Press release
DSM reports a very strong 2018, including a robust Q4
Heerlen, NL, 14 Feb 2019 07:00 CET
Highlights Full Year 20181
- DSM reports a very strong year, including a robust Q4
- Underlying business:
- Strong organic sales growth of 6%
- Adjusted EBITDA growth of 6%; 10% adjusted for FX
- ROCE of 13.3%, up 100 bps
- Total business (including temporary vitamin effect):
- Adjusted EBITDA up 26%, including €290m temporary vitamin effect
- Adjusted Net profit of €1,034m, up 46%, with Net profit of €1,079m
- Cash from Operating Activities €1,391m, up 40%
- 25% dividend increase from €1.85 to €2.30 per ordinary share2
- Full year outlook 2019 in line with strategic targets
- Launch of €1bn share buy-back program, reflecting strong balance sheet and resilient business
Key figures and indicators3
| in € million | Full Year 2018 |
Full Year 2017 |
% change | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Underlying business2 |
Temporary vitamin effect2 |
Total Group |
Total Group |
Underlying organic growth2 |
FX & ‘other’2 |
Underlying total growth2 |
Temporary vitamin effect2 |
Total Group |
|
| Sales | 8,852 | 415 | 9,267 | 8,632 | 6% | -4% | 2% | 5% | 7% |
| Nutrition | 5,722 | 415 | 6,137 | 5,579 | 7% | -4% | 3% | 7% | 10% |
| Materials | 2,913 | 2,913 | 2,825 | 5% | -2% | 3% | 3% | ||
| Adjusted EBITDA | 1,532 | 290 | 1,822 | 1,445 | 6% | 20% | 26% | ||
| Nutrition | 1,117 | 290 | 1,407 | 1,053 | 6% | 28% | 34% | ||
| Materials | 512 | 512 | 488 | 5% | 5% | ||||
| Innovation | 8 | 8 | 9 | ||||||
| Corporate | -105 | -105 | -105 | ||||||
| EBITDA | 1,464 | 290 | 1,754 | 1,348 | |||||
| Adjusted EBITDA margin |
17.3% | 19.7% | 16.7% | ||||||
1) Underlying (business) is defined in this press release as the performance measures sales and Adjusted EBITDA, corrected for DSM’s best estimate of the temporary vitamin effect. See page 8 of the PDF for further details.
2) Subject to AGM approval.
3) Adjusted EBITDA is an Alternative Performance Measure (APM) that reflects continuing operations.
CEO Statement
“This has been again a record year in which we successfully completed Strategy 2016-2018, outperforming our ambitious financial and sustainability targets. We have created a strong platform of solution-led, higher value specialty products in Nutrition, Health & Sustainable Living. This has positioned the company well to drive continued above market organic growth and deliver further improvement in profitability, shareholder return and sustainability as we execute Strategy 2021 Purpose led, Performance driven.
"During the fourth quarter, Nutrition performed well once again, with continued good business conditions, whilst Materials delivered solid results, despite softness in some of its end-markets.
"Reflecting excellent underlying results for the financial year and confidence in our future earnings growth profile, as also reflected in our 2019 outlook, we propose an increase in the 2018 full year dividend of about 25% to €2.30 per share, in line with guidance given at our 2018 Capital Markets Day.
"In addition, having built a resilient portfolio with future upside from our large innovation projects, we are confident about our earnings prospects and cash generation. Based on this and our strong balance sheet we are pleased to announce a €1 billion share buy-back program which also increases capital efficiency while still retaining financial flexibility to deliver on our growth plans.”
Outlook 2019
DSM expects to deliver a full-year 2019 mid-to-high single digit increase in Adjusted EBITDA compared to prior year Underlying Adjusted EBITDA (pre-temporary vitamin effect), together with an improvement in Underlying Adjusted Net Operating Free Cash Flow in line with its Strategy 2021 targets. This outlook excludes the impact of IFRS16 (see page 15 of PDF).
New Share Buy-Back program
DSM intends to repurchase ordinary shares with an aggregate market value of €1 billion starting in Q2 2019, with the intention to reduce its issued capital. This will be in addition to the usual repurchase programs which DSM executes from time to time to cover commitments under share-based compensation plans and the stock dividend.
