Nutrition Aids Strong DSM Q3 Performance

Volume growth in Nutrition was restrained in Q3, reflecting DSM’s policy to prioritize value over volume, together with a certain amount of general de-stocking in the industry during the quarter.

27/10/08 DSM’s operating profit from continuing operations in Q3 (EUR 267 million) was only slightly below the result in the second quarter, which was DSM’s best ever quarter, and 27% better than the comparable quarter in last year. The main drivers behind this strength were the performance of the Nutrition cluster and continued high fertilizer prices.

However, DSM’s Performance Materials and Polymer Intermediates clusters and some businesses in Base Chemicals & Materials increasingly experienced economic weakness, particularly towards the end of the quarter, due to their exposure to more affected end markets, such as automotive, building and construction, coatings and electrics and electronics.

In Nutrition, DSM’s focus on differentiation and innovation in combination with structural changes in the vitamins industry has resulted in significantly higher prices and profitability. Volume growth in Nutrition was restrained in Q3, reflecting DSM’s policy to prioritize value over volume, together with a certain amount of general de-stocking in the industry during the quarter.

Performance Materials, Polymer Intermediates and some parts of Base Chemicals and Materials are being faced with a softening demand. This is a reflection of the weakening of the worldwide economy, which is currently being amplified by a de-stocking in the downstream industry. In Performance Materials the excellent performance in DSM Dyneema is partly compensating for weakness in other parts of the cluster.

The operating profit from continuing operations amounted to EUR 267 million, an increase of 27% on the comparative period last year. This performance was achieved despite higher feedstock and energy costs of approximately EUR 170 million and much lower currency exchange rates versus the Euro, which had an effect on the operating profit of some EUR 15 million (after hedging). All of this was more than compensated for by the substantial organic growth in Nutrition and DSM Agro.

DSM said that Nutrition is clearly benefiting from its successful differentiation and innovation strategy in vitamins, which is being amplified by the changing dynamics in the industry. During the quarter there was reduction of previously increased safety stocks by some customers. Organic sales growth was 19%, benefiting from the strategy to focus on value over volume.

Prices for vitamins A, E and C could be increased further in Q3. DSM Nutritional Products’ operating profit increased strongly as a result of these price increases despite the negative impact of the US dollar, higher feedstock and energy costs and the phasing-out of some Roche contracts.

The operating profit of DSM Food Specialties was somewhat below last year’s because of lower currencies, higher energy prices and a slightly weaker demand.