Materials

x € million
2017
2016
   
Net sales:
  
DSM Engineering Plastics
1,448
1,312
DSM Dyneema
332
297
DSM Resins & Functional Materials
1,045
904
   
Total
2,825
2,513
   
Organic sales growth (in %)
13
(1)
Adjusted EBITDA
488
435
Adjusted operating profit
361
311
Capital expenditure
124
106
Capital employed at 31 December
1,786
1,807
ROCE (in %)
20.0
17.6
Adjusted EBITDA margin (in %)
17.3
17.3
R&D expenditure
130
124
   
Workforce at 31 December (headcount)
4,635
4,460

Business

DSM's Materials cluster consists of DSM Engineering Plastics, DSM Dyneema and DSM Resins & Functional Materials. DSM is a global player in specialty plastics for the electrical components and electronics, automotive, flexible food packaging and consumer goods industries. The materials portfolio also includes Dyneema®, the world's strongest fiber™, as well as resins for paints, industrial applications and optical fiber coatings. For more information on DSM's Materials cluster, see the DSM Factbook on the company website.

Materials cluster performance

The Materials cluster delivered another year of strong financial performance, continuing the excellent progress made since the start of Strategy 2018. The 'silent transformation' of the materials portfolio through a differentiated approach focusing on specialty products, provides a clear framework to outpace market growth and supported the cluster's performance again in 2017. Growth continued to be driven by demand for more sustainable, innovative, lightweight, environmentally friendly, safer and higher performing solutions.

Full year 2017 sales were up 12% versus the same period last year. Strong growth in specialties was the main driver behind the 13% organic growth, of which 7% was volume growth. The 6% price effect reflected increased input costs. All three businesses in Materials delivered a double-digit percentage organic growth.

Full year 2017 Adjusted EBITDA increased by 12% versus 2016, driven by higher volumes. The Adjusted EBITDA margin was stable at 17.3% as pricing and group-wide cost-saving and efficiency improvement programs offset higher input costs and negative foreign currency effects. This robust financial performance demonstrates the improvements achieved in the quality of returns in Materials over recent years.

Our differentiated growth strategy has delivered a major step-up for the Materials cluster.

Dimitri de Vreeze, DSM Managing Board

materials bridge

Trends

The trend to replace traditional materials by more sustainable alternatives continues. Customers want materials that improve the environmental footprint of their own operations and across their value chains, especially in the areas of energy use and emissions. This trend is driven by concerns over climate change, higher expectations from end-users and stricter government policies.

A better environmental footprint cannot be achieved at the expense of performance, however. On the contrary, DSM's materials must perform better than ever and sometimes in entirely new ways. Today our products are lighter, tougher, harder or softer, more durable, more versatile or more recyclable to meet the demands of designers, process engineers and manufacturers whose ambitions keep rising.

Additionally, people everywhere are increasingly aware of safety, including safe manufacturing and product safety. For example, DSM Engineering Plastics and DSM Resins & Functional Materials offer solutions that eliminate or reduce the use of hazardous substances in plastics and paints. The safety trend also includes a greater focus on personal safety. Dyneema®, the world's strongest fiber™, is ideal in applications such as protective apparel for sports, outdoor recreation and law enforcement.

Sustainability & Innovation

The main growth drivers of our Materials cluster are sustainability and the shifts in demand that are happening worldwide as a result of megatrends. Our high-performance specialty products are designed to help customers be more sustainable while offering benefits that go beyond traditional materials. For example, the future of transportation will require higher performing and more complex materials for new autonomous, lightweight and more energy-efficient automotive designs. Materials are also playing a role in other areas such as renewable energy generation and storage, 3D printing, more sustainable packaging and advanced healthcare applications both in and outside of the body.

Increasingly our innovation projects address solutions for a more circular economy. According to the Ellen MacArthur Foundation, the circular economy is one that is "restorative and regenerative by design, and which aims to keep products, components and materials at their highest utility and value at all times". DSM-Niaga is an excellent example. For more information on Niaga®, see DSM Resins & Functional Materials.

