Profit in 2016
We posted good results for DSM in 2016, well ahead of our initial ambitions for this first year of our strategic period. While we still have much to do in the coming years, we have established a strong foundation from which to continue to grow.
Geraldine Matchett, CFO
Our Strategy 2018 is underpinned by two mid-term headline financial targets: growth in Adjusted EBITDA and ROCE. These are based on our ability to outgrow our markets and at the same time deliver significant structural cost savings and improvement actions, underscored by disciplined capital allocation across the company.
I am pleased to say that in 2016, the first year of this period, we have posted financial results that are considerably ahead of our mid-term targets, with an Adjusted EBITDA growth of 17% and ROCE stepping up from 7.6% to 10.4%. Net sales came in at €7,920 million, representing a top-line organic growth for the company of 4%, with both our Nutrition and Materials businesses making a strong contribution. We also made good progress in terms of profitability, with robust margin development in Nutrition and especially so in Materials. The clear step-up in ROCE – the return we deliver on each euro we employ – was driven by a higher EBIT. On the basis of these results, we are pleased to propose an increased dividend of €1.75 for the year, subject to shareholder approval.
The cost-saving and improvement programs we initiated in 2015 have been a major area of focus this year. A lot has been achieved and we remain firmly on track. The organizational and operational changes being implemented go beyond cost-savings alone; the way we are organized, the things we do and the processes we follow are being reshaped for agility and growth.
We have continued to invest in our businesses and in growth through 2016, committing around 6% of our sales to carefully selected capital projects. As a science-based company, R&D and innovation remains fundamental to our ability to deliver solutions that make a real difference to our customers’ businesses, and to their customers in turn. We continued to spend in this area to stay ahead of the game, albeit with a clear focus on the optimum impact of our investments.
One of our key focus areas has been on improving our working capital as a percentage of sales. At the end of 2016, this was 18.4%, which is better than our aspiration level of below 20%. Capital efficiency is a key driver of cash generation; in 2016 we undertook a number of improvement projects in this area throughout DSM. One of these has been to take a more integrated approach to business planning, in particular in our Nutrition cluster. Holistically addressing processes instead of approaching them as a series of individual steps has resulted in clear improvements in inventory management, production and distribution efficiencies.
Again in line with Strategy 2018, we took a first step toward monetizing our key joint venture partnerships with our participation in the very successful IPO of Patheon N.V. in July 2016. This resulted in a first gain and cash in-flow for DSM in 2016 in excess of €200 million and has opened the way for further steps in future with regards to our remaining 34% stake.
During the year, we also successfully issued a €750 million ten-year bond with a coupon of 0.75%. Favorable market conditions allowed us to lock-in low interest rates taking into account the upcoming maturing of a €750 million bond in 2017.
In achieving these results, one of the things that has impressed me most has been the dedication and unwavering commitment of the thousands of DSM employees around the world. My colleagues and I on the Executive Committee are well aware that our company is undergoing a period of vital organizational transformation. This internal process could have proved a distraction for many in our company. Instead, what we have seen has been a continued clear commitment to focus on our markets and on customer relationships and customer needs. This deep-seated dedication has paid off in 2016, and underlies the valuable relations we have with our partners in the value chain.
Profit in 2016
Within the Profit dimension of DSM’s Triple P approach, DSM delivers a sustainable financial return. This ensures business continuity and allows the company to grow, while at the same time providing a good financial return to its shareholders. This chapter reports DSM’s financial performance and provides an overview of the key financial metrics of the company. A model of 'How DSM creates value for its stakeholders' through the financial, intellectual and manufactured capitals is given on How DSM creates value for its stakeholders.
x € million
Adjusted operating profit1
Adjusted net profit1
Adjusted net profit from discontinued operations
Total APM adjustments
Total net profit attributable to equity holders of Koninklijke DSM N.V.
ROCE1 (in %)
Adjusted EBITDA margin, (in %)1
In presenting and discussing DSM’s financial position, operating results and cash flows, DSM uses certain Alternative performance measures (APMs) not defined by IFRS. These APMs are used because they are an important measure of DSM’s business development and DSM’s management performance. A full reconciliation of IFRS performance measures to the APMs is given in the Alternative performance measures.
