HEERLEN, Netherlands, Oct. 27, 2005 (PRIMEZONE) -- DSM: Net profit EUR 151 million (up 25% from Q3 2004). Rymco, last remaining unit of DSM Bakery Ingredients, sold. Outlook: operating profit(a) for the whole of 2005 will exceed EUR 800 million and will thus be substantially above 2004 (EUR 567 million).
DSM once again No. 1 in Chemical Industry sector of Dow Jones Sustainability World Index.
third quarter in EUR million January - September
2005 2004 +/- 2005 2004 +/-
Ongoing activities:
1,987 1,867 6% Net sales 5,919 5,536 7%
340 272 25% Operating profit(a) 979 786 25%
plus depreciation
and amortization
(EBITDA)
218 149 46% Operating profit 616 425 45%
(EBIT)
37 17 118% - Life Science 87 58 50%
Products
70 58 21% DSM Nutritional 201 158 27%
Products
88 46 91% - Performance 232 132 76%
Materials
38 38 0% - Industrial 135 92 47%
Chemicals
-15 -10 - Other activities -39 -15
DSM Bakery
Ingredients:
8 96 Net sales 183 287
2 8 Operating profit 16 23
plus depreciation
and amortization
(EBITDA)
2 4 Operating profit 9 11
(EBIT)
DSM total:
1,995 1,963 2% Net sales 6,102 5,823 5%
220 153 44% Operating profit 625 436 43%
(EBIT)
147 119 24% Net profit from 425 331 28%
ordinary activities
excluding
exceptional
items
4 2 Net result from -10 -31
exceptional items
151 121 25% Net profit 415 300 38%
Per ordinary share
in EUR(b):
0.75 0.59 29% - net earnings from 2.17 1.64 32%
ordinary activities
excl. exceptional
items
0.77 0.61 28% - net earnings 2.11 1.48 43%
190.6 191.6 -1% Average number of 190.7 191.6 -1%
ordinary shares (x
million)
(a) In this report, 'operating profit' is understood to be operating profit from ordinary activities excluding exceptional items.
(b) The data per share are based on the number of shares after the split.
Q3 2005 operating profit EUR 220 million; substantially higher than Q3 2004 (+44%)
General
In Q3 2005 DSM posted a total Operating profit of EUR 220 million, which is up 44% from Q3 2004, due mainly to higher margins and lower fixed costs. Net profit amounted to EUR 151 million, up 25% from Q3 2004 (EUR 121 million).
On 5 September DSM effected a two-for-one stock split.
On 30 September DSM transferred its share in the Rymco joint venture to the joint venture partner, marking the completion of the sale of DSM Bakery Ingredients. On the same date, DSM announced its intention to sell the SBR business. The sale is expected to be concluded in the fourth quarter.
Peter Elverding, chairman of the DSM Managing Board, gave the following comment on the third-quarter results: "The third quarter showed a good result. All businesses improved their performance, and they are excellently positioned for further growth. I expect this year's operating profit to be the highest in our history."
With regard to the strategy that DSM presented at the beginning of October ("Vision 2010: Building on Strengths") he said: "In the past few weeks we have been able to make two relevant steps in implementing our new strategy. Both the acquisition of the Chinese coating resins company Syntech and the further agreement we have reached with NCPC about joint ventures in penicillin and vitamins are fully in line with our ambition to strengthen our position in the rapidly growing Chinese market."
Net sales (ongoing activities)
third quarter EUR million January-September
2005 2004 2005 2004
374 362 Life Science 1,066 1,098
Products
480 472 DSM Nutritional 1,426 1,430
Products
608 513 Performance 1,805 1,492
Materials
399 391 Industrial 1,243 1,141
Chemicals
126 129 Other activities 379 375
1,987 1,867 Total 5,919 5,536
At EUR 2.0 billion, sales from ongoing activities (i.e. excluding DSM Bakery Ingredients) were up 6% from the third quarter of last year. Selling prices were on average 4% higher than in Q3 2004. Sales volumes showed an organic decrease of 1% (attributable to DSM Elastomers and DSM Fibre Intermediates). The acquisition of DSM NeoResins had a positive effect of 3%. Changes in exchange rates against the euro had virtually no effect on sales in this quarter.
Operating profit (ongoing activities)
The Q3 2005 operating profit from ongoing activities (i.e. excluding DSM Bakery Ingredients) amounted to EUR 218 million, which is 46% higher than in the third quarter of 2004. Life Science Products, DSM Nutritional Products and Performance Materials performed better than in the corresponding period of last year because of higher margins and lower fixed costs. The operating profit for Industrial Chemicals remained unchanged. The considerable increase in raw material prices could generally be compensated for by higher selling prices.