Q4 Highlights
- DSM reports a robust Q4
- Nutrition reports 1% organic growth with Adjusted EBITDA up 3%. Corrected for an estimated temporary vitamin effect in Q4 2017:
- The organic growth would have been 4% against a strong prior year
- The Adjusted EBITDA would have been up 7%.
- Materials reports solid results with flat sales and Adjusted EBITDA despite soft business conditions in some end-markets, against a strong prior year
- Total reported sales growth of 1% and Adjusted EBITDA growth of 3%
- Cash from operating activities of €458m, up 21%
| in € million | Q4 2018 | Q4 2017 | % change | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Underlying business2 |
Temporary vitamin effect2 |
Total Group |
Total Group |
Underlying organic growth2 |
FX & ‘other’2 |
Underlying total growth2 |
Temporary vitamin effect2 |
Total Group |
|
| Sales | 2,208 | - | 2,208 | 2,176 | 1% | 0% | 1% | - | 1% |
| Nutrition | 1,444 | - | 1,444 | 1,428 | 1% | 0% | 1% | - | 1% |
| Materials | 698 | 698 | 693 | 0% | 1% | 1% | 1% | ||
| Adjusted EBITDA | 370 | - | 370 | 359 | 3% | - | 3% | ||
| Nutrition | 270 | - | 270 | 267 | 1% | - | 1% | ||
| Materials | 119 | 119 | 119 | 0% | 0% | ||||
| Innovation | 7 | 7 | 4 | ||||||
| Corporate | -26 | -26 | -31 | ||||||
| EBITDA | 340 | 340 | 316 | ||||||
| Adjusted EBITDA margin |
16.8% | 16.8% | 16.5% | ||||||
1) Underlying (business) is defined in this press release as the performance measures sales and Adjusted EBITDA, corrected for DSM’s best estimate of the temporary vitamin effect. See page 8 of the PDF for further details.
2) Adjusted EBITDA is an Alternative Performance Measure (APM) that reflects continuing operations.
Temporary vitamin effect
Underlying (business) is defined in this press release as the performance measures sales and Adjusted EBITDA, corrected for DSM’s best estimate of the temporary vitamin effect due to exceptional supply disruptions in the industry in the first nine months, providing estimated additional sales of €415 million and a corresponding Adjusted EBITDA of €290 million.
These supply disruptions started already in November 2017. While we did not quantify an additional benefit in Q4 2017, since then we have estimated a contribution of €40 million to total sales and a corresponding Adjusted EBITDA impact of €15 million. In the explanation of the sales and Adjusted EBITDA growth of total Nutrition and Animal Nutrition, comparisons are made versus the reported Q4 2017 figures, as well as the figures excluding these temporary vitamin effects.
Key figures & indicators1
| in € million | FY 2018 | FY 2017 | % change | Volume | Price/mix | FX | Other |
|---|---|---|---|---|---|---|---|
| Sales | 9,267 | 8,632 | 7% | 3% | 8% | -4% | 0% |
| Nutrition | 6,137 | 5,579 | 10% | 3% | 11% | -4% | 0% |
| Materials | 2,913 | 2,825 | 3% | 2% | 3% | -2% | 0% |
| Innovation Center | 172 | 169 | |||||
| Corporate Activities | 45 | 59 |
| in € million | Q4 2018 | Q4 2017 | % change | Volume | Price/mix | FX | Other |
|---|---|---|---|---|---|---|---|
| Sales | 2,208 | 2,176 | 1% | 0% | 1% | 0% | 0% |
| Nutrition | 1,444 | 1,428 | 1% | 1% | 0% | 0% | 0% |
| Materials | 698 | 693 | 1% | -3% | 3% | 1% | 0% |
| Innovation Center | 54 | 43 | |||||
| Corporate Activities | 12 | 12 |
| in € million | FY 2018 | FY 2017 | % change | Q4 2018 | Q4 2017 | % change |
|---|---|---|---|---|---|---|
| Sales | 9,267 | 8,632 | 7% | 2,208 | 2,176 | 1% |
| Adjusted EBITDA | 1,822 | 1,445 | 26% | 370 | 359 | 3% |
| Nutrition | 1,407 | 1,053 | 34% | 270 | 267 | 1% |
| Materials | 512 | 488 | 5% | 119 | 119 | 0% |
| Innovation Center | 8 | 9 | 7 | 4 | ||
| Corporate Activities | -105 | -105 | -26 | -31 | ||
| Discontinued Operations | ||||||
| Adjusted EBITDA margin | 19.7% | 16.7% | 16.8% | 16.5% | ||
| EBITDA | 1,754 | 1,348 | 340 | 316 | ||
