As a basis for and contribution to effective risk management and to ensure that the company is able to pursue its strategies, even during periods of economic downturn, DSM aims to retain a strong balance sheet and limit its financial risks.
DSM's Strategy 2018:Driving ProfitableGrowth has ambitious strategic and financial targets that are outlined on Strategy 2018: Driving Profitable Growth. Within the context of this strategy, DSM aims to maintain a strong investment grade long-term credit rating.
Most of DSM's external funding needs are financed through long-term debt. Debt covenants are not included in the terms and conditions of outstanding bonds and financing arrangements. DSM aims to spread the maturity profile of outstanding bonds in order to have adequate financial flexibility.
An important element of the company's financial policy is the allocation of cash flow. DSM primarily allocates cash flow to investments aimed at strengthening its business positions and securing the dividend payments to its shareholders. Remaining cash flow is further used for acquisitions and partnerships that strengthen DSM's competences and market positions in health, nutrition and materials.
DSM aims to provide a stable, and preferably rising, dividend. Dividends are paid out in cash or in the form of ordinary shares at the option of the shareholders, with a maximum of 40% of the total dividend amount available for stock dividend.
In order to cover its commitments under the dividend policy and under management and employee option plans, DSM buys back shares insofar as this is necessary and feasible. In the year, 5,200,000 shares were repurchased to meet these obligations (2015: 2,300,000 shares).
It is company policy to hedge 100% of the currency risks resulting from sales and purchases at the moment of recognition of trade receivables and payables. Additionally, operating companies may – under strict conditions – opt to hedge currency risks from firm commitments and forecasted transactions. The currencies giving rise to these risks are primarily USD, CHF, JPY and GBP. The risks arising from currency exposures are regularly reviewed when appropriate.
A business or partner that is targeted for acquisition should add value to DSM in terms of technological or market competences. Acquired companies are in principle required to contribute to DSM's cash earnings per share from the very beginning and to earnings per share from the second year. In addition, they are required to meet the company's profitability, sustainability and growth requirements. However, such requirements may not be appropriate in the case of small, innovative growth acquisitions, although the sustainability requirement will be upheld at all times.
DSM's policy in the various sub-disciplines of the finance function is strongly oriented toward solidity, reliability and protection of cash flows. The finance function plays an important role in business steering.
For detailed information on DSM’s tax policy, see ‘Taxation at DSM’ on the company website.