SOURCE: DSM N.V.

October 25, 2007 02:23 ET

DSM reports good third quarter; acceleration Vision 2010 under way

HEERLEN, NETHERLANDS--(Marketwire - October 25, 2007) -



*           Organic growth of 5% in Q3 2007 due to higher volumes
            (3%) and prices (2%).
*           Operating profit from continuing operations above Q3 2006
            level, despite negative impact of currency exchange
            rates.
*           Earnings per share increased by 11%.
*           New share buy-back program (EUR 750 million) in progress.
*           Outlook: full-year 2007 operating profit (before
            exceptional items) confirmed to be EUR 820 million with a
            narrowed range of +/-2%

Feike Sijbesma, Chairman of the DSM Managing Board, gave the following comment:

'We increased volumes and selling prices across our businesses which have driven a good performance by DSM in the third quarter. We are on track to achieve our objectives for the year and with the acceleration of the Vision 2010 strategy already under way, DSM is well-placed to achieve its transformation to a Life Sciences and Materials Sciences company.'


third quarter   in EUR million                     January-September
 2007  2006  +/-                                      2007  2006  +/-
                 Continuing operations:
2,187 2,098   4% Net sales                           6,531 6,285   4%

  321   319   1% Operating profit plus depreciation    947   975  -3%
                 & amortization (EBITDA)

  214   209   2% Operating profit (EBIT)               633   649  -2%
   68    79 -14% - Nutrition                           194   248 -22%
   33    12 175% - Pharma                               73    41  78%
   79    86  -8% - Performance Materials               247   258  -4%
   57    54   6% - Industrial Chemicals                173   147  18%
  -23   -22      - Other activities                    -54   -45
                 Total DSM:
2,187 2,104   4% Net sales                           6,531 6,304   4%

  214   209   2% Operating profit (EBIT)               633   648  -2%

  142   140   1% Net profit before exceptional         428   432  -1%
                 items

    0     0      Net result from exceptional items    -111    26

  142   140   1% Net profit                            317   458 -31%
                 Net earnings per share in EUR:
 0.80  0.72  11% - before exceptional items           2.32  2.23   4%
 0.80  0.72  11% - including exceptional items        1.71  2.37 -28%

In this report:

*           'operating profit' (plus depreciation and amortization)
            is understood to be operating profit (plus depreciation
            and amortization) before exceptional items.
*           'net profit' is the net profit attributable to equity
            holders of Royal DSM N.V

Net sales

in EUR million     third quarter
                     2007  2006 difference volumes prices exch. other
                                                          rates

Nutrition             639   598         7%      8%     2%   -3%    0%
Pharma                260   216        20%      1%    16%   -1%    4%
Performance           718   686         5%      6%     0%   -1%    0%
Materials
Industrial            463   489        -5%     -2%    -1%   -2%    0%
Chemicals
Other activities      107   109

Total, continuing   2,187 2,098         4%      3%     2%   -2%    1%
operations

Net sales from continuing operations in Q3 2007 were up 4% from Q3 2006 due to organic growth (+5%). The effect of exchange-rate developments on DSM's net sales was 2% negative. The US dollar was on average 7% lower against the euro, and the Japanese yen 9%. Sales volumes in Industrial Chemicals were negatively affected by the unplanned outage of the European caprolactam plant (as already mentioned in the Q2 report) and planned turnarounds in acrylonitrile and the Chinese caprolactam plant.

Operating profit

Q3 operating profit from continuing operations amounted to EUR 214 million, EUR 5 million above Q3 2006. The unfavorable impact of exchange rates, the phasing-out of contracts related to the Roche Vitamins acquisition, and the unplanned outage of the European caprolactam plant plus increased innovation expenditure were more than compensated for by the strong underlying business development.

The negative effects mentioned above amounted to almost EUR 50 million (of which around EUR 10 million related to the Roche contracts) in Q3 compared to last year. All clusters contributed to offsetting these negative effects. In Nutrition, volumes and market share increased, while the downward trend in vitamin prices was reversed. In Pharma, DSM Anti-Infectives was able to profit strongly from the shift in the demand-supply balance for penicillin by increasing prices of penicillin-related products. Performance Materials is sustaining its very positive volume trend and Industrial Chemicals further increased its margin.


