Commenting on the results, Feike Sijbesma, chairman of the DSM Managing Board, said: "Early and aggressive action to reduce costs, a focus on cash, stringent management of working capital and the ongoing resilience of our Life Sciences businesses, have all ensured that DSM is in good shape at the end of the first half of 2009.

"Although there is little sign of improving demand across many end-markets, Q2 earnings were up sharply compared with the first quarter driven by Materials Sciences as inventory write-downs and customer de-stocking have largely run their course. 

"DSM is staying the course, even in these challenging times. This is illustrated by the announcement of the disposal of two non-core businesses in July, our ongoing strategic commitment to our customers, innovation and sustainability and our focus on China, where we are reaping the benefits of a favorable market. Our strong balance sheet and robust cash flow leave us well placed to take advantage of future opportunities that will arise."

second quarter in EUR million first half

2009 2008 +/- 2009 2008 +/-

Continuing operations:

1,918 2,406 -20% Net sales 3,707 4,709 -21%

167 346 -52% Operating profit before depreciation and amortization (EBITDA) 305 650 -53%

58 242 -76% Operating profit (EBIT) 90 448 -80%

124 109 14% - Nutrition 265 188 41%

3 29 -90% - Pharma 14 37 -62%

17 70 -76% - Performance Materials 0 150 -100%

4 26 -85% - Polymer Intermediates -26 66

-36 43 - Base Chemicals and Materials -62 73

-54 -35 - Other activities -101 -66

Discontinued operations

36 50 -28% Net sales 84 105 -20%

25 37 -32% Operating profit before depreciation and amortization (EBITDA) 54 71 -24%

21 34 -38% Operating profit (EBIT) 46 65 -29%

Total DSM:

1,954 2,456 -20% Net sales 3,791 4,814 -21%

79 276 -71% Operating profit (EBIT) 136 513 -73%

30 192 -84% Net profit before exceptional items 55 354 -84%

-20 - Net result from exceptional items -32 -

10 192 -95% Net profit 23 354 -94%

Net earnings per ordinary share in EUR:

0.09 1.00 -91% - before exceptional items, continuing operations 0.11 1.81 -94%

0.05 1.15 -96% - including exceptional items, total DSM 0.12 2.10 -94%

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 Energie Holding B.V. and Stamicarbon B.V.

Overview

The general global economic downturn, which is having a very adverse effect on almost half of DSM's businesses (DSM Engineering Plastics, DSM Resins, DSM Fibre Intermediates, DSM Elastomers and DSM Melamine), continued into Q2. However, in contrast to the previous two quarters there are strong indications that downstream de-stocking has largely come to an end in most markets. This is reflected in an improved demand compared to Q1, bringing the year-on-year drop in demand in these businesses more in line with the development of end-markets.

Nutrition continued to show resilience reflecting very strong positions in markets which have seen only a limited impact of the downturn. The Pharma result was low due to weak volumes.

The Materials Sciences clusters (Performance Materials and Polymer Intermediates) were lifted back into a profitable position again, driven by improved demand, a continued focus on efficiency and some increase in margins. DSM Dyneema, however, experienced weakening demand, mainly in industrial applications.

DSM's strategic focus on China is paying off. China's industrial production is strongly improving after a relatively short dip. Almost all businesses, especially DSM Fibre Intermediates, are experiencing a strong recovery in Chinese demand, sometimes even back to pre-crisis levels. Compared to Q1 sales in China increased by 44%.

The pressure on the business of DSM Agro continued. Although Q2 saw a pick-up in volumes, lower prices resulted in a loss for the period.

DSM's cash performance was very strong for the third quarter in a row, in spite of the depressed external environment. The focus on working capital management, credit control, cost efficiency and responsible priority setting for capital expenditures was effective. Net debt decreased again, even though the final dividend for 2008 was paid in this quarter. DSM's financial strength is reflected in the credit rating. Standard and Poor's has affirmed the A- rating and maintained the stable outlook on 3 August, 2009.

