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Financial Results: Q3 2014

  • Q3 2014 EBITDA from continuing operations €315 million
  • Q3 2014 organic sales growth 5% compared to Q3 2013
  • Nutrition delivered sequential improvement with Q3 EBITDA €225 million
  • Performance Materials Q3 EBITDA €91 million, up compared to Q2 2014 and Q3 2013
  • Q3 cash flow from operating activities €301 million
  • Full year 2014 outlook in line with current market expectations
On 4 November 2014, DSM reported third quarter 2014 EBITDA from continuing operations of €315 million compared to €293 million in Q2 2014 and €331 million in Q3 2013.

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said: “In the third quarter DSM delivered improved financial results compared to the previous quarters with good cash flow generation.

In Nutrition our resilient business model and strong position in the value chain have enabled us to deliver an increase in result compared to the previous three quarters, although challenges in some human nutrition end-markets remain and pricing pressure, particularly in vitamin E, intensified in the latter part of the third quarter.

In Performance Materials, our continued focus on efficiencies and ongoing cost control served us well, and we are pleased by the overall performance with all businesses contributing to increased EBITDA.

Increasing macro-economic uncertainty and continued low consumer confidence are impacting market dynamics. Some currency rates have developed favorably towards the end of the third quarter but currencies remain volatile.

We remain committed to our strategy for growth across our Nutrition and Performance Materials businesses and will continue to pursue strategic actions for Polymer Intermediates and Composite Resins. We are strongly focused on operational excellence and delivering efficiencies to protect and enhance our profitability and cash flow. For the remainder of the year, we anticipate performance in line with current market expectations.”

Key figures

Q3 2014 Q3 2013 +/- in € million volume price/mix exch. rates other
2,323 2,354 -1% Net sales 5% 0% 0% -6%*
1,091 1,065 2% Nutrition 2% 0% 0% 0%
721 696 4% Performance Materials 4% 0% -1% 1%
428 374 14% Polymer Intermediates 13% 1% 0%  
40 35 14% Innovation Center 14% 0% 0%  
43 43   Corporate Activities        
2,323 2,213 5% Total continuing operations 5% 0% 0% 0%
0 141   Discontinued operations        
Q3 2014 Q3 2013 +/- in € million Jan-Sep 2014 Jan-Sep 2013 +/-
315 343 -8% EBITDA 878 996 -12%
225 241 -7% Nutrition 650 706 -8%
91 83 10% Performance Materials 256 242 6%
23 28 -18% Polymer Intermediates 60 83 -28%
-4 -2   Innovation Center -15 -6  
-20 -19   Corporate Activities -71 -61  
315 331 -5% Total continuing operations 880 964 -9%
0 12   Discontinued operations -2 32  
             
141 146 -3% Core net profit (continuing operations) 380 431 -12%
             
121 134 -10% Net profit before exceptional items, continuing operations 330 396 -17%
93 117 -21% Net profit after exceptional items,
total DSM
252 348 -28%
             
0.81 0.84 -4% Core EPS (€/share) 2.20 2.51 -12%
0.69 0.76 -9% Net EPS before exceptional items, continuing operations (€/share) 1.90 2.27 -16%
0.51 0.65 -22% Net EPS after exceptional items,
total DSM (€/share)
1.41 1.98 -29%
             
301 320   Cash flow from operations 390 522  
138 138   Capital expenditures (cash) 406 438  
      Net debt -2,479 -1,841 **

* due to the contribution of DPP to the associate DPx.
** year-end 2013

In this report:

  • ‘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

Nutrition

Q3 2014 Q3 2013 yoy in € million Jan-Sep 2014 Jan-Sep 2013 yoy
1,091 1,065 2% Net sales of which: 3,211 3,166 1%
    2% - volume growth     2%
    0% - price/mix effect     -1%
    0% - fx impact     -3%
    0% - other     3%
225 241 -7% EBITDA 650 706 -8%
20.6% 22.6% EBITDA margin 20.2% 22.3%  
163 185 -12% EBIT 471 538 -12%
    Captial employed 4,958 4,496*  

* year-end 2013

Organic sales growth in Q3 was 2% compared to Q3 2013. Volumes were up 2%, price/mix was flat year-on-year.

EBITDA for Q3 was €225 million, down 7% compared to Q3 2013, as a result of currencies (mainly the stronger Swiss franc) and lower volumes in Human Nutrition & Health. Compared to Q2 2014 EBITDA increased by 1%.

