The Performance Materials cluster comprises the business groups DSM Engineering Plastics, DSM Dyneema and DSM Resins.

The business groups specialize in the manufacture of technologically sophisticated, high-quality products that are tailored to meet customers’ performance criteria. The products are used in a wide variety of end-use markets: the automotive industry, the aviation industry, the electrical & electronics industry, the sports and leisure industries, the paint and coatings industry and the construction industry.

With a global market share of about 5% DSM Engineering Plastics is one of the world leaders in polyamides (polyamide 6, polyamide 46 and polyamide 66), polyesters (PBT, PET and TPC), polycarbonate (PC and PC blends) and extrudable adhesive resins. DSM Engineering Plastics is the global leader in high-heat polyamide. The materials produced by the business group are used mainly in technical components for the electrical and electronics, automotive, engineering and packaging industries.

The engineering plastics market has grown at a rate of about 6% per year in the last few years, higher than average worldwide GDP growth. The largest growth area has been Asia Pacific, most notably China and India, where growth has been in the range of 10% per year, fueled by local demand and a shift of manufacturing to the region.

In the second half of 2008, however, the market for engineering plastics was faced with an unprecedented decline in demand following a strong decline in end-markets, in combination with significant destocking due to scarcity of credit and the rapid decrease in the price of raw materials. The strong decline in the end-markets was a result of both the turmoil in the financial markets and an economic recession in the United States and Europe. DSM Engineering Plastics was faced with strong headwinds in the last few months of the year and temporarily stopped production at several plants to align inventories with the lower demand.

Heat-resistant resins are the product area that has shown the highest growth within the engineering plastics market in recent years. DSM Engineering Plastics is active in this market with Stanyl^® and the newly introduced Stanyl^® ForTii™.

In automotive DSM Engineering Plastics’ products are used in the engine compartment and in the exterior and interior of the vehicle. Applications include turbo parts and airbag containers. The replacement of metal to reduce weight and fuel consumption continues to be a high growth area as consumers and car manufacturers alike increasingly focus on smaller, lighter and more economical cars with improved fuel efficiency.

With interconnect components from Stanyl^® DSM Engineering Plastics is a leading supplier to the electronics industry, benefiting from trends that call for increased connectivity in the world. With Akulon^® polyamide 6 DSM has a European leadership position in the food packaging industry. To become a leader in the food packaging industry in Asia Pacific as well within two years, DSM Engineering Plastics opened a polymerization plant in China.

In the coming years DSM Engineering Plastics wants to further strengthen its leadership position with a strong focus on performance materials and specialties, while innovation programs continue unabated despite the more difficult market conditions. As part of its ambitious investment program, four new plants came on stream in 2008.

Apart from the aforementioned polymerization plant in China for Akulon^® polyamide 6, the second Stanyl^® polymerization plant was opened in Sittard-Geleen (Netherlands), doubling existing capacity.

A green field compounding site in Pune (India) doubled DSM’s capacity in India after it started production in the fourth quarter of the year. In April, DSM opened its market development plant for Stanyl^® ForTii™, the world’s first new polymer in the new millennium.

As a result of increasing economic headwinds, especially in the last few months of the year, the markets for engineering plastics contracted in 2008. DSM Engineering Plastics was faced with 6% lower sales and a negative operating result in 2008, as a result of a decline in demand from the automotive and electronics industries. Both markets increasingly felt the impact of reduced consumer spending.

A temporary production stop at several facilities in the last few months of the year combined with the lower sales level resulted in a strong decline in operating profit in 2008. In the short term, the focus will be on navigating through the current difficult market situation while continuing the innovation programs as DSM Engineering Plastics prepares to seize opportunities once a recovery sets in. For the longer term, DSM Engineering Plastics continues to target a yearly sales growth of 10% via innovation and expansion.

DSM invented and developed Dyneema^®, a high-modulus polyethylene fiber made from Ultra High Molecular Weight Polyethylene (UHMWPE). It is the strongest fiber in the world on a weight-for-weight basis. It floats on water and is extremely durable and resistant to moisture, UV light and chemicals.

Dyneema^® fiber is an important component in ropes, cables and nets in the fishing, shipping and offshore industries. It is also used in safety gloves for the metalworking industry and in fine yarns for applications in sporting goods. In addition, it is applied in bullet-resistant armor and clothing for law-enforcement personnel and the military. Dyneema Purity^® is a special grade for applications in the medical sector.

DSM produces Dyneema^® fiber and UD (unidirectional) in Heerlen (Netherlands) and in Greenville, North Carolina (United States) through its proprietary gel-spinning process. In 2008 DSM completed the commercial introduction of a new tape technology, manufactured at a dedicated facility in Flaach (Switzerland). DSM Dyneema is also a partner in a UHMWPE fiber manufacturing joint venture in Japan.

