DSM contracts suspended in China

03-Nov-2009 - Last updated on 03-Nov-2009 at 11:05 GMT

DSM has said that it intends to look for new partners in China for its nutritional products and anti-infectives, after its contracts with North China Pharmaceutical Group Corporation (NCPC) were suspended.

DSM initially announced its intention to form a partnership with NCPC in 2004, when it agreed to pay about $25m (€16.95) for a 7.64 percent stake in the company. However, the deal had to go through a highly complex approvals process due to NCPC’s part-state, part-public ownership, and contracts for the joint ventures in nutritional products and anti-infectives were only signed earlier this year.

Late last week, the contracts were suspended due to a change of ownership, DSM said in a statement. Nevertheless, the company has said that it will continue to seek Chinese partnerships in these sectors.

DSM’s business in China accounted for eight per cent of net sales in 2008, bringing in revenue of $1.1bn (€747m).

Deputy chairman of the DSM managing board Jan Zuidam said: “China is transforming from the world’s manufacturing base into one of the world’s leading economies with one of the highest growth rates…DSM is very well positioned in China and is continuously seeking opportunities to further improve its position.”

Q3 results

The suspended contracts announcement comes as the company reported a better than expected third quarter profit, although its net earnings fell 41 per cent compared to the same period last year to €139m. However, that figure is more than double the €58m the company reported for Q2.

DSM’s nutrition business has been particularly strong, with net profits in the division up 32 per cent for the first three quarters of 2009, compared to a drop of 67 per cent for the company as a whole.

Commenting on the results, chairman of the DSM managing board Feike Sijbesma said: “DSM delivered strongly improved results for Q3 2009, with ongoing resilience in nutrition and a further improvement in materials sciences compared to the previous quarters. Our early action to reduce costs, our focus on cash and our commitment to innovation and China are paying off.”

In 2007, the company said that tough competition in global vitamin and carotenoids markets had led it to investigate new, more cost-effective production methods, which could be achieved through basing sites in China. It announced at that time that it would develop its Xinghuo, Shanghai site as a ‘strategic base’ for manufacturing in the country, and this is where its regional headquarters and R&D centre are now based. DSM currently has 14 manufacturing sites in China employing about 4,000 people.