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Latest Results & Outlook

Highlights YTD 2017

  • Strong performance in Q3, contributing to very good first nine months
  • Sales up 9% to €6,456m, with 8% organic growth
  • Adjusted EBITDA up 15% to €1,086m, driven by both Nutrition and Materials
  • ROCE up 170 bps to 12.3%
  • Adjusted Net profit up 29% to €504m
  • Total Net profit of €1,603m, including gain on Patheon disposal of €1,250m
  • Outlook 2017 unchanged

Key figures and indicators

in
€ million
Jan - Sep 2017 Jan - Sep 2016 % change
Vol. Price /mix FX
other
Sales 6,456 5,905 9% 7% 1% 1% 0%
Nutrition 4,151 3,848 8% 6% 1% 1% 0%
Materials 2,132 1,874 14% 8% 5% 0% 1%
Adjusted EBITDA
(cont. ops)1
1,086 947 15%        
Nutrition 786 693 13%        
Materials 369 330 12%        
EBITDA (cont. ops) 1,032 904          
ROCE (%) 12.3% 10.6%          

1) Adjusted EBITDA (and adjusted Net profit) are Alternative Performance Measures (APM’s) that reflect continuing operations.
See page 11 of PDF version for definition and reconciliation

CEO statement

Feike Sijbesma, CEO and Chairman of the DSM Managing Board, commented: “We are pleased to report another strong quarter, resulting in a very good performance during the first nine months. Nutrition and Materials once again delivered organic growth rates well above their respective markets, with particularly good volume growth.

These results demonstrate significantly improved operational and financial performance, well ahead of plan, with all businesses delivering on their ambitious growth initiatives, and we are firmly on track with our cost-reduction and efficiency improvement programs. Furthermore, we successfully divested our share in Patheon ahead of schedule.

DSM confirms its full year 2017 outlook, despite slightly less favorable currency developments. In addition, with all of these developments ahead of plan we are bringing forward our regular strategic review process for the period beyond 2018 and anticipate communicating the results before mid-year 2018, as announced at our September Investor Event.”

Outlook 2017 unchanged

DSM expects to deliver full-year 2017 results above the targets set out in its Strategy 2018, with an EBITDA growth for the year slightly up from high single-digit to double digit, and with a ROCE increase from double digit basis points to over 100 basis points.

Q3 Highlights 2017

  • DSM reports another strong quarter in Q3
  • Sales up 7% to €2,136m, with 10% organic growth
  • Adjusted EBITDA up 13% to €365m
  • Nutrition: 8% organic sales growth; Adjusted EBITDA up 12%
  • Materials: 9% volume growth; Adjusted EBITDA up 8%

Key figures and indicators

in
€ million
Q3 2017 Q3 2016 % change
Vol. Price /mix FX
other
Sales 2,136 1,998 7% 9% 1% -3% 0%
Nutrition 1,373 1,303 5% 9% -1% -3% 0%
Materials 706 634 11% 9% 5% -3% 0%
Adjusted EBITDA
(cont. ops)1
365 323 13%        
Nutrition 258 231 12%        
Materials 128 118 8%        
EBITDA
(cont. ops)
343 301          
ROCE (%)2 12.3% 10.6%          

1) Adjusted EBITDA (and adjusted Net profit) are Alternative Performance Measures (APM’s) that reflect continuing operations.
See page 11 of PDF version for definition and reconciliation
2) January up until September

Key figures and indicators

in € million Jan - Sep 2017 Jan - Sep 2016 % Change Volume Price/
mix
FX Other
Sales 6,456 5,905 9% 7% 1% 1% 0%
Nutrition 4,151 3,848 8% 6% 1% 1% 0%
Materials 2,132 1,874 14% 8% 5% 0% 1%
Innovation Center 126 126          
Corporate Activities 47 57          
in € million Q3 2017 Q3 2016 % Change Volume Price/
mix
FX Other
Sales 2,136 1,998 7% 9% 1% -3%  
Nutrition 1,373 1,303 5% 9% -1% -3%  
Materials 706 634 11% 9% 5% -3%  
Innovation Center 42 43          
Corporate Activities 15 18          
in € million Jan - Sep 2017 Jan - Sep 2016 % Change Q3 2017 Q3 2016 % Change
Sales 6,456 5,905 9% 2,136 1,998 7%
Adjusted EBITDA (cont. operations) 1,086 947 15% 365 323 13%
Nutrition 786 693 13% 258 231 12%
Materials 369 330 12% 128 118 8%
Innovation Center 5 2   4 1  
Corporate Activities -74 -78   -25 -27  
Adjusted EBITDA margin 16.8% 16.0%   17.1% 16.2%  
EBITDA (cont. operations) 1,032 904   343 301  
Adjusted EBIT (cont. operations) 717 601 19% 239 205 17%
EBIT (cont. operations) 647 546   206 171  
Capital Employed 7,620 7,620        
Average Capital Employed   7,779 7,561        
ROCE (%) 12.3% 10.6%        
Effective tax rate 18.0% 18.5%        
Adjusted net profit (cont. operations) 504 390 29% 166 146 14%
Net profit - Total DSM 1,603 542 196% 1,291 322 301%
Adjusted net EPS 2.81 2.17 29% 0.91 0.81 12%
Net EPS - Total DSM 9.09 3.04   7.34 1.82  
Cash Flow 619 644 -4% 290 325 -11%
Capital Expenditures1 384 305   134 128  
Net debt 703 2,054        

