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Executives

Dave Huizing – IR

Rolf-Dieter Schwalb – CFO

Jos Op Heij – SVP, Corporate Control and Accounting

Analysts

Mutlu Gundogan – ABN Amro

Fabian Smeets – ING

Peter Mackey – Morgan Stanley

Jean de Watteville – Nomura

Massimo Bonisoli – Equita.

Andrew Stott – Bank of America/Merrill Lynch

Andrew Benson – Citigroup

Rakesh Patel – Goldman Sachs

Andreas Heine – Barclays

James Knight – Exane BNP Paribas

Royal DSM N.V. (OTCQX:RDSMY) Q1 2013 Earnings Call May 2, 2013 3:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to DSM’s conference call on the Q1 results 2013. Throughout today’s presentation all participants will be in a listen-only mode after the presentation there will be an opportunity to ask questions. (Operator Instructions)

I would like to turn the call over now to Mr. Dave Huizing. Go ahead please sir.

Dave Huizing

Ladies and gentlemen, good morning and welcome to this conference call on the first quarter results we published earlier this morning. Sitting here with me are Mr. Rolf-Dieter Schwalb, Chief Financial Officer and Member of the DSM Managing Board and Mr. Jos Op Heij, Senior Vice President Corporate Control and Accounting. They will elaborate on the results and after that answer your questions. This call will last until that.

As a reminder, today's presentation may contain forward-looking statements. In that regard, I would like to direct you to our disclaimer about forward-looking statements, as published on our website and in our press releases.

Now, I would like to hand over the call to Mr. Rolf-Dieter Schwalb

Rolf-Dieter Schwalb

Thank you, Dave. Ladies and gentlemen, welcome to this conference call on the 2013, first quarter results. I will keep my opening comments really short to allow for as much time for questions as possible.

DSM had a good start to the year with a robust performance both compared to Q1 and Q4 of last year on an EBITDA increase, despite the negative caprolactam effect. This was achieved in the context of challenging global macro economic conditions.

Nutrition, which accounted 70% of Group EBITDA, has proved the resilience in quality of its broad offering across the value chain, delivering another quarterly improvement in profitability together with healthy margins.

Materials Sciences performed well except for caprolactam which had a negative effect on EBITDA of €65 million, compared to Q1 2012. In the first quarter, we benefited from the sale of certain DSM Resins and Functional Materials related to distribution activities.

All in all, Q1 EBITDA increased to €311 million. As you might have seen, unfortunately there was a small fire last week in one of our two caprolactam plants in Heerlen, The Netherlands, after which both plants had to shutdown.

This could last several weeks; the current estimate is four weeks. The financial impact for Performance Materials and Polymer Intermediates is expected to be small, but there will also be an impact on the captive insurance costs which are reported under corporate activities.

There is no change to our full year outlook, which you can find in full in the press release. Overall, based on current economic assumptions, we expect to step-up an EBITDA during 2013, due to stronger organic growth, supported by our profit improvement program and the benefits of acquisitions and the more resilient portfolio start to have impacts.

In 2013, our focus will be on the operational performance and integration of the acquisitions we completed in 2012 with special attention to capturing synergies. Overall, based on current economic assumptions the above will enable us to move towards our 2013 EBITDA target of €1.4 billion.

And with these opening remarks, I would like to open the lines for questions now.

Question-and-Answer-Session

Operator

(Operator Instructions) Today’s first question is from Mutlu Gundogan from ABN Amro. Go ahead please sir.

Mutlu Gundogan – ABN Amro

Yes, good morning gentlemen, I’ll start with two questions. First on nutrition. Can you talk a little bit about the supply demand situation in vitamin A and E? Can you tell us why prices are actually coming down and what do you expect in terms of capacity changes in the coming years?

And the second question is on capro, I was surprised to see that you’ve entered into a licensing agreement as I understood from a couple of years ago, that you would no longer do this, you didn’t want to share your technology. Can you tell us why this strategy has changed?

Rolf-Dieter Schwalb

Let me start with the last one. I don’t really see a strategy change there, only – I don’t remember exactly two or three years ago, we had a similar agreement with a Russian partner which also had a licensing agreement as part of the whole deal. Now we have the same and I think it’s relatively simple.

We have the situation where we understand that a lot of capacity might or some will be added in China and then if you can’t avoid that, then better take a share of that instead of just watching it. And that was the case here.