Business review

Nutrition

+-------------------------------------------------------------------+
| third quarter |   | in EUR million            | January-September |
|---------------+---+---------------------------+-------------------|
|  2007 |  2006 |   |                           |   |  2007 |  2006 |
|-------+-------+---+---------------------------+---+-------+-------|
|       |       |   |                           |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|   639 |   598 |   | Net sales                 |   | 1,882 | 1,823 |
|-------+-------+---+---------------------------+---+-------+-------|
|   103 |   116 |   | Operating profit plus     |   |   299 |   359 |
|       |       |   | depreciation and          |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|       |       |   |   amortization            |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|    68 |    79 |   | Operating profit          |   |   194 |   248 |
+-------------------------------------------------------------------+

Sales in this cluster increased by 7%. This was the balance of higher sales volumes, higher selling prices and negative exchange-rate effects (mainly US dollar). Compared to Q3 2006, DSM Nutritional Products achieved solid volume growth. The downward price trend in some of the main vitamins was reversed, supported by the differentiation strategy (e.g. Quali-C™ branding). The situation in carotenoids was unchanged because of running yearly contracts. DSM Nutritional Products' operating profit decreased, mainly because of the strong negative impact of the US dollar, the phasing-out of contracts with Roche, innovation expenditure and costs related to moving the activities of the Gonglu site to Xinghuo (both in China). DSM Food Specialties' sales and operating profit decreased due to lower sales volumes (the remaining effect of the phasing-out of phytase tolling) and higher innovation costs. DSM Special Products (benzoic acid and benzaldehyde) showed a profit this quarter due to higher sales volumes and margins.

Pharma

+-------------------------------------------------------------------+
| third quarter |   | in EUR million            | January-September |
|---------------+---+---------------------------+-------------------|
|  2007 |  2006 |   |                           |    |  2007 | 2006 |
|-------+-------+---+---------------------------+----+-------+------|
|       |       |   |                           |    |       |      |
|-------+-------+---+---------------------------+----+-------+------|
|   260 |   216 |   | Net sales                 |    |   727 |  686 |
|-------+-------+---+---------------------------+----+-------+------|
|    59 |    32 |   | Operating profit plus     |    |   139 |  102 |
|       |       |   | depreciation and          |    |       |      |
|-------+-------+---+---------------------------+----+-------+------|
|       |       |   |   amortization            |    |       |      |
|-------+-------+---+---------------------------+----+-------+------|
|    33 |    12 |   | Operating profit          |    |    73 |   41 |
+-------------------------------------------------------------------+

Sales were up 20% due to higher selling prices (mainly at DSM Anti-Infectives) and despite the weaker US dollar.

DSM Pharmaceutical Products' operating profit was lower than in Q3 2006, due to planned shutdowns in the custom manufacturing business and because of the phasing-out of the Roche contracts. The operating result of DSM Anti-Infectives was much higher than in Q3 2006. The main driver for the better performance of DSM Anti-Infectives was the increase in prices for penicillin and related products. This increase was due to shortages on the market caused by temporary curtailments of domestic production in China. In the light of these shortages, DSM Anti-Infectives was able to raise its prices for penicillin derivatives as well. At the end of the quarter crude penicillin prices had dropped slightly from the earlier peak.


Performance Materials

+-------------------------------------------------------------------+
| third quarter |   | in EUR million            | January-September |
|---------------+---+---------------------------+-------------------|
|  2007 |  2006 |   |                           |   |  2007 |  2006 |
|-------+-------+---+---------------------------+---+-------+-------|
|       |       |   |                           |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|   718 |   686 |   | Net sales                 |   | 2,176 | 2,064 |
|-------+-------+---+---------------------------+---+-------+-------|
|   101 |   111 |   | Operating profit plus     |   |   316 |   332 |
|       |       |   | depreciation and          |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|       |       |   |   amortization            |   |       |       |

|-------+-------+---+---------------------------+---+-------+-------|
|    79 |    86 |   | Operating profit          |   |   247 |   258 |
+-------------------------------------------------------------------+

Sales were up 5% due to higher sales volumes and despite the lower exchange rate for the US dollar and the caprolactam plant outage.

