Welcome to everyone, and thank you for joining us on the short notice for this call on the trading update we published this morning. I'm Dave Huizing, Head of Investor Relations, and I'm joined today by our co-CEOs, Géraldine Matchett and Dimitri de Vreeze. You can find this trading update on our website. Here, you will also find the disclaimers about forward-looking statements made in today's conference call. We will start with some introductory remarks by Géraldine and Dimitri, and with this, I can hand over to you, Géraldine.
Thank you, Dave. Welcome from me as well, and indeed, thank you especially for joining us, given the short notice. I hope you had a chance to read the press release that we issued early this morning. We are today providing a trading update in light of the continued global macroeconomic turbulence and the impact on the market dynamics. There will be no slides today, and I'm sure you understand, given the speed at which we are required to make these announcements. Instead, Dimitri and I will provide some introductory comments before we will open the floor for the Q&A. In early May, at our DSM Q1 trading update, we knew that we would have a soft start to the second quarter of the year, as the challenging conditions that we had in Q1 were persisting at the time.
We were expecting a better second quarter for this year, especially June, which is typically strong ahead of the summer vacation months. Unfortunately, the usual strong end of Q2, for animal nutrition in particular, did not materialize this year. In fact, it's the opposite. It has become clear that the animal nutrition volumes in June will be very disappointing, and the vitamin prices have actually further declined. Now, for this reason, we have made the immediate decision to issue this trading update for Q2. We now expect the total DSM-Firmenich Adjusted EBITDA for Q2 2023 to be in the range of EUR 400 million-EUR 420 million, which is below the EUR 521 million of Q1 2023. All of this on a pro forma basis, meaning having the full period with both legacy DSM and legacy Firmenich together.
In addition, in light of the more recent developments in vitamins and the more somber global macroeconomic outlook for H2, we now estimate the full year Adjusted EBITDA to be between EUR 1.8 billion and EUR 1.9 billion versus the EUR 2.275 billion of 2022, again, on a fully pro forma basis. We expect the drop in Adjusted EBITDA to be driven predominantly by the current vitamin market conditions and the foreign exchange effect. This will be visible predominantly in our Animal Nutrition & Health business, as well as, but to a lesser extent, in our Health, Nutrition & Care business.
We are currently estimating the negative vitamin impact to be at about EUR 400 million for the full year, driven mainly by vitamins A and E, and the negative foreign exchange effect for the year 2023 to be about EUR 100 million for the total DSM-Firmenich. With that, I'll hand over to you, Dimitri.
Yes, thank you, Géraldine, and thank you all for attending. First, the context. In light of this slower recovery of macro and the prolonged challenging vitamin market conditions, we are announcing an acceleration of actions, and these are designed to increase our earnings quality, as well as to reduce our exposure to vitamin earnings volatility in general. It's of course, unfortunate that such a combination of quite exceptional external factors for vitamins has conspired all at the same time, but is also an opportunity to take strong actions. The actions today illustrate our commitment, our ability to do what it takes to deliver the highly attractive long-term potential of DSM-Firmenich. The measures around vitamins announced today will deliver an estimated saving of around EUR 200 million per year, with a run rate to be reached by the end of 2024.
These actions will lead to an estimated impairment of about EUR 300 million-EUR 350 million in the first half of this year, with the total restructuring costs for 2023, incurred as a consequence of the announcement, are estimated about EUR 200 million. Let me take you through the actions announced today to improve our performance, to help restore our vitamin profitability, but also to reduce our exposure to vitamin volatility. First of all, organizational. First, we will create a new separate vitamin unit within Animal Nutrition & Health, and the one that is specifically tailored to the evolving market dynamics. This will lead to a more simple, more responsive, more efficient, and more agile organization, and therefore, better equipped to serve ANH essential nutrition requirements. Secondly, we will prioritize. We will prioritize the businesses within ANH, which have a higher growth, higher margin profile.
These are the Performance Solutions and Precision Services business. Action number three, we will restructure. We will deliver a comprehensive restructuring of our vitamin activities with an aim of delivering cost savings of EUR 200 million per year with the run rate to be reached by the end of 2024. These savings, to be clear, are not included in our merger synergy targets t hey are on top of. Action number four, we will review our assets, and as an immediate first step, we announce the closure of our vitamin B6 plant in Xinghuo, in China. Additionally, for our vitamin C, we will now purely focus on our Quali-C product in Dalry, Scotland. It's our intention to find other sources for our vitamin C production in China, where we will already are not producing, and we're looking for different range of options for the Jiangshan site.
