Driving Profitable Growth GERALDINE MATCHETT - CFO ROYAL DSM CAPITAL - PowerPoint PPT Presentation

DSM STRATEGY 2018 Driving Profitable Growth GERALDINE MATCHETT - CFO ROYAL DSM CAPITAL MARKETS DAY 4 NOVEMBER 2015 AMSTERDAM

Safe harbor statement This presentation may contain forward-looking statements with respect to DSM’s future (financial) performance and position. Such statements are based on current expectations, estimates and projections of DSM and information currently available to the company. DSM cautions readers that such statements involve certain risks and uncertainties that are difficult to predict and therefore it should be understood that many factors can cause actual performance and position to differ materially from these statements. DSM has no obligation to update the statements contained in this presentation, unless required by law. A more comprehensive discussion of the risk factors affecting DSM’s business can be found in the company’s latest Annual Report, which can be found on the company's corporate website, www.dsm.com Slide 1

Agenda 1 Strategy 2018: financial targets & sensitivities 2 Financial Policies 3 Wrap-up Slide 2

Strategy 2018: Driving profitable growth through science-based, sustainable solutions IMPROVING 2018 TARGETS FINANCIAL RESULTS Global shifts & Digitization Health & Climate & Wellness Energy Growth annual EBITDA growth: high single-digit Cost & - - - Productivity annual ROCE growth: Capital high double-digit bps Efficiency HEALTH . NUTRITION . MATERIALS Result-driven BRIGHT SCIENCES organization & culture Slide 3

Strategy 2018: financial targets on EBITDA and ROCE to be achieved via sales growth, cost savings and capital efficiency High single- High double- digit annual digit bps growth annual growth 2018 Targets ROCE growth EBITDA growth Above ~ € 250-300m <20% ~6.5% of How market savings of sales by sales to achieve growth by 2018 2018 Sales growth Costs & Productivity Working capital Focused CAPEX Slide 4

Driving profitable growth supported by above market sales growth High single- High double- digit annual digit bps growth annual growth 2018 Targets ROCE growth EBITDA growth ~ € 250-300m <20% Above ~6.5% of How savings of sales by market sales to achieve by 2018 2018 growth Sales growth Costs & Productivity Working capital Focused CAPEX Slide 5

Revenue development 2010-2015 : driven by M&A and organic growth € bn 10  Upgraded quality of € 8.2bn 1 ~ € 3.1bn ~ € 1.2-1.4bn 8 portfolio ~ € 1.4bn 6  Organic growth was 3-4% 4 per year on average 2  FX contributed ~1% on 0 average per year 2010 deconsolidated acquisitions growth 2015 divested 1 2010 Sales from 2010 continuing o perations, so excluding activities that were discontinued in 2010 Slide 6

We will extract further value from the Nutrition acquisitions (2010) (2012) (2012) (2012) USDm CADm BRLm USDm 7% 4% 2 2% 10% 16% 8% 1 24% -6% 3 3 3 3 3 3 3 3 Acq. 2015 Acq. 2015 Acq. 2015 Acq. 2015 Acq. 2015 Acq. 2015 Acq. 2015 Acq. 2015 date Date date Date date Date date Date 100% 90% 75% 75% Growth CAGR Sales Integration status EBITDA 1 Driven by sharp increase in fish oil price 2 Negative volume impact from discontinuation of a product line Slide 7 3 Estimate

More balanced regional sales split provides a natural hedge both for growth and currency impact 2015 Sales by region (destination / origin) 40%  Sales to High Growth 30% Economies are now 43% 20%  Better balance of costs & 10% revenues in North and South America as well as 0% in China CH Rest NAM LATAM China Rest Asia Rest Europe World Destination (sold to/in) Origin (produced in) Slide 8

2016-2018 ‘above market’ growth 1 plans of businesses are achievable  Growth validated by scrutiny of sub-segments, Performance Nutrition market trends and track record Materials growth growth 2  Both Nutrition and Performance Materials have upgraded their portfolio 5% excl VE  Good growth in Nutrition despite Vitamin E 3% 3% 3 3% prices and weak performance in Human Nutrition in North America  Growth in Performance Materials driven by Market DSM 2 Market DSM Market DSM Market DSM 2011-2015 2016-2018 2011-2015 2016-2018 global presence and application development 1 At steady prices, CAGR % 2 Continuing operations excluding composite resins Slide 9 3 Excluding Vehicle Protection tenders

