Overall financial results
Within the Profit dimension of DSM's Triple P approach, DSM aims to deliver a sustainable financial return. This ensures business continuity and allows the company to grow, while at the same time providing shareholders the opportunity to invest in a company whose purpose drives sustainable above-market growth at higher returns.
We established and implemented our three-year strategic plan for the period 2016-2018 called Strategy 2018: Driving Profitable Growth with two headline financial targets: high single-digit percentage annual Adjusted EBITDA growth and high double-digit basis point annual ROCE growth. To deliver on these targets, we defined clear actions, including outpacing market growth, cost reduction and efficiency improvements to deliver €250-300 million in cost savings versus the 2014 baseline, and making a continuous push for consistent improvements in capital efficiency.
In support of our targets, we also adjusted our global organizational and operating model to create a more agile, commercially focused and cost-efficient company. We refrained from large acquisitions and focused instead on delivering value from the current portfolio and extracting value from the monetization of our joint venture partnerships.
This chapter includes an overview of the key financial metrics of the company and our performance in 2017.
In 2017, DSM delivered strong financial results again as we significantly exceeded our financial targets. Our focus on driving above-market sales growth, while relentlessly pursuing cost and efficiency improvement initiatives as well as maintaining capital discipline, continued to deliver strong results in both Nutrition and Materials.
DSM reported net sales of €8,632 million, an increase of 9% versus 2016. Group organic sales growth was 9%, mainly driven by a strong volume growth of 7%, clearly above market. All businesses, both in Nutrition and Materials, contributed well to this growth. Prices were overall slightly up, partly offset by somewhat weaker currencies.
Adjusted EBITDA grew by an impressive 15% to €1,445 million, far ahead of the high single-digit growth target we originally set with Strategy 2018. Strong EBITDA growth in the business was also supported by our cost-reduction and efficiency improvement programs, which progressed as planned and are on track to deliver the targeted benefits. DSM achieved run-rate cumulative gross cost savings of about €195 million by the end of 2017. In the first two years of Strategy 2018, we have increased our Adjusted EBITDA by €370 million or 34%. Overall Adjusted EBITDA margin for 2017 was 16.7%, an increase of 80 basis points versus the 15.9% of 2016.
x € million
Adjusted operating profit
Adjusted net profit
Net profit attributable to equity holders of Koninklijke DSM N.V.
ROCE (in %)
Adjusted EBITDA margin, (in %)
Return on Capital Employed (ROCE) was also well ahead of target, up 190 basis points to 12.3% in 2017 versus 10.4% in 2016. Since the kick-off of our successful Strategy 2018, ROCE is up 470 basis points versus end of 2015.
Capital efficiency is a key driver of cash generation. One of our key focus areas continued to be the improvement in our working capital as percentage of total sales. At the end of 2017, total working capital was 17.2%, compared to 18.4% end of 2016 and clearly better than our aspiration of 'below 20%'.
Innovation plays an important role in driving both top-line and bottom-line growth. With 21% innovation sales in 2017, which we define as sales from products and solutions introduced in the last five years, we are delivering against our ambitious aspiration of 20%. In 2017, DSM also made progress on promising innovation projects that could have a wider societal impact and drive future growth. These include the Clean Cow project, the Green Ocean partnership (now called Veramaris), Stevia and Niaga®.
During 2017, we strengthened our portfolio through smaller acquisitions, including Twilmij (Dutch feed premix company), UP4® brand (probiotics for consumer health), Inner Mongolia Rainbow Biotechnology (majority stake in hydrocolloid solutions for human nutrition), BioCare (probiotics for consumer health), Sunshine (solar photovoltaic backsheet technology) and Amyris' production facility in Brazil (for bio-based farnesene). Furthermore, DSM made an equity investment in Amyris, Inc. (USA) and entered into a development arrangement for bio-based nutritional ingredients.
During the year, DSM also extracted significant value with the sale of the remaining stake in Patheon to Thermo Fisher Scientific Inc., bringing the total cash proceeds from the exit from our former pharma custom manufacturing activities to approximately €2 billion over the years. The remaining two partnerships, DSM Sinochem Pharmaceuticals and ChemicaInvest, both showed solid results in 2017.
Net sales and Adjusted EBITDA
At €8,632 million, net sales in 2017 were 9% higher than in 2016 (€7,920 million). Organic growth was 9%, driven by both Nutrition and Materials. Volume development accounted for a 7% increase, while price/mix had a 2% positive effect on growth compared to 2016. Exchange rate fluctuations had a negative impact of 1%, balancing out a 1% positive effect from acquisitions and consolidations.
Sales growth was strong among all regions, with favorable high-single digit growth in Western Europe as well as in North and Latin America. We performed well in Brazil, despite the disruption caused by the meat scandal that impacted the market for beef and poultry exports, and against a backdrop of economic uncertainty.
