Analysts polled by Bloomberg had expected profits to fall by 24 per cent to €56 million, based on lower demand for drug ingredients, high raw material costs squeezing margins and the strong euro.
However the Netherlands-based group recorded a profit of €79 million, thanks largely to its Nutritional Products unit, the former Roche vitamins business that has been managed by DSM for the last six months.
The division accounted for a 32 per cent increase in sales, significantly lifting group revenue, which saw autonomous growth of 5 per cent. This helped buffer the effect of lower selling prices, which shaved 4 per cent off growth. The dollar, pound sterling and yen exchange rates with the euro drove the figure down another 4 per cent to €1,873 million in total.
Nutritional Products also saw strong improvements in operating profit thanks to lower costs and further growth in new products and formulations, said the company. The earnings of €47 million contributed a large share to the group's overall €110 million operating profits, a 21 per cent rise on the prior year's first quarter.
"A major effort is currently being made to unbundle the unit from Roche, integrate it into DSM and improve its competitive strength via cost reductions. The effects of these cost reductions were already noticeable in the first quarter," said DSM.
Cost-cutting has led to a reduction of 249 jobs in Nutritional Products (and a further 329 from elsewhere). But DSM now expects operating profit at the business unit to exceed the previously forecast €150 million for 2004.
"The results for the first quarter of this year exceeded expectations we had when we presented the annual figures for 2003. We are particularly satisfied with the good progress being made at DSM Nutritional Products," said Peter Elverding, chairman of the group's managing board.
However while Elverding predicted similar performance for the second quarter he noted that economic uncertainties like the dollar exchange rate and raw material prices could influence the full-year result.
Other business groups in the Life Sciences cluster, particularly its Anti-Infectives unit, will continue to suffer from lower prices and margins, which led to losses in the first quarter. Food Specialties and Fine Chemicals posted operating profits level with the fourth quarter but slightly lower than last year's first quarter thanks to the weaker dollar.