Koninklijke DSM N.V. Annual Report 2012

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FY2012 Annual Report · Koninklijke DSM N.V.

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Royal DSM

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Bright Science. Brighter Living.™
Royal DSM Integrated Annual Report 2012

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Life Sciences and Materials Sciences

DSM, the Life Sciences and Materials Sciences company

Our purpose is to create brighter lives for people today and generations to come. We connect our unique competences in Life
Sciences and Materials Sciences to create solutions that nourish, protect and improve performance.

DSM uses its Bright Science to create Brighter Living for people today and for generations to come. Based on a deep understanding
of key global trends that are driving societies, markets and customers, DSM creates solutions to some of the world’s biggest
challenges, thus adding to both its own and its customers’ success.

DSM believes that its continued success will be driven by its ability to create shared value for all stakeholders, now and in the future.
It creates sustainable shared value by innovating in ways that allow its customers to provide better People, Planet and Profit
solutions − solutions to the challenges facing society, the environment and end-users. In this way, DSM’s customers derive value
from being able to offer end-users improved products; society and the planet derive value from the impact of more sustainable,
longer-lasting, safer, healthier and more nutritious alternatives; and, as a result, DSM and its shareholders derive value from stronger
growth and profitability. Finally, DSM’s employees feel engaged and motivated both through the contribution they make to a better
world and the success this creates for the company in which they work.

DSM – Bright Science. Brighter Living.™
Royal DSM 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 23,500 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.

Bright Science. Brighter Living. 2012 www.dsm.com

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Royal DSM

Bright Science. Brighter Living.™

DSM has transformed itself into a leading Life Sciences and

milk – in turn driving demand for DSM’s food and feed products.

Materials Sciences company that is active in health, nutrition and

Food security (access to nutritious food for all people at all times)

materials and creates value for its customers by helping them

is one of the main themes to which DSM is contributing.

provide solutions to the world’s great challenges. DSM uses its

bright science to create brighter lives for people today and

At the same time, a focus on healthy and active aging is driving

generations to come by providing the ingredients to develop

demand for fortified foods and supplements. And finally, an aging

innovative, more sustainable, healthier, more nutritious and

population means increased healthcare spending, which DSM

better performing products.

addresses through its engagement in preventive health and

services to pharmaceutical companies.

DSM has a very strong starting position to realize its ambitious

growth targets as set in its strategy for the period till 2015, all

Performance and sustainability are key drivers impacting

based on its strong global market position (with about 38 percent

demand in DSM’s Materials Sciences markets, where the

of its total sales of € 9.1 billion coming from high growth

company is accelerating the transformation toward the

economies), its unique technological knowledge as a basis for

production and use of materials that are lighter, healthier, safer,

innovation, its strong track record in sustainability, its very solid

stronger and more durable and that have lower environmental

balance sheet, and the experience and expertise of its 23,500

footprints throughout their value chains than traditional materials.

people.

Bringing DSM’s Life Sciences and Materials Sciences

DSM believes that its continued success will be driven by

competences together offers cross-fertilization opportunities

creating shared value for all stakeholders, now and in the future.

allowing further advances. This cross-fertilization is managed

It creates sustainable shared value by innovating in ways that

through DSM’s Emerging Business Areas. A thorough

allow its customers to provide better People, Planet and Profit

understanding of how advanced materials can be used in the

solutions to the challenges facing society, the environment and

human body to strengthen or replace body parts and accurately

end-users. In this way, DSM’s customers derive value from being

deliver medicines is driving DSM’s biomedical materials

able to offer end-users improved products. Society and the

business. By merging its broad biotechnology capability with its

planet derive value from the impact of more sustainable, longer-

materials businesses, DSM is able to find renewable solutions

lasting, safer, healthier and more nutritious alternatives. DSM

for the post fossil age by creating bio-based materials and

and its shareholders derive value from stronger growth and

building blocks and by actively working to create commercially

profitability.

viable cellulosic biofuels that do not compete with the food value

What's more, DSM’s employees feel engaged and motivated

chain.

through the contribution they make to a better world and the

While DSM continues to meet the needs of customers in the

success this creates for the company in which they work. In

mature markets of North America and Western Europe − which

short, DSM is a multi-stakeholder-oriented company with a triple

remain central to its core business – the company’s investment

bottom line (People-Planet-Profit) creating value for its

focus is increasingly on the high growth economies such as Asia,

customers, shareholders and employees as well as society at

Central and Eastern Europe, and Latin America. In these markets

large.

DSM expects 70 percent of its growth up to 2015. DSM

consequently is becoming steadily more international, enabling

As a global company, DSM is actively engaged in addressing the

it to bring a global perspective to the challenges of all its

same key trends that face all its stakeholders: meeting changing

customers. In addition to achieving sustainable, innovative

demands arising from global shifts in demographics and

organic growth, DSM will continue to take advantage of

technology, mitigating the impact of climate change while

opportunities to acquire exciting businesses and to partner with

searching for new forms of energy and trying not just to feed but

others to the benefit of all its stakeholders. And finally, the

also to improve the health of a growing population.

company will continue to improve its shareholder returns,

supported by its solid dividend policy.

In DSM’s Life Sciences markets, these trends manifest

themselves through the related impacts of increasing personal

In short, after having transformed itself into a Life Sciences and

wealth, urbanization and expanding life expectancy.

Materials Sciences company, DSM now focuses on further

growing the company through an integrated strategy, using four

Urbanization drives the consumption of processed foods and the

growth drivers: High Growth Economies, Innovation,

need for a more efficient food chain, while rising wealth translates

Sustainability and Acquisitions & Partnerships.

into increased demand for proteins from meat, fish, eggs and

Key data for 2012

Net sales, continuing
operations
(x million)

Operating profit plus
depreciation and
amortization, continuing
operations1
(x million)

Net profit, continuing
operations1
(x million)

Net profit, total DSM
(x million)

€ 9,131

€ 1,109

€ 437

€ 288

Cash provided by
operating activities, total
DSM
(x million)

Capital expenditure
including acquisitions
(x million)

Core earnings per ordinary
share, continuing
operations3

Dividend per ordinary
share2

€ 730

€ 1,980

€ 2.78

€ 1.50

ROCE, continuing
operations
(in %)

Innovation sales as % of
total sales

Sales in High Growth
Economies as % of total
sales

China sales, continuing
operations
(x USD million)

8.9

1,700

ECO+ solutions as % of
innovation pipeline, total
DSM

ECO+ solutions as % of
running business, total
DSM

Energy use, continuing
operations
(in petajoules)

Water use, continuing
operations
(in million m3)

150

Greenhouse-gas
emissions, continuing
operations
(x million tons)

Workforce
(at year-end)

Employee engagement -
favorable score
(in %)

Frequency Index of
recordable injuries
(per 100 DSM employees
and contractor employees)

4.2

23,498

0.44

1 Before exceptional items
2 Subject to approval by the Annual General Meeting of Shareholders
3 Before exceptional items and excluding amortization of intangible assets related to purchase accounting

Bright Science. Brighter Living. 2012 www.dsm.com

Table of contents

3 Key data

4 DSM at a glance

6 Letter from the Chairman

Growth Driver: High Growth Economies
Growth Driver: Innovation
Growth Driver: Sustainability
Growth Driver: Acquisitions & Partnerships

10 Report by the Managing Board
10 Highlights of 2012
14 DSM in motion: driving focused growth
18
21
24
28
33 Stakeholder engagement
43 External recognition
45 People in 2012
57 Planet in 2012
69 Profit in 2012

74 Review of business in 2012
77 Life Sciences
78
Nutrition
87
Pharma
91 Materials Sciences
92
101
105 Innovation Center
109 Corporate Activities

Performance Materials
Polymer Intermediates

110 Financial and reporting policy
110 Financial policy
110 Reporting policy

112 Corporate governance and risk management
112 Introduction
114 Dutch corporate governance code
115 Governance framework
116 Risk management
121 Statements of the Managing Board

122 Report by the Supervisory Board
122 Supervisory Board report
125 Remuneration policy for the Managing Board and the

Supervisory Board

134 Supervisory Board and Managing Board

136 What still went wrong in 2012

138 Information about the DSM share

140 Consolidated financial statements
140 Summary of significant accounting policies
146 Consolidated statements
153 Notes to the consolidated financial statements of

Royal DSM

206 Parent company financial statements
207 Notes to the parent company financial statements

216 Other information
216 Independent Auditor's Report on the Financial Statements
217 Independent Assurance Report on Sustainability

Information
218 Profit appropriation
219 Special statutory rights
219 Important dates

220 DSM figures: five-year summary

224 Explanation of some concepts and ratios

227 List of abbreviations

229 Royal DSM - Bright Science. Brighter Living.

™

Forward-looking statements
This document may contain forward-looking statements with respect to DSM's future (financial) performance and position. Such statements are based on current
expectations, estimates and projections of DSM and information 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 businesses as well as the
impact of future acquisitions, and the company’s financial position. These statements can be management 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 predict and therefore it should be understood that many factors
can cause the company's actual performance and position 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 company's 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 complete acquisitions and to successfully integrate acquired companies, the company’s ability to realize planned divestments,
savings, restructuring or benefits, the company’s ability to identify, develop and successfully commercialize new products, markets or technologies, economic and/or
political changes and other developments 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 the plans, 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.

Bright Science. Brighter Living. 2012 www.dsm.com

Key data

People

Workforce at 31 December (headcount)

Female/male ratio

Total employee benefits costs in € million

Frequency Index of recordable injuries (per 100 DSM employees and contractor employees)

Employee engagement - favorable score (in %)

Planet

Energy use (in petajoules), continuing operations
Water use (in million m3), continuing operations

Greenhouse-gas emissions in CO2 equivalents (x million tons), continuing operations
Emission of volatile organic compounds (x 1000 tons), continuing operations

COD (Chemical Oxygen Demand) discharges (x 1000 tons), continuing operations

ECO+ solutions as % of innovation pipeline, total DSM1

ECO+ solutions as % of running business, total DSM

Profit (in € million, unless otherwise indicated)

Net sales, continuing operations

China sales in USD million, continuing operations

Operating profit plus depreciation and amortization, continuing operations (EBITDA)4

Operating profit, continuing operations (EBIT)4

Net profit, total DSM

Cash provided by operating activities

Dividend for DSM shareholders

Capital expenditure including acquisitions

Net debt

Shareholders' equity

Total assets

Capital employed, continuing operations

Market capitalization at 31 December2

Per ordinary share in €

Core earnings, continuing operations

Dividend

Ratios (%)

Sales in High Growth Economies / net sales (total DSM)

Innovation sales / net sales (total DSM)

EBITDA / net sales (continuing operations)

Operating working capital / annualized net sales (continuing operations)

ROCE (continuing operations)

Gearing (net debt / equity plus net debt)

Equity / total assets

Cash provided by operating activities / net sales (total DSM)

1 For a definition of ECO+ see page 224
2 Source: Bloomberg
3 Subject to approval by the Annual General Meeting of Shareholders
4 Before exceptional items

Bright Science. Brighter Living. 2012 www.dsm.com

2012

23,498

26/74

1,761

0.44

150

4.2

3.4

5.5

9,131

1,700

1,109

635

288

730

263

1,980

1,668

5,874

11,966

8,084

8,307

2.78

1.503

12.1

20.7

8.9

21.6

50.5

8.0

2011

22,224

26/74

1,655

0.53

157

4.6

4.2

7.1

9,048

2,002

1,296

866

814

882

247

1,502

318

5,784

11,157

6,581

6,504

3.66

1.45

14.3

20.2

14.0

5.1

53.5

9.6

DSM at a glance

DSM’s activities have been grouped into
business groups representing coherent
product/market combinations. The
business group directors report directly to
the Managing Board.

For reporting purposes, the activities are
grouped into five clusters. In addition, DSM
reports on a number of other activities,
which have been grouped under Corporate
Activities.

Life Sciences

Nutrition

Pharma

Continued value growth
The Nutrition cluster comprises DSM Nutritional Products and
DSM Food Specialties. These serve the food and beverage,
feed, personal care, dietary supplements and pharmaceutical
industries with global capabilities and a deep understanding of
customer and market needs. With customized formulation
activities at more than 60 locations and a presence in more than
a hundred countries, customer intimacy is key. DSM's nutrition
technologies are broad, utilizing competences in biotechnology
(including fermentation) and state-of-the-art process
technology. DSM has the world's broadest ingredients portfolio
and holds leading positions in many large ingredient markets for
animal and human nutrition and health, like vitamins,
carotenoids, enzymes, cultures, yeast extracts, polyunsaturated
fatty acids, premixes and formulations.

Leveraging partnerships for growth
The Pharma cluster includes the business group DSM
Pharmaceutical Products (DPP), one of the world’s leading
custom manufacturing suppliers to pharmaceutical and
biopharmaceutical industries. Many of today’s medicines around
the world contain ingredients produced by DPP. The cluster also
contains DSM’s 50 percent interest in the DSM Sinochem
Pharmaceuticals joint venture (DSP). DSP was formed in 2011
from the former DSM business group DSM Anti-Infectives. DSP
is one of the few producers and marketers of beta-lactam active
pharmaceutical ingredients with a global presence, using
cutting-edge manufacturing technology with a low
environmental footprint.

Materials Sciences

Performance Materials

Polymer Intermediates

Growing via sustainable, innovative solutions
The Performance Materials cluster comprises DSM Engineering
Plastics, DSM Dyneema and DSM Resins & Functional Materials.
These business groups specialize in the manufacture of
technologically sophisticated, high-quality materials that are
tailored to meet customers’ performance criteria, and that help
customers substitute traditional solutions with more sustainable
and durable alternatives. DSM's performance materials are used
in a wide variety of end-use markets like automotive, aviation,
electrical and electronics, marine, sports and leisure, paint and
coatings, and construction. Sustainability is a true driver of new
business and innovations in materials. DSM's materials portfolio
is shifting towards a higher value added mix by introducing
innovative, more sustainable solutions.

Strengthening backward integration for DSM Engineering
Plastics
The Polymer Intermediates product cluster comprises
caprolactam and acrylonitrile produced by DSM Fibre
Intermediates (DFI). These products are raw materials for
synthetic fibers and plastics. Caprolactam is a key feedstock for
DSM Engineering Plastics’ polyamide production. Globally, DFI
is the largest merchant caprolactam supplier and the third largest
merchant acrylonitrile supplier. In addition, the business group
produces ammonium sulfate, sodium cyanide, cyclohexanone
and diaminobutane.

Bright Science. Brighter Living. 2012 www.dsm.com

Innovation Center

As an enabler and accelerator of innovation, the Innovation
Center facilitates DSM's strategic transition towards becoming
an intrinsically innovative organization. Innovation at DSM is
guided by functional excellence in order to find the best
sustainable and commercially viable solutions to market needs,
helping create profitable growth. In addition to the activities of
the DSM Innovation Center (including DSM Venturing), this part
of the company also includes the three Emerging Business Areas
(EBAs). These EBAs are growth engines that focus on new
business areas outside the scope of the company's business
groups. DSM Biomedical develops novel materials-based

solutions to meet the needs of the medical device and
biopharmaceutical industries with coatings, drug delivery
platforms and a wide range of biomedical materials for use in
implantable medical devices. The EBA Bio-based Products &
Services creates solutions for bioconversion of feedstocks for
the production of bio-based chemicals and materials and
develops the technologies to enable the production of bio-
energy such as cellulosic biofuels. DSM Advanced Surfaces
provides solutions for the development and application of smart
coatings and is focused on solutions for the solar industry.

Sales per cluster in 2012
net sales in € million

EBITDA per cluster in 2012
EBITDA in € million
excl. Innovation Center (-€ 38 million)

Workforce per cluster in 2012
headcount at year-end 2012

■ Nutrition
■ Pharma
■ Performance Materials
■ Polymer Intermediates
■ Innovation Center

■ Nutrition
■ Pharma
■ Performance Materials
■ Polymer Intermediates

■ Nutrition
■ Pharma
■ Performance Materials
■ Polymer Intermediates
■ Innovation Center

102

1,596

3,667

2,772

726

129

280

793

668

1,474

5,354

9,489

3,314

Bright Science. Brighter Living. 2012 www.dsm.com

Letter from the Chairman

Dear reader,

As the world continues to face unprecedented challenges from
both an economic, environmental and societal perspective, our
existing approaches are being put to the test. Navigating through
a decade that is already being dubbed the ‘Turbulent Teens’ is
becoming increasingly challenging, as developments in our
complex and interconnected world are happening with great
speed. However, to DSM these challenges are also providing
opportunities. We believe we can contribute to solutions and
new approaches and we are committed to turning them into
reality.

The innovative and sustainable solutions that we offer our
customers help them address their current and future needs.
These needs are a response to global trends and challenges.
The global population is growing and aging, and is increasingly
urban and increasingly wealthy. This all leads to increased
consumption per capita and a bigger claim on the world’s
resources.

We see all this come together in the three key global societal
trends that we have on our corporate radar screen: a global
demographic shift, challenges in the field of the global climate
and (alternative) energy use, and a growing focus on how to
secure nutrition, health and wellness for all.

Our strategy in addressing these trends and meeting these
needs has led us to focus on four growth drivers: High Growth
Economies, Innovation, Sustainability and Acquisitions &
Partnerships. In 2012 we once again delivered progress on all
four growth drivers.

In the High Growth Economies, we continue to increase our
sales and presence. In 2012 these economies accounted for
38 percent of our total sales versus 39 percent in 2011. This
decrease was mainly due to lower caprolactam sales in China.
Five years ago this was less than 30 percent. Most notable in
2012 were our investments in China (nutrition, resins and
caprolactam) and our announcement of our upcoming
expansion in Brazil, where we are preparing to acquire Tortuga,
a leading company in nutritional supplements with a focus on
pasture raised cattle.

We remain committed to R&D and innovation and have built
further on our best practices. Evidence of this commitment is our
new investment in R&D facilities in Delft and Sittard-Geleen (both
in the Netherlands). During 2012 we further added over 300 new
patents to our rich patent portfolio. In India and China we
continued to develop regional innovation centers. We are firmly
on track towards our target for innovation sales as a percentage

of total sales. In 2012 this was 18 percent. Our target for 2015
is 20 percent.

Our Emerging Business Areas (EBAs) are doing very well. The
acquisition of Kensey Nash has further strengthened the
Biomedical EBA, making DSM a leading medical device
materials supplier. And together with POET in the United States,
we started POET-DSM Advanced Biofuels, a joint venture to
commercially develop the production of cellulosic biofuels, made
out of plant residues. The construction of the POET-DSM
biofuels facility in Emmetsburg, Iowa (USA), is proceeding
according to plan. In the field of bio-based chemicals, too, we
saw good progress, including the start-up of our new bio-
succinic acid plant in Italy, in cooperation with Roquette.

Besides being a core value and a responsibility to contribute to
society, sustainability has become a real business driver for
DSM. Our ECO+ products and solutions, which have a clearly
smaller environmental footprint than mainstream solutions,
increased in 2012 to 43 percent of our total sales and accounted
for 80 percent of our innovation pipeline. Our list of ECO+
solutions continues to grow. In 2012, we further enhanced our
leadership position in sustainability. DSM is developing a
People+ strategy that aims to deliver measurably better solutions
for improving people’s lives. People+ will do for the ‘people’
element of our Triple P approach what ECO+ has done for
‘planet’.

In 2012 DSM was very active on the Acquisitions & Partnerships
front. In addition to the biofuels partnership with POET and the
biomedical acquisition of Kensey Nash, we announced more
than five acquisitions in the nutrition field, including Ocean
Nutrition Canada (Canada; polyunsaturated fatty acids, such as
Omega-3/DHA), Tortuga (Brazil; organic chelates and other feed
ingredients), Verenium Enzymes (USA; enzymes), the cultures
and enzymes business of Cargill (USA and Europe, cultures) and
Fortitech (USA; food (premix) ingredients).

In total we have invested € 2.8 billion in acquisitions since
September 2010, when we adopted our current strategy. The
acquisitions will result in stronger and more stable growth and
profitability for DSM overall and will contribute to the current and
future growth of DSM. Due to synergies the internal value of the
acquisitions is significantly higher than the total acquisition
amount. All acquisitions immediately contribute to earnings per
share.

As a result of the acquisitions announced in 2012, we are
welcoming approximately 2,700 new colleagues to our

Bright Science. Brighter Living. 2012 www.dsm.com

accountability for performance, collaboration with speed and
inclusion & diversity.

DSM’s fifth worldwide Employee Engagement Survey showed a
very high response rate of 87 percent. The Employee
Engagement Index, the percentage of employees scoring
favorable, was 72 percent compared to 71 percent in 2011,
which means that it was once again above the global overall
norm. An engaged workforce is critical to DSM in realizing our
ambitions.

Our hard work to further improve safety is bearing fruit. During
the year we focused on the improvement of our safety culture
and performance, among other things by securing compliance
with the Life Saving Rules. The Frequency Index of recordable
injuries fell to 0.44 in 2012 from 0.53 a year earlier. Although this
is a considerable improvement, we still need to work on further
reducing this Frequency Index.

We also need to improve further with regard to diversity, among
other things by implementing best practices.

For DSM, People, Planet and Profit are equally important. Our
company’s primary goal is to provide value for all stakeholders
on all three dimensions. We stay committed to aligning our
strategy and operations with the principles of the United Nations
Global Compact. We are very proud that in 2012 we were again
named among the leaders in the Dow Jones Sustainability World
Index.

Letter from the Chairman

increasingly global workforce. Their smooth integration into the
DSM family in a timely and efficient manner, while ensuring
business continuity and customer satisfaction, is a key priority
for us.

When all of the announced acquisitions have been completed,
the majority of DSM’s portfolio will be geared towards attractive
end-markets with low GDP sensitivity. In the Nutrition cluster,
DSM has announced around € 2.4 billion in acquisitions since
2010, broadening our product portfolio, extending and
enhancing our presence across the value chain and
strengthening our global footprint. On a pro forma basis, the
cluster now has a size of around € 4.6 billion in sales and an
EBITDA margin in the range of 20-23 percent.

As the world’s largest supplier of nutritional ingredients, DSM has
created a unique position with the broadest, deepest and most
global offering to customers, positioning our company for further
profitable growth. Nutrition now represents more than
70 percent of total EBITDA and has become a high value, global
business with attractive growth prospects across the full value
chain.

During 2012 we continued to experience a challenging macro-
economic environment, with low growth in Europe. Asia
continued to show good levels of economic activity whilst the US
has maintained a modest rate of recovery. In the context of these
conditions, DSM delivered growth across all clusters in 2012,
excluding caprolactam. For the full year EBITDA amounted to
€ 1,109 million, 14 percent lower compared to 2011. Profit
growth in all clusters was more than offset by
approximately € 300 million lower results from DSM’s
caprolactam activities in Polymer Intermediates and
Performance Materials.

The Profit Improvement Program that was launched in August
2012, on top of the previously announced program in DSM
Resins & Functional Materials, is fully on track and is expected
to deliver structural annual EBITDA benefits of € 150 million by
2014 of which more than half is expected in 2013. As
anticipated, DSM has expanded the profit improvement initiative
and now expects to achieve another € 50-100 million in benefits
on top of the € 150 million. The benefits following this extension
are expected to be fully achieved by 2015.

During 2012, we transitioned our Change Agenda into a ONE
DSM Culture Agenda in order to develop the culture required to
achieve our strategic ambitions, mirror the world that we operate
in, and become a high performance organization. The ONE DSM
agenda consists of four themes: external orientation,

Bright Science. Brighter Living. 2012 www.dsm.com

We are also proud that during 2012 DSM won several
prestigious awards and received a great deal of recognition for
its achievements regarding its integrated Triple P approach,
developing a sustainable business that creates value for all
stakeholders.

We continue to further develop our integrated reporting based
on the guidelines of the Global Reporting Initiative (GRI). We have
determined that this integrated annual report, our third, once
again merits the GRI A+ rating, representing a high level of
transparency.

The significant strategic progress we made during 2012 through
our value creating acquisitions and the profit improvement
initiatives we have taken, leave us well positioned to achieve our
long term objectives. In 2013 we will focus on the operational
performance and integration of the acquisitions we completed
in 2012 with special attention to capturing synergies. We expect
strong EBITDA growth in 2013, moving towards € 1.4 billion. The
Board’s proposal to increase the dividend for the third
consecutive year is testament to the stronger DSM we have built
in recent years, with more stable growth and profitability going
forward.

At DSM we are committed to creating value for all stakeholders
by fully leveraging the unique opportunities in Life Sciences and
Materials Sciences, for the benefit of people today and for
generations to come. It is a collective effort whose success
depends on the engagement not only of our employees but also
of the people that we cooperate with: at our customers, at our
suppliers and at the civil society organizations that we engage
with. I would like to extend my sincere appreciation and gratitude
to all who are traveling with us on this very exciting journey. We
look forward to reporting further progress.

Feike Sijbesma
CEO/Chairman of the Managing Board

feike.sijbesma@dsm.com

Bright Science. Brighter Living. 2012 www.dsm.com

Letter from the Chairman

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Highlights of 2012

General
Despite ongoing global economic headwinds, DSM delivered
growth across all clusters in 2012, except for caprolactam. The
Managing Board proposes to increase the dividend for the third
consecutive year as a testament to the stronger DSM that has
been built in recent years, with more stable growth and
profitability going forward.

Full year EBITDA was € 1,109 million, 14 percent lower
compared to 2011. Profit growth in all clusters was more than
offset by approximately € 300 million lower results from DSM’s
caprolactam activities in Polymer Intermediates and
Performance Materials. Full year sales from continuing
operations increased to € 9,131 million.

Significant strategic progress was made during 2012 through
value creating acquisitions and profit improvement initiatives. As
a result, DSM is well positioned to achieve its long-term
objectives. Nutrition now represents more than 70 percent of
total EBITDA and has become a high value, global business with
growth prospects across the full value chain.

Overall, based on current economic assumptions, DSM expects
a step-up in EBITDA during 2013 due to stronger organic
growth, supported by DSM’s Profit Improvement Program and
as the benefits of acquisitions and a more resilient portfolio start
to have impact. In 2013 the focus will be on the operational
performance and integration of the acquisitions DSM completed
in 2012 with special attention to capturing synergies. Overall,
based on current economic assumptions, the above will enable
DSM to move towards its 2013 EBITDA target of € 1.4 billion.

Net sales, continuing operations

x € million

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

2012

2011

3,667

726

2,772

1,596

102

268

3,370

677

2,752

1,820

369

Total

9,131

9,048

Operating profit plus depreciation and amortization
(EBITDA), continuing operations

x € million

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

2012

2011

793

280

129

(38)

(94)

735

293

380

(57)

(91)

Total

1,109

1,296

Nutrition
Full year organic growth was 2 percent driven by volumes and
stable prices. EBITDA was € 793 million and increased by
8 percent as a result of continued growth in advanced forms,
premixes and nutritional lipids and contributions from
acquisitions.

Pharma
Full year organic sales growth was 9 percent. EBITDA for the full
year slightly increased due to improved volumes at DSM
Pharmaceutical Products and somewhat higher prices at DSM
Sinochem Pharmaceuticals. This more than offset the higher
costs partly associated with the startup of the new 6-APA plant
for the anti-infectives business as well as the effect of the 50
percent deconsolidation of DSM Sinochem Pharmaceuticals as
of 1 September 2011.

Performance Materials
Full year organic sales development was -4 percent due to lower
volumes (-3 percent) and lower prices (-1 percent). EBITDA was
slightly below last year. The result of DSM Resins & Functional
Materials showed an impressive improvement in 2012 due to
cost reductions and pricing, despite weakness in building and
construction industries. Strong underlying improvements at
DSM Engineering Plastics were partly offset by the weakness in
the polyamide 6 chain (caprolactam effect). DSM Dyneema’s full
year result was below previous year due to the absence of new
large vehicle protection tenders, which had been supporting
DSM Dyneema in the first half of 2011.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Highlights of 2012
DSM in motion: driving focused growth
Growth Driver: High Growth Economies
Growth Driver: Innovation
Growth Driver: Sustainability
Growth Driver: Acquisitions & Partnerships
Stakeholder engagement
People in 2012
Planet in 2012
Profit in 2012

The DSM Managing Board (from left to right): Stefan Doboczky, Stephan Tanda, Feike Sijbesma (Chairman/CEO), Nico Gerardu, Rolf-Dieter Schwalb (CFO)

Polymer Intermediates
Full year organic sales development was -16 percent due to
6 percent lower volumes as a result of the turnarounds and
10 percent lower prices. EBITDA was significantly lower. High
benzene prices could not be passed on to the market due to
weaker demand for caprolactam in combination with new
production capacity coming on-stream.

Innovation
DSM is targeting innovative products and solutions to account
for 20 percent of total sales by 2015. Innovation sales, defined
as sales created by new products and applications introduced
in the past five years, accounted for 18 percent of total sales in
2012, the same as in 2011. DSM is firmly on track to reach its
2015 innovation sales target.

Innovation Center
Full year results showed good sales and EBITDA improvement
primarily driven by continued strong growth in DSM Biomedical,
supported by the contribution of Kensey Nash, which was
acquired in 2012.

Sustainability
In 2012 the percentage of ECO+ solutions in the innovation
pipeline was 80 percent, equal to the aspiration set at
80 percent. ECO+ solutions as a percentage of running business
increased to 43 percent in 2012. DSM is on its way toward the
50 percent aspiration for 2015.

High growth economies
Sales to high growth economies accounted for 38 percent of
total sales in 2012 versus 39 percent of total sales in 2011. The
decrease was mainly due to lower caprolactam sales in China.
Net sales to China amounted to USD 1.7 billion versus
USD 2.0 billion in 2011 which was because of lower sales prices
at DSM Polymer Intermediates.

Financials
Net finance costs increased by € 12 million compared to the
previous year to a level of € 94 million due to a lower average
cash position at lower average interest rates and € 7 million
impairment of certain financial assets.

Bright Science. Brighter Living. 2012 www.dsm.com

The effective tax rate before exceptional items for the full year
was 18 percent versus 19 percent in 2011.

Net profit before exceptional items amounted to € 437 million,
compared to € 615 million in 2011.

Total net profit for 2012 amounted to € 288 million compared to
€ 814 million in 2011. This was due to the lower operating profit
in 2012 and the restructuring and acquisition costs which were
included in the exceptional items of 2012. In 2011 exceptional
items included the book profit on divestments (€ 262 million).

Net earnings per ordinary share (continuing operations,
excluding exceptional items) amounted to € 2.58 versus € 3.53
in 2011.

Safety, Health & Environment
Considerable improvement was achieved in safety in 2012. The
Frequency Index for recordable injuries dropped to 0.44 from
0.53 in 2011. The number of serious incidents decreased
significantly from 19 to 9.

Profit Improvement Program
In the second quarter of 2012 DSM launched a company-wide
Profit Improvement Program (on top of the previously
announced program in DSM Resins & Functional Materials),
mainly focused on cost reductions and efficiency improvements,
but also on sales growth and pricing. This program is fully on
track and is expected to deliver structural annual EBITDA
benefits of € 150 million by 2014 of which more than half is
expected in 2013. One-off cash costs for the Profit Improvement
Program recognized in 2012 were approximately € 120 million,
in line with the guidance given in the second quarter.

DSM continued to look for opportunities to expand this program,
and this has resulted in an increase in the program’s scope to
€ 200-250 million in benefits. The one-off cash cost related to
this extension of the Profit Improvement Program are expected
to be in the order of € 70-80 million. The benefits following this
extension are expected to be fully achieved by 2015.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

DSM in motion: driving focused growth

The strategy that DSM embarked on in September 2010, DSM
in motion: driving focused growth, marks the shift from a time of
intensive portfolio transformation to a new era of maximizing
sustainable and profitable growth. After a long history of
successful transformations, DSM is now halfway this next
development phase, becoming a truly global leader in health,
nutrition and materials, delivering on its mission of creating
brighter lives for people today and generations to come.

Embedded in this mission is DSM’s core value that its activities
should contribute to a more sustainable world. This guides how
DSM pursues sustainable value creation for all stakeholders on
three dimensions simultaneously: People, Planet and Profit.

The businesses that form DSM’s core in Life Sciences and
Materials Sciences are built around finding innovative and
sustainable solutions to some of the world’s main challenges,
based on a clear understanding of key global societal trends and
their consequences for the planet, consumers and societies.

Most of the world’s biggest challenges stem from population
growth. The global population has surpassed seven billion
people and is expected to grow to nine billion by 2050. The
population is aging and becoming increasingly urban and
wealthy. This leads to increased consumption per capita and a
bigger claim on the world’s resources. All this comes together in
three key global societal trends: a global demographic shift,
challenges in the field of climate and energy usage and a growing
focus on how to secure health and wellness for all.

DSM’s strategic focus on Life Sciences and Materials Sciences
is fueled by the three main societal trends that it explored with
stakeholders as part of its strategy development process: Global
Shifts, Climate and Energy, and Health and Wellness. The
company aims to meet the unmet needs resulting from these
societal trends with innovative and sustainable solutions.

Global Shifts
The accelerating shift of wealth from West to East and from North
to South is the basis of a whole series of global shifts which are
creating a more urban, more connected and more prosperous
world − but with huge resource and cultural challenges as a
result.

We live in a world which is changing faster than ever. These
changes influence where demand comes from, how and where
people are living and how we connect with one another.
Urbanization and economic prosperity are promoting dietary
changes and increased spending on housing, transport, lifestyle

Bright Science. Brighter Living. 2012 www.dsm.com

and energy. Increased demand around the world is also driving
a higher use of natural resources, underlining the need for further
efficiency improvements. Several new technologies, especially in
the communications industry, are having a high impact on
society and behavior.

Climate and Energy
The accepted reality that our fossil age is causing considerable
change to our climate is driving the search for alternative energy,
chemicals and materials sources as well as efforts to reduce
resource consumption in a multitude of ways as the world will
enter an era of resource scarcity.

Climate change is a reality and future energy is a central
challenge for society both in terms of how to create it and how
to get more out of it. In this context, customers are seeking
sustainable value chains with higher yields, reduced waste, lower
energy use and fewer greenhouse-gas emissions. At the same
time there is a growing focus on renewable energy sources.

Health and Wellness
The impact of a growing, aging, increasingly urban population is
being felt across the world, but in remarkably different ways. The
drive to improve well-being and the increasing life span among
the growing middle classes of the high growth economies
contrasts with the continuing struggle to effectively feed the
populations in less well-off parts of the world, especially children
in their first 1000 days after conception.

There is an increasing need to address core health issues,
whether through nutrition, medicines or lifestyle improvements.
In the West, cost pressure on all healthcare systems is rising
because of the aging population. Healthcare demand in high
growth economies is increasing. Nutrition security and access is
increasingly important, and there is also growing demand for
safer and healthier foods and for pharmaceuticals.

Global ShiftsClimate andEnergyHealth andWellnessLifeSciencesMaterialsSciencesAcquisitions &PartnershipsHigh Growth EconomiesInnovationSustainabilityPeople - Planet - Proﬁt: creating value along three dimensionsReport by the Managing Board

DSM’s focus is on providing its customers with the innovations
and sustainable products they need to meet the societal and
market demands arising from these trends. By adding to its
customers’ success, DSM adds to its own success too.

In responding to these three megatrends, it is DSM’s ambition
to fully leverage the unique opportunities in Life Sciences and
Materials Sciences, using the four growth drivers defined in its
corporate strategy: High Growth Economies, Innovation,
Sustainability and Acquisitions & Partnerships. The company
wants to bring all four drivers to the next level. At the same time
DSM aims to make maximum use of the potential of all four
growth drivers to mutually reinforce each other and generate a
greater number of compelling business opportunities.

Regional organizations, functional excellence groups and shared
services enhance the performance of the business groups. DSM
will capture regional business opportunities and synergies and
implement excellence throughout its organization.

DSM has set itself ambitious targets for the current strategy
period. The company has high aspirations, based on an
assessment of the opportunities, particularly in high growth
economies, innovation, sustainability, acquisitions and
partnerships, and aims at accelerated growth and increased
profitability.

Targets and aspirations as set in September 2010

Financial targets

Profitability targets 2013

- EBITDA

- ROCE

Sales targets 2015

€ 1.4 - 1.6 bn

> 15%

- Organic sales growth

5-7% annually

- China sales

from USD 1.5 bn to > USD 3 bn

- High growth economies sales

from ~32% towards 50% of sales

- Innovation sales

from ~12% to 20% of sales

Aspiration regarding Emerging Business Areas for 2020

- EBA sales

> € 1 bn

Sustainability aspirations 2011-2015

Dow Jones Sustainability Index

Top ranking (SAM Gold Class)1

ECO+ (innovation)

At least 80% of pipeline is ECO+2

ECO+ (running business)

From approximately 34% towards 50%

Energy efficiency

20% improvement in 2020, compared to 2008

Greenhouse-gas emissions

-25% (absolute) by 2020, compared to 2008

In 2012, DSM delivered on its strategic ambitions in particular
with acquisitions and partnerships, helping the company expand
its presence in high growth economies and boost its range of
innovative products and solutions. See also: New acquisitions
and partnerships in 2012 (page 29).

Employee Engagement Survey

Towards High Performance Norm3

Diversity and People+

To be updated4

Strategic targets and aspirations
Financial targets
When DSM presented its current strategy in September 2010, it
set two profitability targets for 2013: an increase in EBITDA to a
level of € 1.4-1.6 billion and an increase in Return on Capital
Employed (ROCE) to more than 15 percent. In 2012 EBITDA was
€ 1,109 million, compared to € 1,296 million in 2011. ROCE in
2012 was 8.9 percent, compared to 14.0 percent in 2011.

At its Capital Markets Days presentation for investors and
financial analysts in Basel (Switzerland) in September 2012, the
company confirmed the 2013 EBITDA target. Assuming no
further deterioration of the economic conditions, and based on
its strategy, financial strength, and the additional actions now
taken, DSM will move towards the 2013 strategic targets. The
ROCE target is unlikely to be achieved due to (a) the fact that
despite DSM’s drive to accelerate acquisitions, many of these
acquisitions — and hence also their synergy effects — came

1 This means a total score within 1% of the SAM sector leader.
2 See page 224 for a definition of ECO+.
3 The High Performance Norm (80% favorable) is the composite of the top 25%

employee responses of the selected external benchmark organizations.

4 The aspirations for Diversity and People+ were both updated in 2012. Targets have

now been set. See page 45 and page 50 .

later than expected, and (b) the deterioration of the global macro-
economic conditions.

Sales in high growth economies amounted to 38 percent of total
sales in 2012, bringing the company closer to its announced goal
of moving from 34 percent in 2009 towards 50 percent of total
net sales. Innovation sales − measured as sales from innovative
products and applications introduced in the last five years −
reached 18 percent of total net sales in 2012, near the
company's 2015 target of approximately 20 percent.

During the year, significant further progress was made in the
Emerging Business Areas (EBAs), in particular in DSM

Bright Science. Brighter Living. 2012 www.dsm.com

Biomedical, with the acquisition of Kensey Nash, and in DSM
Bio-based Products & Services, with the POET-DSM Advanced
Biofuels partnership. See also: POET-DSM Advanced Biofuels
(page 106).

Sustainability aspirations
DSM continued to make good progress towards meeting the
ambitious sustainability aspirations that are part of its DSM in
motion: driving focused growth strategy, as evidenced by the
following highlights.

DSM once again was listed among the chemical industry leaders
in the Dow Jones Sustainability World Index. See also: External
recognition (page 43).

The share of ECO+ solutions in the running business portfolio
continued to steadily increase to 43 percent in 2012 from 41
percent a year earlier. This reflects DSM's efforts to expand the
share of ECO+ solutions in its portfolio and shows that these
solutions are increasingly well received by customers. The share
of ECO+ solutions in DSM's innovation pipeline was 80 percent
in 2012 as major ECO+ innovations were launched during the
second half of the year. ECO+ solutions are products and
services that, when considered over their whole life cycle, offer
clear ecological benefits compared to the mainstream solutions
they compete with. See also: ECO+ (page 57).

DSM is on track with its drive to improve energy efficiency by 20
percent by 2020 compared to 2008. Between 2008 and 2012,
energy efficiency improved by 14 percent. See also: Energy
consumption (page 63).

DSM’s People+ concept, being designed to deliver measurably
better solutions to improve the lives of people, was further
defined in 2012. The dimensions of health, comfort and well-
being, working conditions and community development have
been identified as distinct and instrumental categories to
measure People+ impact at product level. See also: People+
(page 45).

Organization and culture
During 2012, DSM transitioned its Change Agenda into a ONE
DSM Culture Agenda with an emphasis on collaboration and
speed of execution to support the strategy. The themes of the
ONE DSM Culture Agenda have been simplified and more
aligned with DSM’s business environment and business strategy
as well as with its global footprint. See also: ONE DSM Culture
Agenda (page 47).

The ONE DSM cultural identity is further supported by the new
corporate brand that the company introduced in 2011. This
brand is a symbol of the company's transition in recent years
and demonstrates very clearly to all stakeholders that DSM has
turned a page. During 2012, the global roll-out of the brand was
nearly completed.

The business groups are the primary organizational and
entrepreneurial building blocks with a focus on customers and
markets. The regional organizations strengthen the business
groups by providing infrastructure and capabilities. They also
cater for local innovation in designated countries and represent
DSM to external stakeholders. As a shared responsibility, the
regional organizations also support sales growth.

Greenhouse-gas emissions in 2012 were 4.2 million tons, a
1 percent reduction compared to 2008. DSM aspires to achieve
an absolute reduction of 25 percent by 2020, compared to 2008.
See also: Greenhouse-gas emissions (page 64).

All this is supported and optimized by shared services (providing
efficient high quality services in designated areas) and functional
excellence groups (offering functional expertise and
implementation capabilities). Corporate staff departments
support the Managing Board in running the company.

DSM aims to truly internationalize its business. This will bring it
closer to its key markets and customers, strengthen the regional
businesses and stimulate diversity and innovation. DSM
combines a strong regional infrastructure with clear board level
accountability for regional growth.

In 2012 the company executed its fifth worldwide Employee
Engagement Survey. The main element in the survey is the
measurement of DSM’s Employee Engagement Index, the
percentage of employees scoring favorable on a combination of
four attributes: commitment, pride, advocacy and satisfaction.
The Employee Engagement Index measured in 2012 was 72
percent (2011: 71 percent). This is above the global overall norm
of 69 percent. The score takes DSM within an 8 percentage point
range of the external benchmark of high performing companies
(scoring 80 percent favorable), which is the league DSM wants
to be part of. See also: DSM Employee Engagement Survey
(page 47).

