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

Good afternoon, everyone, and thank you for joining this webinar for our full year results that we published this morning with the press release and an investor presentation. Now we intend to run through some of the slides of this investor presentation this afternoon, after which we will be inviting some of the sell-side analysts to ask us questions. So that is the format for today. Now we thought that it would actually be nice to start with a bit of the highlights of the key achievements that we have had in 2021 on our strategic journey. Dimitri will take us through that. And then I will take over and run through the full year results, Q4, outlook 2022, et cetera. Now before we get started, maybe one last caution. I've been asked by Dave to remind you, to caution you that any forward-looking statements that we make, that there is a disclaimer in the press release, so please have a look at that. And with that, let me hand over to you, Dimitri, to run us through the key highlights on the strategy.

Thanks, Geraldine, and welcome to everybody on this call. Great to hear you later on, I hope. And I would like to run you through a bit on progress we've made on our strategy, which I think we have communicated last year. Let me start with our co-CEOs statement in terms of 2021 with a few elements in the strategy. We talked about a pivotal year. We talked about the focus health, nutrition and bioscience. We talked about our improved greenhouse gas target reductions, and we also talked about some of the innovation. And I will quickly run them through with you. So if you go to the next slide, I will summarize a little bit, what we have seen in 2021, where we've accelerated our purpose-led, performance-driven story. And it started with the fact that we've seen global food sales systems facing multiple challenges. This food system is not in balance. As you know, we mentioned a few numbers at that time saying that 800 million people are malnurtured (sic) [ malnourished ] , while 2 billion people are overweight in this today's world. Farming today is emitting more than [ 19% ] to 20% of our greenhouse gases, and therefore, there is huge potential to innovate and to make farming more sustainable. And that brings me to the second box. These food system challenges offers huge opportunities for DSM, innovation opportunities, solutions offerings to our customers. And therefore, we have focused ourselves on health for people and health for planet. And by doing so, we've decided to become a fully focused health, nutrition and biosciences company, and realign not only our strategy, but also our structure and also our culture. A fully aligned set of actions to implement that strategy going forward. And therefore, not because Materials is not a good business. And you've seen today again in the results that Materials is a fantastic business, but that we need to focus ourselves in that if we want to continue the success of Materials, it is best to look for a new vest on. We then go to the next slide. And this slide should be familiar to you. This is our strategy in a one pager. This is the most frequent used slide by Geraldine and myself. And I think it's also interesting to see that our management team, but even employees around the globe are using this slide to explain the strategy of DSM. And I would like to highlight one specific point on this specific slide. I mean I already indicated the food systems and the opportunities, I already indicated our food system commitments with the improved target setting on greenhouse gas. But why is this unique for us? We have a unique business model according to 3 muscles, global products, local solutions, and precision and personalization; creating the third muscle to create a differentiating DSM for the 5 to 10 years to come. And we can only do that because we have great people and a unique culture. So that is in the heart of what we're trying to achieve as a company, as DSM. Then let me highlight a bit on the structure changes we've made. If you go to the next slide, we have announced that we're going to create 3 business groups. In fact, those are active and effective benefits of general. Animal Nutrition & Health, a EUR 3.4 billion business group, which will be focusing on health for the planet. Radically more sustainable animal farming. A second business group, Health, Nutrition & Care with the focus to keep the world's growing population healthy. Health for people, EUR 2.5 billion business group. And then the newly constructed Food & Beverage unit. Not only to create health for planet and health for people, but also make sure that it's delicious, that it's tasty and that human beings around the globe really like to create and have healthy food. And that's a EUR 1.3 billion business group. If we then go to the next slide, a long sight in aligning the structure to our strategy. We've also decided to fully integrate the innovations in the business group. And you've seen that here. Remember in the past, we had a separate DSM Innovation Center. We keep the competencies, we keep the research, but the innovation will be dedicated to the 3 business groups with the route to market, to the customers and to the market dynamics. For the innovation, we have decided to create a bit of priority setting, and we will create our innovation focus alongside precision, prevention, proteins and pathways. And this will be our guiding compass on where we will spend our science efforts to help the business groups to differentiate. And I have just 2 slides on some of the examples on innovation. If you go to the next slide, you see a few of these examples which are linked to health for people. I'm not going to dive into them one by one. But I think the most interesting I would like to highlight you for this call today is supporting the immunity of people. What we see in today's world is that health care costs are rising. What we see today in the world on COVID is that we are a bit preoccupied with how many people are going to the hospital. And therefore, we need to spend more time, effort and resources in preventing people going to hospitals. That also means that from a cost-effective perspective, that is far better money spent. And therefore, immunity, health for people, the link between healthy food and health as a human being is more and more important, and we are developing and innovating products to boost that immunity. One of the elements are, for instance, vitamin D. I'm going to show you a little bit the