Associates and joint ventures

Material associates and joint ventures for DSM are DSM Sinochem Pharmaceuticals (DSP), Patheon, ChemicaInvest, and POET-DSM Advanced Biofuels. DSP was formed in 2011 as a fifty-fifty joint venture between DSM and Sinochem Group. DSP is the global leader in sustainable antibiotics, next-generation statins, and anti-fungals. DSP develops, produces, and sells intermediates, active pharmaceutical ingredients, and drug products. Patheon was formed in 2014 between DSM and JLL Partners, combining the businesses of DSM Pharmaceutical Products and Patheon. Patheon is a leading, global provider of outsourced pharmaceutical development and manufacturing services, ranging from formulation development to clinical and commercial-scale manufacturing, packaging, and life cycle management. DSM sold its interest in Patheon N.V. in 2017. ChemicaInvest is a leader in the production and supply of caprolactam, acrylonitrile, and composite resins. DSM has a 35% shareholding in the company. The joint venture between POET and DSM operates a start-up commercial-scale production facility for cellulosic bio-ethanol in the US.

The interests in POET-DSM Advanced Biofuels and DSM Sinochem Pharmaceuticals are classified as joint ventures in accordance with IFRS 11 and accounted for using the equity method. DSM has had a 35% interest and significant influence in ChemicaInvest since the formation of this partnership in July 2015. DSM accounts for this interest using the equity method as well. Relations with these joint ventures and associates and their strategic importance are discussed in more detail in sections Innovation Center and Partnerships in the Report by the Managing Board.

DSM had a 49% interest and significant influence in Patheon as of the formation of this company early in 2014; this decreased to 33.5% at the end of July 2016, following a successful IPO and secondary offering. On 29 August 2017, the remaining shares in Patheon N.V. were sold to Thermo Fisher Scientific Inc.

DSM's share in its most important associates and joint ventures is disclosed below:

Company
  
DSM interest
  
2017
2016
    
DSM Sinochem Pharmaceuticals, Ltd. (Hong Kong, China)
joint control
50%
50%
POET-DSM Advanced Biofuels LLC (Sioux Falls, South Dakota, USA)
joint control
50%
50%
Patheon N.V. (Amsterdam, Netherlands)
-
-
33.5%
ChemicaInvest Holding B.V. (Sittard-Geleen, Netherlands)
significant influence
35%
35%

The following tables provide an overview of DSM's investments in associates and joint ventures, the bridge between 'Profit for the year' of the associates as shown in this Note, and the lines 'Share of the profit of associates and joint ventures' and 'Other results related to associates and joint ventures' in the Consolidated income statement.

Associates and joint ventures

 
2017
2016
 
Patheon N.V.
DSP
Chemica-
Invest
POET-DSM
Other1
Total
 
Share in associates and joint ventures
       
        
Balance at 1 January
279
130
-
117
60
586
644
        
Changes:
       
- Share in results
10
9
5
(100)
(20)
(96)
(47)
- Capital payments
-
-
-
43
17
60
33
- Dividend / capital repayments
-
-
-
-
(4)
(4)
(152)
- Disposals
(249)
-
-
-
-
(249)
128
- Consolidation changes
-
-
-
-
(4)
(4)
(10)
- Impairments
-
-
-
-
(20)
(20)
-
- Transfers
-
5
-
-
6
11
(27)
- Exchange differences
(41)
(4)
2
(12)
(3)
(58)
17
- Other
1
-
-
-
-
1
-
Total changes
(279)
10
7
(69)
(28)
(359)
(58)
        
Balance at 31 December
-
140
7
48
32
227
586
        
Loans to associates and joint ventures (see note 11)
 
12
181
-
-
193
253
        
Total balance at 31 December associates and joint ventures
-
152
188
48
32
420
839

1 Among others Africa Improved Foods and Limburg Ventures are included in Other.

Profit of associates and joint ventures

 
2017
2016
 
Patheon N.V.1
DSP
Chemica- Invest
POET-DSM
Other
Total
 
        
Profit for the year (100%)
28
19
82
(199)
   
Non-controlling interest
-
-
(13)
-
   
Net profit shareholders (100%)
28
19
69
(199)
   
DSM's %-share in capital
-
50%
35%
50%
   
Share in result based upon %-share
10
9
25
(100)
(20)
(76)
(67)
Share in losses in excess of investment
-
-
(20)
-
-
(20)
20
Share in result of associates and joint ventures
10
9
5
(100)
(20)
(96)
(47)
Tax on VoFs and LLCs
-
-
-
13
-
13
9
Share in result associates and JVs
10
9
5
(87)
(20)
(83)
(38)
        
Book profit Patheon
1,250
-
-
-
-
1,250
232
Other
3
-
3
-
(19)
(13)
-
Other result share in associates and JVs
1,253
-
3
-
(19)
1,237
232
        
Total result related to associates and JVs
1,263
9
8
(87)
(39)
1,154
194

1 Period 1 November 2016 until 15 May 2017.

Loans include a €41 million shareholder loan with an annual fixed interest rate of 9.875% and €140 million bridge loans with an annually rising interest rate from 7 to 10%, both with an expected 4-year maturity, granted to ChemicaInvest; a loan of €12 million to DSP maturing in 2019; a USD 50 million loan to POET-DSM with a 5% interest rate has been fully repaid in 2017.

