Life Sciences & Materials Sciences Staying the Course in a Changing China Weiming Jiang President DSM China Deutsche Bank China Tour March 17 2009 Investor Relations Deutsche Bank Tour 2009 Page 0
Safe Harbor Statement This presentation may contain forward-looking statements with respect to DSM s future (financial) performance and position. Such statements are based on current expectations, estimates and projections of DSM and information currently available to the company. DSM cautions readers that such statements involve certain risks and uncertainties that are difficult to predict and therefore it should be understood that many factors can cause actual performance and position to differ materially from these statements. DSM has no obligation to update the statements contained in this presentation, unless required by law. The English language version of this document is leading. A more comprehensive discussion of the risk factors affecting DSM s business can be found in the company s latest Annual Report, which can be found on the company's corporate website, www.dsm.com Investor Relations Deutsche Bank Tour 2009 Page 1
Agenda DSM Results 2008 China - potentially one of the largest markets China in transition Update DSM in China Investor Relations Deutsche Bank Tour 2009 Page 2
Highlights DSM s full year 2008 reporting DSM reported record year despite global economic downturn in Q4 Full year operating profit up 10% to EUR 903 million; Q4 down 35% to EUR 123 million Continuing strong performance from Life Sciences businesses and DSM Dyneema in Q4 Most Materials Sciences businesses severely impacted by downturn since beginning of Q4 Focus on cash over profitability generates strong cash flow in Q4; cost saving program of EUR 100 million under way Solid long-term financial position; dividend maintained at EUR 1.20 per share No quantitative outlook provided for 2009 in view of the uncertain economic conditions Investor Relations Deutsche Bank Tour 2009 Page 3
Focus on Life Sciences and Material Sciences Climate and Energy Health and Wellness Functionality and Performance Emerging Economies Life Sciences Materials Sciences Nutrition Pharma EBAs Performance Materials Polymer Intermediates Exploiting strong market positions and technology platforms Investor Relations Deutsche Bank Tour 2009 Page 4
Agenda DSM Results 2008 China - potentially one of the largest markets China in transition Update DSM in China Investor Relations Deutsche Bank Tour 2009 Page 5
China, one of the world s largest economies China GDP growth 1996-2007 (Trillion RMB, %) 10.0% 10.0% 10.1% 10.4% 9.3% 9.1% 8.4% 8.3% 7.8% 7.6% 21.1 18.4 11.1% 11.4% 24.6 2007 GDP (Nominal) (US$ bn) USA Japan 4,377 13,811 7.1 7.9 8.4 8.9 9.9 11 12 13.6 16 Germany China UK 2,728 3,297 3,280 France 2,562 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 China GDP Growth rate (real value) Italy 2,107 Source: World Bank World s largest GDP growth offering huge opportunities Investor Relations Deutsche Bank Tour 2009 Page 6
World s largest manufacturing base World manufacturing base, fueled by increasing FDI Industrial production growing ~15%/ year over last 10 years Strong export oriented competitor Moving up in the value chain: strong innovator Global Type of LCC Regional China: US$ 837bn Brazil: US$ 134bn Manufactured Goods Mexico: US$ 229bn Type of Exports India: US$ 150bn Poland: US$ 88bn Slovakia: US$ 32bn Hungary: US$ 65bn Czech: US$ 79bn Services Source: A.T.Kearney China: a world of competition, a world of opportunities Investor Relations Deutsche Bank Tour 2009 Page 7
An attractive market for DSM China quickly becomes one of the largest markets in the world Increasing demand for products to improve quality of life, aligned with Government plan for the coming period Average annual growth for some of DSM relevant end markets: Food >20% Pharma: >20% E&E: 10~30% Automotive: 10~25% Markets for Life Sciences & Materials Sciences growing strongly Investor Relations Deutsche Bank Tour 2009 Page 8
Agenda DSM Results 2008 China - potentially one of the largest markets China in transition Update DSM in China Investor Relations Deutsche Bank Tour 2009 Page 9