product, which we've launched in the U.S. just a couple of months ago, it's called d.velop. It is a fast-emerging and more effective [ 3D ] which is absorbed by your body, your metabolism and therefore, brings up the vitamin D level and boosts your immunity. If you are interested in this product, then just send Dave Huizing a call and a quick e-mail and we will make sure that you get a package. I'm taking it every day. I'm also measuring it, and it works perfectly well. Then maybe on the next slide, some examples on health for plan. Here are examples on Veramaris and Sustell, but I would like to spend half a minute to a minute on Bovaer. I think we've made enormous progress over the last year. I think we've got Brazil and Chile registration approval. We've got EFSA, a positive opinion and waiting for the formal approval of the EU. We've announced this large-scale production capacity, which will be planned in Dalry, and that will be by 2025. And we've signed agreements with customers. They are knocking on our door, and we signed agreements with GBS and with Fonterra. So enormous progress made on health for planet as well. Now let's move from organic growth with innovation to inorganic growth, M&A. And if you go to the next slide. Normally, your first question is Geraldine, Dimitri, how did these M&As contribute to your growth? Did they really deliver on the business case? And what we try to do here is for the acquisitions we've done in 2020, CSK, Glycom, and Erber, we basically have calculated the EBITDA at acquisition, EUR 115 and how much it contributed to the 2021 adjusted EBITDA. And that is about EUR 150 million, which includes the synergies from DSM and the acquisition going forward. So definitely, value-adding M&As. We will monitor and track them for all acquisitions. But I think this is a good proof of that we do acquisitions where we have value-adding acquisitions. And that has to do with the fact that every acquisition we do, we check with our business model. It should contribute to either global products, local solution, or precision and personalization or even better, it will contribute to all 3 muscles, and we have a few of these acquisitions. For instance, Erber is contributing with mycotoxin absorbers on the global products, but also on the local solutions with this fast premixed approach across the globe. We've also done a few acquisitions in 2021. And if we go to the next slide, you see that the one which I would like to highlight is First Choice Ingredients. This will accelerate our growth in dairy flavors. It is clean label, fermented dairy and dairy-based flavoring offerings, which helps DSM in their solution process, and we will add ingredients to First Choice Ingredients portfolio, which will help them to differentiate. We will use for regional multiplication. This is a U.S.-based focused firm. We will use the global footprint, which we have as DSM, and we will add our bioscience capability. We've consolidated First Choice as of 18th of October last year, and it has a fantastic start in DSM with 13 million sales and EUR 4 million adjusted EBITDA for the 2.5 months they are with us. We then go to the next slide. That's the latest acquisition, has to do with Vestkorn Milling Norway. I'm very proud that we could add that to the DSM family, leading producer of pea- and bean-derived ingredients to build our plant-based proteins. You know that it's a strategic area for us. And with CanolaPRO and with Vestkorn Milling, we're building that platform of plant-based derivatives bit-by-bit, step-by-step. Then if we then hold for a second to give you a bit of background on the company as DSM. If you go to the next slide, we are a company which is linked to ESG. People, planet, profit. And I would like to show you that in the next slide. So if you go to the next slide, I would highlight a few of our improved ambitions. On Scope 1 and 2, our original ambition was to reduce 30% by 2030, and we beefed it up because we have developed a road map with evidence on to achieving that road map, that we could now commit ourselves to 50% by 2030, coming from 30%, also helped by additional targets on renewable energy. And I think that is the way how DSM works, we commit ourselves to target, not because we will see how we get there. No, we are a science-based target company who basically have a plan forward and then we commit. If we then go through another ESG performance indices for us. If you go to the next slide, it has to do with employee engagement. Many people of us said, "Well, why do you measure the employee engagement and why is this an important element for an investor call?" I think it's an important element because our people make the difference. We should have a good strategy, we could have a good set. But the engagement of employees is absolutely key going forward. And I'm extremely proud. We are extremely proud that we had a 76% score of our employees in a very insecure and uncertain environment. We are also personally proud of is our safety index. It's the foundation of the company, safety, health, environment and quality. That we have scored a frequency index of 0.21. I can tell you that if you benchmark this, then if you are below 0.25, you're in the top, top notch of safety performance. And coming from an 0.35 just a couple of years ago into 0.21, in the context of a lot of supply chain and operation pressure is a contribute for great work our company did. And then last but not least, the last slide. And this is one of the reasons why Geraldine and myself come out of bed early, and we are passionate about what we're doing at this company. And it was certainly early this morning. And it's easier for Geraldine because she's an early morning person and not for me. But even today, I'm coming out of that because we contribute to making the world slightly better. We have capabilities to help the transition of the food system to become more sustainable, to create a little bit more health for people and planet. And that's why I'm extremely proud that with DSM, we've committed ourself for setting the targets for 2030. And as of next year, as of this year, we will also ask these systems, food system commitments to be audited by our auditor, because this is not just a story. This is a story where we commit ourselves and we will ask auditors to report accordingly on if our numbers are the right numbers and whether we can be proud on progress, yes or no, like we do for our profit numbers. Talking about profit, talking about financials, now back to you, Geraldine. Here you go.

