DCSIMG
6 Exceptional items - Annual Report 2015 - DSM

6 Exceptional items

Table 1

 
2015
2014
     
Cost of sales:
   
- Impairments of property, plant and equipment and business activities
(204)
(291)
- Other costs
(51)
(1)
 
(255)
(292)
Research and development:
   
- Other costs
(2)
-
 
(2)
-
General and administrative:
   
- Impairments of property, plant and equipment and intangible assets
(18)
(4)
- Other costs
(32)
(36)
 
(50)
(40)
Other operating income:
   
- Release of provisions
13
10
- Book gain on disposals
-
28
- Other income
9
-
 
22
38
Other operating expense:
   
- Additions to provisions
(61)
(33)
 
(61)
(33)
     
Operating profit
(346)
(327)
Other financial income and expense
(15)
(7)
     
Total, before income tax expense
(361)
(334)
Income tax expense
57
82
Share of the profit of associates/joint ventures
(24)
(66)
     
Net result from exceptional items
(328)
(318)

2015

The exceptional items in 2015 are listed below:

  • The impairments of property, plant and equipment, and business activities within Cost of sales relate mainly to the impairment of the DSM Fibre Intermediates and DSM Composite Resins business, divested as per 31 July 2015 (€130 million); the impairment of the DSM-AGI business (€26 million), of which goodwill €16 million; an impairment of US tape line assets at DSM Dyneema (€19 million) and an impairment at the site of DSM Resins & Functional Materials in Stanley (USA) (€15 million). Furthermore, impairments of equipments were recognized by DSM Nutritional Products (€9 million) and DSM Innovation Center (€5 million).
  • Other costs within Cost of sales relate to restructuring costs (€40 million) and the revaluation of certain inventories in Venezuela (€11 million).
  • Impairments of property, plant and equipment and intangible assets within General and administrative mainly relate to the impairment of software within DSM Business Services amounting to €16 million.
  • Other costs within General & Administrative relate mainly to restructuring costs (€17 million), acquisition costs for Aland and Cubic Tech (€5 million) and divestment related costs (€5 million).
  • The release of provisions in Other operating income relates to the (partial) release of restructuring provisions (€4 million) and other provisions (€9 million) that were originally recognized through exceptional items.
  • Other income relates to a commercial settlement within DSM Resins & Functional Materials.
  • Additions to provisions relates to restructuring provisions (€47 million) and litigation (€14 million).
  • Other financial income and expense relates to the revaluation of monetary positions in Venezuela.

Subsequent to the recognition of an impairment loss of €291 million for DSM Fibre Intermediates in 2014 the business was included in the new partnership with CVC Capital Partners announced in March 2015. An additional loss of €130 million was recognized in connection with the formation of this new partnership as mentioned above. The assets and liabilities of the entities in scope of the partnership (DSM Fibre Intermediates and DSM Composite Resins) were classified as assets held for sale and discontinued operations from March 2015 onwards.

2014

The exceptional items in 2014 are listed below:

  • The impairment of Property, plant and equipment and business activities within Cost of sales relates to the impairment of the caprolactam business of Polymer Intermediates.
  • Other costs within Cost of sales relate to the inventory step up of Andre Pectin. See also note 2, 'Change in the scope of consolidation'.
  • The impairment of Intangible assets within General and administrative relates to application software and other assets within DSM Business Services. See also note 8, 'Intangible assets'.
  • Other costs within General and administrative relate to restructuring costs (€33 million), acquisition and disposal costs (€5 million) and a settlement of a former disposal (-€2 million)
  • The release of provisions in Other operating income relates to the (partial) release of restructuring provisions (€7 million) and the partial release of Other provisions (€3 million) which were originally recognized as exceptional items.
  • The book gain on disposals relates to the sale of DPP. For further information see note 2, 'Change in the scope of consolidation'.
  • Additions to provisions relates fully to restructuring provisions. See also note 19 'Provisions'.
  • Other costs within operating expenses relate to acquisition and disposal costs.
  • Other financial income and expense relates to the waiver of a loan.

Cash generating units (CGUs) are tested for impairment when economic circumstances trigger an impairment test, which was the case for the caprolactam business of DSM Fibre Intermediates in 2014. The impairment was principally triggered by the low utilization of the production capacity as a result of amongst others a huge increase in Chinese caprolactam capacity coming to market. DSM determined the value in use of the CGU using the model and approach that is also used for goodwill impairment testing. The CGU excludes the acrylonitrile and licensing businesses of DSM Fibre Intermediates because those are stand-alone businesses that generate their own independent cash flows. The cash flow projections for the first five years are derived from DSM’s business plan (Corporate Strategy Dialogue) as adopted by the Managing Board. Cash flow projections beyond the five-year planning period are extrapolated taking into account the growth rates that have been determined to apply for the specific CGU in the Annual Strategic Review. The key assumptions in the cash flow projections relate to the growth of the business which is expected to be below 1% and the related revenue projections. The projections exclude restructuring effects. This resulted in a non-cash impairment charge of €291 million reported as an exceptional item. The impairment charge was allocated to long-term assets of the CGU on the basis of the book values of these assets, which resulted in the amount being allocated to Property, plant and equipment. The estimated pre-tax cash flows were discounted to their present value using a pre-tax weighted average cost of capital of 9%.

Furthermore €66 million of exceptional items after tax relating to associates/joint ventures have been included. This mainly relates to financing, reorganization and acquisition-related costs of Patheon.