Overall financial results

Strategy

DSM’s purpose-led, performance-driven strategy has sustainability and innovation as key growth drivers of our long-term focused plan, underpinned by ambitious targets across People, Planet and Profit. More about the strategy of DSM is in the Strategy section of this report.

In September 2021, we announced the acceleration of our strategic journey with a reorientation of our Health, Nutrition & Bioscience activities into three market-focused businesses: Animal Nutrition & Health, Health, Nutrition & Care, and Food & Beverage. This structure, which came into effect on 1 January 2022, enables us to leverage our strong combination of scientific competences and growing portfolio of nutrition and health solutions. At the same time, it allows us to harness the latest advancements in digital technology and bioscience, to address the significant environmental and societal challenges associated with the global food system.

We simultaneously announced a review of strategic options for our Materials businesses and, on 20 April 2022, confirmed we had reached an agreement to sell DSM Protective Materials to Avient Corporation for an enterprise value of €1.45 billion. The transaction was successfully completed on 1 September 2022.

On 31 May 2022, we announced that we also had reached an agreement to sell DSM Engineering Materials to Advent International and LANXESS for an enterprise value of €3.85 billion. DSM expects to receive about €3.5 billion net in cash following closing, after transaction costs and capital gains tax. Completion of the transaction, which is subject to customary conditions and approvals, is expected in the first half of 2023.

On the same day, DSM and Firmenich jointly announced that we had entered into a business combination agreement for a merger of equals to establish the leading creation and innovation partner in nutrition, beauty and well-being. All related information can be found at www.creator-innovator.com.

Financial results

This section includes an overview of the key financial metrics of the company in respect of the performance of its continuing operations in 2022 and 2021, except where otherwise indicated.

Health, Nutrition & Bioscience was confronted with an increasingly inflationary environment during the year, exacerbated by ongoing supply chain volatility. The increases in the cost of energy and raw materials were partially offset by multiple price increases.

Demand in the markets in which DSM operates remained resilient overall. Sales volumes were solid considering tough prior year comparison (+8%), especially in Animal Nutrition & Health.

Health, Nutrition & Bioscience reported +2% Adjusted EBITDA, with +7% contribution from M&A and foreign exchange effects. The underlying performance was the result of the price-cost gap, with limited operational leverage contribution from volume growth (+1%). Lower vitamin prices impacted the results negatively from September 2022.

The business recorded an Adjusted EBITDA margin of 17.9%, with around half of the 260bps decline coming from the price-cost gap and the remainder from the dilutive mathematical effect (higher sales and therefore relatively lower margin percentage) of the price increases and foreign exchange effects.

Net sales and Adjusted EBITDA

At €8,390 million, net sales from continuing operations in 2022 were 15% higher than in 2021 (€7,269 million). Organic growth in 2022 was 7%. Volume in 2022 was similar to 2021, while price/mix had a 7% positive effect on growth compared to 2021. Exchange rate fluctuations had a positive impact of 7%, and acquisitions contributed another 1% to sales.

High-growth economies together currently represent 47% of our sales (49% when Africa is included), which is the same as in 2021. The share of sales in these economies as a proportion of our total sales gives us a well-balanced global footprint.

The Adjusted EBITDA (Adjusted operating profit before depreciation and amortization) from continuing operations increased by 1%, or €16 million, from €1,379 million in 2021 to €1,395 million in 2022. Adjusted EBIT (Adjusted operating profit) from continuing operations decreased from €808 million in 2021 to €767 million in 2022, down 5%. This is mainly caused by higher amortization and depreciation costs, largely due to the recent acquisitions.

Net profit

Adjusted net profit from continuing operations of €555 million was down by 5% versus 2021. Net profit available to equity holders of DSM increased by €24 million to €1,700 million. This increase was mainly a result of the net book profit of €1,018 million on the sale of Protective Materials (in comparison with 2021, where we had the net book profit of €570 million on the sale of Resins & Functional Materials and the net book profit of €303 million on the sale of DSM’s share in AOC). Expressed per ordinary share, net earnings from continuing operations amounted to €2.64 in 2022 (2021: €4.76). This decrease was mainly caused by the net book profit on the sale of DSM’s share in AOC in 2021.

