Nutrition

Nutrition performed well in 2016, with good growth in our Animal Nutrition & Health business, improved growth in Human Nutrition & Health, and strong demand for DSM Food Specialties’ innovative enzymes portfolio.

Stephan Tanda, DSM Managing Board

Nutrition

x € million
2016
2015
   
Net sales:
  
DSM Nutritional Products:1
  
- Animal Nutrition & Health
2,399
2,269
- Human Nutrition & Health
1,823
1,741
- Personal Care & Aroma Ingredients
337
316
- Other
74
113
 
4,633
4,439
DSM Food Specialties
536
524
   
Total
5,169
4,963
   
Organic sales growth (in %)
5
6
Adjusted EBITDA
931
822
Adjusted operating profit
645
535
Capital expenditure
331
322
Capital employed at 31 December
5,537
5,309
ROCE (in %)
12.0
10.3
Adjusted EBITDA margin (in %)
18.0
16.6
R&D expenditure
205
223
   
Workforce at 31 December (headcount)
13,260
12,978

1 As of 2016, the results of DSM Nutritional Products are presented in four reporting units: Animal Nutrition & Health, Human Nutrition & Health, Personal Care & Aroma Ingredients and Other. Other covers pharma and custom manufacturing & services activities previously reported mainly in Animal Nutrition & Health.

Business

The Nutrition cluster comprises DSM Nutritional Products and DSM Food Specialties. These businesses serve the global industries for animal feed, food and beverages, pharmaceuticals, infant nutrition, dietary supplements and personal care. DSM is uniquely positioned in all steps of the feed and food value chains: the production of pure active ingredients, their incorporation into sophisticated forms, and the provision of tailored premixes and forward solutions. With a global and highly diversified portfolio of products, services and end-markets, DSM provides innovative solutions to the benefit of customers and other stakeholders worldwide. For more information on DSM's Nutrition cluster and its portfolio of businesses and products as well as their value chains, please refer to DSM’s Factbook on the company website.

Nutrition cluster performance

nutrition bridge

DSM's Nutrition cluster had a strong year in 2016. Total sales amounted to €5,169 million in 2016, up 4% from €4,963 million in the previous year. Organic sales growth was 5%, driven by higher volumes and price/mix. Animal Nutrition & Health had a strong year with 8% organic sales growth, driven by strong volume growth in all regions with the exception of Latin America, due to the weak economic conditions in that region. Human Nutrition & Health delivered a significant step-up in organic growth (4%) in 2016 versus recent years. This highlights the successful implementation of the strategy to drive above-market growth through new market initiatives and innovation.

Adjusted EBITDA was up 13% versus 2015 to €931 million (2015: €822 million), with all businesses contributing well to this growth. Adjusted EBITDA also benefited from the efficiency and cost-saving programs.

Trends

The key global trends in nutrition and health continued to fuel the growth of our Nutrition business in 2016. Continued rapid population growth accompanied by accelerating urbanization is driving demand for convenience and processed foods that are safe, healthy, nutritious, affordable, and sustainable. This presents attractive growth opportunities for DSM, with our ability to deliver innovative nutrition solutions tailored to precise customer needs the world over.

Rising standards of living and changing dietary patterns, especially in emerging economies, are stimulating demand for fish, meat, poultry and dairy products. This calls for more efficient but also more sustainable production of animal protein, respecting animal welfare, producers' livelihoods and the environment.

Life expectancy continues to increase worldwide. Growing understanding of the role of nutrition in supporting health and well-being throughout the lifespan is encouraging healthier food choices. Well-informed consumers are looking for products with reduced levels of sugar, salt and trans fats as they begin to explore the possibilities of personalized nutrition. At the same time, new scientific evidence arguing for differentiated nutrient intake patterns across the lifespan is creating new possibilities for DSM, which can offer innovative approaches to food fortification and dietary supplementation tailored to the needs of highly specific demographic groups. Increasingly consumers, especially in the developed world, are searching for foods that are perceived as not only nutritious but also authentic, natural, minimally processed and 'free from'. This poses new challenges to our customers. DSM can be a key partner here in formulating solutions that meet the needs of this consumer group.

