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Frequently Asked Questions

Questions are regularly asked about the following subjects.

1. DSM and IFRS
2004 was the last financial year on which DSM has issued a financial report based on Dutch accounting rules. From the financial year 2005 onwards, DSM will change over to the International Financial Reporting Standards (IFRS), which are mandatory for all listed companies in the European Union. This changeover has involved an adjustment of internal accounting rules and a corresponding adjustment of systems, as well as extensive communication with and training of financial employees. To facilitate comparison, this annual report contains an annex in which the balance sheet and results for 2004 (on a quarterly and annual basis) are represented in accordance with the IFRS. (PDF: 233 Kb)

2.1 DSM provides 2007 comparative figures in line with new structure
On 9 April 2008 Royal DSM N.V. provides the investment community with comparative figures for 2007 that reflect the company’s new cluster structure as of 1 January 2008. The new structure was announced in September 2007 and is a result of the acceleration of DSM’s strategy Vision 2010 – Building on Strengths.

As of 1 January 2008 DSM’s activities are grouped into five reporting clusters to reflect DSM’s accelerated shift to Life Sciences and Materials Sciences: Nutrition, Pharma, Performance Materials and Polymer Intermediates as well as the non-core Base Chemicals and Materials cluster.
Download comparative figures (PDF: 17 kB)

2.2 Financial results Q1 2008
Net Sales

Net sales from continuing operations in Q1 2008 increased by 10% compared with Q1 2007. Organic growth was very strong at 14%, which was evenly spread over volumes and prices. Volume growth was particularly strong in the nutrition and caprolactam markets because of firm demand, expanding market shares and an excellent manufacturing performance. Solid price increases were possible in the nutrition and fertilizer markets because of a favorable shift in the demand-supply balance and the differentiation strategy in Nutrition. In the anti-infectives markets there was an improvement from the low prices at the end of last year. A substantial part of the organic growth was offset by much lower exchange rates versus the Euro (e.g. US dollar -13%).

Operating profit
The operating profit from continuing operations amounted to EUR 236 million in the first quarter, which is 22% higher than in the first quarter of 2007. This is in spite of feedstock and energy costs being some EUR 50 million higher, while much lower average currency exchange rates versus the Euro had an effect of some EUR 20 million (after hedging). In addition, the phasing-out of some contracts relating to the acquisition of Roche Vitamins had an effect of around EUR 10 million. On top of this innovation expenditure increased further, as planned. All of this was amply compensated for by substantially higher sales volumes and margins across the portfolio.

Nutrition
Sales in this cluster increased by 18%. Higher sales volumes and selling prices were partly offset by the lower exchange rate for the US dollar.
DSM Nutritional Products saw its sales volumes strongly increase compared to Q1 2007 due to market growth and the market-share increase during 2007. Prices were increased due to a more balanced supply-demand situation, especially in vitamin E and vitamin C. Carotenoid prices were somewhat lower than last year. DSM Nutritional Products’ operating profit strongly increased as a result of higher volumes and margins despite the negative impact of the US dollar and the phasing-out of the Roche contracts. DSM Food Specialties showed a decrease in net sales and operating profit compared to the high results in Q1 2007, mainly due to lower sales in enzymes and functional foods and the negative impact of the dollar and feedstock costs.

Pharma
Sales were up 5% due to higher sales volumes and selling prices and despite the weaker US dollar.
The operating profit was equal to Q1 2007, being the balance of a lower result at DSM Pharmaceutical Products and a higher result at DSM Anti-Infectives. The lower result at DSM Pharmaceutical Products was caused by the final phasing-out of Roche contracts and temporarily low sales. At DSM Anti-Infectives the drop in prices that had been experienced at the end of last year turned around, somewhat offset by a weaker US dollar.