Driving profitable growth supported by cost savings & efficiency improvements High single- High double- digit annual digit bps growth annual growth 2018 Targets ROCE growth EBITDA growth Above ~ € 250-300m <20% ~6.5% of How market savings of sales by sales to achieve growth by 2018 2018 Sales growth Costs & Productivity Working capital Focused CAPEX Slide 10

Improvement programs: 1. DSM-wide support functions program and 2. Nutrition Improvement program ; with combined savings of € 250-300m by 2018 ~ € m 400 Nutrition 300 Program 2017 € 130-150m ~ € 50m DSM wide (by 2018) 200 2016 Support ~ € 100m functions Perform. € 125-150m 100 2015 Mat. (by end 2017) ~ € 80m 0 2015 2016 2017 2018 Cost savings: total € 250-300m Timing of cumulative cost One-time costs by 2018 savings Slide 11

Program 1: DSM wide savings in support functions & staffs: Structural savings of € 125-150 million to be fully achieved by the end of 2017 Aim of the program Breakdown by function Breakdown by cluster  External benchmark identified savings Other functions Corporate Activities potential Finance  New organizational/operating model: Innovation – strong business and market focus Center – all support functions globally leveraged HR – elimination of duplications, delayering and demand reduction Performance – one shared services organization and Purchasing ICT Nutrition Materials increased outsourcing Communications  900-1100 FTE involved  Effectiveness of R&D-spend under review Slide 12

Program 2: Nutrition improvement program: Cost savings & efficiency improvements in Nutrition € 130-150m by 2018 Breakdown by category Aim of the program  Purchasing savings related to direct raw PURCHASING EFFICIENCY GAINS materials sourcing, energy, intermediates “Lowering the  Yield and indirect spend cost of our direct  Energy raw materials”  “Making the Fixed costs reduction, including ~100 FTE same with less  Efficiency gains related to increase inputs” FIXED COSTS uptime, yields and throughput to enable REDUCTION accelerated growth THROUGHPUT GAIN IN SOLD-OUT UNITS “Getting more volume out of the same equipment” Slide 13

Cost saving and improvement programs: Close monitoring of the design, maturity and achieved benefits  Governance / Steering: – monthly reporting in Executive Committee – owner: CEO & CFO (overall), Dimitri de Vreeze (support functions & staffs), Stephan Tanda (nutrition improvement)  Close monitoring of progress ~ 500 measure sheets, each containing individual actions: – owner – Targeted cost and FTE reductions Example monitoring progress cost savings – milestones – timing – maturity Slide 14

Driving returns supported by reduction of working capital High single- High double- digit annual digit bps growth annual growth targets ROCE growth EBITDA growth Above ~ € 250-300m <20% of ~6.5% of How market savings sales by sales to achieve growth by 2018 2018 Working capital 1 Sales growth Costs & Productivity Focused CAPEX 1 Reporting as of 2016 will be total working capital Slide 15

Operating working capital increase reflects portfolio change OWC/sales per cluster 1 OWC in AR%, AP%, Inventory% 1 2010-2015 Q3 2010-2015 Q3 25% 45% Increased due to deconsolidation PI 30% 20% 26% 25% 15% 15% 2015 0% 10% 2010 2011 2012 2013 2014 2015-Q3 2010 2011 2012 2013 2014 2015-Q3 Accounts Receivable Accounts Payable Inventory Nutrition Pharma PM PI Group 1 Restated for continuing operations as from 2014 (2010-2013 not restated) Slide 16

Strategy 2018: Bring down total working capital below 20% Comparison: Impact from OWC% to Alignment with common practice WC% (2014 year end) 1  External reporting will be aligned with common 40% peer practice and changed from Operating 34% Working Capital (OWC) to total Working Capital 31% 30% (WC) starting 2016 26% 22%  Change in reporting has no impact on the drive to 20% reduce working capital 16% 14%  Main difference between OWC and WC are 10% Nutrition Performance Total DSM business related elements such as employee Materials related liabilities OWC DSM WC DSM  DSM aims to bring down its total working capital <20% (2014: 22%) 1 Continuing Operations Slide 17

Driving returns supported by disciplined & focused capital investments High single- High double- digit annual digit bps growth annual growth targets ROCE growth EBITDA growth Above ~ € 250-300m <20% ~6.5% of How market savings of sales by sales to achieve growth by 2018 2018 Sales growth Costs & Productivity Working capital Focused CAPEX Slide 18