1 General information

Unless stated otherwise, all amounts are in € million.

A list of DSM participations has been filed with the Chamber of Commerce (Netherlands) and is available from the company upon request. The list can also be downloaded from the company website.

The preparation of financial statements requires estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements.

In addition to DSM’s significant accounting policies in the previous section, the policies that management considers to be the most important for the presentation of the financial position and results of DSM’s operations are further discussed in the relevant Notes. The same holds for the issues that require management judgments or estimates about matters that are inherently uncertain. Management cautions that future events often vary from forecasts and that estimates routinely require adjustment. Areas of judgment that have the most significant effect on the amounts recognized in the financial statements relate to the categorization of material items in profit or loss as ‘APM adjustments’, therefore impacting the alternative performance measures, and the identification of cash generating units (CGUs), impacting goodwill impairment testing.

Key assumptions and estimates that need to be made by management relate to the useful lives of non-current assets (Notes 8 and 9), the establishment of provisions for restructuring costs, environmental costs (Note 18) and retirement and other post-employment benefits (Note 24), the recognition and measurement of income taxes (Note 7), the determination of fair values for financial instruments (Note 23) and for share-based compensation (Note 27). The uncertainty concerning the actual outflows of provisions relates to both the amounts and the timing of potential future events.

Furthermore, impairment testing of goodwill, intangible assets and development projects requires judgments by management. Apart from the determination of CGUs, the estimation of future cashflows, growth rates, discount rates and fair values minus costs of disposal require judgement as well (Notes 2, 8, 9 and 10). Significant judgment is also required for the determination of the fair value of assets acquired, and liabilities assumed in business combinations (Note 3) and for the valuation of drawing rights (Note 8). For drawing rights, the most important judgments relate to the estimation of the required maintenance and replacement outlays. Estimates are based on historical quoted market prices, experience and assumptions that are considered reasonable under the circumstances.

For lease contracts under IFRS 16 that include renewal options, determining the lease term involves judgment based on the underlying asset class, past practices and current business outlooks. The assessment of these renewal options affects the lease term of these contracts and, in turn, the recognized lease liabilities and the corresponding right-of-use assets.

Exchange rates

The currency exchange rates that were used in preparing the consolidated financial statements are listed below for the most important currencies.

Presentation of Consolidated income statement

DSM presents expenses in the Consolidated income statement in accordance with their function. This allows the presentation of gross margin on the face of the income statement, which is a widely used performance measure in the industry. The composition of the costs allocated to the individual functions is explained below.

Cost of sales encompasses all manufacturing costs (including raw materials, employee benefits, and depreciation and amortization) related to goods and services captured in net sales. These are measured at their actual cost based on FIFO, or weighted average cost.

Marketing & Sales relates to the selling and marketing of goods and services, and also includes all costs that are directly related to the sale of goods, but are not originated by the manufacturing of the goods (e.g., outbound freight).

Research & Development consists of:

• Research, which is defined as original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding
• Development, which is defined as the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use that do not meet the accounting requirements for capitalization.

General and administrative relates to the strategic and governance role of the general management of the company as well as the representation of DSM as a whole in the financial, political or business community. It also relates to business support activities of staff departments that are not directly related to the other functional areas.