February 24, 2010 01:37 ET

DSM ends 2009 with solid Q4 and very strong cash generation

HEERLEN, NETHERLANDS--(Marketwire - February 24, 2010) -

* Q4 operating profit from continuing operations EUR 141 million in line with Q3 2009

* Life Sciences performance reflects robust Nutrition business

* Materials Sciences recovery remains on track

* Full year operating profit from continuing operations EUR 370 million

* Full year cash flow from operating activities very strong at EUR 1,276 million

* Solid financial position ? dividend maintained at EUR 1.20 in cash

* No quantitative outlook provided for 2010.

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 EUR 150 million in savings during the year, whilst our focus on cash resulted in an unprecedented operating cash flow of almost EUR 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."

  fourth quarter  in EUR million                              full year

  2009  2008  +/-                                         2009  2008  +/-
                  Continuing operations:

 2,005 2,034  -1% Net sales                              7,732 9,079 -15%

   274   198  38% Operating profit before depreciation     836 1,209 -31%
                  and amortization (EBITDA)

   141    84  68% Operating profit (EBIT)                  370   769 -52%

   137   155 -12% - Nutrition                              521   447  17%

    16    30 -47% - Pharma                                  32    89 -64%

    23   -37      - Performance Materials                   68   175 -61%

    11   -66      - Polymer Intermediates                    6    19 -68%

    -8    16      - Base Chemicals and Materials           -68   174

   -38   -14      - Other activities                      -189  -135

                  Discontinued operations

    11    57      Net sales                                134   218

     1    43      Operating profit before depreciation      81   148
                  and amortization (EBITDA)

     1    39      Operating profit (EBIT)                   73   134

                  Total DSM:

 2,016 2,091  -4% Net sales                              7,866 9,297 -15%

   142   123  15% Operating profit (EBIT)                  443   903 -51%

    89    73  22% Net profit before exceptional items      244   608 -60%

  -149   -31      Net result from exceptional items         93   -31

   -60    42      Net profit                               337   577 -42%

                  Net earnings per ordinary share in EUR:

  0.53  0.25 112% - before exceptional items,             1.15  3.04 -62%
                  continuing operations

 -0.39  0.24      - including exceptional items,          2.01  3.45 -42%
                  total DSM


In this report:

* 'operating profit' (before depreciation and amortization) is understood to be operating profit (before depreciation and amortization) before exceptional items.

* 'net profit' is the net profit attributable to equity holders of Royal DSM N.V.

* 'continuing operations' refers to the DSM operations excluding DSM Energie Holding B.V. and Stamicarbon B.V.


In thefourth 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, whilst 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.

Thefull 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 EUR 595 million to EUR 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 EUR 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 EUR 830 million.

DSM made good progress in 2009 towards two important targets of itsVision 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 EUR 810 million, 35% more than in 2008, which is a good basis to reach the target of EUR 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 EUR 154 million was recognized.

Net sales

 in EUR million    full year

                  2009  2008 differ-ence vol-umes prices exch. rates other

 Nutrition       2,824 2,710          4%      -2%     3%          3%

 Pharma            721   863        -16%      -6%    -5%         -1%   -4%

 Performance     1,823 2,297        -21%     -16%    -7%          1%    1%

 Polymer           849 1,201        -29%      -2%   -30%          3%

 Base Chemicals
  Materials      1,134 1,572        -28%      -6%   -23%          1%

 activities        381   436

 operations      7,732 9,079        -15%      -7%    -9%          1%

 Discontinued      134   218

 Total           7,866 9,297        -15%      -7%    -9%          1%

Full yearsales 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.

Operating profit

The operating profit for thefourth quarter was at the level of Q3 2009. Nutrition continued to perform very well. Pharma showed an improved result, due to a temporary increase in the sterile vaccine business. The other clusters continued their recovery, although with the anticipated seasonal slowdown at the end of the year.

Thefull year operating profit (EUR 370 million) more than halved compared to 2008, but this was strongly dominated by the activities in the non-core Base Chemicals and Materials cluster. Especially DSM Agro went from an excellent result in 2008 to a loss in 2009. DSM Elastomers and DSM Melamine also posted a loss for the year.

