Materials

In 2016, we continued the 'silent' transformation of the Materials portfolio toward higher-value specialty products. This transformation capitalizes on the growing opportunities presented by the global drive for more sustainable alternatives.

Dimitri de Vreeze, DSM Managing Board

Materials

x € million
2016
2015
   
Net sales:
  
DSM Engineering Plastics
1,312
1,378
DSM Dyneema
297
284
DSM Resins & Functional Materials
904
866
   
Total
2,513
2,528
   
Organic sales growth (in %)
(1)
(4)
Adjusted EBITDA
435
384
Adjusted operating profit
311
250
Capital expenditure
106
98
Capital employed at 31 December
1,807
1,723
ROCE (in %)
17.6
14.4
Adjusted EBITDA margin (in %)
17.3
15.2
R&D expenditure
124
143
   
Workforce at 31 December (headcount)
4,460
4,472

Business

DSM's Materials cluster comprises DSM Engineering Plastics, DSM Dyneema and DSM Resins & Functional Materials. DSM Engineering Plastics is a global player in specialty plastics. These materials are used in components for the electrical and electronics, automotive, flexible food packaging and consumer goods industries. DSM Dyneema is the inventor, manufacturer and marketer of Dyneema®, the world’s strongest fiber™. DSM Resins & Functional Materials is a global player in innovative, sustainable resins solutions for paints and industrial and optical fiber coatings. For more information on DSM’s Materials cluster and its portfolio of businesses and products as well as their value chains, please refer to DSM’s Factbook on the company website.

The Materials cluster delivered strong financial performance in 2016, which reflected the success of the differentiated approach of focusing on higher-growth specialty businesses in the Materials portfolio. While volumes were up 4% in the year, prices were considerably lower, fully reflecting low input costs, meaning that total sales for the Materials cluster were down by 1% from €2,528 million in 2015 to €2,513 million in 2016.

Total Adjusted EBITDA for the full year 2016 increased by 13% to €435 million from €384 million in 2015. This was driven by strong volume growth in higher-margin specialties, the benefits of the efficiency and cost savings programs and the support from low input costs.

materials bridge

Trends

The key trend in the materials industry is substitution. Customers are looking to replace existing parts and materials with newer, more sustainable alternatives. Across a wide range of sectors and applications, manufacturers are seeking products and solutions that will help reduce energy consumption and harmful emissions, both within their own operations and across their value chains, and that have properties enabling further innovative applications. This trend is reinforced by legislation on the one hand and end-user expectations on the other, and so circular economy principles in product and process design are also beginning to gain traction. As legislators, customers and end-users alike demand new approaches to the use or re-use of materials, DSM creates innovative products that either meet or outperform existing product functionalities while being lighter, more versatile and more sustainable than the materials they replace. Our portfolio includes high-performance plastics; waterborne resins; functional materials; ground-breaking materials and fabrics based on Dyneema®, the world’s strongest fiber™; and bio-based and renewable plastics and resins.

Not only product functionality but also product and process safety are high on the agenda of regulators and consumers alike. DSM Engineering Plastics and DSM Resins & Functional Materials offer products and solutions that eliminate or reduce the use of hazardous substances, including halogens and volatile organic compounds (VOC). Dyneema® is being used to create alternatives to heavy, dangerous and high-maintenance steel cables in offshore, marine and lifting and loading applications.

We see important growth opportunities for our Materials business as we help more and more customers to switch to sustainable manufacturing practices based on the substitution of existing materials by our portfolio of better-performing specialty alternatives. For example, in China the introduction of legislation to limit emissions is driving the uptake of lightweight engineering plastics in automotive. As markets and segments continue to develop across the world, the substitution effect will become increasingly important.

Sustainability & Innovation

Sustainable innovation is the key enabler for the substitution of existing materials by better-performing specialty alternatives. Through its innovative products and services, DSM strives to make a positive difference to people’s lives while reducing the environmental footprint of their activities.

