DSM reports continued strong cash generation as operating profit
improves
(Thomson Reuters ONE) - * Q2 operating profit from continuing operations clearly higher than Q1 2009 * Q2 total operating profit of EUR 79 million, substantially down from last year's record * Nutrition business remains robust * Materials Sciences recovers from first quarter losses * Cash flow from operating activities once again very strong (EUR 267 million); 44% higher than Q2 2008 * Interim dividend unchanged at EUR 0.40 per ordinary share * The outlook remains uncertain, although the initial impact of inventory write-downs and customer de-stocking now looks to be largely overCommenting on the results, Feike Sijbesma, chairman of the DSMManaging Board, said: "Early and aggressive action to reduce costs,a focus on cash, stringent management of working capital and theongoing resilience of our Life Sciences businesses, have all ensuredthat DSM is in good shape at the end of the first half of 2009."Although there is little sign of improving demand across manyend-markets, Q2 earnings were up sharply compared with the firstquarter driven by Materials Sciences as inventory write-downs andcustomer de-stocking have largely run their course."DSM is staying the course, even in these challenging times. This isillustrated by the announcement of the disposal of two non-corebusinesses in July, our ongoing strategic commitment to ourcustomers, innovation and sustainability and our focus on China,where we are reaping the benefits of a favorable market. Our strongbalance sheet and robust cash flow leave us well placed to takeadvantage of future opportunities that will arise." second quarter in EUR million first half 2009 2008 +/- 2009 2008 +/- Continuing operations:1,918 2,406 -20% Net sales 3,707 4,709 -21% 167 346 -52% Operating profit before 305 650 -53% depreciation and amortization (EBITDA) 58 242 -76% Operating profit (EBIT) 90 448 -80% 124 109 14% - Nutrition 265 188 41% 3 29 -90% - Pharma 14 37 -62% 17 70 -76% - Performance Materials 0 150 -100% 4 26 -85% - Polymer Intermediates -26 66 -36 43 - Base Chemicals and Materials -62 73 -54 -35 - Other activities -101 -66 Discontinued operations 36 50 -28% Net sales 84 105 -20% 25 37 -32% Operating profit before 54 71 -24% depreciation and amortization (EBITDA) 21 34 -38% Operating profit (EBIT) 46 65 -29% Total DSM:1,954 2,456 -20% Net sales 3,791 4,814 -21% 79 276 -71% Operating profit (EBIT) 136 513 -73% 30 192 -84% Net profit before exceptional 55 354 -84% items -20 - Net result from exceptional items -32 - 10 192 -95% Net profit 23 354 -94% Net earnings per ordinary share in EUR: 0.09 1.00 -91% - before exceptional items, 0.11 1.81 -94% continuing operations 0.05 1.15 -96% - including exceptional items, 0.12 2.10 -94% total DSMIn 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.OverviewThe general global economic downturn, which is having a very adverseeffect on almost half of DSM's businesses (DSM Engineering Plastics,DSM Resins, DSM Fibre Intermediates, DSM Elastomers and DSMMelamine), continued into Q2. However, in contrast to the previoustwo quarters there are strong indications that downstream de-stockinghas largely come to an end in most markets. This is reflected in animproved demand compared to Q1, bringing the year-on-year drop indemand in these businesses more in line with the development ofend-markets.Nutrition continued to show resilience reflecting very strongpositions in markets which have seen only a limited impact of thedownturn. The Pharma result was low due to weak volumes.The Materials Sciences clusters (Performance Materials and PolymerIntermediates) were lifted back into a profitable position again,driven by improved demand, a continued focus on efficiency and someincrease in margins. DSM Dyneema, however, experienced weakeningdemand, mainly in industrial applications.DSM's strategic focus on China is paying off. China's industrialproduction is strongly improving after a relatively short dip. Almostall businesses, especially DSM Fibre Intermediates, are experiencinga strong recovery in Chinese demand, sometimes even back topre-crisis levels. Compared to Q1 sales in China increased by 44%.The pressure on the business of DSM Agro continued. Although Q2 saw apick-up in volumes, lower prices resulted in a loss for the period.DSM's cash performance was very strong for the third quarter in arow, in spite of the depressed external environment. The focus onworking capital management, credit control, cost efficiency andresponsible priority setting