Performance Materials
Higher sales volumes and higher selling prices (in total 4%) were to a large degree offset by the lower exchange rates for the US dollar and the pound sterling.
The operating profit for the cluster was up 7%. Higher sales volumes and higher margins were partially offset by expansion-related higher fixed costs. DSM Engineering Plastics posted a higher profit because of improved margins due to the fact that selling prices increased and raw-material prices decreased. DSM Dyneema’s operating profit increased further due to higher sales enabled by the expanded production capacity. The operating profit of DSM Resins remained at the Q1 2007 level.

Polymer Intermediates
Sales increased by 9%. Higher sales volumes and slightly higher selling prices were partly offset by the weaker US dollar.
Higher sales volumes and margins contributed to the strong increase in Polymer Intermediates’ operating profit. The higher sales volumes are based on the excellent production performance of the caprolactam plants, the expanded production capacity for acrylonitrile and solid demand. Due to the tight supply-demand situation, prices were increased further in all markets.

Base Chemicals and Materials
Sales for this cluster were up 16% from Q1 2007, mainly due to higher sales volumes and higher prices and despite the weaker US dollar.
Most businesses in this cluster posted a higher operating profit. DSM Agro sold slightly higher volumes at much higher prices. DSM Melamine improved its margins as selling prices increased more than feedstock costs. The operating profit of DSM Energy increased because of the higher production output and higher prices for oil and natural gas. DSM Elastomers’ operating profit decreased as higher sales volumes could not completely compensate for the lower margins caused by higher feedstock costs and the lower US dollar.

Other activities
The operating profit for Other activities was lower than in Q1 2007. The main reasons were much higher costs for share-based payments (because of the share-price development) and higher innovation expenditure.

3.1 DSM announces good start to the year and raises expectations for full year 2008

At the Annual General Meeting being held on 26 March 2008, DSM provided a trading update for 2008.

The firm demand and pricing strength seen in most of DSM's markets in the fourth quarter of 2007 has been sustained into 2008. DSM's strong market positions have enabled it to increase prices, particularly in the nutrition business which is benefiting both from DSM's differentiation strategies as well as higher market prices in general.
Strong business trends were also seen across other parts of DSM, particularly in Performance Materials, Fibre Intermediates and Agro. On top of this, profitability has benefited from a very good manufacturing and operational performance. 

Based on the currently available information, DSM expects that the Q1 operating profit before exceptional items will be approximately 20% higher than in Q1 2007 (EUR 192 million). Barring unforeseen economic circumstances, for the full year 2008 DSM now expects the operating profit before exceptional items to most likely exceed the level achieved in 2007, despite the current significantly weaker US dollar and increased raw material prices.

Feike Sijbesma, Chairman of the DSM Managing Board, commented:
"The current year has started strongly with firm demand being seen across most of our markets. DSM's performance is a clear indication of the higher quality earnings now being achieved as a result of the changes made to the profile and portfolio of the Company." 

3.2 DSM's outlook as per 29 April 2008
DSM experienced strong demand and pricing strength in most of its markets during the first quarter. DSM sees the following trends in its clusters:

  • In Nutrition higher sales volumes are expected to be sustained, but growth rates will gradually come down approaching market growth, since market share increased already in the course of 2007. Continued good pricing strength is expected as a result of our successful differentiation activities, higher costs at our competitors and tight supply in several key products.
  • In Pharma, the result of DSM Pharmaceutical Products is expected to recover from the weak first quarter. Anti-Infectives’ pricing is currently in an upward trend, but is expected to remain on average below last year’s level.
  • The Performance Materials cluster is developing at a steady positive pace and will benefit from the start-up of several new plants later this year.
  • In Polymer Intermediates (also supplying to Performance Materials) there is a tight market, facilitated by a very strong demand, especially in China. DSM does not foresee a short-term shift in these conditions.
  • The dominant driver in Base Chemicals and Materials is fertilizers. The prolonged restructuring of the fertilizer industry and currently strong agricultural markets have resulted in a shift in the demand-supply balance, resulting in clearly higher prices.


