Thomson Reuters

DSM reports very strong Q1 2011 continuing its positive momentum


Source: Thomson Reuters

  • Q1 EBITDA from continuing operations up 14% to € 325 million
  • Life Sciences results driven by ongoing good performance in Nutrition
  • Materials Sciences posts solid results reflecting volume gains and pricing strength
  • EPS € 0.91, 30% higher also due to a lower tax rate
  • Martek integration underway; EBITDA in line with expectations
  • 2011 is expected to be a strong year for DSM towards achieving the 2013 targets



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

'Our robust performance in Q1 2011 represents further progress towards our 2013 targets as we continue to successfully execute our strategy. This improvement can be attributed to our focus on innovation, our global customer base, excellent market positions and presence in high growth economies.


'In the quarter we successfully completed our acquisition of Martek, welcoming its employees to DSM. The integration of Martek started immediately and the contribution to our profit is in line with expectations. Our business outlook for the rest of the year is positive and we expect 2011 to be a strong year for DSM.'

























in € millionFirst quarter
  2011 2010 +/-
Continuing operations:   
Net sales2,2341,93316%
Operating profit before depreciation and amortization (EBITDA) 



- Nutrition 173 166  
- Pharma 0 14  
- Performance Materials 91 71  
- Polymer Intermediates 99 50  
- Innovation Center -13 -13  
- Corporate activities -25 -4*  
* of which € 8 million IFRS pension adjustment      
** 18% if € 8 million IFRS pension adjustment is excluded      
Operating profit (EBIT) 231 182* 27%
Discontinued operations:    
Net sales 111 297  
Operating profit before depreciation and      
  amortization (EBITDA) 23 51  
Operating profit (EBIT) 23 36  
Total DSM:   
Net sales2,3452,2305%
Operating profit before depreciation and amortization (EBITDA) 



Net profit before exceptional items17214419%
Net result from exceptional items -6     -14  
Net profit16613028%


Net earnings per ordinary share in €:      
- before exceptional items, continuing operations 0.91 0.70 30%
- including exceptional items, total DSM 0.98 0.78 26%



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 equity 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 Q1 2011.


The macro-economic trend remained positive in Q1 2011. High growth economies, especially China, continued to be very strong, while growth in Western Europe and North America was moderate. In this environment DSM posted solid sales growth as a result of ongoing volume growth and pricing strength, thanks to DSM's focus on innovation and its global customer base, excellent market positions and presence in high growth economies.


The monetary and financial instability, reflected in volatile currency exchange rates and inflationary pressures, impacted costs. The strength of the Swiss franc affected Nutrition. The increasing input prices were, on average, compensated for by pricing strength. The events in Japan had very little impact on DSM's businesses. 


Nutrition showed ongoing volume growth. This compensated for the negative effect on costs caused by the strength of the Swiss franc. Compared to Q4 2010 prices were stable. The Martek acquisition closed on 25 February and has since then been included in the Nutrition results.


There was no fundamental change in the challenging market conditions in Pharma.


Within Performance Materials volumes increased substantially. Price increases were implemented successfully which, on average, more than offset the increasing raw material prices. This resulted in higher margins.


The performance of Polymer Intermediates was excellent. Its global presence and a very good manufacturing performance were enablers to benefit from the extremely good market conditions.


As announced earlier, DSM is reporting the activities of the DSM Innovation Center as a separate cluster because of its strategic importance. Further progress was made in the Emerging Business Areas Biomedical and Bio-based Products & Services.


DSM changed its Dutch pension scheme from a defined benefit plan into a defined contribution plan. The actual cash contribution to the plan will not change; the accounting treatment is, however, different. Because of the funded status of the scheme, the costs to be recognized as a defined benefit plan in 2010 were lower than the cash contributions (which are the costs in a defined contribution plan) which had a positive effect on the Q1 2010 result of € 8 million (total 2010: € 33 million).


Cash provided by operating activities amounted to € 23 million. There was a substantial increase in working capital, partly as a seasonal effect (relatively low end-of-the-year activity level) and due to the strongly growing business in Materials Sciences. Net debt increased by € 758 million, principally due to the Martek acquisition.













Net sales


in € million          first quarter
  2011 2010 differ-ence organic growth exch. rates other
Nutrition 798 732 9% 3% 2% 4%
Pharma 163 186 -12% -14% 2%  
Performance Materials 705 557 27% 22% 2% 3%
Polymer Intermediates 457 314 46% 43% 3%  
Innovation Center 14 9        
Corporate activities 97 135        

Total (continuing operations)






Discontinued operations 111 297        
Total 2,345 2,230        

* 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.


Net sales

Net sales increased by 16% compared to Q1 2010, of which 6% volume growth, 8% price increase and 2% currency exchange rate development (weaker euro versus the Chinese yuan and the US dollar). The sales momentum is also illustrated by a 7% higher sales level (of which 5% organic) compared to Q4 2010.