for capital expenditures was effective.Net debt decreased again, even though the final dividend for 2008 waspaid in this quarter. DSM's financial strength is reflected in thecredit rating. Standard and Poor's has affirmed the A- rating andmaintained the stable outlook on 3 August, 2009.As from the end of this quarter DSM Energy and the urea-licensingbusiness are reported as assets held for sale and discontinuedoperations, because agreements have been reached to divest theseactivities as part of DSM's accelerated Vision 2010 strategy.Previous period figures have been adjusted accordingly. More detailscan be found in the press releases issued on 29 July.Net salesin EUR million second quarter 2009 2008 differ-ence vol-umes prices exch. other ratesNutrition 699 689 2% -11% 5% 7% 1%Pharma 177 237 -25% -15% -5% 2% -7%Performance 456 624 -27% -23% -8% 3% 1%MaterialsPolymer 215 326 -34% -8% -32% 6% -IntermediatesBase Chemicalsand 285 427 -33% -2% -32% 1% - MaterialsOther activities 86 103Total, continuing 1,918 2,406 -20% -13% -11% 4% 0%operationsDiscontinued 36 50operationsTotal 1,954 2,456Sales dropped by 20% compared to Q2 2008, but improved by 7% comparedto Q1 (volume +13%, prices -5%, exchange rates -1%). All businessgroups, except the two Nutrition business groups, showed a saleslevel clearly below last year's. In Nutrition weaker volumes weremore than compensated for by strong pricing and a favorable currencyexchange rate effect.Despite of the weakness compared to last year, there was a clearrecovery compared to Q1, as industrial demand got more in line withend-market demand (slowing down of de-stocking) and China regainedmomentum.Operating profitAlthough operating profit showed a sharp drop compared to previousyear's record level, it clearly improved against Q1 due to theimprovement in Materials Sciences.Nutrition maintained its very strong performance, based on itsmarketing strategy and the change in industry dynamics. The economicdownturn is having a limited effect on trading conditions.The Pharma result was low, due to the lower business activities inthe custom manufacturing business at DSM Pharmaceutical Products andthe demand/supply situation at DSM Anti-Infectives.In Materials Sciences, the inventory write-downs caused by thedrastic drop in oil prices and rigorous downstream de-stocking inmost markets, appears to be coming to an end. DSM Resins and DSMFibre Intermediates are both back at profitable levels. DSM Dyneemasaw a drop in profit. Improved cost efficiency contributed asexpected.In Base Chemicals and Materials the improvement in DSM Elastomers andDSM Melamine was much less pronounced than in Performance Materials.Both business groups still posted substantial losses. The same wastrue now for DSM Agro, because of very weak prices. Cost efficiencyimproved in all units.The operating profit of DSM's core business as a Life Sciences andMaterials Sciences company (i.e. excluding Base Chemicals andMaterials and discontinued operations) improved from EUR 58 millionin Q1 to EUR 94 million in Q2 (+62%).Business review by clusterNutrition+-------------------------------------------------------------------+| second quarter | | in EUR million | first half ||----------------+---+---------------------+------------------------|| 2009 | 2008 | | | | 2009 | 2008 ||--------+-------+---+---------------------+-----+---------+--------|| | | | | | | ||--------+-------+---+---------------------+-----+---------+--------|| 699 | 689 | | Net sales | | 1,406 | 1,341 ||--------+-------+---+---------------------+-----+---------+--------|| | | | Operating profit | | | || | | | before depreciation | | | || | | | and | | | ||--------+-------+---+---------------------+-----+---------+--------|| 156 | 142 | | amortization | | 330 | 252 ||--------+-------+---+---------------------+-----+---------+--------|| 124 | 109 | | Operating profit | | 265 | 188 |+-------------------------------------------------------------------+Second quarter results for the Nutrition cluster continued to bestrong despite the organic sales development of -6% compared to Q22008. Last year's H1 sales volumes benefited to a certain extent frominventory build-up in the trade channels in anticipation of higherprices and the impact of the Beijing Olympics. This was followed byinventory reduction at the end of 2008 and the beginning of 2009.Current sales are a reflection of underlying end-use demand. In Q22009 demand improved compared to Q1 mainly in animal nutrition, whiledietary supplements saw some weakness. Prices, especially for