1) Cash, net of customer funding
In this report:
'Organic sales growth’ is the total impact of volume and price/mix;
‘Total Working Capital’ refers to the total of ‘Operating Working Capital’ and ‘non-Operating Working Capital’

Review by Cluster

Nutrition

in € million Jan - Sep 2017 Jan - Sep 2016 % Change Q3 2017 Q3 2016 % Change
Sales 4,151 3,848 8% 1,373 1,303 5%
Adjusted EBITDA 786 693 13% 258 231 12%
Adjusted EBITDA margin (%) 18.9% 18.0%   18.8% 17.7%  
Adjusted EBIT 575 485 19% 192 159 21%
Capital Employed 5,292 5,384        
Average Capital Employed 5,454 5,334        
ROCE (%) 14.1% 12.1%        
Total Working Capital 1,472 1,492        
Average Total Working Capital as % of Sales 27.3% 28.2%        

Sales development

Nine months 2017 sales increased by 7% organically compared to the same period last year, with 6% volume growth and 1% higher prices.

Nutrition performed strongly as its growth initiatives led to organic growth rates in all its businesses outpacing their respective markets. Animal Nutrition delivered strong volume growth, with exceptionally high volumes in the third quarter. Human Nutrition and Food Specialties continued to deliver good volume growth, despite soft conditions in some end-market segments.

Nine months 2017 Adjusted EBITDA increased by 13% compared to the same period in 2016, mainly driven by volume growth and the contribution of the efficiency and cost improvement programs. Currency and price/mix effects made a small contribution. EBITDA margin year-to-date was 18.9%, versus 18.0% in the same period last year.

Q3 2017 sales was 5% up on prior year with 8% organic growth partly offset by 3% negative currency effects as the Euro strengthened against DSM’s other key currencies. The 9% higher volumes were driven by exceptionally strong growth in Animal Nutrition, as well as good growth in Human Nutrition.

Q3 2017 Adjusted EBITDA was up 12% compared to Q3 2016, driven by strong organic growth and the contribution of the improvement programs. Currencies had a small negative effect.

The adjusted EBITDA margin was 18.8%, versus 17.7% in Q3 2016.

Animal Nutrition & Health

Sales development

Nine months 2017 sales saw 8% organic growth, fully driven by volumes, significantly outperforming the market. DSM continues to benefit from its ability to address a wide range of species, as well as from its diversified geographic presence, covering all the major growth areas in the world, and its strong forward-integrated premix position. Market conditions were favorable year-to-date, except for Latin America where domestic demand was impacted by weak economic conditions. This weakness was exacerbated in Q2 due to the ‘meat scandal’ in Brazil, severely impacting beef exports. Recently however, these exports have recovered swiftly.

Overall prices were flat, while for some vitamins a positive price effect in the first half of the year was offset by a negative price effect in Q3.

Q3 2017 organic growth was exceptionally strong at 10% driven by 14% higher volumes. All regions were strong. The beef exports market in Brazil staged a rapid recovery, especially in September. Sales also benefitted from positive timing of order effects in Brazil as well as in some other geographies. Furthermore, the reported sales growth is somewhat flattered by the easy comparison with Q3 last year.

Prices had a 4% negative effect, which was largely due to lower comparable prices for some of the vitamins versus 2016, when these prices spiked in the second half of the year.

Human Nutrition & Health

Sales development

Nine months 2017 sales rose 8% with 7% organic growth, driven mainly by volumes.

Year-to-date, Human Nutrition maintained its positive momentum, delivering good sales growth through its growth initiatives despite softness in some of its end-market segments, which became even more pronounced in Q3. Food & Beverages markets are being addressed successfully through tailored premixes. Sales excellence programs as well as the introduction of new product solutions resulted in above-market growth for both multivitamins and fish oil-based omega-3’s. The i-Health business has continued its double-digit growth path, whilst early life nutrition remained a strong performer.

Overall, prices were stable, with higher prices for advanced formulations and premixes compensating for somewhat lower contractual prices in early life nutrition.

