UpdateDSM shares drop on weak Q4 capro performance, nutrition fears

20 February 2013 11:59  [Source: ICIS news]

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LONDON (ICIS)--DSM’s shares dropped by more than 4% in value in morning trading in Europe on Wednesday after the Netherlands-headquartered group missed fourth-quarter and full-year profit estimates.

The company continued to struggle with high benzene and low caprolactam prices in its polymer intermediates segment in the quarter and reported weaker than expected results from nutrition.

The weaker caprolactam result had a negative €100m impact on group fourth-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) and a negative €300m full-year impact, DSM said.

Nutrition sales were up 7% year on year at €923m in the quarter with segment EBITDA up 6% at €204m.

DSM is focused largely on human and animal nutrition but also has advanced materials, polymer intermediates and pharmaceutical intermediates operations

“DSM reported Q4 12 adjusted EBITDA of €243m [$324m], 9% below Credit Suisse (€266m) and 5% below market consensus (€256m)," Credit Suisse said in an initial reaction to the results. “The earnings miss predominantly appears a function of weaker nutrition and polymer intermediates segments.

“An operational miss in Q4 should see the stock under pressure. We are unable to gain comfort on the outlook for the more cyclical divisions - especially as caprolactam spreads approach five year lows.

“Importantly, a weak nutrition result (highlighted by low organic growth) brings us to question the issues for this normally economically resilient business. We look for greater organic growth across the base business - in particular across the nutrition segment."

DSM had reported significantly lower results from performance intermediates with segment sales down 16% at €393m and segment EBITDA down 82% at €14m. The fourth-quarter EBITDA margin fell to 3.6% from 16.9% with the full-year 2102 segment EBITDA margin at 8.1% from 20.9%.

“High benzene prices, new capacities in market, combined with weak end-use markets in fibres caused a sharp deterioration in margins,” the company said, adding it will look for opportunities to reduce its exposure to merchant caprolactam markets.

Lower margins in the polyamide 6 (nylon 6) value chain caused by caprolactam weakness were compensated for by “underlying improvements” in speciality polymers at DSM Engineering Plastics, DSM said.

The company said it did not expect business conditions for polymer intermediates to improve in the first half of 2013 and that the segment is likely to post lower results in 2013.

Nutrition is expected to show “clearly higher” results in 2013 due to stronger than GDP growth for the businesses. Nutrition, which represented more than 70% of group EBITDA in the fourth quarter, is expected to benefit from €2.4bn of acquisitions, the company added in an investor presentation.

DSM’s share price in Amsterdam was down 2.65% at €45.67 at 12:06 central European time (CET) on Wednesday having recovered from a morning low of €43.84.

($1 = €0.75)

By: Nigel Davis
+44 20 8652 3214

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