UPDATE 3-DSM sees slowing demand after Q3 tops forecast

Tue Nov 1, 2011 5:42am EDT

Related Topics

* Q3 EBIT 231 million euros, vs forecast 206 mln euros

* Sales 2.32 billion euros, vs forecast 2.19 bln

* Seeing slowdown in electronics, construction markets

* Reiterates full-year outlook

* Shares down 0.2 percent (Adds CFO comment, detail, updates shares)

By Aaron Gray-Block

AMSTERDAM, Nov 1 (Reuters) - Food and chemicals group Royal DSM said lower consumer and business confidence was hitting demand in the electronics and electrical sectors, after the Dutch company reported quarterly profit that beat estimates.

The chemical industry is particularly exposed during economic slowdowns because of overhead costs for production plants as well as the dependence on highly cyclical machinery makers, car manufacturers and the building sector.

Although DSM has sold off its lower-margin bulk chemicals businesses to concentrate on less cyclical food ingredients and high-end plastics, Chief executive Feike Sijbesma said DSM would not be immune to a deterioration in the economy.

Still, the company , which makes vitamins and food supplements for humans, fish, poultry and cattle, reiterated 2011 would be a strong year.

Chief financial officer Rolf-Dieter Schwalb said the slowdown in the electronics and electrics sector had continued into the fourth quarter and construction markets were expected to remain weak for the next few years.

"We clearly see a softening in demand, but that is all we can say at the moment," Schwalb told reporters, declining to comment on the 2012 outlook. "The economy is not growing as fast as it was before and we have to be mindful of that."

DSM, the maker of a fibre called Dyneema used in bullet proof vests and fishing nets, said third-quarter earnings before interest and tax (EBIT) rose 37 percent to 231 million euros ($322 million), compared with a forecast 206 million.

The group's polymer intermediates unit, which supplies the textiles and electronics markets, had EBIT of 96 million euros, beating estimates of 77.8 million, boosted by price hikes and volume growth.

DSM bought Martek, which makes ingredients for baby food, for $1.1 billion earlier in 2011, and CFO Schwalb said the company was still looking to use its war chest of at least 2 billion euros for more acquisitions.

ING analyst Fabian Smeets said although DSM reported good results, this was mainly because there was no plant maintenance shutdown in polymer intermediates as there had been in the year ago period.

"We would not be surprised to see the stock decline during the day as the quality of the beat is relatively low, with the margin in nutrition below expectations," Smeets said.

DSM shares were down 0.2 percent at 37.1450 euros in early trade, outperforming a 2.7 percent fall in the European chemicals sector .

CURRENCY IMPACT

DSM'S peers BASF SE (BASFn.DE) and Solvay SA said last week they were bracing for slowing demand as customers run down inventories.

To cope with the slowdown in Europe and the United States, DSM will cut about 200 jobs at its resins unit, which provides ingredients for paints used in the construction industry, aiming to achieve 25 to 30 million euros in annual savings in 2013.

On top of a dip in demand, the world's largest vitamins maker and a supplier of micronutrients to the World Food Programme, is also getting hit by the strong Swiss franc, which has led to higher costs at its Basel-based nutrition business.

The nutrition unit's result suffered a 25 million euro negative impact from currencies, mainly due to the franc, which will have a 10 to 15 million impact again in the fourth quarter. ($1 = 0.717 Euros) (Editing by Dan Lalor, David Holmes and Jane Merriman)

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