INSIGHT: DSM talks of 'making the next leap'

24 September 2010 17:43  [Source: ICIS news]

By Nigel Davis

Feike Sijbesma DSM CEO LONDON (ICIS)--A projected growth rate of two times GDP (gross domestic product) and an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 17% are targets worth achieving.

Netherlands based chemicals producer DSM expects this level of growth and return from its performance materials business now a core of the group alongside life sciences.

DSM has reached most of its 2010 strategic targets, the company said on Thursday, despite the economic downturn. Now it is looking to growth and wants to drive harder into the emerging economies.

Importantly, it sees sustainability as a key business driver and differentiator and not simply a responsibility, so intends to boost the proportion of eco-friendly products in the portfolio.

The former coal and petrochemicals producer (DSM was a coal miner a long time ago; it sold its petrochemicals business to SABIC in 2002) is going to continue with its transformation but is playing down that aspect of the strategy.

It has focused in recent five year periods on clear strategic, portfolio and financial goals and largely they have been achieved. The process seems to work.

The company, however, has probably chosen to focus on the right trends and well understood its own ability to change.

The life sciences businesses have been expanded and while there are clear challenges - to match change in the pharmaceutical industry, for instance, and in vitamins - DSM seems to know what it wants to do.

It is looking for partnerships and to Asia for its pharmaceuticals products business. The aim for the pharma cluster is to get back to an EBITDA margin of around 15%.

There are global/Asia elements to many of the DSM management’s targets.

In nutrition, there is likely to be some strengthening of the core - through cost control and what the company calls “improving the quality of earnings” but also some expansion.

In performance materials - DSM makes the high strength fibre Dyneema, engineering polymers and resins for coatings and composites - it will focus on eco-friendly products and solutions - for lighter materials and more environmentally friendly coatings, for example.

Again, there is talk of partnerships and also here of possible acquisitions. In high growth economies, strong sales growth is foreseen, the company says.

Indeed, China growth lies behind much of what DSM wants to do. The company wants to double sales in China to more than $3bn and see sales for the high growth economies account for close to 50% of the total.

The company is much more focused on innovation and new products than it once was and expects sales from innovation to rise from nearly 12% of the total in 2010 to 20% by 2015.

And DSM is likely to shift more corporate functions to China in pursuit of growth. It has already revealed plans to shift the headquarters of anti-infectives, engineering plastics and fibre intermediates to Asia.

“We are looking for acquisitions which will offer us additional technologies in life and material sciences,” board member Nico Gerardu said this week, talking of Asia. “We have room financially to make small or big acquisitions,” he added.

“We are very proud of what we have achieved with our Vision 2010 strategy over the past five years,” DSM CEO Feike Sijbesma said.

“We have met most of our targets but even more importantly, we have demonstrated that we made the right decisions for the long-term future of the company,” he added.

“We have set ambitious sales and profitability targets. To realise these, we will take all four growth drivers, which are high growth economies; innovation; sustainability and acquisitions & partnerships, to the next level,” Sijbesma said in a statement.

“By strengthening our regional presence, we will further adjust our organisation to become truly global.”

The move from regional to global comes next for DSM as does a step up in growth driven largely by new business in Asia. DSM is growing away from its period of transformation.

It wants to be generating a group EBITDA of between €1.4bn ($1.9bn) and €1.6bn in 2013 and a return on capital employed of 15%.

Based on current business it expects a “strong year” in 2010.

($1 = €0.75)

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By: Nigel Davis
+44 20 8652 3214



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