Associates and joint ventures

The interests in POET-DSM Advanced Biofuels and DSM Sinochem Pharmaceuticals are classified as joint ventures in accordance with IFRS 11 and accounted for using the equity method. DSM had a 49% interest and significant influence in Patheon as of the formation of this company early in 2014; this decreased to 33.5% at the end of July 2016, following a successful IPO and secondary offering. DSM has had a 35% interest and significant influence in ChemicaInvest since the formation of this partnership in July 2015. DSM accounts for these interests using the equity method. Relations with these joint ventures and associates and their strategic importance are discussed in more detail in sections 'Innovation Center' and 'Partnerships' in the Report by the Managing Board. No entities meeting the IFRS 11 definition of joint operations were identified.

DSM's share in its most important associates and joint ventures is disclosed below:

Company
  
DSM interest
  
2016
2015
    
DSM Sinochem Pharmaceuticals, Ltd. (Hong Kong, China)
joint control
50%
50%
POET-DSM Advanced Biofuels LLC (Sioux Falls, South Dakota, USA)
joint control
50%
50%
Patheon N.V. (Amsterdam, Netherlands)
significant influence
33.5%
48.9%
ChemicaInvest Holding B.V. (Sittard-Geleen, Netherlands)
significant influence
35%
35%

The following tables provide an overview of DSM's investments in associates and joint ventures, the bridge between ‘Profit for the year’ of the associates as shown in this Note, and the lines ‘Share of the profit of associates and joint ventures’ and ‘Other results related to associates and joint ventures’ in the Consolidated income statement.

Associates and joint ventures

 
2016
2015
 
Patheon Group
DSP
Chemica-
Invest
POET-DSM
Other1
Total
 
        
Balance at 1 January
351
142
162
166
51
872
762
        
Changes:
       
- Share in results
(15)
6
(9)
(24)
(5)
(47)
23
- Capital payments
-
-
5
16
12
33
51
- Dividend / capital repayments
(150)
-
-
-
(2)
(152)
(175)
- New loans
-
-
27
-
4
31
166
- Disposals
128
-
-
-
-
128
(27)
- Consolidation changes
-
-
-
-
(10)2
(10)
18
- Transfers
(28)
-
1
-
(8)
(35)
(6)
- Exchange differences
12
(3)
2
7
2
20
45
- Other
4
(3)
-
-
(2)
(1)
15
        
Total changes
(49)
-
26
(1)
(9)
(33)
110
        
Balance at 31 December
302
142
188
165
42
839
872
Of which carrying amount of the investment
302
130
-
117
37
586
644
Of which loans granted
-
12
188
48
5
253
228

1 Among others Actamax, Africa Improved Foods and Limburg Ventures are included in Other

2 Relates to Japan Fine Coatings

Profit of associates and joint ventures

 
2016
2015
 
Patheon Group
DSP
Chemica- Invest
POET-DSM
Other
Total
 
        
Profit for the year (100%)
(43)
14
(83)
(48)
   
Non-controlling interest
18
(1)
-
-
   
        
Net profit shareholders (100%)
(25)
13
(83)
(48)
   
DSM's %-share in capital
33.5%1
50%
35%
50%
   
Share in result based upon %-share
(15)
6
(29)
(24)
(5)
(67)
23
Share in losses in excess of investment
-
-
20
-
-
20
-
        
Share in result of associates and joint ventures
(15)
6
(9)
(24)
(5)
(47)
23
Tax
-
-
-
8
1
9
7
        
Share in result associates and JVs
(15)
6
(9)
(16)
(4)
(38)
30
        
Book profit IPO/secondary offering Patheon
232
-
-
-
-
232
-
        
Total result related to associates and JVs
217
6
(9)
(16)
(4)
194
30

1 DSM's share decreased from 49% to 33.5% during 2016

Loans include a €58 million shareholder loan with an annual fixed interest rate of 9.875% and €130 million bridge loans with an annually rising interest rate from 7 to 10%, both with an expected 4-year maturity, granted to ChemicaInvest; a loan of €12 million to DSP maturing in 2018; a USD 50 million loan to POET-DSM with a 5% interest rate repayable in 2018 and secured for 50% by a guarantee from the joint venture partner POET LLC.

Patheon is included from 1 November 2014 until the end of fiscal year 2015 (31 October) for 2015 and from 1 November 2015 until 31 October 2016 for 2016.

Transfers at Patheon of €28 million relates to an earn-out contract, which has been recognized within Other non-current receivables (see Note 11).

ChemicaInvest is included from 31 July 2015. The net result in 2016 is significantly impacted by the wind-down of Fibrant caprolactam operations in the US, leading to a loss of €83 million and an equity value of -€74 million. DSM decreased its carrying amount in this associate to zero and will not recognize any further losses on its investment in the associate, as DSM has no obligation to fund beyond its net interest in ChemicaInvest.

The POET-DSM Advanced Biofuels joint venture has a commercial-scale production facility for cellulosic bio-ethanol in Emmetsburg (Iowa, USA). It processes corn-crop residues through a bioconversion process using enzymatic hydrolysis followed by fermentation. Work in 2016 focused on bringing the plant to continuous production and toward full capacity and progress was made during the year on addressing the pretreatment issues.