So, this company which also is a customer has clearly decided to build these two lines of 200 kilo ton each and then better – and they are interested in our technology and then better join them instead of having no benefits from it.

Then on nutrition, a specific question on the supply demand, what we have of course seen that is mainly relating to animal nutrition, the same as in Q4 last year. That’s because of the high grain prices following the weather situation in the US last summer. The demand has decreased and in that industry, grain prices continue to be higher.

Although they are softening and of course at the end of the day, that will be a temporary effect because the real consumption of meat doesn’t change. So, that has impacted the demand side. On the supply side, to our knowledge no substantial change at all.

Mutlu Gundogan – ABN Amro

Okay, thank you. Can I just ask on the capro plant of your partner, can you tell us when you expect that to come online? And how we should model the licensing income? Is that a percentage of sales as royalties or is that a fixed fee?

Rolf-Dieter Schwalb

They are starting basically now. They want to build a large integrated site on basically newly claimed plant in China and if they start now, it will take until 2015 as we know to really get up and running, maybe 2016 as we headed with our own construction, it takes two, three years.

So, that is the intent. Now the deal has basically three elements. One is a straightforward license on technology that goes for three years, so it’s not a one-time effect in Q1 also the Q1 effect is slightly higher than what we expect in the following quarters.

The second part is, really supports in building and constructing that they of course also paid for with a mark-up and the last part of the deal is a supply agreement which we basically load our second line in Nanjing with a quite significant portion for that customer.

Because the total need is higher, clearly higher than what they will build themselves. So that is the combination of all three. So the profit impact will last for roughly three years to every quarter. As we have said in the first quarter because of kind of a smaller – kind of I’ll call it one-time effect, it is high-single digit contribution and the other quarters it’s will be mid-single-digits per quarter, but it’s not exactly stable. But around that I think for forecasting and modeling, I think this is – I think good enough.

Mutlu Gundogan – ABN Amro

It is. Thank you very much.

Operator

The next question is from Fabian Smeets with ING. Go ahead please.

Fabian Smeets – ING

Yes, two questions from my side. First of all, on nutrition, I think you’ve been increasing prices both on the vitamins side in the first quarter, but also in your polyunsaturated fatty acids. And what kind of response that you see from your customers on these price increases? Are the price increases taking? Are your customers staying with you or maybe – or starting to look for other suppliers?

And then secondly, on your Brisbane facility and pharma, I think you’ve recently won a smaller contract for that facility, what kind of impact do you expect from the start-up of this plan in 2013 and 2014?

Rolf-Dieter Schwalb

On the pricing, it’s too early to say the price increase announcements were made at least for the vitamins in early March and usually as we know about the contracts and everything, it takes about three months or so to get implemented. So it’s too early to say, but we expect implementation will happen of these price increases.

Omega-3 is slightly different because that is driven by the fish oil prices which we basically pass through, which we already did in Q4 last year. So, but that is not comparable completely with the vitamin situation. And the vitamins really is correct. The announced pricing is for A, E and niacin which is P2. I get not any P2. So – but we are confident there. But it’s too early to say. It takes a while after announcements.

On the Brisbane facility, yes, it will start-up and yes, we are beginning to have loading, I mean contracts which will load the facility, as you know it’s – sponsored facility and we expect very little impact this year actually. So, for 2014, the contribution should be starting.

Fabian Smeets – ING

Thank you.

Operator

The next question is from Peter Mackey, Morgan Stanley. Go ahead please.

Peter Mackey – Morgan Stanley

Morning, yes I have got three questions if I can. Firstly, adjusted in the nutrition business, I noticed the Fortitech contribution appear to be rather light. So I think your guidance is for implicitly a margin of about 26% for this year and I know that includes synergies. But I think the Q1 contribution was about 17% and I don’t think the synergy effect accounts about the whole of that difference. I wonder if you could talk about what’s going on in Fortitech please.

Secondly, just on – again back to that vitamin pricing situation, I think you’ve been talking, you were justifying price increases from raw material effects. I wonder if you could give us an idea of what’s the dynamics of your raw material bill in nutrition. Through Q1 and looking so far into Q2, just to give us an idea of the potential margin impact if those price increases do or indeed don’t come through?

And then, finally going back to the Shenyuan situation in caprolactam, I’m still – a bit confused by this – the structure of this agreement, because typically one doesn’t really pay for a license until your plant comes on stream and this is a reasonable income for the – in terms of licensing income.