We will discontinue operation. Five, we'll look at cash. With the step up and our focus on self-help actions across the company, we will strengthen our focus on capital discipline and significantly improve our cash flow. This will be supported by reducing our working capital requirements. Six, we install a program called Transformation Program for Vitamins, and we also have announced today the creation of that new role with a new senior executive role, who will report directly to me. That person will be Eros Carletti, who's already within our company. Seven, we will take a broader view on all business segments. That's not only for the vitamins, but across the portfolio of DSM-Firmenich, to prioritize and accelerate our higher growth, higher margin segments, and to tailor where we're gonna accelerate and where we're gonna invest.
Therefore, we are confident that principally, with these actions taken, the targeted EUR 350 million EBITDA on integration and the synergies, the quality of our core activities, that we will realize our midterm financial targets of 22%-23% EBITDA margin and a 5%-7% annual organic sales growth. With that, back to you, Dave.
Yeah, there I've got it. Thank you, Dimitri. I guess we have quite some questions. There were already people raising their hands in the room. Yes, let's move to that session. As a remembrance, the sell-side analysts who want to ask questions have to register via an audio conference link, which they can find on the website. I think we're done, so we can start. Operator, let me give you the floor, and you can let the first person ask the question.
Thank you, Mr. Huizing. First of all, I would like to ask the Q&A participants to press star one to register for questions. Our first question will come from Ronald Orr. Please go ahead.
Hi, good morning, all. Just a couple of questions from me, please. Firstly, regarding the vitamin EBITDA impact, can you please give an indication of what the contribution to that solely from higher input costs is, and the timeframe at which you might expect that to normalize? Secondly, you know, what is the expected level of EBITDA generated by vitamin this year, post the, kind of, the EUR 400 million impact? Is that now zero, close to zero? Thirdly, just regarding the long-term guidance, organic sales growth, 5% - 7%, the EBITDA margin targets, I mean, what vitamin assumptions do you have in that? That'll be my three. Thank you.
Okay. Thanks. I think the first question, if we heard you correctly, is about the input cost, factor, in the EBITDA impact of vitamins. When do we see the input cost?
Yes, yes.
Right? Okay. Maybe, Dimitri, do you wanna take that, and I'll take the margins and the targets?
Yeah. Maybe a few things. First of all, as you've seen on the actions which we've taken, we are not waiting for the macro to help us. We take actions in our own hand. Obviously, we do see input costs going down, that will take four, five months to help us in our P&L, because we have stocks for about four, five months, so that will be towards the end of the year. That is one. Secondly, in terms of your vitamins EBITDA, then I ask you, Géraldine, to make the bridge. The vitamins EBITDA, you're asking, what is the EBITDA? Well, let's go a bit more granular.
The total vitamins is about 15% of our total, around EUR 2.2, between EUR 2 and EUR 2.3, depending on what the pricing are doing today. They are volatile. If we take the EUR 2- EUR 2.3, what we have said is that there is a negative vitamin effect for the full year of about EUR 400 million. Let's assume, if you normalize the vitamins, you normally had about the same percentage on quality, on vitamins, it was about 20%, so that means around EUR 460 million. If you have a EUR 400 million delta, you see that there's still a little profit left. That is what we have covered in.
To that extent, it also shows the unusual circumstances, with the EUR 2.3 billion vitamin category, that's also why we take very stringent actions. Maybe with you, Géraldine, the bridge?
Yeah, no, absolutely. Maybe looking at the journey from where we're likely to end this year to our midterm targets, and midterm, we're talking, you know, four to five years here. If we look at the current insights that we have, we're probably looking here at an overall margin for the year of around 15%, 15.5%. What we wanna do, and Dimitri said it correctly, is not just wait for the market to recover. One can really say that currently we are facing very much an exceptional situation in the context of vitamins, some of that will unwind. Let me bring you to the bridge. From about 15%, what you will see is a 2% up coming from these actions that we have just mentioned.