The core activities in Life Sciences and Materials Sciences, however, showed resilience in this very difficult year. The performance of the Nutrition cluster was very strong with an operating profit increase of 17%, driven by its differentiation and innovation strategy, and sustained focus on its value over volume strategy. Pharma had a difficult year, primarily due to the changing dynamics in the pharmaceutical industry affecting the contract pipeline.

Performance Materials and Polymer Intermediates were both hit hard in the early stages of the economic downturn, with DSM Engineering Plastics, DSM Resins and DSM Fibre Intermediates posting losses in Q1. All three business groups started to recover mid 2009, not only because of improving trading conditions, but also because of swift actions taken to reduce costs. DSM Dyneema experienced theeconomic downturn later in the year, in combination with lower orders relating to life protection. However, it contributed a clearly positive operating profit.

The program to reduce costs, which was started in Q4 2008, was very successful, delivering already more than EUR 150 million in cost savings in 2009, which is the lower limit of the amount that was announced to be achieved in 2010. The upper limit (EUR 200 million) is clearly in reach for 2010.

Business review by cluster


  fourth quarter    in EUR million                            full year

  2009      2008                                            2009    2008

   716       703    Net sales                              2,824   2,710

                    Operating profit before depreciation

   174       189      Amortization                           655     585

   137       155    Operating profit                         521     447

Nutrition continued the strong performance trend in thefourth 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 yearorganic 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).


  fourth quarter    in EUR million                             full year

  2009      2008                                             2009   2008

   195       216    Net sales                                 721    863

                    Operating profit before depreciation and

    34        45      amortization                             91    150

    16        30    Operating profit                           32     89

Fourth quartersales were considerably higher than in the previous quarter, mainly due to temporary additional demand related to the H1N1 flu and improved market conditions for penicillin derivatives. Organic sales development compared to Q4 2008 was -6%. As a consequence of this, together with the exchange rate impact, operating profit was lower than in Q4 2008 but clearly higher than in Q3 2009.

Full yearorganic sales development was -11%. DSM Pharmaceutical Products' activity level remained subdued as a result of low demand from pharmaceutical companies, delay in approvals and the loss of some large contracts. DSM Anti-Infectives faced weak market conditions. As a result, the lower demand at DSM Pharmaceutical Products and lower prices for penicillin derivatives led to a much lower operating profit compared to 2008.

Performance Materials

  fourth quarter    in EUR million                            full year

  2009      2008                                            2009    2008

   476       492    Net sales                              1,823   2,297

                    Operating profit before depreciation

    52        -9      amortization                           174     266

    23       -37    Operating profit                          68     175

Fourth quarter sales remained lower than in the same period of 2008 for the total cluster. However, DSM Engineering Plastics' sales exceeded those of 2008 as market sentiment improved. DSM Resins' sales were slightly lower because of lower prices. Sales at DSM Dyneema decreased substantially compared to the same period of 2008 due to weaker orders related to life protection and lower demand from industrial applications. The cluster's operating profit for the quarter improved year-on-year by EUR 60 million as a result of better trading conditions, active margin management, the full effect of cost control actions and the absence of inventory write-offs.

Full year organic sales development for the cluster was -23%, reflecting depressed economic conditions during most of 2009 whereas the negative impact for 2008 was limited to Q4 2008. During the year, market conditions for DSM Engineering Plastics and DSM Resins improved from a very low starting point. On the other hand, in 2009 DSM Dyneema felt the effects of unfavorable market conditions that were not as prevalent during Q4 2008.

The effect of lower cluster sales on operating profit was well controlled through active margin management and cost control measures. Nevertheless, operating profit was well short of 2008.

Polymer Intermediates

  fourth quarter    in EUR million                             full year

  2009      2008                                            2009    2008

   249       198    Net sales                                849   1,201

                    Operating profit before depreciation and

    18       -62      amortization                            36      43

    11       -66    Operating profit                           6      19

Fourth quarter organic sales growth was 32% compared to the same quarter of 2008. The improvement was driven by higher volumes whereas average price levels were lower.

