Soft omega-3 market affects DSM results
Jan. 21, 2014
by Jeff Gelski
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HEERLEN, THE NETHERLANDS — Fourth-quarter results were lower than expected in its Human Nutrition & Health segment, especially in dietary supplements with omega-3 fatty acid fish oil, Royal DSM said Jan. 21. The Heerlen-based company also said it is making “efficiency improvements” that will affect about 300 positions in its Nutrition segment.
In Human Nutrition & Health, volumes in the fourth quarter were essentially flat compared to the fourth quarter of fiscal 2012 and down from the third quarter of fiscal 2013. Besides weakness in dietary supplements, DSM said its Nutrition business also was affected by soft demand in Western food and beverage markets and by price pressures, especially in vitamin E, following weak demand in animal feed markets earlier in the year.
“DSM previously signaled these adverse conditions, but the impact through the end of the year was more pronounced than anticipated,” DSM said.
Feike Sijbesma, chief executive officer of DSM and chairman of the managing board, said in a Jan. 21 earnings conference call, “The dietary supplements (weakness) is mainly caused by some opinion leaders and some reactions by the United States consumers, and the food and beverage is a more general effect in the western market.”
The entire dietary supplement market had a poor fourth quarter in the United States, Mr. Sijbesma said.
“With some products, it is minus 3%,” he said. “There are products that (are) minus 10%. So clearly a weakness, and omega-3 is one of the strongest impacts.”
He added DSM’s market share in all segments remains stable.
The omega-3 fatty acid market dealt with negative news in a study published on-line July 11, 2013, in the Journal of the National Cancer Institute. Research from the Fred Hutchinson Cancer Research Center in Seattle showed a link between high blood concentrations of omega-3 fatty acids and an increased risk of prostate cancer.
Commentary published in August 2013 in the Natural Medicine Journal responded to the study. Duffy MacKay, vice-president, scientific and regulatory affairs for the Council for Responsible Nutrition, and Barry Ritz, Ph.D., senior scientific advisory council vice-chair for the C.R.N., said it was an epidemiological study, which is meant to generate a hypothesis and not establish a cause-and-effect relationship. They also said the study contradicts the recommendations of health organizations and a body of scientific evidence that demonstrates established benefits of fish and fish oil.
Most of DSM’s omega-3 fatty acid business is in dietary supplements and not in food and beverage, said Rolf-Dieter Schwalb, chief financial officer and a member of the managing board, in the Jan. 21 earnings conference call.
According to unaudited results released Jan. 21, DSM’s Nutrition business in the full fiscal year had EBITDA of €913 million ($1,236 million), which was up from €793 million in the previous fiscal year. Nutrition’s net sales for the fiscal year were €4,195 million ($5,680 million), which compared with €3,667 million in the previous fiscal year.
In the fourth quarter, Nutrition had EBITDA of €207 million, up from €204 million, and net sales of €1,038 million, up from €923 million.
“Despite the moderate Q4 results in Nutrition, due to currencies and market weakness, DSM’s market positions remained strong,” Mr. Sijbesma said. “This business, with its broad, global offering across the value chain is well-positioned to benefit from the structural megatrends, with the need to nourish a growing and aging global population, living increasingly in urban areas, paying more attention to health and well-being. This will continue to drive increased demand for nutritional ingredients.”
DSM companywide for the full fiscal year had estimated total EBITDA of €1,314 million, up from €1,109 million in the previous fiscal year, and estimated net sales of €9,618 million, up from €9,131 million. In the fourth quarter, estimated total EBITDA was €316 million, up from €243 million, and estimated net sales were €2,377 million, up from €2,269 million. DSM said it will publish final audited results on Feb. 26 in conjunction with an annual report.
DSM said in 2014 it will assume a continuing challenging macro-economic environment with low growth in Europe and modest growth in the United States. DSM said in 2014 it aims to improve its business performance enough to at least offset a negative currency impact estimated at €70 million.