Press release

DSM reports 2019 results

Heerlen, NL, 13 Feb 2020 07:00 CET

Highlights1,2,3

  • DSM reports a good year
  • Results compared to underlying business in 2018:
    • Group sales: +2%, Adjusted EBITDA up 10% (including 3% from IFRS 16)
    • Nutrition: sales +5%, organic sales +2%, Adjusted EBITDA up 12% (including 3% from IFRS 16)
    • Materials: sales -6%, volume -5%, Adjusted EBITDA -1% (including 1% from IFRS 16)
  • Net Profit €764m. Adjusted net profit €830m, up 8% versus underlying business in 2018
  • Adjusted Net Operating Free Cash Flow €801m; up 47% versus underlying business in 2018
  • Proposed dividend increase from €2.30 to €2.40 per ordinary share
  • Full year outlook 2020: mid-single digit increase in Adjusted EBITDA

Key figures and indicators

in € million Full Year 2019 Full Year 2018 % Change


  Underlying
business1
Temporary
vitamin effect
Total
Group
Underlying
organic growth1
FX &
‘other1
Underlying
total growth1
Temporary
vitamin effect
Total
Group
Sales 9,010 8,852 415 9,267 -1% 3% 2% -5% -3%
Nutrition 6,028 5,722 415 6,137 2% 3% 5% -7% -2%
Materials 2,746 2,913   2,913 -8% 2% -6%   -6%
Adjusted EBITDA 1,684 1,532 290 1,822     10% -18% -8%
Nutrition 1,250 1,117 290 1,407     12% -23% -11%
Materials 509 512   512     -1%   -1%
Innovation 22 8   8          
Corporate -97 -105   -105          
EBITDA 1,586 1,464 290 1,754          
Adjusted EBITDA
margin
18.7% 17.3%   19.7%          

1) In 2018 DSM benefitted from a temporary vitamin effect (see below). Underlying (business) is defined as the performance measure sales and Adjusted EBITDA, corrected for DSM’s best estimate of this temporary vitamin effect.
2) Adjusted EBITDA is an Alternative Performance Measure (APM) that reflects continuing operations.
3) DSM adopted IFRS 16 as per its effective date of 1 January 2019 and has not restated 2018 (see page 25 of PDF below).

CEO statement

Feike Sijbesma, outgoing CEO, Geraldine Matchett and Dimitri de Vreeze, incoming Co-CEOs, commented: “We are pleased to have delivered a good financial performance, as well as achieving our key milestones in the first year of Strategy 2021. Given the softer trading conditions seen in some of our markets, we are focused on driving growth, costs and operational excellence initiatives across the company to offset these adverse macro-economic conditions. Our outlook for 2020 is based on our own strength and self-help actions, and underlines our commitment to DSM’s Strategy 2021 targets. Our businesses are well positioned to capitalize on many strong fundamental growth drivers related to the world’s most pressing challenges and we expect our large innovation programs to begin to contribute in 2020, and further expand during 2021 and beyond.”

Outlook 2020

DSM expects to deliver a mid-single digit increase in Adjusted EBITDA for 2020 compared to prior year, together with an improvement in Adjusted Net Operating Free Cash Flow in line with our Strategy 2021 targets. This outlook is driven by DSM’s own growth initiatives, innovation programs and self-help actions, and does not assume any significant improvement to the current macro-economic environment. With regard to any potential impact of the coronavirus, DSM will monitor the situation closely.

CEO succession

As announced on 2 December 2019, CEO Feike Sijbesma will hand over his responsibilities to his Managing Board colleagues Geraldine Matchett and Dimitri de Vreeze as Co-CEOs on 15 February 2020 and will support a smooth transition until 1 May 2020.

Feike Sijbesma, commented: “It has been my greatest privilege and joy to lead DSM for 13 years. I am proud of the company it is today, and I am pleased that we once again delivered a good financial performance for the year, despite an increasingly challenging market environment. 2019 marked another year of clear progress in our strategy of evolving towards a Nutrition, Health and Sustainable Living company, addressing the world’s most pressing challenges as key business drivers with our science-based innovations. I am delighted to leave a DSM that is on track to meet its Strategy 2021 objectives, and in the excellent hands of Geraldine and Dimitri, who I know share my commitment to the purpose of the company, and the excitement about the long-term growth drivers of our business and our strong market execution.”

Geraldine Matchett and Dimitri de Vreeze, added: “We are honored to lead the company in the next stage of its journey and thank Feike for his extraordinary leadership over the years.”

Feike Sijbesma has been appointed Honorary Chairman of DSM, being a tribute to Feike’s contribution to the company over the years, maintaining a connection between him and DSM, as Feike will -when requested- continue representing DSM externally, especially in areas such as (mal)nutrition and climate.