At year-end, the total assets of POET-DSM amounted to €293 million (2015: €292 million) on a 100% basis. DSM tested the POET-DSM investment for impairment based on cash flow projections of the ten-year plan. The key assumptions used in the projection are that revenue and margin assume that the start-up delays of the POET-DSM factory will be resolved and that the factory realizes full capacity in 2019 in order to produce the projected volumes against the projected costs. The projected production volumes and related variable costs include further efficiency improvements. Furthermore, the expected market price for bio-ethanol is based on current grain ethanol pricing as well as the continuation of the US Renewable Fuel Standard subsidy program for bio-ethanol after 2022. The terminal value growth rate was set at 1.5% (2015: 1.5%). A sensitivity test for the development of the market price for bio-ethanol – as well as the pre-tax weighted average cost of capital – demonstrates that a decrease of more than 10% in the market price of bio-ethanol or an increase of more than 100 basis points on the pre-tax weighted average costs of capital will result in an impairment.

The table on the next page gives an overview of associates and joint ventures (on a 100% basis).

Associates and joint ventures on a 100% basis

 
Patheon N.V.
DSP
ChemicaInvest2
Other
Total
 
2016
20151
2016
2015
2016
2015
2016
2015
2016
2015
Assets
          
Intangible assets
1,379
1,351
26
22
107
9
8
11
1,520
1,393
Property, plant and equipment
988
863
219
234
270
545
366
349
1,843
1,991
Other non-current assets
391
473
28
30
137
166
24
4
580
673
Inventories
378
340
82
81
112
171
23
14
595
606
Receivables
413
348
142
142
366
376
16
25
937
891
Cash and cash equivalents
158
567
92
102
158
107
96
33
504
809
Other current assets
-
-
-
-
-
7
-
10
-
17
Total assets
3,707
3,942
589
611
1,150
1,381
533
446
5,979
6,380
           
Liabilities
          
Provisions (non-current)
125
-
1
1
68
1
8
-
202
2
Borrowings (non-current)
2,009
2,422
15
46
561
534
93
80
2,678
3,082
Other non-current liabilities
237
339
9
10
127
295
2
6
375
650
Provisions (current)
7
23
-
-
87
3
-
-
94
26
Borrowings and financial derivatives (current)
21
26
144
127
78
82
14
21
257
256
Other current liabilities
523
513
154
165
303
366
47
27
1,027
1,071
Total liabilities
2,922
3,323
323
349
1,224
1,281
164
134
4,633
5,087
           
Net assets (100% basis)
785
619
266
262
(74)
100
369
312
1,346
1,293
Of which non-controlling interest
-
62
(5)
4
3
94
-
-
(2)
160
Net assets excluding goodwill
785
619
266
262
(74)
100
369
312
1,346
1,293
Contingent liabilities
25
20
5
5
54
45
-
-
84
70
           
Summarized statement of profit or loss
          
Revenue (net sales)3
1,786
1,621
431
418
1,802
756
45
214
4,064
3,009
Operating profit (EBIT)
125
173
34
28
(37)
(32)
(72)
(42)
50
127
Financial income
-
-
1
1
1
-
-
-
2
1
Financial expense
(159)
(123)
(12)
(7)
(52)
(22)
(7)
(3)
(230)
(155)
Share of the profit of associates
(3)
(2)
-
-
6
4
1
-
4
2
Profit before income tax expense
(37)
48
23
22
(82)
(50)
(78)
(45)
(174)
(25)
Income tax expense
27
(8)
(9)
(6)
(1)
10
(24)
(4)
(7)
(8)
Profit for the year (continuing operations)
(10)
40
14
16
(83)
(40)
(102)
(49)
(181)
(33)
Post-tax result discontinued operations
(3)
93
-
-
-
-
5
-
2
93
Profit for the year (total)
(13)
133
14
16
(83)
(40)
(97)
(49)
(179)
60
Other comprehensive income
-
2
-
-
-
-
-
-
-
2
Total comprehensive income
(13)
135
14
16
(83)
(40)
(97)
(49)
(179)
62
of which non-controlling interest
-
20
(1)
-
-
-
(18)
-
(19)
20
           
Adjusted EBITDA
364
366
62
57
105
(3)
(49)
(31)
482
389
EBITDA
290
348
62
57
23
(3)
(49)
(31)
326
371
Depreciation, amortization and impairment
(165)
(175)
(28)
(29)
(60)
(29)
(23)
(11)
(276)
(244)

1 Including Banner Life Sciences

2 ChemicaInvest updated the initial recognition of assets and liabilities acquired on the basis of a purchase price allocation in 2016

3 Excluding sales to DSM by DSP of €8 million (2015: €10 million) and ChemicaInvest of €328 million (2015: €123 million)

Following an IPO at Patheon N.V. and a secondary offering of 4,761,905 ordinary shares, DSM's share in Patheon decreased from 48.8% to 33.5%. As a consequence, DSM realized a profit of €232 million. The cash flow impact of this transaction for DSM is €219 million and consists of the proceeds of the secondary offering of €85 million and a dividend relating to the IPO of €134 million, both included under Cash flow from investing activities in the Cash flow statement.

IPO/Secondary offering Patheon

 
Share DSM
Value DSM
Result DSM
    
Book value pre-IPO
48.8%
128
 
Dilution DSM's share due to the IPO
(12.0%)
159
159
    
Book value after IPO
36.8%
287
 
Net proceeds secondary offering
  
85
Shares/book value divested in secondary offering
(3.3%)
(26)
(26)
Related costs
 
(5)
(5)
    
Book value after secondary offering
33.5%
256
 
    
Proportionate release of translation reserve
  
19
    
Total result of IPO/secondary offering Patheon
  
232