Life Sciences and Materials Sciences DSM financial reporting changes

Transcription

1 Life Sciences and Materials Sciences DSM financial reporting changes Peter Sampers Senior Accounting Officer Roundtable, November 29, 2010

2 Overview Income statement by function Pension plans Reporting by Region Questions and conclusion

3 Reporting structure in line with peers in 2011 New P&L reporting structure Enhanced management information In line with the transformation Better comparability with peers Cluster presentation remains as is Old DSM P&L * New DSM P&L * Fixed Out Of Pocket costs

4 Cost elements per function (1) Cost of sales All manufacturing costs related to goods and services sold in the period Marketing and sales The sales and marketing organization and direct costs such as advertising and promotion activities R & D The cost of the R & D organization and direct costs (that do not qualify for capitalization) for the development of new and improved materials and products G & A Personnel and non-personnel costs of Group management and staff departments that are not directly related to other functional areas

5 Cost elements per function (2) Other operating income Non-recurring elements of income a.o. releases of provisions, book gains, sale of excess emission rights, certain government grants Other operating costs Non recurring costs a.o. additions to provisions, losses on disposals, bad debts

6 A first comparison (2009 in Bn) Net sales 7.9 Revenue 7.9 Cost of goods sold (6.2) Change in inventories (0.2) Raw materials etc. (3.7) Work subcontracted (1.6) Employee benefits (1.5) Depreciation / amortization (0.7) Other income/expense 0.3 Gross margin 1.7 Marketing & sales (0.7) R & D (0.3) G & A (0.4) Other income/expense 0.2 Operating profit 0.5 Operating profit 0.5 Provisional Provisional numbers, numbers, not not audited audited (incl. exceptional items and discontinued operations)

7 Overview Income statement by function Pension plans Reporting by Region Questions and conclusion

8 Negotiations to change Dutch pension scheme DSM is currently negotiating a new collective labor agreement for the Netherlands Important changes to the Dutch pension plan are part of the discussion higher age average pay This is expected to lead to further de-risking for DSM and a transfer to defined contribution accounting > 80% of DSM s pension liabilities are in the Dutch pension scheme

9 Allocation of risks determines IFRS accounting Defined contribution (DC) plans Only employers contribution is defined No promise is made regarding the ultimate benefits for employees No legal or constructive obligation to pay further contributions Accounting is straightforward Cost for the employer is the agreed annual contribution (= cash out for employer) Defined benefit (DB) plans All plans that do not meet the definition of defined contribution plans Accounting is complex and independent of cash flow The Dutch plan is focus for today

10 Collective Defined Contribution (CDC) - a Dutch phenomenon In case the sponsor is only liable for annual premium and the risk for the pension entitlement is borne by the beneficiaries of the fund the arrangement can/should be classified as defined contribution (DC) Conditions to be met: upfront agreement on premium (method) absolute or relative sponsors obligation is limited to payment of the agreed contributions no obligation for the sponsor to fund any past service deficit reasonable term for implementation agreement (e.g. 5 years) upon renegotiation only prospective changes in economic and actuarial assumptions can modify the premium surpluses can not be returned to the sponsor (no refunds or premium reductions) all communications need to make clear that the beneficiaries bear the risk of the plan indexation needs to be linked to performance of the plan

11 A simple example of DB accounting (1) Start of the year Liability = 100 Plan Assets = 120 Surplus = 20 Expense (ex ante) Service costs = 5 Interest costs (4%) =... Expected return (5%) =... Expense =... Actual contribution = 5 Theoretical surplus (20 ) =... Recalculated surplus = 16 Actuarial loss (..) =...

12 Simple example (2) Start of the year Liability = 100 Plan Assets = 120 Surplus = 20 Expense Service costs = 5 Interest costs (4% on 100) = 4 Expected return (5% on 120) = -/- 6 Expense = 3 (P+L) Actual contribution = 5 (Cash Flow) Theoretical surplus ( /- 3) = 22 Recalculated surplus = 16 (Balance sheet) Actuarial loss (22 16) = 6 (SoRIE - equity)

13 And what about DSM in 2009 t = 2009 Liability 1.1 = Plan Assets 1.1 = Deficit = (241) Service costs = 81 Interest costs (~5.4% on 4.454) = 241 Expected return (~6.3% on 4.213) = (266) Others = 5 Expense = 61 (P+L) Actual contribution employer = 113 (Cash Flow) Theoretical deficit (241) (61) = (189) Other changes = 14 Expected deficit = (175) Recalculated deficit = (66) (Balance sheet) Actuarial gain (175) (66) = 109 (SoRIE - now OcI)

14 Of which the Dutch plan represented t = 2009 Liability 1.1 = ~3,700 Plan Assets 1.1 = ~3,800 Asset = ~100 Service costs = 60 Interest costs (~5.7% on 3.700) = 206 Expected return (~6.4% on 3.800) = -237 Others = 12 Expense = 41 (P+L) Actual contribution employer = 80 (Cash Flow) Theoretical asset = 139 Other changes = - Expected asset = 139 Recalculated asset = 239 (Balance sheet) Actuarial gain (239) (139) = 100 (OcI) Liability = ~4,100 Plan Assets 1.1 = ~4,300 Asset = ~200

15 If current negotiations result in CDC for the Dutch plan 2011 Derecognition of asset or liability Reclassification from Other Comprehensive Income to retained earnings IFRS expense for the Dutch plan will be replaced by premium paid

16 Overview Income statement by function Pension plans Reporting by Region Questions and conclusion

17 Other reporting changes in 2011 Future cluster reporting Continue with Nutrition, Pharma, Performance Materials, Polymer Intermediates, Other activities New Innovation cluster Eliminate BC&M (after completion of Elastomers divestment) Introduction of regional reporting in quarterly reporting Western Europe (Netherlands separately specified) Eastern Europe (incl Russia and Turkey) North America Latin America Asia (China, India and Japan separately specified) Rest of the World

18 Overview Income statement by function Pension plans Reporting by Region Questions and conclusion

19 Questions and conclusion

20 Appendix

21 ROCE 2009 Operating profit excluding exceptional items Average capital employed 443 = = * (6, ,673) Capital employed The total of the carrying amount of intangible assets and property, plant and equipment, inventories, trade receivables and other receivables, less trade payables and other current liabilities.