Fit for Growth program

DSM has launched a program in DSM Nutritional Products to increase its agility to drive above market profitable growth. By simplifying the operating model and further improving business steering, the program aims to better serve customers and respond to the differentiated needs of their respective end markets. At the same time, it creates a more efficient organization.

Share Buy-Back program

DSM announced on 14 February 2019 a repurchase of shares with an aggregate market value of €1 billion, with the intention to reduce its issued capital. In 2019 DSM has repurchased 5.4 million shares for a total consideration of €600 million under this program. DSM intends to repurchase the remaining €400 million during the first half year of 2020, next to the usual repurchase programs which DSM executes from time to time to cover commitments under the share-based compensation plans and the stock dividend.

Q4 Highlights1,2,3

  • DSM reports a solid Q4
  • Group sales -3%, Adjusted EBITDA up 7% (including 4% impact from IFRS 16)
  • Nutrition: sales +1%, organic sales -1%, Adjusted EBITDA up 9% (including 3% impact from IFRS 16)
  • Materials: sales -9%, volume -6%, Adjusted EBITDA -1% (including 2% impact from IFRS 16)

Key figures and indicators

in € million Q4 2019 Q4 2018 % Change


  Underlying
business1
Temporary
vitamin effect
Total
Group
Underlying
organic growth1
FX &
‘other1
Underlying
total growth1
Temporary
vitamin effect
Total
Group
Sales 2,152 2,208 - 2,208 -5% 2% -3%   -3%
Nutrition 1,455 1,444 - 1,444 -1% 2% 1%   1%
Materials 632 698   698 -12% 3% -9%   -9%
Adjusted EBITDA 396 370 - 370     7%   7%
Nutrition 294 270 - 270     9%   9%
Materials 118 119   119     -1%   -1%
Innovation 6 7   7          
Corporate -22 -26   -26          
EBITDA 347 340   340          
Adjusted EBITDA
margin
18.4% 16.8%   16.8%          

1) In 2018 DSM benefitted from a temporary vitamin effect (see below). Underlying (business) is defined as the performance measure sales and Adjusted EBITDA, corrected for DSM’s best estimate of this temporary vitamin effect.
2) Adjusted EBITDA is an Alternative Performance Measure (APM) that reflects continuing operations.
3) DSM adopted IFRS 16 as per its effective date of 1 January 2019 and has not restated 2018 (see page 25 of PDF below).

Key figures and indicators (comparison with full year 2018 excluding temporary vitamin effect)

in € million FY 2019 FY 2018 % change Volume Price/mix FX Other
Sales 9,010 8,852 2% 0% -1% 2% 1%
Nutrition 6,028 5,722 5% 2% 0% 2% 1%
Materials 2,746 2,913 -6% -5% -3% 2% 0%
Innovation Center 194 172          
Corporate Activities 42 45          
in € million Q4 2019 Q4 2018 % change Volume Price/mix FX Other
Sales 2,152 2,208 -3% -2% -3% 1% 1%
Nutrition 1,455 1,444 1% 1% -2% 1% 1%
Materials 632 698 -9% -6% -6% 2% 1%
Innovation Center 54 54          
Corporate Activities 11 12          
in € million, including IFRS 16 impact FY 2019 FY 2018 % change Q4 2019 Q4 2018 % change
Adjusted EBITDA 1,684 1,532 10% 396 370 7%
Nutrition 1,250 1,117 12% 294 270 9%
Materials 509 512 -1% 118 119 -1%
Innovation Center 22 8   6 7  
Corporate Activities -97 -105   -22 -26  
Adjusted EBITDA margin 18.7% 17.3%   18.4% 16.8%  
ROCE (%) 12.0% 13.3%        
Adjusted net operating free cash flow 801 545 47%      
Adjusted net profit - Total DSM1,2 830 769 8%      
Adjusted net EPS - Total DSM 4.64 4.33 7%      
in € million, excluding IFRS 16 impact FY 2019 FY 2018 % change Q4 2019 Q4 2018 % change
Adjusted EBITDA 1,632 1,532 7% 382 370 3%
Nutrition 1,220 1,117 9% 286 270 6%
Materials 502 512 -2% 116 119 -3%
Innovation Center 20 8   5 7  
Corporate Activities -110 -105   -25 -26  
Adjusted EBITDA margin 18.1% 17.3%   17.8% 16.8%  
ROCE (%) 12.3% 13.3%        
Adjusted net operating free cash flow 749 545 37%      
Adjusted net profit - Total DSM1,2 833 769 8%      
Adjusted net EPS - Total DSM 4.66 4.33 8%      

1) Including result attributed to non-controlling interest
2) Including €25m tax on temporary vitamin effect of €290m in 2018

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’;
  • ‘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.