Thank you very much, Dimitri. Indeed, thank you for the big highlights. Now let's go into the numbers. And by the way, if you get up in the morning, you get a fresh orange juice. In just this picture, it makes me thirsty looking at it. Packed with vitamins, natural ones. Now going into the numbers. I think let's start with looking at the big picture. And if you look at 2021, I think in all respects, we can say that it's been a very successful year. Firstly, in terms of nutrition, businesses, we have delivered in line with our long-term ambitions, our midterm ambitions. If we think of Materials and we'll come back on all of us, but Materials had an exceptional year, very, very strong year, not only because it's bouncing back from a COVID year but also delivering growth over 2019. We have also in the process of the year completed the divestment of our Resins & Functional Materials business and of AOC, which by the way, brought us to a net profit just short of EUR 1.7 billion for the year. Now if I park those one-off gains, we still have a nice 21% increase in net profit for this year. And of course, importantly, as well, in terms of cash generation, we delivered a 9% adjusted net operating free cash flow increase in the context of -- and I'll come back on this as well, a pretty difficult environment in which to optimize working capital. And of course, not listed here, all of the achievements and progress on our ESG targets and our food system commitments being in place. So pretty much a good performance even if I zoom out from the numbers that you see on this slide. Now when we look at Q4, and of course, we will go into more details on this. We see the good business momentum that I just referred to keep going in Q4, both for Nutrition and for Materials -- and this is how we deliver this 13% organic sales growth and a 13% step-up in EBITDA for the quarter. And when it comes to inflation, which no doubt will be a topic for us today, we took very early actions, which then enabled us to partly offset the inflation in our cost base in Q4 and then clearly set us up well for Q1, Q2 and going forward. Now if we go down to the next slide and have first look at the overall nutrition picture. Now as I said, a strong performance for Nutrition despite the fact that we had to navigate very complicated supply chain and logistics situations. We managed to deliver an 8% organic growth for the full year, driven, as you can see there, by 8% in volumes, predominantly on a full year basis. We also see -- saw a contribution that Dimitri referred to from our acquisitions. They bought 4% growth, unfortunately, partly offset and pretty much fully offset in the first 3 quarters of the year by FX, but nonetheless, a really good contribution. And that leads us to an 8% step-up in EBITDA. Now looking at Q4, which, of course, is the new part of the puzzle. Here, what you see is the continued good momentum in volume. So we see a 10% volume for Nutrition overall in the quarter. This was really underpinned by continued good business conditions and exacerbated by some stocking and I'll come back on that, linked to the fact that our customers have pretty much throughout the year, preferred to hold higher inventory levels due to these uncertainties around supply and the complications in the value chain. Now importantly, for the quarter, of course, there is inflation. And you see here the margin coming in a bit lower in Q4 2021 versus prior year at 18.9% versus 20.3% in Q4 last year, so a drop of 140 basis points. Now when we look at this, it is actually made up of 2 elements. On the one hand, you see that we have a positive pricing. So as I said, we took rapid action to really address the inflationary environment. You see the plus 4% here coming through already in Q4. Now that creates actually a mathematical effect, more top line for the same bottom line, and that mathematical effect is about half, so 70 basis points. Now we also, thanks to the big top line had a volume -- positive volume leverage, but that wasn't sufficient to offset a time lag between pricing actions and those actually coming through versus the cost inflation. And that time lag is about EUR 25 million for Q4. So put together, that's the other 70 basis points of drop in margin for Q4. But I want to stress that actions have been taken in Q4 that will have effect in Q1, Q2, et cetera. So not everything is visible in Q4. And I'll comment a bit more to that as we go through. Maybe I'll take this opportunity to already comment on how do we look at inflation going into 2022. And here, we are assuming an inflation in the order of about 5%. And the actions that we have taken and that we will continue to take will offset this inflation. So we do not expect that in 2022 we will have a delta between the cost increase and the pricing and cost management as well. So basically, we can offset, which is why we are confident with the outlook that I'll comment on later of the high single-digit EBITDA growth. I do want, however, to flag that, of course, that will require a higher organic growth and will have a mathematical effect on the margin, more top line in order to offset the inflation. And that mathematical effect is probably going to be about 60, 70 basis points for the full year 2022. So that's on the total Nutrition. Maybe let me just comment then briefly on Animal Nutrition first. So here, if we look first on the left, what kind of year has it been for Animal Nutrition? If we go down 1 slide, that's the one. So this has been a year with strong volumes in Animal Nutrition. It's 10% volume growth throughout the year. Now if you remember, partly that has to do with these higher inventory levels that we have actually seen in Q1, stay in Q2, Q3 and stayed in Q4. So there is here clearly still a bit of nervousness on the customer base in terms of inventory levels. But it is also linked to good business conditions. We've seen good business conditions in all species, although we have particularly good growth in ruminants and poultry. And from a geographical point of view, China and LATAM stand out, but really a pretty good picture overall. Now -- to the question that probably is in your mind, of that 10% volume growth, then how much is that linked to stocking to these high inventory levels? It's, of course, very difficult to know exactly, but we estimate that about 3% is a stocking effect, so embedded in that 10%. Now if you look at the bottom part of the slide, you see there the Q4 numbers, this continued high volume that I mentioned. You see there with 11% volume. Again, with the inflationary environment, reinforcing the tendency to hold higher levels of inventory. But importantly, here, the number is the 7% price effect on Animal Nutrition. And you can see that we have been very proactive in responding to what has been actually a bit of an accelerated inflationary pressure in Q4, amongst others linked to the energy costs in Europe. We also took actions in Q4 that will actually benefit as of Q1 2022. So that's the picture for Animal Nutrition. Now before we drop to human nutrition, but go down 1 slide, a couple of nice highlights for the year. I won't comment to all of this slide because it's pretty self-explanatory, but I think it's nice to highlight that Erber, as Dimitri said, a very important acquisition for us, is now fully integrated