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Edited Transcript of DSM.AS earnings conference call or presentation 2-May-17 7:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Koninklijke DSM NV Earnings Call

Heerlen May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Koninklijke DSM NV earnings conference call or presentation Tuesday, May 2, 2017 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dave Huizing

Koninklijke DSM N.V. - VP of IR

* Geraldine Matchett

Koninklijke DSM N.V. - CFO and Member of the Managing Board

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Conference Call Participants

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* Andrew Benson

Citigroup Inc, Research Division - MD

* Andrew Gregory Stott

UBS Investment Bank, Research Division - MD and Research Analyst

* Jeffrey Michael Schnell

Jefferies LLC, Research Division - Equity Associate

* Laura Lopez Pineda

Baader-Helvea Equity Research - Analyst

* Martin Roediger

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Mutlu Gundogan

ABN AMRO Bank N.V., Research Division - Analyst

* Neil Christopher Tyler

Redburn (Europe) Limited, Research Division - Research Analyst

* Patrick Gerard Jean Lambert

Raymond James Euro Equities - Research Analyst

* Paul Richard Walsh

Morgan Stanley, Research Division - MD

* Sebastian Christian August Bray

Berenberg, Research Division - Analyst

* Stephanie Bothwell

BofA Merrill Lynch, Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to DSM’s Conference Call on the Q1 Results of 2017. (Operator Instructions) Now I would like to turn the call over to Mr. Huizing. Please go ahead.

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Dave Huizing, Koninklijke DSM N.V. - VP of IR [2]

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Ladies and gentlemen, good morning, and welcome to this 45-minute conference call on the first quarter results, which we published earlier this morning. I'm sitting here with Mrs. Geraldine Matchett, Chief Financial Officer and member of the DSM Managing Board; And Mr. Jos Heij, Senior Vice President, Group Controller. They will elaborate on the results and, after that answer your questions. As a reminder, I'm obliged to remind you that today's presentation may contain forward-looking statements. In that regard, I would like to direct you to the disclaimers about forward-looking statements as published in the press release. With that being said, I hand over to Geraldine. Please go ahead.

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [3]

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Thank you, Dave. Good morning, ladies and gentlemen, and welcome to this call on DSM's Q1 2017 results. Before we get started with the Q&A session, I would like to walk you through some of the key slides on our investor presentation that we published this morning, together with the press release. And you can find both either on our website or on our investor relation app.

Now let me start with the highlights on Slide 2. As you can see from this page, we've had a very good start to the year. All businesses delivered strong growth resulting in an adjusted EBITDA increase of 17% to EUR 345 million and an improved ROCE of 11.3%. This was achieved on the back of the Nutrition business continuing to deliver on its growth ambitions and the Materials business demonstrating, once again, the success of its focus on specialties.

Given our continued focus on driving financial performance, I'm pleased to also report that cash from operating activities was up 43% to EUR 196 million, and that the net profit increased significantly, up 75%. In parallel, we continue to manage the business for the longer term by pursuing innovation-driven growth.

Finally, regarding the outlook for 2017, despite the current global socioeconomic volatility, we are confident that we will be able to deliver against the full year objective, given our focus on our growth initiatives and our extensive profit improvement program, thereby, maintaining our outlook as stated. DSM aims to deliver high single-digit percentage adjusted EBITDA growth and a high double-digit basis point ROCE growth, in line with our target set out in the Strategy 2018.

Now moving to a few specific comments. Let's go to Slide 8 for Nutrition. As you can see, Nutrition continued to deliver on its growth ambitions. Sales increased 12% driven predominantly by organic growth with both animal and human nutrition showing good volume progression. Although, it has to be said that it was partly helped by the timing of orders, which I will come back on in a second.

The adjusted EBITDA for Nutrition was up 14%, resulting from its good organic growth, our profit improvement programs, as well as foreign exchange, with the positive effect coming from stronger U.S. dollar and Brazilian real, partly offset by the stronger Swiss franc. The margin increased to 18.4% for the quarter.