Key figures and indicators (comparison with full year 2018 including temporary vitamin effect)

in € million FY 2019 FY 2018 % change Volume Price/mix FX Other
Sales 9,010 9,267 -3% 1% -6% 2% 0%
Nutrition 6,028 6,137 -2% 3% -8% 2% 1%
Materials 2,746 2,913 -6% -5% -3% 2% 0%
Innovation Center 194 172          
Corporate Activities 42 45          
in € million Q4 2019 Q4 2018 % change Volume Price/mix FX Other
Sales 2,152 2,208 -3% -2% -3% 1% 1%
Nutrition 1,455 1,444 1% 1% -2% 1% 1%
Materials 632 698 -9% -6% -6% 2% 1%
Innovation Center 54 54          
Corporate Activities 11 12          
in € million, including IFRS 16 impact where applicable FY 2019 FY 2018 % change Q4 2019 Q4 2018 % change
Sales 9,010 9,267 -3% 2,152 2,208 -3%
Adjusted EBITDA 1,684 1,822 -8% 396 370 7%
Nutrition 1,250 1,407 -11% 294 270 9%
Materials 509 512 -1% 118 119 -1%
Innovation Center 22 8   6 7  
Corporate Activities -97 -105   -22 -26  
Adjusted EBITDA margin 18.7% 19.7%   18.4% 16.8%  
EBITDA 1,586 1,754   347 340  
Adjusted EBIT 1,075 1,345 -20% 231 245 -6%
EBIT 954 1,245   170 196  
Capital Employed 9,311 8,181        
Average Capital Employed 8,936 8,005        
ROCE (%) 12.0% 16.8%        
Effective tax rate1 18.2% 17.4%        
Adjusted net profit2 830 1,034 -20% 171 182 -6%
Net profit - Total DSM2 764 1,079 -29% 124 258 -52%
Adjusted net EPS 4.64 5.84 -20% 0.96 1.02 -5%
Net EPS - Total DSM 4.27 6.10   0.70 1.46  
Operating cash flow 1,385 1,391 0% 444 458 -3%
Adjusted Net Operating Free Cash Flow 801 810 -1% 251 281 -11%
Capital expenditures3 609 646   199 201  
Net debt4 1,144 113        
Average number of ordinary shares 175.7 175.3   174.1 175.6  
Workforce (headcount end of period) 22,174 20,977        

1) Over Adjusted taxable result
2) Including result attributed to non-controlling interest
3) Cash, net of customer funding, investment grants and excluding leases
4) Net debt end of December 2019 includes €217 million following the adoption of IFRS 16 on ‘Leases’

Strategy 2021: Growth & Value - Purpose-led, Performance-driven.

In its strategic plan, DSM illustrates 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 together with increased customer centricity and large innovation projects, will drive above-market growth. Concurrently, DSM will continue its strong focus 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 given its growth potential, resilience, strong leadership position and value creation potential.

The following table describes the ambitious targets for profit growth and cash generation for the period 2019 - 2021, as well as the ambitions underpinning these. 

1) Based on 2018 underlying business, defined as Sales and Adjusted EBITDA corrected for our best estimate of the temporary vitamin effect.
2) Adjusted net operating free 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 the UN Sustainable Development Goals (SDGs), with emphasis on Nutrition & Health, Climate & Energy and Resources & Circularity. DSM will therefore further evolve into a Nutrition, Health and Sustainable Living company.

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.

Progress 2019

1) Based on 2018 underlying business, defined as Sales and Adjusted EBITDA corrected for our best estimate of the temporary vitamin effect.
2) Adjusted net operating free cash flow from operating activities, corrected for the cash flow of the APM adjustments, minus the cash flow of capital expenditures and drawing rights.

In 2019, DSM delivered on its financial targets with double-digit growth in Adjusted EBITDA of 10%, including 3% from IFRS 16. Adjusted Net Operating Free Cash Flow increased by 47%, compared to the underlying business in 2018, including 10% from IFRS 16.

Nutrition delivered above market sales growth and high-single digit Adjusted EBITDA growth (+12%, including 3% from IFRS 16), despite challenging market conditions in some of its end markets. Materials demonstrated earnings resilience in persisting weak market conditions with an almost stable Adjusted EBITDA (-1%, including 1% from IFRS 16).

The Adjusted EBITDA margins were 20.7% (including 0.5% from IFRS 16) and 18.5% (including 0.2% from IFRS 16) for Nutrition and Materials respectively, both up versus the prior year and in line with DSM’s strategic ambitions.

Capex was at 6.8% of sales. The working capital as a percentage of sales increased to 26.3%, mainly due to acquisitions, foreign exchange rate effect and timing of payables.

Adjusted earnings per share (EPS) increased by 8% ahead of Adjusted EBITDA growth of 7% when adjusting for the temporary vitamin effect in 2018.

