Pharma still weak as DSM profits slide

Related tags Operating profit Dsm United states dollar

DSM of the Netherlands saw its operating profit slump 23 per cent
to €294 million last year, hit by higher raw material costs and
declining sales of its life sciences products.

But the company said the fourth quarter showed some sign of improvement, with operating profit down 4 per cent to €93 million on sales up nearly a third to €1.91 billion, albeit boosted by the acquisition of Roche Vitamins & Fine Chemicals last September.

Excluding the contribution of the Roche unit, volume growth for the quarter would have been 3 per cent, said DSM. For the full-year, sales were up 7 per cent to €6.05 billion.

The company's Life Science Products division, which includes its activities in pharmaceutical ingredients, was hit by continued poor demand and the low US dollar, Sales slipped 10 per cent to €2.02 billion in 2003 and were also weak in the fourth quarter, down 13 per cent to €519 million.

DSM has come under pressure from increasing competition in the market for manufacturing active pharmaceutical ingredients (APIs) from Asian firms. Also, with fewer new drugs being produced at present, the number of customers for contract API manufacture is shrinking. DSM added that its anti-infectives business, which includes its clavulanic acid range, had been hit by both pricing and margin pressure.

The company said that it has plans in place to reduce costs at DSM Pharmaceutical Products, as well as to "improve the balance between demand and capacity…in the course of 2004."​ However, it expects first quarter 2004 operating profit at the division to be well below the last quarter of 2003 "mainly as a result of decreased prices at DSM Anti-Infectives and the impact of the low dollar exchange rate."

Analysts said that demand for ingredients would probably continue to be weak in the first half of 2004, but could show signs of recovery in the second.

Peter Elverding, DSM's chairman, said the results for 2003 were 'unsatisfactory', but added: "the fourth quarter produced a better result than we had previously expected, despite the steady weakening of the US dollar."​ He warned that staffing reductions and a tight control on capital expenditure will be feature in 2004.

Net profit at the group was €139 million in 2003, down from €1.19 billion in 2002, although the comparison is skewed by a one-off €94 million charge last year and a gain of €840 million in 2002 from the sale of DSM's petrochemicals business.

Among DSM's other divisions, Nutritional Products achieved sales of €496 million in the fourth quarter, contributing an operating profit of €30 million to the group. Performance Materials saw a slight (7 per cent) sales improvement to €451 million, but operating profit was down by almost a third to €16 million. Industrial Chemicals revenues were flat at €380 million, with operating profit down 48 per cent to €15 million.

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