Q2 EBITDA from continuing operations €339 million, above both Q2 2010 and Q1 2011
Strong Life Sciences results driven by robust growth in Nutrition
Very solid results in Materials Sciences due to pricing strength and volume growth
Martek integration on track; excellent Q2 EBITDA performance
EPS more than doubled, reflecting strong operating results, lower tax rate and one-off gains
Interim dividend of €0.45 (+12.5%) representing one third of total dividend for 2010
2011 is expected to be a strong year; good progress towards achieving the 2013 targets
Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said, "This has been another strong quarter for DSM with continued progress compared to the first quarter and the same period last year reflecting the strength of our businesses. These results include a positive contribution from Martek but also the negative impact of currency effects and higher raw material and energy costs.
"Whilst general economic forecasts for the year continue to be positive, there are increased uncertainties related to the global economy. However, we believe we are well positioned with our balanced, relatively resilient portfolio in health, nutrition and materials, and with our broad geographic footprint, strong technology and leading market positions. This, in combination with our focus on customers and innovation and our ongoing efficiency improvements, gives us confidence that 2011 will be a strong year for DSM with good progress towards achieving the 2013 targets."
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 quity 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 second quarter 2011
The monetary and financial instability, caused by continued global sovereign debt challenges worsened in Q2. This was, amongst other factors, reflected in very volatile currency exchange rates. On average, over the quarter the US dollar decreased by 13% and the Swiss franc increased by 11% against the Euro compared to Q2 2010. Inflationary pressure, especially in food, raw materials and energy remained high.
However, this instability did not affect DSM's markets. Trading conditions remained in line with the positive Q1 environment, as a result of strong growth in high growth economies and moderate, but continuing, growth in Western Europe and North America. The Japanese economy was still weak, following the natural disasters in Q1.
Within this macro-economic context the majority of DSM's businesses continued to offset increased input cost with pricing strength. The increasingly strong Swiss franc, however, negatively affected the cost base of the Nutrition business. The US dollar had a negative impact for all of DSM.
Nutrition posted its best quarter ever. It continued to deliver solid volume growth. Currencies had a negative impact of around EUR20-25 million on the operating result compared to Q2 2010. Martek, acquired in Q1, delivered an excellent performance.
Pharma sales and results improved compared to Q1, but DSM is conscious that overall performance of the cluster remains below acceptable levels.
In Performance Materials unit margins in DSM Engineering Plastics and DSM Resins continued to improve. However, DSM Dyneema was affected by lower sales to the tender driven vehicle protection business. As a consequence the cluster result was somewhat lower than in Q2 last year.
Polymer Intermediates continued to show an excellent performance. Despite a planned maintenance shutdown for the acrylonitrile plant, results were close to Q1 and substantially above last year's.
Total EBITDA (continuing operations) grew by 2% and on comparable basis by 5% versus last year's Q2. Compared to previous quarter EBITDA increased by 4%.
In Q2 DSM realized one-off profits due to the sale of its shares in Danisco (EUR140 million before tax) and the divestment of DSM Elastomers (EUR110 million before tax). These profits are reported as exceptional items. In addition the lower effective tax rate (21% versus 25% in 2010) and a strong operating result contributed to a more than 160% increase of net profit and earnings per share.
Net debt decreased by EUR372 million during the quarter to EUR278 million. The main positive contributors were the operating profit and proceeds from disposals, which were partly compensated for by an increase in working capital (from 19.7% in Q1 2011 to 21.0% of sales in Q2 2011), capital expenditure, acquisitions, the share repurchase program and the payment of the final dividend.
* Including the effect of the deconsolidation of DSM's interest in Utility Support Group B.V. and EdeA v.o.f., which was reported in Corporate activities in 2010.
Organic sales growth was 10%, well above target. This is the sixth consecutive quarter with double digit organic growth. Volume growth was 4% and price increases 6%. Currencies (mainly the US dollar and the Chinese yuan) had a negative effect of 4%.
Nutrition continued to realize strong volume growth, both compared to prior year and Q1. The decreasing price trend was halted during the first half year. Martek added EUR84 million to the Nutrition sales, which was partly offset by the shift of DSM Food Specialties' ARA sales to Martek from external sales to internal supplies.
