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Financial Results: Q3 2015

  • Sales up 8%, driven by 7% organic growth in Nutrition and foreign exchange
  • Solid volume growth in Human Nutrition; very strong volume growth in Animal Nutrition
  • Nutrition EBITDA: negative impact of vitamin E and Swiss franc largely offset
  • Performance Materials EBITDA: improved on lower input costs and cost savings despite soft sales
  • Strong operating cash flow of €300 million
  • 2015 outlook maintained

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said: “DSM continued to make good progress in Q3 in both EBITDA and cash generation. These results demonstrate the benefits of our focus on improving our operational performance. We are starting to implement the previously announced €125-150 million cost reduction program for the DSM-wide support functions. Tomorrow at our Capital Markets Day, we will announce our strategy and targets for the coming years, as well as an additional efficiency and cost reduction program in Nutrition.

It is increasingly difficult to predict macro-economic developments. Assuming no major changes in current market conditions for the remainder of this year, we maintain our full year outlook to deliver an EBITDA in 2015 ahead of 2014, the increase mainly driven by positive foreign exchange effects.”

in € million Q3 2015 Q3 2014 +/- volume price/mix exch.
rate
other
Net sales              
Nutrition 1,253 1,091 15% 6% 1% 6% 2%
Performance Materials 631 638 -1% -3% -5% 7% 2%
Innovation Center 42 40 5% -5% -1% 11%  
Corporate Activities 19 25          
Total continuing operations 1,945 1,794 8% 2% -1% 6%  
Discontinued operations 157 529         1%
in € million Q2 2015 Q2 2014 +/- Jan-Sep 2015 Jan-Sep 2014 +/-
EBITDA            
Nutrition
213 225 -5% 616 650 -5%
Performance Materials
102 87 17% 294 243 21%
Innovation center 0 -4   -8 -15  
Corporate Activities -28 -27   -88 -94  
Total continuing operations 287 281 2% 814 784 4%
Discontinued operations 3 34   94 94  
Core net profit (continuing operations) 123 132 -7% 340 360 -6%
Net profit before exceptional items, continuing operations 106 113 -6% 285 312 -9%
Net profit after exceptional items, total DSM 36 93 -61% 65 252 -74%
Core EPS (€/share) 0.70 0.76 -8% 1.95 2.08 -6%
Net EPS before exceptional items, continuing operations (€/share) 0.59 0.64 -8% 1.61 1.78 -10%
Net EPS after exceptional items, total DSM (€/share) 0.19 0.51 -63% 0.33 1.41 -77%
Cash flow from continuing operations 300 252   487 387  
Capital expenditures (cash, net of customer funding) 113 87   321 269  
Net debt       2,395 2420*  

* year-end 2014

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 as well as DSM Fibre Intermediates and DSM Composite Resins up to and including 31 July 2015;
  • ‘Core net profit’ is the net profit from continuing operations before exceptional items and before acquisition related (intangible) asset amortization.

Review by cluster

Nutrition

in € million Q3 2015 Q3 2014 YoY Jan-Sep 2015 Jan-Sep 2014 YoY
Net sales of which: 1,253 1,091 15% 3,699 3,211 15%
- volume growth     6%     5%
- price/mix effect     1%     0%
- fx impact     6%     9%
- other     2%     1%
EBITDA 213 225 -5% 616 650 -5%
EBITDA margin 17.0% 20.6%   16.7% 20.2%  
EBIT
146 163 -10% 412 471 -13%
Capital employed       5,247 5,034*  

* year-end 2014

Q3 sales increased 15%, driven by very strong volume growth in Animal Nutrition & Health and solid volume developments in Human Nutrition & Health. As a result of higher prices for some vitamins and other, partly in-sourced, ingredients, the price/mix-effect was slightly positive despite lower vitamin E prices.

Q3 EBITDA was 5% lower at €213 million versus Q3 2014. Good volume growth and overall positive foreign exchange rates largely offset the negative impact of lower vitamin E prices (of more than €30 million). Positive foreign exchange rates effects mainly associated with the US dollar were partly offset by the negative impact of the Swiss franc, the Brazilian real and the Chinese renminbi. The weakening of the Brazilian real, to which DSM is exposed mainly via its Tortuga business, had a negative EBITDA impact of ~€5 million.

