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1.1
1.2
1.3
• The first half year results of DSM show a great • Approximately 30% concerns activities in which
financial performance with sales +33% and net DSM is a European leader: polymers, bakery
earnings +85% over H1 1999. DSM expects ingredients and composite resins.
earnings per share for the whole of 2000 to be
more than € 5.
• DSM’s financial ratios are solid. Following the
acquisition of Gist-brocades in 1998, DSM
succeeded in bringing its financial ratios back in
line with its long-term objectives as early as
1999. In the first half of 2000 these ratios
improved further:
- Solvency ratio 41%
- Net debt / group equity 50%
- EBITDA / fin. income & expense 20
- EBIT/ fin. income & expense 13
These ratios form a solid platform for further
growth.
• In 1999, about 80% of DSM’s overall sales were
generated in markets where DSM holds a top-3
position in terms of market share.
• Almost 50% of sales is realized by businesses in
which DSM holds a global leadership position.
These activities are fine chemicals, anti-infectives,
food ingredients, elastomers, radiation-curable
products, powder coating resins, engineering
plastic products, caprolactam and melamine.
1.4
• DSM has a solid track record of meeting its
strategic and financial objectives. From the mid-
nineties onwards, DSM has consistently pursued
the following strategy:
- generate profitable growth
- shift the portfolio toward Life Science Products
and Performance Materials, in other words the
higher value added activities
- focus on more attractive end markets
- accelerate growth in Life Science Products
- selectively grow in Performance Materials and
improve the performance of these businesses
- keep Polymer & Industrial Chemicals in top
shape.
• In 1998 DSM started a corporate wide
Operational Excellence programme in order to
realize additional value and announced to target
for € 5 - 7 earnings per share in 2002.
1.5
• The prime driver of DSM’s current strategy is
Profitable Growth.
• In 1994, DSM’s sales totalled € 4 billion. The
estimate for the total sales in 2000 is about
twice that figure. Autonomous volume growth
accounted for nearly two-thirds of the increase.
The remainder is the net effect of acquisitions
and divestments. The most important
acquisitions realized in this time frame were:
Gist-brocades in 1998, Vestolen in 1997 and
Chemie Linz and Deretil in 1996.
• In the next chapter the good profitability level
of DSM is elucidated.
1.6
• Over the last 5 years DSM realized a major shift
in its portfolio towards Life Science Products and
Performance Materials via organic growth,
performance improvement, and a series of
acquisitions especially in the LSP cluster.
• In 1995 Life Science Products and Performance
Materials accounted for almost 39% of DSM’s
total sales volume and generated 10% of the
operating result. In 1999 these clusters
accounted for 55% of the total sales volume and
53% of the operating result 53%.
1.7
• DSM also managed in the second half of the last
decade to position DSM in markets with higher
growth and earnings potentials. The development
of the top-5 end-use markets for DSM’s products
reflects the shift in DSM’s portfolio of activities.
This has resulted in:
– an increased focus on selected end markets.
The share in total sales accounted for by
DSM’s top-5 markets went up from 55 to 64%
in 6 years. All of these end markets are served
by various business groups in different clusters.
– a more attractive set of major end markets.
Pharmaceuticals, Electrics & Electronics, and
Food Intermediates have replaced less
attractive end-use markets such as Agriculture
(mainly fertilizers), Consumer plastic products
(mainly Curver) and Building & Construction.
• As a result of the intended acquisition of
Catalytica Pharmaceuticals, the share of DSM’s
sales to the pharmaceutical market will represent
more than 20% of total corporate sales.
1.8
• DSM has consistently grown its Life Science
Products cluster for quite some years, based on
autonomous volume growth substantially
accelerated by acquisitions.
• The main acquisitions were:
1987 Andeno
1988-1995 Smaller companies
1996 Chemie Linz and Deretil
1998 Gist-brocades
• Through these acquisitions, DSM not only
stepwise expanded significantly the scope of
these activities, but also enlarged the platform for
further autonomous growth of the Life Science
Products cluster.
• The intended acquisition of Catalytica will boost
total sales of the DSM Life Science Products
cluster to well over € 2 billion.
