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DSM: Vit C shutdown and LATAM only headwinds in Q4

By Jane Byrne

15-Feb-2017
Last updated on 15-Feb-2017 at 14:43 GMT2017-02-15T14:43:18Z

© istock/ermetico
© istock/ermetico

DSM said it had a very strong 2016, one that was well ahead of strategic goals, as it released it full year and Q4 financial results today.

Sales in 2016 were up 3% to €7,920m, with the vitamin maker recording 4% organic growth over the year. Adjusted earnings before interest taxes, depreciation and amortization (EBITDA) was up 17% to €1,262m for the full year.

Q4 2016 sales for DSM increased by 5% to €2,015m, with the company recording 2% organic growth in the period. It said adjusted EBITDA for Q4 was €315m – up 21% on Q4 2015. 

The nutrition business saw 2% organic sales growth in the fourth quarter.

"I am pleased to report a very good year. Sales for the company, as a whole, were up, almost €8bn in total, [we had] good growth in, basically, both our materials and our nutrition business. [We had] strong EBITDA growth, in the high teens - exactly 17% - almost double what we said before. [There was a] strong focus on operational performance during the whole year .. and good execution of all of our growth initiatives, and, of course, also on our efficiency and cost saving programs," CEO Feike Sijbesma told reporters during a call.

He noted positive pricing in nutrition and said DSM also benefited from low input costs in materials: "Costs good, growth good and pricing okay, so, on all the elements, I think we delivered," added the CEO.

He said capital allocation was very prudent and disciplined. Profit also saw a strong increase to over €600m during the year, said Sijbesma. "Many things turned out better than we predicted [in 2016]," he confirmed.

Animal nutrition business  

DSM's report on the results showed its animal nutrition division performed well in 2016, registering 8% organic growth, driven by strong volumes in all regions with the exception of Latin America. The vitamin producer blamed weak economic conditions in that region, particularly in Brazil.

Its Q4 2016 sales in the animal nutrition business were up 11% compared to Q4 2015, while the division saw 6% organic growth in the period, driven mainly by positive price/mix and currency effects, with Europe, Asia and North America delivering good volume growth.

Prices were up in a number of vitamins and premixes in 2016, reported DSM. In a call with reporters, he said the average price for vitamin E for 2016 was similar to that of 2015. "That price level, we can live with that, we can still be very competitive at this price level," said the CEO. 

The vitamin E price spiked during the year. "In Q2 2016, we said don't get carried away, it [the spike] is probably temporary, and it turned out to be temporary," said Sijbesma. "Be careful. The vitamins only represent 30% of our total nutrition business, so 70% is other stuff. Vitamin E - don't overshoot the importance of that - it is only 6% of our nutrition business," he added.

The company said it made good progress on a number of animal nutrition related programs in its innovation pipeline including its methane reduction project , Clean Cow, and the R&D tie-up with Evonik , which has developed an algae derived oil rich in DHA and EPA for farmed salmon production - the Green Ocean partnership.

DSM also told investors and analysts on a call this morning that it is not yet seeing a huge impact from the outbreak of bird flu. 

Headwinds

Declan Morrissey, analyst at Davy Research, told us there were few surprises on that call.

“It [DSM] called out two headwinds to Q4 growth in nutrition; an extended shutdown in vitamin C and [the] tough environment in Latin America -  stripping out these effects would have added around 2% to Q4 organic growth [i.e. 4% instead of 2% for the nutrition division].

“Cost savings remain on track and will support high single digit EBITDA growth in FY17.

“Our current forecast of €1,328m looks a little light (+5.2% YOY) and we are likely to revise upward to around €1,360m. For context, this would be the highest out turn since 2013 despite shrinking the capital base via divestments by around 17%.

Cost-savings

While macro-economic conditions are uncertain, DSM management said it is confident it will again deliver on strategic objectives in 2017, despite a higher comparative base year.

Sijbesma told reporters that Europe, US and China continue to do well economically, but Brazil is an an area of concern. He said the company is, in general, tipping its business more to specialties than commodities to try and offset any ongoing market volatility.

“We will continue to execute our growth initiatives, and we are firmly on track with our ambitious, group-wide cost and productivity improvement programs. In addition, we will maintain our disciplined approach to capital allocation and working capital,” added the CEO.

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