Nutrition continues to show above GDP volume growth and, although still slightly below Q1 2010, prices are stable compared to Q4 2010. Martek added € 37 million to the Nutrition sales. This was partly compensated for by the shift of the ARA sales to Martek from external sales to internal supplies.


Pharma sales remain depressed, which is almost completely due to a lower business activity in DSM Pharmaceutical Products; Q1 2010 was positively influenced by the flu vaccine shipments.


In Performance Materials, all business groups showed healthy sales growth evidenced by a double digit growth in volumes as well as prices for the cluster.


Organic growth in Polymer Intermediates was 43%, which is outstanding. The main component is pricing, but, because of an excellent manufacturing performance, volumes added 9%.


Operating profit before depreciation and amortization

EBITDA from continuing operations in Q1 (€ 325 million) was 14% higher than in Q1 2010. Without the positive (non-cash) contribution of € 8 million in Q1 2010 due to the change in status of the Dutch pension scheme, EBITDA increased by 18%.


The Martek acquisition added € 12 million to EBITDA. Excluding Martek, the Nutrition result was slightly lower, which can be attributed to the very strong Swiss franc (+12% versus the euro), which has an adverse impact on DSM Nutritional Products' cost base. This negative impact of the Swiss franc in Q1 was some

€ 15 - 20 million, net of hedging results.


The Pharma EBITDA is under continued pressure because of the ongoing very challenging market conditions in the pharmaceutical industry.


Performance Materials showed very good momentum, based on further improving trading conditions in most markets. In spite of a strong increase in feedstock prices, EBITDA is almost back on the pre-crisis levels, although with room for further margin improvement.


Polymer Intermediates posted outstanding and unprecedented results. Due to its global presence and an excellent manufacturing performance the cluster was able to benefit optimally from the very tight market conditions for caprolactam and acrylonitrile.



Business review by cluster




in € million first quarter
  2011 2010
Net sales 798 732
EBITDA 173 166
EBIT 140 133
EBITDA margin 21.7% 22.7%


In the first quarter 2011 organic sales growth was positive against both Q1 2010 (+ 3%) and Q4 2010

 (+ 2%). Compared to Q1 2010, volume growth was healthy, especially in Animal Nutrition & Health, but partly offset by lower prices. Against Q4 last year, prices were stable. Furthermore, in comparison to Q1 2010, sales benefited from the Martek acquisition and on balance favorable exchange rates.


EBITDA remained strong and was higher than Q1 last year, due to the Martek acquisition. Excluding Martek the results were slightly lower mainly due to the already mentioned lower prices, the strong Swiss franc and higher costs for raw materials. The negative impact of the Swiss franc in Q1 was some

€ 15 - 20 million, net of hedging results.


The Martek acquisition has been included in the Nutrition results since 25 February. Martek added € 37 million to the Nutrition sales. This is partly compensated for by the shift of ARA sales to Martek from external sales to internal supplies. The Martek acquisition added € 12 million to EBITDA.




in € million first quarter
  2011 2010
Net sales 163 186
EBIT -10 0
EBITDA margin 0.0% 7.5%


In Q1 2011 organic sales development was -14%, which was fully attributable to a drop in volumes in DSM Pharmaceutical Products. Last year's sales were positively influenced by flu vaccine shipments. In DSM Anti-Infectives volumes and prices were stable.


EBITDA in both DSM Pharmaceutical Products and DSM Anti-Infectives decreased, in DSM Pharmaceutical Products due to the disappointing sales development and in DSM Anti-Infectives due to higher feedstock prices.

Performance Materials


in € million first quarter
  2011 2010
Net sales 705 557
EBITDA 91 71
EBIT 62 39
EBITDA margin 12.9% 12.7%


Sales growth in Q1 was 27%, of which 22% organic growth. In DSM Resins and DSM Engineering Plastics volume growth was double digit, in DSM Dyneema it was close to that. There was also a double digit increase in prices in DSM Engineering Plastics and DSM Resins.


All three business groups posted a better EBITDA compared to Q1 last year, because of growing sales. The increase in selling prices offset the increased raw material prices.


Polymer Intermediates


in € million first quarter
  2011 2010
Net sales 457 314
EBITDA 99 50
EBIT 90 42
EBITDA margin 21.7% 15.9%


Organic sales growth in Q1 was 43%. In the current market conditions volume growth in the cluster is constrained by production capacity. Thanks to a very good manufacturing performance and some external sourcing, volumes grew by 9%. Prices increased by 34%, which reflects the very tight market conditions.


Due to volume growth and further increasing margins, EBITDA almost doubled compared to the already good Q1 in last year.


