DSM-Firmenich AG (DSFIR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to DSM's conference call on the first half year results of 2020. [Operator Instructions] Now I would like to turn the call over to Mr. Huizing. Please go ahead.

Thank you, operator. Good morning and welcome to the conference call on our first half 2020 results. I'm joined on this call by our Co-CEOs, Geraldine Matchett and Dimitri de Vreeze. Geraldine will give a short introduction, after which we will open the line for questions. As always, I need to caution you that today's conference call may contain forward-looking statements. You can find the disclaimers about forward-looking statements published in the press release on our website. And with that, I hand over to Geraldine.

Thank you, Dave, and good morning, everyone, and welcome to this call on DSM's first half result 2020. I truly hope that you and your loved ones have managed to stay safe during these testing times. I have to say that we continue to be amazed by the resourcefulness and determination not only of our people but also of our partners and customers. Together, we seem to be able to find new ways of working in order to keep our activities going, while at the same time, keeping everyone safe and healthy. In addition, within DSM, we have deliberately kept a strong focus on our long-term ability to deliver on our purpose-led and performance-driven strategy, seeking the right balance between short-term measures and continuing to build on our relevance for the future. This is visible, amongst others, in the decision to go ahead with the Erber acquisition in Q2, which strengthens our long-term growth platform in Specialty Animal Nutrition and enhances our diagnostic capabilities. It is also visible in material where we have accelerated our existing profit improvement initiatives without hindering our readiness to serve our customers when the recovery starts. This being said, let me turn now to our H1 results and start with the financial highlights on Page 3. We are pleased to report a solid H1, especially given the extraordinary market dynamics, with an adjusted EBITDA slightly down on flat sales and a strong cash generation, up 33% year-to-date. Nutrition delivered a good performance with sales up 6% and the adjusted EBITDA up 5%, driven by solid underlying performance. Spikes in demand is driven by COVID-19 did take place during the 6-month period, but with only a slightly positive overall effect. The first half was, of course, more challenging for materials, with volumes down 14% compared to prior year and an adjusted EBITDA down 28%. Customer operations and end-user demand deteriorated rapidly at the end of Q1, owing to COVID-19 with demand weakness persisting throughout Q2. Now turning more specifically to the Q2 highlights. Let's go to Page 4. The market conditions during the second quarter developed broadly in line with the expectations as communicated during our Q1 earnings call. We have seen continued solid business conditions in Nutrition for Q2, resulting in a 9% organic sales growth and 8% adjusted EBITDA growth, this time led by Human Nutrition, while Animal Nutrition drove the Q1 performance. Materials saw volumes down 21% with a gradually improving momentum towards the end of the quarter. Market conditions impacted, in particular, our specialty portfolio, exacerbating the translation from volume to EBITDA. To counter these developments, Materials undertook measures to minimize operating costs and cash outflows. And as part of a wider restructuring initiative to improve performance, we'll implement a next phase of measures during the second half of the year. I'll expand on this a bit later, but let me give you first the update on Nutrition, starting on Page 9. Overall, Nutrition delivered a healthy organic sales growth, up 5%, driven by higher volumes predominantly in Animal Nutrition in the first quarter and in Human Nutrition in the second quarter and supported by an estimated overall slight increase in sales related to COVID-19. The adjusted EBITDA increase of 5% and adjusted EBITDA margin remained stable at 21% versus last year. The first half results were enhanced by 2 recent acquisitions, which accelerates our growth strategy, firmly focused on further building [ out ] DSM's Specialty Nutrition & Health business, offering advanced and differentiated solution. First, CSK, which brings taste, texture and biopreservation solutions in semi-hard cheeses, strengthening DSM's food and beverage offering. Secondly, Glycom, the only fully integrated GMO supplier in the world, strengthening our innovation solutions in Early Life Nutrition and with interesting developments in the areas of Medical Nutrition and Pet Food. And finally, in June, we announced the acquisition of Erber Group, expected to close in Q4. With this acquisition, DSM will gain market leadership in mycotoxin prevention, increase its strong market position in animal gut health solution, add to its premix facilities and add diagnostics and testing