Now moving specifically to Animal Nutrition, let's go to Page 9. Animal Nutrition sales were up 18% this quarter, driven by an organic growth of 12%. Overall market conditions were robust and most regions contributed to the good volume growth. In addition, prices were up in several vitamins and premixes. Regarding the volume growth, I would like to highlight here that Latin America, where markets remained weak, we benefited nonetheless from low comparable reporting periods versus Q1 2016, when volumes were impacted by the prebuying in Q4 2015. Normalized for this effect, the volume growth for the quarter would have been around 4% to 5%. Also regarding Latin America, it's worth mentioning that the Brazilian meat scandal, which started mid-March did not impact the results in the first quarter but will have some effects in Q2.

Now moving to Page 10 on Human Nutrition. As indicated in this graph, Human Nutrition retained a positive growth momentum. It has regained over several quarters, posting revenues up 10% compared to Q1 2016. This positive momentum came predominantly from 7% volume growth supported by a favorable foreign exchange effect. In Q1, volume growth was partly helped by additional vitamin C sales that could not be delivered in Q4 2016, following our maintenance shutdown. Normalized for this effect, volume growth for the quarter would have been around 5%, which remains very good.

Finally, we saw in the quarter slightly lower prices on average, mainly related to the lower contractual prices in infant nutrition and product mix.

Now for our Materials business, let's move to Page 12. Our Materials business demonstrated again this quarter the success of its focus on specialties, reporting an exceptionally high volume growth of 11%. This growth was driven by strong demand in specialty materials and our resins, engineering plastics and Dyneema businesses, as well as some stocking effect in part of the value chain. Please, let me also remind you that this quarter, we benefited from low comparison figures in Q1 2016, where we had a weaker growth but nonetheless, Q1 remains a good quarter. The pricing development of 3% relates mainly to the higher input costs, although these higher input costs were only partially reflected in our customer price during the quarter. This strong organic growth of 14%, combined with a slightly positive foreign-exchange effect resulted in an adjusted EBITDA, up 19% versus Q1 2016, and an adjusted EBITDA margin of 16.1%.

Now moving briefly to our cash generation, let's turn to Page 17. Our continued focus on improving our financial performance resulted in another good quarter, with our operating cash flow improving to EUR 196 million, up 43%. Average total working capital as a percentage of sales increased somewhat to 19% compared to Q1 2016, mainly driven by lower average nonoperating liabilities. If we look at the operating working capital, it continued to progress in the right direction at 20% -- 24.0% per year sales compared to 24.4% in Q1 2016. And with this, I would like to open the floor for questions. Operator?

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Questions and Answers

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Operator [1]

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First question, Neil Tyler from Redburn.

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Neil Christopher Tyler, Redburn (Europe) Limited, Research Division - Research Analyst [2]

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A couple of quick questions on the cash flow, please, and then 1 on Human Nutrition. Firstly, the M&A that is booked through the cash flow in the first quarter. The only acquisition, I can find mentioned of in your press releases is of Sunshine Technology in February. Is that the amount that relates to that, first question? Second one, can you remind me what the impact you anticipate this year of the FX hedging unwind in the cash flow? And the third question on Human Nutrition, volume trends and infant nutrition, it doesn't seem to be that the disruption, channel disruption in that market has impacted your volumes there. But I'm wondering if you could give us a quick update on what you're seeing or what your thoughts around that?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [3]

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Neil, thank you for your questions. Now indeed in our cash flow, you see there an outflow on acquisitions of EUR 45 million, if I'm not mistaken. Now, it's actually the combination of 3 pieces. There is indeed the solar acquisition, so we acquired a technology platform. And you'll see in the notes at the very back of the press release, all the details about that, but that's only a portion, '17, '18. We also in the period, acquired a probiotic set of brands, it's linked to our i-Health business, and it comes to complement our B2C, so that's another transaction that we did. And finally, we increased our shareholding in Japan, Sinochem chemical, which is in our resins business, that was about EUR 10 million. So that's how it's made up the EUR 45 million. But if you want to see the details on Sunshine, it's actually at the back of the press release in the notes to the financial statement. So that's to the question on acquisition outflows.