and actually delivered some very good results, which is very helpful. Great developments on Bovaer, which have been mentioned already. So maybe I'll highlight here Sustell and Verax, 2 new offerings which are linked to our data-driven precision activities in Animal Nutrition have actually recorded first sales in 2021, which is really nice. So we're starting to build that third set of muscles that Dimitri was referring to earlier. Now moving to Human Nutrition, going down one slide. So Human Nutrition, after a very good year 2020, if you recall, has delivered once again some very nice numbers with an organic growth of 5% overall. And here, I have to say it has been supported by pretty much all of the segments, whether it be Food & Beverage, Pharma, Medical that certainly stand out. In the case of Food & Beverage, we saw a combination of home-based consumption combined with a reopening, of course of restaurants and a bit more food services activities, which was helpful. And to the big question of how does Dietary Supplements hold up after such a big year in 2020? Well, it continued to grow. And we see that the interest in not only immunity but on the trend of staying healthy through what we eat is pretty sticky. And we don't expect actually that, that will go away once everybody is vaccinated or we can look back at COVID. Now the one segment, of course, that has remained soft is Early Life Nutrition, and you've heard us say that throughout the year. Now if we look at Q4, we see there a 6% volume, which is a little on the high side and a bit of pricing. But when it comes to pricing in Human Nutrition, because of the contractual setup, it is harder for us to rapidly get prices through, but actions have been taken in Q4 that will benefit going into 2022. So that's why we are confident that the time lag we saw in Q4, we will not see going forward. Also good to highlight that Early Life Nutrition actually saw somewhat better conditions in Q4, particularly in North America and Europe. Now if we go to the next slide. Here, I think actually all of these have been highlighted by Dimitri. So for the sake of time, let's not -- let me not repeat. But maybe just comment on the picture, and that is the HMO. So as you know, we got HMOs through the Glycom acquisition, and while Early Life Nutrition market conditions remained a bit challenging. We have taken the opportunity to introduce them into our eye health products. So Culturelle is our brand of probiotics and you see here an example of Culturelle, including HMOs, and we've got -- we've launched products for adults, for children and also with indications on irritable bowel syndrome. So that's gone very well and actually very fast, which was very nice. Now a few words on Food Specialties. If we move on to the next slide. Here, a very good year. You see there a 9% volume driven growth in the year, as I said, with actually good dynamics, whether it be in dairy, baking, brewing, savory and this reopening of eating out of home has certainly helped. In Q4, we saw actually a 15% volume step-up. There is an element of stocking in there with quite a lot of nervousness around inflation, but also around security of supply. So a strong finish for Food Specialties. And here, in terms of M&A and innovation, all items that have been commented on already. So then if we move to Personal Care, here we go, trying get rid of the croaky voice. So Personal Care & Aroma. If you remember in 2020, Aroma had done very well. It continued to do well in 2021. You see there a strong 21% growth overall. We saw a recovery more on the skin care side, of course, during the heart of the pandemic, there was very little travel. And we did see a nice recovery post lockdowns in that category, with Q4 actually ending very strong with a 34% growth. So really a nice development in Personal Care as well. Now switching to Materials. Here, as we said earlier, of course, a very strong year. And that is a very strong year versus 2020, which was a bit depressed. So these numbers look very strong. But also, as you see a step up versus 2019. And that is despite the fact that actually the segments that we serve with our Materials businesses did not see a growth versus 2019. So a very strong performance. This was helped by our operational efficiency and very reliable performance. We've been able to supply to our customers throughout the whole year. And as you know, there were a lot of force majeures in the space and in places we were able to step in and assist our customers when they really needed it. So in that sense, a very good performance. And you see there from a step-up in EBITDA, it's 17% up versus 2019 for the full business. Now a couple of comments on Q4. Here on the one hand, we see a normalization of the situation around force majeures, et cetera. So that is normalizing. And also Q4 last year was the first big quarter post pandemic. So this is why the 12% lower volumes, but this very, very effective team when it comes to pricing, has managed to deliver an organic growth overall of 12% and a step-up of 19% in EBITDA. So very much a strong performance to end the year for our Materials businesses. Now a couple of slides on core financials. So first, in terms of capital employed, working capital, when you actually look at the ratios of working capital to sales, they have improved versus 2020, which is good. Now this has been helped by the strong top line. We did, of course, take a prudent approach when it comes to working capital because of the supply chain and logistics disruptions. It is not a year where we particularly emphasize optimizing that. It was much more about securing the ability to serve our customers. But nonetheless, a good performance. Our ROCE improved as a group, and that is helped by a very strong performance in Materials while the ROCE in Nutrition is diluted by the M&A effect. And that is quite a big M&A effect of about 4% on the ROCE of Nutrition. Now dropping to or going to the next slide, here a couple of comments on our balance sheet. So our net debt closed at about EUR 1 billion at the end of 2021, which is down from 2.6%. This is driven by 2 things: a good operating performance, so good operating free cash flow and the fact that, of course, we also had the proceeds of the divestments coming in this year. So a very healthy balance sheet. And we proposed a dividend increase of EUR 0.10 to EUR 2.50, which keeps us in our dividend policy. So we want stable, preferably rising dividends, but with a payout ratio in the range of 40% to 50%, and this is about 50% payout ratio. And last but not least, the outlook for 2022. And if we go to the slide that comes next, you see the text that's in our press release. So for 2022, we expect our health, nutrition and bioscience activities, and you see here that we are reflecting in our wording, the new structure that Dimitri just described. So for HNB, we expect to deliver a high single-digit adjusted EBITDA increase. While for the group, we expect a mid-single-digit adjusted EBITDA increase and a high single-digit adjusted net operating free cash flow increase. That reflects the fact that we expect a stable EBITDA performance for our Materials businesses, given the very strong performance in 2021. And with that, I think we are now going to switch to the Q&A. And for that, Dave, do I go back to you?