We're looking here at driving about EUR 200 million of savings, with a full run rate being achieved by the end of next year, by end of 2024. Of course, you've got the synergies that we're gonna be generating via the merger. That brings you another 2%, and then we've got 1% on the growth and the mix and the innovations. From the 15%, you get to the above 20% through our own actions. In order to get from this 2021 to the 2023, one does need a bit of normalization. And what we mean by normalization is a bit of a recovery on price and on market conditions. That brings us from the 15% to the 20%-23% margin. That's probably the most relevant bridge for today.
Thank you very much.
Our next question will come from Isha Sharma with Stifel. Your line is open.
Hi, good morning. I have a couple of questions. Could you please break up for us how the underlying business for DSM has developed, and if we compare sequentially from Q1, did we also see a sequential decline at Firmenich numbers? Because we have the Q1 numbers just to compare there. On vitamins in general, how should we think about the EUR 400 million between the different vitamins? I did make some calculation based on your capacities of vitamins, and it seems like EUR 400 million is really on the higher end. Is this mainly because of the cost side of the problem, or are we talking about prices going down to even below the historical levels? If you could please break them down for us.
Okay.
Okay, shall I do the vitamins and then you do the first question? Let me.
Okay.
The vitamins. Basically, the vitamins, I'm happy that you did the calculation, let me help you with your calculation. Overall, I said that, with the EUR 500 million delta, on the vitamins, with a 2.3, normally 20%, there's still some profit left. It means basically that we're not making money on none of the vitamins, we only still make a bit of money on vitamin E, and that's what you've seen. On your pricing question, you've seen vitamin A and vitamin E pricing going down. vitamin E was, beginning of the year, EUR 8.95. It had gone down in May to EUR 8.10, and at the end of June, we're now looking at EUR 7.55. vitamin A was EUR 24 in May 1st.
It was EUR 22 on June 1st, and as we speak today, it's EUR 21.75. It's a pricing component. However, it also is a cost component. I think the initially first question in the call was about how do we see the input cost changing? We're still relatively high, but input costs are going down, but you see a delayed effect because it needs to run through the very high price stocks which we have, which is about four, five months. It's a combination of both. And I hope that you get a bit of a feel on your modeling on the vitamins. Géraldine.
Maybe to your question of the sequential developments, which is fair enough. What you're seeing is that, and by the way, we also today are publishing all of the pro forma numbers. If you haven't had a chance to click, you've got the tables that give you the full of last year by quarter, et cetera. Q1 of this year, if you take DSM-Firmenich, we were EUR 521 million EBITDA, and we basically now flagging EUR 400 million-EUR 420 million, you know, say about EUR 100 million lower. Sequentially, the breakdown is as follows. The vitamin headwind has increased. If you remember in the legacy DSM, of course, we had about an EUR 80 million headwind in the first quarter.
That has gone up to EUR 120, EUR 130, so EUR 50 million more. That's half, if you want, of the Q1 to Q2. We have the foreign exchange, which has got a bit worse, so about EUR 10 million versus Q1. There's actually seasonality, and that is more from the legacy Firmenich business, and particularly Perfumery & Beauty, where there's a seasonality, which is a normal one during the year between Q1 and Q2, and that's about EUR 40 million. That brings you to the delta of Q1 towards Q2.
Maybe I can just add on that one and say, we have a vitamin issue and a FX issue. FX issue, we'll make very transparent. We have a vitamin issue, which we address with actions, and like Géraldine said in the beginning, we're not banking on full normalization, but with the current profitability on your earlier question, you will see some rebound. The question is when. The other businesses are holding, so if you correct for vitamins and FX, and I know that if you correct only for negative, you always come into a positive territory, but the other businesses are holding. It's really a vitamin issue, and we address the vitamin issue. The fundamentals of our business, the fundamentals of the integration and the synergy of DSM-Firmenich absolutely still hold, and we're very strong and even confident.
You don't see it. Even in ANH. The Performance Solutions and Precision Services business are doing really well. The issue is that the impact of the vitamin issues is so big that you don't see it, and that's why we decided to make that very transparent and also take actions accordingly.
Thank you very much. If I may just follow up with one last question. If I take the Q2 and extrapolate it to the second half, your guidance is still above that. What is it that you're expecting to change in the course of the year?