| Adjusted EBIT | 1,345 | 957 | 41% | 245 | 240 | 2% |
| EBIT | 1,245 | 846 | 196 | 199 | ||
| Capital Employed | 8,181 | 7,766 | ||||
| Average Capital Employed | 8,005 | 7,776 | ||||
| ROCE (%)2 | 16.8% | 12.3% | ||||
| Effective tax rate3 | 17.4% | 16.8% | ||||
| Adjusted net profit4 | 1,034 | 706 | 46% | 182 | 202 | -10% |
| Net profit - Total DSM4 | 1,079 | 1,781 | -39% | 258 | 178 | 45% |
| Adjusted net EPS | 5.84 | 3.92 | 49% | 1.02 | 1.11 | -8% |
| Net EPS - Total DSM | 6.10 | 10.07 | 1.46 | 0.98 | ||
| Operating cash flow5 | 1,391 | 996 | 40% | 458 | 377 | 21% |
| Capital expenditures6 | 646 | 546 | 201 | 162 | ||
| Net debt | 113 | 742 | ||||
| Average number of ordinary shares | 175.3 | 174.8 | 175.6 | 174.5 | ||
| Workforce (headcount end of period) | 20,977 | 21,054 |
1) Including temporary vitamin effect
2) ROCE from underlying business for the year 2018 is estimated at 13.3%
3) Over Adjusted taxable result
4) Including result attributed to non-controlling interest
5) Operating Cash flow from Underlying business is estimated at €1,126m
6) Cash, net of customer funding, investment grants and excluding financial leases
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’
Strategy
Strategy 2018: successfully delivered
In 2015, DSM communicated its three-year strategy, called Strategy 2018: Driving Profitable Growth. The strategy had two headline financial targets: high single-digit percentage annual Adjusted EBITDA growth and high double-digit basis point annual ROCE growth.
In summary, DSM:
- Outperformed on its financial targets on Adjusted EBITDA growth and ROCE growth
- Outpaced market growth in both Nutrition and Materials segments
- Created a strong and focused innovation pipeline to enhance long-term growth
- Executed extensive cost-reduction and improvement programs which delivered run-rate cumulative savings of ~€275 million at the end of 2018 versus the 2014 baseline
- Achieved consistent improvements in capital efficiency
- Extracted significant value from its joint venture partnerships Patheon, ChemicaInvest and DSM Sinochem Pharmaceuticals. The combined proceeds of these divestments were around €3 billion. DSM plans to divest its remaining minority shares in AOC Aliancys (18.9%) and AnQore (35%) in the coming period.
- Strengthened the organization enabling a stronger result-oriented company and culture.
DSM further increased its commitment to sustainability by reducing its own environmental footprint, by enabling other stakeholders, especially its customers to become more sustainable and by raising awareness and sharing knowledge and supporting the United Nations Sustainable Development Goals. A summary of our sustainability 2018 results can be found in the graph on page 7 of the PDF.
Strategy 2021: Growth & Value – Purpose led, Performance driven
In June 2018, DSM presented its Strategy 2021: Growth & Value – Purpose led, Performance driven – detailing how it will evolve further toward being a purpose led, science-based company operating in the fields of Nutrition, Health and Sustainable Living. DSM’s strong growth platform, centered on developing innovative solutions addressing Nutrition & Health, Climate & Energy and Resources & Circularity, together with increased customer centricity and its large innovation projects, will drive above-market growth. At the same time, DSM will remain focused on cost control and operational excellence, allowing it to accelerate profit growth and cash generation. Organic growth will be complemented by acquisitions, predominantly in Nutrition.
Two ambitious targets for profit growth and cash generation have been set for the strategic period: high single-digit annual percentage increase in Adjusted EBITDA and about 10% average annual increase in Adjusted Net Operating Free cash flow.