In Q3 2017, Human Nutrition reported a solid 5% volume growth with good sales in all segments. Early Life Nutrition had a particularly strong quarter due to high demand for China where markets still show some volatility due to the new regulations coming into effect next year.

Prices were up by 4%, of which a substantial part was due to positive mix effects.

Food Specialties

Food Specialties continued to perform well, both over the first nine months and in Q3 2017, although growth was hampered by some capacity constraints in enzymes. Savory Ingredients performed particularly well.

Materials

in € million Jan - Sep 2017 Jan - Sep 2016 % Change Q3 2017 Q3 2016 % Change
Sales 2,132 1,874 14% 706 634 11%
Adjusted EBITDA 369 330 12% 128 118 8%
Adjusted EBITDA margin (%) 17.3% 17.6%   18.1% 18.6%  
Adjusted EBIT 275 234 18% 98 86 14%
Capital Employed 1,811 1,798        
Average Capital Employed 1,814 1,763        
ROCE (%) 20.2% 17.7%        
Total Working Capital 368 333        
Average Total Working Capital as % of Sales 12.3% 12.5%        

Sales development

Sadly, we had to report a tragic accident at our Augusta (GA, USA) plant on 27 September 2017 where a contractor lost his life. It once again stresses that in all our activities our utmost priority has to remain the safety and health of our employees and contractors worldwide.

Nine months 2017 sales were up 14% versus the same period last year. Strong growth in specialties was the main driver behind the 13% organic growth, of which 8% was volume growth.

  • DSM Engineering Plastics showed solid growth overall with good growth in the higher margin specialties for automotive and E&E;
  • DSM Dyneema delivered continued strong growth especially in personal protection solutions;
  • DSM Resins & Functional Materials reported continued strong growth in all segments driven by sustainability-driven substitution and improved conditions in Building & Construction markets.

The 5% price effect in the first nine months fully reflects increased input costs.

Nine months 2017 Adjusted EBITDA increased by 12% compared with the same period in 2016, driven by higher volumes and the group-wide cost savings and efficiency improvement program. The Adjusted EBITDA margin was strong at 17.3%, versus 17.6% in the same period last year, when DSM still fully benefited from lower input costs.

Q3 2017 sales were up 14% organically with 9% higher volumes. All three businesses showed good growth and performed well.

Q3 2017 Adjusted EBITDA was up 8% compared to Q3 2016. The Adjusted EBITDA margin was 18.1%, versus 18.6% in Q3 2016, despite higher raw materials costs particularly in the Resins business which was confronted with various disruptions in the supply of key intermediates, amongst others by hurricanes in the US. The robust performance demonstrates the improvements achieved in the quality of returns in the Materials businesses over recent years.

Innovation Center

in € million Jan - Sep 2017 Jan - Sep 2016 % Change Q3 2017 Q3 2016 % Change
Sales 126 126 0% 42 43 -2%
Adjusted EBITDA 5 2   4 1  
Adjusted EBIT -29 -15   -17 -5  
Capital Employed 552 553        

Nine months 2017 sales showed strong growth in DSM Advanced Solar. DSM Biomedical is also performing well again, with strong underlying growth largely offsetting the gradual discontinuation of a large contract.

Nine months 2017 Adjusted EBITDA includes a one-time positive amount in Q3 2017 related to the release of a liability following the decision to stop a development project, while the Adjusted EBIT includes an impairment loss on the related assets.

Corporate Activities

in € million Jan - Sep
2017
Jan - Sep 2016 Q3 2017
Q3 2016
Sales 47 57 15 18
Adjusted EBITDA -74 -78 -25 -27
Adjusted EBIT -104 -103 -34 -35

Nine months 2017 Adjusted EBITDA slightly improved compared to the same period last year as a result of the contribution of the cost savings programs.

Joint Ventures and Associates

Financial overview of DSM’s key joint ventures and associates

in € million Jan - Sep 2017 Jan - Sep 2016 % change Q3 2017 Q3 2016 % change
DSM Sinochem            
Sales 321 329 -2% 104 103 1%
Adjusted EBITDA% 14% 14%   12% 13%  
ChemicaInvest            
Sales
1,475 1,300 13% 479 408 17%
Adjusted EBITDA% 9% 3%   13% 5%  
  • DSM Sinochem Pharmaceuticals (50% DSM) – solid financial performance driven by its sustainable antibiotics platforms, while the improved profitability was offset by less favorable currency effects in Q3 2017.
  • ChemicaInvest (35% DSM) – strongly improved its financial performance, benefitting from favorable market conditions for caprolactam.