The global need to address malnutrition is undeniable – in developed as well as developing countries. The importance of good nutrition during the first 1,000 days of life – from conception to a child’s second birthday – is achieving increasing recognition worldwide, for unparalleled growth occurs during this period, and inadequate nutrition at this time leads to adverse, lifelong consequences. Women of child-bearing age, as well as pregnant and lactating mothers, need special support. Fortified foods and supplements can play a valuable role here in contexts where available diets are inadequate.

Public concerns regarding food safety, quality, animal welfare and sustainability continue to foster a stricter regulatory climate. This provides new openings for DSM, with our science-driven approach, our unrelenting focus on sustainability, and our rigorous adherence to the highest production standards. Health authorities and customers alike value our quality and safety protocols and our continuous drive to exceed our own high requirements, as well as those stipulated by third parties.

Our customers are seeking not just product safety, quality and reliability but also the transformational product innovations that offer them a competitive edge. We expect the search for customized solutions based on deeper scientific and marketing insights to continue unabated.

Sustainability

Even as customers look for ever higher product differentiation and consumers for ever stronger product safety assurances, the world’s focus on sustainability continues to grow. Sustainability is one of the key business drivers in DSM's Nutrition markets. The nutritional requirements of an expanding population place vast demands on the planet’s ecosystems. Our Nutrition cluster delivers solutions that seek to meet the changing needs of the world’s population while reducing the environmental impact of our operations and those of our customers.

Nutrition is a vital precondition for achieving 8 of the 17 Sustainable Development Goals (SDGs), most directly supporting SDG 2 (Zero Hunger). We see good nutrition throughout the course of life as a prerequisite for achieving full physical, mental and economic potential as well as maintaining health and well-being. We also welcome the new scientific focus on the changing nutrient requirements that individuals experience at different stages of their lives. We regard eliminating the scourge of malnutrition as a key societal priority and a shared global responsibility in which we gladly play our part. We help deliver better nutrition to society’s most vulnerable groups, and we wholeheartedly endorse the 1,000 Days movement. Our business serving the four billion who live at the Base of the Pyramid continues to grow, helping to make safe, nutritious and affordable foods available to those with the slimmest economic means.

DSM is proud of its strategic partnership with the UN World Food Programme. Dedicated to ‘Improving Nutrition, Improving Lives’, this partnership provides food aid and development assistance to the world’s hungry and also stimulates the establishment and nurturing of sustainable and self-supporting commercial nutrition business models in the developing world. Today, DSM reaches more than 28 million people per year with improved nutrition through the partnership. See 'Nourishing the Base of the Pyramid' and Cross-sector nutrition partnerships.

Strategy

The Nutrition cluster’s unique business model aims to capture opportunities arising from global megatrends by combining production capabilities worldwide with customized local formulations. DSM delivers a broad portfolio of high-quality, competitive active ingredients for the nutrition industry with global reach at scale. At the same time, we offer maximum differentiation through industry and segment-specific formulations. As a local solutions provider with strong market intimacy, we base our growth on delivering customer-driven solutions.

DSM has developed into one of the strongest players in the industry by addressing growth opportunities through expanding and extending its offering across the value chain. We are active in Nutrition in over 60 countries, with unparalleled customer access, a complete product portfolio, and advanced skills and capabilities. We have continued to expand our premix footprint, especially in emerging economies. In 2016, we opened a new facility in Indonesia and expanded a number of existing facilities.

