HEERLEN, Netherlands, July 27, 2005 (PRIMEZONE) -- DSM:
-- Operating profit: EUR 217 million (up 43% from Q2 2004 and 15%
from Q1 2005).
-- Net profit from ordinary activities: EUR 147 million (up 28%
from Q2 2004).
-- DSM Bakery Ingredients sold.
-- Interim dividend: EUR 0.58 per ordinary share.
-- Proposal for 2-for-1 stock split.
-- Outlook for:
Operating profit from ordinary activities: Q3 2005 considerably
higher than Q3 2004.
Financial results from ordinary activities: full year 2005
substantially higher than 2004.
second quarter in EUR million first half
2005 2004 +/- 2005 2004 +/-
Ongoing activities:
2,033 1,862 9% Net sales 3,932 3,669 7%
336 271 24% Operating profit(a) from ordinary 639 514 24%
activities plus depreciation
and amortization (EBITDA)
213 148 44% Operating profit from ordinary 398 276 44%
activities (EBIT)
28 20 40% -- Life Science Products 50 41 22%
68 54 26% DSM Nutritional Products 131 100 31%
77 44 75% -- Performance Materials 144 86 67%
54 30 80% -- Industrial Chemicals 97 54 80%
-14 0 -- Other activities -24 -5
DSM Bakery Ingredients:
90 96 Net sales 175 191
7 8 Operating profit plus depreciation 14 15
and amortization (EBITDA)
4 4 Operating profit from ordinary 7 7
activities (EBIT)
DSM total:
2,123 1,958 8% Net sales 4,107 3,860 6%
217 152 43% Operating profit (EBIT) 405 283 43%
147 115 28% Net profit from ordinary activities 278 212 31%
excluding exceptional
items
-14 -- Net result from exceptional items -14 -33
133 115 16% Net profit 264 179 47%
Per ordinary share in EUR:
1.51 1.15 31% -- net earnings from ordinary 2.83 2.10 35%
activities
1.36 1.15 18% -- net earnings 2.68 1.75 53%
94.9 95.8 -2% Average number of ordinary shares (x 95.4 95.8 -0%
million)
(a) In this report, 'operating profit' is understood to be operating profit from ordinary activities excluding exceptional items.
Significant sales growth in second quarter; strongly higher operating profit
General
In the second quarter of 2005 DSM posted a total Operating profit of EUR 217 million, up 43% from the second quarter of 2004, due in particular to higher margins, lower costs and the contribution from DSM NeoResins (acquired in February 2005). The Net profit from ordinary activities excluding exceptional items was EUR 147 million, which is 28% more than in Q2 2004 (EUR 115 million). Net profit amounted to EUR 133 million, up 16% from Q2 2004 (EUR 115 million).
The activities of DSM Bakery Ingredients were sold to Gilde Investment Management with effect from 30 June. The remaining part of this business group, the Rymco joint venture in South Africa, is expected to be transferred to the joint venture partner in September.
Peter Elverding, Chairman of the Managing Board, gave the following comment: "I am satisfied with DSM's profit for the second quarter, in which our business developed well. The strong performances in Nutritional Products, Performance Materials and Industrial Chemicals stand out, but the visible improvement in Life Science Products also contributed.
"Across the board, we saw the positive effects of better margins and lower fixed costs, while sales volumes also increased compared with Q1 2005.
"For the year as a whole I expect our financial results from ordinary activities to be substantially higher than in 2004."
Net sales (ongoing activities)
second quarter in EUR million first half
2005 2004 2005 2004
362 367 Life Science Products 692 736
483 487 DSM Nutritional 946 958
Products
633 507 Performance Materials 1,197 979
435 386 Industrial Chemicals 844 750
120 115 Other activities 253 246
2,033 1,862 Total 3,932 3,669
At EUR 2.0 billion, sales from ongoing activities (that is, excluding DSM Bakery Ingredients) were up 9% from the second quarter of last year. Selling prices were on average 8% higher than in Q2 2004. Organic volume growth amounted to -1%. The acquisition of DSM NeoResins had an effect of +4%. Lower exchange rates against the euro, in particular for the U.S. dollar, had an effect of -2%.
Compared with Q1 2005, organic volume growth amounted to 3%.
