- Q1 EBITDA from continuing operations €306 million (Q1 2011: €325 million)
- Strong results in Life Sciences due to continued growth in Nutrition
- Materials Sciences showed strong improvement compared to Q4 2011
- Joint venture with POET established to unlock the advanced biofuels opportunity
- Recently announced planned tender offer to acquire Kensey Nash to establish DSM Biomedical as new profitable growth platform
- Cautiously optimistic outlook, on the way to achieve 2013 targets
Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said:
"In a challenging business environment, DSM continued to make good progress in Q1 and the robust results represent a positive start to 2012. In Life Sciences, Nutrition continued to deliver excellent performance despite the currency headwinds, benefiting from the acquisition of Martek and continued organic growth. Materials Sciences delivered an improved performance compared to the previous quarter in Performance Materials and another good result in Polymer Intermediates.
"We continue to make important steps in the execution of our strategy. During the quarter we established the joint venture with US based POET, one of the world's largest bio-ethanol producers, to unlock the exciting potential of advanced cellulosic biofuels. Last week we announced the execution of a Merger Agreement with Kensey Nash and planned tender offer, which will put DSM Biomedical clearly on the map as the second new growth platform for DSM in addition to our Bio-based Products & Services business.
"DSM has successfully transformed itself into a Life Sciences and Materials Sciences company. Our attractive portfolio in health, nutrition and materials together with our broad geographic spread with a significant presence in high growth economies and our very strong balance sheet has positioned us well to deliver shareholder value with stronger, more stable growth and profitability. We remain cautiously optimistic for 2012 despite the uncertain macro-economic situation."
Find the tables on www.dsm.com (http://www.dsm.com) or in the pdf version of the quarterly report.
The global macro-economic environment did not change materially in Q1 compared to the end of 2011. The European economy remained weak without showing real signs of improvement during the quarter, while the US maintained its positive momentum. The high growth economies, especially China, remained solid, but growth moderated from last year's levels.
Against this background, the performance of DSM's businesses was robust.
Overall EBITDA (€306 million) was 6% lower than in Q1 2011. This can be almost completely attributed to the anticipated drop in Polymer Intermediates, which had record results in 2011.
Nutrition continued its profitable growth. Due to good trading conditions and the Martek acquisition EBITDA was clearly higher, despite the combined effect (approximately €20 million in the quarter) of the stronger Swiss franc compared to Q1 2011 and the absence of a positive hedge result, which had eased the impact of the strong Swiss franc in 2011. Compared to Q1 2011 Martek was included for two additional months.
The Pharma performance remained weak, although first signs of improvement are visible.
Performance Materials improved its performance compared to Q4 2011 despite the weak economic conditions but was down against Q1 2011.
Polymer Intermediates continued to perform clearly above its long term trend; compared to 2011 the business was affected by anticipated lower margins and a scheduled major plant turnaround.
Cash provided by operating activities was €97 million in Q1 2012 versus €23 million in the same quarter of the previous year. Net debt decreased by €53 million compared to year-end 2011 to a level of €265 million.
Q1 2012 organic sales growth was 1% compared to Q1 2011, but there were great differences in performance between the individual clusters. The impact of the Martek acquisition (included for 1 month in Q1 2011) and other, smaller acquisitions was offset by the 50% deconsolidation of DSM Anti-Infectives following the establishment of the DSM Sinochem Pharmaceuticals joint venture.
Nutrition continued to show solid growth.
In Pharma both business groups showed organic growth, especially DSM Pharmaceutical Products.
In Performance Materials, DSM Engineering Plastics and DSM Resins recovered strongly from the decline in Q4 2011. Pricing was stronger than in Q1 2011. DSM Dyneema's sales were lower than in Q1 2011.
In Polymer Intermediates sales were clearly lower due to lower prices compared to the unprecedented levels experienced in 2011, while volumes were affected by a major plant turnaround.
