Life Sciences and Materials Sciences DSM Capital Markets Days€¦ · environmental progress and social advances to create sustainable value for all stakeholders. DSM delivers innovative

Address:DSM Investor RelationsP.O. Box 6500, 6401 JH HeerlenThe NetherlandsPhone: +31 45 5782864Fax: +31 10 45 90275Email: [email protected]

www.dsm.com

DSM Capital Markets Days Life Sciences and Materials Sciences

Royal DSM N.V.Presentations, Vaalsbroek 2011

DSM – Bright Science. Brighter Living.™

Royal DSM N.V. is a global science-based company active in health, nutrition and materials. By connecting its unique competences in Life Sciences and Materials Sciences DSM is driving economic prosperity, environmental progress and social advances to create sustainable value for all stakeholders. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, pharmaceuticals, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. DSM’s 22,000 employees deliver annual net sales of around € 9 billion. The company is listed on NYSE Euronext. More information can be found at www.dsm.com.

2.1

2.2

• ”DSM in motion: driving focused growth” isabout growing ”the new DSM”. And of course,this growth should also lead to further creationof shareholder value.

• Sales growth, margin improvement, cashgeneration, capital and financing efficiency areall interlinked and ultimately lead to thecreation of shareholder value.

• DSM will maintain its tradition of open, reliableand transparent communication to the financialmarkets and will provide these markets withregular progress updates. The companystrongly believes that open, reliable andtransparent communication is an importantpart of shareholder value creation.

2.3

• Very important in terms of generating value forshareholders is DSM’s ability to drive organicgrowth.

• This graph shows that, aside from the recessionyear in 2009, organic sales growth since 2007was at or above the target range of 5-7%. Theaverage organic sales growth for this period(including 2009) was approximately 6%.

• H1 2011 maintained this above targetperformance, and although we expect somedrop off from this high point in H2, we areconfident that the full year figure for organicsales growth in 2011 will be above the targetrange of 5-7% as set out in ”DSM in motion:driving focused growth”.

2.4

• Sales across DSM have shown a reassuring levelof strength coming out of the 2008/2009recession.

• Not only has the business been able to recoversales numbers, we actually surpassed 2007 and2008 in 2010, and this year we are once againshowing good growth. This is a reflection of thetransformation of our business towards moregrowth businesses.

2.5

• DSM has significantly improved the quality ofits earnings. A large proportion of grouprevenues and earnings are now in high margin,high-quality businesses.

• The profitability of the continuing operations isincreasing year by year, except for therecession year. In H1 2010 we were alreadyabove the levels of 2007 and 2008, and in 2011we made further progress with an increase inprofitability.

2.6

• From the end of 2008, DSM has focused onimproving its cash position, most importantlyby creating a sustained cash mindset within thecompany. A series of steps were put in place toensure that we maintained a strong cashposition.

• The result is a strong achievement in our OWCposition, especially given the fact that ourtransformation has actually made ourfundamental OWC needs more challenging.

• The absolute level of OWC has declined sincethe end of 2008 despite considerable growth inour sales, and the percentage has declined toaround 21% in Q2 2011 and is expected to be ator below our OWC aspiration of 19% of sales atthe end of the year.

• DSM’s transformation has seen the sale ofbusinesses in the Base Chemicals and Materialscluster which had very low OWC requirements.But the businesses that we acquired,particularly Martek, have considerably higherOWC requirements due to contractualarrangements (in many cases sole supplier).Despite being a relatively small businessagainst the whole of DSM, Martek’s OWC needs

add an extra 0.5% to our OWC percentageagainst net sales.

• One of the remaining challenges is to have thequarterly OWC performance more in line withthe year end performance, at or below theOWC aspiration of 19% of sales.

2.7

• Over the last couple of years, DSM has reducedcapital expenditures from the high level of2008, improving its capital efficiency. For 2011we expect capital expenditures to be between€ 450 million and 500 million.

• The capital expenditure levels to be expectedfor the period 2012 - 2015 are between € 450and 600 million per year. The high end of therange is due to the expenditures for the secondcaprolactam line in China in the coming years(mainly 2012/13).

• For the entire 2011-2015 period € 2.5 - 2.7billion in capital expenditures is foreseen.

2.8

• DSM’s european history and heritage meansthat a considerable proportion of capitalexpenditure will inevitably be spent onmaintaining and improving operational capacityin Europe. But the clear focus of growth capitalexpenditures will be in the high growtheconomies, where DSM’s asset base willincrease rapidly.

• Recent examples of such investments include anew composite resins facility, a premix facility,the second caprolactam line in China and anexpansion of the compounding facility in India.

