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Financial Results: Q2 2014

  • Q2 2014 EBITDA from continuing operations €293 million
  • Q2 2014 EBITDA includes negative currency effect of about €29 million and a €16 million impact from the fire at a nutrition plant in Switzerland
  • Nutrition delivered improved result versus last two quarters with €222 million EBITDA
  • Performance Materials Q2 EBITDA of €88 million up compared to Q2 2013 and Q1 2014
  • Q2 cash flow from operating activities €126 million
  • Interim dividend of €0.55 per ordinary share
  • Full year 2014 outlook in line with current market expectations

On 5 August 2014 Royal DSM, the Life Sciences and Materials Sciences company, today reported second quarter 2014 EBITDA from continuing operations of €293 million compared to €332 million in Q2 2013, and €272 million in Q1 2014. Nutrition showed improvement compared to the last two quarters. Performance Materials continued its encouraging underlying trend and delivered higher results. Polymer Intermediates was negatively impacted by lower caprolactam margins.

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said: “DSM delivered improved results versus the first quarter, despite persistent currency headwinds. Performance Materials saw continued positive momentum in a number of end-markets, whereas Polymer Intermediates has seen weaker business conditions for caprolactam.

Market conditions in Nutrition have shown some improvement with good Animal Nutrition performance in Q2, while Human Nutrition still operates in a low growth macro environment for some end-markets due to ongoing pressure on consumer spending. In this environment, the resilience of our integrated value chain is demonstrated by robust margins, highlighting the quality of our Nutrition business. In addition we are undertaking initiatives in the US to reinforce the attractiveness of our dietary supplements end-user categories.

We continue to focus on efficiencies to protect profitability and improve cash flow in the current environment. Despite the weakness in caprolactam, we continue to anticipate to deliver improving financial results in the coming quarters.”

in € million Q2 2014 Q2 2013 +/- volume   price/mix other
Net sales 2,288 2,421 -5% 5% -2% -3% -5%
Nutrition 1,073 1,111 -3% 2% -1% -5% 1%
Performance Materials 702 709 -1% 3% -2% -3% 1%
Polymer Intermediates 429 375 14% 25% -8% -3%  
Innovation center 38 39 -3% 2% 0% -5%  
Corporate Activities 46 48          
Total continuing operations 2,288 2,282 0% 6% -2% -4% 0%
Discontinued operations 0 139          
in € million Q2 2014 Q2 2013 +/-   H1 2014 H1 2013 +/-
EBITDA 293 345 -15%   563 653 -14%
Nutrition 222 250 -11%   425 465 -9%
Performance Materials 88 80 10%   165 159 4%
Polymer Intermediates 17 27 -37%   37 55 -33%
Innovation Center -5 -2     -11 -4  
Corporate Activities -29 -23     -51 -42  
Total continuing operations 293 332 -12%   565 633 -11%
Discontinued operations 0 13     -2 20  
Core net profit 125 153 -18%   239 285 -16%
Net profit before exceptional items, 110 137 -20%   209 262 -20%
continuing operations              
Net profit after exceptional items, total DSM 78 112 -30%   159 231 -31%
Core EPS (€/share) 0.73 0.89 -18%   1.39 1.67 -17%
Net EPS before exceptional items,               
continuing operations (€/share) 0.64 0.80 -20%   1.21 1.51 -20%
Net EPS after exceptional items, total DSM (€/share) 0.45 0.64 -30%   0.90 1.33 -32%
Cash flow from operations 126 251     89 202  
Capital expenditures (cash) 117 148     268 300  
Net debt         -2,393 -1,841 *
* year-end 2013              
  • ‘Organic sales growth’ is the total impact of volume and price/mix;
  • ‘Discontinued operations’ comprises net sales and operating profit (before depreciation and amortization) of DSM Pharmaceutical Products up to and including 10 March 2014;
  • ‘Net profit’ is the net profit attributable to equity holders of Koninklijke DSM N.V.;
  • 'Core net profit’ is the net profit from continuing operations before exceptional items and before acquisition related (intangible) asset amortization;
  • From 2014 onwards interest receipts and payments are no longer included in operating activities in the cash flow statement but reported in investing activities (interest received) and financing activities (interest paid). 2013 figures are restated accordingly;
  • All 2013 figures are restated for the impact of the termination of proportional consolidation for joint ventures as from 1 Jan 2014 onward.

