DSM strategy update

Heerlen, NL, 20 Jun 2018 07:00 CEST

Royal DSM, a global science-based company, today presents its strategy update entitled “Growth & Value - Purpose-led, Performance-driven.” at its Capital Markets Day in London (UK).

Strategy 2015-18 delivering well ahead of all targets
2018 outlook, as issued on 8 May, reconfirmed
DSM will position itself towards a Nutrition, Health and Sustainable Living company, pursuing enhanced organic growth, with a purpose-led coherent set of business activities
DSM commits to new ambitious growth and financial targets:
- organic top-line growth above market
- high single-digit adjusted EBITDA growth
- step-up in cash generation
- 25% dividend increase over 2018, with future dividend growth aligned with long-term earnings growth
Value-creating acquisitions predominantly in Nutrition

DSM’s strategy update

Purpose sets scope for further growth and evolution

With its unique science-based competences, DSM is ideally positioned to capture the growth opportunities offered by the global megatrends and Sustainable Development Goals (SDGs), with a particular focus on Nutrition & Health, Climate & Energy and Resources & Circularity
DSM will therefore evolve into a Nutrition, Health and Sustainable Living company:
- DSM’s Nutrition business will focus on human nutrition (ingredients and solutions for Food & Beverages, as well as Specialty Nutrition, nutritional ingredients, consumer branded products and Personalized Nutrition), animal nutrition (covering all species with premix and specialty solutions) and personal care and aroma ingredients
- DSM’s Materials business will further develop into a high-growth, higher-margin specialty business and focus on health, bio/ green applications and new mobility & connectivity applications
By improving the impact of its own operations, enabling sustainable solutions for its customers and advocating sustainable business, DSM can grow faster and reduce its cost and risk profile
DSM will step-up its ambitions regarding the reduction of GHG emissions, energy efficiency and use of renewable energy

Performance driven to deliver growth and value

Ambitious targets for profit growth and cash generation to drive value creation

Two financial targets have been set for the period 2019-2021:
- High single-digit annual percentage increase in adjusted EBITDA
- About 10% average annual increase in adjusted net operating cash flow

Financial targets to be supported by holistic value-creation approach

Committed to top-line growth ahead of market, resulting in about 5% organic growth
- Organic growth across all our businesses will be supported by an expanded solutions offering, putting the customer even more in the center, and the delivery of large innovation projects
- Approximately 20% of our sales will come from innovation and 45% of sales from high growth economies
- DSM continues to invest in differentiating science and technology with circa 5% of sales
DSM will also continue to harness digital capabilities to increase customer intimacy, improve productivity/efficiency and support new business models
New adjusted EBITDA margin ambitions by 2021:
- Nutrition over 20%
- Materials 18-20%
- To be achieved by greater efficiencies and increased focus on higher-margin specialty solutions
Organic top-line growth combined with margin enhancements to drive high single-digit adjusted EBITDA growth
Focus on investment and cash generation to improve returns and accelerate growth in operating cash flow of about 10% annually
- Working capital levels to be reduced with an ambition of around 50 bps annually to about 16% of turnover (from 18.4% in 2017)
- Disciplined approach to capex and overall level limited to approximately 6.5% of turnover
- Ambition to drive improvements in organic ROCE of around 1% annually
Capital to be deployed in M&A
- Predominantly in Nutrition given its growth potential, resilience, strong leadership position and value creation potential
Deployment of capital expected to drive EPS growth ahead of EBITDA growth

Step-up in dividend linked to underlying earnings growth

Unchanged policy of a stable, preferably rising dividend
DSM will propose a dividend increase of about 25% to €2.30 per ordinary share over 2018, already to be reflected in the upcoming interim dividend over 2018
DSM’s performance expected to result in further dividend growth, which could lead to an expected average payout of 40-50% of adjusted (underlying) earnings

Cash allocation policy remains unchanged

Clear order of priority for deployment of cash
- Disciplined capex for organic growth: about 6.5% of annual sales
- A stable, preferably rising dividend
- Disciplined M&A, predominantly in Nutrition
- In the absence of value-creating M&A, capital to be returned to shareholders
DSM remains committed to maintaining a strong, investment grade credit rating

Video webcast and presentations

The DSM Capital Markets Day can be followed live via video webcast from 10:00-14:00 CET. The presentations can be found below.