Independent auditor's report

To: the Annual General Meeting of Shareholders and the Supervisory Board of Koninklijke DSM N.V.

Report on the audit of the financial statements 2021 included in the Integrated Annual Report

Our opinion

In our opinion:

• the accompanying consolidated financial statements give a true and fair view of the financial position of Koninklijke DSM N.V. (hereafter: Royal DSM) as at 31 December 2021 and of its result and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code.
• the accompanying parent company financial statements give a true and fair view of the financial position of Royal DSM as at 31 December 2021 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.

What we have audited

We have audited the financial statements 2021 of Royal DSM based in Heerlen. The financial statements include the consolidated financial statements and the parent company financial statements.

The consolidated financial statements comprise:

1. the consolidated balance sheet as at 31 December 2021;
2. the following consolidated statements for 2021: the income statement, the statements of comprehensive income, changes in equity and cash flows; and
3. the notes comprising a summary of the significant accounting policies and other explanatory information.

The parent company financial statements comprise:

1. the parent company balance sheet as at 31 December 2021;
2. the parent company income statement for 2021; and
3. the notes comprising a summary of the accounting policies and other explanatory information.

Basis for our opinion

We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of our report.

We are independent of Royal DSM in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).

Our audit procedures were determined in the context of our audit of the financial statements as a whole. Our observations in respect of going concern, fraud and non-compliance with laws and regulations, climate and the key audit matters should be viewed in that context and not as separate opinions or conclusions.

We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Audit approach

Summary

Materiality

Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 45 million (2020: EUR 45 million). The materiality is determined with reference to profit before income tax expense, normalized for acquisition/divestment related expenses to arrive at a normalized level, resulting in a percentage of 4.8% (2020: 5.9%). We consider this normalized profit before income tax expense as the most appropriate benchmark following our analysis of the common information needs of users of the financial statements. For 2021 and 2020, this benchmark has been influenced by the divestment of the Resins and Functional Materials and associated businesses. Although included in net profit for the year, the results of these businesses and related activities, including the result from the disposal in 2021, have been presented separate from continuing operations, and are no longer part of (normalized) profit before income tax expense. In addition, the appropriateness of the materiality was assessed by comparing the amount to consolidated net sales of which it represents 0.5% (2020: 0.6%). We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.

We agreed with the Supervisory Board that misstatements identified during our audit in excess of EUR 2 million would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.

Scope of the group audit

Royal DSM is at the head of a group of components. The financial information of this group is included in the financial statements of Royal DSM.

Because we are ultimately responsible for the auditor’s report, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for components reporting for group audit purposes. Decisive were the size and/or the risk profile of the components or operations. Based on our risk assessment, we selected 23 components (2020: 26 components) to perform audits for group reporting purposes on a complete set of financial information. In addition, we selected 13 components (2020: 16 components) to perform specified audit procedures for group reporting purposes on specific items of financial information.

This resulted in a coverage of 76% (2020: 73%) of total net sales and 79% (2020: 79%) of total assets. The remaining 24% of total net sales (2020: 27%) and 21% of total assets (2020: 21%) is represented by a significant number of components (‘Remaining components’), none of which individually represent more than 3% of total net sales and 2% of total assets.

For these remaining components, we performed among others analytical procedures to validate our assessment that there are no risks of material misstatement within these components.

Our procedures as described above can be summarized as follows:

We have:

• performed audit procedures at group level in respect of areas such as the annual goodwill impairment tests, other asset impairment (trigger) assessments, income tax for the Dutch fiscal unities, acquisitions of subsidiaries, accounting for divestments, restructuring provisions, treasury and shared service centers; and
• used the work of local KPMG (‘component auditors’) when auditing financial information or performing specified audit procedures at component level.

The group audit team has set materiality levels for the components, which ranged from EUR 5 million to EUR 12.5 million (2020: EUR 2 million to EUR 12.5 million), based on the mix of size and risk profile of the respective components.

The group audit team provided detailed instructions to all Business Group and component auditors part of the group audit, covering the significant audit areas, including the relevant risks of material misstatement, and the information required to be reported back to the group audit team.

The group audit team scheduled (virtual) site visit meetings with local component auditors and local component management in the United States of America, Switzerland, Austria, China and the shared service center in India to review selected component auditor documentation. In view of restrictions due to the Covid-19 pandemic, travelling to component audit teams was not always practicable, and we only visited in person the component auditors and Royal DSM’s locations in the United States of America and Austria.