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

Growth Driver: High Growth Economies

From 'reaching out' to becoming truly global

A key element of DSM in motion: driving focused growth is for
DSM to move from being a European company reaching out to
the world to becoming a truly global company. Fast-growing
economies such as China, India, Brazil and Russia are proving
to be the main growth engines for the world economy this
decade. The share of high growth economies in DSM’s total
sales has increased significantly in recent years and reached 38
percent in 2012. DSM’s strategic target is to increase this share
towards 50 percent by 2015. DSM expects more than 70
percent of its growth in the 2010-2015 strategy period to come
from high growth economies.

To achieve its 2015 targets for high growth economies, DSM
continued the global reorganization of its operations. The
headquarters of DSM Engineering Plastics were moved to
Singapore in 2012 and the headquarters of DSM Fibre
Intermediates are now in Shanghai (China). The headquarters of
DSM Sinochem Pharmaceuticals are in Singapore.

A structure of country presidents in China, India, Russia and
Latin America, as well as in Japan and North America, facilitates
regional decision making. Regional innovation centers have been
established in India and China. At Managing Board level, clear
accountability has been established for regional growth.

Sales in high growth economies
as % of total sales, including China

2008

2009

2010

2011

2012

China
As in previous years, sales in China in 2012 contributed
significantly to DSM's total sales in high growth economies. The
company has a clear focus on China, where it aims to increase
its sales to at least USD 3 billion by 2015. In 2012 DSM’s sales
in China declined to USD 1.7 billion from USD 2.0 billion a year
earlier, mainly due to lower sales prices for caprolactam at DSM
Polymer Intermediates.

To support its strategic growth in China, DSM is investing
USD 1 billion in the country during the current strategy period.
Part of that investment is being made in an expansion project to
double the caprolactam capacity of DSM Nanjing Chemical
Company, a partnership with Sinopec Nanjing Chemical
Industries, to 400 kilotons. The new facility is due to come on
stream at the end of 2013 and is expected to operate at full
capacity in early 2014. See also: Polymer Intermediates (page
101).

China sales
in billion USD

2.0

1.5

1.0

0.5

2.0

1.6

1.7

1.2

2008

2009

2010

2011

2012

Latin America, India and Russia
DSM is also increasing its presence in other markets, mostly
through acquisitions and partnerships, seeking to double or even
triple sales in Latin America, India and Russia.

In 2012 the company achieved a major leap in Latin America by
agreeing to acquire Tortuga, a leading nutritional ingredients
provider to cattle farmers. The acquisition is expected to close
at the end of the first quarter of 2013. With annual sales of € 385
million, Tortuga will significantly boost DSM's Latin America
sales. The acquisition will more than double DSM’s workforce in
Latin America to approximately 2,000 people. See also: New
acquisitions and partnerships in 2012 (page 29).

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Ocean Nutrition Canada and Fortitech, both acquired in 2012,
also have a presence in Latin America. Fortitech is present in all
major regions and generates about 16 percent of its revenues in
Latin America and 13 percent in Asia. Besides the United Sates,
Denmark and Poland, it also has production sites in Brazil and
Malaysia and sales offices in Mexico and China. Ocean Nutrition
Canada has a production site in Peru, in addition to Canada and
the United States.

Sustainability in high growth economies
As the first regional organization in DSM globally, DSM China
established a regional China sustainability committee in 2012.
This committee helps to contribute to more awareness of
sustainability as a business driver at DSM China by establishing
quarterly reporting and by organizing sustainability events.

DSM India has defined a sustainability roadmap with specific
focus areas. The president of DSM India chairs the India
sustainability committee.

In December, DSM organized an event in São Paulo (Brazil) to
discuss the internal Latin America sustainability agenda. See
also: Growth Driver: Sustainability (page 24).

"DSM’s transformation proves very successful with the right
approach to innovation and sustainability."
Professor Cheng Siwei, former vice chairman, Standing
Committee of the National People’s Congress of the
People's Republic of China, Chinese Economist

Innovation in India and China
Part of DSM’s innovation efforts in the coming years is to further
develop the new Innovation Centers in China and India that were
established in 2011. Innovation is increasingly happening in high
growth economies, especially in Asia.

The DSM China Science and Technology Center in Shanghai is
being developed to become DSM’s main innovation base in
Asia. It will form a vital part of the company’s global science and
technology innovation network. The center integrates research
and application technology activities in the areas of materials
sciences, chemistry and biotechnology. It also provides
advanced business development capabilities and can support
creating new ventures.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Growth Driver: Innovation

From building the machine to doubling the output

At DSM, innovation is about turning ‘Bright Science’ into
‘Brighter Living’. This ‘Bright Science’ is not just about great
ideas, state-of-the-art technology and high-tech laboratories.
It is about finding and integrating the best sustainable and
commercially viable solutions to market needs, in order to create
profitable growth.

DSM creates solutions that nourish, protect and improve
performance, using its unique competences in Life Sciences and
Materials Sciences. This way DSM helps create a healthier, more
sustainable and more enjoyable way of life.

Innovation sales
as % of continuing sales

Governance
DSM actively manages its innovation activities at a platform level.
The platforms include for example food & nutrition security,
functional materials, sustainable manufacturing, and energy
security.

The platforms create a solid base for the management of
company-wide competence building programs in Research &
Development, directed from the office of the Chief Technology
Officer, and guide explorative searches for DSM’s Business
Incubator. See also: Innovation Center (page 105).

This platform-based approach to innovation enables the
company to increase cohesion between various projects and
business development activities, giving more focus to its efforts.
The innovation platforms draw on DSM’s competences, have
real and significant commercial potential and address key global
trends.

DSM’s Emerging Business Areas, or EBAs, are instrumental in
turning innovations into major businesses. The EBAs are growth
engines within the Innovation Center that focus on new business
areas outside the scope of the company’s business groups.
DSM aspires to achieve EBA sales of up to one billion euro by
2020. See also: Emerging Business Areas (page 105).

2010

2011

2012

Research & Development

By 2015, DSM wants innovative products and solutions to
account for 20 percent of its total sales. Innovation sales, defined
as sales created by new products and applications introduced
in the last five years, accounted for 18 percent of total sales in
2012. The inflow of innovations continued. Significant process
innovations at DSM Fibre Intermediates no longer qualified as
innovation solutions because they were introduced more than
five years ago.

Achieving the 2015 innovation sales target is a cornerstone of
DSM’s innovation strategy. DSM is firmly on track to reach this
target and expects to be able to maintain its innovation sales at
this level after 2015.

DSM is deeply committed to becoming an intrinsically innovative
company. An internal benchmarking of DSM’s innovation
process with that of its peers in 2012, based on the DSM
Innovation Diagnostic, developed with McKinsey, for the
2006-2012 period, shows that the company has consistently
increased its innovation score since 2006 and now ranks among
the top quartile of its peer group.

R&D expenditure (including associated IP expenditure),
continuing operations

x € million

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

Total

Total as % of net sales

Staff employed in R&D activities

2012

2011

202

131

490

5.4

2,511

200

128

476

5.3

2,520

Research and Development (R&D) is instrumental in the
realization of DSM’s innovation strategy. Most of the annual R&D
expenditure is directed toward business-focused R&D
programs. In addition, DSM has a Corporate Research Program
in place to build and strengthen the technological competences
the company needs to execute development projects.

Bright Science. Brighter Living. 2012 www.dsm.com

Key technological competences are Materials Sciences,
Nutritional Sciences, Process Technology, Biotechnology,
Materials Chemistry & Advanced Synthesis and Analysis &
Characterization. These competences form the basis for the
overarching innovation platforms.

The DSM Science Network is globally spread and consists of
approximately 2,500 internal scientists. These scientists
extensively cooperate with external R&D institutions. Many of
these collaborations are specific and bilateral. In addition DSM
works extensively in broader public private partnerships to
increase its scientific scope.

One example is the Dutch Polymer Institute, known as DPI. This
is a partnership between polymer producing and processing
industries and knowledge institutes involved in polymer
research. Founded in 1997, at the initiative of DSM and others,
DPI is a leading European technology institute in the area of
polymer science and engineering.

BioMedical Materials (BMM) is a partnership program
established in 2008 with a research budget of € 90 million for 18
pre-competitive research projects in three areas: cardiovascular
(heart), musculoskeletal (locomotive system or ability to move)
and nephrology (kidneys).

Patents
DSM filed 319 patents in 2012, compared to about 300 in 2011.
In addition to filing own patents, DSM strengthened its
Intellectual Property position through in-licensing. This is a logical
outcome of DSM's open innovation strategy, in which the
company’s own R&D efforts and patent filings are
complemented by the in-licensing of patents filed by other
companies.

Value Creation through best practices
DSM has continued its extensive Excellence in Innovation
program. This program aims to optimize DSM’s innovation
infrastructure and also builds on the work already done to
improve the ‘soft' aspects of innovation (such as effective
behavior, personal leadership skills and teamwork) in order to
secure an even more favorable innovation culture at DSM.

In 2012, the program focused on market understanding, optimal
delivery of the top 50 innovation projects, entrepreneurship and
opportunity engineering. Opportunity engineering is a tool that
helps project managers to identify the main risks of a project at
an early stage and, based on this, to improve the outcome of the
project as well as reducing its time to market.

After achieving the ‘best in class’ quartile of the McKinsey
Innovation Diagnostic assessment in 2012, DSM will continue

the Excellence in Innovation program in order to maintain its top
ranking position and further improve its capabilities.

DSM Licensing
DSM Licensing, a unit of the DSM Innovation Center, is the
company’s center of excellence for value creation from
intellectual property (IP).

DSM views its IP rights as a tool for creating partnerships. DSM
Licensing assists the company’s business groups and Emerging
Business Areas with the initiation and management of
collaboration based on IP, including patents, trademarks and
know-how. DSM approaches licensing as a completely
integrated, powerful way of creating shared value with partners.

In DSM’s Emerging Business Areas, licensing is regarded as one
of the most important elements of the business model, helping
enhance the value proposition and increasing the speed with
which products can be brought to the market.

Open Innovation
An essential element of DSM’s approach to innovation is Open
Innovation, which means combining internal and external ideas
and capabilities. The company is proud of the capabilities of its
employees, but is at the same time aware that there is a vast
store of ideas, know-how and expertise outside the company.
Cooperating with others is the best way to develop and discover
solutions for the challenges facing today's society.

DSM is keen to continuously improve the quality of its Open
Innovation. Licensing its know-how and expertise is one
example that perfectly fits its drive toward new business models.
DSM is eager to speed up its venturing activities and to increase
its partnering activities, not only in its key business areas but also
in technology areas, given that it aims to broaden and strengthen
its technological competence base.

An example of DSM’s approach to Open Innovation is its
partnership in the Bioprocess Pilot Facility, known as BPF, which
was established in 2012 on the DSM site in Delft (Netherlands).
The BPF is an open facility in which other companies,
universities, institutes, etc. can conduct their upscaling research
for bio-processes. DSM, CSM and Delft University of Technology
are joining forces to create a world-class facility for testing new
bio-processes that are upscaled from laboratory and pilot plant
to industrial production. The pilot facility is of key importance for
upscaling fermentation and purification processes as well as for
the pretreatment of vegetable residues to convert them into
fermentation feedstock, for instance as used for advanced
biofuels. Thanks to a joint contribution from the European
Regional Development Fund (ERDF) and regional authorities, the
BPF will also be available for use by smaller start-ups.

Bright Science. Brighter Living. 2012 www.dsm.com

sciences. In 2013 DSM will grant a Nutritional Sciences Award
for research in human nutrition.

Innovation partner to the top-level sports community
DSM and the Dutch Olympic Committee (NOC*NSF) were
‘Partners in Sport’ between 2001 and the end of 2012. As the
committee's innovation partner, DSM developed new products
in the field of health, nutrition and materials.

For the 2012 Olympic and Paralympic Games in London, rowing
and cycling were made the spearheads in this innovation
program. In cycling, two innovations were used in competition
by the athletes: Dyneema® reinforced cycling shorts, providing
effective protection in the event of a fall, and ultra-light and strong
chains and sprockets made of DSM’s high performance
polyamide Stanyl®. The latter were used by the paralympic
cycling team. In rowing DSM introduced rowing boats with a rigid
hull using its styrene-free resins. The Dutch women’s eight won
a bronze medal with their new olympic boat. In addition, DSM
provided nutritional support to a large number of sportsmen and
women, from vitamin D to eye care products with lutein and
zeaxanthin, which prevent athletes being dazzled by direct
sunlight or by light reflected off the water.

Report by the Managing Board

Another example of Open Innovation at DSM is Fruitflow®, a
breakthrough ingredient. It is the first natural, scientifically
substantiated solution contributing to healthy blood flow. This
product, an extract from tomatoes, was created by Provexis,
a small UK start-up. DSM invested in Provexis through its
venturing subsidiary in 2008. Subsequently this collaboration
was extended with DSM obtaining the distribution rights for the
product. Fruitflow® was commercially launched in 2010. In 2012
Fruitflow® was named one of the most innovative products of the
year at the Food Ingredients South America trade show. See
also: DSM Venturing (page 107).

DSM Bright Science Awards
Keen to promote pioneering research that leads to products or
solutions enhancing people’s quality of life, DSM has put in place
a Bright Science Awards program. The program recognizes
achievements of DSM scientists as well as those working outside
DSM who have displayed excellence in innovative research. The
awards program is an integral part of the company’s open
innovation approach.

The DSM Science & Technology Awards recognize outstanding,
innovative PhD research. From 2013, DSM will grant a Science
& Technology Award every year in three regions: Europe, the
USA and China. The North/South structure, organized around
the Netherlands and Switzerland, will be replaced by a single
European award. The new award structure will also be
implemented in the USA, where it replaces the Polymer
Technology Award, and in China.

In 2012, the first prize in the DSM Science & Technology Awards
(North) 2012 was presented to Dr. Chang Chen, KU Leuven
(Belgium), for his PhD research in the field of nano science for
label-free genomic sequencing. The first prize in the DSM
Science & Technology Awards (South) was presented to Dr.
Ruth Lohwasser, Bayreuth University in Germany, for her PhD
research in the field of applied functional polymers.

Dr. Frank Leibfarth of the University of California in Santa
Barbara, California (USA), was awarded the DSM Polymer
Technology Award 2012 for his PhD research in the field of
functional polymeric materials.

In addition, DSM each year grants a major award to an
established scientist who has made a significant, peer-
acknowledged contribution to the advancement of science. This
award alternates between Nutritional Sciences and Materials
Sciences. The DSM Materials Sciences Award 2012 was
awarded to Geoffrey W. Coates, Tisch University Professor of
Chemistry and Chemical Biology at Cornell University, Ithaca,
New York (USA), in recognition of his exceptional contributions
to the advancement of polymer chemistry and the materials

Bright Science. Brighter Living. 2012 www.dsm.com

Growth Driver: Sustainability

From responsibility to business driver

DSM's mission is about creating brighter lives for people today
and generations to come. The company's core value,
contributing to a more sustainable world, supports this mission.
As part of its 2010-2015 strategy, DSM in motion: driving
focused growth, the company formulated the ambition to go to
the next level in sustainability: sustainability remains a core value
and a responsibility to contribute to society, but in addition DSM
is now developing sustainability into a strategic growth driver as
well.

By 2050 there will be nine billion people living on the planet. The
growth in the modern world requires innovative solutions to meet
the needs of all, and to generate a stable, prosperous and fair
future, within planetary boundaries.

By 'sustainable' DSM means ‘meeting the needs of the present
generation without compromising the ability of future
generations to meet their own needs’. That is the widely
accepted definition that was first published in 1987 by the
Brundtland Commission set up by the United Nations to
encourage countries to jointly pursue sustainable development.
Like this commission, DSM believes that achieving sustainability
means simultaneously pursuing social responsibility,
environmental quality and economic performance, creating
value on the three dimensions of People, Planet and Profit.

DSM believes sustainability will be the key differentiator and value
driver in the coming decades. The company is uniquely
positioned to capture new opportunities across the value chain.

Sustainability is an integral part of the company's operations,
strategic actions and decisions. DSM’s businesses are coming
up with new science-based products and solutions that
contribute to brighter living while also helping grow the bottom
line of the business.

ECO+
ECO+ is DSM’s strategic concept for promoting the
development of sustainable, innovative products and solutions
with ecological benefits. Products qualify as ECO+ when their
environmental footprint is reduced compared with competing
products or solutions. ECO+ solutions offer, when considered
over their entire life cycle, not only superior performance but also
ecological benefits such as a clearly lower eco-footprint when
compared to the mainstream solutions they compete with.
ECO+ solutions, in short, create more value with less
environmental impact. The ecological benefits can be created at
any stage of the product life cycle, from raw material through

Bright Science. Brighter Living. 2012 www.dsm.com

Sustainability aspirations 2011-2015

Realization 2012

Dow Jones Sustainability Index

Top ranking (SAM Gold Class)1

Gold Class

ECO+ (innovation)

At least 80% of pipeline is ECO+2

80%

ECO+ (running business)

From approximately 34% towards 50%

43%

Energy efficiency

20% improvement in 2020, compared

14% improvement

to 2008

Greenhouse-gas emissions

-25% (absolute) by 2020, compared

1% decrease

to 2008

Employee Engagement Survey

Towards High Performance Norm3

72% favorable

Diversity and People+

To be updated

Diversity aspirations

defined4

People+ framework

defined4

1 This means a total score of within1% of the SAM sector leader
2 See page 224 for a definition of ECO+
3 The High Performance Norm (80% favorable) is the composite of the top 25%

employee responses of the selected external benchmark organizations

4 See page 45 and page 50 in the People chapter

manufacturing and use to potential re-use and end-of-life
disposal. ECO+ is determined using Life Cycle Assessments.

Typical ECO+ examples are DSM's engineering plastics that
enable customers to produce lower-drag, lighter-weight and
therefore more fuel-efficient cars. A life-science example is
Brewers Clarex™, which enables brewers to prevent chill haze
without having to cool their beers to sub-zero temperatures.
Resins for the production of high performance coatings based
on water, instead of harmful solvents, also help reduce
emissions.

In 2015 DSM aims for at least 80 percent of its innovation pipeline
to be ECO+ products or solutions and in 2015 their share of total
net sales is expected to grow towards 50 percent.

A comprehensive description of the ECO+ program can be
found in the 'Planet in 2012' chapter. See also: ECO+ (page
57).

People+
DSM is developing a People+ strategy for measurably improving
the lives of consumers, workers and communities across the

Report by the Managing Board

value chains in which the company is active. People+ will do for
the ‘people’ element of Triple P what ECO+ has done for ‘planet’,
giving further impetus to sustainability as a business driver for
the company. DSM refined its People+ strategy in 2012 and also
defined and road tested new metrics for it, thereby further
enhancing its leadership position in sustainability.

Until recently a tool to measure a product’s impacts on the
People dimension was not available. By contrast, a product’s
eco-benefits (its ECO+ effect) can readily be measured using the
well-known Life Cycle Assessment (LCA) methodology. The LCA
method is widely accepted as a tool to assess environmental
impacts associated with all the stages of a product's life.

The People+ program was further defined in 2012, including
developing a new tool to measure the impact on people, in
cooperation with a broad group of stakeholders. Business can
use this first version of the ‘DSM People LCA tool’, a Life Cycle
Assessment method, as a tool to further develop value
propositions, taking into account the impact of DSM products
on the lives of people involved in making and using the product.
This also encourages innovation and R&D.

"DSM is exploring a social metrics system to steer
sustainable and innovative purchasing in Europe and Asia
by realistically looking at challenges through stakeholders’
eyes. This approach not only increases DSM’s insight into
the challenges that come with social issues but also
enhances its determination to address these challenges. As
a global player, DSM can make a difference."
Nico Roozen, executive director, Solidaridad Network

On the Planet dimension, DSM delivers activities, solutions and
innovations that improve the environmental footprint of its own
businesses and those of its customers and suppliers. This
includes the ECO+ program. Improving energy efficiency and
reducing greenhouse-gas emissions are also among the
sustainability aspirations for the current strategy period. DSM
aspires to realize a 20 percent improvement in energy efficiency
by 2020, compared to 2008. The company seeks an absolute
reduction in greenhouse-gas emissions of 25 percent by 2020,
compared to 2008. See also: Planet in 2012 (page 57).

DSM's Triple P approach to profit aims to translate sustainable
innovations into strong and profitable businesses that meet the
needs of today’s global society while at the same time creating
true value for the company’s shareholders. Because of its
engagement with stakeholders, DSM has a deep understanding
of societal needs and therefore is well positioned to develop new
products and solutions that can effectively grow its business.
See also: Sharing value among stakeholders (page 37).

A comprehensive description of the People+ framework can be
found in the 'People in 2012' chapter. See also: People+ (page
45).

People, Planet, Profit
The People dimension of the Triple P approach is twofold. Firstly,
DSM addresses the needs of its employees and people working
in the value chains where the company is active, looking for a
positive impact in areas such as employee health and vitality,
employee safety, diversity and employee engagement, as these
are critical components in delivering DSM's strategy. Improving
employee engagement and encouraging diversity are defined as
sustainability aspirations in the current strategy period.
Secondly, DSM seeks to improve people’s lives with its activities,
solutions and innovations. This includes the People+ program,
DSM’s strategy for measurably improving people’s lives. See
also: People in 2012 (page 45).

Sustainability governance
Sustainability is the responsibility of the entire Managing Board,
with its Chairman Feike Sijbesma as primary point of contact.
Members of the Managing Board chair various sustainability
projects and areas. Managing Board member Stephan Tanda is
the primary point of contact for DSM’s partnership with the World
Food Programme, Feike Sijbesma for Inclusion and Diversity,
and Managing Board member Nico Gerardu for Safety, Health
and Environment.

DSM’s Supervisory Board clearly recognizes sustainability as an
important element on its agenda. The overall strategic
importance of sustainability for DSM is illustrated by the fact that
the Supervisory Board has a Corporate Social Responsibility
Committee. See also: Corporate Social Responsibility (page
124).

Bright Science. Brighter Living. 2012 www.dsm.com

Growing proﬁtable business on a strong foundationPeoplePeople+DSM SustainabilityPositioningECO+PlanetCredible Sustainability Qualifiers • Health and safety • Diversity • Employee engagement • Vitality@DSM • Greenhouse-gas emissions • Energy efficiency • WaterSustainability Growth DriversInternal DSM Triple P FoundationExternal DSM Sustainability PositionAt a corporate level, sustainability is organized in a network
supported by the Corporate Sustainability department under the
responsibility of the Executive Vice President Corporate Affairs,
who reports directly to Mr. Sijbesma as Chairman of the
Managing Board.

Sustainability in supply chains
Suppliers help DSM be successful in the field of sustainability by
closely cooperating on steps and actions that make value chains
more sustainable.

DSM also has a dedicated Corporate Operations & Responsible
Care department, which, among other things, is responsible for
all corporate issues in the area of Safety, Health and Environment
(SHE). The Vice President Corporate Operations & Responsible
Care reports directly to Managing Board member Nico Gerardu.

An internal network of people dedicated to sustainability, known
as Sustainability Champions, supports line management in all
business and functional groups and at the DSM Innovation
Center. SHE managers provide support at business group level.
The DSM SHE Council, which includes all business group SHE
managers, is instrumental in sharing experiences and developing
practices and communications regarding SHE issues.

Sustainability is also addressed at a regional level, with internal
sustainability networks established in India, China and Latin
America. See also: Sustainability in high growth economies
(page 19).

Sustainability in manufacturing
In DSM’s manufacturing organization, sustainability is
embedded in Functional Excellence programs and expert
networks for maintaining and improving specific competences.
Functional Excellence programs help make DSM’s pooled
manufacturing expertise available wherever and whenever it is
needed throughout the global organization. Competence
networks have been set up to develop shared solutions to DSM-
wide issues. The programs and networks help DSM to achieve
its objectives in the People, Planet and Profit fields. They are
driven and supported by stakeholder engagement activities.

After implementing standard business processes in the entire
operations area in the early 2000s and executing the Advanced
Manufacturing program – delivering a value exceeding € 200
million over 36 site implementation projects – in 2008-2011,
DSM further integrated manufacturing and supply chain activities
in 2012 and made new steps towards world class
manufacturing. The company achieved this by further
implementing Lean Six Sigma, advanced process control and by
extending its use of the Advanced Manufacturing toolbox,
among other things. In addition, the company placed focus on
increasing the alignment of DSM’s asset footprint with defined
business strategies by running a process called Business
Operations Strategy in several units.

DSM strives for full adherence to the Greenhouse Gas Protocol,
as defined in 2011 under the international Corporate Accounting
and Reporting Standard, Revised Edition. This means the
company reports not only emissions from its own production
processes and those related to the electricity and steam it
purchases, but also emissions coming from the value chains in
which it operates. See also: Sustainable value chains (page
67).

DSM takes sustainability explicitly into account in the selection,
evaluation and development of suppliers by applying a Supplier
Code of Conduct that is based on the company’s Code of
Business Conduct. At the end of 2012, 91 percent of DSM’s
suppliers had signed the Supplier Code of Conduct. See also:
Global Supplier Sustainability Program (page 39).

External Sustainability Advisory Board
DSM's external Sustainability Advisory Board met two times in
2012. The board is a diverse international group of thought
leaders on key sustainability topics. Its members are Amir
Dossal, Paul Gilding, Pamela Hartigan, David King, Ye Qi and
Josette Sheeran, all leading international sustainability experts.
They provide advice and act as a sounding board for the DSM
Managing Board. The external Sustainability Advisory Board
supports DSM in deepening its understanding of stakeholder
needs and strategic issues such as the bio-based economy and
malnutrition, sharpening its focus, conducting advocacy efforts
and handling dilemmas. See also: Stakeholder engagement
(page 33).

Integrated reporting
Since sustainability was defined as a key growth driver in 2010,
DSM has reported a number of sustainability metrics on a semi-
annual basis. Since 2010 the company has published an
Integrated Annual Report.

The transparency of DSM’s sustainability reporting is measured
by applying criteria of the Global Reporting Initiative (GRI). DSM
has determined that this Integrated Annual Report once again
merits GRI application level A+, representing a high level of
transparency. Ernst & Young has reviewed compliance of the
Sustainability Information with this application level. See also:
Independent Assurance Report on Sustainability Information
(page 217).

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

Growth Driver: Acquisitions & Partnerships

From portfolio transformation to growth

- They should contribute to cash earnings per share from the

beginning.

- They should contribute to earnings per share from year two.
- They should support DSM’s other financial targets.

In the exceptional case that a very attractive acquisition
opportunity arises of a size that would put pressure on financial
metrics, DSM may be willing to accept a temporary deviation
from the credit metrics commensurate with its ratings objective.
However, DSM believes that Single A ratings are the right place
to be for the company to ensure sufficient financial and strategic
flexibility at all times. The company would seek to manage its
balance sheet and underlying financials after such an acquisition
to allow the company to realign ratios with Single A ratings within
a short period of time.

In 2012 DSM continued to be involved in a number of specific
partnerships that serve a strategic business purpose, in addition
to regular contract arrangements with suppliers and customers.
Often, but not always, these specific business partnerships
involve long-term supply agreements. These strategic business
partnerships are material to DSM's business performance.

When DSM presented its current strategy back in 2010, the
company said that besides defining more ambitious targets for
organic growth it also aimed to accelerate growth through
acquisitions and partnerships. These partnerships need to make
clear strategic sense and must meet the criteria that the
company has defined. By the end of 2012, significant progress
had been achieved with Acquisitions & Partnerships, with the
company investing € 2.8 billion in acquisitions, of which € 2.4
billion in Nutrition.

DSM applies stringent strategic and financial criteria to any
potential acquisition or partnership. During the screening
process, a first selection is made to determine the strategic fit.
This results in a shortlist to which DSM then applies financial
criteria. A key strategic consideration is that the business or
partner needs to add or improve a leadership position and needs
to add value to DSM in terms of technological and/or market
competences.

The key financial criteria for acquisitions are:

- Acquisitions should enable DSM to remain within the

boundaries defined for maintaining its desired Single A credit
rating.

Acquisitions in the current strategy period (2010-2012)

Company

Martek

Ocean Nutrition Canada

Tortuga1

Cultures and enzymes business of Cargill

Fortitech

Kensey Nash

Other acquisitions

Total enterprise value

1 Expected closing Q1 2013.

Business group / EBA

DSM Nutritional Products

DSM Food Specialties

DSM Nutritional Products

DSM Biomedical

Enterprise

value in € m

790

420

465-490

495

275

235

approx. 2,800

Year

2011

2012

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Value creation via acquisitions & partnerships since 2010

Acquisitions & Partnerships

Leadership

Market

Position

Geographic

Ambition

Innovation/

Technology

Martek

Vitatene

Microbia

Premix plants

AGI Taiwan

KuibyshevAzot

Shandong ICD

C5 Yeast Company

POET-DSM Advanced Biofuels

Kensey Nash

Verenium assets

Ocean Nutrition Canada

Tortuga

Enzymes and cultures business of Cargill

Fortitech

•

•
•
•

•
•
•
•

•
•

•
•
•
•
•
•
•

•
•
•
•

•

•
•
•
•
•

•
•
•
•
•
•
•

•
•
•

•

•
•
•
•
•

•
•

•Nutrition & Health

•Performance Materials

•Emerging Business Areas

New acquisitions and partnerships in 2012
POET-DSM Advanced Biofuels
A major strategic decision that DSM made at the beginning of
the year was to join forces with POET LLC, one of the world’s
largest ethanol producers. Together, the two companies will
commercially demonstrate and license cellulosic ethanol by
combining their proprietary and complementary technologies.
POET-DSM Advanced Biofuels, LLC will produce cellulosic
ethanol from corn crop residue through a biological process
using enzymatic hydrolysis followed by fermentation, providing
for a sustainable biofuel. See also: POET-DSM Advanced
Biofuels (page 106).

Verenium assets
DSM acquired certain assets, licenses and other agreements in
the area of food enzymes and oilseed processing from Verenium,
based in San Diego, California (USA). Verenium's enzyme
products can help minimize pollution by reducing or replacing
harsh chemicals used in industrial processes while also
enhancing yields in customers’ processes. See also: DSM Food
Specialties (page 84).

Kensey Nash
DSM further strengthened its industry leadership in the
biomedical field by completing the acquisition of Kensey Nash,
a US based technology-driven biomedical company with 325
employees. Kensey Nash primarily focuses on regenerative
medicine utilizing its proprietary collagen and synthetic polymer

technology. The transaction strengthens and complements
DSM’s biomedical business, one of the company’s three
Emerging Business Areas, and positions DSM Biomedical as a
profitable growth platform. See also: DSM Biomedical (page
105).

Ocean Nutrition Canada
DSM completed the acquisition of Ocean Nutrition Canada, a
Canada-based supplier of fish-oil derived Omega-3 fatty acids
to the dietary supplement and food and beverage markets. The
company is headquartered in Halifax, Nova Scotia (Canada) with
approximately 415 employees. Ocean Nutrition Canada,
founded in 1997, has production sites in Canada, the US and
Peru. Every day over 21 million servings of its MEG-3® product
line are consumed in supplements and foods and beverages
across the world. The company’s average annual growth over
the past five years in local currency amounted to nearly 20
percent. See also: Acquisitions in Nutrition (page 80).

Tortuga
DSM agreed to acquire Tortuga Companhia Zootécnica Agrária
(Tortuga), a privately held Brazilian company with a leadership
position in nutritional supplements with a focus on pasture-
raised beef and dairy cattle. The company is headquartered in
São Paulo (Brazil) with approximately 1,200 employees. Tortuga
has three production sites in Brazil. The transaction is expected
to close at the end of the first quarter of 2013. See also: Animal
Nutrition & Health (page 83).

Bright Science. Brighter Living. 2012 www.dsm.com

The cultures and enzymes business of Cargill
DSM acquired the cultures and enzymes business of Cargill. This
business is a leading global manufacturer of cultures and
enzymes for the dairy and meat industries with manufacturing
operations in the state of Wisconsin (USA) and France. It has a
strong pipeline of new products built on three pillars of
technology: culture texture toolbox, fast acidification for cheese
yield improvements and culture flavor systems. The business has
approximately 200 employees. The transaction closed just
before the end of the year. See also: DSM Food Specialties
(page 84).

Fortitech
At the end of the year, DSM completed the acquisition of
Fortitech, Inc., a privately held company based in Schenectady
(New York, USA). Fortitech is a leader in customized, value-
added food ingredient blends for food & beverage, infant
nutrition and dietary supplements industries. The company has
approximately 520 employees. Fortitech has six production sites
located in New York (USA), California (USA), Campinas (Brazil),
Kuala Lumpur (Malaysia), Gastrup (Denmark) and Poznan
(Poland), with sales offices in China and Mexico. See also:
Human Nutrition & Health (page 83).

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Stakeholder engagement

DSM believes and invests in a strategic and pro-active dialogue
with its key stakeholders not only to share thoughts and views,
but also to deepen the company’s insights into governmental,
societal and customer trends, drivers and needs. The company
wants to achieve its engagement objectives in a focused manner
by taking part in stakeholder dialogues on relevant topics.
It aspires to resolve issues, receive endorsement and build trust,
and, by doing so, create more shared value.

Based upon the discussions with stakeholders DSM has
mapped the issues that are important to both DSM's businesses
and society.

The strategy that DSM adopted in 2010 – DSM in motion: driving
focused growth – was influenced by the company’s dialogue
with its stakeholders: shareholders, customers, suppliers, local
communities, end-consumers, industry peers, financial
institutions, governments, investors, non-governmental
organizations (NGOs), special interest groups and the
company’s own employees. Based on the input from these
stakeholders, DSM has defined the following needs and topics
as strategic.

Bright Science. Brighter Living. 2012 www.dsm.com

Hidden hunger
Malnutrition caused by deficiencies of vitamins and minerals is
also known as hidden hunger because most of the people
affected by it do not show the physical symptoms usually
associated with hunger and malnutrition. An estimated two
billion people globally suffer from the effects of micronutrient
deficiencies. Hidden hunger is therefore a global problem of
enormous magnitude that, until recently, was largely ignored.

In many countries, poor people consume the same starchy
foods (such as rice, corn or wheat flour) every day. While such a
diet may have enough calories to ease hunger pangs, it does not
provide the micronutrients needed for good health. A balanced
diet, containing adequate amounts of all essential
micronutrients, includes a variety of fruits, vegetables, pulses,
dairy, eggs and possibly other foods from animal sources.
People who do not consume such foods for any reason, like
cost, availability, traditions or ignorance, will sooner or later
develop hidden hunger.

The Copenhagen Consensus Center 2012 Expert Panel, which
includes four Nobel Laureates, has stated that fighting
malnourishment should be the top priority for policymakers and
philanthropists. It identified “bundled interventions to reduce
malnutrition in preschoolers” as the smartest way to allocate
money in response to ten of the world’s biggest challenges.
Nobel Laureate economist Vernon Smith said the panel
concluded that getting nutrients to the world’s undernourished
is one of the most compelling investments. Building better
nutrition begins early. It is vital to deliver proper nutrition and
provide the right micronutrients during the 1000 day window of
opportunity between a mother’s pregnancy and her child's
second birthday. The negative effects of malnutrition during this
critical period cannot be reversed and permanently stunt a
child’s development.

DSM actively engages to build greater awareness about the
importance of improved nutrition, which is one of its main
businesses in both the developing and the developed
world. In recent years the company has emerged as one of the
industry leaders in this area, and it is often consulted by United
Nations agencies, governments and NGOs.

DSM’s Nutrition Improvement Program (NIP) aspires to be the
partner of choice in the global fight against hidden hunger in
emerging economies. The company offers nutritious, safe and
affordable solutions and sustainable business models tailored to
the needs of local communities in the developing world, with a
special focus on women and children. NIP works in Latin
America, Africa and Asia. The target population is at the base of
the socio-economic pyramid, also known as BoP. In the last
year, NIP increasingly focused on BoP consumers, giving them

Materiality matrix 11109876543456789121716141310915675123481112Low priorityActively monitor & communicatePrioritizeSocietal interestActively manage1 Climate change 2 Food safety & quality3 Health & wellness 4 Bio-based economy 5 High growth / emerging economies 6 Hidden hunger7 Careers & employment 8 Renewable energy 9 Diseases & health 10 Human rights 11 Water management 12 Resource constraints 13 Nanotechnology 14 Advocacy 15 Poverty alleviation16 Environmental labeling 17 BioethicsBusiness impactthe opportunity to have access to nutritious products. See also:
NIP website.

based economy in a number of industry organizations in the
chemical and biotechnological areas.

Through various partnerships DSM invests its scientific
expertise, employee capability, broad network and funds, and
benefits from greater credibility, access to new markets and
distribution channels and knowledge of consumer behavior.
New nutrition innovations result from this win-win model and
provide treatment and prevention of malnutrition. See also:
Sustainability (page 82).

In 2012 DSM celebrated the 100th anniversary of vitamins with
a campaign, events and a dedicated website. In 1912, the term
'vitamin' was coined to describe the bioactive substances
proven to be essential to human health. Over the past century,
the world has seen remarkable advancements in the
understanding of vitamins. Exciting new breakthroughs continue
as researchers around the world uncover new benefits vitamins
have for human health. See also: 100 Years of Vitamins website.

Bio-based economy
Biomass is a renewable resource that, if managed carefully, can
sustainably supply the world with food, feed, energy, chemicals
and materials. With the help of biotechnology, biomass can be
converted into almost anything. As a pioneer, using its chemical
and biotechnological toolbox for the development of bio-based
routes to chemicals and materials, DSM teams up with leading
innovators in the value chain to speed up this development
process.

DSM promotes the bio-based economy as a sustainable
solution. The company strives for broader societal acceptance
and a better understanding in order to generate political traction
that can improve the industrial policy framework for bio-based
industries and technologies, and that contributes to a more
conducive climate for investment in these sustainable solutions.

DSM's increasing involvement in industrial biotechnology is
inspired by its sustainability ambitions, which make the company
strive to use resources that do not compete with the food supply
chain. The company closely cooperates with parties such as the
International Union for the Conservation of Nature (IUCN), several
other NGOs that co-signed the Dutch Manifesto on the Bio-
based Economy, the Dutch Sustainability Criteria Commission
(Corbey commission) and EuropaBio.

To further support its drive towards realizing a bio-based
economy DSM became a member of Growth Energy, a US
based group which represents ethanol producers. In Europe, the
company joined the biofuel partnership ePure, which represents
and supports companies that produce renewable ethanol in the
European Union. In addition, DSM continued to promote the bio-

DSM promotes the development of industrial biotechnology in
several ways. DSM’s Bio-based Products & Services unit
continues to invest in this field and seeks to help create a bio-
based economy as an alternative to a fossil-fuel based economy.
DSM Managing Board member Stephan Tanda serves as
chairman of EuropaBio, the European Association for Bio-
industries. In the Netherlands, the company is involved in a multi-
stakeholder initiative that resulted in a Manifesto on the Bio-
based Economy. DSM is represented on the board of SusChem,
the European technology platform for sustainable chemistry, and
leads the industrial biotechnology working group of this
organization. In the United States, DSM is a member of the
Biotechnology Industry Organization (BIO).

Role of business in society
DSM believes that in this ever more complicated world,
companies, governments, academia, NGOs and international
institutions have to work together to solve the big global issues
of today. These issues include the question of how to deal with
the big demographic changes in the world, including the rise of
new economies and an aging population, but also how to
address climate change and the development of alternative
energy, and how to secure the health and well-being of all by
resolving food and nutrition security and water issues, among
other things. All of the world’s problems are simply too big to be
solved by just one entity.

The company is an active member of the World Economic
Forum, an independent international organization based in
Switzerland that is committed to “improving the state of the
world”. This Forum brings together leaders from governments,
businesses, academia and NGOs to exchange and synchronize
thoughts and to work together on important agenda topics to
make the world a better place. DSM is a also co-developer of
the UN Business Partnership concept as an active participant in
the UN Global Compact LEAD, a platform for corporate
sustainability leadership.

In 2012 the company actively participated in the annual meeting
of the World Economic Forum (WEF) in Davos (Switzerland),
organizing a session on nutrition security. At the Annual Meeting
of the New Champions in Tianjin (China), DSM CEO Feike
Sijbesma participated as one of eight mentors on the theme of
Creating the Future Economy, in several sessions on subjects
including sustainability, innovation and the bio-based economy.
At the United Nations Conference on Sustainable Development,
also known as Rio+20, which took place in Rio de Janeiro
(Brazil), Mr. Sijbesma led a panel debate on the role of the public
and private sectors.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Climate change
DSM believes industry can and must play a positive role in
securing economic growth while simultaneously reducing the
total carbon footprint of both its own operations and the value
chains in which it operates. The company is involved in multiple
supply-chain initiatives and sector organizations such as the
World Business Council for Sustainable Development (WBCSD),
the Dutch Sustainable Growth Coalition and The Sustainability
Consortium to address the topic of how to measure the
environmental impact in the value chain and collectively steer
towards products with minimum environmental impact. In the
World Economic Forum DSM has been involved in the climate
change ambassadors group.

Food safety and quality
As a leading nutritional ingredients supplier, DSM considers it its
duty to address concerns about health issues related to food
safety and quality. The company helps develop programs
together with various external stakeholders, including for
example the Chinese government. DSM’s Quality for Life™ seal
reflects its commitment to create safer, fully traceable, more
reliable and more sustainable business processes. It also
incorporates DSM’s commitment to the environment and
society, extending beyond products and services. The seal
symbolizes DSM’s pledge to uphold ethical values in
relationships with customers, employees and partners.

Careers and employment
Each year DSM conducts a company-wide Employee
Engagement Survey to gauge the needs and concerns of its
employees worldwide and to hear their opinions on all aspects
of its operations. The company encourages employees to
actively engage with some organizations in its partnership
network, in particular with the United Nations World Food
Programme (WFP). An employee volunteer program offers DSM
employees the opportunity to take on WFP assignments. See
also: People at DSM (page 47).

Water management
DSM acknowledges that sustainable water management, taking
into account the needs of present and future users, is a
necessity. DSM executes water risk assessments at its sites in
order to mitigate environmental, societal, operational, regulatory,
reputational and financial risks. Mr. Sijbesma has endorsed the
UN Global Compact’s CEO Water Mandate, a public-private
initiative that helps develop and implement sustainable water
practices and policies. DSM also takes part in the water task
force of the WBCSD. See also: Full transparency in reporting
water performance (page 65).

Biodiversity
Biodiversity and healthy ecosystems are key conditions for a
more sustainable world. They provide what are known as
ecosystem services: by fulfilling basic human needs such as
food, materials, clean water and fresh air, they sustain human
life. DSM considers the conservation of biodiversity and
ecosystems an essential part of sustainable development and
corporate social responsibility. It is DSM’s belief that companies
have an important role to play in the conservation of nature. This
is a learning process; it starts with building awareness, to be
followed up with actions to (1) assess DSM’s impact on
biodiversity and (2) mitigate the impact in order to preserve
biodiversity. Together with some of the partners in the
Inspirational Programme of the Leaders for Nature platform of
IUCN, DSM is working on a 'business area of the future' concept.
See also: Biodiversity (page 65).