Are they – are you supplying them in the mean time under your three year contract at market prices? I mean, should we look at the – should we model polymer intermediates as if that is being supplied at market plus this licensing income? Or is there some sort of offset between the two? Thank you.

Rolf-Dieter Schwalb

Maybe in that sequence, and nutrition Fortitech, you observed the margin 17% versus 26%, if you remember the announcements which we made and Fortitech is a different kind of acquisitions as much the synergies at least and also the business model compared to Martek ONC or Tortuga.

Here the synergies are really an important element of that whole concept and of the acquisition and the synergies most of them actually are in our old business – if I may call it that in DSM nutritional products. You remember we talked about for example, replacing foreign suppliers by captive use that of course will land technically speaking not in the Fortitech results, but in the nutritional side. At the end of the day of course it doesn’t matter.

We also talked about synergies in capacities. So we have for example already announced two shutdowns of premix facilities, one in Brazil and one in the United States which were DSM premix facilities before the acquisition of Fortitech.

The total synergies which we announced in the press release at the deal time was 10% of sales. So, which is simply says10 margin points, so I think, it’s completely consistent that the 17% is absolutely in line with expectations. The company grew substantially in the first quarter and the additional margin is being implemented, but it will not land directly in Fortitech numbers. But of course at the end of the day, this is not relevant. It is a total improvement for our nutrition business and that is the important element.

Peter Mackey – Morgan Stanley

Of course, if I could just come back on that to understand, are you suggesting that I – that the Fortitech business it’s traditionally it’s longstanding margin has been around 17% on the one hand and so there is no change here. And the guidance that you provided which I think was $70 million of EBITDA from Fortitech. We are not actually going to see that in Fortitech but we will – that effect will be split between what you report for Fortitech and what you report for your – within your existing nutrition business. Is that the way to understand it?

Rolf-Dieter Schwalb

Exactly, that is exactly correct. We will, because we want to give you that service for the first couple of quarters until we cannot really identify it anymore report the numbers for the acquired units, but after it’s fully integrated that is close to impossible and that is already the case for nutrition.

That we want to give you that service and because most of the synergies land actually in our old business. The Fortitech margin which is absolutely in line with what it has been but Fortitech has been a strongly growing company over the – some 20 years or so of existence.

That business – that margin is healthy and it’s good and of course with integrating it into our business, the total contribution to DSM is significantly higher and just can only repeat. We quantify that in the press release at the moment of acquisition with 10% of sales of which we expect roughly half to be implemented this year and then the full effect next year.

So that is – I think it’s fully inline and at least in line with expectations I would say. We don’t have time for that, but this is a facility, the headquarters and the one facility two weeks ago and I really was impressed.

On the vitamin pricing, yes, of course we know in nutrition the input cost is rather diversified. It’s not like in traditional chemicals where a lot is at the end oil or gas based. Here you have a much broader line of input materials.

We know of course that energy cost is quite expensive and increasing, but that is certainly an element. But of course at the end of the day, we also want to improve margins to a certain extent. But that’s I think fine. But it is correct that there is a relation.

On the caprolactam, the deal is as it is and to support building the factory from the beginning, the agreement has been made but the license fees start kicking in already now and not only when production starts. It’s a deal which was discussed and we had signed.

So it is what it is, you call it maybe not traditional, but to be honest I like it. And this company or part of that company have been very good customers in the past. Sometimes we also mentioned the name – which is also a part of that company. They are in textiles and they are very much interested in our technology and also buying from us now and they have been buying from us because they operate high speed spinning machines our caprolactam quality is important for their efficiencies.

Peter Mackey – Morgan Stanley

That’s very clear. Thank you and just – the caprolactam you’ll be supplying into the next three years is going to be a market in that case?

Rolf-Dieter Schwalb

Yeah, yeah, okay, of course.

Peter Mackey – Morgan Stanley

Thank you.

Rolf-Dieter Schwalb

As it is today.

Operator

The next question is from Jean de Watteville, Nomura. Go ahead please.

Jean de Watteville – Nomura

Yes, hi Jean de Watteville from Nomura. Thanks for taking my question. First of all on working capital big outflow for the first quarter, I was wondering whether you could provide a bit of color on which business you’ve seen exactly the big surge of receivable in the first quarter.

