Strategy 2018: Driving Profitable Growth

Over recent years, DSM has been transformed into a truly global company that provides innovative, sustainable solutions in health, nutrition and materials. DSM’s Strategy 2018: Driving Profitable Growth focuses on capturing the potential of the business portfolio that has been created and translating this into improved financial results. In the period 2016-2018, we aim to step up our financial performance while pursuing our ambitions in the area of sustainability and expanding our positive impact on the world around us.

People, economies and markets worldwide are being affected by a number of fundamental societal trends. These megatrends – predominantly driven by demographic changes as populations grow (including a shift to the faster-growing countries in Asia and Africa) and people become older, more urbanized, wealthier and more connected – are exerting increased pressure on resources and the food chain. In addition they are engendering new patterns of consumption and impacting the environment. Moreover, there is increased attention to health and well-being. These trends present clear challenges, but also offer opportunities for DSM to profitably grow its businesses by supporting customers in developing science-based, sustainable solutions to meet current and future needs.

DSM's strategy and solutions offering addresses three crucial megatrends.

Global shifts and digital transformation
The accelerating growth of the global population, accompanied by ever more rapid technological advances and the increasing wealth of the emerging economies, is creating a world that is city-oriented, technology-literate, and globally connected. It is also imposing unprecedented demands on the earth’s resources and triggering significant societal and cultural changes worldwide. Diets are changing and global spending on housing, transport, lifestyle and energy is on the increase. New technology, hyper-connectivity and big data are impacting individuals, communities, businesses and economies in unprecedented ways, bringing both opportunities and challenges.

Climate and energy
Scientific consensus on the link between human activity and climate change is clear, and the full and speedy implementation of the Paris Treaty (COP21) agreements is paramount. In the words of the Marrakech Action Proclamation for Our Climate and Sustainable Development, made at the COP22 UN Climate Change Conference in November 2016, “Our climate is warming at an alarming speed and we have an urgent duty to respond... Our task now is to rapidly build on that momentum, together, moving forward purposefully to reduce greenhouse-gas emissions and to foster adaptation efforts, thereby benefiting and supporting the 2030 Agenda for Sustainable Development and its SDGs.” This understanding is speeding up the imperative transition to the (bio-)renewable age and the low fossil-carbon economy.

Health and wellness
Advances in medicine, improvements in healthcare, and growing awareness of the importance of good nutrition have created favorable conditions for billions of people to achieve their full potential during the course of long and active lives. Yet these advances are accompanied by massive societal challenges: the growth of diet-related non-communicable diseases in both the developing and the developed world; the aging of the populations of Japan, Europe and North America, for example; and the increasing demand for – sustainable – animal protein in the emerging economies. At the same time, two billion people on the planet suffer from micronutrient and protein deficiencies, and the cycle of deprivation continues from generation to generation.

Managing Board
The DSM Managing Board (from left to right): Stephan Tanda, Dimitri de Vreeze, Feike Sijbesma (CEO/Chairman) and Geraldine Matchett (CFO)

We provide our customers with the innovations and sustainable, science-based solutions they need to meet the demands arising from these megatrends. Orientating DSM’s strategy and businesses around these three megatrends not only provides us with the global scope to pursue attractive commercial opportunities across the full range of our abilities. It also ensures that our efforts target some of the biggest challenges confronting society today.

New Strategy

Taking into account these megatrends, and combined with disciplined focus on performance, we have established a three-year strategic plan with two headline financial targets: high single-digit percentage annual Adjusted EBITDA growth and high double-digit basis point annual ROCE growth. We have defined clear actions for DSM to achieve these targets, including outpacing market growth in our businesses, the rigorous execution of cost reduction and efficiency improvement programs which will deliver €250-300 million in savings versus the 2014 baseline, and improvements in our capital efficiency. In support of our growth targets, we are adjusting DSM’s global organizational and operating model to create a more agile, commercially focused and cost-efficient company.

We do not expect to engage in large acquisitions in the near future and intend to further monetize DSM’s main joint venture partnerships in the coming years.

Besides improving the financial outcomes, we are also stepping up our sustainability aspirations with Strategy 2018, both in our own operations and in the positive impact we want to have on the world around us. DSM’s competences and business plans have a strong link with the Sustainable Development Goals. While our activities align with many of the SDGs, our businesses can particularly contribute to SDGs 2, 3, 7, 12 and 13. We have identified key sustainability focus areas in which we foster the development of sustainable markets where our products, value chains, networks and partnerships can have a beneficial impact at scale. More information is given in ‘DSM and the Sustainable Development Goals’ and throughout this Report.