Sustainable value chains
DSM is engaged in an ongoing dialogue with suppliers,
customers, NGOs and industry peers that seek to increase the
sustainability of the various value chains in which the company
operates. This includes both environmental and societal
sustainability. See also: Sustainable value chains (page 67).

Bright Science. Brighter Living. 2012 www.dsm.com

Public-Private Partnerships

DSM is engaged in a range of partnerships. Besides the United
Nations World Food Programme (WFP), this includes the Global
Alliance for Improved Nutrition (GAIN), the US Agency for
International Development (USAID) and, together with General
Mills and Cargill, the Partnership in Food Solutions. DSM is also
a partner in the Mercy Corps’ food cart social enterprise KeBAL
and World Vision International.

In 2012 DSM contributed to the development of an interactive
global vitamin D map published by the International
Osteoporosis Foundation (IOF). The map and the accompanying
publication confirm that vitamin D insufficiency is a major public
health issue in both the developing and the industrialized world,
with more than one-third of all the populations studied showing
insufficient levels of vitamin D. DSM strongly supports IOF’s call
for healthcare decision makers to take immediate action to
address vitamin D deficiency as a priority public issue and to
emphasize the role of supplementation as a key tool for
preventing bone diseases such as osteoporosis. See also: IOF
Vitamin D map website.

The company continued its participation in Project Laser Beam,
a five-year, USD 50 million public-private partnership that seeks
to eradicate child malnutrition. The partnership was established
in 2009 on behalf of founding partners WFP, DSM, Unilever, Kraft
Foods, and GAIN. DSM is working with these partners to fortify
a range of foods and create a sustainable business model for
fortified foods.

Through its continued support of the non-profit humanitarian
nutrition think tank Sight and Life, DSM is helping improve the
world’s knowledge, understanding and awareness of hidden
hunger. Sight and Life promotes nutrition research, shares best
practices and mobilizes support for the world’s undernourished.

In 2012, Sight and Life extended its partnership with Vitamin
Angels for the distribution of vitamin A capsules. Vitamin A
deficiency is a major contributing cause to poor health and death
among young children. Sight and Life has transferred to Vitamin
Angels the responsibility for the management of vitamin A
capsule distribution and both partners have started initiatives
intended to catalyze locally sustainable vitamin A supply and
distribution systems.

To stimulate the nutrition science agenda, DSM engages with
the New York Academy of Sciences, Johns-Hopkins-University
School of Public Health, Tufts University, the University of
Groningen (Netherlands) and a number of other academic
institutions.

Bright Science. Brighter Living. 2012 www.dsm.com

Improving 30 million lives

DSM's public-private partnership with the United Nations
World Food Programme (WFP), in place since 2007, has
contributed to improving the diets of people, using essential
vitamins and nutrients, in countries that include Nepal,
Kenya, Bangladesh and Afghanistan. The strengthened
partnership will focus on pregnant and nursing women,
young children and vulnerable households, as well as on
rice fortification. Nine food products have been created or
improved and two new food aid delivery methods
developed. Early in 2013 DSM and WFP announced a
three-year extension of their global partnership to 2015.
DSM and WFP will seek to double the number of people
who benefit from their cooperation, from the current annual
reach of 15 million to 25-30 million per year by 2015.

"With DSM’s continued support, WFP is committed to
providing the right food at the right time, especially for
children in the first 1,000 days of life. When building the
potential of future generations, there is no substitute for
good nutrition," said Ertharin Cousin, WFP Executive
Director.

The partnership has provided nutrition-related assistance
to 16 WFP country offices and helped develop WFP
nutrition policy. DSM nutrition training materials for 12,000
WFP employees also helped build capability in 16 countries.

The body of research produced by partnership scientists
has created additional evidence around the efficacy of
these nutrition interventions. This represents shared value
for both parties. The partnership jointly developed new
products (such as micronutrient powders) that would
otherwise not exist. These are now an integral part of WFP’s
programs and are sold commercially. One existing WFP-
distributed product, Corn Soy Blend, was reformulated to
include a higher content of vitamins and minerals. The
revenues of the staple food fortification segment (managed
by the Nutrition Improvement Program) doubled in the
period from 2008 to 2012. See also: WFP website.

Report by the Managing Board

Sharing value among stakeholders

DSM is committed to creating value for all stakeholders by fully leveraging the unique opportunities in Life Sciences and Materials
Sciences for the benefit of people today and for generations to come. It is a collective effort whose success depends on the
engagement of the company's employees and of the people, companies and organizations that it cooperates with. In addition to
sharing financial value, as outlined in the graphic below, DSM creates environmental and societal value through for example
employee development, product development, education and Public Private Partnerships.

Customers
DSM’s customers increasingly seek comprehensive and unique
solutions to their needs and the challenges that they face. They
want high performing value propositions that help them to deliver
against their strategy and meet their business objectives.

Customers operate in a dynamic and complex international
business environment that constantly creates new customer and
market needs, as well as significant opportunities. To enhance
its competitiveness and profitability and to offer sustainable
solutions, DSM embraces true customer centricity in its focus on
excellence in marketing and sales.

DSM’s nutrition businesses have used the Net Promoter Score,
or NPS®, over the last few years to monitor customer
engagement. In 2011, a best practice was developed for the
whole of DSM, validated with two pilots in 2012. By now, four

Bright Science. Brighter Living. 2012 www.dsm.com

business groups have adopted the NPS® system as a strategic
tool. The system is to be rolled out to all other DSM business
groups in 2013.

"It was clear from the start that DSM had the scientific and
technical expertise and a great materials portfolio that
perfectly matched our needs. What really surprised and
impressed us, though, was the way they approached the
collaboration. The DSM team didn’t arrive with
preconceived notions about our needs: they asked
open-ended questions, were very transparent and provided
us with genuine insights."
Simon de Jong, Director, FiberCore Europe, Rotterdam,
Netherlands

Creating shared value among stakeholders in 2012EmployeesThe company in 2012 spent a total of € 1.8 billion on salaries and wages, to compensate the employees for their added value.SuppliersSuppliers are an integral part of DSM’s strategy for achieving the sustainability aspirations. The company in 2012 spent a total of € 6.7 billion on goods and services. CustomersDSM’s customers increasingly seek comprehensive and unique solutions to the challenges that they face. In 2012 they spent some € 9.1 billion on DSM’s products and solutions.BondholdersIn 2012 DSM paid € 101 million in interest to bondholders.ShareholdersIn return for their investments, DSM in 2012 made available € 263 million in dividends to shareholders. Total shareholder return in 2012 was 27 percent.GovernmentsGovernments received a total of € 85 million in tax payments, excluding income taxes and social security payments for employees. DSM’s 2012 income statement included € 20 million in government grants.NGOs and associationsPartnerships such as those with the UN World Food Programme are of strategic importance for DSM and help alleviate global problems such as hidden hunger.True customer-centric relationships help DSM remain
competitive, providing best possible insights into nutrition, health
and materials markets in which it operates and the particular
challenges and opportunities facing its customers. Focusing on
customer centricity enables DSM to go beyond traditional sales-
driven relationships and develop a much more rounded,
sophisticated and in-depth understanding of its customers’
needs and the evolving markets in which they operate.

Suppliers
Suppliers help DSM be successful in the field of sustainability by
closely cooperating on steps and actions that make value chains
in which both operate more sustainable. Improving production
processes and reducing raw materials usage are crucial to
DSM’s sustainability performance. Moreover, in order to reduce
the overall footprint of the value chains in which it operates, the
company needs to closely collaborate with its suppliers.

To gain better insight into the environmental impact of its
products and to improve their environmental footprint, DSM
pays close attention to the entire value chain in which it operates.
In the past, DSM used to focus primarily on the effects of its own
production activities, including the greenhouse-gas emissions
from the power plants that supply the company with electricity
and steam. Today, DSM increasingly takes into account the
emissions from the value chains in which it is active. These
emissions reflect the wider impact of DSM's activities both
upstream and downstream in the value chains. DSM is looking
for suppliers who can support the company in the areas of
ECO+ and People+.

"Both our organizations see sustainability as a real business
driver. We add tangible value to DSM’s people agenda. We
are proud to be working with and for you."
Jeffrey van Meerkerk, ManpowerGroup Global Account
Director

A comprehensive description of the company's approach to
sustainable value chains can be found in the Planet chapter.
See also: Sustainable value chains (page 66).

DSM's award-winning Global Supplier Sustainability Program is
part of the company's strategy for achieving its sustainability
aspirations. A comprehensive description of this program can be
found on the next page.

Shareholders
In 2012 DSM actively engaged with investors and financial
analysts by organizing conference calls following the publication
of quarterly results and announcements of major acquisitions.

The company organized capital market days with a special focus
on its Nutrition business, participated in investor conferences
and interacted with investors in roadshows in Europe, North
America and Asia. A seminar was organized for financial analysts
and investors on DSM's bio-based business activities.

All relevant information was made available to all interested
parties via publication on the DSM Investor Relations website,
ensuring that such information was equally and simultaneously
provided and accessible to all interested parties See also:
Information about the DSM share (page 138).

Governments
The company believes that dialogue between business and
government authorities is a constructive part of the legislative
decision-making process. DSM wants to be transparent when it
comes to sharing its expertise with policymakers and
government authorities in all markets. The company is for
example registered in the European Commission's voluntary
register of lobbyists active in Brussels. DSM engages with
policymakers worldwide on various topics, including nutrition,
sustainability and industrial biotechnology.

"DSM's efforts are helping the nation benefit from energy
efficiency. Together with the other partners in the Better
Buildings, Better Plants Program, DSM's actions will save
billions in energy costs, create new manufacturing jobs,
strengthen the nation's economic competitiveness, and
help protect the environment."
Kathleen Hogan, Acting Program Manager, Advanced
Manufacturing Office, US Department of Energy,
Washington DC

Employees
People are at the heart of DSM’s business and the company
wants its employees to reach their full potential. The main
elements of its human resources approach are recruitment,
talent management, leadership development and performance
management, supported by the implementation of DSM’s ONE
DSM Culture Agenda and the career management process. The
company's human resources strategy also supports DSM’s
internationalization goal.

The company’s performance is linked directly to the health and
well-being of its employees. That is why DSM has a single,
comprehensive health and safety policy that is consistent around
the world. The policy includes Safety, Health and Environment
(SHE) training programs and vitality programs that help
employees assess their health risks and set personal goals. See
also: Employee health management (page 54).

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Global Supplier Sustainability Program

A powerful factor in the award-winning DSM Global Supplier
Sustainability Program is the company’s willingness to help
suppliers achieve the level of compliance that it demands, and
to initiate co-developments. The audits are not just a check
on performance and compliance. They also help build
sustainable relationships with suppliers. The program,
operated by DSM Sourcing, helps bring the company closer
to its sustainability aspirations and innovation targets by
selecting suppliers based on their potential to contribute.

DSM uses a quantitative supplier evaluation tool with clear
criteria to identify significant issues. Based on their overall
score, suppliers are categorized as follows: sustainable
supplier: no follow up needed; acceptable supplier: specific
improvements need to be addressed; unacceptable supplier:
an improvement program needs to be implemented; rejected
supplier: supplier to be replaced.

DSM Sourcing has started cooperation with an NGO to
engage with suppliers in order to jointly improve working
conditions, reduce CO2 emissions and identify supplier
solutions for DSM's Innovation pipeline. In 2012 one supplier
did not pass the sustainability audit, which meant that DSM
had to freeze the contract with that supplier.

The program started in 2006 with the introduction of the first
Supplier Code of Conduct. Since then, DSM has added self-
assessment questionnaires and audits. In 2012 DSM
updated the program to keep up with the changes in the
legislative environment and sustainability trends. Targets are
aligned with key climate change initiatives and conventions
such as the Kyoto protocol and the Copenhagen agenda.

The program comprises two main elements: supplier
compliance and supplier solutions. It engages both direct
(raw materials and energy) and indirect (professional services,
packaging and transportation) suppliers. It is primarily aimed
at critical suppliers. After internal screenings, the company
has identified approximately 1,500 out of a total of about
100,000 suppliers as critical in the sense of providing DSM
with critical components, being located in potentially high risk
countries, supplying high volumes, or having a potential to
create joint value in the areas of innovation and sustainability.

Three-step approach towards supplier compliance
The Supplier Code of Conduct sets sustainability guidelines
for suppliers. DSM’s mission statement and the DSM Code
of Business Conduct, based on DSM’s core value –
sustainability, create the basis for this code. In addition to

basic rights, laws and principles, DSM also asks suppliers to
look at their supplier base and make sustainable choices, to
pay attention not only to the safety but also to the health of
their employees as well as to demonstrate their ability to
ensure business continuity. A clear distinction is made
between people, planet and profit dimensions. In 2012 the
supplier code was updated and further aligned with ECO+
and People+ programs and also with the Life Saving Rules.
Moreover, short guidelines on biodiversity, biomass policy to
prevent potential competition with food/feed as well as water
scarcity have been incorporated.

Some 93 percent of total procurement spend was covered
by the Supplier Code of Conduct in 2012. Suppliers have
either accepted the DSM code or presented their own code
of conduct that is materially similar to that of DSM. The code
is an integral part of each supplier contract and is
incorporated into DSM's general purchase conditions.

A self-assessment questionnaire enables suppliers to
measure their activities against DSM’s code. In 2012 DSM
received 59 self-assessment questionnaires. From 2013
DSM will be using a third-party sustainability assessment tool
and will send specific requests for sustainability information
to suppliers during supplier selection or on-boarding
processes. The results of these self-assessments will
determine if DSM wants to do business with that supplier and
will guide actions to be agreed before signing a contract.

In 2012 DSM audited 62 suppliers. A total of 40 audits were
done by an external party, whereas 22 were performed by
internal DSM auditors who were independent from
purchasing functions (mostly from SHE and quality assurance
departments). For 13 suppliers an improvement program had
to be agreed. The majority of these improvements are in the
area of working conditions as defined in the various country
labor laws.

Having a third party perform sustainability audits at its
suppliers means DSM can benchmark its suppliers in terms
of environmental and social performance against their peers.
These benchmarked results show that DSM’s suppliers
perform above average. Suppliers generally were more aware
of their water consumption and restricted their emissions. On
the other hand, they could do better when it comes to
increasing employee awareness on sustainable production
and setting energy efficiency targets.

More information about the program is available at DSM's
website.

Bright Science. Brighter Living. 2012 www.dsm.com

Human rights and United Nations Global Compact

DSM has been a signatory to the United Nations Global Compact since 2007. The company remains committed to aligning its
operations and strategy with the principles of the UN Global Compact for human rights, labor, environment and anti-corruption.
By doing so, DSM helps ensure that markets, commerce, technology and finance advance in ways that benefit economies and
societies everywhere. The company fully supports the Global Compact’s principles and continues to integrate them further into its
business. For example, DSM will refrain from any form of corruption, including active or passive bribery and extortion, even if it
loses business as a consequence.

The company is firmly committed to supporting the Universal Declaration of Human Rights of the United Nations and commits to
the UN Framework and Guiding Principles on Business and Human Rights.

DSM also follows United Nations guidance on embargoed and sanctioned countries and adheres to national and international
legislation where relevant. The company blocks vendors from embargoed countries in its book keeping systems so that no
transactions can be made with blacklisted suppliers.

Principles of the UN Global Compact1

DSM Code of Business Conduct and relevant page(s) in the

Integrated Annual Report 2012

Principle 1

Principle 2

Principle 3

Principle 4

Principle 5

Principle 6

Principle 7

Principle 8

Principle 9

Support of human rights

Exclusion of human rights violation

Observance of the right to freedom of association

Abolition of all forms of forced labor

Abolition of child labor

Elimination of discrimination

page 44 to page 54

Precautionary environmental protection

page 21 to page 26 , page 44 to page 66 , page 229

Specific commitment to environmental protection

page 21 to page 26 , page 44 to page 66 , page 229

Diffusion of environmentally friendly technologies

page 21 to page 26 , page 44 to page 66 , page 229

Principle 10

Measures to fight corruption

page 40 , page 44 to page 54

In 2012 DSM once again renewed its commitment to the UN Global Compact's CEO Water Mandate; see the Planet chapter page 56

Donations and sponsoring
Sponsoring provides DSM with an opportunity to connect and
interact with the people around it, to show them that DSM is a
sustainable and innovative partner, both worldwide and in local
communities.

DSM’s Code of Business Conduct creates an agenda for making
a positive contribution not only to the world of business but also
to society as a whole. In line with this Code, DSM does not make
any payments nor donations in kind to political parties or their
institutions, agencies or representatives. DSM focuses its
donations and sponsorships on activities that are connected to
its know-how and competence base, its business position or its
present and future geographical presence (in this case the
donations and sponsorships are part of 'being an active
neighbor').

In 2012, DSM donated and/or made available more than
€ 4 million to a range of initiatives. DSM continued its long-term
commitments such as that to WFP. DSM continued its
humanitarian initiative Sight and Life and made charitable
donations to a number of local causes. Many of DSM’s
contributions draw on the expertise of its micronutrient scientists
or materials specialists.

As in previous years, DSM and its employees developed many
initiatives to create awareness for WFP and to collect money.
Employees at 39 DSM sites in 17 countries took part in the Bright
Experience for WFP event, a global engagement and fund raising
event to end child hunger. DSM employees again raised a
considerable contribution for WFP with events and a World Food
Day campaign, helping provide meals to children through WFP’s
School Meals program. In 2012 two DSM employees went on
WFP volunteer assignments in Indonesia and Kenya.

Bright Science. Brighter Living. 2012 www.dsm.com

Position papers
As part of its transparency in reporting, DSM has posted on its
website a number of position papers. These are available on the
following topics: sustainable biomass, biodiversity, CO2
emissions trading, nanotechnologies, biotechnology and
industrial biotechnology. A position paper on infant formula is
due to be published in the first quarter of 2013. DSM also has
available a large number of documents that provide background
information on relevant topics, including bio-based performance
materials, the bio-based economy and the Cradle to Cradle®
concept. See also: Position papers section on dsm.com

DSM discloses to its customers how its products are
manufactured and, where possible, offers them a choice
regarding the production system used. Some DSM products are
produced with the help of genetically modified micro-organisms
in contained use. When a product is produced by such micro-
organisms, the company clearly states this in the information that
accompanies the product.

Report by the Managing Board

Legally required safety studies
As an innovative company, DSM continuously develops new
products. Legal requirements require the company to assess the
properties and safety profiles of these products. These
assessments can necessitate the use of live animals. The
company only uses animals in studies for safety assessment if
this is required by regulation and only if no accepted and
validated non-animal alternative methods are available. DSM is
committed to constantly pursuing opportunities to further
improve its performance and to ‘reduce, replace and refine’
methods in which the use of animals is the only alternative. The
examples below illustrate this ‘3R’ approach. DSM will continue
to make reasoned requests to the authorities to waive safety
tests with animals in cases where the company considers that
requirements are excessive and in cases where the information
can be provided by other means. The company increasingly
makes use of in silico (computer modeling) and in vitro
techniques (e.g. cell arrays) to identify candidate substances.

DSM conducts in-house projects to develop and promote
alternative testing methods. The company develops ‘early
safety’ and ‘early efficacy’ assessments aimed at predicting
these effects by computer calculations, based on comparison of
new compounds to known effects of existing compounds. DSM
also cooperates actively in external networks and with academic
partners. Examples are the International Council of Chemical
Associations’ Long-Range Research Initiative and the joint
government-industry initiative European Partnership for
Alternatives to Animal Testing, or EPAA.

DSM remains concerned about the increasing need for
assessments because of the implementation of REACH
(Registration, Evaluation, Authorization and Restriction of
Chemical substances), the European chemicals legislation. DSM
has already observed an increase in animal tests performed for
this purpose even though the company has, where possible,
used alternative ways to fulfill the data requirements and has
worked together with other companies in consortia. Further
reduction will require adjustment of legal requirements and the
development, validation, dissemination and implementation of
new testing methods. DSM does not want the safety and efficacy
of its products to be compromised. However, for many test
systems validated alternative in vitro methods acceptable to the
authorities are presently not available. This means that studies
involving animals will continue to be necessary in the foreseeable
future. However, DSM believes that its approach is sensible and
responsible and the company is committed to further reducing,
refining and replacing these studies where possible.

Bright Science. Brighter Living. 2012 www.dsm.com

External recognition

In 2012 DSM and its business groups were awarded a variety of
awards and other forms of recognition by customers, suppliers,
the academic world, non-governmental organizations and trade
organizations. A few illustrative examples are given below.

At the Annual Brazilian Bioenergy Awards, Brazilian biofuels
producer GraalBio in conjunction with its suppliers, including
DSM, was presented with the Brazilian Bioenergy Deal of the
Year Award for 2012 in São Paulo, Brazil. The award recognizes
the initiative to launch commercial scale production of cellulosic
ethanol in Brazil by 2013.

DSM was again among the leaders in the chemical industry
sector in the Dow Jones Sustainability World Index in 2012.
Since 2004 DSM has held the worldwide sustainability leader
position in the chemicals sector six times. In the other three
years, the company ranked among the top leaders in the sector.

At the end of the year Maastricht University in the Netherlands
announced that it had selected CEO Feike Sijbesma for an
honorary doctorate. The university conferred this honor on
Mr. Sijbesma because of the way he embodies DSM’s core
value, sustainability.

DSM received two Sustainability Awards from investment fund
SAM, based on SAM’s yearly corporate sustainability
assessment. The awards represent recognition for DSM’s Gold
Class status in 2012 and for its Sustainability Leadership in the
Chemical Sector of the Dow Jones Sustainability World Index in
2011.

At the Transform Awards 2012, a European award recognizing
excellence in rebranding, DSM won gold in the ‘Internal
Communication of a Rebrand’ category. The judging panel
particularly applauded the good combination of strategy and
creativity with which the DSM brand was launched in 2011, with
global cinema events and a movie.

DSM's corporate website received recognition in KWD
Webranking’s 2011-2012 annual survey of 950 corporate
websites in 40 countries, including the 27 largest companies by
market capitalization in the Netherlands. In 2012 DSM topped
the ranking of AEX-listed companies. According to KWD, DSM’s
website scored particularly highly for the insight it provides into
the company’s growth factors, financial targets and social
responsibility endeavors.

A full list of the many awards and other forms of external
recognition that DSM received in 2012 can be found on the
company website, www.dsm.com.

The US Chamber of Commerce awarded DSM its Corporate
Steward Award 2012 for the company's integrated Triple P
approach to creating a sustainable business and shared value
with all stakeholders. The prize was awarded in Washington DC
at the 13th annual awards ceremony of the chamber's
Commerce Business Civic Leadership Center.

The Dutch Association of Investors for Sustainable Development
(VBDO) recognized DSM with the 2012 Sustainable Supply
Chain Award. The VBDO jury awarded DSM for a robust and
transparent sustainable supplier program as well as ongoing
dialogues with stakeholders to keep sustainability a true
business driver.

DSM’s 2011 Integrated Annual Report was awarded the De
Kristal award for the most transparent sustainability report for the
second year in a row by the Dutch Ministry for Economic Affairs.
In the Netherlands DSM also won the FD Henri Sijthoff-Prijs for
financial reporting, and on top of that it won the Publieksprijs after
emerging as the winner in a survey among private and
institutional investors for best annual report.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

People in 2012

The People dimension of DSM’s Triple P strategy is about
improving people’s lives through the company’s activities,
solutions and innovations. ‘People’ here includes consumers,
workers and communities across the value chains in which DSM
is active. This chapter includes both the People+ strategy, which
is the external component of the People dimension, and, under
'People at DSM', the human resources strategy as the internal
component. For DSM, sustainability provides both a growth
driver and a strong foundation for its human resources strategy.
See also: Growth Driver: Sustainability (page 24).

products and solutions by assessing the impact on both the
consumer and the people involved in the value chain for a
product or solution. The new metric, the ‘DSM People LCA’,
takes into account the product’s impact on the health condition,
the perceived comfort and well-being of end-users, the working
conditions of the employees involved, as well as the impact on
communities across the value chains in which DSM is active.

The People+ approach focuses on four distinct dimensions:

(I) Health Condition
(II) Comfort & Well-Being
(III) Working Conditions
(IV) Community Development

The DSM ‘People LCA’ indicators are based on international
standards, such as those formulated by the World Health
Organization, the International Labor Organization and the
Global Reporting Initiative.

DSM is road testing the new metrics in R&D and value
proposition projects.

On the next page a few illustrative examples are given, such as
the disposable medical gown for surgeons based on DSM’s
Arnitel® VT. This gown incorporates a membrane that provides
a higher barrier to viruses and bacteria than competing solutions.
The Arnitel-based solution also allows perspiration to pass easily,
which increases surgeon comfort. Another example is
FloraGLO®1 Lutein which can be used in dietary supplements.
Lutein is a component of the eye and supplemental use may help
visual performance. It has also been linked to the prevention of
age related eye diseases. The BluCure™ Technology for cobalt-
free curing of synthetic resins also illustrates the People+
concept. This technology eliminates exposure of workers to
cobalt during manufacturing, while enabling a high quality of the
cured resin product.

The new assessment will make it possible for DSM to quantify
its brand promise of ‘Brighter Living’. The company aims to
further develop the methodology and align with external
stakeholders in the years to come.

People+

DSM is developing a People+ strategy for measurably improving
the lives of consumers, workers and communities across the
value chains in which the company is active. People+ will do for
the ‘people’ element of Triple P what ECO+ has done for ‘planet’,
giving further impetus to sustainability as a business driver for
the company. DSM refined its People+ strategy in 2012 and also
defined and road tested new metrics for it, thereby further
enhancing its leadership position in sustainability.
See also: ECO+ (page 56).

In 2012 DSM, together with a broad group of stakeholders,
developed a new metric to measure the People+ effect of

Bright Science. Brighter Living. 2012 www.dsm.com

1 FloraGLO® is a trademark of Kemin Industries, Inc., a DSM business partner.

Bright Science. Brighter Living. 2012 www.dsm.com

People+DSM’s People LCADSMProductCommunity Development ConditionsValue chain WorkingEnd users Comfort & Well-Being Health ConditionDyneema Purity® ﬁber: medical grade material applied in high strength orthopedic sutures and devices.End user beneﬁtsLess breakage of sutures during the surgical procedure and a smaller suture and knot diameter compared to polyester based orthopedic sutures. Supports faster healing and causes less discomfort.Value chain beneﬁtsDSM advocates science-based biomedical technologies, contributing to better understanding and application of innovative materials and device designs. Arnitel® VT: bacterial and viral barrier in disposable medical gowns for surgeons.End user beneﬁtsSurgeons proﬁt from an effective barrier against bacteria and viruses. Membranes allow perspiration to pass easily, keeping the surgeon comfortable and safe.Value chain beneﬁtsAs Sustainability leader, DSM applies high standards in safe and healthy working conditions and environmental policies in operations, partnerships and innovations.Vitamin D3: an essential nutrient for all age groups to help improve or maintain health. End user beneﬁtsVitamin D3 is important for the activity of genes. An adequate intake helps maintain the health of bones and muscles and the functioning of the immune system. Value chain beneﬁtsDSM has set high standards for its production processes and way of doing business, based on its Business and Supplier Codes of Conduct and following Global Compact rules.BluCure™: cobalt-free curing Technology for composites applied in boats and constructions.End user beneﬁtsEnd users can enjoy the beneﬁts of composite materials such as low weight, design freedom and durability.Value chain beneﬁtsThis Technology eliminates the need for using cobalt for curing, and consequently eliminates any exposure of workers to cobalt in resin and composite part manufacturing.FloraGLO® 1 Lutein: natural ingredient for eye health dietary supplements.End user beneﬁtsLutein is a component of the retina, which is responsible for central vision. Lutein has been linked to reduction of age-related eye diseases and improved visual performance.Value chain beneﬁtsDSM is a reliable business partner. FloraGLO® Lutein is manufactured exclusively with food grade marigold oleoresin, ensuring high standards in safety and health of workers involved in the supply chain.People at DSM

DSM's human resources strategy contributes to the
development of inspiring and collaborative leaders, creates an
engaged and competitive workforce and fosters an inclusive
environment where people trust and respect one another, and
where they encourage each other to achieve sustainable
focused business growth. The approach is supported by the
ONE DSM Culture Agenda.

DSM aims to further internationalize its business in order to bring
its organization closer to its key markets and customers,
strengthen the business and stimulate inclusion, diversity and
innovation. DSM combines a strong regional infrastructure with
clear board level accountability for regional growth. Its human
resources strategy supports the internationalization goal.

ONE DSM Culture Agenda

During 2012, DSM transitioned its Change Agenda into the ONE
DSM Culture Agenda. The themes of the ONE DSM Culture
Agenda have been simplified and more aligned with DSM’s
business environment and business strategy, as well as with its
global footprint. With the ONE DSM Culture Agenda, DSM is
developing the culture required to achieve its strategic
ambitions, to mirror the world it operates in, and to become a
high performance organization. The four themes of the agenda
are: External Orientation, Accountability for Performance,
Collaboration with Speed and Inclusion & Diversity. Accelerating
the four themes across DSM will lead to a more agile organization
that is fit to cope with fast moving developments in the business
environment.

External Orientation

DSM is convinced that, in order to be able to
execute its growth strategy and rapidly adapt to
changing customer and industry requirements, the
vast majority of its employees need to be fully in
tune with the challenges the external world offers. This means
not just anticipating customer needs to drive marketing & sales
and innovation priorities, but also tracking, learning and
competing with best practices for all functions. External
Orientation is also needed to broaden DSM’s networks and
engage with stakeholder groups.

Accountability for Performance

DSM expects its employees to set ambitious
targets and take ownership to deliver these.
Accountability for Performance is about people
taking responsibility for their actions and for the

performance of their teams, about recognizing and celebrating
successes, but also about bringing issues to the surface and

viewing mistakes as individual and collective learning
opportunities.

Collaboration with Speed

DSM expects that in an ever more connected
world, where collaboration is becoming an
important source of competitive advantage, DSM
employees will actively (co-)create, share and build

on ideas, information, knowledge and expertise of their
colleagues and the external world. By fostering collaboration,
DSM will harvest the power of its growing global workforce, as
anchored in its leveraged organizational model with businesses,
functions and regions. Besides increased collaboration, there is
a need for faster decision making and execution. DSM needs to
build a ONE DSM Culture in which its employees trust each
other’s skills and have a sense of togetherness, of being ONE
DSM.

Inclusion & Diversity

DSM believes that fostering an inclusive culture that
embraces differences will help to create a more
diverse workforce which will drive a high
performance organization achieving its business

and strategic goals, especially in view of DSM’s focus on further
internationalization, innovation and sustainability. A more
balanced DSM leadership group (in terms of gender, nationality
and background) will improve the decision-making process as
well as the implementation of DSM’s strategy. Inclusion &
Diversity requires thoughtful bridging skills and a full commitment
to DSM’s joint corporate values.

DSM Employee Engagement Survey

DSM’s HR strategy is about helping employees to successfully
deal with the challenges of a changing company in a fast-moving
global marketplace. The concept of employee engagement is
very important in this respect. An engaged workforce is critical
to DSM in realizing its ambitions. Engagement is about creating
an inclusive and high-energy working environment, where
employees are aligned and energized to contribute to the
company’s success.

In 2012 DSM executed its fifth worldwide Employee
Engagement Survey. A total of 19,039 employees, including 631
contractor employees, completed the questionnaire, which was
distributed online and on paper in 19 languages to all DSM
employees. This represents a very high response rate of 87
percent. The main element in the survey is the measurement of
DSM’s Employee Engagement Index, the percentage of
employees scoring favorable on a combination of four attributes:
commitment, pride, advocacy and satisfaction. The Employee
Engagement Index measured in 2012 was 72 percent

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

(2011: 71 percent). This is above the global overall norm of 69
percent. The neutral responses amounted to 19 percent, the
same as 2011. DSM continued to create a more inclusive
working environment for its employees. The Inclusion Index, a
subset of survey items to measure inclusion, improved for the
third year in a row. Of the respondents 68 percent scored
favorable on this index in 2012 (2011: 66 percent).

The DSM Leadership Model consists of five imperatives. First,
DSM expects its leaders to have:

• Insight - being a leader in DSM starts with having insight into
oneself and others. DSM expects its leaders to recognize the
strengths and the development areas of themselves and
others by listening, asking questions, observing, and dealing
with feedback. And then: learn and act accordingly.

The DSM Engagement Index score takes DSM within an 8
percentage point range of the external benchmark of high
performing companies (scoring 80 percent favorable), which is
the league DSM wants to be part of. The 2012 results are in
general at a good level and show a positive trend in almost all
areas. Items are mostly at or above the external average
benchmarks. The survey results for the individual DSM units and
regions have been translated into measurable action plans. DSM
will continue to use the Employee Engagement Survey to guide
its ONE DSM Culture Agenda.

Talent management

DSM strongly believes that successful talent management
requires leaders who have the right focus, mindset and capability
to identify, develop, engage and share diverse talent. Leaders
who are inclusive and who are focused on growing themselves,
their people and the business. In addition, the company believes
in creating opportunities for its talented employees to maximize
their development. In 2012 the company started many initiatives
aimed at (1) empowering employees to take ownership of their
career and (2) empowering leaders to take accountability for
both talent performance and talent development.

DSM Leadership Model
In 2012 DSM presented a new leadership model that specifies
the characteristics expected from leaders now and in the future
in a simple, understandable and compelling way. The DSM
Leadership Model provides a common vision and language
regarding the leadership DSM desires, and it describes an
inspirational mindset to raise the bar on the performance of
leaders and to grow people. The model sets out the expectation
for leaders to be role models and developers of a sustainable,
successful organization for the future. It is the basis for high
quality processes to hire people, to grow and develop talent and
build high performing teams.

Bright Science. Brighter Living. 2012 www.dsm.com

Secondly, DSM expects its leaders to:

• Shape by setting the direction and targets based on vision,

driven by external orientation and a view on competences and
options. Use an entrepreneurial approach with passion and a
sense of urgency and show a relentless drive for performance,
continuous improvement, innovation and business growth.
• Connect internally and externally, forge collaboration whilst

leveraging the benefits of ‘ONE DSM’ and build relationships
based upon a genuine, authentic and motivational trust and
interest in people, with respect and humility based on self-
insights and a deep understanding of others.

• Develop themselves and others, recognize and take

ownership for leadership and talent development and delivery,
and maximize the power of inclusion and diversity to build high
performance teams.

• Deliver against ambitious targets and commitments and take
accountability for performance, empowering people to act
with speed and agility. Celebrate and reward successes and
learn openly from failures. Show a drive to win and be decisive.

This enables interactive knowledge sharing and stimulates peer-
to-peer networking in the organization. In 2012 further progress
was made in designing and rolling out new curricula for
marketing, sales and innovation. In addition a brand-new offering
for DSM talent, the Bright Talent Program, was launched,
reconfirming DSM's commitment to talent development. In
2012, 19 new programs were designed and introduced, bringing
the total number of available learning programs to 96 across
three different regions: Europe, Asia and the Americas.

In 2012, a total of 3,706 DSM employees worldwide (from 35
different countries; 2,239 male and 1,467 female) participated in
the learning programs of the DSM Business Academy (DBA).
This is an increase of 21 percent compared to 2011. The total
number of programs delivered in 2012 was 212.

Program portfolio

Available

programs

2012

Available

programs

2011

Executive programs

Management programs

Functional programs

e-Learning programs

DSM is now working on the full roll-out of the DSM Leadership
Model, encompassing training and integration of its leadership
model in all talent management processes.

Total

In addition to the DBA offerings, DSM employees at all levels in
the organization are offered a wide variety of training
opportunities (both on-the-job and classroom training). The
number of training hours per employee decreased from 28 in
2011 to 24 in 2012. The previously reported number for training
hours in 2011 has been adjusted.

Training per FTE
in hours

2008

2009

2010

2011

2012

Organizational learning

DSM strongly believes in the need to invest in the knowledge,
skills and experience of its employees to ensure their long-term
employability. The company provides its employees with various
kinds of learning opportunities, including classroom and virtual
programs, on-the-job training, coaching and mentoring. The
DSM Learning Architecture consists of four program clusters:
executive programs, management programs, functional
programs and e-learning programs.

This architecture creates a common and coherent concept of
learning and program design, facilitates the development of a
DSM learning culture and provides enhanced learning for talent.
The programs are designed and delivered in close cooperation
with leading international business schools and global training
providers (IMD, Wharton, Erasmus University) and are supported
by a diverse internal faculty, primarily consisting of DSM’s top
management. Other learning methods such as round table
discussions, business simulations, virtual classrooms, web-
casting and team assignments are integrated into the programs.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Workforce composition
Inclusion & Diversity
The number of women in executive positions (40) remained at the same level, 10 percent, as in 2011. This will require attention
going forward. In addition to recruiting female executives from the external market, DSM also makes an effort to recruit female
executives from its internal pool of women candidates.

The growth of the non-European executive population, relative to the growth of DSM in high growth economies, will also continue
to demand full attention from the businesses and regional organizations. DSM has defined inclusion and diversity aspirations (in
terms of gender and nationality) for its business groups for the period 2011-2015 to ensure that its organizational readiness is in
line with its stretched growth ambitions for 2015. DSM continues to address the geographical distribution of management and
other key functions, with a keen eye on gender and nationality balance. In this respect it can also be noted that new appointments
to the Supervisory Board contributed to gender and nationality balance.

Inclusion & Diversity aspirations

As part of its strategy DSM in motion: driving focused
growth, the company in 2012 defined the following
aspirations for Inclusion & Diversity:

• Women in executive positions: 21% by 2015
• BRIC+ nationals in executive positions: 24% by 2015
• Inclusion Index: year-on-year improvement

See also: Strategic targets and aspirations (page 15).

The role of the DSM Inclusion & Diversity Council, chaired by DSM CEO Feike Sijbesma, is to facilitate inclusion and diversity at
DSM and to ultimately support all DSM businesses in creating a sustainable inclusive environment, where diversity is fully embraced.
This Council is strongly aligned with DSM’s internationalization efforts to make further progress with the company-wide ONE DSM
Culture Agenda.

Gender diversity
% women
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

Executives

Management

Other

Bright Science. Brighter Living. 2012 www.dsm.com

Workforce diversity
% non-Dutch
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

100

Executives

Management

Other

Executive hires
diversity in %
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

Professional hires
diversity in %
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

100

Non-Dutch

Women

100

Non-Dutch

Women

New hires by region
in %
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

Netherlands

Rest of Europe

North America

China

Rest of Asia-Pacific

New employees
The total inflow of new employees into DSM in 2012 was 2,073 not including the inflow of employees due to acquisitions. As a
result of acquisitions a total of 1,493 people were added to DSM's workforce in 2012.

In 2012, DSM recruited a total of 719 professionals (graduates and experienced hires), of whom 41 percent were women. The
company wants to keep its focus on the diversity of these hires (nationality/gender) and build a strong diverse talent pipeline to
achieve sufficient 'diverse critical mass' in the organization. DSM wants to improve its labor market positioning as an employer of
choice, to ensure that the company is an attractive career option for talented individuals across all groups of potential employees.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Employees by age category
in %
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

< 26 yrs

26-35 yrs

36-45 yrs

46-55 yrs

> 55 yrs

Net sales per employee
x € 1000, based on weighted average headcount

400

300

200

100

397

405

410

399

340

2008

2009

2010

2011

2012

Outflow of employees
in % of total workforce
■ Resignations and other ■ Dismissed ■ Reorganization ■ Retirements
■ Divestments

2008

2009

2010

2011

2012

Outflow of employees
The total outflow of employees at DSM in 2012 was 2,189. A total of 225 employees retired, 1,094 resigned of their own will and,
sadly, 22 employees passed away. In 2012, a total of 507 employees were requested to leave the company for non-performance
or non-compliance reasons. A further 323 were made redundant due to reorganizations that took place across DSM in 2012.
A part of the outflow (18 employees in total) was related to divestments.

International labor standards

Respect for people is an essential part of the business principles outlined in the DSM Code of Business Conduct that DSM launched
in 2010. DSM supports and respects human values as outlined in the United Nations Universal Declaration of Human Rights. DSM’s
employees represent about 50 different nationalities and the company supports the equal treatment of all employees irrespective
of race, nationality, ethnic background, age, religion, gender, sexual orientation or disability. Respect for human rights is also integral
to DSM’s sourcing policy and Supplier Code of Conduct. DSM utterly rejects and condemns any form of forced labor or child labor.
This is clearly stated in the DSM Code of Business Conduct. DSM conducts due diligence before making any investment decisions
in order to exclude, among other things, any relationships or practices which may be in contravention of human rights. DSM is
unaware of any cases of breach of human rights or the use of forced or child labor within its operations in 2012.

DSM is a Dutch signatory to the United Nations Global Compact. DSM also meets the recommendations made in the OECD
(Organization for Economic Cooperation and Development) Guidelines for Multinational Enterprises. Furthermore, DSM supports
the work-related rights defined by the ILO (International Labor Organization) and recognizes the International Labor Standards. In
countries or businesses where employees have third-party representation via a works council or collective bargaining, DSM
respects these relationships and works with these third parties in a mutually respectful manner. See also: Stakeholder engagement
(page 33).

Bright Science. Brighter Living. 2012 www.dsm.com

violations of the Code can result in dismissal. In line with this
policy, 28 employees were requested to leave the company
because they had breached the Code of Conduct or other legal
or local company regulations, for example by committing fraud
or theft.

Safety and health
Occupational safety
For the first time since mid-2009 DSM’s safety performance is
showing clear improvement. The Frequency Index of Recordable
Injuries for 2012 was the lowest ever, thanks to an improvement
of DSM's safety culture and performance, among other things
by securing compliance with the Life Saving Rules.

It is DSM’s goal to have an injury and incident free working
environment. DSM has set itself the target of reducing the
Frequency Index of recordable injuries by 50 percent or more by
the year 2020, from 0.57 in 2010 to less than or equal to 0.25 in
2020. This index measures Lost Workday Cases (LWCs),
restricted workday cases, medical treatment cases and/or
fatalaties per 100 DSM employees and contractor employees in
one year. At the end of 2012 this Frequency Index was 0.44
(2011: 0.53).

In the event of an organizational restructuring that results in the
loss of a significant number of jobs, DSM develops and
implements either a social program (aimed at assisting
employees to continue in employment, whether inside or outside
the company) or else a severance program. DSM promotes
employee empowerment and human rights protection and
therefore seeks dialogue with its employees and their
representatives (works councils, labor unions). See also: People
at DSM (page 46).

DSM Code of Business Conduct

The DSM Code of Business Conduct, as introduced in 2010,
contains the company’s business principles across the three
dimensions of People, Planet and Profit. All DSM employees are
expected to act in accordance with the Code, and the Managing
Board holds DSM management accountable for compliance
therewith. The full text of the DSM Code of Business Conduct is
available on www.dsm.com.