And more importantly, we know working capital ratios are higher than average for nutrition and you’ve done quite a lot of acquisition last year and this year nutrition what the level of working capital on sales ratio you expect to reach at the end of 2013?

Well that could be the first two questions, then a third question is on vitamin E and A, capacity addition, we had the announcement from – last week that they will invest for a C12 plant which if I understand correctly that it’s a precursor for Aroma Chemical for Vitamin E and A.

And I was wondering Schwalb, whether you believe that the type of capacity BSF could add could be easily absorbed by the market, that is a challenge going forward and regarding you on planning, when do you believe you should add more vitamin E and A capacity? I mean are you currently fully utilized or what are your thoughts about adding capacity?

And if I can add a very last question, I apologize for that, I know you don’t disclose animal nutrition separately, but I mean this quarter, clearly there is different trends between human nutrition in one side that was up and animal nutrition that was down. Can you tell us how bad was animal nutrition? Was the organic growth decline more than 5% or was that still around zero? Thank you.

Jos Op Heij

Let me then go in that sequence with working capital first. That is correctly observed in our balance sheet that working capital was to a large extent prior – that is simply a significantly higher days in March than in December. So that is not unusual. And now where did it happen, it happened in nutrition, it happened in performance materials, I think that’s the two most areas.

Yeah, also of course in the polymer intermediates because actually sometimes I call it December is only half a month. So that is across the board, there is no signs that payment behavior or customer changes. So it is – they have normal if they say it’s outstanding, just higher business level in March versus December.

Then nutrition, yes, you characterized that correctly. It is at the higher end of our working capital needs in the company. Nutrition is more in the area of 30% of sales. For example, polymer intermediates is below 10% of sales.

The average of the company therefore depends also strongly on the mix of – in the various business and segments because of the growth nutrition in the last year with – that the total average for DSM has trended up. For this year, end of year, as expected exactly to predict but I would guess that we will end up somewhere around 20%, 21%.

Jean de Watteville – Nomura

Okay, thank you.

Rolf-Dieter Schwalb

On the announcement of BSF, I cannot really comment a lot in detail. You correctly described the situation as much as I as a financial guy also understand that you can, that intermediate to Aroma Chemicals but also potentially to vitamin C. Now what will happen exactly later, I don’t know you have to ask BSF.

But there is no at least I am not aware that there is also any announcement or a big plan to increase the Vitamin A or E capacity. When do we plan new capacity, at the moment we don’t need to and don’t need so. We still have capacity, we have room and if not then of course also some of our statements like on the earlier question of Peter on Fortitech synergies would not be easily synergies if we would have to build capacity for that.

That is nothing at the moment. On animal nutrition, we of course do not disclose the details, but it is clearly a negative organic growth in the first quarter. But I will not comment on.

Jean de Watteville – Nomura

So more than 5%.

Rolf-Dieter Schwalb

That has been on the negative growth of animal nutrition, I will not comment on the numbers.

Jean de Watteville – Nomura

Yeah, but it’s a material figure. So around 5% or is a 5% decline is probably not right?

Rolf-Dieter Schwalb

You take your assumption. It is compensated by the growth in the human parts of company called specialties human nutrition personal care mainly and of course we have a few small other things but that is – that compensated for the animal nutrition.

But of course the good thing to see there is also that our business model in nutrition and the resilience as we call it with the broad coverage of the value chain in animal in human, the huge – in the mean time after the acquisitions of ingredients straits which we offer in terms with the market the forward integration to remix.

And the Fortitech, that business model in total is much more resilient that will always be parts which are less good in other parts which are better. But if you are just a one line business cannot compensate. And this is the beauty of our development here.

Jean de Watteville – Nomura

Okay, thank you very much.

Operator

The next question is from Massimo Bonisoli from Equita.

Massimo Bonisoli – Equita.

Thank you for taking my questions. First about the business environment in Performance Materials and Polymer Intermediates, what do you see in terms of sequential performance in the months during Q1 and at the beginning of Q2 because we are now in May?

Second question is on caprolactam, how do you see the supply and demand situation going forward and third question is on the exceptional, the minus €11 million, is it all related to the profit improvement program and what I do not understand is the high-single-digit one-time book gain in DSM resins and Function Materials, why is that not an exceptional item? Thank you.

