DSM says it has already identified over €150 million improvement potential in the Roche Vitamins acquisition in addition to more than €75 million in savings expected from restructuring programmes at DSM.
Following the completion yesterday of the acquisition of Roche Vitamins & Fine Chemicals, Peter Elverding, chairman of DSM's Managing Board said in a statement today that DSM remains 'on-track and on-schedule' to achieve its Vision 2005 strategy and 'may have seen the worst in market conditions now'.
Elverding and other members of the Managing Board are to speak at the company's annual presentation to chemical industry analysts today and tomorrow. Points to be addressed include the renaming of Roche and its consequent integration into DSM, financial implications and overall restructuring of DSM.
Roche's Vitamins & Fine Chemicals business is to be renamed DSM Nutritional Products (DNP) which will be run as a separate operational entity, headed by Feike Sijbesma as chairman. DSM said the completion of the acquisition represents a major step in implementing its Vision 2005 strategy. 'By combining DSM's competences in biotechnology and operational excellence with DNP's strength in application and formulation technology and global marketing and sales, a profitable leadership position will be ensured in the future,' said the company in its statement.
Elverding added: "The field of nutritional ingredients and supplements offers attractive growth opportunities for DSM Nutritional Products and other parts of DSM in the segments of food, feed, pharma and cosmetics. We are ideally placed to exploit all the opportunities this market provides."
DSM will now start an integration and transformation programme for DSM Nutritional Products called 'Vital'.
On closing the deal more than €150 million in annual savings and improvements had already been identified. DSM expects the Earnings Before Interest and Taxation (EBIT) of DNP to be at least around €150 million in 2004, resulting in an earnings per share increase for DSM of around €0.70 in the first year, with a further improvement expected in 2005.
DSM has also announced plans to execute a restructuring programme in other businesses of DSM, resulting in the closure of one site and certain production facilities, combined with various reorganisations. Both measures will lead to a reduction of over 600 jobs. According to DSM, in 2005, this will lead to at least €75 million EBIT contribution. Related to the restructuring, extraordinary costs will be charged to DSM's Q3 results for the amount of €102 million net, due to impairment of assets (€59 million) and various provisions (€43 million).
The Q3 result will also include a non-recurring charge of around €15 million, caused by the recent explosion in a plant in Linz, Austria. The consequence will likely be a strongly reduced operating profit compared to Q2 2003. Together with the extraordinary costs of €102 million net, a negative net result of €70-90 million is expected for Q3.
DSM expects better market circumstances, however, from Q4 onwards for most of its current businesses. Also, DSM Nutritional Products is expected to have an immediate positive effect on EBIT. The combination of contributions from the already identified improvements in DNP and the announced restructurings is expected to contribute more than €225 million to DSM's EBIT in 2005.
DSM paid a total of approximately €1,750 million for the business. Roche will make a contribution towards the costs involved in the unbundling of the acquired business. For the next 3-4 years, agreements have been made with Roche about minimum use of certain assets and compensation for certain purchasing contracts of the Vitamins & Fine Chemicals division.
During the Vital program DSM says it will focus on strengthening the so-called 'running business', as well as executing a change project to realise a substantial improvement in business performance. A project will also be set up regarding brand alignment and customer satisfaction.
The change project comprises three phases, designed to generate a substantial improvement in business performance. Firstly, focus will be given to integration and restructuring. This phase will concentrate on implementing new work processes and several cost reduction programmes, purchasing savings and improved production and supply/demand chain efficiencies.
Phase 2 will include market approaches, revenue optimisation, activity based costing, segmentation and product and customer mix focus. Phase 3 is planned to start at the end of 2004 and involves several strategic topics, new business models and the determination of the new organizational structure of DNP.