DCSIMG
Nutrition - Annual Report 2015 - DSM

Nutrition

Table 1

x € million
2015
2014
     
Net sales:
   
DSM Nutritional Products:
   
- Animal Nutrition & Health
2,359
2,084
- Human Nutrition & Health
1,845
1,626
- Personal Care
172
152
- Aland
63
-
 
4,439
3,862
DSM Food Specialties
524
473
     
Total
4,963
4,335
     
Organic sales growth (in %)
6
2
Operating profit plus depreciation and amortization (EBITDA)
822
850
Operating profit
535
596
Capital expenditure
322
330
Capital employed at 31 December
5,309
5,034
ROCE (in %)
10.3
12.5
EBITDA as % of net sales
16.6
19.6
R&D expenditure
223
206
     
Workforce at 31 December (headcount)
12,930
10,857

Business

The Nutrition cluster is made up of DSM Nutritional Products and DSM Food Specialties. These businesses serve the global industries for animal feed, food and beverage, pharmaceutical, infant nutrition, dietary supplements and personal care. DSM has a unique position across the feed and food value chains, with a global and highly diversified portfolio of products, services and end-markets and provides solutions to the benefit of customers and other stakeholders.

Nutrition cluster performance

DSM's Nutrition cluster achieved total sales of €4,963 million in 2015, up 14% from €4,335 million in the previous year. Organic sales growth was 6%, driven by higher volumes. Sales furthermore benefited from currency effects. Animal Nutrition & Health delivered strong growth throughout 2015. Human Nutrition & Health started 2015 weak but stabilized during the course of the year, showing progress in the second half and posting a solid fourth quarter.

EBITDA declined by 3% to €822 million in 2015, as good organic growth and the positive impact of the strengthened US dollar were more than offset by the negative impact of significantly lower vitamin E prices, the appreciation of the Swiss franc and the weakening of the Brazilian real.

Trends

The fundamental growth drivers in nutrition and health remained as relevant as ever in 2015, despite challenging and varied macro-economic conditions. The population continues to grow and the majority of people around the globe now live in urban environments. Consequently, there is a growing need for convenience and processed food. This matches DSM’s ability to deliver tailor-made local applications solutions and blends to its customers the world over.

Rising standards of living especially in emerging economies are driving growth in the consumption of fish, meat, poultry and dairy products, which requires improved efficiency and more sustainable systems and value chains for animal proteins.

People are on average living longer and are better informed about matters concerning health and well-being throughout life, which is fuelling demand for infant nutrition products, dietary supplements and healthier choices in food and beverages. There is also a trend towards increasing popularity for natural and organic products in Western food and beverage markets, which presents a challenge for many of DSM’s traditional customers.

The need to address malnutrition, both in terms of hunger as well as micronutrient deficiencies, in the developing and the developed world, is evident. This is increasingly being translated into regulatory as well as market-driven actions to encourage healthy, nutritious and balanced diets, where necessary bolstered by fortified foods and supplements.

Public concerns around food safety, quality and sustainability are leading to a stricter regulatory climate. Health authorities prefer producers to work with suppliers such as DSM, who are rigorous in their application of science and have state-of-the-art quality assurance systems. Environmental sustainability is also a key factor, particularly in countries with low-cost producers.

In the coming period, DSM expects customers across the globe to intensify their demand for deeper insights and customized solutions, increasingly tailored to local consumer preferences and market and channel structures.

Sustainability

Sustainability is one of the key business drivers in DSM’s nutrition markets, with demand continuing to increase for solutions that are more efficient and have distinct environmental advantages. Appreciation is also beginning to grow for products that offer benefits to individual people or communities. DSM’s Nutrition cluster contributes to the development of ECO+ and People+ solutions, helping to drive the uptake of these Brighter Living Solutions.

DSM is convinced that good nutrition is fundamental to the realization of the full physical, mental and economic potential of everyone on the planet. It views the elimination of malnutrition as a key societal priority and a shared global responsibility. DSM wholeheartedly supports the fact that ‘zero hunger’ is the second of the United Nations’ 17 Global Goals for Sustainable Development between now and 2030. The company uses its leading position to help address malnutrition, both in terms of advancing understanding of the intrinsic relationship between nutrition and health as well as by helping customers improve the nutritional content of their products.

