Highlights
DSM reports a second consecutive strong quarter in 2016
Group net sales up at €1,994 million, with 5% organic growth, and EBITDA up 18%
Nutrition: organic sales growth of 9%, EBITDA up 14%
Materials: volumes up 5%, EBITDA up 10%
H1 Group ROCE: improved to 10.5% (H1 2015: 7.4%) driven by higher EBIT
Interim dividend of €0.55 per ordinary share
Outlook revised upward
Key figures and indicators (continuing operations)
in € million Q2 2016 Q2 2015 % change
volume price/
mix FX
other
Sales 1,994 1,965 1% 6% -1% -4% 0%
Nutrition 1,295 1,247 4% 7% 2% -5% 0%
Materials 640 664 -4% 5% -7% -2%
EBITDA 328 279 18%
Nutrition 237 208 14%
Materials 117 106 10%
ROCE (%)1 10.5 7.4
1) January until June

CEO statement

Feike Sijbesma, CEO/Chairman of the DSM Managing Board, commented: “Our positive momentum from Q1 continued and we are pleased to deliver another strong quarter. This was driven by good growth across our businesses and steady progress in our operations. Furthermore, we remain on track with our ambitious group-wide improvement and cost saving programs.

Materials performed particularly well, with good volume growth, notably in specialties, and a strong margin performance. This was supported by a favorable product mix, continued low input costs, and proactive margin management. In Nutrition, animal nutrition delivered high growth, benefitting in part from a favorable prior year comparison. We were also pleased with the continued progress in human nutrition, which delivered solid growth in line with our medium-term plans to outgrow the market.

During the quarter, uncertainty and volatility within the global macro-economic environment increased. While this remains a concern, we expect that for 2016 we will deliver ahead of our medium-term goals, given the strong performance of our business, underpinned by our continued focus on our improvement programs.”

Outlook 2016 revised upward

DSM aims to deliver increased full-year EBITDA and ROCE in line with the targets set out in its Strategy 2018: Driving Profitable Growth. While global macro-economic developments remain a concern, DSM now expects to deliver full-year 2016 results ahead of the medium term targets set out in its Strategy 2018, with an EBITDA growth for the year moving from high-single digit into the low to mid teens, and an increase in ROCE from high double-digit to over 200 basis points.

Key figures and indicators (cont’d)
In € million Q2 2016 Q2 2015 % change
volume price/
mix FX
other
Sales - Continuing Operations 1,994 1,965 1% 6% -1% -4% 0%
Nutrition 1,295 1,247 4% 7% 2% -5% 0%
Materials 640 664 -4% 5% -7% -2%
Innovation Center 40 37 8% 9% 0% -2% 1%
Corporate Activities 19 17
Discontinued Operations 0 550
in € million H1 2016 H1 2015 % change
volume price/
mix FX
other
Sales - Continuing Operations 3,907 3,851 1% 6% -2% -3% 0%
Nutrition 2,545 2,446 4% 6% 1% -4% 1%
Materials 1,240 1,296 -4% 3% -6% -1%
Innovation Center 83 73 14% 14% 0% -1% 1%
Corporate Activities 39 36
Discontinued Operations 0 1,056
in € million Q2 2016 Q2 2015 % change
H1 2016 H1 2015 % change
Sales - Continuing Operations 1,994 1,965 1% 3,907 3,851 1%
Nutrition 1,295 1,247 4% 2,545 2,446 4%
Materials 640 664 -4% 1,240 1,296 -4%
Innovation Center 40 37 8% 83 73 14%
Corporate Activities 19 17 39 36
Discontinued Operations 0 550 0 1,056
EBITDA - Continuing Operations 328 279 18% 624 527 18%
Nutrition 237 208 14% 462 403 15%
Materials 117 106 10% 212 192 10%
Innovation Center 0 -3 1 -8
Corporate Activities -26 -32 -51 -60
Discontinued Operations 0 53 0 91
EBITDA margin - Continuing Operations 16.4% 14.2% 16.0% 13.7%
EBIT - Continuing Operations 211 157 34% 396 288 38%
Capital Employed - Continuing Operations1 7,616 7,897
Average Capital Employed1 7,542 7,824
ROCE - Continuing Operations (%)2 10.5% 7.4%
Profit for the period, before exceptional items - Cont. Ops. 135 110 23% 244 179 36%
Profit for the period, after exceptional items - Total DSM 135 101 220 30
Net EPS before exceptional items - Cont. Ops. 0.76 0.63 21% 1.36 1.02 33%
Net EPS after exceptional items - Total DSM 0.76 0.56 1.22 0.14
Cash Flow - Continuing Operations 182 103 319 187
Capital Expenditures - Continuing Operations3 78 107 177 208
Net debt1 2,466 2,3214
1) Before reclassification to held for sale
2) ROCE calculated based on weighted average capital employed
3) Cash, net of customer funding
4) Year-end 2015

In this report:
‘Organic sales growth’ is the total impact of volume and price/mix;
‘Discontinued operations’ comprises net sales and operating profit (before depreciation and amortization) of DSM Fibre Intermediates and DSM Composite Resins up to and including 31 July 2015;
‘Total Working Capital’ refers to the total of ‘Operating Working Capital’ and ‘non-Operating Working Capital’.