DSM Dyneema is expanding around the world in selected, high value-in-use applications and markets offering high profitability. The business group will continue to focus on the further development of ultra high-performance polyethylene materials and technologies.

The Dyneema^® fiber was invented at DSM’s research laboratories in the late 1960s, the proprietary gel-spinning manufacturing process was developed and patented in 1978. Commercial production started in 1990.

Between 1998 and 2008 sales volumes for DSM Dyneema rose sixfold and the business clearly outgrew all direct competitors. Demand for light but strong, high value-in-use material continues to show steady and rapid growth, driven by a range of social and economic factors such as the general increase in safety awareness in production industries, an increasing demand for personal-safety products, the growing demand for easy-to-handle, durable materials in the marine industry and the increase in leisure time and prosperity.

DSM Dyneema’s position in the market relies on strong collaboration down the value chains in which it operates. The business group not only gives focus to direct buyers of Dyneema^® fiber, but also provides support to the customers’ customers in the form of processing and application know-how. Support is aimed at co-development of innovative new applications and improved products.

At the same time, the business group protects its current and future market positions through market-driven innovation, increased customer intimacy and an active branding policy, supported by a strong manufacturing and technological base. This is backed by an active policy to protect DSM’s intellectual property.

The business group continued its growth path in 2008. All markets for DSM Dyneema products showed growth, and sales increased in all geographic regions. Sales growth was particularly strong in North America and Asia. Total sales increased by 18%. DSM Dyneema’s operating profit was up from 2007 as a result of higher volumes as capacity further increased during the year.

In April 2008, DSM Dyneema announced plans for a substantial capital expenditure program, expected to involve up to
USD 450 million, to increase production capacity to enable the business group to capitalize on expected continuous growth in demand especially in the United States but also in the rest of the world.

DSM Dyneema is set to begin the construction of a large-scale manufacturing facility in Greenville for its new proprietary tape technology. This facility, planned to be on stream at the beginning of 2010, is a key component of the investment program of USD 450 million. DSM also is expanding capacity for UD (UniDirectional) and fiber.

In addition to the USD 450 million program, DSM Dyneema will build the first dedicated line for manufacturing Dyneema Purity^® fiber at the Greenville facility. The line is expected to be operational by mid 2010.

In September 2008, DSM Dyneema successfully brought on stream substantial additional raw material capacity to support future growth of the business.

Looking ahead, DSM Dyneema expects its growth path – sales have grown by more than 15% per year in recent years – to continue and accelerate as new capacity comes on stream in the coming years with above-average profit margins.

With 2008 sales of €1,231 million, DSM Resins is the largest business group in the Performance Materials cluster. DSM Resins is a leading global player in the manufacturing and sale of high-quality resins. The group’s products are used in a wide variety of everyday applications.

By focusing on value-added and eco-friendly solutions, DSM Resins is able to capture many growth opportunities thanks to its market-driven innovation efforts. The group consists of four business units: DSM NeoResins+, DSM Powder Coating Resins, DSM Desotech and DSM Composite Resins.

In 2008 DSM Resins made further progress in all of its four business units and introduced a broad range of new, innovative products. These will contribute to the ambition of achieving strong sales growth towards 2010.

DSM Resins aims to achieve about €250 million in extra sales in 2010 through innovation. By the year 2010, 20% of the resins portfolio will be based on new products. At the same time, the existing product portfolio will be rejuvenated.

However, towards the end of the year the business group encountered more difficult market conditions in combination with significant destocking by customers. This resulted in a sales decline of 7% for the year and increased pressure on operating profit in the last few months of the year. DSM Resins ended the year with a lower operating profit.

During the year the construction of a new factory for waterborne resins in Meppen (Germany) was completed. In China, a new ink manufacturing facility was opened in Xinghou for DSM Desotech. Construction of a new factory for waterborne emulsion resins in Waalwijk (Netherlands) is on schedule. The factory will be opened in Q1 2009. DSM NeoResins+ announced a capacity expansion for waterborne polyurethane resins in Parets (Spain). Also a feasibility study to expand the composite resins facility in Compiègne (France) was announced.

Apart from capacity expansions, DSM Resins is investing heavily in market-driven innovation by developing new technologies and products for existing and new applications.

Market trends in the materials market call for eco-efficiency and eco-effectiveness, in part driven by stronger legislation in combination with the customers’ need for improved durability, lower weight, ease of use and lower system costs.

The innovation drive at DSM Resins is aimed at providing solutions that lead to lower emissions and energy savings. By offering lightweight composite resins to replace metal, significant savings can be achieved. Specific resin systems have been developed for high-quality paints and coatings that can be applied with lower or zero solvent emissions while being competitive with more conventional systems.

Through its focus on market-trend-driven innovation, DSM Resins is well on track in changing itself into a specialty company, with improved profitability, in the coming years.