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DSM reports solid Q3 results despite weak economic conditions

HEERLEN, NETHERLANDS -- (Marketwire) -- 11/06/12 --



* Q3 EBITDA from continuing operations EUR270 million (Q3 2011: EUR339 million)

* Life Sciences, driven by Nutrition, showed good performance, representing 76% of Q3 EBITDA

* Materials Sciences continued to perform well, except for caprolactam

* Further strategic progress with acquisitions

* Strong Q3 cash flow from operating activities of EUR253 million

* Outlook 2012 largely unchanged

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said: "Despite a challenging global trading environment DSM continued to generate good results mainly driven by our Nutrition cluster. We continued to make good progress towards our strategic goals with the purchase of Tortuga and Cargill's cultures and enzymes business. We have now invested EUR2.3 billion in acquisitions since the end of 2010, of which EUR1.9 billion in Nutrition. With these acquisitions we are building new platforms and are strengthening our downstream network. This will create significant future value for the company whilst further increasing the resilience of DSM's earnings profile."

"Our Profit Improvement Program, designed in part to offset the impact of adverse external developments, is on track to deliver significant cost savings. We expect that trading conditions will remain tough. Our strong focus on cost control and cash flow together with our strong balance sheet leaves DSM well placed to navigate near term external challenges."

Find the tables on www.dsm.com or in the pdf version of the quarterly report.

Overview

During the third quarter of 2012, the weak conditions in the global economy seen throughout the previous quarter continued. The Eurozone challenges remained significant and the slow-down in China persisted. The US continued to grow at a modest rate. Despite these conditions, DSM continued to deliver solid operational results generating Q3 EBITDA of EUR270 million which included a negative caprolactam related impact of EUR105 million compared to Q3 2011.

Nutrition delivered a 15% higher EBITDA than in Q3 2011 as a result of organic growth, positive exchange rate effects and the contribution of Ocean Nutrition Canada.

Pharma results were adversely impacted by an uneven delivery pattern at DSM Pharmaceutical Products and by lower margins.

Performance Materials performed well, except for the continued weakness of caprolactam which impacted the results of DSM Engineering Plastics.

As expected, results at Polymer Intermediates declined significantly versus last year as already in Q2, mainly due to lower caprolactam margins.

Results at the Innovation Center improved as a result of higher Biomedical sales and the acquisition of Kensey Nash.

Cash provided by operating activities amounted to EUR547 million during the first three quarters of 2012 versus EUR479 million during the same period last year. Net debt increased by EUR839 million compared to year-end 2011 to a level of EUR1,157 million, mainly due to acquisitions.

Net sales

Organic sales development was -7% compared to Q3 2011 mainly due to Polymer Intermediates.

Nutrition continued to deliver organic growth by increasing volumes.

Pharma showed organic growth due to a more favorable product mix.

In Performance Materials the organic sales development of -7% was due to lower prices and lower volumes.

The organic sales development in Polymer Intermediates was due to lower volumes as well as lower caprolactam prices.

Business review by cluster

Nutrition

Organic sales growth was 1% compared to Q3 2011 with volume growth (2%) and slightly reduced prices (-1%). Sales growth was positively impacted by favorable exchange rates (4%) and the impact of the Ocean Nutrition Canada acquisition (4%).

Animal Nutrition & Health achieved modest volume growth despite the drought in the US which resulted in higher grain prices. This subsequently led to lower feed and meat production. Prices were slightly down.

Human Nutrition & Health prices were up slightly while volumes remained relatively stable. Nutritional Lipids experienced strong growth outside North America with synergies realized in line with targets. The integration of Ocean Nutrition Canada is on track with sales of EUR30 million and EBITDA of EUR8 million.

Personal care continued to grow especially in sun care and skin care.

DSM Food Specialties realized growth in all market segments. Especially enzymes showed strong organic growth.

EBITDA for the third quarter was EUR202 million, up EUR26 million from the same quarter a year earlier driven by higher margins, favorable exchange rates and the contribution of Ocean Nutrition Canada. At 21.4% the Q3 EBITDA margin was in line with the defined target of 20% - 23%.

Pharma

Net sales growth was 1% compared to Q3 2011 driven by a more favorable product mix (+1%), favorable exchange rates (+3%) and the deconsolidation of DSM Sinochem Pharmaceutical combined with the re-integration of the Maleic Anhydride and Derivatives business (-3%). Higher volumes at DSM Sinochem Pharmaceutical compensated for reduced volumes at DSM Pharmaceutical Products.

EBITDA for the quarter was EUR4 million, down from EUR13 million in the same quarter a year earlier. Lower volumes caused by uneven delivery patterns in the DSM Pharmaceutical Products business and lower margins at DSM Sinochem Pharmaceutical, despite higher volumes, had a negative impact.

