* Sales up 11% from Q1 2005. * Operating profit from continuing operations 13% higher than in Q1 2005. * Net profit up 23% to EUR 161 million. * Strong autonomous volume growth (+10%) in Performance Materials. * Q2 2006 operating profit expected to be clearly (approx. 5-10%) above Q2 2005 (EUR 210 million).
+-------------------------------------------------------------------+ | in EUR million | first quarter | | |---------------------------------------------+---------------+-----| | | 2006 | 2005 | +/- | |---------------------------------------------+-------+-------+-----| | Continuing operations: | | | | |---------------------------------------------+-------+-------+-----| | Net sales | 2,061 | 1,851 | 11% | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Operating profit plus depreciation & | 314 | 299 | 5% | | amortization (EBITDA) | | | | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Operating profit (EBIT) | 206 | 182 | 13% | |---------------------------------------------+-------+-------+-----| | - Nutrition | 82 | 78 | 5% | |---------------------------------------------+-------+-------+-----| | - Pharma | 15 | 8 | 88% | |---------------------------------------------+-------+-------+-----| | - Performance Materials | 84 | 67 | 25% | |---------------------------------------------+-------+-------+-----| | - Industrial Chemicals | 40 | 43 | -7% | |---------------------------------------------+-------+-------+-----| | - Other activities | -15 | -14 | | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Discontinued / discontinuing operations | | | | |---------------------------------------------+-------+-------+-----| | Net sales | 7 | 133 | | |---------------------------------------------+-------+-------+-----| | Operating profit plus depreciation & | -1 | 11 | | | amortization (EBITDA) | | | | |---------------------------------------------+-------+-------+-----| | Operating profit (EBIT) | -1 | 6 | | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Total DSM: | | | | |---------------------------------------------+-------+-------+-----| | Net sales | 2,068 | 1,984 | 4% | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Operating profit (EBIT) | 205 | 188 | 9% | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Net profit excluding exceptional items | 140 | 131 | 7% | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Net result from exceptional items | 21 | - | | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Net profit | 161 | 131 | 23% | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Per ordinary share in EUR: | | | | |---------------------------------------------+-------+-------+-----| | - net earnings excluding exceptional items | 0.72 | 0.66 | 9% | |---------------------------------------------+-------+-------+-----| | - net earnings | 0.83 | 0.66 | 26% | |---------------------------------------------+-------+-------+-----| | | | | | |---------------------------------------------+-------+-------+-----| | Average number of ordinary shares | 191.1 | 191.7 | -0% | | outstanding (x million) | | | | +-------------------------------------------------------------------+
In this report, 'operating profit' (plus depreciation and amortization) is understood to be operating profit (plus depreciation and amortization) excluding exceptional items. 'Net profit' is the net profit attributable to equity holders of Royal DSM N.V.
In this report, 'continuing operations' refers to the DSM operations excluding DSM Bakery Ingredients, the SBR business, DSM Minera and Holland Sweetener Company.
This report is based on the new clustering of activities. The 2005 quarterly figures according to the new clustering of activities are given in the Annex.
Solid increase in sales and profits in first quarter
General At EUR 206 million, the Operating profit from continuing operations was EUR 24 million higher than in the first quarter of 2005. Net profit excluding exceptional items amounted to EUR 140 million, up 7% from the first quarter of 2005. Net profit amounted to EUR 161 million, up 23% from Q1 2005 (EUR 131 million). The net profit includes a positive amount (EUR 21 million) from exceptional items, which is the balance of the profit on the sale of DSM Minera (Chile) and the cost of the termination of the aspartame activities.
Peter Elverding, chairman of the DSM Managing Board, made the following comment on the results: "The start to the year 2006 has been excellent, even better than in the record year 2005. The Performance Materials cluster in particular is performing very well, with growth figures that are considerably higher than general economic growth.
"As part of our new corporate strategy Vision 2010 - Building on Strengths we have made a successful start on additional efforts in the field of market-driven innovation. We have high expectations for these programs; obviously, the costs will exceed the revenues for the time being.
"The prospects for our markets for this year continue to be good, although there are still economic and monetary uncertainties. I remain confident about the year as a whole and I expect that our second-quarter operating profit will also be clearly above last year's."
