amsterdam : DSM

November 01, 2011 03:38 ET

DSM reports strong Q3 results

HEERLEN, NETHERLANDS--(Marketwire - Nov 1, 2011) -

* Q3 EBITDA from continuing operations EUR339 million, 26% ahead of Q3 2010

* Organic sales growth 14%

* Robust performance in Life Sciences despite significant impact of Swiss Franc

* Very good Materials Sciences results driven by Polymer Intermediates

* Martek continued its excellent performance; integration completed

* DSM Sinochem Pharmaceuticals joint venture established

* EPS (before exceptional items, continuing operations) up 38% to EUR0.94

* Outlook confirmed: 2011 expected to be a strong year

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

"We are pleased to have delivered continued profitable growth compared to last year across all business clusters. This performance has been achieved despite the significant impact of a very strong Swiss franc and a weak US dollar.

"Our outlook remains unchanged: 2011 is expected to be a strong year with further progress towards achieving our 2013 targets. However, DSM remains vigilant to possible negative developments in the global economy. Through Q3 we have experienced weakening in the electronics and electrical markets and in the depressed building and construction markets. DSM would not be immune to a deterioration in the economic environment, however, we have transformed DSM into a much more balanced and stronger company with a relatively resilient portfolio in health, nutrition and materials, a broad geographic spread with a strong presence in high growth economies and a solid balance sheet."

third quarter   in EUR million                        January - September
2011   2010                                              2011        2010
                  Continuing operations:

2,322 2,041   14% Net sales                           6,821      6,094  12%

                  Operating profit before
                  depreciation and amortization
339   268*  26%**                                     1,003      885* 13%**

176    167        - Nutrition                           542       521

13       7        - Pharma                               25        35

77      72        - Performance Materials               250       227

109     46        - Polymer Intermediates               301       156

-14    -10        - Innovation Center                   -40       -36

-22    -14        - Corporate activities                -75      -18*

                   * of which EUR7 million
                   (January - September EUR24 million)
                   IFRS pension adjustment

                   ** 30% (January - September 16%)
                   if IFRS pension adjustment is

231   169*    37%  Operating profit (EBIT)              700       582*  20%

                   Discontinued operations:

-      171         Net sales                            145        754

                   Operating profit before
                   depreciation and amortization
-       24                                               29        103

-       19         Operating profit (EBIT)               29         76

                   Total DSM:

2,322 2,212    5%  Net sales                          6,966      6,848   2%

                   Operating profit before
                   depreciation and amortization
339    292    16%                                     1,032        988   4%

159    128    24%  Net profit before
                   exceptional items                    497        430  16%

12     -49         Net result from
                   exceptional items                    232        -72

171     79   116%  Net profit                           729        358 104%

                   Net earnings per ordinary share in EUR:


0.94  0.68   38%                                       2.82       2.26  25%


1.00  0.46  117%   total DSM                           4.33       2.14 102%

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 Agro, DSM Melamine, DSM Special Products B.V.,

S.A. Citrique Belge N.V and DSM Elastomers;

· 'discontinued operations' comprise net sales and operating profit (before depreciation and amortization) of DSM Agro and

DSM Melamine up to and including Q2 2010, S.A. Citrique Belge N.V. up to and including Q3 2010, DSM Special Products B.V. up to and including Q4 2010 and DSM Elastomers up to and including Q2 2011.

Overview of third quarter 2011

The monetary and financial instability continued to increase during Q3 with substantial currency volatility. The Swiss franc in particular appreciated very strongly, reaching an all time high and almost parity against the euro in Q3 before stabilizing at a lower, but still very high level. On average, the Swiss franc was 13% stronger against the euro compared to Q3 last year. The US dollar was 10% weaker compared to Q3 2010.

The governmental austerity programs combined with the financial turmoil and a drop in consumer and producer confidence caused a slowdown in economic growth in the developed world. The building and construction sector continues to be weak, and demand has also weakened in the electronics and electrical markets. In the high growth economies, economic growth slowed marginally, partly due to interventions to address inflationary pressure.

DSM believes that it is well positioned to face the challenges caused by this difficult macro-economic environment. The Life Sciences clusters are relatively resilient to the economic turmoil and DSM overall is benefiting from its strong presence in high growth economies, especially China.