Financial income and expense decreased by €12 million year on year to a net expense of €88 million. This was mainly caused by the impact of the accounting for renewable energy contracts.

The total effective tax rate over taxable result 2022 for continuing operations was 21.0% (2021: 20.1%). This was mainly caused by the geographical spread and changes in tax rates. Excluding APM adjustments this was a decrease from 20.9% to 20.2%.

Adjustments made in arriving at DSM’s Alternative performance measures (APM adjustments)

Total APM adjustments from continuing operations for the full year amounted to a loss of €80 million (2021: a profit of €247 million), consisting of a loss in EBITDA of €91 million (including restructuring costs of €87 million and acquisition/divestment/integration costs of €4 million), reversals of impairments of -€6 million, financial expenses of €8 million, a related tax impact of -€15 million, and a loss of €2 million relating to associates and joint ventures.

Net sales by destination

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Net sales bridge 2022

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Cash provided by operating activities of €965 million mainly consists of the EBITDA for the year (€2,646 million), excluding the net book profit on the sale of Protective Materials of €1,018 million (recognized under investing activities) and the change in working capital of -€497 million. Overall, the full-year operating cash flow decreased by €462 million, mainly due to the higher working capital, partly caused by the high inflation in 2022 (see also Consolidated financial statements).

The cash from investing activities consisted mainly of the proceeds from the divestments (€1,366 million, mainly from the divestments of Protective Materials), partly offset by capital expenditures (-€644 million).

The cash used in financing activities included the dividend paid (-€345 million) and the repurchase of shares (-€210 million).

For the full cash flow statement, see the primary statement in the Consolidated financial statements.

Balance sheet

The balance sheet total (total assets) reached €17.4 billion at year-end (2021: €16.0 billion). Equity increased by €1,448 million, which was attributable to the net profit of €1,715 million, the exchange rate impact on foreign operations of €245 million, offset partly by the dividend payments of -€459 million and the repurchase of shares of -€210 million. Equity as a percentage of total assets increased from 59% to 62%.

Compared to year-end 2021, net debt decreased by €932 million to €87 million, mainly due to the divestment of Protective Materials. The gearing at year-end was 0.8%, which was considerably lower than the gearing of 9.7% at year-end 2021.

Capital expenditure on intangible assets and property, plant and equipment amounted to €636 million for continuing operations in 2022 (€644 million on a cash basis). Including new leases the additions to intangible assets and property, plant and equipment was €658 million, which was roughly the same as the level of amortization, depreciation and impairments.

Total working capital from continuing operations amounted to €1,992 million compared to €1,551 million at year-end 2021. This represents 23.8% as a percentage of annualized fourth-quarter 2022 sales (2021: 20.1%). Cash-wise, the operating working capital (OWC) from continuing operations increased €414 million compared to last year, which is mainly attributable to inflation and higher inventory. The OWC percentage increased from 26.1% at year-end 2021 to 29.0% of annualized sales at year-end 2022.

Cash and cash equivalents came to €2,755 million at the end of the year; including current investments, this amounted to €2,880 million (2021: €2,050 million). Besides the regular cash flow elements, this increase was mainly due to divestment of the Protective Materials business (€1,363 million), offset partly by the repurchase of shares (-€210 million) and the paid dividend (-€345 million).

“DSM delivered a solid performance in 2022 against a background of continued global supply chain challenges and significantly higher energy and raw materials costs, consolidating the strong growth of 2021. Pricing actions to counter higher costs supported top-line growth, however with a price-cost gap impacting near-term margins, especially in Animal Nutrition & Health.”
Geraldine Matchett

Outlook 2023

Given the proposed merger process is advanced, it is intended that DSM-Firmenich will provide an outlook for 2023 once DSM and Firmenich have been consolidated and the combined business plan is approved.