Now in terms of the FX, for the period, what we are seeing is overall, from the balance sheet point of view, based on the big unwinding, so the FX benefit this quarter was somewhat above EUR 10 million, primarily, U.S. dollar and Brazilian real being stronger, being helpful, but as you know, also netted off by the strong Swiss franc. Now what we are doing is we normally hedged -- we haven't changed our hedging policy, so the usual sensitivities apply around that. So if I take today's exchange rates, and we look at what it could look for the full year, we will be looking at maybe a positive of EUR 20 million to EUR 25 million. But I would here really, highlight the fact that we're seeing a lot of volatility on currencies, so difficult to really pin down that number.

And then on Human Nutrition and what we're seeing is pretty much a good quarter across the board. And in terms of food and beverage, we saw quite a robust set of sales there. Premix is definitely doing well on dietary supplements. In North America, in particularly, we're seeing there, that's a bit of an uptick which is nice to see, as you know this is an area that's -- we have had a little bit of trouble at times, but we're seeing multivitamins, but also omega-3 doing better so that is good. i-Health continues to be strong in dietary supplements. So the only area that I would say is stable, is infant nutrition on the quarter, it's not bad but it's stable rather than up. But I'm not sure I fully got your question on H&H, so I hope this addresses your question.

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Neil Christopher Tyler, Redburn (Europe) Limited, Research Division - Research Analyst [4]

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No, that's fine. Sorry, I might not have been clear, I was specifically asking about the infant nutrition business and the previous couple of updates you've mentioned or referred to the comments made by your customers about channel disruptions in volumes there. And I wondered if any of that has fed through yet, and you've mentioned that, that's still stable.

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [5]

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That is stable, indeed. And yes, to your point, what we were commenting in prior quarters is, the change in regulations in China, that will be effective from January 2018. Now that will lead to a bit of a rationalization of the play as an offset. We think it's overall, a good thing for this sector but could do indeed a bit of disruption in terms of the players that may not be able to stay in for example, selling off some of their stock. At that stage, we're not -- at this stage, we're not really seeing much of that happening but it could still be the case.

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Operator [6]

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Next question, Mutlu Gundogan from ABN AMRO.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [7]

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Three questions. First, on Materials, very high volume growth at 11%. Do you know what part of that was restocking, and when do you expect that to normalize? And the second question is on your guidance. Obviously, your EBITDA is up significantly in the first quarter, up 17% year-on-year. But you still continue to guide for high single-digit growth? Can you tell us what is driving that conservatism, so to say, in your guidance? And then thirdly, on the associates. Just wondering why you haven't sold down your stake in Patheon?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [8]

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Okay. Good morning, Mutlu. So indeed, 11% volume growth in Materials is clearly on the high side and we even term that as exceptionally high. Now it's a combination of good dynamics on our specialties, which is great but as well, the easy comps. And the third element is that, we believe there is some restocking in parts of the value chain. Now the problem with that is it's famously difficult to actually quantify exactly how much that is, so it's very difficult to give a normalized version. Now having said that, if you look back at our run rate for our businesses in the last few quarters, we are more on the growth trend of around 5%.

So what we would expect is that we will trend back towards this type of volume growth, so I would certainly not extrapolate 11% going forward. But yes, the restocking is a difficult one to quantify on its own.

Now when it comes to the outlook, I fully agree, a good start to the year. But as I try to put in my opening comments, we are aware that in Q1, we have very much a favorable situation in terms of the comps. We also know that in terms of the vitamin prices, we've had an overall benefit for the quarter, which we don't expect to continue through the year and therefore, we have to remain cautious.

So at this stage, good quarter, first quarter, but let's see how it unwinds. Clearly, the comps will become harder as we go through the year, so it's really too early to address the outlook. And in terms of the associates, now as we said very clearly, the direction is that we want to monetize on the associates, but it's very clear that we are more interested in value than in the speed at which we get that done. So for us, we will continue to be looking towards doing that. And in particular, of course, Patheon, post our IPO, last year. But our ambition is very much to get the most value, and we're very confident and very positive about this business. So we will see when is the best time to monetize.