capabilities. Now let's move to Page 12 for Animal Nutrition. In the first 6 months, Animal Nutrition delivered a good 10% organic growth, with a 7% volume increase, partly driven by COVID-19 relating stocking effects. The first half was, however, characterized by 2 very different quarters. Q1 was fueled by accelerated purchasing by feed producers, anticipating supply disruptions caused by COVID-19, together with a beneficial shift to protein seen as easy to prepare for home cooking being poultry and eggs. The second quarter saw some destocking, slightly earlier than anticipated, especially in geography where lockdowns began to ease, leading to a more modest volume performance. The second quarter also saw a strong 7% price effect, although this was owed mainly to the pricing of pass-through ingredients and FX-related price increases in Brazil. Overall, conditions remain solid with shifts within geographies, species and channels playing to our broad portfolio and global footprint. Additionally, the effect of the African swine fever continues to unwind in China with DSM benefiting from the growth in professional swine production, although this was offset partly by new outbreaks in Vietnam and the Philippines. Now moving to Human Nutrition. Let's go to Page 14. As with Animal Nutrition, Human Nutrition & Health was also characterized by very different quarters, resulting in an overall solid first half with 2% organic sales growth, driven by volumes. At the end of a soft Q1, pantry loading effects caused our customers to replenish their supply chain, and therefore, a strong demand through April and May for food and beverage and Early Life Nutrition. In addition, the pandemic reinforced consumer attention to health and nutrition solution, reflected in a continued strong demand in dietary supplements. These market developments resulted in an 11% organic growth in Q2, with volumes up 13%, including the positive impact linked to COVID-19. By June, demand began to normalize with pantry unloading from households, but with demand levels for dietary supplements remaining higher than in 2019. Finally, our other nutrition businesses saw an overall slightly negative effect from COVID-19, as we show in more detail on Page 15. Now moving to Materials on Page 17. Overall, the first half of the year saw a 14% decline in volumes with a 28% fall in EBITDA. Clearly, COVID-19 has significantly impacted our customers' operations and end-user demand, and in particular, our specialty businesses in high-performance plastics, Dyneema and [ foam ]. Nevertheless, the long-term trends that drive our business, in particular, our high-quality specialty businesses, remain in place, and we also see some signs of recovery, although the timing and shape of that recovery remain very uncertain. As mentioned earlier, to counter near-term conditions, we initiated strict cost control measures and minimize cash outflows in the first half. In the second half, we are implementing new actions as part of a wider set of restructuring initiatives aimed at improving business performance, which will deliver annualized recurring cost savings of EUR 25 million to EUR 30 million. With our balanced approach, we will not undertake reactive measures that compromise the growth potential of our business. But should we see persisting market issues in specific parts of our businesses, we are ready to take additional actions. Switching to Page 18. During the second quarter, volumes were down 20% to 25% in April and May, in line with our earlier communication with a gradual improvement through the quarter, leading to June volumes down about 15%. Looking at the segments. Engineering materials saw increasing weakness in the global automotive market, partly offset by stronger demand in packaging and medical applications. Resins volumes started to show some signs of recovery by the end of June, with functional materials continued to be affected by 5G investment delays. And protective materials saw orders being deferred as local and national governments focused their efforts on managing the pandemic. These market developments led to a 21% volume decline in the quarter with the full EBITDA impact exacerbated by near-term adverse conditions in our specialty businesses, thus reaching minus 47%. Now moving briefly to our Innovation Center on Page 20. Overall, performance in the Innovation Center remained good in H1, with sales up 4%, supported by biomedical. In Q2, however, we recorded an EUR 83 million impairment on our investments in the Liberty Project following the decision by the POET-DSM joint venture to mothball their second-generation bio-ethanol plant following continued technical challenges and the market deterioration recently. This brings us to the outlook on Page 24. Based on our first half performance and given the continued limited visibility for our materials businesses, we maintain our outlook statement for the full year 2020, in line with our Q1 reporting. And with this, I'd like to open the floor for question and answer.