1.9
• Substantial restructuring of the Performance • Net sales growth of the cluster has been modest
Materials cluster has led to a major improvement in the recent past, since a firm autonomous
of financial performance. To achieve this DSM: growth has been negated by divestments. DSM
- realized a European leadership position in expects sales volumes to increase substantially as
structural resins through the acquisition of the from now, as the repositioning of the portfolio
BASF business has been finalized and existing businesses are in
- divested € 300 million sales of non-core excellent shape for capturing profitable growth.
activities
- EPP Transparent Sheet
- Compounds and Mouldings of thermoset
resins
- NBR
- restructured and reduced costs in all business
groups
- strengthened the position of engineering
plastic by major investments in PA-6
polymerization (Europe and USA) and
expanded compounding activities in all major
geographies
- confirmed global leadership positions in EPDM
and powder coating resins
- grew the radiation curable products, stanyl
and dyneema businesses, which now have
excellent profitability levels.
1.10
• Petrochemicals have been profitable cash
generating businesses for DSM with excellent
financial returns through the cycle. DSM has
achieved a European leadership position based on
an excellent low cost position
• DSM’s cost position is favorably impacted by the
fact that the production sites in Geleen and
Gelsenkirchen are located close to customers and
that the capacity per site is higher than that of
our peers’ sites. Both PE and PP businesses
operate from fully controlled, highly integrated
sites connected with the ARG-pipeline grid. The
majority of other producers are faced with a high
complexity in terms of site structure and
ownership patterns. DSM is the sole Polymers
company producing only on sites ranking in the
group of twelve strongest sites in Europe
(accounting for 60% of the total C2/C3-output).
• Over the past ten years the the combined
European marketshare of DSM’s PE and PP
businesses have doubled to 12%.
1.11
• DSM’s Industrial Chemicals business is also in
top shape. The main focus is on strengthening
the global leadership positions in caprolactam
and melamine.
• In caprolactam DSM made good progress in
developing the HPOplus and butadiene-based
processes. DSM started a PA-6 recycling plant in
the USA and increased global production capacity
by 15%. In addition DSM is close to realizing of a
production base in Asia through our Nanjing
project in China.
• DSM’s Melamine business has installed a third-
generation urea plant in Geleen, realized major
cost-savings through a successful restructuring
project in Europe and crept/debottlenecked their
global production capacity by 20%. The
development of the new SLP technology for
melamine production is successfully finalized and
ready to be used in a new 40 kt plant in the near
future.
1.12
• All in all DSM is well on track to achieving all
the strategic and financial targets set in the
previous “Priorities for Profitable Growth”-
strategy, including:
- strong top-line growth
- portfolio shift toward Life Science Products
plus Performance Materials, by:
• major steps in Life Science Products
• performance improvement in Performance
Materials
- significant earnings contributions from the
Operational Excellence programme
- earnings per share of more than € 5
• These results are the fruits of a very consistent
strategy of DSM over the last decade, focusing
the portfolio on leadership positions in businesses
that add more value and are less cyclical.
• The next chapter will elucidate further that DSM
will achieve the financial targets for 2002.
1.13
• As the targets for 2002 set in the CSD*1997
were likely to be achieved, DSM was in a
position to formulate a challenging vision beyond
2002 in the CSD 2000. DSM shifted the
goalposts to 2005. That is why the outcome of
the CSD 2000 is referred to as Vision 2005.
• Major changes are taking place in the current
business environment. These have been
examined in-depth. On the following pages a
brief overview will be given. Subsequently, two
factors will be highlighted:
- the concentration trends across many
industries and their implications for DSM
- the low market capitalization of DSM.
• DSM also reviewed the developments in all its
current business clusters thoroughly. A summary
of the growth opportunities is presented.
* CSD stands for Corporate Strategy Dialogue, an
internal excercise DSM undertakes roughly every
3 year to evaluate progress and formulate new
strategic targets.