Performance Materials

Organic sales development was -7% compared to Q3 2011 due to lower volumes in DSM Resins and lower volumes and lower prices at DSM Engineering Plastics, mainly as a result of lower polyamide-6 prices stemming from lower caprolactam prices. Currency developments and acquisitions had a positive impact on sales.

EBITDA was below Q3 last year as lower margins in the polyamide-6 value chain of DSM Engineering Plastics offset the good performance of the rest of the cluster. Despite ongoing subdued market conditions DSM Resins delivered improved results due to better margins and the implementation of cost saving actions.

Polymer Intermediates

Organic sales development was -24% compared to Q3 2011, due to 15% lower prices and 9% lower volumes. Currencies had a 5% positive impact on sales. Volumes were lower mainly due to scheduled caprolactam plant turnarounds in China and the US.

As expected, EBITDA was clearly below the record levels of Q3 2011. Caprolactam margins remained at the low levels reached at the end of Q2 2012. In addition, the scheduled plant turnarounds in China and the USA contributed to the lower EBITDA.

Innovation Center

Sales improved strongly compared to Q3 2011 as a result of higher Biomedical sales as well the acquisition of Kensey Nash which has been consolidated as of June 22.

EBITDA improved due to higher sales and the acquisition of Kensey Nash which now has been integrated into the biomedical business. Kensey Nash contributed in line with expectations with sales of EUR17 million and EBITDA of EUR7 million.

Corporate activities

The lower sales compared to Q3 2011 were due to the re-integration of the Maleic Anhydride and Derivatives business into the Pharma cluster.

EBITDA improved slightly compared to Q3 2011 as a result of the sale of certain assets at the Chemelot site which was partly offset by higher share based payment costs and higher project related costs.

Exceptional items

Exceptional items amounted to a loss of EUR26 million before tax (EUR22 million after tax). In connection with the Profit Improvement Program, restructuring costs and provisions were recognized for an amount of EUR13 million. Acquisition related costs amounted to EUR13 million.

Net profit

Net finance costs increased by EUR8 million compared to Q3 2011 to a level of EUR23 million mainly as a consequence of currency effects and less average cash at lower interest rates.

The effective tax rate was 18% compared to 19% for the full year 2011.

Net profit before exceptional items decreased by EUR56 million compared to Q3 2011 to EUR103 million mainly due to the lower Polymer Intermediates' operating profit.

Compared to Q3 2011 total net profit decreased by EUR90 million to EUR81 million.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to EUR0.61 in Q3 2012 compared to EUR0.94 in Q3 2011.

Cash flow, capital expenditure and financing

Cash provided by operating activities was EUR253 million in Q3 2012 compared to EUR323 million in Q3 2011. Year-to-date Q3 2012 cash provided by operating activities amounted to EUR547 million versus EUR479 million in the same period last year.

Excluding the acquisition effect of Ocean Nutrition Canada and Kensey Nash, Operating working capital decreased by EUR50 million compared to the level at the end of Q2 2012.

Cash flow related to capital expenditure amounted to EUR186 million in Q3 2012 compared to EUR144 million in Q3 2011. In the first three quarters of 2012 cash flow related to capital expenditure amounted to EUR474 million compared to EUR304 million in the same period last year.

Net debt increased by EUR839 million compared to year-end 2011 and stood at EUR1,157 million (gearing 16%).

DSM in motion: driving focused growth

DSM in motion: driving focused growth is the strategy that the company embarked on in September 2010. It marks the shift from an era of intensive portfolio transformation to a strategy of maximizing sustainable and profitable growth. DSM's strategic focus on Life Sciences (Nutrition and Pharma) and Materials Sciences (Performance Materials and Polymer Intermediates) is fueled by three main societal trends: Global Shifts, Climate & Energy and Health & Wellness. DSM aims to meet the unmet needs resulting from these societal trends with innovative and sustainable solutions.

Below is an update on DSM's strategic achievements in the third quarter.

Acquisitions & Partnerships: from portfolio transformation to driving focused growth

In July, DSM successfully completed the acquisition of Ocean Nutrition Canada, the leading global provider of fish-oil derived nutritional products to the dietary supplement and food and beverage markets. With this acquisition DSM strengthens and complements its Nutritional Lipids growth platform, established after the acquisition of Martek in 2011. DSM can now uniquely offer a full product range in the rapidly growing nutritional lipids category, offering both fish oil derived omega-3 fatty acids and microbially derived nutritional lipids.

In July, DSM successfully completed the acquisition of the Italian animal health and nutrition premix specialist, Cilpaz Srl. Although relatively minor in size, this acquisition underlines DSM's strategy of focused growth.

In August DSM entered into a definitive agreement to acquire Tortuga, a privately held Brazilian company, in a cash transaction for a total enterprise value of about EUR465 million (BRL 1,160 million). Tortuga is a leading company in nutritional supplements with a focus on pasture raised beef and dairy cattle. The company is headquartered in Sao Paulo, Brazil with approximately 1,200 employees. Subject to regulatory approvals, the transaction is expected to close in Q1 2013.

