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 retains a strong balance sheet and limits its financial risks.
DSM's Strategy 2018: Driving Profitable Growth has ambitious strategic and financial targets that are outlined on Strategy 2018: Driving Profitable Growth. 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.
DSM has a commercial paper program of €1,500 million that is available and two committed credit facilities totaling €1,000 million, consisting of €500 million until September 2018 and €500 million until March 2020. For more details see note 24 to the 'Consolidated financial statements' on Policies on financial risks.
An important element of DSM’s financial policy is the allocation of cash flow. DSM primarily allocates cash flow to investments aimed at strengthening its business positions and to dividend payments to its shareholders. The cash flow is further used for Acquisitions & Partnerships that strengthen DSM's competences and market positions in health, nutrition and materials.
Should the occasion arise, the company may choose to return cash to shareholders if excess cash is available over a longer period to such an extent that the above-mentioned cash flow priorities can be satisfied without affecting the credit rating.
DSM aims to provide a stable, and preferably rising, dividend.
In order to cover its commitments under management and employee option plans, DSM buys back shares insofar as this is necessary and feasible. 2,300,000 shares were repurchased in 2015 (3,733,055 shares were repurchased in 2014).
It is DSM’s 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 for hedging 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 and hedged when appropriate.
The most important acquisition criteria are strategic fit and financial condition. A business or partner 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. There are, however, exceptions to this rule. For instance, 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's website.