As from the end of this quarter DSM Energy and the urea-licensing business are reported as assets held for sale and discontinued operations, because agreements have been reached to divest these activities as part of DSM's accelerated Vision 2010 strategy. Previous period figures have been adjusted accordingly. More details can be found in the press releases issued on 29 July.

Net sales

in EUR million second quarter

2009 2008 differ-ence vol-umes prices exch. rates other

Nutrition 699 689 2% -11% 5% 7% 1%

Pharma 177 237 -25% -15% -5% 2% -7%

Performance Materials 456 624 -27% -23% -8% 3% 1%

Polymer Intermediates 215 326 -34% -8% -32% 6% -

Base Chemicals and

 Materials

285

427

-33%

-2%

-32%

1%

-

Other activities 86 103

Total, continuing operations    

1,918

2,406

-20%

-13%

-11%

4%

0%

Discontinued operations 36 50

Total 1,954 2,456

Sales dropped by 20% compared to Q2 2008, but improved by 7% compared to Q1 (volume +13%, prices -5%, exchange rates -1%). All business groups, except the two Nutrition business groups, showed a sales level clearly below last year's. In Nutrition weaker volumes were more than compensated for by strong pricing and a favorable currency exchange rate effect.

Despite of the weakness compared to last year, there was a clear recovery compared to Q1, as industrial demand got more in line with end-market demand (slowing down of de-stocking) and China regained momentum.

Operating profit

Although operating profit showed a sharp drop compared to previous year's record level, it clearly improved against Q1 due to the improvement in Materials Sciences.

Nutrition maintained its very strong performance, based on its marketing strategy and the change in industry dynamics. The economic downturn is having a limited effect on trading conditions.

The Pharma result was low, due to the lower business activities in the custom manufacturing business at DSM Pharmaceutical Products and the demand/supply situation at DSM Anti-Infectives.

In Materials Sciences, the inventory write-downs caused by the drastic drop in oil prices and rigorous downstream de-stocking in most markets, appears to be coming to an end. DSM Resins and DSM Fibre Intermediates are both back at profitable levels. DSM Dyneema saw a drop in profit. Improved cost efficiency contributed as expected.

In Base Chemicals and Materials the improvement in DSM Elastomers and DSM Melamine was much less pronounced than in Performance Materials. Both business groups still posted substantial losses. The same was true now for DSM Agro, because of very weak prices. Cost efficiency improved in all units.

The operating profit of DSM's core business as a Life Sciences and Materials Sciences company (i.e. excluding Base Chemicals and Materials and discontinued operations) improved from EUR 58 million in Q1 to EUR 94 million in Q2 (+62%).

Business review by cluster

Nutrition

second quarter in EUR million       first half

2009 2008 2009 2008

699 689 Net sales 1,406 1,341

Operating profit before depreciation and

156 142  amortization 330 252

124 109 Operating profit 265 188

Second quarter results for the Nutrition cluster continued to be strong despite the organic sales development of -6% compared to Q2 2008. Last year's H1 sales volumes benefited to a certain extent from inventory build-up in the trade channels in anticipation of higher prices and the impact of the Beijing Olympics. This was followed by inventory reduction at the end of 2008 and the beginning of 2009. Current sales are a reflection of underlying end-use demand. In Q2 2009 demand improved compared to Q1 mainly in animal nutrition, while dietary supplements saw some weakness. Prices, especially for fat soluble vitamins, remained relatively strong and were above Q2 2008. Compared to Q1 2009, there have been price declines with some reversals towards the end of Q2.

Operating profit of DSM Nutritional Products increased compared to Q2 2008 mainly based on pricing and a relatively strong dollar. DSM Nutritional Products started reducing production output in Q2 to improve its overall working capital. DSM Food Specialties' operating profit was similar to last year with strong performance in enzymes, such as Brewers Clarex® and ARA (an infant nutrition ingredient).

Pharma

second quarter in EUR million       first half

2009 2008 2009 2008

177 237 Net sales 374 444

Operating profit before depreciation and

18 45  amortization 43 68

3 29 Operating profit 14 37

Sales of the Pharma cluster continued to be under pressure due to a low activity level in the custom manufacturing business of DSM Pharmaceutical Products related to de-stocking, delay in approvals and the loss of some larger contracts. DSM Anti-Infectives faced weak market conditions.