[Operator Instructions] And the first question is from Mr. Thomas Wrigglesworth of Citi.

Two questions, if I may. Just in terms of the 2% impact that you're calling out, can I read from your comments that that's now expected to completely fade out in the third quarter? I'm just trying to interpret the exit rate comments that you're making. And secondly, are there any updates on some of the innovation pipeline projects that are coming through? Any new color or information that you could share with us there would be very helpful.

Dimitri, do you want to maybe add some color to -- sorry, you were asking about the exit rate for the materials business, I'm assuming.

Yes, more so than you assume.

Yes. Yes.

Okay. There's a bit of background noise, but it could be me. So maybe on the material space. So like we said, we have lack of visibility to give any insight. So therefore, we gave you a bit of background on how it developed over the quarter. And we're now in August, so I can give you a bit of an update on what July brought. But overall, we saw a 20% to 25% reduction in volume in April and May, which was minus 15% in June. Where in July, we do see a 10% to 12% lower volume. So you see some recovery. It's a different story per business segment, obviously. What we basically see is that the automotive remains down throughout quarter 2, and we feel that recovery will take longer. Also because the value chain is a bit long, so it's a complicated value chain. So if there's an abrupt demand fallout, it will take a while even if demand is picking up for that value chain to be up and running. So we expect automotive to be slow in recovery, not only because of demand and the lockdowns but also because of the value chain. On the other hand, if you've seen building and construction, I think, they reported pretty okay improvements throughout quarter 2 because the value chain is shorter. So if demand picks up, you can [indiscernible], and that is basically a differentiation per the end-use segments on material. But I hope you could get a bit of feel throughout the quarter 2 and the July rates on how we developed over the last 4 months.

And on the innovation pipeline, of course, there's a lot to be said. Now we can start -- why should you, Dimitri, do you want to start with some of the more human nutrition-based innovation projects?

Yes, sure. So I think Avansya is one of the key projects in Stevia. So in Avansya, we basically have supported the market with stevia-containing products in the test markets. During the last quarter, we said we will expect feedback in the summer. That's still out there. We do see, however, that some of the targeted customers who are impacted by the lockdowns and then some of the development activities where they basically needed their lab are a bit delayed. But overall, there is still a clear keen interest in our product. Also, the fermentation capacity is scaling up very successfully. So I think it's all good. The only thing is that hopefully, the development and activities with the labs when they are being reopened, we'll go full speed ahead. Then in terms of the human nutrition innovations, I think, you've seen that we've announced our joint venture with a [ drill ] on the plant-based developments, Canola Pro related with great plant-based material, which is not only nice in terms of taste and texturing, but it is also high in nutritional value. And I think that is something which is a unique combination. So just to give a bit of color in addition to what we call the big innovation projects. I think there's a lot ongoing. And obviously, the COVID-19 development in terms of immunity, dietary supplements, probiotics, good health absolutely plays not only during COVID but also post COVID. That is a bit of color, Geraldine.

Yes. And let me then add a couple.

Please wait while the recorder is connected.

Now we're recording. But, that's okay. Please, I'll add a little bit on the more Animal Nutrition side, so -- of Veramaris. What we're seeing is there as well, the production is ramping up quite nicely, so that's okay. And what we're seeing is that, of course, with the COVID situation, there's less eating out. And so the consumption of salmon is a bit down. But interestingly, the number of fish in the water is actually up as a result. So feed consumption is still very much there, and our relevance is very good. So in terms of latest news, what we are -- we have a couple of things that have developed, for example, Auchan, the French retailer is now selling trouts fed with Veramaris. We're also working with one of the leading shrimp producers in the U.S. to develop a vegetarian shrimp i.e. shrimp that doesn't eat fish meal. And we are also hopefully going to be able to announce an additional European retailer distributing Veramaris salmon in addition to Kaufland, Match, and Tesco, which we already had on board. So it's progressing quite nicely. And then on maybe Balancius, which is the gut health enzymes. If you remember, we had launched that in Latin America first. Now in the first quarter, we have launched in Europe. And hopefully, still within this year, we will be able to launch in the APAC region. So that is also progressing nicely. And then when it comes to Clean Cow, the EFSA process is unfortunately a bit long, particularly when it comes to a new ingredient, something quite novel. They have been asking quite a bit of additional clarifying questions and for some additional data. But we remain confident that our filing is of very good quality with over, I think, 35 peer-reviewed studies, and we now look at probably a registration in 2021, given the additional questions being asked. But this is always one of the question marks with how long would the registration process take. And so we're going through it step by step. So that's for highlights of [indiscernible] projects. But of course, there's a lot of other innovations within the portfolio.