Jos Op Heij

Let me take the last one then fist. We have – I don’t know for how many years, but I would guess at least since we introduced IFS defined exceptional for our company size fully in agreements – at the level of €10 million or higher. So when it’s below €10 million it’s in normal EBITDA when it’s above €10 million it’s exceptional and that is a very straightforward cut-off which we have applied now in terms of IFRS which I think in 2005 was so.

And that has been applied consistently over time and that we have used here and also that’s why a high-single-digit obviously below 10 is then a normal EBITDA and not an exceptional. Behind the deal is basically a distribution business in which the DSM Resins and Functional Materials was engaged together with the Germany company called Biopract and across many countries and basically what we have done is with that company, we have split the business for certain countries. They are not the full owner for certain countries.

We are the full owner and in the whole set up the outcome was that book profit. Now that is the explanation on the exceptional for the rest I think this text in our press release has been clear there. And that’s also why for example the book profit behind divestment of the ex customer’s joint venture with Exxon Mobile, because it’s above €10 million is in exceptional.

On the polymer intermediate and performance materials sequential by month question, yeah I can give you some general trends, not about April by the way, because we have 2nd of May. I don’t get information on that low level on a weekly basis.

So, at least that not heard anything special about April, but in the first quarter, there was no specific trend except what we discussed earlier that March was a pretty good month across the business since with stronger sales which resulted and that received with increasing our working capital and that is I think basically across both business segments.

Then on the capital supply demand balance, yeah this is what we said last year and the numbers are of course fluctuating. We talked always what we heard about announcements talks. We have always said not all of that most likely will materialize.

In addition, companies were on the high cost – end of the cost curve might also shutdown. Where this could predict, we know one announcement of course of human.

Then, yeah, for the rest, we are pretty sure that about 600 kilo tons, 700 kilo tons are being added in 2012, 2013 combined and yeah for the rest it’s their announcements and we don’t know. We are sure of course now about the 400 kilo tons which our customer Shenyuan will put in place.

But that’s about it, but business in China, the market in China is growing. So China needs more caprolactam but of course with that additional capacity all in China, still the global supply demand balance or utilization rate is lower than we had it for example in 2010 and 2011. And that is more in the area of 85% at the moment.

Massimo Bonisoli – Equita.

Can I ask a follow-up question on your segment on March, pretty good demand, which end-markets in particular were asking more – significantly more volumes?

Rolf-Dieter Schwalb

Don’t have in detail there which end-markets were significantly contributing. Those are good sales months. Nutrition, as I said earlier, we also discussed animal nutrition was down versus a year ago. So human nutrition and it also was a good month in Materials. But I do not have end-markets specifically which were now outstanding in the mix.

Massimo Bonisoli – Equita.

Thank you.

Operator

Your next question is from Andrew Stott Merrill Lynch. Go ahead please.

Andrew Stott – Bank of America/Merrill Lynch.

Yeah, good morning and just a couple of things. Just wonder if you could map out where you are with your efforts to find as a relation to the reduction to the merchant exposure in capro, obviously, you stated today that the Chinese developments are not related to that.

And secondly, your guidance in performance materials, you are expecting some improvement. Q1 is down 7% or 8% excluding the gain. So can you just talk me through your confidence on growing that division this year? Is that the cost savings or do you see some macro improvement? Thanks.

Jos Op Heij

No, on the macro side, we don’t, for sure we don’t see it at the moment and we also do not built-in assumptions that the second half will be helping us. So, there is no assumption. So the many driver for the improvement is indeed our profit improvement programs but which of course as you know are not focused on materials only, but of course also on performance materials and we have to have programs in all three business groups, Engineering Plastics, Dyneema and Resins and Functional Materials. So they will contribute significantly.

We have as you know, February increased our target abut also stretched at one more year to €200 million to €250 million by 2015. I think we can now say that we are trending towards the upper end of that range and with also more than €100 million contribution this year already €100 million was the number which we assumed basically earlier this year.

That sill contribute and that gives us the confidence today that we will increase and of course increase the book profit of that divestment is also included, but of course it’s a one-time, you are absolutely right.

Andrew Stott – Bank of America/Merrill Lynch.

Sorry, is it included in the guidance again?

Rolf-Dieter Schwalb

Yes, of course, so, it is what it is. And then, and this is of course a little bit bigger than normal and it has exceptional, I mean you have one-time items below the €10 million threshold every quarter. But this is standing out because it’s high-single-digits. So we mentioned it separately and also the deal was announced earlier this year and already last year.