fatsoluble vitamins, remained relatively strong and were above Q2 2008.Compared to Q1 2009, there have been price declines with somereversals towards the end of Q2.Operating profit of DSM Nutritional Products increased compared to Q22008 mainly based on pricing and a relatively strong dollar. DSMNutritional Products started reducing production output in Q2 toimprove its overall working capital. DSM Food Specialties' operatingprofit was similar to last year with strong performance in enzymes,such as Brewers Clarex® and ARA (an infant nutrition ingredient).Pharma+-------------------------------------------------------------------+| second quarter | | in EUR million | first half ||----------------+---+----------------------+-----------------------|| 2009 | 2008 | | | | 2009 | 2008 ||--------+-------+---+----------------------+-----+--------+--------|| | | | | | | ||--------+-------+---+----------------------+-----+--------+--------|| 177 | 237 | | Net sales | | 374 | 444 ||--------+-------+---+----------------------+-----+--------+--------|| | | | Operating profit | | | || | | | before depreciation | | | || | | | and | | | ||--------+-------+---+----------------------+-----+--------+--------|| 18 | 45 | | amortization | | 43 | 68 ||--------+-------+---+----------------------+-----+--------+--------|| 3 | 29 | | Operating profit | | 14 | 37 |+-------------------------------------------------------------------+Sales of the Pharma cluster continued to be under pressure due to alow activity level in the custom manufacturing business of DSMPharmaceutical Products related to de-stocking, delay in approvalsand the loss of some larger contracts. DSM Anti-Infectives faced weakmarket conditions.These developments resulted in a lower operating profit compared tothe previous year. Compared to last quarter the USD exchange rate hadan additional negative impact.Performance Materials+-------------------------------------------------------------------+| second quarter | | in EUR million | first half ||----------------+---+-----------------------+----------------------|| 2009 | 2008 | | | | 2009 | 2008 ||--------+-------+---+-----------------------+-----+-------+--------|| | | | | | | ||--------+-------+---+-----------------------+-----+-------+--------|| 456 | 624 | | Net sales | | 851 | 1,225 ||--------+-------+---+-----------------------+-----+-------+--------|| | | | Operating profit | | | || | | | before depreciation | | | || | | | and | | | ||--------+-------+---+-----------------------+-----+-------+--------|| 44 | 90 | | amortization | | 50 | 191 ||--------+-------+---+-----------------------+-----+-------+--------|| 17 | 70 | | Operating profit | | 0 | 150 |+-------------------------------------------------------------------+Compared to same period last year organic sales development was -31%as trading conditions were worse for all business groups. Incontrast, sales showed improvement against the previous quarter atDSM Resins and DSM Engineering Plastics. Construction and automotiverelated businesses remained slow. Substantial effects of de-stockingin the market as experienced in Q1 were less apparent in Q2. DSMDyneema experienced weakening demand especially in commercial marine,sports and high performance textiles.The cluster reported an operating profit after two quarters oflosses. Results of both DSM Resins and DSM Engineering Plasticsimproved from Q1 as demand improved. The operating profit for thequarter decreased substantially against the same period last year dueto the economic downturn, partially offset by lower raw-materialcosts as well as structural cost reduction programs. The quarterlyresult of DSM Dyneema dropped compared to the same period last yearas weaker demand has an impact on this business as well.Polymer Intermediates+-------------------------------------------------------------------+| second quarter | | in EUR million | first half ||----------------+---+----------------------+-----------------------|| 2009 | 2008 | | | | 2009 | 2008 ||--------+-------+---+----------------------+-----+--------+--------|| | | | | | | ||--------+-------+---+----------------------+-----+--------+--------|| 215 | 326 | | Net sales | | 354 | 668 ||--------+-------+---+----------------------+-----+--------+--------|| | | | Operating profit | | | || | | | before depreciation | | | || | | | and | | | ||--------+-------+---+----------------------+-----+--------+--------|| 11 | 32 | | amortization | | -11 | 78 ||--------+-------+---+----------------------+-----+--------+--------|| 4 | 26 | | Operating profit | | -26 | 66 |+-------------------------------------------------------------------+Organic sales growth in the cluster was 58% compared to Q1, but stillnegative (-40%) compared to the same quarter of last year. Theimprovement was mainly due to volume recovery, somewhat highercaprolactam prices in China and higher exports of acrylonitrile.The Polymer Intermediates cluster delivered a small operating profitafter losses in the preceding two quarters, partly based on costsavings. The gap compared to Q2 last year was still significant asEuropean and US volumes remained weak.Base Chemicals and Materials+-------------------------------------------------------------------+| second quarter | | in EUR million | first half ||----------------+---+-----------------------+----------------------|| 2009 | 2008 | | | | 2009 | 2008 ||--------+-------+---+-----------------------+-----+--------+-------|| | | | | | | ||--------+-------+---+-----------------------+-----+--------+-------|| 285 | 427 | | Net sales | | 526 | 818 ||--------+-------+---+-----------------------+-----+--------+-------|| | | | Operating profit | | | || | | | before depreciation | | | || | | | and | | | ||--------+-------+---+-----------------------+-----+--------+-------|| -20 | 61 | | amortization | | -30 | 107 ||--------+-------+---+-----------------------+-----+--------+-------|| -36 | 43 | | Operating profit | | -62 | 73 |+-------------------------------------------------------------------+Sales volumes were lower compared to last year, with the exception ofDSM Agro, which reported very high volumes towards the end of Q2,largely compensating for the late season start in Q1. Although theother businesses were still suffering from the lower demand in theautomotive industry (DSM Elastomers) and in the building industry(DSM Melamine), volumes increased gradually compared to the firstquarter.The operating profit of the cluster was negative for all mainbusiness groups. The volume increase in Q2 compared to Q1 was notsufficient to compensate for the substantially lower prices infertilizers. Costs saving programs for the cluster are in place andhave started contributing to the result.Other activities+-------------------------------------------------------------------+| second quarter | | in EUR million | first half ||----------------+---+--------------------+-------------------------|| 2009 | 2008 | | | | 2009 | 2008 ||--------+-------+---+--------------------+------+---------+--------|| | | | | | | ||--------+-------+---+--------------------+------+---------+--------|| 86 | 103 | | Net sales | | 196 | 213 ||--------+-------+---+--------------------+------+---------+--------|| | | | Operating profit | | | || | | | before | | | || | | | depreciation and | | | ||--------+-------+---+--------------------+------+---------+--------|| -42 | -24 | | amortization | | -77 | -46 ||--------+-------+---+--------------------+------+---------+--------|| -54 | -35 | | Operating profit | | -101 | -66 ||--------+-------+---+--------------------+------+---------+--------|| | | | of which: | | | ||--------+-------+---+--------------------+------+---------+--------|| -19 | 0 | | - Defined | | -38 | -1 || | | | Benefit Plans | | | ||--------+-------+---+--------------------+------+---------+--------|| -13 | -13 | | - Innovation | | -28 | -26 || | | | Center | | | ||--------+-------+---+--------------------+------+---------+--------|| -22 | -22 | | - Other | | -35 | -39 |+-------------------------------------------------------------------+The main difference in the result of Other activities compared tolast year is the (non cash) increase in IFRS pension costs fordefined benefit plans.Exceptional itemsExceptional items amounted to EUR 20 million after tax. Following theannounced cost-saving actions, restructuring charges were recognizedfor an amount of EUR 28 million (EUR 20 million after tax). As aresult of the decision to postpone certain ICT projects DSM expensedEUR 23 million (EUR 19 million after tax). A EUR 19 million gain wasrecognized due to compensation for the closure of the citric acidmanufacturing plant in Wuxi (China).Net profitNet profit decreased from EUR 192 million in Q2 2008 to EUR 10million in Q2 2009.Net earnings per share (continuing operations, before exceptionalitems) decreased to EUR 0.09.Net finance costs amounted to EUR 33 million which represents anincrease of EUR 15 million compared to the previous year mainly dueto higher exchange rates for the US dollar and the Swiss franc,higher average interest rates and