DSM N.V.
amsterdam : DSM

August 07, 2012 01:40 ET

DSM reports robust Q2 in challenging environment

HEERLEN, THE NETHERLANDS--(Marketwire - Aug 7, 2012) -


* Q2 EBITDA from continuing operations EUR290 million (Q2 2011: EUR339 million)

* Life Sciences continues to deliver robust performance, driven by Nutrition

* Materials Sciences improved, except for caprolactam which had an EBITDA impact of - EUR70 million

* Q2 cash flow from operating activities at EUR197 million, higher than comparable and prior quarter

* Profit Improvement Program announced: expected annual EBITDA benefits of EUR150 million by 2014

* Interim dividend of EUR0.48 declared, in line with DSM's dividend policy

* Outlook 2012 largely unchanged with the exception of caprolactam

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said:

"Despite the challenging macro-economic environment, I am pleased that DSM was able to deliver another robust set of results demonstrating the strength of our strategy, as evidenced by the ongoing strong performance of Nutrition. Our Life Sciences clusters accounted for around 70% of Q2 EBITDA. This strength has helped to offset the weakness caused by caprolactam in Materials Sciences. The other Materials Sciences businesses improved despite a challenging macro-economic environment.

"The global outlook for the second half of the year is more uncertain due in part to Europe's inability to find an effective and sustainable solution to the financial challenges facing the Eurozone. Because of the increased economic uncertainty, we are announcing today a Profit Improvement Program that includes structural cost reduction and other initiatives that will generate EUR150 million EBITDA benefits by 2014.

"While we remain cautious on the macro-economic outlook for the rest of the year, the robustness of our portfolio reinforces our confidence that DSM's strategic focus is the right one. As evidenced by the recent Kensey Nash and Ocean Nutrition Canada acquisitions, we continue to deliver on our strategy by investing in new, exciting growth opportunities. We are confident that the Profit Improvement Program, together with our broad geographic spread with a significant presence in high growth economies and our very strong balance sheet, leaves us well placed to face the near term challenges. We continue to execute our strategy to achieve stronger, more stable growth and profitability for DSM overall also based on our sustainable innovative solutions addressing the key global trends."

Find the tables on www.dsm.com or in the pdf version of the quarterly report.

Overview

The world economy developed less positively than expected, mainly due to the continuing Eurozone challenges, which are prolonging weak consumer sentiment and resulting in a recession in parts of Europe. China experienced an economic slowdown owing to weaker exports though growth is still at a high level. The US continued to grow, although at a moderate level.

Despite these developments the results of DSM were robust and in line with expectations, with the exception of Polymer Intermediates.

The Q2 EBITDA (EUR290 million) was 14% lower than in Q2 2011. The drop in EBITDA was fully attributable to Polymer Intermediates, which had experienced record results in 2011 which were not expected to continue. The combined effect of the weakness in caprolactam on DSM Fiber Intermediates and DSM Engineering Plastics in Q2 amounted to EUR70 million.

Nutrition once again delivered a strong performance. With acquisitions in the Nutrition cluster such as Martek in 2011 and Ocean Nutrition Canada in 2012 DSM is moving towards achieving EUR4 billion in Nutrition sales.

Pharma had a relatively good quarter, partly supported by temporarily higher than usual deliveries in DSM Pharmaceutical Products.

Performance Materials' performance was slightly below Q2 2011 and in line with Q1 2012. The negative impact of caprolactam on DSM Engineering Plastics was partly compensated for by improved results in DSM Resins, which began to benefit from the restructuring programs announced in 2011.

The EBITDA of Polymer Intermediates declined significantly versus the very high Q2 2011 result.

Cash provided by operating activities amounted to EUR197 million in Q2 2012 versus EUR133 million in the same quarter of last year and EUR97 million in Q1. Net debt increased by EUR464 million compared to Q1 2012 to a level of EUR729 million, among other things due to the acquisition of Kensey Nash.

