DSM Nutritional Products has reported operating profit of $252 million in full year 2005, up 25 per cent on 2004. But with sales hampered by price pressure on mature vitamins, the company is looking to reduce its reliance on these in favour of innovative new products.
Feike Sijbesma, CEO of DSM Nutritional Products said at a press conference at the headquarters of Royal DSM in Heerlen, The Netherlands on Thursday that, while price pressure remains for products such as vitamins C, E and carotenoids, margins have improved and twenty percent of the portfolio is now new products.
Net sales, including intra-group supplies, were $1.95 billion compared to $1.91 billion last year.
"From the very beginning when we set up DSM Nutritional Products there was an indication that we were working in a business where part of it suffered from competition from the Chinese," he said.
DSM Nutritional Product came into being in 2003, when the group acquired Roche Vitamins. It initiated the VITAL project to reduce costs integrate the business into the group's activities.
The project is now in its final stages, and Sijbesma said: "We are trying to become less dependent on classic vitamins that have been on the market for a while, in favour of new products."
He added that there is nothing intrinsically wrong with its existing vitamins - indeed the company is working hard to strengthen its position. But it is also trying to build the market with the introduction new products aimed at helping reduce the risk of chronic disease and improving wellness, such as TeaVigo green tea extract and Bonistein high-purity genistein.
In 2005 Nutritional Products accounted for €80 million of the group's overall €290 million R&D spend - that is, 27 per cent.
This year DSM has tackled price pressure over vitamin C head on by ceasing production at its plant in Belvidere, New Jersey, and concentrating its extra-China production in Dalry, Scotland. It has also entered into a partnership for vitamin C with the North China Pharmaceutical Group Corporation.
Although this partnership has yet to be finalised, the company is confident that the Chinese authorities will give it their stamp of approval.
Moreover in September DSM opened a R&D centre in Shanghai (for Life Sciences and Performance Materials), and in November a joint laboratory with Fudan University to research new technologies, including production of vitamins, carotenoids and food ingredients.
But China aside, Sijbesma sees a clear cut advantage for DSM in being one of the last vitamin C producers standing in the Western world, since it can trade on an image of quality assurance that will be appreciated by customers in the US and Europe.
The action on vitamin C has been decisive, but pressure still remains in vitamin E and carotenoids. Sijbesma said that the company "may have to introduce comparable measures" in these areas too.
It is not clear what form these measures may take, but the CEO pointed out that the company's Sisseln factory was the largest in the world for vitamin E in 2003.
And in vitamin D3, albeit a smaller product, DSM "holds and excellent position in this category". It has recently expanded production at its plant in Grenzach, Germany.
From fiscal 2006 Nutritional Products will be reported under a new 'Nutrition' cluster, which will also include Food Specialities (until now in the Life Sciences cluster).
The Life Sciences cluster saw a leap in operating profits from $79 million to $126 million. The three percent drop in the cluster's net sales, to $1.53 billion, was not down to Food Specialities, which had higher sales volumes.
This positive bent is put down to response to major trends in the industry towards health, convenience and natural products. The divestment of Bakery Ingredients, which was performing below average, also boosted results.
The group said that integration under the new cluster will allow for more opportunities for innovative products.
Four new products were launched out of the ingredients development unit in 2005, including the Fabuless in the weight management category. Eight more expected in the coming year.
Functional Ingredients reaped the benefits of baby food manufacturers in the US using more ARA (arachidonic acid) in their formulas; DSM is the exclusive supplier to Martek Biosciences, and has recently increased its ARA capacity increase at Belvidere.
PeptoPro is also performing well, capturing the imagination of beverage formulators who are going after the nutritional content of milk, minus the taste and appearance.
As for the group's emerging business areas, Personalized Nutrition holds immense promise for a future where health risks are tackled with tailor made solutions and nutritional products are specially developed to fit genetic profiles, age, lifestyle and other factors.
DSM is already involved in the personalization trend through a US start-up that develops and commercialises genetic tests for health and wellness advice.
And its not just emerging science that interests DSM: emerging markets figure large in the group's plans, as it sets store by China, India and Africa as hubs for sustainable business for the future.