Falling margins eat into DSM profit

Dutch industrial chemicals maker DSM said on Monday its profit in the second quarter had fallen 75 per cent lower than in the same period in 2002, as lower sales volumes and falling prices hit the chemicals market.

The company's operating profit dropped from €104 million in last year's third quarter to just €26 million for 2003 and net profit slipped into negative figures, dropping from €88 million for the third quarter in 2002, to losses of €78 million for the same period in 2003.

The company, that has just acquired the vitamins and fine chemicals business from Swiss company Roche, said that it will take a one-off charge of €102 million for restructuring measures designed to help integrate the new vitamins business.

This includes a provision of €43 million net for severance payments, more than 600 jobs are likely to go as a result of restructuring measures, and the reorganisation and closure of some of its plants, resulting in impairments of around €59 million net. The reorganisations are expected to contribute at least €75 million to the operating profit for 2005.

DSM Food Specialities, part of the company's Life Sciences unit, saw lower sales volumes and harder margins eating into operating profit with figures falling below the third quarter in 2002. For the unit, operating profit fell 55 per cent to €27 million from €60 million for the same period in the previous year.

DSM Bakery Ingredients' results were affected by lower sales volumes due to extremely hot summer conditions and by lower margins due to imports from countries outside Europe, the company said in a statement this week.

According to DSM​, sales overall in the life science cluster fell 11 per cent compared with the third quarter in 2002 due to lower sales volumes and prices and a lower exchange rate for the US dollar.

The Dutch company believes that the Roche acquisition - completed on 30 September and now under the new name of DSM Nutritional Products - will lift the figures for the next quarter, bringing at least €25 million to the operating profit in the fourth quarter.

Peter Elverding, chairman of DSM, warned on Monday that the economic recovery was still 'fragile' but "with the restructuring measures and the potential we have already identified for our new business DSM Nutritional Products, we are showing that we ourselves can do a lot to improve our profitability."​

DSM has been repositioning itself as a life sciences specialist, focused on pharmaceutical ingredients, biotechnology, food ingredients and nutrition, since selling its petrochemicals division to Sabic, the Saudi group for €2.25 billion last year.