If I bridge from an H1 to an H2, and here, of course, we cannot be overly scientific, but what we're seeing is that we're guiding an H1 at about EUR 920 million-EUR 940 million. If you look at our full year guidance, it's EUR 1,800 million-EUR 1,900 million, and that puts us broadly, if you take all the different moving parts, to a bit of a flattish type of development, going into the second half. What we're seeing, and Dimitri said it very well, we're seeing solid performance from our businesses, given the context. If we park vitamin for a second, the rest is going pretty well. They are feeling a little bit the foreign exchange headwind, so that is true.
What we will see is that hopefully that will continue. We do not expect, at this point, a positive trend in terms of pricing of vitamins. So that is going to stay with us. So what you will see in the second half is pretty similar conditions overall. So that basically underpins the guidance that we have just given. Maybe one thing that I would like to point out is indeed that if we look at Perfumery & Beauty and TTH, Taste, Texture & Health, for the second half, we are expecting a continued high single digit growth in EBITDA for those business if I take it constant currency.
The headwind of FX is across the business, that takes it from high single digit to, you know, low single digit, but we're seeing growth, and we're seeing solid performance there.
Thank you very much.
Our next question will come from Nicola Tang. Your line is open.
Hi, everyone. Thanks for taking the questions. It seems like the restructuring in vitamins is very radical, I guess, versus what you've done in the past, I don't know, five to 10 years in terms of changing that portfolio. Firstly, I wanted to ask, you know, compared to some of your comments earlier this year, where you talked about some of the issues being more temporary in nature, what's changed your mind, what to make you think that they're more structural in nature and therefore need to take these more radical measures? Secondly, on the same vein, can you talk a little bit about how this will impact how you sell or in the animal nutrition business?
Because I think, you know, you talked about improving or simplifying sort of working capital or simplifying the business and improving working capital. Can you talk a little bit about what that means for how you sell, particularly, on the kind of premix side of things? Thanks.
Thanks, Nicola. I think over to you, Dimitri.
Yep. Thanks for that question. Indeed, we think it's temporary. However, the impact is so big that we don't have the luxury to wait. Secondly, I would rather have micro recovering while we have to take our own actions, that's why if you look at how Géraldine covered the bridge, it's partly on micro, which is about 5% improvement, and it's 2%-3% on some of the normalization. That has changed. Secondly, what also has been very revealing in these unusual circumstances is that apparently our customers giving us a clear signal that they are not willing to pay for that premium in terms of what we always have done.
You also need to listen very carefully, and that's why on the vitamin part, and certainly on the straights sales, we will review our route to market. It will be more standard. We will review our service levels. We will review our stock and safety stock levels. We will review our on time in full. We will review how we operate the plant, and that will have cost savings, because we don't get the premium which we would like to see. Indeed, that is a radical change, but I think it's also a change which is absolutely needed, because with an impact of EUR 400 million negative in the year, I think it's a clear signal that you need to change, and that's why we take this radical action.
All right. Thank you.
Our next question will come from Martin Roediger. Your line is open.
Thanks. I have three questions. You said you want to create the separate vitamin unit within Animal Nutrition. Is it an option to carve out that business and finally sell it, or is it not possible because the production is interlinked to human nutrition, food, and beverage? Secondly, you do not expect an improvement in the vitamins business, in Animal Nutrition, in the second half. Is it because there is absolutely no visibility? Because I'm struggling. You talked previously also about destocking, which already started at the end of last year, so why is demand so weak? Thirdly, can you provide a bit more color on the adverse FX effect? Is that largely US dollar driven, or is that because of the Swiss franc, because you have a big cost exposure to Switzerland? Thanks.
Okay. You do the last one first, Géraldine?
I'll start with foreign exchange. Thanks, Martin. Let me give you a bit the split. The EUR 100 million is about EUR 40 million, ex DSM, legacy DSM, if you want, and EUR 60 million is more legacy Firmenich. Interestingly, both parts of DSM-Firmenich have a very similar picture when it comes to foreign exchange, which means a bigger cost base in Swiss franc and long in terms of sales in dollar and in euros. It's actually the relationship between those currencies that is effectively a headwind, creating the headwind for us this year. Maybe one thing to know is that on the legacy Firmenich side, they didn't have a hedging policy like us, which is why the impact is a bit bigger currently on Firmenich. That's the FX part.