1.14
• As generic trends DSM seas market constraints - New business models
decreasing, while market and financial Specialized new firms often adopt new business
transparency increases. Also the technological models. In the Life Science Products field
revolutions in e.g. ICT, biotech, new materials specialized Contract Manufacturing
and alternative energy lead to accelerating Organizations, Contract Research Organizations
innovation. and Service companies have arisen. Similarly, ICT
enables new business forms like auction sites and
• DSM identified five main consequences of these specialized logistical outsourcing.
trends:
- Concentration:
Concentration is increasing in nearly all industrial
activities, including those of DSM. Concentration
also occurs in neighboring industries like oil and
pharma, albeit with different consequences for
DSM, as will be illustrated hereafter.
- Price pressures:
Increasing market transparency primarily leads to
price pressures since customers can more easily
compare offerings across currencies and
geographies. Price erosion may well occur before
cost reduction is achieved, leading to margin
erosion.
- Specialization/ Focus
Financial market pressures on conglomerates
leads to a tendency to create ‘pure plays’ by
unbundling heterogeneous activities. Increased
market transparency also leads firms to focus on
what they can do best. Finally, the innovation
waves (e.g. biotech) lead to specialization in
order to keep up.
1.15
• The oil sector has shown a rapid consolidation in
the past few years.
• This oil-driven consolidation leads to
petrochemical consolidation in Europe. BP
Amoco, and ARCO, Exxon & Mobil and Total,
Fina, and Elf have all chosen to integrate their
petrochemical operations. Other companies have
combined their petrochemical business into new
entities such as Borealis and Basell.
• These players operate on a global basis.
Therefore, consolidation is accelerating not only
in Europe, but worldwide. Examples in the USA
are Chevron/ Phillips and Equistar.
• The question for a mid-sized player like DSM is
whether and if so, how our petrochemicals
businesses should participate in this global
consolidation.
1.16
• Consolidation is also accelerating in the
pharmaceuticals and food sectors, which are
substantially more fragmented than the oil
industry.
• Contrary to the oil industry, however, this
consolidation leads to the spin-off in the form of
new companies in the field of our Life Science
Products and Performance Materials activities.
• DSM regards this as a temporary phase after
which consolidation of the pharma and food
supplier base will follow.
• In the meantime these new companies of which
only a few examples are shown above offer
attractive opportunities to DSM for swaps and
acquisitions.
1.17
• DSM benchmarked its performance on a number
of financial parameters such as sales growth and
EBIT(DA) growth, etc. On these measures DSM
can show at least an equivalent performance to
the peer group.
• In addition DSM’s earnings stability has increased
substantially thanks the aforementioned portfolio
shift.
• Nevertheless, DSM’s P/E and EV/EBIT(DA) is
lower than any category of peers, be it
commodity, hybrids or specialties.
• There may be several reasons to explain this
underperformance, for instance the market’s
perception that DSM still is a cyclical stock with
predominantly a commodity profile. Another
explanation may relate to concerns about our
portfolio-breadth relative to our company size.
• DSM recognizes the need for substantial rerating
and appreciation of our market capitalization.
1.18
• The market for pharma intermediates is growing • The food ingredients market has a size of approx.
at a rate of 8-12% per year. This growth is € 35 billion and is growing at a rate of approx.
spurred by a healthy growth of end markets and 5% per year. Important trends in the end-use
continued outsourcing of primary and secondary market are the drive for a greater variety,
manufacturing of drug substances by large convenience, diet and health issues (e.g.
pharma houses. nutraceuticals).
• A significant consolidation has taken place • The food ingredients business is still fragmented
already. The top-10 pharma companies now as the top-10 represent 35% of the total market.
represent approx. 40% market share, up from With a total sales of approx. € 800 million DSM
25% in 1990. The same trend can be observed belongs to this top-10 and holds interesting
on the supplier side, which however is still more positions in dairy and bakery ingredients, based
fragmented, with a global market share of 20% on leading positions in fermentation and enzyme
for the top-10 group. For this reason DSM technology.
expects the concentration trend among suppliers
to continue. • In the food ingredients business, too, DSM
expects further concentration, which will provide
• Through the intended acquisition of Catalytica, opportunities to strengthen and to expand DSM’s
DSM will confirm its global leadership as supplier product scope.
to the pharmaceutical industry, although its
market share of approx. 5% is still modest. Taking
into account DSM’s broad chemical and
biotechnological toolbox, DSM has an excellent
platform for further aggressive growth both
autonomously and by acquisitions.
