inflationary aspect that's sitting there. We should be able to bring it back down to at least prior 135, and then take it from there. That's the sort of granularity that I can provide on inventory. Dimi?
Yep. On Novozymes' Chr. Hansen, let me not comment on the deal, other than the combination will make a very strong technology player. There, where we partner with either Chr. Hansen or Novozymes, I think the combination will make the partnership only stronger. On your specific request on change of control and whole legal environment, let me not go into that. We will touch base when that will be on the table. We'll cross that bridge when we're there.
Thank you both.
We'll take our next question from Chetan Udeshi with J.P. Morgan. Please go ahead.
Yeah. Hi. Thanks. I just wanted to follow up on some of the other comments you made earlier in the call. But, you know, I think the first question I wanted to maybe touch upon was, you know, dsm has been sort of cutting production since Q4. We've seen some of the other participants in the vitamin chain cutting production, but yet the prices are still sinking lower and lower. I'm just curious, in your thought process, what is driving the weakening trend that we still see in the pricing? Because really the demand for feed ingredients to some extent has been weaker in some parts of the world already from second half. I'm just curious, despite production cuts, why are we not seeing prices stabilize?
The second associated question is, do you think there is a sort of a structural element now for dsm and the production capacities that you have in Europe, in this high cost environment, that you might have to reconsider whether you need to be producing some of these ingredients necessarily in Europe, or you think the profitability at the moment is still healthy enough for dsm to sustain the production in Europe, especially in Switzerland? Thank you.
Thanks for those questions. Appreciated. Dimi?
Yeah. Thanks for those. First of all, the vitamin you're referring to, which has been under pressure, is vitamin A. For the rest of the vitamins, we see stabilization, and I'll come back to your question on Europe versus the rest of the world. On the vitamin A, this is clearly an area where at current prices, nobody's making money, to your point. Secondly, what you have seen is that there is vitamin A in the market, which is running out of shelf life. And then you have a choice whether you sell the product or whether you impair and depreciate on it. That stock, which is running towards the end of shelf life, still needs to be sold first before normalization takes place. We've mentioned that earlier.
We don't see that normalization yet in Q1. We don't expect it in Q2. We'll need to see how that works out throughout the rest of 2023. Then specifically on your infrastructure, we are a global company with global infrastructure, we on a continuous basis look at where we need to produce and where it's produced to be best. At the energy prices, predominantly in the beginning of the year, we obviously have seen that Europe has a disadvantage. However, it's not only input prices and energy what counts. You also need to look at your whole infrastructure, where there's technology optimization, there is technology, advantage going forward. This is something which is continuously on our mind, which we have indicated we have reviewed.
For the vitamins where we've seen that there is a very high input price, we have reduced some of our production lines in vitamin C and also in vitamin A in season temporarily, where we look at how the impact will also look on vitamin E. This is not an overall change of approach. It's just basically waiting for the shelf life, which is spoiling the market and going forward, is normalizing, and then I expect we can be having a normalized level where we can look at global infrastructure going forward.
Thank you.
We'll take our next question from Isha Sharma with Stifel. Please go ahead.
Hi, good afternoon. Thank you for taking my question. I just have one last one please. Could you talk a little bit about your hedges in terms of energy? Do you have any hedges into 2023 already? Or do you see a relief from lower energy costs already starting in Q1? Thank you.
Thank you, Isha. I can comment on that. As you know, of course, we saw energy costs go up a lot in 2022. Just to give you an order of magnitude, in 2021 we were at about EUR 200 million, 2022, EUR 350 million. We expect for 2023, about EUR 100 million more, so about EUR 450 million. 80% of that is hedged. You know, with hedging, it's good and it's bad. It's good because it provides some certainty. Of course, should there be, you know, a good development on energy costs, we will not benefit from it in the short term. It's also important to remember that in 2022, we also had some hedging that protected us a bit.
That's why you see the delta from 2022 to 2023.
Thank you very much.
Mm-hmm.
We'll take our next question from.
I think we have. Sorry. I think we have time for one last question. Maybe you can put the last question through.
Certainly. We'll take our last question from Gunther Zechmann with Bernstein. Please go ahead.
Hi. Thanks for squeezing me in. Can I just follow up on the destocking point, please? What's your visibility there? What gives you the comfort and the confidence to say that the volume effect you've seen towards the end of last quarter and into the beginning of the new year is destocking versus demand weakness, please?
Dimitri, do you wanna comment?
Yeah. That's a good question because in all fairness, it is obviously also a bit fuzzy for our customers. The moment that we discuss with them and they say, "Hey, there's some demand softness," and we ask them, "Well, is it destocking or is it demand softness?" Yeah. I mean, that's almost like a theoretical component, right? There is some destocking because of the inflationary context. There is some destocking because of the uncertainty in that segment. However, the demand itself has shown to be very resilient going forward. We also see also in other segments that if China is opening up, that will create an additional demand going forward for the animal space. It is a bit of a theoretical discussion.
Let's face it, if people will say this is only because of destocking or this is demand softness, I find that difficult. I mean, I'm in the market for a long time. It is sometimes linked, and sometimes it's also self-fulfilling prophecy, right? When people are uncertain, then that causes itself. There is some destocking going on because you can look at your own stock levels, look at our stock levels, and we are part of that value chain, and we deliberately decided to destock because customers don't want to pay for additional reliability as we had during the COVID time. I think everybody's reviewing that strategy a little bit. There is definitely some destocking ongoing.
Whether the soft demand is part of destocking or not, I think that's a theoretical question. We will see if we follow the path throughout 2023.
Yeah. I think with that, I think we are at the end of the Q&A. We're also approaching the full hour. Dimitri, maybe a short time for a few closing questions before we close off.
A few closing questions, perhaps. I think we have had a very good solid 2022 with the conditions which we saw in Q4 going into Q1. We have made progress on people, planet, and profit. We also made progress on the merger towards dsm-firmenich. With that, I'm gonna hand back to you, Dave, so you can officially close.
Okay. Thank you. By the way, also thank you, Geraldine. Thank you all the audience for attending today. With that, we're concluding today's webcast. As usual, if you have any further questions, please don't reach out to my team and myself. With that, thank you, and I give it back to the operator.