2.9

• When we presented our strategy ”DSM inmotion: driving focused growth” we announcedthat we wanted to ensure that we continued tosee the results of expansion but through theemployment of lower investment and with amore flexible asset base: in other words to getcomparable results with less investment.

• This ”asset intensity reduction” approach meanslooking at options to outsource and alwaysconsidering options to secure supplies orproducts on the open market before decidingto build our own production capacity. Inaddition we are designing facilities for thefuture that are more flexible and modular,reducing the investment cost but also ensuringthat we can re-use facilities as necessary — seethe example on the next page.

• Another element of the announced assetintensity reduction is the lowering of theoperating working capital. As described beforewe successfully lowered the absolute level andthe level as a percentage of sales.

2.10

• Expansion of the premix network and servicesis an integral part of DSM Nutritional Products’business strategy: as the only full value-chainplayer, DSM drives value by delivering themaximum possible number of active ingredientsto as wide a geographical area as possible. As aresult, DSM needs a large network of premixfacilities to deliver tailored products to localcustomers.

• To reduce capital costs, increase flexibility andallow for expanding the network to smallermarkets, DSM Nutritional Products, jointly withan engineering partner, has developed theconcept of standardized, modular premixplants for Animal Nutrition and Health. Themodules, which are pre-assembled pieces of aplant, are skid mounted and put together onthe target location. These low cost plants arefacilitating market development in smallerpotential growth markets and are an importantelement of DSM’s growth strategy.

• In another case, DSM and a partner havedeveloped a new business approach whichreduces upfront investment by DSM, whilstoffering the supplier the opportunity toincrease earnings based on a clear business

plan. Our pump supplier in this case is takingon the business risk of evaluating all the pumpsacross DSM’s facilities at his own cost, allowingDSM to decide which ones to replace and when,which means DSM is securing a better range ofoperating pumps, at lower cost and lower risk.

2.11

• DSM is leaving its cash allocation prioritiesunchanged: 1. CAPEX for organic growth 2. Dividend (stable and preferably rising) 3. Acquisitions 4. Cash return to shareholders

• DSM will only consider returning cash toshareholders if over a longer period not enoughcash can be allocated to the first threepriorities to bring DSM’s gearing towards a 30%level.

• DSM will continue its systematic, risk-management-oriented hedging strategy.

2.12

• DSM’s dividend policy is to provide a stable andpreferably rising dividend. During the recessionDSM kept its dividend unchanged and for theyear 2010 it increased the dividend by € 0.15(12.5%) to € 1.35 per ordinary share.

• The interim dividend of € 0.45 (+12.5%) perordinary share for the year 2011 was paid inAugust 2011. As usual, this represents one thirdof the total dividend paid for the previousyear.

• The DSM dividend will be payable in cash or inthe form of ordinary shares at the option of theshareholder. Dividend in cash will be paid afterdeduction of 15% Dutch dividend withholdingtax.

• DSM reiterates that for the coming years thecompany intends to further increase thedividend to at least € 1.50 per ordinary share,barring unforeseen circumstances and assumingthat DSM will be able to achieve its growthaspirations.

2.13

• DSM enjoys a very solid financial base. Thecompany’s gearing in H1 2011 was only 5%, andcash in hand stood at € 1.9 billion. Thecompany has no commercial paper outstanding.

• We have successfully renewed the € 500million committed credit facility in September2011, at 35bps above Euribor. The unsecuredcredit facility of € 500 million is for a minimumterm of 5 years and a maximum term of 7years. The agreements for the committedcredit facilities neither have financialcovenants nor material adverse changesclauses.

• In addition to this credit facility, DSM has acommitted credit facility of € 400 million(maturing in April 2013).

• We have updated our Commercial Paperprogram of € 1.5 billion — the terms andconditions remain the same, with only languagechanges to ensure it is updated to currentmarket practice. DSM will use the commercial—paper program to a total of not more than€ 900 million.

• The credit facilities are fully undrawn.

• Finally, we have changed our Dutch pensionplan from a defined benefit plan into a definedcontribution plan, thereby reducing thefinancial risk for DSM considerably. The changemakes the pension costs in the P&L morestable, better predictable and in line with thepayment toward the pension plan.

2.14

• DSM’s debt situation is very well under control.Most of the long-term debt will mature only asfrom 2014, and there are no covenants inoutstanding bonds.

• A forward starting swap is in place as a pre-hedge of the 10 year € 500 million bond whichwill mature on March 17, 2014 (agreed at3.42%, excluding DSM spread).

