H1 Highlights
•DSM reports a very good H1 with strong performance across all businesses
•Continued strong organic sales growth in underlying business estimated at 10%
•Adjusted EBITDA growth of underlying business estimated at 7%, despite significant FX headwind
•ROCE of underlying business estimated at 13.8%, up 160 bps
•Additional temporary vitamin price benefit estimated at €275m on Adjusted EBITDA
•Total Adjusted EBITDA up 45% and Net profit up 103% to €633m
•Cash from Operating Activities €503m up 53%
•Interim dividend of €0.77, reflecting the proposed dividend increase of about 25% for 2018
•Full year outlook reconfirmed
Key figures and indicators 1).
in € million
H1 2018 H1 2017
% change
Underlying business2 Temporary vitamin effect2 Total Group Reported Underlying organic growth2 FX & ‘other’2 Underlying total growth2 Temporary vitamin effect2 Total Group
Sales 4,429 365 4,794 4,320 10% -7% 3% 8% 11%
Nutrition 2,840 365 3,205 2,778 10% -8% 2% 13% 15%
Materials 1,492 1,492 1,426 9% -4% 5% 5%
Adjusted EBITDA 771 275 1,046 721 7% 38% 45%
Nutrition 564 275 839 528 7% 52% 59%
Materials 261 261 241 8% 8%
Innovation 0 0 1
Corporate -54 -54 -49
EBITDA 754 275 1,029 689
Adjusted EBITDA margin 17.4% 21.8% 16.7%
.
1) Adjusted EBITDA is an Alternative Performance Measure (APM) that reflects continuing operations.
2) Underlying business is defined in this press release as the performance measures sales and Adjusted EBITDA, corrected for DSM’s best estimate of the vitamin effect, which is expected to be temporary.
CEO statement
Feike Sijbesma, CEO/Chairman DSM Managing Board, commented: “Our ongoing focus on driving above market growth while pursuing efficiency initiatives and maintaining capital discipline, continues to drive our results. Following a strong start to the year, we are very pleased to report very good H1 results, with organic growth above market across all our businesses, and strong underlying Adjusted EBITDA growth despite significant foreign exchange headwinds. During the quarter, we also took another important step in monetizing our partnerships through announcing our exits from Fibrant and DSM Sinochem Pharmaceuticals. Our business conditions remain strong and we reiterate our full year 2018 outlook.
We are convinced our recent strategy update will create enhanced organic sales growth and continued EBITDA momentum, as DSM evolves further towards a purpose-led, science-based company in Nutrition, Health and Sustainable Living. The step-up in our dividend for 2018, already reflected in the interim dividend, demonstrates our confidence in our future earnings growth.”
Q2 Highlights
•DSM reports a very good Q2 with strong performance across all businesses
•Continued strong organic sales growth in underlying business estimated at 8%
•Adjusted EBITDA growth of underlying business estimated at 6%, despite significant FX headwind
•Nutrition: an estimated 8% underlying organic sales growth and Adjusted EBITDA growth of underlying business estimated at 6%
•Materials: 7% organic sales growth and Adjusted EBITDA growth of 5%
•Additional temporary vitamin price benefit estimated at €110m on Adjusted EBITDA
•Total Adjusted EBITDA up 35%
Key figures and indicators1
.
in € million
Q2 2018 Q2 2017 % change
Underlying business2 Temporary vitamin effect2 Total Group Reported Underlying organic growth2 FX & ‘other’2 Underlying total growth2 Temporary vitamin effect2 Total Group
Sales 2,214 145 2,359 2,161 8% -6% 2% 7% 9%
Nutrition 1,410 145 1,555 1,380 8% -6% 2% 11% 13%
Materials 754 754 725 7% -3% 4% 4%
Adjusted EBITDA 398 110 508 376 6% 29% 35%
Nutrition 287 110 397 271 6% 40% 46%
Materials 135 135 128 5% 5%
Innovation 1 1 0
Corporate -25 -25 -23
EBITDA 393 110 503 355
Adjusted EBITDA margin 18.0% 21.5% 17.4%
.
1) Adjusted EBITDA is an Alternative Performance Measure (APM) that reflects continuing operations.
2) Underlying business is defined in this press release as the performance measures sales and Adjusted EBITDA, corrected for DSM’s best estimate of the vitamin effect, which is expected to be temporary.