Then on the first question on the progress, yeah, we are in the process but that should know us and myself, we will not commenting during the process. We will announce of course when we have something to say on this one. But we are in the process of doing this or looking at the options which we have and going forward with that. But it’s too early to make an announcement of a specific step.

Andrew Stott – Bank of America/Merrill Lynch.

Are you prepared to say whether you are live discussions now?

Rolf-Dieter Schwalb

No we never commented that.

Andrew Stott – Bank of America/Merrill Lynch.

Okay, okay. Thanks.

Jos Op Heij

And you are totally correct that the deal with Shenyuan is not part of the reducing exposure to the merchant markets, because it doesn’t. It is merchant market, this is a third-party customer, but it helps us in addition to the licensing income and support in building that facility. It helps us to load the second line in terms of tonnage quite significantly for the next years over the first years at least. And in that sense, it’s a good deal, but it is not related to reducing the exposure in the merchant market. That is absolutely correct.

Operator

Do you have any questions sir?

Andrew Stott – Bank of America/Merrill Lynch.

Yeah, that’s great. Thank you.

Operator

Thank you. The next question is from Andrew Benson, Citi. Go ahead please sir.

Andrew Benson – Citigroup

Thanks very much. On the animal health side, you talked about the legacy effects of high grain prices, I mean grain prices have come down fairly significantly now a little bit, so quite high.

Can you give us some sense of what your business is terms of the recovery of animal health volumes and when you are confident that that’s going to be on a growth trajectory that you have plans for. Can you give us an idea of the year-end net debt that you hope and you talk about better pharmaceutical performance this year. Can you – is it just cost-cutting please? Thanks. .

Rolf-Dieter Schwalb

Pharma, yeah, it’s not only cost-cutting you know our strategy the one part which we have set in 2010 partnership we obviously have not yet achieved, but the sales help measures which is profit improvement program, loading facilities which we have with additional customers and products and you can follow that even because they are almost one-by-one announced in the industry by the business group.

But they are not individually sizable but of course every single one is good. And so it’s a combination of both sales help measures and profit improvement programs on cost reduction, but also loading the capacities better.

But actually I’ve said this is an improvement from a very low base, but at least one can say after several years where the profitability of pharma went down, down, down, down and this is after last year where we were slightly improvements, seen emerging more EBITDA. We now may have really seen the low end and we are turning around and improving further despite the deconsolidation of 50% of the anti-infectious business. So, I think we are on the right track and right time there.

On animal nutrition, yeah it’s too early to say but the business on the grain prices you are right, that’s also what we said in the press release that the grain prices have come down or they are coming down. But it seems to be a longer process.

Today, there has been an announcement on meat price increases. But of course at the end of the day, the consumption does not change. So it has to come back and improve again, because we do not change our habits. We eat the same meat, and the same quantity, probably as we did last year or two years ago or three years ago. So the business such the market – the end-market is a very stable market and if anything in the high growth economies with urbanization we have discussed it earlier increasing.

So it will come back again. How fast will that go that is difficult to predict, but if we want to achieve our growth which we believe we will this year in nutrition, also animal nutrition will improve gradually quarter-by-quarter and contribute to that.

But as I said on an earlier question, the beauty of our model in nutrition is that you have a much larger business now, with many dimensions, value chain, ingredients and so on, where also a weakness in one area can be compensated by strength in other areas and that is the good thing and that is the whole – I mean in the short rate of describing, that is the whole idea.

Andrew Benson – Citigroup

Okay, so you are budgeting on a recovery in the second half in order to get…

Rolf-Dieter Schwalb

In the coming quarters, yes, of course.

Andrew Benson – Citigroup

Okay, thanks.

The next question is from Rakesh Patel, Goldman Sachs. Go ahead please.

Rakesh Patel – Goldman Sachs

Hi there, just couple of questions if I may. First one I just want to check – I had in the third what you were saying about nutrition pricing in terms of when we should start seeing the improvement. Is it fair to assume that Q2 will probably be around on the same level of Q1 and then we should see a reasonably strong improvement in Q3.

And then secondly, in the Polymer Intermediates business, I wonder if you could talk a little bit about the turnaround since you did in last year and whether you are actually seeing the benefits of that coming through, it’s slightly difficult to tell from the numbers we’d be getting clouded by caprolactam to some extent and then finally, if you could let us know what the EBITDA of nutrition business were if you were to strip out the impact of acquisitions that you made last year? Thanks very much.

