A year ago DSM published its multi-year strategy:
Vision 2010 – Building on Strengths.
During the annual analysts conference on 28 and 29 September 2006 DSM will
give an update on the progress realized in the first year and, in addition,
launch the following new initiatives:
“DSM is well on track with the implementation of Vision 2010. On all
counts concrete progress has been made in line with, or even above, the
targets set. The new initiatives announced today fit very well with DSM’s
focus on long term value creation,” says Peter Elverding, chairman of the
DSM Managing Board. “With the EUR 750 million share buy-back program
DSM will raise its gearing by approximately 10 percentage points to a level of
around 20%. This share buy-back program will increase Earnings per Share for
ordinary shareholders by approximately 10%. It will leave sufficient room for
targeted acquisitions as the gearing can be further raised by 10 or more
percentage points. There is a broad Corporate Governance discussion going on
concerning long-term commitment of shareholders. In view of our focus on
long-term value creation we are considering to introduce a new dividend
initiative, the so-called loyalty dividend which will enable us to directly
communicate with our shareholders and will reward long-term shareholders.”
Share buy-back Program
Vision 2010 described the parameters
regarding DSM’s balance sheet strategy. As a main building block to realize
the desired balance sheet structure DSM has decided to launch a share buy-back
program with a total value of EUR 750 million. Such a program will increase
DSM’s gearing (net debt/ total capital) by approximately 10 percentage points,
taking it to a level of around 20%. It will enable the repurchase of
approximately 20 to 25 million ordinary shares, (assuming a share price in
between EUR 30 and EUR 35), which equals approximately 10 to 13% of the total
number of ordinary shares in issue. Consequently, the direct EPS enhancing
effect for ordinary shareholders will be around 10%.
For tax reasons, the execution of this share buy-back program will be split
over 2006 and 2007. The first phase of this share buy-back program will start
on 28 September, 2006 and will run until 31 December, 2006. DSM has signed a
Discretionary Management Agreement with the bank that will execute this year’s
share buy-backs. The number of shares to be repurchased in this first phase
will not exceed 6.7 million shares. The program will be completed in 2007. The
repurchase price will be based on the daily VWAP (Value Weighted Average
Price). Daily volumes to be repurchased will be around 10% of the daily trade
volume. In accordance with the present regulations DSM will regularly inform
the market via press releases about the progress made in the execution of this
share buy-back program.
Loyalty Dividend
In order to further strengthen communication
with long-term shareholders DSM is considering a novel instrument: a Loyalty
Dividend bonus for shareholders who have their DSM holdings registered. In
this way DSM intends to reward long-term shareholders. At the same time it
enables DSM to intensify communication with these shareholders. Shares held by
the same shareholder in excess of a 3-year period will be entitled to a 30%
Loyalty Dividend bonus over the average dividend in the preceding 3-year
period and 10% per year thereafter. This novel instrument will be discussed
with the shareholders in the coming months and depending on their reactions
DSM may formulate proposals on the implementation of this instrument for the
Annual General Meeting of March 2007.
Dividend Re-Investment Plan (DRIP)
In response to requests from
shareholders for a stock-dividend a Dividend Re-Investment Plan will be
created as of next year, in co-operation with ABN AMRO. In essence this
instrument is a stock-dividend lookalike, not uncommon in the Anglo-Saxon
world, and has recently also been introduced by some other companies listed at
Euronext Amsterdam.
Vision 2010: The First Year
Market driven growth and innovation
In Vision 2010 DSM set
itself a sales growth target of 3-5% per annum. Underlying this ambition is an
economic scenario, as detailed last year. In the last four quarters DSM has
realized a top-line organic growth of 5.5% on average, thanks to a combination
of solid overall volume growth and price increases. This justifies the
conclusion that DSM is well on track with this main element of Vision 2010.
To fuel this organic growth DSM is investing in the expansion of its
production assets around the globe. Recently DSM announced several investment
projects including: new plants for Stanyl® and Stamylan® at the Geleen site
(the Netherlands), new plants for Dyneema® in the USA and a new Akulon® plant
in China. The recently completed and announced projects will contribute a
total of approximately EUR 500 million to sales.