The code serves as an umbrella for several other DSM
regulations, such as those regarding global trade controls and
global competition law principles and practices. The
implementation of these regulations is structurally embedded in
DSM’s systems and processes. For example, as part of the
global trade controls process, DSM master data is screened
overnight to check customers and suppliers against embargoes
and lists of sanctioned parties. Furthermore, compliance with
competition law and trade controls is being addressed via
regular classroom training sessions and e-learning. Those
employees who are most exposed to competition laws have to
complete an annual statement to confirm their compliance with
the rules set forth in the DSM Competition Law Compliance
Manual. In 2012 DSM was not subject to any investigations by
competition authorities related to potential anticompetitive
behavior.

DSM also has rules in place on the holding of and execution of
transactions in DSM financial instruments and certain other
financial instruments related to trading in DSM shares and if
applicable other company shares and related financial
instruments, which apply to all DSM employees, including
members of the Managing Board and Supervisory Board.

DSM applies zero-tolerance consequence management with
respect to deliberate violation of its Code of Business Conduct
policy. A whistleblower procedure (DSM Alert) and a
consequence management policy are in place to support
compliance with the Code. The DSM Compliance Officer
responsible for dealing with violations of the DSM Code of
Business Conduct reports to the CEO and is invited to report
independently to the Supervisory Board once a year. Proven

Bright Science. Brighter Living. 2012 www.dsm.com

REC-rate DSM allRate for Lost Workday Cases (LWC), DSM-own Frequency Index of recordable injuries12-month moving average00.250.500.751.25200520082011201220102009200720061.000.120.44DSM Target FI REC All 2020: 0.25Report by the Managing Board

The Frequency Index of Lost Workday Cases involving DSM
employees was 0.12 in 2012 (2011: 0.15). By 2020 the number
of serious safety incidents should be reduced by 65 percent
compared to 2010, when there were 15 such incidents. In 2012,
the number of serious safety incidents was 7 (4 DSM employees
and 3 contractor employees). The third quarter of 2012 was the
first quarter ever in DSM’s history during which no serious safety
incidents occurred.

process safety incidents (PSI). Of the total number of incidents
reported, 162 (2011: 173) have also been classified as a process
safety incident. This translates into a Frequency Index for PSI of
0.55 (2011: 0.58). The performance is similar to last year. DSM’s
targets for reducing the Frequency Index for PSI are 50 percent
in 2015 and 75 percent in 2020, starting with a baseline
Frequency Index of 0.68.

The improvements are attributable to increased efforts at all
levels and in all disciplines in the organization to focus on safe
work practices. The renewed implementation of the Life Saving
Rules was a major program in 2012. Although aimed at
preventing very serious accidents (fatalities), the reintroduction
of these Life Saving Rules resulted in a general increase in safety
awareness. Management attention and leadership as well as
peer-to-peer and other audits further enhanced the focus on
safe work practices. This resulted in in-depth discussions with
the people involved in activities to which the Life Saving Rules
apply, leading to improved general awareness as well as
practical solutions for safety issues encountered. The Life Saving
Rules are now also introduced in all new organizations that join
DSM through acquisitions. The company has set ambitious
safety targets and continues its journey towards creating a
workplace free of incidents and injuries. See also: What still went
wrong in 2012 (page 136).

e-Learning courses
In 2012 two e-learning courses for all employees and contractor
employees were issued in eight languages. One course
introduces the DSM Life Saving Rules and the other gives an
overview of SHE and security at DSM. Both courses are
mandatory for all employees.

Safety in logistics
In 2012 DSM paid extra attention to load securing. Poorly
secured loads are dangerous not only during transport but also
during unloading operations at customers’ premises or DSM
sites. Despite this extra attention, DSM still experienced near-
misses and incidents relating to poorly secured loads in 2012.
The company’s overall SHE performance in logistics further
improved compared to 2011. The number of safety incidents in
the supply chain once again decreased and reached its lowest
level ever: 16 cases (compared to 24 in 2011). Currently, about
12.5 percent of safety cases are supply chain related. The main
causes are ergonomic issues (spraining muscles and joints when
moving heavy objects or when moving things in an
uncomfortable position).

Process safety
As of 2011, DSM follows the European Chemical Industry
Council (CEFIC) guidance in defining which incidents qualify as

When it comes to reporting on process safety incidents there
currently are two approaches commonly used. One has been
developed in the US and has been condensed in Recommended
Practice 754 of the American Petroleum Institute. The other has
been developed in Europe, condensed in a CEFIC guidance.
Although the principles of these approaches are similar, the
results are not comparable. DSM is of the opinion that this
reduces transparency on process safety performance to its
stakeholders and is in favor of migrating to a harmonized,
globally applicable approach for reporting on process safety
performance. DSM is working with organizations like CEFIC and
EPSC (European Process Safety Centre) and has contributed to
process safety conferences in Brazil, Argentina and Germany.
DSM is member of an ICCA Task Force to develop a harmonized
international approach.

Global Safety, Health and Environment (SHE) Conference
On 12 and 13 June 2012, Corporate Operations & Responsible
Care hosted a global DSM SHE Conference in Noordwijk
(Netherlands) around the theme of ‘Creating our legacy; a never
ending journey’. Attendees included 135 line managers from all
levels in the company and experts on Safety, Health,
Environment and Sustainability representing DSM locations all
over the world. The participants rated the conference 4.5 out of
5, which illustrates the successful set-up. The attention paid to
storytelling and sharing personal experiences very much
appealed to those present. The program included panel
discussions with external keynote speakers and DSM top
managers, as well as break-out sessions. One of the keynote
lectures was about health and focused on how employees can
sustainably improve their personal performance. The conference
underlined the importance of employee health and indicated that
a sustainable employee health and wellness program should be
an integral part of every DSM site’s SHE plan.

SHE Award and SHE Improvement Award
To stimulate excellence in the field of SHE, DSM annually grants
a SHE Award to the DSM site that showed the best SHE
performance, and a SHE Improvement Award to the site that has
made the greatest progress in improving its SHE performance
over a number of years. All business groups were invited to
nominate sites or other parts of their organization for these
awards. The nominees are ranked on the basis of approximately
30 criteria. Besides SHE elements, these include sustainability

Bright Science. Brighter Living. 2012 www.dsm.com

aspects, for example how the unit has supported the local
community. The winner of the SHE Award receives a bronze
sculpture and a check of € 10,000, to be spent on the local
community. This reflects the importance that DSM attaches to
the communities around its sites. To emphasize the importance
of the awards, a member of the Managing Board hands over the
prizes to the winning organizations. In 2012, DSM Nutritional
Products in Dalry, Scotland (United Kingdom) won the SHE
Award and donated its prize to the MacMillan Cancer Support
Ayrshire. DSM Engineering Plastics in Evansville, Indiana (USA)
won the SHE Improvement Award.

joint effort of the DSM Netherlands Occupational Health Center,
Corporate Operations & Responsible Care and the business
groups.

One of the key focus areas of Vitality@DSM is to increase
awareness about the importance of healthy choices in lifestyle.
Therefore, employees are invited to set their personal goals, and
are being coached individually. This has been combined with
comprehensive health check-ups. The role of departments
overall is to support making action plans with the objective of
improving individual and group performances.

Employee health management
DSM has a global employee health management program,
Vitality@DSM. Participants are offered a Vitality Check (an
extensive periodic medical check-up) and are asked to fill out an
electronic questionnaire. This provides DSM employees with a
personal scorecard, and the company with anonymized,
tangible and quantitative data on health at work. This enables
the company to monitor progress through performance
indicators, compare results by region as a basis for defining the
content and priorities of health promotion campaigns at site and
regional level, and create scorecards at relevant levels in the
company. Vitality@DSM fits the company’s mission very well as
it creates ‘brighter lives’ for the employees and addresses one
of the global trends, Health and Wellness, defined in DSM’s
strategy for the years 2010-2015. The roll-out in the Netherlands
started in 2009 and was virtually completed in 2012. The
program is also being piloted in DSM China, DSM India and DSM
North-America. The implementation in the various regions is a

At the end of 2012 nearly 7,000 DSM employees all over the
world had participated in Vitality@DSM. Participation rates at all
sites where the program has been introduced vary from 65
percent to 95 percent. The scorecard gives an overview of how
the various business groups and business units perform with
respect to 'Health at Work'. Overall, the highest risks according
to the scorecard relate to lack of exercise, a Body Mass Index
(BMI) of more than 25 and low satisfaction and high stress at
work. Several DSM units that had already participated in
Vitality@DSM defined the content and priorities of health
promotion campaigns at site level in 2012. This follow-up is very
important to make Vitality@DSM sustainable. The scorecard is
presented to business group and business unit management
each quarter.

Occupational health
In 2012 a total of 13 occupational health cases were reported.

Absenteeism
in %
■ 2008 ■ 2009 ■ 2010 ■ 2011 ■ 2012

3.8

3.4

3.0

3.1

3.0

2.7

2.9

2.8

2.5

2.1

1.6

1.4

1.3

0.7

0.6

0.7

0.8

0.5

1.5

1.4

1.0

1.1

0.5

Netherlands

Rest of
Europe

North America

China

Rest of
Asia-Pacific

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

Planet in 2012

On the Planet dimension of its Triple P approach, DSM delivers
activities, solutions and innovations that improve the
environmental footprint of its own business and that of its
external stakeholders in the value chains in which the company
operates (customers, supplier and end consumers). This
approach includes the ECO+ program, which defines
sustainability as a growth driver. This chapter also addresses the
reporting on DSM’s environmental footprint and on its
implementation of the Greenhouse Gas Protocol for scope 3
emissions. See also: Growth Driver: Sustainability (page 24).

ECO+

ECO+ is DSM’s strategic concept for promoting the
development of sustainable, innovative products and solutions
with ecological benefits, and for measuring these benefits.
ECO+ solutions create more value with less environmental
impact. The ecological benefits can be created at any stage of
the product life cycle, from raw material through manufacturing
and use to potential re-use and end-of-life disposal. To measure
them, the ECO+ framework uses the Life Cycle Assessment
(LCA) methodology. For a full definition of ECO+, see page
224 .

In 2012 the percentage of ECO+ solutions in the innovation
pipeline was 80 percent, equal to the aspiration set for 2015.
ECO+ solutions as a percentage of running business increased
to 43 percent. DSM is on its way toward the 50 percent
aspiration for 2015.

Typical ECO+ examples are DSM's engineering plastics that
enable customers to produce lower-drag, lighter-weight and
therefore more fuel-efficient cars. A life-science example is

Bright Science. Brighter Living. 2012 www.dsm.com

Brewers Clarex™, which enables brewers to prevent chill haze
without having to cool their beers to sub-zero temperatures.

Other ECO+ benefits are the minimization of the use of natural
resources such as water or minerals (including metals), or the
reduction of waste. A typical example is phytase used in animal
feed. Phytase enables animals to absorb more phosphorus from
their feed. This translates into less phosphorus supplementation
and less phosphate pollution from animal manure. Another
example are Akulon®-based flexible packaging films such as
Pack-Age™, a cheese ripening solution in the form of a
breathable film bag that gives cheese the same taste and texture
as the traditional coating method, but without the labor and
without the waste.

All the above examples might be characterized as ‘eco-efficient’.
They help minimize environmental impact. DSM’s long-term goal
is to become fully eco-effective, by providing solutions that close
the loop and have a truly positive, rather than less negative,
environmental impact. To achieve a truly circular economy, it is
essential to invest in the development of products made from
renewable, bio-based raw materials rather than fossil fuels.
Palapreg Eco™ is an example of such a product. See also: DSM
Bio-based Products & Services (page 106).

To promote a circular economy, DSM also proactively seeks to
develop safer alternatives to existing solutions. Many products
that are on the market today contain ingredients that bring
specific benefits during use but that may cause problems in the
end-of-life stage or make the product difficult to recycle.
Considering safer alternatives creates new business
opportunities that are not available to companies that are merely
compliant with regulations. Good examples of safer alternatives
are BluCure™, the 100 percent cobalt free curing technology for
composite resins, and halogen-free flame retardant plastics
such as Arnitel® XG and Stanyl® ForTii™. DSM also continues to
focus on Cradle to Cradle® closed-loop solutions.

Some DSM ECO+ solutions carry an Environmental Product
Declaration (EPD). An EPD is a standardized way of
communicating the environmental performance of a product or
system. It is based on ISO standard 14025/TR and Life Cycle
Assessment. Eighty percent of DSM's ECO+ solutions are
supported by LCAs.

Finally, most ECO+ solutions generate downstream cost
benefits coupled to their environmental benefits at specific
stages of the value chain. These effects include generating less
waste in the use phase, making the application more durable
and reducing energy consumption in the application or disposal
phase.

Value chain benefits of innovative ECO+ solutions

Applications

Higher eco-

Renewable

Safer

Environmental

Downstream

efficiency1

content

alternative2

Product

cost

Declaration

benefits

(EPD)

Materials
Arnitel® VT
Arnitel® XG
Akulon® Fuel Lock
Arnitel® Eco

Breathable film

Wires and cables

Fuel tanks

Pan liners

BluCure™ Technology
Dyneema®

Marine, building & construction

Aquaculture and fishing nets,

EcoPaXX®

HighQ™ Container
Hybrane® CY-245

KhepriCoat™ 3
Neocryl® XK-238
Neocryl® XK-555
NeoPac® PU-480
NeoRez® U-475
Palapreg® ECO
Stanyl® ForTii™
Stanyl® polyamide 46
Stanyl® TC
Synolite® 7524-N-1 FC resin
Uradil® AZ-785
Uralac® P32 series

cut-resistant gloves

Engine covers

Lightweight containers

Car refinish

Solar panels

Industrial coating

Anti-graffiti coating

Architectural coating

Graphic arts printing

Composite bridges

Micro-electronics

Chain tensioners

LED lighting

Artificial stone

Architectural interior wall paint

Construction, heavy steel,

part powder coating

Uralac® P752/755/3307

Construction sheet molding

Health & Nutrition
Bakezyme®

Brewers Clarex™

Brewers Compass™
Claristar®
Delvotest®
Panamore®

Phytase
Purifine® PLA2

DSMPureActives™
Rapidase®

Vitamin E

Combined

Pack-Age™

compounds

Bread

Beer

Wine

Milk

Bread

Animal feed

Soy oil

Antibiotics

Fruit juices

Vitamins

Cheese packaging

•

•
•

•

•
•
•
•
•
•
•
•
•
•
•
•

•
•

•

•
•
•
•
•
•
•
•
•
•
•

•

•
•
•

•
•

•

•
•

•

•
•
•
•

•

•
•
•
•

•

•
•
•
•

•

•
•
•
•

•
•
•
•
•
•

•

•
•
•
•
•
•
•
•
•
•

•

•
•

•

1 Better resource efficiency and/or reduced GHG emissions thanks to e.g. higher energy efficiency in the product life cycle
2 Product can be used instead of existing products that contain materials that may contain substances of hazardous concern
3 LCA pending

Bright Science. Brighter Living. 2012 www.dsm.com

Environmental impact of DSM's operations

DSM's energy efficiency improved by 14 percent compared to the reference year 2008, which is a further improvement of
approximately 2 percent compared to 2011.

Greenhouse-gas emissions decreased slightly compared to the reference year 2008, from 4.3 million tons of CO2 equivalents to
4.2 million. This is a strong reduction compared to 2011, when greenhouse-gas emissions were 4.6 million tons of CO2 equivalents,
in spite of the fact that several new reporting units were consolidated for the first time in 2012. An important structural improvement
was realized at DSM Fiber Intermediates (DFI) Nanjing, where an N2O abatement system was taken into operation in September
2012. See also: Sustainability in Polymer Intermediates (page 102).

Key environmental indicators, continuing operations

Energy use in petajoules (PJ)
Water use (x million m3)

Greenhouse-gas emissions in CO2 equivalents (x million tons)
Emission of volatile organic compounds (x 1000 tons)

COD (Chemical Oxygen Demand) discharges to surface waters (x 1000 tons)

2012

40.6

150

4.2

3.4

5.5

2011

44.6

153

4.6

4.2

7.0

Total water withdrawal in 2012 decreased by approximately
3 million m3 to 150 million m3. The decrease is the balance of
reductions at some sites and increases at other sites. Positive
changes were also obtained by specific water projects.

Significant improvements were achieved in emissions to air.
VOC, NOx and SO2 emissions were significantly reduced due to
structural improvements, as well as several changes in
production volumes.

The landfilling of non-hazardous waste increased significantly in
absolute terms, mainly due to the fact that two newly acquired
sites land-filled relatively large amounts of non-hazardous waste.
Relative to production volumes, the amount of landfilled non-
hazardous waste has decreased since 2010.

The discharge of COD decreased significantly in 2012 compared
to 2011. This is the balance of an increase due to the fact that
several newly acquired units were consolidated for the first time
in 2012, and lower production volumes at several other sites.

Environmental targets
In the framework of its corporate strategy, DSM has defined
long-term Safety, Health and Environment (SHE) targets for
2010-2015 and translated these into plans and activities in a
Corporate Multi-year Plan Responsible Care (CMP). This CMP

gives guidance to the rolling three-year plans of the business
groups. In addition to SHE topics, the CMP 2010-2015 also
addresses security as a strategic subject. Quantitative targets
have been set for six SHE topics (see table on the next page).
For three other SHE topics improvement programs have been
set up.

The eco-efficiency targets, representing the main emissions from
DSM’s plants, are based on the principle that all DSM sites in the
world should as a minimum meet the standards as applied in the
European Union or the US. New plants and major plant
modifications should meet this requirement right from the start,
whereas existing plants should meet it within five years.

The CMP was reviewed according to plan in 2012. The target
for water availability and use has been confirmed at 15 percent
reduction of water use. In the coming years once through cooling
will be excluded in those cases where it is shown that this does
not result in thermal pollution. Water risk assessments will focus
on sites located in water scarcity areas and sites that contribute
significantly to DSM’s discharge to water and/or water use. The
impact of the discharge of nitrogen and phosphorus is now
included in the local water risk assessments. Risk assessments
on biodiversity and ecosystem services, taking 'no net loss' as
long term (2020) ambition, were added as a new item.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Safety, Health and Environment targets1

2015

2020

Safety at work

- Reduction in number of serious incidents

Process safety2

Reduction in number of process safety

incidents (PSI) by 50%

Health at work

Vitality@DSM target: at least 75% uptake per

project done, and ambition to reach 15,000

entries by 2015

Eco-efficiency

Reduction of discharges to water:

- COD

Reduction of emissions to air:

- VOC

- SO2
- NOx
Reduction of waste:

- Landfilling non-hazardous waste

20%

40%

70%

30%

15%

Climate change

Water availability and use

Reduction of water use

15%

1 Reductions compared to 2010, unless otherwise stated
2 See page 53

by 65%

- Frequency Index of recordable

injuries ≤ 0.25

Reduction of PSI by 75%

- Energy-efficiency improvement of 20% by

2020 compared to 2008

- Reduction (absolute) in GHG emissions of

25% by 2020 compared to 2008

Bright Science. Brighter Living. 2012 www.dsm.com

Progress made in 2012 towards environmental reduction targets

% Reduction realized up to

2011 compared to

2012 compared to

Reduction target (%,

reference year2

reference year1

reference year-target year)

Discharges to water

Emissions to air

COD

VOC

SO2
NOx
Landfilling non-hazardous

29%

65%

21%

Waste

waste

6% increase

Improvement of energy

Climate change

efficiency

12%

Water availability and use

Total water consumption

5% increase

Greenhouse gases

8% increase

31%

92%

39%

14%

20% (2010-2015)

40% (2010-2015)

70% (2010-2015)

30% (2010-2015)

15% (2010-2015)

20% (2008-2020)

25% (2008-2020)

15% (2010-2015)

1 Corrected for changes in production volumes and product portfolio relative to the reference year (except greenhouse-gas emissions, which is an absolute target). Acquisitions

made during the target period are not taken into account. Divested units have been excluded.

2 Some minor differences compared to the numbers reported in last year's report are the result of corrections that have been applied.

In addition to the consolidated graphs shown in this section,
DSM publishes detailed information on the environmental
performance of all its production sites, such as emissions,
consumption figures and SHE highlights on www.dsm.com.

Data reporting by the sites is regularly audited by DSM’s
Corporate Operational Audit department. See also: Reporting
policy (page 110).

All environmental targets, except for the target for greenhouse-
gas emissions, are relative targets, i.e. emissions and
consumption relative to production volumes. This means that the
reduction percentages in the table above are the result of
calculations incorporating changes in production volumes.
Acquisitions and divestments in the target period are excluded
for the determination of target realization in order to have a like-
for-like comparison.

The target for greenhouse-gas emissions is an absolute target.
The previously divested units DSM Agro, DSM Melamine, DSM
Elastomers, Citric acid, and DSM Special Products Rotterdam
were excluded from the base year 2008, but the impact of other
acquisitions and divestments is reflected in these figures.

The reported figures are the result of improvements achieved in
the year 2012, changes in production volumes, the impact of
acquisitions, divestments and site closures carried out in the
same year and the fact that the planet data for DSM Sinochem
Pharmaceuticals (DSP) are consolidated for 50 percent as of
January 2012, compared to 100 percent in previous years. See
also Pharma (page 101).

The graphs on the following pages show the absolute DSM totals
over the years 2008-2012. This can give rise to some apparent
differences with the target realization figures, as the latter are
corrected for changes in production volumes and do not include
companies that were acquired or divested in this period.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Emissions to air
Volatile Organic Compounds
Emissions of Volatile Organic Compounds (VOC) decreased
strongly from 4,200 tons in 2011 to 3,400 tons in 2012 due to
several causes. The largest decrease results from the fact that
planet data from DSP is only consolidated for 50 percent as of
January 2012, compared to 100 percent in previous years. In
addition, significant reductions are the result of improvements at
DSM Nutritional Products in Dalry, Scotland (UK) and DSM
Engineering Plastics in Emmen (Netherlands), the closure of the
DSP site in Zhangjiakou (China) and several process changes at
DSP in Ramos Arizpe (Mexico).

On the other hand, there are several new reporting sites, such
as DSM Food Specialties Zhongken (China), DSM Dyneema in
Laiwu (China) and DSP in Yushu (China), which contribute to
DSM’s VOC emissions as of January 2012. Shifts in production
processes at DSP Toansa (India), which realized higher output
of processes with higher emissions per ton of product, and
operational issues at DFI Augusta, Georgia (USA), also resulted
in higher emissions.

In addition, VOC emissions at DFI Nanjing have increased as a
result of a change in the processing of a waste stream. This
waste stream used to be incinerated on site. The incineration
process required a large amount of energy and yielded an
aqueous waste stream of sodium carbonate which was drained
to the Yangtze river. A more sustainable solution to treat the
waste stream was found. Various (valuable) components are
recovered and energy consumption is considerably lower.
However, the existing incinerator was also used to burn off-
gases (VOC), and these are now temporarily released to the air.
A new (small) incinerator to burn the off-gases is under
construction. A high workload at the vendor and additional safety
requirements unfortunately caused a delay.

VOC
tons/year

10,000

8,000

6,000

4,000

2,000

Bright Science. Brighter Living. 2012 www.dsm.com

Nitrogen oxide
Nitrogen oxide (NOx) emissions decreased significantly, from
2,200 tons in 2011 to 1,700 tons in 2012. This is mainly because
the two coal-fired steam boilers at DFI Nanjing were closed in
July 2011, as was already mentioned in the 2011 annual report.
A smaller contribution resulted from the closure of DSP
Zhangjiakou, the fact that planet data for DSP are only
consolidated for 50 percent as of January 2012 and a decrease
at DFI Augusta as a result of lower production volumes.

NOx
tons/year

3,000

2,000

1,000

2008

2009

2010

2011

2012

Sulfur dioxide
DSM’s sulfur dioxide (SO2) emissions decreased significantly,
from 500 tons in 2011 to 100 tons in 2012. The main reason is
that the two coal-fired steam boilers at DFI Nanjing were closed
in July 2011. A smaller reduction resulted from the closure of
DSP Zhangjiakou and the fact that as of January 2012 DSP is
only consolidated for 50 percent, compared to 100 percent in
previous years.

SO2
tons/year

1,500

1,000

500

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Energy and greenhouse gases
Energy consumption
DSM’s total energy consumption decreased by approximately
10 percent from 44.6 petajoules in 2011 to 40.6 petajoules in
2012.

DFI Nanjing realized a significant improvement in energy
efficiency, resulting in lower energy consumption at the same
production volume. The replacement of steam supplied from its
own relatively inefficient coal-fired boilers with steam supplied
from a more efficient external supplier, as was already mentioned
in last year’s report, was now effective in the whole year.

Significant further reductions resulted from the closure of DSP
Zhangjiakou and reductions and/or shifts in production volumes
at DSP Ramos Arizpe, DNP Dalry, DFI Augusta and DFI Sittard-
Geleen (Netherlands).

Energy consumption
PJ

2008

2009

2010

2011

2012

On the other hand, the new reporting plants DNP Kingstree, DSP
Yushu and DFS Zhongken caused an increase in DSM’s total
energy consumption.

As was mentioned in the 2011 Integrated Annual Report, DNP
Belvidere has taken a new combined heat and power unit into
operation. The unit was started up in November/December,
which means that there is not yet any significant impact on
energy efficiency improvement. Energy efficiency at DSM
Pharmaceutical Products (DPP) in Greenville, North Carolina
(USA) improved, as was expected based on the project that was
mentioned in the 2011 report.

Discharges to water and landfilling of waste
Chemical Oxygen Demand
The discharge of COD (Chemical Oxygen Demand; an indicator
of the degree of pollution of wastewater by organic substances)
decreased from 7,000 tons in 2011 to 5,500 tons in 2012. The
main reductions were achieved by the closure of DSP
Zhangjiakou and shutdowns of production units at DNP Dalry
and DSP Ramos Arizpe and lower production volumes due to
turnarounds and less demand at DFI Augusta and DPP Capua
(Italy). On the other hand, new reporting sites, including DNP
Leon (Spain), DNP Kingstree, South Carolina (USA) and DSP
Yushu, caused an increase in COD discharge.

COD
tons/year

8,000

6,000

4,000

2,000

2008

2009

2010

2011

2012

Non-hazardous waste
The landfilling of non-hazardous waste increased from 27,700
tons in 2011 to 33,700 tons in 2012. The main reason for this
significant increase is the fact that two new sites, DNP Kingstree
and DSP Yushu both landfilled significant amounts of non-
hazardous waste. On the other hand, a significant decrease
resulted from shifts in production processes at DSP Ramos
Arizpe.

Other sites show fluctuations that are the result of changes in
production processes. These are not considered structural.

Landfilling non-hazardous waste
tons/year

40,000

30,000

20,000

10,000

2008

2009

2010

2011

2012

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Greenhouse-gas emissions
DSM’s greenhouse-gas emissions decreased from 4.6 million
tons in 2011 to 4.2 million tons in 2012. A structural improvement
was realized at DFI Nanjing, where an N2O abatement system
was taken into operation in September 2012. A significant
reduction resulted from lower production volumes at DFI
Augusta, and the fact that planet data for DSP are only
consolidated for 50 percent as of January 2012, compared to
100 percent in previous years. Smaller reductions at several
other sites and the closure of DSP Zhangjiakou are offset by the
contribution of three new reporting sites (DNP Kingstree, DSP
Yushu, DFS Zhongken).

Greenhouse-gas emissions
million tons
■ direct CO2 ■ indirect CO2 ■ N2O and other gases

2008

2009

2010

2011

2012

Water consumption

The graph in the next column shows DSM’s global water
consumption, split up into surface water, groundwater and
potable (tap) water. Total water withdrawal decreased from 153
million m3 in 2011 to 150 million m3 in 2012. This is the balance
of reductions at some sites and increases at other sites. Specific
water projects at DEP Emmen, DNP Grenzach (Germany) and
DEP Jiangyin (China) resulted in significant local reductions.
Further reductions were achieved by the closure of DSP
Zhangjiakou and shutdowns of large water-consuming
production units at DFI Nanjing and DSP Ramos Arizpe, as well
as turnarounds at DFI Augusta and DFI Sittard-Geleen. The main
increase was due to new reporting sites, including DNP Leon,
DNP Kingstree, DSP Yushu and DFS Zhongken, and changes
in production processes at DNP Lalden (Switzerland), DFI
Sittard-Geleen, DPP Linz (Austria), DSP and DFS Delft
(Netherlands).

A significant part of DSM’s total water consumption is for once
through cooling. These volumes were influenced by incoming
river water temperatures, in particular at DNP Sisseln
(Switzerland), DNP Grenzach, DNP Lalden and DPP Linz.

Bright Science. Brighter Living. 2012 www.dsm.com

Water consumption
x 1000 m3
■ surface water ■ groundwater ■ potable water

160,000

120,000

80,000

40,000

2008

2009

2010

2011

2012

DSM aims to achieve a situation where its operations have no
adverse effect on the quality and quantity of water in the regions
in which the company operates. In regions that face water
scarcity, DSM actively assesses the local impact of its
operations, based on a watershed approach as part of a water
risk assessment. In these water risk assessments, the focus is
not only on reducing water consumption in DSM’s own
operations but also on promoting an overall sustainable water
management system in cooperation with other stakeholders in
the watershed area and in the supply chain.

Operational improvement and increased awareness
In 2012, a number of DSM sites in areas of extreme water
scarcity as defined by the Global Water Tool executed a water
risk assessment using a dedicated Sustainable Water
Management methodology. The assessment included water
governance capability, (local) stakeholder integration,

DSM supports UN CEO Water Mandate

"Sustainability is a core value and growth driver for DSM.
Our mission is to create brighter lives for people today and
generations to come. One of the essential elements in
people’s lives is water. It is becoming increasingly scarce
and polluted. But increasingly water is also becoming too
abundant due to natural effects, increased by climate
changes and therefore threatening lives within our society.
DSM truly values initiatives like the United Nations Global
Compact CEO Water Mandate, to the principles of which I
express my continued support. We need to keep each other
focused on the essentials in life. The topic of water and
sustainable water management has our full attention."

Feike Sijbesma, CEO of Royal DSM

business risks related to existing and future operations, and
value chain and ecosystem impact.

Based on the results and insights gained, DSM updated its
roadmap to sustainable water management. The company
confirmed its overall water intensity target of reducing water
withdrawal by 15 percent by 2015. In 2013 and 2014 the water
risk assessment methodology will be applied to other sites of
extreme water scarcity as well as to significant water
withdrawers and significant polluters (including thermal pollution
of once-through cooling). The impact studies on scarcity and
pollution set priorities for local mitigation actions (e.g. water
reduction projects, local stakeholder participation and
cooperation projects) as defined in business group roadmaps for
2015/2020.

Based on the water impact and risk assessments, DSM has
created a transparent overview of its impact on water scarcity
and water pollution (COD, nitrogen, phosphorus) at specific
locations. There are a number of small sites where water scarcity
may occur for up to a few months per year in their area of
operation, but their impact is relatively insignificant as they
consume less than one percent of available fresh water sources.
There are also a number of big sites where the risk of water
scarcity is low but the potential impact is high. These sites have
prepared local water consumption reduction plans in line with
DSM’s water aspiration. Depending on the specific location and
impact, DSM will create awareness and seek cooperation with
industrial and governmental stakeholders to make sure there will
be no adverse impacts at the local level. Water risk assessments
provided additional insight into improvements to achieve DSM's
'no adverse effect' policy. While no violations were observed with
regard to local permit conditions, some water discharges were
using a significant part of the rivers' assimilation capacity. Further
investigations will be conducted and mitigation measures will be
taken where necessary.

Full transparency in reporting water performance
DSM continues to publish location reports on all DSM sites
worldwide on the internet, providing external stakeholders with
detailed insight into local situations. DSM remains committed to
the CEO Water Mandate that it signed in 2009, and the company
has reported its water performance within the Carbon Disclosure
Project since 2011, although it is not rated to be a high water
intensity business.

Promote improvements in value chain
DSM is engaged in an ongoing dialogue with suppliers,
customers and industry peers to create sustainable value chains
by progressively enhancing the eco-footprint (including water
footprint) of products and processes across each chain.
Moreover, in the coming years DSM will increasingly require

Bright Science. Brighter Living. 2012 www.dsm.com

suppliers to commit themselves to targets and assessments
similar to those applied by DSM. In 2012, the company
developed a new supplier water performance and risk
assessment tool, which integrates relevant parts of the DSM
Sustainable Water Management tool and impact analysis. This
helps DSM suppliers to develop sustainable water management
supply chains. See also: Water management (page 35).

To improve the methodology of water footprinting, assessment
and awareness building, DSM continued to participate in and
collaborate with associations and partnerships which address
this topic. DSM has for example joined the World Business
Council for Sustainable Development’s Water Leadership
Group. The company also actively participates in UN Global
Compact country networks to promote innovations in the
process industry, including process intensification or other
technologies stimulating the re-use of water. And finally, DSM is
contributing to the development of the ISO 14046 water footprint
standard.

Biodiversity

Biodiversity and healthy ecosystems are key conditions for a
more sustainable world. They provide what are known as
ecosystem services: by fulfilling basic human needs such as
food, materials, clean water and fresh air, they sustain human
life. DSM considers the conservation of biodiversity and
ecosystems an essential part of sustainable development and
corporate (social) responsibility. It is DSM’s belief that companies
have an important role to play in the conservation of nature. This
is a learning process; it starts with building awareness, to be
followed up with actions to (1) assess DSM’s impact on
biodiversity and (2) mitigate the impact in order to preserve
biodiversity.

DSM supports the terms of the Convention on Biological
Diversity, being the conservation of biological diversity, the
sustainable use of the components of biological diversity and the
fair and equitable sharing of the benefits arising out of the
utilization of genetic resources. This has been embedded in
DSM’s management systems.

In 2012 some DSM employees from the SHE, business and
purchasing communities were trained by IUCN on the basics of
Biodiversity and Ecosystem Services. This training was
developed by the World Business Council for Sustainable
Development, or WBCSD. This was a first step in raising
awareness, which needs to be taken to a next level, including
more insights into the impact on biodiversity of DSM's operations
in the value chain. See also: Biodiversity (page 35).

Report by the Managing Board

In addition DSM requested its production sites to assess their
potential impact on legally protected areas, as well as areas of
high biodiversity value outside protected areas. In a first analysis,
40 percent of DSM's sites were identified as being located in or
adjacent to high biodiversity value areas. This is significantly
more than previously reported numbers, as a result of the
application of new criteria. The distance to these protected and/
or high biodiversity value areas ranged from 500 meters up to
25 km. In all cases DSM has no indication of any adverse impact
on these areas and all sites operate within the permit levels of
local governments.

Together with some of the partners in the Inspirational
Programme of the Leaders for Nature platform of IUCN DSM is
working on a 'business area of the future' concept. This concept
includes assessing a company's impact and dependency on
biodiversity and ecosystem services. DSM aspires to prevent
further degradation of biodiversity and wishes to contribute to
the preservation of biodiversity wherever possible and wherever
the company’s activities have impact.

Renewable energy

DSM acknowledges that the world urgently needs to shift its
energy mix from fossil based towards renewable, while securing
energy supply, and aims to be a front-runner in combating global
warming and resource depletion. DSM is investing heavily in the
production of cellulosic bio-ethanol. DSM considers growth
enabled by just buying more energy – which currently
predominantly drives the demand for cheap fossil energy −
a vicious circle which needs to be broken. It considers the limited
prospect of timely availability of sufficient renewable energy
a matter of deep concern and a huge challenge to deal with
properly. DSM, although not involved in the business of energy
generation, nevertheless realizes its dependency on the timely
future availability of reliable and economically viable energy
sources. DSM considers a worldwide shift towards renewable
energy as necessary and urgent.

Raw materials

In 2012 approximately 8.7 percent of DSM’s total spend on raw
materials related to renewable raw materials. This represents an
increase compared to 2010 and 2011, which is in line with the
DSM portfolio changes. A further increase is expected in the
coming years.

Bright Science. Brighter Living. 2012 www.dsm.com

Renewable raw materials
in % of total raw materials spend

2008

2009

2010

2011

2012

Fines and sanctions
A total of four environmental sanctions were given to DSM sites.

The total amount paid in fines by DSM amounted to
approximately € 45,000, which is much lower than in 2011
(€ 70,000) and previous years.

To the best of DSM’s knowledge, no other fines or non-monetary
sanctions for environmental issues were incurred in 2012.

Environmental incidents and complaints
The total number of registered environmental complaints was 35
(24 in 2011), of which 22 were about odor, 10 about noise and
1 about flaring.

The total number of environmental incidents was 316, compared
to 300 in 2011. Of these incidents, only two were rated as serious
(11 in 2011). In previous years health incidents were also
included in these numbers but these are now separately
reported in the occupational health paragraph of the 'People in
2012' chapter. See also: Occupational health (page 54).

Sharing information on the safe use of chemicals
Within the scope of REACH (Registration, Evaluation,
Authorization and Restriction of Chemical substances), the
European legislation on chemicals, DSM is running a program to
share with its peers all available information on the properties and
safe use of chemical substances. The importance of REACH
cannot be overestimated: companies that fail to comply with
REACH will at some point no longer be able to do business in
the European Union. DSM is on track with its registration process
for the next REACH deadline, 31 May 2013.

DSM continuously monitors developments with regard to the UN
Globally Harmonized System (GHS) on Classification and
Labeling of dangerous chemicals and takes the necessary
actions to ensure implementation according to national or
regional deadlines. Products have been relabeled, and revised

Safety Data Sheets are provided according to the new
requirements. The DSM employees involved are made aware
and trained accordingly on the new information.

a side event of the Helsinki Chemicals Forum, both relating to
the substitution of hazardous chemicals by safer alternatives.

DSM has also committed itself to actively participate in the Global
Product Strategy (GPS) initiated by ICCA. The aim of the GPS
initiative is threefold:

- To reduce differences in the safe handling of chemical

substances between developing, emerging and industrialized
countries

- To ensure the correct handling and use of chemicals across

the value chain and across geographical boundaries by
providing relevant and reliable information

- To increase transparency by helping companies provide

stakeholders with information about marketed chemicals in an
easily understandable format: the GPS Product Safety
Summary

With a focus on high volume chemicals, DSM published GPS
Product Safety Summaries on its website and on the GPS portal
of ICCA in 2012. In addition, DSM contributed to one of the
capability-building workshops organized in Bogotá (Colombia).
These workshops are critical to advancing the capability of small
and medium sized companies which would otherwise lack the
knowledge and skills necessary to implement product safety.

DSM supported the launch of SUBSPORT, Substitution Support
Portal, a case story database presenting practical real-case
examples of companies and other stakeholders that have done
successful substitution work. DSM brought two real-case
examples to this database at the official launch of this portal at

Sustainable value chains

To gain better insights into the environmental impact of its
products and to improve their eco-efficiency, DSM pays close
attention to the entire value chain in which it operates. In the past,
DSM used to focus primarily on the greenhouse-gas emissions
of its own production activities, including the greenhouse-gas
emissions from the power plants that supply electricity and
steam, known as ‘scope 1’ and ‘scope 2’ emissions. Taking into
account also the greenhouse-gas emissions coming from the
value chains in which DSM operates, known as the ‘scope 3’
emissions, provides a more complete picture of DSM’s
environmental impact.

The Greenhouse Gas Protocol for scope 3 emissions, issued in
2011 by the World Business Council for Sustainable
Development (WBCSD) and the World Resources Institute,
distinguishes a total of 15 different categories. Based on this
protocol, the Chemical Sector Working Group of the World
Business Council for Sustainable Development has developed a
guidance for scope 3 reporting by chemical companies. The
protocol and the guidance have been used as starting point for
a materiality assessment to identify which categories are most
important for DSM. Both the business impact and the societal
impact were evaluated in the materiality assessment, in addition
to the estimated size of the different categories and the
availability of data. The outcome was used to set priorities for
improving the quality of the data.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Scope 3 emissions under Greenhouse Gas Protocol

Category

1 Purchased goods and services

2 Capital goods

3 Fuel and energy-related activities

4 Upstream transportation and distribution

5 Waste generated in operations

6 Business travel

7 Employee commuting

8 Upstream leased assets (company cars)

9 Downstream transportation & distribution

10 Processing of sold products

11 Use of sold products

12 End-of-life treatment of sold products

13 Downstream leased assets

14 Franchises

15 Investments

in kilotons of CO2 equivalents

Emissions1

13,500

1,000 - 1,750

250 - 500

186

173

40 - 60

10 - 25

not relevant

3,000 - 4,000

not relevant

10 - 30

Based on a materiality assessment, which also considers
aspects such as business impact and societal interest, DSM has
determined the following five categories as most relevant:

- Purchased goods and services
- Upstream transportation and distribution (includes transport

of DSM products to customers)
- Waste generated by operations
- Business travel
- Upstream leased assets

For these five material categories, the greenhouse-gas
emissions are based on primary data and are considered to be
relatively accurate. In the materiality assessment, four categories
are considered to be irrelevant, based on the guidance from the
chemical sector working group of the WBCSD. For the remaining
six non-material categories, the order of magnitude has been
estimated.

The table on the left provides an overview of all 15 categories.

Bright Science. Brighter Living. 2012 www.dsm.com

Greenhouse-gas emissions in DSM’s value chainPurchased goods and servicesTransport & distribution15-17 million tons CO2-eqN2O3.1 million tons CO2-eq> 4 million tons CO2-eqCO21.1 million tons CO2-eqWaste generationBusinesstravelLeased assets Purchased electricity and steamTransport & distributionUpstream activitiesRoyal DSMDownstream activities© 2012 Royal DSMscopescopescopescopeindirectindirectdirectindirectProfit in 2012

Financial results

Income statement

x € million, continuing operations

Net sales

Operating profit before depreciation and amortization (EBITDA)

Operating profit before exceptional items

Net finance costs

Share of the profit of associates

Income tax expense

Profit attributable to non-controlling interests

Net profit before exceptional items

Net profit from discontinued operations, excluding exceptional items

Net result from exceptional items

Total net profit attributable to equity holders of Koninklijke DSM N.V.

ROCE, continuing operations (in %)

EBITDA / net sales, continuing operations (in %)

2012

9,131

1,109

635

(94)

(96)

(10)

437

(149)

288

8.9

12.1

2011

9,048

1,296

866

(82)

(147)

(46)

594

199

814

14.0

14.3

Net sales
At € 9.1 billion, net sales from continuing operations in 2012 were 1 percent higher than in the previous year. Volume development
accounted for a 1 percent decrease in net sales. Selling prices were on average 2 percent lower than in 2011. Exchange rate
fluctuations had a positive impact of 3 percent, while acquisitions contributed 1 percent.

