DSM: Solid Improvement in 2004 and Positive Perspectives for 2005

HEERLEN, The Netherlands, Feb 16, 2005 (PRIMEZONE via COMTEX) -- DSM:

* 8% organic volume growth in 2004 compared with 2003.

* 2004 operating profit EUR 489 million, up 66% from 2003.

* Net profit from ordinary activities in 2004: EUR 359 million (+54%).

* Q4 operating profit EUR 113 million, up 23% from 2003.

* Previously announced exceptional items in Q4 lead to a EUR 99 million exceptional loss.

* Dividend unchanged: EUR 1.75 per ordinary share.

* Outlook: Q1 2005 operating profit substantially higher than Q1 2004 operating profit (which was EUR 131 million based on IFRS)

* In this report, 'operating profit' is understood to be the operating profit from ordinary activities excluding exceptional items. Operating profit defined in this way reflects the underlying business trend. 'Net profit from ordinary activities' is understood to be the net profit from ordinary activities excluding exceptional items.

For the entire year 2004 DSM posted an operating profit of EUR 489 million, an increase of 66% compared with 2003. The increase was due in particular to organic volume growth and the full-year contribution from DSM Nutritional Products. Net profit from ordinary activities was EUR 359 million, up 54% from 2003 (EUR 233 million). The net profit amounted to EUR 262 million, compared with EUR 139 million in 2003. The net profit for 2004 included a negative net result from exceptional items of EUR 97 million, which is the balance of impairments, restructuring provisions, a book profit and a provision for an onerous contract.

For the fourth quarter of 2004 DSM posted an operating profit of EUR 113 million, which is 23% higher than in the fourth quarter of 2003. The net profit from ordinary activities in Q4 2004 was EUR 82 million, up 21% from Q4 2003. The net result for Q4 2004 includes a net result from exceptional items, in line with earlier announcements. The net result from exceptional items has been established at EUR 99 million negative and relates to impairments and restructuring provisions.

Commenting on the results, Peter Elverding, Chairman of the DSM Managing Board, said: "Although we definitely did not have the wind fully behind us in 2004, DSM's performance last year was clearly stronger. The company is in excellent financial health. We generated a free cash flow of more than EUR 600 million, half of which will be distributed to the shareholders, partly via the dividend and partly via a share buyback. Holders of ordinary DSM shares enjoyed a Total Shareholder Return of 27% in 2004, which puts us among the best-performing stocks, both in the AEX index and in the European chemical industry. However, we are still not where we want to be, and I am referring in particular to our profitability. We will therefore continue on the chosen path, and if trading conditions are similar to those in 2004 we may expect a further strengthening of DSM in 2005. For the first quarter I therefore expect a substantially higher operating profit than in the first quarter of 2004."


The dividend on ordinary shares proposed for the year 2004 amounts to EUR 1.75 per ordinary share, the same as in 2003. An interim dividend of EUR 0.58 per share having been paid in August 2004, the final dividend will amount to EUR 1.17 per ordinary share. The dividend will be paid out in cash.

Net sales

At EUR 7.75 billion, sales for the whole year 2004 were up 28% from the previous year. Organic volume growth was 8%. The acquisition of DSM Nutritional Products had an effect of +23%. Lower exchange rates against the euro, in particular for the US dollar, had an effect of -3% and selling prices were on average virtually unchanged from 2003. However, this analysis does not entirely reflect the influence of the US dollar; a major proportion of DSM's output is sold in euros or Swiss francs but at prices that are to a large extent derived from the global market price in dollars. Without this depressing effect, selling prices would on balance have increased considerably.

Net sales in the fourth quarter of 2004 amounted to EUR 2.0 billion, which is 5% above the Q4 2003 level. Organic volume growth amounted to 7%. Selling prices remained unchanged on average. Lower exchange rates against the euro, in particular for the US dollar, had an effect of -2%.

