DSM reports strong Q3 results

1 november 2011 * Q3 EBITDA from continuing operations €339 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 €0.94 * 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 € 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 (EBITDA) 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 €7 million (January - September €24 million) IFRS pension adjustment       ** 30% (January - September 16%) if IFRS pension adjustment is excluded 231 169* 37% Operating profit (EBIT) 700 582* 20% --------------------------------------------------------------------------------       Discontinued operations: - 171   Net sales 145 754       Operating profit before depreciation and amortization (EBITDA) - 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 (EBITDA) 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 €:       * 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 € million 2011 2010 differ-ence organic growth exch. rates other -------------------------------------------------------------------------------- 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%* operations) 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 €339 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 Nutrition ------------------------------------------------------- third quarter in € 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 €25 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 €84 million and EBITDA of €26 million. The integration of Martek has been successfully completed. Pharma ------------------------------------------------------- third quarter in € 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 € 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 € 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 € 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 € 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 €12 million profit after tax, comprising an after tax book profit of € 39 million in relation to the establishment of the DSM Sinochem Pharmaceuticals joint venture, an after tax book loss of €16 million for non-recurring value adjustments of inventories in relation to the Martek acquisition and an after tax loss of €11 million in relation to DSM Resins' restructurings. Net profit Net profit increased from €79 million in Q3 2010 to €171 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 €15 million in Q3 2011 compared to €16 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 €0.94 per ordinary share in Q3 2011 (Q3 2010: €0.68). Cash flow, capital expenditure and financing Cash provided by operating activities in Q3 was €323 million, bringing the year- to-date total to €479 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 -€144 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 €304 million (€251 million in 2010). Cash flow from acquisitions amounted to -€58 million in Q3, mainly related to AGI Corporation of Taiwan and C5 Yeast Company. Net debt increased during the quarter from €278 million to €304 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 €600 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 €26 million (after tax) will be recorded in 2011, of which €11 million (after tax) in Q3. These actions are expected to result in annualized cost savings of €25-30 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 €10 million and €15 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 €1.4 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.(TM) 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 €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@dsm.com Investors DSM, Investor Relations tel.: +31 (45) 5782864 e-mail: investor.relations@dsm.com Financial summary-pdf: http://hugin.info/130663/R/1559705/482391.pdf Press release-pdf: http://hugin.info/130663/R/1559705/482389.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#1559705]