Net sales                 third quarter
in EUR million           2011      2010    differ-  organic  exch.  other
                                             ence    growth  rates

Nutrition                 868       751       16%       8%    -2%     10%

Pharma                    171       168        2%      14%    -4%     -8%

Performance Materials     711       666        7%       7%    -3%      3%

Polymer Intermediates     473       340       39%      45%    -6%

Innovation Center          15        17

Corporate activities       84        99

Total (continuing       2,322     2,041       14%      14%    -3%     3%*
Discontinued operations             171

Total                   2,322     2,212
* Including the effect of the deconsolidation of Sitech Manufacturing  
Services, which was reported in Corporate activities in 2010.

Q3 was the seventh consecutive quarter with double digit organic sales growth (14%), of which 6% from volumes and 8% from prices. Prices increased mainly in Materials Sciences, which resulted in a further improvement of margins. The volume trend in most businesses remained very sound. As in Q2, DSM Dyneema was affected by lower sales to the tender driven vehicle protection business.

Net sales in China (continuing operations in USD) increased by 52% from USD 364 million in Q3 2010 to USD 554 million in Q3 2011. Total sales in high growth economies increased to 40% of overall DSM sales in Q3 2011.

Total EBITDA in Q3 was EUR339 million, which is 26% higher than last year and equal to Q2 2011. All business clusters posted a better result than in Q3 2010.

Nutrition continued to deliver year-on-year profit growth despite the strength of the Swiss franc. Martek once again delivered an excellent performance that clearly exceeded expectations.

The Pharma results continued to improve, mainly due to DSM Pharmaceutical Products.

In Performance Materials DSM Engineering Plastics more than compensated for the drop in results at DSM Dyneema.

Polymer Intermediates posted its best quarter ever, driven by extremely good margins and an excellent manufacturing performance.

Business review by cluster


  third quarter   in EUR million     January - September

   2011    2010                         2011        2010
    868     751   Net sales            2,505       2,247

    176     167   EBITDA                 542         521

    134     133   EBIT                   428         419

  20.3%   22.2%   EBITDA margin         21.6%      23.2%

Sales in Q3 2011 increased by 16% over the same period last year due to a steady organic sales growth of 8%, reflecting the strong volumes in Animal Nutrition & Health, and the Martek acquisition. Overall prices were in line with Q3 last year. The currency impact on sales of -2% was mainly caused by the weak US dollar. Compared to the second quarter of this year, organic sales growth was 1%, as a result of improving prices.

The performance of the cluster continued to be robust with EBITDA margins above 20%. EBITDA in Q3 improved compared to last year despite the negative impact of currencies (of around EUR25 million net of hedging results, mainly Swiss franc related) and higher raw material and energy costs. These negative effects were compensated for by volume growth, the effect of the Martek acquisition and the ongoing efforts to optimize costs.

Martek delivered an excellent performance with sales of EUR84 million and EBITDA of EUR26 million. The integration of Martek has been successfully completed.


  third quarter   in EUR million     January - September

  2011     2010                         2011        2010
   171      168   Net sales              512         549

    13        7   EBITDA                  25          35

     3       -7   EBIT                    -7          -8

  7.6%     4.2%   EBITDA margin         4.9%        6.4%

Organic sales growth was 14%, mainly driven by higher volumes from DSM Pharmaceutical Products, which were partially offset by lower volumes from DSM Sinochem Pharmaceuticals.

Higher sales volumes drove an increase in EBITDA in Q3 compared to last year. However, EBITDA was still well below an acceptable level.

The anti-infectives joint venture between DSM and Sinochem Group was established in the third quarter. DSM has proportionally consolidated the joint venture, DSM Sinochem Pharmaceuticals, at 50% as of 1 September 2011. This impacted the reported net sales (-8%) and EBITDA of the cluster.

Performance Materials

  third quarter   in EUR million     January - September

   2011    2010                         2011        2010
    711     666   Net sales            2,125       1,867

     77      72   EBITDA                 250         227

     47      43   EBIT                   162         136

  10.8%   10.8%   EBITDA margin        11.8%       12.2%

The Performance Materials cluster delivered 7% organic sales growth, mainly due to strong pricing at DSM Engineering Plastics and DSM Resins. Volumes were higher at DSM Engineering Plastics because of its improved market position. Volumes at DSM Resins were lower due to further weakening in the building & construction markets. Volumes at DSM Dyneema were lower as growth in fiber solutions and personal protection was more than offset by lower volumes in the tender driven vehicle protection business.