Net sales by business segment, continuing operations
in %
■ Nutrition ■ Pharma ■ Performance Materials
■ Polymer Intermediates ■ Innovation Center ■ Corporate Activities

1 3

1 4

2012

2011

EBITDA / net sales, continuing operations in 2012
in %

21.6

10.1

8.1

5.4

Nutrition

Pharma

Performance
Materials

Polymer
Intermediates

The graphs on the next page show the development of sales by origin, by destination and by end-use market.

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Operating profit
The operating profit from continuing operations before
exceptional items decreased by € 231 million (27 percent), from
€ 866 million in 2011 to € 635 million in 2012. The EBITDA margin
(operating profit before depreciation and amortization as a
percentage of net sales) decreased from 14.3 percent in 2011
to 12.1 percent in 2012.

Net profit
The net profit from continuing operations before exceptional
items decreased by € 157 million to € 437 million. Expressed per
ordinary share, net earnings from continuing operations before
exceptional items decreased from € 3.53 in 2011 to € 2.58 in
2012.

Net finance costs increased by € 12 million compared to the
previous year to a level of € 94 million due to a lower average
cash position at lower average interest rates and a € 7 million
impairment of certain financial assets.

At 18 percent, the effective tax rate (before exceptional items) in
2012 was 1 percentage point lower than in 2011. The lower tax
rate was a result of a different geographical spread of results and
the application of preferential tax regimes in countries where
DSM is operating.

Total net profit for the full year amounted to € 288 million
compared to € 814 million in 2011. This was due to the lower
operating profit in 2012 and the restructuring and acquisition
costs which were included in the exceptional items of 2012. In
2011 exceptional items included a book profit on divestments
(€ 262 million).

Exceptional items
Full year exceptional items before taxes resulted in a loss of
€ 194 million (2011: gain of € 174 million), comprising costs of
restructuring actions based on the profit improvement program,
losses regarding non-recurring value adjustments and
acquisition costs relating to the various acquisitions in 2012, and
costs for litigation.

Net sales by origin, continuing operations
in %
■ Netherlands ■ Rest of Western Europe ■ Eastern Europe
■ North America ■ Latin America ■ China ■ Other

2012

2011

Net sales by destination, continuing operations
in %
■ Netherlands ■ Rest of Western Europe ■ Eastern Europe
■ North America ■ Latin America ■ China ■ India ■ Japan
■ Rest of Asia ■ Rest of the world

2012

2011

Net sales by end-use market, continuing operations
in %
■ Health and nutrition ■ Pharmaceuticals ■ Metal / building and construction
■ Automotive/transport ■ Textiles ■ Electrical/electronics
■ Packaging ■ Other

2012

2011

Bright Science. Brighter Living. 2012 www.dsm.com

Cash flow
At € 730 million, cash provided by operating activities (total DSM) was 8.0 percent of net sales.

Cash flow statement

x € million

Cash, cash equivalents and current investments at 1 January

Current investments at 1 January

Cash and cash equivalents at 1 January

Operating activities:

- Earnings before interest, tax, depreciation and amortization

- Changes in operating working capital

- Other changes

Cash flow provided by operating activities

Investing activities:

- Capital expenditure

- Acquisitions

- Sale of subsidiaries

- Disposals

- Change in current investments

- Other

Cash from / used in investing activities

Dividend

Repurchase of shares

Proceeds from re-issued shares

Other cash from / used in financing activities

Cash used in financing activities

Effect of exchange differences

Cash and cash equivalents at 31 December

Current investments at 31 December

Cash, cash equivalents and current investments at 31 December

Bright Science. Brighter Living. 2012 www.dsm.com

2012

2,147

2,058

941

(16)

(195)

730

(686)

(1,262)

(31)

(1,856)

(210)

291

171

1,121

1,133

2011

2,290

837

1,453

1,430

(260)

(288)

882

(477)

(929)

513

229

748

(77)

(155)

(357)

111

(342)

2,058

2,147

Report by the Managing Board

Balance sheet
The balance sheet total (total assets) increased by € 0.8 billion in 2012 and amounted to € 12.0 billion at year-end (2011: € 11.2
billion). Equity increased by € 68 million compared to the position at the end of 2011. The increase was due to the net profit for the
year and the proceeds from reissued shares, which were partly offset by the dividend and the actuarial losses on defined benefit
obligations. Equity as a percentage of total assets decreased from 54 percent at the end of 2011 to 50 percent at the end of 2012.

Compared to year-end 2011, net debt increased by € 1,350 million. The gearing was 22 percent at year-end.

Capital expenditure on intangible assets and property, plant and equipment amounted to € 715 million in 2012 and was above the
level of amortization and depreciation.

The operating working capital (continuing operations before reclassification to held for sale) was € 141 million higher than in 2011
and amounted to 20.7 percent of annualized net sales (2011: 20.2 percent). Excluding acquisitions operating working capital
amounted to 20 percent of sales. Cash and cash equivalents including current investments decreased by € 1,014 million and
amounted to € 1,133 million.

Capital employed by business segment at
31 December 2012, continuing operations x € billion

Equity at 31 December
as a % of balance sheet total

4.1

2.0

0.8

0.4

0.5

0.2

Nutrition

Pharma

Performance
Materials

Polymer
Intermediates

Innovation
Center

Corporate
Activities

2008

2009

2010

2011

2012

Balance sheet profile1

in %

Intangible assets

Property, plant and equipment

Other non-current assets

Cash and cash equivalents

Other current assets

Total assets

Equity

Provisions

Other non-current liabilities

Other current liabilities

Total liabilities

1 Before reclassification to held for sale

Bright Science. Brighter Living. 2012 www.dsm.com

2012

2011

100

as the benefits of acquisitions and a more resilient portfolio start
to have impact. In 2013 the focus will be on the operational
performance and integration of the acquisitions DSM completed
in 2012 with special attention to capturing synergies. Overall,
based on current economic assumptions, the above will enable
DSM to move towards its 2013 EBITDA target of € 1.4 billion.

Dividend
DSM’s dividend policy is to provide a stable and preferably rising
dividend. DSM therefore proposes a dividend of € 1.50 per
ordinary share compared to € 1.45 per ordinary share for 2011.
This will be proposed to the Annual General Meeting of
Shareholders to be held on 3 May 2013. An interim dividend of
€ 0.48 per ordinary share having been paid in August 2012, the
final dividend would then amount to € 1.02 per ordinary share.
The dividend will be payable in cash or in the form of ordinary
shares at the option of the shareholder. Dividend in cash will be
paid after deduction of 15 percent Dutch dividend withholding
tax. The ex-dividend date is 7 May 2013.

Outlook

The challenging macro-economic environment experienced
during Q4 2012 has continued into 2013, with low growth in
Europe. Asia continues to show good levels of economic activity
whilst the US has maintained a modest rate of recovery.

The Profit Improvement Program that was launched in August
2012 is fully on track and is expected to deliver structural annual
EBITDA benefits of € 150 million by 2014 of which more than half
is expected in 2013. As anticipated, DSM has expanded the
profit improvement initiative and now expects to achieve another
€ 50-100 million in benefits on top of the € 150 million. The
benefits following this extension are expected to be fully
achieved by 2015.

Nutrition is expected to show clearly higher results than in 2012
due to organic growth moving towards the target of 2 percent
above GDP and the acquisitions.

Business conditions in Pharma are likely to remain challenging
though DSM is confident of being able to deliver substantially
better results notwithstanding the usual uneven delivery patterns
between quarters.

Performance Materials is expected to show improved results in
2013, despite the expected negative effects of caprolactam
especially compared to the first half of 2012.

Polymer Intermediates is expected to show lower results than in
2012.

For the Innovation Center the activity level will be in line with
2012, with EBITDA clearly improving following the full year
contribution of Kensey Nash.

Overall, based on current economic assumptions, DSM expects
a step-up in EBITDA during 2013 due to stronger organic
growth, supported by DSM’s Profit Improvement Program and

Bright Science. Brighter Living. 2012 www.dsm.com

Report by the Managing Board

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

In 2012 DSM's activities were grouped into five clusters: Nutrition, Pharma, Performance Materials, Polymer Intermediates and
DSM Innovation Center. In addition, DSM reports separately on Corporate Activities.

Net sales, continuing operations

Operating profit (EBIT), continuing operations

x € million

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

Total

2012

2011

x € million

2012

2011

3,667

726

2,772

1,596

102

268

9,131

3,370

677

2,752

1,820

369

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

9,048

Total

613

(19)

146

(63)

(139)

635

577

(8)

162

339

(69)

(135)

866

Operating profit plus depreciation and amortization
(EBITDA), continuing operations

Capital employed at 31 December

x € million

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

2012

2011

x € million

2012

2011

793

280

129

(38)

(94)

735

293

380

(57)

(91)

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

4,122

766

2,026

447

507

216

3,019

802

2,016

397

174

173

Total

1,109

1,296

Total

8,084

6,581

EBITDA / net sales, continuing operations

ROCE

in %

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Total DSM

2012

2011

in %

2012

2011

21.6

5.4

10.1

8.1

12.1

21.8

5.3

10.6

20.9

Nutrition

Pharma

Performance Materials

Polymer Intermediates

14.3

Total DSM

18.3

(2.3)

7.2

23.3

8.9

20.7

(1.0)

8.7

91.5

14.3

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Capital expenditure and acquisitions

x € million

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

Total continuing operations

Discontinued operations

2012

2011

1,193

109

214

303

1,980

950

258

1,500

Total

1,980

1,502

R&D expenditure (including associated IP expenditure),
continuing operations

x € million

as % of net sales

2012

2011

2012

2011

202

200

131

128

5.5

7.7

4.7

1.1

59.8

8.2

5.9

10.0

4.7

1.0

70.0

5.7

Nutrition

Pharma

Performance

Materials

Polymer

Intermediates

Innovation Center

Corporate Activities

Total

490

476

5.4

5.3

Workforce at 31 December

headcount

Nutrition

Pharma

Performance Materials

Polymer Intermediates

Innovation Center

Corporate Activities

2012

2011

9,489

3,314

5,354

1,474

668

3,199

8,329

3,324

5,599

1,439

383

3,150

Total

23,498

22,224

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Life Sciences

DSM’s Life Sciences activities are bundled
into two clusters: Nutrition and Pharma.
In 2012, these two clusters represented
48 percent of DSM’s total net sales.

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Review of business in 2012:
Review of business in 2012:
Review of business in 2012:
Nutrition
Nutrition
Nutrition

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Continued value
growth

Net sales

€ 3,667 m

2012

2011

The Nutrition cluster has delivered a compounded annual growth
rate of 7 percent over the last five years, taking net sales
to € 3.7 billion in 2012.

x € million

Net sales:

DSM Nutritional Products:

- Animal Nutrition & Health

- Human Nutrition & Health

- Personal Care

DSM Food Specialties

1,717

1,407

174

3,298

369

1,627

1,219

168

3,014

356

Total

3,667

3,370

Organic sales development (in %)

Operating profit

Operating profit plus depreciation

and amortization (EBITDA)

Capital expenditure and

acquisitions

Capital employed at 31 December

ROCE (in %)

EBITDA as % of net sales

R&D expenditure

613

793

1,193

4,122

18.3

21.6

202

577

735

950

3,019

20.7

21.8

200

Workforce at 31 December

(headcount)

9,489

8,329

Business

The Nutrition cluster consists of DSM Nutritional Products and
DSM Food Specialties. These businesses serve the feed, food
and beverage, pharmaceutical, dietary supplements and
personal care industries. The activities are based on in-depth
knowledge of local and global customer and market needs.

With continued strong fundamentals, the Nutrition cluster again
achieved solid value growth in 2012. A series of strategic actions
in recent years have driven continuous sales growth and
safeguarded profitability. By sustaining high margins even during
the global downturn, the cluster has proven to be largely resilient
to economic turmoil.

Bright Science. Brighter Living. 2012 www.dsm.com

A focus on ‘value before volume’ has led to increased
understanding among customers of where DSM can add value.
Moreover, this strategy is further enhancing the company’s
differentiation, ensuring that it focuses on profitable approaches,
including activities that take it further down the value chain.

With customized formulation and premix (blending) activities and
a marketing & sales presence reaching more than sixty
countries, customer intimacy is a key success factor. The
technical expertise in the cluster is based on application know-
how and innovation, translating market trends into products and
services with new benefits. Formulation for example is a key
expertise that DSM offers its customers. Specialist teams work
closely with customers to jointly develop the right ingredient
formulation for their wide range of end products. Formulations,
sometimes referred to as 'forms', need to be customized in order
to ensure the best ingredient characteristics for each specific
end product.

DSM has particularly strong positions in vitamins, nutritional
lipids, enzymes, cultures and carotenoids. New nature-identical
or natural ingredients as well as the expansion of the premix
footprint in emerging economies are important drivers in the
areas of human and animal nutrition and health.

DSM offers the world’s widest range of nutritional ingredients,
addressing existing markets based on fermentation, chemical
synthesis as well as key niches of active compounds derived
from plant extracts.

Trends

Key societal trends in the world driving the company’s nutrition
and health business remain intact despite the difficult macro-
economic environment. With more than half of the world’s
population now living in cities, the need for convenience and
processed food continues to grow. This perfectly matches the
company’s ability to deliver tailor-made local applications and
blends.

Shifting age pyramids and growing awareness about hidden
hunger, where people consume enough calories but lack key
nutrients, promote health consciousness and encourage the
uptake of additional supplementation or fortified foods.

Growing middle classes in emerging markets and the increasing
world population also translate into a higher demand for animal
protein. This boosts the demand for feed. Scarcity of resources
continues to foster the drive towards better, more efficient feed
conversion and towards further reductions of undesirable waste
components.

Legislators increasingly focus on food safety due to increasing
awareness of contamination issues, and standards are being
raised further. Critical authorities now prefer producers to work
with suppliers such as DSM, who are rigorously diligent in their
application of science and who have adopted state-of-the-art
quality assurance systems.

Policy initiatives addressing more sustainable food production
systems are a major opportunity for the company’s enzymes
business, particularly given the potential of these products to
help boost resource efficiency.

Strategic context

The Nutrition cluster has a growth ambition of 2 percent above
GDP growth. While well-established ingredient markets grow at

more modest growth rates and in some cases even below GDP
growth levels, DSM relies on innovation and new product
introductions to outpace GDP growth. This is accompanied by
a continuous drive to improve DSM’s value proposition to
customers by broadening and deepening its offering on the one
hand and raising standards of quality, reliability, traceability and
sustainability on the other hand. In addition, DSM looks for
opportunities to increase its participation in the value chain to
serve customer needs more holistically.

Acquisitions
Since the launch of the DSM in motion: driving focused growth
strategy in 2010, the company has announced acquisitions in
Nutrition for a total of € 2.4 billion, taking annual cluster sales to
€ 4.6 billion on a pro forma basis. The Nutrition cluster now
accounts for approximately half of total company sales and for
about three-quarters of EBITDA, with EBITDA margins of 20-23
percent. See also: Growth Driver: Acquisitions & Partnerships
(page 28).

The successfully integrated Martek business completed its first
full business year with DSM. The nutritional lipids business was
further boosted in 2012 by the acquisition of Ocean Nutrition
Canada. Martek’s and Ocean Nutrition Canada’s offerings,
algae based and fish oil based omega-3 and omega-6 fatty
acids, respectively, are highly complementary. Combining them
in DSM's nutritional lipids business has turned the company into
a global leader in this very dynamic ingredients category.

Nutrition acquisitions 2010-2012

Company

Martek

Ocean Nutrition Canada

Tortuga1

Cultures and enzymes business of Cargill

Fortitech

Other acquisitions

Total enterprise value

1 Expected closing Q1 2013.

Business group

value in € m

Enterprise

DNP

DFS

DNP

790

420

465-490

495

approx. 2,400

Year

2011

2012

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Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

The addition to DSM Food Specialties of the cultures and
enzymes business previously owned by Cargill enhances DSM's
strong position in ingredients for dairy markets. The expansion
into carotenoids from natural sources through Microbia and
Vitatene anticipates increasing consumer demand for ‘clean
labels’.

With Fortitech, world leader in customized food ingredient
blends for food & beverage and infant nutrition industries, and
Tortuga, the Brazilian market leader in organic trace minerals for
animal nutrition and health, DSM Nutritional Products is building
an exceptionally comprehensive portfolio, with number one or
runner-up positions in all fields of activity, further reinforcing its
leadership in vitamins and nutritional ingredients.

Value chain
DSM is involved in all three main steps of the ingredients value
chain:

- Producing pure actives
- Creating sophisticated formulations out of actives
- Providing localized, tailored premixes

With the acquisitions of Fortitech and Tortuga, DSM has
significantly expanded and strengthened its value chain
presence and business model downstream, adding macro
blends and strengthening nutritional consultancy and services.
As the only fully integrated player, the company can differentiate
all the way through the value chain in which it is active. Managing
interdependencies between active ingredients, formulations,
premixes and macro blends drives innovations, optimizes

logistics and boosts final value delivery to customers and the end
consumer.

As an industry pioneer and key driver of the global science
agenda in the field of ingredients, DSM’s Nutrition business
focuses on advancing the world's understanding of intricate
relationships between nutrition, health, product development
and food production processes.

The company also has a unique global role, based on a
considerable presence across all large ingredients markets and
a highly developed ‘local for local’ infrastructure around the
world. This gives it unparalleled depth and breadth across
sizeable markets, and economies of scale are contributing to
resilience in the marketplace.

DSM's Nutrition cluster is working from its strong base as a
global market leader in key value-added ingredients offered
through an international infrastructure that is highly competitive.
This enables the company to be a front-runner in terms of
product quality and innovation, regulatory and technical
expertise and customer and consumer understanding. This
strategic position will lead to further growth in the coming years.

The company will continuously strengthen the core of its
business by improving its operations and supply chain, by
innovating and upgrading delivery systems (application and
formulation technologies), by expanding premix networks and
services, through nutritional science and advocacy, by
maintaining investment in state-of-the-art quality management,
and by building the capability to deliver more value, more
efficiently.

Bright Science. Brighter Living. 2012 www.dsm.com

Acquisitions further strengthen DSM’s value chain presence Nutritional consultancy & servicesHuman Nutrition & HealthMacro BlendsAnimal Nutrition & HealthDSMTortugaFortitechActiveingredientsForms & delivery systemsPremixVitateneMartekOcean Nutrition CanadaMicrobiaDSM also seeks to ensure that the cluster increasingly leverages
the company's unique full value chain position by further
expanding its ingredients portfolio, which already is the broadest
in the industry. Finally, it seeks to establish new growth platforms
in adjacent areas which expand the breadth of DSM’s global
presence in identified areas of strength. Acquisitions are seen as
the vehicle to deliver additional new growth platforms,
particularly in emerging markets.

The company is increasingly recognized as a thought leader in
the field of nutrition and health. This is becoming a key element
in its ongoing development. Thought leadership potentially
enables DSM to actively engage in discussions on nutrition
guidelines, policy and practices with high-level decision makers
and authorities around the world and helps build proprietary
institutional knowledge while boosting confidence among
customers and other stakeholders.

Sustainability
Sustainability is a significant growth driver for DSM's Nutrition
cluster. Programs such as DSM's Nutrition Improvement
Program and partnerships with the United Nations World Food
Programme help fight malnutrition and hidden hunger while
encouraging innovation. See also: Hidden hunger (page 33).

Good nutrition is an important requirement for physical and
mental development, and a key factor for unlocking the human
potential in every man, woman and child. The elimination of
malnutrition is a global responsibility that the company supports
wholeheartedly. A global team of committed experts works to
eliminate micronutrient deficiencies through customized quality
products, scientific and technical expertise, and educational
support. The DSM Nutrition Improvement Program aims to be
the preferred partner for implementing sustainable solutions. See
also: Nutrition Improvement Program website.

Notable examples of ECO+ solutions in the Nutrition cluster are
animal feed with phytase, which reduces the need for
phosphorus in feed and improves the efficiency of feed
conversion, and Brewers Clarex™, which significantly reduces
energy use in beer brewing processes. See also: ECO+ (page
56).

DSM Nutritional Products

Key drivers of profitability

- Leadership in global markets: scale, costs, differentiation,

innovation and quality

- Strong customer value proposition - Quality for Life™ seal
- Long history of nutrition innovation
- Focus on value before volume

Key success factors

- Global sales, marketing and distribution network

including global / regional key account management

- Innovation (products, concepts and processes)
- Complete product portfolio and full value chain player
- Strong differentiation
- Integration of acquisitions

DSM Nutritional Products is organized around three market-
facing entities: Animal Nutrition & Health, Human Nutrition &
Health and Personal Care. In 2012, DSM Nutritional Products
posted sales of € 3,298 million compared to € 3,014 million in
2011.

While expanding its portfolio during 2012, DSM achieved solid
progress in the consolidation of key competitive strengths,
particularly in the most cost competitive vitamin categories. The
company’s center for water soluble vitamins in Grenzach
(Germany) saw a restructuring which will significantly improve its
cost position in the B vitamins. In DSM’s Quali-C® production
center in Dalry, a restructuring project was finalized to improve
efficiency and to reduce the cost base. DSM is the only producer
of vitamin C in the western hemisphere, thanks to a clear
premium position.

In 2012, increased emphasis was placed on category
management, focused on:

In 2012 DSM Nutritional Products helped the company move
closer towards fulfilling its overall sustainability aspirations by
improving energy efficiency at its sites, such as by building a new
combined heat and power generation plant at its site in
Belvidere, New Jersey (USA) and by reducing greenhouse-gas
emissions in Belvidere and the site in Dalry, Scotland (UK).

- Nutritional lipids
- Water soluble vitamins and strategically sourced products
- Fat soluble vitamins
- Carotenoids

The category-based structure helps provide the right focus
required to find answers to critical strategic questions.

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Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Various new opportunities are emerging. For example, by
introducing the products of Martek and Ocean Nutrition Canada
the company leveraged combined innovation expertise that
helped develop new formulations and made it possible to enter
new market segments. For some of these opportunities a
dedicated task force has been established.

DSM Nutritional Products is the only producer who can supply
the complete range of vitamins, nutritional lipids, enzymes and
carotenoids in the most suitable formulations for a broad range
of human and animal applications.

Animal Nutrition & Health
The Animal Nutrition & Health (ANH) business achieved sales of
€ 1,717 million in 2012 compared to € 1,627 million in 2011.

Animal Nutrition & Health delivered a good result in 2012. This
was achieved despite a challenging world economic
environment and high raw material prices for the animal industry.
Sales growth in premix was in the high single digits in line with
strategy and ambition. The acquisition of Tortuga will enable
DSM to continue with its successful strategy.

ANH addresses the nutritional additives segment of the animal
nutrition market, which continues to grow as GDP and
population growth drive protein consumption. Especially high
growth economies show increased meat, milk, egg and fish
consumption.

DSM's position in these key market segments in 2013 and
beyond.

HNH largely addresses the nutritional ingredients part of the food
and beverage market and the dietary supplements market.
Fundamental drivers are the indisputable link between nutrition
and wellness, the aging population and rising healthcare costs,
and higher standards of living in developing countries.

In the global market, HNH provides ingredients for food &
beverage, dairy products, dietary supplements and infant
nutrition with an unrivalled portfolio that provides a full palette to
meet customer needs.

DSM’s ambition to deeply understand customer needs runs
from product conception through manufacturing all the way to
after-sales support. This has led to the Quality for Life™ seal of
excellence. The seal assures customers that the ingredients are
safe, reliable and traceable and that they are manufactured in a
safe and sustainable way. More than 40 customer brands have
now adopted the seal on their products. The seal also stands for
sustainability. It symbolizes DSM's commitment to the
environment, consumers, business partners and the regulatory
framework that governs the company's operations.

Personal Care
DSM's sales in Personal Care in 2012 were € 174 million,
compared to € 168 million in 2011.

ANH holds a strong global position with sales distributed in
markets for poultry, swine, aquaculture and ruminants. The
company is positioned as a full value chain player with a broad
product portfolio that includes active ingredients, delivery
systems, blends and premix solutions. Its premix network is by
far the largest in the industry.

Personal Care again showed healthy growth in all its product
segments of skin, sun and hair care, despite the phasing out of
some non-strategic products in 2012. Latin America and Asia
were leading the way in geographic growth whereas Europe was
affected by the general economic climate.

The acquisition of Brazil-based Tortuga, which is expected to
close in the first quarter of 2013, will further increase ANH’s
presence in the ruminants market. Thanks to Tortuga’s unique
position in organic trace minerals DSM will be able to expand its
global position in this market segment. See also: Growth Driver:
Acquisitions & Partnerships (page 28).

The Personal Care business targets the market for specialty
ingredients with a focus on premium value adding products such
as peptides, natural bio-actives, UV filters and vitamins. It is
DSM's ambition to expand its position in personal care
ingredients. This market offers considerable opportunities for
accelerated growth.

Human Nutrition & Health
DSM’s Human Nutrition & Health (HNH) business reported 2012
sales of € 1,407 million compared to € 1,219 million in 2011.

This business is driven by global trends, in particular the aging
population and growth in emerging markets, particularly Brazil,
India and China. Skin and hair care are the largest markets, while
sun care is showing strong growth.

In 2012 Human Nutrition & Health sales were driven by: premix
growth in all regions; nutritional lipids in infant nutrition; and high
growth economies, with Asia leading the way. The Ocean
Nutrition Canada and Fortitech acquisitions will strengthen

Bright Science. Brighter Living. 2012 www.dsm.com

Food ingredients represent on average approximately two
percent of the cost of the final product. The added value of the
ingredients in terms of taste, texture, flavor and other
functionalities is significant. Differentiation, for instance through
enzymes or cultures, directly impacts the end-product.

DSM Food Specialties has defined ambitious growth aspirations
for 2015. It aims to be the fastest growing force in enzymes,
cultures, savory taste and other bio-ingredients by competing
aggressively at the highest level, building business in high growth
economies, and helping customers to succeed through
innovation.

DSM has the required expertise in enzyme and fermentation
technology to take a leadership position in this market. Growth
in food enzymes is expected to continue. Enzymes enable food
manufacturers to achieve cost savings and more sustainable
production by accelerating certain reactions during production,
reducing raw material usage, and reducing waste, emissions
and energy need. The market for cultures and probiotics is
expected to continue to grow as a result of the trend toward
health and the growing consumption of fermented milk products,
while savory ingredients meet the growing market demand for
authentic ingredients and sodium reduction for the processed
food industry.

DSM Food Specialties succeeded in strengthening its position
in the various regions in 2012 by focusing on the creation of value
for customers and other stakeholders through innovations, by
developing and producing products tailored specifically to local
markets, and through regional cooperation, regional application
labs and acquisitions and partnerships.

DSM Food Specialties

Key drivers of profitability

- Innovation in enzymes, cultures, savory ingredients and

other bio-ingredients

- Scale and production efficiency
- Volume growth
- Margin growth

Key success factors

- Innovation and value differentiation
- Key customer intimacy
- Global distribution network
- Quality and regional application know-how

DSM Food Specialties is a leading global manufacturer of food
enzymes, cultures, taste ingredients and other specialties for the
food and beverage industries. In 2012 this business group
realized sales of € 369 million compared to € 356 million in 2011.

DSM Food Specialties realized growth in all market segments.
Especially enzymes and savory ingredients showed strong
organic growth.

In 2012, DSM Food Specialties established itself as a tier one
dairy cultures and enzymes player with the acquisition of the
enzymes and cultures business previously owned by Cargill. The
market for cultures and enzymes is valued at over € 1 billion,
growing steadily at more than 5 percent per year. The
combination of Cargill's former cultures and enzymes business
with the dairy business of DSM Food Specialties enables DSM
to capture sizeable synergies in manufacturing, customer reach
and R&D.

DSM further strengthened its industrial biotechnology activities
with the acquisition of Verenium’s enzymes business for oil seed
processing. This business is mainly active in high growth
economies, and its innovation portfolio includes various
promising products.

DSM’s advanced ingredients make a considerable contribution
to the success of the world’s favorite food brands for the dairy,
baking, fruit juice, beverage, oils and fats and savory segments.
DSM Food Specialties is the global market leader in bio-
ingredients for food and beverages. It holds leading positions in
the relevant segments of its portfolio.

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Review of business in 2012:
Review of business in 2012:
Review of business in 2012:
Pharma
Pharma
Pharma

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Leveraging
partnerships for
growth

Net sales

€ 726 m

x € million

Net sales:

DSM Pharmaceutical Products

DSM Sinochem

Pharmaceuticals1

Total

Organic sales development (in %)

Operating profit

Operating profit plus depreciation

and amortization (EBITDA)

Capital expenditure and

acquisitions

Capital employed at 31 December

ROCE (in %)

EBITDA as % of net sales

R&D expenditure

2012

2011

543

183

726

(19)

766

(2.3)

5.4

409

268

677

(8)

802

(1.0)

5.3

Workforce at 31 December

(headcount)

3,314

3,324

1 DSM Sinochem Pharmaceuticals, in which DSM has a 50% interest, has been

proportionally consolidated from 1 September 2011

these customers are nine of the top ten pharmaceutical
companies as well as the top crop protection companies. In
addition, DPP serves a large number of biotech, specialty and
emerging pharma companies across the globe. DSM
Pharmaceutical Products’ facilities have been approved by the
US Food and Drug Administration (FDA) and similar agencies in
Europe, the Middle East, Africa and Japan. DSM
Pharmaceuticals, Inc. is licensed by the US Drug Enforcement
Administration to manufacture scheduled drugs.

DSP was formed in 2011 from the former DSM business group
DSM Anti-Infectives (DAI). DSP is one of the few producers and
marketers of beta-lactam active pharmaceutical ingredients with
a global presence, using cutting-edge low eco-footprint
manufacturing technology.

In 2012 sales in the Pharma cluster rose to € 726 million from
€ 677 million in 2011. Full year organic sales growth was
9 percent. EBITDA for the full year slightly increased due to
improved volumes at DSM Pharmaceutical Products and
somewhat higher prices at DSM Sinochem Pharmaceuticals,
offsetting higher costs partly associated with the start-up of the
new 6-APA plant for the anti-infectives business. DSM
Sinochem Pharmaceuticals was proportionally deconsolidated
for 50 percent as of September 2011.

Trends

Business

The Pharma cluster includes the business group DSM
Pharmaceutical Products (DPP), one of the world’s leading
custom manufacturing suppliers to the pharmaceutical industry.
Many of today’s medicines around the world contain ingredients
produced by DPP. The cluster also includes DSM's 50 percent
interest in the DSM Sinochem Pharmaceuticals joint venture
(DSP).

DPP is a leading provider of high-quality custom manufacturing
and development services to the pharmaceutical,
biopharmaceutical and crop protection industries. Customers
around the world are serviced from two research and
development sites and seven manufacturing sites with a range
of clinical to commercial capacity in the US and Europe. Among

The pharmaceutical market is facing a range of trends and
dynamics that question existing business models and that are
leading to some fundamental changes in the industry.
Nevertheless, these trends also provide a number of future
growth opportunities for DSM's Pharma activities.

For DPP's customers, innovative pharmaceutical companies, it
is becoming more difficult to discover new active molecules
which have sufficient additional patient benefits, which have an
acceptable risk profile and which can obtain approval from the
FDA and other regulatory bodies. The cost of developing such
molecules is rising, while at the same time health service
providers – governments or insurance companies – are under
enormous pressure to reduce healthcare costs. As medicines
are becoming an increasingly important element of total
healthcare costs, typically accounting for around 10 percent of

Bright Science. Brighter Living. 2012 www.dsm.com

total healthcare spend, the pressure on reducing the costs of
pharmaceuticals is high.

Strategic context

Pharmaceutical companies are consolidating, reviewing their
business models and product ranges, and competing to develop
increasingly niche, narrow spectrum and specialized drugs.
These can be highly active pharmaceutical ingredients (APIs),
often biopharmaceutical products, and volumes are typically
lower. The intensity of cost pressure and the need to review
business models result in above-GDP growth in the
pharmaceutical outsourcing market, especially for drugs nearing
the end of their (patented) life cycle. The imperative for
pharmaceutical companies to optimize their asset base leads to
a strong focus on finding experienced, cost-efficient and highly
qualified partners to take on manufacturing challenges as a
supplier.

Although outsourcing is becoming increasingly common, the
business remains inherently volatile. Customer demand
fluctuates, sometimes quite violently, as customers take
manufacturing back in house to fill their own capacity, or see
planned production phases delayed by regulatory agencies. The
rise of competitors from Asia is particularly felt in the domain of
DSM Pharma Chemicals.

In most countries governments and regulators are increasingly
paying attention to the responsible consumption of antibiotics.
However infectious diseases continue to be a major life threat,
especially in high growth economies, and the beta-lactam anti-
infectives – DSP’s area of leadership – continue to be most
physicians’ first choice of cure. As the coverage and quality of
healthcare in these economies expands, and given that these
products are very safe and cost-effective, DSP's market
continues to grow. DSP is seen as an industry leader with clear
market advantages, communicated via the DSMPureActives™
brand.

The Asian market currently represents only about 6-7 percent of
total global pharmaceutical spend, but this is estimated to rise
to 20 percent by 2020 (Source: Credit Suisse/IMS). DSM is well
positioned to take advantage of this, with its anti-infectives
business having two production sites in China and one in India,
supported by a network of sales offices.

DSM will further optimize DPP's current assets and refocus them
towards new customer requirements. This essentially means
rebalancing towards smaller volume products and lower cost
assets in the high growth economies. The inherent volatility of
the custom manufacturing business model makes optimizing
asset utilization very challenging. In order to address this, DSM
is strengthening its technology platforms and is expanding its
range of own products. Operational excellence in a cGMP
context and respective efficiency and cost measures will further
strengthen the profitability of DPP. DSM believes it will drive
positive results most rapidly if DPP partners with another
company which has strengths complementary to its own.

DSP is well placed to deliver continued growth, with its strategy
to strengthen its core business and to broaden its portfolio with
for instance generic atorvastatin and cefaclor. DSP is placing
more emphasis on moving forward in the value chain. In 2012 it
delivered its first commercial sales as a player forward-integrated
into finished dosage forms to provide a complete generic
solution matching customers’ requirements.

Sustainability
To further reduce their environmental footprint, both DPP and
DSP are deploying their technological toolbox to reduce the use
of scarce resources and energy where possible and are actively
implementing the use of renewable energy sources in their
operations. See also: Environmental impact of DSM's
operations (page 58).

The use of proprietary biotechnology makes DSP an industry
leader in terms of both cost and sustainability. Emissions are
considerably lower than with conventional technology, while
product quality is higher. The opening of the new 6-APA plant in
China in 2012 marks the completion of this technology roll-out
across all of DSP’s production facilities around the world.

The Quality for Life™ seal, which stands for quality, reliability,
traceability and sustainability, emphasizes DSM’s commitment
to the highest and most comprehensive standards, delivering on
customers’ and consumers’ desire for peace of mind.

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

DSM Pharmaceutical Products

Key drivers of profitability

- Focus on new innovative products pipeline

and end-of-lifecycle drugs

- Operational excellence
- Innovative technologies
- Expansion of proprietary product portfolio

Key success factors

- Commitment to first-time-right principles and

DSM Quality for Life™ standards

- Continued demonstration of sustainable and

innovative solutions for customers

- Strong relations with strategic partners
- Increased presence in Asia and high growth economies

DSM Pharmaceutical Products focuses on innovative and
generic pharmaceuticals, biologics and biosimilars, agro
chemicals, and markets for fine chemicals. The business group
includes DSM Pharma Chemicals (DPC) (custom chemical
manufacturing services for complex registered intermediates
and active pharmaceutical ingredients (APIs)); DSM Exclusive
Synthesis (which caters to various fine-chemical customers
outside of the pharma industry); DSM Biologics (focusing on
services and licenses for biopharmaceutical companies based
on unique technological strengths); DSM Pharmaceuticals, Inc.
(offering manufacturing services for final dosage with a strong
competence in sterile operations); and DSM BioSolutions
(focusing on custom manufacturing services based on microbial
fermentation).

In 2012 sales at DPP amounted to € 543 million compared to
€ 409 million in 2011. The DSM Intermediates business (maleic
anhydride and derivatives), which in 2011 was accounted for
under Corporate Activities, was reintegrated in the DSM
Exclusive Synthesis business of DPP.

Business conditions in DPC remained challenging, whereas
noticeable progress was made in outsourcing services for crop
protection chemicals. In 2012 DPC strengthened its technology
offering by entering into a collaboration with Almac Group that
augments DSM's rich portfolio in biocatalytic solutions. The
collaboration agreement with Almac provides sustainable
manufacturing solutions that give customers access to even
broader enzyme expertise and assets in order to achieve

Developing new ways of working

In 2012, DSM Pharmaceutical Products celebrated the
third anniversary of its partnership with Shire
Pharmaceuticals. Shire is one of the world’s leading
specialty biopharmaceutical companies. Since its creation
in the UK some 25 years ago, Shire has expanded its global
presence and products portfolio with an emphasis on
behavioral health and gastrointestinal conditions, rare
diseases, and regenerative medicine.

Shire in 2009 transitioned the manufacture of five specialty
pharma products, including Vyvanse®, to DSM
Pharmaceutical Products' facility in Greenville, North
Carolina (USA). At that time, DSM had already been
manufacturing two other products for Shire.

"In transferring operations from Shire to DSM, we have
witnessed first-hand DSM's flexibility in supporting us
through various supply challenges," said David Lowndes,
Shire's Senior Vice President of Global Supply Chain and
Quality. "With DSM's partnership, we have developed new
ways of working to strengthen our performance so that we
continue to fulfill our commitment to patients and
physicians."

cost-effective, green processing at all phases of API
development, from preclinical to commercial manufacturing.

DSM Pharmaceuticals, Inc. further strengthened its project
pipeline, working closely with a number of strategic partners.

At DSM Biologics, the business group strengthened its
biopharmaceutical operations in Groningen (Netherlands). The
new ‘biologics plant of the future’, which is being built in Brisbane
(Australia) in conjunction with the government of Queensland
and the federal government of Australia, is set to go into
operation in 2013 to serve the regional and global biopharma
markets. During 2012, notable growth was experienced in
biopharmaceutical services, including agreements for the supply
of clinical trials for cancer treatments in Brazil and drug
development for treatments of respiratory diseases in Australia.
In 2012 DSM Biologics expanded its global customer base to
include additional customers in Japan, Brazil and Australia. DSM
entered into a non-exclusive license agreement with Amgen for
use of DSM's proprietary XD® high cell density process patents.

DSM BioSolutions experienced a setback with the lead CMO
product that had negative phase III clinical trial results, which
subsequently led to a substantial restructuring project. Actions

Bright Science. Brighter Living. 2012 www.dsm.com

to further improve DPP's business performance have triggered
efficiency and cost reduction projects in several areas that will
further strengthen the unit's performance in 2013.

During 2012, DSP’s beta-lactam business realized market share
growth in the emerging and developing economies of Asia and
Africa and DSP sustained its positions in the regulated markets.

The completion of the construction of its 6-APA intermediates
plant in Yushu, Jilin (China) was an important step for DSP in
2012. This facility completes the company’s backward
integration in SSPs.

The year 2012 marked ten years of commercial activity in
enzymatically produced active ingredients (SSCs and SSPs),
clearly showing DSP’s technology leadership in beta-lactam
anti-infectives. This was demonstrated once again in China’s
Shandong province, where DSP finalized the construction of its
facility to produce APIs for new generations of SSCs using its
proprietary technologies. This will enable DSP to further
strengthen its position as a sustainable producer of anti-
infectives via green routes, and to reinforce its position in China.

Generic pharmaceuticals other than beta-lactams showed
double-digit growth in 2012. DSP obtained the Certification of
Suitability to the Monograph of the European Pharmacopoeia,
or CEP, for its generic atorvastatin. Using a unique fully
backward integrated process based on proprietary
technologies, DSM Sinochem Pharmaceuticals is the first
company worldwide that will offer generic atorvastatin active
ingredients under CEP.

Receiving the European Pharmacopoeia certification confirms
compliance of DSP’s atorvastatin with the European standards.
CEP certification enables more efficient registration and life cycle
management of products, supporting both DSP and its
customers.

Atorvastatin is the most prescribed drug globally for high
cholesterol and cardiovascular disease. First synthesized in
1985, it has topped the list of best-selling drugs worldwide for
more than a decade.

DSM Sinochem Pharmaceuticals

Key drivers of profitability

- Glucose and energy prices
- Access to regulated markets
- Currency exchange rate
- Operational excellence

Key success factors

- Market access through global presence/alliances
- New products
- Product differentiation / brand value
- Low environmental footprint

DSM Sinochem Pharmaceuticals is the global market leader in
beta-lactam APIs such as semi-synthetic penicillins (SSPs) and
semi-synthetic cephalosporins (SSCs), which represent the
biggest class of APIs in anti-infectives, and other active
ingredients such as nystatin. The joint venture manufactures
nearly all its beta-lactam APIs and the related intermediates using
proprietary biotechnology.

Sales for DSP in 2012, on a 100 percent basis, rose to
€ 366 million from € 323 million in the previous year due to higher
volumes and higher prices. Results however remained under
pressure due to higher raw materials and energy costs, costs
related to the start-up of the 6-APA plant in China and costs
relating to the closure of the site in Zhangjiakou. DSM has
proportionally deconsolidated its 50 percent share in DSP as of
September 2011.

Industry dynamics remained challenging due to significant
overcapacity, especially in China. The Chinese market
contracted slightly, creating additional price pressure and
increasing exports to mainly the rest of Asia, Africa and Latin
America, as a result of the stronger focus of the Chinese
authorities on the responsible use of antibiotics. The effects of
these measures slowly disappeared towards the end of the year,
with demand in China picking up again. The majority of the
developing economies outside China saw steady growth of
around five percent.

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Materials Sciences

DSM's Materials Sciences businesses
comprise the Performance Materials and
Polymer Intermediates clusters. In 2012 the
two clusters represented 48 percent of DSM’s
total net sales.

Bright Science. Brighter Living. 2012 www.dsm.com

Review of business in 2012

Review of business in 2012:
Review of business in 2012:
Review of business in 2012:
Performance Materials
Performance Materials
Performance Materials

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Growing via innovative
sustainable solutions

Net sales

€ 2,772 m

2012

2011

businesses, turning it into a front-runner in creating and
introducing more sustainable innovations.

1,260

235

1,249

234

1,277

1,269

The businesses in the cluster have achieved strong leadership
positions in their chosen segments of the global markets for
advanced performance materials. In 2012 the cluster managed
to grow its market share and sales in specific, attractive key
markets.