Net sales in China amounted to USD 456 million, which is at the same level as Q1 2011. The lower sales of Polymer Intermediates were compensated for by higher sales of other businesses. Sales in high growth economies reached a level of 38% of total sales in Q1 2012.
Business review by cluster
In Q1 2012 sales increased by 13% as a result of the Martek acquisition (7%), organic sales growth (4%) and currency developments (2%). Prices and volumes increased, especially in Animal Nutrition and Health.
EBITDA remained strong and was higher than Q1 2011. The better performance was due to strong sales performance and the additional two months' contribution of Martek in combination with a favorable US dollar exchange rate and a positive effect from continued cost management. This more than compensated for the negative impact (in total approximately €20 million) of the strong Swiss franc and the absence of the hedge gain as realized in Q1 2011.
In Q1 2012 organic sales growth was 20%, mainly due to a better sales performance at DSM Pharmaceutical Products and slightly better prices at DSM Sinochem Pharmaceuticals. Pharma sales were negatively impacted by the 50% deconsolidation of DSM Anti-Infectives due to the establishment of the DSM Sinochem Pharmaceuticals joint venture. This was partly compensated for by the shift in reporting of the Maleic Anhydride and Derivatives business from Corporate activities back into the Pharma cluster because DSM is no longer actively trying to divest this business.
EBITDA for the quarter increased compared to last year due to higher volumes at DSM Pharmaceutical Products and the contribution from the Maleic Anhydride and Derivatives business.
In Q1 2012 organic sales development was -5% compared to Q1 2011, mainly due to lower volumes, which were partly offset by higher prices at DSM Engineering Plastics and DSM Resins. DSM Dyneema faced lower volumes in the tender driven vehicle protection business, while pricing was flat.
Q1 2012 EBITDA nearly doubled compared to the previous quarter, driven by DSM Engineering Plastics and DSM Resins reporting a recovery in both volumes and margins. As expected, EBITDA was lower versus the same period last year, which was mainly due to lower vehicle protection business at DSM Dyneema.
In line with expectations, Q1 2012 organic sales development was -9% compared to Q1 2011, due to 6% lower prices and 3% lower volumes. Caprolactam prices were lower compared to the same period last year, especially in Asia. Acrylonitrile prices increased significantly after year-end but were still below Q1 2011.
As expected, Q1 2012 EBITDA was clearly below Q1 2011, which was partly caused by the planned turnaround of the caprolactam plant in the Netherlands. On average, margins were below the excellent Q1 2011. The financial performance in Q1 2012, however, was well above the historical average of the cluster.
DSM and POET, one of the world's largest bio-ethanol producers, established a joint venture to commercially demonstrate and license cellulosic bio-ethanol, based on combined, proprietary and complementary technologies. This is an important step in extending DSM's leadership position in the field of cellulosic bio-ethanol technology. In collaboration with Roquette, good progress was made with the construction of the commercial-scale bio-based succinic acid plant in Italy, with startup expected in Q4 2012.
The lower sales in Q1 2012 compared to Q1 2011 were the result of the deconsolidation of Sitech Manufacturing Services in mid 2011 and the re-integration of the Maleic Anhydride and Derivatives business into the Pharma cluster.
EBITDA in Q1 2012 was in line with Q1 2011 since higher share-based payments cost, following the increase of the share price, were compensated for by lower project related costs.
Net finance costs decreased by €10 million compared to Q1 2011 to a level of €11 million, driven by favorable hedging results.
The effective tax rate was 19%, in line with the full year 2011.
Net profit decreased from €166 million in Q1 2011 to €145 million in Q1 2012, mainly as a result of lower operating profit within Polymer Intermediates as well as the divestment of DSM Elastomers, which still contributed to the result of Q1 2011.
Net earnings per ordinary share (continuing operations, before exceptional items) amounted to €0.87 in Q1 2012 compared to €0.91 in Q1 2011.
Cash flow, capital expenditure and financing
Cash provided by operating activities was €97 million (Q1 2011: €23 million).