• In August 2011, DSM Treasury unwound thefixed-floating swaps (€ 500 million) concludedin Q3 2009 to profit from the interest curve dipat that moment, and to lock-in the fixedinterest until the maturity of the underlyingbonds. The total cash contribution of thisderivative as from initiation was around € 49 million.

2.15

• The US dollar net sales exposure originatesfrom the disparity between DSM’s currentproduction asset base — approximately 67% ofwhich is located in Europe — and DSM’s sales bydestination, of which only 42% is directedtowards European customers. To reduce thissensitivity, DSM prioritizes investment projectsoutside Western Europe wherever feasible.

• The Swiss franc cost exposure is a result of thefact that DSM Nutritional Products has its headoffice, two large production sites and one of itsprincipal R&D centers in Switzerland.

2.16

• DSM has in place long-term foreign currencyhedging accounting for 50% of the nettransaction exposure for US dollar, Japaneseyen and Pound sterling. There is no hedging oftranslation exposure.

• DSM operates a rolling hedge strategy (seetable above).

• The result of this strategy was an EBITDAcontribution in Q1-Q2 of € 31.5 million, withan expected EBITDA contribution for Q3 of € 22 million.

• The current hedges which are in place for 2012are: - 37.5% of the USD transaction exposure 2012

(last hedge scheduled November 2011);- USD 336 million to CHF (USD/CHF 0.887) and

US dollar 259 million to Euro (€/USD 1.398); - 50% of the JPY and GBP transaction exposure

2012 - JPY 1 billion to Euro (€/JPY 109.8) andJPY 4 billion to CHF (CHF/JPY 93.7); and GBP72.5 million to CHF (GBP/CHF 1.29).

• After the announcement by the Swiss NationalBank on 6 September, the €/CHF exchange ratemoved to 1.20. At that moment we decided to

unwind the concluded ARO in August for 2012and to conclude an ARF for the USD/CHF (lock-in to limit downward risk).

2.17

• DSM applies stringent strategic and financialcriteria to any potential acquisition orpartnership. In the screening process a firstselection is made on the basis of strategic fit.This results in a shortlist to which DSM appliesits financial criteria.

• A key strategic criterion is that the business orpartner should add or increase a leadershipposition and should add value to DSM in termsof technological and/or market competencies.

• DSM will also look for opportunities tostrengthen competencies and market positionsin the other three strategic growth drivers:expansion in high growth economies,innovation potential and sustainability.

• The following financial criteria apply: DSM isfully committed to maintaining its Single Acredit rating; any acquisition should be cashEPS accretive from the beginning and should besupportive to the other financial targets.

• In the exceptional case that a very attractiveacquisition opportunity arises of a size thatwould put pressure on financial metrics, DSMmay be willing to accept a temporary deviation

from the credit metrics commensurate with itsrating target. However, DSM believes thatSingle A ratings are the right place to be forthe company to ensure sufficient financial andstrategic flexibility at all times, and DSM wouldseek to manage its balance sheet andunderlying financials after such an acquisitionto allow us to re-align ratios with Single Aratings within a short period of time.

• There are exceptions to the cash EPS criterionfor potential acquisitions or partnerships; thisrequirement may for instance not beappropriate in the case of small innovativegrowth acquisitions.

2.18

• Above an overview is given how the recentacquisitions meet our strategic acquisitioncriteria.

2.19

• DSM has demonstrated considerable momentumin driving new acquisitions and partnershipssince September 2010, putting into place itsstrategy to move from divestment (beingtransformation focused), to growth again.

• Acquisition activity has taken place across thebusiness, in all cases strengthening the newcore and meeting our strategic objectives.

• Martek was clearly the single largesttransaction, but we also added two naturalcarotenoids companies into our Nutritionbusiness, as well as two Asian businesses to ourPerformance Materials cluster.

• The addition of C5 Yeast Company brings intoour Bio-based Products and Services EBA a veryexciting technology extension that gives DSMclear leadership in second generation biomassfor biofuels and biomaterials.

• A range of partnership deals have also beenstruck — all of which allow us to meet morecustomer needs more quickly and moreeffectively than would have been the case ifwe were to have pursued ‘go it alone’strategies.

2.20

• As indicated in ”DSM in motion: driving focusedgrowth”, DSM makes most progress when weuse our growth drivers together.

• The majority of our acquisition and partnershipactivity has been focused on the high growtheconomies. DSM has made it clear that theseare the economies where it sees the majorityof future growth during this strategy period.

• Moreover, activity was focused on the fastestgrowing core of DSM: Nutrition, PerformanceMaterials and EBAs.

