DCSIMG
2 Change in the scope of the consolidation - Annual Report 2015 - DSM

2 Change in the scope of the consolidation

Acquisitions


2015
On 31 March 2015, DSM obtained control of Aland Nutraceutical Holding, Ltd., a Hong Kong-based company producing vitamin C in China by buying 100% of the shares. Aland was founded in 1990 and is one of the leading vitamin C manufacturers in China. The company has a production facility in Jingjiang (China). From the acquisition date onwards, the financial statements of Aland have been consolidated by DSM and reported in the Nutrition segment. The acquisition strengthens and complements DSM’s position as a producer of vitamin C. In accordance with IFRS 3, the purchase price of Aland had to be allocated to identifiable assets and liabilities acquired. Goodwill amounted to €15 million. The value of goodwill and intangible assets acquired was rather limited because the principal driver for the acquisition was the ability to obtain plant and equipment and related production capacity. The acquisition of Aland contributed €63 million to net sales and €8 million to EBITDA in 2015. Aland-related exceptional items amounted to €5 million before tax (see note 6 Exceptional items).

On 13 May 2015, DSM Dyneema finalized the acquisition of Cubic Tech Corporation by buying 100% of the shares. This privately-owned company based in Mesa (Arizona, USA) is focused on high-end solutions in applications as diverse as racing yacht sails, equipment and apparel for sportswear, outdoor and future soldier programs as well as emergency medical equipment. From the acquisition date onwards, the financial statements of Cubic Tech have been consolidated by DSM and reported in the segment Performance Materials. In accordance with IFRS 3, the purchase price of Cubic Tech has to be allocated to identifiable assets and liabilities acquired. The purchase price allocation is still being performed and is expected to result in a re-allocation from goodwill to intangible assets. The goodwill can be explained by buyer-specific synergies due to DSM’s unique value chain proposition in ultra high molecular weight polyethylene.

Up to one year from the acquisition date, the initial accounting for business combinations needs to be adjusted to reflect additional information that has been received about facts and circumstances that existed at the acquisition date and would have affected the measurement of amounts recognized as of that date. As a result of such adjustments the values of assets and liabilities recognized may change in the one-year period from the acquisition date.

Table 1: Acquisitions 2015

Acquisitions 2015
 
Aland
 
Cubic Tech
 
Total
 
Book value
Fair
value
 
Book value
Fair
value
 
Book value
Fair
value
Assets
               
Intangible assets
8
16
 
-
-
 
8
16
Property, plant and equipment
58
64
 
1
1
 
59
65
Other non-current assets
1
1
 
-
-
 
1
1
Inventories
15
16
 
-
-
 
15
16
Receivables
11
11
 
1
1
 
12
12
Cash and cash equivalents
4
4
 
-
-
 
4
4
                 
Total assets
97
112
 
2
2
 
99
114
                 
Liabilities
               
Non-current liabilities
8
11
 
-
-
 
8
11
Current liabilities
25
25
 
-
1
 
25
26
                 
Total liabilities
33
36
 
-
1
 
33
37
                 
Net assets
64
76
 
2
1
 
66
77
                 
Acquisition price (in cash)
 
74
   
10
   
84
Acquisition price (payable earn-out)
 
17
   
5
   
22
                 
Consideration
 
91
   
15
   
106
                 
Goodwill
 
15
   
14
   
29
Acquisition costs recognized in exceptional items1
 
5
   
-
   
5
1 Included in General and administrative: Other costs

2014
In January 2014, DSM obtained control of Yantai Andre Pectin co., Ltd. a China-based manufacturer of apple and citrus pectin, a key food hydrocolloid providing texture, as well as pectin-related food products. Andre Pectin is the only significant pectin manufacturer in Asia with premier access to the world’s fastest-growing specialty food ingredients market. DSM already owned 29% of the shares of Andre Pectin together with call options to buy out the other shareholders and obtained control by placing a DSM management team in the company. From January 2014 onwards, the financial statements of Andre Pectin have been consolidated by DSM and reported in the Nutrition segment. The acquisition strengthens and complements DSM’s position as a pectin manufacturer in Asia with access to the global food ingredients markets. In accordance with IFRS 3 the purchase price of Andre Pectin had to be allocated to identifiable assets and liabilities acquired. Goodwill amounted to €1 million. The non-controlling interest in Andre Pectin was measured at the proportionate share of the value of net identifiable assets acquired and amounted to €45 million at the acquisition date. At the acquisition date the fair value of the interest in Andre Pectin was not materially different from the carrying amount. The acquisition of Andre Pectin contributed €36 million to net sales and €7 million to EBITDA in 2014. Andre Pectin-related exceptional items amounted to €3 million before tax (see note 6 Exceptional items).