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Operator [9]

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Next question, Sebastian Bray from Berenberg.

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Sebastian Christian August Bray, Berenberg, Research Division - Analyst [10]

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I would have 2 or 3, please. First, just getting back to the question on guidance upgrades, so just basically staying the same at this stage. Could you please let us know if there are any facility maintenance or shutdowns with an impact beyond the about EUR 15 million, that you had last year coming in H2 of this year? Could you also please, give an overview of the drivers for about 5% underlying volume growth into Nutrition. Is this what you expect from the sort of market going forward, has the U.S. improved to this extent? And finally, could you give me a quick reminder on what your guidance is for profitability and innovation center? And to what extent do you expect the EBITDA in this area to improve in the coming quarters?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [11]

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Sebastian, thank you for your questions. Indeed, so as answered previously on the outlook, and so your question is specifically on shutdowns in H2. To my knowledge, there is nothing particularly sizable that we are forecasting for the year, but I would maybe take a check on that one. Of course, this is part of our business -- on running the business. I would have to check with the ops people, whether there's something worth mentioning. Having said that, it would not impact our full year guidance. If you are trying to look at your phasing then, I would need to double check.

Now as you know, we don't run the company quarter-by-quarter, so for us, the outlook remains unchanged. Now H&H indeed normalized, so as I mentioned in my opening comments, there's a bit of a timing difference on the vitamin C sales this quarter. So normalized, we're looking more at 5%. Now as you know, the underlying market growth in our H&H business is really 2% to 3%, and we aim to grow above that, so 3% to 4%. So at 5%, we are very happy with that level of growth. Now as I mentioned earlier, there are several parts that are doing well, so food and beverage has done well, which is great. We've seen dietary supplements a bit firmer, particularly, in North America, which is helpful and infant, which is stable and solid. So we would see a positive -- we expect a positive volume growth to be supporting our outlook at delivering on our targets for this year. And then on innovation, last year, we were breakeven on innovation. This year, we expect to do somewhat better, and we'll see how that develops throughout the year, but we should be doing a bit better than in 2016.

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Operator [12]

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Next question, Stephanie Bothwell, Bank of America.

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Stephanie Bothwell, BofA Merrill Lynch, Research Division - VP [13]

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I just had a couple of questions, some of them follow-ups. So firstly, on your animal nutrition business, you said in your opening remarks, that the Brazil meat scandal will have some impact on Q2. Are you able to help us quantify that? And what impact would be in the second quarter? And my second question is just going back to Neil's, on the CapEx guidance. So for the full year, you've guided to up to EUR 550 million in CapEx. Can you help us think about what the additional add-on should be from acquisitions or M&A for the course of the fiscal year? And my final question was just on the Materials and volume growth that you've seen. You commented on the restocking impact that you've seen over the course of the quarter. Are you able to give us a sense of where you think the customer inventories are currently tracking? Do you think that inventories are currently elevated here, or on a more normalized level?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [14]

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Stephanie, so yes, indeed, animal nutrition, Brazil, and so as you probably followed, this was -- the meat scandal started in mid-March and therefore, didn't have much an impact on our Q1 results. Now what -- we are watching it, of course, carefully. It's such an important part of the Brazilian economy, that of course, we reacted very fast. But we do believe that there will be some impact, particularly for us on the beef, on the ruminants business because we are pretty concentrated on Latin America. And in terms of quantification, although it is very difficult to estimate, depending on how quickly they respond, et cetera, we're thinking at this point about 3% of animal sales, so we're looking at top line impact of maybe EUR 20 million at this stage. Now it's probably worth mentioning here that when it comes to the poultry part, we have the benefit of having a very global footprint when it comes to poultry. And what we tend to see is when 1 region has an issue, it gets offset by the other markets growth being higher. So on the poultry side, we'd probably would be overall okay, but ruminants is the area that we are keeping a tight look at, so that's Brazil.