2,772

2,752

Trends

x € million

Net sales:

DSM Engineering Plastics

DSM Dyneema

DSM Resins & Functional

Materials

Total

Organic sales development (in %)

Operating profit

Operating profit plus depreciation

and amortization (EBITDA)

Capital expenditure and

acquisitions

Capital employed at 31 December

ROCE (in %)

EBITDA as % of net sales

R&D expenditure

(4)

146

280

109

2,026

7.2

10.1

131

162

293

258

2,016

8.7

10.6

128

Workforce at 31 December

(headcount)

5,354

5,599

Business

The cluster consists of DSM Engineering Plastics,
DSM Dyneema and DSM Resins & Functional Materials. These
business groups manufacture technologically sophisticated
high-quality products and offer specialized value propositions
that meet the needs of customers. DSM Engineering Plastics is
a global supplier of high-performance engineering thermoplastic
solutions. DSM Dyneema is the global supplier of Dyneema®, the
world’s strongest fiber™. DSM Resins & Functional Materials is
a global supplier of innovative high-quality resins solutions for
paints and coatings, composite materials and optical fiber
coatings.

The most important trends in the materials industry continue to
be related to resource scarcity and climate change. Customers
in virtually every industry ask for products that reduce energy use
or emissions in their own operations or, even more importantly,
throughout the value chains. DSM offers materials that reduce
weight versus metals and other traditional materials and
supports customers who want polymer solutions based on bio-
based raw materials, as opposed to fossil feedstocks.

The end market most sensitive to economic developments,
building & construction, has remained weak without immediate
prospects for a recovery. The risk of further deterioration in this
market is limited.

Demand for alternative solutions without substances of
hazardous concern is increasing in line with regulatory scrutiny.
Against this background, DSM Engineering Plastics and
DSM Resins & Functional Materials actively seek to provide
customers with new products and solutions that eliminate or
reduce the content of substances such as halogens, styrene or
cobalt.

Strategic context

With a key focus on growth via innovative sustainable solutions,
DSM has set its sales growth aspiration for the Performance
Materials cluster at double GDP growth level and has set an
EBITDA margin aspiration of 17 percent in 2015.

With major investments in high growth economies, notably China
and India, the Performance Materials cluster is a significant
contributor to DSM’s growth in Asia. The portfolio has evolved
in recent years towards more specialized, higher value-added

The Profit Improvement Program helps the cluster mitigate the
impact of macro-economic headwinds and actively manage
margins and costs. DSM Engineering Plastics specifically targets
reduced fixed costs and improved operational efficiency,

Bright Science. Brighter Living. 2012 www.dsm.com

combined with innovative growth. At DSM Dyneema, the
organization is being aligned with the development of the vehicle
protection business. The restructuring program previously
announced at DSM Resins & Functional Materials already had a
positive impact in 2012 and will fully contribute in 2013, with
further initiatives focusing on Composite Resins.

efficiency, pricing and margin management, and to accelerate
the growth of innovative specialty products. The Profit
Improvement Program that was launched during the year in this
business is expected to contribute annual savings of more than
€ 30 million by 2014 and involve a headcount reduction of
approximately 250 people.

Sustainability
Sustainability is a true driver of new business and innovations in
Materials Sciences. New applications are required to address
key challenges relating to the global trends. DSM is committed
to creating innovative solutions that make a positive difference
to people’s lives and that reduce the environmental footprint.

The company has shifted its materials portfolio towards a higher
added-value mix by introducing innovative, more sustainable
solutions, some examples of which are outlined elsewhere in this
chapter. See also: Planet in 2012 (page 56).

DSM Engineering Plastics

Key drivers of profitability

- Market growth in key segments and high growth

economies

- Sustainability: materials reducing the carbon footprint

over the value chain

- Innovation: be at the forefront of functionality and

performance

- Growth in market share in high-end innovative

applications

- Improved cost position

Key success factors

- Global market leadership in chosen markets
- Global presence (follow customers)
- Engineering plastics portfolio
- Ability to commercialize market-driven innovations
- Products, application and value chain know-how

Sales for DSM Engineering Plastics in 2012 amounted to € 1,260
million compared to € 1,249 million a year earlier. This is a result
of strong underlying growth in the key segments combined with
lower sales prices in Akulon® polyamide 6 due to lower
caprolactam prices.

DSM Engineering Plastics began executing a comprehensive
program in 2012 to cut fixed costs, to improve operational

Bright Science. Brighter Living. 2012 www.dsm.com

DSM Engineering Plastics has a focused portfolio with global
leadership positions in many of its products. It is the global
number three in the overall market for semi-crystalline
engineering plastics and is the global market leader in high-
temperature polyamides. In polyamide 6 and thermoplastic
copolyester elastomers the business holds a global number two
position. DSM Engineering Plastics’ leadership is underlined by
its strong upstream integration in the polyamide 6 value chain
with DSM Fibre Intermediates.

Early in 2012 DSM Engineering Plastics completed the move of
its global headquarters to Singapore from Sittard-Geleen
(Netherlands) in order to underline its commitment to the Asian
market, which is expected to account for the bulk of its growth
in the next decade. The business has production and R&D
facilities in the Netherlands, the United States, Japan, China,
Taiwan, India, Belgium and Russia.

Seeking to create shared value in its end markets,
DSM Engineering Plastics targets four key industries:
automotive, electrical & electronics, flexible food packaging and
consumer goods. In each of these, DSM Engineering Plastics
offers materials and solutions that can lower the carbon footprint,
eliminate the use of substances of hazardous concern and/or
offer improved recyclability (Cradle to Cradle®). These include
bio-based polymers able to perform in critical technical
components.

In the automotive sector, advanced materials from DSM enable
manufacturers to reduce the carbon footprint over the life cycle
of their vehicles, help preserve scarce raw materials and meet
future regulation on greater re-use and recovery of materials at
the end of a vehicle’s life, while at the same time helping end
users reduce fuel consumption.

In the electrical and electronics industry, DSM Engineering
Plastics contributes to finding a solution to the growing problem
of e-waste, helping foster recycling initiatives and helping deliver
improvements in safety, health and environment. The company
is able to do this through its unique portfolio of high temperature
materials with high flow combined with solutions for, for example,
lead-free soldering. In the electronics sector, the business group
is actively replacing substances of hazardous concern,
particularly by introducing halogen-free alternatives such as
Arnitel® XG, used in consumer electronics cables. Another

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example is a product used for miniaturized electronic connectors
that is based on a new breakthrough high-temperature
polyamide with halogen-free flame retardant grades.

To meet strong growth in demand for the Stanyl® ForTii™ high
performance polyamide in electronics, automotive and other
markets, DSM Engineering Plastics in 2012 increased its
capacity for the new polymer and opened its third market
development unit. The plant is co-located with DSM’s two
existing units in Sittard-Geleen (Netherlands).

In consumer goods, DSM Engineering Plastics meets
sustainability demands and addresses the future performance
and functionality needs of the industry by moving towards a full
range of innovative products with reduced substances of
hazardous concern, bio-based content, recyclability and/or
reduced environmental impact. See also: ECO+ (page 56).

DSM Dyneema

Key drivers of profitability

Improving environmental performance

DSM Engineering Plastics continuously strives to further
improve the environmental performance of its products.
Among the most innovative developments in this field are
bio-based polymers and bio-based building blocks. The
company is making very good progress with EcoPaXX®, a
high performance durable bio-engineering plastic with up
to 70 percent bio-based content.

Three grades of EcoPaXX® polyamide 4,10 received the
‘Certified Biobased Product’ label of the United States
Department of Agriculture (USDA) in 2012 and are included
in USDA's catalog of 'Biopreferred' products. The polymer
contains building blocks derived from castor oil obtained
from plants that can grow on poor soil otherwise not used
for food products.

DSM also has introduced Arnitel® Eco, a thermoplastic
copolyester elastomer, creating more value with a lower
environmental impact. With a bio-based content of up to
50 percent Arnitel® Eco has a lower carbon footprint than
traditional elastomers and rubber materials.
See also ECO+ (page 56).

Other notable achievements in 2012 were substantial
investments in DSM's polyester manufacturing capabilities for
Arnite® and Arnitel® in Emmen (Netherlands), which had a
positive impact on quantity and quality. The polymerization
facility in Kaohsiung (Taiwan) was upgraded, developing
capabilities in specialty polyamide for Novamid® and Akulon®
engineering plastics. At the Chemelot site in Sittard-Geleen,
ground was broken for a new R&D building.

In the flexible food packaging industry, DSM’s leadership in
polyamide 6 film and specialty packaging is enabling customers
to provide better solutions to the world’s rapidly changing food
packaging needs, helping meet global demands for food waste
reduction.

Bright Science. Brighter Living. 2012 www.dsm.com

- Market growth and penetration into existing applications
- Success of innovations, new launches
- Dyneema® brand

Key success factors

- Capability to manage growth, both in hardware and in

people

- Ability to commercialize market driven innovations
- Product, application and value-chain-know-how
- Strong, healthy IP position (patents & trademarks)
- Brand value (trust and innovation)

DSM Dyneema reported sales of € 235 million in 2012 compared
to € 234 million in 2011. The overall growth achieved was limited
despite close to double digit growth in areas like commercial
marine and sports. The tender driven defense market remained
weak.

Over the course of 2012, DSM Dyneema adjusted its operations
to a changing market outlook, especially in the global vehicle
protection markets. A full review of all functions and business
areas was undertaken across all sites and locations, and a key
reorganization of the business towards greater regional
autonomy led to consolidation of several roles and positions. At
DSM Dyneema, the Profit Improvement Program is expected to
contribute more than € 15 million in annual savings. The full
impact of these cost savings on Dyneema’s financial
performance will occur in 2013. Other steps to improve flexibility
of operations through enhanced workforce skills training allowed
a number of mainly contractor positions in operations to be
eliminated. The total program involves a headcount reduction of
approximately 150 people.

Concurrent with the completion of a multi-year investment in a
new, state-of-the-art full commercial scale UHMwPE tape
manufacturing facility in Greenville, North Carolina (USA), DSM
Dyneema closed its Flaach (Switzerland) tape development and

DSM Dyneema has conducted eco-footprint studies throughout
the commercial marine (both wild catch and aquaculture), cut-
resistant gloves and personal (ballistic) protection end-use
industries. The results demonstrate that solutions developed
with Dyneema® have a lower impact on resources and the
environment than traditional solutions involving steel, nylon or
aramid fibers. This is due to a combination of low weight, which
results in production and transport benefits, and inherent
product durability as well as end-use specific benefits. For
example, trawlers equipped with nets and ropes made from
Dyneema® are more fuel efficient and safer to operate than those
employing conventional steel and nylon equipment.

Building on the inherently positive environmental impact of
replacing traditional solutions with Dyneema®, DSM Dyneema
embarked on several end-user education initiatives. DSM
Dyneema had joined forces with partners from industry, media
and education to launch 'Below 100,' a train-the-trainer program
aimed at reducing law enforcement officer fatalities in the US in
2011. The program was rolled out nationwide in 2012. A similar
approach was launched in the worker safety market with 'Zero
Excuses', which aims to educate manual workers on the benefits
of routinely wearing safety equipment. The wearability and
comfort of gloves with Dyneema® (close-fitting, cooling and yet
highly protective) are a distinct benefit. Both these programs
demonstrate DSM Dyneema’s commitment to end-user
benefits, and the delivery of the brand promise – With You When
It Matters.

small-scale production unit which was acquired in 2007 and
moved key equipment to Greenville.

DSM Dyneema's ICD facility in Laiwu, Shandong (China) has
rapidly established a reputation for innovation and leadership in
the Chinese market. Operating independently under the Trevo™
name, ICD, a UHMwPE fiber manufacturer acquired by DSM in
2011, has delivered some early breakthroughs in new
applications in China by leveraging existing know-how within
DSM Dyneema and applying local knowledge and application
development approaches. Some of the applications are new to
DSM Dyneema overall, thus further adding to the breadth of the
business.

The Dyneema® brand is licensed for use in a wide and ever-
increasing range of applications such as medical sutures,
commercial fishing and aquaculture nets, ropes, slings, high-
performance fabrics such as cut-resistant gloves and apparel
and vehicle and personal ballistic protection. The Dyneema®
brand is well known in the industries served. DSM is
implementing a comprehensive brand licensing strategy which
will result in a number of new licensees and enhanced control of
the brand. This strategy is particularly targeted at supporting key
customers.

DSM will accelerate innovations and get these to market even
quicker by extending its co-creation partnerships with leading
value chain players. This will help DSM to extend the penetration
of the product into new markets. The combination of light weight
and high strength of Dyneema® fiber has huge potential in areas
yet untouched. Growth will be driven by creative application
development.

As part of a continuing commitment to innovation in high growth
economies, and in order to provide application development
support close to customers around the world, DSM Dyneema
completed the construction and commissioning of a new
regional technical development center in Singapore. It is the third
facility of this kind worldwide. This facility features a state-of-the-
art test firing range in support of the Life Protection business.

Among notable examples of business developments in 2012 is
the development of Dyneema® Max Technology DM20, a new
fiber designed for the production of incredibly strong ropes that
provide unrivaled strength, safety and durability. This fiber
provides a pathway into several new (marine) applications. And
in conjunction with Net Systems, a leading manufacturer of
netting for the aquaculture market, DSM Dyneema developed a
new construction of netting featuring Dyneema® which helps
improve predator protection and positions both companies to
benefit from the resulting anticipated growth in warm water
aquaculture.

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DSM Resins & Functional Materials

Key drivers of profitability

- Market growth in key segments and regions
- Sustainability: lighter materials and environmentally

friendlier, safer paints

- Growth in market share in high-end innovative

applications

Key success factors

- Global market leadership and presence
- Brand value (differentiation, reliability)
- Ability to commercialize market driven innovations
- Leading low footprint technology platforms geared

towards markets

DSM Resins & Functional Materials reported 2012 sales of
€ 1,277 million compared to € 1,269 million a year earlier.

Despite ongoing subdued market conditions DSM Resins &
Functional Materials delivered improved results due to better
margins and the implementation of cost saving actions.

DSM Resins & Functional Materials is recognized as a global
leader in the development and production of environmentally
friendly resins such as water-based coating resins and powder
coating resins for industrial and decorative coatings. DSM
Resins & Functional Materials is the European market leader in
unsaturated polyester resins and is rapidly building a position in
the fast growing markets of China. In functional materials, it is a
niche player with a global leadership position in fiber-optic
coatings, protecting more than one billion kilometers of fiber-
optic cables around the world.

In 2012 DSM Resins & Functional Materials benefited from the
successful execution of the restructuring programs as started in
2011 when facing uncertain market conditions. These previously
announced restructuring initiatives, which involve a headcount
reduction of approximately 300 people, already had a positive
impact in 2012 and are expected to contribute approximately
€ 25-30 million to annual savings by 2013. These restructuring
initiatives were intensified in 2012 with further initiatives focused
on the business unit DSM Composite Resins, which will lead to
additional savings in 2013.

DSM Composite Resins faced a challenging year in 2012 as a
result of deteriorating markets in transportation, building and

Bright Science. Brighter Living. 2012 www.dsm.com

construction. Overall, the business group had a continued focus
on innovation in sustainable technology, with DSM Coating
Resins and DSM Functional Materials successfully addressing a
growing demand for more sustainable and environmentally
friendly materials.

DSM Coating Resins
DSM Coating Resins continued to support the coating industry
with resins that allow the manufacture and application of
sustainable coating technologies such as water based, powder
and UV-curing coatings. These resins are being used in coatings
for, for example, architectural, industrial wood, flooring, graphic
arts, can, coil and powder coating applications. Weakness in the
building and construction industry created challenging market
conditions in 2012. The business has continued its success by
staying focused on continuing to innovate jointly with customers
and other major players in the value chain.

Growth is targeted through a continuous drive to innovate in core
segments and technologies, and through innovation that allows
sustainable technologies to grow at the expense of less
sustainable coating solutions. Market penetration of sustainable
coatings currently is the highest in Europe and the US. Coating
resins market growth stems from innovation as well as increased
awareness in the value chain of the detrimental effect of non-
sustainable coatings. DSM Coating Resins seeks to grow the
market for sustainable coating solutions with resins for three
types of coatings: powder coatings, water-based coatings and
UV-curing coatings. DSM’s solvent borne coating resins
business, based in Hoek van Holland (Netherlands), was
reorganized and positioned as a separate unit, and was branded
as DSM Synres.

To confirm the value of its innovation products DSM Coating
Resins conducts numerous carbon footprint measurements.
This data driven approach fosters cooperation throughout the
value chain. DSM is making a significant contribution to the
transformation of the entire coating industry, helping it move
towards more sustainable coating solutions.

In water-based paint for decorative applications, product
developments have been focused on bio-based water-based
coatings. With new product development in urethane-based
technologies the need in the industry for odorless indoor air
quality compliant coatings has been met. In powder coatings
DSM is investing in technologies that expand the potential
application of this sustainable technology to a wider range of
substrates, including wood and plastic. In graphic arts, DSM’s
flexible packaging coating anticipates the industry’s need to
differentiate and become more competitive.

artificial stone products suitable for food contact applications,
setting a new standard for the industry.

Another notable example are the composite lightweight bridges
in infrastructure projects that bridge manufacturer FiberCore,
infrastructure company Heijmans and DSM have introduced
jointly. The companies for example installed an award-winning
140 meter long bridge over one of the busiest roads in the
Netherlands. Because of the bridge’s low weight, its installation
took little time and caused minimal interference with ongoing
traffic.

DSM Functional Materials
DSM Functional Materials is a leading developer of formulated
coatings and composites designed to address the growing
demand for more sustainable, more environmentally friendly and
lighter-weight materials.

In the telecommunications market, DSM’s UV-curable optical
fiber materials set the standard for fiber protection and
identification worldwide, helping ensure greater signal reliability
and field performance within optical fiber networks. Bandwidth
demand is surging worldwide, placing increasing performance
requirements on optical fiber networks.

DSM’s newest generation of optical fiber coatings, DeSolite®
Supercoatings, helps network owners get higher levels of signal
reliability and field performance from their optical fiber. DSM’s
coating solutions help protect network investments, give greater
signal reliability and make higher bandwidths possible, ensuring
future-proof fiber networks for the world’s telecommunications
leaders.

DSM Composite Resins
DSM Composite Resins provides resins solutions for lightweight
composites used in containers, cars, trucks and trains, wind-
turbine blades and other applications to improve energy
efficiency.

For DSM Composite Resins 2012 was a challenging year as
transportation, building and construction markets in Europe
were under pressure. The business partially offset the effects of
lower volumes by maintaining tight cost control. The market will
remain difficult in 2013 due to a cautious investment climate,
predominantly in building and construction.

DSM made significant investments to secure continued business
growth in Asia by finalizing the construction of a new resin
manufacturing plant in Nanjing. This plant is the largest of its kind
in the world, and will help introduce the latest DSM resins
innovations in Asia.

Among the resins examples worth noting in 2012 are the launch,
together with AkzoNobel, of BluCure™ Technology and the
BluCure™ Seal for cobalt-free curing of synthetic resins.
BluCure™ is a sustainable cobalt-free technology made
available through licensing for the whole composite industry. The
BluCure™ Seal is an easy way for the industry to recognize that
products and parts are 100 percent cobalt-free.

Also, DSM has introduced Synolite® a new resin based on
biological raw materials and manufactured in line with Good
Manufacturing Practices. By using this resin, DSM’s customer
Compac, based in Spain, was able to create a new range of

Bright Science. Brighter Living. 2012 www.dsm.com

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Strengthening
backward integration
for DSM Engineering
Plastics

Net sales

€ 1,596 m

x € million

Net sales:

2012

2011

DSM Fibre Intermediates

1,596

1,820

Total

1,596

1,820

Organic sales development (in %)

Operating profit

Operating profit plus depreciation

and amortization (EBITDA)

Capital expenditure and

acquisitions

Capital employed at 31 December

ROCE (in %)

EBITDA as % of net sales

R&D expenditure

(16)

129

214

447

23.3

8.1

339

380

397

91.5

20.9

Workforce at 31 December

(headcount)

1,474

1,439

Business

The Polymer Intermediates cluster comprises DSM Fibre
Intermediates, the global market and technology leader in
caprolactam and the leading acrylonitrile supplier in Europe. Its
head office is in Shanghai, China.

DSM Fibre Intermediates has three operating companies for
caprolactam with a combined annual capacity of over 700
kilotons:

- DSM Caprolactam Europe: office and plant in Sittard-Geleen

(Netherlands).

- DSM Chemicals North America: office and plant in Augusta,

Georgia (USA).

- DSM Nanjing Chemical Company (DNCC): office and plant in
Nanjing, Jiangsu (China). DNCC is a cooperation with Sinopec
Nanjing Chemical Industries.

The company’s two acrylonitrile plants are located in Sittard-
Geleen.

DSM Fibre Intermediates supplies key intermediates to DSM
Engineering Plastics. This backward integration secures a base-
load and provides security of supply to DSM Engineering Plastics
and is an important element to DSM's operations. See also: DSM
Engineering Plastics (page 94).

In 2012, DSM Fibre Intermediates posted sales of € 1,596
million, compared to € 1,820 million the previous year. Organic
sales development was minus 16 percent due to 6 percent lower
volumes as a result of turnarounds and 10 percent lower prices.
EBITDA was significantly lower as high benzene prices could not
be passed on to the market due to weaker demand for
caprolactam in combination with new production capacity
coming on stream.

During 2012 major turnarounds were completed at DSM’s
caprolactam plants in the US, Europe and China. No major
turnarounds are expected in the coming years.

The end of 2011 saw dropping caprolactam prices. Early in
2012, the Chinese textile chain expected a strong demand later
on in the year. This drove caprolactam and nylon 6 inventory
building and price rises. However, at the end of the first quarter,
demand growth from the textile segment was not as strong as
generally anticipated. Besides, the economic outlooks for the US
and Europe, China’s main export outlets, steadily worsened.
With two new caprolactam producers appearing in the Chinese
market, it became clear that caprolactam was no longer short in
supply and prices steadily declined.

On the raw materials side, benzene prices rose by approximately
50 percent over the course of 2012, driven by tight supply. The
price of ammonia, another important raw material for
caprolactam production, also increased throughout 2012. This,
together with low caprolactam prices, put significant pressure
on margins.

The acrylonitrile market also experienced more volatility, with two
clear dips in prices during 2012, but due to fairly stable demand
from contract customers in mainland Europe the business was
still performing well.

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101

Trends

Overall, global demand for caprolactam and acrylonitrile is
expected to grow by approximately 3 percent per year in the
coming period. The strongest growth, at up to 6 percent per
year, will be seen in China. Demand from the US and Europe is
expected to be relatively stable. By 2015, China and Taiwan are
expected to consume over half of the world’s caprolactam.

The caprolactam business will be affected by a rapidly changing
industry landscape in China. New caprolactam plants are being
built which bring more product to the local market, resulting in
significant price pressure. A number of new market entrants are
announcing further plans for new caprolactam plants, raising the
likelihood of additional capacity. However, it remains to be seen
to what extent all of these announced caprolactam initiatives will
materialize.

Key drivers of profitability

- Growth (DSM Engineering Plastics and China)
- High utilization rates
- Raw material prices
- Low-cost operations

Key success factors

- Security of sales (excellent global coverage)
- Reliable supply, consistently good product quality
- Technology leadership

Strategic context

DSM Fibre Intermediates seeks to capitalize on the opportunities
in the caprolactam market by:

- doubling production capacity in China by 2014;
- implementing new sustainable technology;
- further improving competitive position;
- reducing merchant exposure; and
- achieving an EBITDA margin of approximately 14 percent on

average over the cycle.

In China, an expansion project to double DNCC’s capacity to
400,000 tons started in 2011. The new facility is due to come on
stream at the end of 2013 and is expected to operate at full
capacity in early 2014. The expansion is on track, within timing
and budget. Once completed, the DNCC site will be the largest
caprolactam site in the world.

DSM is securing its technology leadership position by pursuing
an assertive approach to licensing its proprietary caprolactam
technology and protecting its patents.

In acrylonitrile, the company seeks to maintain its sustainable
position as one of the leading players in Europe.

DSM expects its fiber intermediates business to maintain its
global leadership position in caprolactam thanks to its strong
focus on the potential of high growth economies, sustainability
and technological innovation, coupled with its unwavering
commitment to customers.

The company intends to further reduce its exposure to the
merchant caprolactam market.

Sustainability
Energy conservation and recovery projects were implemented
at the caprolactam sites, reducing variable costs and improving
sustainability.

DSM Fibre Intermediates has inaugurated an N2O abatement
facility at its plant in Nanjing, China. The facility’s construction
started in 2011, and the system was successfully started up after
DNCC’s turnaround in August 2012. It reduces nitrous oxide
emissions by more than half. This is the first N2O abatement
system installed in a HPO®-based caprolactam plant. N2O is a
strong greenhouse gas. This new facility removes emissions of
550 tons of N2O per year, equivalent to 170,000 tons of CO2, or
the annual emissions of 30,000 cars. See also: Environmental
impact of DSM's operations (page 58).

Caprolactam
Caprolactam is the raw material for polyamide 6, also known as
nylon 6, of which about 4.5 million tons are produced annually
worldwide. The applications of polyamide 6 are very diverse,
covering many end-markets, from carpets and textiles to car
parts, electrical devices and packaging film.

DSM is the major supplier to the merchant caprolactam market.
A major part of all caprolactam produced globally is made using
DSM’s proprietary technology. The company actively licenses
this technology.

The company has established a strong caprolactam position in
China thanks to its local production facilities, reinforced by its
strong partnership with winning customers in the downstream
polyamide 6 industries.

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Acrylonitrile
DSM Fibre Intermediates also is the leading supplier in the
European merchant acrylonitrile market with a market share of
25 percent. Globally, it ranks third.

Acrylonitrile is a raw material for acrylic fibers, plastics, rubber,
water treatment chemicals and a wide range of specialty
products. It is a key ingredient for bright, fashionable acrylic
textile and carpet fibers and for materials such as acrylonitrile-
butadiene-styrene (ABS) and styrene-acrylonitrile (SAN) that are
used for automobile components, electronic devices, toys and
sports equipment. The application of acrylonitrile in a wide range
of valuable specialty products like carbon fibers, water treatment
additives and detergents is rapidly growing.

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Connecting bright
science to brighter
living

Net sales

€ 102 m

x € million

2012

2011

and regenerative medicine devices that improve and brighten
patients’ lives throughout the world.

Net sales

Operating profit

Operating profit plus depreciation

and amortization (EBITDA)

Capital expenditure and

acquisitions

R&D expenditure

Workforce at 31 December

(headcount)

DSM Innovation Center

102

(63)

(38)

303

668

(69)

(57)

383

DSM Biomedical provides a proprietary product portfolio with
coatings, drug delivery platforms and a wide range of biomedical
materials that enable the replacement, repair, enhancement and
the regeneration of tissue and organ functions in the body. Its
novel materials-based solutions are designed to meet the needs
of the medical device and pharmaceutical industries. The
ultimate objective is to improve the outcome for patients.

Continued market growth in medical devices and the need for
increasingly sophisticated drug delivery systems are the drivers
for this market, which is estimated at USD 1.5-2 billion, with
annual growth rates of 10-15 percent. With the aging population,
it has good prospects for future growth.

The DSM Innovation Center was originally set up in 2006 to help
facilitate the company’s strategic transition toward an intrinsically
innovative organization. It serves as an enabler and accelerator
of innovation within DSM. With its Emerging Business Areas and
the business incubator, the DSM Innovation Center has a general
business development role, focusing on areas outside the
current scope of the business groups. See also: Growth Driver:
Innovation (page 21).

Emerging Business Areas

DSM’s Emerging Business Areas provide strong long-term
growth platforms based on the company’s core competences
in Life Sciences and Materials Sciences. The company has three
Emerging Business Areas:

- DSM Biomedical
- DSM Bio-based Products & Services
- DSM Advanced Surfaces

DSM aspires to realize € 1 billion in sales by 2020 in its combined
Emerging Business Areas.

DSM Biomedical

DSM Biomedical intends to be the medical industry’s leading
development partner, trusted to shape the future of biomaterials

DSM entered the medical field more than a decade ago, starting
with R&D efforts to develop medical applications based on
Dyneema®, which led to Dyneema Purity® fiber, a new material
for orthopedic sutures. DSM Biomedical was established in 2006
as an Emerging Business Area. DSM Biomedical has become a
leading biomedical business with an annual growth rate of
19 percent over the last three years.

DSM Biomedical further strengthened its industry leadership in
2012 with the acquisition of Kensey Nash, a US based,
technology-driven biomedical company, primarily focused on
regenerative medicine utilizing its proprietary collagen and
synthetic polymer technology. Since July 2012 Kensey Nash has
realized sales of € 35 million with an EBITDA margin of
38.9 percent.

DSM’s medical device expertise nowadays spans one of the
broadest portfolios of medical materials, including biostable
polyurethanes, ultra high molecular weight polyethylenes,
resorbable polymers, ceramics, collagens, extracellular
matrices, silicone hydrogels, device coatings, and drug delivery
platforms. Millions of products are produced each year for
applications in some of the most attractive high growth markets,
including orthopedics, sports medicine, ophthalmology, general
surgery and cardiology.

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105

DSM Biomedical applies materials science to create solutions
that help the human body heal. Its investments are focused on
research and product development, building further
opportunities for future growth. These efforts are focused
towards applying a wide range of materials and device
technologies to create clinically targeted products for its
customers. These products extend the capabilities of physicians
by providing tools that enhance their skills and help them
transform the quality of life for patients, replenishing mobility and
vitality. With each innovation, DSM Biomedical provides new
opportunities for collaboration with business partners, thereby
helping physicians and patients across the world.

Other notable developments in DSM Biomedical during 2012:

- A multi-year collaboration with the Utrecht University Medical
Center (Netherlands) was agreed for a feasibility study of novel
transcatheter heart valves made with Dyneema Purity® fibers.

- DSM’s VitroStealth® coating was used in Axis-Shield’s next

generation Afinion® Point-of-Care Cartridge.

- DSM extended its license to supply CarboSil® TSPCU for use
in AxioMed Spine Corporation’s Freedom® Spinal Discs.
- A clinical trial was initiated to assess the ability of DSM’s Meso
Biomatrix to help patients undergoing post cancer therapy
reconstructive surgery.

- Initial product launch of the Norian® Fiber Reinforced bone

repair technology.

- DSM expanded its capabilities for manufacturing metal

orthopedic products.

- DSM started commercial production of the ActiFit® meniscal

repair scaffold for Orteq.

Looking to the future, DSM Biomedical intends to be the leading
creator of clinically targeted biomedical materials and products
for the benefit of society, customers, employees and
stakeholders.

DSM Bio-based Products & Services

At the core of DSM’s strategic focus on Life Sciences and
Materials Sciences is its key competence in industrial
biotechnology. The move towards a bio-based economy
presents significant opportunities, particularly in renewable
energies such as cellulosic ethanol, renewable diesel and biogas
as well as renewable building blocks and materials like bio-based
succinic acid. See also: Bio-based economy (page 34).

value knowledge, ingredients and expertise in the field of bio-
conversion technology are critical success factors determining
its future. DSM’s strategy is to license its technology and
expertise to bio-based entrepreneurs, enabling them to convert
biomass in a commercially viable and sustainable way.

POET-DSM Advanced Biofuels
A major strategic milestone in 2012 was DSM's partnership with
POET LLC, one of the world’s largest ethanol producers, to
commercially demonstrate and license cellulosic ethanol based
on the two companies’ proprietary and complementary
technologies. POET-DSM Advanced Biofuels, LLC will produce
cellulosic ethanol from corn crop residue through a biological
process using enzymatic hydrolysis followed by fermentation.
The first commercial demonstration of the technology will be at
Project Liberty, which is being constructed adjacent to POET’s
existing corn ethanol plant in Emmetsburg, Iowa (USA). The initial
capacity is expected to be 20 million gallons in the first year,
growing to approximately 25 million gallons per year.

POET-DSM Advanced Biofuels intends to replicate and license
the technology to additional plants to be built at the other 26 corn
ethanol facilities in POET’s network and license it to other
producers in the United States and the rest of the world. DSM
and POET each hold a 50 percent share in the joint venture,
headquartered in Sioux Falls, South Dakota (USA). The initial
capital expenditure in Project Liberty amounts to about USD 250
million. POET-DSM Advanced Biofuels is expected to be
profitable in the first full year of production and to deliver
substantial revenues with an above-average EBITDA
contribution in the medium/longer term.

Organic residue streams
Researchers from DSM have developed a novel process
concept for pre-treating organic residue streams. In 2012 the
concept was proven at lab scale. With this process, residues can
be converted into biogas in around a week – with competitive
gas yields. This advancement is crucial for the growth of the
biogas sector. It makes the management and storage of these
organic streams much easier to handle, which means more
companies can capture biogas on-site from their own residue
streams and convert it into energy for their own use. The DSM
Biotechnology Center in Delft (Netherlands) is in the midst of
developing its pre-treatment and fermentation process. The
center has already established that the new process works at
pilot scale, using animal manure and brewers’ spent grains as
feedstocks.

Drawing on DSM’s unique position in biotechnology, materials
science and chemistry, this unit is pioneering advances in
biomass conversion and seeks to demonstrate the commercial
viability of renewable technologies in collaboration with strategic
partners in the value chain. The development and supply of high

Advanced bio-diesel
In 2012 DSM entered into the next phase of a partnership with
British Petroleum to jointly develop a large-scale, cost effective
microbial oil technology to convert sugars from sugar cane into

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106

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

renewable diesel. The partnership has created a leading
biotechnology platform that produces high yields of synthetic
bio-oil from plant sugars, which is in turn converted to a
renewable diesel. About half of today’s world demand for
transport fuel is for diesel and it is expected to grow to a larger
percentage in the upcoming decades. This makes innovative
solutions such as this route from sugars to diesel highly attractive
from a business point of view. Today, biodiesel is produced from
vegetable oils such as palm oil, soy bean oil and rape seed oil.
These oils are increasingly associated with concerns about
sustainability and availability. Finding alternative ways to produce
diesel from renewable sources that do not compete with the food
chain is crucial if growing demand is to be met in a sustainable
way.

Bio-succinic acid
Reverdia’s bio-succinic acid plant in Cassano Spinola (Italy)
commenced its start-up process in 2012, leading to full
production in 2013. Reverdia, established in 2010, is a 50-50
joint venture between DSM and French starch and starch
derivatives company Roquette Frères. The plant is designed for
commercial scale production of bio-based succinic acid. This is
the first non-fossil feedstock derived chemical building block that
allows customers in the chemical industry to opt for a bio-based
alternative with a lower eco-footprint for a broad range of
applications, from packaging to footwear.

Looking ahead, the first sales of technology licenses by
POET-DSM Advanced Biofuels and Reverdia (Roquette-DSM)
for cellulosic ethanol and bio-succinic acid, respectively, are
expected once production has been demonstrated on a
commercial scale. In the next few years, DSM expects to develop
additional strategic partnerships to demonstrate the commercial
viability of a wider range of bio-based solutions. Examples
include bio-based adipic acid, a renewable building block for, for
example, polyamide 6,6. DSM has achieved considerable
technological progress in bio-based adipic acid and is in
advanced discussions with prospective partners both on the
biomass side and on the application side.

DSM Advanced Surfaces

DSM Advanced Surfaces provides solutions for smart coatings.
In 2012, the unit recalibrated its strategic approach, which led
to a decision to fully focus on solutions for the solar industry, with
its anti-reflective coating KhepriCoat™.

KhepriCoat™ is increasingly recognized and valued by
customers as a very high performing durable product. It
improves the average efficiency of solar panels by four percent.
This benefit is welcomed by an increasingly competitive global

industry hungry for innovations that increase the efficiency of
solar panels.

In India, a 1 MW solar power plant is now being built using panels
with this antireflective coating. At the end of 2012, DSM decided
to increase the installed manufacturing capacity for
KhepriCoat™ in Sittard-Geleen (Netherlands).

Looking ahead, DSM Advanced Surfaces has identified potential
partnerships that could address novel surface technologies,
which would help expand its product range. DSM’s Business
Incubator has been instrumental in feeding the pipeline with
opportunities that address customer needs. Partnerships and
acquisitions will remain a critical factor for accelerated growth in
advanced surfaces.

DSM Business Incubator

The DSM Business Incubator is an independent unit of the DSM
Innovation Center. It explores opportunities and technologies in
new areas where its technologies can meet current and future
market demands. Platforms are created within the scope of
securing food, health and energy requirements of society, in
close collaboration with industry partners and existing and
potential customers. See also: Open Innovation (page 22).

DSM Venturing

DSM Venturing actively invests in early stage companies that
create innovative products and services in health, nutrition and
materials. DSM Venturing plays an important part in DSM’s open
innovation policy and invests in activities that are of immediate
or future strategic relevance to DSM business groups and/or the
DSM Innovation Center.

DSM has invested in Regentis Biomaterials, a tissue repair
company based in Israel that is developing and commercializing
innovative biodegradable hydrogels for the local repair of
damaged cartilage and bone.

In 2012, the company also invested in Optiwind, a US-based
producer of medium-sized wind turbines.

In addition to direct investments DSM Venturing is also involved
in a limited number of venture capital funds.

In 2012, DSM invested in the 4th China Environment Fund of
Tsing Capital. This is DSM’s first venture capital fund investment
in Asia. The China Environment Fund is a series of four funds,
managed by Hong Kong based Tsing Capital.

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108

Review of business in 2012

Life Sciences
Nutrition
Pharma
Materials Sciences
Performance Materials
Polymer Intermediates
Innovation Center
Corporate Activities

Corporate Activities

Various activities and businesses that do not belong to any of
the five reporting clusters are included under Corporate
Activities. This consists of both operating and service activities
and also includes a number of costs that cannot be logically
allocated to the clusters. The segment normally has a negative
operating result.

Various holding companies and corporate overheads are
included in Corporate Activities. The most important cost
elements included under this heading are corporate
departments and share-based compensation for the group.

2012 DSM’s 50 percent participation in DEXPlastomers was
included under Corporate Activities.

Agreement was reached with BÜFA GmbH & Co. on the
divestment of parts of Euroresins. These units were reclassified
as assets held for sale.

In 2011, DSM's Maleic Anhydride and Derivatives business was
included under Corporate Activities. As from 2012 this business
is included in the Pharma cluster.

Associates
DSM has a share in a limited number of associates. Their
contribution to the result in 2012 was negligible.

x € million

Net sales

Operating profit

Operating profit plus depreciation

and amortization (EBITDA)

Capital expenditure and

acquisitions

R&D expenditure

2012

2011

268

(139)

(94)

369

(135)

(91)

Workforce at 31 December

(headcount)

3,199

3,150

Sitech Services
Sitech Services provides such services as manufacturing
services, park services and Safety, Health & Environment
services for the Chemelot industrial site in Sittard-Geleen
(Netherlands) and the site of DSM Pharma Chemicals in Venlo
(Netherlands).

DSM Insurances
The company retains a limited part of its property damage and
business interruption and product liability risks via a captive
insurance company, DSM Insurances BV. Total retained
damages in 2012 were less than € 10 million.

Corporate Research
Since 2011, the total costs of the Corporate Research Program
have been reported under Corporate Activities.

Assets held for sale
At the end of the year, the company reached an agreement with
Borealis AG for the sale of DEXPlastomers, a 50-50 joint venture
of DSM with ExxonMobil. Subject to customary approvals and
notifications, the transaction is expected to close in Q1 2013. In

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109

Financial and reporting policy

Financial policy

As a basis for and contribution to effective risk management and
to ensure that the company will be able to pursue its strategies
even during periods of economic downturn, DSM retains a
strong balance sheet and limits its financial risks.

The current strategy, DSM in motion: driving focused growth,
has ambitious strategic and financial targets which are outlined
on page 15 . DSM targets a gearing that is below 30% and an
operating profit before amortization and depreciation (EBITDA)
which is at least 8.5 times the balance of financial income and
expense. Under certain circumstances the gearing could be
raised to a level between 30% and 40%, provided that the
boundaries of the desired Single A credit rating remain
attainable. Furthermore, funds from operations need to be at
least 30% of net debt in accordance with the definitions of the
major credit rating agencies. This underlines the company's aim
of maintaining its Single A long-term credit rating.

It is DSM’s policy to hedge 100% of the currency risks resulting
from sales and purchases at the moment of recognition of trade
receivables and payables. In addition, operating companies may
– under strict conditions – opt for hedging currency risks from
firm commitments and forecasted transactions. The currencies
giving rise to these risks are primarily USD, CHF, JPY and GBP.
The risks arising from currency exposures are regularly reviewed
and hedged when appropriate.

Important acquisition criteria are strategic fit and financial
condition. A business or partner should add value to DSM in
terms of technological and/or market competences. Acquired
companies are in principle required to contribute to DSM's cash
earnings per share from the very beginning and to earnings per
share from year two. In addition, they are required to meet the
company's profitability, sustainability and growth requirements.
There are, however, exceptions to this rule; a requirement may
for instance not be appropriate in the case of small innovative
growth acquisitions, although the sustainability requirement will
be upheld at all times.

Most of DSM's external funding needs are financed through
long-term debt. Debt covenants are not included in the terms
and conditions of outstanding bonds and financing
arrangements. DSM aims to spread the maturity profile of
outstanding bonds in order to have adequate financial flexibility.

DSM's policy in the various sub-disciplines of the finance
function is strongly oriented toward solidity, reliability and
optimum protection of cash flows. The finance function plays an
important role in business steering.

DSM has a commercial paper program of € 1,500 million and
two committed credit facilities totaling € 900 million, consisting
of € 500 million until September 2018 and € 400 million until April
2013.

An important element of DSM’s financial policy is the allocation
of cash flow. DSM primarily allocates cash flow to investments
aimed at strengthening its business positions and to dividend
payments to its shareholders. The cash flow is further used for
Acquisitions & Partnerships to strengthen DSM's competences
and market positions in Life Sciences and Materials Sciences
supported by the other three strategic growth drivers: High
Growth Economies, Innovation and Sustainability. As the
occasion arises, the company may choose to return cash to
shareholders if excess cash is available over a longer period to
such an extent that the above-mentioned cash flow priorities can
be satisfied without an increase in gearing toward a level of 30%.

DSM aims to provide a stable and preferably rising dividend.

In order to avoid dilution of earnings per share as a result of the
exercise of management and employee options, DSM buys back
shares insofar as this is desirable and feasible. In 2012 no share
repurchase took place.

Reporting policy

Reporting policy and justification of choices made
In the sustainability information in this Integrated Annual Report,
DSM explains its vision and policy with respect to sustainable
enterprise and reports on its activities in this field during 2012.
Besides presenting developments and data for the three
categories of People, Planet and Profit, DSM reports on its
sustainability strategy, its stakeholder engagement activities,
and the organization of sustainability at DSM. Furthermore, DSM
discusses the global trends that drive its strategy.

It is DSM’s policy to proactively canvas the views of its
employees on issues of material importance to the company.
The preparation of this report was facilitated by experts who
were supported by a review group comprising employees
selected from across the DSM organization.