Over recent years, we have further expanded our product portfolio in Nutrition, adding capabilities in cultures, textures, trace minerals and marine and microbial polyunsaturated fatty acids to complement our unrivalled position in vitamins, carotenoids, eubiotics, enzymes and yeasts. Pectin-derived hydrocolloids and fermented gellan gum, which offer texturing solutions for reduced-sugar product recipes, are a highly attractive growth market. Rapidly increasing demand for lactose-free and reduced-sugar dairy products, meanwhile, is driving strong sales of our Maxilact® enzyme.

The combination of our 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.

nutrition strategy 2018

Going forward, we aim to drive profitable growth in Nutrition by leveraging the portfolio that has been created following a number of acquisitions in recent years. We are driving top- and bottom-line growth by:

  • expanding our core capabilities and bringing them to more of the markets and territories we serve. In 2016, we opened a new, highly efficient and low eco-footprint production facility for vitamin B6 in China. Also in China, we announced the expansion of our gellan gum and pectin facilities;
  • broadening and deepening our portfolio with new products and solutions, making full use of our expertise in sustainable innovation. One area is, for example, in eubiotics for antibiotic-free poultry − a trend which is gaining traction, as consumers are increasingly avoiding animal protein products produced with growth-promoting antibiotics. Another is the trend toward sugar reduction, and we continued to make good progress in the development of fermentative stevia;
  • opening new segments and regions for our business − a good example being our investment in a new omega-3 concentration facility in Mulgrave (Canada); and
  • developing new business models to increase market share, such as the implementation of an approach to sell directly to mid-sized swine and poultry farmers in China with a dedicated brand and distribution.

Our business strategy to accelerate organic sales growth is supported by cost savings and operational excellence measures to boost efficiency and productivity and drive cash generation. The cluster continued the implementation of a performance improvement program, which is based on the DSM manufacturing culture of continuous improvement and focuses on savings in purchasing, reduction of fixed costs, and gains in throughput and efficiency.

This improvement program targets cost savings versus 2015 of €130-150 million by 2018. The Nutrition cluster is also benefiting from the DSM-wide adjustment of its organizational and operating model, allowing it to focus more on serving its customers and markets. Together with increased capital efficiency, the cluster aims to deliver improved financial returns.

DSM takes a balanced view of its Nutrition business. Our strategy strives to maximize the opportunities arising from our portfolio and the key market and societal trends in nutrition, while recognizing, anticipating and mitigating the risks that these global developments can also pose to our product-market combinations or business progress. For Nutrition, these potentially include: longer-term changes in food preferences and food systems; changes in preference for dietary supplements; commoditization of nutritional ingredients; the global or regional spread of infectious diseases in animals; our ability to develop, bring to market and exploit promising innovations; and the effects of geopolitical and macro-economic developments. For more information on how DSM manages risks, see Risk management.

DSM Nutritional Products

DSM Nutritional Products has three market-facing entities: Animal Nutrition & Health, Human Nutrition & Health and Personal Care & Aroma Ingredients. DSM Nutritional Products achieved total sales of €4,633 million in 2016; in 2015 this was €4,439 million.

DSM is uniquely positioned in the worldwide markets for nutritional ingredients and is investing heavily in innovation. This provides us with a fantastic foundation for further growth and to make a real difference to our customers and their businesses. Through them, we bring better nutrition to more people, more sustainably than ever before.

Chris Goppelsroeder, DSM Executive Committee

Animal Nutrition & Health

Highlights 2016

  • Strong organic growth
  • Strong demand for specialty solutions such as feed enzymes, Hy-D and carotenoids
  • Pre-marketing work started on Green Ocean and Clean Cow initiatives

The Animal Nutrition & Health business achieved sales of €2,399 million in 2016 versus €2,269 million in 2015.

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

The global animal nutrition and health market is driven by the need to improve production efficiency in response to the growing global demand for animal protein while at the same time reducing the environmental impact of farming. The efficiency drive continued unabated for all species and across regions during 2016. This led to a further rise in demand for our specialty animal nutritional solutions, with strong uptake in the enzyme category.