I just want to reiterate what I said earlier, which is a constant currency. The legacy Firmenich business are doing very well, PNB and TTH, with high single-digit EBITDA growth. With that headwind of currency from high single-digit, it gets closer to low single-digit. This is something that we will, of course, look into as we aggregate the two companies, the exposures, to see how we can implement a similar hedging approach, probably as was done in DSM before. That's from FX.
Indeed, Martin, thanks for that question. Vitamin unit, yes, we did it within ANH. Indeed, you already hinted on it. This is a shared integrated infrastructure, where there are also bits and pieces in HNC, where we have a different setup with higher margins and higher growth. This is really within ANH. On the vitamin business, we will restructure and improve that part by really managing a more simple structure. Like I said earlier, also with the different service levels, and different ways on how we approach things. We will also make sure, by doing so, that we anticipate longer term. We wanna continuously look at reduction of exposure and volatility. We take the short-term actions to cover and improve performance.
We also will take a look for the future so that we build also long-term reduced exposure and a reduced access to volatility. That is what we do on the vitamin unit, so it's separate within ANH. Your question on no improvement in the second half, and why is the demand so low? It's a good question. I would wish the demand would be better, but we all know that China is still struggling. I mean, they are in recovery mode, but at a very, very slow pace. You also need to know that the biggest animal protein market in the world is China, and that's not helping.
On top of that, if the animal protein domestic market in China is slow, with 75% of vitamins in the world produced in China, they basically can't sell around the corner, so they're gonna sell in the rest of the world. We see that in the price pressure throughout the whole categories going on. You could debate whether it's a smart idea from the world to depend fully on 75% of vitamin production in China. I believe that aside, that is something which we need to think about. I think on vitamin C, what we have announced is that we refocus our vitamin C activities on the Dalry Quali-C material. That's the only vitamin C production outside China, where we do get a premium, and we still make money on vitamin C.
Back to your question, but it starts with China. It also starts with indeed a bit of destocking with insecurity. People had very high stocks, destocking is continuing. Remember that we wanted to see the end of destocking in Q2, but we also said that in our order book in May, we didn't see it, and we don't see it yet in June either. Yeah, there should come an end to it, but the question is when, and we didn't want to wait for it, and therefore we took action.
Yeah. Martin Roediger, maybe a last piece. This is, of course, a picture of multiple things. You're also probably very much aware that the cost of feed is remaining very high, which, you know, is a challenge across the board. What we're seeing is that there's a lot of insecurity around, it's very last minute. Yeah. There is no view from the market. Everyone is very much last minute in their orders, which is also the reason why, you know, normally we would have a very strong June, what we're seeing is it's becoming much, much more hand-to-mouth type behavior at present.
Thanks.
Our next question will come from Chetan Udeshi. Your line is open.
Yeah. Hi. Thanks, and morning. I'm a bit confused about your comment that you've not assumed any recovery in vitamin prices, from current levels. If I look at your guidance for Q2, you're guiding to about EUR 410 million-EUR 415 million of EBITDA. If I look at your runway implied in second half, it's like EUR 460 million. Clearly, there is a decent step up, and given that you are talking about pretty weak tune, I'm just curious, what will drive that step up, in second half that we are expecting?
The other question was more, a bigger picture question. I think in the last, few years, you know, we all started to believe that, you know, the vitamin exposure of DSM had reduced dramatically. What we've seen, actually, maybe that wasn't the case. Now, I'm just wondering, you know, you keep talking about your straight business, which makes sense, but I'm pretty certain that there is an economic profit that is also included in your premix business from vitamins. Can you sort of discuss how that gets impacted structurally when you have such low vitamin prices? Because I presume some of your premix customers or premix competitors are buying these vitamins straight from their, from either you or one of your competitors.
I'm curious, does premix business also structurally suffer in terms of profitability for DSM because of what's happening in the vitamin market? Thank you.
Okay, thanks for your question. Let me start with the first one to clarify the bridge.
Could you repeat the first question because I missed it?
Yeah.
Okay.
