DSM Reports Strong Q1 With Sustained Nutrition Performance
The Nutrition cluster continued to show healthy volume growth at price levels that were comparable to the last quarters of 2009. The Pharma cluster faced lower volumes compared to Q4 2009.
28 Apr 2010 --- DSM has reported a very strong start to the year, which resulted in a significant improvement in operating profit, not only in comparison with the weak Q1 of 2009 but also in comparison with Q3 and Q4 of last year. DSM benefited from improved business conditions in most geographic areas and end markets.
The Nutrition cluster showed sustained good performance and the Materials Sciences businesses continued their recovery. The growth in emerging markets (especially China) continued to be strong and sales are currently higher than before the economic downturn. In Materials Sciences and Base Chemicals and Materials there are indications that in some businesses the strong demand is not fully aligned with the developments in the end markets, which would imply downstream re-stocking.
The operating profit of the core activities (continuing activities, excluding Base Chemicals and Materials) of € 178 million is back at the level of Q1 2008 (€ 176 million), which was one of the strongest first quarters in DSM’s history.
Commenting on the results, Feike Sijbesma, Chairman of the DSM Managing Board, said: “I am pleased to report that DSM has delivered a very strong start to 2010. Operating profit from our core businesses is not only up very strongly compared to Q1 2009, it has also returned to the level achieved in Q1 2008. This reflects the outstanding performance of our Nutrition business, a continuing strong recovery in our Materials Sciences businesses and cost savings initiatives taken last year which already deliver € 200 million on an annualized basis.
“Throughout the downturn, DSM has stayed the course - fully committed to our customers, innovation and sustainability. The announced sale of DSM Agro and DSM Melamine marks another important step in our transformation towards a Life Sciences and Materials Sciences company. Whilst uncertainties remain in the medium term economic outlook, the strong Q1 result and continued positive business conditions give us confidence that 2010 will be a good year for DSM.”
The Nutrition cluster continued to show healthy volume growth at price levels that were comparable to the last quarters of 2009. The Pharma cluster faced lower volumes compared to Q4 2009.
The Materials Sciences businesses continued to recover, driven by strong growth in emerging economies and also supported by further improvement in demand in the automotive, electronics and textile markets.
The Base Chemicals and Materials cluster was significantly reduced in size reflecting the announced divestment of DSM Agro and DSM Melamine. At the end of Q1 these businesses were reclassified to assets held for sale and discontinued operations. The cluster currently contains DSM Elastomers (as the main activity), DSM Citric Acid, DSM Special Products, and the Maleic Anhydride (and derivatives) activity. These businesses benefited from the recovery of the markets with higher volumes at more or less stable price levels.
DSM's focus on cash continued. Working capital increased by € 153 million mainly driven by receivables. Adjusted for the effects of the sale of DSM Agro and DSM Melamine and considerable changes in currency exchange rates, the level of working capital as a % of sales was comparable to the level at the end of 2009. Last year’s level was achieved after a substantial reduction during 2009. The strong financial position was maintained and net debt increased slightly to a level of € 871 million as a balance of a positive free cash flow and an increase because of a weaker euro. The cost saving program already delivered substantial benefits of € 200 million on an annualized basis.
The first quarter saw a continued strong performance of the Nutrition cluster with similar underlying dynamics in DSM Nutritional Products and DSM Food Specialties. The food and feed markets experienced a healthy growth compared to last year. Organic sales growth was +6% compared to Q1 2009, with growth in animal and human nutrition. While emerging economies such as China and Brazil are boosting sales growth, all geographies are performing well. Volumes remained stable and prices were robust compared to Q4 2009.
Most of the markets that are relevant to DSM saw a strong recovery in the first quarter with activities in emerging markets well above pre-crisis levels. Going forward, continued growth is expected. Of course there are still macro-economic risks that could affect the sustainability of this global recovery. Whilst DSM has been capturing growth opportunities, a focus on cash generation and cost saving programs remain important. This will secure financial flexibility and a strong balance sheet to take advantage of opportunities that will arise.
The food and feed markets are expected to grow in line with GDP in 2010. The Nutrition cluster is expected to achieve sustained good performance with results approaching those of last year, with an ongoing increase in demand and relatively stable price levels in both the food and feed markets.