Outlook 2018
DSM confirms its full year outlook 2018, as provided at Q1 2018, and expects an Adjusted EBITDA growth towards 25% and a related higher ROCE growth. This is based on:
•a low double-digit Adjusted EBITDA growth in the underlying business at constant currencies,
•a negative foreign exchange effect on Adjusted EBITDA of about €70 million, and
•an additional Adjusted EBITDA benefit estimated at €275 million from a temporary exceptional vitamin pricing environment
Key figures and indicators1
.
in € million
H1 2018 H1 2017 % change Volume Price/ mix FX
Other
Sales 4,794 4,320 11% 5% 13% -7% 0%
Nutrition 3,205 2,778 15% 5% 18% -9% 1%
Materials 1,492 1,426 5% 6% 3% -4% 0%
Innovation Center 75 84
Corporate Activities 22 32
.
in € million
Q2 2018 Q2 2017 % change Volume Price/ mix FX
Other
Sales 2,359 2,161 9% 3% 12% -6% 0%
Nutrition 1,555 1,380 13% 2% 17% -7% 1%
Materials 754 725 4% 5% 2% -3% 0%
Innovation Center 39 41
Corporate Activities 11 15
.
in € million
H1 2018 H1 2017 % change Q2 2018 Q2 2017 % change
Sales 4,794 4,320 11% 2,359 2,161 9%
Adjusted EBITDA 1,046 721 45% 508 376 35%
Nutrition 839 528 59% 397 271 46%
Materials 261 241 8% 135 128 5%
Innovation Center 0 1 1 0
Corporate Activities -54 -49 -25 -23
Adjusted EBITDA margin 21.8% 16.7% 21.5% 17.4%
EBITDA 1,029 689 503 355
Adjusted EBIT 817 478 71% 394 256 54%
EBIT 800 441 389 235
Capital Employed 8,115 7,692
Average Capital Employed 7,874 7,831
ROCE (%)2 20.8% 12.2%
Effective tax rate3 18.0% 18.0%
Adjusted net profit4 643 338 90% 306 175 75%
Net profit - Total DSM4 633 312 103% 302 163 85%
Adjusted net EPS 3.64 1.90 92% 1.73 0.98 77%
Net EPS - Total DSM 3.58 1.75 1.70 0.91
Operating Cash Flow 503 329 53% 193 133 45%
Capital Expenditures5 295 250 125 120
Net debt 831 2,205
Average number of ordinary shares 175.0 175.0 175.2 174.9
Workforce (headcount end of period)
20,697 21,0546
.
1) Including temporary vitamin effect
2) ROCE from underlying business H1 2018 is estimated at 13.8%
3) Over Adjusted taxable result
4) Including result attributed to non-controlling interest
5) Cash, net of customer funding, investment grants and excluding financial leases
6 )Year-end 2017
In this report:
‘Organic sales growth’ is the total impact of volume and price/mix;
‘Total Working Capital’ refers to the total of ‘Operating Working Capital’ and ‘non-Operating Working Capital’
Strategy 2015-18: Driving profitable growth
DSM’s Strategy 2015-18 has been highly successful. After transforming DSM over the period 2010-15, through various acquisitions and divestments, DSM delivered strong organic growth with greatly improved operational and financial performance and significant value creation in all its businesses. In addition, DSM took important steps to monetize its non-core Pharma and Bulk Chemicals joint ventures. DSM has become a growth company with ambitious sustainability efforts creating value for all stakeholders across the three dimensions of People, Planet and Profit:
•Both Nutrition and Materials have been outpacing market growth and are expected to continue to grow at rates above the markets they operate in;
•A strong and (re)focused innovation pipeline was created to enhance long-term growth;
•The execution of the extensive cost-reduction and improvement programs is well on track to deliver run-rate cumulative savings of ~€275 million by the end of 2018 versus the 2014 baseline;
•Consistent improvements in capital efficiency;
•Significant value was extracted from partnerships with the sale of DSM’s holding in Patheon in 2017 as well as from the recently announced divestments of DSMs interest in Fibrant and DSM Sinochem Pharmaceuticals;
•Organizational adjustments enabled a stronger results-oriented company and culture.
As a result, DSM is delivering significantly ahead of its two headline financial 2015-18 targets: high single-digit percentage annual Adjusted EBITDA growth and high double-digit basis point annual ROCE growth, with all businesses outperforming.