The EBITDA margin of 20.6% was within DSM’s target range of 20-23%.

Human Nutrition & Health net sales were €406 million in Q3 2014 in line with Q2 2014. Organic sales development was negative at -2% compared to Q3 2013 owing to lower volumes.

Volumes were impacted by lower vitamins and fish-oil based Omega-3 sales for dietary supplements in the US. Sales in infant nutrition continued to be affected by destocking.

Although Western food & beverage markets remained sluggish, markets in high growth economies continued to develop well. Demand for premixes stayed healthy. The momentum for dietary supplements outside the US was positive and demand for DSM’s consumer business i-Health remained robust.

Animal Nutrition & Health net sales were €527 million in Q3 2014 up 2% compared to Q2 2014. Organic sales growth was 4% driven by global volume growth with strong performance from the premix businesses. The impact of the significantly lower spot prices for Vitamin E was still limited in Q3.

DSM Food Specialties delivered strong organic growth and continued to gain market share in both enzymes and cultures.

Performance Materials

Q3 2014 Q3 2013 yoy in € million Jan-Sep 2014 Jan-Sep 2013 yoy
721 696 4% Net sales of which: 2,093 2,074 1%
    4% - volume growth     4%
    0% - price/mix effect     -2%
    -1% - fx impact     -2%
    1% - other     1%
91 83 10% EBITDA 256 242 6%
12.6% 11.9% EBITDA margin 12.2% 11.7%  
55 49
12% EBIT 153 141
9%
    Captial employed 2,001 1,902*  

* year-end 2013

Organic sales growth in Q3 2014 was 4% compared to Q3 2013. Overall sales were fully driven by volume growth as prices were flat. Adverse currency effects amounted to 1%. Volumes in DSM Resins and Functional Materials were flat. DSM Engineering Plastics continued to show healthy volume growth in compounds and specialty materials. In DSM Dyneema, sales benefited from higher volumes.

EBITDA in Performance Materials for the quarter was up by 10% compared to Q3 2013, largely driven by good volume growth, cost control and better efficiencies, resulting in improved margins. All three businesses contributed to this growth, with a particularly strong performance in DSM Engineering Plastics.

Polymer Intermediates

Q3 2014 Q3 2013 yoy in € million Jan-Sep 2014 Jan-Sep 2013 yoy
428 374
14% Net sales of which: 1,262 1,186 6%
    13% - volume growth     13%
    1% - price/mix effect     -5%
    0% - fx impact     -2%
    0% - other     0%
23 28 -18% EBITDA 60
83 -28%
5.4% 7.5% EBITDA margin 4.8% 7.0%  
9 18 -50% EBIT 18 55 -67%
    Captial employed 746 570*  

* year-end 2013

Organic sales growth in Q3 2014 was 14% compared to the same quarter last year, with higher volumes (13%) and relatively flat price/mix effects (+1%). Sales benefited from the increased caprolactam production from the second line in China.

EBITDA for the quarter declined compared to Q3 2013 due to lower caprolactam margins and the maintenance stops in US and China.

Innovation Center

Q3 2014 Q3 2013 yoy in € million Jan-Sep 2014 Jan-Sep 2013 yoy
40 35 14% Net sales of which: 112 111
1%
    14% - volume growth     4%
    0% - price/mix effect     0%
    0% - fx impact     -3%
    0% - other     0%
-4 -2
EBITDA -15
-6
 
-10 -11
EBIT -36 -32
 
    Captial employed 506 469*  

* year-end 2013

Organic sales growth in Q3 2014 was 14% compared to Q3 2013 due to solid growth in DSM Biomedical and DSM Advanced Surfaces. On 3 September, POET-DSM Advanced Biofuels officially opened its first commercial cellulosic ethanol plant in Emmetsburg, Iowa. The plant is in the start-up phase and expects to realize first commercial sales in Q4.

EBITDA declined due to intensified innovation programs. DSM Biomedical performed well.

Corporate Activities

Q3 2014 Q3 2013 in € million Jan-Sep 2014 Jan-Sep 2013
43 43 Net sales 129 146
-20 -19 EBITDA -71 -61
-34 -33 EBIT -112 -98

EBITDA in Q3 2014 was in line with Q3 2013.