Ambitions underpinning our targets1
| 1. Sales | Above-market sales growth (~5%) for Total DSM, Nutrition and Materials |
|---|---|
| 2. Adjusted EBITDA margin | Nutrition: >20% Materials: 18-20% |
| 3. Working capital | Reduce by 50 bps annually to ~16% |
| 4. Capex | ~6.5% of sales |
| 5. ROCE | ~1%-point increase per annum |
| 6. Adjusted EPS | Increase ahead of Adjusted EBITDA growth |
1) Based on 2018 underlying business, defined as Sales and Adjusted EBITDA corrected for DSM's best estimate of the temporary vitamin effect.
2) Adjusted net operating free cash flow is the cash flow from operating activities, corrected for the cash flow of the APM adjustments, minus the cash flow of Capital expenditures and drawing rights.
Purpose sets the scope for further growth and evolution
With its unique science-based competences, DSM is ideally positioned to capture the growth opportunities offered by the global megatrends and Sustainable Development Goals (SDGs), with a particular focus on Nutrition & Health, Climate & Energy and Resources & Circularity. DSM will therefore further evolve into a Nutrition, Health and Sustainable Living company:
- DSM’s Nutrition business will focus on human nutrition (ingredients and solutions for food & beverages, as well as specialty nutrition, nutritional ingredients, consumer branded products and personalized nutrition), animal nutrition (covering all species with premix and specialty solutions) and personal care and aroma ingredients;
- DSM’s Materials business will further develop into a high-growth, higher-margin specialty business and will focus on the categories: Improve Health & Living, Green Products and New mobility & Connectivity
By improving the impact of its own operations, enabling sustainable solutions for its customers and advocating sustainable business, DSM can grow faster and reduce its cost and risk profile. DSM will further step up its ambitions regarding the reduction of GHG emissions, energy efficiency and use of renewable energy.
Realization 2018
~8%1
GHG absolute reduction (vs. 2016)
1.4%3
Energy efficiency improvement year-on-year
41%
Purchased renewable electricity
76%
Employee engagement favorable score
0.33
Safety Frequency Recordable Index
62%4
Brighter Living Solutions
2021 / 2030 ambitions
30% absolute reduction by 2030 (vs. 2016)2
>1% average annually till 2030
75% by 2030
>75% by 2021
<0.25 by 2021
>65%5 by 2021
1) We estimate the effect of the underlying structural improvements in absolute GHG emissions by roughly 8% versus 2016, while the total absolute GHG emission reduction versus 2016 is approximately 18% (from 1.5 million tons to 1.23 million tons).
2) An additional Scope 3 intensity reduction target of 28% by 2030 (versus 2016) has been agreed which, together with our Scope 1 + 2 target, meets the criteria for a Science-Based Target.
3) Our energy efficiency improvement was 5.1% over the past strategic period.
4) Excluding temporary vitamin effect.
5) KPI will be updated as part of the Responsible Care Plan update in 2020.
Performance driven to deliver growth and value
DSM is committed to top-line growth ahead of market, which will be supported by expanded solutions offerings, putting the customer even more in the center, as well as by harnessing digital capabilities to increase customer intimacy, improve productivity/efficiency and support new business models. Approximately 45% of sales will come from high-growth economies.
DSM will leverage its unique technology capabilities to develop innovative sustainable solutions in Nutrition & Health, Climate & Energy and Resources & Circularity and will invest approximately 5% of sales in R&D to develop differentiating science and technology. DSM’s innovation projects, including Veramaris®, Project Clean Cow, fermentative Stevia and Niaga®, will result in about 20% of sales coming from innovation.
Greater efficiencies and an increased focus on higher-margin specialty solutions will enable new Adjusted EBITDA margin ambitions by 2021 for Nutrition (over 20%) and Materials (18-20%). Organic top-line growth combined with these enhanced margins will drive DSM’s high single-digit Adjusted EBITDA growth.
DSM aims to accelerate growth in Adjusted Net Operating Free cash flow of on average about 10% per annum. This results from the ambition to reduce working capital levels by around 50 bps annually, a disciplined approach to capex with an overall level of spend of approximately 6.5% of sales, and the ambition to drive improvements in organic ROCE of around 1% annually.