1.19
• For DSM, the Performance Materials cluster • A major restructuring, of the cluster, which
comprises ‘materials’-positions only and started in 1996 and involved acquisitions,
encompasses activities in synthetic rubbers, repositioning and selective divestments has led to
super strong fibres, engineering plastics, powder a substantial strengthening of the performance,
coating resins, fiber optic materials, composite clearly illustrated by improved financials and
resins and, until now, also engineering plastic increasing sales growth from1998. Selective
products. Most of our peers also include specialty growth via concentric acquisitions is possible
chemicals under this heading, for example around this core position.
catalysts, additives, specialty fibres and functional
chemicals. • Most performance materials/specialty chemicals
businesses are global, show healthy growth
• DSM will divest its Engineering Plastic Products figures of 5-10% per year and are financially to
business group in spite of its increasingly good the major players as they offer stable earnings.
performance. Thanks to a successful restructuring
programme in the recent past the business • Ongoing industry restructuring in the PM/SC-
prospects are excellent and EPP is poised to enter field lead to ample opportunities for further
a further stage of development. Given EPP’s growth by acquisitions. DSM is well-positioned to
stand-alone position in the portfolio of DSM and take advantage of these opportunities.
different success factors due to its polymer
processing and distribution characteristics, DSM
believes we are not the best parent for this
business to grow EPP further to its full potential.
1.20
• DSM has achieved a European leadership • In industrial chemicals like melamine and
position in petrochemicals. Its petrochemical caprolactam DSM a global leader based on
operations have the largest capacities per site in marketshare and (proprietary) technology
Europe. DSM can strengthen this position even positions. Moreover, these businesses provide
more by implementing an attractive profitable significant integration benefits: caprolactam with
capacity expansion program in Geleen with total engineering plastics (PA6) and melamine with
investments of less than € 1 billion. This program DSM’s urea-technology. DSM has the ambition to
involves three interrelated projects: further leverage these positions globally by:
- a worldscale tubular LDPE- plant of 400 kt - constructing a melamine plant based on SLP
based upon proprietary technology technology
- a gas-phase PP-plant of 350 kt (the latter - finalizing a caprolactam joint venture in
replacing two slurry plants) and Nanjing (China) and introducing new DSM
- a corresponding expansion of the cracker technology to scale up the plant.
capacity with approximately 550 kt C2 and
250 kt C3.
• DSM is also participating in the scoping of a C3
pipeline grid similar to the existing C2 grid in
cooperation with other major petrochemicals
producers in order to also improve its C3-
feedstock flexibility.
1.21
1.22
• Given the abundant opportunities for growth in
all clusters, DSM used the above list of criteria
for evaluating the various strategic options.
• Some of these criteria DSM has consistently used
for years, like:
- realize profitable growth
- focus on leadership positions and growth
markets
- reduce cyclicality
- improve our geographical spread
• In CSD 2000 some important evaluation criteria
are added:
- the consequences of concentration trends for
the leadership positions
- the desire to increase the market
capitalization, while maintaining a sufficiently
large corporate size, particularly in terms of
financial critical mass.
1.23
• DSM wants to further focus on leadership
positions in Life Science Products and
Performance Materials, thus accelerating the
portfolio shift. This strategic direction is called
Vision 2005.
• Vision 2005 is in line with the current strategy to
further focus on leadership positions in
businesses that add more value and are less
cyclical. In addition, it takes into account the
different effects of consolidation for the Life
Science Products and Performance Materials
businesses versus the Petrochemicals businesses.
• Vision 2005 also addresses the wish to increase
DSM’s market capitalization which at present is
related to a perceived cyclicality and portfolio-
breadth.
• Vision 2005 as a strategic direction will result in
increased Focus and Value.
