Tortuga strong, animal nutrition sales volumes up but vitamin E market continues to create turbulence for DSM
The division’s net sales for the quarter, it added, were €60 million higher than on the same period last year, coming in at €572m. And it reported that Brazilian trace mineral producer, Tortuga, had a strong quarter.
But the higher prices – up 3% - for several vitamins and other active ingredients were partly offset by lower vitamin E prices, said DSM. Spot prices for the vitamin declined significantly in Q3 and Q4 and had dropped to €5.20 by the end of last month.
Chinese competition
The company blamed “intensified competition” as the reason behind the price pressure. It cautions that if the downward price trajectory for vitamin E persists, its 2015 net earnings could take a hit to the tune of €80m ($90.5m).
However, it reckons the vitamin E sector is losing its appeal for the smaller Chinese players.
And DSM said it plans to “actively” protect its vitamin E market share by further reducing costs, and through distilling research that supports the use of higher inclusion levels to encourage market expansion.
Last November, ABN AMRO equity analyst, Mutlu Gundogan, told this publication that the Dutch group “could be severely tested” in Q1 2015 due to an aggressive strategy by Chinese players.
“Vitamin E manufacturing capacity from current Chinese producers has increased, and the risk of a new entrant onto the market remains. Additionally, some Chinese vitamin E suppliers are in a race to the bottom on prices, with a few, it seems, willing to be loss making operations in the short term in order gain market share.
If the current lower pricing trend on that vitamin continues, and I think it is likely to, DSM’s overall profitability in 2015 could be hit, with a potential loss of €15 to 20 million per quarter,” he said.
But Gundogan, back then, said the company was already reacting to market forces. “DSM would appear to have acknowledged the need to compete with other vitamin E producers on price instead of focusing on value and relying on remedies such as taking production temporarily off-line.”
Low growth in Europe
Overall, the nutrition giant posted earnings before tax, depreciation, amortization (EBITA) of €288m in the final quarter on net sales of €2.4 billion.
CEO, Feike Sijbesma, said DSM aims to deliver an EBITDA this year slightly ahead of the result of 2014 despite its downbeat market dynamics forecast.
The Dutch firm reckons Europe will continue to have low growth and that there will be a slowdown in some of the high growth economies. However, it forecasts the US market will remain resilient over the next 12 months.
DSM also cautions that currency volatility, with the weakening of the Euro against the US dollar and the strengthening of the Swiss franc against the Euro, could have an impact on its 2015 results.
