DSM announces actions to strengthen its competitive position

17-Dec-2008 - Netherlands

Royal DSM N.V. announced actions to strengthen its competitive position. These actions are expected to deliver structural cost savings of up to EUR 100 million per year by 2010. In addition, DSM is also taking a number of measures to address the current more difficult market conditions. These market conditions together with the decision to currently prioritize cash over short term profitability are resulting in a revised full year guidance for 2008 operating profit of above EUR 900 million, around 10% higher compared to 2007 and a record result for the company.

By currently prioritizing cash over short term profitability, DSM ensures a continued strong balance sheet and financial position. DSM remains very soundly financed, with adequate short term financing and a healthy long term funding plan in place. Additional cash contributions to DSM's pension plans are currently not expected. In the short term, the measures taken will have a negative effect on the company's earnings, but over the longer term they will put DSM in an even stronger position to capture growth opportunities.

DSM's Life Sciences businesses, especially Nutrition, and DSM Dyneema have been relatively unaffected by the current economic circumstances and continue to perform well. However, some end markets of DSM's Materials Sciences businesses, particularly those exposed to weakening consumer spending such as automotive, building and construction, coatings and electrical and electronics, have seen a continued sharp drop in demand throughout the fourth quarter. This has occurred in combination with significant de-stocking in the downstream industries due to scarcity of credit and rapid price decreases of raw materials.

In those DSM business groups affected by the current difficult market conditions (DSM Fibre Intermediates, DSM Engineering Plastics, DSM Resins and some parts of the Base Chemicals and Materials cluster) temporary plant shutdowns have already been implemented in order to adjust to reduced demand. This temporary underutilization of assets causes losses but also achieves a reduction of working capital. In addition, lower raw material costs resulting in lower downstream prices have a significant adverse effect on inventory valuations.

A number of other measures, such as the reduction of temporary contract workers, postponement of projects and a stronger focus on purchasing prices, have also been implemented to improve cash flow and reduce costs. Full attention to customers in order to meet their needs and priorities in the current difficult context has been given the highest priority. DSM is also identifying new growth opportunities within the current market conditions and will continue its strategic commitment to innovation and sustainability.

In addition to these measures, DSM is taking a number of structural cost-saving actions to strengthen the profitability and future competitiveness, which are aimed to result in a reduction of DSM's total workforce by about 5% or 1,000 positions. Total savings of up to EUR 100 million per year are expected, to be fully achieved in 2010. The one-time cost of these savings is expected to be around EUR 50 million of which the first part of approximately EUR 20 million will be recognized as an exceptional item in Q4 2008.

https://www.chemeurope.com/en/news/92789/dsm-announces-actions-to-strengthen-its-competitive-position.html