DSM made significant strides in sustainability, by reducing its greenhouse gas emissions stepping up its energy efficiency and purchasing 50% of its energy from renewable sources. For more information on our progress on Sustainability see page 18 of this press release.

DSM further improved its rankings in key ESG (Environmental, Social & Governance) indices, achieving leading positions in four important ESG indices for investors: DSM is #1 out of 120 in its industry in Sustainalytics, has an AAA rating in MSCI, has the Prime score in ISS-Oekom, and has a leading position in Vigeo.

Review by cluster - Nutrition

Underlying business

‘Underlying’ business is defined as the sales and Adjusted EBITDA, corrected for the temporary vitamin effect due to exceptional supply disruptions in the industry which occurred in the first nine months of 2018. This event provided additional sales of €415 million and a corresponding Adjusted EBITDA of €290 million in the first nine months of 2018, as estimated and reported last year. 

in € million (estimated) FY 2019 FY 2018  
Sales 6,028 5,722 5%
Adjusted EBITDA1 1,250 1,117 12%
Adjusted EBITDA margin (%)1 20.7% 19.5%  
ROCE (%) 13.9% 14.9%  

Temporary vitamin effect

in € million (estimated) Temporary vitamin effect 2018
Sales 415
Adjusted EBITDA 290

Total cluster

in € million FY 2019 FY 2018 % change Q4 2019 Q4 2018 % change
Sales 6,028 6,137 -2% 1,455 1,444 1%
Adjusted EBITDA1 1,250 1,407 -11% 294 270 9%
Adjusted EBITDA margin (%)1 20.7% 22.9%   20.2% 18.7%  
Adjusted EBIT 881 1,111 -21% 194 193 1%
Capital Employed 6,731 5,683        
Average Capital Employed 6,347 5,574        
ROCE (%) 13.9% 19.9%        
Total Working Capital 1,644 1,410        
Average Total Working Capital as % of Sales 27.8% 24.9%        

1) Including IFRS 16 impact of €8 million in Q4 2019 and €30 million for the full year 2019

Nutrition

With its portfolio of higher-value feed, food and personal care solutions, Nutrition is well positioned to capture growth opportunities driven by global trends and sustainability, such as solutions against malnutrition, addressing the need for healthier diets and diversified proteins, preventing non-communicable diseases, enabling a more sustainable production of food and feed, as well as avoiding food loss and waste.

In 2019, Nutrition delivered a good result with sales up 5% and Adjusted EBITDA up 12% (including 3% from IFRS 16). Animal Nutrition delivered a good performance despite the African swine fever. Human Nutrition was soft. Personal Care and Food Specialties were strong.

Sales development

All comparisons on this page are versus the Underlying business in 2018.

Full year 2019 sales

Nutrition sales were 5% higher compared to 2018, with 2% organic growth, 1% from the consolidation of Andre Pectin and 2% from exchange rates driven by the US dollar.

Q4 2019 sales

Nutrition reported minus 1% organic growth, with volumes up 1% and prices down 2%. Overall, sales were up 1% with the contribution of Andre Pectin and positive exchange rates. 

Animal Nutrition delivered a solid result with strong sales growth across regions and species. Volumes were partly impacted by the continued spread of the African swine fever in China and South-East Asia. Human Nutrition had a weak quarter on the back of some softer end-markets. The Other Nutrition activities performed strongly.

Full year 2019 Adjusted EBITDA

The Adjusted EBITDA growth was 12%, including a 3% contribution from IFRS 16 and 2% from Andre Pectin (€24 million), driven by higher volumes, lower costs and a small positive foreign exchange effect. The adjusted EBITDA margin was 20.7% (including 0.5% from IFRS 16) versus 19.5% in same period last year.

Q4 2019 Adjusted EBITDA

Nutrition reported 9% growth in Adjusted EBITDA (including 3% from IFRS 16), driven by positive mix effects, lower costs and the consolidation of Andre Pectin. The Q4 2019 Adjusted EBITDA margin was 20.2% (including 0.5% from IFRS 16) versus 18.7% in Q4 2018.

Fit for Growth program

DSM is launching a program in DSM Nutritional Products (DNP) to increase its agility to drive above market profitable growth. By simplifying the operating model and further improving business steering, the program aims to better serve customers and respond to the differentiated needs of their respective end markets. At the same time, it creates a more efficient organization, which will help to adjust to a currently softer and more challenging market environment.

In both Human Nutrition and Animal Nutrition, DNP will introduce two business lines with focused customer-facing teams and differentiated go-to-market approaches.

