InterviewDSM looks to build on stronger Q2 - CFO

26 July 2007 17:47  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--DSM is looking for improved performances across most of its portfolio in the second half after posting a “good to very good” second quarter, its chief financial office Rolf-Dieter Schwalb said on Thursday.

The second-quarter performance was very close to last year’s all time record, Schwalb said in a telephone interview with ICIS news. “This was a nicely balanced quarter,” he said.

DSM benefited in the quarter from a strong performance in its industrial chemicals businesses where price increases more than compensated for increased raw material costs.

The Netherlands-based producer clearly welcomed a turnaround in anti-infectives driven by a sudden and strong increase in prices for penicillin and penicillin related products.

“We expect the very nice price situation in anti-infectives to continue in the third-quarter,” Schwalb said.

DSM has restructured its anti-infectives businesses but still needs to address long-term structural issues and the shift of production to China.

“We are looking at partnering [parts of] the business," Schwalb said. The current carve out of anti-infectives from the DSM portfolio will take six to nine months, the CFO added.

DSM’s nutrition businesses have been under pressure and weaker performance has been expected given price pressure in the more mature parts of the portfolio and the ending of some contracts struck when some of the segment was part of Roche.

DSM launched its ‘Aspire to win’ programme for nutrition in June, however, which targets an 18% EBITDA margin for the businesses by 2010 alongside other milestones.

“We are confident we will hit the targets on nutrition.We have a strategy of operational excellence on one side and an innovation push on the other,” he said.

The programme for nutrition is expected to yield €100m of improved profitability by 2010. Second-quarter 2007 profits from the cluster were 25% down at €65m because of strongly negative impact of the US dollar and high innovation costs, DSM said on Thursday.

“Nutrition is a core focus area with nice and not so nice parts,” Schwalb said.

The CFO stressed that DSM’s key strategic priorities are to invest in and grow the existing businesses to lift dividend payouts and only thirdly to pursue acquisition-led growth.

The main focus of acquisition-led interest is in performance materials, however, he said.

The company is pursuing an A rating for its debt profile from the rating agencies, on a targeted gearing of between 30% and 40%. Given current trading gearing could fall to around 20% by the year-end, Schwalb said.

DSM plans to spend €508m this year buying back shares in the second phase of a €750m programme.

DSM’s performance materials cluster profits were down slightly in the second quarter as the weaker US dollar and Japanese yen hit engineering plastics profits.

An unplanned outage at the company’s European caprolactam plant hit not only the fibre intermediates business, part of the industrial chemicals cluster, but also engineering plastic’s nylon business in the performance materials cluster.

The total negative impact on operating profits in the second-quarter was €10m ($13.7m). The plant has restarted but is only currently servicing European customers. Schwalb said the negative impact on engineering plastics profits in the third quarter will be a less.

DSM’s improved performance in the second quarter inspired greater confidence in the group from financial analysts.

“Looking ahead to the remainder of the year, our expectations are that these trading conditions [higher volumes and increased prices] will continue, enabling us to raise our full year guidance for 2007,” DSM chairman Feike Sijbesma, said in an earlier statement.

Operating profits for the full year are now expected to be €700m plus or minus 3% versus the number projected following the first quarter report of €760m plus or minus 5%.

The relatively new management board, which includes Schwalb as CFO and Sijbesma as chairman, have brought forward the mid-term review of DSM’s 2010 strategy to September.

($1 = €0.73)

By: Nigel Davis
+44 20 8652 3214

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