I think it was regarding Q2 for EUR 400 million-EUR 420 million, you know, the full year estimate would point out to a bit of a step-up in Q3 and Q4. Where does that come from? Remember that when I explained the delta Q1 to Q2, there's also a seasonality in Q2, that seasonality backs out. That's about EUR 40 million in Q2. Just that will bring us, you know, back. The rest is actually a sum of moving parts, which unfortunately, when you add it all up, looks pretty flat. Not really a recovery. That's how the bridge works in terms of our expectations for the second half of the year.
The second one, I could listen, could hear. The vitamin exposure has reduced over time. I think what we've done in the past, I think, we had 35%, even 40% in the past on the total. We continued to reduce that. All the acquisitions we've done and the innovation we've done were outside the vitamin area, so we reduced that exposure over time. Today, with the last step in our journey, DSM-Firmenich, we are around 15%. That's the EUR 2.3 billion I was talking about. You also have seen that over the last eight years or so, we never built new factories. We basically changed course, and we also started sourcing vitamins.
Part of that is also sourced materials where you have a reduced risk of volatility because you buy at price X, and you sell at price X plus a, plus a small percentage. That to your point, that you don't see that reduction, it definitely has happened, and you've also seen that in the strategic actions we've taken. Like I said, we will continue that journey and maybe accelerate that journey to also be prepared, not only short term, but also for the longer term. That's one. Secondly, I think a very fair question on premix. Normally, premix is quite differentiating in terms of capability, because it's one ingredient, it's a premix. You add mycotoxin binders to it, you add minerals to it, enzymes to it. It's more service solution-oriented than just trade sales.
However, if you have a continued time of lower vitamin prices, obviously you also need to secure that the premix solution as an overall is in a cost-effective mode. However, it is far more directly impacted than straights, so it covers you an additional barrier to do so. I think the premix mixing margin is still pretty okay, but if you have this long time effect, then obviously over time, it could also impact the premix. Be aware that about one-third of the ANH part is straights, and part of the ANH is Performance Solutions and precision nutrition, and part is premix. It's about one-third, one-third, one-third. You get a little bit of a feel on why that's impacted.
Maybe I was triggered, so we're saying no recovery in the second half of this year. We also need to say that the current vitamin pricing environment is not sustainable, and therefore, we do expect that there will be normalization. Driven by two things, at some point, demand will pick up again. To the question that was asked earlier, you know, in terms of the value chain, destocking, low levels of stocks, et cetera, will at some point, run back. You have an economic reason why prices will recover, and the demand side. The problem that we see and why we're having this call today, is that we don't see that happening in the course of this calendar year.
Thank you.
Operator, do we have other question in the call?
Our next question will come from Matthew Yates. Your line is open.
Good morning, everyone. Couple questions to continue the conversation. Your message on working capital and the focus on cash, can I just clarify, is that a short-term reduction of excess stock, or actually, you think there's something more structural here? I think Dimitri mentioned, you know, carrying less buffer stocks going forward if customers aren't willing to pay for that. Any idea of quantifying what that could do to your working capital ratios? It feels like that's something we've talked about for a long time, but structurally struggled to see an improvement. Just on the restructuring, if I understand correctly, from an asset perspective, you're really just talking about vitamin B and C, not A and E, which is obviously where you've lost the majority of the money. Why is that?
Is the cost savings on E and, A and E more related to the route to market? Final question, as I can separate slightly different issue. You recently had some management change on the family side, moving the head of fragrance, so you don't now have that dedicated integration officer. Why did you decide not to replace that role? Thank you.
Maybe let me start with working capital and then hand it to Dimitri for the more structural. As you know, working capital has been a challenge and has been at high levels ever since COVID. Ever since we had to prioritize delivering to our customers in a very unpredictable supply chain. We've been at a high level of working capital for a while. Now, you can imagine that with the soft demand that we're seeing now, we're not being successful at lowering inventories. Although, we have been doing some stops, and this is something that we're gonna continue to do shutdowns to really manage our production levels versus demand, knowing that when you do that, you pick up some idle, right? It's never an easy equation. That's the short-term point.
Here, we're really looking at trying to drive down our working capital by a few hundred million by effectively managing supply, demand, and coordination better. You're right, that there is a more structural approach as well to this, and Dimitri, if you want to comment to that.
