RDSMY Royal DSM NV (QX)

• In Q1 2014 DSM delivered €272 million EBITDA from continuing operations, in line with expectations
• Q1 2014 EBITDA from continuing operations was €29 million below Q1 2013, of which about €23 million was due to adverse exchange rate developments
• The impact of the headwinds in Nutrition appear to have peaked in Q1
• In Performance Materials all business groups delivered good volume growth
• DSM maintains 2014 outlook, anticipating EBITDA improvements over the coming quarters

Royal DSM, the Life Sciences and Materials Sciences company, today reported first quarter EBITDA from continuing operations of €272 million compared to €301 million in Q1 2013. This performance was delivered against significant adverse foreign exchange rates. As expected, Nutrition experienced in Q1 the continued impact of the market headwinds, which also affected Q4 2013. Materials Sciences was impacted by lower results in caprolactam.

Commenting on the results, Feike Sijbesma, CEO/Chairman of the DSM Managing Board, said:
"DSM delivered results in line with expectations, despite further currency deterioration during the quarter. We are pleased to report that market conditions in Nutrition began to show some signs of improvement by the end of the quarter. Our performance in Q1 demonstrates DSM's strength in Nutrition, owing to our highly integrated and global business model, benefiting from the structural megatrends of health and wellness. We also see a more positive momentum in a number of Performance Materials end-markets."

"Through maintaining our focus on the operational performance of the business, benefiting from the Profit Improvement Program, we continue to execute our near term initiatives of protecting profitability and improving cash flow. Therefore, we confirm our outlook given in January 2014, and anticipate to deliver improving financial results in the coming quarters."

In this report:

• 'Organic sales growth' is the total impact of volume and price/mix;
• 'Discontinued operations' comprises net sales and operating profit (before depreciation and amortization) of DSM Pharmaceutical Products up to and including 10 March 2014;
• 'Net profit' is the net profit attributable to equity holders of Koninklijke DSM N.V.;
• 'Core net profit' is the net profit from continuing operations before exceptional items and before acquisition related (intangible) asset amortization;
• From 2014 onwards interest receipts and payments are no longer included in operating activities in the cash flow statement but reported in investing activities (interest received) and financing activities (interest paid). 2013 figures are restated accordingly;
• All 2013 figures are restated for the impact of the termination of proportional consolidation for joint ventures as from 1 Jan 2014 onward.

Review by cluster

Sales in the first quarter increased by 6% compared to Q1 2013. Organic sales growth was 2% compared to Q1 2013, as a result of 4% higher volumes and 2% lower prices. Currencies had a negative impact of 3%, while acquisitions (mainly Tortuga) had a positive impact of 7%.

EBITDA for Q1 was €203 million, down 6% from Q1 2013. The positive impact of the organic growth and the contribution from acquisitions was offset by negative foreign exchange developments, lower prices in some vitamins and a less favorable business mix, resulting in an EBITDA margin slightly below DSM's target range of 20-23%.

Human Nutrition & Health net sales were €423 million in Q1. Organic sales declined by 1% compared to Q1 2013, with volumes flat and prices/mix down slightly. As expected, the US dietary supplements markets (vitamins and fish oil based Omega 3) were down significantly, while dietary supplements in Europe and Asia performed well. Good growth was also realized in i-Health and in premixes. Western food & beverage markets in general remained soft.

Compared to Q4 2013, prices were down 3% mainly due to a less favorable product mix, while volumes were up almost 14%, due to seasonal effects and some restocking.

Animal Nutrition and Health net sales were €466 million in Q1. Organic sales growth in Q1 was 7% with volumes up 10% compared to the weak Q1 2013 when the animal feed markets were still being impacted by the high commodity prices resulting from the 2012 drought. Improving market conditions in animal feed drove volume growth, albeit tempered by ongoing animal diseases in certain regions, with strong performance in premix. Volumes for our key vitamins, especially vitamin E, remained flat.  Prices were down 3% from Q1 2013 due to lower vitamin prices, especially vitamin E.

Compared to Q4 2013, volumes were down 6% mainly attributable to seasonality. Overall, prices were slightly lower (-1%), with vitamin E prices stabilizing in Q1. Higher vitamin spot prices in March had no significant impact on Q1 pricing, as DSM primarily supplies on a contract basis.