Animal Nutrition & Health

in € million Q3 2015 Q3 2014 +/- volume price/mix
exch. rate
other
Sales 593 527 13% 10% 2% 1%  

Volume: Q3 showed very strong volume growth driven by the premix activities and specialty products in Europe and Latin America. Although underlying business conditions in the global animal feed markets are expected to remain favorable, going forward DSM will face tougher comparative figures for organic growth as from Q4 2014.

Price: As in the first half of this year, the price development compared to Q3 2014 was a combination of significantly lower vitamin E prices and higher prices for a range of other products. Since a substantial part of these other products are in-sourced, these increased prices only have limited benefit at EBITDA level.

Human Nutrition & Health

in € million Q3 2015 Q3 2014 +/- volume price/mix
exch. rate
other
Sales 464 406 14% 3% -1%
12%  

Volume: DSM delivered solid volume growth in spite of the continued soft environment in several key market segments. The dietary supplements businesses continued to show good growth in Europe and Asia and an ongoing mixed picture in the US where sales of fish oil and (multi) vitamin based supplements declined in Q3.

I-Health, DSM’s B2C business, continued to deliver double-digit growth. Conditions in the Food & beverage segment are unchanged with good sales development in Europe and Asia and ongoing weak sales in North and South America. Markets for Infant Nutrition are stable, although DSM’s sales were relatively weak in Q3 due to timing of orders.

Price: Prices were slightly lower versus Q3 2014 mainly as a result of lower vitamin E prices and some mix effects.

Food Specialties

Q3 showed good volume growth in Enzymes and Cultures. Also the yeast extract-based savory business is performing increasingly well.

Performance Materials

in € million Q3 2015 Q3 2014 YoY Jan-Sep 2015 Jan-Sep 2014 YoY
Net sales of which: 631 638 -1% 1,927 1,842 5%
- volume growth     -3%     1%
- price/mix effect     -5%     -4%
- fx impact     7%     8%
- other     0%     0%
EBITDA 102 87 17% 294 243 21%
EBITDA margin 16.2% 13.6%   15.3% 13.2%  
EBIT
69 55 25% 196 153 28%
Capital employed       1,833 1744*  

* year-end 2014

Sales in Q3 decreased by 1% compared to Q3 2014 as a result of overall soft volumes, although strong in specialties, and lower prices reflecting lower input costs.

In DSM Engineering Plastics volumes were slightly down. PA6 polymers sales were weak, amplified by restricted product availability due to temporary production issues. Compounds and specialty products showed good volume growth.

In DSM Resins and Functional Materials volumes declined due to weak demand. Lower prices reflected lower input costs and a less favorable mix. The market environment for the UV curable coating resins business of DSM AGI in Asia remained difficult.

DSM Dyneema delivered modest organic growth versus Q3 2014 mainly due to timing of orders in comparison with Q3 2014.

EBITDA in Performance Materials for the quarter increased by 17% versus Q3 2014. On a structural base, good margin management and efficiency & cost savings programs over recent years contributed positively. The increase in EBITDA was, however, also enhanced by positive foreign exchange effects as well as temporarily strong margin improvements due to low input costs.

EBITDA of DSM Engineering Plastics was substantially up due to higher margins and lower costs.

EBITDA of DSM Resins and Functional Materials was materially up due to continued good margins and lower costs.

DSM Dyneema showed solid EBITDA growth.

Innovation Center

in € million Q3 2015 Q3 2014 YoY Jan-Sep 2015 Jan-Sep 2014 YoY
Net sales of which: 42 40 5% 115 112 3%
- volume growth     -5%     -9%
- price/mix effect     -1%     -1%
- fx impact     11%     13%
- other     0%     0%
EBITDA 0 -4   -8 -15  
EBIT
-7 -10   -29 -36  
Capital employed       563 523*  

* year-end 2014

Sales: DSM Biomedical continues to operate in a challenging US market.

EBITDA in Q3 improved compared to Q3 2014 driven by a stronger focus in the innovation activities, cost savings and positive currency developments.

Corporate Activities

in € million Q3 2015 Q3 2014 Jan-Sep 2015   Jan-Sep 2014
Net sales 19 25 55 75
EBITDA -28 -27 -88 -94
EBIT
-38 -39 -121 -129

EBITDA in Q3 2015 was in line with the average quarterly run-rate as well as Q3 2014.

