26 March 2008 17:05 [Source: ICIS news]
By Nigel Davis
Research and development has been a driving force but more important has been a constantly updated vision of the future that has put the role of the chemicals maker into a wider regional European and latterly global context.
Transformation often requires radical action. Earlier this decade DSM sold most of its petrochemicals operations to
Underlying these moves was the focus on fine chemicals and advanced materials research and development. The company has pushed hard into biotechnology and it sees industrial, or white, biotechnology as an area with significant growth potential.
The latest transformation is being put to the test now as raw material costs rise and concerns are raised about slowing economic growth. DSM’s portfolio should be shielded from the worst impacts of a slowdown but its advanced materials businesses are likely to be affected.
As yet, however, the company is still riding high.
In the fourth quarter of last year, operating profits were up 2% on an 8% sales increase.
Nutrition and performance materials division profits were higher as were profits from the remaining industrial chemicals operations. But pharmaceuticals profits – it makes pharmaceutical intermediates and pnicillin-based anti-infectives, were down sharply on lower prices.
The outlook is also encouraging, particularly given the burden of higher feedstock costs and the adverse impact of the weak US dollar.
DSM said on Wednesday that the “firm demand and pricing strength” seen in most of most markets in the fourth quarter had been sustained into 2008. Prices had been pushed higher in the nutrition business.
The business trend was stronger in performance materials, fibre intermediates and the agro (or melamine) business.
Despite the weaker dollar and increased raw material prices DSM said it expected operating profits in 2008 to be higher than those reported for 2007. First-quarter operating profits would be about 20% higher than the €192m ($303m) earned in the similar period of 2007, it added.
“The current year has started strongly with firm demand being seen across most of our markets," managing board chairman, Feike Sijbesma, said
“DSM’s performance is a clear indication of the higher quality earnings now being achieved as a result of the changes made to the profile and portfolio of the company," he added.
DSM is well on track to becoming a mid-sized specialties maker and one with a twist – a real handle on biotechnology.
The latest upbeat forecast rests on the performance of the portfolio that sees the nutrition business doing better - with vitamins prices up - and steady volume growth in areas like engineering plastics and fibre intermediates.
The portfolio should prove to be even more robust following the expected sale of the melamine, urea fertilizer and EPDM rubber businesses based at Geleen in the
The fact that DSM is upbeat on the back of two months' data says a lot - and the shares responded accordingly, up 10.5% at 14:30 GMT from Tuesday's close. But is this too early to call the full-year outcome?
Analysts and others still expect to see the knock-on effect from the global credit crunch hit chemicals and are concerned about future performance.
DSM should be more protected than most from a chemicals sector downturn, driven itself by weaker economic growth.
But its raised forecast should not be taken as an indication that all will be well across the sector.
($1 = €0.64)
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