2019Review of business

Innovation

DSM Innovation Center

The DSM Innovation Center has two functions. The first is to help develop new business, focusing on areas outside the current scope of the company's business groups. The Innovation Center identifies and invests in new and innovative growth options, initially through the Business Incubator and then by developing and extracting value through the Emerging Business Areas (EBAs).

The Innovation Center's second function is to accelerate the innovation power and speed of our core businesses. In this role, it supports all of DSM's businesses through the Excellence in Innovation Program, DSM Venturing, and the IP & Licensing department. In addition, the Chief Technology Officer, acting through the Science & Technology Department, ensures the quality of the total R&D competence base, including monitoring and ensuring access to early-stage technologies with disruptive potential through the Corporate Research Program. Our innovation community also lays the groundwork for future opportunities by identifying rising stars within the current innovation pipeline and considering how longer-term, purpose-led innovation projects could offer solutions for Nutrition & Health, Climate & Energy, and Resources & Circularity.

Full-year 2019 sales were up 13%, with 9% organic growth and a 4% contribution from exchange rate effects. Biomedical reported strong sales growth over the year. Bio-based Products & Services benefited from the license income for yeast technologies used for bio-based fuels. Solar was soft due to the challenging Chinese market.

The Adjusted EBITDA increased to €22 million, benefiting from a strong increase in license income at Bio-based Products & Services as well as a good performance of Biomedical and a positive contribution from exchange rates effects.

Creating opportunities for future earnings growth through innovation

In 2019, innovation sales across DSM amounted to 21% from sales, in line with our aspiration of around 20%. Furthermore, a strong and focused innovation pipeline of large innovation projects was created to enhance long-term growth. Examples include:

• Project Clean Cow for feed additives that reduce methane emissions from cattle

• Veramaris, creating algae-based omega-3 for sustainable aquaculture

• Avansya, the fermentative Stevia sweetener platform

• Niaga® technology for fully recyclable carpets, mattresses and furniture

• Plant-based proteins for human nutrition

• Enzymes and yeasts for 1.5G and 2G ethanol production

• Additive manufacturing

Enabling DSM's Bright Science

The ability to deliver innovative products and solutions is essential to the success of our business and our positive impact on society. The Innovation Center plays a central role in guiding, enabling and accelerating innovation and R&D across the company.

R&D is instrumental to the realization of our innovation strategy. Most of our expenditure in this area is directed to business-focused programs that underpin our science-based, sustainable solutions.

Our toolbox of scientific competences is grouped into seven areas: analytical, biological, chemical, engineering, macromolecular, materials, and nutritional sciences. These seven areas are key to our continued success. The Science & Technology department ensures that we have the right combination of skills, capabilities and partners to deliver on our competences.

We have more than 30 laboratories spread across ten countries, and our science network comprises about 1,900 internal scientists, including 23 professors and academic associates, distributed around the globe. These employees co-operate with more than 100 universities and external R&D institutions worldwide, both in public-private partnerships and in academic collaborations such as with the Massachusetts Institute of Technology (MIT) and Delft University of Technology, see 'Innovation partnerships'.

Our collaborative approach increases our scientific scope and helps us make joint scientific contributions to address significant scientific and societal challenges. We participate in more than 200 academic networks, more than 80 industry networks, and more than 40 public-private partnerships (PPPs) in the fields of Nutrition, Health and Sustainable Living.

We continue to increase our investments in the digital transformation of our R&D capabilities. This includes making our collective organizational knowledge more easily available across the entire R&D organization, using artificial intelligence, deep learning and modeling, as well as extending lab automation. These investments are accelerating our core processes, increasing our operational efficiency and improving the speed of our innovation processes and delivery.

We also continue to recognize, reward and nurture scientific talent. The Bright Science Awards reward excellence in PhD research in areas of particular interest to DSM's strategy. Winning a Bright Science Award gives PhD graduates not only financial recognition for their achievements, but also a platform to make a name for themselves in their chosen discipline. The program helps participants make the vital connection between scientific achievement and commercial and industrial success — an increasingly important consideration.

As an innovative, science-based company that seeks a strong and diverse talent pipeline in the sciences, we are running an ongoing campaign to advocate for more women in Science, Technology, Engineering and Math (STEM) professions across the globe. In 2019, we published a progress report in which we explain how DSM is accelerating gender equality and inclusion across our own science & technology workforce — as well as share our vision of what the world should do to stop women being lost from the STEM talent pipeline. By sharing some of our experiences and insights gained in recent years from both company initiatives and women and men working at DSM today, via videos, blogs and debates, we hope to spark a debate and encourage the industry to join us.