Up to one year from the acquisition date, the initial accounting for business combinations needs to be adjusted to reflect additional information that has been received about facts and circumstances that existed at the acquisition date and would have affected the measurement of amounts recognized as of that date. As a result of such adjustments the values of assets and liabilities recognized may change in the one-year period from the acquisition date which resulted in some adjustments to the opening balance sheet of Tortuga. The Purchase Price Allocation (PPA) of Andre Pectin was finalized in the course of the year.

The impact of all acquisitions made in 2014, including adjustments to the initial accounting for Tortuga on DSM’s consolidated balance sheet, at the date of acquisition, is summarized in the following table.

Table 2: Acquisitions 2014

Acquisitions 2014
 
Andre Pectin
 
Tortuga (final PPA)2
 
Total
 
Book value
Fair
value
 
Book value
Fair value total
Change in fair value
 
Fair
value
Assets
               
Intangible assets
3
29
 
1
92
(2)
 
27
Property, plant and equipment
33
36
 
80
107
-
 
36
Other non-current assets
9
9
 
12
7
(5)
 
4
Inventories
11
12
 
34
45
-
 
12
Receivables
12
12
 
94
96
2
 
14
Cash and cash equivalents
3
3
 
3
2
(1)
 
2
                 
Total assets
71
101
 
224
349
(6)
 
95
                 
Non-controlling interests
27
45
 
-
-
-
 
45
                 
Liabilities
               
Non-current liabilities
-
5
 
12
26
(1)
 
4
Current liabilities
33
33
 
130
131
1
 
34
                 
Total non-controlling interests and liabilities
60
83
 
142
157
-
 
83
                 
Net assets
11
18
 
82
192
(6)
 
12
                 
Acquisition price (in cash)
 
-
   
350
-
 
-
Value of associate contributed
 
19
   
-
-
 
19
                 
Consideration
 
19
   
350
-
 
19
                 
Goodwill
 
1
   
158
6
 
7
Goodwill available for tax purposes (included in the above)
 
-
   
152
-
 
-
Acquisition costs recognized in exceptional items1
 
2
   
2
1
 
3
1 Included in General and administrative: Other costs
2 In 2014, the final Purchase Price Allocation (PPA) of Tortuga was performed, which has led to the above changes in the fair value, compared to the draft PPA
Disposals


2015
In March, DSM and CVC Capital Partners announced the establishment of a partnership comprising the DSM Fibre Intermediates and DSM Composite Resins businesses. The formation of ChemicaInvest, in which DSM has a 35% shareholding, was finalized on 31 July. From 31 July onwards, both businesses are no longer consolidated by DSM. The 35% shareholding in ChemicaInvest is reported as an associate and accounted in accordance with the equity method. The result on the contribution of DSM Fibre Intermediates and DSM Composite Resins to ChemicaInvest amounted to a loss of €130 million and was recognized in 2015. The impairment/book result and the impact of the deconsolidation of these activities on the DSM consolidated financial statements is presented in the following table:

Table 3: Disposals 2015

Disposals 2015
 
Bulk chemicals
Other
Total
Assets
     
Intangible assets
(15)
-
(15)
Property, plant and equipment
(818)
(3)
(821)
Other non-current assets
(65)
(2)
(67)
Inventories
(200)
(12)
(212)
Receivables
(416)
(29)
(445)
Cash and cash equivalents
(31)
(1)
(32)
       
Total assets
(1,545)
(47)
(1,592)
       
Non-controlling interests
(126)
-
(126)
       
Liabilities
     
Provisions
(44)
-
(44)
Non-current liabilities
(369)
-
(369)
Current liabilities
(333)
(32)
(365)
       
Non-controlling interests and liabilities
(872)
(32)
(904)
       
Net assets
(673)
(15)
(688)
       
Consideration
502
21
523
Transaction and other costs
(18)
(5)
(23)
Realization cumulative translation reserves
59
(2)
57
       
Consideration (net of selling costs, translation differences and net debt)
543
14
557
       
Impairment / book result
(130)
(1)
(131)
Income tax
-
-
-
       
Net impairment / book result
(130)
(1)
(131)

The impact of the business that has been disposed on the cash flow statement is presented in the following table:

Table 4

 
2015
2014
     
Net cash provided by / used in
   
- Operating activities
(112)
(117)
- Investing activities
(21)
(135)
Net change in cash and cash equivalents
(133)
(252)

