Since the global economy took a downward turn in Q4 2008, business operators have seen their businesses heavily affected. DSM is no exception, totting up its operating profit at €57m in Q1 2009 – 76 per cent down on last year’s Q1.
However the nutrition and pharma business clusters remain bright sparks in this overall picture, “because their end markets are less affected by the downturn”. It is accepted wisdom that people still need to eat and take care of their health, even when they can no-longer afford life’s luxuries.
Nutrition and pharma, with DSM Dyneema (which also remained positive) make up about half of the company’s overall business. The company has said that, with tough times ahead, it will continue to focus on cash generation.
Cost reduction actions have already resulted in a decreased workforce of about 100 compared to end 2008; the company says it is on track to deliver savings of €100m by 2010.
While DSM’s materials science operations have plummeted, its nutrition cluster saw an 8 per cent increase in sales values to €707m in Q1, and operating profit (EBIT) of €141m, up 79 per cent.
However the higher sales values do mark a 14 per cent dip in sales volumes as customers used up existing stocks instead of buying in more. This dip was not seen in the financials as 15 per cent higher prices came into play.
The tendency for consumers to cut back on consumption of expensive meat also had an affect on nutrition, through a reduced demand for its DSM’s animal nutrition products.
On the other hand, DSM Food Specialities was seen to have a higher operating profit than last year, “mainly as a result of the contribution of innovative products and favourable conditions in ARA”.
DSM’s outlook for nutrition business conditions for the rest of the year are “relatively favourable, with some softening in animal nutrition and health in the coming quarters”.
The pharma cluster at DSM saw a drop in value sales from €207m to €197m year-on-year, but this was attributed to the disposal of DSM Deretil in Q4 2008. Organic sales growth was 2 per cent.
The Deretil sale also had an affect on operating profit (EBIT), helping it inch 2 per cent above last year’s Q1, to €11m.
The outlook for pharma does have some clouds, as prices at DSM Anti-Infectives are expected to come in lower than last year. DSM Pharmaceutical Products has also lost some of its larger custom manufacturing contracts.