DSM N.V.
amsterdam : DSM

May 02, 2013 01:30 ET

DSM reports good start to the year in challenging environment

HEERLEN, THE NETHERLANDS--(Marketwired - May 2, 2013) -

* DSM records higher Q1 EBITDA of EUR311 million (Q1 2012: EUR306 million)

* Healthy profitability in Life Sciences with Nutrition proving resilience

* Materials Sciences delivered a solid performance

* Integration of acquisitions and realization of synergies on track

* Good progress with implementation of Profit Improvement Program

* Outlook 2013 unchanged, moving towards EBITDA of EUR1.4 billion


Royal DSM, the Life Sciences and Materials Sciences company, today reported a first quarter EBITDA of EUR311 million compared to EUR306 million in Q1 2012 and EUR243 million in Q4 2012. The improvement compared to Q1 2012 was realized despite a negative caprolactam effect of EUR65 million. This was achieved in a context of uncertain global macro-economic conditions as the European economy remained weak, Asia continued to show good levels of growth whilst the US maintained its modest rate of recovery. Life Sciences delivered growth once again, driven by Nutrition, while Materials Sciences performed well, except for caprolactam. During the quarter DSM benefited from the sale of certain DSM Resins & Functional Materials related distribution activities.

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said: "In a challenging economic environment, I'm pleased to report a good start to the year with a robust performance. Nutrition, which accounts for about 70% of group EBITDA, has proved the resilience and quality of its broad offering across the value chain, delivering another quarterly improvement in profitability, together with healthy margins."

"Where the last two years were characterized by acquisitions, in 2013 we will fully focus on the operational performance and the integration of acquisitions, with special attention to capturing synergies whilst also ensuring the successful execution of our group-wide profit improvement initiatives. We expect strong EBITDA growth in 2013, moving towards EUR1.4 billion."


Key figures

---------------------------------------------------------------------------
                         first
                        quarter

in EUR million    2013       2012  +/- volume price/mix  exch. rates  other
---------------------------------------------------------------------------
Net sales        2.376      2.290   4%   3%      -3%        -1%       5%

Nutrition          988        900  10%   3%      -3%        -1%       11%

Pharma             178        175   2%   1%      2%         -1%

Performance
Materials          673        701  -4%  -2%      -1%        -1%       0%

Polymer
Intermediates      437        430   2%   9%      -7%         0%

Innovation center   38         16

Corporate
Activities          62         68



EBITDA             311         306   2%

Nutrition          215         192  12%

Pharma               8           5  60%

Performance
Materials           80          79   1%

Polymer
Intermediates       29          69 -58%

Innovation Center   -4         -15

Corporate
Activities         -17         -24



Core net profit    129         149 -13%

Net profit before
exceptional items  121         145 -17%

Net profit after
exceptional items  119         145 -18%


-----------------------------------------
Core EPS
(EUR/share)         0,76      0,91 -16%

Net EPS before
exceptional items
(EUR/share)         0,70      0,87 -20%

Net EPS after
exceptional items
(EUR/share)         0,69      0,87 -21%



Cash flow from
operations           -78        97

Capital
expenditures (cash)  164       126

Net debt           1.932     1.668 *

* year-end 2012

In this report:

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

* 'core net profit' is the net profit before exceptional items and before acquisition related (intangible) asset amortization.

Note: all tables are available in the attached press release-pdf

Review by cluster

Nutrition

Sales in Q1 rose 10% compared to Q1 2012, driven primarily by acquisitions. Organic sales growth in Human Nutrition & Health and DSM Food Specialties was offset by lower sales in Animal Nutrition & Health. Overall 3% volume growth was offset by a 3% decline due to price/product mix effects.

Despite some softness in established Food & Beverage markets, Q1 delivered good organic growth in Human Nutrition & Health, driven by increased volumes with slightly lower prices, mainly due to mix effects. Ocean Nutrition Canada (ONC) and Fortitech delivered healthy double digit growth in line with expectations. ONC has been successfully integrated in DSM Nutritional Products and is therefore no longer reported separately. In Q1 Fortitech realized sales of EUR52 million and EBITDA of EUR9 million.

Animal Nutrition & Health experienced a decline in volume and an unfavorable price/mix impact, driven by the after-effects of the historically high grain prices in 2012 and the resulting lower demand that rolled through the production and downstream value chains for animal protein. Price increases for some vitamins were announced in Q1 2013.

DSM Food Specialties showed higher sales through organic growth and the contribution of the Cultures & Enzymes business acquired from Cargill.

The integration of Ocean Nutrition Canada, Fortitech and Cargill's Cultures & Enzymes business is proceeding well and the acquired businesses are meeting expectations. The integration of Tortuga started after the closing on 5 April 2013.

EBITDA for Q1 was EUR215 million, up 12% compared to Q1 2012, driven by strong operational performance including acquisitions, with an overall EBITDA margin of 21.8%, well within the target range.

Pharma

Organic sales growth was 3% compared to Q1 2012, mainly driven by higher prices at DSM Sinochem Pharmaceuticals (DSP). Volumes at DSP were stable. Sales of DSM Pharmaceutical Products were at the same level as in Q1 2012.