Operating profit (ongoing activities)
The operating profit from ongoing activities (that is, excluding DSM Bakery Ingredients) for the second quarter amounted to EUR 213 million, up 44% from the second quarter of 2004. All clusters performed markedly better than in the corresponding quarter of last year, mainly as a result of higher margins. The considerable increase in raw material prices could generally be compensated for with higher selling prices. Fixed costs decreased compared with the second quarter of 2004.
Business review
Life Science Products cluster
second quarter (b) in EUR million first half (b)
2005 2004 2005 2004
375 387 Net sales including 719 784
intra-group supplies
61 58 Operating profit plus 114 116
depreciation and
amortization
28 20 Operating profit 50 41
(b) Excluding DSM Bakery Ingredients
The cluster achieved a higher Q2 operating profit despite a slight decrease in sales. DSM Anti-Infectives' operating result clearly improved due to restructuring measures and stringent cost control, but was still slightly negative. DSM Food Specialties' profits increased as a result of higher sales volumes. DSM Pharmaceutical Products and DSM Fine Chemicals also saw their profits improve.
The improved result compared with Q1 2005 was also attributable to contributions from all business groups.
DSM Nutritional Products
second quarter in EUR million first half
2005 2004 2005 2004
488 490 Net sales including 956 961
intra-group supplies
101 87 Operating profit plus 193 162
depreciation and
amortization
68 54 Operating profit 131 100
Sales remained stable compared with Q2 2004. Sales were negatively influenced by the dollar exchange rate. In Human Nutrition and Health, prices and volumes were fairly stable. In Animal Nutrition and Health, volumes were clearly higher, at lower prices for a few more mature products. Volumes in Personal Care were higher due to a number of new product launches. Operating profit was higher due to higher sales volumes, besides increased operational efficiency and the lower fixed costs resulting from the continued successful implementation of the VITAL project. The lower exchange rate for the U.S. dollar and lower margins for some products had a depressing effect.
Operating profit increased compared with the first quarter of 2005 due to higher sales volumes in Human Nutrition and Health and Animal Nutrition and Health, which more than compensated for the seasonal decrease in Personal Care. Prices were stable on average.
Performance Materials cluster
second quarter in EUR million first half
2005 2004 2005 2004
633 507 Net sales including 1,201 984
intra-group supplies
102 66 Operating profit plus 195 128
depreciation and
amortization
77 44 Operating profit 144 86
Q2 sales and operating profit were considerably higher than in Q2 2004 due to higher selling prices, higher margins for all business groups, an improved product mix thanks to DSM Dyneema among others and the positive contribution from DSM NeoResins. The integration of DSM NeoResins into DSM Coating Resins is proceeding very well.
Compared with the first quarter of 2005, the resins and engineering plastics businesses saw their sales volumes increase.
Industrial Chemicals cluster
second quarter in EUR million first half
2005 2004 2005 2004
484 426 Net sales including 942 830
intra-group supplies
76 51 Operating profit plus 140 94
depreciation and
amortization
54 30 Operating profit 97 54
Sales and operating profit increased substantially in Q2 2005 because margins were higher despite a strong increase in raw material prices. The higher margins, at stable sales volumes, at DSM Fibre Intermediates and DSM Agro in particular were responsible for the improved results. DSM Melamine saw its profits deteriorate, and the situation in its markets is unsatisfactory.
All business groups in the cluster posted higher profits than in the first quarter of 2005. Sales volumes in this cluster were higher on average. DSM Fibre Intermediates recorded higher margins for acrylonitrile in particular. DSM Agro saw its operating profit increase strongly due to high fertilizer sales volumes.
Other activities
second quarter in EUR million first half
2005 2004 2005 2004
124 119 Net sales including 259 253
intra-group supplies
-4 9 Operating profit plus -3 14
depreciation and
amortization
-14 0 Operating profit -24 -5
Operating profit was lower because of higher project costs and because the result posted by DSM's internal insurance company was lower than in the second quarter of 2004.
Net profit
Net profit increased from EUR 115 million in Q2 2004 to EUR 133 million in Q2 2005. Net earnings per ordinary share increased from EUR 1.15 in 2004 to EUR 1.36 in 2005.