Review by cluster

in € million Q1 2014 Q1 2013 yoy H1 2014 H1 2013 yoy
Net sales 1,073 1,111
-3% 2,120 2,101 1%
Organic growth     1%     1%
EBITDA 222 250
-11% 425 465 -9%
EBITDA margin 20.7% 22.5%   20% 22.1%  
EBIT 165 190 -13% 308 353 -13%
Capital employed       4809 4,496*  
* year-end 2013            

Sales in Q2 declined by 3% compared to Q2 2013, as organic growth and the contribution of new consolidations was offset by 5% weaker currencies. Organic sales growth was 1% versus Q2 2013, with volume growth (2%) partly offset by lower prices (-1%).

EBITDA for Q2 was €222 million, down 11% compared to Q2 2013. The combination of good demand in Animal Nutrition and the continued soft consumer demand in some of DSM’s Human Nutrition end-markets resulted in total into a modest organic growth of 1%, which was offset by the foreign exchange impact. The EBITDA margin of 20.7% reflecting the significant impact of foreign exchange rates compared to Q2 2013 was within DSM’s target range of 20-23%.

Human Nutrition & Health net sales were €403 million in Q2. Organic sales development was negative at -6% compared to Q2 2013 owing to lower volumes. The price/mix development was flat.

Sales in dietary supplements for vitamins and fish-oil based Omega-3 in the US were down versus the same period last year. Recovery of these end-markets is slower than expected. Promotional initiatives and industry wide campaigns are being launched to support the vitamins and Omega-3 dietary supplements markets. Momentum for dietary supplements outside the US continued to be positive. Demand for i-Health remained robust.

Sales in infant nutrition were weaker compared to the same period last year due to the after-effects from the false botulism scare, with China and South East Asia markets being the most affected. Furthermore, recent changes in Chinese regulatory policy have created additional uncertainty for the industry. As a result infant nutrition suppliers have reduced their inventories.

Food & beverage markets have continued to show sluggish growth, while demand for premixes stayed healthy. In order to stimulate growth, “A-label” customers are investing in new product launches, promotional campaigns and acceleration of innovations.

Animal Nutrition and Health net sales were €519 million in Q2. Organic sales growth in Q2 was 5% driven by good global volume growth. Overall, the price/mix effect was flat.

Market conditions in animal feed continued to improve in Q2 as premix businesses showed strong performance. Vitamin E volumes and prices were lower versus the same period last year.

DSM Food Specialties delivered good organic growth in enzymes and cultures driven by a continued focus on innovation and high margin applications.

Performance Materials

in € million Q2 2014 Q2 2013 yoy H1 2014 H1 2013 yoy
Net sales 702 709
-1% 1,372 1,378
Organic growth     1%     2%
EBITDA 88 80
10% 165
EBITDA margin 12.5% 11.3%   12% 11.5%  
EBIT 54 46
17% 98
Capital employed       1,947 1,902*  
* year-end 2013            

Organic sales growth in Q2 2014 was 1% compared to Q2 2013 with 3% volume growth driven by improved market demand and 2% lower prices. Adverse currency effects amounted to 3%. DSM Engineering Plastics showed good volume growth, while polyamide 6 prices were slightly lower, due to lower caprolactam prices. DSM Resins & Functional Materials saw good volume growth, while prices were down due to lower input costs and some product mix effects. DSM Dyneema Q2 sales were lower compared to same period last year as a result of the timing of large orders.

EBITDA in Performance Materials for the quarter was up by 10% compared to Q2 2013 largely driven by volume growth, good cost control and improved efficiencies. DSM Resins & Functional Materials showed a strong improvement in EBITDA. DSM Engineering Plastics also reported a higher EBITDA despite lower results in the polyamide 6 value chain. In Q2 DSM Dyneema delivered EBITDA that was in line with last year after a substantially higher EBITDA in Q1.

