Nutrition division healthy amid mixed DSM Q3 results

By Shane Starling

- Last updated on GMT

Related tags: Economics, United states dollar

DSM has turned in a healthy third quarter, with its nutrition division seemingly unaffected by the financial meltdown and demonstrating “sustained strong profitability”.

Along with its Base Chemicals and Materials​division, which saw its earnings before interest and tax (EBIT) jump 183 per cent, the Dutch giant’s Nutrition division’s EBIT earnings surged 53 per cent to €104m for the quarter ended September 30 compared to the corresponding 2007 period.

In comparison, its Pharma (-37%), Performance Materials (-15%) and Polymer Materials (-10%) all saw profits fall. The company announced that non-core businesses were being sold off as Life Sciences and Material Sciences became an “accelerated focus”.

Investments in Agro and Melamine, Elastomers and Urea Licensing were being stripped.

DSM chief financial officer, Rolf-Dieter Scwhalb, told NutraIngredients.com the Nutrition business was better insulated against the fluctuations that affected some of its other divisions because “people retained an interest in their health and good ingredients in their foods and supplements.”

However, despite the good performance of Nutrition, its overall profit forecast for 2008 was reduced to around €1bn, a revision that caused its stock to fall by about 14 per cent to €22.08 in morning trading, according to Reuters.

Scwhalb said the company was preparing for an economic downturn by engaging in across-the-board “belt tightening” ​measures and increasing “manufacturing efficiencies”.

Overall the company’s sales were up nine per cent to €2.36bn for the quarter over the corresponding quarter in 2007. In the year to September 30, across-the-board DSM sales reached €7.12bn, a 10 per cent climb on 2007’s three quarter total of €6.46bn.

Nutrition stays strong

In the current quarter, the nutrition division saw sales leap 15 per cent to €666m from €579m. For the nine months of the year so far sales jumped from €1.7bn in 2007 to €2bn.

EBITDA came in at €292m compared to €204m in 2007 – a 43 per cent improvement.

Scwhalb noted that the Nutrition division’s policy of “value over volume”​ and innovation and differentiation meant it had been able to boost profitability despite volumes falling 3 per cent. Its 'big three' letter vitamins - A,C and E - all performed well.

This was achieved because prices increased 22 per cent, which maintained margins despite rising input costs such as energy and transport and the declining US dollar.

Nutrition division forecasts for Q4 remained similarly buoyant even with the phasing-out of some Roche contracts, the company said.

“Despite the conditions we have just had one of the best quarters in our history after Q2’s record performace,” ​Scwhalb said. “We expect Q4 to be above last year. You only have to look at the buoyant financial results posted recently by the likes of Nestle and Danone to see the strength of the food industry and our results, and our quality offerings, are reflecting that.”

He said events like the melamine scandal in China, which once again turned the spotlight onto the issue of quality control there, only affirmed DSM’s quality strategy.

Nobody is immune

In a statement, chairman of the DSM Managing Board, Feike Sijbesma, said “nobody is immune”​ from the global financial downturn but maintained the company was on track for a “record year”​ of profitability.

"Looking out towards the remainder of the year, it is apparent that the crisis in the financial markets has started to impact the real economy, leading to significantly lower customer demand in some areas,”​ he said.

“DSM is conservatively financed and appropriate steps are being implemented to prepare for more difficult market conditions. We, however, remain fully committed to our innovation and growth ambitions."

Related topics: GMPs, QA & QC, Financial focus

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