The search for sustainable solutions that meet the rapidly changing needs of society and the planet therefore drives the growth efforts of our Materials cluster. We continue to enhance the value of our materials portfolio by introducing high-performance products that offer improved functionality in combination with reduced environmental impact. These solutions contribute to Sustainable Development Goal 12 (Responsible Consumption and Production). Examples are provided in this chapter and elsewhere in this Report.

Strategy

Over recent years, DSM has built an attractive portfolio with high-quality earnings within its Materials cluster. Our Materials businesses are well positioned to capitalize on the dynamics within their respective end-use markets. We apply a differentiated strategy, with tailored business approaches to serve these individual markets. We focus resources primarily on well-defined, higher-growth specialty segments, while leveraging existing assets to Maximize returns in PA6 Polymers and Powder Coating Resins. There is a Growth strategy for specialty resins, engineering plastic compounds, and solutions for life protection. We have defined an Accelerated growth strategy for our high-performance plastics, functional materials and high-performance fiber solutions. The Emerging Business Areas of DSM Biomedical and DSM Advanced Solar in the Innovation Center are also related to Materials and represent promising growth platforms for the longer term. This differentiated approach is driving the transformation of our solutions portfolio and allowing us to capture higher-value business for DSM.

  • One example of a new, sustainable solution contributing to accelerated growth is the application of our high-performance engineering plastics Stanyl®, ForTii® and ForTii® Eco in new, ultra-thin USB type-C connectors, the new industry standard.
  • We are further driving accelerated growth by entering promising new segments, for example in Dyneema® fiber solutions, which continue to grow in ultra-strong and lightweight high-performance apparel.
  • In Resins & Functional Materials, we are making good progress with our sustainable, waterborne coatings business for marine containers, a segment which is growing fast in China.
materials strategy 2018

DSM’s Materials cluster aims to complement its top-line growth with margin management and cost & capital discipline to ensure that this growth is also translated into its bottom-line results. Besides benefiting from the DSM-wide savings program in support functions and services, Materials is building upon the successful profit improvement programs it has carried out.

DSM takes a balanced view of its Materials business. Our strategy strives to maximize the opportunities arising from our portfolio and the key market and societal trends in materials, while recognizing, anticipating and mitigating the risks that these global developments can also pose to our product-market combinations or business progress. For Materials, these potentially include: input price volatility, in particular for oil and its derivatives; commoditization of materials or market segments; new mobility and transport options; developments in 3D printing; disruption due to the circular and sharing economy; 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 Engineering Plastics

Highlights 2016

  • Strong volume growth in specialty portfolio
  • Launched next-generation ForTii® high-temperature polyamides
  • Inaugurated DSM NHU joint venture for manufacture of high-performance Xytron™ PPS compounds

DSM Engineering Plastics booked full-year sales of €1,312 million in 2016 compared to €1,378 million in 2015.

DSM Engineering Plastics is a global supplier of high-performance engineering thermoplastic solutions. It has a focused portfolio, with global leadership positions in many of its products in the areas of high-performance plastics, such as Stanyl®, Arnite® and Akulon®. DSM Engineering Plastics addresses key markets in automotive and electronics, and provides solutions to specialized industries including water management, breathable textiles and flexible food packaging.

Our world becomes more mobile and connected every day – on the road and in the home, in the office and on the street. The markets for engineering plastics increasingly require innovative solutions that make people’s lives safer, more convenient and healthier, while addressing the challenge of climate change.

New standards in design, comfort and ease of use are combining with the quest to cut energy use: together with the introduction of circular design thinking, these trends are driving strong market growth for engineering plastics. With our broad, high-quality materials portfolio and in-depth technology know-how, we work in close collaboration with customers to develop new applications in response to the search for lighter, stronger and more durable materials, developing solutions to keep them ahead of the curve and enabling them to lead the market through the use of cutting-edge technology. Our aim is to continually shift the DSM Engineering Plastics portfolio toward higher-value, specialty materials, introducing more advanced grades with improved properties.

Samsung chooses Arnitel® for Galaxy Gear straps

The wearable electronics market is poised to triple in size between 2015 and 2020, with applications ranging from fitness & wellness through medical & healthcare to infotainment & industrial. The quest for improved connectivity, greater functionality and enhanced design is driving this growth, along with the need to reduce the environmental impact of manufacturing and to cut levels of e-waste.

