DSM plans further cuts
‘Profit Improvement Programme’ means 1,000 jobs to go
DSM has revealed plans to implement a company-wide ‘profit improvement programme’ during its Q2 results presentation, despite delivering what CEO and board chairman Feike Sijbesma called “another robust set of results”. The company said that this was being done in view of “the economic uncertainty, especially in Europe, and challenging developments in some markets”.
The programme will take place over the next 18 months and will focus mainly on cost reductions and efficiency improvements, though also on sales growth and pricing. It is expected to deliver structural annual EBITDA benefits of €150 million/year by 2014 in addition to the already announced €25-30 million/year from restructuring at DSM Resins by 2013.
About 1,000 jobs will be cut as a result of the programme and DSM will continue to look for opportunities to expand it. Implementation costs are expected to be about €125 million, half of which has already been taken as an exceptional item in Q2, with the rest to follow in 2H.
Within DSM Nutritional Products, action is being taken to improve competitiveness in Vitamins B and C, with restructuring projects at Grenzach, Germany and Dalry, UK. Efforts to reduce Swiss franc dependency via cost reductions have already begun and the LTP plant in Sweden is being closed. Recent acquisition Martek is being integrated into the business.
In DSM Pharma, meanwhile, the Percivia joint venture will focus on the existing PER.C6R technology licensing business, while the biosimilars product development side is being terminated. Other unspecified cost reductions are also ongoing in all other areas in the Pharma cluster. Various other competitiveness initiatives are also being implemented in DSM Dyneema and DSM Engineering.
DSM added that the programme will help it “to meet its ambitious financial targets as well as reinforcing DSM's continued strong balance sheet and financial position. As a result, DSM will be even better placed to capture growth opportunities both now and in the future while maintaining its strategic course”.
In 1H 2012, DSM saw a 1.3% increase in net sales to €4,558 million over 1H 2011, though they were basically flat in Q2. EBITDA was 10.2% down to €596 million.
This was essentially down to a near-halving of EBITDA in the Polymer Intermediates cluster, which was badly impacted by the weakness of caprolactam, a precursor to polyamides, while the Performance Materials cluster also saw a decline. The effect was mainly felt in Q2.
“DSM was able to deliver another robust set of results demonstrating the strength of our strategy, as evidenced by the ongoing strong performance of Nutrition,” said Sijbesma. The life sciences-related clusters accounted for around 70% of Q2 EBITDA, he added, offsetting the problems in some of the materials sciences businesses.
The Nutrition cluster saw its 1H EBITDA up by 5.7% to €387 million. The Pharma cluster saw 2% net sales growth in Q2, as organic sales growth was 9%, caused by higher volumes and prices from both DSM Sinochem Pharmaceuticals and DSM Pharmaceutical Products, was offset the negative impact from the 50% deconsolidation of DSM Sinochem Pharmaceuticals Its 1H EBITDA nearly doubled, albeit from a very low base.
“While we remain cautious on the macro-economic outlook for the rest of the year, the robustness of our portfolio reinforces our confidence that DSM's strategic focus is the right one,” added Sijbesma. “As evidenced by the recent acquisitions, we continue to deliver on our strategy by investing in new, exciting growth opportunities.”
Earlier in July, DSM completed the acquisition of Kensey Nash, a supplier of biomaterial products for tissue repair and regeneration, and Ocean Nutrition Canada, a provider of fish-oil derived nutritional products for the food, beverages and dietary supplements markets. It has since also agreed to acquire Tortuga, the largest supplier of nutritional supplements for cattle in Brazil, in a deal that gives Tortuga a total enterprise value of €465 million, taking sales in nutrition to nearly €4 billion/year.