Although Pharma sales improved compared to Q1, they are still below last year's level.
Performance Materials continued to post double digit organic growth, mainly due to pricing strength. Volume growth was modest, due to lower sales by DSM Dyneema to the vehicle protection business.
Polymer Intermediates organic sales growth was an excellent 24%, mainly due to price increases.
Sales including Martek increased by 10% over the same period last year. Organic sales growth was 5% and currencies had an impact of -3%. Organic sales growth was 3% over Q1 2011. There was particularly good volume growth in Animal Nutrition & Health and DSM Food Specialties. Overall prices were lower compared to
Q2 last year and in line with Q1 2011.
The performance of the cluster remained strong and EBITDA was above Q2 last year. EBITDA excluding Martek was lower than the exceptionally strong results of last year, mainly due to the negative impact of the Swiss franc and US dollar which was approximately EUR20-25 million for DSM Nutritional Products, net of hedging results. Despite higher raw material and energy costs and unfavorable currency developments, EBITDA (excluding Martek) in Q2 2011 improved compared to Q1 2011, due to volume increases with stable prices. To mitigate the effect of currencies and higher input costs, price increases and cost optimization measures are being implemented.
Martek delivered an excellent performance with sales of EUR84 million and EBITDA of EUR28 million.
In Q2, 2011 sales were mainly lower because of the weaker US dollar and lower volumes at DSM Pharmaceutical Products.
Although EBITDA was below the 2010 level, it improved compared to Q1 2011 due to margin improvements in DSM Anti-Infectives and volume improvements in DSM Pharmaceutical Products. However, the performance is still well below acceptable level.
Organic sales growth was 13% in Q2, mainly reflecting price increases to restore unit margins. Volume growth was subdued, especially because of lower sales to the tender driven vehicle protection business at DSM Dyneema and weak Japanese demand, following the natural disasters in March.
The lower EBITDA compared to last year is fully attributable to DSM Dyneema. Both DSM Engineering Plastics and DSM Resins continue to improve pricing to compensate for the higher raw material prices.
Ongoing tight supply and strong demand resulted in organic sales growth in Q2 of 24% compared to Q2 2010, mainly due to price increases.
Margins showed a substantial increase compared to Q2 2010 which was reflected in a considerably higher EBITDA despite the planned maintenance shutdown in the acrylonitrile business.
Second quarter sales developed well and were above last year, generating additional gross margin which was offset by higher spending on innovation opportunities.
This quarter DSM and Roquette announced that they will build a commercial scale plant for the production of bio-based succinic acid in Cassano, Italy. The plant will be Europe's largest bio-based succinic acid facility. On July 28 DSM completed the acquisition of C5 Yeast Company B.V. from Royal Cosun, through which it will further increase its leadership position in the field of second generation biofuels. Recent tests have shown that the yield of DSM's advanced yeast technology for second generation biofuels on cellulose derived C5/C6 sugars to ethanol meets conversion performance criteria for commercialization by its customers.
The lower sales in Q2 2011 compared to Q2 2010 were due to the deconsolidation of the Utility Support Group.
The lower EBITDA compared to Q2 2010 was due to the changes in the Dutch pension plan, higher share based payment costs following the increase of the share price, additional project expenses related to the implementation of the announced strategy, a lower result in the businesses included in Corporate activities and higher costs in service organizations.
In Q2 2011 total exceptional items amounted to EUR242 million (EUR226 million after tax), comprising the book profits before tax on the sale of the Danisco shares (EUR140 million) and on the divestment of DSM Elastomers (EUR110 million). In relation to the acquisition of Martek an amount of -EUR8 million was reported as an exceptional item due to the revaluation of inventories to fair value.
Net profit increased from EUR149 million in Q2 2010 to EUR392 million in Q2 2011, which was mainly due to the book profits resulting from the divestment of DSM Elastomers and the sale of the Danisco shares as well as a lower tax rate and the strong operating result.
Net finance costs amounted to EUR18 million in Q2 2011 compared to EUR29 million in Q2 2010, mainly as a result of favorable hedge results and lower interest costs.
