Staying the Course
With the turmoil in the financial markets having spread to the real economy, the global economic downturn has resulted in
more difficult market conditions in some of DSM’s businesses, putting pressure on the company’s financial results.
So far, DSM's Life Sciences businesses have seen only a very limited impact of the current difficult economic climate, and
the same holds for DSM Dyneema. In the fourth quarter of 2008 the effects of the economic downturn were mainly visible in
DSM's Materials Sciences businesses that supply to the automotive, electrical and electronics and building and construction
industries.
Against this backdrop DSM has taken a number of actions and measures that are aimed at improving cash flow and reducing costs
in the short term. These actions include a reduction in working capital as well as a review of investments and projects.
Other actions include several initiatives regarding cost reduction, for instance a stronger focus on purchasing, a reduction
in the number of temporary contract workers and temporary plant shutdowns. In addition, all corporate and regional staff activities
are being reviewed.
At the same time, DSM remains fully focused on customers in order to meet their needs and priorities. While travels are being
greatly reduced for cost reasons, there are no such cuts in travels to customers. A number of DSM employees have been assigned
to specific tasks to further deepen relationships with existing and new customers.
DSM also remains fully focused on innovation and sustainability. The company is identifying new growth opportunities that
the current market conditions provide, such as small-scale technology-related acquisitions. DSM continues to fully adhere
to its values.
In addition, a number of structural cost-saving actions are being taken to strengthen the company’s profitability and future
competitiveness. These actions will result in a reduction in DSM’s total workforce by about 5% or 1000 positions and are expected
to lead to savings totaling up to €100 million per year, to be fully achieved in 2010. A corporate team has been installed
to coordinate all measures taken.
With the actions and measures described above, DSM remains fully committed to the strategic direction and cultural change
agenda it has defined and will further navigate its course as set out in Vision 2010. This involves continuing the company’s accelerated transformation into a Life Sciences and Materials Sciences company with
a higher level and better quality of earnings.
Economic cycles come and go, but the main societal trends DSM has identified in its Vision 2010 strategy have not changed and will continue to be valid in the coming decade.
Climate change and energy for instance continue to offer a variety of business opportunities, despite the significant drop
in oil prices in the second half of 2008. Depletion of natural resources is urging companies to develop alternative routes
and strategies regarding the use of both materials and energy.
New, tighter emission regulations will further increase the need for metal replacement by high-performance plastics in cars,
despite the current dire market conditions for many of the world’s car manufacturers.
Increasing awareness of and attention for climate change – also in the United States – together with the wish in some countries
to reduce dependency on oil imports, is expected to drive demand for windmills and solar cells energy equipment.
The development of second-generation biofuels, based on biomass instead of edible crops, is an example where DSM’s unique
knowledge and technologies in the fields of Life Sciences and Materials Sciences come together.
DSM has used biotechnological methods to produce ingredients for the food and pharmaceutical industries for more than 100 years. Biotechnology is a vital enabler in exploiting opportunities to develop not only these second-generation biofuels but also
bio-based chemicals and polymers.
Some 20% of DSM’s sales are currently related to biotechnology. The combination of technological know-how, decades of experience
and a deep understanding of the materials markets gives DSM a strong competitive advantage not only in the development of
materials based on renewable sources but also in the further development of biomedical materials.
DSM’s unique and complementary expertise in Life Sciences and Materials Sciences results in a host of opportunities in health
and wellness as well, for example in biomedical materials. More and more materials are used to replace parts in the human
body and to reduce invasive surgery.
At the same time, increasing healthcare costs in the western world are driving the development of new medicines. DSM is actively
engaged in the development of biopharmaceuticals and significant progress has been made in the clinical development stage
of these products. The company's cooperation with Crucell on PER.C6® plays an important role in this respect.
A considerable number of diseases in the western world are lifestyle-induced and related to food patterns. DSM develops functional
food ingredients that help to combat these diseases.
Especially in the western world, various lifestyle developments are stimulating a change-over among consumers to more health-conscious
food patterns. At the same time, global consumption of meat is increasing, especially in the emerging economies as a result
of higher disposable income. The livestock needed to produce this meat has a considerable environmental impact. Various products
developed by DSM help to decrease this impact.
The growing middle class with increased spending power in the emerging economies also has an increased appetite for the newest
products, for instance in the areas of communications and cars.
With more than two thirds of the world’s current mobile handset volume sold outside Western Europe, Japan and North America,
manufacturers increasingly need reliable and affordable materials to produce handsets that consumers in emerging economies
are able to afford.
In Western Europe, Japan and North America, consumers and companies are increasingly using modern communication techniques,
such as mobile internet and high-capacity broadband connections. With slowing replacement sales, manufacturers need to offer
new functionalities and better performance to persuade consumers to buy a new mobile phone.
Thanks to ongoing innovations in the semiconductor industry, an ever increasing number of computer chips can fit on the same
surface, enabling new and faster applications and smaller equipment. DSM’s new polymer Stanyl® ForTii™ for instance can be applied in memory card connectors and LEDs and thus helps to enable tomorrow’s electronic gadgets.
The deployment of next-generation broadband technology in the United States, Europe and other parts of the world will further
increase connectivity and enable more collaboration both in the home and at the workplace. Already millions of miles of glass
fiber optic cables have been coated with materials developed and manufactured by DSM.
Despite continued economic growth in emerging economies there are still an estimated three to four billion people who are
poor or ultra-poor. They are at the bottom of the population pyramid and often lack basic vitamins and minerals in their daily
food.
DSM is engaged in several projects, including projects in partnership with the United Nations’ World Food Programme, to improve
the living standards of the ultra-poor, for example by providing vitamin sachets to enrich carbohydrates to address malnutrition.
With the world economy experiencing a downturn, DSM remains fully committed to these projects that improve lives by improving
nutrition.
Like many companies, DSM too is seeing the impact of the current economic downturn in certain parts of its businesses. The
company has taken swift action, is conservatively financed and has a strong portfolio. DSM will weather this period and emerge
as a stronger company. It remains focused on its strategic shift towards a Life Sciences and Materials Sciences company addressing
the main issues of today: energy, climate, food and health.