The need to reduce the use of antibiotics and replace antibiotic growth promotors continues to stimulate the search for innovative new alternatives to foster animal health and welfare as well as to increase feed conversion. With our extensive portfolio and profound application knowledge, we are well placed to capture the new business opportunities this generates with our enzymes and eubiotics solutions, benefiting from this development in all major markets during 2016. At the same time, we continue to invest in the quest for innovative and sustainable approaches that improve animal gut health.

The positive sales trend of 2015 continued, with strong volume growth in all regions, with the exception of Latin America, due to the weak economic conditions in that region. Growth was driven by new nutritional solutions, supported by the quality of our portfolio, our nutritional expertise, our formulation and application know-how, and our global premix footprint. This trend was assisted by highly focused customer management across regions and species, accompanied by intensified marketing of our specialty portfolio and a sharper focus on local solutions (e.g. the Victus™ poultry enzyme life cycle solutions in the US). In keeping with our strategy, we took steps to further grow our business in under-penetrated segments such as ruminants and aqua while continuing to expand our core activities across geographies.

With our business-to-farmer (B2F) initiative for swine and poultry, we targeted a new customer segment with a new brand in China, which is likewise on track. This is well supported by our world-leading research facility in the country. Further investments in our premix business, particularly in Asia, have enabled powerful regional growth and the ability to deliver even greater value to our customers in those countries.

New products such as RONOZYME® RumiStar™ – an amylase that increases the utilization of the starch in dairy rations, leading to improved milk production in dairy cows – was successfully launched in the EU in 2016, following its market introduction in Brazil the previous year. Offering enzyme technology to the European ruminant sector for the first time, RONOZYME® RumiStar™ is the only enzyme registered in the EU for use in dairy farming.

RONOZYME® RumiStar™ boosts dairy farmers’ margins while reducing environmental impact

An innovative product of the DSM/Novozymes feed enzymes alliance, RONOZYME® RumiStar™ increases the utilization of starch in ruminant diets, leading to improved milk production in dairy cows.

The alpha-amylase RONOZYME® RumiStar™ was launched in the EU in 2016 following its successful market introduction in Brazil the year before. RONOZYME® RumiStar™ offers enzyme technology to the European ruminant sector for the first time, and is the only feed enzyme registered in the EU for use in dairy herd diets.

Feed is the greatest cost factor in dairy farming, so any increase in the efficiency of converting feed into milk will improve returns for dairy farmers. The use of feed enzymes to increase the uptake of nutrients in the feed has traditionally focused on poultry and swine – monogastric animals with a single stomach chamber. Ruminants have a four-chambered stomach, or rumen, and so a different enzymatic solution is required in their case.

RONOZYME® RumiStar™ increases the rate of corn starch degradation in the cow’s stomach. As a result, a greater proportion of the nutrients in the feed is turned into energy and bacterial protein. RONOZYME® RumiStar™ also supports starch digestion in the small intestine. Less starch reaches the hindgut to be excreted, reducing the environmental impact of milk production.

Years of research went into identifying an enzyme that could consistently deliver significant improvements in feed digestibility in ruminants. Dairy cows fed on diets containing RONOZYME® RumiStar™ produce 1.5 kg more milk per day with the same feed intake. A Life Cycle Analysis showed that the impact of milk production on climate change is reduced by about 5% when RONOZYME® RumiStar™ is added to a corn-based dairy diet due to the higher milk yield per kilogram of feed, compared to the same diet without enzymes.

DSM’s innovation pipeline in animal nutrition is being increasingly strengthened via our strategic alliances in enzymes with Novozymes and in lipids with Evonik and our proximity to progressive major players and key opinion leaders.

Pre-marketing work with leading aquaculture feed producers commenced for Green Ocean – a disruptive new algae-based technology for the production of the two key omega-3 polyunsaturated fatty acids (EPA and DHA) for use in fish feed. EPA and DHA are essential nutrients for the health and development of fish such as salmon, which in itself is a key source of these nutrients in the human diet. Green Ocean responds to the growing global need for sustainable aquaculture, while offering a competitive approach to delivering these essential fatty acids for fish and human diets.

