DSM Nutrition Performance Drives Life Sciences Results
Operating profit in Q3 2010 was 15% higher than last year due to continued good market conditions resulting in strong performance in DSM Nutritional Products and DSM Food Specialties.
Nov 2 2010 --- DSM has delivered continued strong earnings and cash performance in Q3. Q3 operating profit from continuing operations up 28% to € 185 million (versus € 144 million in Q3 2009), with sales growth from continuing operations 19% compared to Q3 2009. There was a continued strong Nutrition performance, which has driven Life Sciences results.
The general economic conditions continued to be good in Q3. Most western economies sustained their growth, although at a low pace. In most high growth economies the growth is very strong.
Most end-markets that are relevant for DSM continued to grow. Those end-markets (especially Materials Sciences related markets) which experienced a downswing in demand have largely closed the gap with the 2008 level, with some exceptions like building and construction, which is still clearly lagging behind. Re-stocking downstream in the value chain, which was one of the drivers for the excellent result in Q2 2010, did not have much of an impact in Q3, with order patterns appearing to normalize.
The euro was clearly weaker against most other currencies compared to Q3 2009. Compared to Q2 2010, currency exchange rates were on average fairly stable, with the exception of the relatively strong Swiss franc, which negatively affects DSM Nutritional Products because of its Swiss activity base.
Nutrition continued its strong financial performance, driven by good business conditions and a very strong market position. The overall business environment normalized compared to the very good situation in Q2.
For Pharma, Q3 2010 saw no change in the challenging business dynamics that the entire pharmaceutical industry is facing. Results were negative, as expected.
Performance Materials is delivering continued strong organic sales growth. The recovery in operating profit was slowed down by margin pressure at DSM Engineering Plastics and to a lesser extent at DSM Resins, due to a time lag in passing on increased raw material prices. Polymer Intermediates continued to perform very well, in spite of a maintenance shutdown in China and, as expected, somewhat lower margins compared to the very high level in Q2.
Base Chemicals and Materials, which is mainly DSM Elastomers now, continued to perform well.
Cash flow from operating activities in Q3 amounted to € 330 million. This includes a € 66 million contribution from a reduction in working capital. Operating working capital as a percentage of sales decreased from 21.0% to 19.7% during the quarter. Year-to-date cash flow from operating activities amounted to € 690 million. This is amply sufficient to cover capital expenditure and dividends. The operating cash flow in combination with the proceeds from divestments has led to a considerable reduction in net debt during the year.
Commenting on the results, Feike Sijbesma, Chairman of the DSM Managing Board, said: “I am pleased to report another strong quarter. Operating profit increased by almost 30% compared to the same period last year. Nutrition delivered a continued excellent performance, whilst Materials Sciences also posted very good results. Our strong market focus, disciplined cost and cash management and a broadly improving business environment helped drive these results. Based on the continued positive business environment we expect 2010 to be a strong year for DSM.
“The announcement of our new corporate strategy DSM in motion: driving focused growth marks the shift from a period of intensive portfolio management to an era of maximizing sustainable, profitable growth of the ‘new’ DSM. We are committed to fully leverage the unique opportunities in Life Sciences and Materials Sciences. With our focus on high growth economies, innovation and sustainability and with our strong capital structure and leadership in biotechnology we are in an excellent position to deliver on our ambitious sales and profit targets.”
Compared to Q3 2009 sales growth in Nutrition was 7%, driven by currency exchange rates. Nutrition experienced some volume growth in most of its businesses but prices were somewhat lower than last year.
Compared to the previous quarter, volumes in Animal Nutrition & Health increased, whereas volumes in Human Nutrition & Health, Personal Care and DSM Food Specialties were somewhat lower due to seasonal effects.
Operating profit in Q3 2010 was 15% higher than last year due to continued good market conditions resulting in strong performance in DSM Nutritional Products and DSM Food Specialties. As expected, operating profit was below the very strong Q2 2010 results due to the planned maintenance activities and less favorable exchange rates (especially for the Swiss franc). The strategic focus on value over volume continues to be successful and sustainable.