Your next question is from Mr. Mutlu Gundogan, ABN AMRO.

The first one is on FX. Can you tell us what the impact of negative currencies was on EBITDA in the second quarter? And what you would expect the full year impact to be, assuming flat exchange rates going forwards? And then secondly is on the POET joint venture, I know, it's just a small part of your investment case, but you explained already why you mothballed the plan. But can you elaborate a little bit and why you still believe you will be able to license out your technology?

Yes. Mutlu, let me take those two. So first, indeed, it's good to remember that in the second quarter, we had about EUR 10 million of FX headwinds. And we have flagged that, and it's predominantly actually related to the Brazilian real that devalued strongly already in Q2. Now we've seen, of course, the foreign exchange change quite a bit in the last two weeks or so, particularly with the U.S. dollar weakening. And as you know, we tend to be long U.S. dollar in materials and in nutrition. So we're probably looking at a headwind with today's exchange rates of between EUR 30 million and EUR 40 million for H2. So unfortunately, not a small headwind from FX at this point. And when it comes to POET, so exactly what I tried to say in the introductory comment is that the impairment is of the Liberty 1 assets which are in the U.S. What we have learnt from this journey is actually a lot in terms of IP on enzymes and yeast. So we have actually proven our technology, which is relevant to first generation 1.5G and 2G, and this is applicable to a number of sources. So unfortunately, we've come to the conclusion that corn stover is actually quite a difficult cellulosic source to manage, because it's so full of grids, amongst others, and that basically has a real physical impact on the processing plant. But the technology from an IP point of view can be very much applied to a sugar king by DASH or rice or straw something more homogeneous. And we currently, of course, have already some licensing income from the 1.5G space. So we will -- we do preserve the IP and the on-site manufacturing technology related to that. But unfortunately, the physical assets in Iowa, we've had to impair.

Your next question is from Mr. Laurence Alexander, Jefferies.

Can you give a sense of scale for what your total -- what you characterize as more specialty businesses within nutrition? How you group that? And also the total sales going into plant-based proteins, I know, that you've put it as a product family. And secondly, can you talk a little bit about trends in working capital and how you can bring working capital down as a percentage of sales?

Sure. Thanks, Laurence. And, Dimitri, do you want to start with the first 2 questions?

Yes. So your question about specialty business, I think, we don't segment our business in this is specialty and this is nonspecialty. As you know, our business model is pretty unique in combining our global product portfolio with an enormous amount of ingredients, I think, unheard of, and we're still working on adding ingredients to it, and then apply that to, in the animal nutrition space, to regions and species and in the human nutrition space to regions and end markets. And that translation capability is creating this differentiation factor. So that is how we segment our business, and we give some transparency on some of the regions and in terms of human nutrition in terms of the end-use markets. So that's how we look at it. So overall, I think in our strategy, we've also indicated that the EBITDA quality for nutrition space is above 20%, and that creates that specialty business. So that adds the background. Then in terms of plant-based, obviously, the plant-based development is relatively new development over the last years. We basically, with our competence, think that we should play a role in that plant-based area, especially in the DSM Food Specialties area, looking at meat alternatives and a dairy alternatives with our yeast extracts with our [ gellins ] and our premix solutions is a great area where we're beefing up the innovation part. And you've also seen that we've announced the joint venture with Avril in terms of Canola Pro. So it is an emerging market. So I wouldn't put any sales turnover figure to it, but it's certainly an area where we feel that it adds to our Nutrition & Health's growth.