Methane is the second most important human-induced greenhouse gas after carbon dioxide, and the need to urgently tackle methane emission levels has been high on the global sustainability agenda since COP21. DSM’s innovative solution for reducing methane emissions in cows (Clean Cow) is on track, and pre-marketing work had begun by the end of 2016. Reducing emissions from cattle will bring significant environmental benefits worldwide.

Human Nutrition & Health

Highlights 2016

  • Significant step-up in organic growth
  • Continued strong growth of key brands of DSM i-Health dietary supplements
  • Launch of MEG-3® Ultra to reshape the omega-3 category

Human Nutrition & Health reported 2016 sales of €1,823 million compared to €1,741 million in 2015.

This business provides nutritional solutions for the food and beverage, dietary supplements and early-life and clinical nutrition markets, with a parallel focus on solutions for the pharmaceutical industry for the use of vitamins, nutritional lipids (ARA/EPA/DHA) and carotenoids as Active Pharmaceutical Ingredients (APIs). Its fundamental driver is the link between nutrition and health, supported by a number of global megatrends.

Our Human Nutrition & Health business strives to make a positive impact on some of the most important health issues, such as cardiovascular, eye, cognitive and gut health, through helping to create awareness by engaging with multiple stakeholders. It also aims to help eliminate micronutrient deficiencies at the Base of the Pyramid. For more information on our initiatives in this area, see 'Nourishing the Base of the Pyramid' and Stakeholder engagement.

This business posted good growth in EMEA and Asia during 2016. North America, although soft overall, showed improvements. Business results in Latin America reflected the weak economic conditions in the region.

Our i-Health dietary supplements consumer business again performed strongly, recording double-digit growth during the year on the back of powerful marketing & sales campaigns and continued international expansion, with a particularly strong performance in China. Culturelle® continued to grow at a double-digit rate, expanding its leadership position in the probiotic category. Estroven® and Azo™ also grew strongly in 2016, strengthening their respective number one shares in the women’s health and urinary health categories. DSM also successfully launched Azo Urinary Tract Defense™ in US food, drug, and mass channels in 2016.

We continue to observe a positive trend in leveraging the higher dosage of ingredients – such as vitamins, omega-3 and carotenoids – as APIs in pharmaceutical applications. DSM is the only company that holds CEPs (Certificate of suitability of Monographs of the European Pharmacopoeia) and the US Drug Master Files (DMF) for all 13 essential vitamins, putting us in a unique position to help pharmaceutical customers get their products to market faster.

To address the decline in the US market for non-concentrated fish oils and the growth in the concentrates dietary supplement category in that country, and also to accelerate the development of our omega-3 business in other regions, we introduced the new MEG-3® Ultra in North America and EMEA in the fourth quarter of 2016. Featuring DSM’s unique 3C technology, this radically new product helps eliminate key barriers to the consumption of omega-3 supplements, such as capsule size and aftertaste. MEG-3® Ultra allows brand owners to create health-focused products with specific DHA and EPA ratios that meet consumer needs across the lifespan. The capacity for customizing DHA and EPA ratios will also help mitigate supply-related risks.

The launch of MEG-3® Ultra was supported by a communication campaign on the theme 'Know Your Ω™'. Reinforcing omega-3 intake recommendations to help protect patients from cardiovascular disease and other health risks, 'Know Your Ω™' recognizes the key role healthcare practitioners can play in addressing the currently inadequate levels of omega-3 intake among the US population.

Targeting the global number one position in dietary supplement probiotics

The global dietary supplements probiotics market is predicted by Technavio to grow at around 7% per year from 2015 to 2019, with new product innovation helping to fuel this growth. The market is highly segmented and extremely competitive, so product differentiation supported by authenticated health claims is vital for success.