Our ability to hire, develop, evaluate and manage our talented people is a fundamental strategic enabler for DSM’s continued success, and we direct this through our People Strategy 2018.

Our Strategy 2018 aims to unlock the tremendous potential that DSM’s business portfolio offers, out-pacing growth in our markets through innovative solutions addressing important global issues, capturing the benefits of organizational optimization and helping our employees fully develop their skills and talents.

Philip Eykerman, DSM Executive Committee

While driving profitable growth throughout the company via the execution of our Strategy 2018, we continually monitor, assess and strive to respond appropriately to societal, macro-economic and segment-specific developments as they occur. Our approach to managing both opportunities and risks in DSM’s businesses is embedded in our operating and governance model and risk management approach. For more information see Corporate governance and risk management.

A full description of Strategy 2018: Driving Profitable Growth can be found on the company website:

Progress in 2016

Having designed DSM’s strategy update in 2015, the year 2016 has been about implementing Strategy 2018 in our organization and in our markets.

Financial results

DSM delivered very strong financial results in 2016, with net sales of €7,920 million, up 3% on 2015 (€7,722 million). Group organic sales growth came to 4% on the back of strong volumes in both Nutrition and Materials. Adjusted EBITDA from continuing operations grew by 17% to €1,262 million, clearly ahead of the high single-digit growth we are currently targeting.

DSM’s overall Adjusted EBITDA margin (Adjusted operating profit before depreciation and amortization as a percentage of net sales) was 15.9% (2015: 13.9%). In 2016, Return On Capital Employed (ROCE) was up 280 basis points to 10.4% from 7.6% in 2015, also well ahead of our targeted improvement.

The Nutrition cluster had a strong year with 5% organic growth and Adjusted EBITDA up 13% versus 2015. All businesses contributed well to this growth. Adjusted EBITDA also benefited from the efficiency and cost saving programs. The Adjusted EBITDA margin was 18.0% (2015: 16.6%), already achieving the aspired range of 18-20% for 2018.

Animal Nutrition & Health had a very good year, with 8% organic growth, driven by strong volume growth in all regions with the exception of Latin America, due to the weak economic conditions in that region. Prices were up in a number of vitamins and premixes. Human Nutrition & Health delivered a significant step-up in organic growth versus recent years at 4% in 2016. This underlines the successful implementation of the strategy to drive above-market growth through new market initiatives and innovation. One of the highlights of the year was the continued rapid pace of growth for the i-Health range of dietary supplements. The range has proved its popularity in the US and is now also available in a number of other countries.

Our Materials businesses delivered a strong financial performance in 2016, reflecting the success of our differentiated approach of focusing on higher-growth specialty businesses in the Materials portfolio. Volumes grew 4% in the year. Prices were generally down across the Materials sector, including for DSM, as a result of the prevalent low input cost environment created by low oil prices. Adjusted EBITDA was up 13%, driven by strong volume growth in higher margin specialties, the benefits of the efficiency- and cost-saving programs that have been carried out in the cluster, and the support from low input costs. Margins in Materials came in at 17.3% for the year versus 15.2% in 2015. Even when normalized for the approximately one percentage-point of support resulting from the low input-cost environment, this is a significant step-up in profitability, and clearly well above the levels of just a couple of years ago and ahead of the mid-term aspiration of 15%.

Financial targets 2016-2018
Realization 2016
High single-digit percentage annual Adjusted EBITDA growth
High double-digit bps annual ROCE growth
280 bps
Sustainability aspirations 2020
Realization 2016
Dow Jones Sustainability World Index
Top ranking (RobecoSAM Gold Class)
Industry leader
Brighter Living Solutions
65% ECO+/People+ (running business)
GHG Efficiency Improvement
40-45% (2008-2025)
Employee Engagement Index
Toward 75% favorable
0.25 Frequency Index of Recordable Injuries
25% Female executives
60% Executives from under-represented nationalities

From a regional perspective, in North America, economic growth remained steady, with record low unemployment. North America is the only region where all DSM’s business groups and Emerging Business Areas (EBAs) have operations and sales grew by 10%. The pace of growth in the EMEA region remains patchy, with some countries and markets developing more strongly than others, influenced also by political events. Regional sales grew by 3%, with good performance in food & beverage and automotive alongside more robust conditions in building and construction.

