Life S ciences and Materials Sciences Rolf-Dieter S chwalb, CFO Royal DS M Capit al Market s Day, 5 November 2014 Page
S afe harbor statement This present at ion may cont ain forward-looking st at ement s wit h respect t o DSM’ s fut ure (financial) performance and posit ion. S uch st at ement s are based on current expect ations, estimates and proj ections of DS M and informat ion current ly available t o t he company. DS M caut ions readers t hat such st at ements involve cert ain risks and uncert aint ies t hat are difficult t o predict and t herefore it should be underst ood t hat many factors can cause act ual performance and position to differ materially from t hese st at ement s. DS M has no obligat ion t o updat e t he st at ement s cont ained in t his present at ion, unless required by law. A more comprehensive discussion of the risk factors affect ing DS M’ s business can be found in t he company’ s lat est Annual Report , which can be found on t he company’ s corporate websit e, www.dsm.com Page Page 1
Overview • Portfolio changes achieved • Update on DPx • Capital allocation and operat ing efficiencies • Financial policies Page 2
M in motion: driving focused growt h DS Page 3
S trong track record in portfolio transformation ACQUISITIONS since 2011 PARTNERSHIPS since 2010 DIVESTMENTS in 2009-2011 ~ €2.4bn ~ ~ €1.5bn ~ Nutrition Nutrition • Energy • Partnerships Russia (Tatarst an) • Martek • Urea Licensing • Andre Pect in (text ures, China) • Vitat ene • Agro • Premix plants • Melamine Pharma • Food enzymes business and • Cit ric Acid • DSM S inochem Pharmaceuticals technology (Verenium) • Special Product s • DPx Holdings • Ocean Nut rition Canada • Elastomers • Tortuga • Polycarbonat e Innovation center • Cargill Bio-products • POET-DS M Advanced Biofuels • Anti-Infect ives • Fortit ech • Reverdia • • DuPont : Actamax Unitech • Polymer Technology Group • Announced: Aland (Vitamin C) ~ 0.3bn ~ 0.3bn Performance Materials Innovation center • KuibyshevAzot Russia: P A6 • Kensey Nash • Rost ec Russia • C5 Y east Company ~ ~ €0.1bn Performance Materials • ICD China • AGI Taiwan • Novamid Page 4
S trict acquisition criteria for focused growth S trategic Financial • Business fit • Value creat ion • Leadership posit ion and • Sust ain single A rating Innovat ion pot ential • Cash and EPS accret ion • Geographic ambitions • Other financial targets • Sust ainabilit y drive Unchanged discipline in t arget ident ificat ion Page 5
Value accretive acquisitions • Key acquisit ions (Mart ek, ONC, Fort it ech, Tort uga and Kensey Nash): � Earnings accret ive in year 2 � Aggregated, sales CAGR of 7% post acquisition • Value creation confirmed � Mart ek/ Fortit ech/ Tortuga: ~2.0x EV paid � Ocean Nutrit ion Canada: ~1.5x EV paid • For now, focus on int egrat ion. No large M&A proj ect s cont emplat ed � Int egrat ions progressing according t o plan and wit hout issues � In 2014, additional optimizat ion actions are taken at Nut rition (mainly reducing R&D asset foot print ) o Targeting €50m in savings by 2015 of which €10-15m to be reinvest ed int o ext ernal (open) innovat ion and local, front -line support Page 6
Mid-term ROCE ambition remains to be 15% ROCE (% ) 16% • Except ional ret urns at Polymer Intermediates combined wit h low capital employed inflated ROCE in 2010/ 2011 12% • 2011-2014 ROCE impacted by M&A related 8% int angibles and goodwill • 4% Mid term ROCE ambition remains at 15% � EBIT growt h driven by operational efficiencies and at tract ive port folio � S trict CAPEX allocation � Control Operating Working Capital Page 7
Where we are versus 2015 targets YTD 2014 Profit targets 2015 • EBITDA margin (% ) 14% - 15% 13% • ROCE 11% - 12% 8-9% (FY14E) Sales target 2015 • Organic sales growth 5% - 7% annually 3% • China sales t owards USD 3bn >USD 2.0bn (FY14E) • High Growth Economies sales about 45% of total sales 43% • Innovation sales 20% of tot al sales 18% • ECO+ sales towards 50% of total sales 45% Cluster targets 2015 • Nutrition EBITDA margin 20% - 23% 20.2% S ales growth GDP+2% 1% • Performance Materials 12.2% EBITDA margin 13% - 15% S ales growth at double GDP 2% Page 8