DSM’s digestive health probiotic Culturelle® has a track record of driving organic growth and outperforming the probiotics marketplace and is expected to continue to outperform the market in 2017. Currently the number one-selling consumer dietary supplement probiotic brand in the US, Culturelle® is poised to become the second-ranked probiotic brand globally, according to Euromonitor.

This top-line growth has been achieved by creating consumer demand for Culturelle®. There were three steps to this process. First, DSM sought to understand and validate consumers’ health and wellness needs via attitude and usage studies such as the 2011 Women’s Health and more recent Path-to-Purchase Studies, following this up with concept tests. Second, we delivered on those needs across three growth platforms (Digestive Health, Everyday Wellness, and Kids) through a pipeline of consumer-inspired, scientifically-backed innovations based around Lactobacillus GG − the leading clinically-studied probiotic strain. Finally, we positioned Culturelle® as the proven probiotic brand in the broader health and wellness space. This was achieved by driving brand awareness among consumers and deploying initiatives with retailers and distributors, while engaging in medical marketing initiatives to reach healthcare professionals with the benefits of Culturelle®. Culturelle® is the number one Pediatrician and leading Pharmacist Recommended Brand in the US.

The new Culturelle® Pro-Well 3-in-1 probiotic plus omega-3 supplement also performed very well in 2016. With increased consumer, retailer and international demand, Culturelle® is on track to realize its vision of becoming the number one consumer dietary supplements probiotics brand worldwide.

Our sales to the food & beverage sector improved in 2016, driven by good sales volumes in Asia and Europe. Meanwhile our infant nutrition business continued to perform well, with solid volume growth.

The new vitamin B6 facility in Xinghuo (China), which was mechanically completed at the end of 2015, opened in 2016, expanding DSM's global manufacturing footprint and supporting growth in the region.

Personal Care & Aroma Ingredients

Sales in Personal Care & Aroma Ingredients came to €337 million in 2016, up from €316 million in 2015.

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

The global megatrend of health and wellness, operating in tandem with the overall aging of the world’s population, is fostering increased consumer awareness of the need for daily UV protection, and is stimulating high demand for innovative skin care products. Emerging economies, in particular, are seeing rising demand for products tailored to local consumer preferences, with the Chinese market developing fastest in terms of growth and sales.

The year 2016 was strong for DSM Personal Care & Aroma Ingredients as a whole, driven by organic growth across all segments, with powerful growth in the business unit’s carefully managed global key accounts. We accelerated our innovation drive and continued to deepen our understanding of customer and consumer needs during the year.

The business increased its innovation footprint with the launch of several new skin care and sensory modification products, including the innovative eye care solution SYN-EYE™; the award-winning active against skin dryness SYN-UP™; the anti-aging innovation SYN-STAR™; and a new sensory modifier, VALVANCE® Touch 250. The launch of the new TILAMAR® hair care polymers, meanwhile, expanded our position in this growing global market.

The year also saw the opening of the DSM Personal Care Asia Pacific Technical & Application Center in Shanghai (China). This center will develop product applications, provide technology services, and create tailor-made solutions for cosmetic industry customers throughout the growing markets of China and Asia Pacific.

Regulatory and formulation expertise puts PARSOL® TX ahead

Titanium dioxide finds extensive applications in the personal care sector, being used as a pigment, sunscreen and thickener. Its high refractive index, strong UV light-absorbing properties and resistance to discoloration under UV light make this the fastest-growing technology segment in the UV filters market, with strong worldwide demand from applications for facial care, color cosmetics and men’s grooming. DSM offers a unique grade of titanium dioxide: PARSOL® TX, an inorganic UV filter with excellent formulation compatibility, which makes it suitable for a wide range of product applications.