The operating profit for the cluster decreased, mainly due to exchange-rate effects and the production outage of DSM Fibre Intermediates' European caprolactam plant, which had an adverse effect on DSM Engineering Plastics' polyamide business. DSM Engineering Plastics' operating profit was also impacted by higher feedstock prices and by the weaker US dollar and Japanese yen. DSM Dyneema showed a higher operating profit than in Q3 2006, with volume growth being partly offset by increased fixed costs. DSM Dyneema's ongoing growth was supported by a large contract to provide high-end vehicle protection materials. The operating profit of DSM Resins was at the level of Q3 2006, as higher margins compensated for increased costs for innovation and expansion. DSM Elastomers' operating profit was lower than in Q3 2006 because of lower margins due to lower exchange rates.


Industrial Chemicals

+-------------------------------------------------------------------+
| third quarter |   | in EUR million            | January-September |
|---------------+---+---------------------------+-------------------|
|  2007 |  2006 |   |                           |   |  2007 |  2006 |
|-------+-------+---+---------------------------+---+-------+-------|
|       |       |   |                           |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|   463 |   489 |   | Net sales                 |   | 1,427 | 1,396 |
|-------+-------+---+---------------------------+---+-------+-------|
|    71 |    72 |   | Operating profit plus     |   |   219 |   199 |
|       |       |   | depreciation and          |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|       |       |   |   amortization            |   |       |       |
|-------+-------+---+---------------------------+---+-------+-------|
|    57 |    54 |   | Operating profit          |   |   173 |   147 |
+-------------------------------------------------------------------+

Sales in this cluster were down 5% from Q3 2006 due to lower sales volumes (mainly at DSM Fibre Intermediates), lower selling prices and a weaker US dollar.

DSM Melamine, DSM Agro and DSM Energy posted a higher operating profit. The operating profit recorded by DSM Fibre Intermediates was below Q3 2006 because of the caprolactam outage in Europe and planned turnarounds in acrylonitrile and the Chinese caprolactam plant. DSM Melamine increased its selling prices and production volumes, resulting in an improved profit. DSM Agro's operating profit was higher due to higher margins, mainly because of lower natural gas prices. DSM Energy showed a higher profit, reflecting lower exploration costs.

Other activities

+-------------------------------------------------------------------+
| third quarter |   | in EUR million            | January-September |
|---------------+---+---------------------------+-------------------|
|  2007 |  2006 |   |                           |    |  2007 | 2006 |
|-------+-------+---+---------------------------+----+-------+------|
|       |       |   |                           |    |       |      |
|-------+-------+---+---------------------------+----+-------+------|
|   107 |   109 |   | Net sales                 |    |   319 |  316 |
|-------+-------+---+---------------------------+----+-------+------|
|   -13 |   -12 |   | Operating profit plus     |    |   -26 |  -17 |
|       |       |   | depreciation and          |    |       |      |
|-------+-------+---+---------------------------+----+-------+------|
|       |       |   |   amortization            |    |       |      |
|-------+-------+---+---------------------------+----+-------+------|
|   -23 |   -22 |   | Operating profit          |    |   -54 |  -45 |
+-------------------------------------------------------------------+

The operating result for Other activities was slightly lower than in Q3 2006, owing to higher innovation expenditure. On the other hand, DSM's captive insurance company posted a higher result due to lower damages.

Net profit

Net profit increased compared to the third quarter of 2006, from EUR 140 million to EUR 142 million.

Net finance costs in Q3 2007 amounted to EUR 22 million. This represents an increase of EUR 3 million compared to Q3 2006, which is due to the higher net debt resulting from the share buy-back program.

The effective tax rate in Q3 2007 was 25%. This is 1 percentage point below Q3 2006, due mainly to the lower tax rate in the Netherlands.

Net earnings per share increased by 11%, with 2% arising from the higher net profit and 9% from the lower number of shares outstanding as a result of the share buy-back programs.

Cash flow, capital expenditure and financing

Cash flow from operating activities in the first nine months of the year amounted to EUR 400 million and was in line with the previous year. At EUR 112 million, capital expenditure (excluding acquisitions) in Q3 was above the level of depreciation (EUR 107 million) and above the Q3 2006 level (EUR 95 million).

Compared to year-end 2006, the operating working capital increased by EUR 227 million in the first nine months of 2007. This was due to the increase in sales and the normal seasonal pattern.

Net debt increased by EUR 231 million in Q3 2007 and stood at EUR 1,320 million. Gearing increased to 20%. The increase was due mainly to the repurchase of ordinary shares.

