DSM sets up new vitamins j-v with Chinese partner
partner NCPC as it looks to improve earnings from its nutrition
business.
The chemicals company said today that higher margins and lower fixed costs boosted operating profits by 44 per cent in the third quarter but the group that also supplies the automotive, pharmaceutical and packaging sectors has seen little real growth in the period.
A 6 per cent rise in sales to €1.987 billion was largely accounted for by higher prices.
In the Nutritional Products division, especially, sales growth was weak, rising by a mere 1.7 per cent to €487 million. Although it is selling larger volumes of product for animal feed, these sales are being eroded by lower volumes, further impacted by lower prices, in human nutrition.
The unit still managed to pull off a 21 per cent rise in operating profit, helped significantly by the reduced costs brought about by recent restructuring.
But with no signs of respite from low-cost Chinese vitamins in the future, the firm has cemented its links with large Chinese vitamin and antibiotic maker NCPC in a new agreement announced yesterday.
Under the $164 million deal, DSM will gain a 49 per cent controlling interest in two joint ventures with the firm, including one for the production of vitamin C and B12.
It will also obtain a minority share in NCPC Group and another in NCPC ListCo, an affiliate of NCPC, listed on the Shanghai stock exchange.
Annual sales from the joint ventures are expected to start at approximately $275 million annually.
Earlier this month DSM halted all production of vitamin C in the US, leaving it with reduced output, coming solely from its Dalry plant in Scotland. Its new Chinese venture will make up for some of this lost capacity, at lower cost.
DSM will contribute its technology and management capabilities to the venture while NCPC will add its existing vitamin C and B12 factories, as well as its marketing and sales force, which is geared towards the fast growing domestic markets in China, according to DSM.
In a statement the Dutch company said the partnership would lead to "the world's best possible combination of technologies and low cost manufacturing whilst securing high quality and benefiting from the global DSM sales network".
The move fits with the company's strategy to invest further in emerging markets, particularly China. It has a target of doubling sales in China to $1 billion by 2010.