2.21

2.22

• DSM Nutritional Products continues to drivevalue by: - Market demand growth - Operating its core business as effectively as

possible - Emphasizing differentiation and innovation

through new products and services - Extend geographic reach to deliver tailored

solutions to even more customers.

• The main sensitivities are listed above, ofwhich the currency exposure and especially theSwiss franc currently have the biggest impact.

2.23

• DSM has been consistent in its view thatpartnerships offer the most advantageous routeto drive value in our pharma business.

• The Anti-Infectives joint venture DSM SinochemPharmaceuticals is established; further valuewill be delivered here through the completionof the JV’s new 6-APA plant in China.

• DSM is actively pursuing a similar partnershipfuture for its Pharmaceutical Productsbusiness, as well as delivering more valuethrough higher asset utilization and growing itsbio pharma business.

2.24

• Continuing to meet customer needs for higherperforming, more sustainable products — whichin turn enjoy higher margins and above averagegrowth — will drive value creation in DSM’sPerformance Materials businesses. The DSMDyneema business and the innovations at DSMResins and DSM Engineering Plastics are goodexamples of this.

• In addition, DSM believes that general marketgrowth above GDP level, a recovery in thebuilding and construction sector over thecourse of this strategy period as well as activemargin management to ensure that DSM passeson raw material price rises will enable thecompany to achieve its target of an EBITDAmargin of at least 17%.

2.25

• Growth in our Polymer Intermediates businesswill be driven by expansion in China in 2014 tosupport growing caprolactam demand. Bymarrying this with continual operationalexcellence, we are confident we can deliver anEBITDA performance of around 14% over theeconomic cycle.

2.26

• For 2013 two profitability targets have beenset: an increase in EBITDA to a level of € 1.4 -1.6 billion and an increase in Return on CapitalEmployed (ROCE) to more than 15% in 2013.The EBITDA and ROCE targets are acombination of organic growth of DSM’s corebusinesses and acquisitions and partnerships,the main contribution being expected to comefrom the Nutrition and Performance Materialsclusters.

• EBITDA growth in Nutrition is expected to berealized through sales growth of 2% above GDPwhile maintaining an EBITDA margin of at least20% towards 23%. Further sales and EBITDAgrowth will come from acquisitions andpartnerships such as the recently completedacquisition of Martek Biosciences Corp.

• In the Performance Materials cluster, EBITDAgrowth is expected through sales growth atdouble the GDP growth rate on the one hand,and margin improvement towards at least 17%on the other. The margin improvement isexpected to come from active marginmanagement, the effect of operational gearingdue to a recovery of the building andconstruction market, increasing sales of

sustainable innovative products with higheraverage margins, and an above average growthin Dyneema®. Further sales and EBITDA growthwill come from acquisitions and partnerships.

2.27

• DSM is confident that it will be able to meet itstarget of delivering a Return on CapitalEmployed (defined by DSM as operating profitas a percentage of capital employed) of atleast 15%.

• Based on our aspired 2015 sales growth andmargin improvement in our existing businesses,an EBIT improvement of 25-50% is expected. Onthe other hand, capital employed will onlyincrease by 10-15% based on the expectedcapital expenditure, depreciation andamortization and required additional OWC dueto the higher sales level. This will allow us tomove from a ROCE of 14.6% in 2010 to one ofcomfortably more than 15%.

• In doing so, this gives us room to makeacquisitions, which are, normally, dilutive toROCE in the first years.

2.28

• H1 2011 gives a clear indication that DSM iswell on its way towards hitting the ambitioustargets it has set itself for 2013 and for thestrategy period up to 2015. EBITDA improvedconsiderably compared H1 2010, and ROCEexceeded 15% even including the dilutiveeffect of the very recent Martek acquisition.

• DSM comfortably exceeded the organic salesgrowth target for the period. Sales growth inChina and across all high growth economies wasvery satisfactory, demonstrating the resilienceof these markets in contrast to the softness ofEurope and North America. And innovationsales — measured as sales from innovativeproducts and applications introduced in the lastfive years — reached 18%, close to our target ofapproximately 20% of total net sales.

2.29

• The first year after announcing ”DSM in motion:driving focused growth” has been successfulboth in terms of meeting our targets and seeingclear progress across all of our four growthdrivers.

• The strength of DSM’s business after thetransformation, and its strategy for the future,has been confirmed by the strong resultsgenerated at a time of economic uncertainty,in terms of both sales and profits.

• At the same time, DSM has a very solid balancesheet, allowing it to pursue further acquisitionsto support organic growth and leverage ourstrengths.

• DSM confirms its 2011 outlook.