Since 2007, DSM has been proud to be a strategic partner of the UN World Food Programme, the largest provider of food aid to the world’s hungry. Through the partnership, which was renewed for a further three years in December 2015, DSM reaches more than 25 million people per year with improved nutrition. See 'Cross-sector nutrition partnerships' on Cross-sector nutrition partnerships.

Strategy

The Nutrition cluster’s unique business model aims to capture opportunities arising from global megatrends by combining global production capabilities with customized local formulations. DSM delivers the broadest portfolio of high quality and competitive active ingredients and formulations at a global scale while offering maximum differentiation through industry and segment-specific formulations. As a local solutions provider with strong market intimacy, its focus is on customer-driven solutions.

DSM has grown into one of the strongest players in the industry by addressing growth opportunities through expanding and extending its offering across the value chain. The Nutrition cluster has operations in over 60 countries, with unparalleled customer access, a complete product portfolio and advanced skills and capabilities. It has significantly expanded its premix footprint, in particular in emerging economies, and will continue to do so.

Over recent years, the cluster has further built-out its product portfolio, adding capabilities in cultures, textures, trace minerals, marine and microbial polyunsaturated fatty acids on top of its unrivalled position in vitamins, carotenoids, eubiotics, enzymes and yeasts.

The combination of its strong global position and integrated business model has enabled DSM to become a leader in quality and innovation, with deep regulatory, technical and sustainability expertise and a clear understanding of customer and consumer needs as well as regular investment in quality management.

Whilst successful acquisitions have been the main vehicle for adding new growth platforms over recent years, going forward the cluster aims to drive profitable growth by leveraging the position that has been created. It will expand its core capabilities, bringing them to more of the markets and territories it serves. DSM will continue to add new products and solutions to its portfolio, making full use of the company's expertise in sustainable innovation. The Nutrition cluster will also expand in segments and markets in which it is currently under-represented such as in ruminants. It aims to continue to develop and further implement new business models to complement its positions across its value chains.

The Nutrition cluster’s business strategy to accelerate organic sales growth will be supported by cost savings and operational excellence measures which will boost efficiency and productivity and drive cash generation. The cluster has started implementing a performance improvement program with the aim of delivering cost savings versus 2015 of €130-150 million by 2018. It will also benefit from the DSM-wide adjustment of the organizational and operating model, allowing it to focus more on serving its customers and markets. Together with increased capital efficiency, the cluster will deliver improved financial returns.

DSM Nutritional Products

DSM Nutritional Products has three market-facing entities: Animal Nutrition & Health, Human Nutrition & Health and Personal Care. DSM Nutritional Products achieved total sales of €4,439 million in 2015; in 2014 this was €3,862 million.

Animal Nutrition & Health

Highlights 2015

  • Strong organic sales growth, despite adverse impact of vitamin E
  • Good progress in specialty portfolio
  • Entered development partnership with Evonik for innovative algae-based omega-3 fatty acids

The Animal Nutrition & Health business achieved sales of €2,359 million in 2015 compared to €2,084 million in 2014.

This business addresses the global feed ingredients markets for poultry, swine, aquaculture, ruminants and pets. In all these species, DSM is a full value chain player, providing active ingredients, delivery systems, and nutritional and premix solutions globally and at a local level. Its focus is on the nutritional ingredients and additives segments of these markets.

Animal Nutrition & Health was able to deliver strong growth in 2015, despite lower prices in vitamin E; the effects of headwinds in certain currencies, which to an extent off-set the benefit of the strengthened US dollar; and challenging macro-economic conditions in a number of markets. Nevertheless, the societal megatrends including population growth and rising standards of living continued to drive this business in the year.

DSM continued to see demand for its tailored nutritional solutions increase, as the market sought to further improve the efficiency of animal production as well as to bolster producer profitability. This led to strong growth, particularly in the specialty portfolio. Moreover, there was an increased focus on alternatives to antibiotic growth promoters. This has created new business opportunities that DSM, with its broad portfolio and application knowledge, is well positioned to capture.

DSM’s strong focus on customer-led innovation continued to bear fruit during the year and its enzyme and lipid alliances strengthened this. In July, DSM entered into a joint development agreement with Evonik for algae-based omega-3 fatty acid products for animal nutrition, in particular for use in aquaculture and pet food applications.

The Tortuga business continued to perform well. New nutritional programs and product launches enabled DSM to continue delivering greater value to its Brazilian beef and dairy customers. DSM is expanding these capabilities beyond Brazil into other markets in Latin America.