Global Reporting Initiative
DSM bases its sustainability reporting on the guidelines of the
Global Reporting Initiative (GRI). For this report, the company
used the GRI matrix G3 (see www.dsm.com). DSM has
determined that this report once again merits GRI application
level A+, representing a high level of transparency. Ernst & Young
has reviewed compliance of the Sustainability Information with

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110

Financial and reporting policy

Financial policy
Reporting policy

this application level. See also: Independent Assurance Report
on Sustainability Information (page 217).

Assurance
DSM asked Ernst & Young to provide limited assurance on the
Sustainability Information in this Integrated Annual Report. See
page 216 for Ernst & Young's assurance report.

Selection of topics
The topics covered in this report were selected on the basis of
input from stakeholders, GRI guidelines and DSM’s own
management systems and their relevance and impact for DSM
and its various stakeholders. See also: Stakeholder engagement
(page 33).

On the basis of the principle of materiality (see the materiality
matrix in Stakeholder engagement), DSM distinguishes between
topics whose importance warrants publication in this annual
report (relevant to both DSM and its stakeholders), and topics
whose importance warrants publication on the company website
only (topics important to either DSM or its stakeholders).

As in the 2011 report, DSM reports on its external recognition in
a separate section. DSM also reports separately on its progress
in implementing the principles of the UN Global Compact. See
also: Human rights and United Nations Global Compact (page
40).

Scope
The People data in this report cover all entities that belong to the
consolidation scope of the consolidated financial statements.
The Planet data cover all production entities of DSM that are
controlled by DSM. Offices and R&D facilities are excluded from
Planet reporting. The ECO+ data cover all DSM business groups
and the Innovation Center and are reported as consolidated
global DSM key performance indicators (KPIs).

Acquisitions and divestments
The HR data (People) for newly acquired companies are
reported from the first full month after the acquisition date.
Historical HR data are not restated for divestments. The
Safety, Health (People) and Environment (Planet) data for
newly acquired companies are reported at the latest in the year
following the first full year after acquisition, because these
companies’ reporting procedures first have to be aligned with
those of DSM. Acquired and divested units are excluded from
the evaluation of progress on environmental targets but are
included in absolute figures (unless stated otherwise). ECO+
data for newly acquired companies are reported in line with the
financial reporting guidelines. Historical ECO+ data are not
restated for divestments.

Quality of data
The data for the sites are based on these sites’ own
measurements and calculations, which are based on definitions,
methods and procedures established at corporate level. The
year-on-year comparability of the data can be affected by
changes in the portfolio as well as by improvements made in the
measurement and recording systems at the various sites.
Whenever impact is relevant, it is stated in the report. Details for
the individual sites are published on www.dsm.com, together
with an explanation of the definitions used.

Manner of reporting
Quantitative data are reported per business group. All data are
consolidated at corporate level by the relevant departments. The
qualitative reports on various subjects were provided by experts
throughout the organization.

Planet methodology
Environmental indicators are evaluated and established on a
yearly basis by the experts and process owners involved. Data
on these indicators are collected on a yearly basis, while an
additional mid-year measurement is done for the most relevant
indicators and reporting units. The methodology and
calculations can be found on www.dsm.com.

The site managers of reporting units are responsible for the
quality of the data. Data are collected based on measurements
in the production process, information from external parties (e.g.
on waste and external energy) and estimates based on expert
knowledge. Reporting units have direct insight into their
performance compared to previous years and are required to
provide justifications for deviations above the threshold. For
most parameters the threshold is set at 10 percent.

People methodology
All People and HR data are collected per business group and
consolidated at corporate level.

ECO+
All financial ECO+ data are collected from the relevant financial
and innovation systems by the controllers of the business groups
and the Innovation Center. All assessments of ECO+ involve
internal LCA experts. All data are internally validated with
Corporate Sustainability and consolidated in global DSM ECO+
KPIs.

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111

Corporate governance and risk
management

Introduction1

Koninklijke DSM N.V. (Royal DSM) is a company limited by
shares listed on NYSE Euronext, with a Managing Board and an
independent Supervisory Board. Members of the Managing
Board and the Supervisory Board are appointed (and, if
necessary, dismissed) by the General Meeting of Shareholders.

The Managing Board is responsible for the company's strategy,
its portfolio policy, the deployment of human and capital
resources, the company’s risk management system and the
company's financial performance and performance in the area
of sustainability. The Supervisory Board supervises the policy
pursued by the Managing Board, the Managing Board's
performance of its managerial duties and the company's general
course of affairs, taking account of the interests of all the
company's stakeholders. The annual financial statements are
approved by the Supervisory Board and then submitted for
adoption to the Annual General Meeting of Shareholders,
accompanied by an explanation by the Supervisory Board of
how it carried out its supervisory duties during the year
concerned.

The company is governed by Dutch law and by its Articles of
Association, which can be consulted at the DSM website
(www.dsm.com). The General Meeting of Shareholders decides
on an amendment to the Articles of Association by an absolute
majority of the votes cast. A decision to amend the Articles of
Association may only be taken at the proposal of the Managing
Board, subject to approval of the Supervisory Board.

number of shared service departments and research
departments are contracted by the business groups on an arm's
length basis.

Managing Board
The Managing Board consists of three or more members to be
determined by the Supervisory Board. The current composition
of the Managing Board can be found in the chapter Supervisory
Board and Managing Board starting on page 134 . Since 2005,
members of the Managing Board have been appointed for a
maximum period of four years.

The members of the Managing Board are collectively responsible
for the management of the company. Notwithstanding their
collective responsibility within the Managing Board, certain tasks
and responsibilities for business clusters and functional areas as
well as regional responsibilities have been assigned to individual
members.

The remuneration of the members of the Managing Board is
determined by the Supervisory Board based on the
remuneration policy approved by the General Meeting of
Shareholders.

The functioning of and decision making within the Managing
Board are governed by the Regulations of the Managing Board,
which have been drawn up in line with the Dutch corporate
governance code and can be found on the company’s
website.

DSM fully informs its stakeholders about its corporate objectives,
the way the company is managed and the company's
performance. Its aim in doing so is to pursue an open dialogue
with its shareholders and other stakeholders.

In 2012 the Managing Board met 54 times with the entire Board.
In six meetings one member was excused due to another
commitment. In one meeting two members were excused. In all
cases, members not able to attend provided their input to the
meeting in advance in writing.

DSM has a decentralized organizational structure built around
business groups that are empowered to carry out all short-term
and long-term business functions. At the operational level, the
business groups are the primary organizational and
entrepreneurial building blocks. The business groups are
grouped into clusters. Business groups within a cluster report to
one and the same member of the Managing Board. The clusters
are the main entities for external strategic and financial reporting.

This structure ensures a flexible, efficient and fast response to
market changes. DSM has a number of functional and regional
organizations to support the Managing Board and the business
groups. Intra-group product supplies and the services of a

Supervisory Board
The Supervisory Board consists of at least five members. The
current composition of the Supervisory Board can be found on
page 134 . Members of the Supervisory Board are appointed
for a maximum of three four-year terms.

All current members of the Supervisory Board are independent
in accordance with the Best Practice provisions of the Dutch
corporate governance code. The remuneration of the members
of the Supervisory Board is determined by the General Meeting
of Shareholders.

1 This chapter contains, among other things, the information regarding corporate governance as referred to in Section 2 of the Dutch governmental decree of 23

December 2004 establishing further instructions concerning the content of the annual report (Besluit van 23 december 2004 tot vaststelling van nadere voorschriften
omtrent de inhoud van het jaarverslag, Staatsblad [Bulletin of Acts and Decrees] 2004, 747) as amended in April 2009 (Staatsblad 2009, 154) and December 2009
(Staatsblad 2009, 545).

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112

Corporate governance and risk management

Introduction
Dutch corporate governance code
Governance framework
Risk management
Statements of the Managing Board

The functioning of and decision making within the Supervisory
Board are governed by the Regulations of the Supervisory
Board, which have been drawn up in line with the Dutch
corporate governance code and can be found on the company’s
website.

In line with the Dutch corporate governance code the
Supervisory Board has established from among its members an
Audit Committee, a Nomination Committee, a Remuneration
Committee and a Corporate Social Responsibility Committee.
The task of these committees is to prepare the decision making
of the Supervisory Board. The functioning and tasks of these
committees are governed by charters that have been drawn up
in line with the Dutch corporate governance code and can be
found on the company’s website.

Diversity
DSM has taken notice of recently adopted legislation effective as
of 1 January 2013 as a consequence of which a 'large' company,
when nominating or appointing members of the Management
Board or Supervisory Board, should take into account as much
as possible a balanced composition of these Boards in terms of
gender, to the effect that at least 30 percent of the positions are
held by women and at least 30 percent by men.

The current composition of the Supervisory Board is already in
line with the new legislation and the Supervisory Board profile will
be amended to reflect this change in law.

The current composition of the Managing Board deviates from
the above-mentioned percentages. With regard to future
nominations and appointments, the Managing Board and the
Supervisory Board will take the gender diversity objectives into
account as much as possible.

General Meeting of Shareholders
The main powers of the General Meeting of Shareholders relate
to:

- the appointment, suspension and dismissal of members of the

Managing Board and the Supervisory Board;

- approval of the remuneration policy of the Managing Board;
- approval of the remuneration of the Supervisory Board;
- the adoption of the annual financial statements and

declaration of dividends;

- release from liability of the members of the Managing Board

and the Supervisory Board;

- decisions of the Managing Board that would entail a significant
change in the identity or character of DSM or its business.

The Annual General Meeting of Shareholders is held within six
months of the end of the financial year in order to discuss and,
if applicable, approve the annual report, the annual accounts,
any appointments of members of the Managing Board and the
Supervisory Board and any of the other topics mentioned above.

The Annual General Meeting of Shareholders and, if necessary,
other General Meetings of Shareholders are called by the
Managing Board or the Supervisory Board. The agenda and
explanatory notes are published on DSM’s website.

According to the Articles of Association, shareholders who,
individually or jointly, represent at least one percent (1%) of the
issued capital have the right to request the Managing Board or
the Supervisory Board that items be placed on the agenda. Such
requests need to be received in writing by the chairman of the
Managing Board or the Supervisory Board at least sixty days
before the date of the Annual General Meeting of Shareholders.

On 11 May 2012 the Annual General Meeting of Shareholders
was held. The agenda was to a large extent similar to that of
previous years. Mr. Ewald Kist was reappointed as member of
the Supervisory Board. Mrs. Victoria Haynes and Mrs. Eileen
Kennedy were appointed as members of the Supervisory Board.
An amendment to the remuneration of the Supervisory Board
was adopted. Further details can be found on the company’s
website.

External auditor
In accordance with the Dutch corporate governance code
(V. 2.3), the Managing Board and the Audit Committee have
conducted a thorough assessment of the functioning of the
external auditor in 2012 following an extensive external review of
the activities of the external auditor by Maastricht University. The
main conclusions of the assessment have been discussed in the
Audit Committee and will be presented to the General Meeting
of Shareholders.

Article 10 of Directive 2004/25
With regard to the information referred to in the Resolution of
article 10 of the EC Directive pertaining to a takeover bid which
is required to be provided according to Dutch law, the following
can be reported:

- issuance of shares or rights to shares, restriction or exclusion

- Information on major shareholdings can be found below

of pre-emptive rights of shareholders and repurchase or
cancellation of shares;

(Distribution of shares).

- There are no special statutory rights attached to the shares of

- amendments to the Articles of Association; and

the company.

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Repurchase of own shares
The company may acquire paid-up own shares by virtue of a
decision of the Managing Board, provided that the par value of
the acquired shares in its capital amounts to no more than one
tenth of the issued capital. Such a decision is subject to the
approval of the Supervisory Board. In the Annual General
Meeting of Shareholders of 11 May 2012 the Managing Board
was authorized to acquire own shares for a period of 18 months
from said date. In 2012, no ordinary shares were repurchased.

Dutch corporate governance code

DSM supports the Dutch corporate governance code adopted
in 2003 and amended in 2008, which can be found on
www.commissiecorporategovernance.nl.

DSM can confirm that it applies all of the code’s 113 Best
Practices.

With respect to the appointment of members of the Managing
Board for a period of at most four years (Best Practice II.1.1) it
should be noted that DSM has adhered to this Best Practice
since the introduction of the corporate governance code in 2004.

Since DSM respects agreements made before the introduction
of said code, the current chairman of the Managing Board will
remain appointed for an indefinite period.

With respect to the Dutch corporate governance code it should
be noted that any substantial change in the corporate
governance structure of the company and in the company's
compliance with the code shall be submitted to the General
Meeting of Shareholders for discussion under a separate agenda
item.

All documents related to the implementation at DSM of the Dutch
corporate governance code can be found in the Governance
section of the corporate website (www.dsm.com).

- There are no restrictions on the voting rights of the company’s
shares. When convening a General Meeting of Shareholders
the Managing Board is entitled to determine a registration date
in accordance with the relevant provisions of the Dutch Civil
Code.

- The applicable provisions regarding the appointment and
dismissal of members of the Managing Board and the
Supervisory Board and amendments to the Articles of
Association are set forth above.

- The powers of the Managing Board regarding the issue and
repurchase of shares in the company can be found below
(Issue of shares, Repurchase of own shares).

- Other information can be found in the notes to the

consolidated financial statements (16 Equity, 19 Borrowings,
27 Share-based compensation) and in the chapters
Information on the DSM share and Other information.

Issue of shares
The issue of shares takes place by a decision of the Managing
Board. The decision is subject to the approval of the Supervisory
Board. The scope of this power of the Managing Board shall be
determined by a resolution of the General Meeting of
Shareholders and shall relate to at most all unissued shares of
the authorized capital, as applicable now or at any time in the
future. In the Annual General Meeting of Shareholders of
11 May 2012 this power was extended up to and including
11 November 2013, on the understanding that this authorization
of the Managing Board is limited to a number of ordinary shares
with a nominal value amounting to 10% of the issued capital at
the time of issue, and to an additional 10% of the issued capital
at the time of issue if the issue takes place within the context of
a merger or acquisition within the scope of DSM's strategy as
published on DSM’s website. The issue price will be determined
by the Managing Board and shall as much as possible be
calculated on the basis of the trading prices of ordinary shares
on the Euronext Amsterdam Stock Exchange.

Distribution of shares
Under the Dutch Financial Markets Supervision Act
shareholdings of 5% or more in any Dutch company must be
disclosed to the Netherlands Authority for the Financial Markets
(AFM). According to the register kept by the AFM the following
shareholders had disclosed that they owned between 5 and
10% of DSM’s total share capital on 1 January 2013:

• ASR Nederland B.V.
• Rabobank Nederland Participatie B.V.
• Delta Lloyd N.V.
• Capital Research and Management Company and Capital

Group International

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Corporate governance and risk management

Introduction
Dutch corporate governance code
Governance framework
Risk management
Statements of the Managing Board

Governance framework

Business groups are the main building blocks of DSM’s
organization; they have integral long-term and short-term
business responsibility and have at their disposal all functions
that are crucial to their business success. The business groups
within a specific cluster report to one and the same member of
the Managing Board. This Board member manages the
coherence of operations and the leveraging of resources within
the cluster and is accountable for the overall performance of the
cluster within limits defined by the collective responsibility of the
total Managing Board for the overall management of the
company. The clusters are the main entities for external strategic
and financial reporting. In order to ensure sufficient
independence with regard to financial management, the Chief
Financial Officer has no business groups reporting to him.

The following figure depicts DSM's overall governance
framework and the most important governance elements and
regulations at each level.

For the sake of clarity, a short summary of the main aspects of
the framework at Managing Board / corporate level and
operational level is given here:

• The Managing Board adheres to the Regulations of the

Managing Board.

• In addition, the Managing Board works according to the

Management Framework for the corporate level. This implies
among other things that it adheres to the DSM Code of
Business Conduct and applicable corporate policies and
requirements.

• The Management Framework for the corporate level further
provides a description of the most important (decision-
making) processes, responsibilities and 'rules of the game' at
the Managing Board, functional and regional levels and
includes the governance relations with the next-higher levels
(Supervisory Board and Shareholders) and the operational
units. In particular, the framework defines the roles of
corporate staff, functional excellence and shared service
departments as follows:

- Corporate Staff departments: small, high level groups,

supporting the Managing Board and reporting directly to a
Managing Board member (in most cases CEO or CFO);

- Functional Excellence departments, in which expert

capabilities in selected functions are concentrated and
which are steered by Functional Excellence Advisory
Boards, chaired by a Managing Board member; the Director
of a Functional Excellence department reports to a
Managing Board member; and

- Shared Service departments, in which selected service

functions are leveraged and which are steered by Shared
Service Boards, chaired by a business group director. The
director of a Shared Service department reports to a
Managing Board member, who is also a member of the
Shared Services Board.

The company’s strategic direction and objectives are set in a
Corporate Strategy Dialogue. In 2010 such a Corporate Strategy
Dialogue was executed, resulting in the current strategy DSM in
motion: driving focused growth. As part of this strategy, the
regional functions have been further strengthened, especially in
the high growth economies. Regional management reports
directly to a Managing Board member.

Note: all internal regulations apply in addition to applicable national and international
laws and regulations. In cases where internal regulations are incompatible with
national or international laws and regulations, the latter prevail.

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ShareholdersArticles of AssociationSupervisory Board• Regulations of the Supervisory Board• Charter of the Audit Committee• Charter of the Nomination Committee • Charter of the Remuneration Committee• Charter of the Corporate Social ResponsibilityCommitteeManaging Board / Corporate• Regulations of the Managing Board• Management Framework for the corporate level• DSM Code of Business Conduct Operational unitsManagement Framework for operational unitsThe operational units conduct their business within the
parameters of the Management Framework for operational units.
This implies among other things that they:

- establish the strategy and objectives of their business

according to the Business Strategy Dialogue, aligned with
the Corporate Strategy Dialogue, in which process various
scenarios and related risk profiles are investigated;

- implement risk management actions according to an Annual
Risk Management Plan and in line with corporate policies
and multi-year plans in several functional areas;

- comply with the Corporate Requirements and Directives;

and

- monitor the effectiveness of the risk management and

internal control system and regularly discuss the findings
with the Managing Board.

On average once every three years, the operational units are
audited by Corporate Operational Audit (COA). The director of
COA reports to the chairman of the Managing Board and has
access to the external auditor and the chairman of the Audit
Committee of the Supervisory Board. Furthermore, the director
of COA acts as the compliance officer with regard to inside
information and is the chairman of the DSM Alert Committee,
which is responsible for the DSM whistleblower policy, systems
and processes.

In the Fraud Committee, relevant corporate functions participate
under the chairmanship of the CFO. The objective of the
committee is to ensure structural follow-up of fraud cases with
the aim of reducing fraud risks.

Risk management

The Managing Board is responsible for risk management in the
company and, supported by the Corporate Risk Office, has
designed and implemented a risk management system and a
risk management organization. The system and the organization
are documented in the DSM risk management policy, the DSM
Code of Business Conduct, DSM policies in several functional
areas and the DSM Corporate Requirements and Directives. The
aim of the system is to ensure that the extent to which the
company’s strategic and operational objectives are being
achieved is understood, that the company’s reporting is reliable
and that the company complies with relevant laws and
regulations.

The DSM risk management system is based on the COSO-ERM
framework. It has been designed to achieve maximum
integration of the risk management process in the normal
business processes. It provides for risk assessment tools,
controls for risks that commonly occur in the company and
monitoring and reporting procedures and systems. The internal
controls for the goods and money flows have been ‘built into’
business processes, and tools have been developed to support
their implementation and to monitor their effectiveness in
operation. In this way, a high level of internal control is achieved
efficiently.

Simultaneously with the publication of this Integrated Annual
Report, an updated version of the full description of DSM’s risk
management system and process together with a description of
the identified risks will be placed on the company’s website.
These descriptions are to be considered an integral part of this
Integrated Annual Report.

The functioning of the system in 2012

The important events in risk management in 2012 are reported
below. This section is structured according to the elements of
the COSO-ERM risk management framework.

Internal environment for risk management
Values and business principles are an important element of the
internal environment for risk management. Directly related to its
mission to create brighter lives for people today and generations
to come, DSM has chosen sustainability as its core value.

DSM's business principles, which are defined in the DSM Code
of Business Conduct, are based on this core value. The DSM
Code of Business Conduct, which is available on the company’s
website, describes principles in the areas of People (social and
humanitarian standards), Planet (principles with regard to the
environment) and Profit (principles regarding fair and ethical

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Corporate governance and risk management

Introduction
Dutch corporate governance code
Governance framework
Risk management
Statements of the Managing Board

business practices). In 2012, the e-learning course on the Code
of Business Conduct was completed by virtually all eligible
employees. Classroom training is ongoing for a restricted group
of employees without access to e-mail. A company-wide
inventory was made of bribery and corruption risks. This
inventory will be used to complement the general policy against
corruption and bribery with business and region specific actions
and practices.

as part of the semi-annual risk reporting process. Additionally,
risk assessments were performed by a number of central
functions, on major projects and as part of the compliance
programs of new acquisitions. A risk assessment was
conducted on the Sustainability Program, covering both the risks
and opportunities regarding the 'corporate responsibility' as well
as the 'business driver' elements in this program.

Another important factor determining the internal environment
for risk management is the risk appetite. This risk appetite cannot
be captured in one figure or formula, but varies per category of
risks. The Managing Board has reviewed the company’s desired
risk appetite. The main characteristics can be described as
follows:

- To fulfill its strategic intent, DSM is prepared to accept
considerable risks in its drive to develop its people and
organizational base into a competitive advantage, in its
innovation programs, in its expansion to high growth
economies and in developing sustainability as a business
driver. Of course these risks will always be limited by defined
hurdle criteria and rigorous implementation programs.

- In risk areas such as intellectual property protection,

acquisitions and joint ventures, production-process reliability,
business continuity, and product liability the company is
cautious to conservative.

- With regard to reputation, safety, health and environment and
internal and external non-compliance the company is risk
averse.

This risk appetite gives guidance for the responses to the risks
identified in the Corporate Risk Assessment (see below). For
specific units, the risk appetite may deviate from the overall
company profile.

Objectives and risk identification, assessment and response
In line with the mandatory risk management process, business
groups that updated their strategy in 2012 performed a business
risk assessment to identify and assess the implementation risks
of the chosen strategy and agree on responses. At mid-year and
at year-end, all units review and report their risks and incidents

In 2012, the Managing Board updated the Corporate Risk
Assessment (CRA). Based on the results of the CRA conducted
in 2011, internal risk and incident reports and risk information
from external sources, the Managing Board, supported by the
Corporate Risk Office, identified the risks that are relevant in
relation to the achievement of the targets of the strategy DSM in
motion: driving focused growth. Board members individually
identified and assessed risks, and during a Managing Board
session they reached consensus on these risks and related risk
appetites. They identified any necessary responses to be made
in addition to the mitigating actions already in place in order to
bring the risks within the defined risk appetite.

The preliminary outcomes of the CRA were reported to and
discussed with the Audit Committee of the Supervisory Board in
the meeting of 10 December 2012. These 'top-down' outcomes
were compared with the risks and incidents as reported 'bottom-
up' by the operational units in their Letters of Representation and
with findings from internal and external audits. The final risk
profile was reported to and discussed with the Audit Committee
of the Supervisory Board on 18 February 2013. It is the basis for
the main risks and responses as reported on the following pages.

The company’s top risks
The CRA identifies the likelihood and impacts of events that
could jeopardize the achievement of the targets for 2013, 2015
and 2020 set in the DSM in motion: driving focused growth
strategy. In setting these targets, assumptions were made about
the macro-economic and global financial developments (basic
scenario).

The table on the next page shows the most important risks for
DSM achieving its targets under the basic scenario, and the
remedial actions to mitigate them.

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Description of risks

Mitigating actions

The top risks and related mitigating actions

Competition and commoditization in existing markets,
especially also referring to caprolactam outlook
DSM has considerably reduced its exposure to cyclical and
commodity markets. Price pressure and other competitive
challenges may cause the profitability of DSM’s activities to
deviate from the projected levels.

Risks related to High Growth Economies, especially in
Asia
In the current strategy, the relative importance of the High
Growth Economies has further increased. There is, however,
always a risk that the markets will not grow as expected and/
or that opportunities in these markets will be missed.

Specific projects are being defined to reduce the exposure to
the merchant caprolactam market. Cost reductions in all
businesses are being continued to increase competitiveness.
Further innovation drives a focus on high-end markets with less
exposure to commoditization, which will also mitigate this risk.

DSM will further detail country and region specific strategies of
the business groups. More power and freedom will be given to
regions like China, India and Brazil to achieve the strategic
goals. DSM does not only focus on High Growth Economies
but has also invested significantly in the US during recent years
(mainly via acquisitions).

People, organization and culture
The implementation of the business strategy is supported by
organizational measures to enhance regional and functional
effectiveness. These measures may lack sufficient clarity and/
or speed, resulting in inadequate collaborative and result-
oriented behavior and/or insufficient speed in achieving the
projected diverse and international human resource base.

DSM has launched the ONE DSM Culture Agenda focusing on:
- External Orientation
- Accountability for Performance
- Collaboration with Speed
- Inclusion & Diversity
Attention will be given to the implementation of stronger
regional and functional talent efforts and career development.

Global financial and economic developments (including
currency effects)
An economic downturn could have a significant detrimental
effect on the achievement of the targets. This effect could be
aggravated by volatility in currencies. The sensitivities to
variations in several key currencies are given in note 23
'Financial instruments and risks' from page 186 .

DSM will proceed with its profit protection plans, including
further control on operating working capital.

Growth and profitability in the Pharma cluster
DSM has made a successful start with its partnering strategy
in the Pharma cluster, but there remain considerable
uncertainties in realizing the desired growth and returning to
adequate profitability levels in this business area.

DSM will continue to pay maximum attention to implementing
the Pharma partnering strategy in making DSP successful and
achieving an improvement in DPP, in the knowledge that
establishing partnerships always takes time.

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Corporate governance and risk management

Introduction
Dutch corporate governance code
Governance framework
Risk management
Statements of the Managing Board

Other important risks
After the Corporate Risk Assessment 2012, two risks were
moved to the 'other important risks' category because it was
concluded that they no longer represented top risks. These
were:

- Acquisitions & Partnerships (excluding Pharma)

This risk has been reduced significantly by realizing several key
acquisitions in line with the strategy DSM in motion:
driving focused growth. The risk on Acquisitions & Partnerships
shifted from finding sufficient additional value adding acquisitions
to getting the recent acquisitions effectively integrated. The
company has developed good practices and structured
processes to mitigate this.

continued to recognize and prepare for the most important
scenarios.

- Safety, Health and Environmental (SHE) risks

After a number of fatalities in prior years DSM has enhanced
its already strict safety policies even further, among other
things by strengthening the implementation of the Life Saving
Rules. Nevertheless, SHE risks cannot be excluded altogether
and any accidents may have a deep impact in terms of human
suffering and (reputation) damage to the company.

- Product liability risks

To reduce product liability risks, product risk evaluations have
been carried out, contractual and quality procedures have
been updated and insurance policies have been reviewed.
Unexpected effects of or undetected flaws in DSM's products
or services may, however, still cause considerable product
liability exposures.

- Innovation

- Production process risks

The Emerging Business Areas are developing well. The focus
and concentration of efforts, as well as the reinforcement of the
talent base, ensure that DSM capitalizes on talent. The current
outlook is that DSM is on track to realize the innovation ambitions
as set in its strategy.

In addition to the top risks, the most recent risk assessment and
reports show the following risks as being most important:

- Raw material and energy price and availability risks
DSM implements various policies to avoid supply chain
disruptions (e.g. multiple supplier strategy) and decrease price
volatility (e.g. commodity hedging). Nevertheless, the
increasing complexity and interdependence of worldwide
supply streams as well as increasing (perceived) pressure on
the availability of resources may lead to price fluctuations and
availability issues, influencing DSM’s profitability.

- Intellectual property (IP) risks

The policy of accelerated growth through speeding up
innovation and expansion in high growth economies holds the
risk of increased exposure in the IP area. Measures will
continue to be taken to contain these risks, but these may not
always be completely effective in mitigating IP risks.

- Security (including information security)

Especially in the area of the security of and access to data in
ICT systems, a continued focus on monitoring and mitigating
actions is required, given the increasing tension between the
growing professionalism of cybercrime and widespread use of
(mobile) IT.

- Business continuity risks

Major disruptions, especially in the supply chain, in
manufacturing and in the ICT environment, remain a low
likelihood but possibly high impact risk. Actions are being

These risks are identified and mitigated frequently. This
demonstrates awareness for the normal operational risks of
the company.

Overview of risk categories
On the next page an overview is given of all risk categories that
have been identified as potentially important and from which the
main risks described above have been derived. Simultaneously
with the publication of this Integrated Annual Report, an updated
comprehensive description of DSM’s risk categories will be
published on the company’s website (Governance section under
Risk Management).

For the management of all these categories of risks, strategies,
controls and/or mitigating measures have been put in place as
part of DSM’s risk management practices. These nevertheless
involve uncertainties that may lead to the actual results differing
from those projected. There may also be risks that the company
has not yet fully assessed and that are currently qualified as
‘minor’ but that could have a material impact on the company's
performance at a later stage. The company's risk management
and internal control system has been designed to identify and
respond to these developments on time, but 100% assurance
can never be achieved.

Control activities
Each business group and each major operational service unit
has an Audit Committee which, under the direction of the
director of the group or unit, sets up annual risk management
plans, monitors their implementation and reviews risk
management issues on a regular basis. During the year under
review, major risk management events, such as business risk
assessments, audits and the occurrence of control failures or
weaknesses, were discussed with the responsible Managing
Board member.

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Generic/strategic risks

• Global financial and economic development risks
• Risks related to high growth economies
• Risks of competition and commoditization in existing

markets

• Political and country risks
• Risks related to disposals, acquisitions and joint ventures
• Innovation risks (new markets, products and

technologies)

• People, organization and culture risks
• Intellectual Property protection risks
• Raw material / energy price and availability risks
• Sustainability risks
• Other generic/strategic risks

Operational risks

• Reputation risks
• Customer risks
• Production process risks
• Business continuity risks
• Product liability risks
• ICT risks
• Program and Project Management risks
• (Information) security and Internal Control related risks
• Industrial relations risks
• Safety, Health and Environmental risks
• Other operational risks

Financial and reporting risks

• Liquidity and market risks
• Pension risks
• Reporting integrity risks
• Other financial risks (e.g. credit, tax)

Legal and compliance risks

• Risks of non-compliance with the DSM Code of Business

Conduct, Policies, Requirements and Management
Directives

• Risks of legal non-compliance
• Risks related to regulatory developments
• Other legal and compliance risks

See www.dsm.com, Governance section.

Commonly occurring risks are mitigated through the
implementation of the Corporate Requirements and process
controls in the business processes. The operational units
regularly test compliance with these requirements and the
effectiveness of the controls. Deviations from Corporate
Requirements are only allowed temporarily, if sufficient
alternative controls are in place and after approval by the
responsible Board member. A limited number of waivers have
been granted.

Information and communication
A continuous effort is being made to inform employees about the
DSM risk management system and train them in its use. A
special version of the risk management training course was
conducted for financial and other staff in North America.
Regional risk management platforms were created in North
America and India and the platform in China was reinforced. To
increase general awareness of risk management, internal
webinars were started. On 14 June 2012 a comprehensive
presentation of the risk management system was given to and
discussed with the full Supervisory Board.

Monitoring and reporting
Information on the functioning of the system was collected on a
continuous basis. Business groups tracked compliance with
Corporate Requirements and the follow-up of actions arising
from risk assessments. They conducted assessments on the
effectiveness of their internal controls and reported and
investigated incidents. Independent audits on the effectiveness
of risk management implementation were executed by the
Corporate Operational Audit department according to a program
agreed with the Audit Committee of the Supervisory Board.
Information coming in via the DSM Alert whistleblowing channel
was also used as a source for reviewing the effectiveness of the
risk management system. Any critical findings were addressed
immediately.

By signing an affidavit, the business group controllers confirmed,
among other things, that the quarterly financial statements had
been produced according to the internal accounting rules and
reporting procedures.

Based on developments within and external to the company, as
well as findings from the various risk assessments, audits and
monitoring and reporting efforts, the Corporate Risk Office drew
up a consolidated risk report, including recommendations for
further improvement of the risk management system. These
recommendations were integrated into an update of the
Corporate Risk Management Plan 2011-2015.

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Introduction
Dutch corporate governance code
Governance framework
Risk management
Statements of the Managing Board

In the June 2012 meeting of the Supervisory Board the most
important enhancements to the risk management system were
discussed. At the end of the second quarter, the operational
units were asked to provide an update of their material risks and
incidents over the first half of 2012 and the status of the
mitigation of the risks reported over 2011, and to specify any
material risks or uncertainties for the rest of the year. The
consolidated overview of these risks, incidents and mitigation
measures was the basis for the risk section and the statements
of the Managing Board as provided with the first-half figures in
accordance with the requirements of the Dutch Financial
Markets Supervision Act.

Together with the annual financial accounts, the directors of all
entities reporting to the Managing Board reported on any
material strategic, operational, reporting and compliance risks or
incidents over the year 2012 in their Letter of Representation.

The Corporate Risk Office consolidated the reported risks and
incidents and compared them with the outcome of internal and
external audits and of the Corporate Risk Assessment. The
findings were reported to and discussed with the Audit
Committee of the Supervisory Board in its meeting of 18
February 2013.

Enhancements to the risk management system
During 2012, the enhanced focus on risk controls in the safety
area (Life Saving Rules) was continued. New and enhanced
controls were introduced to answer to the ever changing risk
profile in the area of ICT (for example increased mobile use,
increased intruder sophistication, cloud solutions, off-shored
shared services). The corporate requirements for sustainability
were established, incorporating and sharpening the ECO+
requirements. A corporate directive to improve Master Data
Management in all standard business processes was agreed
and communicated.

Strategic developments within DSM were supported by risk
management actions as follows:

- High Growth Economies: Enhancement of regional risk

management capabilities with a focus on China and India.
- Sustainability: Enhancement of the control framework for

ECO+ solutions and start of the development of a framework
for People+.

- Innovation: Improved risk assessment practices, including
Monte Carlo business simulations and value engineering.
- Acquisitions & Partnerships: Creation of best practices for

(risk) management in the integration and operation of
acquisitions and joint ventures. Enhancement of regional risk
management capabilities in North America.

Statements of the Managing Board

On the basis of the above and in accordance with best practice
II.1.5 of the Dutch corporate governance code of December
2008, and Article 5:25c of the Financial Markets Supervision Act,
the Managing Board confirms that internal controls over financial
reporting provide a reasonable level of assurance that the
financial reporting does not contain any material inaccuracies,
and confirms that these controls functioned properly in the year
under review and that there are no indications that they will not
continue to do so. The financial statements fairly represent the
company's financial condition and the results of the company’s
operations and provide the required disclosures.

It should be noted that the above does not imply that these
systems and procedures provide absolute assurance as to the
realization of operational and strategic business objectives, or
that they can prevent all misstatements, inaccuracies, errors,
fraud and non-compliances with legislation, rules and
regulations.

In view of all of the above, the Managing Board confirms that, to
the best of its knowledge, the financial statements give a true
and fair view of the assets, liabilities, financial position and profit
or loss of the company, and the management report includes a
fair review of the position at the balance sheet date and the
development and performance of the business during the
financial year together with a description of the principal risks and
uncertainties that the company faces.

Heerlen, 18 February 2013

The Managing Board

Feike Sijbesma, CEO/Chairman of the Managing Board
Rolf-Dieter Schwalb, CFO
Stefan Doboczky
Nico Gerardu
Stephan Tanda

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Report by the Supervisory Board

Supervisory Board report

Introduction
The DSM Supervisory Board is in charge of supervising and
advising the DSM Managing Board in setting and achieving the
company’s objectives, strategy, policies and succession
planning. In 2012 an important part of this task was focused on
acquisitions related to the strategy DSM in motion: driving
focused growth and discussions on next strategic steps.

In DSM's two-tier corporate structure under Dutch law, the
Supervisory Board is a separate body operating fully
independently of the Managing Board. Members of the
Supervisory Board and the Managing Board are (re)appointed
by the General Meeting of Shareholders.

Composition of Supervisory Board
The composition of the DSM Supervisory Board is diverse in
gender, nationality, background, knowledge and experience, in
particular after the appointment of two new Supervisory Board
members in 2012: Mrs. Eileen Kennedy and Mrs. Victoria
Haynes. The newly appointed members both contribute to key
areas of DSM’s development as well as to the internationalization
of the company. For detailed background information on all
Supervisory Board members, being Mr. Rob Routs (chair),
Mr. Ewald Kist (deputy chair), Mr. Pierre Hochuli,
Mr. Claudio Sonder, Mr. Tom de Swaan, Mrs. Pauline van der
Meer Mohr, Mrs. Haynes and Mrs. Kennedy, see the DSM
website under Corporate Governance. Also the targeted profile
of the Supervisory Board is published on the DSM website under
Corporate Governance. Within the Supervisory Board four
committees have been established to cover four key areas in
more detail, being auditing, Supervisory Board and Managing
Board nominations, remunerations and corporate social
responsibility. More information on these four areas is given
below. Charters of the committees are published on the DSM
website under Corporate Governance.

Composition of the Managing Board
The composition of the Managing Board is diverse in nationality,
background, knowledge and experience, and provides a good
foundation to support all clusters and business groups in
achieving their targets contributing to the company strategy to
drive focused growth. With regard to future nominations and
appointments, gender diversity objectives will be taken into
account as much as possible.

development of the financials and the running business
performance, a number of acquisition projects were discussed
and approved. Other agenda topics were issue management
and progress on the implementation of the strategy, including
opportunities to reduce exposure to the merchant caprolactam
markets. Conference calls were organized to discuss the latest
information and the mandate requests related to the recent
acquisitions. The Supervisory Board greatly appreciated all open
and in-depth discussions with the Managing Board enabling the
Board to give relevant advice and to take well-considered
decisions. One of the meetings was held at the DSM Delft site
and combined with a well-organized site visit explaining and
showing the Supervisory Board all day-to-day operational
activities on the Delft site of the DSM Food Specialties business
and the anti-infectives joint venture with Sinochem, established
in 2011. In another meeting an in-depth business update was
given on DSM Resins & Functional Materials.

Financials and auditing
Financials and auditing topics were extensively discussed in the
Audit Committee meetings. The Audit Committee met four times
in 2012 and in addition had three phone calls to discuss the
quarterly and half-year figures. As of 11 May 2012 the following
Supervisory Board members were a member of the Audit
Committee: Mr. de Swaan (chair), Mr. Sonder, Mr. Hochuli and
Mrs. Haynes. With the exception of one meeting all members
were present; only one member was unable to join one
conference call. The chairman of the Supervisory Board also
attended all meetings. All discussions were considered to be
very open and constructive. The outcome of all meetings and
minutes were shared with the full Supervisory Board. Based on
these summaries and all additionally provided information on
financials and business performance, the Supervisory Board
was able to obtain in-depth background information on all
financial and business results.

The committee discussed among other items the 2011
Integrated Annual Report, the disclosure of financial information
by the company, the financing and guarantee plan, the capital
expenditure plan, the dividend proposals, financial statements,
internal risk management and control systems, compliance with
recommendations and observations of internal and external
auditors, and the role and functioning of the operational audit
department, including the endorsement of its proposed audit
plan. The application of information and communication
technology received special attention in 2012.

Meetings and business topics
In 2012 the Supervisory Board had six meetings and five
conference calls with the Managing Board; in three meetings one
member was excused due to other commitments. In addition to
the standard agenda items of the meetings, such as the

DSM’s risk management system and its risk profile were
extensively discussed and challenged. In 2012 special attention
was given to security risks by performing an unannounced
security check. It was concluded that DSM is properly managing

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Supervisory Board report
Remuneration policy for the Managing Board and the
Supervisory Board

and mitigating its potential risks. DSM’s risk management and
risk profile are further elucidated on page 112 of this report.

In addition to the above-mentioned topics, DSM Alert cases,
submitted under DSM’s whistleblower policy, and mitigating
actions to prevent recurrence were evaluated and discussed,
and recommendations were made.

When relevant, financial, auditing, risk and compliance
responsible managers were present in the meetings of the Audit
Committee together with the CEO and the CFO.

Relevant topics to be approved by the full Supervisory Board
were submitted to the full Supervisory Board together with an
appropriate recommendation from the Audit Committee.

In addition to the audit work, the external auditor of the company
carried out non-audit work, to the extent allowed under
applicable legislation and regulations and the internal
procedures of the company. Important areas where non-audit
services were provided by Ernst & Young related to due diligence
support in acquisitions, tax compliance work for certain foreign
subsidiaries and expatriate tax services. All audit and non-audit
work carried out by the external auditor for the company were
performed in line with the conditions and instructions approved
by the Supervisory Board on the recommendation of the Audit
Committee and after consultation with the Managing Board.
Fees and conditions of the external auditor for audit and non-
audit work were approved by the Audit Committee.

With the external auditor, Ernst & Young Accountants LLP,
discussions were held about the financial statements for 2012.
The Report by the Managing Board and the financial statements
for 2012 were submitted to the Supervisory Board by the
Managing Board, in accordance with the provisions of Article 30
of the Articles of Association, and subsequently approved by the
Supervisory Board in its meeting on 19 February 2013. The
financial statements were audited by Ernst & Young
Accountants, who issued an unqualified opinion (see
the Independent Auditor's Report on the Financial Statements
on page 216 of this report). The Supervisory Board concluded
that the external auditor was independent of DSM.

In accordance with the Dutch corporate governance
code (V. 2.3), the Managing Board and the Audit Committee
have conducted a thorough assessment of the functioning of the
external auditor following an extensive external review of the
activities of the external auditor by Maastricht University based
on a large number of interviews and questionnaires. The main
conclusions of the assessment were that the external auditor fully
meets the expectations of DSM and provides a good service. In
addition to its expertise, respondents rated highly the

independence and critical approach towards DSM in the
performance of the audit, the integrity and pro-active as well as
responsive attitude of Ernst & Young. Key strengths were the
level of audit and accounting knowledge, the pro-active
identification of potential concerns, the global reach and the
presence of the auditor in DSM's growth markets.
Communication by the auditors was timely and clear.

Given the very positive outcome of the assessment, it has been
decided to continue the audit services provided by the audit firm
Ernst & Young based on a revised contract. This will give the
company the flexibility to terminate the audit services on an
annual basis taking into consideration new legislation in the
Netherlands with regard to the independence of auditors
(mandatory audit firm rotation by 2016 after eight consecutive
financial years of audit services), as well as anticipated European
legislation which may affect the audit profession in the coming
years.