Physical comfort and the possibilities of color play a crucial role in the design of today’s wearables. DSM’s Arnitel® offers smart watch manufacturers real design freedom while ensuring the extreme ease of wear demanded by consumers.

Samsung Electronics chose to use DSM’s Arnitel® TPE copolyester elastomer for making its Galaxy Gear strap because of this material’s excellent physical and chemical performance. Arnitel® gives the strap the required soft touch and feel, and is very comfortable to wear in direct contact with the skin, causing no allergic reactions. Arnitel® is resistant to perspiration and to the various oils and other liquids to which watch straps are exposed when in direct contact with the skin.

Arnitel® TPE is easy to process via injection molding, and can be used in 2K-hybrid overmolded structures in combination with other thermoplastics such as polycarbonate, ABS, PET and PBT, providing excellent adhesion. Being intrinsically bright, as well as offering high UV resistance, the Arnitel® polymer permits the production of compounds in a broad range of colors, including ultra-white.

The biocompatibility of Arnitel® is certified according to USP Class VI and ISO10993 standards. As a collaborative innovator working with leading wearable device manufacturers worldwide, DSM was quick to recognize the critical importance of ensuring that the Arnitel® product range was evaluated for prolonged skin contact. Arnitel® has full regulatory compliance, which validates our customers’ confidence in their selection of these materials for skin contact applications, and enables them to leverage the many other high-value performance properties that these materials offer.

Our business serving the automotive sector performed solidly in 2016. The trend toward lighter vehicles, encouraged by environmental legislation worldwide, is stimulating innovation among OEMs and creating a strong pull for DSM’s specialty engineering plastics. DSM continues to innovate in this space; 2016 saw the launch of next-generation high-temperature polyamides ForTii® PA46, including the bio-based grade ForTii® Eco and the metal substitute ForTii® Ace.

The need to reduce fuel consumption and cut vehicle emissions, combined with the search for safer cars, as well as the move to electrification, creates many new opportunities for our products. So does the increase in the actual numbers of cars being manufactured globally. DSM’s specialty thermoplastics portfolio was further expanded in 2016 by the launch of the high-performance thermoplastic copolyester Arnitel® HT, which allows system suppliers to produce heat-resistant ducts in a single material, with just one process step. Arnitel® is increasingly being selected as a lighter, smarter, more sustainable alternative to conventional rubbers – reducing environmental impact and, ultimately, system costs.

The increased connectivity in the conception and design of automotive vehicles finds many counterparts in the electrical and electronics field. The convergence to universal connectivity through USB-C, accompanied by the massive increase in cloud computing requiring connectivity for server farms, is fueling demand for Stanyl® and ForTii®, both of which offer the high temperature resistance and flowability essential for these applications. In consumer electronics, the quest for 'thinnovation' is likewise driving demand for these products, which find applications in the production of mobile phone antennas, splitters and frames. Also in the consumer sector, the growing popularity of wearable mobile devices is creating significant demand for products such as Arnitel®, which enables the creation of very light designs with a silky look and feel. Among other things, 2016 saw the inauguration of DSM NHU, a joint venture with specialty chemicals producer Zhejiang NHU Special Materials Co., Ltd., (NHU) to produce Xytron™ polyphenylene sulfide (PPS) high-performance compounds.

In 2016, we extended our portfolio of high-performance materials for water-cooling applications in automobile engines with the introduction of a hydrolysis-resistant grade of our high-performance bio-based polyamide, EcoPaXX®. EcoPaXX®Q-HG6/7 is very well suited to applications such as expansion tanks that need to resist coolants at high temperatures. The use of EcoPaXX® Q-HG6/7 enables component weight to be cut by as much as 30% compared with Polyamide 66. A recently-developed thin-walled ‘T’ connector for a coolant hose in this grade was approved for use by a major German car manufacturer in 2016, going into commercial production a few months later.