Net sales and Adjusted EBITDA
At €7,920 million, net sales from continuing operations in 2016 were 3% higher than in 2015 (€7,722 million), while organic growth was 4%. Volume development accounted for a 4% improvement, driven by both Nutrition and Materials, while price/mix was on average flat compared to 2015. Exchange rate fluctuations had a negative impact of 1%, while other effects balanced each other out.
x € million
DSM, continuing operations
Adjusted EBITDA (Adjusted operating profit from continuing operations before depreciation and amortization) increased by a significant 17% or €187 million, from €1,075 million in 2015 to €1,262 million in 2016. Adjusted EBITDA in Nutrition was up 13% versus 2015, with all businesses contributing well to this growth. Profitability also benefited from the efficiency and cost-saving programs. In Materials, Adjusted EBITDA was also up 13%, driven by strong volume growth in higher margin specialties, the benefits of the efficiency and cost-saving programs and the support from low input costs. DSM's overall Adjusted EBITDA margin was also up at 15.9% in 2016 (2015: 13.9%).
Adjusted operating profit from continuing operations rose from €573 million in 2015 to €791 million in 2016, up 38%.
Net profit attributable to equity holders of DSM increased by €533 million to €621 million. This increase was mainly a result of higher Adjusted EBITDA (up €187 million) and differences in APM adjustments, see below. Expressed per ordinary share, net earnings amounted to €3.52 in 2016 (2015: €0.45).
Financial income and expense decreased by €41 million compared to the previous year to €133 million. This was mainly the consequence of more favorable hedge results and lower interest expenses.
The effective tax rate on the adjusted result from continuing operations for 2016 was 18% (2015: 23%). This substantial decrease was due among other factors to a better geographical mix and the fact that 2015 included a one-off tax settlement related to the internal transfer of a business.
Adjustments made in arriving at DSM's Alternative performance measures (APM adjustments)
Total APM adjustments for the full year amounted to a profit of €109 million, consisting of a profit regarding associates and joint ventures of €212 million (mainly due to the gain of €232 million on the IPO of Patheon N.V.), offset by €101 million in restructuring costs related to the ongoing cost-reduction programs, €18 million impairments and €15 million acquisition/divestment-related and other costs, with a tax benefit of €31 million.
Cash flow statement
x € million
Cash and cash equivalents at 1 January
Cash flow provided by operating activities
of which provided by continuing operations
Cash used in investing activities
Cash from / used in financing activities
Effect of exchange differences
Cash and cash equivalents at 31 December
Cash flow provided by operating activities consists of the EBITDA for the year (€1,146 million) less various cash-out items including income tax of €77 million and changes in working capital of €89 million. Our focus on cash flow resulted in a strong full-year operating cash flow from continuing operations of €1,018 million. See also Consolidated financial statements.
The cash used in investing activities included capital expenditures (€476 million) and the increase of fixed-term deposits (€936 million, see Note 14 'Current investments'), partly offset by the proceeds from disposals (€80 million) and the dividend received from associated companies (€152 million), mainly relating to the IPO of Patheon N.V.
The cash from financing activities consisted mainly of the increase in long-term loans (€745 million), partly offset by dividend paid (€190 million), interest paid (€151 million) and repurchase of shares (€273 million). For the full cash flow statement, see Consolidated cash flow statement (Note 26).
The balance sheet total (total assets) reached €13.0 billion at year-end (2015: €11.7 billion). Equity increased by €549 million compared to the position at the end of 2015. This increase was due to the fact that the net profit for the year, the net exchange differences and the proceeds from reissued shares were higher than the dividend and the repurchase of shares. Equity as a percentage of total assets remained 48%.
Compared to year-end 2015, net debt decreased by €251 million to €2,070 million. The gearing at year-end was 25%, a decrease of 4% compared to 2015.
Capital expenditure on intangible assets and property, plant and equipment amounted to €485 million in 2016 (€475 million on a cash basis), which was around the same level as amortization and depreciation.
Total working capital amounted to €1,481 million compared to €1,343 million at year-end 2015, which represents 18.4% as a percentage of annualized fourth quarter 2016 sales. Total working capital at year-end 2016 included cash-related liabilities of joint ventures and associates of €62 million, which is €75 million lower than 2015. Excluding these liabilities, this ratio amounted to 19.1%. The operating working capital (continuing operations before reclassification to 'held for sale') was €117 million higher than in the previous year and came to 24% of annualized net sales (2015: 24%).
Cash and cash equivalents came to €604 million at the end of the year; including current investments, this came to €1,568 million (2015: €674 million). The increase was mainly attributable to the €750 million bond issued in September 2016, which took advantage of favorable market conditions to allow DSM to lock in low interest rates taking into account the maturing of a €750 million bond in 2017.
Balance sheet profile
x € million
x € million
Property, plant and equipment
Other non-current assets
Cash and cash equivalents
Other current assets
Other non-current liabilities
Other current liabilities
DSM aims to deliver high single-digit percentage Adjusted EBITDA growth and high double-digit bps ROCE growth in line with the targets set out in its Strategy 2018.