Yes, that's good for a moment, maybe for the break that we switch from one to the other. So good afternoon. Indeed, we are now going to bring the sell-side analysts to the party. [Operator Instructions] So operator, can we start?

[Operator Instructions] Our first question is from Mr. Matthew Yates of Bank of America.

A couple of questions, please. The first one, I wondered if you could give us some further insight into your typical contract structures. I'm interested to what extent you have automatic pass-through clauses versus the need for more bilateral negotiations. I appreciate you distinguishing between the mechanical dilution and the timing lag. I'm just curious whether we should be thinking that lag is closer to 3 months or 12 months? The second question is around capital allocation. Geraldine, you said returns in Nutrition fell about 4% because of the acquisitions and Dimitri went through on Slide #10 on the contribution from acquisitions and the synergies you've got from them. Obviously, with a potential sale of materials, it's conceivable, you're going to have an awful lot of capital to recycle. So I'd just be interested to hear a little bit more about the example of these recent deals and the extent to which you can give some sort of case studies, how you drove revenue cross-selling or where you've taken cost out?

Dimitri, do want to start with the contract structures?

Pleasure. Good to hear you. So let me run you through a bit the contract structure. And it depends a little bit like Geraldine alluded to, per business and by the way, per customer and per segment. So I will not make life easy for you because it's not as simple as it is. However, the big components are that Animal Nutrition works with quarterly contracts, not all of them, the quarterly contracts. So that's also why you see a 7% price increase already in Q4, and we expect that to continue for quarter 1 going forward. Part of the Animal Nutrition & Health contracts are also pass-through elements. As you know, we also sourced products, which go into the pre-mix and that goes almost automatically. So with some of the customers, that's a formulation, some of the customers is a formulation with the time lag. By the way, that time lag works a little bit against the EBITDA margin the moment that the raw material prices are going up, but it also works for you now the moment the raw material prices go down. So if you look at this from a strategic perspective, it doesn't really matter. Then from a Health, Nutrition & Care perspective, those are a bit more longer-term contracts. And those are, on average, more yearly contracts. By the way, we have multiyear contracts, but then we also do joint innovation, joint development. We also have yearly contracts where there are formula-based pricing, and we have yearly contracts which basically are being redefined almost on a monthly basis. So if you look at that basket to generalize it, to make it simple for you, Animal Nutrition has more a quarterly flavor, Health, Nutrition & Care has more of a yearly flavor. But with all the details I just mentioned, it is not completely true. And last but not least, you also have an opportunity to bring in your [ income ] terms a change because the moment that logistics and freight are going up, obviously, you are not going to quote CIP or DDP, you're going to quote either [ free on board ] or [ ex works ], right? So that's also a card you can play. So overall, very happy with the step up in quarter 4 on Animal Nutrition. Very confident that you will see Health, Nutrition & Care stepping up the pricing as of Q1. We expect about 2/3 of that and then another 1/3 in quarter 2. I hope that gives a bit of color. Back to Geraldine for, I think, capital allocation?

Yes, it was a capital allocation. And Matthew, I think I understood your question. which is around with capital being released and could be invested. Where do we get the synergies in terms of the acquisitions and what kind of value creation we are looking for. And here, of course, we can go through each and every acquisition because they all have their own story. I think Dimitri referred to, for instance, the growth of Erber. And here clearly, we were a supplier to Erber, Erber was a supplier to us. We're combining our footprints. So there's been a lot of synergy already achieved, and that's what you see on our slide, the growth in EBITDA since acquisition is very clear. We also have, for instance, First Choice, which is one of the more recent acquisitions, the dairy flavors. They are very strong in the U.S., we have a global footprint. So that's another example of how we drive synergies. Glycom was one of them by leveraging our segments away from Early Life, but also to Dietary Supplements. So every time -- and I hope it came across in Dimitri's comments of when we look at how we deploy capital in acquisitions. We always look at how does it add to our 3 sets of muscles. Is it more in the global product space? Is it more in the local solutions? Or in the precision personalization, which we are building over time. Now our capital allocation policy per se is not changed. So as you know, we prioritize organic growth first and foremost. We want a very strong commitment on dividend, which we are honoring. Then we want to continue to see how we can build this health, nutrition, bioscience platform that's very unique. And then fourthly, should we not find the right assets at the right valuations with the right synergy value creation, then of course, returning some cash is always an option. But I don't know whether I've addressed your question properly here.

Our next question is from Ms. Nicola Tang of Exane BNP Paribas.

Firstly, thanks for quantifying the potential stocking effect in Animals, that's helpful. I'm just wondering whether you're seeing any signs of destock yet? Because it seems like these logistics uncertainties might actually continue for quite a while. So I was just wondering what you think might trigger a potential destock? And then the second question was around the cost inflation. Again, thanks for quantifying the 5%. I was wondering if you could clarify what exactly this is covering. Is this your estimation around [ raws ], energy, logistics, et cetera? And maybe you could break out a little bit in terms of what you're seeing in each of those buckets, that would be helpful.

Dimitri, do you want to start with the destocking and I'll take the inflation?

Yes, let's do that. Thanks for that question. It's a bit of a difficult answer to give, but I would like to give some color because the question on destocking, remember that in 2021, we always said, remember, there is stocking in the chain, maybe some destocking will happen. It didn't happen in 2021. So everything I say about '22 has proven me wrong in '21. So I'm slightly more cautious in forecasting destocking. What we do see is that I think in the current environment where supply chain interruptions cause a little bit of uncertainty throughout the value chain, not only on logistics and freights, but also some of the ingredients. And you need to be aware that in Animal Nutrition & Health, premix is absolutely a key, and premix consists sometimes of more than 10 ingredients. And if you miss 1 ingredient, then it's very difficult to come with the solution. So people are insecure and have also seen in the animal nutrition space that a reliable supply chain is absolutely important. And there, DSM stood out over 2021 because in all fairness, we have an internal target which is about OTIF, it's on time, in full. That's the rate and of higher the percentage -- the higher percentage of the orders you delivered on time and in full. That OTIF rates went down in 2021. But our Net Promoter Score, so the feedback we got from customers on how we did in terms of performance went up. So it's also a relative game. And I think it's fair to say that we've done relatively very well on that credibility and reliability of supply chain. Well, to your question, when will destocking happen? We don't know. It also has to do with the fact that I think the animal nutrition value chain has to, got to appreciate that a reliable supply it's worth value. And I think it could very well be that we will, for the longer-term benefit from that. But that's more speculation, that is just maybe also a bit of wishful thinking from my side. So all in all, I don't think I will give you the right answer you want to expect, but we have to see quarter-by-quarter. You also need to see that it's very difficult to forecast because Animal Nutrition & Health also has a bit of seasonality in their pattern, right? Normally, quarter 4 is a quarter which is pretty good. And then quarter 1 is a bit lower in terms of total sales. By the way, in Health, Nutrition & Care, that normally is the other way around. So to predict that with seasonality at play is a bit difficult. So I know it's an unsatisfying answer, but it's the truth.