In Q1 2014, Tortuga delivered sales of €64 million and an EBITDA of €10 million.

DSM Food Specialties delivered a solid performance in Q1 with good organic growth in enzymes and cultures. The integration of Cargill and DSM's cultures businesses was concluded according to plan. The combined businesses are generating value for DSM's customers, resulting in significant growth opportunities.

Performance Materials

Organic sales growth in Q1 2014 was 2% compared to Q1 2013 with 4% volume growth and 2% lower prices. Adverse currency effects amounted to 2%. DSM Engineering Plastics showed good volume growth, despite the negative impact of the severe winter in the US on PA 6 production. Prices were slightly higher. DSM Resins & Functional Materials saw good volume growth, while prices were down due to price/mix effects. In DSM Dyneema, sales were supported predominantly by higher volumes.

EBITDA in Performance Materials for the quarter was 10% above the underlying result of Q1 2013, as that quarter benefited from a €9 million book profit related to the sale of distribution activities in DSM Resins & Functional Materials. In DSM Engineering Plastics, EBITDA was up substantially from the previous year as a result of good volume growth, slightly higher prices and the impact of cost reductions, which were partly offset by negative exchange rates. Underlying EBITDA at DSM Resins & Functional Materials was up, driven by good volume growth and continued cost control. DSM Dyneema delivered a substantially higher EBITDA than Q1 2013, owing to higher volumes and an improved cost base.

Organic sales development was -6% compared to the same quarter of 2013, with 2% higher volumes and 8% lower prices. Sales were negatively impacted by currency effects of 1%. Volumes were up due to increased caprolactam production from the new 2^nd line in China. This increase was largely offset by severe winter related outages of caprolactam production in the US.

EBITDA for the quarter declined compared to Q1 2013, driven by lower caprolactam margins due to the ongoing challenging business environment with lower prices and high benzene costs. In addition, disruptions of caprolactam production resulted in higher costs.

Sales in Q1 2014 were lower than Q1 2013 due to DSM Biomedical. Underlying growth in DSM Biomedical is well on track.

EBITDA declined as a combination of lower sales, a negative currency impact in Biomedical and increased costs resulting from intensified innovation programs. The cellulosic bioethanol plant that DSM is building together with POET is nearing completion and is scheduled to start up by the end of Q2 2014.

EBITDA in Q1 2014 was in line with DSM's expectations as well as with Q1 2013.

Discontinued activities
Discontinued activities in Q1 2014 reflects the contribution of DSM Pharmaceutical Products until the closing of the transaction with JLL Partners. EBITDA declined due to seasonal factors and closing of the transaction before the end of the quarter.

DSM stopped proportional consolidation of joint ventures in line with IFRS, with all 2013 numbers restated accordingly. The net result of these ventures is included in Share of profit of associates / joint ventures.

The announced venture combining Patheon and DSM Pharmaceutical Products started at 11 March 2014, resulting in a new privately held company, named DPx. The total book loss amounted to €130 million. Further details are provided in the notes to the financial statements in this report. The new company started well, experiencing very healthy customer demand in Q1 2014.

Total Q1 2014 sales of joint ventures amounted to €105 million (100% base) of which €98 million coming from DSM Sinochem Pharmaceuticals (Q1 2013: €94 million) which realized good organic sales growth, mainly driven by prices.

Financial overview

Total exceptional items in the first quarter amounted to a loss of €26 million before tax (€19 million after tax). This includes €37 million in expenses related to the restructuring activities of which €28 million as a result of the structural organizational changes and post integration streamlining of DSM Nutritional Products, as well as €11 million in acquisition related and other costs. The final book loss on the contribution of DSM Pharmaceutical Products to DPx amounted to €130 million (as specified in the notes to these interim statements). This is lower than the amount that was recognized upon classification of the business as asset held for sale at the end of 2013, and therefore €22 million of the loss was reversed in the first quarter.

Financial income and expense in Q1 2014 amounted to -€23 million compared to -€30 million in Q1 2013 due to positive interest rate hedge results.

The effective tax rate in Q1 2014 was 18%, in line with the full year 2013.