These developments resulted in a lower operating profit compared to the previous year. Compared to last quarter the USD exchange rate had an additional negative impact.

Performance Materials

second quarter in EUR million      first half

2009 2008 2009 2008

456 624 Net sales 851 1,225

Operating profit before depreciation and

44 90  amortization 50 191

17 70 Operating profit 0 150

Compared to same period last year organic sales development was -31% as trading conditions were worse for all business groups. In contrast, sales showed improvement against the previous quarter at DSM Resins and DSM Engineering Plastics. Construction and automotive related businesses remained slow. Substantial effects of de-stocking in the market as experienced in Q1 were less apparent in Q2. DSM Dyneema experienced weakening demand especially in commercial marine, sports and high performance textiles.  

The cluster reported an operating profit after two quarters of losses. Results of both DSM Resins and DSM Engineering Plastics improved from Q1 as demand improved. The operating profit for the quarter decreased substantially against the same period last year due to the economic downturn, partially offset by lower raw-material costs as well as structural cost reduction programs. The quarterly result of DSM Dyneema dropped compared to the same period last year as weaker demand has an impact on this business as well.

Polymer Intermediates

second quarter in EUR million       first half

2009 2008 2009 2008

215 326 Net sales 354 668

Operating profit before depreciation and

11 32  amortization -11 78

4 26 Operating profit -26 66

Organic sales growth in the cluster was 58% compared to Q1, but still negative (-40%) compared to the same quarter of last year. The improvement was mainly due to volume recovery, somewhat higher caprolactam prices in China and higher exports of acrylonitrile.

The Polymer Intermediates cluster delivered a small operating profit after losses in the preceding two quarters, partly based on cost savings. The gap compared to Q2 last year was still significant as European and US volumes remained weak.

Base Chemicals and Materials

second quarter in EUR million      first half

2009 2008 2009 2008

285 427 Net sales 526 818

Operating profit before depreciation and

-20 61  amortization -30 107

-36 43 Operating profit -62 73

Sales volumes were lower compared to last year, with the exception of DSM Agro, which reported very high volumes towards the end of Q2, largely compensating for the late season start in Q1. Although the other businesses were still suffering from the lower demand in the automotive industry (DSM Elastomers) and in the building industry (DSM Melamine), volumes increased gradually compared to the first quarter.

The operating profit of the cluster was negative for all main business groups. The volume increase in Q2 compared to Q1 was not sufficient to compensate for the substantially lower prices in fertilizers. Costs saving programs for the cluster are in place and have started contributing to the result.

Other activities

second quarter in EUR million        first half

2009 2008 2009 2008

86 103 Net sales 196 213

Operating profit before depreciation and

-42 -24  amortization -77 -46

-54 -35 Operating profit -101 -66

  of which:

-19 0   - Defined Benefit Plans -38 -1

-13 -13   - Innovation Center -28 -26

-22 -22   - Other -35 -39

The main difference in the result of Other activities compared to last year is the (non cash) increase in IFRS pension costs for defined benefit plans.

Exceptional items

Exceptional items amounted to EUR 20 million after tax. Following the announced cost-saving actions, restructuring charges were recognized for an amount of EUR 28 million (EUR 20 million after tax). As a result of the decision to postpone certain ICT projects DSM expensed EUR 23 million (EUR 19 million after tax). A EUR 19 million gain was recognized due to compensation for the closure of the citric acid manufacturing plant in Wuxi (China).

Net profit

Net profit decreased from EUR 192 million in Q2 2008 to EUR 10 million in Q2 2009.

Net earnings per share (continuing operations, before exceptional items) decreased to EUR 0.09.

Net finance costs amounted to EUR 33 million which represents an increase of EUR 15 million compared to the previous year mainly due to higher exchange rates for the US dollar and the Swiss franc, higher average interest rates and some fair value adjustments in other financial assets.