Business review
Life Science Products cluster(c)
third quarter in EUR million January-September
2005 2004 2005 2004
386 392 Net sales including 1,105 1,176
intra-group supplies
70 54 Operating profit plus 184 170
depreciation and
amortization
37 17 Operating profit 87 58
(c) excluding DSM Bakery Ingredients
In the third quarter the operating profit more than doubled while sales remained virtually unchanged. DSM Anti-Infectives' operating profit clearly improved as a result of restructuring measures and stringent cost control but was still slightly negative. DSM Food Specialties' profit increased due to higher sales volumes. DSM Pharmaceutical Products and DSM Fine Chemicals saw their results improve due to a better product mix and better efficiencies.
The main contributors to the improvement of the result compared with the second quarter of 2005 were DSM Pharmaceutical Products and DSM Food Specialties.
DSM Nutritional Products
third quarter in EUR million January-September
2005 2004 2005 2004
487 479 Net sales including 1,443 1,440
intra-group supplies
101 88 Operating profit plus 294 250
depreciation and
amortization
70 58 Operating profit 201 158
Sales were slightly higher than in Q3 2004. This was the net effect of higher sales volumes and lower prices. Sales in Human Nutrition & Health were lower and sales in Animal Nutrition & Health were higher.
Operating profit was higher due to higher sales volumes in Animal Nutrition & Health and on average better margins in Human Nutrition & Health. In addition, fixed costs decreased further.
Performance Materials cluster
third quarter in EUR million January-September
2005 2004 2005 2004
616 514 Net sales including 1,817 1,498
intra-group supplies
114 67 Operating profit plus 309 195
depreciation and
amortization
88 46 Operating profit 232 132
Sales and operating profit in Q3 2005 were considerably higher than in the corresponding period of 2004 due to higher selling prices and higher margins for all business groups, sales volume increases at DSM Dyneema and DSM Engineering Plastics in particular and the positive contribution from DSM NeoResins.
Industrial Chemicals cluster
third quarter in EUR million January-September
2005 2004 2005 2004
454 439 Net sales including 1,396 1,269
intra-group supplies
59 61 Operating profit plus 199 155
depreciation and
amortization
38 38 Operating profit 135 92
Q3 sales were up slightly from last year due to higher selling prices. Operating profit remained unchanged as margins were higher, despite considerably increased raw material prices, while sales volumes were lower. DSM Fibre Intermediates' operating profit was lower than in Q3 2004, as expected, due to the shutdown of the caprolactam plant in Nanjing (China) as part of a capacity expansion. DSM Melamine posted a lower result, and the situation in its market is still unsatisfactory.
The lower operating profit in the third quarter compared with the second quarter of 2005 was mainly attributable to DSM Fibre Intermediates.
Other activities
third quarter in EUR million January-September
2005 2004 2005 2004
130 133 Net sales including 389 386
intra-group supplies
-4 2 Operating profit plus -7 17
depreciation and
amortization
-15 -10 Operating profit -39 -15
Operating profit was lower than in Q3 2004 due to higher costs. This relates in particular to costs that were recognized in accordance with IFRS 2 to reflect the increase in value of remuneration rights based on the development of the share price (Stock Appreciation Rights), and higher project costs. This was partially compensated for by a higher result of DSM's captive insurance company.
Net profit
Net profit for the third quarter increased from EUR 121 million in 2004 to EUR 151 million in 2005. Net earnings per ordinary share (taking into account the share split), increased from EUR 0.61 in 2004 to EUR 0.77 in 2005.
Net finance costs in the third quarter of 2005 amounted to EUR 19 million, compared with EUR 16 million in 2004. This increase was the net effect of the acquisition of DSM NeoResins.
The effective tax rate was 27% (2004: 20%). The increase relative to 2004 was due to a decrease in the proportion of income elements taxed at a low rate.
The Profit of associates decreased from EUR 3 million in the third quarter of 2004 to EUR -2 million in the third quarter of 2005 due to the negative result posted by Methanor.
Net profit from ordinary activities excluding exceptional items increased by EUR 28 million to EUR 147 million due to the higher operating profit.
Exceptional items
The exceptional items (EUR 4 million net) relate to the finalization of the sale of DSM Bakery Ingredients, including the book profit on the sale of Rymco (EUR +11 million net), the book profit on the sale of land (EUR +6 million net), value adjustment of the SBR business (EUR -4 million net) and the impairment of DSM's share in the assets of Methanor (EUR -9 million net).
