Royal DSM Keeps Margin Target Alive as Vitamin Maker Cuts Costs
Royal DSM NA (DSM), the world’s largest vitamin maker, said margin goals for 2015 remain in sight as Chief Executive Officer Feike Sijbesma pushes ahead with savings to offset currency costs and weaker demand.
DSM reiterated today a margin target of 14 percent to 15 percent by 2015. Consumers are balking at higher prices for fatty acid dietary supplements, caused by inflated fish oil expenses, Chief Financial Officer Rolf-Dieter Schwalb said.
While DSM spent $3.2 billion on acquisitions to expand its nutrition division, it’s suffering from blips in market demand in areas such as animal nutrition and Omega 3 fish oils. Schwalb said the focus is on merging newly acquired assets with its existing business to generate savings.
“The repositioning of DSM is on track despite a weak economy and adverse FX,” Andrew Benson, an analyst at Citi, wrote in a note. “The challenge for DSM in 2013 is to integrate its acquisitions, address weaknesses in caprolactam and pharma and ensure progress in its development activities, notably biofuels.”
Shares of the Heerlen, Netherlands-based company increased 4 percent to 57.91 euros as of 10:50 a.m. in Amsterdam. Benson, who reiterated his buy rating on DSM, said management is “roughly on track” with implementing necessary measures.
DSM is considering an exit from its caprolactam division, people said in September with knowledge of the situation. Sijbesma faces the challenge of getting an acceptable valuation for the business, plus a payback on money being invested in the world’s biggest facility in China, as demand for the material used in synthetic fibers, plastics and coatings remains in a trough.
DSM continues to work on options for the merchant caprolactam business and a pharmaceutical-ingredient business, Schwalb said on the call. He declined to give an update on the process, or give an indication on the timing of any announcement.
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