Prices and unit margins continued to improve at DSM Engineering Plastics and DSM Resins compared to last year. EBITDA for the cluster improved slightly compared to Q3 2010 as a consequence of higher results at DSM Engineering Plastics, partly offset by lower results at DSM Dyneema, which are mainly related to lower volumes in the vehicle protection business.

Polymer Intermediates

  third quarter   in EUR million     January - September

   2011    2010                         2011        2010
    473     340   Net sales            1,353       1,016

    109      46   EBITDA                 301         156

     96      38   EBIT                   272         132

  23.0%   13.5%   EBITDA margin        22.2%       15.4%

Polymer Intermediates achieved organic sales growth of 45% compared to Q3 2010. The cluster continued to benefit from the high global utilization rate, resulting in excellent pricing. Prices were 26% above last year's level. Volumes were higher in comparison to last year due to yield improvements in operations in both caprolactam and acrylonitrile and a maintenance shutdown in China in Q3 2010.

Polymer Intermediates continued to show a substantial EBITDA increase compared to the same period last year. Continued pricing strength and higher margins, combined with higher sales volumes and an excellent manufacturing performance, drove the result to a new record high.

Innovation Center

  third quarter   in EUR million    January - September

  2011     2010                        2011        2010
    15       17   Net sales              43          35

   -14      -10   EBITDA                -40         -36

   -16      -13   EBIT                  -48         -44

EBITDA was lower than Q3 2010 due to lower sales and costs related to the Actamax(®) Joint Venture with DuPont in DSM Biomedical and increased innovation costs for the new projects in DSM Bio-based Products & Services.

The C5 Yeast Company BV acquisition was completed on 28 July, through which DSM will further increase its leadership position in the field of second generation biofuels. In addition to cellulosic biofuels DSM invests in developing bio- succinic acid, biogas, biodiesel and bio-adipic acid businesses. DSM Personalized Nutrition was sold to Viocare, Inc. on 13 September. DSM will remain involved in the business as a minority shareholder in Viocare through DSM Venturing.

Corporate activities

  third quarter   in EUR million                        January - September

  2011     2010                                            2011        2010
    84       99   Net sales                                 283         380

   -22      -14   EBITDA*                                   -75         -18

   -33      -25   EBIT*                                    -107         -53

                  * of which IFRS pension adjustment

              7                                                          24

The lower EBITDA in Q3 2011 compared to Q3 2010 was mainly due to the changes in the Dutch pension plan. These lower results were partly compensated for by lower share based payment costs in line with the development of the share price during Q3.

Exceptional items

Total exceptional items in Q3 2011 amounted to EUR12 million profit after tax, comprising an after tax book profit of EUR 39 million in relation to the establishment of the DSM Sinochem Pharmaceuticals joint venture, an after tax book loss of EUR16 million for non-recurring value adjustments of inventories in relation to the Martek acquisition and an after tax loss of EUR11 million in relation to DSM Resins' restructurings.

Net profit

Net profit increased from EUR79 million in Q3 2010 to EUR171 million in Q3 2011, which was mainly due to the strong increase in operating profit, a lower tax rate and the net result of exceptional items.

Net finance costs amounted to EUR15 million in Q3 2011 compared to EUR16 million in Q3 2010.

The effective tax rate was 21% (Q3 2010 25%). The lower tax rate was a result of a different geographical spread of results and the application of preferential tax regimes. The decrease was negatively impacted by the very strong results in Polymer Intermediates, which were partly realized in high tax jurisdictions.

Net earnings per ordinary share (continuing operations, excluding exceptional items) increased by 38% to a level of EUR0.94 per ordinary share in Q3 2011 (Q3 2010: EUR0.68).

Cash flow, capital expenditure and financing

Cash provided by operating activities in Q3 was EUR323 million, bringing the year- to-date total to EUR479 million.

Operating working capital increased from 21.0% of sales at the end of Q2 2011 to 21.6% of sales at the end of Q3 2011.

Cash flow related to capital expenditure amounted to -EUR144 million in Q3 2011, which is an increase compared to prior quarters, due to several large projects entering the construction phase. Year-to-date capital expenditure was EUR304 million (EUR251 million in 2010). Cash flow from acquisitions amounted to

-EUR58 million in Q3, mainly related to AGI Corporation of Taiwan and C5 Yeast Company.

Net debt increased during the quarter from EUR278 million to EUR304 million.