The recent opening of our Materials Science Center, a cross-company platform for state of-the-art know-how, has increased our innovation capabilities. The center has also improved collaboration, especially with DSM Biomedical and DSM Advanced Solar, two of DSM's Emerging Business Areas that offer attractive growth prospects in the longer term.

Another exciting development for Materials innovation in 2017 was the technology partnership agreement with Toyota Motorsport GmbH. Toyota Motorsport is a high-performance development, testing and manufacturing company that offers a wide range of technical services as well as its affiliation with various motorsports. Through the agreement, they will develop and pilot new engineering solutions using DSM's range of high-performance materials and products for the automotive sector including engineering plastics, Dyneema®, additive manufacturing (3D printing) and other technologies.

Materials Strategy

Strategy

In 2017, we continued with our differentiated growth strategy. For our relatively new portfolio of innovative high-performance plastics, functional materials and high-performance fiber solutions, we are accelerating growth. For our established portfolio of specialty resins, engineering plastic compounds, and solutions for life protection, we are targeting stable growth. For our more mature portfolio of PA6 polymers and extrusion resins, our aim is to maximize returns by efficient product and process management.

Thanks to the consistent implementation of this strategy, our businesses targeting Growth and Accelerated Growth are growing at above-average rates for their respective markets and delivering above-average profitability (see figure 'Strategy 2018 aspirations').

Additionally, in November, DSM announced a new, integrated approach for our additive manufacturing (AM) activities. We aligned all AM activities in one dedicated business unit within the DSM Materials cluster effective January 2018.

We take a balanced view of our Materials business, and therefore as we seize opportunities we also manage risks. These include:

  • feedstock price volatility (especially oil and its derivatives);
  • developments in disruptive technologies (e.g. 3D printing);
  • changes stemming from new legislation and new product and process requirements;
  • the commoditization of existing materials or market segments;
  • our own ability to develop, bring to market, and manage products that serve society's rapidly evolving needs; and
  • the influence of geopolitical and macro-economic developments.

For more information on how DSM manages risks, see Risk management.

DSM Engineering Plastics

Highlights 2017

  • Continued strong volume growth in high-performance plastics
  • Good acceptance of ForTii® Ace in market place
  • New grade of PA46 Stanyl® HGR2 validated for usage on Ford vehicles

DSM Engineering Plastics had total sales of €1,448 million in 2017 compared to €1,312 million in 2016.

DSM Engineering Plastics addresses key market trends in automotive and electronics. About 90% of cars and virtually all mobile devices currently sold contain our materials. During 2017, we continued to shift our portfolio toward higher-value, specialty materials with advanced grades and improved properties.

The quest for new forms of mobility is one of the main trends currently driving our business. We create products that help reduce the weight of vehicles, lower the friction generated by moving vehicle parts and support the transition from petrol/diesel to electric automotive power.

The other key trend shaping our business is the accelerating demand for connectivity between products, devices and applications. For example, vehicles today require more electronic components and are increasingly connected to the digital world. DSM has a proven history in both the consumer electronics industry and the automotive industry.

Driven by these trends, as well as a strong global economy, there was strong demand and strong volume growth for high-performance and engineering plastics across various industries and regions. Higher feedstock prices successfully translated into higher plastic prices, significantly increasing DSM Engineering Plastics' revenue in 2017. Our success was further supported by a more balanced market environment for our PA6 high viscosity extrusion polyamide compounds.

Our high-performance polymer ForTii® Ace, which was launched in late 2016, was well received in the market place in 2017. A versatile, next-generation polyphthalamide, ForTii® Ace is ideal for metal replacement in the automotive sector in transmission components, structural oil pans, front engine covers and other thermoplastics applications. In 2017, we started a number of metal-to-plastic conversion projects with various tier one customers and OEMs.