Sales in emerging economies amounted to 44% of total sales in 2016, in line with 2015. This gives DSM a well-balanced global footprint, putting us in a position to capture opportunities arising from the megatrends in economies such as China, India, Brazil and Russia as well as in the more mature economies of the West.

In China, the economy is rebalancing toward the ‘New Normal’, whereby domestic consumption has become the most powerful driver of economic growth. Of relevance to DSM, 2016 saw high growth in automotive, and the food industry continued to develop well, while construction-related industries remained volatile. Environmental regulations have sharpened significantly in recent years, leading many segments to seek more sustainable substitutes for traditional materials. Sales in China grew by 6%. In India, GDP growth continued apace and DSM's sales showed a 16% development, supported by an increased awareness of the importance of healthy, balanced diets, and new standards that came into force for the fortification of staple foods. Sales in Latin America declined by 6%. Economic instability, especially in Venezuela and Brazil, and to a lesser extent in Argentina, continued to affect DSM’s businesses in the region. At the same time, there is a growing willingness to address obesity and malnutrition by some governments in this region. The economy in Russia showed initial signs of improvement in 2016. A strong localization drive benefited agriculture in particular, which has been positive for DSM’s animal nutrition business. Overall, sales in Eastern Europe were up 6%.

DSM’s innovation strategy aims at developing the best, most sustainable and commercially viable solutions to continue to meet current and future market needs and to support DSM’s further profitable growth. Innovative and improved products and solutions typically have above-average margins, contributing directly to Adjusted EBITDA growth as well as top-line growth. Innovation sales, defined as sales from products and solutions introduced in the last five years, made up 22% of total sales in 2016 (2015: 24%), in line with our aspiration to maintain a level of around 20% going forward for DSM as a whole. We see this as a healthy proportion in view of the overall balance of our product portfolio and product life cycles. R&D is crucial to the realization of DSM’s innovation strategy, and most of the expenditure in this area is directed toward business-focused programs. The overall spend on R&D came to €426 million in 2016, or 5.4% of sales.

Our three EBAs – DSM Biomedical, DSM Bio-based Products & Services and DSM Advanced Solar – continued to progress during the year. We saw solid volume growth in our Biomedical activities: worldwide, a medical device containing DSM’s specialty biomedical materials is now being implanted into someone’s body on average once every nine seconds. In Bio-based Products & Services, we have made strides together with our partner POET to bring the cellulosic bio-ethanol plant in the US toward full capacity. Furthermore, we are leveraging the expertise and the products we have built up to create new business in making the production of all generations of biofuels more efficient and sustainable. Our Advanced Solar business for solar energy materials again performed well in 2016, outpacing market growth. We also added an innovative new backsheet technology to our portfolio in this segment. Taken together, the EBAs delivered €16 million in Adjusted EBITDA. DSM’s Innovation Center reached Adjusted EBITDA break-even overall in 2016 as planned.

For detailed information on DSM’s financial results in 2016, see Profit in 2016. For more information on innovation and R&D, see Innovation Center.

Cost reduction and improvement programs

DSM has instigated extensive cost-reduction and improvement programs which will deliver €250-300 million savings versus the 2014 baseline. In 2016, all these well-identified programs progressed as planned and the programs are on track to deliver the targeted benefits.


Sustainability results

Sustainability is our core value. As such, we have expended much time and effort over the years in embedding sustainability across our business activities, both in recognition of our responsibility to reduce DSM’s environmental footprint and in developing sustainability into a strategic and successful business growth driver. We harness our strong science competences to create and deliver higher-margin, profitable products and solutions that have a positive impact on our value chains and help address global challenges. In 2016, our Brighter Living Solutions comprised 63% of total sales. For more information on what makes our solutions different, see 'Brighter Living Solutions'.

We are proud that DSM was named the global leader in our industry group in the Dow Jones Sustainability World Index in 2016. This top ranking means that in 2017 DSM will continue to have RobecoSAM Gold Class status.

We have set targets to drive sustainable operations at DSM relating to greenhouse-gas and energy efficiency, employee engagement, safety and diversity. These headline targets with a longer-term horizon are supported by a wide range of measures. In 2016, we made good progress in reducing our operational environmental performance, improving both our greenhouse-gas and energy efficiency in the year toward the targets we have set. This included taking a significant step in the amount of electricity we purchased from renewable sources. To read about our aims and performance in detail, see People in 2016 and Planet in 2016.

We have defined three key focus areas in sustainability for DSM based on global societal trends that are affecting people, economies and markets. These are nutrition, climate & energy, and circular & bio-based economy.

