DSM Reports Strong Q2 Results with Solid Growth

In Q2 DSM realized one-off profits due to the sale of its shares in Danisco (€140 million before tax) and the divestment of DSM Elastomers (€110 million before tax). These profits are reported as exceptional items.

Aug 2 2011 --- The monetary and financial instability, caused by continued global sovereign debt challenges worsened in Q2. This was, amongst other factors, reflected in very volatile currency exchange rates. On average, over the quarter the US dollar decreased by 13% and the Swiss franc increased by 11% against the Euro compared to Q2 2010. Inflationary pressure, especially in food, raw materials and energy remained high.

However, this instability did not affect DSM’s markets. Trading conditions remained in line with the positive Q1 environment, as a result of strong growth in high growth economies and moderate, but continuing, growth in Western Europe and North America. The Japanese economy was still weak, following the natural disasters in Q1.

Within this macro-economic context the majority of DSM’s businesses continued to offset increased input cost with pricing strength. The increasingly strong Swiss franc, however, negatively affected the cost base of the Nutrition business. The US dollar had a negative impact for all of DSM.

Nutrition posted its best quarter ever. It continued to deliver solid volume growth. Currencies had a negative impact of around €20-25 million on the operating result compared to Q2 2010. Martek, acquired in Q1, delivered an excellent performance.

Pharma sales and results improved compared to Q1, but DSM is conscious that overall performance of the cluster remains below acceptable levels.

In Performance Materials unit margins in DSM Engineering Plastics and DSM Resins continued to improve. However, DSM Dyneema was affected by lower sales to the tender driven vehicle protection business. As a consequence the cluster result was somewhat lower than in Q2 last year.

Polymer Intermediates continued to show an excellent performance. Despite a planned maintenance shutdown for the acrylonitrile plant, results were close to Q1 and substantially above last year’s.

Total EBITDA (continuing operations) grew by 2% and on comparable basis by 5% versus last year’s Q2. Compared to previous quarter EBITDA increased by 4%.

In Q2 DSM realized one-off profits due to the sale of its shares in Danisco (€140 million before tax) and the divestment of DSM Elastomers (€110 million before tax). These profits are reported as exceptional items. In addition the lower effective tax rate (21% versus 25% in 2010) and a strong operating result contributed to a more than 160% increase of net profit and earnings per share.

Net debt decreased by €372 million during the quarter to €278 million. The main positive contributors were the operating profit and proceeds from disposals, which were partly compensated for by an increase in working capital (from 19.7% in Q1 2011 to 21.0% of sales in Q2 2011), capital expenditure, acquisitions, the share repurchase program and the payment of the final dividend.

Organic sales growth was 10%, well above target. This is the sixth consecutive quarter with double digit organic growth. Volume growth was 4% and price increases 6%. Currencies (mainly the US dollar and the Chinese yuan) had a negative effect of 4%.

Nutrition continued to realize strong volume growth, both compared to prior year and Q1. The decreasing price trend was halted during the first half year. Martek added €84 million to the Nutrition sales, which was partly offset by the shift of DSM Food Specialties’ ARA sales to Martek from external sales to internal supplies.

Although Pharma sales improved compared to Q1, they are still below last year’s level.

Performance Materials continued to post double digit organic growth, mainly due to pricing strength. Volume growth was modest, due to lower sales by DSM Dyneema to the vehicle protection business.
Polymer Intermediates organic sales growth was an excellent 24%, mainly due to price increases.

Sales including Martek increased by 10% over the same period last year. Organic sales growth was 5% and currencies had an impact of -3%. Organic sales growth was 3% over Q1 2011. There was particularly good volume growth in Animal Nutrition & Health and DSM Food Specialties. Overall prices were lower compared to Q2 last year and in line with Q1 2011.

The performance of the cluster remained strong and EBITDA was above Q2 last year. EBITDA excluding Martek was lower than the exceptionally strong results of last year, mainly due to the negative impact of the Swiss franc and US dollar which was approximately €20-25 million for DSM Nutritional Products, net of hedging results. Despite higher raw material and energy costs and unfavorable currency developments, EBITDA (excluding Martek) in Q2 2011 improved compared to Q1 2011, due to volume increases with stable prices. To mitigate the effect of currencies and higher input costs, price increases and cost optimization measures are being implemented.

Martek delivered an excellent performance with sales of €84 million and EBITDA of €28 million.