  • In Human Nutrition, the business line General Nutrition focuses primarily on the Food & Beverage segment, whilst the business line Specialty Nutrition includes the segments Early Life Nutrition, Pharma and Dietary Supplements.
  • In Animal Nutrition, the business line Core Products & Premix Solutions encompasses DNP’s traditional offering, whilst the business line Specialty Solutions focuses on innovative products and solutions, primarily for gut health.

The introduction of these business lines will also significantly strengthen the respective link with DNP’s global Supply Chain and Innovation organizations and thus increase agility to fully seize commercial opportunities as well as successfully commercialize novel products and solutions. At the same time, this change simplifies sales operations for DNP’s customer-facing teams, resulting in additional and more effective time with its customers. In order to drive faster and more integrated end-to-end decision making, DNP further enhances profit & loss responsibility with corresponding KPIs at Human Nutrition and Animal Nutrition level.

The new operating model will be enabled by a revised organizational structure. The structure is designed to support the more focused business priorities, and to operate with more streamlined central business steering. The new set-up will lead to around 350 redundancies (~3% of total DNP’s workforce and ~1.5% of total DSM workforce), mainly in central and at managerial levels, affecting mostly DNP’s global HQ in Switzerland and its organization in North America.

Animal Nutrition & Health

Animal Nutrition continues to strengthen its global market positions, by developing new specialty solutions, expanding its premix offerings, investing in go-to-market capabilities, and focusing on higher growth segments such as aquaculture.

Good progress was made on large innovation programs:

  • Veramaris® started the commercial production of its omega-3 fatty acids from marine algae for aquaculture, supplying three of the largest salmon feed producers and used by the largest salmon farmers. The first Veramaris-fed salmon were distributed by three major retailers across Europe. Sales volumes are expected to develop in line with the ramp-up of the plant with target production capacity to be reached early 2021.
  • DSM filed for European registration to commercialize its ‘Clean Cow’ product, targeted for late 2020/early 2021. This feed additive reduces methane emissions from ruminants by about 30%.
  • After a successful introduction in the Americas in 2018, Balancius®, a feed ingredient designed to improve the gastrointestinal functionality in poultry, was launched in Europe.
  • In 2019, Animal Nutrition established a partnership with Nenter. The new entity resulting from this partnership will produce high-quality and sustainable vitamin E exclusively for DSM. The production facilities and related assets are currently being upgraded to ensure compliance with DSM’s safety, health and environmental standards. The plant is not expected to resume production activities before Q3 2020.

Sales development

All comparisons on this page are versus the Underlying business in 2018.

Full year 2019 sales

Animal Nutrition reported 4% organic growth, against a strong 8% last year and despite the negative effect of the African swine fever (ASF). This demonstrates the resilience of the integrated and diversified business model and DSM’s ability to address a wide range of species as well as a diversified geographical presence.

Sales were strong for all species and in all regions, except for sales to the swine business in China and South-East Asia which were impacted by the ASF. This region accounts for more than half of global pork production, with culling measures introduced in response to the ASF, affecting 35-50% of pork production in the area. The rapid spread of this disease has disrupted the global equilibrium of animal protein in the short term. As a result, in the second half of 2019, DSM was unable to fully offset the decline in pork production in the region with increases in production from other regions and species. Overall, volumes and prices were both up 2%. The price increase was due to positive sales mix effects, as well as price increases earlier in the year for some ingredients to compensate for higher costs.

Q4 2019 sales

Q4 saw continued good business conditions across almost all regions and species. Animal Nutrition delivered an organic growth of 2%, driven by volumes. As in Q3, the strong performance across the world, was partly offset by the negative effects of the ASF in China and South-East Asia.

Human Nutrition

Human Nutrition focuses on moving closer to the customer by strengthening the value propositions of its products and services, creating end-to-end customer experiences, and enhanced innovation and application capabilities.

The dynamic challenges of the food & beverage industry are being addressed by providing global customers with new value propositions, as well as increasingly developing premix solutions to regional and local players. With a new premix facility under construction that will be dedicated to Early Life Nutrition, DSM keeps expanding its premix footprint.

Good progress on large innovation programs: 

  • In 2019 DSM created a leading position in the emerging personalized nutrition space. Next to its 50% stake in Mixfit, DSM invested in start-up activities in the space through the acquisition of AVA, taking a stake in Tespo and creating partnerships with Panaceutics and Wellmetrix.

Sales development

All comparisons on this page are versus the Underlying business in 2018.

Full year 2019 sales

Human Nutrition delivered 3% sales growth driven by foreign exchange effects, which were largely US dollar related. Organic growth was minus 1%, against a tough comparison of +7% organic growth in 2018, in increasingly challenging end-markets. Volumes were up 2% and prices were down 3%.

After a strong start to the year, softer macro-economic conditions increasingly weighed on the food & beverages segment, especially in North America. The softness is most pronounced at larger customers. Smaller customers have been less impacted.

