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DSM Reports Strong Performance in Q3 2015

Published on 2015-11-04. Author : SpecialChem

• Sales up 8%, driven by 7% organic growth in Nutrition and foreign exchange

DSM
Fig. 1: DSM
• Solid volume growth in Human Nutrition; very strong volume growth in Animal Nutrition
• Nutrition EBITDA: negative impact of vitamin E and Swiss franc largely offset
• Performance Materials EBITDA: improved on lower input costs and cost savings despite soft sales
• Strong operating cash flow of €300 million
• 2015 outlook maintained

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

DSM continued to make good progress in Q3 in both EBITDA and cash generation. These results demonstrate the benefits of our focus on improving our operational performance. We are starting to implement the previously announced €125-150 million cost reduction program for the DSM-wide support functions. Tomorrow at our Capital Markets Day, we will announce our strategy and targets for the coming years, as well as an additional efficiency and cost reduction program in Nutrition.

It is increasingly difficult to predict macro-economic developments. Assuming no major changes in current market conditions for the remainder of this year, we maintain our full year outlook to deliver an EBITDA in 2015 ahead of 2014, the increase mainly driven by positive foreign exchange effects.”

Q3 sales increased 15%, driven by very strong volume growth in Animal Nutrition & Health and solid volume developments in Human Nutrition & Health. As a result of higher prices for some vitamins and other, partly insourced, ingredients, the price/mix-effect was slightly positive despite lower vitamin E prices.

Q3 EBITDA was 5% lower at €213 million versus Q3 2014. Good volume growth and overall positive foreign exchange rates largely offset the negative impact of lower vitamin E prices (of more than €30 million). Positive foreign exchange rates effects mainly associated with the US dollar were partly offset by the negative impact of the Swiss franc, the Brazilian real and the Chinese renminbi. The weakening of the Brazilian real, to which DSM is exposed mainly via its Tortuga business, had a negative EBITDA impact of ~€5 million.

Volume: Q3 showed very strong volume growth driven by the premix activities and specialty products in Europe and Latin America. Although underlying business conditions in the global animal feed markets are expected to remain favorable, going forward DSM will face tougher comparative figures for organic growth as from Q4 2014.

Price: As in the first half of this year, the price development compared to Q3 2014 was a combination of significantly lower vitamin E prices and higher prices for a range of other products. Since a substantial part of these other products are in-sourced, these increased prices only have limited benefit at EBITDA level.

In DSM Engineering Plastics volumes were slightly down. PA6 polymers sales were weak, amplified by restricted product availability due to temporary production issues. Compounds and specialty products showed good volume growth.

In DSM Resins and Functional Materials volumes declined due to weak demand. Lower prices reflected lower input costs and a less favorable mix. The market environment for the UV curable coating resins business of DSM AGI in Asia remained difficult.

DSM Dyneema delivered modest organic growth versus Q3 2014 mainly due to timing of orders in comparison with Q3 2014.

EBITDA in Performance Materials for the quarter increased by 17% versus Q3 2014. On a structural base, good margin management and efficiency & cost savings programs over recent years contributed positively. The increase in EBITDA was, however, also enhanced by positive foreign exchange effects as well as temporarily strong margin improvements due to low input costs.

EBITDA of DSM Engineering Plastics was substantially up due to higher margins and lower costs. EBITDA of DSM Resins and Functional Materials was materially up due to continued good margins and lower costs.

Financial overview

Exceptional items

Exceptional items in the third quarter included non-cash impairment charges of €25 million related to the obsolescence of certain IT assets as a consequence of outsourcing and equipment no longer being used. A charge of €15 million was recognized for the devaluation of financial assets in Venezuela. Restructuring costs and related expenses amounted to €36 million, whilst acquisition related costs and other items were €12 million. Due to these charges a tax benefit of €23 million could be recognized resulting in a total after tax impact of €65 million. Associates reported exceptional items of €6 million after tax.

Net profit

Financial income and expense in Q3 2015 amounted to -€28 million compared to -€26 million in Q3 2014.The effective tax rate in Q3 2015 remained 18%, equal to the full year 2014.

Net profit from continuing operations, before exceptional items in Q3 2015 amounted to €106 million compared to €113 million in Q3 2014.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to €0.59 in Q3 2015 compared to €0.64 in Q3 2014.

Cash flow, capital expenditure and financing


Cash provided by operating activities from continuing operations in Q3 2015 was €300 million (Q3 2014: €252 million).

Operating working capital (continuing operations) expressed as a percentage of annualized sales amounted to 24.9% compared to 26.3% at year-end 2014, in line with DSM’s ambition to further reduce operating working capital. In Nutrition, operating working capital as a percentage of annualized sales declined from 34% at year-end 2014 to 32%. The operating working capital in absolute terms increased by €32 million from €1,903 million at year-end of 2014 to €1,935 million at the end of Q3 2015.

Cash used for capital expenditure net of customer funding (continuing operations) amounted to €113 million in Q3 2015 compared to €87 million in Q3 2014.

Net debt decreased by €468 million compared to Q2 2015, reflecting the good operating cash flow and a positive development in mark-to-market value of financial derivatives held as well as the proceeds from the sale of the Polymer Intermediates and Composite Resins activities of €282 million.

Outlook 2015

The volatility in currencies, including the strengthening of the Swiss franc and the US dollar against the Euro, and the recent weakening of the Brazilian real will have a mixed effect on DSM’s 2015 results compared to 2014. Based on current exchange rates and the 2015 hedge effects, an overall annual positive impact on 2015 EBITDA is estimated at approximately €35 million. The negative price impact of vitamin E on DSM’s 2015 EBITDA is estimated to be approximately €100 million compared to 2014. It is increasingly difficult to predict the macro-economic developments. Assuming current market conditions will continue for the remainder of the year, DSM maintains its full year outlook: DSM aims to deliver an EBITDA in 2015 ahead of 2014, the increase mainly driven by positive foreign exchange effects.

About DSM

Royal DSM is one of the global science-based companies 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 simultaneously. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. DSM and its associated companies deliver annual net sales of about €10 billion with approximately 25,000 employees.

Source: DSM
 

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