In 2019, we celebrated 150 years of fermentation and biotechnology expertise and innovation at our site in Delft (Netherlands). To mark the occasion, DSM and the world's first museum of microbes, ARTIS-Micropia, presented a unique 'pop-up' experience titled 'Small Life, Big Impact: microbes shape our world', which was from September to December. More than 10,000 people, including some 1,500 school children, visited the experience center to learn about the crucial role microbes and biotechnology play in enabling life on earth, as well as in tackling some of the world's greatest challenges including climate change, resource scarcity, circularity, and enabling healthy nutrition for a fast-growing global population. Building on the strong foundation of our predecessors, the Royal Dutch Yeast and Spirits Factory and Royal Gist-brocades, our biotechnology competences today remain an essential pillar for innovation and a driver for growth. Around 20% of our company's total sales are currently derived from biotechnology.

At DSM, we regularly connect with our international Scientific Advisory Board. Acting under the supervision of the Chief Technology Officer, the Board provides valuable perspectives and insights, challenges and reviews our scientific work, and gives advice on trends and upcoming disruptive technologies. The Scientific Advisory Board comprises seven internationally recognized experts in the fields of materials, biotechnology and nutrition, drawn from leading universities in the US and Europe.

DSM Venturing

DSM Venturing invests in innovative companies in areas strategically relevant to our current and future businesses. Every year, we review more than 500 new candidates. In 2019, we made seven new venturing investments, many follow-on investments, and generated several collaboration leads between start-ups and businesses at DSM. By the end of the year, our portfolio had grown to more than 35 start-ups (2018: 30). We completed several exits, including a significant financial exit from ingredients company Isobionics, and also supported accelerator programs. Together with DSM Additive Manufacturing and several external partners, the DSM Venturing team led the 'I AM Tomorrow' Challenge for start-ups and scale-ups focused on data analytics, Artificial Intelligence and other advanced software solutions for large-scale 3D printing.

For more information on DSM Venturing, see the company website.

IP & Licensing

IP & Licensing is a global group of qualified IP professionals who protect DSM's innovations by securing patents and trademarks. This group also includes certified licensing professionals who offer expertise for intellectual property-intensive deals across all DSM businesses, including joint development agreements, technology acquisitions and sales, and in-, out- and cross-licensing deals. DSM filed 277 patents in 2019. This reflects our continued focus on innovation projects with higher potential for business impact.

Emerging Business Areas

Our EBAs provide strong, long-term growth platforms in promising end-markets that are based on the company's core competences. We have three EBAs:

• DSM Biomedical

• DSM Bio-based Products & Services

• DSM Advanced Solar

DSM Biomedical

DSM Biomedical is a trusted partner to the global medical device industry, enhancing the quality and delivery of healthcare, and shaping the future of biomaterials and regenerative medical devices. Every second, a patient somewhere in the world receives a medical device containing a biomedical solution from DSM.

Key trends shaping the global medical device industry in 2019 included:

• The continuing shift toward value-based reimbursement with market success for products that have proven clinical and health economic outcomes

• The continuing rise in demand for healthcare services

• The continuing increase of merger and acquisition activity in the MedTech sector

• Medical Device Regulation (MDR) changes in the EU that require companies to comply with growing requests for clinical data as well as technical documentation covering devices

More broadly, the aging of the global population, the increasing incidence of lifestyle diseases, and the growing demand for sustained quality of life and need for quality healthcare services continue to create opportunities for DSM Biomedical.

Through our investment in research and our state-of-the-art capabilities, we create, develop and produce innovative materials for our partners, along with components, sub-assemblies and full medical devices. Our technology portfolio of high-quality, advanced healing solutions includes biomedical polyurethanes and polyethylenes, resorbable polymers, bioceramics, collagens, extracellular matrices, device coatings, and cellular therapy platforms. These are used in applications in some of the world's most attractive high-growth markets, including orthopedics, soft tissue repair, cardiology, diabetes management, and general and reconstructive surgery.

Our collaboration with Aerie Pharmaceuticals progressed significantly in 2019, with the first clinical trial of the AR-13503 Sustained Release Implant in patients with neovascular age-related macular degeneration or diabetic macular edema.

Using our Colossis^TM technology, the global medical device company Arthrex launched its new fast-setting synthetic bone void filler, BoneSync^{TM 1} calcium phosphate cement in 2019. A key benefit of the BoneSync^TM bone void filler is that it sets in 5–8 minutes. It also offers improved handling in preparation and delivery and can be mixed with saline, blood and bone marrow aspirate, allowing affordable, easy-to-use, fast remodeling, settable and drillable solutions to bone fractures.

In 2019, we entered into a partnership with Strait Access Technologies (SAT), a medical device company focused on innovations for the heart, to develop the world's first-ever durable and cost-effective transcatheter replacement heart valves equipped with polymeric leaflets. For more information, see 'Case studies Innovation'.

DSM Bio-based Products & Services²

As the world looks for alternatives to fossil resources, there are significant commercial opportunities in biofuels and bio-based alternatives to chemical building blocks. DSM Bio-based Products & Services pioneers advances in biomass conversion and seeks to demonstrate the commercial viability of sustainable, renewable technologies in collaboration with strategic partners in the value chain.