In October, DSM entered into a definitive agreement to acquire Cargill's cultures and enzymes business in a cash transaction for a total enterprise value of about EUR85 million. This business is a globally leading manufacturer of cultures and enzymes for the dairy and meat industries with manufacturing operations in Wisconsin (USA) and France. The business generates net sales of about EUR45 million per year with approximately 200 employees.

Since it set out its current strategic course in September 2010, DSM has invested EUR2.3 billion worth of growth-enhancing acquisitions. Nearly EUR1.9 billion is being spent in the Nutrition cluster as the company continues to further improve its attractive portfolio in health, nutrition and materials to deliver value with stronger, more stable growth and profitability.

Innovation: from building the machine to doubling innovation output

Bio-based Products & Services is making further strategic progress. The bio-succinic acid facility in Italy is currently in the start-up process. DSM and BP have extended their cooperation on the joint development of advanced bio-diesel. DSM successfully produced its first commercial batch of advanced C5 yeast for cellulosic ethanol producers.

High Growth Economies: from reaching out to being truly global

Sales to High growth Economies accounted for 37% of total sales versus 41% of total sales in Q3 2011 which was mainly due to lower caprolactam sales in China.

Net sales to China amounted to USD 398 million versus USD 554 million in Q3 2011 which was mainly due to lower sales prices at DSM Polymer Intermediates.

Outlook

The outlook for the global economy remains uncertain. DSM's Profit Improvement Program is fully on track and aims to deliver EUR150 million of benefits by 2014. This program together with an on-going focus on cash generation will help to offset adverse external factors. The acquisitions announced since the end of 2010 will create considerable economic value for DSM whilst increasing the resilience of its earnings.

Nutrition continues to demonstrate its resilience with EBITDA expected to be clearly above 2011. Ocean Nutrition Canada will add about EUR20 million in EBITDA in 2012.

Business conditions in Pharma are likely to remain challenging for the remainder of the year, although DSM continues to expect to deliver a slightly improved EBITDA despite the 50% deconsolidation of the anti-infectives business. DSM continues to seek opportunities to make further strategic progress in this cluster.

Full year EBITDA for Performance Materials is expected to be slightly below 2011, due to continuing weak market conditions for caprolactam.

The adverse market conditions for Polymer Intermediates are not expected to improve during Q4 and therefore DSM anticipates EBITDA to be clearly below the exceptional 2011 result.

For the Innovation Center, EBITDA is expected to improve compared to last year due to the acquisition of Kensey Nash which will add about EUR10 million in EBITDA in 2012.

Overall, DSM remains cautious about the economic outlook for the remainder of 2012. DSM's expectations for the year are largely in line with its previous guidance, with the exception of ongoing weakness in caprolactam which also affects the Performance Materials cluster.

Assuming no further deterioration of the economic conditions, and based on its strategy, financial strength and the Profit Improvement Program, DSM will move towards the 2013 EBITDA target.

Additional information

Today DSM will hold a conference call for the media from 07.30 AM to 08.00 AM CET which can be followed via a webcast and a conference call for investors and analysts from 09.00 AM to 10.00 AM CET. Details on how to access these calls can be found here. Also, information regarding DSM's third quarter results 2012 can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website.

Important dates
Annual Report 2012                            Wednesday, 20 February 2013
Report for the first quarter 2013             Thursday, 2 May 2013
Annual General Meeting of Shareholders        Friday, 3 May 2013
Report for the second quarter 2013            Tuesday, 6 August 2013
Report for the third quarter 2013             Tuesday, 5 November 2013

DSM - Bright Science. Brighter Living.™

Royal DSM is a global science-based company active in health, nutrition and materials. By connecting its unique competences in Life Sciences and Materials Sciences DSM is driving economic prosperity, environmental progress and social advances to create sustainable value for all stakeholders. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, pharmaceuticals, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. DSM's 22,000 employees deliver annual net sales of about EUR9 billion. The company is listed on NYSE Euronext. More information can be found at www.dsm.com

Financial summary-pdf: http://hugin.info/130663/R/1655251/534840.pdf

Integrated report-pdf: http://hugin.info/130663/R/1655251/534841.pdf

Press release-pdf: http://hugin.info/130663/R/1655251/534839.pdf

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that:

(i) the releases contained herein are protected by copyright and other applicable laws; and

(ii) they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: DSM N.V. via Thomson Reuters ONE

[HUG#1655251]

For more information

Media
DSM, Corporate Communications
tel.: +31 (45) 5782421
e-mail: Email Contact

Investors
DSM, Investor Relations
tel.: +31 (45) 5782864
e-mail: Email Contact

www.dsm.com

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