DSM applies the highest safety standards to its products. We also work closely with our customers to ensure that the product safety claims that they base on our products are fully substantiated. In July 2016, the European Commission (EC) amended the Regulation on Cosmetic Products (1223/2009), which sets safety and marketing rules for cosmetics in the European Union, adding nano titanium dioxide to the list of authorized UV filters. In this revision, the EC issued a detailed list of product characteristics essential for compliance with its safety standards. Using our scientific and regulatory expertise, we worked closely with some of our largest global key accounts in sun and skin care, providing our customers with the necessary expertise in product quality, regulatory affairs and product formulation to help them fully comply with the new regulation.

PARSOL® TX became the first titanium dioxide UV filter to comply with the amended EC Regulation on Cosmetic Products. It is also fully compliant with all other relevant global regulations. Speedy compliance with the amended EC regulation offered us a significant competitive advantage, establishing PARSOL® TX as the global number one product grade in titanium dioxide technology. As a direct result of our regulatory expertise and dedicated customer support, sales of PARSOL® TX increased by 55% in 2016.

The DSM Vouvry site in Switzerland, which produces the organic ALPAFLOR® portfolio, was proud to be awarded the 'Fair Trade' seal of approval.

Aroma Ingredients

DSM supplies aroma ingredients to the flavor and fragrance industries which are used in many of the world’s best-known consumer brands. During the year, DSM significantly increased its specialty ingredients portfolio, while also reducing costs and improving efficiencies. The business showed a good performance in 2016.

DSM Food Specialties

Highlights 2016

  • Good organic growth, especially in hydrocolloids and enzymes
  • Completed new state-of-the-art biotechnology center in Delft (Netherlands)
  • Launched new cheese cultures and ModuMax® taste modulator

In 2016, sales for DSM Food Specialties amounted to €536 million, compared to €524 million in 2015.

DSM Food Specialties is a leading global supplier of food enzymes, cultures, bio-preservation, hydrocolloids, taste and health ingredients. With over a century of experience in fermentation for the food industry, the business group helps make existing diets healthier and more sustainable, giving increasing numbers of people around the world access to affordable, quality food. Customer proximity and the ability to deliver products highly tailored to local requirements are the basis for our continually expanding portfolio of innovative fermentation-based product solutions. This was underlined by the 2016 launch of the business group’s new vision: Enabling Better Food for Everyone.

Market trends driving demand for our products center on five main topics: sugar reduction, salt reduction, bio-preservation, gut health and more efficient processing. DSM Food Specialties is fully committed to delivering innovative solutions that enable food producers to capture the opportunities presented by these trends. The business group continued to deliver valuable consumer insights to the industry in 2016, and to build thought leadership in the area of healthy and sustainable food ingredient solutions, primarily based on fermentation.

Reducing added sugar: a growing business

Sugar is increasingly seen as a key culprit for the worldwide growth of obesity, fueling the spread of type 2 diabetes and cardiovascular disease and generating ever-higher healthcare costs.

Many food & beverage producers have responded with commitments to reduce the sugar levels in their recipes. In several countries, cross-sector agreements are in place for a voluntary, stepwise reduction, while certain others are introducing a so-called ‘sugar tax’.

The sweetener market is valued at more than € 70 billion per annum, with sugar representing 85% and high-fructose corn syrup another 10%. Non-artificial sweeteners like stevia make up less than 1% of this amount, but the market for sugar reduction solutions is growing at double-digit rates.

Replacing sugar in food & beverage products is complex, since sugar also influences mouthfeel, texture and shelf life. DSM research reveals that consumers expect sugar-reduced products to taste less appealing than regular versions.

Helping customers create better-tasting products, DSM Food Specialties has created a sugar-reduction development platform based on its market-leading lactase enzyme Maxilact®, the combination of cultures and enzymes, and the development of fermentative stevia glycosides.

In the reduced-sugar dairy products category, new introductions are showing rapid growth. One of our solutions is the combination of the Maxilact® LGi enzyme and Delvo®Yog FVV-122 cultures, with which producers can reduce added sugar by up to 20% in yogurt products. Maxilact® LGi converts the lactose in milk into glucose and galactose. This provides a higher relative sweetness than sugar, permitting the desired reduction in sugar content. Using the mild-tasting Delvo®Yog FVV-122 culture in addition allows producers to achieve optimal texture and mouthfeel plus excellent stability over the shelf-life of the product.