  • In nutrition, DSM has unique expertise in developing products to positively impact global nutrition, health and development in support of SDG 2 (Zero Hunger), which aims to end all forms of malnutrition by 2030. We work together with cross-sector partners to help make good nutrition aspirational, affordable and available to all. Our strategic partnership with the UN World Food Programme reached over 28 million beneficiaries in 2016. For more information, see 'Nourishing the Base of the Pyramid', Cross-sector nutrition partnerships and Nutrition.
  • Effectively tackling climate change is a responsibility and also a business opportunity. We focus on reducing DSM’s own carbon footprint, enabling the low fossil-carbon economy with products and solutions and advocating climate action. In April 2016, our CEO Feike Sijbesma was named Co-Chair of the Carbon Pricing Leadership Coalition, which was launched by the World Bank and the International Monetary Fund in 2015. DSM also agreed to participate in a unique partnership for renewable energy from Windpark Krammer in the Netherlands. See Planet in 2016.
  • We are committed to securing the future availability of natural resources, and to unlocking more value from the limited resources that are available. At the end of 2016, the DSM-Niaga joint venture announced its readiness for commercial-scale production of 100%-recyclable carpets. For more information, see Materials.

We look to foster the development of sustainable markets in these areas where our products, value chains, networks and partnerships can have a beneficial impact at scale.

Organization & culture

The DSM Employee Engagement Index expresses how our employees rate DSM in terms of commitment, pride, advocacy and satisfaction. The survey held in 2016 resulted in an engagement index of 71% (2015: 69%), just ahead of the global standard of 70%. This is a good result, especially in light of our ongoing transformation to a new organizational and operating model. Our aim is for this outcome to move toward 75% favorable by 2020.

The members of the Executive Committee are the Managing Board members Feike Sijbesma (CEO/Chairman), Geraldine Matchett (CFO), Stephan Tanda (Nutrition) and Dimitri de Vreeze (Materials), as well as Chris Goppelsroeder (Nutritional Products), Philip Eykerman (Strategy and M&A), Peter Vrijsen (People & Organization) and Rob van Leen (R&D and Innovation)

We are well on track with the adjustments to our global organizational and operating model to support DSM’s growth and create a more agile, commercially-focused and cost-efficient business. We strengthened DSM’s management structure in 2015 by establishing an Executive Committee, which has enabled faster alignment and operational execution by increasing focus on the development of the business, innovation and people. The Executive Committee’s efforts are primarily aimed at defining the overall strategy and direction; reviewing business results and functional and regional strategies; budget-setting; and people and organization.

Programs in our new target operating model to globally leverage cross-company support functions in areas such as HR, Indirect Sourcing, Communications, Finance, Legal and ICT are well underway. In support of this transformation, we continued to anchor and embed our new way of working and ONE DSM culture, driving changes in mindset and behaviors. The changes implemented are aimed at establishing DSM as a results-driven, high-performance organization.

We further embedded the DSM Leadership Model in our key processes of hiring, developing, evaluating and managing talent across the organization and for building high-performing teams. We also rolled out a new talent management approach across the company in 2016. We will continue to invest in our talent pipeline to ensure that we can sustainably address the future challenges and demands placed on us.

For more information about our organization and employees, see People in 2016.

Extracting value from our partnerships

DSM has established joint venture partnerships for its former pharma activities (DSM Sinochem Pharmaceuticals and Patheon) and for the remaining bulk chemical businesses (ChemicaInvest). These partnerships have been created with a view to ultimately exiting and monetizing these businesses, and we expect to extract significant value from them in the coming years.

We took a first step in 2016 with the sale of 4.8 million ordinary shares in Patheon N.V. in connection with the IPO of Patheon N.V. in July, resulting in a gain of €232 million. Following this transaction, DSM now holds approximately 48.7 million ordinary shares, or approximately 34% of Patheon N.V. For more information, see Partnerships.

Building for earnings growth beyond 2018

DSM has set itself strategic targets for the period to 2018. This shorter three-year period is intended to channel the organization’s focus and forcefully drive achievement of the step-up in financial performance at which the company aims, creating more value from the promising portfolio we have built over recent years. At the same time, we are also preparing for further longer-term growth; DSM's business cycles are typically longer than the three-year period to 2018. The company has a range of key business and innovation projects across the clusters that will drive earnings growth beyond 2018 and we will continue to develop more initiatives in light of market dynamics.