Net sales

Q2 2012 organic sales development was -3% compared to Q2 2011. The decline was due mainly to volumes in Performance Materials and pricing in Polymer Intermediates.

Nutrition continued to deliver organic growth through increasing volumes as well as prices.

The two Pharma businesses also showed organic growth via volumes as well as prices.

In Performance Materials, the development of organic growth was mainly due to lower volumes at DSM Engineering Plastics and DSM Resins.

Polymer Intermediates sales decreased mainly due to lower prices.

DSM initiates Profit Improvement Program

Considering the economic uncertainty, especially in Europe, and challenging developments in some markets, DSM has decided to implement a company wide Profit Improvement Program, mainly focused on cost reductions and efficiency improvements, but also on sales growth and pricing. This program, which will be implemented over the next 18 months, is expected to deliver structural annual EBITDA benefits of EUR150 million by 2014. This program is in addition to the already announced restructuring initiatives at DSM Resins that will deliver annual savings of EUR25-30 million by 2013.

The program contains several projects. DSM Nutritional Products is improving the competitiveness of key vitamins (Bs and C) with restructuring projects in Grenzach, Germany and Dalry, United Kingdom. In Switzerland projects have started to reduce the Swiss franc dependency via cost reductions. The LTP plant in Sweden is being closed. In Martek efficiency gains are being realized via integration into the global Nutrition business. In Pharma, the Percivia joint venture will focus on the existing PER.C6(®) technology licensing business. The Biosimilar product development business of Percivia is being terminated. Cost reductions are also ongoing in all other areas in the Pharma cluster.

In Materials Sciences, programs designed to ensure DSM's global competitiveness are being executed. At DSM Dyneema the organization is being aligned with the development of the vehicle protection business and further programs to accelerate the growth will be implemented. At DSM Engineering Plastics a comprehensive program will be executed to cut fixed costs, to improve the operational efficiency and margin management and to accelerate the growth of innovative specialty products. DSM Resins will intensify its program that started in 2011.

The above-mentioned actions result in provisions and related other cash costs for a total amount of EUR62 million, which were recognized as an exceptional item in Q2. Additional costs will need to be recognized in the second half of the year.

In the second half of the year programs which aim to standardize and off shore transactional services in accounting and ICT services will start to have impact.

As a result of this program DSM expects the global headcount to be reduced by approximately 1000 positions. One-off cash costs for the Profit Improvement Program are expected to total about EUR125 million, half of which has been recognized as an exceptional item in Q2. The remainder is expected to be recognized as an exceptional item in the second half of 2012.

DSM will continue to look for opportunities to expand this Profit Improvement Program.

The Profit Improvement Program will help DSM to meet its ambitious financial targets as well as reinforcing DSM's continued strong balance sheet and financial position. As a result, DSM will be even better placed to capture growth opportunities both now and in the future while maintaining its strategic course as outlined in DSM in motion: driving focused growth with all four growth drivers (High Growth Economies, Innovation, Sustainability and Acquisitions & Partnerships) firmly in place.

Business review by cluster

Nutrition

In the second quarter of 2012 sales growth in Nutrition was 7% compared to Q2 2011, supported by healthy organic growth (2%) in all segments. More favorable exchange rates added 5%. Growth fundamentals for the business remained strong and unchanged. In Q2 2012, DSM announced the acquisition of Ocean Nutrition Canada, which will further contribute to the sustainable growth of the cluster moving towards EUR4 billion in sales. The acquisition was finalized at the beginning of Q3.

Feed markets continued to experience strong demand for animal protein in all geographic areas. Food markets continued growth in all regions and segments with some softening in Europe. The cross-selling of Martek products through the DSM global sales network resulted in double digit growth of Nutritional Lipids in infant nutrition outside USA.

EBITDA for the cluster further increased to EUR195 million as a result of stable growth at stable margins. This more than compensated for the negative impact of the strong Swiss franc and the absence of the hedge gain as realized in Q2 2011.