Business review

Life Science Products

Sales and operating profit for the Life Science Products cluster were lower than in 2003, mainly as a result of the slump that made itself felt in the antibiotics market and the unfavourable development of the dollar exchange rate and raw material prices. In addition, DSM Fine Chemicals turned in a weaker performance, mainly as a result of the glyoxylic acid production outage.

Whereas the measures taken had a positive effect at DSM Pharmaceutical Products, DSM Anti-Infectives saw its result deteriorate very strongly. The prices of penicillin G and derivatives sank to record depths in 2004 due to overcapacity in combination with measures taken by the Chinese government. The weak dollar also had a strongly negative effect, as the prices of antibiotics on the world market are dollar-denominated.

Although Q4 sales remained virtually unchanged from Q4 2003, the operating profit for the quarter was considerably lower than that for the fourth quarter of 2003. The sales decline at DSM Anti-Infectives had a much bigger effect on the results than organic volume growth in the other business groups.

DSM Nutritional Products

In its first full year as a member of the DSM group, DSM Nutritional Products further reinforced its leading position in the human and animal nutritional ingredients market. Sales generally remained stable, with volume growth on the one hand and pressure on the prices of some of the more mature products (in particular in Animal Nutrition & Health) on the other. Recently launched products showed a healthy growth and now account for about 10% of overall sales.

Sales and operating profit in Q4 were adversely affected by the lower exchange rate for the dollar and seasonal patterns in sales volumes; in addition, a few smaller provisions were recognized that were charged against operating profit. Nevertheless, the operating profit was higher due to the increased efficiency of operations.

Performance Materials

Sales and operating profit for this cluster increased strongly, due in particular to higher sales volumes and despite the strongly decreased dollar exchange rate. Having posted an operating loss in the previous year, DSM Elastomers succeeded in closing 2004 on a positive operating profit. DSM Dyneema saw its operating profit grow strongly due to higher sales volumes. DSM Engineering Plastics' operating profit also increased considerably due to volume growth and stringent cost control.

Q4 sales and operating profit were higher than in Q4 2003, despite the further weakening of the dollar and higher raw material costs. Higher margins and higher output at DSM Elastomers and higher sales volumes at DSM Dyneema were the main factors responsible for a strong increase in operating profit.

Industrial Chemicals

Sales and operating profit for this cluster increased strongly due to higher sales volumes and better margins (despite substantially increased raw material prices). Having posted a negative result in 2003, DSM Fibre Intermediates was able to close the year 2004 with a clearly positive operating result thanks to higher margins and volume growth. DSM Melamine's operating profit was at a clearly lower level than in 2003; selling prices decreased and raw material prices increased strongly.

The fourth quarter showed a similar picture, with DSM Fibre Intermediates once again posting positive figures, DSM Agro and DSM Energy performing strongly and DSM Melamine recording a clearly lower operating profit (due in part to maintenance turnarounds).

Net sales were lower than in 2003 due to the discontinuation of ABS production in May 2003. The operating profit for the year was lower. The higher result of DSM's internal insurance company was offset by costs for various projects and a lower result of the service activities.

Net profit Net profit increased from EUR 139 million in 2003 to EUR 262 million in 2004. Net earnings per ordinary share increased from EUR 1.24 in 2003 to EUR 2.51 in 2004.

Financial expense was EUR 51 million in 2004, compared with EUR 31 million in 2003. This increase was due mainly to the acquisition of DSM Nutritional Products.

The effective tax rate was 22% (2003: 19%). The 3% rise compared with 2003 was the result of the higher total profit and hence the relatively lower share of profit components taxed at a low rate. The increase was mitigated by corrections applied for previous years.

The Profit from non-consolidated companies increased from EUR 5 million in 2003 to EUR 8 million in 2004.

The Net profit from ordinary activities increased by EUR 126 million to EUR 359 million, mainly because of a higher operating profit.

