Nutrition division is becoming increasingly important to DSM

Nutrition division is becoming increasingly important to DSM

21 September 2020Reading time: 3 minutes

The half-year results presented by DSM at the beginning of August, were largely in line with market expectations. The nutrition division even achieved a revenue increase, while the results for the materials division fell behind the forecast. As a result of the continues uncertainty about the corona crisis, DSM will still implement cost reductions and at the same time increase investments in the nutrition division.

Over the first half-year of 2020, DSM noted a revenue decline of 1 percent on an annual basis to EUR 4.5 billion. Over the same period, the EBITDA was 4 percent lower at EUR 825 million, while the net profit declined by also 4 percent to EUR 399 million. The company from Limburg itself speaks of a solid result, given the challenging circumstances due to COVID-19.

Revenue increase for nutrition division

The fact that DSM was able to maintain its first half-year results reasonably well, was mainly due to the nutrition division. In addition to nutritional supplements, this branch also focuses on animal nutrition. Over the past 6 months, the revenue of this division increased on an annual basis with 6 percent to more than EUR 3.2 billion. Therefore, the nutrition division now accounts for more than two thirds of the total revenue. DSM attributes a part of the revenue increase to the hoarding behaviour of people at the beginning of this year and to an increased demand for products that help improve the immune system. The EBITDA of this division grew with 5 percent to EUR 674 million. The company does not provide divisional profit figures.

Earlier this year, DSM incorporated the Austrian Erber Group, which specializes in detecting and combating dangerous fungi in food. DSM paid EUR 980 million for this acquisition. In addition, also Glycom was acquired for EUR 765 million at the beginning of this year. This Danish biotech company provides dietary fiber that helps good bacteria grow in the intestinal system. With these acquisitions, DSM wants to further expand the revenue share of the entire nutrition division.

Materials division struggles

DSM’s other division concerns material activities. This division produces high-quality materials for the automotive industry, among other things. The division already struggled before the COVID-19 pandemic outbreak and saw its results drop even further in the first six months of this year. On an annual basis, the half-year revenue declined by 16 percent to almost EUR 1.2 billion. The EBITDA was 28 percent lower at EUR 189 million.

Cost reduction

Partly because of the disappointing results within the materials division and uncertainty about the current corona crisis, DSM announced a reorganization on 31st August in which 200 jobs will be lost.
The reorganization is part of a cost reduction plan, which according to DSM, should generate annual savings of between EUR 25 and EUR 30 million.

For the remaining year, DSM expects to achieve an operating profit of at least one single digit for the nutrition division. DSM has cancelled all other expectations.

Stock price development

Year-on-year the stock price of DSM is now (11-09-2020) almost 20 percent higher at EUR 135.40. Especially after the stock market crash in March this year, the stock price has risen sharply.

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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05/12/2020 16:34:04