1.24
• The basic policy of DSM remains to exploit the consolidation. As a consequence DSM prefers to
full growth potential of all its businesses. DSM complete this investment programme jointly
wants to support all growth opportunities that with a global industrial partner. In preparation
create substantial value. for this, DSM will create a separate entity
within DSM, consisting of the Hydrocarbons,
• However, DSM has reached the conclusion that, Polyethylene and Polypropylene business
given the different dynamics of the various groups. The relationships between this
businesses and given the corporate petrochemical entity and other DSM units will
considerations, different approaches need to be be transparent and at arm’s length. This internal
adopted in exploiting the full business value and separation is expected to be finalized in Q1
growth potential of our businesses: 2001.
- In Life Science Products and Performance
Materials business DSM has achieved critical
platforms for accelerated growth through
organic expansion complemented with focused
acquisitions. In these still fragmented business
environments there are plenty of opportunities
to leverage our leadership positions. Similarly,
DSM’s global and technological leadership
positions in caprolactam and melamine enable
further expansion.
- In the petrochemicals area, DSM’s target is to
enable these businesses to strengthen their
European leadership position through the
investment programme in Geleen. In order to
exploit their potential to the full, DSM wants to
enable them to participate in the global industry
1.25
• Execution of our Vision 2005 requires a • Such a coordinated implementation allows DSM
coordinated implementation: to maintain sufficient corporate size and financial
critical mass, while assuming a completely
- Petrochemicals different profile.
DSM will start to create a separate
petrochemical entity within DSM, consisting
of the business groups Hydrocarbons,
Polyethylene and Polypropylene. The
relationships between this petrochemical
entity and other DSM units will transparent
and at arm’s length. This internal separation is
expected to be finalized in Q1 2001. This
petrochemical entity will prepare the said
Geleen investment programme. Execution of
which is planned for 2001-2004. It is the
preference of DSM to complete this program
with an industrial partner allowing the
business to participate in the global industry
consolidation.
- Life Science Products and Performance
Materials & Industrial Chemicals
In the same timeframe of 2001-2004 the
accelerated growth of Life Science Products
and Performance Materials will occur. DSM
will continue to build on the global leadership
positions in caprolactam and melamine.
1.26
• No matter how we view ourselves, the current • With this profile DSM will be rank among the
profile makes the world see DSM as a ‘Specialty Chemicals’ peer group which presently
hybrid/commodity company with earnings consists of companies like the ones listed in the
movements determined by commodity business. slide. Within this peer group, DSM aims to
This is why DSM is categorized among hybrid realize a clear top position in 2005.
and commodity companies such as BASF,
DOW/UCC, Exxon Mobil Chemicals, etc.
Within this group DSM is a medium sized
company striving for a place in the global top-10
at best.
• The implementation of Vision 2005: Focus and
Value will complete DSM’s transformation from
the commodity company of the eighties via the
hybrid company of the nineties to a specialty
company in 2005.
• DSM aims for an overall company size of around
€ 10 billion in sales, of which 80% will be in the
areas of Life Science Products, Performance
Materials and Specialty Chemicals. The
remaining 20% will predominantly relate to our
well-integrated, global positions in caprolactam
and melamine.
1.27
• DSM’s current portfolio of Life Science Products
(including the intended acquisition of Catalytica),
Performance Materials and Industrial Chemicals
is about € 5 billion, € 4 billion in Specialties and
€ 1 billion in Industrial Chemicals. DSM wants to
double this part of its portfolio by a combination
of autonomous growth and acquisitions.
• Petrochemicals will follow its own development
and participate in the global consolidation of this
sector at a well-timed moment linked to the
realization of the other part of Vision 2005.
• DSM will finance this transformation of the
business portfolio using retained earnings,
revenues from divestments and some additional
debt.
• The shift in portfolio from the present 60% to
80% in ‘Specialties’ will substantially increase the
earnings stability and allow for further profitable
growth at EBITDA levels of 18 to 20% of sales.
• DSM expects that this improvement of the profile
of the company will result in more than a
doubling of the market capitalisation by 2005.
1.28
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