InterviewDSM boosts resilience to downturn

29 April 2008 15:26  [Source: ICIS news]

By Mark Watts

 

LONDON (ICIS news)--DSM’s transformation from an upstream player into a fine chemicals and specialty materials producer has left it more resilient to a global economic downturn, the Dutch company’s chief financial officer (CFO) said on Tuesday.

 

“What we see at the moment is a slowdown, or negative development in the US. We feel quite shielded from this scenario,” Rolf-Dieter Schwalb told ICIS news.

 

“Even in the US, 50% of our business is nutrition and pharmaceuticals and it’s hard to see a big reason why these should suffer from the economic development,” he said. “Even if the recession was to swap over [to Europe], in nutrition and pharma we would hardly expect any effects, the same is true from Dyneema and fertilizer.”

 

DSM posted a strong set of first-quarter results despite the increased negative impact of high raw materials prices and a weak US dollar. Operating profits from continuing operations were up 22% year on year to €236m ($369m), driven by higher sales volumes and increased profits margins.

 

“Some of our markets would be affected [buy a global downturn] but the company, with all the transformation we have been going through has become quite resilient,” said Schwalb.

 

“We had a €45m increase in operating profits despite a hit from raw materials of around €50m and exchange rates of almost €20m. That shows the strength of our business in top-line growth, as demand and sales price increases compensated for this €70m plus €10m from the [phasing out of] Roche contracts,” said Schwalb.

 

He expected DSM to be able to pass on increased raw materials prices for the rest of 2008, with the exception of the elastomers business, which is earmarked for divestment in the coming year.

 

DSM’s US caprolactam business indirectly benefited from domestic economic strife. Due to less demand in automotive and construction, the business has been exporting to China - partly with higher margins.

 

DSM’s Vision 2010 strategy marks an accelerated shift towards life sciences and material sciences. The company is targeting 5% organic growth and plans to divest businesses which do not fit in with the portfolio changes.

 

“In the first quarter we have had 14% organic growth already and our target is 5%, so I cannot believe that we would end up below our target this year. The strong development started in the second half last year so the comparables in the later quarters of this year will be tougher,” said Schwalb.

 

He said he expected the carve-outs of DSM’s fertilizers, melamine and elastomers businesses to happen in the summer and the auction process to find potential bidders in September. The businesses were expected to be sold in first half 2009, either separately or as part of packages.

 

Schwalb said DSM was looking at large acquisitions only in its focus area of life sciences and material sciences and was not restricted by any particular geographical area. Last year Schwalb said he expected DSM to have at least a €2bn warchest after its divestment plan.

 

“We are looking at larger acquisitions. We know the landscape of the industry and we know who will be fitting for us but this depends on availability,” added Schwalb. “If it is not possible to acquire one of the other companies then the last resort is to share buyback.”

 

DSM announced share buybacks of €750m last September and €250m in October and December. It received shareholder approval for a further €500m at the AGM in March. Schwalb said the company only wanted €250m at the moment as financial markets were having problems with credit.

 

“Cash is king at the moment, few companies start new buyback programmes. We said let's be prudent, let's be conservative and only do half of what is still open,” he added.

 

($1 = €0.64)

By: Mark Watts
+44 20 8652 3214

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