Jos Op Heij

Okay. Nutrition pricing as I said earlier the announcements were made beginning of March and it only takes about three months to get implemented. So we expect to see some effects of that in Q2 but relatively limited and then stronger in Q3. So that assumption is correct. On the EBITDA of nutrition, we have basically if you look at what we did last year, we had ocean nutrition midyear. So in Q1, ocean nutrition is on top.

Ocean nutrition as we have already fully integrated it is not published separately anymore because it’s much more difficult to identify what the profit contribution is but you can assume that the contribution is around €8 million, €9 million, maybe €9 million €10 million, so in that range to eight to ten.

So that is in line with expectations the Omega-3 sales based on the ocean nutrition are in the order of magnitude of €35 million, €37 million. So it is 25% of margin that is inline. Order of magnitude then the published Fortitech part which is €9 million also that is the two main parts.

The Cargill enzymes and cultures is a minor part. So if you take those numbers, there is somewhere in the order of magnitude of say €17 million to €20 million is probably a good approximation of contribution from the acquisitions of last year. Tortuga obviously not yet, because the closing of the deal was beginning April and Martek we cannot identify anymore.

That is now more than two years in the system that I cannot add but of course that is also not a change versus last year because it was already in the last year’s first quarter. That is on EBITDA and our nutrition and then polymer intermediates, yes, last year we had this large turnaround here in our Dutch facilities which was end of Q1 beginning Q2 with impacts in both quarters that we don’t have to see, but of course the whole market situation has changed.

And so it’s not really comparable any more at that time we vested enjoying pretty nice margins. As you know from the Q1 that’s also why we highlight that in the number which we have now, we basically comparing to Q1 last year. We missed around €65 million of profit contribution from caprolactam in polymer intermediates and engineering plastics, performance materials.

So, if you strip out that €65 million from last year total DSM you could make an argument even that our total EBITDA improved almost 30% of which part as which I’ve discussed as acquisitions. So, but it’s difficult to compare now, it’s a completely different market situation and margins versus last year with the turnaround.

Rakesh Patel – Goldman Sachs

Very helpful. Thanks very much.

Operator

The next question is from Andreas Heine, Barclays. Go ahead please.

Andreas Heine – Barclays

Yes, good morning. Two questions if I may, the first, and you mentioned for the second time that you had some mix effect in the price component in nutrition. Could you elaborate that this is something ongoing and why we have seen this now for the second time?

And on the others line, in the cash flow statement, you had an outflow of $40 million is that mostly due to restructuring and will be the 70 million, 80 million outflow in this year more front-end loaded or is there more to come in the cash flow in the coming quarter? Thank you.

Jos Op Heij

Let me address the second one first, that was very simple and technical. Basically, in the EBITDA where we start in the cash flow statement the cash inflow from the divestments especially DEXPlastomers is included and because that will be shown later further down in the cash flow as cash inflow from divestment as a technical correction that underlying.

So fewer technical IFRS correction from an EBITDA which includes something which has been presented further down in the cash flow statement. So and they are not comparable with future quarters.

Rolf-Dieter Schwalb

Now on the mix effects, I think we did it for your observation second time, but only for one thing we know for the second time, I think really made it explicit in the presentation of the sales analysis statement. As always verbally said that the way we do it, the price column in the past we called it only price always has included mix not only for nutrition but every part of the company.

So the way we calculated to strip out first acquisitions then we strip out the currency translation effect and then the rest is being stripped into volume and now call it other effects. The volume one is relatively straightforward, I mean it’s of course much easier in the business in like Polymer Intermediates than in the highly complex business like nutrition with thousands of SKUs and then what left in the price.

But I always verbally added the reality price and mix which we cannot separate and analyze in more detail for complex businesses like nutrition. But in theory, I make an attempt for example in fiber intermediates that caprolactam acrylonitrile and make the mix effect but it is so theoretical at the end. But it is nothing new it has always been in that column only for clarification and transparency reasons there is now in the press release this column is price and mix. But it always has been.

Andreas Heine – Barclays

Understood, thanks.

Operator

The next question is from James Knight, Exane, go ahead please.