Operating profit of the cluster in Q4 2009 was EUR 77 million higher than in 2008, which was strongly affected by inventory write-offs.

Full year organic sales development was -32% reflecting difficult economic conditions during most of the year 2009 whereas the negative impact for 2008 was mainly limited to Q4 2008. Sales volume in 2009 recovered quarter on quarter and the total is in line with 2008 volume. However, prices were volatile at a lower level, which reflects raw-material developments. The lower margins were partly offset by cost saving programs but still resulted in a lower operating profit.

Base Chemicals and Materials

  fourth quarter    in EUR million                            full year

  2009      2008                                            2009    2008

   280       310    Net sales                              1,134   1,572

                    Operating profit before depreciation

    11        34      amortization                             2     245

    -8        16    Operating profit                         -68     174

Organic sales development in the fourth quarter was -8% compared to Q4 2008. In general, sales volumes improved, but prices remained below the level of 2008. DSM Melamine and DSM Elastomers posted a profit in Q4 while DSM Agro was still showing losses.

Full year organic sales development in this cluster was -29% as volumes and prices decreased with the exception of DSM Agro, which showed a firm increase in sales volumes but a substantial decline in prices. Lower raw-material costs and cost-reduction programs could only partly compensate for this impact, resulting in a drop in the operating result. DSM Agro, DSM Melamine and DSM Elastomers had to report losses for the year 2009.

Other activities

  fourth quarter    in EUR million                             full year

  2009      2008                                             2009   2008

    89       115    Net sales                                 381    436

                    Operating profit before depreciation

   -15         1      amortization                           -122    -80

   -38       -14    Operating profit                         -189   -135

                       of which:

   -19        -1        - Defined Benefit Plans               -75     -3

   -11       -17        - Innovation Center                   -54    -59

    -8         4        - Other                               -60    -73

The lowerfourth quarter result in Other activities compared to Q4 2008 was due to higher (non cash) IFRS pension costs and some non-recurring gains in Q4 2008. Share based payment costs increased following the higher DSM share price. These additional costs were partly compensated for by higher results at the captive insurance company due to a minimum of damages.

Full year operating result was below the previous year, which was mainly due to higher IFRS pension costs.

Exceptional items

Exceptional items in thefourth quarter comprised a pre-tax gain in relation to the disposal of Stamicarbon (EUR 42 million), impairments for the goodwill of Catalytica (EUR 154 million) and Lipid Technologies Provider (EUR 12 million) and other charges that were principally related to actions to strengthen DSM's competitive position (EUR 16 million).

Total exceptional items after tax amounted to a loss EUR 149 million in the fourth quarter and to a profit of EUR 93 million in the full year 2009.

Net result

Net result in the fourth quarter decreased by EUR 102 million compared to Q4 2008 to a loss of EUR 60 million, which was due to the recognized impairments which were included in the exceptional items. Full year net profit amounted to EUR 337 million which was EUR 240 million lower than in 2008.

Full year Net earnings per share (total DSM, including exceptional items) amounted to EUR 2.01 versus EUR 3.45 in 2008.

Net finance cost for the fourth quarter decreased by EUR 19 million due to a higher average liquidity position as well as non-recurring fair value adjustments in Other financial assets in 2008. Net finance costs for the full year amounted to EUR 111 million which is EUR 10 million higher than 2008.

Theeffective tax rate for the full year decreased to 23%, being 1% below the previous year, due to changes in the geographic distribution of taxable results.

Cash flow, capital expenditure and financing

As a result of DSM's continued strong focus on cash,Cash flow from operating activities increased to EUR 1,276 million for the full year 2009 compared to EUR 910 million in 2008. Q4 2009 operating cash flow amounted to EUR 326 million.

Total cash used forcapital expenditure was EUR 457 million in 2009, which was EUR 134 million lower than in the previous year (2008 EUR 591 million).

Net debt once again showed a decrease during Q4 of EUR 239 million and ended the year at a level of EUR 830 million (EUR 1,781 million at year-end 2008) mainly as a result of a further reduction in operating working capital during Q4. OWC finished the year at EUR 1,511 million (EUR 591 million less than year-end 2008) being 19.5% of the 2009 net sales.