The effective tax rate increased to 28% for the first half year of 2009 versus 25% for the year 2008 due to changes in the geographic distributions of taxable results.

Cash flow, capital expenditure and financing

As a result of DSM's continued strong focus on cash and despite the lower operating profit, Cash flow from operating activities increased to EUR 433 million for the first half year (Q2: EUR 267 million) compared to EUR 281 million in the first half of 2008 (Q2: EUR 185 million). 

Cash used for capital expenditure in the first half of 2009 amounted to EUR 235 million compared to EUR 258 million in the first half of 2008.

During the last three quarters net debt decreased from EUR 1,887 million (end of Q3 2008) to a level of EUR 1,677 million at the end of Q2 2009 due to the good cash performance.

The 6.75% USD 250 million loan maturing in May was repaid out of cash.

Standard and Poor's has affirmed the A- rating and maintained the stable outlook on

3 August, 2009.

Interim dividend

It has been decided to pay an unchanged interim dividend of EUR 0.40 per ordinary share for the year 2009. As usual, this represents one third of the total dividend paid for 2008. The interim dividend is no indication of the total dividend for 2009. The interim dividend for 2009 will be paid in cash on 28 August 2009.

Workforce

The workforce decreased overall by almost 500 employees and stood at 23,017 at the end of Q2 2009. This reduction is the balance of restructuring programs, the closure of the Citric Acid plant in Wuxi (China) and selective hiring.

Progress update on DSM Strategy Vision 2010

DSM's acceleration of the strategic program Vision 2010 - Building on Strengths, announced in September 2007, focuses on delivering faster growth, higher margins and improved earnings quality from the company's portfolio. The strategy will transform DSM into a Life Sciences and Materials Sciences company capable of sustainable growth fueled by important societal trends.

The key drivers - market-driven growth and innovation, increased presence in emerging economies and operational excellence - remain at the heart of DSM's strategy.

In Q2 2009 sales in China amounted to USD 283 million, which represents a decrease of 14% relative to the comparable period of last year. Compared to Q1 however, sales increased by 44%.

In the quarter, DSM announced an agreement to acquire Biopract GmbH, based in Berlin (Germany). This acquisition will serve as an entry point for DSM into the promising biogas market, which is showing 15-20% growth per year. The impact of the acquisition on DSM's net sales in 2009 and 2010 is not expected to be material.

DSM Engineering Plastics and Mitsubishi Chemical Corporation (MCC) signed a memorandum of understanding for DSM to acquire MCC's Novamid® polyamide business in exchange for DSM's Xantar® polycarbonate business. With this move, DSM Engineering Plastics will be able to further reinforce its position as one of the globally leading producers of polyamide engineering plastics.

DSM Engineering Plastics also announced that it will expand market development plant capacity for Stanyl® ForTii(TM) in order to meet demand for this new polymer, which is used in electronics and other applications.

DSM Nutritional Products signed the investment contract with the Changchun Economic & Technology Development Zone to set up DSM's fourth feed premix plant in China which will be located in Changchun City. Construction started in May and total investment will amount to USD 5 million.

In September 2007 DSM announced that, as a result of the accelerated shift towards Life Sciences and Materials Sciences, a number of businesses which do not fit in with the accelerated strategy would be carved out and disposed of.

Since the end of the second quarter, DSM has made progress with the planned disposals. On 29 July an agreement with TAQA Abu Dhabi National Energy Company PJSC for the sale of DSM Energie Holding B.V. was announced. Included in the scope are the participations which DSM has in oil and gas exploration and the 40% participation in Noordgastransport B.V. On the same day an agreement for the sale of the urea-licensing subsidiary Stamicarbon B.V. to Maire Tecnimont was announced. The divestments are expected to close in Q3 and by Q4 of 2009 respectively, subject to regulatory approvals and notifications.

The disposal process for DSM Elastomers, DSM Agro and DSM Melamine is underway. As reported earlier, DSM has slowed down the process in view of the current financial and economic environment but still aims to complete the disposals by the end of 2010.