Our commitment to the continued development of our innovative specialty engineering plastics portfolio was underlined by two investments in 2016. In the US, the expansion of DSM Engineering Plastics’ research & technology center in Troy (Michigan, USA) strengthened our product development and application capabilities in North America. In India, a new research & technology center in Ranjangaon, Pune was opened to support new product and application development and deliver rapid, specific test data for its products. The new facilities bring us yet closer to our customers in the respective regions and enable us to cut time-to-market still further for innovative new thermoplastic solutions and applications.

DSM Dyneema

Highlights 2016

  • Strong growth in life protection (next-generation armor technology)
  • New apparel solutions positively received by key brands in the sports and lifestyle segment
  • Launch of Dyneema® Carbon hybrid composite

DSM Dyneema reported total sales of €297 million in 2016 compared to €284 million in 2015.

DSM’s Dyneema® business is driven by our customers’ and end-users' needs for lightweight, sustainable solutions that offer extreme durability coupled with improved safety and ergonomics. Dyneema® products typically replace traditional materials such as steel and aramid.

Dyneema® is the world’s strongest fiber™. It is 15 times stronger than steel on a weight-for-weight basis, 40% stronger than aramid, and floats on water. This combination of extreme strength and lightness makes it suitable for a wide and expanding range of applications.

DSM Dyneema has a well-established fiber solutions business serving the high-protective textiles and commercial marine & sports segments. We are also entering and forward-integrating into new segments and applications such as performance apparel, synthetic chains and radomes.

We are well positioned to capitalize on these opportunities. We have global product leadership based on unique, IP-protected technology platforms applied in an increasing range of end-use applications, often developed in close collaboration with industry partners.

Applications with Dyneema® push the boundaries of lightweight strength, offer comfort and safety, and are inherently more sustainable than the materials they replace. Products with Dyneema® weigh less, use less material, need less energy to process and deploy in their final application, and have longer lifetimes than products made with alternative materials.

DSM Dyneema experienced some headwind in certain markets in 2016 − for example, offshore mooring and protective gloves, on account of the low oil price and lagging industrial markets in certain regions. This was offset by two factors: on the one hand, strong growth in the life protection market, and on the other, our growth into the performance apparel market with Dyneema® fabrics.

In the life protection market, Dyneema® Force Multiplier Technology and Dyneema® Anti Stab Technology enjoyed strong uptake in 2016. Meeting high ballistic and anti-stab performance standards, Dyneema® offers significantly lighter, more comfortable, and more ergonomic solutions than are possible with aramids, ceramics, or other materials. Dyneema® is increasingly finding favor with law enforcement agencies such as the New York City Police Department due to its exceptional performance and wearability.

DSM Dyneema launched a new technology platform in 2016 with Dyneema® Carbon hybrid composite. Carbon fiber is light and strong, but tends to shatter when hit by small, sharp objects. Mixing carbon fiber with Dyneema® fiber solves this problem, creating a solution that offers significantly better impact resistance and vibration damping.

In 2016, the market responded positively to Black Dyneema® Diamond Technology, a fiber innovation aimed at heavy-duty gloves, among other things, which offers the highest level of cut protection and uncompromised comfort in industrial applications such as for metalworkers. Black Dyneema® Diamond Technology, which was launched toward the end of 2016, uses DSM Dyneema’s unique patented process to permanently embed color directly into the fiber.

We also made positive inroads into the sports & lifestyle markets in 2016. Dyneema® is the first genuinely new material to have been introduced to these markets for a long time, and is pushing the boundaries of strong, ultra-lightweight, comfortable, durable and protective solutions. During 2016, we significantly expanded our range of brand licensing partnerships in both existing and new markets. Collaborations with leading brands in these markets are in progress, and we see considerable untapped potential in this area. At the ISPO TEXTRENDS 2016 forum, seven different Dyneema® fabrics received ISPO Awards for ‘Best Products Spring/Summer 2016’.

Dyneema® strengthens Cone Denim’s cutting-edge offering

Allen Little is Director of Product Development at Cone Denim – a company renowned for being at the cutting edge of denim. Allen discusses what Dyneema® adds to Cone’s offering.