Thanks, Dimitri. And then on working capital, absolutely. So here, if I look at the performance of the second quarter, of course, I'm particularly happy with the step-up in cash generation of 33% for the 6 months. So that's good. This was, of course, the result of a very deliberate focus on cash outflows but also a very big focus on accounts receivable. So if I look at our DSO is down and our overdues have never been as small as a percentage of sales, so we've been very, very active there to make sure that we're not losing out. We also see that on the payables, it's looking pretty good, where it's a bit high currently, is on inventories. And I have to say it's partly deliberate. So given the disruptions to the supply chain, now is not the time to try and tighten them too much. And it's, of course, on materials linked to the lower sales that is to be expected. So to your question of where do we improve the OWC, to sales from here, inventories remains the bigger number in this. And I think when the world becomes a little less unpredictable, we will push harder on bringing inventory levels further down. So that's on the working capital.

The next question is from Mr. Matthew Yates, Bank of America.

Just a couple of questions on the Nutrition division, please. So the first one was just the fact that the profit growth was a touch less than the revenue growth in the quarter for Nutrition. I just wondered why there wasn't a better drop-through on the margin. Did FX or mix go against you a bit here? And then the second question is specifically on the Animal part of the portfolio. As you said in the intro, 2 very contrasting quarters so far this year. It still sounds like there's some downward pressure on feed demand, from the restaurant closures and the meat processing bottlenecks. So just wondering what you are seeing in Q3 in terms of volume and pricing so far on the Animal side?

Yes. Thanks, Matthew. Let me maybe tackle both of these. First, when it comes to the Nutrition margin, there's a couple of things to remember here. One is the Animal Nutrition. If you look at the quarter, we had a 7% price effect on Animal Nutrition. But that includes a couple of things that don't go down to the bottom line. One is the pricing on pass-through ingredients, that's nearly 3% of that 7% and the other one is actually foreign exchange effects in Brazil. So we invoice in Brazilian real, but the prices are set in dollars. And so that creates, if you want, an FX impact within the price column, and that was about 2%. So of the 7%, we've got about 2% positive pricing in Animal Nutrition. So that's not obvious to see when you look at the numbers at first. And of course, the other part is the foreign exchange effect that was asked earlier of about EUR 10 million in the quarter. So when you factor those 2 in, that's why you sort of end up to, I would call it, stable, but maybe a couple of bps down on the margin on nutrition. So that's on margin. And then, yes, Animal Nutrition, indeed, very contrasting quarters. You remember the big sort of accelerated sourcing in Q1. We saw that starting to unwind actually from May, and what we are seeing overall going forward is good business conditions, I would say. But we do expect a bit of the continued a bit of normalization and destocking in Q3. So if you remember, the Q1 effect was around 6%, and here, we are expecting -- we are estimating that in Q2, it was 2% to 3%. So logically, we would have another piece of destocking in the Q3, but then with normalized conditions, thereafter. So it doesn't really change the fundamentals of the business. It's more a little bit the spikes linked to the corona stuff.

The next question is from Mr. Martin Roediger, Kepler Cheuvreux.

3 questions. First is on materials. You plan restructurings in the second half leading to annual cost savings of EUR 25 million and EUR 30 million on an annualized basis. Can you talk about the actions you're planning, the related costs and also the timing of the benefits? The second question, again, on materials. You have higher value-added products there. So you might have benefited from lower raw material prices in the second quarter. Can you quantify them at least [indiscernible] for profits and the effects go forward? And finally, a question on Animal Nutrition. I heard there is a new regulation by the Dutch government to cut CO2 emissions. So if the Dutch farmers do less proteins in their feeds, there might be an impact on DSM, either on your feed additives or once your Clean Cow product is registered next year, maybe a very quick adoption for that product. Maybe, you can give a comment on that.

Okay.

Thank you, Martin. Do you want to start, Dimi?