Now in terms of our guidance, indeed, we've been guiding to a CapEx of EUR 500 million to EUR 550 million. Now you have noticed in our cash flow that we have EUR 130 million outflow in the quarter, that is actually a combination of additions in the quarter, plus some payments on creditors during the quarter, so it's a little bit on the high side. But the guidance still seems appropriate for this year, remembering that last year we were at EUR 475 million, which was a little bit lower, and hence this cut-off effect on the first quarter. And of course, on acquisition, we never guide on outflow there, and there's nothing to be signaled at this stage. Now when it comes to Materials on the stocking effect, it is extremely difficult to really either quantify the impact for us, or really give any comments on the level of inventories within our clients' various value chains. We just believe that part of the 11% volume growth has to do with stocking, but we really can't provide more granularity on that.

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Operator [15]

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Next question, Andrew Stott from UBS.

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Andrew Gregory Stott, UBS Investment Bank, Research Division - MD and Research Analyst [16]

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Just a question on ChemicaInvest. I mean, I realized it's not a big part of your P&L today but I'm thinking about the ultimately, the exact valuation here. If I'm actually right, your EBITDA was up 135%, I think, incrementally that's about EUR 25 million. But the net income you booked for that 35% equity stake is only up EUR 3 million. So can you just walk me through why, please?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [17]

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Yes. Andrew, indeed, it's good not to forget our other associates and of course, there's a lot of focus on Patheon, Chemica is a big business. So maybe the first comment I would make is that, it has had a much better quarter, first quarter. We are seeing caprolactam prices coming up, particularly in Asia but the supply and demand equation is still quite tricky, so we'll have to see whether that maintains itself. Now the difference between the table where we show the sales in the adjusted EBITDA margin versus our net income, our share of net profits, the difference there is that the company had cumulative losses, and therefore, we did not recognize our share of these net profits until the cumulative losses have been absorbed. Now if I were to put that aside, we would, for the quarter, have recognized about EUR 2 million net income from Chemica, so hopefully that helps you bridge between the operational results and what we recognize in our consolidated numbers.

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Andrew Gregory Stott, UBS Investment Bank, Research Division - MD and Research Analyst [18]

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Yes, that's great. And can I follow-up with a separate question, please? We've had sort of various discussions about the famous calendar impact in Q1. Now you stated 5% underlying, excluding -- sorry that's in animal -- human, obviously excluding the issues you've referred to. Does that include your estimate of a calendar impact? Or do we need to think of that on top of that?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [19]

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No, no. That includes. So hopefully, that the text in the press releases is sufficiently -- we try to normalize for you, the cutoff. As you know, we don't drive the business on a quarterly but in any quarter you can have some ups and downs. So what we're seeing is that, for instance on vitamin C in Human Nutrition, as you remember, we had to shutdown, so we were not able to deliver in Q4, some of the sales, they came in Q1. But the 5% normalized taxes normalizes these calendar cutoffs.

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Operator [20]

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Next question, Laura Lopez Pineda, Baader Bank.

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Laura Lopez Pineda, Baader-Helvea Equity Research - Analyst [21]

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I had 2 questions from my side. Your Materials business reported that higher input costs were only partially reflected in customer pricing. So does that mean that we can expect higher margins in the second quarter compared to this one and -- or year-over-year? And maybe more looking into the future, how is your stevia projects going on? And when can we expect commercial production to start or more information about it?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [22]

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Thank you, Laura. Thanks for your questions. Yes, indeed, in terms of the lower input costs, it's all about the timing between the input costs coming up and our ability to push it through in pricing. Now we have been able to push the prices up but not getting the full benefit over the full quarter. And so what we would see is an advantage going forward on the margin and really, our guidance around that is that we estimate that we should have overall for the year, a margin for our Materials businesses between 16% and 17%. So that's the trajectory, and it's always a bit of a timing between how fast the input costs come up and how fast we get the benefit of our price adjustments.