“Denim isn’t just for workwear or fashion anymore,” Allen observes. “Consumers want their jeans to do more. With Dyneema®, we’re able to offer the authentic aesthetic that Cone is known for, combined with a modern design incorporating performance features such as strength and durability. Consumers can now wear performance jeans to go rock-climbing, skateboarding and motorcycling, before directly proceeding to a nice dinner and a night on the town.”

Working closely with Cone’s spinning and development partner Patrick Yarns, Allen and his colleagues learned how to perfect the spinning process specific to the Dyneema® fiber. They then used their own manufacturing plants to refine their processes for weaving the fabrics. “It was a challenge,” recalls Allen. “We wanted to make the best fabric out there – and I think we succeeded.”

Cone uses higher percentages of Dyneema® than common with other manufacturers, so the company’s denim has an exceptionally high level of strength, durability and abrasion resistance. These attributes are combined with Cone’s authentic designs, creating the best of both worlds. “The performance features are hidden to the eye,” explains Allen, “but they’re there when you need them. We’ve also incorporated all the different deniers and fiber types that Dyneema® has offered us – depending on the end-use and targeted customer.”

“Our partnership with DSM Dyneema is special,” Allen concludes. “We always search for the right partners in technology, and DSM is one of those. Cone is proud to be one of DSM Dyneema’s Premium Manufacturing Partners, and we’ve worked very closely with them to fine-tune the products we’re currently offering. When you look at the performance numbers on this fabric, they speak for themselves.”

Dyneema® has the lowest carbon footprint per unit of strength compared with alternative materials. Three factors combine to make it ‘the greenest strength™’: continuous improvements in manufacturing, ongoing R&D to further improve the fiber’s unique properties, and collaborations with clients and industry partners to invest in initiatives that foster a circular economy. Seismic survey vessels using ropes made with Dyneema®, for example, show 15% fuel savings and a 50% reduction in the amount of material used. Denim wear made with Dyneema® offers a 30% carbon-footprint reduction across its life cycle. And heavy-duty chains made with Dyneema® use 85% less material compared to the steel they replace, making them lighter, easier to handle and less noisy.

DSM Dyneema is also using its materials expertise to sponsor The Ocean Cleanup foundation, which aims to tackle the issue of waste plastics in the world’s seas. DSM is supplying Dyneema® material to maritime ropes supplier Lankhorst Ropes, and together providing the key technology for the mooring system for the foundation’s floating barrier.

Lankhorst made Lanko®Force ropes out of Dyneema® and these helped to secure the various elements of the barrier system. Lankhorst used Dyneema® SK78 grade fiber for the ropes in the prototype system; Dyneema® Max Technology will be used in the final system.

DSM Resins & Functional Materials

Highlights 2016

  • Strong volume growth driven by sustainable specialties
  • High growth in unique fiber-optic coatings
  • DSM-Niaga joint venture technology ready to produce 100% recyclable carpet on commercial scale

DSM Resins & Functional Materials reported sales of €904 million in 2016 compared to €866 million in 2015.

The shift away from solvent-based coatings that contain hazardous materials to more sustainable coating technologies continues to shape the global coatings market. End-user preferences and legislation to reduce substances such as VOCs continue to drive this substitution process, offering attractive new opportunities to the providers of innovative specialty coating solutions.

DSM is a global leader in the development and production of these innovative solutions by offering waterborne, UV and powder coating resins with clear sustainability advantages over solvent-borne coatings.

Driving the switch to waterborne coatings in China

Since the beginning of 2014, the Chinese government has been paying increasing attention to environmental protection. This includes introducing more stringent regulations on VOC emissions from solvent-based coatings.

Ninety-five percent of the world’s sea freight containers are made in China, and almost all are painted with solvent-borne coatings. There are some 20 million containers currently travelling the world. In 2015, 2.5 million twenty foot equivalent containers were built, generating some 130,000 tons of VOC emissions and constituting one of the major VOC emission sources in China. Today, only a small number of these – some 20,000 in 2015 – are coated with waterborne coatings. A new container requires 60-70kg of paint. If all new containers were painted with waterborne coatings, this would require 165,000 tons of waterborne coatings a year – a very significant growth opportunity.