Yes. So on the materials bit, indeed, we've announced in addition to the program, which we already started last year in, if you remember, 2019 with already a slow market demand for materials. And now with COVID-19 impacting the materials, we basically accelerate that program with restructuring and organizing around EUR 25 million to EUR 30 million annualized sales -- savings. That has a few elements. One is in the operations as well as in the supply chain, continued improvements certainly in aligning the supply chain on some of the areas where we think that recovery will be slow. Secondly, in the sourcing area, where we will share sourced materials, reach out to our suppliers. So sourcing savings are a second element of that program. And the third one will be in efficiency and effectivity of R&D. And we expect that, that will have a sort of a starting time in Q3, Q4. So the savings will come in towards the end of the year and predominantly in next year, because we need to go through consultation processes and before that is being implemented, we are at the end of Q3. So that's basically the color of timing. And in terms of raw materials, indeed, we had lower input prices in Q2. But remember that within the materials field, we have a strong portfolio where we feel that raw materials input prices going up or down are not the main driver. We're basically still on margin and that basically means that if prices -- raw material prices go up, we try to hold on it for a while. And if raw materials prices go down -- sorry, if raw materials price go down, we'll try to hold on it for a while. If prices go up, we immediately try to integrate it in our pricing. I think we've been very successful in that. So raw material input prices are not the main drivers. Be aware, by the way, if there is a lower input price then you also need to reevaluate your stocks. So it's dampening a little bit. So for Q2, yes, there was a lower input price, but it didn't really impacted our EBITDA to that extent. And then I think A&H for you, Geraldine?

Yes. Yes. Let me comment. Thank you for your question on the Dutch government. It's actually a reflection of something a bit broader in Europe. So when I gave the Clean Cow update, I should also have mentioned that while the registration is going on, the creating the market activities are still very much progressing. And what we're seeing, in particular, is that the green deal, the EU green deal is changing the landscape quite a bit. So for instance, there's quite a lot of talk around a new climate law that would make it binding to get to net 0 by 2050 and maybe even the binding target by 2030. So that can be helpful. And then there's the whole sort of farm to fork strategy in Europe, where basically, the EU is starting to integrate the agricultural space in the climate-related strategies. And that does include, of course, methane emitted by livestock. So the developments not only of the Dutch governments, which are very much in line with this broader EU concept is very relevant and actually helpful for us. So very fair point.

The next question is from Mr. Patrick [indiscernible], UBS.

Three questions, please. Two quick ones on materials. You mentioned in your introductory remarks, the delayed contracts in [ Dyneema ], and you also quickly mentioned the 5G. Can you talk about when you would expect these contract delays to come back? And how you see the scale-up opportunity for 5G in 2021? And then the third question on Nutrition. You provided some very useful monthly trends for materials, including July run rates. Can you do the same for Nutrition, please?

Okay. Dimitri, you take the first one?

Yes. Then you can dig out the monthly developments of nutrition. I'm just joking. Anyway, on materials, thanks for the questions, indeed. So let me give some background on the protective materials business. So the Dyneema, formerly Dyneema business. So the Dyneema business, you need to distinguish between 2 elements. One is the contract portfolio, so those are commitments to call off certain contracts throughout the multiple-year period. And the contract order portfolio is very strong, and we've added 2 new umbrella contracts also in quarter 2. So that market is pretty strong. The issue is that the call off by the national and local governments on law enforcement protection is done via the government, and they are currently handling another crisis, which is COVID-19, and therefore, have not focused yet on calling off on those contracts. So the call-offs is the key issue. What we've seen is that, that was low in quarter 2. We do see with opening up of some of the regions in the country is that, that is improving. So in that sense, we are thinking towards the end of the year that, that maybe could normalize a little bit, although it has COVID-related impacts. But we certainly think that the call-offs on the portfolio will normalize a little bit to the second half of the year. Then in terms of 4G, 5G networks, indeed, we are one of the main players in fiber optic materials for the bandwidth cabling. Certainly, with COVID-19, this has initiated a new wave of activities. I mean, it was already there that 4G will be replaced by 5G in the sort of transition mode. That was delayed a little bit. People were waiting for investments on 4G because they wanted to go to 5G. And if 5G will not take off, they needed to accelerate 4G investments. This whole COVID-19 has accelerated the decision process on projects. We've seen projects now being started. And that means that there is normally a lead time of 6 to 9 months before that requests our material. So certainly towards the end of the year and in 2021, we expect that business to pick up.