DSM specialties showed good volume growth across the various industries and regions. Responding to strong customer demand in consumer electronics and automotive markets, we expanded our production capacity for high-performance plastics such as Stanyl® (PA46), ForTii® (PA4T) and EcoPaXX® (PA410).

A new grade of PA46 Stanyl® HGR2 was validated for usage on Ford vehicles. This low-friction, high wear-resistance material is used in chain tensioner arms in the Ford F-150 and Mustang's iconic and innovative 5.0-liter engine, and will soon be implemented across various Ford vehicles globally.

In addition to serving the automotive and electronics sectors, DSM Engineering Plastics provides solutions to specialized industries that address a range of evolving consumer and societal needs. For example, DSM's EcoPaXX® PA410 is a bio-based polymer that can be used to support safer drinking water. Ideal for faucet components, EcoPaXX® PA410 prevents leakages, increases reliability and serves as a safe alternative to old lead-based systems.

Favorable market conditions and effective business steering delivered good volume growth for our PA6 HV extrusion polyamide compounds, especially in Asia and Russia.

DSM Dyneema

Highlights 2017

  • Continued strong growth in the personal protection market with Dyneema® Force Multiplier Technology
  • Strong growth in aquaculture
  • Launch of Dyneema® Carbon in sports, and increasing number of partnerships to develop sports and automotive applications

DSM Dyneema booked total sales of €332 million in 2017 compared to €297 million in 2016.

This business is driven by our customers' and end-users' needs for lightweight, sustainable solutions that offer extreme durability as well as improved safety and ergonomics. Dyneema® products typically replace traditional materials such as steel and aramid.

Dyneema®, the world's strongest fiber™, is 15 times stronger than steel on a weight-for-weight basis, 40% stronger than aramid and floats on water. This combination of extreme strength, lightness and high durability makes it suitable for a wide and expanding range of applications. Additionally, in the majority of its applications, Dyneema® is a Brighter Living Solution. Products made with Dyneema® are more sustainable than those made with traditional materials because Dyneema® is lighter in weight, less of the material is needed, it requires less energy in processing and in use, and it gives products a longer lifetime. It is also safer and easier in use, especially in heavy-duty applications.

DSM Dyneema has a well-established fiber business for personal protection as well commercial marine and sports applications. This business delivered double-digit growth in 2017, outgrowing the market as a whole with innovative solutions in both existing and new markets. Continued strong growth was especially noticeable in personal protection solutions, which have replaced vehicle protection as a core focus of our portfolio.

During 2017, we continued our strategy of expanding into new market segments and applications by offering a range of innovative, unique and patent-protected technologies. Examples include:

  • Dyneema® Force Multiplier Technology for comfortable, ultra-light-weight ballistic protection;
  • Dyneema® Diamond Technology, which offers increased cut protection and comfort for heavy-duty gloves; and
  • Dyneema® Max Technology for offshore deep-water crane ropes and synthetic chains.

In 2017, this business also saw strong growth in demand for applications in aquaculture nets. Designed to keep fish in and predators out, nets made with Dyneema® are easier and safer to handle than traditional nets and support more sustainable fishing techniques.

Our markets for maritime and offshore applications, showed signs of slow recovery. Meanwhile, progress was made in our applications for the renewable energy and craning markets. In the renewable energy market, for example, Dyneema® is used in ropes and lifting slings for constructing and operating onshore and offshore wind farms. Its soft, lightweight characteristics make it ideal for use around delicate blades and can speed up installation. Faster installation lowers costs and makes offshore wind energy more competitive.

The launch of new form factors and applications during 2017 provided opportunities for DSM Dyneema to capture additional value in many markets. These included Dyneema® Flexible Composites for light-weight fabrics with increased tear, puncture and abrasion performance. The year under review saw growth in outdoor applications for this product range, plus the launch of a Dyneema® fabric for protective apparel for law enforcement personnel.