Polymer Intermediates

in € million Q2 2014 Q2 2013 yoy H1 2014 H1 2013 yoy
Net sales 429 375
14% 834 812
Organic growth     17%     5%
EBITDA 17 27
-37% 37
EBITDA margin 4% 7.2%   4.4% 6.8%  
EBIT 2 17
-88% 9
Capital employed       732 570*  
* year-end 2013            

Organic sales growth in Q2 was 17% compared to the same quarter of 2013, with 25% higher volumes and 8% lower prices. Sales were negatively impacted by currency effects of 3%. Volumes were up due to increased caprolactam production from the 2nd line in China.

EBITDA for the quarter declined compared to Q2 2013 resulting from the maintenance stop of the caprolactam plants in Europe and lower caprolactam margins resulting from lower prices, while benzene costs remained high. Acrylonitrile results were in line with last year.

Innovation Center

in € million Q2 2014 Q2 2013 yoy H1 2014 H1 2013 yoy
Net sales 38 39
-3% 72
EBITDA -5 -2
  -11 -4
EBIT -12 -10
Capital employed       473 469*  
* year-end 2013            

Sales in Q2 2014 were slightly down compared to Q2 2013 due to negative currency effects (-5%). Organic growth in DSM Biomedical is progressing well, with new products in the pipeline. DSM Advanced Surfaces continues to make progress by testing its new anti-reflecting coatings at large solar parks. In Bio-based Products and Services the second generation advanced biofuels plant of the POET/DSM joint venture in Iowa is in the start-up phase.

EBITDA declined due to increased costs resulting from intensified innovation programs. The underlying business did well.

Corporate Activities

in € million Q2 2014 Q2 2013 H1 2014 H1 2013
Net sales 46 48
EBITDA -29 -23
-51 -42
EBIT -44 -35

EBITDA in Q2 2014 benefitted from lower project costs, but the captive insurance was negatively impacted by a fire at an intermediates plant at DSM Nutritional Products in Sisseln, Switzerland. Of the total damages caused by the fire, an amount of €15 million is retained by DSM’s captive insurances and as such accounted for in Q2. Nutrition incurred €1 million. Costs above these €16 million are covered by external insurers.

Pharma activities and other associates

Total Q2 2014 sales of joint ventures amounted to €116 million (100% base) of which €108 million coming from DSM Sinochem Pharmaceuticals (Q2 2013: €98 million).

DPx Holdings (49% DSM) realized total sales (100%) of €217 million from 11 March up to and including April with good margins. The DSM share in the net result of DPx was impacted by €25 million exceptional items related to the formation and start-up of the new company.

Financial overview

Exceptional items

Total exceptional items from fully consolidated companies in the second quarter amounted to a loss of €10 million before tax (€8 million after tax). This includes €12 million in expenses related to ongoing restructuring activities.

Net profit

Financial income and expense in Q2 2014 amounted to -€36 million equal to Q2 2013.

The effective tax rate in Q2 2014 was 18%, in line with the full year 2013.

Net profit from continuing operations before exceptional items in Q2 2014 amounted to €110 million compared to €137 million in Q2 2013.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to €0.64 in Q2 2014 compared to €0.80 in Q2 2013.

Cash flow, capital expenditure and financing

Cash provided by operating activities in Q2 2014 was €126 million (Q2 2013: €251 million).

Operating working capital increased from €1,843 million at year-end of 2013 to €2,178 million at the end of Q2 2014 due to higher inventories and receivables. Expressed as a percentage of annualized sales this represents 23.8% compared to 23.2% in Q2 2013.

Cash used for capital expenditure amounted to €117 million in Q2 2014 compared to €148 million in Q2 2013.

Net debt increased by €552 million compared to year-end 2013 and stood at €2,393 million (gearing 29%).

Interim dividend

DSM’s policy is to provide a stable and preferably rising dividend. It has been decided to pay an interim dividend of €0.55 per ordinary share for 2014. As usual, this represents one third of the total dividend paid for the previous year. The interim dividend should not be taken as an indication of the total dividend for the year 2014. 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 6 August 2014. The interim dividend will be payable as from 27 August 2014.