Now in terms of Stevia, we're making good progress. We've been in conversation with potential clients, there's a lot of testing going on. And of course, we will communicate more broadly at the proper time. Our estimates for commercialization remain to be broadly 2018, but we will be more specific at the right point in time.

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Operator [23]

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Your next question, Laurence Alexander of Jefferies.

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Jeffrey Michael Schnell, Jefferies LLC, Research Division - Equity Associate [24]

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This is Jeff Schnell, on for Laurence. If I understood properly, you mentioned nutrition pricing with the client in the back half of the year. Can you elaborate a little on the trend or the dynamic on the (inaudible) business?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [25]

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Okay. So here, what I was trying to refer to is the overall benefit from, if I take it in aggregate, in a favorable pricing environment that we had around vitamins. And so this quarter, we got the carryover in our contract of the higher pricing environment last year, and that gave us the benefit somewhat above EUR 10 million for the quarter. Now we're also very aware, that as we go through the year, this will go the other way. So in Q2, we may get a slight positive, possibly neutral. And then in the second half of the year, are probably more of the negative. So on the full year, we're looking probably at something like a wash, a bit of a neutral effect. And that's really what I was referring to, and that is driven primarily, by vitamin E.

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Operator [26]

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Next question, Patrick Lambert, Raymond James.

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Patrick Gerard Jean Lambert, Raymond James Euro Equities - Research Analyst [27]

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A few question on my side. First, the 7% volume growth in Nutrition as a whole, human and animals. Could you comment on the rest of the business that has been pretty flat-ish, personal care and food specialties? A bit of color on these model businesses in Nutrition. Second question, the 5% price increases in animal -- again, I understand that actually means that seems pretty high when I look at all the ingredients of premix. If you could comment a bit on this trend for the cycle since price, that would be helpful. And third question, very brief. I think on the cash flow statement, we're still expecting -- are you still expecting EUR 150 million impact from the swaps? And when -- can you give a more precise view on when you're going to have to take that out? And finally, on the restock trend program, I think on Bloomberg, you quoted to have added EUR 18 million, cost savings in '17. Is that in Q1 '17 on the run rate or for the full year, that seems pretty low for the full year?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [28]

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Okay. Yes, so let me take them in the same order as you placed your questions. So firstly, the volume developments in Nutrition. Indeed, if you look at the total Nutrition, we are at 5%. Now in there, we've got Food Specialties, it had a good quarter in enzymes and cultures and in savory are actually a good development in Food Specialties. The one area that did have a weaker quarter was hydrochloride. As you remember, they had a very good run last year, and we just had a slower start to the year, this year. And also, the contract manufacturing was lower, and this is really the reason why also last year, we wanted to provide a better clarity in terms of on the different pieces of our Nutrition business. So maybe there, I would refer you back to our full year press release, but that's really the other pieces of the equation.

Now when it comes to the 5% pricing on animal nutrition, and it is, of course, a complicated picture because we have lots of different ingredients in there and vitamins are one of them. We highlight that both in terms of premix and ingredients, the mix is now resulting in the 5%. That isn't a lot more than I can provide you there, and we definitely don't want to go into all the different bits and pieces that make this up but we are fully -- what we are flagging, is let's be careful because as we go through the year, the comparatives will be tougher due to the overall pricing environment on vitamins.

Now for derivatives, that is absolutely correct. So as you know, we have about EUR 170 million of derivatives on the balance sheet, of which about EUR 150 million will crystallize in the second half of the year. This is a combination of hedges, more long-term position hedges on our inter-company loan positions and some net investment hedging, and that will come out in the second half. So the number hasn't changed much, but it is very much driven by the foreign exchange developments, and I have to say I'm seeing the market being quite volatile there.

And fourthly, the programs, indeed, I referred to the EUR 80 million, but that should be no surprise. If you remember, our improvement program at the end of last year, cumulatively had locked in a EUR 110 million of growth savings versus the baseline 2014. Now this year, we need to continue, and that's actually a very important part of 2017, is to anchor those changes and finish off, and really push through these savings and that will add another EUR 80 million but that is entirely in line with what we were showing in our full year press release.