As a result, we have requested selected component auditors to provide us with remote access to audit workpapers to perform these evaluations. In addition, due to the inability to arrange in-person meetings with component auditors and local management, we have increased the use of alternative methods of communication with them, including issuing additional written instructions, exchange of emails and virtual meetings.

Virtual meetings were held with all component auditors that participated in the group audit. During these (virtual) visits and meetings, we discussed the audit approach and the audit findings and observations reported to the group audit team.

By performing the procedures mentioned above at group components, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the financial statements.

Audit response to going concern — no significant going concern risks identified

The Managing Board has performed its going concern assessment and has not identified any significant going concern risks. To assess management’s assessment, we have performed, among other things, the following procedures:

• we considered whether the Managing Board’s assessment of the going concern risks includes all relevant information of which we are aware as a result of our audit;
• we inspected the financing agreements for terms or conditions that could lead to significant going concern risks;
• we analyzed the operating results forecast and the related cash flows compared to the previous financial year, developments in the business sector and any information of which we are aware as a result of our audit;
• we analyzed the company’s financial position as at year-end and compared it to the previous financial year in terms of indicators that could identify significant going concern risks.

The outcome of our risk assessment procedures did not give reason to perform additional audit procedures on management’s going concern assessment.

Audit response to the risk of fraud and non-compliance with laws and regulations

In the chapter “Corporate governance and risk management” of the Integrated Annual Report, the Managing Board describes its procedures in respect of the risks of fraud and non-compliance with laws and regulations. In the chapter “Supervisory Board Report”, the supervisory board reflects on this.

As part of our audit, we have gained insights into Royal DSM and its business environment, and evaluated the design and implementation of Royal DSM’s risk assessment in relation to fraud and non-compliance. Our procedures included, among other things, assessing Royal DSM’s code of business conduct, alert cases (whistleblowing procedures), compliance policies and its procedures to investigate indications of possible fraud and non-compliance. Furthermore, we performed relevant inquiries with the Managing Board, Supervisory Board and other relevant functions, such as the Corporate Operational Audit department, Legal Counsel and Fraud Committee. As part of our audit procedures, we:

• assessed other positions held by Managing Board members and Executive Committee members and paid special attention to procedures and governance in view of possible conflicts of interest;
• evaluated indications of possible fraud and non-compliance;
• evaluated correspondence with supervisory authorities and regulators as well as legal confirmation letters.

In addition, we performed procedures to obtain an understanding of the legal and regulatory frameworks that are applicable to Royal DSM and identified the following areas as those most likely to have a material effect on the financial statements:

• Health and safety regulation (reflecting the nature of Royal DSM’s production and distribution processes);
• Environmental regulation (reflecting the environmental clean-up responsibilities related to mainly Royal DSM’s former production and distribution processes);
• Competition legislation (reflecting Royal DSM’s operations across the world and potential investigations by national competition authorities);
• Employment legislation (reflecting Royal DSM’s significant and geographically diverse work force);
• Consumer product law relating to product safety (reflecting the nature of Royal DSM’s diverse product base).

We, together with our forensics specialists, evaluated the fraud and non-compliance risk factors to consider whether those factors indicate a risk of material misstatement in the financial statements.

Based on the above and the auditing standards, we identified the following fraud risks that are relevant to our audit, including the relevant presumed risks laid down in the auditing standards, and responded as follows:

Management override of controls (a presumed risk)

Risk:

• Fraud risk related to management override and alteration of (financial) results to meet external expectations, to maintain/increase current stock price and to meet bonus targets.

Responses:

• We evaluated the design and the implementation of internal controls that mitigate fraud risks with respect to journal entries.
• We performed data analyses on high-risk journal entries and evaluated key estimates and judgements for bias by management, such as estimates relating to impairment testing of goodwill and development projects, accounting for retirement and other post-employment benefits and accounting for acquisitions, including retrospective reviews of prior year’s estimates. Where we identified instances of unexpected journal entries or other risks through our data analytics, we performed additional audit procedures to address each identified risk. These procedures also included testing of transactions back to source information.
• We incorporated elements of unpredictability in our audit, including revising our selection criteria in our data analyses of high-risk journal entries and in performing data analytics procedures such as risk assessment analytics in the sales process to identify possible increased fraud risks.

