DSM Capital Markets Day 2018 Targets 2021 focused on growth, cash and value Geraldine Matchett CFO ROYAL DSM CAPITAL MARKETS DAY LONDON (UK) - 20 JUNE 2018
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 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 Page 1
Strategy Update: Growth & Value - Purpose led, Performance driven. Health & Nutrition Climate & Energy Resources & Circularity Focus Grow Enable Purpose sets scope for DSM s further portfolio evolution: Focus on growth in Nutrition, Health and Sustainable Living Organic growth enhanced by: Customer centricity Solutions-oriented approach Innovation focus Enabling programs for accelerated growth: Inorganic growth further evolving portfolio: Predominantly in Nutrition Performance-driven organization, leadership & culture Digitization Sustainability leadership 2021 Targets 1 High single-digit percentage annual Adj. EBITDA increase ~10% average annual Adj. Net Operating Free Cash Flow 2 increase Value-creating M&A 1. Based on underlying business, 2018 Base Line corrected for the temporary vitamin effect 2. Adjusted net operating free cash flow is cash flow before share purchases for options/ exercise of options, interest, dividend, M&A and financing activities Page 2
Ambitious targets set on a higher base Targets 2016-18 Achievements 2021 Targets 1 EBITDA High-single digit % annual increase from ~ 1.0bn 13% CAGR 2016-18 2 High-single digit % annual increase from ~ 1.5bn Adj. Net Operating Free Cash Flow ~5% CAGR 2015-17 3 ~10% average increase per year ROCE High double-digit annual bps growth from ~7% ~200 average bps growth per year 2 Ambition of ~1% annual increase on ~13% 1. Based on underlying business, 2018 baseline is corrected for the temporary vitamin effect 2. Approximation using 2018E. For Nutrition, based on underlying business corrected for best estimate of the temporary vitamin effect 3. Adjusted net operating free cash flow is cash flow before share purchases for options/ exercise of options, interest, dividend, M&A and financing activities Page 3
2021 Targets achieved by growth and capital efficiency 2021 Targets 1 Ambitions underpinning Group targets 1 High single-digit percentage annual Adj. EBITDA increase ~10% average annual Adj. Net Operating Free Cash Flow 2 increase 1. Sales 2. Adj. EBITDA margin 3. Working capital 4. Capex 5. ROCE 6. Adj. EPS Above-market sales growth (~5%) for Group, Nutrition and Materials Nutrition: >20% Materials: 18-20% Reduce by 50 bps annually to ~16% ~6.5% of sales ~1%-point increase per annum Increase ahead of Adj. EBITDA growth 1. Based on underlying business, 2018 baseline is corrected for the temporary vitamin effect 2. Adjusted net operating free cash flow is cash flow before share purchases for options/ exercise of options, interest, dividend, M&A and financing activities Page 4
1 DSM will continue its above-market growth Nutrition Materials 4% 2% 0% 8% 6% 4% 2% 0% Human Nutrition organic growth 2-3% Market 2016-18 ~5% DSM 2016-18 CAGR 2-3% Market 2019-21 ~5% DSM ambition 2019-21 14% 12% 10% 8% 6% 4% 2% 0% Animal Nutrition organic growth 2-3% Market 2016-18 ~8% DSM 2016-18 1 CAGR 2-3% Market 2019-21 ~5% DSM ambition 2019-21 14% 12% 10% 8% 6% 4% 2% 0% ~3% Market 2016-18 ~5% DSM 2016-18 CAGR 1 1,2 Materials volume growth ~3% Market 2019-21 ~5% DSM ambition 2019-21 1. Approximation using 2018E. In Nutrition, underlying business corrected for best estimate of the temporary vitamin effect 2. Continuing operations Page 5
1 Well-balanced geo-split provides natural hedge for growth & FX impact Geographical footprint Sales by origin and destination FY2017 29% 25% 23% 22% 4% 2% 9% 17% 8% 12% 12% 13% 5% 15% 1% 3% NL CH Rest of Europe North America LatAm China APAC RoW Sales by origin Sales by destination Page 6
