DSM to Cut 1,000 Jobs as Chief Strives to Meet Profit Goals

Royal DSM NV CEO Feike Sijbesma
Royal DSM NV Chief Executive Officer Feike Sijbesma has steered DSM away from commodities into enzymes and nutritional ingredients. Photographer: Simon Dawson/Bloomberg

Royal DSM NV, the world’s largest maker of vitamins, will cut 1,000 jobs across Europe as Chief Executive Officer Feike Sijbesma strives to meet profit goals.

Cutting more than 4 percent of the workforce will help boost profit by 150 million euros ($185 million), Sijbesma and Chief Financial Officer Rolf-Dieter Schwalb said on a call. DSM, based in Heerlen, the Netherlands, fell as much as 5 percent to 39.14 euros after highlighting increased doubt over the strength of Europe’s economies.

“The program comes a bit too late,” said Fabian Smeets, an analyst at ING, adding coatings company Akzo Nobel is halfway through with its restructuring program by now.

DSM is suffering from competition in China and lower prices in caprolactam, one of its last commodity businesses that remains an integral part of its polymers operation. Sijbesma has steered DSM away from commodities into enzymes and nutritional ingredients. Aggressive pricing by new entrants to the caprolactam market and higher benzene costs are weighing on margins, yet the business remains strategic for DSM and won’t be sold, Schwalb said in an interview.

Shares of DSM traded 39.44 euros as of 11:06 a.m. in Amsterdam.

Outlook Dims

The global outlook for the second half has become more clouded, in part because of Europe’s failure to find a cure for the lingering debt crisis, Sijbesma said. The region will bear the brunt of the job cuts, with 400 positions to be slashed in the Netherlands, he said.

“We cannot ignore the fact that the economy is not improving, it is rather the opposite,” Schwalb said. “The cost-reduction program is designed to support the targets.”

The program was essential for DSM as it seeks to make a 2013 earnings target of 1.4 billion euros to 1.6 billion euros. DSM will spend about 125 million euros as it carries out the overhaul over the next 18 months. Schwalb said there’s scope for added improvements beyond the initial target.

“From prior programs, we’re well known for over-delivering,” the CFO said in an interview. Any additional potential for boosting profit would be detailed at a later date, he said.

The vitamin maker, which expanded in baby-food ingredients with the purchase of Martek, reported a 14 percent decline in second-quarter earnings before interest, taxes, amortization and depreciation from continuing operations to 290 million euros. Analysts predicted 292 million euros, according to the average of 10 estimates compiled by Bloomberg. Sales were little changed at 2.27 billion euros.

Nutrition Disappointment

“Underlying, results were very disappointing. We knew Performance Materials and Polymer Intermediates were facing headwinds, but the 2 percent organic growth at Nutrition, despite having Martek now over a year, clearly is a negative surprise,” said Smeets, who has a hold-rating on DSM.

Polymer intermediates, which make raw materials for synthetic fibers and plastics, weighed on results. Caprolactam, used in carpets and clothing, cut profit by 70 million euros.

DSM’s expansion into Omega 3-oil supplements, through the acquisition of Ocean Nutrition for $529 million, and into synthetic protein-based materials used in medical implants with the purchase earlier this year of Kensey Nash helped bolster profit. The company retains 1.9 billion euros in cash and continues to look for additional purchases, Sijbesma said.

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