The current macro-economic outlook is very uncertain. The positive business conditions could be affected by a global negative macro-economic trend. However, in its transformation process to a Life Sciences and Materials Sciences company, DSM has developed a much higher resilience to the business cycle, which is now becoming visible in Nutrition, Performance Materials and Pharma.

As a result DSM remains positive about the remainder of the year, in spite of a weakening US dollar and high feedstock and energy prices.

Based on the currently available information and barring unforeseen circumstances, DSM expects that the operating profit from continuing operations and before exceptional items in 2008 will be EUR 870 million, plus or minus 5%.

4. DSM’s dividend policy
As part of the acceleration of the Vision 2010 – Building on Strengths strategy, DSM announced a new dividend policy. This policy reflects the transformation of DSM’s portfolio and consequently the increased profit stability. DSM aims to provide a stable and preferably rising dividend.
The DSM Annual General Meeting of Shareholders on 26 March 2008 passed a resolution to declare a dividend for 2007 of EUR 1.20 per ordinary share of EUR 1.50 par value. An interim dividend of EUR 0.33 per ordinary share having been paid on 22 August 2007, the final dividend for 2007 will amount to EUR 0.87 per ordinary share. Dividends are paid entirely in cash.

The Annual General Meeting of shareholders decides on the final dividend. The Ex-dividend date is second businessdays after the AGM. The dividend record date is three businessdays after the AGM. This final dividend of EUR 0.87 will be paid out entirely in cash, after deduction of 15% dividend tax, and will be made payable from 24 April 2008.

Barring unforeseen circumstances DSM pays an interim dividend to holders of ordinary shares after the results of the first half year have been published. This interim dividend is set at one third of the total dividend over the previous year and gives no indication for the total dividend to be paid over the running year. The ex-dividend date is the day after publication of the H1 results. The dividend record date is three businessdays after the day of the publication of the H1 results.


5. DSM and the Dutch corporate governance code
The publication of the Dutch corporate governance code (Tabaksblat code) represents an important milestone in the evolution of corporate governance in the Netherlands. DSM took advantage of the opportunity to comment on the draft version of the code of practice, pointing out that it should not diverge too much from the rules and views prevailing in other relevant countries, such as the USA and the UK, and should not contain overly detailed regulations. A large proportion of DSM’s suggestions were incorporated in the final version of the code of practice published at the end of 2003.

We used the time available to us in 2004 to further analyze the code’s practical implications for DSM, and to make and implement plans for complying with its provisions. In fact, many of the Code’s Principles and Best-Practice provisions were already common practice at DSM. For example, our annual report already contained a description of our principles on corporate governance, we had for some time exercised a great deal of transparency regarding the publication of information on the remuneration of the members of the Managing Board, we had already adopted a set of regulations and a profile for the members of the Supervisory Board, and the annual report already included a report compiled entirely independently by the Supervisory Board on its activities during the past year.

Also, we had already asked our shareholders to authorize us to introduce a registration date system for shareholders wishing to attend the annual general meetings of shareholders. We used this system for the first time in 2004. Assessing and managing business risks was already an issue to which we attached high priority. In 2004, we focused on further structuring our efforts in this field, mainly by formulating requirements, procedures and internal control mechanisms, and of course by analyzing company-specific risks and taking measures to avoid these risks or minimize any adverse consequences they might have.

The annual report contains a detailed description of our business risks and the way in which we manage and control these risks. This extensive reporting is one of the consequences of the way in which we have chosen to implement the Tabaksblat code.

6. DSM and Risk management
The Managing Board of Royal DSM N.V. is responsible for the design and effectiveness of the company’s internal risk management and control systems. The purpose of these systems is to identify any significant risks to which the company is exposed and enable the effective management of these risks. However, these systems can never provide absolute assurance regarding the achievement of corporate objectives and can never entirely prevent the occurrence of material errors, losses, cases of fraud or the violation of laws or regulations.