During the year, DSM was able to benefit from the world-class capabilities of its new R&D center in China. Further investments were also made in the premix business in Asia, including in India and Indonesia.

In 2015, DSM successfully developed and launched the first feed enzyme for the ruminant segment. RONOZYME® RumiStar™ is an amylase that increases the utilization of the starch in cow feed, leading to increased milk efficacy (the volume of milk produced for a given amount of feed) in dairy cows.

DSM has made a breakthrough discovery in developing an innovative product that persistently decreases methane emission in cows - Clean Cow. Since methane is the second most important human-induced greenhouse gas after carbon dioxide, this innovation has the potential to help reduce the impact of methane emissions to the environment, as well as benefiting the animals themselves. In 2015, an international team of researchers led by academics from Pennsylvania State University, published a successful study together with DSM describing the effect of the Clean Cow compound on the reduction of methane emissions from enteric fermentation in dairy cows in the Proceedings of the National Academy of Sciences of the United States. It was the largest and longest trial of its type in lactating cows.

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Human Nutrition & Health

Highlights 2015

  • Progressive improvement of organic growth
  • Strong performance of i-Health dietary supplements business
  • Acquisition of Aland, further strengthening position in vitamin C

Human Nutrition & Health reported 2015 sales of €1,845 million compared to €1,626 million in 2014.

This business provides nutritional solutions for the food and beverage, dietary supplements and early-life nutrition markets, with an additional focus on pharmaceutical and aroma ingredients. The business also strives to help eliminate micronutrient deficiencies amongst the four billion people at the Base of the Pyramid. Its fundamental drivers are the link between nutrition and health, supported by a number of global megatrends.

DSM continued to encounter headwinds that had a negative impact on performance in the year, with North and Latin America in particular providing challenging market environments in some segments, whilst the Asia-Pacific and EMEA regions performed robustly, as did the i-Health and aroma ingredients businesses.

The US market for fish oil-based omega-3 dietary supplements contracted further, although as the year progressed, DSM was able to increase its market share somewhat. Outside the US, the segment performed well in 2015, particularly in Europe and Asia. Multivitamin consumption in the US showed some growth during the year with consumers increasingly favoring new delivery formats such as gummies.

Food and beverage markets remained relatively weak in the US and elsewhere in the Americas, with the economic downturn in Latin America being felt in low consumer spending and a consequent prioritizing of more basic products and formulations by both customers and consumers. DSM has launched a multi-stakeholder engagement initiative in the region to reinforce the value of fortification.

DSM’s i-Health dietary supplements consumer business again performed strongly, recording double-digit growth during the year. This is being supported by the high aspirations held by increasing numbers of consumers around topics such as immunity and gut-health. The i-Health business is predominantly based in the US where its now highly-regarded consumer brands such as Culturelle®, AZO™ and Estroven® were first launched. Its strong performance was driven by expanded distribution and new innovations, as well as by international expansion to China, South Korea, Malaysia and the UK.

DSM has seen a positive trend toward higher dosage vitamins for pharma applications alongside the already significant omega-3 active pharmaceutical ingredient (API) market. DSM has targeted the Pharma segment as one the priorities for the Human Nutrition & Health business; this will be supported amongst other things by a new facility in Mulgrave (Canada) offering advanced omega-3 refinement capabilities from both fish and algal sources, which is scheduled to come on stream in the first half of 2016.

Also planned to begin operations in the first half of 2016, is a new vitamin B6 facility in Xinghuo (China), which was mechanically completed at the end of 2015. This will complement DSM's global manufacturing footprint and support growth in the region.

DSM furthermore opened a state-of-the-art Nutrition Innovation Center in Singapore in March. The month also saw the finalization of DSM's acquisition of Aland, a producer of vitamin C in China; this business has subsequently been renamed DSM Jiangshan.

The Human Nutrition & Health business engaged in a number of innovations during the year, both in terms of the development of new products as well as in establishing and growing new business models. In June, DSM entered into a partnership and co-investment with MedDay, a bio-technology company focused on the treatment of nervous system disorders, for the manufacture of pharmaceutical grade D-biotin for use in the treatment of multiple sclerosis. The company also made further progress with its retail-ready solutions. This is an example of an area in which DSM is leveraging its full value chain presence to provide a one-stop shop for ready to sell products for use by both established brands and private labels.