Thanks, Dimitri. And to your question on a monthly split for Nutrition, I think, it's probably worth me mentioning here that we are only providing a monthly split because of the lack of guidance on materials, and we fully understand that you're trying to understand the dynamics in that space, in particular. Now, of course, for Nutrition, we provide an outlook for the year. So that's a bit different. So we'd rather not go into the monthly split. But let me nonetheless add a little bit of color maybe to what has already been said. So on Animal Nutrition, you remember, we said there was clearly a stocking effect in Q1, destocking in Q2, and we expect a bit more of that going forward in Q3. So that's on Animal Nutrition. On Human Nutrition, we saw clearly the big acceleration being at the start of Q2 and the first 2 months. Then in June, we started seeing normalizing, although that is particularly the case for food and beverage and Early Life Nutrition, while Dietary Supplements remained strong. So that's the dynamics in terms of the split within Q2. Now if I add to this because there are a lot of moving parts in Nutrition, our Personal Care and Aroma business, continued to have a negative impact. That is mainly the sun filter business. That clearly is still COVID impacted while the Aromas, particularly when it comes -- going into detergents is doing okay. We saw in Food Specialties a broadly neutral impact. That is very much continued to be a strong momentum for Savory and for packaged foods and dairy, whereas beverages did recover a bit in Q2, particularly brewing, but still impacted by the lesser eating out-of-home demand. And then finally, hydrocolloids was clearly impacted in Q1 because our operations in China had actually a good Q2 on the back of that, and then we'll probably normalize in Q3. So that's the simplest summary I can provide.

The next question is from Ms. Katy Hutchinson, Davy.

2 questions from my side, focusing on Human Nutrition. And given the strength of the human organic growth number, did you gain share in dietary supplements or in immunity-related products in the first half? And then secondly, relating to that, I'd just like to get your thoughts on your medium and long-term outlook for the broader dietary supplement space? Maybe some specifics or in the different subcategories within that, and particularly on the probiotic side?

Yes. Thank you for that. Let me take those. So I think building on what Geraldine just said, I think, we have seen 3 trends in the Human Nutrition space, and then I'll come back to the dietary supplement. So what we see is definitely the supply chain uncertainties related to pantry loading. Basically, that has impacted quite the value chain, but that is obviously a short term effect. Then the whole balance between foodservice and home eating is an element and maybe that will rebalance. But there's a third element where we think that book is there to stay. It's the continued elevated demand for immunity-optimizing products and that will be dietary supplements and medical. So it's very difficult to say whether we gain market share. But I think in terms of what we have done in terms of sales growth, I think, it's quite impressive of what we have shown. And with our global portfolio and our fantastic route to market in dietary supplements, I do think that we have strengthened our position. So what do we expect for dietary settlements? We basically have seen that this whole COVID circumstances have created awareness on how nutrition helps your health, and we think that's there to stay, obviously, with the vitamins, with the probiotics, with all elements of ingredients, which improve nutrition and health. So that is something where we work hard on, and where we feel that it could have a positive impact. In terms of probiotics, obviously, probiotics in improving your immune system helps. I think we have the very good position via [ i-Health ] in our cultural brand, not only in the U.S., but now also into Asia. So that's absolutely a category which is benefiting in combination with dietary supplements as a space.

The next question is from Mr. Chetan Udeshi, JPMorgan.

Just coming back to the write-down on the POET JV, and, I think, it's a broader question. But I think Innovation Center, capital employed was just around EUR 600 million, plus/minus a few million as of the end of 2019. I mean, is there a change in terms of how there is a sort of a focus around monetization of that capital employed on the Innovation Center projects? Because to some extent, the group return at the moment are being diluted from that Innovation Center capital employed. So any change in how you guys monitor progress on monetizing some of the spendings on innovation projects?