James Knight – Exane BNP Paribas

Good morning, couple of questions left, firstly in performance materials, resins, we know the – clearly that the market backdrop is that I wondered if you detected any extra effect in the first quarter from the cold weather? Whether that was anything your customers relayed? And secondly on the insurance impact, in the second quarter, but that be of a scale large enough to be treated as an exception strip that way or is it low single-digit-number? Thank you.

Rolf-Dieter Schwalb

The latter one, that’s not being exceptional, so it would be a normal EBITDA and insurance is always very difficult to predict, Of course we take a standard based on historical events assumptions in our forecast and then basically events happen as singular events, especially it’s a more sized and then normally the results reflection in the quarters has smoothened out as much as possible.

So, for example in Q1, we had basically no insurance cases, so we have built up, you could argue the cushion for effects later. In the best case, in theory no events at all. Our insurance profit is much higher and it can go back in years and you will see that. And in that case, and I think diversities I remember in the time I have been here was four, five – maybe five years ago when we had this big event in the fertilizer business.

Those are fewer who were around that time will remember. And then of course insurance, it’s affected, but there is also a limit because of a certain limits the external reinsurance kicks in.

Now this one here will be in between, bit the effect on the second quarter, particularly not be an exceptional. It will be I guess relatively small effect in the other activities, but still I would argue normally, I think in the past, also in the last conference call, I guided for other activities around €90 million . Today, I would say because of that effects, I would be bit more careful and say €90 million to €100 million in corporate activities and negative EBITDA.

On the first question, performance materials, resins and weather related now, I am not aware of anything. I have no information on that. We of course here, at least we have experienced a quite long winter. But that is not everywhere the case, but I can only say that’s not the maybe aware of any of weather-related weakness.

In fact, in one part of resins, this is functional materials we had actually the previously Desotech starting or have started. So there is a potential benefit, yes but very indirect, because the price points are really very different. I mean they are not 10% apart from each other. If you are – some in the US and you look at the Martek only got three materials and you look at the price of fish oil based Omega-3 that is a huge difference.

James Knight – Exane BNP Paribas

Can I just follow up on ocean nutrition, I mean if I am not wrong you have a refinery in Peru. So with this price increases, will you see some margin expansion or is it just a pure pass through with margins being stable and could you just say what kind of price increase, because from what I understand, prices are up 30% to 35% in fish oil. Are you compensating fully for that? So are you increasing price of 30%?

Rolf-Dieter Schwalb

If the fish oil price increases 30% you don’t have to increase your price to 30% to compensate, because the margin is somewhere in between without going into that detail and – but we try of course to compensate in full and sometimes you even have a chance for expansion.

But that is not the objective in itself. The first task is to compensate. You are also correct in your first statement that we have a refinery in Peru which ocean nutrition bought about nine months before we acquired them and I think that is a good set up and I think that was also a good action by ocean nutrition before we acquired them to get in that upstream integration with a refinery in Peru which is the main area of fish oil source.

James Knight – Exane BNP Paribas

Okay. Thank you. Thank you very clear thank you.

Rolf-Dieter Schwalb

And we are a minute before ten, so let me then close the call here. And I thank you very much for your participation and give such short summary again that we see the quarter really as a good start of the year in a still challenging environment and we don’t expect much improvement in the environment as you know.

Nutrition, with its last business model now post resilient and can compensate for weaknesses in one area temporarily and strengthen other areas that is the beauty of it and it contributes about 70% to our EBITDA. Q1 again because that was still pretty good last year or was negatively impacted by caprolactam with roughly €65 million.

And as I said earlier, it should correct last year for the €65 million, you could even say that our EBITDA increased almost 30% versus Q1 2012. This year again, we will fully focus on operational performance and the integration of acquisitions, with special attention on synergies, which we promised whilst also ensuring the successful execution of our group-wide profit improvement initiatives.

And that results in a completely unchanged outlook for 2013 rest forward copy it from the last press release and in the end saying based upon current economic assumptions DSM expects to move towards its 2013 EBITDA target of €1.4 billion. And with that, I would like to thank you again for the participation today and see you soon.

Dave Huizing

Okay. This concludes our conference call for today. Thank you very much for your attention and your questions. If you have any further questions on the background information, please feel free to contact us. Okay, Nicole, you can close the call.

Operator

Thank you ladies and gentlemen. This concludes DSM conference call. Thank you for attending. You may disconnect your line now.

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