3 Change in the scope of the consolidation

Acquisitions

In 2020, DSM acquired businesses for a total consideration of €1,579 million (in 2019: €585 million).

Glycom

On 1 April 2020, DSM Nutritional Products acquired 100% of the shares of human milk oligosaccharides (HMO) manufacturer Glycom A/S for a cash consideration of approximately €695 million (base purchase price €765 million, net debt -€74 million, difference in net working capital +€4 million). Glycom is a Danish company with more than 150 employees, founded in 2005, and is the only fully-integrated HMO provider in the world. The company sales are predominantly with Nestlé and are governed by a mutually beneficial long-term contract with firmly committed volumes also covering the mid-term horizon.

In accordance with IFRS 3 (Business Combinations), the purchase price was allocated to identifiable assets and liabilities acquired, resulting in a non-tax-deductible goodwill amount of €340 million, technology intangible assets of €360 million and customer relationships of €80 million.

The acquisition of Glycom contributed €43 million to net sales, -€5 million to operating profit and €21 million to Adjusted EBITDA during a period of nine months in 2020. If the acquisition had occurred on 1 January 2020, additional net sales would have been approximately €58 million, operating profit -€7 million and Adjusted EBITDA €27 million.

Erber Group

On 1 October 2020, DSM Nutritional Products acquired 100% of the shares of the Erber Group’s specialty animal nutrition and health businesses, Biomin and Romer Labs, for an enterprise value of €980 million. The Erber Group specializes primarily in mycotoxin risk management, gut health performance management, and food and feed safety diagnostic solutions, expanding DSM’s range of higher value-add specialty solutions. With state-of-the-art research and manufacturing facilities and approximately 1,400 employees around the world, the acquisition of Erber Group is a unique strategic opportunity that provides revenue-enhancing synergies from the combined offering, global customer base, and complementary geographic strengths.

In accordance with IFRS 3, the purchase price amounting to €884 million was provisionally allocated to identifiable assets and liabilities acquired and is based on a draft initial purchase price allocation prepared by an independent valuator. Completion of the independent valuation process is expected in the second quarter of 2021. Main intangibles provisionally recognized are customer relationships for about €243 million and technology for €106 million. The acquisition is expected to result in non-tax-deductible goodwill to the amount of €522 million.

The acquisition of the Erber Group contributed €81 million to net sales, €7 million to operating profit and €18 million to Adjusted EBITDA during a period of three months in 2020. If the acquisition had occurred on 1 January 2020, additional net sales would have been approximately €328 million, operating profit €34 million and Adjusted EBITDA €76 million.

Total acquisitions

In aggregate, the acquisitions in 2020 contributed €124 million to net sales, €2 million to operating profit and €39 million to Adjusted EBITDA. If all acquisitions had occurred on 1 January 2020, additional net sales would have been approximately €386 million, operating profit €27 million and Adjusted EBITDA €103 million.

Finalization PPAs of CSK and Yimante

In the reporting year, the Purchase Price Allocation (PPA) for CSK was finalized, resulting in an allocation of €89 million to intangible assets mainly for customer relations and technology (strains and cultures database), and a decrease of the goodwill amount from €114 million to €26 million. The PPA of Yimante was finalized in 2020, but the changes were not material.

The goodwill recognized for the CSK acquisition is for the major part deductible against corporate income tax in the Netherlands. The goodwill recognized for the other acquisitions in 2020 is not deductible against corporate income tax.

Valuation techniques intangible assets

Part of a Purchase Price Allocation is the recognition of intangible assets which are recognized apart from goodwill. The valuation techniques DSM used for measuring the fair value of these intangible assets in 2020 were as follows:

The acquired technology was valued by applying the multi-period excess earnings method (MEEM) considering the present value of net cash flows expected to be generated by the technology and customer relationships; and by applying the relief-from-royalty method, an income approach whereby the value of an asset is estimated by capitalizing the royalties saved as a result of owning the asset.

The fair values of customer relationships and supply agreements were determined by applying the MEEM and via the replacement cost approach, measuring the cost necessary to (hypothetically) recreate these intangible assets.

Trade names and databases were valued applying the relief-from-royalty method.

Acquisitions 2020

The accounting of the acquisitions upon closing in 2020, and the changes to the provisional accounting of the acquisitions closed in 2019, impacted DSM’s consolidated balance sheet 2020 as shown in below table (measured at the date of acquisition).

Assets and liabilities held for sale and Discontinued operations

Following the agreement that was signed on 30 September 2020 to sell the Resins & Functional Materials and associated businesses (together ‘RFM’) to Covestro AG, DSM reclassified on the same date the results of these businesses (the ‘disposal group’) to ‘discontinued operations’, and reclassified all related assets and liabilities as held for sale.

These reclassified business results include also intercompany recharges that will cease to be earned/incurred on disposal of RFM. Corporate costs have been excluded from the reclassification to discontinued operations. The comparative numbers in the Income statement and OCI are re-presented as if the operation had been discontinued from the start of the comparative year 2019. The related assets and liabilities of the disposal group on 31 December 2020 have been reclassified as held for sale. Completion of the announced transaction, which is subject to the customary conditions and approvals, is expected in the first half of 2021. Before reclassification, these activities were reported in the segment Materials, apart from the solar coatings activities which were reported in Innovation.

Impact on balance sheet

The impact of the reclassification of these activities on the DSM consolidated balance sheet is presented in the following table.

Impact on comprehensive income

The impact of the business that has been reclassified as held for sale on the income statement and statement of comprehensive income, is presented in the below tables.

Impact on cash flow statement

The impact of the business that has been reclassified to held for sale on the cash flow statement is presented in the following table.

Other changes

In 2020, the following changes in DSM’s share in subsidiaries occurred without impacting the classification of the participations.