Thanks, Dimitri. And then coming back to the inflation. So I mentioned indeed looking forward into 2022. We estimate about 5% of inflation. That is on our cost of goods sold, broadly speaking. So if you do the math, we are looking here roughly EUR 200 million around that to be offset. Now within that, it's very difficult to be super specific in the different categories. As you know, we saw, for instance, the logistics costs were already inflated last year, but it kept on building. Energy costs, of course, in Europe has been a big topic since Q4, at times more than doubling. Now with on top of that, the uncertainty around Ukraine and Russia, it doesn't help calm people's nerve. So it's a bit of a blend in terms of the COGS. But that's what we -- what I was referring to was 3%, which is broadly EUR 200 million. I hope that helps.

Yes. That's 5%, right, concentration?

So, 5%. Yes.

Following question is from Mr. Martin Roediger of Kepler Chevreaux.

I have two questions. First one on Nutrition. Within Nutrition, there is one business line called Others, which is kind of customer in factoring for pharmaceuticals. When I do the math, I think this activity shrank quite significantly in full year 2021 and in Q4, even more. Can you shed some light on the background for this development? And secondly, on the tax rate, a couple of countries recently agreed to the minimum tax rate, including Switzerland, and I know you have a big production hub in Switzerland. So does this decision have an impact on your tax rate going forward? And if so, what is your best guess for your tax rate in 2022 and beyond?

Okay. Martin, thank you for joining us. Let me start with the tax rate. So we closed the year sort of at 19.2%, I think, if I'm not mistaken, and this is very much in line with our current guidance of 19% to 20%. Now what you're referring to are all the Pillar 1, Pillar 2 OECD discussions around minimum tax rates -- and this is still -- has a bit of a way to go in terms of actually implementation beyond just the principle of agreeing on a minimum tax rate. What we're seeing is that this will most likely drift us up a bit. But it's not yet quantified exactly by how much, and I would doubt that it is in the -- in 2022 or even 2023 looking at the current implementation timetables, that we are seeing. It's not as all of our profit goes through Switzerland and particularly with the acquisitions that we have done and our global geographical footprint, we are a much more mixed bag but there will be a bit of a drift upwards to be quantified. And Dimitri, do you want to comment on Other Nutrition?

Yes. I'm not 100% sure what you mean with Other Nutrition, but there's some tolling we do for some partners here and there. I assume it's part of that Other Nutrition. But I'm not 100% sure what you're referring to.

Yes, that's right.

So that is some special events we do, we produce in some of our sites, and it's more linked into production in some of the site streams and we report that under Other Nutrition, but it's relatively small. So that's why it's reported as such.

And the reason why it came down significantly, especially in Q4?

That basically is done with sort of the yearly volume contracts. And then basically, they only take the yearly volume contracts. So it fluctuates per take off. So it's just a yearly volume and then they call it off depending on the quarter.

Our next question is from Mr. Andrew Stott of UBS.

Geraldine, Dimitri, Dave. So a couple of questions. The first 1 is probably an ambitious question, but I'll try see where I can get. Is there anything you can say about the disposal program or programs plural, interest levels, timetables, anything at all you can share? Similar question on acquisitions. Maybe a flavor of the opportunities out there generally, has there been any change with recent events on valuations, recent events being bond yields? And a question I should have asked last September, frankly, is it easy for you from a management capacity standpoint to run both programs simultaneously, so the disposals and the acquisitions? Or do we think about a gap between the 2? Sorry, that's a long first question. Second question is hopefully a bit more straightforward and a short answer. When do you think you'll be back to 20% plus EBITDA margins for Nutrition?

Yes. So Andrew, I can't -- that is indeed a long first question. So let me first maybe comment to the margin, and then we will bundle a bit of an answer around the M&A portfolio changes. When it comes to margin, maybe I should have actually said it up front, but what we expect, because of the mathematical effect on 2022, we expect our margin to be for Nutrition broadly in line with 2021. So what you see is we fully offset the inflation cost-up with the higher top line, but that 60, 70 basis points will be there. Now how long is it going to take for that to unwind? We will have to see over time. But it doesn't impact the quality of our earnings, and it doesn't impact the growth in our earnings, which is the most important element. Now to your question of, and I'll let Dimitri comment on timing. But in terms of managerially handling both acquisitions and divestments and carve-outs, we have, of course, done a lot of work in 2021 to get ourselves ready. So in September, when we talked about the tilting to the 3 new business groups, we also did a lot of work in all of the functions to not only adjust to this new setup for health, nutrition, bioscience, but also to basically have a more dedicated support for materials, so as to give us strategic optionality. And that is extremely helpful as well going forward because that is quite heavy lifting, if I'm honest. And then the other thing that we've been very mindful of when it comes to managerial bandwidth, with acquisitions, is to not have too many acquisitions falling on the same business within the group, which we, in the past, had been guilty of in terms of both geographies and business. A lot fell on Human Nutrition, North America, for example. This time, as you saw, we've got some who are in Food Specialties. We've got Erber in Animal Nutrition, et cetera, Glycom in HNC. So it's a little bit how much can the different parts of the organization absorb. But Dimitri, would you like to comment to the timing and the interest.