Disciplined Cash Allocation Policy remains unchanged
DSM’s overall deployment of capital is expected to drive Adjusted EPS growth ahead of Adjusted EBITDA growth. DSM’s cash allocation policy remains unchanged and has a clear order of priority for cash deployment:
- Disciplined capex for organic growth: about 6.5% of annual sales;
- A stable, preferably rising dividend;
- Disciplined M&A, predominantly in Nutrition;
- In the absence of value-creating M&A, capital to be returned to shareholders.
DSM remains committed to maintaining a strong, investment grade credit rating.
DSM targets M&A predominantly in Nutrition given its growth potential, resilience, strong leadership position and value creation potential.
Nutrition
Underlying (business) is defined in this press release as the performance measures sales and Adjusted EBITDA, corrected for DSM’s best estimate of the temporary vitamin effect due to exceptional supply disruptions in the industry in the first nine months, providing estimated additional sales of €415 million and a corresponding Adjusted EBITDA of €290 million.
These supply disruptions began already in November 2017. While we did not quantify an additional benefit in Q4 2017, we estimate a contribution of €40 million to total sales and a corresponding Adjusted EBITDA impact of €15 million. In the explanation of the sales and Adjusted EBITDA growth of total Nutrition and Animal Nutrition, comparisons are made versus the reported Q4 2017 figures, as well as the figures excluding these temporary vitamin effects.
Underlying business
| in € million | FY 2018 | FY 2017 | |
|---|---|---|---|
| Sales | 5,722 | 5,579 | 3% |
| Adjusted EBITDA | 1,117 | 1,053 | 6% |
| Adjusted EBITDA margin (%) | 19.5% | 18.9% |
Temporary vitamin effect
| in € million (estimated) | FY 2018 |
|---|---|
| Sales | 415 |
| Adjusted EBITDA | 290 |
Total cluster
| in € million | FY 2018 | FY 2017 | % change | Q4 2018 | Q4 2017 | % change |
|---|---|---|---|---|---|---|
| Sales | 6,137 | 5,579 | 10% | 1,444 | 1,428 | 1% |
| Adjusted EBITDA | 1,407 | 1,053 | 34% | 270 | 267 | 1% |
| Adjusted EBITDA margin (%) | 22.9% | 18.9% | 18.7% | 18.7% | ||
| Adjusted EBIT | 1,111 | 770 | 44% | 193 | 195 | -1% |
| Capital Employed | 5,683 | 5,420 | ||||
| Average Capital Employed | 5,574 | 5,447 | ||||
| ROCE (%) | 19.9% | 14.1% | ||||
| Total Working Capital | 1,410 | 1,339 | ||||
| Average Total Working Capital as % of Sales | 24.9% | 26.6% |
Sales development (underlying business 2018)
Full year 2018 organic sales
Nutrition realized 7% organic sales growth in the underlying business, with strong volumes, up 4%, as well as 3% price growth, supported by good conditions across most regions and market segments. Nutrition continues to deliver on its aspired above-market growth ambition through further leveraging its unique ‘global products & local solutions’ business model, supported by marketing & sales excellence and customer-led innovation.
Q4 2018 organic sales
Nutrition reported 1% organic growth in the underlying business. However, when adjusted for the estimated €40 million temporary vitamin effect in Q4 2017, the organic sales growth was 4% with volumes up 3% and price 1%, despite a strong organic sales growth in prior year.
Full year 2018 Adjusted EBITDA
Adjusted EBITDA growth in the underlying business was 6% against a very strong prior year. This was driven by strong volume growth, pricing strength, and contributions from the savings and efficiency improvement programs, partly offset by significant negative foreign exchange effects. The Adjusted EBITDA margin in the underlying business was 19.5%, versus 18.9% over 2017.
Q4 2018 Adjusted EBITDA
Nutrition reported 1% growth in Adjusted EBITDA at an adjusted EBITDA margin of 18.7%. However, when adjusted for the estimated €15 million temporary vitamin effect in Q4 2017, the Adjusted EBITDA growth was 7% in the underlying business.