The innovativeness of our response to global concerns about sugar consumption has helped create new value for our customers in the food industry and given added impetus to our business growth.

The performance of our enzymes business in 2016 was driven by a rise in demand for lactose-free and reduced-sugar dairy products which can be created with our Maxilact® enzyme. Some capacity constraints prevented the enzymes business from fully benefitting from this strong demand in 2016; these are being addressed. Growth in enzymes was further supported by our Brewers Clarex® enzyme − appealing for its ability to create a more sustainable, lean production process and to introduce gluten-free beer products to the market. Sales of BakeZyme®, which increases the elasticity of dough, were also up in 2016.

Consumer demand for healthy, high-quality dairy products is on the rise. In particular, thick, high-protein yogurts are increasing in popularity, supporting sales for DSM’s advanced cultures. We introduced new specialty products for the dairy industry in line with the better-for-you, clear label and sustainable trends, in particular for creating better-tasting white cheese, low-fat and more sustainable continental cheese, and smoother, milder-tasting quark.

Sales in the area of bio-preservation products performed robustly in 2016, especially in Europe and North America. Delvo®Cid in particular appeals to customers for its ability to fight mold and yeast in a variety of foods. Besides recent FDA approvals for the use of Delvo®Cid in non-alcoholic beverages and yogurt in the US, approval was also received for its use in yogurt in Mexico. Sales were further supported by Delvotest® T, a broad-spectrum antibiotic test which identifies the presence of a variety of antibiotics in raw milk at EU Maximum Residue Limits.

In savory ingredients, we are adding to our portfolio ingredients that enhance flavor and mouthfeel so as to enable reductions in sugar, salt and fat while maintaining good taste. ModuMax®, launched in November 2016, is a natural taste modulator made from yeast which increases mouthfeel and masks negative off-notes in reduced-fat and reduced-salt soups, as well as in reduced-sugar beverages.

In addition, DSM Food Specialties made good progress in 2016 with the development of a cost-effective technology for producing the sweetener stevia by fermentation, which will permit the sustainable, scalable production of several relevant sweetener molecules, such as rebaudioside A and M.

Further developments in 2016 included a rebalancing of our manufacturing footprint involving the disposal of the surface and ripening business for soft cheese and fermented meat products, and the implementation of upgrades to our manufacturing capabilities in China, facilitating expanded enzyme production.

Another growth platform in specialty food ingredients is hydrocolloids – thickeners and stabilizers that dissolve, disperse or swell in water to provide a broad range of critical functionalities and physical attributes, including gelling, texture, mouthfeel, viscosity, suspension and animation. These versatile polysaccharides are derived from nature via extraction or fermentation.

Demand for hydrocolloids is driven by three underlying consumer trends: the quest for affordable nutrition in the form of dairy and protein products; the trend toward clear labeling; and recognition of the benefits of probiotics and prebiotics. Our hydrocolloids are primarily delivered in the form of pectin and gellan gum. Derived from apple pomace and citrus peels, pectin is used as a gelling and stabilizing agent in a variety of foods and beverages. Gellan gum is produced by a sustainable fermentation process, using glucose or soy as a feedstock. It is likewise used as a gelling and stabilizing agent in a variety of foods and beverages. Our hydrocolloids are enjoying strong sales growth.

In 2016, work was completed on a new state-of-the-art biotechnology center at DSM's site in Delft (Netherlands). The new center, which will be officially opened in the first half of 2017, provides lab space and collaborative workspaces to around 400 scientists from around the world who conduct breakthrough science in fermentation technology, integrated bio-processing, genetics, analytics and applied biochemistry for application in food & nutrition, biofuels and bio-based materials.