Minority interests accounted for EUR 11 million (2003: EUR 14 million).

The Net result from exceptional items for the year 2004 as a whole was on balance EUR 97 million negative. Exceptional charges related to impairments, restructuring measures and reorganizations within the Life Science Products cluster, the restructuring of the Geleen site in the Netherlands and the creation of a provision for an onerous purchasing contract in the field of anti-infectives. Exceptional income related to a book profit on the sale of an industrial site in the Performance Materials cluster.

In the fourth quarter, the net result from exceptional items was EUR 99 million negative due to impairments, restructuring measures and reorganizations within the Life Science Products cluster.

Cash flow, capital expenditure and financing The cash flow from ordinary activities (net profit from ordinary activities plus amortization and depreciation) for the whole year amounted to EUR 883 million, up 33% from 2003. The increase was mainly due to the higher operating profit. For the entire year 2004, capital expenditure on tangible and intangible assets amounted to EUR 334 million (2003: EUR 433 million) and no capital was expended on acquisitions (2003: EUR 1,569 million). Net debt was halved to EUR 337 million in 2004, mainly because the cash flow from operational activities well exceeded the level of capital expenditure.

The cash flow from ordinary activities in the fourth quarter amounted to EUR 217 million. Capital expenditure (excluding acquisitions) amounted to EUR 122 million, which is EUR 31 million lower than in the fourth quarter of 2003.

Repurchase of cumulative preference shares C

On the contractually agreed dividend reset date (28 November 2004) DSM repurchased all of the 37,500,000 cumulative preference shares C that were outstanding, at the original issue price of Euro 3.03 per share. The total sum involved was EUR 117.3 million, including the dividend for the period up to and including 28 November 2004 and minus the interim dividend for 2004 that had already been paid out. The repurchase will have a direct positive impact (approximately 5 eurocents on an annual basis) on earnings per ordinary share.


The workforce decreased by 1,931, from 26,111 at year-end 2003 to 24,180 at year-end 2004, as a result of restructuring measures and attrition.


In an appendix to its annual report, DSM provides a full comparison for the year 2004 between the figures based on current accounting policies and those based on IFRS. In the annex to this press release the quarterly results for 2004 are restated on the basis of IFRS.


The global economic outlook for 2005 does not seem to be unfavourable. Although economic growth is expected to be lower than in 2004, the demand/supply balance in most of DSM's end markets seems to remain robust.

However, for European producers a significant negative influence can come from a possible further weakening of the US dollar against the euro in 2005. On top of that, volatility in raw material prices and disruptive geopolitical events remain potential risks to the chemical industry's trading conditions.

If this year's business environment turns out to be in line with 2004 conditions, which does not seem unlikely at present, the outlook for DSM in 2005 is certainly favourable. Under such economic circumstances the impact of volume growth and the results of ongoing restructuring programmes, combined with innovation in new products and markets, will lead to improved financial results for DSM.

For the short term DSM expects continued weakness in the pharma business (specifically anti-infectives) and the DSM Fine Chemicals business group within the Life Science Products cluster. In the second half of 2005 DSM will be seeing the impact of the recently announced restructuring plans in these businesses. In other DSM businesses the short-term market outlook is relatively favourable at the moment.

Trading conditions in Q1 2005 seem to be somewhat stronger than in Q1 2004, although the US dollar exchange rate against the euro has decreased further and the development of raw material prices continues to be uncertain. Barring unforeseen circumstances, DSM expects that the operating profit for Q1 2005 will be substantially higher than that for Q1 2004 (which was EUR 131 million based on IFRS).

Forward-looking statements

This press release contains forward-looking statements. Thesestatements are based on current expectations, estimates andprojections of DSM management and information currently available tothe company. The statements involve certain risks and uncertaintiesthat are difficult to predict and therefore DSM does not guaranteethat its expectations will be realized. Furthermore, DSM has noobligation to update the statements contained in this press release.

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