In particular, we have developed patented bioconversion technologies (yeast and enzymes) for various feedstocks and processes including starch-based, corn-fiber-based and cellulosic conversion for the biofuels industry. We deliver unique and differentiating technologies that enable biofuel plant operators to optimize their processes and maximize their yield and co-product creation for more sustainable, profitable production of biofuels. Our yeast technology for starch conversion has been demonstrated to provide consistent, increased ethanol yields at commercial scale while improving the value of distillers' dried grains with solubles, an important side stream.

Starch- and corn-fiber-based biofuel

Following the 2018 launch of eBOOST™, a proprietary yeast for corn-ethanol production, we launched two new solutions in 2019, eBOOST™ GT and eBREAK™ 1000F, for starch-based and corn-fiber-based biofuels, respectively. eBOOST™ GT adds value for starch-based biofuels producers by reducing the levels of glucoamylase that must be added to fermentations by up to 60%. eBREAK™ 1000F facilitates high-yield hydrolysis for corn fiber conversion and optimizes plant economics. In 2019, we also created recurring income by licensing part of our unique portfolio of patented technologies.

Cellulosic bio-ethanol

Since 2011, POET-DSM Advanced Biofuels, our joint venture with POET, has been a pioneer in the production of cellulosic biofuels made from corn stover. The joint venture recently announced that it will pause the production of cellulosic biofuels at Project LIBERTY in Emmetsburg (Iowa, USA) and shift its focus to R&D. The focus is now on improving mechanical reliability, creating additional technological efficiencies and licensing technology in countries which favorably support the use of low-carbon fuels from crop residue and other biomass.

DSM Advanced Solar

Solar photovoltaic capacity continues to grow more rapidly than any other power source, fossil or renewable. DSM Advanced Solar aims to accelerate the uptake and effectiveness of solar energy by focusing on the development and commercialization of technologies and materials that increase the efficiency of solar modules. Increased efficiency reduces the cost of energy delivered.

In 2019, we introduced our new Endurance backsheet, which offers all-round performance and 100% recyclability combined with superior durability. In early 2019, this innovative backsheet received the TÜV All Quality Matters award, in recognition of its excellent performance in desert-like environments.

Our strategic alliance with Silfab in conductive backsheets progressed well during 2019. The alliance uses back-contact technology to produce high-power, aesthetically pleasing solar modules for the residential market. We celebrated the official opening of the 150 MW high-power module production line in Bellingham (Washington State, USA). In October, we reached the milestone of the production of the first 100,000 conductive backsheets.

In 2019, we launched Retrofit anti-reflective (AR) coating in Italy and Germany, following a trend to repower existing older solar parks. This spray-on coating, which delivers up to 3% extra solar power, is a derivative of our leading AR coating, which has been applied to more than 250 million solar panels worldwide to date. In this area, we are partnering with operations & maintenance companies Stern Energy and greentech, which have applied this coating on multiple large utility-scale solar parks.

DSM Business Incubator

The DSM Business Incubator explores potential future business opportunities in areas with a close link to our technologies and competence base. Platforms are created within the scope of securing society's food, health and energy requirements. This occurs in close collaboration with industry partners and existing and potential customers. The Business Incubator feeds our new product pipeline with opportunities that address previously unmet customer needs.

In 2019, we announced a collaboration with the agro-industrial group Avril (France) to produce CanolaPRO®, a unique protein based on non-genetically modified canola. The properties of CanolaPRO® make it ideal for a range of applications including meat and dairy alternatives, beverages, baked products, bars and ready-to-mix. For more information on CanolaPRO®, see 'Case studies Innovation'.

Our partnership with Syngenta for the joint development of microbials for crop protection agents continued successfully in 2019 with the discovery of several biofungicide leads on major plant diseases.

We launched Purpose-Led Innovation, an initiative to help develop the next innovation platforms for our future pipeline. Our efforts focused on Nutrition & Health, Climate & Energy and Resources & Circularity, drawing additional inspiration from major cities such as Singapore, Jakarta (Indonesia), and Lagos (Nigeria).

Innovation partnerships

We have many partnerships that support and accelerate innovation. Highlights include our involvement in MIT.nano, a ground-breaking academic nanotechnology laboratory at the heart of the MIT campus (Boston, USA). We are engaged with this state-of-the-art facility through common research programs and the exchange of scientists. We joined the PPP Soft Advanced Materials, funded by the Dutch Research Council (NWO). As materials play a pivotal role in addressing pressing global issues, we continue to focus on finding new, improved materials that are not only lighter, smarter and more affordable, but also 'greener' — supporting the transition to a low-carbon, circular economy.

Other examples include our ongoing partnership with Syngenta, in which we are developing and commercializing a range of agricultural solutions that are based on naturally occurring microorganisms rather than synthetic solutions. In addition, we started the collaboration with French agro-industrial group Avril to produce CanolaPRO®, and we have a strategic alliance with Silfab in conductive backsheets for solar panels, as described above.