Every year the Managing Board undertakes a Corporate Risk Assessment (CRA). In 2004 it performed a CRA in which three major risk areas were identified: (1) the entry of Chinese low cost competitors into DSM markets, (2) the company’s capacity for organic growth via innovation and (3) the availability of sufficient high-calibre managers and professionals to safeguard the future development of DSM. It was decided to further investigate these three topics. The review results will be important input for the new Corporate Strategy Dialogue (CSD) that took place in 2005.

In 2004 we carried out an independent and systematic analysis and review of the control environment and relevant risks to which the DSM organization might be exposed. We also reviewed the effectiveness of the risk management and control systems that are being used by the various units. The managements of the relevant units carried out similar evaluations and reported the results. We regularly discussed these results with the respective units. We discussed a summary of all risks and the associated risk management and control activities with the Audit Committee and the Supervisory Board.

Based on the activities reported in the risk management section we believe, to the best of our knowledge, that we can assert with reasonable assurance that the internal risk management and control system of Royal DSM N.V. was effective during the 2004 financial year.

7. Generic risks
Being a global company, DSM is subject to the usual business risks associated with macroeconomic trends, the emergence of new competition, exchange rate fluctuations, raw material price changes, fluctuations in supply and demand, and the speed with which new technologies and products are introduced and accepted.

DSM operates in many different business segments with contingent risk profiles reflecting the different business environments, the diverse nature of the businesses and the distinctive competitive positions those businesses target for. DSM’s Vision 2005 strategy has reduced the cyclical element, but a substantial portion of its activities – typically the Industrial Chemicals cluster but also some businesses in the other clusters, together representing approximately 40% of total revenue – may experience material fluctuation in sales and results due to changes in general market conditions, supply-driven overcapacity, economic conditions, currency exchange rate fluctuations or other factors.

The entry of foreign low cost competitors (typically Chinese and Indian) into DSM’s core markets may challenge the company’s position.

DSM has subsidiaries in more than 35 countries. These subsidiaries can be exposed to changes in government regulations and potentially unfavourable political developments that may hamper the exploitation of certain opportunities or may impair the value of the local business.

8. Currency risk
All DSM sales that are priced in currencies other than the euro are subject to economic transaction and/or translation risks that may strongly impact the financial results, as the company’s reporting unit is the euro.

DSM’s aim is to mitigate its currency exposure by developing sales in certain regions, through product mix improvements, by relocating manufacturing activities and by increased dollar-based purchasing. However, these ‘natural hedges’ never work perfectly. The volatility of the US dollar in relation to the euro and the Swiss Franc can have a significant impact on the company’s results. Although the production base still has its centre of gravity in Europe, a large portion of DSM’s product sales is in US dollars or is based on US dollar priced world markets. Consequently, from a currency perspective there is a mismatch between revenue and costs. In the 2004 business mix a 1% change in the euro-dollar rate has a € 5-8 million impact on gross margin level (=sales minus variable costs), whereas a 1% change in the Swiss franc-US dollar rate has an annual effect of 3 to 5 million Swiss francs. Fluctuations in the relative values of other currencies (such as the Yen or the pound sterling) have a limited impact on DSM results.

9. Financial risk
Additional financial risks include commodity risk, credit risk, tax risk, pension risk and country risk. The major credit rating agencies may change their assessments on DSM creditworthiness, thereby affecting the company’s borrowing capacity and/or the conditions under which it can borrow money and causing fluctuations in the cost of finance. The company aims to keep its ‘A’ credit rating.

10. DSM’s financial policy
Given the dynamic nature of DSM’s markets, it has always been important for the company to have a strong financial position. This gives DSM the financial resilience to continue pursuing its strategic goals even during economic downturns. DSM aims for a net debt that is less than 40% of group equity plus net debt and an operating profit before amortization and depreciation (EBITDA), which is at least 8.5 times the balance of financial income and expense. This underlines the company’s aim of maintaining its ’A’ long-term credit rating. DSM aims to achieve a cash flow return on investment (CFROI) which is higher than the weighted average cost of capital (WACC).

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