Net sales
+---------------------------------------------------------+ | in EUR million | first quarter | |-----------------------------------------+---------------| | | 2006 | 2005 | |-----------------------------------------+-------+-------| | | | | |-----------------------------------------+-------+-------| | Nutrition | 613 | 573 | |-----------------------------------------+-------+-------| | Pharma | 237 | 205 | |-----------------------------------------+-------+-------| | Performance Materials | 680 | 564 | |-----------------------------------------+-------+-------| | Industrial Chemicals | 427 | 409 | |-----------------------------------------+-------+-------| | Other activities | 104 | 100 | |-----------------------------------------+-------+-------| | Total, continuing operations | 2,061 | 1,851 | |-----------------------------------------+-------+-------| | Discontinued / discontinuing operations | 7 | 133 | |-----------------------------------------+-------+-------| | | | | |-----------------------------------------+-------+-------| | Total | 2,068 | 1,984 | +---------------------------------------------------------+
Net sales from continuing operations in Q1 2006 increased by more than 11% compared with Q1 2005. Sales volumes increased by 4%. Selling prices were up 3% on average. Exchange rate developments, in particular the higher exchange rate for the US dollar, had a positive effect of 3% on sales. Acquisitions contributed 1%.
Operating profit The operating profit from continuing operations amounted to EUR 206 million in the first quarter, which represents a 13% increase compared with the first quarter of 2005. Higher sales volumes, higher selling prices and lower fixed costs more than compensated for the increase in raw material costs. The largest increase in operating profit was recorded in the Performance Materials cluster.
Business review by cluster
Nutrition
+-------------------------------------------------------------------+ | in EUR million | first quarter | |---------------------------------------------------+---------------| | | 2006 | 2005 | |---------------------------------------------------+-------+-------| | | | | |---------------------------------------------------+-------+-------| | Net sales including intra-Group supplies | 626 | 594 | |---------------------------------------------------+-------+-------| | Operating profit plus depreciation and | 119 | 115 | | amortization | | | |---------------------------------------------------+-------+-------| | Operating profit | 82 | 78 | +-------------------------------------------------------------------+
Sales in this cluster grew by 5% due to the combined effect of higher sales volumes and the higher exchange rate for the US dollar.
DSM Nutritional Products saw its sales volumes in both Human Nutrition & Health (HNH) and Animal Nutrition & Health (ANH) grow compared to Q1 2005, which provided ample compensation for the slightly lower prices for some products. Although the effect of avian flu on ANH sales volumes was once again limited in this quarter, it remains an important risk factor. DSM Nutritional Products saw its operating profit improve slightly as a result of lower fixed costs and an improvement of its product mix. Sales at DSM Food Specialties remained at virtually the same level. The effects of the planned phasing-out of the feed-enzymes tolling activities that is taking place this year began to become visible. The business group nevertheless managed to improve its operating profit thanks to savings on fixed costs.
Pharma
+-------------------------------------------------------------------+ | in EUR million | first quarter | |---------------------------------------------------+---------------| | | 2006 | 2005 | |---------------------------------------------------+-------+-------| | | | | |---------------------------------------------------+-------+-------| | Net sales including intra-Group supplies | 247 | 217 | |---------------------------------------------------+-------+-------| | Operating profit plus depreciation and | 36 | 30 | | amortization | | | |---------------------------------------------------+-------+-------| | Operating profit | 15 | 8 | +-------------------------------------------------------------------+
Sales were up 14% due to higher volumes, slightly increased prices and the stronger US dollar.
The operating profit was substantially higher due to a clear increase in sales volumes at DSM Anti-Infectives and a lower level of fixed costs thanks to the successful implementation of restructuring projects. DSM Anti-Infectives saw its operating result improve considerably, as expected, and was close to break-even.
Performance Materials
+-------------------------------------------------------------------+ | in EUR million | first quarter | |---------------------------------------------------+---------------| | | 2006 | 2005 | |---------------------------------------------------+-------+-------| | | | | |---------------------------------------------------+-------+-------| | Net sales including intra-Group supplies | 682 | 568 | |---------------------------------------------------+-------+-------| | Operating profit plus depreciation and | 108 | 93 | | amortization | | | |---------------------------------------------------+-------+-------| | Operating profit | 84 | 67 | +-------------------------------------------------------------------+
Sales were up 20% due to a 10% increase in sales volumes, higher selling prices, the higher exchange rate for the US dollar and the contribution from DSM NeoResins (which contributed for only two months in Q1 2005).
The operating profit for the cluster rose substantially (25%) due to higher sales volumes and higher margins. DSM Engineering Plastics and DSM Resins in particular contributed to this performance. DSM Dyneema's operating profit remained at a high level in the run-up to capacity expansions in the second half of the year.
