25 July 2003 11:59 [Source: ICIS news]LONDON (CNI)--DSM unveiled on Friday a 17% fall in second quarter earnings, in line with expectations, and plans to cut another 500 jobs over the next few months under a restructuring exercise.
The cuts, combined with the 100 job losses at its pharmaceuticals chemicals unit announced in April, should raise group's operating profits by at least Euro75m ($84m) per annum over the next two years, the Dutch chemicals and pharmaceutical firm said.
In the April-June period, DSM’s operating profit fell 17% to Euro85m ($95m) as a decrease in fixed costs failed to offset lower margins and volumes as well as the financial effects of the weaker dollar.
Group sales were down 5% at Euro1.36bn. Selling prices were up 2% on average but volumes fell 2%. Acquisitions had a positive effect of 1% while unfavourable exchange rates had a negative effect of 6%.
Net income slumped 93% to Euro68m, when taking into account a Euro840m extraordinary gain last time, mainly from the sale of its petrochemical business to Saudi Basic Industries Corp (Sabic).
DSM said the weak signs of recovery seen in Q1 did not materialise in Q2, adding that the clear decline in Q2 was aggravated by the dollar's weakness against the euro.
Given that there are no clear signs of positive economic development for its end markets in the coming months, DSM expects operating profits in Q3 to be lower than Q2.
It said Q4 should show a recovery compared with Q3, adding that the vitamins and fine chemical business acquired from Swiss life sciences group Roche will be making earnings contributions by then.
DSM did not give an indication of the operating profit for 2003 but said it seems unlikely at present this will reach the level of last year.
In Q2, the industrial chemicals division's operating profits grew 33% to Euro20m on sales up 6% at Euro373m. Volumes remained stable and selling prices and margins were on average higher, although exchange rates had a negative effect on the division's performance.
The fibre intermediates business only managed to break even, as the caprolactam market was sluggish with margins greatly reduced .
The melamine business recorded a higher operating profit. DSM Agro raised its earnings due to higher prices. The energy business suffered a fall in income due lower production volumes for oil and gas.
DSM’s life science products division suffered a 22% fall to Euro46m in operating profits in Q2 due mainly to the weak dollar. Sales, including intra-group supplies, were down 12% at Euro506m. Volumes, prices and margins were lower and the food specialties, bakery ingredients and fine chemicals businesses matched this pattern.
However, the anti-infectives unit was able to raise its profits on flat sales, thanks to contributions from the clavulanic operations. Earnings and sales in the pharmaceuticals products business were lower due to delayed introduction of new products and a temporary fall in volume of work outsourced by the pharmaceuticals sector.
Operating profits from the performance materials division fell 18% to Euro27m in Q2 as conditions in its major end sector markets deteriorated. Sales were down 8% at Euro437m. Volumes, selling prices and margins decreased slightly due in part to currency effects.
The elastomers business suffered an operating loss on falling sales due to pressure on volumes and prices as well as a margin squeeze. The composite resins and coating resins businesses were able to raise their profits on flat sales.
The engineering plastics unit posted flat profits despite lower sales arising from the weak dollar. Its margins improved but sales volumes came under pressure at the end of the quarter.For the first half, DSM recorded a 4% fall to Euro176m in group operating income despite sales rising 1% to Euro2.82bn.
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