You always leave the nice questions to me on timing. And Andrew, good to hear your voice. Always a pleasure. Let me say a few things on -- before I say something on timing, building on what Geraldine said on the -- on how can we handle disposal and acquisitions. Be aware that Helen Mets in our Executive Committee is responsible for materials. So she takes that basically on our behalf, off Geraldine and myself. And then we have Patrick Niels, Ivo Lansbergen and Philip Eykerman, heading the 3 business groups who are looking at growth in M&A. So I think we are -- because of the structure, strategy structure, I think we're well positioned. Then to Materials. Yes, basically, it's an open question. So I thank you for that. So I can also stay away from something that I don't want to tell. So I'm going to tell a little bit what hopefully brings a little bit light on it. When we announced it in September, we said this will not be a process of months, but it will not be a process of years either. Within that time schedule, we're still on track. So I still can confirm it will not be a process of months, but it will not be a process of years either. What did we do in the meantime? As we have communicated, we have put Materials a bit on arm's length. So that the moment that we look for a divestment, we could easily transition that instead of start thinking about that arms-length positioning. So that we have finalized. So by the 1st of January, we have the effective structure of the 3 business groups and Materials on arms length. And in terms of timetable, I can tell you that we will immediately communicate to you all the moment that we have signed the deal. That's a promise. And by the way, that's also responsibility and also statutory responsible, but I will certainly confirm we will stick to that. And in terms of interest, well, that's an interesting one because our Materials was always being looked for, for many, many partners in the chain, already far before we announced that we were looking at a new vest owner for Materials. That has been elevated by the fact that we made the announcement in September. So people were knocking on our door. They were refreshing the knock on our door just to remember that we still remembered them. And we told them, "Yeah, yeah. You are still on our list." And I can tell you that with the current 2021 results, I think the interest even have been more positive than people would say, "what is this for a business." I think the '21 results shows that it's a really good business. And it also shows that for us, looking for a new vest owner, it was not because it was not a good business. It was basically because we felt that our focus on health, nutrition and biosciences, deserves the Materials businesses to continue to grow under a new ownership. So that's where we are, and that's a bit of color on your open question. I hope nevertheless, gives a bit of a direction of timing, interest and how you look at it.

Yes. Thanks, Dimitri. Sorry, can I just follow up very quickly? Geraldine, the comment you made on the margin you said, I just wanted to double check I heard correctly. You said FY '22 is similar to FY '21. So the EUR 20.6 million is the reference.

That's right.

But you didn't commit to getting there in Q1 necessarily, correct?

No. We give guidance on the full year. So we'll have to see.

And this is including a mathematical factor?

Exactly. So that's because we're factoring in the 60, 70 basis points of mathematical, unavoidable -- I mean one should expect, of course, an organic growth, which is a bit above our normal midterm guidance because we're going to see a higher pricing effect within that. And that's where the margin picks up that effect.

Our next question is from Ms. Isha Sharma of Stifel Europe.

The first one is around the Innovation pipeline. I appreciate the details that you gave us last year. But could you help us with your expectations on Bovaer, Veramaris, [ Avansya ] and Stevia in the next 2 to 3 years? Is it fair to assume that any meaningful contribution from Bovaer first comes only in '25 after the commissioning of the plant? And my second question is on acquisition. Are you happy with how the margin at Erber has developed? And looking at the 25%, 26%, is it a sustainable margin that we can assume going forward?

Thank you for joining the call. In one short question, you asked a very big question, which is the potential overall long list of our innovation projects. But let me already give some, and then Dimitri I hand over to you for others. So let me maybe start with Bovaer. And indeed, there was a lot of positive news in the second half of 2021, whether it be the regulatory approval in Brazil and Chile, which led to an MOU with JBS, for instance, the positive advice from EFSA that we have good reasons to believe we'll be ratified this year, for sure. And in terms of that opens the door to commercialization. Now we have some sales to JBS because they're starting pilots. We have MOUs with quite a lot of customers who are knocking on the door. We do have in place sufficient production to start the commercialization phase. Now it's one thing to get the regulatory clearance, but then you have to start moving all of this. And so what we're doing is pretty much building to about EUR 100 million of sales by 2025, by which time you're absolutely right. Dalry, that we announced in the autumn, we're working on. It's a big plant. So it needs to be built and commissioned. From the moment that Dalry is up and running, then the ramp-up can be at a very different pace. So that's broadly where we are. The full potential of Bovaer, we keep at about EUR 1 billion to EUR 2 billion for now because we know that the commercialization phase will take some effort, the absolute potential is actually bigger because of -- if we go from dairy plus beef, plus broadening the geographies versus our initial estimates. But for now, we like to hold the EUR 1 billion to EUR 2 billion. So hopefully, that gives you some color in terms of between now and 2025. Then maybe when we look at -- I'm not sure whether you mentioned Veramaris. But when it comes to Veramaris, so the joint venture is with the capacity that we have, it's all about targeting EUR 150 million sales for the JV. So that is within the years to come as we ramp up. And when it comes to Avansya, here, we are building gradually towards hopefully about EUR 100 million by 2025, but that is very dependent on how the big soft drink players move on the product. And so at least that's some of the key numbers. Maybe if I wrap it up a bit in terms of the pipeline because here, we've picked out a few of the big tickets. But when we look at our Innovation pipeline, how we like to quantify it is that we want to be delivering between 2021 and 2025, about 1.5% of revenues and 2.5% of extra EBITDA from our Innovations. And that is the scale. But here, it's not just the big tickets, it's also the whole pipeline and the platforms, the 4 Ps that you may remember from our Capital Markets Day with all of the growth platforms embedded in there. And then there was a second question. I forgot your second question.

Erber.

Oh, Erber, do you want to take that?

Yes. So before I go to Erber, just to conclude on the innovation tickets. I think Geraldine said it very well. We focus at some of the key areas. So Bovaer is on dairy, but there's opportunity on beef. Veramaris focuses on salmon, but there's opportunity on [ debt ] and on shrimp. And Avansya is focusing on the low calorie sweetener but we also will get sugar replacement. So it's not only the big ticket itself, but it also opens the next door. But I hope you understand that the next door is a bit far away. So we try to stay focused on where we are with the big tickets. Then on Erber, obviously very happy with the results, EUR 86 million EBITDA. This is including synergy from what we brought to Erber, but Erber also brought synergy to us. This is a really specialty area. I hope you appreciate that we don't give guidance on all types of segments in itself. We give guidance for the whole company. So -- but nevertheless, I think it's fantastic to see that Erber nicely fitted into what we hoped they would fit in. And I think that's also the beauty of doing the M&A trajectory a bit what I said earlier in my presentation. In the past, sometimes, we did acquisitions, which were a bit more adjacent. We now do acquisitions like, Geraldine said, it fits in that unique business model. So we always have an anchoring point, either on the global products or on the local solutions or on the region. And that makes integration a lot of hard work. But in terms of risk profile, there is a good landing spot. And I think we've seen that for CSK. We've seen that for Glycom, and we've seen that for Erber.