Animal Nutrition & Health (underlying business)
Sales development (underlying business 2018)
Full year 2018 organic sales
Animal Nutrition delivered a strong year, with 8% organic growth in the underlying business. Volumes showed 4% growth, achieved against a tough prior year. Business conditions in almost all regions were favorable in 2018. Sales to Brazil were softer due to temporary shut downs, mainly caused by strikes in Q2.
Prices in the underlying business increased by 4% driven by pricing initiatives to mitigate higher costs of sourced ingredients and the impact of negative exchange rate developments. Furthermore, prices were supported by the effects of the ‘Blue Skies policies’ in China.
In 2018, DSM made significant progress in Veramaris®, the joint venture with Evonik to produce the omega-3 fatty acids EPA and DHA from natural marine algae as an alternative to fish oil-based omega-3. Norwegian salmon producer Lingalaks AS has started to replace fish oil by feeding 50 percent of their salmon a diet which includes omega-3 oil produced by Veramaris, in order to ensure greater sustainability and differentiation of their products.
DSM also made good progress with Project Clean Cow, the new, highly innovative, feed solution that reduces methane emissions from cattle by more than 30%. DSM has successfully gathered the data needed to file for regulatory approvals in our targeted launch markets for this project.
Q4 2018 organic sales
Q4 saw continued good business conditions across all regions. The effect from the African swine flu in China and Eastern Europe was largely mitigated by strong growth in other regions and species, demonstrating the resilience of DSM’s integrated and diversified business model and our ability to address a wide range of species as well as a diversified geographical presence.
Animal reported -2% organic growth in the underlying business. Currencies had a slight 2% negative impact in the comparison with Q4 last year, with a weak Brazilian real largely compensated for by a stronger US dollar. However, when adjusted for the estimated €40 million temporary vitamin effect in Q4 2017, the organic sales growth was 3% with volumes up 4% and price -1%, despite a strong comparison.
Human Nutrition & Health (underlying business)
Sales development
Full year 2018 organic sales
Human Nutrition delivered a strong year with 7% organic growth and 4% volume growth. All regions and segments continued to perform well with an especially strong growth in dietary supplements, i-Health and the pharma segment. Early life nutrition showed solid performance in all regions. Construction started on DSM’s second premix solutions facility in Poland, which will be exclusively dedicated to the maternal and infant nutrition market. Sales to food & beverages continued to develop well driven by tailored multiple-ingredient premix solutions, supported by marketing & sales excellence and local application know-how.
Prices were up by 3% driven by a combination of a favorable mix due to strong growth in premix and i-Health, as well as benefits from higher prices for premix and advanced formulations, supported by the effects of the ‘Blue Skies policies’ in China.
Q4 2018 organic sales
Volumes grew with 3%, with continued good sales in all regions. Segment-wise, Dietary Supplements, i-Health and Pharma performed strong. Early Life Nutrition and Food & Beverages maintained their solid performance across all regions. Premix solutions across the segments performed strong.
Prices were up with 3%, in line with the first three quarters of 2018.
Food Specialties
Full year 2018 sales were 9% lower compared to 2017, due to the deconsolidation of Yantai Andre Pectin and negative currency effects. Good sales growth in Hydrocolloids, Enzymes & Cultures were partly off-set by soft sales in savory ingredients caused by capacity limitations early in the year that prevented the business from fully capitalizing on the positive market conditions. This resulted in an overall organic growth of 1%.
After a successful initial market introduction in North America in mid-2018, DSM accelerated its large innovation project for fermentative ‘Stevia’ by establishing a joint venture with Cargill as announced last November. Stevia is a zero-calorie, cost-effective sweetener that can substitute sugar in food and beverages.
On 4 February 2019, DSM announced that it agreed to increase its shareholding in Andre Pectin from 29% to 75%. In view of the transaction, DSM will consolidate the activities of Andre Pectin in its group results again in 2019. The transaction is expected to close in Q1/Q2 2019.
Personal Care & Aroma Ingredients
Full year 2018 sales were up 8%, with a very strong 11% organic growth, partly offset by 3% less favorable currencies. All personal care product lines, including sun-, skin- and hair care delivered good above-market growth, whereas aroma ingredients performed very strong in 2018. Successful commercialization of the innovation pipeline further contributed to a very good year for the business.
