DSM Human Nutrition Sales Fall on Soft Consumer Demand

06 Aug 2014 --- Royal DSM has reported second quarter 2014 EBITDA from continuing operations of €293 million compared to €332 million in Q2 2013, and €272 million in Q1 2014. Nutrition showed improvement compared to the last two quarters. Performance Materials continued its encouraging underlying trend and delivered higher results. Polymer Intermediates was negatively impacted by lower caprolactam margins.

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said: “DSM delivered improved results versus the first quarter, despite persistent currency headwinds. Performance Materials saw continued positive momentum in a number of end-markets, whereas Polymer Intermediates has seen weaker business conditions for caprolactam.”

“Market conditions in Nutrition have shown some improvement with good Animal Nutrition performance in Q2, while Human Nutrition still operates in a low growth macro environment for some end-markets due to ongoing pressure on consumer spending. In this environment, the resilience of our integrated value chain is demonstrated by robust margins, highlighting the quality of our Nutrition business. In addition we are undertaking initiatives in the US to reinforce the attractiveness of our dietary supplements end-user categories.”

“We continue to focus on efficiencies to protect profitability and improve cash flow in the current environment. Despite the weakness in caprolactam, we continue to anticipate to deliver improving financial results in the coming quarters.”

Nutrition sales in Q2 declined by 3% compared to Q2 2013, as organic growth and the contribution of new consolidations was offset by 5% weaker currencies. Organic sales growth was 1% versus Q2 2013, with volume growth (2%) partly offset by lower prices (-1%).

EBITDA for Q2 was €222 million, down 11% compared to Q2 2013. The combination of good demand in Animal Nutrition and the continued soft consumer demand in some of DSM’s Human Nutrition end-markets resulted in total into a modest organic growth of 1%, which was offset by the foreign exchange impact. The EBITDA margin of 20.7% reflecting the significant impact of foreign exchange rates compared to Q2 2013 was within DSM’s target range of 20-23%.

Human Nutrition & Health net sales were €403 million in Q2. Organic sales development was negative at -6% compared to Q2 2013 owing to lower volumes. The price/mix development was flat.

Sales in dietary supplements for vitamins and fish-oil based Omega-3 in the US were down versus the same period last year. Recovery of these end-markets is slower than expected. Promotional initiatives and industry wide campaigns are being launched to support the vitamins and Omega-3 dietary supplements markets. Momentum for dietary supplements outside the US continued to be positive. Demand for i-Health remained robust.

Sales in infant nutrition were weaker compared to the same period last year due to the after-effects from the false botulism scare, with China and South East Asia markets being the most affected. Furthermore, recent changes in Chinese regulatory policy have created additional uncertainty for the industry. As a result infant nutrition suppliers have reduced their inventories.

Food & beverage markets have continued to show sluggish growth, while demand for premixes stayed healthy. In order to stimulate growth, “A-label” customers are investing in new product launches, promotional campaigns and acceleration of innovations.

Animal Nutrition and Health net sales were €519 million in Q2. Organic sales growth in Q2 was 5% driven by good global volume growth. Overall, the price/mix effect was flat.

Market conditions in animal feed continued to improve in Q2 as premix businesses showed strong performance. Vitamin E volumes and prices were lower versus the same period last year.

DSM Food Specialties delivered good organic growth in enzymes and cultures driven by a continued focus on innovation and high margin applications.

DSM is firmly committed to its strategy, which has delivered and will continue to deliver sustainable value. DSM in motion: driving focused growth is the strategy that the company embarked on in September 2010, which was updated in September 2013. The next update is planned for Q4 2015. DSM in motion: driving focused growth marks the shift from an era of intensive portfolio transformation to a strategy of maximizing sustainable and profitable growth. DSM’s strategic focus on Life Sciences and Materials Sciences is fueled by three main societal trends: Global Shifts, Climate & Energy and Health & Wellness. DSM aims to meet the unmet needs resulting from these societal trends with innovative and sustainable solutions.

Below are some highlights of DSM’s Q2 2014 achievements.

High Growth Economies: from reaching out to being truly global
Sales to High Growth Economies reached a level of 42% of total sales in Q2 2014 versus 39% in Q2 2013. Sales in China amounted to USD 487 million, versus USD 395 million in Q2 2013, largely driven by substantially higher volumes for caprolactam resulting from the second caprolactam facility.
DSM opened its China Animal Nutrition Center in Bazhou, south of Beijing. With its focus on swine and poultry nutrition and the capabilities to conduct world-class scientific and application research, the facility will support the development of tailored solutions to meet the needs of the fast growing poultry and swine markets in China.

Innovation: from building the machine to doubling innovation output
Innovation sales in the first half of 2014 – measured as sales from innovative products and applications introduced in the last five years – amounted to 18% of total sales equal to the first half of 2013, which is close to DSM’s 2015 target of approximately 20%. Examples of innovations, recently launched are:
• The world’s first high-heat plastic air intake manifold with integrated charge air cooler made from Stanyl Diablo, DSM’s high temperature resistant polyamide 46.
• Rapidase Pro Color, DSM’s fruit enzymes that help to obtain the highest possible juice yield.
• A high intensity sweetener platform based on fermentation of steviol glycosides, the sweet tasting molecules present in Stevia plants. This breakthrough technology will provide clean taste and a secure and scalable supply.
• A new coagulant, Maxiren XDS that helps cheese producers to maximize their value.

Sustainability: from responsibility to business driver
It is DSM's goal to have an injury and incident-free working environment. DSM has set itself the target of reducing the Frequency Index of Recordable Injuries by 50 percent or more by the year 2020 compared to 2010. This will require an index score that is less than or equal to 0.25 by 2020, compared to the 0.57 achieved in 2010. At the end of the first half of 2014 this index amounted to 0.43.

The share of ECO+ products in DSM’s innovation pipeline was well above 90% in H1 2014, higher than the 2015 aspiration of 80%. The Eco+ share in the running business in H1 2014 was slightly ahead of the 45% in 2013, well on track towards the 2015 aspiration of 50%. DSM's energy efficiency is well on target: 16% improvement in the first half year of 2014 compared to 2008. The aspiration calls for a 20% improvement in 2020 compared to 2008. Greenhouse-gas emissions in CO2 equivalents were 7% less than in 2008. DSM’s aspiration is a 25% reduction by 2020, compared to 2008.
In India DSM completed construction of a 1MW solar facility adjacent to its plant in Ranjangaon.

Acquisitions & Partnerships: from portfolio transformation to driving focused growth
DSM reached agreement to acquire Aland (HK) Holding Limited (“Aland”), a Hong Kong-based company producing vitamin C in mainland China. Subject to customary conditions, the transaction is expected to close in the next six to nine months.

DSM and Niaga, a Netherlands-based provider of sustainable solutions for the carpet industry, announced a joint venture, DSM-Niaga, to further develop and commercialize sustainable technology for recyclable carpet. Based on proprietary and complementary technologies, DSM-Niaga will enable the industry to close the carpet materials loop.

DSM targets for 2014 to deliver an improved underlying business performance in a challenging macro environment. DSM is on track to meet current market expectations, notwithstanding the adverse impact from foreign exchange rates of about €70 million and weakness in the caprolactam supply-chain.