Medical Nutrition and Dietary Supplements (driven by the double-digit growth in the i-Health segment, DSM’s business-to-consumer business) performed well over the year. Early Life Nutrition showed a strong performance in the first three quarters of the year, with a softer fourth quarter. Lower prices for vitamin C and negative mix effects resulted in 3% lower prices.

Q4 2019 sales

Human Nutrition reported minus 6% organic growth, with volumes down 1% and prices down 5%. Business conditions in Food & Beverage remained sluggish in the quarter especially in North America. Early Life Nutrition had a softer quarter, reflecting the weakness in demand at DSM’s global customers who saw their sales to China slowing. Medical Nutrition and Dietary Supplements performed well and the i-Health business performed strongly. The minus 5% price effect resulted from lower prices for vitamin C and negative mix effects (especially due to lower sales in Early Life Nutrition).

Food Specialties

Full year 2019 sales were 17% higher versus the previous year, resulting from 4% organic growth, 12% from the consolidation of Andre Pectin following the increase in DSM’s shareholding from 29% to 75% and 1% from exchange rate effects.

All major business lines performed well over the year, with especially good sales growth in cultures and food enzymes in dairy and baking. The re-integration of Andre Pectin went very smoothly, and the business performed well.

DSM acquired Royal CSK per 27 December 2019, a Dutch company primarily active in cheese cultures. This highly synergetic business will allow DSM to better serve its largest food and beverage segment of fast-growing and attractive dairy culture markets.

Good progress on large innovation program:

  • Avansya, DSM’s joint venture with Cargill for sweetener, started commercial production of its fermentative stevia at its plant in Blair, Nebraska (USA) in November. Avansya expects first customers products containing its sweetener solutions to arrive in designated test markets soon.

Personal Care & Aroma Ingredients

Full year 2019 sales were up 11%, with a very strong 9% organic growth and a 2% contribution from foreign exchange. All personal care product lines, including sun-, skin- and hair care delivered good above-market growth, with aroma ingredients also performing well in 2019. Successful commercialization of the innovation pipeline further contributed to a very good year for the business.

Review by cluster - Materials

In 2019, Materials continued its ongoing transformation into a high-growth, higher-margin specialty business, focused on Improved Health & Living, Green Products & Applications and New Mobility & Connectivity. DSM Engineering Plastics expanded its production capacity for specialty plastics in India through the acquisition of the Engineering Plastics business of SRF, while Dyneema opened new production lines in the Netherlands and in the USA to support further growth.

While building a strong platform for its long-term growth ambitions, in the short-term Materials was confronted with weak macro-economic conditions in China and in some of its end-markets. Due to the strong performance of the higher margin businesses (especially Dyneema), good margin management, cost control and some benefit from exchange rates, Materials reported almost flat earnings in 2019 demonstrating the strong resilience of DSM’s specialty portfolio in weak economic conditions.

in € million FY 2019 FY 2018 % change Q4 2019 Q4 2018 % change
Sales 2,746 2,913 -6% 632 698 -9%
Adjusted EBITDA1 509 512 -1% 118 119 -1%
Adjusted EBITDA margin (%)1 18.5% 17.6%   18.7% 17.0%  
Adjusted EBIT 363 383 -5% 78 85 -8%
Capital Employed 1,927 1,878        
Average Capital Employed 1,951 1,856        
ROCE (%) 18.6% 20.6%        
Total Working Capital 356 376        
Average Total Working Capital as % of Sales 15.2% 13.3%        

1) Including IFRS 16 impact of €2 million in Q4 2019 and €7 million for the full year 2019

Sales development

All comparisons on this page are versus the Underlying business in 2018.

Full year 2019 sales

Materials reported minus 8% organic growth, with volumes recording minus 5% and prices minus 3%. The lower prices fully reflect lower input costs.

  • DSM Engineering Plastics reported minus 10% organic growth. The business saw persistent softness in China and in the global automotive segment. Electrical & Electronics saw some signs of improvement in the second half. Business conditions in other end-segments were solid.
  • DSM Resins & Functional Materials reported minus 6% organic growth. Business conditions in Coating Resins stabilized versus previous year: while the European end-markets remained weak, the business experienced a small uptick in the Chinese building & construction sector. Functional Materials saw its sales of specialty coatings for glass fiber optic cables decline in the second half of the year. The 4G network investments started to fade out in anticipation of the upcoming infrastructure investments for the 5G networks, which led to temporarily lower sales.
  • DSM Dyneema reported minus 4% organic growth. The focus on strong growth in the high margin personal protection business resulted in lower volumes in other segments. The shift had a strong positive effect on the margins. New production capacity was started up by the end of the year, which will allow the business to continue its growth.

