Pharma holds back life sciences at DSM

DSM looks unlikely to grow its operating profit this year after reporting lacklustre second-quarter results on the back of weaker demand for its products and a strong US dollar.

Group sales in the second quarter fell 5 per cent to €1.36 billion, with a 2 per cent decline in volumes offset by price hikes. However, currency effects took 6 per cent off the total, according to the company. Operating profit fell 17 per cent to €85 million, just about in line with analysts' expectations.

DSM's Life Sciences division, which includes its pharmaceuticals and anti-infectives businesses as well as food specialities, bakery ingredients and fine chemicals, saw sales decline 12 per cent to €491 million in the quarter, with operating profit down 22 per cent to €46million.

The pharmaceuticals business suffered as a result of delayed introductions of new products and, partly as a result, of a reduction in the amount of outsourcing work for pharmaceutical clients. However, DSM​ said that the operating result was approximately break-even, and an improvement on the first quarter of this year.

For anti-infectives, operating profit was higher than in the second quarter of 2002, due mainly to a good performance by DSM's clavulanic acid range, but showed a decline on the first quarter of 2003.

Only DSM's Industrial Chemicals operations managed to post a higher operating profit for the quarter, and the Performance Materials division was hit by weak demand from the auto and electronics industries.

Unfortunately, the company was unable to raise hopes that the outlook for the firm would improve going forward, noting that "the pressure on sales volumes and margins that began at the end of the second quarter appears to be making itself even more strongly in the third quarter."​

Third quarter operating profit is likely to be well down year-on-year, said DSM, although it is expecting something of a recovery in the final quarter of 2003, helped by the acquisition of Roche's Vitamins & Fine Chemicals division.

Meanwhile, the restructuring effort set in motion at the end of the first quarter is gaining pace. DSM said this will now include the shutdown of some production capacity at DSM Pharmaceutical Products and DSM Elastomers, as well as improvements to the supply chain, and will bring the total number of job cuts to 600 and raise operating profits by €75 million a year, realised within two years.

In its first-quarter statement, DSM had said that around 100 jobs would be lost.