DSM Q1 Profits Down, Nutrition Shows Resilience
The first quarter saw a continued strong performance of the Nutrition cluster, especially considering the economic downturn. Organic sales growth was 1% compared to Q1 2008 and sales were stable compared to Q4 2008.
28/04/09 Dutch chemical company DSM has reported that Q1 operating profit was down to EUR 57 million with a 76 percent decline in core first-quarter profit.
Almost half of DSM’s business is heavily affected by the economic downturn, in particular those businesses which are exposed to the automotive, electrical and electronics, and building and construction industries, the company said in a statement. DSM Engineering Plastics, DSM Resins, DSM Fibre Intermediates, DSM Elastomers and DSM Melamine all posted a loss in Q1 2009, as they had done in Q4 2008. All of these businesses, but especially DSM Fibre Intermediates, experienced continuing price pressure. In Performance Materials sales volumes decreased further compared to Q4, which is a reflection of very weak end-market demand and continued downstream de-stocking.
Unlike last quarter, the negative impact of inventory revaluations was limited (approximately EUR 15 million). This, in combination with the first effects of the swift cost control actions, allowed the operating results of most of the affected businesses to clearly improve compared to Q4.
DSM Agro’s business came under pressure, because of the late start of the fertilizer season and customers’ cautious purchasing behavior, which was also reflected in lower prices.
The Nutrition and Pharma clusters and DSM Dyneema showed resilience because their end-markets are less affected by the downturn.
DSM’s overall focus remained on cash in order to maintain a strong financial position. High priority is given to working capital management, credit control, responsible reductions in capital expenditure and cost control. The structural cost savings program which was announced on 15 December is well underway and is delivering its first results. It is now expected that the initially announced savings of EUR 100 million will be clearly exceeded.
The focus on cash was again successful, as witnessed by strong cash from operations in Q1 (EUR 166 million). Net debt decreased by EUR 40 million.
Sales dropped by 22% compared to Q1 2008, which is unprecedented. Virtually all businesses experienced a drop in demand, in particular in Materials Sciences and Base Chemicals and Materials. Nutrition too is experiencing some weakness in demand, especially in Animal Nutrition and Health. Prices in Nutrition remained at the Q4 level, but on a year-on-year basis they reflect the increase during 2008. Prices at DSM Fibre Intermediates are very weak as a result of intense competition.
Commenting on the results, Feike Sijbesma, chairman of the DSM Managing Board, said: “Although no improvement in demand in end-markets seems to be imminent, we are not at this point in time seeing a further deterioration either. Nevertheless, there will be tough times ahead. We remain focused on the generation of cash. Actions to reduce costs will continue unabated, and we now expect to over-deliver on our targeted savings of EUR 100 million by 2010.”
The first quarter saw a continued strong performance of the Nutrition cluster, especially considering the economic downturn. Organic sales growth was 1% compared to Q1 2008 and sales were stable compared to Q4 2008.
Volume developments in Q1 were negatively affected by continued inventory reduction in the value chain and reduced animal nutrition demand due to a moderate decline and shift in meat consumption. DSM has decided to reduce its production output for some feed ingredients to manage its operating working capital.
The increase in operating profit at DSM Nutritional Products compared to last year was to a large extent based on favorable margins for most products, a relatively strong dollar and ongoing improvements resulting from the Aspire to Win program. The latter has already achieved the targets initially set for 2010.
DSM Food Specialties’ operating profit was above last year’s, mainly as a result of the contribution of innovative products and favorable conditions in ARA (an ingredient for infant nutrition).