DSM's dividend policy is to provide a stable and preferably rising dividend. For 2009 an unchanged dividend of EUR 1.20 per ordinary share will be proposed to the Annual General Meeting of Shareholders. An interim dividend of EUR 0.40 per ordinary share having been paid in August 2009, the final dividend would then amount to EUR 0.80 per ordinary share, to be paid in cash.


Following the restructuring programs the workforce decreased overall by 1,314 compared to the end of Q3 2008, the beginning of the economic downturn, and stood at 22,738.

Progress update Q4 on DSM StrategyVision 2010

DSM's acceleration of the strategic programVision 2010 - Building on Strengths, announced in September 2007, focuses on delivering faster growth, higher margins and improved earnings quality from the company's portfolio. The strategy will transform DSM into a Life Sciences and Materials Sciences company capable of sustainable growth fueled by important societal trends.

The key drivers - market-driven growth and innovation, increased presence in emerging economies and operational excellence - remain at the heart of DSM's strategy.

In Q4 2009 sales in China amounted to USD 375 million, annualized USD 1.5 billion which is the target for the year 2010, representing an increase of 19% relative to the comparable period in 2008. In spite of a strong drop of 35% in the first quarter of the year, DSM's sales in China in full year 2009 increased 3% to USD 1,188 million, a new record for the company. DSM expects to come close to the USD 1.5 billion target for 2010.

In 2009 innovation sales were about EUR 810 million, 35% more than in 2008 and higher than DSM's previous estimate of EUR 770 million. This represents a good basis to reach the target of EUR 1 billion additional sales in 2010 compared to 2005.

The Product Development and Management Association (PDMA), the leading advocate and comprehensive resource for the profession of product development and innovation, selected DSM as the winner of the 2009 Outstanding Corporate Innovator (OCI) Award, thus honoring the company's strategic commitment to open innovation and its exceptional skill in continuously creating and capturing value through new product and service development.

DSM has acquired full control of the polyamide 6 polymerization facility of Nylon Polymer Company, LLC (NPC) in Augusta (Georgia, USA). Previously Shaw Industries and DSM Chemicals North America were joint venture partners in NPC. As a result of the transaction, the facility was fully integrated into DSM Engineering Plastics' activities as of

1 January 2010.

In September 2007 DSM announced that, as a result of the accelerated shift towards Life Sciences and Materials Sciences, a number of businesses which do not fit with the accelerated strategy would be carved out and disposed of.

The disposal process for DSM Elastomers, DSM Agro and DSM Melamine is underway. As reported earlier, DSM has slowed down the process in view of the current financial and economic environment but still aims to complete the disposals by the end of 2010.

On 6 October 2009 the sale of the urea-licensing subsidiary Stamicarbon B.V. to Maire Tecnimont was completed. DSM reported a book profit of EUR 42 million before tax on the sale as an exceptional item in the income statement for Q4 2009.

DSM Venturing made an equity investment in US-based green chemistry company Segetis, Inc. This company has developed renewable chemistry that enables the use of non-food agricultural and forestry feedstock for production of sustainable materials.

DSM Venturing also made an equity investment in Bioprocess Control AB, a market leader in providing advanced control technologies and services that enable the efficient design and optimal operation of biogas processes.

During the quarter, DSM announced and introduced many new innovations. More information can be found in the innovation section


As announced in 2009, the Supervisory Board has redesigned the remuneration policy for the Managing Board. This redesign - which will be submitted to the Annual General Meeting (AGM) of Shareholders in 2010 for approval - better reflects the interest of all stakeholders. This is fully in line with DSM's core value, focusing on value creation for People, Planet and Profit in parallel and simultaneously. It also takes into account the company's long-term strategic goals and creates more external transparency on the overall remuneration package. The main elements of the revised remuneration policy are summarized below. The full proposal can be found in the 2009 annual report of DSM and will be submitted to the AGM.