Update on strategy 2018: Driving Profitable Growth

DSM’s Strategy 2018: Driving Profitable Growth is focused on ensuring that the potential of the business portfolio that has been created translates into improved financial results. Reflecting its disciplined focus on performance, DSM has implemented a three-year strategic period with two headline financial targets: high single-digit annual EBITDA growth and high double-digit basis point annual ROCE growth.

To achieve these targets, DSM has defined clear actions, including outpacing market growth, cost reduction and efficiency improvement programs which will deliver €250-300 million versus the 2014 baseline, and furthermore aims to drive consistent improvements in capital efficiency.

Outpacing market growth

DSM is confident that it has the right business strategies in place to meet the needs of its customers and succeed in its markets, providing innovative and sustainable solutions. It intends to accelerate growth and outpace market growth in its key segments.

In Nutrition, DSM has a unique business model combining highly competitive, world-scale production capabilities for its key global products with customized local solution capabilities to meet segment and customer-specific needs. It has clear strategies to drive both top and bottom-line growth across its Nutrition business, leveraging its innovation power, improved segmentation capabilities and driving customer intimacy:

DSM’s Nutrition business is expanding in new segments and regions. DSM’s investment in a new omega-3 concentration facility in Canada (Mulgrave, Nova Scotia) enables the company to launch a new line of high-concentrate DHA and EPA, containing up to 85% omega-3, to support cardiovascular and cognitive health for human nutrition applications. DSM is currently also expanding its fast-growing i-health consumer line of products outside of the United States.
Furthermore, DSM develops new business models to increase market share, such as the implementation of a business to farmer (B2F) approach for swine and poultry in China, which is progressing well.
DSM is broadening and deepening its nutrition portfolio with new products and solutions. In H1 2016, DSM delivered strong growth in eubiotics for antibiotic-free poultry. This trend is gaining traction as consumers are increasingly avoiding protein products produced with growth-promoting antibiotics.
DSM continues to strengthen its core in Nutrition. In H1 2016, DSM opened a new production facility for vitamin B6 in China, utilizing an advanced technology platform, which enables lower production costs as well a reduction in environmental footprint. DSM also announced the expansion of its gellan gum and pectin production facilities in China.
In Materials, DSM is benefitting from the successful shift in the focus of its portfolio towards specialties, driven by the substitution of traditional materials for the more innovative, sustainable and higher-value alternatives that the company provides. In H1 2016, this quality shift was reflected in the progress of the EBITDA margin in the cluster. DSM’s strategy in Materials is to apply differentiated approaches to its portfolio of businesses, focusing on well-defined higher-growth segments, while maximizing returns in polyamide 6 polymer and powder coating resins.

DSM has a growth strategy for its specialty resins, engineering plastic compounds as well as solutions for life protection. For DSM’s high-performance plastics, functional materials, advanced surfaces, biomedical materials and high performance fiber solutions, DSM has defined an accelerated growth strategy.

One example of a new, sustainable solution contributing to accelerated growth is the application of DSM’s high-performance engineering plastics Stanyl®, ForTii® and ForTii® Eco in new ultra-thin USB Type-C connectors, the new industry standard.
DSM further drives accelerated growth by entering promising new segments, for example in Dyneema’s fiber solutions, which continue to grow in ultra-strong and lightweight high-performance apparel. In this year’s Tour de France, Team Giant-Alpecin’s riders wore cycling shorts and jerseys incorporating Dyneema® fiber to provide them with increased protection in the event of a fall.
In Resins & Functional Materials, DSM is making good progress with its sustainable waterborne coatings business for marine containers, a segment which is growing fast in China. Another promising example is the new Niaga® technology for fully recyclable carpets.
Cost reduction and efficiency improvement programs

In addition to its growth initiatives, DSM is rigorously executing its ambitious cost reduction and efficiency improvement programs across the company. All of these well-identified programs are on track with the milestones set for 2016. The plans are on track to reach the overall savings of €250 - €300 million by 2018 versus the 2014 baseline.

