13 February 2007 16:58 [Source: ICIS news]
LONDON (ICIS news)--DSM’s management may have shifted the portfolio significantly towards nutrition and health but cyclicality still hangs over large parts of the business.
The question is just how exposed the company’s performance materials operations are not just in the current operating environment.
The financial results released on Wednesday are likely to show that it had a strong 2006 with the fourth quarter outstripping Q4 2005.
DSM has had to contend with higher energy and raw material costs compared with the prior year balanced in industrial chemicals and elsewhere by stronger volumes and prices.
It is one of the healthiest companies in the European chemicals sector given its product mix and the strength of the balance sheet. But niggling doubts remain about the continued exposure to cyclicality and an industrial downturn.
Melamine has been a bugbear for the group and even some parts of nutrition have been hurt by high raw material costs.
Analysts have found DSM attractive, however, with Lehman Brothers late last month suggesting that the company might surprise positively in 2007 with a milder than expected downturn in caprolactam and a potential next-step in anti-infectives restructuring.
In the fourth quarter last year DSM’s fibre intermediates business was more or less at the top of its cycle as were fertilisers but melamine was in a trough.
Fertilisers can continue strong for another growing season commentators believe. Fibre intermediates growth is tied very much to DSM’s plans for
DSM has targeted the emerging economies as part of its Vision 2010 strategy. There have been investments in performance products and engineering plastics in
No new capacity is expected on stream in the business over the next two to three years and de-bottlenecking is likely to suffice when it comes to soaking up new demand.
DSM’s problems in pharmaceuticals intermediates and products like penicillin are well known but the group seems to be over the worst.
Volumes and prices were higher in the earlier part of last year. The anti-invectives business swings on global prices for penicillin and penicillin derivatives so having a stake in low cost production is nowadays essential.
The company has acknowledged that it received a great boost from the market in 2006 expanding at close to 8% year-on-year. Its Vision 2010 project targets organic growth of between 3% and 5% a year.
Achieving this target may not seem too much of a challenge now but give the more commodity and industrially oriented business a few more quarters and the situation might changed.
DSM is focused on innovation-led growth under Vision 2010 and will need that underlying strength to drive above average, value added growth.
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