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1 General information - Annual Report 2015 - DSM

1 General information

Unless stated otherwise, all amounts are in € million.

In conformity with article 402, Book 2 of the Dutch Civil Code, a condensed income statement is included in the separate financial statements of the parent company.

A list of DSM participations has been filed with the Chamber of Commerce (Netherlands) and is available from the company upon request. The list can also be downloaded from the company’s website.

The preparation of financial statements requires estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. The policies that management considers to be the most important to the presentation of the financial condition and results of operations are discussed in the relevant notes. The same holds for the issues that require management judgments or estimates about matters that are inherently uncertain. Management cautions that future events often vary from forecasts and that estimates routinely require adjustment. Areas of judgment that have the most significant effect on the amounts recognized in the financial statements relate to the categorization of certain items as 'exceptional', the identification of Cash Generating Units (CGUs) and the classification of activities as 'held for sale' and 'discontinued operations'.

Key assumptions and estimates that need to be made by management relate to the useful lives of non-current assets (notes 8 and 9), the establishment of provisions for retirement and other post-employment benefits (note 25), the recognition and measurement of income taxes (note 7) and the determination of fair values for financial instruments (note 24) and for share-based compensation (note 28). Furthermore impairment testing requires judgments by management, amongst others with respect to the determination of CGUs, growth rates and discounts rates to apply (notes 6, 8 and 9). Significant judgment is also required for the determination of earn-out receivables and payables in business combinations (note 2) and for the valuation of drawing rights (note 8). Estimates are based on historical quoted market prices, experience and assumptions that are considered reasonable under the circumstances.

Exchange rates

The currency exchange rates that were used in preparing the consolidated statements are listed below for the most important currencies.

Table 1

1 euro =
Exchange rate at balance sheet date
Average exchange rate
 
2015
2014
2015
2014
         
US dollar
1.09
1.22
1.11
1.33
Swiss franc
1.08
1.20
1.07
1.21
Pound sterling
0.74
0.78
0.73
0.81
Brazilian real
4.26
3.24
3.69
3.12
Chinese renminbi
7.09
7.44
6.91
8.16
Presentation of consolidated income statement

In the consolidated income statement the qualifying activities that were disposed of during the period or which were classified as held for sale at the end of the period, are presented as discontinued operations. As a consequence of the disposal of the caprolactam, acrylonitrile and composite resins businesses, the results of these Bulk Chemicals businesses have been presented as discontinued operations.

DSM presents expenses in the consolidated income statement in accordance with their function. This allows the presentation of gross margin on the face of the income statement, which is a widely used performance measure in the industry. The composition of the costs allocated to the individual functions is explained below.

Cost of sales encompasses all manufacturing costs (including raw materials, employee benefits, and depreciation and amortization) related to goods and services captured in net sales. They are measured at their actual cost based on FIFO, or weighted average cost.

Marketing and sales relates to the selling and marketing of goods and services, and also includes all costs that are directly related to the sale of goods, but that are not originated by the manufacturing of the goods (e.g. freight).

Research and development consists of:

  • research, which is defined as original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding;
  • development, which is defined as the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

General and administrative relates to the strategic and governance role of the general management of the company as well as the representation of DSM as a whole in the financial, political or business community. It also relates to business support activities of staff departments that are not directly related to the other functional areas.