In October, the government of Rwanda announced that it had invited DSM to participate with the Africa Improved Foods Ltd. consortium in a joint venture to improve the nutritional status of the Rwandan population and help address malnutrition. The joint venture partners are investing in a factory to be built in the capital Kigali to produce fortified foods for pregnant and breastfeeding women and for older infants and young children. The Africa Improved Foods Ltd. business will create 230 direct jobs while offering 9,000 local farmers a stable, sustainable income for a proportion of their harvest. By 2017, Africa Improved Foods Ltd. aims to reach more than one million people annually with effective nutrition interventions through its products.

Personal Care

Sales in Personal Care came to €172 million in 2015, up from €152 million in 2014.

Personal Care provides ingredients and innovative solutions for some of the world’s best-selling beauty products. DSM’s extensive portfolio of key ingredients includes peptides, natural bio-actives, UV filters, hair polymers and vitamins; this is complemented by a range of services. The business is driven by global megatrends, local consumer beauty regime insights and tapping growth opportunities in emerging economies.

In 2015, DSM took a number of measures to boost its position in the UV sun-filters category, focusing in particular on higher value specialty filters. As a result, there was a steady improvement in performance in this segment, despite some price pressure in the market for non-specialty filters.

DSM’s ability to deliver regional innovations based on local consumer insights fuelled significant growth in the skin care category, in particular in emerging economies, with tailored products such as SYN®-COLL for the Chinese market performing very well. Increased demand for locally-tailored solutions was also noticeable in hair care.

Overall, market conditions in Europe were challenging, whilst consumer demand in North America recovered in the year, fuelling improved performance. Growth continued to be strong in many emerging economies, especially China, although the fragile economic environment in various countries in Latin America hampered growth in that region.

During the year, Personal Care moved the production of synthetic peptides from a site in Switzerland to a larger facility in Village-Neuf (France) to make it possible to scale up production of new and existing peptides while maintaining high quality and service to customers around the globe.

DSM Food Specialties

Highlights 2015

  • Solid organic sales growth
  • Strong performance in enzymes and cultures
  • New hydrocolloids product platform performed well

In 2015, sales for DSM Food Specialties amounted to €524 million, compared to €473 million in 2014.

DSM Food Specialties is a leading global supplier of food enzymes, cultures, yeast extracts, flavors and other specialties for many of the leading global and local dairy, baking, beverages and savory food brands. It aims to enable the production of better foods, helping to make diets healthier and more sustainable. Its advanced ingredients and applied knowledge help to make better food available and affordable to more people across the world.

The food industry increasingly requires sustainable, higher value-added products that are healthier, better tasting and more appealing to customers. Producers are also looking to improve processes and reduce costs. Specialty food ingredients can have a significant, direct impact on the efficiency of the production process and the end-product itself.

The enzymes business focuses on the food and beverage industry, where DSM enables customers to innovate products and production processes. Sales in enzyme solutions were supported by surging global demand for reduced-sugar products in dairy such as DSM's Maxilact®. This growth was further supported by continued take-up of DSM’s beer stabilization solution as well as by the introduction of a new baking enzyme.

Cultures provides the dairy industry with a unique toolkit to create the desired texture, surface and flavor for their products while increasing yields from the milk used. The segment is driven by new product developments including advanced cultures for thick, indulgent and high-protein yoghurts as global demand for fermented milk products increased.

In Savoury Ingredients, DSM offers a range of yeast extracts and process flavors that allow for authentic, intense, natural-tasting savory foods with the possibility of reduced salt. A key driver in this segment is demand for healthier alternative ingredients.

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DSM has established a new growth platform in hydrocolloids following the acquisition of a stake in Andre Pectin and its grouping with DSM’s gellan gum assets. Based in China, the unit, which provides DSM with new texturing capabilities, progressed very well during the year. In October, work began on a significant expansion of its facility in Tongxiang (China), with the aim of establishing a world-class development center for hydrocolloids including gellan gum.

All regions contributed to DSM Food Specialties' growth, with Latin America in particular performing well, posting double-digit growth for the fourth year in succession.

DSM Food Specialties focuses its innovation efforts with market-led innovation projects driven by sound market, customer and consumer insights. Healthier options are an important driver in the food industry and sugar reduction is one of the key elements in this respect. This is an area in which DSM Food Specialties is uniquely positioned to leverage the breadth of its portfolio to offer solutions for taste and texture as well as salt and sugar reduction. In addition, DSM Food Specialties continued to make progress with the development of its fermentative stevia platform in 2015 and with several other innovative concepts to enhance product appeal or quality.