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DSM reports strong performance in nutrition, offsetting COVID-19 impact on materials

May 7, 2020
Energy & Chemical Value Chain

DSM says it was able to offset the negative impact of the pandemic caused by the coronavirus 2019 (COVID-19), to record sales of €2.29 billion ($2,48 billion) in the first quarter of 2020, about level with the company’s sales in the same period of the previous year.

Adjusted EBITDA and the adjusted EBITDA margin also remained unchanged at €423 million and 18.4%, respectively. The company says that the negative impact of the COVID-19 pandemic on its materials segment, especially in North America and Europe, was balanced by a strong performance from its nutrition segment. Sales volumes and adjusted net profit were up by 1% and 8%, respectively. DSM’s results for the first quarter of 2020 exceeded analysts’ expectations.

The company says that since the beginning of the COVID-19 outbreak it put in place strict measures and protocols to ensure the safety of its employees and keep its operations running. DSM says it has also been applying its scientific knowhow and its resources through a variety of global and local initiatives to tackle the COVID-19 pandemic and support communities. Meanwhile, the essential nature of many DSM products means they were less impacted by logistics restrictions and that its facilities are permitted, by national governments, to keep operating during the COVID-19 pandemic, the company says.

“We saw good underlying business conditions in nutrition, with momentum increasing through the quarter, and with an overall small increase in demand from COVID-19,” say Geraldine Matchett and Dimitri de Vreeze, co-CEOs at DSM. The company’s nutrition business recorded a 4% year-on-year (YOY) increase in sales in the first quarter, to €1.575 billion, of which 1% is attributed to increased demand caused by the COVID-19 outbreak, the company says. DSM’s materials segment, however, was under severe pressure mainly from the COVID-19 measures put in place by national governments, especially in Europe and North America, and recorded a revenue decline of about 8%.

“As these measures continue into the second quarter, DSM is taking actions in materials to limit capital expenditure [capex] and operating costs to protect its earnings and cashflow without compromising the medium- and long-term potential of its businesses,” the company says. DSM expects its nutrition business to “deliver at least a mid-single digit increase in adjusted EBITDA for 2020 compared to prior year.” In the first quarter of 2020, the adjusted EBITDA of DSM’s nutrition business was €324 million, up 3% from the same period of the previous year. Meanwhile, in the first quarter, the adjusted EBITDA of the company’s materials segment declined by 3% YOY, to €118 million.

Due to the unprecedented economic environment and the current difficulty of estimating accurately how the materials market is going to respond in the second quarter, the company has decided not to provide an overall full-year earnings outlook. In addition, as a precaution in the current environment, and having bought back €745 million of its own shares in the first quarter, DSM has paused the rest of its €1-billion share buy-back program, launched in 2019.

“While these are uncertain times, we are taking all necessary actions to address recent challenges in end-markets. We remain well-positioned to manage near-term developments with a growing nutrition business and a strong financial position. We stay focused on our long-term strategy to deliver above-market growth, pursuing our innovation programs and growth initiatives, supported by the execution of our self-help actions,” Matchett and de Vreeze say.

The company’s balance sheet and available liquidity remain strong, with a net-debt-to-EBITDA multiple of 0.8 times in the first quarter, DSM says. In addition, the company says its “€1-billion revolving credit facility maturing in 2025, and €500 million new revolving credit facilities concluded recently, are not subject to any financial covenants or a MAC clause.” Meanwhile, “the company has no bond maturities in 2020 and 2021,” DSM says.

The capital-allocation policy of the company will continue with reinvestments of capital into driving organic growth via disciplined capex, and the company is committed to pursuing its existing policy of “distributing stable, preferably rising, dividends to its shareholders,” DSM says. The dividend proposal for approval at the company’s upcoming shareholders’ meeting remains €2.40/share, as communicated in February 2020, up 4% versus 2019, DSM says.

Meanwhile, the acquisition of Glycom (Hørsholm, Denmark), for an enterprise value of €765 million, announced in February and completed in April, will be incorporated into DSM’s second-quarter results, DSM says.

By: Sotirios Frantzanas

Source: Chemical Week

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