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Patrick Gerard Jean Lambert, Raymond James Euro Equities - Research Analyst [29]

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So it is EUR 80 million, 8-0, right?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [30]

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8-0 yes, yes 8-0.

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Patrick Gerard Jean Lambert, Raymond James Euro Equities - Research Analyst [31]

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Because on Bloomberg, it's EUR 18 million, 1-8.

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [32]

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Then it was definitely misquoted. At EUR 18 million, we'd definitely be on the low side.

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Operator [33]

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Next question, Martin Roediger of Kepler Cheuvreux.

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Martin Roediger, Kepler Cheuvreux, Research Division - Equity Research Analyst [34]

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Just 2 left. On Materials, just a follow-up here. How did the demand evolve in April? And what is your perception of order intake for May in your Materials segment? And the second is on the vitamin C demand within Human Nutrition, and why you have not been able to deliver sufficient volumes in Q4 and do make good for that in Q1? What was the main driver for this demand in vitamin C? Is it a difference in terms of regions? Is China, more active here in demand in contrast for example, to Europe, or is it difference in terms of the end markets, food and beverage versus pharmaceuticals? Maybe you can elaborate here where the demand is coming from?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [35]

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Martin, thanks for those questions. So as you know, it's always unwise to comment on the next quarter rather than Q1, but in short, I can say that we're not seeing any big change in pattern in April, versus what we had in Q1, so that's really as much as I can say there on your first question.

And for vitamin C, I mean, hopefully, I was clear there. It's not actually a demand shift, it's just the supply, so if you recall, we had a longer shutdown last year. We combined it to do a number of maintenance, et cetera. And as a result we just basically -- we're not able to physically deliver on the normal sort of sales patterns, so it's more of a cut-off than a shift in demand. So there's nothing more there, really.

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Operator [36]

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Next question, Andrew Benson of Citi.

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Andrew Benson, Citigroup Inc, Research Division - MD [37]

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Although, most of my questions have been asked. In the associates, can you give us how your sort full year guidance, you've got -- when you split up the associates, you also include them in others line. Perhaps, a little bit of clarity, and help on the associates, will be great. In a way, can you talk about price mix impact? And perhaps, if you could just clarify that a bit. And is there any updates on Green Ocean?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [38]

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Andrew, I'm just joking, damn, Green Ocean. And so maybe I'll start actually with Green Ocean, because this was indeed a nice announcement to be able to put forward during the first quarter. So as you know, this is our joint project with Evonik, so the announcement went out that we're going ahead and building the plant, so that's about EUR 200 million CapEx together. So then it will be a 50%/50% split of that, and that will be over 3 years. So it was a big milestone, and of course, it was confirming to the end market that we are going ahead and we'll be providing this to the agriculture industry. So all good there and very well received, I have to say, as far as the investments, so that is great.

Now in terms of our innovation there, the developments are, as you know, we have different pieces in there. What you're probably referring to is the fact that we have a negative price mix in the top line development of our Innovation Center, that is actually a biomedical where we have lost some sales with a big client, primarily it was a pricing adjustment and we are working our way through that. Now the good news is that the rest of the business is doing very well and that we will be seeing a positive development in the following quarters this year, so that's really, that piece.

And then the question on associates, of course, it's very difficult to give any guidance. As you know, in there, we've got a lot of partners, and we can't really provide a firm guidance on the overall associates figure.

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Andrew Benson, Citigroup Inc, Research Division - MD [39]

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And just only -- there's a -- probably on loan handling, not very good. And you've split it all up and you've got a little sort of loss in the other associates. And I was just wondering what that represented, and if that was a one-off, or something more sustainable?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [40]

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Yes. Well, there's all sorts of different pieces in there. You know we're involved in a number of other joint activities. Of course, below 50%, otherwise, they wouldn't be associates. And in there, there's quite a list of them, so it's quite fragmented. It's not something in particular that I can pinpoint. I've got the list in front of me and that's probably 10 different items, so really nothing that's worthy of individually being mentioned.

