DSM Integrated Annual Report 2020

Long-term strategy

Long-term strategy (graphic)

With our long-term strategy, we are continuing our evolution as a purpose-led, science-based company operating in the fields of Nutrition, Health and Sustainable Living. Our strong growth capacity is anchored in developing customer-centric, innovative solutions addressing Nutrition & Health, Climate & Energy, and Resources & Circularity. At the same time, we are increasing operational excellence, managing costs, and accelerating profit growth and cash generation. We will continue to make suitable acquisitions to strengthen and develop critical capabilities and to support organic growth, predominantly in Nutrition.

In Nutrition, we focus on human nutrition & health (specialty nutrition, nutritional ingredients, consumer-branded products, personalized nutrition), food & beverages (specialty food enzymes, cultures, probiotics, bio-preservation, hydrocolloids, sugar reduction, and savory taste solutions), personal care and aroma ingredients and animal nutrition & health (core vitamins, premix solutions, and specialty feed additive solutions, including mycotoxin risk management solutions and diagnostics).

In Materials, we will further develop into a resilient higher-growth, high-margin specialty business, and focus on three Sustainable Living growth-platforms Improved Health & Living, Green Products & Applications, and New Mobility & Connectivity.

By improving the impact of our own operations, enabling sustainable solutions for our customers, and advocating sustainable business models, we make a positive contribution toward achieving the Sustainable Development Goals while at the same time supporting our growth and profitability and improving our risk profile.

Mid-term targets and ambitions

We have set two ambitious targets for profit growth and cash generation to drive value creation for the period 2019–2021:

We are committed to mid-single-digit organic sales growth. Key drivers to deliver this sustained growth are innovation, commercial synergies from our recent acquisitions on top of our underlying market growth, and the expansion of our customer-centric solution offerings.

We will continue to leverage our unique technology platforms to develop innovative and sustainable solutions in Nutrition & Health, Climate & Energy, and Resources & Circularity. We aim for 20% of our annual sales to come from innovation.

The following table describes our mid-term 2019–2021 financial targets and the ambitions that underpin them:

Financial targets (graphic)
1 Based on 2018 underlying business defined as Sales and Adjusted EBITDA corrected for our best estimate of the temporary vitamin effect.
2 Adjusted net operating free cash flow is the cash flow from operating activities, corrected for the cash flow of the APM adjustments, minus the cash flow of capital expenditure and drawing rights.

Our cash allocation policy remains unchanged and has a clear order of priority for cash deployment:

  • Disciplined capital expenditure for organic growth: approximately 6.5% of annual sales
  • A stable, preferably rising dividend
  • Disciplined M&A, predominantly in Nutrition
  • In the absence of value-creating M&A, capital to be returned to shareholders

We remain committed to maintaining a strong, investment-grade credit rating. With our dividend policy of a stable, preferably rising dividend, we target an average payout of 40–50% of adjusted earnings.

We will target M&A predominantly in Nutrition, given this business’s unique growth potential, resilience, strong leadership position and capacity for value creation.

Adjusted net operating free cash flow
The cash flow from operating activities, corrected for the cash flow of the APM adjustments, minus the cash flow of capital expenditures and drawing rights.
Capital expenditure
This includes all investments in intangible assets and property, plant and equipment.
Earnings before interest, tax, depreciation and amortization (EBITDA)
EBITDA is the sum of operating profit plus depreciation and amortization. Adjusted EBITDA is the EBITDA adjusted for material items of profit or loss coming from acquisitions/divestments, restructuring and other circumstances that management deem it necessary to adjust in order to provide clear reporting on the development of the business.