China is in transition Evolution of economy structure 1 st stage 2 nd stage 3 rd stage R&D driven Value added Service industry Global acquisitions Globally integrated Local empowerment Responsible & influential player in global arena Sustainable development model Export oriented Low cost Heavy capital investment Resources driven China entering the second stage by globalization Investor Relations Deutsche Bank Tour 2009 Page 10
Changing dynamics in China Shift towards domestic demand Shift towards hi-tech Shift towards sustainability Shift towards mature cost structure Privatization / listing of companies Global M&A activities Changes offer great opportunities for DSM Investor Relations Deutsche Bank Tour 2009 Page 11
Huge domestic market potential Per capita disposable income increases at above 10% per year Middle class: >300 million by 2010 Chinese urban population by income segment 1985~2025 Affluent Rising affluent population Life style and consumer behavior change: demanding better & more functional products 1985 1995 2005 2015 2025 Source: Accenture Middle class Poor Investor Relations Deutsche Bank Tour 2009 Page 12
Increasing R&D & stronger IP protection Ever stronger IP protection Government policy and incentive to encourage Basic research R&D and high tech investment Encourage foreign investment into high tech industries Leading destination R&D spending answered by % top CEOs 2004~2007 China USA India UK Germany Brazil 11% 19% 24% 29% 28% 39% Japan France 10% 9% Source: Economist Intelligence Investor Relations Deutsche Bank Tour 2009 Page 13
Sustainability key for future development Sustainable development: key theme for China 11 th 5-year plan: Environmental protection Energy conservation, energy efficiency & renewable energy Healthcare & biotechnology Food safety regulation China 11 th. 5 Year Plan 中华人民共和国国民经济和社会发展第十一个五年规划纲要目录第一篇指导原则和发展目标第一章全面建设小康社会的关键时期第二章全面贯彻落实科学发展观第三章经济社会发展的主要目标第二篇建设社会主义新农村第四章发展现代农业第五章增加农民收入第六章改善农村面貌 More sustainable domestic market development Investor Relations Deutsche Bank Tour 2009 Page 14
Maturing manufacturing cost structure Wage increase Raw materials cost increase RMB appreciation Average non-agri annual salary (RMB) 2001 ~ 2007 21001 18364 16024 14040 24932 Mainly impact export DSM targets domestic consumption 9891 11152 2001 2002 2003 2004 2005 2006 2007 Source: Ministry of Labour & Social Security A richer China means more demand for DSM s products Investor Relations Deutsche Bank Tour 2009 Page 15
Changing business behavior by privatization Access to capital market by local players: large and medium cap, Hong Kong & foreign stock exchanges Start-up market: open soon Legalize VC&PE for private fund Examples local competitors listed: China Pharmaceutical (HK) United Laboratories (HK) Zhejiang NHU (Shenzhen) Increasing shareholder value focus drives need for higher margins Investor Relations Deutsche Bank Tour 2009 Page 16
Agenda DSM Results 2008 China - potentially one of the largest markets China in transition Update DSM in China Investor Relations Deutsche Bank Tour 2009 Page 17
DSM s ongoing commitment to China DSM has committed to China with extensive manufacturing footprint DSM has realized significant growth in China for the past years DSM has committed to local innovation pipeline, investment programs, and external R&D collaborations to meet China market needs DSM is committed to 3P in China, with recognition as top employer Well positioned to lead in a changing China Investor Relations Deutsche Bank Tour 2009 Page 18
Extensive manufacturing footprint in China Investor Relations Deutsche Bank Tour 2009 Page 19
New milestones achieved in China in 2008 2008 sales to China US$ 1.15bn Increase of ~20% y-o-y Q4 08 sales grew by 2% 1500 1200 900 Sales growth in China (in US$ m.) Future difficult to predict but DSM is committed to growth 600 300 2005 2006 2007 2008 2009 2010 Drop in sales in Q4 2008; US$ 1.5bn target in 2010 Investor Relations Deutsche Bank Tour 2009 Page 20
Impact global crisis is felt in China too Sharp decline in exports Manufacturing facing serious downturn in Q4 Automotive (domestic and export) E&E (mainly export) Building and Construction (mainly domestic) Increasing unemployment, mainly migrant-workers However, Chinese Government committed to 8% growth which is essential for such a large country in the developing phase Huge stimulus investment programs for next 2 years Policies to push the domestic market consumption Improvement purchasing managers index Lower growth in 2009 will not change long term perspective Investor Relations Deutsche Bank Tour 2009 Page 21