2.30

DISCLAIMER

This document may contain forward-looking statements with respect to DSM's future(financial) performanceand position. Such statements are based on current expectations, estimates and projections of DSM andinformation currently available to the company.

Examples of forward-looking statements include statements made or implied about the company’s strategy,estimates of sales growth, financial results, cost savings and future developments in its existing business aswell as the impact of future acquisitions, and the company’s financial position. These statements can bemanagement estimates based on information provided by specialized agencies or advisors.

DSM cautions readers that such statements involve certain risks and uncertainties that are difficult to predictand therefore it should be understood that many factors can cause the company's actual performance andposition to differ materially from these statements.

These factors include, but are not limited to, macro-economic, market and business trends and conditions,(low-cost) competition, legal claims, the ability to protect intellectual property, changes in legislation,changes in exchange and interest rates, changes in tax rates, pension costs, raw material and energy prices,employee costs, the implementation of the company’s strategy, the company’s ability to identify and completeacquisitions and to successfully integrate acquired companies, the company’s ability to realize planneddisposals, savings, restructuring or benefits, the company’s ability to identify, develop and successfullycommercialize new products, markets or technologies, economic and/or political changes and otherdevelopments in countries and markets in which DSM operates.

As a result, DSM’s actual future performance, position and/or financial results may differ materially from theplans, goals and expectations set forth in such forward-looking statements.

DSM has no obligation to update the statements contained in this document, 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’slatest Annual Report, a copy of which can be found on the company's corporate website, www.dsm.com

6.41

6.42

6-APA 6-amino-penicillanic acid AGI AGI Corporation TaiwanAMEA Asscociation of Machinery and

Equipment AppraisersANH Animal Nutrition & HealthAPI Active pharmaceutical ingredientsAR Anti-reflectiveARA Arachidonic Acid B&C Building and ConstructionB2 Vitamin B2B2C Business-to-ConsumerB6 Vitamin B6BCM Billion Cubic MeterBF Bio-FuelBMM Biomedical Materialbn billionBP&S Bio-based Products & ServicesC/E Central / EastCAGR Compound Annual Growth RateCAPEX Capital ExpendituresCEO Chief Executive OfficerCFO Chief Financial OfficerCH4 MethaneCHF Swiss francCHP Combined heat and powerCIO Chief Innovation OfficerCIS Commonwealth of Independent

StatesCMD Capital Markets DaysCMO Contract Manufacturing

OutsourcingCRM Customer Relationship

ManagementCTO Chief Technology OfficerDA Depreciation and amortizationDAI DSM Anti-InfectivesDBM DSM BioMedicalDBPS DSM Bio-based Products &

ServicesDD DSM DyneemaDEP DSM Engineering PlasticsDEP DSM Engineering PlasticsDHA Docosahexaenoic acidDPP DSM Pharmaceutical ProductsDS Dietary SupplementsDSP DSM Sinochem PharmaceuticalsE&E Electrical & Electronic IndustryEBA Emerging Business AreaEBITDA Earnings Before Interest, Taxes,

Depreciation and Amortization ECO+ The Greenhouse DialogueEFSA European Food and SafetyEP Engineering plasticsEPA Environmental Protection AgencyEPS Earnings per Share

EU European UnionF&B Food & BeverageFD Finished dosage / final doseFDA Food and Drugs AdministrationGBP Pound Sterling GDP Gross Domestic ProductGHG Greenhouse GasGUR Global Utilization RateHGE High Growth EconomiesHMDA Healthcare distribution

management associationHQ HeadquartersIFRS International Financial Reporting

StandardsINF Infant FormularJPY Japanese YenJV Joint VentureKA KuibyshevAzot OJSCKGA Ketoglutaric Acidkt kilotonLATAM Latin AmericaLCD Liquid crystal displaym millionM&A Merger & AcquisitionsMB Managing BoardNGO Non-governmental organizationOEM Original equipment manufacturerOWC Operating Working CapitalP&L Profit and Lossp/a per annumPA6 Polyamide 6PEN PenicillinPI Polymer IntermediatesPM Performance MaterialsPTG The Polymer Technology GroupPUFA Polyunsaturated fatty acidsR&D Research and DevelopmentROCE Return on Capital EmployedSSC Shared Service CenterSSP Supplies Service PartnerUD Unidirectional UHMwPE Ultra-High Molecular Weight

PolyethyleneUOR Urgent Operational RequestsUS United States (of America)US$ United States dollarUSA United States of AmericaUSD United States dollarUV Ultra VioletVA Vitamin AVE Vitamin EVOC Volatile organic compoundsy-o-y Year-on-yearYTD Year-to-Date

Abbreviation ExplanationAbbreviation Explanation