Net finance costs in the second quarter of 2005 amounted to EUR 18 million, compared with EUR 12 million in 2004. The increase was due mainly to 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 (previously referred to as Profit from non-consolidated companies) decreased from EUR 2 million in Q2 2004 to EUR 0 million in Q2 2005.
Net profit from ordinary activities increased by EUR 32 million to EUR 147 million due to the higher operating profit.
Exceptional items
The exceptional items (EUR -14 million net) relate to the book profit on the sale of the activities of DSM Bakery Ingredients (EUR 7 million net, excluding the book profit on the sale of Rymco, which has to be recognized in Q3 2005), a provision (EUR -16 million net) for the previously announced restructuring of the Linz site in Austria operated by DSM Fine Chemicals and DSM Pharmaceutical Products and interest payments in connection with a final tax assessment in the Netherlands for the years 1997 and 1998 (EUR -5 million net). The restructuring of the Linz site is aimed at achieving an improvement at operating profit level of EUR 35-40 million per annum compared with 2004, to be achieved by the end of 2007.
Cash flow, capital expenditure and financing
The cash flow from ordinary activities (net profit from ordinary activities plus depreciation) amounted to EUR 273 million in the second quarter of 2005, up 13% from Q2 2004. The increase was due mainly to the higher operating profit. Capital expenditure on intangible non-current assets and property, plant and equipment amounted to EUR 111 million (2004: EUR 82 million) and capital expenditure on acquisitions amounted to EUR 14 million (2004: zero). The increase in net debt to EUR 1,244 million in 2005 compared with year-end 2004 was due to the acquisition of NeoResins in February 2005, the payment of the final dividend for 2004, 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.
At the beginning of the third quarter, DSM hedged part of its projected net cash flow in USD for the second half of 2005 by buying at-the-money call options at an exchange rate of USD 1.2006 per euro with an underlying value of USD 160 million. At the same time, for 2006 DSM has hedged USD 300 million through forward contracts at exchange rates between USD 1.21 and USD 1.23 per euro.
Balance sheet
DSM Bakery Ingredients was deconsolidated in the balance sheet with effect from 30 June, and the sale consideration has been accounted for under receivables. The payment by Gilde Investment Management was received on 1 July. In this quarterly report DSM NeoResins has been fully consolidated (in Q1 2005 it was still included under non-current financial assets).
Workforce
In the first half the workforce on balance decreased by 1,518, from 24,204 at year-end 2004 to 22,686 at the end of June 2005. Compared with the end of March 2005 the workforce decreased by 1,703 as a result of the sale of activities of DSM Bakery Ingredients (-1,258) and restructuring measures and attrition (-445), of which 173 at DSM Nutritional Products and 259 in the Life Science Products cluster.
Outlook Prices, margins and volumes were at a good level in the second quarter. Economic prospects for the rest of the year appear to be solid for Asia and the USA in particular, while the European economy is expected to slow down somewhat, due in part to sluggish consumer spending. Trading conditions in most of our end markets currently seem to be stable, although the automotive sector and the coatings industry in particular are experiencing something of a slowdown. The development of raw material markets and the value of the US dollar continue to be volatile, due in part to geopolitical factors.
For the third quarter of 2005 DSM expects its operating profit from ordinary activities to be considerably above the Q3 2004 level.
For the year as a whole, the financial results from ordinary activities will be substantially above the level of 2004.
Interim dividend
It has been decided to pay out an interim dividend of EUR 0.58 per ordinary share for the year 2005 (2004: also EUR 0.58). This represents one third of the dividend paid out for 2004. The interim dividend is no indication of the total dividend for 2005. The interim dividend for 2005 will be paid out in cash on 11 August 2005.
Stock split
On 22 August DSM will convene an Extraordinary General Meeting of Shareholders to request approval for a proposal for a 2-for-1 stock split. The split will be effected as soon as possible after the meeting.
Heerlen (Netherlands), 27 July 2005
The Managing Board of Directors
Important dates:
Interim dividend 2005 made payable: Thursday, 11 August 2005 Publication of third quarter results: Thursday, 27 October 2005 Annual Report 2005: Thursday, 9 February 2006 Annual General Meeting: Wednesday, 29 March 2006