Cash flow, capital expenditure and financing
The cash flow from ordinary activities (net profit from ordinary activities plus depreciation) amounted to EUR 269 million in the third quarter of 2005, up 9% from Q3 2004. The increase was due mainly to the higher operating profit. Capital expenditure on intangible non-current assets and property, plant and equipment totalled EUR 120 million (Q3 2004: EUR 72 million) and capital expenditure on acquisitions amounted to EUR 11 million (2004: zero). The increase in net debt to EUR 837 million in 2005 compared with year-end 2004 was due to the acquisition of DSM NeoResins in February 2005, the payment of dividend, the increase in working capital, the repurchase of shares to service option rights granted to employees and the effect of a stronger dollar compared with year-end 2004.
Compared with the second quarter of 2005, net debt on balance decreased by EUR 407 million to EUR 837 million. This was the net effect of the cash flow from operating activities and the sale of DSM Bakery Ingredients.
Balance sheet
DSM Bakery Ingredients was deconsolidated in the balance sheet as at 30 September. The assets and liabilities of the SBR business, which are expected to be sold in the fourth quarter, are accounted for in the balance sheet as "assets and liabilities held for sale".
Workforce
In the first nine months the workforce on balance decreased by 1,826, from 24,204 at year-end 2004 to 22,378 at the end of September 2005. Compared with the end of Q2 2005 the workforce decreased by 308 as a result of the sale of Rymco on the one hand (-197) and restructuring projects and attrition, mainly at DSM Nutritional Products and in the Life Science Products cluster, on the other (-111).
Sustainability
In the Dow Jones Sustainability World Index published on 7 September, DSM tops the list for the Chemical Industry sector for the second year in a row. The company was able to retain its leading position because it has integrated sustainability into the decision-making and management processes of its core activities to a very high level.
Strategy
On 6 October DSM presented its new multi-year strategy Vision 2010: Building on Strengths. Building on the strong foundation laid with the successful implementation of Vision 2005, DSM will in the coming years strive for further growth of the quality and profitability of its activities. The focus will be on innovation, growth in emerging economies and operational excellence. In the context of Vision 2010, DSM aims to achieve a CFROI (Cash Flow Return on Investment) which on average over the coming years will exceed the weighted average cost of capital (WACC) by more than 50 basis points. This means that value creation is key for all DSM businesses.
From 2006 onwards, DSM will present its activities in slightly different clusters. The new clustering is as follows: Nutrition, Pharma, Performance Materials and Industrial Chemicals. DSM has formulated and presented strategic plans and profitability targets for each cluster. In the coming period, against the background of the new strategic direction, more detailed asset-optimization studies will be carried out, in particular in the new Pharma cluster.
On 18 October DSM acquired Syntech, a Chinese producer of coating resins with annual sales of approx. USD 30 million. 26 October saw the next step in the partnership between DSM and the Chinese company North China Pharmaceutical Group Corporation (NCPC). DSM and NCPC aim to collaborate in particular in the production and sale of penicillin and vitamins in China and, through DSM, in the rest of the world. Both steps are perfectly in line with Vision 2010, in which smaller acquisitions, strategic partnerships and growth in China are among the factors that will accelerate DSM's profitable growth.
On 6 October DSM also announced that next year it will propose to the Supervisory Board and the Annual General Meeting to increase the dividend for 2005 by about 15% to EUR 1 per ordinary share.
Outlook
DSM's third quarter of 2005 was characterized by continuing good demand and generally well-balanced markets. However, the volatility in the raw material markets remained high and increased in September due to the hurricanes in the Mexican Gulf; on the other hand, the currency markets presented a relatively stable picture in the third quarter.
The prospects for the economy in general and for DSM's end markets continue to be positive. Although the fourth quarter is expected to see the usual seasonal effects of the "holiday month" of December, the underlying market development continues to be good.
Among DSM's various end markets, the automotive market, especially in the USA, appears to be vulnerable. On the other hand, various end markets in Europe seem to be improving further, while the Far East continues to show a robust positive development.
For the fourth quarter DSM expects an operating profit that will once again be substantially higher than that for the corresponding period of 2004. DSM expects its operating profit for 2005 to exceed EUR 800 million. This means that DSM's operating profit for 2005 will be substantially higher than in the previous year (EUR 567 million).
Heerlen, 27 October 2005
The Managing Board of Directors
Important dates: Annual Report 2005: Thursday, 9 February 2006 Annual General Meeting: Wednesday, 29 March 2006 Report for the first quarter: Friday, 28 April 2006 Report for the second quarter: Thursday, 27 July 2006 Report for the third quarter: Thursday, 26 October 2006
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