Double-digit sales growth was achieved in China, India and Eastern Europe. All high-growth economies together currently represent 44% of DSM's sales (45% when Africa is included), which is in line with 2016. The share of sales in these economies as a proportion of DSM's total sales gives us a well-balanced global footprint.
Adjusted EBITDA (Adjusted operating profit before depreciation and amortization) increased by 15% or €183 million, from €1,262 million in 2016 to €1,445 million in 2017.
Adjusted EBIT (Adjusted operating profit) rose from €791 million in 2016 to €957 million in 2017, up 21%.
x € million
Net profit attributable to equity holders of DSM increased by €1,148 million to €1,769 million. This increase was mainly a result of the higher Adjusted EBITDA (up €183 million) and the sale of DSM's share in Patheon (€1,250 million) and other differences in APM adjustments (-€175 million), see below. Expressed per ordinary share, net earnings amounted to €10.07 in 2017 (2016: €3.52).
Financial income and expense decreased by €29 million year over year to €104 million mainly caused by higher results on derivatives and on other participating interests.
The reported effective tax rate over Adjusted taxable result 2017 was 16.8% (2016: 18.3%). This decrease was mainly caused by a one-time benefit from the US tax reform.
Adjustments made in arriving at DSM's Alternative performance measures (APM adjustments)
Total APM adjustments for the full year amounted to a profit of €1,075 million, consisting of a profit regarding associates and joint ventures of €1,158 million (mainly due to the gain of €1,250 million on the sale of the shares of Patheon N.V. and impairments at associated companies of €95 million), offset by €60 million in restructuring costs related to the ongoing cost-reduction programs, €26 million relating to demolition, site closure and relocation cost, €14 million of impairments and €11 million of acquisition/divestment-related and other costs, with a tax benefit of €28 million.
Cash flow statement
x € million
Cash and cash equivalents at 1 January
Cash flow provided by operating activities
Cash from / (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 (€1,348 million) less various cash-out items including income tax of €66 million and defined benefit plans of €61 million, and changes in working capital of €237 million. Our focus on cash flow resulted in a full-year operating cash flow of €996 million, which is slightly below the comparative period in 2016, fully due to operating working capital (OWC) development as a result of higher net sales. See also Consolidated financial statements.
The cash from investing activities included the sale of the shares of Patheon N.V. (€1,535 million), partly offset by capital expenditures (€547 million) and various acquisitions (€242 million).
The cash used in financing activities consisted mainly of the repayment of long-term loans (€818 million), dividend paid (€200 million), interest paid (€135 million) and repurchase of shares (€297 million).
For the full cash flow statement, see Consolidated cash flow statement (Note 26) (Note 26).
The balance sheet total (total assets) reached €12.8 billion at year-end (2016: €13.0 billion). Equity increased by €885 million compared to the position at the end of 2016. This increase was mainly due to the result on the sale of the shares of Patheon N.V. of €1,250 million, offset mainly by net foreign exchange differences of €637 million. Equity as a percentage of total assets increased from 48% to 55%.
Compared to year-end 2016, net debt decreased by €1,328 million to €742 million. The gearing at year-end was 10%, a significant decrease compared to 25% at year-end 2016.
Capital expenditure on intangible assets and property, plant and equipment amounted to €586 million in 2017 (€546 million on a cash basis), which was 17% higher than the level of amortization and depreciation in support of the high organic growth.
Total working capital amounted to €1,499 million compared to €1,481 million at year-end 2016, which represents 17.2% as a percentage of annualized fourth quarter 2017 sales (2016: 18.4%), comfortably below our aspiration of 20%. Cash-wise, the OWC increased by €195 million related to organic growth. In absolute terms OWC was stable in 2017, as the increase of OWC related to organic growth (9%) was largely compensated by the weakening of mainly USD and CHF. The OWC percentage improved from 23.9% at year-end 2016 to 22.3% of annualized sales at year-end 2017.
Cash and cash equivalents came to €899 million at the end of the year; including current investments, this came to €1,853 million (2016: €1,548 million). Next to the regular cash flow, this increase was mainly attributable to the sale of the shares of Patheon N.V. (€1,535 million), partly offset by the repayment of long-term loans (€818 million) and the various acquisitions (€242 million).
Balance sheet profile
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x € million
Property, plant and equipment
Other non-current assets
Cash and cash equivalents
Other current assets
Other non-current liabilities
Other current liabilities
Total equity and liabilities
It is great to see how much impact our growth initiatives, as well as our cost-saving and efficiency improvement programs, have had since 2015. In 2018 we’ll focus on anchoring the new organization and delivering the full benefits.
Geraldine Matchett, CFO
DSM expects to deliver full-year 2018 results above the targets set in Strategy 2018, with an Adjusted EBITDA growth somewhat up from high single-digit to double-digit and a ROCE growth above 100 basis points. The expected substantial negative foreign exchange effects, based on current rates, will be more than offset by a positive pricing environment in Nutrition, part of which is temporary in nature and expected to be heavily weighted towards the first half of the year.