Net profit, continuing operations before exceptional items in Q1 2014 decreased by €26 million compared to Q1 2013 and stood at €99 million.

Net earnings per ordinary share (continuing operations, before exceptional items) amounted to €0.57 in Q1 2014 compared to €0.71 in Q1 2013.

Cash provided by operating activities in Q1 2014 was -€37 million (Q1 2013: -€49 million).

Operating working capital increased from €1,843 million at year-end of 2013 to €2,074 million at the end of Q1 2014 due to higher inventories and receivables (expressed as a percentage of annualized sales this represents 23.6%, in line with Q1 2013).

Cash used for capital expenditure amounted to €151 million in Q1 2014 compared to €152 million in Q1 2013.

Net debt increased by €320 million compared to year-end 2013 and stood at €2,161 million (gearing 26%).

Strategy update
DSM is firmly committed to its strategy, which has delivered and will continue to deliver sustainable value. 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 and Materials Sciences 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.

In Nutrition DSM continues to implement further post-integration improvements (affecting some 210 FTE's) in support of its unique business model, emphasizing increasingly local solutions in addition to its strong global product positions. This will result in a positive impact of €50 million per annum by 2015 which will be partially reinvested into external (open) innovation and local, front-line support. Related one-off costs of €28 million were recognized in this quarter.

Below are some highlights of DSM's Q1 2014 achievements.

High Growth Economies: from reaching out to being truly global
In India, DSM inaugurated its Fortitech^® Premixes plant in Vadodara, Gujarat. The plant covers 10,000 square meters and will be a "one-stop shop" for food, beverage and pharmaceutical manufacturers looking for ingredient fortification as an important way to differentiate their products. The new plant will service the South Asian market.

Innovation: from building the machine to doubling innovation output
For its Biomedical operations, DSM opened a plant (the only one of its kind) dedicated solely to the production of medical-grade fibers, in Greenville, North Carolina (USA). It also opened its first in-house medical coating service plant in Exton, Pennsylvania (USA).

Sustainability: from responsibility to business driver
DSM's advanced cellulosic yeast product was named the 'Breakthrough Technology of the Year' by Green Power Conferences.

Acquisitions & Partnerships: from portfolio transformation to driving focused growth
JLL Partners and DSM announced the successful completion of the transaction announced in November 2013 combining DSM Pharmaceutical Products and Patheon Inc. into a new privately held company, named DPx, in which DSM holds a 49% share. DPx is leading global contract development and manufacturing organization (CDMO) for the pharmaceutical industry with anticipated 2014 sales of around USD 2 billion (full year pro-forma), a strong EBITDA and operational cash flow and more than 8,000 employees. The new company started well.

For 2014 DSM takes a prudent approach, assuming the unfavorable January 2014 foreign exchange rates are maintained for the year. Furthermore, DSM assumes a continued challenging macro-economic environment, with low growth in Europe, modest growth in the US, and a slowdown in the high growth economies.

Based on the above, DSM targets for 2014 to improve its business performance to at least offset the negative currency impact of €70 million at January 2014 exchange rates.

Comparable EBITDA in 2013 from continuing operations after new accounting rules for joint ventures amounted to €1,261 million.   
  

Today DSM will hold a conference call for the media from 08.00 AM to 08.30 AM CET 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 on the DSM website, www.dsm.com. Also, information regarding DSM's Q1 result 2014 can be found in the Presentation to Investors, which can be downloaded from the Investors section of the DSM website.

Annual General Meeting of Shareholders                 Wednesday, 7 May 2014
Ex-dividend quotation date 2014                                   Friday, 9 May 2014
Report for the second quarter of 2014                    Tuesday, 5 August 2014
Report for the third quarter of 2014                  Tuesday, 4 November 2014
Capital Markets Day                                      Wednesday, 5 November 2014
Full year results 2014                                     Wednesday, 11 February 2015

Heerlen, 6 May 2014

The Managing Board

Feike Sijbesma, CEO/Chairman
Rolf-Dieter Schwalb, CFO
Stefan Doboczky
Stephan Tanda
Dimitri de Vreeze

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 simultaneously. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. DSM's 24,500 employees deliver annual net sales of around €10 billion. The company is listed on NYSE Euronext. More information can be found at www.dsm.com.

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