Yeah, indeed. Two effects. The short term, as Géraldine alluded to, I think we have two high stocks because the demand itself was forecasted a bit higher. Secondly, I think coming from COVID security supply issues, I think we have maintained very high safety stocks overall. We're gonna address that, we're gonna monitor that, and we're gonna optimize on that. That's the short term. Long term, like I said, certainly on the vitamins, y ou know, that vitamins are basically going around the globe because we have assets where we interchange sort of an internal infrastructure.
We're gonna review that overall, because at the end of the day, the more simple structure will also require that we will look at our OTIFs, we'll look at our credibility and reliability of supply in terms of logistics. Therefore, we will look at safety stock levels, which will come down, because at the end of the day, if you don't get a premium for that, then you need to review that. That is also why, and I make that link to, I think, the right restructuring question you said on vitamin A and E. It is in the press release, I didn't highlighted it in the summary notes just while starting, but we will have extended shutdowns on A and E on our plant and Sisseln.
In Q3, as we speak, A, to focus on the working capital, B, to streamline and standardize some of the processes, just to make sure that, in terms of server levels, OTIF stocks, we will look at a different way on how we do this. We need to be careful there, because we also want to maintain the higher vitamin A and E quality levels for HNC with relatively good margins. You can't just shut down the plant. I don't know if you've been in Sisseln, it's not a small operation. It is something where we produce A and E, where we produce forms, where we produce pharma grade, where we put medical nutrition in place.
We will do that in a orchestrated way, but we will have extended shutdowns, and we will take measures to standardize and lower cost also on these activities. To your last point on management changes, indeed, Ilaria has moved to a CEO job in a fantastic company with nice watches. That was her dream job. We could debate about timing. We were expecting that she had the ambitions to move, but in terms of timing, that was unfortunate. We were very happy to have Emmanuel Butstraen ready. He's our Chief Integration Officer, as you know. We also knew that the integration would end somewhere towards the end of the year. We always had the plan to move Emmanuel into the business area.
That was a bit accelerated. In terms of integration, let me make it very clear. The moment that there is a closing, and you had ample time to prepare the integration, and maybe a bit longer due to the India reference than we were hoping for, we had the whole integration plan ready, and the integration synergies are not owned by the Chief Integration Officer or by the Integration Management Office. The Chief Integration Officer is monitoring and aligning that. All the targets on the synergy deliveries are owned by the BU presidents and by the Chief Procurement Officer. Remember that we had sourcing as one of the cost elements and the revenue synergy, and the revenue synergies are part of the budgets for the BU presidents.
As of next year, they are baked in, and they also signed off because of the accountability to it, and the sourcing savings were also defined. In that sense, the chief integration role was less needed. In all fairness, the moment that you do a closing, the real Chief Integration Officer is the CEO. In that sense, I think while you do the preparation and you have the A of accountability landed where it would be, I think we could make that move with Emmanuel. Not having said that, the Integration Management Office is still there. The Integration Management Office is still there, and is, in that sense, having a direct line to me.
I think that is what we did, and I'm happy to say that the transition, with Emmanuel in the important Perfumery & Beauty business, has gone very well. I'm happy to see that.
Thank you. Our next question will come from Gunther Zechmann. Your line is open.
Hi, good morning, Gunther Zechmann from Bernstein. Two questions, please. First one, could you just talk about your cost position in vitamins in China? What is it about the vitamin C and B6 specifically, where you feel that with your Chinese footprint, you are not competitive? Is it plant size? Is it feedstock, or is it something else? What does that mean for the other vitamin plants? You did not mention, for example, the Nenta plant in vitamin E or any of the other plants that you have. Some color around the cost position would be helpful. The second one, Géraldine, just a comment I wanted to clarify. I think I heard you say that the Firmenich business has got a EUR 40 million seasonality from Q1 sequentially into Q2. Did I hear that correctly?
Just to clarify that point, please.
Yes. Let me start with the last one. Indeed, you heard that correctly. Of course, this is something that Firmenich was not, you know, providing quarterly figures before. It's something that we will, you know, now be showing as we go along, a little bit, that seasonality pattern within their business. You did hear me right. Dimitri?
Yep. On the vitamin part, let me start with vitamin C and indeed, vitamin B6. The China actions we're taking has not a lot to do with the costs, has more to do with the pricing development. Remember that the vitamin C in Jiangshan is a different story than the vitamin C in Dalry. It's a different proposition. It's also called Quali-C. We get a premium for the Dalry production. We don't get a premium for the Chinese material. If you look at the profitability, this is not something which you would like to do short term.