Progress of strategy: 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. Below is an update on DSM's achievements and progress in the third quarter of 2011.

DSM established the 50/50 global joint venture for its business group DSM Anti- Infectives with Sinochem Group. The joint venture includes all of the current DSM Anti-Infectives activities across the world. DSM Sinochem Pharmaceuticals aims to increase its sales to more than EUR600 million with an EBITDA margin above 15% by 2015.

DSM successfully completed the acquisition of a majority share of 91.75% in Shandong ICD High Performance Fibre Co. Ltd. (ICD) in China. ICD is a manufacturer of UHMWPE (ultra high molecular weight polyethylene) fiber and a strong player in the high-performance fiber market in China. The acquisition brings complementary manufacturing and technology assets to DSM and substantially strengthens the company's presence in this key market.

DSM also finalized the acquisition of a 51% stake in AGI Corporation of Taiwan (AGI), producer of a broad range of environmentally friendly UV (ultraviolet) curable resins and other products. The acquisition is one of the initiatives from DSM Resins to strengthen its market position in high growth economies and high-end sustainable, innovative products. On 28 July a fire occurred at the Shinhua site of AGI in Taiwan. As a result, 7 employees were injured. DSM deeply regrets this serious accident.

The building and construction markets in Europe and the US continue to be depressed and this is negatively affecting DSM Resins' results. In order to achieve its objectives, including accelerating its switch to highly innovative and sustainable business (styrene free resins, powder-, waterborne and UV resins), the business group will optimize and streamline its global organization. Therefore, DSM Resins will close a few smaller operations in the United Kingdom and Taiwan (90 fte) and reduce its global staff (210 fte, of which 130 fte in the Netherlands). For this purpose an exceptional item of approximately EUR26 million (after tax) will be recorded in 2011, of which EUR11 million (after tax) in Q3. These actions are expected to result in annualized cost savings of EUR25-30 million in 2013.

In Romania DSM completed the acquisition of the premix unit of Fatrom Furajeri Additivi, the country's leading premix manufacturer. It allows DSM to expand its global network of premix facilities and offers improved access to the growing Romanian livestock feed market.

DSM once again retained its number one position in the chemical industry sector in the Dow Jones Sustainability World Index. This is the third consecutive year that DSM has held this top position in worldwide sustainability and the sixth time in total since 2004. In 2007 and 2008, the two years when DSM was not ranked number one, it was still among the leaders in the sector.

Outlook 2011

The outlook for the remainder of the year is consistent with DSM's earlier expectations. However, DSM is mindful of the impact that a deterioration in macro-economic conditions could have on its end markets. At the same time DSM remains confident that it will continue to benefit from its balanced, relatively resilient portfolio in health, nutrition and materials, its broad geographic spread with a strong presence in high growth economies, and its solid balance sheet.

DSM assumes that there will be no major changes to the overall business conditions for the remainder of the year.

The Nutrition cluster is expected to maintain its resilient performance through firm pricing and continued volume growth. At the current exchange rate the Swiss franc is estimated to have a negative impact of between EUR10 million and EUR15 million net of hedges in Q4 2011 compared to last year. Including Martek, full year EBITDA for the cluster is expected to be clearly above last year's level.

Conditions in the Pharma cluster remain challenging and the overall results are anticipated to be lower than in 2010. DSM has proportionally consolidated DSM Sinochem Pharmaceuticals at 50% as of 1 September 2011.

In Performance Materials, unit margins have clearly increased during the year. However, the cluster will continue to be impacted by weakening demand in building and construction and electronics and electrical and lower sales at DSM Dyneema related to the tender driven vehicle protection business as previously communicated. The cluster is expected to report full year results above last year.

The Polymer Intermediates business continues to benefit from very strong, although softening trading conditions. Polymer Intermediates' full year results are expected to be excellent.

DSM remains confident that 2011 will be a strong year with further progress being made towards achieving the EBITDA target of EUR1.4 billion to 1.6 billion in 2013, in conjunction with a ROCE of more than 15%.

Additional information

Today DSM will hold a conference call for the media from 08.00 AM to 08.30 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 Q3 2011 results can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website.

DSM - Bright Science. Brighter Living.™

Royal DSM N.V. 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.

Financial summary-pdf: http://hugin.info/130663/R/1559705/482391.pdf

Press release-pdf: http://hugin.info/130663/R/1559705/482389.pdf

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Contact Information

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