2014
JLL Partners and DSM completed the transaction announced in November 2013 combining DSM Pharmaceutical Products (DPP) and Patheon Inc. into a new privately held company, named Patheon (previously reported as DPx), in which DSM holds a 49% share. From 11 March 2014 onwards, DPP, which was classified held for sale at the end of 2013, is no longer consolidated by DSM. The 49% investment in Patheon is reported as an associate and accounted in accordance with the equity method. The result on the contribution of DPP to Patheon recognized in 2014 amounted to a loss of €124 million which is specified in the table on Disposal DSM Pharmaceutical Products. This is lower than the estimated loss that was recognized upon classification of the business as asset held for sale at the end of 2013. The difference of €28 million was mainly attributable to lower tax costs than earlier estimated. The impact of the deconsolidation of these activities on the DSM consolidated financial statements is presented in the following table:

Table 5: Disposals 2014

Disposals 2014
 
DSM Pharmaceutical Products
Other
Total
Assets
     
Intangible assets
(30)
-
(30)
Property, plant and equipment
(300)
-
(300)
Other non-current assets
(35)
-
(35)
Inventories
(205)
-
(205)
Receivables
(94)
-
(94)
Cash and cash equivalents
(7)
-
(7)
       
Total assets
(671)
-
(671)
       
Liabilities
     
Provisions
(44)
-
(44)
Non-current liabilities
(26)
-
(26)
Current liabilities
(152)
-
(152)
       
Total liabilities
(222)
-
(222)
       
Net assets
(449)
-
(449)
Consideration (net of selling costs, translation differences and net debt)
477
4
481
       
Book result
28
4
32
Income tax
2
(1)
1
       
Net book result
30
3
33

Table 6: DSM Pharmaceutical Products

DSM Pharmaceutical Products
 
Total
   
Net assets
 
- Book value DPP assets and liabilities
449
- Release related items in Other comprehensive income
16
Subtotal net assets upon divestment
465
   
- Impairment upon held for sale classification in 2013
152
Total net assets
617
   
Consideration / fair value
505
Transaction costs in 2014
(9)
Liability for demolition costs
(3)
Consideration net of costs
493
   
Total book loss
(124)
   
Of which:
 
- Goodwill impaired in 2013
(exceptional item)
(152)
- Book profit 2014 (exceptional item)
28

The impact of the business that has been disposed on the cash flow statement is presented in the following table:

Table 7

 
2015
2014
     
Net cash provided by/used in:
   
- Operating activities
-
(12)
- Investing activities
-
69
- Financing activities
-
(8)
Net change in cash and cash equivalents
-
49
Deconsolidation and other changes


In 2015, there were no material deconsolidations or material changes in the percentage of ownership of subsidiaries (same as in 2014).

Assets and liabilities held for sale

2015
In view of the agreements reached regarding the sale of certain assets and liabilities of the cultures and enzymes business of DSM Food Specialties in France, this business was impaired by €1 million and reclassified as held for sale. Before reclassification these activities were reported in the segment Nutrition. In view of the limited size and importance of these activities they were not presented as discontinued operations.

Table 8

   
Cultures and enzymes France
Assets
   
Property, plant and equipment (PPE)
 
(8)
Inventories
 
(2)
Receivables
 
(2)
Total assets
 
(12)1
     
Liabilities
   
Current liabilities
 
(2)
Total liabilities
 
(2)
     
Net assets
 
(10)
     
Fair value less costs to sell
 
9
     
Impairment of intangible assets and PPE
 
(1)
1 Assets held for sale in the balance sheet amount to €11 million, which includes the impairment of €1 million

The impact of the business that has been reclassified as held for sale on the income statement (before exceptional items), is presented in the following table:

Table 9

 
2015
2014
     
Net sales
11
10
Cost of sales
10
10
Gross margin
1
-
     
Marketing and sales
1
1
General and administrative
1
1
 
2
2
     
Operating profit
(1)
(2)
     
EBITDA
-
(1)

2014
In view of the agreements reached regarding the sale of the remaining Euroresins business and DSM Synres, these businesses were reclassified as held for sale. Before reclassification these activities were reported in the segment Performance Materials. In view of the limited size and importance of these activities they were not presented as discontinued operations.

Table 10

 
Euroresins West
Synres
Total
Assets
     
Intangible assets
(2)
-
(2)
Property, plant and equipment (PPE)
-
(11)
(11)
Other non-current assets
(1)
-
(1)
Inventories
(6)
(5)
(11)
Receivables
(15)
(7)
(22)
Total assets
(24)
(23)
(47)1
       
Liabilities
     
Current liabilities
(8)
(8)
(16)
Total liabilities
(8)
(8)
(16)
       
Net assets
(16)
(15)
(31)
       
Fair value
16
10
26
Transaction costs
(2)
(3)
(5)
Fair value less costs to sell
14
7
21
       
Impairment of intangible assets and PPE
(2)
(8)
(10)
1 Assets held for sale in the balance sheet amount to €37 million, which includes the impairment of €10 million