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Operator [41]

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Next question Paul Walsh, Morgan Stanley.

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Paul Richard Walsh, Morgan Stanley, Research Division - MD [42]

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Just some questions around Materials, please. Can you just let us know how much specialties is now as a percentage of the Materials business and to the extent which that is growing above the segment average, it sounds like it's doing very well? And also, can you just elaborate a little bit more in terms of volume growth in Materials? Is it primarily autos, or is it sort of more peripheral base in that? And geographically, is it China going gangbusters or again, is it a bit more broader than that?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [43]

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Paul, yes, absolutely. I mean, mainly foresee will be underlying markets. What we're seeing is, it's pretty much a robust situation in Europe. Automotive, we were wondering how the year was going to pan out, but what we're seeing particularly, in Europe and North America, that it's holding up nicely. China does have the local incentives, so that is also okay, so also firm. What we're seeing clearly is construction -- building and construction in Europe. There, we're seeing an uptick, and another big driver for us, as you know, is actually the enforcement of raw material regulations in China that is continuing to support the transition from salt-end base to water borne, a very important strong momentum there in our resins business. So if you combine that with actually Dyneema, benefiting from, of course, strong demands in law enforcement, lifesaving, that is doing well as well. Actually, also a bit of an uptick in marine, which is interesting -- commercial marine. We are really seeing that all our specialty components of the Materials businesses are doing well. Now the percentage of specialties, I would have to look actually, how to carve it out, and give you a number around that. But one thing is clear, the growth is really coming from that part of the portfolio, which is of course, helping us drive the bottom line as well.

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Dave Huizing, Koninklijke DSM N.V. - VP of IR [44]

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Okay. We're running out of time. So one last question and then we've to close off this call. So we have the last question.

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Operator [45]

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Last question comes from [Gordon Shanklin] of (inaudible).

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Unidentified Analyst, [46]

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So I've got a couple. Firstly, on the calendar effect, you mentioned on the timing of the orders in Animal and in Human Nutrition. Can you also, specifically, say if you've seen an Easter effect, in terms of working days because of the shift where we had Easter this year versus last year? And if so, if you could quantify that? And the second one, following-up on the innovation price mix effect, and just to clarify, you said there was a loss of sales from big client, that when we see that on the volume line? Or is that something where you cut your prices and you kept that contract?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [47]

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Yes, sure. Two clarifications. Yes, I've seen a number of comments coming through on other earnings reports on Easter cutoff. I have to say, while it's true that it does shift back couple of days, et cetera, for us, given our international footprint, I can't say that it has on overwhelming effect, so we didn't spell it out here. And in terms of bio-medical, it's actually a combination. So it's partly down in terms of volume of sales but also big price adjustment. So you're actually seeing that it's a little bit both. So in fact, the underlying volume growth of the rest of the business is stronger than what we're showing here, but the main pricing effect is coming from that 1 client. And that's what I was trying to clarify.

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Dave Huizing, Koninklijke DSM N.V. - VP of IR [48]

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Okay. That's it then for the Q&A. Geraldine, do you want to make some closing remarks?

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Geraldine Matchett, Koninklijke DSM N.V. - CFO and Member of the Managing Board [49]

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Yes, thanks, Dave. Well, first of all, thank you, for your time as usual. I think, in short, as you can see Q1, it's been a very good start of the year and pretty much all of our businesses with good growth overall. We remain fully focused on executing the strategy and our improvement programs and with that, are confident to deliver our full year guidance. Now finally, I would like to use this opportunity to highlight that we will have an investor seminar in 2017, in Rotterdam, and I point you to our Slide 20, where you can see there the heads-up slide, and we hope to see most of you there. And with that, Dave, I hand over to you.

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Dave Huizing, Koninklijke DSM N.V. - VP of IR [50]

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Thank you, Geraldine. This concludes our conference call for today. Thank you, very much for your attention and your questions. If you have any further questions or need background information, please feel free to contact us. With that, I now hand the call back to the operator. Operator?

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Operator [51]

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Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you.