Global organizational and operational adjustments

DSM is well on track with the adjustments to its global organizational and operating model to support the company's growth and create a more agile, commercially-focused and cost-efficient business. Programs to globally leverage the company’s support functions are well underway, with new operating models, announced changes in staffing and clear milestones to drive the process. Continuous efforts are being made through change and culture initiatives to foster adoption of the right mindset and behaviors and thus embed the new way of working throughout the organization.

Stepping up sustainability aspirations

For DSM, sustainability is a core value as well as an important business driver. DSM is focused on delivering science-based, sustainable and scalable solutions that help address the challenges our world faces today. Not only do these products and solutions offer higher growth rates and better margins, DSM’s continuous endeavor for sustainability also provides the company with a focus area to reduce operating costs by decreasing its environmental footprint.

DSM has successfully embedded sustainability across its business activities and has formulated targets to improve the proportion of Brighter Living Solutions (formerly referred to as ECO+ and People+) to 65% of sales by 2020 and aims to reduce its (relative) emissions by 45% by 2025, compared to the reference year 2008. By 30 June 2016, Brighter Living Solutions amounted to 61% of sales, whilst relative greenhouse gas emissions had been reduced by 23% compared to 2008.

DSM has identified three key focus areas in sustainability, based on identified global societal trends that are affecting people, economies and markets, largely driven by demographic change: Nutrition, Climate Change and Circular Economy.

In Nutrition, DSM has unique expertise to develop products that can positively impact global nutrition, health and development, helping to achieve the UN Sustainable Development Goal’s target of ending all forms of malnutrition by 2030. DSM strives to make nutrition aspirational, affordable and available by working in partnership with cross-sector partners including the UN World Food Program. DSM and WFP’s partnership reached more than 28 million beneficiaries in 2015.

DSM believes that effectively tackling climate change is both a responsibility and a business opportunity. The company focuses on reducing its own carbon footprint, enabling the low-carbon economy with products and solutions and advocating climate action. During the second quarter DSM CEO Feike Sijbesma was named co-chair of the Carbon Pricing Leadership Coalition, which was launched by the World Bank and International Monetary Fund in 2015. The coalition is a voluntary partnerships of national and sub-national governments, businesses, and civil society organizations that agree to advance the carbon pricing agenda by working with each other towards the long-term objective of a carbon price applied throughout the global economy.

In the Circular Economy, DSM is dedicated to securing the future availability of natural resources, and unlocking more value from the limited resources that are available, by reducing resource use in its manufacturing processes, replacing scarce and toxic resources, extending the durability of products and materials, and recovering materials after first use, such as through DSM’s Niaga recyclable carpet technology.

Extracting value from partnerships

DSM has established partnerships for its former Pharma activities (DSM Sinochem Pharmaceuticals and Patheon) and for the remaining Bulk Chemical businesses (ChemicaInvest). These partnerships have been created with a view to ultimately exiting these businesses and DSM expects to extract significant value from them in the coming years.

DSM Sinochem Pharmaceuticals is developing well and continues to build its leadership position in sustainable antibiotics.

During Q2, ChemicaInvest’s caprolactam business undertook further steps to improve its competitive position on the global market, announcing a gradual wind down of its caprolactam plant in the US over the next sixteen months with no material adverse effect expected on DSM’s Engineering Plastics business in North America, as caprolactam supply has been secured.

At the end of July, in connection with the Initial Public Offering by Patheon N.V., DSM successfully completed the sale of 4.8 million ordinary shares in Patheon N.V. Following this transaction, DSM now holds approximately 48.7 million ordinary shares, or approximately 34% of Patheon N.V., with approximately 43% held by affiliates of JLL Partners and Patheon N.V.’s management team and 23% free float. Total cash proceeds from this transaction for DSM are expected to amount to approximately $240 million, consisting of net proceeds of around $95 million from the secondary offering and an expected $145 million in dividend distributions and capital repayments related to the IPO. DSM expects to realize a book profit of approximately €220 million, which will be reported as part of DSM’s Q3 2016 results, while any potential future gains on disposal of the remaining shares held in Patheon N.V., if any, will be recognized at the time of any such transaction(s). Patheon N.V. did not receive any proceeds from the sale of ordinary shares by DSM.

DSM also holds a 25% share (with a book value of approximately €30 million) in the Banner Life Sciences pharma business, which was spun off to Patheon’s investors in 2015. DSM will also look to monetize this shareholding over time. Banner Life Sciences is a specialty pharmaceutical company engaged in research and development for new drug formulations.

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