DSM Forecasts Challenging 2014 as Currencies Hurt Profit

Royal DSM NV fell the most in five years as the world’s largest vitamin maker said it’s cautious about business in 2014 and a sluggish economy, weak demand for some nutrition offerings and currency swings held back earnings.

“DSM assumes a continued challenging macro-economic environment, with low growth in Europe, modest growth in the U.S., and a slowdown in the high-growth economies,” the company said in a statement today. “For 2014 DSM takes a prudent approach, assuming foreign exchange rates are maintained at the current unfavorable levels for the year.”

Chief Executive Officer Feike Sijbesma has been cutting costs and jobs to offset currency swings as he’s expanding more profitable food ingredients and high-performance materials to move away from bulk chemicals such as caprolactam. Heerlen, Netherlands-based DSM, which spent $3.2 billion on acquisitions to expand its nutrition division, said today that this business was hurt by some “market headwinds.”

“These included weakness in dietary supplements and fish-oil-based Omega 3 markets in the U.S., soft demand in Western food and beverage markets, and price pressures especially in vitamin E following weak demand in animal feed markets earlier in the year,” the company said. “DSM previously signaled these adverse conditions, but the impact through the end of the year was more pronounced than anticipated.”

‘Disappointing Outlook’

DSM fell as much as 10 percent in Amsterdam trading, the biggest intraday drop since December 2008, and was down 8.7 percent as of 10:10 a.m., valuing the company at 9.4 billion euros ($12.7 billion). The stock gained 25 percent in 2013, while Amsterdam’s benchmark AEX index added 17 percent.

“These results are roughly in line but it is the outlook that is disappointing,” Citigroup analyst Andrew Benson and Dominik Frauendienst said in a note to clients today. “Other divisions including corporates performed slightly better than expected offsetting the weaker nutrition performance.”

Last year, earnings before interest, taxes, depreciation and amortization jumped 20 percent to 1.31 billion euros from 1.11 billion euros a year earlier, DSM said. The company previously forecast earnings to be “slightly below” 1.35 billion euros. Currency swings in the fourth quarter held back revenue by 2 percent to 4 percent, and the effect this year may total 70 million euros, the company said.

’’Both a weaker yen as stronger euro impacted business,’’ Sijbesma said today during a conference call.

Organic Growth

Because of the economic environment and currency swings, the company will focus on organic growth and cost reductions, it said. DSM doesn’t plan major acquisitions for 2014, Sijbesma said today.

DSM in November agreed to sell a majority stake in its pharmaceuticals business to JLL Partners Inc., a New York-based private-equity firm, to create a new company in a deal valued at $2.6 billion. DSM and JLL are betting that combining assets will create an all-encompassing manufacturing and services company with the resources to tackle projects from the research stage to clinical trials and marketing of the products.

Instead of new acquisitions, DSM said it will also focus on integrating recently purchased companies such as Unitech Industries Ltd. and Yantai Andre Pectin.

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