Q4 2019 sales

The reported organic growth was minus 12% with volumes and prices down 6%. Volumes were down due to a combination of more pronounced end-of-year de-stocking by customers and lower sales in Functional Materials. The price decline in Materials fully reflects lower input cost.

Full year 2019 Adjusted EBITDA

Full year 2019 Adjusted EBITDA was minus 1% compared to previous year (including 1% from IFRS 16). DSM’s specialty portfolio demonstrated its relative earnings resilience in current market circumstances. Due to the strong performance of the higher margin businesses (especially Dyneema), good margin management, cost control and some benefit from currencies, Materials reported almost flat earnings in 2019. The Adjusted EBITDA margin was 18.5% (including 0.2% from IFRS 16) compared to 17.6% achieved in the previous year. 

Q4 2019 Adjusted EBITDA

Q4 2019 Adjusted EBITDA was minus 1% compared to previous year (including 2% from IFRS 16). Q4 2019 Adjusted EBITDA margin was 18.7% (including 0.3% from IFRS 16) compared to 17.0% in Q4 2018.

Innovation Center

in € million FY 2019 FY 2018 % change Q4 2019 Q4 2018 % change
Sales 194 172 13% 54 54 0%
Adjusted EBITDA1 22 8   6 7  
Adjusted EBIT -19 -14   -8 2  
Capital Employed 616 597        

1) Including IFRS 16 impact of €1 million in Q4 2019 and €2 million for the full year 2019

Full Year 2019 sales were up 13% with 9% organic growth and 4% contribution from exchange rates. Biomedical reported strong sales growth over the year. Bio-based Products & Services benefited from the license income for yeast technologies used for bio-based fuels. Solar was soft due to the challenging Chinese market.

Full Year 2019 Adjusted EBITDA benefited from a strong increase in license income at Bio-based Products & Services as well as a good performance of Biomedical and a positive contribution from exchange rate effects.

Corporate Activities

in € million FY 2019 FY 2018 Q4 2019 Q4 2018
Sales 42 45 11 12
Adjusted EBITDA1 -97 -105 -22 -26
Adjusted EBIT -150 -135 -33 -35

1) Including IFRS 16 impact of €3 million in Q4 2019 and €13 million for the full year 2019

Full year 2019 Adjusted EBITDA slightly improved compared to previous year, predominantly driven by the adoption of IFRS 16 which was partly offset by somewhat higher cost. 

Condensed Cash Flow Statement and (Operating) Working Capital

in € million FY 2019 FY 2018 Q4 2019 Q4 2018
Cash provided by Operating Activities 1,385 1,391 444 458
 - Cash from APM adjustments 57 94 20 28
 - Cash from capital expenditures* -627 -655 -207 -203
 - Cash from drawing rights -14 -20 -6 -2
Adjusted Net Operating Free Cash Flow 801 810 251 281
Adjusted Net Operating Free Cash Flow - Underlying base 801 545    
Operating Working Capital 2,266 2,138    
Average Operating Working Capital as % of Sales 26.3% 24.0%    
Operating Working Capital as % of Sales - end of period 26.3% 24.2%    
Total Working Capital 1,852 1,674    
Average Total Working Capital as % of Sales 21.2% 18.7%    
Total Working Capital as % of Sales - end of period 21.5% 19.0%    

* Full year 2018: excluding €18 million payment of lease liability

Adjusted Net Operating Free Cash Flow amounted to €801 million in 2019 up 47% (including 10% impact from IFRS 16) versus the underlying business in 2018, well above the target of 10% average annual increase. The step-up in cash flow is driven by limited cash-out related to working capital in 2019 of €13 million, compared to €238 million in 2018.

Operating Working Capital and Total Working Capital: The increase end of 2019 versus 2018 is fully driven by the consolidation of acquisitions and exchange rate effects. OWC as % of sales was further negatively impacted by lower annualized Q4 sales in 2019.

Overview of Alternative Performance Measures (APM) adjustments

The following overview provides a summary of the APM adjustments for the full year 2019 (for the reconciliation see page 20 of the PDF below):

  • Nutrition: EBITDA adjustments amounted to €26 million of which €14 million related to restructuring costs and €12 million to acquisition related costs. EBIT adjustments amounted to €49 million, including a €23 million asset impairment.
  • Materials: EBITDA adjustments amounted to €16 million (EBIT €16 million) of which €15 million related to restructuring costs and €1 million to acquisition related costs.
  • Innovation Center: EBITDA adjustments amounted to €4 million (EBIT €4 million) fully related to restructuring costs.
  • Corporate Activities: EBITDA adjustments amounted to €52 million (EBIT €52 million) of which €35 million related to restructuring costs and €17 million related to a provision for soil cleaning.
  • The share of the profit of associates: The net result includes a positive book result of €26 million on its existing share of 29% following the acquisition of an additional 46% of the shares of Andre Pectin in Q1 2019.