Share buy-back program

On 10 September, DSM completed the share buy-back program which it had launched in 2006. With the presentation of the acceleration of Vision 2010, DSM announced a new share buy-back program of EUR 750 million. The total number of shares repurchased under this new program up to and including 17 October amounted to 1,510,000 shares for a total consideration of EUR 59.3 million.

Workforce

The workforce increased by 244 in Q3 2007 to 22,967.

Acceleration of DSM strategy Vision 2010

In September the Managing Board communicated the outcome from the mid-term evaluation of DSM's strategy Vision 2010 - Building on Strengths. To emphasize their confidence in the strategy, the members of DSM's Managing Board have decided to purchase more shares in the company.

The main conclusions from the evaluation are:

*           DSM is accelerating its shift to a Life Sciences
            (Nutrition and Pharma) and Materials Sciences
            (Performance Materials) company:
            -                      this shift will strongly position
            DSM to meet the needs of tomorrow's society in areas such
            as nutrition and health as well as advanced materials to
            improve the quality of life and the environment
            -                      as a consequence, DSM is
            initiating a divestment program for non-core businesses
            and
            -                      is stepping up the search for
            acquisitions in core business areas to achieve external
            growth

*           DSM has ambitious new growth targets:
            -                      organic sales growth target raised
            to >5% per year
            -                      2010 sales target for China raised
            from USD 1 billion to USD 1.5 billion
*           DSM has committed itself to delivering EUR 1 billion in
            additional sales from innovation by 2010
*           A dividend increase of 20% per share will be recommended
            at the Annual General Meeting in March 2008
*           A new EUR 750 million share buy-back program has been
            initiated
*           Sustainability targets have been reconfirmed; the energy
            savings target has been doubled

Implementation highlights in Q3 2007

Market-driven growth and innovation

A major innovation highlight was PA4T, a new polymer that extends DSM's portfolio of high-performance engineering thermoplastics. In addition, DSM closed the Pentapharm acquisition, which will grow DSM's presence in personal care, and added three participations to the venturing portfolio. Examples of innovations in Q3 are given in the appendix.

DSM Dyneema started up the fourth fiber line (in Greenville, USA) to support its growth. DSM NeoResins has decided to build a new factory for waterborne emulsion resins (NeoCryl®) in Waalwijk (NL) for almost EUR 30 million. DSM Fibre Intermediates has announced an investment of EUR 25 million in capacity expansion and modernization of its caprolactam plant at the Chemelot Industrial Park in Geleen (NL).

Increased presence in emerging markets

In Q3 sales in China grew by USD 42 million (22%) to USD 230 million. Sales in the first nine months are USD 683 million, which is 24% higher than in the same period last year. In September DSM announced the construction of the DSM China Campus (offices and R&D lab) and preparations for further growth of manufacturing in China. The Xinghuo site (Shanghai) will be developed as a strategic multi-product manufacturing base for DSM Nutritional Products (Teavigo®), DSM Food Specialties (savory ingredients) and DSM Resins (Desotech, Sizings & Binders).

Accelerated shift to Life Sciences and Materials Sciences

DSM has started the carve-out of non-core businesses. This carve-out is necessary to enable a smooth divestment process.

Sustainability

In September DSM was once again listed among the leaders in the chemical industry sector in the Dow Jones Sustainability World Index.

Outlook

DSM confirms its increased guidance published on September 27 with a narrowed range of uncertainty. DSM expects its 2007 operating profit (before exceptional items) to be EUR 820 million with an uncertainty of plus or minus 2% (compared with EUR 790 million +/- 3% indicated in the Q2 report).


Heerlen, 25 October 2007

The Managing Board of Directors


Important dates

Publication of 2007 Annual Report: Wednesday 13 February 2008
Annual General Meeting:            Wednesday 26 March 2008
Report for the first quarter:      Tuesday 29 April 2008
Report for the second quarter:     Tuesday 29 July 2008
Report for the third quarter:      Monday 27 October 2008


For more information
DSM, Corporate Communications
tel.: +31 (45) 5782421
e-mail: media.relations@dsm.com

Investors
DSM, Investor Relations
tel.: +31 (45) 5782864
e-mail: investor.relations@dsm.com

internet: www.dsm.com

Press release-pdf -- http://hugin.info/130663/R/1162565/226088.pdf




Copyright © Hugin ASA 2007. All rights reserved.

Contact Information