DSM sees positive results in Q3, as vitamin boost fades

By Aerin Einstein-Curtis

- Last updated on GMT

©GettyImages/ metamorworks
©GettyImages/ metamorworks
Animal nutrition sales help support positive third-quarter returns for Royal DSM, even as prices for vitamins return to more typical levels.

The Netherlands-based company released results for the quarter ending September 30 and the first nine months of the year on Wednesday [October 31].

Overall results for the third quarter were strong, said Geraldine Matchett, CFO with DSM. The company saw 5% organic growth for its underlying business and above-market growth for company businesses.

The adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the underlying business grew by 7% for the quarter, she said.

“In short, we’ve had a very good third quarter building on strong performance we reported in H1 and as a result, we’re well on track to making 2018 a strong year exceeding once again our strategy 2018  targets,”​ she said on an earnings conference call. DSM is expecting an adjusted EBITDA growth of about 25% and is confirming the full-year outlook set for 2018, she added.

Total adjusted EBITDA was up 34% and the company’s net profit for the quarter was €821m, the company reported. Total sales for the first nine months of the year rose from about €6.46bn to €7.06bn.

Adjusted net profit for the quarter was €852m, compared to €504m in 2017, the company reported. However, the net profit was €821m compared to €1.6bn in 2017.

The difference between the net profit, which dropped 49% for the quarter, and the adjusted net profit, which increased 69%, was caused by a divestiture in the third quarter of 2017, said Matchett. That action added a one-time profit to the quarter.

Operating profit for the quarter was €249m, up from €206m during the third quarter last year, the company said.

The company is “delighted”​ with the quarter’s report, said Feike Sijbesma, CEO and chairman of the DSM managing board. “While there are currently uncertainties around macroeconomic developments, we see continued good business conditions in nutrition and most of our materials businesses,”​ he added.

Vitamin pricing influence

In an effort to address company transparency, in the results there is a breakout of the “temporary vitamin effect”​ from the rest of the earnings, which are reported as the underlying business, said Matchett. A small positive effect from the increase in vitamin price started to be noticed at the end of 2017.

Regarding the influence of the temporary increase in vitamin price, DSM saw a small residual EBITDA of about €15m, said Matchett. The total benefit on adjusted EBITDA found in 2018 has been about €290m and total sales for the period have been €415m.

However, it is not expected that there will continue to be the benefit in the next quarter as market conditions have normalized, she said.

Business segment highlights

Regarding individual businesses, the underlying nutrition business had a “good quarter”​ with 7% organic sales growth for the quarter and 9% organic sales growth for the first nine months of the year, said Matchett.

Total sales for the first nine months rose from €4.15bn in 2017 to €4.69bn, the company reported. In the third quarter, they grew from €1.37bn to €1.49bn.

“We continue to see good business conditions in nutrition – with continued good momentum in all regions and segments both for animal nutrition and human nutrition,”​ she said. Total volumes for the quarter increased by 3%, she added.

“Animal nutrition continued to show good momentum in the underlying business in the third quarter … volumes were up 2% which is good given the exceptionally strong prior year comparative period which posted a 14% volume growth,”​ Matchett said. “We continue to see good business conditions across regions with especially strong sales in Asia.”

There has been some influence from the African Swine Flu outbreak in China, she said. However, it has been mostly offset by an increase in demand for poultry.

Volumes were altered by the lingering influence of the trucker strike in Brazil, which happened at the end of the second quarter, she said. The company also had a facility in Pecém, Brazil temporarily shut down following a fatal accident.

“Prices rose 5% in Q3 – in line with both Q1 and Q2 – this was mainly the result of initiatives undertaken to mitigate higher input costs and the impact of clearly less favorable exchange rates – especially the weaker Brazilian real,” ​she said. “Year-to-date organic sales growth reached 12% with volumes up 6% despite tough comparables in the same period last year when volume rose 8%.”

In the materials business, there was some “softness”​ in parts of the automotive, building and contracting markets, Matchett said. However, the total business had 3% organic sales growth, 3% adjusted EBITDA growth and an 18.3% adjusted EBITDA margin.

Total sales increased from €2.13bn in 2017 to €2.22bn in 2018, according to company information. Total sales for the quarter were €723m, up from €706m in 2017.

For the first nine months of the year, the business saw organic sales growth of 7% and an adjusted EBITDA growth of 7%, Matchett added.   

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