Innovation Center


in € million first quarter
  2011 2010
Net sales 14 9
EBITDA -13 -13
EBIT -16 -16


The cluster consists of two different areas of activity. The first comprises the innovation businesses, being the Emerging Business Areas (EBAs) DSM Biomedical, DSM Bio-based Products & Services, the new EBA DSM Advanced Surfaces and the Global Incubator. The second area consists of the enabling activities for company wide innovation, the Innovation Program Office and the Licensing and Venturing activities.


First quarter sales developed well and were above last year, generating additional gross margin, which was offset by higher spending on innovation opportunities. This resulted in an EBITDA comparable to last year. This quarter in Biomedical, the joint venture in surgical biomedical materials with DuPont, (Actamax Surgical Materials LLC) received anti-trust approval and started up its activities. Several development agreements have been signed in the main segments of the Biomedical business. Good progress is being made in Bio-based Products & Services with the development of bio-based succinic acid and tools for second generation biofuels.


Corporate activities


in € million first quarter
    2011 2010
Net sales   97 135
EBITDA*   -25 -4
EBIT*   -35 -16

* of which IFRS pension adjustment



The lower sales in Q1 2011 compared to Q1 2010 were caused by the deconsolidation of the Utility Support Group.


The lower EBITDA in Q1 2011 compared to last year was mainly due to the changes in accounting for the Dutch pension plan, additional project expenses related to the implementation of the announced strategy and higher share based payment costs following the increase in the share price.   


Exceptional items

In the first quarter a pre-tax expense of € 9 million was recognized as exceptional item in relation to the acquisition of Martek. This amount comprised transaction costs of € 7 million and € 2 million higher costs of sales resulting from the revaluation of inventories to fair value. The total inventory revaluation amounts to € 14 million, the remainder of which will be recognized as exceptional item in the second and third quarter. 


Net profit

Net profit increased from € 130 million in Q1 2010 to € 166 million in Q1 2011 due to a better operating result as well as a lower effective tax rate.


Net finance costs amounted to € 21 million in Q1 2011, similar to the previous year.


The effective tax rate decreased to 21 % (Q1 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.


Due to the higher net profit, net earnings per ordinary share (continuing operations, before exceptional items) increased by 30% to a level of € 0.91 (Q1 2010: € 0.70)


Cash flow, capital expenditure and financing

Cash provided by operating activities was € 23 million. The substantial increase in working capital of € 252 million was due to increased raw material prices, the strongly growing business especially in Materials Sciences and seasonal effects.


Cash flow related to capital expenditure in Q1 2011 amounted to € 72 million compared to € 98 million in Q1 2010.


Net debt increased by € 758 million and stood at € 650 million at the end of Q1 2011. The increase was principally due to the acquisition of Martek.



Compared to year-end 2010 the workforce increased by 774 and stood at 22,685 at the end of Q1 2011. This increase was mainly due to the acquisition of Martek.



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 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. The main underlying drivers of these trends are the world's population growth and increasing life expectancy on the one hand, and increasing economic prosperity and consumption in the high growth economies on the other. 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. At the same time DSM aims to make maximum use of the potential of all four growth drivers to mutually reinforce each other.

DSM has set itself ambitious targets for the next strategy period. With the transformation completed, DSM can now focus on, and accelerate, growth. The company has high aspirations, based on an assessment of the opportunities, particularly in high growth economies.


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

As of this quarter DSM is reporting sales on a regional level. The table can be found on page 17 of this report. Net sales in China (continuing operations, in USD) increased by 21% from USD 377 million in Q1 2010 to USD 458 million in Q1 2011. In India, DSM recorded a sales increase (in Euro) of 30%.


DSM and KuibyshevAzot OJSC announced a strategic cooperation in which DSM Engineering Plastics will enter into two joint ventures with the Russian company. In both joint ventures DSM Engineering Plastics will hold a majority share. In addition, KuibyshevAzot will be granted a license under DSM Fibre Intermediates' technology for the production of cyclohexanone. Russia is an increasingly important market for engineering plastics and it is expected that the market for PA6 will double in the next five years. With this partnership DSM is expected to be in an excellent position to capitalize on this anticipated growth.


The DSM joint venture Jinling DSM Resins Co., Ltd. (JDR) will invest approximately € 50 million in a new production facility for composite resins in Nanjing, China. The new facility, which will replace the current facility, will be among the largest manufacturing plants for composite resins in the world. DSM's share in the investment is 75%.


DSM also announced a partnership with Kemrock Industries in India for the production of specialty composite resins in India. DSM and Kemrock together will invest USD 25 million in a joint venture. DSM will focus on the supply of innovative specialized composite resin solutions to the fast growing Indian market while Kemrock will concentrate on the production of high end composite parts. DSM will hold 51% and Kemrock 49% in the joint venture, which will be based in Pune.