Update Nutrition Important changes in China Food and Nutrition industries continue China high focus on food safety DSM differentiation based on quality and safety awareness Growth opportunity esp. for ANH Three premix plants in China, more planned Success of franchise stores DSM is the only fully integrated player Ongoing sales growth for DSM in China in 2008 including Q4 Less impact from recession Sales growth in Nutrition in China (2007 = 100) 200 100 0 2007 2008 DSM overall: Business conditions remain favorable Investor Relations Deutsche Bank Tour 2009 Page 22
Update Pharma Program from Chinese government to change the health care system expected to result in strengthening of basic drugs (anti-infectives) Increasing SHE and quality attention in China are favorable for DSM s competitiveness FY2008 sales to China slightly above FY2007 despite somewhat weaker Q4 sales Less impact from recession Sales growth in Pharma in China (2007 = 100) 200 100 0 2007 2008 DSM overall: Faces challenges Investor Relations Deutsche Bank Tour 2009 Page 23
Update Performance Materials Drop in Chinese exports of electronic components, slowdown in China s building and construction industry in Q4 Shift to domestic customers and local innovation offer growth opportunities for DSM 2008 Sales growth in China for all BG s in the Performance Materials cluster, enabled by capacity expansions Sales growth in Performance Materials in China (2007 = 100) 200 100 0 2007 2008 DSM overall: Predictability is difficult Investor Relations Deutsche Bank Tour 2009 Page 24
Update Polymer Intermediates FY sales of DSM in 2008 lower than 2007 due to strong decline in Q4 Prices for polymer intermediates declined from Q3 levels Focus on domestic demand Flexibility towards customers and suppliers offer opportunities Lack of clarity for 2009 Sales growth in Polymer Intermediates in China (2007 = 100) 200 100 0 2007 2008 DSM overall: Most likely be loss making in 2009 Investor Relations Deutsche Bank Tour 2009 Page 25
Innovation & opportunities in China Growth Platform: focus on white bio-technology, bio-materials, venturing participation Capture unique opportunities, Cooperation with Chinese institutes and start-up companies: Bio-materials - Tianjin Green Bio-Science WB Shandong University, IMCAS Nutrition - Fudan University More initiatives in progress Capacity of bio-polymers China and World (k MT) 3 5 2 30 20 20 PLA PBS PHA 150 2007 China 2009E China 2007 World 15 3 DSM recognized as global leader in biotech Investor Relations Deutsche Bank Tour 2009 Page 26
Investments and ventures fueling growth DSM China Campus Branch offices: Shanghai, Beijing, Guangzhou, Chongqing Strategic sites (Xinhuo, Jiangyin) JV s and Acquisitions Caprolactam Composite resins Neo+ resins Anti-Infective Partnerships NCPC cooperation progressing (Vitamins, Anti-Infective) Others Investor Relations Deutsche Bank Tour 2009 Page 27
Committed to sustainability in China Global DSM standards Leadership in sustainability China 3P Report Environmental & Social Responsibility 3P projects DSM is commended for good SHE performance by government Investor Relations Deutsche Bank Tour 2009 Page 28
Conclusions China is a large and fast growing market China is in transition and represents enormous growth opportunities There is large demand for life sciences and materials sciences products and development opportunities in the cross-over DSM is committed to China and well positioned in most segments DSM achieved a new milestone in 2008 (>1.1 billion USD sales) China is not immune for global crisis, 2009 will be challenging Half of the portfolio relative unaffected Meanwhile working on the opportunities for the future Staying the course in the changing China Investor Relations Deutsche Bank Tour 2009 Page 29
Contact: DSM Investor Relations P.O. Box 6500, 6401 JH Heerlen, The Netherlands (+31) 45 578 2864 (+31) 45 578 2595 e-mail: investor.relations@dsm.com internet: www.dsm.com visiting address: Het Overloon 1, Heerlen, The Netherlands Investor Relations Deutsche Bank Tour 2009 Page 30