DSM Reports Robust Nutrition Performance, But Uncertain on Outlook

DSM's Nutrition cluster continued to show resilience and steady growth, capitalizing on its strong market position in areas which were hardly affected by the downturn. The Pharma results remained low as expected, due to weak sales.

3 Nov 2009 --- DSM has reported that Q3 operating profit from continuing operations was EUR 139 million, more than double Q2 2009 (EUR 58 million). There was a strong Life Sciences performance due to a robust Nutrition business. Outlook for the rest of the year remains uncertain, the company stressed with Q4 operating profit currently expected to be lower than Q3, but above Q4 last year

Commenting on the results, Feike Sijbesma, chairman of the DSM Managing Board, said: “DSM delivered strongly improved results for Q3 2009, with ongoing resilience in Nutrition and a further improvement in Materials Sciences compared to the previous quarters. Our early action to reduce costs, our focus on cash and our commitment to innovation and China are paying off.

“We are alert that the economic climate remains uncertain and that the path of recovery is likely to prove uneven. However, it seems that the first half of 2009 represented the low point for this recession and we are showing that we are well placed to capitalize as markets improve, which is also reflected in a strong sales volume development.

“Throughout these challenging times, DSM is staying the course. We completed the disposal of two non-core businesses and remain committed to exiting the remaining non-core operations. Our strategic commitment to create a Life Sciences and Materials Sciences company addressing important global trends via a focus on customers, innovation and sustainability is undiminished. Our robust financial strength allows us to capture market opportunities as they arise.”

Most of DSM's businesses experienced a further improvement in demand during Q3, including a strong September. The underlying trend can be described as a mixture of a clear recovery in some end markets (especially China, where sales were 16% higher than Q3 last year) and some downstream re-stocking in other areas which, however, are still lower, such as automotive. The year-on-year percentage drop in sales volumes in the businesses affected by the economic downturn has returned to single digit.

DSM's Nutrition cluster continued to show resilience and steady growth, capitalizing on its strong market position in areas which were hardly affected by the downturn. The Pharma results remained low as expected, due to weak sales.

In the Materials Sciences clusters, the results of DSM Engineering Plastics, DSM Resins and DSM Fibre Intermediates were close to last year's level. The combined effects of lower sales volumes and the reduction of inventories were compensated for by lower raw material prices and the sustained focus on efficiency. Also DSM Dyneema experienced a weaker demand than in the same period last year.

The operating profit of DSM's core business, Life Sciences and Materials Sciences, in Q3 2009 (EUR 137 million) was only 10% lower than last year's level, during which period DSM was not yet affected by the downturn.

All businesses in Base Chemicals and Materials showed a clear recovery compared to the previous quarter, which resulted in a small operating profit for the cluster as a whole, but a much weaker result than in the very good period last year. The main contributors to this improvement versus Q2 were DSM Elastomers and DSM Agro.

The broad improvement in trading conditions was no reason to compromise the focus on cash. DSM's net debt of EUR 1,069 million is now EUR 818 million (43%) lower than a year ago at the start of the economic downturn.

The disposals of DSM Energy and the urea-licensing activities, as part of DSM's accelerated Vision 2010 strategy, were completed on 30 September and 6 October respectively. The disposal of DSM Energy resulted in a net book profit of EUR 268 million in Q3 and the disposal of the urea-licensing activities will result in a net book profit of around EUR 30 million which will be recognized in Q4.

Net sales dropped by 14% compared to Q3 2008 but improved by 5% compared to Q2 2009 (volumes +5%, prices +2%, exchange rates -2%). Sales volumes were on average still lower compared to last year's level, but the decline was much less than in previous quarters. This is a reflection of improvements in end-markets as well as some re-stocking. Nutrition, DSM Anti-Infectives, DSM Agro and DSM Melamine are even showing better sales volumes than Q3 last year.

Although prices were clearly below last year's level (partly due to lower raw material prices in the Materials Sciences and Base Chemicals and Materials businesses), pricing power was generally strong. Prices were, on average, increasing during the quarter and margins were mostly better than last year's (DSM Agro being the important exception due to much lower prices).

Operating profit At EUR 139 million, operating profit from continuing operations was substantially better than in the last three quarters, but clearly below last year's Q3. The decline year-on-year was mainly attributable to the Base Chemicals and Materials and Pharma clusters.

Nutrition sustained its solid performance and remained hardly affected by the recession. Volumes were growing again and were above last year while prices remained strong. Operating profit was negatively affected by underutilization of assets due to inventory reduction.

Pharma was affected by the weak demand at DSM Pharmaceutical Products and the continued weak pricing at DSM Anti-Infectives.

In Performance Materials both DSM Engineering Plastics and DSM Resins profited from a recovery in volumes, strong margins and improved efficiency. DSM Dyneema experienced pressure because of a weaker demand than last year.

Polymer Intermediates recovered sharply from the dramatic drop in demand and margins seen at the end of last year and the beginning of this year.

In Base Chemicals and Materials, the operating profit of DSM Elastomers showed a substantial improvement in this quarter and was positive again. The improvement in DSM Agro and DSM Melamine was less pronounced. Both business groups still posted a loss.

A number of structural cost-saving actions to address the effects of the economic downturn and to strengthen DSM's competitive position helped to improve the operating profit in Q3 compared to Q2. DSM is on track to achieve cost savings as a result of these actions of EUR 150-200 million on a yearly basis, to be fully achieved by 2010.

Organic sales growth in the Nutrition cluster was 2% compared to Q3 2008 driven by DSM Nutritional Products. The improvement came from an increase in volume, especially in the animal feed segment where demand slackened in Q3 2008. Demand for food ingredients in Q3 2009 was still impacted by de-stocking effects in the pipeline. However, in the second part of the quarter demand improved. Following the value-over-volume strategy, prices in both food and feed ingredients remained robust although at slightly lower levels which was compensated for by the stronger dollar. Compared to the second quarter of this year, volume improvements continued, but were offset by a weaker dollar. DSM Food Specialties’ sales were similar to Q3 last year.

Operating profit of DSM Nutritional Products continued to be strong in Q3 2009 and increased compared to last year. This was due to favorable sales developments, production efficiency and good cost management and despite underutilization of assets due to inventory reduction. DSM Food Specialties’ operating profit continued to be above last year due to strong performance in enzymes and ARA and favorable exchange rates.