Yes. Thanks for this question. Now I have to say that this impairment of POET doesn't really change the way that we look at innovation. I mean, it's -- we're very conscious that if you want to be a science-based innovation-driven company, you do have to invest in innovation projects. And we've put together the Innovation Center in order to facilitate that. Now unfortunately, in the case of second-generation biofuels, from corn stover, to be precise, has turned out to be a real challenge from the mechanical engineering point of view. But as we said, the IP that we developed there is actually the backbone of -- and our capabilities is the backbone of some of the other big projects that we have such as Avansya and Veramaris that are all biotech based and has strengthened biosciences' capabilities and a biotech center in Delft, in particular, that is now enabling us to develop in many different aspects of our Nutrition & Health space, our Biosciences. So no, it doesn't really change. Of course, we do want to try and get as much return on capital as we can from these growth areas. But like with innovation, it's always the same pattern. At first, you have to invest and then you get the returns. So it is the part of the group where that KPI will always look a bit challenged. But we do believe that we have a very rich portfolio of innovation coming through. And in this case, unfortunately, we've had to impair this one.

That leaves us basically probably for our last question, and we're closing now to 10:00. So operator, let's do another last question.

Okay. The last question is from Mr. Gunther Zechmann, Bernstein.

I'll keep it to one then. And can I ask you on the materials business, please? It's been pretty mixed performance, especially contrasted to the resilience of the nutrition cluster. And you mentioned at the beginning as well that you expect a recovery to be relatively slow. Does that change in any way your view strategically on that business, please? And how do you see the longer-term trajectory in the materials business develop?

Yes. Let me take that one, and thanks for that question. And I think for me today, these circumstances are unprecedented. And I think -- and there is no proxy for quality of any activity today and certainly no reason to review our strategic course. I think, what has hit the materials business is not GDP related. It's an abrupt event. And certainly, it doesn't have any proxy for a value of any business. To your point, we expect a slow recovery. That is only for the automotive part, which is 18% of materials. I think, building and construction, electronics, the Dyneema bit, the fiber optic materials, materials for the medical space, we do feel that there is a quicker recovery. So we need to subsegment. And that's also one of the reasons why in terms of our restructuring program, we're basically not implementing any regret moves, because that will be relatively unwise, to put it politely, to restructure and save costs where you jeopardize the long-term future. So we still strongly believe in that future. We've also seen that there is huge innovation potential, and we just need to weather the storm and to create visibility to do the right action. So in that sense, it's a bit of a longer answer to your, I think, fair question. But no, we don't see, at this moment in time, no reason to review our strategic course.

Gunther, no second question? You still have the opportunity. No? Okay. Then that brings an end to the Q&A for today. Any additional questions, as you know, please don't hesitate to reach out to the Investor Relations team. Dimitri, do you want to make some closing remarks?

Yes. Thank you, Dave. Thank you, everybody. Just to wrap up, we have delivered a solid result in a highly dynamic environment, and nutrition continues to do well with solid business conditions in animal and in human, definitely confirming our long-term growth drivers. And to remind you, materials is a quality business, and the current environment is not derailing us from achieving the potential for these businesses. And we will continue to take a balanced approach to manage near-term challenges while pursuing at the same time, our strategic goals. Look, while COVID-19 could be quite disruptive on our lives and business, we also feel that as a science-based company with a strong focus on sustainable innovation, we are very well positioned for the future. And Dave, before we wrap up, shall we remind our audience about our virtual Investor Day?

Yes, that would indeed not hurt. You're right. We, unfortunately, have to decide to abandon the original plan. As you probably recall, we planned our investor event in London on the 4th of November, nicely-arranged venues, et cetera. But, yes, the COVID is changing also this plan, so indeed, we have to change it to a virtual event. And that means that this Capital Markets Day, which then will be actually only a half day, let's say, Capital Markets Day will be done virtual. The information you can find on our website and that investor event will focus on our nutrition growth strategies and our innovation pipeline in that space. Yes. And with this said, we have to conclude today's conference call. As said earlier, any further questions, please reach out to us. [ So rest me ] to thank you for participating today, and then back to the operator.

Thank you. Ladies and gentlemen, this concludes DSM's conference call. Thank you for attending. You may now disconnect your lines. Have a nice day.