DSM reports robust Q2 in challenging environment
(Thomson Reuters ONE) -
* Q2 EBITDA from continuing operations ?290 million (Q2 2011: ?339 million)
* Life Sciences continues to deliver robust performance, driven by Nutrition
* Materials Sciences improved, except for caprolactam which had an EBITDA
impact of - ?70 million
* Q2 cash flow from operating activities at ?197 million, higher than
comparable and prior quarter
* Profit Improvement Program announced: expected annual EBITDA benefits of
?150 million by 2014
* Interim dividend of ?0.48 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 ?150 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 (?290 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 ?70 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 ?4 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 ?197 million in Q2 2012 versus
?133 million in the same quarter of last year and ?97 million in Q1. Net debt
increased by ?464 million compared to Q1 2012 to a level of ?729 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 ?150 million by 2014. This program is in addition to the
already announced restructuring initiatives at DSM Resins that will deliver
annual savings of ?25-30 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 ?62 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 ?125 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 ?4 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 ?195 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 ?10
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 ?92 million before tax (?73
million after tax). In connection with the implementation of the Profit
Improvement Program, restructuring provisions were recognized for an amount of
?58 million together with related other costs of ?4 million. In addition,
impairment charges of ?26 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 ?4 million.
Net profit
Net finance costs increased by ?11 million compared to Q2 2011 to a level of ?29
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 ?52 million compared to Q2
2011 to a level of ?114 million, which was due to the lower operating profit
within Polymer Intermediates.
Total net profit showed a decrease of ?351 million compared to Q2 2011 to a
level of ?41 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 ?226 million), while in Q2 2012 restructuring costs and
impairments were included for ?73 million.
Net earnings per ordinary share (continuing operations, before exceptional
items) amounted to ?0.67 in Q2 2012 compared to ?0.97 in Q2 2011.
Cash flow, capital expenditure and financing
Cash provided by operating activities was ?197 million in Q2 2012 which is
higher than the comparable (?133 million) and the previous quarter (?97
million).
Cash flow related to capital expenditure amounted to ?162 million in Q2 2012
compared to ?88 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 ?411 million compared to year-end 2011 and stood at ?729
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 ?0.48 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 ?1.7 billion worth of growth enhancing acquisitions
since it embarked on its current strategic plan less than two years ago. Nearly
?1.3 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 ?150 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 ?125 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
?25-30 million by 2013.
Nutrition continues to demonstrate its resilience with EBITDA now expected to be
clearly above 2011. Ocean Nutrition Canada will add about ?20 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.(TM)
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 ?9 billion. The company is
listed on NYSE Euronext. More information can be found at www.dsm.com
For more information
Media
DSM, Corporate Communications
tel.: +31 (45) 5782421
e-mail: media.relations(at)dsm.com
Investors
DSM, Investor Relations
tel.: +31 (45) 5782864
e-mail: investor.relations(at)dsm.com
Presentations to Investors Q2 Results 2012 -
http://www.dsm.com/en_US/cworld/public/investors/downloads/publications/presenta
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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Datum: 07.08.2012 - 07:16 Uhr
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