Revenue recognition (a presumed risk)

Risk:

• Fraudulent revenue recognition on sales cut-off around the end of the reporting period is an inherent risk within Royal DSM.

Responses:

• In addition to the procedures already mentioned above, we evaluated the design and the implementation of internal controls that mitigate fraud risks with respect to revenue recognition.
• Depending on local facts and circumstances our component auditors identified either revenue recognized before or subsequent to year-end as the period associated with the fraud risk.
• To assess whether revenue was recognized in the appropriate period, for selected sales transactions recognized around year-end we inspected agreements with the customers and shipping documents.
• Further, we inspected selected credit notes issued around year-end to assess whether revenue was recognized in the correct reporting period.

Our procedures to address the identified risks of fraud did not result in a key audit matter.

We communicated our risk assessment, audit responses and results to the Managing Board and the Supervisory Board.

Our audit procedures did not reveal indications and/or reasonable suspicion of fraud and non-compliance that are considered material for our audit.

Audit response to climate-related risks

The Managing Board is responsible for preparing the financial statements in accordance with the applicable financial reporting framework, including considering whether the implications from climate-related risks and commitments have been appropriately accounted for and disclosed. The Managing Board has performed its analysis of the impact of climate-related risks on Royal DSM’s business and operations going forward. In the ‘Climate-related risks’ chapter, included in the ‘Corporate Governance and risk management’ section, the Managing Board concluded that currently no material short-term climate risks have been identified through specific climate risk assessments or regular risk assessments.

The evaluation of the effectiveness of Royal DSM’s strategy against internal or external goals set is not in scope of our audit of the financial statements. As part of our audit we consider potential effects of climate-related risks on the accounts and disclosures, including estimates and judgements in the current year’s financial statements to determine whether the financial statements are free from material misstatements. This includes discussion with the Managing Board and the Supervisory Board of Royal DSM’s strategy in relation to climate change, and inspecting minutes and external communications for significant climate related commitments, strategies and plans made by management.

Our key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.

Compared to last year the key audit matter with respect to the impairment of cash generating units is not included, as this specifically relates to the impairments that were recorded in the financial year 2020.

Accounting for acquisitions of Amyris’Flavour & Fragrance business and First Choice Ingredients

Description

As disclosed in Note 3 to the financial statements, during 2021, Royal DSM completed the acquisitions of Amyris’ Flavour & Fragrance business and First Choice Ingredients. The acquisitions involved a total consideration of EUR 592 million and had an aggregated impact on Goodwill and Intangible assets of EUR 219 million and EUR 350 million, respectively.

The acquisitions were significant to our audit due to the financial impact and complexity of purchase price accounting including related judgements and assumptions used in the determination of the fair values of assets acquired and liabilities assumed.

Our response

We inspected the agreements and other documents underlying the acquisitions to gain an understanding of the contractual terms and conditions to assess the consideration and the acquired identifiable assets and liabilities. We obtained the reports from the external valuation experts engaged by Royal DSM to assist management with the purchase price accounting and the identification of identifiable assets and liabilities in the respective business combinations. We involved valuation specialists to evaluate management’s valuation models, and assumptions used such as growth rates and discount rates to arrive at the fair value of assets and liabilities recognized in the purchase price allocation. Our assessment of key assumptions used by management included a comparison with available external information such as market indices and financial metrics of peer companies.

Finally, we assessed the adequacy of the presentation and disclosure (Note 3) of the acquisitions in the financial statements.

Our observation

We consider that the outcome of the purchase price accounting is reasonable. The acquisitions are adequately disclosed in Note 3 to the financial statements.

Divestment of Resins and Functional Materials and associated businesses

Description

As disclosed in Note 3 to the financial statements, on 1 April 2021, Royal DSM completed the sale of its Resins and Functional Materials and associated businesses (‘RFM business’) to Covestro for a consideration of EUR 1.6 billion. The net book result on the transaction amounts to EUR 570 million.

The divestment is significant to our audit due to the amounts involved and its impact on the financial statements. Furthermore, the transaction is non-routine and involves a certain level of management judgement in calculating the capital gain tax that is part of the net book result.