Materials
| in € million | FY 2018 | FY 2017 | % change | Q4 2018 | Q4 2017 | % change |
|---|---|---|---|---|---|---|
| Sales | 2,913 | 2,825 | 3% | 698 | 693 | 1% |
| Adjusted EBITDA | 512 | 488 | 5% | 119 | 119 | 0% |
| Adjusted EBITDA margin (%) | 17.6% | 17.3% | 17.0% | 17.2% | ||
| Adjusted EBIT | 383 | 361 | 6% | 85 | 86 | -1% |
| Capital Employed | 1,878 | 1,786 | ||||
| Average Capital Employed | 1,856 | 1,809 | ||||
| ROCE (%) | 20.6% | 20.0% | ||||
| Total Working Capital | 376 | 323 | ||||
| Average Total Working Capital as % of Sales | 13.3% | 12.2% |
Sales development
Full year 2018 organic sales
In 2018, Materials reported 5% organic sales growth, driven by an increase of 2% in volumes and 3% in prices, mainly reflecting commercial pricing initiatives aimed at offsetting higher raw material costs.
- DSM Engineering Plastics delivered a solid performance in 2018 with 7% organic growth. After a strong H1, automotive demand in China and Europe as well as markets for mobile devices in Asia started to soften in the second half of 2018. There was some destocking in the value chain at year end. Business conditions in other segments remain robust.
- DSM Resins & Functional Materials faced a gradual slow-down in the building and construction markets in 2018. After a good start, market softened, resulting in a 2% organic growth for the year. In the fourth quarter, DSM saw a more pronounced destocking than in previous years, especially in powder coating resins. Functional Materials delivered another very good year, reflecting strong demand for these high-margin materials used in data infrastructure.
- DSM Dyneema had a very strong performance throughout 2018 with 6% organic growth, driven by continued high demand in personal protection. Construction of new production lines has started in the US and the Netherlands to fulfil the growing demand, especially for law enforcement.
Q4 2018 organic sales
Materials reported flat organic sales growth in Q4, with 3% lower volumes, as a result of lower sales in resins as well as some end-of-year destocking in both engineering plastics and resins. The 3% price growth largely reflects initiatives to offset higher input costs.
Full year 2018 Adjusted EBITDA was up 5%, driven by good volume growth and DSM’s continuing shift towards a specialty portfolio, and despite a negative foreign exchange effect. This “silent transformation” is also reflected in the 2018 Adjusted EBITDA margin of 17.6%, versus 17.3% in 2017.
Q4 2018 Adjusted EBITDA of €119 million was in line with the same period in 2017, despite softness in some of its end-markets and some destocking effects.
Innovation center
| in € million | FY 2018 | FY 2017 | % change | Q4 2018 | Q4 2017 | % change |
|---|---|---|---|---|---|---|
| Sales | 172 | 169 | 2% | 54 | 43 | 26% |
| Adjusted EBITDA | 8 | 9 | 7 | 4 | ||
| Adjusted EBIT | -14 | -30 | 2 | -1 | ||
| Capital Employed | 597 | 562 |
Full Year 2018 sales were up 2%, with 5% organic sales growth largely offset by a weaker US dollar. DSM Biomedical volumes were up driven by strong sales in the drug delivery segment in H2. DSM Advanced Solar reported slightly lower volumes resulting from a slowdown in demand for solar panels following a policy change by the Chinese government to reduce the number of subsidized solar parks to be installed. DSM introduced a new generation of solar back sheets which is well received by the market. DSM Bio-based Products and Services made good progress in 2018, improving the robustness of the production technology for second-generation bio-ethanol and introducing a new generation of enzymes for first-generation bio-ethanol.
Adjusted EBITDA in the fourth quarter of 2018 benefitted from the collaboration and license agreement with Aerie Pharmaceuticals. 2018 Adjusted EBITDA was relatively stable compared with 2017. The Adjusted EBIT in 2017 included an impairment loss on the related assets.
Corporate Activities
| in € million | FY 2018 | FY 2017 | Q4 2018 | Q4 2017 |
|---|---|---|---|---|
| Sales | 45 | 59 | 12 | 12 |
| Adjusted EBITDA | -105 | -105 | -26 | -31 |
| Adjusted EBIT | -135 | -144 | -35 | -40 |
Full year 2018 Adjusted EBITDA was fully in line with 2017.