The effective tax rate decreased to 21% (Q2 2010 25%) as a result of a different geographic 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 (including exceptional items, total DSM) increased
by 161% to a level of EUR2.35 per ordinary share in Q2 2011 (q2 2010:EUR0.90).
Cash flow, capital expenditure and financing
Cash provided by operating activities amounted to EUR156 million in the first half of 2011 (EUR133 million in Q2 2011).
Operating working capital increased to 21.0% of sales, mainly due to seasonal factors and the acquisition of Martek (which requires, because of its business model, a relatively high level of operating working capital). Compared to Q2 2010, excluding the Martek effect, operating working capital was 0.5% lower.
Cash flow related to capital expenditure amounted to -EUR160 million in the first half of 2011 (Q2 2011:
-EUR88 million) compared to -EUR188 million in H1 2010 (q2 2010:-EUR90 million). The cash flow related to acquisitions amounted to -EUR800 million in the first half of 2011 (q2 2011:-EUR69 million) compared to
-EUR35 million in the first half of 2010.
Net debt increased from -EUR108 million at the end of 2010 to EUR278 million at the end of Q2. This was mainly due to the Martek acquisition. During Q2 net debt decreased by EUR372 million.
DSM's dividend policy is to provide a stable and preferably rising dividend. It has been decided to pay an interim dividend of EUR0.45 (+12.5%) per ordinary share for the year 2011. As usual, this represents one third of the total dividend paid for the previous year. The interim dividend is no indication of the total dividend for 2011. The dividend will be payable in cash or in the form of ordinary shares, at the option of the shareholder. Dividend in cash will be paid after deduction of 15% Dutch dividend withholding tax. The ex-dividend date is 3 August 2011. The interim dividend will be payable as from 26 August 2011.
Compared to year-end 2010 the workforce increased by 580 to 22,491 at the end of Q2 2011. This change was due to the acquisition of Martek, the divestment of DSM Elastomers and additional hiring.
Progress 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.
DSM's focus on Life Sciences (Nutrition and Pharma) and Materials Sciences (Performance Materials and Polymer Intermediates) is fueled by three societal trends: Global Shifts, Climate and Energy and Health and Wellness. DSM aims to meet the unmet needs resulting from these societal trends with innovative and sustainable solutions.
It is DSM's ambition to fully leverage the unique opportunities in Life Sciences and Materials Sciences, using four growth drivers (High Growth Economies, Innovation, Sustainability and Acquisitions & Partnerships) and bringing all four drivers to the next level.
DSM has set itself ambitious targets for the next strategy period. With its transformation completed, DSM can now focus on and accelerate growth. Below is an update on DSM's achievements and progress with regard to each of the four growth drivers.
High Growth Economies: from reaching out to being truly global
DSM is reporting sales on a regional level (see table on page 18 of this report). Net sales in China (continuing operations, in USD) increased by 38% from USD 355 million in Q2 2010 to USD 489 million in Q2 2011. In India, DSM recorded a sales increase in Q2 2011 (in Euro) of 12%.
In Q2 2011, DSM and the Russian company KuibyshevAzot OJSC commenced their strategic cooperation and joint ventures in the field of Engineering Plastics and Fibre Intermediates. Furthermore, DSM opened the first feed-premix plant in Russia in a joint venture with Tatenergo JSC (Republic of Tatarstan).
Innovation: from building the machine to doubling innovation output
DSM opened a state-of-the-art Nutrition Innovation Center in Parsippany, New Jersey (United States). Furthermore, DSM's nutrition business has developed a novel way of sugar fortification with vitamin A. This opens a significant additional route to improving the population's micronutrient intake through staple food, next to rice, flour or milk.
Sustainability: from responsibility to a business driver
DSM is on track with its 2011-2015 sustainability aspirations. In the first half year of 2011, 87% of DSM's innovation pipeline were ECO+ solutions (compared to an aspiration of over 80% for 2011-2015). As a percentage of running business, ECO+ solutions were estimated at almost 40% for the first half year of 2011 compared to an aspired growth from about 34% towards an estimated 50% for the period 2011-2015.
