DSM Q4 Earnings Rise, Boosted by Nutrition Performance
17 Feb 2016 --- DSM has reported that Q4 Group net sales were up 6% to €1,926m and EBITDA up 3% to €261m. There were particularly encouraging signs in Q4 for Nutrition, with 7% organic growth with strong volume growth in both Animal and Human Nutrition. Overall, 2015 was characterized by a “solid performance” with Group net sales of €7,722m and EBITDA up 4% to €1,075m.
DSM reported that it was on track to hit cost savings and productivity targets, reaffirming its aim of achieving 2016 earnings before interest, tax, depreciation and amortization (EBITDA) ahead of last year's €1 billion ($1.12 billion).
Feike Sijbesma, CEO/Chairman of the DSM Managing Board, commented: “DSM’s fourth quarter performance, slightly ahead of expectations, was encouraging. We are particularly pleased with our progress in Nutrition, where both Animal and Human Nutrition delivered strong organic growth. Performance Materials continued to benefit from improved margins. In addition, our focus on cash flow and working capital efficiency contributed to a strong operating cash flow of €313 million.”
“This good progress in Q4 completes a year in which we achieved solid results. We delivered strong organic growth in Nutrition despite lower vitamin E prices. Cost savings and good margin management helped drive higher margins in Performance Materials, which also benefited from lower input costs. Currencies, while being a mixed bag, had a favorable effect overall despite the strengthening of the Swiss franc,” he added.
“We expect to make further progress with our growth initiatives in 2016 both in Nutrition and Performance Materials although the macro-economic context remains challenging. These will be underpinned by our group-wide cost and productivity improvement programs as well as our disciplined focus on capital allocation and working capital. We are on track with these initiatives which will help drive improved profitability and return on capital that we target with our Strategy 2018,” Sijbesma said.
In Nutrition, Q4 2015 sales were up 12% compared to Q4 2014. Nutrition delivered 7% organic sales growth driven by strong volume growth in both Animal and Human Nutrition & Health. Prices were on average flat as the negative impact of significantly lower vitamin E prices was compensated by higher prices for a range of other nutritional products. As a substantial part of these other products are in-sourced for DSM’s premix activities, these increased prices only have limited benefit at EBITDA level.
Q4 2015 EBITDA was up 3% despite the negative impact of lower vitamin E prices (~€25 million). EBITDA was furthermore impacted by a scheduled maintenance shut-down. Adjusting for this, the EBITDA margin would have been slightly above 17%.
Full year 2015 sales were up 14%. Organic sales growth for the Nutrition cluster was 6%, driven by higher volumes. Sales furthermore benefited from currency effects. Animal nutrition delivered strong growth throughout 2015. Human nutrition started weak but stabilized during the course of the year, showing progress in the second half with a solid fourth quarter.
Full year 2015 EBITDA declined by 3% as good organic growth and the positive impact of the strengthened US dollar were more than offset by the negative impact of significantly lower vitamin E prices, the appreciation of the Swiss franc and the weakening of the Brazilian real.
Q4 2015 sales were strong in Human Nutrition & Health, with 5% organic growth achieved against the background of ongoing weak market conditions in the US and Latin America. The strong growth in the quarter was encouraging, although it should be noted that the comparison with the same quarter in 2014 was relatively easy.
Food & beverage markets showed a mixed picture, with ongoing weak conditions in the US and Latin America. Markets in Europe and Asia performed well.
Dietary Supplements showed improved sales of both fish oil- and (multi) vitamin-based supplements despite continued weakness in the US market. i-Health, DSM’s consumer business, again delivered strong double-digit sales growth.
Infant Nutrition reported higher volumes compared to the same period in 2014.
DSM Food Specialties delivered 3% organic growth in the quarter on the back of solid performance in enzymes & cultures and particularly in solutions for sugar reduction and dairy.
Q4 2015 sales in Animal Nutrition & Health were strong and showed 9% organic growth, driven in particular by the premix business and specialty products. Although growth rates had been anticipated to slow down in Q4 due to tougher comparative figures in 2014, volume growth in fact came in at 7%, supported by positive year-end effects on the timing of orders. On a regional level, Europe and Latin America (including Tortuga in Brazil) performed well, whereas Asia was slightly weaker. Prices showed a 2% improvement as lower vitamin E prices were more than compensated for by higher prices of other materials including in-sourced materials. Currency developments had a negative impact on sales as support from the stronger US dollar was more than offset by weakness in South American currencies, especially the Brazilian real.
DSM is currently executing cost reduction and efficiency improvement programs with targeted overall savings of €250-300 million by 2018 (of which €25 million was achieved in 2015) and aims to enhance its financial performance through consistent improvements in capital efficiency. Capital expenditure will primarily support growth areas, with approximately two-thirds being focused on the Nutrition cluster.
