[News] UPDATE: DSM Sets Steep 5-Year Growth Aims, Looks To China

By Anna Marij van der Meulen Of DOW JONES NEWSWIRES

AMSTERDAM -(Dow Jones)- Royal DSM NV (DSM.AE) Thursday set steep earnings and growth targets for the coming five years which analysts said look potentially overly-ambitious and emphasize the Dutch life and materials sciences group's growing reliance on emerging markets like China to generate future profits.

The Heerlen-based group--which makes products ranging from food ingredients to plastics and ingredients for medicines--expects an organic sales growth of 5% to 7% in 2015, with 70% of the sales growth coming from emerging markets. It said sales in China are expected to double to $3 billion in 2015 from S1.5 billion in 2010.

The group's Chief Financial Officer Rolf-Dieter Schwalb told Dow Jones Newswires that low growth is expected in Europe, with the U.S. growing more.

DSM also set demanding division margin targets for earnings before interest, tax, depreciation and amortization, or Ebitda.

Still, analysts seemed little impressed by the plan, citing the company's poor track record in meeting past targets. Markets appeared to agree, sending the shares down 2.7%, or EUR0.97, at EUR36.55, at 1000 GMT, making it the Amsterdam market's biggest decliner.

In its struggling pharma division, DSM said it aims for an Ebitda margin of 15% to 20% by 2015, from a target of over 18% it set for 2010, while it achieved an Ebitda margin 7.9% in the first half of this year.

ABN Amro analyst Mark van der Geest said the 2015 target for the group's pharmaceuticals division may be difficult to achieve given the overcapacity in the drugs sector and the company's difficulties finding a partner.

DSM's anti-infective business has been suffering from competition by Chinese and Indian players and DSM has been looking for a Chinese partner in this area since 2004.

A partnership for its pharmaceutical activities is the fastest way to improve results as the business environment is challenging with customers continue to focus on cost in light of healthcare budget pressures, DSM said.

CFO Schwalb said DSM is in talks to find a partner for its pharma business, but he declined to identify the party or specify how advanced the talks are.

DSM reiterated that 2010 will be a good year for the company, but gave no quantitative targets.

ABN Amro's van der Geest said he was disappointed by the outlook, especially in light of DSM's peer BASF AG (BAS.XE) upbeat statements on the third quarter yesterday.

The company, based in the south of the Netherlands, has totally transformed itself since its foundation in 1902 as a coal mining company called Dutch State Mines, on from where its acronym name is derived.

Since Feike Sijbesma became chairman and CEO of the company in 2007, he has accelerated the transformation, selling its base chemicals & materials-businesses and focussing on the "clusters" life sciences and material sciences, a process which should be finalized at the end of this year.

CFO Schwalb said earlier this year the company would be ready to make acquisitions after the sale of its non-core divisions. DSM has EUR1.8 billion in cash on the balance sheet which could be used for acquisitions.

Some analysts have said DSM should speed up its acquisition pace in order not to become a take-over target itself, but it refrained Thursday from giving guidance on M&A strategy.

DSM increased its dividend to EUR1.30, from EUR1.20, and said it intend to further increase it to EUR1.50. Schwalb said the company does not intend to use its cash for any share buy backs.