In line with preparing for the future, we now also decided that this is not something which we should do for the longer term either, because we want to reduce our exposure and reduce to the earnings volatility, and that's why we decided for B6 and vitamin C to discontinue. On vitamin E, we can produce vitamin E in Nenta, in China, and in Sisseln, in Switzerland. Two different regions and two different technology routes, very happy to see that. At the end of the day, A and E is something which we look at from different perspectives. As you've seen, vitamin A with also out-of-shelf life production coming onto the market, we need to see when that normalizes.
Vitamin E is a vitamin we still make a little bit of money, because at the end of the day, in terms of scale, but also in process, we are definitely cost leader there. Therefore vitamin A and E, we reduce and do extended shutdowns in Sisseln, not in Nenta in China.
Thank you. Our next question will come from Sebastian Bray. Your line is open.
Hello, good morning, and thank you for taking my questions. I'll ask them one by one. The Pinova facilities that half burned down in the U.S., did this have any impact on the DSM-Firmenich in Q2? What exactly did the facility do such that it can just not be replaced and have no impact on the DSM-Firmenich operations? Thank you.
Do you wanna ask all your questions, or we-
Oh, no, I'll ask them one by one. If you, if you want more, I can give you them.
That's fine. You can do them one by one if you want. I think your first question was the Pinova impact on their Q2 performance. It's not the driver, it's not Pinova that was driving the delta on seasonality. But indeed, the force majeure was declared, due to the fire. I didn't quite get, sorry, the second part of your question.
What was this facility doing? It feels odd that it can just be shut down and have no impact on the wider Firmenich business.
You wanna take that, Dimitri?
Yeah. I mean, if this will be a hugely profitable site, maybe it will be different, but you also need to be aware that reopening that site would require huge demolition and repair. That in the broader context, we decided not to reopen, but use the existing production network we have. We have alternatives, so it doesn't mean to say that we will stop selling the product. We basically use our other production units in our infrastructure to do so. That is why we decided to make the decision not to restart and reopen Pinova.
On the financial impact, you will see the impact more on the top line than on the bottom line.
That's helpful. Thank you. My second question is on the organic EBITDA growth or the development of Firmenich and legacy DSM, excluding vitamins in Q1 versus Q2. Just to interpret your earlier comments, Géraldine, am I right in saying that excluding the impact of seasonality, the underlying EBITDA of Firmenich Q2 versus Q1 calendar year was roughly flat, and DSM was down slightly, but not a huge amount, excluding vitamins. Is that fair?
Okay, you have a lot of moving parts in your question.
Excluding vitamins. Minor, minor vitamins.
Consider this the last question.
Yeah.
Yeah, because we're running out of time, but-
All right.
-go ahead, Géraldine.
Yeah. Let me try and bring back the pieces that we have. The main delta for us between Q1, for legacy DSM, sorry, is basically the vitamin. That's the increase in the headwind by about EUR 50 million. We saw the FX, which is an extra EUR 10 million versus Q1. Then we have the seasonality from the legacy Firmenich business. If you were saying, if I back all of these factor out, would we have had a decent performance? Yes. Of course, when one does that, by definition, we do. What we are seeing, I think as a key message, is actually, if you really, say, put vitamin aside for a moment and the increased FX headwind, actually the business is holding up pretty well.
When we are looking at organic growth, basically, we expect, you know, the day I have to put everything in, we expect a negative high-single-digit negative organic growth for Q2, with actually a double-digit Animal Nutrition, which really shows where the main pain is coming from, as we said. Probably from an H2 point of view, we probably are gonna be looking at slightly negative organic growth, maybe flat. It really depends on the Animal Nutrition developments in the second half. That's how I can help in terms of top-line organic.
That's helpful. Thank you for taking my question.
You're welcome. I see Dave has appeared on the screen, which is usually-
I think we are approaching the hour now, I think that concludes the Q&A session here. Thank you, Géraldine. Thank you, Dimitri. Thank you all, by the way, for attending today's call. It was a short notice, we realize, therefore, the more appreciated. That means we conclude now the webcast. If you have any further questions, as usual, please do not hesitate to reach out to the investor relations team. With that, I hand back to the operator.