An example of an ECO+ solution is EcoPaXX(TM), a 70% bio-based high- performance engineering plastic. In Q2 a German automotive producer selected this material for the engine cover for one of its flagship models.
Also energy efficiency is well on target: 1.8% improvement in the first half year of 2011 compared to 2010. The aspiration calls for a 20% improvement in 2020 compared to 2008.
DSM also developed a VOC free powder in mould coating for use as finish in automotive applications with a much better eco-footprint compared to traditional solvent-based methods.
Acquisitions & Partnerships: from portfolio transformation to driving focused growth
The integration of Martek, acquired in the first quarter of 2011, is fully on track. The innovation and growth potential of the company is substantial.
DSM announced the acquisition of Vitatene S.A.U. (Spain), a producer of natural carotenoids. This acquisition, which has meanwhile been closed, allows DSM to strengthen the natural carotenoids offerings of its nutrition business as consumer demand for natural products continues to grow.
DSM announced that it will acquire the premix unit of Fatrom, the leading premix manufacturer in Romania.
DSM and Yixing QianCheng Bio-Engineering Co Ltd (China) have closed a joint venture agreement for the enzyme activities of QianCheng, creating a new company DSM (Jiangsu) Biotechnology Co. Ltd. DSM holds 85% of the shares in the new company.
Whilst general economic forecasts for the year continue to be positive, there are increased uncertainties related to the global economy caused by sovereign debt challenges, increased inflation and volatile currencies. However, DSM believes that it is well positioned with its balanced, relatively resilient portfolio in health, nutrition and materials, its broad geographic footprint and strong technology and leading market positions to make further progress.
DSM, in line with the industry, experienced higher raw material and energy costs during the first half of the year, although this increase is expected to ease during the second half of the year. DSM expects to remain successful in passing on these cost increases due to its strong market positions.
Currencies have also been a negative factor in the second quarter. The strong Swiss franc and the weakening US dollar will continue to impact results going forward.
However, at this stage, no major changes are anticipated to the overall business assumptions for the full year.
The Nutrition cluster is expected to maintain its positive momentum, with good volumes, price increases and further cost efficiencies helping to partially offset the adverse impact of the strong Swiss franc and weak US dollar. The cluster is relatively unaffected by changes in the global economy. EBITDA including Martek is likely to be clearly above last year.
The Pharma cluster continues to be impacted by challenging business conditions and results are expected to be lower than in 2010.
Performance Materials is expecting continued growth in end-user demand. Overall sales volumes for H2 2011 are expected to be lower than in H1 2011 due to normal seasonal trading patterns. In the second half of the year pricing initiatives will continue to take effect and input cost pressures are expected to ease. Full year results are expected to be clearly above last year.
Polymer Intermediates' full year results are expected to be excellent, although DSM sees some potential margin decline.
Taking into consideration all of the above, together with DSM's continued focus on customers, innovation and ongoing efficiency improvements, 2011 is expected to be a strong year for DSM. Therefore DSM believes that good progress is being made towards achieving the EBITDA target of EUR1.4 to 1.6 billion in 2013, in conjunction with a ROCE of more than 15%.
Information regarding DSM's first half year result 2011 can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website. Statement of the Managing Board
The half-yearly financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of DSM and its consolidated companies; and the half-yearly report gives a true and fair view of DSM's position as at the balance sheet date, the development during the period of DSM and its group companies included in the half-yearly financial statements, together with the expected developments.
The Managing Board
Feike Sijbesma, Chairman/CEO
Rolf-Dieter Schwalb, CFO
Ex interim dividend quotation Wednesday, 3 August 2011
Record dateFriday, 5 August 2011
Interim dividend payableFriday, 26 August 2011
Report for the third quarter 2011Tuesday, 1 November 2011
Annual Report 2011Wednesday, 29 February 2012
Report for the first quarter 2012Tuesday, 8 May 2012
Annual General Meeting of ShareholdersFriday, 11 May 2012
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 EUR9 billion. The company is listed on NYSE Euronext. More information can be found at www.dsm.com.