DSM adopts dual track strategy for Nutritional Products

By Jess Halliday

- Last updated on GMT

Related tags: Dsm nutritional products, Nutrition, Dsm

DSM is taking a two-pronged approach to sustaining profitability
and spurring growth for its Nutritional Products division, as it
reports volume growth for the Nutrition cluster as a whole but
sales on a par with last year due to lower selling prices and
higher energy and raw material costs.

The Nutrition cluster, which comprises DSM Nutritional Products, DSM Food Specialities and DSM Special Products, reported net sales (including intra-group supplies) of €2.463 bn in full year 2006, compared with €2.458 in 2005. Operating profit dipped slightly to €314m from €329m. The company said that margin pressure increased for some of its products in the second half of the year, but the EBITDA / net sales margin for the Nutrition cluster was above 18 per cent, in line with the target. The start of this year has seen the Dutch group embark on a new strategy for Nutritional Products, called Dual Track. "The Dual Track Strategy on the one hand recognises the need to sustain the profitability of established products by reinforcing market share and product margins by reducing costs as much as possible and placing special emphasis on product differentiation,"​ said the company in its report, released today. It continued: "On the other hand [it] aims to boost the full growth of new business by developing a vital portfolio of innovative new products and launching them successfully into the markets."​ The new strategy, initiated on January 2, picks up from the concluded VITAL project, which centred around integration of the division acquired from Roche in 2003. Part of the programme involves the establishment of a New Business Development organisation, detailed to support growth and innovation and foster new products in both the human and the animal nutrition and health groups. DSM said that sales of Human Nutrition and Health (HNH) group remained "relatively robust"​ despite ongoing pressure from Chinese suppliers. This was thanks, in part, to continued focus on dynamic segments like functional foods and beverages, and emphasis on products that can be differentiated. Looking forward to 2007, the company said that some attractive contracts related to the Roche Vitamins acquisition will come to an end, and competition is intensifying in some of the more mature parts of the Nutrition business. "Since we want to defend and further strengthen our market position, margins may erode more quickly than the pace at which new products and formulations make their positive impact felt. "However, DSM remains committed to further increasing its innovation efforts and associated expenditure."​ In developing its new products and concepts, it has taken on board current trends in the food and supplements markets. The food innovation programme is focusing on fitness and wellness, metabolic syndrome, and cognitive function. The R&D spend for the Nutrition cluster was up on the previous year – €135m, compared to €115m. Amongst other initiatives, it had a breakthrough In production of vitamin C via direct fermentation – a method said to combine "classic and rational approaches to strain improvement for the bacterial enzymes needed for biological conversion".​ It also made progress in development of resveratrol, a nutraceutical described as targeting mainly anti-aging effects. In Food Specialities, a project to increase the nutritional value of milk beverages without taste and colour implications was terminated, mostly for cost reasons, the company says it has continued the development of "radically new ingredients​" and has a "well-filled pipeline"​. Amongst the biggest news for the division in 2006 was the launch of dietary supplement ingredient Bonistein, targeted at increasing bone formation and bone mineral density, especially in post-menopausal women. It also signed a exclusive global agreement with CreAgro for the marketing of olive polyphenol concentrate Hidrox; and an exclusive distribution agreement with Hyben Vital for the distribution of its rosehip[ powder outside of Europe. "This product, which will be available to consumers in the first quarter of 2007, is expected to make major inroads in the joint health and osteoarthritis market, which today is mainly served by products based on glucosamine,"​ said the company. DSM Functional Foods Ingredients are housed within food specialities, and big news here this year was the acquisition of the remaining shares of Swedish firm Lipid Technologies Provider for €18m. DSM already had the dairy rights to LTP's oat and palm oil satiety ingredient, which it brands as Fabuless, and it is now taking it into supplements – such as the single-serving SlimThu. The company also said sales of its peptide PeptoPro, particularly to sports and energy drinks producers, increased in both Europe and the US. The Nutrition results are set against another record year for the DSM group as a whole, in which operating profit increase six per cent to €835m and net sales rose seven per cent to €8.352bn.

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