Nutrition Cluster Resilient as DSM Posts Q4 Loss

DSM said that Nutrition continued the strong performance trend in the fourth quarter. Sales volumes increased compared to 2008. Prices remained robust at a somewhat lower level compared to the end of 2008 / early 2009.

24 Feb 2010 --- In the fourth quarter of 2009 DSM’s businesses continued to experience developments at two different speeds. Growth in most emerging markets (especially China) is back at the level before the economic downturn, while growth in Europe and North America is still modest and fragile, although market conditions are clearly better than at the beginning of 2009. All in all this resulted in a Q4 which was much in line with the previous quarter.

The Nutrition cluster continued to show steady growth, reflecting long-term developments, which is typical of the food and feed related markets. The Pharma cluster improved its performance temporarily in Q4, thanks to a strong increase in the sterile vaccine business related to the flu pandemic.

The Materials Sciences clusters continued to recover, although interrupted by the seasonal end-of-year effect. The impression is that the level of downstream re-stocking is limited.

In Base Chemicals and Materials most units are back at modestly profitable levels. The exception is DSM Agro, which reported a very good Q4 2008, but is now facing a loss due to very depressed margins compared to Q4 2008.

The full year 2009 was strongly affected by the impact of the economic downturn. However, the operating result of the core part of DSM (continuing activities, excluding Base Chemicals and Materials) was down only 26% (from € 595 million to € 438 million). This not only underlines DSM’s resilience as a Life Sciences and Materials Sciences company, but also shows the company’s ability to act fast if circumstances so require.

This agility is also reflected in the excellent cash performance in 2009. Total operating cash flow amounted to € 1,276 million, which was substantially more than in 2008, when DSM achieved the best operating profit in its history. On top of that, capital expenditure was reduced by about 25% compared to 2008 and two non-core activities were sold. As a result, net debt more than halved during the year to € 830 million.

DSM made good progress in 2009 towards two important targets of its Vision 2010 strategy. Sales in China in 2009 increased to almost USD 1.2 billion, a new record for the company, strongly driven by volumes. DSM expects to come close to the USD 1.5 billion target for 2010. In 2009 innovation sales were about € 810 million, 35% more than in 2008, which is a good basis to reach the target of € 1 billion additional sales in 2010 compared to 2005.

At year-end DSM had to recognize a substantial impairment. The goodwill impairment test for Catalytica (part of DSM Pharmaceutical Products) showed that the value in use had significantly decreased compared to earlier years due to the depressed current market conditions and lower future growth rates for the business. As a result of the reduction in the recoverable amount a non-cash goodwill impairment charge of € 154 million was recognized.

Full year sales were strongly affected by the economic downturn, overall showing a negative organic development of 16%. Sales volumes were lower in all clusters, although in Nutrition this was mainly due to some de-stocking in the value chain in the first half of the year. In the Materials Sciences clusters and in Base Chemicals and Materials, volumes clearly improved in the course of the year, but the operating level is on average still 10 to 20% below the pre-downturn level. DSM Fibre Intermediates, with its strong position in China, is the positive exception with an operating level close to pre-downturn.

Prices too, were lower than in 2008 in most clusters, Nutrition being the exception. In most business groups, price developments reflected the underlying trend in raw materials. This was not the case at DSM Agro and (to a lesser extent) in DSM Anti-Infectives; in these business groups, margins were under strong pressure. The impact of currency exchange rates on full year sales was limited.

DSM said that Nutrition continued the strong performance trend in the fourth quarter. Sales volumes increased compared to 2008. Prices remained robust at a somewhat lower level compared to the end of 2008 / early 2009. Operating profit remained strong, although at a lower level than in Q4 2008 when some non-recurring items were included. The main drivers were sales performance and the ongoing cost management and efficiency in production in DSM Nutritional Products and DSM Food Specialties.

Full year organic sales growth was 1%, reflecting the resilience of this business. After a period of de-stocking in H1 2009, volume growth returned later in the year with continued focus on value. The increase in operating profit at DSM Nutritional Products compared to 2008 was to a large extent based on favorable margins for most products, a relatively strong dollar and ongoing cost management and efficiency improvements. DSM Food Specialties’ operating profit was above the 2008 level with strong performance in enzymes, such as Brewers Clarex, and ARA (an infant nutrition ingredient).

Commenting on the results, Feike Sijbesma, Chairman of the DSM Managing Board, said: “In what was undoubtedly one of the most challenging years in DSM’s history, we stayed the course and remained fully committed to our customers, innovation and sustainability. After a difficult first half year, we delivered improved results in the second half of the year as our Materials Sciences businesses started to recover.

“Although our full-year operating profit from continuing operations halved compared to our record performance of 2008, the decline in DSM’s core activities was limited to 26%. A continued robust performance from the Nutrition business and the benefits of our early actions to improve our competitive position contributed to this performance. Our initiatives to reduce costs delivered over € 150 million in savings during the year, whilst our focus on cash resulted in an unprecedented operating cash flow of almost € 1.3 billion in 2009. Our strong financial position leaves us well placed to capitalize on any opportunity that might arise.”

“As we have entered an uncertain 2010, DSM will continue its strategic transformation into a Life Sciences and Materials Sciences company. We completed the disposal of two businesses during the year and remain committed to exiting the remaining non-core operations. Whilst recognizing the uneven nature of the current economic recovery, we are cautiously optimistic.”