Launched in 2016, Dyneema® Carbon hybrid composite for improved impact resistance and vibrational dampening in sports and automotive applications showed good uptake during 2017.

DSM is also supporting The Ocean Cleanup, an ambitious mission to rid the world's oceans of plastic. The Ocean Cleanup is designing and deploying floating barriers that collect plastic debris. We share our facilities, knowledge and networks, and we supply Dyneema®, an excellent material for tough marine environments.

DSM Resins & Functional Materials

Highlights 2017

  • Continued strong growth in fiber optics
  • First recyclable carpet with Niaga® commercialized by Mohawk and new DSM-Niaga partnership with mattress company Auping
  • Launch of bio-based wall paint from PPG using Decovery® resins platform
  • Expanded 3D printing offering

DSM Resins & Functional Materials reported sales of €1,045 million in 2017 compared to €904 million in 2016.

DSM is a global leader in the development and production of waterborne, UV and powder coating resins. These products offer clear sustainability advantages over the solvent-borne resins traditionally used in paints and coatings. In functional materials, DSM is the global leader in fiber-optic coatings. In additive manufacturing (i.e. 3D printing), DSM offers highly efficient and effective prototyping technologies which help the industry to accelerate the pace at which new products are designed and brought to market.

We are helping to build a more sustainable future together with our customers and value chain partners. As legislation continues to reduce the use of harmful substances such as volatile organic compounds (VOCs), our growth comes from anticipating changing end-user preferences and offering innovative waterborne, powder and UV resins to replace solvent-borne products. Aside from the technical benefits of the new solutions we bring to market, we ensure that our products help reduce greenhouse-gas emissions in the value chain.

DSM Resins & Functional Materials took a significant step forward during 2017 in a challenging business environment that was affected by raw material shortages in our key technologies as well as natural disasters impacting the southern US. We strengthened our position in core markets such as industrial coatings, architectural coatings and printing inks. Growth in fiber optic materials continued to be driven by demand for ever-increasing broadband speeds and strong uptake of 4G and 5G cellular networks. Strong key account management, high acceptance of powder coatings globally, and of waterborne coatings in Europe and China, are driving current growth. In China especially, a marked increase in environmental awareness is fueling demand for more sustainable coatings, benefiting our resins business.

We are also working on new Brighter Living Solutions for the circular economy, such as Niaga®. More than a product, Niaga® is a design philosophy. We redesign products from scratch so that all materials can easily be recovered and used again and again. In early 2017, DSM-Niaga partnered with Mohawk, the second-largest flooring maker in the US, to commercialize Niaga® technology for Air.o™, the world's first fully recyclable carpets. In late 2017, DSM-Niaga announced a new partnership with Auping, a bed manufacturer, to create fully recyclable mattresses.

In August 2017, DSM acquired the outstanding 49% of shares in the DSM-AGI joint venture, thereby gaining sole ownership of this Taiwan-based supplier of innovative, high-quality and environmentally-friendly UV-curable resins and other specialty chemicals. DSM originally acquired a 51% stake in DSM-AGI in July 2011 to strengthen our UV-curing technology platform.

In October 2017, global paint maker PPG launched Sigma Air Pure, a new bio-based wall paint targeting the high-end professional interior decoration market. Based on DSM's Decovery® bio-based technology, which was launched in 2016, Sigma Air Pure has an air purification effect. The paint enhances the indoor air climate of homes, offices and schools by removing up to 70% of the harmful formaldehyde from the indoor air and neutralizing it. Decovery® makes an important contribution to the EU's target to make the European paint industry 30% bio-based by 2030.

DSM's 3D printing offering was expanded in 2017 with the introduction of SOMOS® Taurus, a Brighter Living Solution and the latest innovation in our portfolio of stereolithography (SLA) materials. SOMOS® Taurus is the first durable SLA material to withstand elevated temperatures.