DSM strategy update: Growth & Value – Purpose led, Performance driven
On 20 June 2018, DSM presented its strategy update detailing how it will evolve further towards a purpose-led, science-based company in Nutrition, Health and Sustainable Living. DSM’s strong growth platform, centered on developing innovative solutions addressing Nutrition & Health, Climate & Energy and Resources & Circularity, together with increased customer centricity and its large innovation projects, will drive above-market growth, while DSM will remain focused on cost control and operational excellence, allowing it to accelerate profit and cash generation. Organic growth will be complemented by acquisitions predominantly in Nutrition.
Two ambitious targets for profit growth and cash generation have been set for the period 2019-2021: high single-digit annual percentage increase in Adjusted EBITDA and about 10% average annual increase in adjusted net operating cash flow.
Purpose sets scope for further growth and evolution
With its unique science-based competences, DSM is ideally positioned to capture the growth opportunities offered by the global megatrends and Sustainable Development Goals (SDGs), with a particular focus on Nutrition & Health, Climate & Energy and Resources & Circularity. DSM will therefore evolve into a Nutrition, Health and Sustainable Living company:
•DSM’s Nutrition business will focus on human nutrition (ingredients and solutions for food & beverages, as well as specialty nutrition, nutritional ingredients, consumer branded products and personalized nutrition), animal nutrition (covering all species with premix and specialty solutions) and personal care and aroma ingredients; while,
•DSM’s Materials business will further develop into a high-growth, higher-margin specialty business and focus on health, bio/ green applications and new mobility & connectivity applications.
By improving the impact of its own operations, enabling sustainable solutions for its customers and advocating sustainable business, DSM can grow faster and reduce its cost and risk profile. DSM will further step-up its ambitions regarding the reduction of GHG emissions, energy efficiency and use of renewable energy.
Performance-driven to deliver growth and value
DSM has set two ambitious targets for profit growth and cash generation to drive value creation for the period 2019-2021:
•High single-digit annual percentage increase in Adjusted EBITDA
•About 10% average annual increase in adjusted net operating cash flow
These financial targets will be supported by an holistic value-creation approach.
DSM is committed to top-line growth ahead of market, resulting in about 5% organic growth, that will be supported by expanded solutions offerings, putting the customer even more in the center, and the delivery of large innovation projects. Approximately 45% of sales will come from high growth economies and 20% of sales will come from innovation. DSM continues to invest in differentiating science and technology with circa 5% of sales and harness digital capabilities to increase customer intimacy, improve productivity/efficiency and support new business models.
Greater efficiencies and an increased focus on higher-margin specialty solutions will enable new Adjusted EBITDA margin ambitions by 2021 for Nutrition (over 20%) and Materials (18-20%). Organic top-line growth combined with these enhanced margins will drive DSM’s high single-digit Adjusted EBITDA growth.
DSM aims to accelerate growth in adjusted net operating free cash flow of about 10% average annual increase. This results in the ambition to reduce working capital levels of around 50 bps annually to about 16% of sales (from 18.4% in 2017), a disciplined approach to capex with an overall level of approximately 6.5% of sales, and the ambition to drive improvements in organic ROCE of around 1% annually.
DSM’s overall deployment of capital is expected to drive Adjusted EPS growth ahead of Adjusted EBITDA growth.
DSM cash allocation policy remains unchanged and has a clear order of priority for cash deployment:
•Disciplined capex for organic growth: about 6.5% of annual sales;
•A stable, preferably rising dividend;
•Disciplined M&A, predominantly in Nutrition;
•In the absence of value-creating M&A, capital to be returned to shareholders.
DSM remains committed to maintaining a strong, investment grade credit rating.
While keeping its policy of a stable, preferably rising dividend unchanged, DSM will propose a dividend increase of about 25% to €2.30 per ordinary share over 2018, already reflected in the interim dividend over 2018 to be paid 24 August 2018. This step-up in dividend is linked to underlying earnings growth. In line with the targets set for the period 2019-21, DSM’s performance is expected to result in further dividend growth, which could lead to an expected average payout of 40-50% of adjusted (underlying) earnings.
DSM targets M&A predominantly in Nutrition given its growth potential, resilience, strong leadership position and value creation potential.
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https://www.dsm.com/corporate/media/informationcenter-news/2018/08/23-18-dsm-h1-2018-results.html