Pharma activities and other associates

Total Q3 2014 sales of joint control entities amounted to €108 million on a 100% base (Q3 2013: €95 million) of which €99 million from DSM Sinochem Pharmaceuticals (Q3 2013: €86 million).

DPx Holdings (49% DSM) realized total sales (100%) of €384 million from May up to and including July with good margins. The DSM share in the net result of DPx was impacted by €25 million exceptional items (before tax) related to integration, restructuring and realization of synergies of the new company.  

Financial overview

Exceptional items

Total exceptional items from fully consolidated companies in the third quarter amounted to a loss of €7 million before tax (€6 million after tax) mainly due to ongoing restructuring projects.

Net profit

Financial income and expense in Q3 2014 amounted to -€30 million compared to -€37 million in Q3 2013.

The effective tax rate in Q3 2014 was 18%, in line with the full year 2013.

Net profit from continuing operations before exceptional items in Q3 2014 amounted to €121 million compared to €134 million in Q3 2013.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to €0.69 in Q3 2014 compared to €0.76 in Q3 2013.

Cash flow, capital expenditure and financing

Cash provided by operating activities in Q3 2014 was at a good level of €301 million (Q3 2013: €320 million).

Operating working capital increased from €1,843 million at year-end of 2013 to €2,203 million at the end of Q3 2014 due to higher inventories, receivables and currency effects. Expressed as a percentage of annualized sales this represents 23.7%, equal to end of Q3 2013.

Cash used for capital expenditure amounted to €138 million in Q3 2014 which is at the same level as Q3 2013.

Net debt increased by €638 million compared to year-end 2013 and stood at €2,479 million.

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 will continue to pursue strategic actions for Polymer Intermediates (caprolactam and acrylonitrile) and Composite Resins.

Below are some highlights of DSM’s Q3 2014 achievements.

High Growth Economies: from reaching out to being truly global

Sales to High Growth Economies reached 43% of total sales in Q3 2014 compared to 42% in Q3 2013. Sales in China amounted to USD 519 million, versus USD 445 million in Q3 2013 which was mainly due to higher caprolactam sales in DSM Fibre Intermediates.

Innovation: from building the machine to doubling innovation output

Examples of innovations, recently launched are:

  • Dyneema Purity® Radiopaque fiber, the newest addition to DSM’s medical Dyneema Purity® fiber portfolio.
  • Toyota Tsusho launched a new generation of 100% recyclable, waterproof high performance membranes for clothing made from DSM’s Arnitel® VT, a very flexible thermoplastic polyester-based elastomer.
  • Rapidase® Pro Color for colored berry juice, an enzyme for industrial fruit juice production that achieves 95% juice extraction.

Sustainability: from responsibility to business driver

In India DSM opened a 1MW solar facility at its premises in Pune. It demonstrates and showcases the performance of DSM's innovations in solar technology (anti-reflective coatings) and will also reduce the plant’s CO2 footprint by using the clean energy generated by the solar plant to meet 25% of the site’s electricity needs.

DSM was once again named as a worldwide sustainability leader in the Materials Industry group in the Dow Jones Sustainability World Index. DSM has consistently been recognized for integrating sustainability into its business, having been ranked among the very top leaders in the sector five times and having held the worldwide sustainability leader position in the Materials industry group (formerly known as the chemicals super-sector) six times since 2004.

Acquisitions & Partnerships: from portfolio transformation to driving focused growth

POET-DSM Advanced Biofuels LLC, a joint venture of DSM and POET, proved its revolutionary technology that converts agricultural residue into renewable fuel at the official opening of its first commercial cellulosic ethanol plant in Emmetsburg, Iowa. At full capacity, it will convert 770 tons of biomass per day to produce ethanol at a rate of 20 million gallons per year, later ramping up to 25 million gallons per year.

Outlook 2014

Increasing macro-economic uncertainty and continued low consumer confidence are impacting market dynamics. Some currency rates have developed favorably towards the end of the third quarter but currencies remain volatile. Barring unforeseen circumstances, DSM is on track to meet current market expectations.

Capital Markets Day

On 5 November 2014, DSM will provide investors with an update on its strategic progress at its annual Capital Markets Day which will be held in London, United Kingdom. The DSM Capital Markets Day can be followed live via audio webcast from 15.00-18.00 hrs (CET). The presentations can be found on this website as from 15.00 hrs (CET) on 5 November.