Industrial Chemicals
+-------------------------------------------------------------------+ | in EUR million | first quarter | |---------------------------------------------------+---------------| | | 2006 | 2005 | |---------------------------------------------------+-------+-------| | | | | |---------------------------------------------------+-------+-------| | Net sales including intra-Group supplies | 490 | 458 | |---------------------------------------------------+-------+-------| | Operating profit plus depreciation and | 57 | 64 | | amortization | | | |---------------------------------------------------+-------+-------| | Operating profit | 40 | 43 | +-------------------------------------------------------------------+
Sales for this cluster were up 7% from Q1 2005, mainly due to higher prices and the stronger US dollar. DSM Fibre Intermediates posted a slightly higher operating profit than in Q1 2005. DSM Melamine's results came under further pressure and were negative. DSM Agro recorded a lower operating profit due to a shift in the sales volume pattern resulting from the very late start of the fertilizer spreading season, which in turn was due to prolonged winter conditions. High energy prices were responsible for a higher profit at DSM Energy.
Other activities
+-------------------------------------------------------------------+ | in EUR million | first quarter | |---------------------------------------------------+---------------| | | 2006 | 2005 | |---------------------------------------------------+-------+-------| | | | | |---------------------------------------------------+-------+-------| | Net sales including intra-Group supplies | 107 | 103 | |---------------------------------------------------+-------+-------| | Operating profit plus depreciation and | -6 | -3 | | amortization | | | |---------------------------------------------------+-------+-------| | Operating profit | -15 | -14 | +-------------------------------------------------------------------+
The operating profit for Other activities was virtually unchanged from Q1 2005. Noordgastransport and the service organizations in particular saw their results improve, but this was offset by the higher costs of share-based compensation due to the strong increase (11%) in the price of the DSM share in the first quarter of 2006.
Net profit The Net profit increased relative to Q1 2005, from EUR 131 million to EUR 161 million (23%), because of the higher operating profit and the exceptional items.
Net finance costs amounted to EUR 19 million in Q1 2006. This is in line with the previous few quarters.
At 25%, the effective tax rate in Q1 2006 was slightly lower than in Q1 2005 (26%).
The Net profit excluding exceptional items amounted to EUR 140 million, which is EUR 9 million (7%) higher than in the first quarter of 2005.
The Exceptional items related to, on the one hand, the sale of DSM Minera, yielding a book profit of EUR 31 million after taxation, and on the other hand the cost of the proposed termination of the aspartame business, amounting to EUR 10 million after taxation.
Net earnings per ordinary share increased by 26%. The increase was favorably influenced by a reduction in the dividend on Class A cumulative preference shares from EUR 16 million to EUR 10 million per annum. This was a consequence of the contractual revision of the dividend percentage for the next ten years.
Cash flow, capital expenditure and financing The cash flow (net profit plus amortization and depreciation) in the first quarter of 2006 amounted to EUR 271 million, up EUR 18 million from Q1 2005. At EUR 75 million, capital expenditure (excluding acquisitions) was below the level of amortization and depreciation (EUR 110 million), but above the level of Q1 2005 (EUR 56 million). The working capital increased compared to year-end 2005. This was due mainly to a one-off increase in inventories (especially at DSM Agro, due to the late start of the fertilizer spreading season) and the seasonal increase in working capital following the low level of activity at the end of the year.
Net debt decreased by EUR 76 million to EUR 756 million in Q1 2006.
Workforce New consolidations in China and the sale of DSM Minera added on balance 40 employees to the workforce. Since restructuring operations and attrition resulted in a decrease of 87, the workforce decreased on balance by 47.
Outlook The generally good conditions in DSM's markets are expected to continue in the next few quarters. A particularly favorable circumstance is the fact that economic growth is now picking up in Europe as well. DSM continues to be positive about the prospects for the full year 2006.
The main risks are the development of the US dollar exchange rate and the (volatility in) raw material prices.
Against this background, DSM expects its results from continuing operations for the second quarter of 2006 to show a clear (approx. 5-10%) improvement on the strong results of Q2 2005 (EUR 210 million).
Heerlen, 28 April 2006
The Managing Board
+-------------------------------------------------------------------+ | Important dates: | | |--------------------------------------+----------------------------| | Publication of second-quarter | Thursday, 27 July 2006 | | results: | | |--------------------------------------+----------------------------| | Publication of third-quarter | Thursday, 26 October 2006 | | results: | | |--------------------------------------+----------------------------| | Annual Report 2006: | Wednesday,14 February 2007 | |--------------------------------------+----------------------------| | Annual General Meeting: | Wednesday, 28 March 2007 | +-------------------------------------------------------------------+
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