Pharma

In Q2 2012 net sales growth was 2%, despite the negative impact from the 50% deconsolidation of DSM Sinochem Pharmaceuticals. Organic sales growth was 9%, caused by higher volumes and prices from both DSM Sinochem Pharmaceuticals and DSM Pharmaceutical Products.

EBITDA for the quarter increased compared to last year. In addition to the improved performance of both businesses, the cluster EBITDA also benefited from a one-off effect coming from the restructuring of the Biosimilar activities. At the same time, DSM impaired these assets. These factors compensated for the negative effect of the 50% deconsolidation of DSM Sinochem Pharmaceuticals as of September 2011.

Performance Materials

In Q2 2012 sales growth was 1% compared to Q2 2011, with positive currency developments and the impact of acquisitions more than compensating for lower volumes in DSM Engineering Plastics and DSM Resins. DSM Dyneema delivered solid volume growth, despite the absence of new large vehicle protection tenders.

Q2 2012 EBITDA was below Q2 last year, which was fully due to lower margins in the polyamide-6 value chain of DSM Engineering Plastics offsetting the improved performance in the rest of DSM Engineering Plastics' portfolio. DSM Resins showed strong improvement of its results due to better margins and the implementation of cost saving actions and despite ongoing subdued market conditions, mainly in building and construction in Europe. DSM Dyneema's result was in line with the prior year.

Polymer Intermediates

Sales development was -8% compared to Q2 2011, due to 11% lower prices and 3% lower volumes, partly compensated for by 6% more favorable currencies. Sales prices declined significantly during the quarter due to uncertain macro-economic conditions causing weakening customer demand and destocking and due to some smaller new entrants.

Q2 2012 EBITDA was significantly below the record levels of 2011. This was due to weak margins arising from increasing benzene prices combined with falling caprolactam prices. At the end of the quarter, margins were significantly below the levels at the beginning of the quarter. Acrylonitrile margins declined too. In addition, the decline in EBITDA was also caused by the turnaround of the caprolactam plant in the Netherlands, which was the largest turnaround project in DSM's caprolactam history.

Innovation Center

Results were above the usual level as a result of somewhat higher Biomedical sales as well as lower costs. The acquisition of Kensey Nash was completed on June 22; Kensey Nash will contribute to the EBITDA as from Q3 2012 by about EUR10 million for the second half of the year. This acquisition positions DSM as a major supplier to the medical device industry, where Kensey Nash is a leader in biomaterial products for tissue repair and regeneration. Good progress was made in biofuels with new approvals gained for enzymes (Dong Energy, Denmark) and yeasts (GraalBio, Brazil) for cellulosic bioethanol.

Corporate activities

The lower sales in Q2 2012 compared to Q2 2011 were the result of the deconsolidation of Sitech Manufacturing Services mid 2011 and the re-integration of the Maleic Anhydride and Derivatives business into the Pharma cluster.

EBITDA in Q2 2012 improved compared to Q2 2011, mainly as a result of lower share-based payments cost, lower costs in shared service organizations and lower project costs.

Exceptional items

In Q2 total exceptional items amounted to a loss of EUR92 million before tax (EUR73 million after tax). In connection with the implementation of the Profit Improvement Program, restructuring provisions were recognized for an amount of EUR58 million together with related other costs of EUR4 million. In addition, impairment charges of EUR26 million were recognized that were mainly related to the restructuring of the asset base of the Dalry facility of DNP Nutritional Products and the closure of the LTP plant. Acquisition related costs in the period amounted to EUR4 million.

Net profit

Net finance costs increased by EUR11 million compared to Q2 2011 to a level of EUR29 million, as a result of an impairment of Other participating interest and some negative effects from exchange rate and interest rate developments.

The effective tax rate was 18%, being 1% lower than full year 2011.

