DSM Boosted by Nutrition and Food Specialties Performance
Operating profit of DSM Nutritional Products and DSM Food Specialties was exceptionally strong and materially higher than Q2 2009 and Q1 2010. The businesses benefited from good market conditions, favorable product mix, excellent manufacturing performance, good cost control, favorable currency exchange rates and some downstream restocking.
Aug 3 2010 --- DSM showed very good Q2 results, clearly improving compared to Q1, which was already considered to be a very strong start to the year. Compared to Q2 2009 operating profit almost tripled. The general drivers behind this strong performance are:
-Further improving business conditions in most geographic areas and markets partly due to re-stocking. Especially the China business is growing very fast. Sales in China in H1 increased to USD 784 million, which is 13% of DSM’s total sales (9% in H1 2009).
-In several businesses DSM was able to improve market share by maintaining a strong customer focus during the economic downturn.
-The cost savings program that DSM started in the last quarter of 2008 is now generating benefits of € 200 million on an annual basis. These cost savings had a positive impact on the operating profit of all businesses.
-Currency developments were favorable in Q2. Compared to Q1, the euro was, on average, 8% weaker compared to the US dollar. DSM’s cost base is still for a large part in euro, whereas sales in US dollars and dollar-related currencies are increasing.
Commenting on the results, Feike Sijbesma, Chairman of the DSM Managing Board, said: “I am delighted to report a very strong second quarter. Operating profit increased by more than 25% compared to the first quarter and for the current business portfolio it was the best quarter in DSM’s history. Our outstanding performance in the quarter reflects very good volumes across our businesses combined with a continued disciplined focus on pricing and costs.
“DSM has emerged from the recession as a stronger company and is now reaping the benefits, evidenced by robust results and a very strong balance sheet. DSM is staying the course – fully committed to customers, innovation and sustainability – and continues its transformation towards a Life Sciences and Materials Sciences company. DSM remains vigilant about the broader macro economic developments. Based on the current positive business environment we expect 2010 to be a strong year for DSM.”
Nutrition was benefiting from extra-ordinarily strong trading conditions in Q2. Most elements were supportive: good market conditions, excellent manufacturing performance, good cost control, favorable currency exchange rates and some downstream re-stocking. All this was combined with a successful continuation of the strategic focus on differentiation and innovation and the value over volume strategy.
As expected, Pharma faced difficult challenges. The drop in results was somewhat compensated by the development of the US dollar.
In Materials Sciences the recovery continues: in some markets demand is back to, or even better than, the pre-downturn level, although some downstream restocking is also visible. Margins in most businesses are strong, but towards the end of the quarter some margin pressure became visible, due to increasing raw material prices.
Net cash from operating activities was € 223 million in Q2 and in H1 2010 amounted to € 360 million which was more than sufficient to fund capital expenditure and the final dividend. Net debt decreased substantially because of the receipt of the DSM Agro and DSM Melamine divestment proceeds. The OWC/sales ratio at the end of Q2 was strongly influenced by the weakness of the euro at the end of the quarter, which inflated the amount of operating working capital in non-euro currencies.
Organic sales growth from continuing operations was +23% compared to Q2 2009. Compared to the already very good first quarter of this year, organic sales growth was +6%. This illustrates the recovery from the economic downturn. Growth rates are very substantial in the businesses that were most affected by the downturn. In Performance Materials the main driver for growth was volume, partly caused by some downstream re-stocking. In Polymer Intermediates the main driver for growth in Q2 was price; volumes had already recovered last year.
In Nutrition sales growth was good and in Pharma growth was moderate, although from a low base. All clusters benefited from the weaker euro, on average -6% versus the US dollar compared to Q2 2009 and -8% compared to Q1 2010.
The overall quarterly operating profit of the current business portfolio reached a record level, clearly higher than the pre-downturn level. Nutrition showed solid profit growth. The Pharma result was poor, mainly due to difficult business conditions in the pharmaceutical industry. Performance Materials results increased significantly compared to last year, and improved compared to the previous quarter, but the EBITDA-margin was still below target. Polymer Intermediates’ profit is clearly above the pre-downturn level. Operating profit was positively impacted by favorable currency exchange rates and the substantial contribution from the cost cutting program.
Performance in the Nutrition cluster remained strong. Organic sales growth was +4% compared to Q2 2009, mainly driven by growth in volumes in Human Nutrition & Health as a result of refilling the pipeline and market recovery in savory ingredients. Prices were relatively stable and in line with previous quarters.
Operating profit of DSM Nutritional Products and DSM Food Specialties was exceptionally strong and materially higher than Q2 2009 and Q1 2010. The businesses benefited from good market conditions, favorable product mix, excellent manufacturing performance, good cost control, favorable currency exchange rates and some downstream restocking. The continued strategic focus on value over volume is successful and sustainable.