Our next question is from Mr. Chetan Udeshi of JPMorgan.

I just wanted to come back to that slide where you showed the EBITDA contribution from acquisitions over the last 3 years. And I was just curious if you had some return number from those acquisitions, I calculated it to be about 5.5% to 6%. But like in terms of progress with return on capital employed or generating returns through those acquisitions, any color on those on that metric? And like in general, can you remind us what is the sort of framework you guys use to evaluate the value creation from acquisitions on financial metrics? And a related question was -- within the guidance on Nutrition of sort of mid- to high-single digit, I think now it's high-single digit, apologies -- earnings growth, how much of that is M&A contribution that we should have in mind on average per year within that number? Or is that number entirely organic?

Okay. So maybe to your first question on M&A, of course, it's always -- the question comes often of what kind of return do you expect on each and every acquisition, and they are very different in nature. So if you look at the Midori for example, it has a lot of innovation in there. It has a much longer ambition in the Eubiotics, gut health space, whereas an Erber acquisition, here, what we have is a very much up and running, scaled, very synergetic business. But of course, they tend to have a different ambition. And what we see is that therefore that even the multiple varies. If I take a very simple math of Erber's EBITDA of 2021 versus how much we paid, it's about 10, 11x. When you look at more sort of future-looking acquisitions, that tends to vary. So it's very difficult to give you a very generic answer to what kind of capital employed do we expect, particularly in a short time frame. What we do try to do, however, is to make sure that we have a healthy mix in our acquisition portfolio of up and running businesses. First Choice is a very good example of that, very much operating, very well established with customers and those that are building onto the future and complementing our innovation. So if we take this corn, it's not a very sizable one, but it very nicely complements for instance, CanolaPRO. Our rapeseed plant-based protein that will be coming to commercialization production in 2022. So it's a little bit, I have to say, case by case. Now when it comes to the outlook, it is an outlook that includes the contribution of acquisitions. So the high-single-digit EBITDA growth in the year, I think we have got about EUR 20 million for First Choice and for Vestkorn included in that. So 1.5%, 2% coming from M&A. And probably, I think one question that has been coming in was the assumption on foreign exchange. Now probably good to flag that on foreign exchange, if we take into effect the hedges because we do hedge half of our exposures, we expect a neutral FX. Whereas if you look at it, at first, you may think of a tailwind, but it's actually more neutral overall.

We have one question coming through now from Mr. Fernand de Boer of Degroof Petercam.

One question from my side. I thought that in the second half of 2021, you took some EUR 54 million restructuring charges. Could you a little bit elaborate where that was for? And is then -- what could we expect as we probably also will see organizational changes? As you are already implemented as per this January, the new organization structure. Is that then foreseen in terms of restructuring charges or could we expect more in 2022?

Yes. Thank you very much for the question. Indeed, as was alluded to, when Dimitri reminded everyone of what we announced in September, 2021 was a year of quite a big reshuffle internally and reorganization. Now overall, that does unfortunately attract some costs. And in -- if I look at the full year costs and break it down, we have about 30% of that is actually linked to the carve-out of Resins & Functional Materials. So as you imagine, when a big chunk of business goes, you have to address the hanging costs, so you can align that with a gain on disposal that we recorded as we disposed of that business. So there's -- it comes with the gain. Also about 20%, 30% is the carve-out for Resins. 20% is actually linked to preparing Materials and making it more what we call a dedicated support. So it's basically disentangling some of the functional support. It's also about putting R&D and innovation in the right place. So that is another 20%, and that leaves us with another [ half ]. And here, we've done a combination of things. We have done programs, which are really linked to driving efficiency. We know from experience that, that needs to be done. Anytime you do a reorganization, you have to embed an efficiency improvement, and that is going to help us absorb basically some of this inflationary pressure that is coming in, in 2022. And we also have the tilting to the 3 business group and, in particular, the creation of the Food & Beverage division. So there's going to be also some synergy benefits from having repositioned our businesses much better aligned with the markets and set up in a much more effective way. So that's a bit why did we spend quite a lot on reorganization in 2021. Now looking into 2022, there will be some carryover because of the timing of these things. So you may -- you do the work, but the impact comes a bit later. So we're probably looking at probably a EUR 40-ish million in 2022, to complete some of these programs which have been set up and designed in 2021 but still to be finalized.

If I look at the past 6 years, I think you, on average, had more than EUR 18 million of restructuring costs. So normally speaking, that should be going to EUR 40 million going forward, is that the right assumption? And as you said, just said, EUR 40 million for '22.

That is probably -- I mean this year, yes, it was a big year. Now we should -- we always are a bit cautious with guidance because if we look at -- we react also to market circumstances. So we need to never sort of say this is done and we've done for the next 5 years. But given how much has been achieved and put in place in 2021, that's what we would expect.

[Operator Instructions].

And of course, the queue is empty. We saw it with the previous one. I think we can close off this conference. Geraldine, shall we do that?

Yes. I think indeed. Thank you all for joining us. We also want to be mindful of your time. I hope this webcast has been helpful. As you know, Dave and the team are always there for any follow-up questions that you may have. Now to round off, I think fair to say that 2021 was really very much of a pivotal year for us as a company, not only because of the creation of the new 3 divisions, setting a strategic review for Materials, but also with some very significant steps in our innovation progress that we've discussed. So we look back at 2021 with a lot of gratitude to all of our colleagues for their perseverance in very complicated markets and supply chains, and we stay fully alert going forward, amongst others, given the inflation context. And with that, I thank you very much, and we close the call.