Key joint ventures and associates

Q3 2015 Q3 2014 yoy Sales €m based on 100%
Jan-Sep 2015 Jan-Sep 2014 YoY
103 99 4% DSM Sinochem Pharmaceuticals 332 305 9%
      EBITDA margin approx. 13%    
455 384 18% DPx Holdings/ Patheon* 1,335 601 n.a.
      EBITDA margin approx. 20%    
365 n.a. n.a. ChemicaInvest** 365 n.a. n.a.
      EBITDA margin approx. 3%    

* DPx respective periods are: for the third quarter from 1 May - 31 July, for year-to-date 2015 from 1 Nov 2014 – 31 July 2015 and for year-to-date 2014 from 11 March 2014 – 31 July 2014.
** ChemicaInvest figures refer to the period from 1 August – 30 September.

DSM Sinochem Pharmaceuticals (50% DSM) showed a solid financial performance in Q3 supported by favorable exchange rate effects.

DPx holdings (49% DSM): DPx showed a solid performance. Margin was in line with previous quarters. On 8 June 2015 DPx, to be renamed Patheon, has filed a registration statement on Form S-1 with the United States Securities and Exchange Commission relating to the proposed initial public offering of its common stock. The timing of the offering as well as the number of shares to be offered and the price range for the offering have not yet been determined.

ChemicaInvest (35% DSM): Sales in Q3 were lower than last year, with lower caprolactam sales coming from a loss in production following an outage in China and low feedstock costs.

Discontinued Operations

in € million Q3 2015 Q3 2014 Jan-Sep 2015
Jan-Sep 2014
Net sales 157 529 1,213 1,669
EBITDA 3 34 94 94
EBIT
3 14 76 33

Polymer Intermediates and Composite Resins

Discontinued operations comprises net sales and operating profit of DSM Fibre Intermediates and DSM Composite Resins up to and including 31 July 2015. From that date onwards their activities have been transferred to ChemicaInvest.

Financial overview

Exceptional items

Exceptional items in the third quarter included non-cash impairment charges of €25 million related to the obsolescence of certain IT assets as a consequence of outsourcing and equipment no longer being used. A charge of €15 million was recognized for the devaluation of financial assets in Venezuela. Restructuring costs and related expenses amounted to €36 million, whilst acquisition related costs and other items were €12 million. Due to these charges a tax benefit of €23 million could be recognized resulting in a total after tax impact of €65 million. Associates reported exceptional items of €6 million after tax.

Net profit

Financial income and expense in Q3 2015 amounted to -€28 million compared to -€26 million in Q3 2014.

The effective tax rate in Q3 2015 remained 18%, equal to the full year 2014.

Net profit from continuing operations, before exceptional items in Q3 2015 amounted to €106 million compared to €113 million in Q3 2014.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to €0.59 in Q3 2015 compared to €0.64 in Q3 2014.

Cash flow, capital expenditure and financing

Cash provided by operating activities from continuing operations in Q3 2015 was €300 million (Q3 2014: €252 million).

Operating working capital (continuing operations) expressed as a percentage of annualized sales amounted to 24.9% compared to 26.3% at year-end 2014, in line with DSM’s ambition to further reduce operating working capital. In Nutrition, operating working capital as a percentage of annualized sales declined from 34% at year-end 2014 to 32%. The operating working capital in absolute terms increased by €32 million from €1,903 million at year-end of 2014 to €1,935 million at the end of Q3 2015.

Cash used for capital expenditure net of customer funding (continuing operations) amounted to €113 million in Q3 2015 compared to €87 million in Q3 2014.

Net debt decreased by €468 million compared to Q2 2015, reflecting the good operating cash flow and a positive development in mark-to-market value of financial derivatives held as well as the proceeds from the sale of the Polymer Intermediates and Composite Resins activities of €282 million.

Outlook 2015

The volatility in currencies, including the strengthening of the Swiss franc and the US dollar against the Euro, and the recent weakening of the Brazilian real will have a mixed effect on DSM’s 2015 results compared to 2014. Based on current exchange rates and the 2015 hedge effects, an overall annual positive impact on 2015 EBITDA is estimated at approximately €35 million.

The negative price impact of vitamin E on DSM’s 2015 EBITDA is estimated to be approximately €100 million compared to 2014.

It is increasingly difficult to predict the macro-economic developments. Assuming current market conditions will continue for the remainder of the year, DSM maintains its full year outlook: DSM aims to deliver an EBITDA in 2015 ahead of 2014, the increase mainly driven by positive foreign exchange effects. 

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