Net profit before exceptional items decreased by EUR52 million compared to Q2 2011 to a level of EUR114 million, which was due to the lower operating profit within Polymer Intermediates.

Total net profit showed a decrease of EUR351 million compared to Q2 2011 to a level of EUR41 million. This was due to the fact that Q2 2011 included the book profit on the sale of DSM Elastomers and the result on the sale of the Danisco shares (total profit of EUR226 million), while in Q2 2012 restructuring costs and impairments were included for EUR73 million.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to EUR0.67 in Q2 2012 compared to EUR0.97 in Q2 2011.

Cash flow, capital expenditure and financing

Cash provided by operating activities was EUR197 million in Q2 2012 which is higher than the comparable (EUR133 million) and the previous quarter (EUR97 million).

Cash flow related to capital expenditure amounted to EUR162 million in Q2 2012 compared to EUR88 million in Q2 2011. The increase is among other things due to the confluence of several large projects across all business groups.

Net debt increased by EUR411 million compared to year-end 2011 and stood at EUR729 million (gearing 11%).

Interim dividend

DSM's policy is to provide a stable and preferably rising dividend. It has been decided to pay an interim dividend of EUR0.48 per ordinary share for the year 2012. As usual, this represents one third of the total dividend paid for the previous year. The interim dividend is no indication of the total dividend for 2012. The dividend will be payable in cash or in the form of ordinary shares, at the option of the shareholder. Dividend in cash will be paid after deduction of 15% Dutch dividend withholding tax. The ex-dividend date is 8 August 2012. The interim dividend will be payable as from 30 August 2012.

DSM in motion: driving focused growth

DSM in motion: driving focused growth marks the shift from an era of intensive portfolio transformation to a strategy for the coming years of maximizing sustainable and profitable growth of 'the new DSM'. The current businesses compose the new core of DSM in Life Sciences and Materials Sciences.

DSM's 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 and Energy and Health and Wellness. DSM aims to meet the unmet needs resulting from these societal trends with innovative and sustainable solutions.

It is DSM's ambition to fully leverage the unique opportunities in Life Sciences and Materials Sciences, using four growth drivers (High Growth Economies, Innovation, Sustainability and Acquisitions & Partnerships) and bringing all four drivers to the next level.

Below is an update on DSM's achievements and progress with regard to each of the four growth drivers.

High Growth Economies: from reaching out to being truly global

Sales to High Growth Economies reached a level of 39% of total sales in Q2 2012 versus 37% in Q2 2011 driven by the Nutrition and Performance Materials clusters that showed strong double digit growth numbers in the High Growth Economies.

Net sales to China amounted to USD 430 million, versus USD 489 million in Q2 2011 which was fully due to lower sales prices at Polymer Intermediates.

Innovation: from building the machine to doubling innovation output

Innovation sales - measured as sales from innovative products and applications introduced in the last five years - reached 18% of total net sales in Q2, close to the company's 2015 target of approximately 20%.

Sustainability: from responsibility to a business driver

The share of Eco+ products in DSM's running business portfolio has increased gradually to 42% in the first half of 2012 from 39% the same period a year earlier. This is aligned with DSM's efforts of expanding Eco+ products in its portfolio and shows that Eco+ products are increasingly well received by customers. In the first half of 2012, the share of Eco+ products in DSM's innovation pipeline was 65%.

In June, DSM received two Sustainability Awards from investment fund SAM, based on SAM's yearly corporate sustainability assessment. The awards represent recognition for DSM's Gold status and for being Sustainability Leader in the Chemical Sector of the Dow Jones Sustainability World Index.

Acquisitions & Partnerships: from portfolio transformation to driving focused Growth

DSM completed the acquisition of Kensey Nash a leading supplier to the medical device industry. The acquisition strengthens and complements DSM's biomedical business, one of the Emerging Business Areas of DSM. The acquisition positions DSM Biomedical as a profitable growth platform for DSM.