some fair value adjustments inother financial assets.The effective tax rate increased to 28% for the first half year of2009 versus 25% for the year 2008 due to changes in the geographicdistributions of taxable results.Cash flow, capital expenditure and financingAs a result of DSM's continued strong focus on cash and despite thelower operating profit, Cash flow from operating activities increasedto EUR 433 million for the first half year (Q2: EUR 267 million)compared to EUR 281 million in the first half of 2008 (Q2: EUR 185million).Cash used for capital expenditure in the first half of 2009 amountedto EUR 235 million compared to EUR 258 million in the first half of2008.During the last three quarters net debt decreased from EUR 1,887million (end of Q3 2008) to a level of EUR 1,677 million at the endof Q2 2009 due to the good cash performance.The 6.75% USD 250 million loan maturing in May was repaid out ofcash.Standard and Poor's has affirmed the A- rating and maintained thestable outlook on3 August, 2009.Interim dividendIt has been decided to pay an unchanged interim dividend of EUR 0.40per ordinary share for the year 2009. As usual, this represents onethird of the total dividend paid for 2008. The interim dividend is noindication of the total dividend for 2009. The interim dividend for2009 will be paid in cash on 28 August 2009.WorkforceThe workforce decreased overall by almost 500 employees and stood at23,017 at the end of Q2 2009. This reduction is the balance ofrestructuring programs, the closure of the Citric Acid plant in Wuxi(China) and selective hiring.Progress update on DSM Strategy Vision 2010DSM's acceleration of the strategic program Vision 2010 - Building onStrengths, announced in September 2007, focuses on delivering fastergrowth, higher margins and improved earnings quality from thecompany's portfolio. The strategy will transform DSM into a LifeSciences and Materials Sciences company capable of sustainable growthfueled by important societal trends.The key drivers - market-driven growth and innovation, increasedpresence in emerging economies and operational excellence - remain atthe heart of DSM's strategy.In Q2 2009 sales in China amounted to USD 283 million, whichrepresents a decrease of 14% relative to the comparable period oflast year. Compared to Q1 however, sales increased by 44%.In the quarter, DSM announced an agreement to acquire Biopract GmbH,based in Berlin (Germany). This acquisition will serve as an entrypoint for DSM into the promising biogas market, which is showing15-20% growth per year. The impact of the acquisition on DSM's netsales in 2009 and 2010 is not expected to be material.DSM Engineering Plastics and Mitsubishi Chemical Corporation (MCC)signed a memorandum of understanding for DSM to acquire MCC'sNovamid® polyamide business in exchange for DSM's Xantar®polycarbonate business. With this move, DSM Engineering Plastics willbe able to further reinforce its position as one of the globallyleading producers of polyamide engineering plastics.DSM Engineering Plastics also announced that it will expand marketdevelopment plant capacity for Stanyl® ForTii(TM) in order to meetdemand for this new polymer, which is used in electronics and otherapplications.DSM Nutritional Products signed the investment contract with theChangchun Economic & Technology Development Zone to set up DSM'sfourth feed premix plant in China which will be located in ChangchunCity. Construction started in May and total investment will amount toUSD 5 million.In September 2007 DSM announced that, as a result of the acceleratedshift towards Life Sciences and Materials Sciences, a number ofbusinesses which do not fit in with the accelerated strategy would becarved out and disposed of.Since the end of the second quarter, DSM has made progress with theplanned disposals. On 29 July an agreement with TAQA Abu DhabiNational Energy Company PJSC for the sale of DSM Energie Holding B.V.was announced. Included in the scope are the participations which DSMhas in oil and gas exploration and the 40% participation inNoordgastransport B.V. On the same day an agreement for the sale ofthe urea-licensing subsidiary Stamicarbon B.V. to Maire Tecnimont wasannounced. The divestments are expected to close in Q3 and by Q4 of2009 respectively, subject to regulatory approvals and notifications.The disposal process for DSM Elastomers, DSM Agro and DSM Melamine isunderway. As reported earlier, DSM has slowed down the process inview of the current financial and economic environment but still aimsto complete the