To mobilize industry support for the switch to waterborne coatings in China, DSM founded the Waterborne China Platform in 2010. This represents leading coatings, resins and additive manufacturers who are in a position to influence key bodies – such as the Guangdong Coating Association, the Container Owner Association and the China Container Industry Association, as well as the Chinese central and regional Environment Protection Bureau – in the drafting of VOC and coating standards for the container industry.

As a result, the Chinese container industry decided in 2016 to sign a convention to introduce waterborne coatings in two steps. Guangdong Province made the switch in July 2016 and the rest of the country will follow by April 2017. Working with paint and coatings customers such as Valspar (now Sherwin Williams), DSM Resins & Functional Materials is already seeing considerable growth in its business as a result.

Other industries and governing bodies are following suit. The Chinese furniture industry is switching to waterborne coatings ahead of the introduction of the relevant legislation, and Shenzhen Municipality has also forbidden the use of solvent-borne coatings for external wall applications.

In functional materials, DSM is the global leader in fiber-optic coatings. In additive manufacturing – 3D printing – DSM offers highly efficient and effective prototyping technologies and supports the industry in accelerating the pace at which new products are designed and brought to market.

DSM Resins & Functional Materials delivered strong volume growth in 2016. This was based on increased market share supported by growth in more sustainable specialty products and new solutions in collaboration with customers. Meanwhile we introduced innovative new products such as powder coatings for wood (Uralac® Ultra); the bio-based Decovery® product line; and new SOMOS® additive manufacturing lines such as Element (for complex casting structures) and PerFORM (for high graphic resolution).

During 2016, we strengthened our position in core markets such as industrial coatings, fiber-optic materials, architectural coatings and printing inks. Strong key account management in North America and high acceptance of powder coatings and waterborne coatings in Europe are driving current growth, while growing environmental awareness in China is fueling demand for more sustainable resin solutions instead of solvent-borne coatings.

A highlight of 2016 was the launch of the breakthrough water-borne interior furniture coating line IRIDEA Bio by ICA Group, an Italian specialist producer of wood coatings. IRIDEA Bio is fully co-branded with DSM’s bio-based Decovery® line. Meanwhile, our haptic resins portfolio is attracting increasing attention. These soft-feel resins give a product a matt appearance and a velvet-like feeling in addition to heightened color intensity, and are ideal for the luxury packaging industry. We also further extended the Uralac® EasyCure product range of sustainable powder coating resins, which offer faster curing at lower temperatures for metal substrates.

DSM’s UV-curable materials for optical fiber are recognized as the global standard in fiber protection. They help ensure greater signal reliability and field performance within fiber-optic networks as global bandwidth demand continues to surge. We offer telecommunications network owners a broad portfolio of DeSolite® Supercoatings. This portfolio was expanded in 2016 by the addition of High Efficiency DeSolite® Coatings, which provide enhanced processing robustness with excellent on-fiber performance and durability.

In 2016, we extended our partnership with Japan Fine Coatings Ltd., acquiring a controlling interest in the company, to strengthen our market position in Asia. DSM Resins & Functional Materials has gained a robust position in the fast-growing Chinese market and is capitalizing further on the ‘fiber-to-the-home’ trend in Europe and North America.

Toward the end of the year, DSM-Niaga, a joint venture between DSM and start-up company Niaga, announced that its Niaga® technology has been made ready for commercial-scale production of recyclable carpets. All carpets made with this technology can be fully recycled and made into new carpets of the same volume and quality, again and again. In scaling up the technology, DSM partnered with LACOM GmbH to develop a commercial-scale laminating machine based on the Niaga® technology, with DSM’s engineered adhesive. The machine uses up to 95% less energy than mainstream lamination processes and reduces water use to zero. Unlike a regular carpet, a carpet made with Niaga® technology does not contain any latex, PVC or bitumen.