DSM successfully completed the acquisition of Ocean Nutrition Canada, the leading global provider of fish-oil derived nutritional products to the dietary supplement and food & beverage markets. The acquisition strengthens and complements DSM's newly established, global Nutritional Lipids growth platform. Nutritional Lipids are the largest, double digit growing segment of the nutritional ingredients market.

In July, DSM announced the acquisition of Cilpaz Srl, the Italian animal nutrition premix specialist. Although relatively minor in size, this acquisition underlines DSM's strategy of focused growth. Continued value growth in the Nutrition cluster is a key component of this strategy.

To date DSM has completed EUR1.7 billion worth of growth enhancing acquisitions since it embarked on its current strategic plan less than two years ago. Nearly EUR1.3 billion has been spent in the Nutrition cluster as the company continues to further improve its attractive portfolio in health, nutrition and materials to deliver shareholder value with stronger, more stable growth and profitability.

Outlook

Considering the economic uncertainty, especially in Europe, and challenging developments in some markets, DSM has decided to implement a company wide Profit Improvement Program that is expected to generate annual recurring EBITDA benefits of around EUR150 million by 2014. Benefits for 2012 are estimated to be limited. One-off cash costs for the Profit Improvement Program are expected to total about EUR125 million, half of which has been recognized as an exceptional item in Q2. The remainder is expected to be recognized as an exceptional item in the second half of 2012. This program is in addition to the already announced restructuring initiatives at DSM Resins which will deliver annual savings of EUR25-30 million by 2013.

Nutrition continues to demonstrate its resilience with EBITDA now expected to be clearly above 2011. Ocean Nutrition Canada will add about EUR20 million in EBITDA for the remainder of the year.

Business conditions in Pharma are likely to remain challenging, although DSM anticipates that it will make further strategic progress. DSM expects to deliver a slightly improved EBITDA despite the 50% deconsolidation of the anti-infectives business.

Based on current insights regarding economic developments, trading conditions in Performance Materials continue to be volatile and are not expected to improve in the remainder of the year. Full year EBITDA is expected to be in line with 2011 despite the weak market conditions for caprolactam.

The adverse market conditions for Polymer Intermediates that materialized at the end of Q2 are not expected to improve significantly during the remainder of the year. The results will be further impacted as a consequence of turnaround shutdowns of the caprolactam plants in China and North America in the second half of the year. DSM expects EBITDA to be clearly below the exceptional result in 2011.

Overall, DSM is cautious with regard to the economic outlook for the remainder of 2012. DSM's expectations for the year are broadly in line with its previous cluster guidance, with the exception of the weakness in caprolactam.

Assuming no further deterioration of the economic conditions, and based on its strategy, financial strength, and the additional actions now taken, DSM will move towards the 2013 strategic targets.

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 first half year result 2012 can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website.

Important dates
Ex interim dividend quotation                  Wednesday, 8 August 2012
Record date                                    Friday, 10 August 2012
Interim dividend payable                       Thursday, 30 August 2012
Report for the third quarter 2012              Tuesday, 6 November 2012
Annual Report 2012                             Wednesday, 20 February 2013
Report for the first quarter 2013              Thursday, 2 May 2013
Report for the second quarter 2013             Tuesday, 6 August 2013
Report for the third quarter 2013              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 22,000 employees deliver annual net sales of about EUR9 billion. The company is listed on NYSE Euronext. More information can be found at www.dsm.com

Presentations to Investors Q2 Results 2012 - http://www.dsm.com/en_US/cworld/public/investors/downloads/publications/pre senta tion-to-investors-q2-2012.pdf

www.dsm.com

Financial overview-pdf: http://hugin.info/130663/R/1632198/523475.pdf

Press release-pdf: http://hugin.info/130663/R/1632198/523474.pdf

Integrated Report-pdf: http://hugin.info/130663/R/1632198/523476.pdf

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (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#1632198]

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