2 Improving margins by further shift to higher-margin, specialty solutions Nutrition Materials 25% 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% 3% 1% -1% 16.6% 18.0% Temporary vitamin benefit 18.9% 2015 2016 2017 2018 >20% Ambition 2021 25% 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% 3% 1% -1% 15.2% 17.3% 17.3% 2 1 2 2015 2016 2017 2018 18-20% Ambition 2021 1. Continuing operations 2. Approximation using 2018E. In Nutrition, underlying business corrected for best estimate of the temporary vitamin effect Page 7
2 Growing while retaining efficiency is safeguarding margins Anchoring of support function savings Functional costs reduced significantly Anchoring efficiencies ensuring stable costs in top-quartile benchmark Total support function costs as % of sales 2 6.1 2014 Baseline 4.5 2017 1 2018 Ambition 2021 Anchoring functional cost levels Returns-focused M&S organization Focus on effectiveness of M&S organization while growing the business Effectiveness anchored around core KPIs 1. Approximation using 2018E. In Nutrition, underlying business corrected for best estimate of the temporary vitamin effect 2. Total support function costs incl. Finance, GP&O, GiS/IT, Indirect Purchasing, Communications and Legal costs Page 8
3 DSM aims bringing down Average Total Working Capital to ~16% 35% 30% 25% 20% 15% 10% 5% 0% Strategy 2018 accomplishments 20.7% 29.4% 14.8% 28.1% 18.6% 18.4% Avg. total working capital as % of sales 26.6% Ambitions underpinning Targets 2021 ~16.0% ~23.0% 12.5% 12.2% ~12.0% 1 2 2015 2016 2017 2018 2021 Working Capital improvement from: Inventory reduction: Customer-centric supply chain and Digitization enable customer behavior modelling Accounts receivable optimization: Automation and data analytics support optimal customer terms, identification of customers enabling corrective actions, etc. DSM Group Nutrition Materials 1. Continuing operations 2. Approximation using 2018E. In Nutrition, underlying business corrected for best estimate of the temporary vitamin effect Page 9
4 Strict capex allocation: investments focused on growth and efficiency 00 00 00 00 00 00 00 0 Strategy 2018 accomplishments 478 1 485 586 ~625 Ambitions underpinning Targets 2021 2015 2016 2017 2018 2019-21 6.9% 6.0% 6.3% ~6.5% Strategy 2018 capital allocation: Strict and targeted allocation to growth areas focus on enhancing Nutrition capabilities (2/3 capex in Nutrition) ~50-60% of capex focused on growth Nutrition Materials Other Capex as % of sales 1. Continuing operations Page 10
5 EBITDA growth and capital efficiency drive ROCE improvement Strategy 2018 accomplishments Ambitions underpinning Targets 2021 Ambition of ~1%-point ROCE increase per annum 30% 10% 10% 30% 10% 10% 30% DSM Group Temporary vitamin benefit 7.6% 10.4% 12.3% Underlying 1 2015 2016 2017 2 2018 business 2021 Nutrition 10.3% 12.0% 14.1% 2 2015 2016 2017 2018 2021 Materials ~16% 3 3 ROCE could be negatively impacted by M&A-related intangibles and goodwill After M&A, DSM aspires to bring ROCE to ~15% as soon as possible 10% 14.4% 17.6% 20.0% 10% 1 2 3 2015 2016 2017 2018 2021 1. Continuing operations 2. Approximation using 2018E. In Nutrition, underlying business corrected for best estimate of the temporary vitamin effect 3. Estimate excluding M&A Page 11
6 Stronger free cash flow and earnings per share 1 High single-digit annual Adj. EBITDA growth Improving EBITDA margins Average Total Working Capital reduction Balanced capex Tax Supported by abovemarket sales growth (~5%) in all businesses Nutrition: Materials: >20% 18-20% Reduce to ~16% Disciplined capex; focus: growth & Nutrition (~6.5% of sales) 18-20% ~10% average annual increase of Adj. Net Operating Free Cash Flow Earnings per share to increase ahead of Adj. EBITDA growth 1. Based on underlying business, 2018 baseline is corrected for the temporary vitamin effect Page 12
