June 20, 2018 / 6:12 AM / 5 months ago

Dutch DSM hoards $3.5 billion to fuel nutrition growth

AMSTERDAM (Reuters) - Dutch speciality chemicals maker DSM (DSMN.AS) said it has about 3 billion euros ($3.5 billion) to spend on acquisitions to expand its nutrition business and maintain its profit growth.

“We will look to expand our portfolio into the whole food and beverages area, where we see clear opportunities in consumer brands”, DSM’s chief executive Feike Sijbesma said on Wednesday.

DSM’s products range from vitamins, enzymes and infant formula to fabrics and plastics used in cars, garments and construction and its brands include Dyneema and Rovimix.

The company, whose competitors include Lanxess (LXSG.DE) and Evonik (EVKn.DE), said it would eventually return excess cash to shareholders if it failed to make acquisitions.

“We can’t sit on this amount of money for years. But our focus now is to see whether we can find the right targets,” Sijbesma said on a media call ahead of DSM’s investor day.

Analysts and investors have urged Sijbesma to split DSM’s Nutrition and Materials businesses, but in his strategy update the CEO made it clear this was not his plan.

Instead the materials division will get a stronger focus on health products, biotechnology and sustainable applications, he said, bringing its activities more in line with those of the larger nutrition division.

PAYING DIVIDENDS

DSM said it expected “high single digit” growth in adjusted earnings before tax, interest, depreciation and amortization (EBITDA) from 2019 to 2021, as comparable sales outpace the market average with a yearly increase of around 5 percent.

This would continue DSM’s recent strong growth as it cut costs and saw sales of its food ingredients and basic materials rise, leading to a 15 percent increase in core profit last year.

Profit margins should improve to more than 20 percent at Nutrition and between 18 and 20 percent at Materials in 2021, from 18.9 and 17.3 percent respectively in 2017.

Shareholders were promised a 25 percent dividend rise over 2018, while DSM said it expected it to increase further in the coming years in a reflection of its confidence in the future.

DSM confirmed its adjusted EBITDA growth forecast of around 25 percent for this year, as supply disruptions at competitors temporarily lead to higher vitamin prices.

Shares in DSM were down 3.2 percent at 86.3 euros at 1303 GMT on Wednesday.

Reporting by Bart Meijer; Editing by Amrutha Gayathri and Alexander Smith

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