In India DSM opened its first Animal Nutrition & Health premix plant, located in Ambernath, Mumbai. This enables DSM to capitalize on opportunities that arise from the rapidly developing animal nutrition and health industry in the country. India is currently ranked 5th in the world as a broiler producer and is the world's 4th largest egg producer.


Innovation: from 'building the machine' to doubling innovation output

DSM Venturing, the corporate venturing unit of DSM, has made an investment in Germany-based SkySails GmbH & Co. KG, the market and technology leader for automated towing kite systems for ships. Depending on the prevailing wind conditions, a ship's average annual fuel costs and emissions can be reduced by 10 to 35% by using the SkySails system.


DSM's Dyneema® fiber will be used in mooring ropes for a semi-submersible mobile offshore drilling unit of Petrobras, one of the world's leading integrated energy companies. To moor one drilling unit, more than 15 kilometers of rope is needed.


Sustainability: from responsibility to a business driver

DSM and the United States Agency for International Development (USAID) announced that they will collaborate and collectively work to meet the nutritional challenges in the developing world. An initial focus of the collaboration will be on rice fortification for which DSM has a product offering such as NutriRice®. In addition, DSM will provide input to USAID's Office of Food For Peace in order to help improve nutritional value, quality, shelf life, and methods for testing food aid commodities.


At the publication of its Q4 2010 results DSM introduced its new company brand: Bright Science. Brighter Living.(TM) The new brand is symbolic of the transition to 'the new DSM'. DSM also published its first Integrated Annual Report, combining the Annual Report with the Triple P report.


Acquisitions & Partnerships: from 'portfolio transformation' to 'driving focused growth'

DSM completed the acquisition of Martek Biosciences Corporation. The acquisition is fully in line with DSM's strategy for its Nutrition cluster ('continued value growth') and adds a new growth platform for healthy and natural food ingredients for infant formula and other food and beverage applications, especially focused on polyunsaturated fatty acids (PUFAs) such as microbial Omega-3 DHA (docosahexaenoic acid) and Omega-6 ARA (arachidonic acid).


DSM signed an agreement to acquire the majority shareholding in Shandong ICD High Performance Fibre Co. Ltd. based in Laiwu, Shandong province, China. Closing of this transaction is expected in the course of 2011. The agreement with ICD, a manufacturer of UHMWPE (ultra high molecular weight polyethylene) fiber and a potential strong player in the Chinese market for high performance fibers, concludes an extensive selection process by DSM to find the right company in the Chinese market.



Overall, the consensus economic outlook for 2011 is positive. DSM expects the trading conditions experienced during the first quarter to continue in the remainder of the year, with strong growth in China and the other high growth economies, together with moderate growth in mature economies.


DSM is conscious of the macro-economic uncertainties. The unrest in the Middle East has had no impact on DSM's business, except for the higher oil price causing the prices for energy and certain raw materials to increase. DSM continues to pass on these higher costs through further price increases. At this time, DSM believes that the tragic events in Japan are likely to have only a limited impact on full-year earnings.


The Nutrition cluster is expected to achieve sustained good sales performance with healthy volume growth and price increases. Currency exchange rates are expected to remain volatile; the weaker US Dollar and especially the strong Swiss franc are unfavorable for the Nutrition cluster. The EBITDA with the inclusion of Martek is expected to be clearly above last year.


The focus within the Pharma cluster will be on strategy execution such as the announced anti-infectives joint venture with Sinochem. Overall business conditions remain challenging and results are expected to be lower than in 2010.


The Performance Materials cluster is benefiting significantly from continued global growth in the relevant end-markets such as automotive, electronics and packaging. Results are expected to be clearly above last year.


Polymer Intermediates is expected to continue its excellent performance in 2011 based on DSM's unique global presence and very favorable trading conditions, although the current very tight demand-supply balance might ease somewhat. In Q2 2011 a maintenance shutdown is planned for acrylonitrile.


Despite the headwinds from higher input costs and on balance unfavorable currencies, 2011 is expected to be a strong year for DSM. This gives DSM confidence that it will meet the EBITDA target of € 1.4 to 1.6 billion in 2013, with ROCE expected to exceed 15%.







Additional information

Today DSM will hold a conference call for the media from 08.00 AM to 08.30 AM CET and a conference call for investors and analysts from 09.00 AM to 10.00 AM CET. Details on how to access these calls can be found on the DSM website, Also, information regarding DSM's first quarter result 2011 can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website.

Important dates

Annual General Meeting of Shareholders                        Thursday, 28 April 2011

Report for the second quarter                           Tuesday, 2 August 2011

Report for the third quarter                                          Tuesday, 1 November 2011 


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 € 9 billion. The company is listed on NYSE Euronext. More information can be found at


For more information



DSM, Corporate Communications          

tel.: +31 (45) 5782421  




DSM, Investor Relations

tel.: +31 (45) 5782864


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Source: DSM N.V. via Thomson Reuters ONE


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