Cash allocation policy unchanged 1 st Disciplined 2 nd 3 rd 4 th capex for organic growth Dividend M&A Share buy-backs ~2/3 in Nutrition ~50-60% focused on growth Stable, preferably rising Prudent and disciplined approach Value creation is key To be considered in the absence of value-creating M&A Mid-term capital structure: 1.5-2.5x net debt / Adj. EBITDA Committed to maintaining a strong investment grade credit rating Page 13
Stable, preferably rising dividend policy; step-up linked to cash generation Dividend per ordinary share ( ) Maintaining dividend policy: stable and preferably rising 3 2 2 1 1.85 1.75 1.65 1.10 1.20 1.27 2.30 1.53 1 Proposal to increase ordinary dividend with 25% over 2018 to 2.30 per share Reflecting future earnings/ cash generation DSM to pay one third of the proposed dividend over 2018 ( 0.77 per ordinary share) as interim dividend in August 1 0 0.55 0.55 0.58 0.77 2015 2016 2017 2018 Interim dividend Final dividend DSM s performance expected to result in further dividend growth As a result, expected average payout of 40-50% of adjusted (underlying) earnings 1. Subject to AGM approval Page 14
Balance sheet to enable organic and inorganic growth 00% 57% 14% 71% 28% 85% 42% 99% 56% 13% 70% 84% 41% 55% 12% 69% 26% 83% 40% 97% 54% 11% 68% 25% 82% 39% 53% 10% 24% 81% 38% 95% 52% 09% 66% 23% 80% 37% 94% 51% 08% 22% 79% 93% 50% 07% 64% 21% 78% 35% 92% 49% 06% 63% 20% 77% 91% 48% 62% 19% 76% 33% 90% 47% 04% 61% 18% 75% 32% 89% 46% 60% 17% 74% 31% 88% 45% 02% 59% 16% 73% 30% 87% 44% 01% 58% 15% 29% 86% 43% 00% 57% 14% 71% 28% 85% 42% 99% 56% 13% 70% 27% 84% 41% 98% 55% 12% 69% 26% 83% 40% 97% 54% 11% 68% 25% 82% 39% 96% 53% 10% 67% 24% 81% 38% 95% 52% 09% 66% 23% 80% 37% 94% 51% 08% 65% 22% 79% 36% 50% 07% 64% 21% 78% 35% 92% 49% 06% 63% 20% 77% 34% 91% 48% 05% 19% 76% 33% 90% 47% 04% 61% 18% 75% 32% 89% 46% 03% 60% 17% 74% 88% 45% 02% 59% 16% 73% 30% 87% 44% 01% 58% 15% 72% 29% 86% 43% 57% 14% 71% 28% 85% 42% 99% 56% 13% 70% 27% 84% 41% 55% 12% 26% 83% 40% 98% 69% 00% 31% 62% 93% 72% 03% 34% 05% 65% 36% 96% 67% 27% 98% 0% Debt maturity profile 748 499 498 497 301 77 2018 2019 2020 2021 2022 2023 2024 2025 2026 Healthy debt maturity profile DSM linked GHG emission reduction to interest rate in new 1bn Revolving Credit Facility Net debt at 578m (as per Q1 2018) Extracting value from remaining partnerships will provide further financial headroom No significant liabilities in DSM s pension funds Page 15
Key assumptions No major macro-economic downturn assumed Global GDP growth rate of ~3.8% 1 is assumed for 2019-21 Stable geopolitical environment No major shifts in key raw materials pricing assumed Well-balanced profile provides protection against certain risks No product/ customer represents more than 5% of underlying group sales and profit Sound geographical and segment distribution provide natural hedge for growth Assumed FX rates and sensitivities USD: 1.18 CHF: 1.16 BRL: 3.90 RMB: 7.90 Hedging of ~50% of key USD and CHF exposure to EUR Rules of thumb: Adj. EBITDA impact before hedging - at current FX: 1 ct USD = ~ 12m 1 ct CHF = ~ 5m 10 ct BRL = 2.5m 3.5m 10 ct RMB = ~ 1m 1. According to IMF World Economic Outlook Database, April 2018 - % change of GDP at constant prices: 3.943 (2019), 3.764 (2020), 3.750 (2021) Page 16
DSM Strategy: Growth & Value Purpose led, Performance driven DSM s key competences 2021 Targets 1 : Future-proof provide growth opportunities in the focus-domains Nutrition & Health Climate & Energy creating a growth company high single-digit % annual increase Adj. EBITDA addressing megatrends/sdgs Resources & Circularity Sustainable Living ~10% average annual increase Adj. Net Operating Free Cash Flow Global Megatrends SDGs Science based company in Nutrition, Health & Sustainable Living Value-creating M&A 1. Based on underlying business, 2018 baseline is corrected for the temporary vitamin effect Page 17