DSM in motion: driving focused growth

Strategy update

DSM is firmly committed to its strategy, which has delivered and will continue to deliver sustainable value. DSM in motion: driving focused growth is the strategy that the company embarked on in September 2010, which was updated in September 2013. The next update is planned for Q4 2015. 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. DSM’s strategic focus on Life Sciences and Materials Sciences is fueled by three main societal trends: Global Shifts, Climate & Energy and Health & Wellness. DSM aims to meet the unmet needs resulting from these societal trends with innovative and sustainable solutions.

Below are some highlights of DSM’s Q2 2014 achievements.

High Growth Economies: from reaching out to being truly global

Sales to High Growth Economies reached a level of 42% of total sales in Q2 2014 versus 39% in Q2 2013. Sales in China amounted to USD 487 million, versus USD 395 million in Q2 2013, largely driven by substantially higher volumes for caprolactam resulting from the second caprolactam facility.

DSM opened its China Animal Nutrition Center in Bazhou, south of Beijing. With its focus on swine and poultry nutrition and the capabilities to conduct world-class scientific and application research, the facility will support the development of tailored solutions to meet the needs of the fast growing poultry and swine markets in China.

Innovation: from building the machine to doubling innovation output

Innovation sales in the first half of 2014 – measured as sales from innovative products and applications introduced in the last five years – amounted to 18% of total sales equal to the first half of 2013, which is close to DSM’s 2015 target of approximately 20%. Examples of innovations, recently launched are:

  • The world’s first high-heat plastic air intake manifold with integrated charge air cooler made from Stanyl® Diablo, DSM’s high temperature resistant polyamide 46.
  • Rapidase® Pro Color, DSM’s fruit enzymes that help to obtain the highest possible juice yield.
  • A high intensity sweetener platform based on fermentation of steviol glycosides, the sweet tasting molecules present in Stevia plants. This breakthrough technology will provide clean taste and a secure and scalable supply.
  • A new coagulant, Maxiren® XDS that helps cheese producers to maximize their value.

Sustainability: from responsibility to business driver

It is DSM's goal to have an injury and incident-free working environment. DSM has set itself the target of reducing the Frequency Index of Recordable Injuries by 50 percent or more by the year 2020 compared to 2010. This will require an index score that is less than or equal to 0.25 by 2020, compared to the 0.57 achieved in 2010. At the end of the first half of 2014 this index amounted to 0.43.

The share of ECO+ products in DSM’s innovation pipeline was well above 90% in H1 2014, higher than the 2015 aspiration of 80%. The Eco+ share in the running business in H1 2014 was slightly ahead of the 45% in 2013, well on track towards the 2015 aspiration of 50%. DSM's energy efficiency is well on target: 16% improvement in the first half year of 2014 compared to 2008. The aspiration calls for a 20% improvement in 2020 compared to 2008. Greenhouse-gas emissions in CO2 equivalents were 7% less than in 2008. DSM’s aspiration is a 25% reduction by 2020, compared to 2008.

In India DSM completed construction of a 1MW solar facility adjacent to its plant in Ranjangaon.

Acquisitions & Partnerships: from portfolio transformation to driving focused growth

DSM reached agreement to acquire Aland (HK) Holding Limited (“Aland”), a Hong Kong-based company producing vitamin C in mainland China. Subject to customary conditions, the transaction is expected to close in the next six to nine months.

DSM and Niaga, a Netherlands-based provider of sustainable solutions for the carpet industry, announced a joint venture, DSM-Niaga, to further develop and commercialize sustainable technology for recyclable carpet. Based on proprietary and complementary technologies, DSM-Niaga will enable the industry to close the carpet materials loop.

Outlook 2014

DSM targets for 2014 to deliver an improved underlying business performance in a challenging macro environment. DSM is on track to meet current market expectations, notwithstanding the adverse impact from foreign exchange rates of about €70 million and weakness in the caprolactam supply-chain.

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