The proposal creates a 50% - 50% balance between fixed base salary and variable income. The variable income will consist of both short-term and long-term performance-related incentives with a proposed 50% - 50% distribution. Both the short-term and the long-term incentives will be based for 50% on financial targets and 50% on other value-creating targets mostly related to sustainability, such as the introduction of 'green' products, energy consumption reduction, the reduction of emissions of greenhouse gases and the engagement of the company's workforce.

In this proposal the long-term-incentive will only consist of performance shares. Options will no longer be granted to the Managing Board.

The policy is to offer the Managing Board a total direct compensation approaching the median of the labor market. Within the revised remuneration policy an external benchmark will be applied only every three years to avoid (yearly) upward pressure on remuneration levels.

In addition, DSM will implement the recent recommendations made in the updated Dutch corporate governance code.

DSM will evaluate the revised remuneration policy over time and further improve it if and when necessary.

The Supervisory Board and the Managing Board have agreed not to increase the base salaries for the Managing Board in 2010, just as they did for 2009. This reflects DSM's cautious remuneration policy in view of the current economic circumstances.


The general economic outlook remains uncertain.Although most economies are showing a partial recovery from the downturn, this recovery remains uneven. There are still risks that could affect the recovery. Financial systems are not stable yet and higher solvency ratios required for banks have an impact on their lending willingness. Government incentives are drying up and their large deficits and debts will necessitate contractive actions sooner or later. The high unemployment rate will be a burden on consumer confidence. The continued cash focus in the private sector can be a limiting factor for a fast recovery in private investments. However, continued growth is expected in emerging economies, with Asia (especially China) and Latin America having the largest impact on DSM.

The food and feed markets, which are resilient, are expected to grow with GDP in 2010.The Nutrition cluster is expected to achieve sustained good performance with an ongoing increase in demand and relatively stable price levels in both the food and feed markets.

For Pharma, results are expected to be lower due to continued low prices at DSM Anti-Infectives, ongoing challenges at DSM Pharmaceutical Products and the loss of temporary demand related to the flu-related sterile vaccine business.

Currently DSM is expecting further recovery in the automotive, electronics and textile markets although with uncertainty about the development for H2 2010. Building and construction and marine markets are expected to show limited recovery in the first half of 2010.Business conditions are currently similar to H2 2009 and therefore results in Performance Materials and Polymer Intermediates are expected to be substantially better than in 2009. DSM Dyneema is expected to return to double digit sales growth after a difficult 2009.

Operating profit in Base Chemicals and Materials is expected to be positive in 2010.

The actions taken by DSM in 2009 leave the business well prepared to capitalize on gradually improving market conditions in 2010. In view of expected developments DSM is cautiously optimistic. However, as the economic outlook still remains uncertain, no quantitative outlook will be provided for 2010.


The conference call for the media and the press meeting can be followed via an audio webcast, from 8.30 until 9.00 hrs (CET) and from 10.30 until 11.30 hrs (CET) respectively. For a link see the Media section on the DSM corporate website. The conference call for analysts and investors can be followed via an audio webcast (from 9.30 until 10.15 hrs (CET). For a link see the Investors section on the DSM corporate website.

Important dates

  Annual General Meeting of Shareholders   Wednesday, 31 March 2010

  Ex-dividend quotation                    Tuesday, 6 April 2010

  Record date                              Thursday, 8 April 2010

  Report for the first quarter:            Wednesday, 28 April 2010

  Payment date final dividend 2009         Friday, 30 April 2010

  Report for the second quarter            Tuesday, 3 August 2010

  Report for the third quarter             Tuesday, 2 November 2010

  Annual report 2010                       Wednesday, 23 February 2011

DSM - the Life Sciences and Materials Sciences Company

Royal DSM N.V. creates solutions that nourish, protect and improve performance. Its end markets include human and animal nutrition and health, personal care, pharmaceuticals, automotive, coatings and paint, electrical and electronics, life protection and housing. DSM manages its business with a focus on the triple bottom line of economic prosperity, environmental quality and social equity, which it pursues simultaneously and in parallel. DSM has annual net sales of about EUR 8 billion and employs some 22,700 people worldwide. The company is headquartered in the Netherlands, with locations on five continents. DSM is listed on Euronext Amsterdam. More

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