Patheon is included from 1 November 2015 until the end of fiscal year 2016 (31 October) for 2016 and from 1 November 2016 until 15 May 2017 (transfer to assets held for sale at that date) for 2017. On 29 August 2017, DSM sold its 33.5% interest or 48.7 million shares in Patheon N.V. to Thermo Fisher Scientific Inc. as part of a tender offer to acquire all of the issued and outstanding shares of Patheon for USD 35.00 per ordinary share in cash. As a consequence, DSM realized a cash in-flow of €1,535 million (investing activities) and a profit of €1,250 million, which is recorded as Other results related to associates and joint ventures.

Divestment of share in Patheon

Book value associate
249
Earn-out receivable
32
Total book value
281
  
Consideration
1,503
Earn-out receivable
32
Total consideration
1,535
Book result
1,254
  
Income tax
(22)
Book result after tax
1,232
Release of translation reserve and hedging reserve to Income statement
18
  
Total transaction result in income statement
1,250

In 2016, the equity value of ChemicaInvest was -€74 million on a 100% basis, DSM decreased its carrying amount in this associate to zero and did not recognize any further losses on its investment in the associate, as DSM has no obligation to fund beyond its net interest in ChemicaInvest. In 2017, ChemicaInvest showed a very good financial recovery, which resulted in a net profit of €82 million on a 100% basis, leading to a carrying amount of the investment for DSM of €7 million.

At year-end the total assets of POET-DSM amounted to €126 million (2016: €293 million) on a 100% basis. The POET-DSM Advanced Biofuels joint venture has a commercial-scale production facility for cellulosic bio-ethanol in Emmetsburg (Iowa, USA). It processes corn-crop residues through a bioconversion process using enzymatic hydrolysis followed by fermentation. In the third quarter of 2017, an impairment test was carried out, triggered by the delays in the start-up together with the pre-treatment re-design. The impairment test based on the adjusted cashflows of the ten-year plan where the terminal growth rate was set at 1.5% (2016: 1.5%), and the pre-tax discount rate at 11.8% (2016: 12.3%), led to an impairment for DSM of €65 million, which is included in 'Share of the profit of associates and joint ventures' and the value-in-use now equals the carrying amount. Nonetheless, POET-DSM Advanced Biofuels made progress in 2017 after a period of significant delays throughout the industry. In particular, progress was made in the development of advanced enzymes, which will now be manufactured on-site, as well as in yeast technology. The pre-treatment set-up has recently been re-designed, with the aim to improve performance.

For an overview see Associates and jv's on a 100% basis.

Associates and joint ventures on a 100% basis

 
DSP
ChemicaInvest
POET-DSM
Other
 
2017
2016
2017
2016
2017
2016
2017
2016
Assets
        
Intangible assets
32
26
76
107
-
-
17
8
Property, plant and equipment
199
219
261
270
110
279
130
87
Other non-current assets
24
28
125
137
6
-
31
24
Inventories
87
82
115
112
5
10
18
13
Receivables
145
142
342
366
2
3
30
13
Cash and cash equivalents
74
92
328
158
3
1
88
95
Other current assets
7
-
-
-
-
-
-
-
Total assets
568
589
1,247
1,150
126
293
314
240
         
Liabilities
        
Provisions (non-current)
8
1
76
68
19
8
9
-
Borrowings (non-current)
38
15
596
561
4
48
58
45
Other non-current liabilities
8
9
82
127
-
-
8
2
Provisions (current)
-
-
32
87
-
-
3
-
Borrowings and financial derivatives (current)
88
144
101
78
1
-
32
14
Other current liabilities
141
154
344
303
5
4
42
43
Total liabilities
283
323
1,231
1,224
29
60
152
104
         
Net assets (100% basis)
285
266
16
(74)
97
233
162
136
Of which non-controlling interest
(5)
(5)
(9)
3
  
(16)
-
Net assets excluding goodwill
285
266
16
(74)
97
233
162
136
Contingent liabilities
-
5
-
54
-
-
-
-
         
Summarized statement of profit or loss
        
Revenue (net sales)
440
431
1,933
1,802
8
2
72
43
Operating profit (EBIT)
42
34
156
(37)
(189)
(40)
(63)
(32)
Financial income
1
1
2
1
-
-
1
-
Financial expense
(8)
(12)
(69)
(52)
(3)
(3)
(6)
(4)
Share of the profit of associates
-
-
7
6
-
-
(2)
1
Profit before income tax expense
35
23
96
(82)
(192)
(43)
(70)
(35)
Income tax expense
(16)
(9)
(6)
(1)
(7)
(5)
5
(19)
Profit for the year (continuing operations)
19
14
90
(83)
(199)
(48)
(65)
(54)
Post-tax result discontinued operations
-
-
(8)
-
-
-
-
5
Profit for the year (total)
19
14
82
(83)
(199)
(48)
(65)
(49)
Other comprehensive income
-
-
-
-
-
-
-
-
Total comprehensive income
19
14
82
(83)
(199)
(48)
(65)
(49)
of which non-controlling interest
-
(1)
13
-
-
-
(10)
(18)
         
Adjusted EBITDA
73
62
205
105
(30)
(27)
(22)
(22)
EBITDA
73
62
205
23
(30)
(27)
(22)
(22)
Depreciation, amortization and impairment
(31)
(28)
(49)
(60)
(159)
(13)
(41)
(10)