Net result contribution of joint ventures / associates

in € million Jan - Sep 2017 Jan - Sep 2016 Q3 2017 Q3 2016
DSM Sinochem (50%) 4 5 0 1
Patheon1 7 -5 0 5
ChemicaInvest2 (35%) 0 -9 0 1
Other associates / joint ventures -18 -13 -4 -4
Total before APM
-7 -22 -4 3
APM adjustments 1,152 217 1,150 228
Share of the profit of associates / joint ventures 1,145 195 1,146 231

1) DSM’s share in Patheon was 49% in H1 2016, and 33.5% up until 15 May 2017. DSM completed the divestment of its share in Patheon on 29 August 2017.
2) The positive net result of the first nine months of 2017 was not recognized, as the total equity value of ChemicaInvest year-to-date Q3 2017 is below zero. DSM has no obligation to fund beyond its net interest.

The following APM adjustments were included in the Q3 2017 result of joint ventures and associates:

  • On 29 August 2017, the shares in Patheon N.V. were sold to Thermo Fisher Scientific Inc. resulting in a book profit of €1,250 million.
  • POET-DSM Advanced Biofuels made good progress, after a period of significant delays throughout the industry. In particular, progress was made in the development of advanced enzymes, which will now be manufactured on-site, as well as in yeast technology. The pre-treatment set-up has recently been re-designed, much improving performance. The delays in the start-up together with the pre-treatment re-design led to an impairment of €65 million.
  • Other various impairments on assets of associates of €35 million.

Cash Flow, Capital Expenditures and Financing

in € million Jan - Sep 2017 Jan - Sep 2016 Q3 2017 Q3 2016
Cash from Operating Activities 619 644 290 325
Total Working Capital 1,635 1,528    
Total Working Capital as % of Sales
19.1% 19.1%    
Capital Expenditure (cash, net of customer funding) 384 305 134 128
Net Debt (end of period) 703 2,054    

Cash flow from operating activities amounted to €619 million in the first nine months of 2017, which was below the comparative period in 2016 due to higher working capital reflecting the higher levels of sales.

Total Working Capital amounted to €1,635 million at the end of Q3 2017 compared to €1,528 million at the end of Q3 2016 mainly due to a decrease in non-operating liabilities. Working capital as a percentage of sales amounted to 19.1%, in line with Q3 2016.

Net debt was €703 million compared to €2,054 million end of September 2016. The decrease of €1,351 million was mainly due to the proceeds from the sale of Patheon shares of in total of €1,477 million in Q3 2017, with an additional €58 million hedge income to be received in Q4 2017.

Overview of Alternative Performance Measures (APM) adjustments to EBIT(DA)

In presenting and discussing DSM’s financial position, operating results and cash flows, management uses certain alternative performance measures not defined by IFRS. These alternative performance measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used as supplementary information in conjunction with the most directly comparable IFRS measures. Alternative performance measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. For DSM, the most important APM is the application of APM adjustments to the IFRS measures to provide clear reporting on the underlying business developments.

The following overview gives a summary of APM adjustments (for reconciliation see page 13 & 15 of PDF version).

APM adjustments first nine months of 2017

Nutrition: EBITDA adjustments amounted to -€14 million relating to the profit improvement programs. EBIT adjustments amounted to -€18 million including -€4 million asset impairment.

Materials: EBITDA adjustments amounted to +€1 million (EBIT+€1 million) relating to the release of a litigation provision.

Innovation: EBITDA adjustments amounted to +€1 million relating to the release of a restructuring provision. EBIT adjustments amounted to -€10 million including -€11 million asset impairment.

Corporate Activities: EBITDA adjustments amounted to -€42 million of which -€34 million related to restructuring programs, -€1 million acquisition related costs and -€7 million related to the spin-off of some research activities.

EBIT adjustments amounted to -€43 million including -€1 million asset impairment.

APM adjustments Q3 2017

Nutrition: EBITDA adjustments amounted to -€5 million (EBIT -€5 million) relating to the profit improvement programs.

Innovation: EBIT adjustments amounted to -€11 million due to an asset impairment.

Corporate Activities: EBITDA adjustments amounted to -€17 million (EBIT -€17 million) of which -€16 million related to restructuring programs and -€1 million acquisition related costs.

Dividends and equity

On 26 May 2017, the final dividend of €1.20 per share for the year 2016 was paid to holders of ordinary shares and a dividend of €0.14 per share was paid to holders of cumulative preference shares A. The total distribution to shareholders amounting to €216 million was recorded against retained earnings. An interim dividend for 2017 of €0.58 per ordinary share and €0.06 for cumulative preference shares A was recognized as a liability in the second quarter of 2017. This distribution to shareholders amounting to €104 million took place on 24 August 2017. In the first 9 months of 2017, 3.4 million shares were released into circulation in connection with stock dividend, the exercise of options and delivery of performance shares, 4.0 million shares were repurchased in the same period.