DSM reports profitable first quarter of 2009 despite difficult economic conditions. Operating profit declined 76% compared to Q1 of 2008.
Commenting on the results, Feike Sijbesma
, chairman of the DSM Managing Board, said: "Ongoing strong performances from our Life Sciences businesses and stringent control of costs and working capital allowed DSM as a whole to remain profitable and cash generating throughout the quarter despite the very challenging economic conditions which primarily affected most of Materials Sciences.
"Although no improvement in demand in end-markets seems to be imminent, we are not at this point in time seeing a further deterioration either.
“Nevertheless, there will be tough times ahead. We remain focused on the generation of cash.
“Actions to reduce costs will continue unabated, and we now expect to over-deliver on our targeted savings of EUR 100 million by 2010.”
DSM did not provide a quantitative outlook for 2009 in view of the uncertain economic conditions.
The downturn in the real economy, which started at the beginning of Q4 2008 following the financial crisis, continued into Q1.
Almost half of DSM's business is heavily affected by this downturn, in particular those businesses which are exposed to the automotive, electrical and electronics, and building and construction industries.
DSM Engineering Plastics, DSM Resins, DSM Fibre Intermediates, DSM Elastomers and DSM Melamine all posted a loss in Q1 2009, as they had done in Q4 2008.
All of these businesses, but especially DSM Fibre Intermediates, experienced continuing price pressure.
In Performance Materials sales volumes decreased further compared to Q4, which is a reflection of very weak end-market demand and continued downstream de-stocking.
DSM Agro's business came under pressure, because of the late start of the fertilizer season and customers' cautious purchasing behaviour, which was also reflected in lower prices.
The Nutrition and Pharma clusters and DSM Dyneema showed resilience because their end-markets are less affected by the downturn.
DSM's overall focus remained on cash in order to maintain a strong financial position. High priority is given to working capital management, credit control, responsible reductions in capital expenditure and cost control.
The structural cost savings program which was announced on 15 December is well underway and is delivering its first results. It is now expected that the initially announced savings of €100 million will be clearly exceeded.
The focus on cash was again successful, as witnessed by strong cash from operations in Q1 (EUR 166 million). Net debt decreased by EUR 40 million.
Net sales minus 22%
Sales dropped by 22% compared to Q1 2008, which is unprecedented. Virtually all businesses experienced a drop in demand, in particular in Materials Sciences and Base Chemicals and Materials.
Nutrition too is experiencing some weakness in demand, especially in Animal Nutrition and Health.
Prices in Nutrition remained at the Q4 level, but on a year-on-year basis they reflect the increase during 2008.
Prices at DSM Fibre Intermediates are very weak as a result of intense competition.
Operating profit in Q1 dropped substantially compared to last year, due to the sharp reduction in economic activity.
Nutrition maintained its strong performance, profiting from price increases implemented during 2008. The Pharma result was stable, although at too low a level.
The general economic outlook continues to be poor, financial markets remain vulnerable, and consumer confidence remains low.
Feedstock prices, energy prices and exchange rates continue to be volatile. It is not expected that end-market conditions will improve shortly although a further deterioration is not expected either.
The effect of de-stocking on the business is expected to diminish. Assuming a bottoming-out of feedstock prices DSM does not expect further inventory write-downs.
The full Q1 report of DSM can be downloaded here.