DSM Integrated Annual Report 2020

Introduction by the Chair of the Remuneration Committee

On 15 February 2020, our Co-CEOs took over the leadership of the company and were almost immediately confronted with one of the biggest challenges in recent history: the COVID-19 pandemic. Market conditions changed considerably and business priorities had to be adapted to reflect the new situation. The immediate priority was to safeguard the safety, health and well-being of our employees at all times and to secure, wherever possible, deliveries to our customers by keeping our facilities up and running.

Our businesses were impacted by the pandemic, with Nutrition overall performing well in this environment and Materials being significantly affected. Actions were taken in a timely manner to protect profitability and cash flow generation while we continued to execute on our long-term strategy. During the year, we completed two acquisitions within Nutrition (Glycom and the Erber Group businesses), and announced the divestment of our Resins & Functional Materials businesses to Covestro AG. During the same period, we also completed two global programs aimed at streamlining our operations and at generating stronger growth. In the second half of the year, we saw Nutrition continuing to perform well, although impacted somewhat by foreign exchange headwinds, and we saw a more positive pick-up of momentum for Materials as of September.

DSM is recognized as a purpose-led company, creating long-term value for all its stakeholders and society at large across the three dimensions of People, Planet and Profit. Our scientific expertise and innovation capabilities help us to find answers to some of the world’s biggest challenges and to grow our business at the same time. In view of this and related to the COVID-19 pandemic, DSM has focused on the safety, health and well-being of our workforce whilst safeguarding business continuity.

Throughout the pandemic, DSM chose not to make use of government support, acknowledging that the company was not in need of such support. In addition, we supported various initiatives all over the globe to fight the pandemic, for example, by providing manufacturing capacity to produce disinfectants for use in hospitals and expediting the establishment of a joint venture to produce much-needed face masks.

In line with the company’s long-standing policy to deliver a stable, preferably rising, dividend, DSM will propose at the 2021 AGM a stable dividend following the step-up in the dividend paid in 2020, and despite the impact of the pandemic on the financial performance of the Materials businesses.

Besides various initiatives taken to safeguard our employees’ safety, health and well-being, measures were also taken to support employees who faced additional costs because of a lockdown (for example, commuting costs in locations where public transport was suspended during lockdown). All employees and their families were offered the much-needed vitamins helping to boost their immune systems.

From a reward perspective, it is to be noted that agreed terms and conditions for our employees were maintained in 2020. DSM processed the regular annual cycles, meaning that agreed CLA increases as well as individual merit increases based on individual performance were processed without any reservations, while incentive schemes were delivered in accordance with the achievement of predefined targets established early in 2020, before the start of the COVID-19 pandemic. The number of lay-offs directly related to the COVID-19 pandemic were very limited.

DSM’s Remuneration policy for the Managing Board is fully aligned with the deployment of the company’s strategic objectives. The design of our short- and long-term incentive plans emphasizes the importance of building long-term growth opportunities in the domains of Health, Nutrition and Sustainable Living. Targets on energy efficiency and greenhouse gas emission reduction, building our portfolio of Brighter Living Solutions, underpin our commitment to sustainability, while ensuring financial performance in line with our key strategic goals (Adjusted EBITDA and Adjusted Net Operating Free Cash Flow) and safeguarding employee safety and engagement.

In addition DSM continued to deliver improvements in customer-centricity, large innovation projects, cost control and operational excellence, resulting in sound results, reflected in the remuneration as presented in this report.

The Supervisory Board has taken a balanced approach with regard to the remuneration of the Managing Board. In 2020, due to the high uncertainty prevalent at the start of the year, no base salary increase was applied for the Managing Board and the Executive Committee. In this respect, it should also be noted that our Co-CEOs’ remuneration was positioned below the level of the previous CEO. After careful consideration, the goals and targets set for the 2020 incentive plans that had been set prior the global pandemic were not adjusted in view of the pandemic’s adverse effects. Focus was kept on finding ways to overcome these challenges and continue to progress with the deployment of our purpose-led, performance-driven strategy.

This Remuneration report provides a summary of the remuneration policy for the Managing Board Koninklijke DSM N.V. and the Supervisory Board Koninklijke DSM N.V. respectively, as well as an overview of the remuneration of the members of the Managing Board and the Supervisory Board in the financial year 2020. The full, legally superseding remuneration policy as approved by the AGM is published on the company website. This report is prepared in accordance with the relevant parts of Section 135 Book 2 of the Dutch Civil Code.

Pauline van der Meer Mohr
Chair Remuneration Committee

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.
Brighter Living Solutions

Brighter Living Solutions (BLS) is DSM’s program for the development of sustainable, innovative solutions with environmental and/or social benefits, creating shared value for our stakeholders. Brighter Living Solutions are products, services and technologies that, considered over their life cycle, offer a superior environmental impact (ECO+) and/or a superior social impact (People+) when compared to the mainstream alternative for the same application. The impact of Brighter Living Solutions can be realized at any stage of the product life cycle, from raw materials through the manufacturing process to potential re-use and end-of-life disposal.

Within the program, DSM conducts an annual ‘Product Category Sustainability Review’ for all product categories. This review identifies environmental and social impact differentiators and risks for each of our product categories and confirms the mainstream reference solution. To substantiate the identified differentiators DSM uses comparative Life Cycle Assessments (LCAs) and/or expert opinions to determine whether a product has a superior performance and can be identified as a Brighter Living Solution.

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.

Primary energy is energy that has not yet been subjected to a human engineered conversion process. It is the energy contained in unprocessed fuels.

Final (consumed) energy is the energy that is consumed by end-users. The difference between primary energy and final consumed energy is caused by the conversion process between the two as well as any transmission losses.