Overview • Portfolio changes achieved • Update on DPx • Capital allocation and operat ing efficiencies • Financial policies Page 9
DPx Holdings off to an excellent start Combination DPP/ Patheon is leading pharma services company in CMO market (DS M 49% ) • Post closing March 2014, t he init ial int egrat ion was execut ed at high speed and complet ed end Oct ober • First acquisit ion (Gallus Biologics) closed in S ept ember • Full year pro-forma revenues of about US D 2bn. 2014 sales growt h of ~9% , growing ahead of market • Net debt is current ly around US D 2bn Page 10
DPx: strong value generation potential for DS M • Synergy harvest ing and st rong growt h expect ed in 2015 • DPx to reach 2015 EBITDA margins close to indust ry leaders’ margins of 20% . EPS accret ive in 2015 • St rong value generat ion moment um t o cont inue beyond 2015 � S olid market growth � Indust ry leader wit h unique offering � Ample growt h pot ent ial in current asset base • 2015 value of DS M share estimated at ~€1bn • Cat alent good benchmark for valuat ion: � Comparable leading CMO player � S imilar sales and profitabilit y � S uccessful IPO August 2014 More than 10x EBITDA and comparable leverage o Page 11
Overview • Portfolio changes achieved • Update on DPx • Capital allocation and operat ing efficiencies • Financial policies Page 12
S ignificant capital allocated to Nutrition Cash Capex and M&A per cluster (€m) 2010-2014e 2500 1262 XXX M&A DS M 686 2000 XXX Cash capex DSM 929 477 509 1500 602 ~0 1000 0 ~600 416 500 0 2010 2011 2012 2013 rest ated 2014e Nut rition Nut rition M&A Pharma PM PI Ot her Innovation Innovation M&A • Capital allocat ion criteria linked to strat egic obj ectives • After significant M&A capital allocat ed to Nutrit ion, Capex allocat ion is following Page 13
Extract efficiencies and reduce costs • S tandardization of processes (HR, sales & marketing, supply chain, sourcing, etc.) • Maximizing use of shared service platforms • Opt imizing margins t hrough pricing and margin management • Operat ional efficiencies and growt h accelerat ion t hrough innovat ion • Addit ional opt imizat ion act ions in Nut rit ion announced in 2014 • Cost reduct ions original Profit Improvement Program announced in 2011/ 12 on track Cumulat ive Benefit s of t he original PIP (€ million)* €210-240m 300 €160-180m PIP Extension €140m 200 PIP DS M Resins 100 0 2013 2014 2015 * Restated after Pharma deconsolidation Page 14
S trong focus on OWC improvement OWC/ sales per cluster 2010-2014e OWC in AR% , AP% , Inventory% 2010-2014e 22% 35% 30% 20% 25% 18% 20% 16% 15% 14% 10% 12% 5% 0% 10% 2010 2011 2012 2013 2014e 2010 2011 2012 2013 2014e Nutrition Pharma PM PI Group Accounts Receivable Accounts Payable Invent ory • Invent ory management : � Hands-on, aggressive approach � Improve t he int egrat ed global sales & operat ions planning � Pursue st ruct ural net work opt imizat ion • Receivables and Payables management � Cont inue overdue management Page 15
Overview • Portfolio changes achieved • Update on DPx • Capital allocation and operat ing efficiencies • Financial policies Page 16
Financial policies clearly defined Cash sources 2010 – H1 2014 (in €bn) • Priorities for cash allocat ion unchanged: 1. Capex for organic growt h 1.3 2. Dividend 0.8 3. Acquisit ions 4.0 4. Cash ret urn t o shareholders • Dividend policy Cash from operations Debt Divestment “ stable and preferably rising dividend” Cash use 2010 – H1 2014 (in €bn) • Commit ment t o Single A rat ing 0.6 0.9 2.6 • Syst emat ic, risk-management-orient ed hedging st rat egy 2.8 capex M&A Dividend SBB Page 17
S ignificant cash return for shareholders Dividend policy: “DSM aims to provide a stable and preferably rising dividend” Dividend per share increased 37.5% since 2010 (CAGR 8.3% ) % Stock dividend pay out 60% 50% 50% 47% 45% 40% 42% 39% 39% 38% 37% 30% Fin Int Fin Int Fin Int Fin Int 2010 2011 2011 2012 2012 2013 2013 2014 Page 18
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