EBITDA for the quarter was EUR8 million versus EUR5 million in Q1 2012. The increase was mainly caused by lower fixed costs at DSM Pharmaceutical Products.

Performance Materials

Organic sales development was -3%. Volumes declined at DSM Resins & Functional Materials especially in Europe in building and construction, but were up at DSM Engineering Plastics and DSM Dyneema. Price increases at DSM Resins & Functional Materials could not fully offset the negative impact of caprolactam in DSM Engineering Plastics.

Q1 EBITDA was stable compared to the same period last year as continuous cost savings offset the -anticipated-lower margins in the polyamide-6 value chain caused by caprolactam. Q1 results included a one-time book profit of a high single digit amount on the sale of certain DSM Resins & Functional Materials related distribution activities. Compared to Q4 2012 EBITDA improved significantly, benefiting from a 3% increase in sales, stable margins in the polyamide-6 value chain and lower costs.

Polymer Intermediates

Organic sales growth was 2%, driven by higher volumes, which were partly offset by lower prices. Volumes in Q1 2012 were impacted by the turnaround of the caprolactam plant in Europe. In Q1 2013 there was no turnaround.

EBITDA declined significantly versus Q1 2012 mainly due to lower caprolactam prices and substantially higher benzene prices. Q1 included a high single digit income as the initial effect from a long-term license agreement with Shenyuan in China for a caprolactam plant. Compared to Q4 2012 EBITDA improved due to higher production volumes, as Q4 results were impacted by a turnaround in the US.

Innovation Center

DSM Biomedical showed a strong increase in sales versus Q1 2012, mainly due to the contribution of Kensey Nash (EUR19 million). All other activities at the Innovation Center were at the same level as in Q1 2012. The POET-DSM Advanced Biofuels JV is making good progress with the construction of the cellulosic bio-ethanol refinery, which is on track for timely completion.

EBITDA increased by EUR11 million compared to Q1 2012 of which EUR7 million was due to the contribution of Kensey Nash.

Corporate Activities

EBITDA in Q1 2013 improved compared to Q1 2012, which was mainly due to lower share-based payments costs as a result of a lower share price increase in Q1 2013 compared to Q1 2012.


Financial overview

Exceptional items

Total exceptional items in the first quarter amounted to EUR11 million before tax (EUR2 million after tax), including EUR22 million expenses related to the Profit Improvement Program and EUR13 million due to acquisition and other costs, which is partly compensated for by the book profit of EUR24 million on the sale of DEXPlastomers V.o.F.

Net profit

Financial income and expense in Q1 2013 amounted to -EUR35 million, which is EUR24 million more negative than Q1 2012. This was mainly caused by hedge results being positive in Q1 2012 (+EUR8 million) and negative in Q1 2013

(-EUR3 million), higher interest and expense due to increased debt (-EUR5 million), lower interest income due to less cash (-EUR1 million), lower contributions from venturing participations (-EUR4 million) and a change in presentation of pension related interest income and expense (-EUR3 million).

The effective tax rate was 18%, in line with the full year 2012.

Net profit before exceptional items in Q1 2013 decreased by EUR24 million compared to Q1 2012 and stood at EUR121 million. Main reasons were higher depreciation and amortization mainly due to the acquisitions of last year as well as higher net finance costs.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to EUR0.70 in Q1 2013 compared to EUR0.87 in Q1 2012.

Cash flow, capital expenditure and financing Cash provided by operating activities in Q1 2013 was -EUR78 million (Q1 2012: EUR97 million).

Operating working capital increased from EUR1,936 million per end of 2012 to EUR2,226 million per end Q1 2013 (in percentage of annualized sales an increase from 20.7% to 23.6%). This increase is mainly caused by the higher trade receivables, which is partly related to the seasonal pattern with especially higher sales in March.

Cash used for capital expenditure amounted to EUR164 million in Q1 2013 compared to EUR126 million in Q1 2012. The increase is among other things due to investments in the joint venture with POET for advanced bio-fuels and the new ammonium sulphate plant for Polymer Intermediates.

Net debt increased by EUR264 million compared to year-end 2012 and stood at EUR1,932 million (gearing 24%).


DSM in motion: driving focused growth

DSM in motion: driving focused growth is the strategy that the company embarked on in September 2010. It marks the shift from an era of intensive portfolio transformation to a strategy of maximizing sustainable and profitable growth. DSM's strategic focus on Life Sciences (Nutrition and Pharma) and Materials Sciences (Performance Materials and Polymer Intermediates) is fueled by three main societal trends: Global Shifts, Climate & Energy and Health & Wellness. DSM aims to meet the unmet needs resulting from these societal trends with innovative and sustainable solutions.

Below is an overview of DSM's strategic achievements in Q1 2013.