disposals by the end of 2010.During the quarter, DSM announced and introduced many newinnovations. More information can be found in the innovation sectionat www.dsm.com.Actions addressing the economic downturnIn December 2008 DSM announced a number of structural cost-savingactions to address the effects of the economic downturn and tostrengthen its competitive position.Implementation of these actions is underway and DSM will clearlyexceed the increased cost savings target of EUR 125 million, to befully achieved by 2010. These actions are expected to result in areduction in workforce of 1250 positions. Apart from the workforcereduction, the actions also cover a stronger focus on purchasing andother efficiency improvement measures. DSM will also further reducethe number of temporary workers.In its capital expenditure DSM is prioritizing projects focused onfuture growth while other projects are being postponed or delayed.Capital expenditure in 2009 will be lower than in 2008. Also, asignificant reduction in working capital is targeted for the year.At the same time, DSM remains fully focused on customers in order tomeet their needs and priorities, as well as on its priorities ofinnovation and sustainability. The company is actively looking fornew growth opportunities that the current market and economicconditions will provide.OutlookThere are strong indications that downstream de-stocking has come toan end in most markets, evidenced by an overall demand improvementcompared to the first quarter. Demand is however still low comparedto pre-recession levels. The exception to this development is China,where DSM experienced strong demand. Conditions in the US and Europecontinued to be weak. No further improvements from current marketconditions are expected in the short term, with a risk of temporarylower demand during the summer.Due to the bottoming-out of feedstock prices DSM does not expectfurther inventory write-downs.The relatively favorable business conditions in Nutrition areexpected to continue with prices remaining firm in both Animal andHuman markets and further demand recovery. The Nutrition cluster isexpected to achieve full year results somewhat above the 2008 level.Pharma results are expected to be substantially lower than last yeardue to lower prices at Anti-Infectives and challenges to fill thepipeline at DSM Pharmaceutical Products although further progress isbeing made. The results of DSM Pharmaceutical Products are expectedto be better towards the end of the year.In Performance Materials DSM Dyneema now expects lower sales thanlast year. The uncertainty regarding demand continues for DSMEngineering Plastics and DSM Resins. There is a similar lack ofclarity at Polymer Intermediates and Base Chemicals and Materials,which will both most likely be loss-making in 2009.Due to DSM's successful focus on cash and cost saving programs DSMwill maintain its solid financial position which is necessary for theexecution of its strategy: DSM is staying the course.DSM will provide no quantitative outlook for 2009 in view of theuncertain economic conditions.Important datesEx interim dividend quotation: Wednesday, 5 August 2009Record date:Friday, 7 August 2009Interim dividend payable: Friday, 28August 2009Report for the third quarter: Tuesday, 3November 2009Annual Report 2009: Wednesday,24 February 2010Annual General Meeting of Shareholders: Wednesday, 31 March 2010DSM - the Life Sciences and Materials Sciences CompanyRoyal DSM N.V. creates innovative products and services in LifeSciences and Materials Sciences that contribute to the quality oflife. DSM's products and services are used globally in a wide rangeof markets and applications, supporting a healthier, more sustainableand more enjoyable way of life. End markets include human and animalnutrition and health, personal care, pharmaceuticals, automotive,coatings and paint, electrical and electronics, life protection andhousing. DSM has annual net sales of EUR 9.3 billion and employs some23,500 people worldwide. The company is headquartered in theNetherlands, with locations on five continents. DSM is listed onEuronext Amsterdam. More information: www.dsm.comFor more informationDSM, Corporate Communicationstel.: +31 (45) 5782421e-mail: media.relations(at)dsm.comInvestorsDSM, Investor Relationstel.: +31 (45) 5782864e-mail: investor.relations(at)dsm.cominternet: www.dsm.comhttp://hugin.info/130663/R/1332354/315599.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 04.08.2009 - 07:15 Uhr
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