Innovation has contributed to DSM’s current good results and will enhance
further growth thereof. The envisaged innovation boost is clearly taking
shape. Special attention is being given to best practices in innovation and
external orientation (open innovation). Many new applications for DSM’s
portfolio of unique materials and ingredients have been realized and new
products are being introduced in the market*. DSM is convinced that the
ambitious target of realizing EUR 1 billion additional sales by 2010 via
innovation is achievable.
Increased presence in emerging economies
Since the announcement
of Vision 2010 – Building on Strengths, in October 2005, DSM has realized
concrete progress in China. Total CAPEX related to projects that have been
realized or were initiated during the last 12 months amounts to approximately
USD 120 million. After completion these projects will generate on aggregate
more than USD 200 million in additional annual sales. DSM remains confident
that its target of doubling sales in China to a level of more than USD 1
billion by 2010 is achievable.
Besides China, India, Central & Eastern Europe, and Latin America are
identified as areas where DSM aims to capture growth opportunities offered by
the fast development of these economies. Based on a recently completed study
DSM aims to double its sales in India to a level of approximately EUR 300
million/year by 2010. A similar study to investigate the opportunities for
growth in Central & Eastern Europe has been started.
Operational Excellence
The continuous efforts of DSM to improve
the efficiency of all its operations via Operational Excellence have clearly
contributed to today's good performance. Achievements with regard to ICT will
be presented at the analysts’ conference on 29 September as a clear example of
Operational Excellence at DSM. In the last five years DSM has managed to
decrease total annual costs of ICT by EUR 100 million to EUR 150 million,
while at the same time the use and functionalities of ICT have expanded
exponentially; for example the number of e-mails in 2000 was less than 10
million and in 2006 more than 130 million.
In a limited number of cases dedicated restructuring projects are required to
address adverse business conditions and to structurally improve performance.
The total yield upon completion in 2006/2007 of the currently ongoing and
already announced restructuring projects is estimated to be in the range of
EUR 125 to 175 million versus 2005 cost levels.
Sustainability
DSM’s performance in recent years has earned the
company a top ranking in the industry in various rankings with regard to
sustainability. One of the targets of Vision 2010 is to retain these top
rankings. Thus far DSM has been successful in this respect as in September
2006 DSM was once again, for the third consecutive year, named the Global
Sector Leader of the chemical industry in the leading
Dow Jones Global Sustainability Index.
Value Creation
The ultimate goal of DSM with its Vision 2010
strategy is to create sustainable value for all its stakeholders. In financial
terms value creation is defined by DSM as realizing a CFROI (Cash flow return
on investment) of at least 50 basis points above the average cost of capital.
Results in the first half of 2006 were in line with this long-term strategic
target.
Outlook
DSM regards the current business climate in most of its
markets as generally favorable and expects these conditions to continue in the
coming period. In the first half of 2006 DSM was able to cope with the high
and volatile raw material and energy prices, and more than compensated for the
effects thereof with strong volume growth and increases in sales prices.
All in all, DSM is confident about the future. DSM reiterates the outlook
statement given earlier** for the remainder of 2006 and expects operating
profit from continuing operations for the full year 2006 to be better than
that of the record year 2005, despite the clearly increased efforts in the
field of innovation, a weaker US dollar and higher raw-material costs. Towards
2010 DSM is well on track with the implementation of its Vision 2010 strategy
creating sustainable value for all DSM’s stakeholders.
Forward-looking statements
This press release contains
forward-looking statements. These statements are based on current
expectations, estimates and projections of DSM management and information
currently available to the company. The statements involve certain risks and
uncertainties that are difficult to predict and therefore DSM does not
guarantee that its expectations will be realized. Furthermore, DSM has no
obligation to update the statements contained in this press release.
*DSM will organize a press event ‘
Innovation in practice’ on 28 September, 2006.
** Ref: DSM
Press Release Q2 2006 ‘Excellent second quarter
with 7% volume growth’, 27 July 2006