Sustainability performance

Continued step-up in sustainability leadership

1) We estimate that the effect of the underlying cumulative structural improvements in absolute GHG emissions was approximately 17%
2) For a small percentage of sales (approximately 2%) classified as BLS, the enviromental impact is considered 'best in class' together with other solutions
3) KPI will be updated as part of the Responsible Care Plan update in 2020

Full year Planet highlights

DSM further improved the environmental impact of its own operations:

  • DSM is well on track with respect to its greenhouse gas reduction, energy efficiency improvement and purchased renewable electricity targets. 
    • The underlying cumulative structural improvement in absolute greenhouse gas reduction in 2019 compared to the 2016 baseline was ~17%.
    • Energy efficiency improved by 2.3% compared to 2018 versus an annual ambition of more than 1% average.
    • 50% of purchased electricity came from renewable resources compared with 41% in 2018.  
  • Across various production sites, DSM further improved the sustainability of its own operations. Amongst others, together with energy companies ENGIE and EWZ, DSM opened a new green energy plant at its Sisseln (Switzerland) facility, which will reduce CO2 emissions by up to 50,000 tons/year.
  • Consistent with its climate goals, DSM engaged with multiple key suppliers to proactively reduce and report GHG emissions reductions related to the products supplied to DSM under its CO2REDUCE program.
  • DSM was the first company in its sector to set new science-based targets for greenhouse gas emissions reduction, reviewed and approved by the Science Based Targets initiative and aligned with the Paris climate agreement.
  • DSM committed to a new long-term pathway to work towards net-zero GHG emissions across operations and value chain by 2050. With this, DSM is one of the first companies to do so and is challenging governments to similarly match their ambition and policies with the 1.5°C trajectory.

DSM enabled its customers to deliver more sustainable solutions to their (end) consumers:

  • DSM made good progress on its large innovation projects such as Veramaris, Avansya, Project Clean Cow, Balancius and Niaga®
  • All DSM’s materials businesses initiated additional sustainability ambitions to reduce the environmental impact of their operations and to increase the sustainability value they deliver.
  • DSM Engineering Plastics announced it will offer a full alternative range of its existing portfolio that will contain at least 25% recycled and/or bio-based content by weight in the final product by 2030. 
  • DSM Dyneema committed to sourcing at least 60% of its raw materials from bio-based feedstocks by 2030 and created a circular-economy consortium with a remit to establish an end-of-life recycling program.
  • DSM Resins & Functional Materials announced that it will have zero waste to landfill by 2022 and it has committed that by 2030, at least 30% of its raw materials will be bio-based and/or recycled-based.

DSM advocated for topics such as the role of business in society, putting a responsible price on carbon, and climate adaptation:

  • In September DSM gathered leaders from the private and public sector as well as civil society in New York on the topic of the role of business in society, to identify initiatives that have the potential to be a game-changer toward more purposeful capitalism.
  • DSM CEO Feike Sijbesma co-chaired the High-Level Commission on Carbon Pricing and Competitiveness convened by the Carbon Pricing Leadership Coalition (CPLC), which published a report in September that calls for long-term and ambitious carbon pricing policies, and provides the evidence that a well-designed carbon price policy will not negatively influence economic competitiveness.
  • Mr. Sijbesma is also one of the commissioners of the Global Commission on Adaptation which published its flagship report in September, calling for urgent action on climate adaptation and finding that adaptation can deliver USD 7.1 trillion in benefits at USD 1.8 trillion costs.

Full year People highlights

  • DSM substantially improved its Safety Frequency Recordable Index from 0.33 in 2018 to 0.28. Safety remains its highest priority and DSM strives to be incident and injury free
  • DSM’s employees continue to feel engaged and committed, as demonstrated by an Employee Engagement Index rating of 74%, a response rate of 92% and over 40,000 comments and ideas received. 
  • DSM continued its Inclusion & Diversity journey: 
    • 20% of its executives are female.
    • As of 15 February 2020, the percentage of women in DSM’s Executive Committee, Managing Board and Supervisory Board is 50%. With these percentages DSM is clearly achieving its aim of having at least 30% male and at least 30% female members in each of them. 
  • Mr. Feike Sijbesma was listed number 42 on the Harvard Business Review Top 100 best performing global CEOs.

Full year other highlights

  • 63% of DSM sales came from Brighter Living Solutions. These are products and services that have a better environmental (ECO+) and/or social (People+) impact than mainstream solutions.
  • DSM further improved its rankings in key ESG (Environmental, Social & Governance) indices, achieving leading positions in four important ESG indices for investors: DSM is #1 out of 120 in its industry in Sustainalytics, has an AAA rating in MSCI, has the Prime score in ISS-Oekom, and has a leading position in Vigeo.

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

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