Condensed Cash Flow Statement and (Operating) Working Capital
| in € million | FY 2018 | FY 2017 | Q4 2018 | Q4 2017 |
|---|---|---|---|---|
| Cash provided by Operating Activities | 1,391 | 996 | 458 | 377 |
| Operating Working Capital | 2,138 | 1,938 | ||
| Average Operating Working Capital as % of Sales | 24.0% | 23.3% | ||
| Total Working Capital | 1,674 | 1,499 | ||
| Average Total Working Capital as % of Sales | 18.7% | 18.4% |
Cash flow from operating activities amounted to €1,391 million in the year 2018 showing an increase of €395 million (+40%) compared to the year 2017. Corrected for the temporary vitamin effect the cash from operating activities amounted to €1,126 million, an increase of 13%.
Total Working Capital amounted to €1,674 million at the end of 2018 compared to €1,499 million at the end of 2017. Average Total Working Capital as a percentage of sales amounted to 18.7%, slightly up compared to 2017, partly due to the temporary vitamin effect in Nutrition during 2018.
Overview of Alternative Performance Measures (APM) adjustments to EBIT(DA)
The following overview gives a summary of the APM adjustments to EBIT(DA) for the year 2018 (for reconciliation see page 16 of PDF).
Nutrition: EBITDA adjustments amounted to -€27 million of which -€23 million costs related to the profit improvement programs, -€4 million to acquisition related costs, +€11 million profit followed the deconsolidation of Yantai Andre Pectin and the subsequent revaluation of the equity interest to fair value and -€11 million remeasured earn-out arrangement. EBIT adjustments amounted to -€60 million including -€33 million asset impairment.
Materials: EBITDA adjustments amounted to -€23 million fully related to restructuring. EBIT adjustments amounted to -€22 million including +€2 million reversal of an asset impairment and -€1 million impairment of an asset.
Innovation: EBITDA adjustments amounted to -€1 million (EBIT -€1 million) all related to restructuring programs.
Corporate Activities: EBITDA adjustments amounted to -€17 million (EBIT -€17 million) of which -€21 million related to restructuring programs and +€4 million to a received earn-out from a previous divestment.
Alternative Performance Measures (APM) related to the profit of associates / joint control entities
APM adjustments related to associates / joint control entities amounted to a net result of €122 million mainly due to the gain on disposal of DSM Sinochem Pharmaceuticals.
Events after balance sheet date
On 29 January 2019 DSM announced the intention to create a 75%/25% joint venture with Nenter & Co which will include Nenter’s Vitamin E production. DSM will acquire a 75% shareholding in the new entity for a cash consideration of about €135 million. The transaction is subject to several regulatory approvals and expected to close in Q2/Q3 2019. As of the date of gaining control DSM will consolidate the entity.
On 4 February 2019 DSM announced that it agreed to increase its shareholding in Andre Pectin from 29% to 75% by purchasing an additional 46% stake for a consideration of about €150 million. In view of the transaction, DSM will consolidate the activities of Andre Pectin in its group results again in 2019. The transaction is expected to close in Q1/Q2 2019.
Implementation IFRS 16 on ‘Leases’
DSM has implemented IFRS 16 on ‘Leases’ as of 1 January 2019. In order to provide as much clarity as possible, we will show separately the impact of IFRS 16 on our business. The recognition of the leases as of 1 January 2019, will result in an impact of around €208 million on the balance sheet, and a reclassification of lease expenses from operating expenses to depreciation/amortization and financial expenses which is estimated to be around €45 million on an annual basis. The impact on ROCE is estimated to be -30 bps. It should be noted that these are management estimates based on assumptions and contract data gathered up to and including 2018.
For more information
Lieke de Jong-Tops
Senior Communications Manager
+31 45 578 2420
media.contacts@dsm.com
Dave Huizing
Vice President Investor Relations
+31 45 578 2864
investor.relations@dsm.com
Lieke de Jong-Tops
Senior Communications Manager
+31 45 578 2420
Dave Huizing
Vice-President Investor Relations
+31 45 578 2864