High Growth Economies: from reaching out to being truly global DSM entered into a license agreement with Fujian Shenyuan New Materials Co., Ltd. in China to supply DSM's proprietary HPO+™ technology for the production of caprolactam in a new plant consisting of two 200kt lines. This license agreement underlines DSM's position as the global technology leader in caprolactam. A long-term supply agreement, with an initial term of 3 years, has been concluded under which DSM secures a substantial part of the output of the new caprolactam plant currently under construction in China.

DSM signed a Memorandum of Understanding (MOU) for a strategic partnership with Rostekhnologii (Rostec), a Russian State Corporation, in the fields of biotechnology and functional materials. DSM also signed an MOU with the Ministry of Health Care in the Republic of Tatarstan with the aim of modernizing the Republic's public health sector through fortified nutrition.

DSM acquired Bayer's China feed mill and farm premix business in Chengdu, Sichuan province, China.

Innovation: from building the machine to doubling innovation output DSM and its joint venture partners won two awards at the Sustainable Biofuels Awards 2013 ceremony: Global Deal of the Year (for POET-DSM Advanced Biofuels) and Partnership of the Year (for Reverdia, the DSM/Roquette joint venture for bio-based succinic acid).

DSM acquired a proprietary light trapping technology that can significantly increase the efficiency of solar panels. With this acquisition DSM expands its growing portfolio of solar energy enabling technologies in its Emerging Business Area Advanced Surfaces.

Sustainability: from responsibility to business driver

At the 2013 World Economic Forum in Davos, DSM and the United Nations' World Food Programma (WFP) signed an agreement to extend their existing partnership for three years (to 2015) to combat hidden hunger and malnutrition in the developing world. DSM and WFP will seek to double the number of people who benefit from their work together, from the current annual reach of 15 million to 25-30 million per year by 2015.

Acquisitions & Partnerships: from portfolio transformation to driving focused growth

DSM completed the sale of its participation in DEXPlastomers V.o.F., a 50/50 joint venture of DSM with an affiliate of ExxonMobil Chemical, to Borealis.

On 5 April 2013 DSM completed the acquisition of Tortuga, a privately held Brazilian company. Tortuga is a leading company in nutritional supplements with a focus on pasture raised beef and dairy cattle. The company is headquartered in São Paulo, Brazil with approximately 1,200 employees. The acquisition has more than doubled DSM's workforce in Latin America to around 2,000 people.

Outlook

The challenging macro-economic environment experienced during Q4 2012 has continued into 2013, with low or no growth in Europe. Asia continues to show good levels of economic activity while the US has maintained a modest rate of recovery.

DSM's outlook stays unchanged:

The Profit Improvement Program is fully on track and is expected to deliver structural annual EBITDA benefits of EUR150 million by 2014 and EUR200-250 million to be fully achieved by 2015.

Nutrition is expected to show clearly higher results than in 2012 due to organic growth moving towards the target of 2% above GDP and due to the acquisitions made.

Business conditions in Pharma are likely to remain challenging, but DSM is confident that it will be able to deliver substantially better results, notwithstanding the usual uneven delivery patterns between quarters.

Performance Materials is expected to show improved results in 2013, despite the expected negative effects of caprolactam, especially compared to the first half of 2012.

Polymer Intermediates is expected to show lower results than in 2012.

For the Innovation Center the activity level will be in line with 2012, with EBITDA clearly improving following the full year contribution of Kensey Nash.

Overall, based on current economic assumptions, DSM expects a step up in EBITDA during 2013 due to stronger organic growth, supported by DSM's Profit Improvement Program and as the benefits of acquisitions and a more resilient portfolio start to have impact. In 2013 the focus will be on the operational performance and integration of the acquisitions DSM completed in 2012 with special attention to capturing synergies. Overall, based on current economic assumptions, the above will enable DSM to move towards its 2013 EBITDA target of EUR1.4 billion.


Additional information

Today DSM will hold a conference call for the media from 07.30 AM to 08.00 AM CET and a conference call for investors and analysts from 09.00 AM to 10.00 AM CET. Details on how to access these calls can be found on the DSM website, www.dsm.com. Also, information regarding DSM's Q1 result 2013 can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website.

Important dates

Annual General Meeting of Shareholders      Friday, 3 May 2013

Report for the second quarter               Tuesday, 6 August 2013

Report for the third quarter                Tuesday, 5 November 2013

DSM - Bright Science. Brighter Living.™

Royal DSM is a global science-based company active in health, nutrition and materials. By connecting its unique competences in Life Sciences and Materials Sciences DSM is driving economic prosperity, environmental progress and social advances to create sustainable value for all stakeholders. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, pharmaceuticals, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. DSM's 23,500 employees deliver annual net sales of around EUR9 billion. The company is listed on NYSE Euronext. More information can be found at www.dsm.com.


Press release-pdf: http://hugin.info/130663/R/1698540/560024.pdf

Financial summary Q1-pdf: http://hugin.info/130663/R/1698540/560025.pdf

Presentation to investors Q1-pdf: http://hugin.info/130663/R/1698540/560026.pdf


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(i) the releases contained herein are protected by copyright and other applicable laws; and

(ii) they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: DSM N.V. via Thomson Reuters ONE

[HUG#1698540]

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