Our response

We inspected the contractual agreements and other relevant documents underlying the divestment in order to understand key terms and conditions and to assess the accounting impact. We verified that the deconsolidation of the RFM business has been recorded at the date of disposal. As part of our audit procedures we assessed the book result by vouching the sales price to the contractual agreement, the cash receipts to bank statements, the net asset values that have been de-consolidated to underlying accounting records and allocated transaction costs to underlying supporting documentation such as invoices and contractual agreements.

In relation to the capital gain tax, we inspected documentation underlying the determination of the capital gain such as the relevant income tax return and assessed the underlying assumptions and calculations. Furthermore, we have involved our KPMG tax specialists.

Our observation

We consider that the net book result, as well as the presentation of the results as those from discontinuing operations, are adequately reflected and disclosed in Note 3 to the financial statements.

Report on the other information included in the Integrated Annual Report

In addition to the financial statements and our auditor’s report thereon, the Integrated Annual Report contains other information.

Based on the following procedures performed, we conclude that the other information:

• is consistent with the financial statements and does not contain material misstatements; and
• contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the report by the Managing Board and other information.

We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements.

By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements.

The Managing Board is responsible for the preparation of the other information, including the information as required by Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements and ESEF

Engagement

We were engaged by the Annual General Meeting of Shareholders as auditor of Royal DSM on 7 May 2014, as of the audit for the year 2015 and have operated as statutory auditor ever since that financial year.

No prohibited non-audit services

We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audits of public-interest entities.

European Single Electronic Format (ESEF)

Royal DSM has prepared its Integrated Annual Report in ESEF. The requirements for this format are set out in the Commission Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the specification of a single electronic reporting format (these requirements are hereinafter referred to as: the RTS on ESEF).

In our opinion, the Integrated Annual Report prepared in the XHTML format, including the partially tagged consolidated financial statements as included in the reporting package by Royal DSM, has been prepared in all material respects in accordance with the RTS on ESEF.

The Managing Board is responsible for preparing the Integrated Annual Report including the financial statements in accordance with the RTS on ESEF, whereby the Managing Board combines the various components into a single reporting package. Our responsibility is to obtain reasonable assurance for our opinion whether the annual report in this reporting package, is in accordance with the RTS on ESEF.

Our procedures taking into consideration Alert 43 of NBA (the Netherlands Institute of Chartered Accountants), included amongst others:

• obtaining an understanding of the Royal DSM’s financial reporting process, including the preparation of the reporting package;
• obtaining the reporting package and performing validations to determine whether the reporting package containing the Inline XBRL instance document and the XBRL extension taxonomy files have been prepared in accordance with the technical specifications as included in the RTS on ESEF;
• examining the information related to the consolidated financial statements in the reporting package to determine whether all required tagging has been applied and whether these are in accordance with the RTS on ESEF.

Description of responsibilities regarding the financial statements

Responsibilities of the Managing Board and the Supervisory Board for the financial statements

The Managing Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Managing Board is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In that respect the Managing Board, under supervision of the Supervisory Board, is responsible for the prevention and detection of fraud and non-compliance with laws and regulations, including determining measures to resolve the consequences of it and to prevent recurrence.

As part of the preparation of the financial statements, the Managing Board is responsible for assessing the Royal DSM’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Managing Board should prepare the financial statements using the going concern basis of accounting unless the Managing Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Managing Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.

The Supervisory Board is responsible for overseeing the Royal DSM’s financial reporting process.

Our responsibilities for the audit of the financial statements

Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.

Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.

A further description of our responsibilities for the audit of the financial statements is included in appendix of this auditor’s report. This description forms part of our auditor’s report.

Amstelveen, 1 March 2022

KPMG Accountants N.V.

P.J. Groenland — van der Linden RA

Appendix:
Description of our responsibilities for the audit of the financial statements

Appendix

Description of our responsibilities for the audit of the financial statements

We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included among others:

• identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the risk resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Royal DSM’s internal control;
• evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Managing Board;
• concluding on the appropriateness of the Managing Board’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Royal DSM’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern;
• evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and
• evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We are solely responsible for the opinion and therefore responsible to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the financial statements. In this respect we are also responsible for directing, supervising and performing the group audit.

We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. In this respect we also submit an additional report to the Supervisory Board in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audits of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report.

We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.