During the quarter, DSM announced and introduced many new innovations. More information can be found in the innovation section at www.dsm.com.

Actions addressing the economic downturn

In December 2008 DSM announced a number of structural cost-saving actions to address the effects of the economic downturn and to strengthen its competitive position.

Implementation of these actions is underway and DSM will clearly exceed the increased cost savings target of EUR 125 million, to be fully achieved by 2010. These actions are expected to result in a reduction in workforce of 1250 positions. Apart from the workforce reduction, the actions also cover a stronger focus on purchasing and other efficiency improvement measures. DSM will also further reduce the number of temporary workers. 

In its capital expenditure DSM is prioritizing projects focused on future growth while other projects are being postponed or delayed. Capital expenditure in 2009 will be lower than in 2008. Also, a significant reduction in working capital is targeted for the year.

At the same time, DSM remains fully focused on customers in order to meet their needs and priorities, as well as on its priorities of innovation and sustainability. The company is actively looking for new growth opportunities that the current market and economic conditions will provide.

Outlook

There are strong indications that downstream de-stocking has come to an end in most markets, evidenced by an overall demand improvement compared to the first quarter. Demand is however still low compared to pre-recession levels. The exception to this development is China, where DSM experienced strong demand. Conditions in the US and Europe continued to be weak. No further improvements from current market conditions are expected in the short term, with a risk of temporary lower demand during the summer.

Due to the bottoming-out of feedstock prices DSM does not expect further inventory write-downs.

The relatively favorable business conditions in Nutrition are expected to continue with prices remaining firm in both Animal and Human markets and further demand recovery. The Nutrition cluster is expected to achieve full year results somewhat above the 2008 level.

Pharma results are expected to be substantially lower than last year due to lower prices at Anti-Infectives and challenges to fill the pipeline at DSM Pharmaceutical Products although further progress is being made. The results of DSM Pharmaceutical Products are expected to be better towards the end of the year. 

In Performance Materials DSM Dyneema now expects lower sales than last year. The uncertainty regarding demand continues for DSM Engineering Plastics and DSM Resins. There is a similar lack of clarity at Polymer Intermediates and Base Chemicals and Materials, which will both most likely be loss-making in 2009.

Due to DSM's successful focus on cash and cost saving programs DSM will maintain its solid financial position which is necessary for the execution of its strategy: DSM is staying the course.

DSM will provide no quantitative outlook for 2009 in view of the uncertain economic conditions.

Important dates

Ex interim dividend quotation:       Wednesday, 5 August 2009

Record date:                          Friday, 7 August 2009

Interim dividend payable:                Friday, 28 August 2009

Report for the third quarter:              Tuesday, 3 November 2009

Annual Report 2009:                    Wednesday, 24 February 2010

Annual General Meeting of Shareholders:   Wednesday, 31 March 2010

DSM - the Life Sciences and Materials Sciences Company

Royal DSM N.V. creates innovative products and services in Life Sciences and Materials Sciences that contribute to the quality of life. DSM's products and services are used globally in a wide range of markets and applications, supporting a healthier, more sustainable and more enjoyable way of life. End markets include human and animal nutrition and health, personal care, pharmaceuticals, automotive, coatings and paint, electrical and electronics, life protection and housing. DSM has annual net sales of EUR 9.3 billion and employs some 23,500 people worldwide. The company is headquartered in the Netherlands, with locations on five continents. DSM is listed on Euronext Amsterdam. More information: www.dsm.com

For more information

DSM, Corporate Communications  

tel.: +31 (45) 5782421

e-mail: media.relations@dsm.com  

Investors

DSM, Investor Relations

tel.: +31 (45) 5782864

e-mail: investor.relations@dsm.com

internet: www.dsm.com

Press release-pdf

Forward-looking statements

This press release contains forward-looking statements. These statements are based on current expectations, estimates and projections of DSM and information currently available to the company. The statements involve certain risks and uncertainties that are difficult to predict and therefore DSM does not guarantee that its expectations will be realized. Furthermore, DSM has no obligation to update the statements contained in this press release.

The English language version of the press release is leading.