Cash flow related to capital expenditure amounted to €126 million compared to €72 million in Q1 2011. The increase is among other things due to the investments of Polymer Intermediates in relation to the maintenance turnaround and the building of the second caprolactam line in China.
Net debt decreased by €53 million compared to year-end 2011 and stood at €265 million (gearing 4%).
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 first quarter of 2012.
DSM acquired certain assets, licenses and other agreements in the area of food enzymes and oilseed processing from Verenium for a total consideration including transaction and related expenses of USD 37 million. The transaction has been completed. The acquisition includes Verenium's oilseed processing business and IP portfolio, licenses for certain food enzymes and access to biodiversity libraries that Verenium will create using proprietary technology. The 2012 sales of these businesses are estimated at about USD 15 million, and are expected to grow rapidly in the coming years.
Percivia LLC (a 50:50 joint venture between Crucell N.V. and Royal DSM) will, as part of a restructuring, focus on the existing PER.C6® technology licensing business. The biosimilar product development business of Percivia will be terminated.
DSM Pharmaceutical Products and Agennix AG signed a new contract under which DSM will continue to manufacture talactoferrin for Agennix.
DSM announced that it would make further investments in its Kaohsiung polymerization facility in Taiwan to upgrade and develop the company's specialty polyamide capabilities for its Novamid® and Akulon® polyamide engineering plastic business.
DSM and POET, one of the world's largest bio-ethanol producers, announced a joint venture to commercially demonstrate and license cellulosic bio-ethanol, the next step in the development of biofuels, based on their proprietary and complementary technologies. The joint venture, POET-DSM Advanced Biofuels, LLC, is scheduled to start production in the second half of 2013 at one of the first commercial scale cellulosic ethanol plants in the US, for which ground breaking took place in Q1 2012.
On 3 May 2012 DSM announced the execution of a Merger Agreement and planned tender offer for all of the issued and outstanding shares of Kensey Nash, a US based, NASDAQ traded, technology-driven biomedical company, to strengthen and complement DSM Biomedical's business and capabilities. With the anticipated acquisition of Kensey Nash, DSM Biomedical will be firmly established as a profitable growth platform for DSM. Subject to a successful tender offer process, Hart-Scott-Rodino clearance and customary conditions, the transaction is expected to close around the end of Q2 2012.
DSM made a good start to the year, supported by positive momentum in the US, continued progress of high growth economies and a return to more normal trading conditions in Performance Materials compared to Q4 2011. However, the global economic outlook is still uncertain and conditions remain weak in Europe.
DSM's expectations for the year are broadly in line with its previous guidance.
In addition to the already announced restructuring initiatives at DSM Resins, DSM is preparing further cost reduction programs.
In Nutrition, the impact of the substantial strengthening of the Swiss franc in 2011 was mitigated by a €50 million currency hedge gain, a benefit which will not be repeated in 2012. Despite this, DSM anticipates that it will make further progress, with EBITDA expected to be above 2011.
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.
Trading conditions in Materials Sciences have normalized compared to Q4 2011 but continue to be volatile and the end market outlook is uncertain owing to weak consumer sentiment in some of DSM's key geographies. In addition, increasing input costs remain a risk. Nevertheless, based on current insights, EBITDA is expected to be somewhat higher than in 2011.
In Polymer Intermediates prices and margins continue to be volatile. Results will be impacted in Q2 as a consequence of the end Q1 turnaround and in the second half year by two more planned turnarounds in caprolactam. For Polymer Intermediates another strong year is expected, at a level above the historical average, but EBITDA will be clearly lower than the exceptional result in 2011.
Overall DSM remains cautiously optimistic for the year 2012, on its way to achieve the 2013 targets.
Annual General Meeting of Shareholders Friday, 11 May 2012
Report for the second quarter Tuesday, 7 August 2012
Report for the third quarter Tuesday, 6 November 2012
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 (http://www.dsm.com/)
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