Financial statements 2012
The Supervisory Board will submit the 2012 financial statements
to the 2013 Annual General Meeting of Shareholders, and will
propose that the shareholders adopt them and discharge the
Managing Board from all liability in respect of its managerial
activities and discharge the Supervisory Board from all liability in
respect of its supervision of the Managing Board. The profit
appropriation as approved by the Supervisory Board is
presented in the section Profit appropriation on page 218 of
the 2012 Annual Report. Despite ongoing global economic
headwinds, DSM continued to deliver solid operational results in
2012 with growth across all clusters, except for caprolactam.
Significant strategic progress was made during 2012 through
value creating acquisitions and profit improvement initiatives.
The Supervisory Board wishes to express its sincere
appreciation for the results achieved and would like to thank the
employees and the Managing Board for their efforts.

Board nominations
In 2012 nomination discussions were focused on the succession
planning of the Managing Board and top management and the
reappointment of the Supervisory Board members. According to
the rotation schedule the term of appointment of Mr. Hochuli and
Mr. Sonder expires in 2013. In-depth discussions were held
within the Nomination Committee, which as of 11 May 2012
consisted of Mr. Routs (chair), Mr. Kist and Mrs. Van der Meer
Mohr. Mr. Sijbesma and Mr. Chris Van Steenbergen, Executive
Vice President of the Corporate Human Resources department,
were also involved in these discussions. The committee met four
times in 2012; one member could not be present in one meeting.
The outcome and the minutes of all committee discussions were
shared with the entire Supervisory Board. The reappointment of
Mr. Hochuli as a member of the Supervisory Board for another

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123

sustainability reporting in the 2011 Integrated Annual Report,
being again named among the leaders in the Dow Jones
Sustainability World Index and the CEO receiving an honorary
doctorate from Maastricht University for the way DSM is dealing
with sustainability.

The CEO, the Managing Board member responsible for
Corporate Operations & Responsible Care, the Senior Vice
President Corporate Affairs, the Vice President Corporate
Operations & Responsible Care and the Director Sustainable
Development were present during both meetings of the CSR
Committee. The outcome and minutes of both meetings were
shared and discussed with the entire Supervisory Board.

In view of its supervision of corporate social responsibility issues
relevant to the company, the sections 'Growth driver:
Sustainability', 'Stakeholder Engagement', 'People in 2012' and
'Planet in 2012' (the Sustainability Information) in the Integrated
Annual Report 2012 were reviewed and subsequently discussed
by the Supervisory Board in its meeting of 19 February 2013,
based on the advice of the CSR committee. Taking into
consideration the Independent Assurance Report on the
Sustainability Information by Ernst & Young on page 217 of this
Integrated Annual Report, the full Supervisory Board approved
the reporting in these sections. The Sustainability Information is
in compliance with the sustainability reporting guidelines of GRI
(G3) and the international reporting criteria of DSM included on
page 110 of this Integrated Annual Report.

Supervisory Board meetings and performance evaluation
The December meeting was used to discuss the outcome of the
Supervisory Board effectiveness assessment, which was
organized by the Company Secretary by means of
questionnaires filled out by all individual Supervisory Board
members, followed up by individual interviews by the chair of the
Supervisory Board. The evaluation of the functioning of the chair
was done by the vice-chairman. The outcome of the assessment
was very positive and some actions for further improvement will
be followed up. An external assessment is considered for 2013.

term of four years will be proposed to the Annual General
Meeting of Shareholders to be held on 3 May 2013. Mr. Sonder
has indicated that he prefers to resign from the Board with effect
from 3 May 2013. Although the Board will miss his much
appreciated good contributions to all discussions, it respects his
choice. The Nomination Committee advised starting discussions
on his succession in 2013. Following their appointment, Mrs.
Haynes and Mrs. Kennedy took part in an extensive introduction
program, including site visits and meetings with top
management, to familiarize themselves with all DSM businesses,
cultures and governance.

Board remuneration
The Remuneration Committee had five meetings and three
conference calls in 2012; in one call one member was absent.
As of 11 May 2012 Mr. Kist (chair), Mr. Routs and Mr. de Swaan
were members of this committee. The main topics in 2012 were
the remuneration of the Managing Board and executives of DSM,
all discussed in the presence of Mr. Sijbesma and Mr. Van
Steenbergen. The outcome and minutes of the Remuneration
Committee meetings were shared with the full Supervisory
Board.

During 2012 the Remuneration Committee continued the
discussion and evaluation of a number of adjustments to the
remuneration policy of the Managing Board which it had already
started in 2011. These adjustments aim to align the Managing
Board remuneration even more with long term stakeholder
interests and to update the remuneration policy to the most
recent relevant market practices. The Remuneration Committee
has advised the full Supervisory Board on the proposed
adjustments. The adjustments to the current remuneration policy
for the Managing Board will be submitted for approval to the
Annual General Meeting of Shareholders to be held on 3 May
2013.

Corporate Social Responsibility
The Corporate Social Responsibility Committee met twice in
2012. All members were present in both meetings. As of 11 May
2012 Mrs. Van der Meer Mohr (chair), Mr. Hochuli, Mr. Sonder
and Mrs. Kennedy were members of this committee. In the first
meeting the Sustainability chapter to be included in the
Integrated Annual Report of 2011 was extensively discussed and
agreed on. The second meeting focused on progress made with
the implementation of sustainability aspirations set by the
company. In addition to the progress made with ECO+,
People+, energy efficiency and greenhouse-gas emissions,
DSM’s external sustainability recognition was evaluated. The
committee's view that DSM is doing well when it comes to
corporate social responsibility was supported by the external
recognition that the company has received. This includes
winning the Dutch ’De Kristal’ award for the most transparent

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Report by the Supervisory Board

Supervisory Board report
Remuneration policy for the Managing Board and
the Supervisory Board

Remuneration policy for the Managing
Board and the Supervisory Board

This chapter comprises two parts. The first part outlines the
remuneration policy as approved by the Annual General Meeting
of Shareholders. The second part contains details of the
remuneration in 2012 and changes expected in 2013.

Remuneration policy
The objective of DSM’s remuneration policy is to attract,
motivate and retain qualified and expert individuals that the
company needs in order to achieve its strategic and operational
objectives, whilst acknowledging the societal context around
remuneration and recognizing the interests of DSM's
stakeholders. The following elements are taken into
consideration:

- DSM strives for a high performance in the field of sustainability
and aims to maintain a good balance between economic gain,
respect for people and concern for the environment in line with
the DSM values and business principles as reflected in the
DSM Code of Business Conduct. The remuneration policy
reflects a balance between the interests of DSM’s main
stakeholders as well as a balance between the company’s
short-term and long-term strategy. As a result, the structure
of the remuneration package for the Managing Board is
designed to balance short-term operational performance with
the medium and long-term objective of creating sustainable
value within the company, while taking into account the
interests of its stakeholders.

- To ensure that highly skilled and qualified senior executives

can be attracted and retained, DSM aims for a total
remuneration level that is comparable to levels provided by
other (Dutch and European) multinational companies that are
similar to DSM in terms of size and complexity.

- The remuneration policies for the members of the Managing
Board and for other senior executives of DSM are aligned.
- In designing and setting the levels of remuneration for the
Managing Board, the Supervisory Board also takes into
account the relevant provisions of statutory requirements,
amended Dutch corporate governance clauses, societal and
market trends and the interests of stakeholders.

- DSM’s policy is to offer the Managing Board a total direct

compensation approaching the median of the labor-market
peer group.

Labor-market peer group
In order to be able to recruit the right caliber of people for the
Managing Board and to secure long-term retention of the current
Board members, DSM will take external reference data into
account in determining adequate remuneration levels. For this
purpose, a specific labor-market peer group has been defined
which consists of a number of Dutch and European companies
that are more or less comparable to DSM in terms of size,
international scope and business portfolio. The Supervisory
Board regularly reviews the peer group to ensure that its
composition is still appropriate.

The labor-market peer group currently consists of the following
eleven companies:

Aegon
AkzoNobel
Clariant
Heineken
KPN
LANXESS

Nutreco
Solvay
Syngenta
TNT Express
Wolters Kluwer

As part of its remuneration policy DSM will benchmark its
remuneration package against the packages offered by the
labor-market peer group once every three years. In addition, the
company will apply a yearly increase to the package based on
the ‘general increase’ (market movement) for DSM executives in
the Netherlands. The remuneration policy was last benchmarked
against the peer group in 2011.

Total Direct Compensation (TDC)
The total direct compensation of the Managing Board consists
of the following components:

(I) Base salary
(II) Variable income

- Performance-related Short-Term Incentive (STI)
- Performance-related Long-Term Incentive (LTI)

In addition to this total direct compensation, the members of the
Managing Board participate in the Dutch pension scheme for
DSM employees in the Netherlands and are entitled to other
benefits, such as a company car and representation allowance.

As a matter of policy, the balance between fixed income and
variable income (Short-Term plus Long-Term Incentive) within
total direct compensation (on target) will be 50% - 50%.

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125

Value in % of Total Direct Compensation (on target):

A: Base Salary

B: Variable income (STI + LTI)

Total Direct Compensation (TDC)

50%

100%

Base salary
On joining the Board, the Managing Board members receive a
base salary that is comparable with the median of the labor-
market peer group. Every year, base salary levels are reviewed
based on a three-year remuneration benchmark. Adjustment of
the base salary is at the discretion of the Supervisory Board. In
addition, the company will, when appropriate, apply a yearly
increase to the package based on the ‘general increase’ (market
movement) for DSM executives in the Netherlands.

Variable income
The variable income part of remuneration consists of the Short-
Term and Long-Term Incentives. As a matter of policy, the
distribution between Short-Term and Long-Term Incentives for
(on target) performance has been fixed at 50% - 50%. This
results in a balance between short-term result and long-term
value creation. As indicated above, the on-target incentive
potential of the variable income (Short-Term and Long-Term
Incentives) will be 100% of base salary.

The Short-Term Incentive opportunity amounts to 50% of the
annual base salary for on-target performance (100% in the case
of excellent performance). The part of the STI that is related to
financial targets accounts for 25% of base salary and the other
25% relates to sustainability and individual targets.

Target areas

Distribution

Shared

Individual

Financial

Sustainability and

individual

25%

20%

Total

50%

45%

Short-Term Incentive (STI) linked to financial targets
The part of the STI that is linked to financial targets (25%)
includes elements related to operational performance, being
EBITDA before exceptional items, gross free cash flow and net
sales growth (organic), reflecting short-term financial results.

The weighting given to the individual financial elements in the
bonus is as follows: EBITDA 10%, gross free cash flow 7.5% and
organic net sales growth 7.5% of annual base salary for on-
target performance.

The parameters relating to the various elements of the variable
income part of the remuneration are established and where
necessary adjusted by and at the discretion of the Supervisory
Board, taking into account the general rules and principles of the
remuneration policy itself.

Target areas

Financial targets

- EBITDA before exceptional items

- Gross free cash flow

- Organic net sales growth1

Distribution of variable income (on target):

Total

On-target pay-out

(% of base salary)

7.5

A: Short-Term Incentive (STI)

B: Long-Term Incentive (LTI)

Total variable income as % of base salary

50%

100%

1 Excluding currency fluctuations, divestments and acquisitions

The three financial-target-related Short-Term Incentive elements
can be derived from the financial statements.

Short-Term Incentive (STI)
Managing Board members are eligible to participate in a Short-
Term Incentive (STI) scheme. The scheme is designed to reward
short-term operational performance with the long-term objective
of creating sustainable value, taking into account the interests of
all stakeholders.

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Report by the Supervisory Board

Supervisory Board report
Remuneration policy for the Managing Board and
the Supervisory Board

Short-Term Incentive (STI) linked to sustainability and individual
targets
The part of the STI that is linked to non-financial targets (25%)
relates to sustainability and individual targets.

For 2011/2012 three ‘first tier’ value-creating-performance
measures were defined in the area of sustainability. The
distribution over these three targets was set by the Supervisory
Board. On a regular basis, following proper evaluation, further
refinement/adaptations of performance measures in the area of
sustainability and their weight will take place.

The following shared targets linked to sustainability were defined
for the STI:

- ECO+: percentage of successful product launches that meet

ECO+ criteria

Target area

Non-financial targets

- Sustainability

- Individual

Total

On-target pay-out

(% of base salary)

The targets are determined each year by the Supervisory Board,
based on historical performance, the operational and strategic
outlook of the company in the short term and expectations of
the company’s management and stakeholders, among other
things. The targets contribute to the realization of the objective
of long-term value creation.

- Energy-efficiency improvement: linked to target of 20%
increase in energy efficiency in 2020 compared to 2008

- Employee Engagement Index: related to the High

Performance Norm in industry

The company does not disclose the actual targets, as they
qualify as commercially sensitive information. However, full
transparency will be given on target areas and definitions. Target
setting and realization are audited by external auditors.

The STI targets on sustainability are defined as follows:

- ECO+ solutions

ECO+ solutions are products and services that, when
considered over their whole life cycle, offer clear ecological
benefits (in other words, a clearly lower eco-footprint)
compared to the mainstream solutions they compete with.
These ecological benefits can be created at any stage of the
product life cycle − from raw material through manufacturing
and use to potential re-use and end-of-life disposal. ECO+
solutions, in short, create more value with less environmental
impact.

Long-Term Incentives (LTI)
The Managing Board members will be eligible to receive
performance-related shares.

Under the performance share plan, shares will conditionally be
granted to Managing Board members. Vesting of these shares
is conditional on the achievement of certain predetermined
performance targets during a three-year period.

Two performance targets will apply for the vesting of
performance shares:

- Energy-efficiency improvement

- Comparable Total Shareholder Return (TSR) performance

Reduction of the amount of energy that is used per unit of
product (known as energy efficiency) on a three-year rolling
average basis.

- Employee Engagement Index

An Employee Engagement Survey is conducted annually,
focusing on a combination of perceptions that have a
consistent impact on behavior and create a sense of
ownership. Research has consistently shown that the four key
elements (satisfaction, commitment, pride and advocacy)
define engagement and link engagement to business
performance metrics.

In addition to shared sustainability targets (20%), a limited
number of individual non-financial targets (5%) will apply.

versus a peer group

- Greenhouse-gas emissions (GHGE) reduction over volume

related revenue

The LTI performance targets can be defined as follows:

- Total shareholder return (TSR)

This is used to compare the performance of different
companies’ stocks and shares over time. It combines share
price appreciation and dividends paid to show the total return
to shareholders. The relative TSR position reflects the market
perception of overall performance relative to a reference
group.

- Greenhouse-gas emissions (GHGE) reduction

The definition of greenhouse gases (GHG) according to the
Kyoto Protocol includes carbon dioxide (CO2), methane,

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127

nitrous oxide (N2O), sulfur hexafluoride, hydrofluorocarbons
and perfluorocarbons. The scope for calculation of GHGE
reduction is as follows:

benchmarks for DSM. As announced in the 2011 annual report,
Arkema and Christian Hansen were added to the peer group in
2012.

(I) DSM’s direct emissions (on site or from DSM assets)

mainly comprise CO2 and N2O (scope 1).

(II) DSM’s indirect emissions (emissions created on behalf
of DSM in the generation of electricity or the delivery of
energy via hot water or steam) relate to electricity from
the grid. DSM relies on local suppliers (scope 2).
(III) DSM has so far not reported in detail on scope 3

emissions (catch-all for remaining emissions that result
from activities of the company (e.g. business travel).

In the LTI plan, 50% of the performance-shares grant is linked
to relative TSR, while 50% is based on GHGE reduction.
The policy level for the value of the Long-Term Incentive is set
(on target) at 50% of base salary (75% in the case of excellent
performance). The number of conditionally granted shares is set
by dividing the policy level (50% of base salary) by a share price
at the beginning of the year of the conditional grant. The annual
grant level will fluctuate as a consequence of this mechanism.

In determining the number of shares to be conditionally granted,
the Supervisory Board takes into account a discounted face
value of shares. This method incorporates the actual share price
and a fixed vesting probability multiplier.

Granting date
The shares are granted on the first ‘ex-dividend’ day following
the Annual General Meeting of Shareholders at which DSM’s
financial statements are adopted.

TSR as a performance measure
DSM’s TSR performance is compared to the average TSR
performance of a set of predefined peer companies.

The peer group is verified by the Supervisory Board each year
based on market circumstances (such as mergers and
acquisitions) that determine the appropriateness of the
composition of the performance peer group.

GHGE reduction as a performance measure
GHGE reduction over volume-related revenues in percentage
points (over a 3-year period) will be used as a basis for the vesting
of 50% of the performance shares.

Performance Incentive Zones
The number of shares that become unconditional after three
years ('vesting') is determined on the basis of two equally
weighted factors: DSM's performance relative to the average
TSR performance of the peer group and DSM's GHGE reduction
over volume-related revenue.

The following vesting schemes will apply:

TSR vesting scheme

GHGE vesting scheme

DSM performance

% of

DSM GHGE

% of

minus peer-group

shares that

reduction over

performance

in % points

≥ 30

≥ 25 and < 30

≥ 20 and < 25

≥ 15 and < 20

≥ 10 and < 15

≥ 5 and < 10

≥ 0 and < 5

< 0

vest

volume-related

that vest

revenue in % points

100

5.27

4.68

4.09

3.50

2.91

2.32

1.73

<1.73

100

The TSR peer group for 2012 consists of the following
companies:

AkzoNobel
Arkema
BASF
Christian Hansen
Clariant
DuPont

EMS Chemie Holding
Kerry
LANXESS
Lonza Group
Novozymes
Solvay

The retention period for performance shares expires five years
after the three-year vesting period or at termination of
employment if this occurs earlier.

The final TSR performance of DSM versus its peers will be
determined and validated by a bank and audited by the external
auditor at the end of the vesting period.

The TSR peer group reflects the relevant market in which DSM
competes for shareholder preference. It includes sector-specific
competitors that the Supervisory Board considers to be suitable

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128

Claw-back / change-in-control
The appropriate claw-back and change-in-control provisions
that were introduced in 2011 in the employment agreements of
the members of the Managing Board as well as in the LTI rules
remained in place in 2012.

Share ownership
The Supervisory Board will encourage the Managing Board to
hold shares in the company to emphasize their confidence in the
strategy and the company.

Loans
DSM does not provide any loans to members of the Managing
Board.

Scenario analysis
The amended Dutch corporate governance code requires that
the Supervisory Board ‘shall analyze possible outcomes of the
variable income components and the effect on Managing Board
remuneration’. Within DSM this analysis is conducted at least
every three years.

Report by the Supervisory Board

Supervisory Board report
Remuneration policy for the Managing Board and
the Supervisory Board

Pensions
The members of the Managing Board are participants in the
Dutch pension fund Stichting Pensioenfonds DSM Nederland
(PDN). PDN operates similar pension plans for various DSM
companies. The pension scheme for the Managing Board is
equal to the pension scheme for the employees of DSM
Executive Services B.V. and DSM employees in the Netherlands.

Employment contracts
Term of employment
The employment contracts of the members of the Managing
Board appointed before 1 January 2005 have been entered into
for an indefinite period of time. Members of the Managing Board
appointed between 1 January 2005 and 1 January 2013 were
also offered an employment contract for an indefinite period of
time. Managing Board members to be appointed after 1 January
2013 will no longer have a contract for an indefinite period of
time. The employment contract ends on the date of retirement
or by notice of either party.

Term of appointment
Members of the Managing Board appointed before 1 January
2005 are appointed for an indefinite period of time. New
members of the Managing Board (appointed after 1 January
2005) are appointed for a period of four years. Newly appointed
members are subject to reappointment by the shareholders after
a period of four years.

Notice period
Termination of employment by a member of the Managing Board
is subject to three months’ notice. A notice period of six months
will for legal reasons be applicable in the case of termination by
the company.

Severance arrangement
There are no specific contractual exit arrangements for the
members of the Managing Board appointed before 1 January
2005. Should a situation arise in which a severance payment is
appropriate for these Board members, the Remuneration
Committee will recommend the terms and conditions. The
Supervisory Board will decide upon this, taking into account
usual practices for these types of situations, as well as applicable
laws and corporate governance requirements.

The employment contracts of newly appointed members of the
Managing Board (appointed after 1 January 2005) include an
exit-arrangement provision which is in accordance with the
Dutch corporate governance code (that is, a sum equivalent to
the fixed annual salary, or if this is manifestly unreasonable in the
case of dismissal during the first term of office, two times the
fixed annual salary).

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129

Managing Board remuneration in 2012

Number of stock incentives granted

As part of its remuneration policy for the Managing Board, DSM
will benchmark its remuneration package against the packages
offered by the labor-market peer group once every three years.
Benchmarking of the Managing Board remuneration policy was
conducted in Q1 2011 and clearly showed that the remuneration
of the members of the Managing Board, particularly the variable
part, was well below the median at target level of the peer group.

Feike Sijbesma

Stefan Doboczky

Nico Gerardu

Rolf-Dieter Schwalb

Stephan Tanda

Performance shares

2012

31,000

20,000

2011

24,000

16,000

Base salary in 2012
Given the uncertain economic circumstances, the base salaries
of the Managing Board members were not increased in 2012.

For an overview of all granted and vested stock options and
performance shares see page 212 and page 213 .

Short-Term Incentives (STI) for 2012
STI targets are revised annually so as to ensure that they are
stretching but realistic. Considerations regarding the
performance targets are influenced by the operational and
strategic course taken by the company and are directly linked to
the company’s ambitions. The targets are determined at the
beginning of the year for each Board member.

Pensions in 2012
The members of the Managing Board are participants in the
Dutch pension fund Stichting Pensioenfonds DSM Nederland
(PDN). PDN operates similar pension plans for various DSM
companies. The pension scheme for the Managing Board is
equal to the pension scheme for the employees of DSM
Executive Services B.V. and DSM employees in the Netherlands.

Target STI level and pay-out
When they achieve all their targets, Managing Board members
receive an incentive of 50% of their annual base salary.
Outstanding performance can increase the STI level to 100% of
the annual base salary.

As already mentioned in previous annual reports, a new pension
plan for DSM in the Netherlands has been agreed with labor
unions with effect from 1 January 2011. The plan, which also
applies to the Managing Board, comprises the following
elements:

The 2012 Integrated Annual Report presents the Short-Term
Incentives that have been earned on the basis of results achieved
in 2012. These Short-Term Incentives will be paid out in 2013.

The Supervisory Board has established the extent to which the
targets for 2012 were achieved. The realization of the 2012
financial STI targets has been reviewed by Ernst & Young
Accountants. Furthermore, Ernst & Young has reviewed the
process with respect to the target setting and realization of the
non-financial STI targets. The average realization percentage
was 25.6% of base salary. This reflects a prudent interpretation
of the realization of the targets.

See the next page for a tabular overview of the actual Short-Term
Incentive pay-out per individual Board member in 2012.

• Career-average pay plan, with annual accrual of pension rights

(old-age pension) over base salary exceeding € 13,062
(reviewed annually) at a rate of 2%. The old pension plan was
a final pay plan.

• Retirement age 66 years for accrual from 2012 onwards. Until
2011 the accrual was linked to a pensionable age of 65 years.
• The scheme includes a partner pension as well as a disability

pension.

• Employee's contribution of 3.5% of base salary up to € 58,074
and 7.5% of pensionable salary above this amount (reviewed
annually).

• Collective defined contribution: indexation of pensions and

pension rights, depending on PDN's coverage ratio.
• For participants who started participating before 2006,

transitional arrangements related to the plan changes in 2006
apply as described in previous annual reports.

Performance shares in 2012
Performance shares were granted to the Managing Board on 15
May 2012. The following table shows the number of
performance shares granted to the individual Board members:

Loans
DSM did not provide any loans to members of the Managing
Board in 2012.

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130

Report by the Supervisory Board

Supervisory Board report
Remuneration policy for the Managing Board and
the Supervisory Board

Purchasing shares
All members of the Managing Board have purchased shares in
the company to emphasize their confidence in the strategy and
the company. At 31 December 2012 the members of the
Managing Board together held 139,012 shares in Koninklijke
DSM N.V., compared to 117,512 at 31 December 2011. These
shares were bought through private transactions with private
funds, and obtained through vested performance shares.

Total remuneration
The remuneration and related costs of the Managing Board
(including pension costs and a non-recurring Dutch crisis levy,
which is a payment to the Dutch tax authorities based on salaries
paid to executives that does not benefit the executives privately)
amounted to € 6.5 million in 2012 (2011: € 5.5 million).

Pensions

Pension costs

Accrued pension1

(employer)

in €

31 Dec.

2012

2011

2012

2011

Feike Sijbesma

124,123

110,595

433,123

416,584

Stefan Doboczky

Nico Gerardu

Rolf-Dieter Schwalb

Stephan Tanda

81,348

49,386

17,253

6,615

74,755

346,858

336,220

74,755

64,252

82,244

53,613

71,605

1 Pensions built up in the Dutch Pension Plan

Overview of remuneration awarded to the Managing Board in
2012
The tables below show the remuneration awarded to the
Managing Board in 2012.

Long-Term Incentives (LTI)
For 2013, the number of conditionally granted ordinary shares
under the LTI program will be:
Chairman 24,000
Members 16,000

Adjustments to remuneration policy Managing Board
During 2011 and 2012 the Supervisory Board and its
Remuneration Committee have discussed and evaluated a
number of adjustments to the current remuneration policy for the
Managing Board. These adjustments aim to align the Managing
Board remuneration even more with long term stakeholder
interests and to update the remuneration policy to the most
recent relevant market practices. The adjustments to the current
remuneration policy for the Managing Board will be submitted
for approval to the Annual General Meeting (AGM) of
Shareholders to be held on 3 May 2013. Details will be included
in the notes to the AGM agenda.

Fixed annual salary

in €

1 July 2012

1 July 2011

Feike Sijbesma

Stefan Doboczky

Nico Gerardu

Rolf-Dieter Schwalb

Stephan Tanda

Short-Term Incentives

840,000

545,000

840,000

545,000

in €

20121

20112

Feike Sijbesma

Stefan Doboczky

Nico Gerardu

Rolf-Dieter Schwalb

Stephan Tanda

231,000

117,175

128,075

138,975

163,500

657,460

279,315

431,485

423,580

411,722

1 Based on results achieved in 2012 and therefore payable in 2013
2 Short-Term Incentives paid in 2012 based on results achieved in 2011

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131

Supervisory Board remuneration in 2012

Based on benchmarking in 2011 the Annual General Meeting of Shareholders on 11 May 2012 agreed to an appropriate increase
in the remuneration of the Supervisory Board members in order for DSM to be able to retain and attract highly qualified international
Supervisory Board members. This includes a proposal for an allowance for Supervisory Board members for intercontinental travel
to attend meetings.

The remuneration package for the Supervisory Board comprises an annual fixed fee and an annual committee-membership fee.
The fixed fee for the Chairman of the Supervisory Board is € 70,000. The members of the Supervisory Board each receive a fixed
fee of € 50,000. Audit Committee membership is awarded € 10,000 per member and € 12,500 for the Chairman. Nomination
Committee, Corporate Social Responsibility Committee and Remuneration Committee membership is awarded € 5,000 per
member and € 7,500 for the Chairman.

In addition, Supervisory Board members will receive an intercontinental travel allowance of € 3,000 for each meeting that they
attend outside their continent of residence.

If any shares in DSM are held by Supervisory Board members, they serve as a long-term investment in the company. At year-end
2012 the members of the Supervisory Board held no shares in Koninklijke DSM N.V. (same as in 2011).

DSM does not provide any loans to its Supervisory Board members.

Overview of remuneration awarded to the Supervisory Board in 2012
The following tables provide an overview of the remuneration awarded to the Supervisory Board in 2012.

Annual Supervisory Board remuneration up to 11 May 2012

Fee in €

Supervisory

Audit

Corporate

Nomination

Remuneration

Total

Board

Committee

Social

Committee

Rob Routs, chairman

Ewald Kist, deputy chairman

Victoria Haynes

Pierre Hochuli

Eileen Kennedy

Pauline van der Meer Mohr

Claudio Sonder

Tom de Swaan

55,000

40,000

Responsibility

Committee

3,500

5,000

3,500

7,000

10,000

5,000

3,500

5,000

3,500

67,000

52,000

50,500

52,000

50,500

53,500

Total

255,000

24,000

22,500

12,000

325,500

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132

Report by the Supervisory Board

Supervisory Board report
Remuneration policy for the Managing Board and
the Supervisory Board

Annual Supervisory Board remuneration as per 11 May 2012

Fee in €

Supervisory

Audit

Corporate

Nomination

Remuneration

Total

Board

Committee

Social

Committee

Rob Routs, chairman

Ewald Kist, deputy chairman

Victoria Haynes

Pierre Hochuli

Eileen Kennedy

Pauline van der Meer Mohr

Claudio Sonder

Tom de Swaan

70,000

50,000

Responsibility

Committee

5,000

7,500

5,000

10,000

12,500

7,500

5,000

7,500

5,000

82,500

62,500

60,000

65,000

55,000

62,500

65,000

67,500

Total

420,000

42,500

22,500

17,500

520,000

For information on remuneration paid out to the members of the Supervisory Board in 2012 and 2011 please refer to Note 11
Remuneration of the members of the Supervisory Board in the Parent company financial statements.

Heerlen, 19 February 2013

The Supervisory Board

Rob Routs, Chairman
Ewald Kist, Deputy Chairman
Victoria Haynes
Pierre Hochuli
Eileen Kennedy
Pauline van der Meer Mohr
Claudio Sonder
Tom de Swaan

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133

Supervisory Board and Managing
Board

Supervisory Board

Rob Routs (1946, m), chairman
First appointed: 2010. End of current term: 2014.
Position: retired; last position held: executive
director Downstream and member of the Board
of Royal Dutch Shell plc. Nationality: Dutch.
Supervisory directorships and other positions
held: chairman of the Supervisory Board of
Aegon N.V., member of the Supervisory Board of
Royal KPN N.V., member of the Board of
Directors of Aecom Technology Corporation,
ATCO Group Ltd. and A.P. Moeller-Maersk
Group.

Victoria Haynes (1947, f)
First appointed: 2012. End of current term: 2016.
Position: retired; last position held: President and
CEO of the Research Triangle Institute
International. Nationality: American. Supervisory
directorships and other positions held: member
of the Board of Directors of PPG, Nucor, Ziptronix
and, as of 2013, Axiall.

Eileen Kennedy (1947, f)
First appointed: 2012. End of current term: 2016.
Position: Professor of Nutrition Friedman School
of Nutrition Science and Policy at Tufts University
in Boston (USA). Nationality: American.
Supervisory directorships and other positions
held: Dean of Nutrition Friedman School of
Nutrition Science and Policy at Tufts University in
Boston (USA), Global Executive Director of the
International Life Sciences Institute, Washington
D.C. (USA), Deputy Under Secretary for
Research, Education and Economics at the US
Department of Agriculture.

Claudio Sonder (1942, m)
First appointed: 2005. End of current term: 2013.
Position: retired; last position held: chairman of
the Managing Board of Celanese. Nationality:
Brazilian and German. Supervisory directorships
and other positions held: chairman of the Board
of Lojas Renner S.A., member of the Supervisory
Boards of Companhia Suzano de Papel e
Celulose S.A., RBS S.A. Media Group, Hospital
Albert Einstein, OGX S.A. and Executive Vice
President of Suzano Holding S.A.

Ewald Kist (1944, m), deputy
chairman
First appointed: 2004. End of current term: 2016.
Position: retired; last position held: chairman of
the Managing Board of the ING Group.
Nationality: Dutch. Supervisory directorships and
other positions held: member of the Supervisory
Boards of Royal Philips Electronics N.V., Stage
Entertainment and Moody’s Investor Services.

Pierre Hochuli (1947, m)
First appointed: 2005. End of current term: 2013.
Position: retired; last position held: chairman of
the Board of Directors of Devgen N.V. Nationality:
Swiss. Supervisory directorships and other
positions held: member of the Board of Directors
of Domes of Silence Holdings Ltd.

Pauline van der Meer Mohr (1960, f)
First appointed: 2011. End of current term: 2015.
Position: President of the Executive Board of
Erasmus University Rotterdam. Nationality:
Dutch. Supervisory directorships and other
positions held: member of the Supervisory Board
of ASML N.V., chair of the Supervisory Board of
the Rotterdam School of Management, member
of the Supervisory Board of Nederlandse School
voor Openbaar Bestuur, director of the
Hollandsche Maatschappij van Wetenschappen,
member of the Economic Development Board of
Rotterdam and member of the Duisenberg
School of Finance Board.

Tom de Swaan (1946, m)
First appointed: 2006. End of current term: 2014.
Position: retired; last position held: member of
the Managing Board and Chief Financial Officer /
Chief Risk Officer ABN AMRO. Nationality: Dutch.
Supervisory directorships and other positions
held: non-executive director of the Board of
GlaxoSmithKline plc, vice-chairman of the Board
of Zurich Insurance Group, chairman of the
Supervisory Board of Van Lanschot Bankiers,
vice chairman of the Supervisory Board of Royal
Ahold, member of the Public Interest Committee
of KPMG, chairman of the Board of Trustees of
Netherlands Cancer Institute-Antoni van
Leeuwenhoek Hospital and chairman Advisory
Board Rotterdam School of Management.

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134

Supervisory Board and Managing Board

Managing Board

Feike Sijbesma (1959, m), CEO/
chairman
Position: CEO/chairman of DSM’s Managing
Board since May 2007; member of DSM’s
Managing Board since July 2000.
Nationality: Dutch.
Supervisory directorships and other positions
held: member of the Supervisory Board of De
Nederlandsche Bank N.V. (Dutch Central Bank),
board member of CEFIC (European Chemical
Industry Council), member of the Advisory Board
of RSM Erasmus University and of ECP-EPN
(Electronic Commerce Platform Netherlands).
e-mail: feike.sijbesma@dsm.com

Rolf-Dieter Schwalb (1952, m), CFO
Position: member of DSM’s Managing Board and
CFO since October 2006.
Nationality: German.
Supervisory directorships and other positions
held: none.
e-mail: rolf-dieter.schwalb@dsm.com

Stefan Doboczky (1967, m)
Position: member of DSM’s Managing Board
since May 2011.
Nationality: Austrian.
Supervisory directorships and other positions
held: none.
e-mail: stefan.doboczky@dsm.com

Nico Gerardu (1951, m)
Position: member of DSM’s Managing Board
since April 2006.
Nationality: Dutch.
Supervisory directorships and other positions
held: member of the Supervisory Board of
Voestalpine Polynorm B.V. and the Bonnefanten
Museum in Maastricht (Netherlands) and board
member of VNCI (Association of the Dutch
Chemical Industry).
e-mail: nicolaas.gerardu@dsm.com

Stephan Tanda (1965, m)
Position: member of DSM’s Managing Board
since May 2007.
Nationality: Austrian.
Supervisory directorships and other positions
held: chairman of EuropaBio (European
Biotechnology Industry Association), board
member of scienceindustries (Swiss association
for the chemical, pharmaceutical and biotech
industries) and BIO (US Biotechnology Industry
Organization).
e-mail: stephan.tanda@dsm.com

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135

What still went wrong in 2012

DSM strives to continuously improve its performance in the field
of safety, health and environment. However, there is always the
possibility of something going wrong.

The number of serious incidents in 2012 was significantly lower
than in previous years. This reflects DSM’s improved safety
performance. Serious incidents fall into various categories:
safety, occupational health, environment, containment and
process safety, and they include incidents that cause financial or
reputation damage. For each category DSM has established
detailed threshold criteria. Examples are incidents leading to a
fatality, occupational health incidents leading to job transfer,
incidents causing perceptible damage to ecosystems or any
SHE incident resulting in damage of more than € 100,000. See
also: Safety and health (page 52).

The following overview summarizes the most important incidents
in 2012. In line with DSM’s reporting policy, the company
includes in this overview some serious near-misses. These are
incidents that did not result in an injury, illness or damage but
had the potential to do so and are therefore used as a learning
opportunity.

- At DSM Nutritional Products Latin America in Villa Nueva

(Guatemala), a maintenance worker opened the metal cover
of an elevator service pit and covered it with a piece of
cardboard. On the next day, a contractor employee who
entered the area stepped onto the cardboard and fell into the
pit.

- At DSM Pharmaceuticals in Greenville, a material handler who
was backing a fork truck away from the pallet transfer station
stepped off the fork truck while it was still rolling. She caught
her foot between the fork truck and a piece of angle iron.
- At DSM Resins & Functional Materials in Compiègne (France)
a serious near-miss occurred when a truck driver finished
unloading his truck and climbed on the tank car without a
harness or other safety measure to protect him from falling
from a height.

- At DSM Nutritional Products in Venlo (Netherlands), a serious
near-miss was reported when it was noted during loading of
a vehicle that a different type of tire had been mounted on the
tractor, which compromised safe driving conditions.

No serious incidents or near misses occurred in the third quarter.

- At DSM Pharma Chemicals in Venlo (Netherlands), an operator
got stuck with his safety shoe between a concrete pillar and
an electrical hand-pallet truck, resulting in serious foot injuries.

- At DSM Nutritional Products in Harbin City, Heilongjiang

province (China) an employee was seriously injured in a traffic
accident while on a business trip.

- At DSM Pharmaceutical Products in Greenville, North Carolina
(USA), a contractor employee suffered a leg injury when his leg
was pinned between a working platform and a cross beam of
the rack system.

- At DSM Chemicals North America in Augusta, Georgia (USA),
an explosion followed by a fire occurred in the regenerative
thermal oxidizer unit due to the presence of combustible liquid.
There were no injuries.

- At the same site, a small fire occurred on the head flange of

the methanator vessel, caused by high temperatures.

- At DSM Pharmaceuticals in Greenville, a contractor employee

was utilizing a one-man lift extended to a height of
approximately 3.5 meters to check the fit of a new access
door. The access door flipped, and in an attempt to avoid
being hit by the falling door, the employee moved away,
causing the lift to overturn. He fell down and suffered a serious
laceration (open wound) in his neck area.

- At DSM Dyneema in Greenville, two operators were separating
yarns on pink rollers. A new creel was being started and the
yarns were at thread speed of 15 meters a minute. In this
process the hand of one employee was seriously injured.
- At DSM Trading Company in Shanghai, a warehouse was

completely burnt down, destroying the enzyme product that
was stored there.

- At DSM Engineering Plastics in Genk (Belgium) contractor

employees were doing a welding job inside a cooling tower.
The internals caught fire and the fire spread rapidly. All
escaped without injuries.

- At DSM Fibre Intermediates in Augusta a serious near-miss
was reported. Using a LOTOTO (lock out, tag out, try out)
procedure, equipment was isolated from the electrical power
supply for a maintenance job. The job was put on hold when
it became clear that a spare part (a new starter) that was
required was not on-site. When several days later a work
permit was issued to install the spare part, the electrician
checked the voltage on the starter leads and found them
energized.

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136

What still went wrong in 2012

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137

Information about the DSM share

Shares and listings
Ordinary shares in Koninklijke DSM N.V. are listed on the NYSE Euronext stock exchange in Amsterdam, the Netherlands (Stock
code 00982, ISIN code NL0000009827). Options on ordinary DSM shares are traded on the European Option Exchange in
Amsterdam, the Netherlands (Euronext.liffe). In the US a sponsored unlisted American Depositary Receipts (ADR) program is offered
by Deutsche Bank Trust Co. Americas (Cusip 780249108), with four ADRs representing the value of one ordinary DSM share.

Besides the ordinary shares, 44.04 million cumulative preference shares A are in issue, which are not listed on the stock exchange;
these have been placed with institutional investors. The cumprefs A have the same voting rights as ordinary shares, as their nominal
value of € 1.50 per share is equal to the nominal value of the ordinary shares. Transfer of the cumprefs A requires the approval of
the Managing Board, unless the shareholder is obliged to transfer his shares to a previous shareholder by virtue of the law.

The average number of ordinary shares outstanding in 2012 was 165,543,091. All shares in issue are fully paid. On 31 December
2012 the company had 168,684,088 ordinary shares outstanding.

Development of the number of ordinary DSM shares

Balance at 1 January

Changes:

2012

2011

Issued

Repurchased

Outstanding

181,425,000

18,167,612

163,257,388

166,467,632

Reissue of shares in connection with exercise of option rights

Repurchase of shares

Dividend in the form of ordinary shares

(3,049,509)

3,049,509

3,568,018

(9,000,000)

(2,377,191)

2,377,191

2,221,738

Balance at 31 December

181,425,000

12,740,912

168,684,088

163,257,388

DSM share prices on Euronext Amsterdam (€ per ordinary share):

Highest closing price

Lowest closing price

At 31 December

Market capitalization at 31 December (€ million)1

1 Source: Bloomberg

46.29

36.33

45.79

8,307

46.82

30.54

35.85

6,504

Optional dividend program for shareholders of Koninklijke DSM N.V.
DSM offers an optional dividend program. As a result of this, shareholders have the opportunity to receive dividends in cash or in
the form of ordinary shares.

DSM proposes to the Annual General Meeting of Shareholders for the total dividend for the financial year 2012 to be € 1.50 per
ordinary share. An interim dividend of € 0.48 per ordinary share having been paid in August 2012, the final dividend would then
amount to € 1.02 per ordinary share. The dividend will be payable in cash or in the form of ordinary shares, at the option of the
shareholder. Dividend in cash will be paid after deduction of 15% Dutch dividend withholding tax. The ex-dividend date is 7 May
2013.

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138

Information about the DSM share

Managing Board holdings of DSM shares

Board member

Vested

Total

Vested

Total

31 December 2012

31 December 2011

Feike Sijbesma, CEO/chairman

Rolf-Dieter Schwalb, CFO

Stefan Doboczky

Nico Gerardu

Stephan Tanda

Total holdings

purchased

performance

holdings

purchased

performance

holdings

with private

money

33,000

10,000

5,000

8,556

8,000

24,500

16,000

20,000

13,956

57,500

26,000

5,000

28,556

21,956

money

30,500

8,000

5,000

8,556

8,000

19,500

12,000

16,000

9,956

50,000

20,000

5,000

24,556

17,956

64,556

74,456

139,012

60,056

57,456

117,512

Geographical spread of DSM shares outstanding

in % (excl. cumprefs A)

2012

2011

Netherlands

United Kingdom

North America

Germany

Switzerland

France

Asia Pacific

Other countries

Trading volume DSM shares 2012
x million shares

January

February

March

April

May

June

July

August

September

October

November

December

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139

DSMDow Jones Euro StoXX Chemical IndexAEX Index DSM share price development versus AEX and Dow Jones Euro StoXX Chemical Index, 2012in € 253035405001/1204/1207/1210/1209/1208/1206/1205/1203/1202/1212/1211/1245

Consolidated financial statements

Summary of significant accounting
policies

Basis of preparation
DSM’s consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union. The accounting
policies applied by DSM comply with IFRS and the
pronouncements of the International Financial Reporting
Interpretation Committee (IFRIC) effective at 31 December 2012.

Consolidation
The consolidated financial statements include Royal DSM and
its subsidiaries as well as the proportion of DSM’s ownership of
joint ventures (together ‘DSM’ or ‘group’). A subsidiary is an
entity over which DSM has control. Control is the power to
govern the financial and operating policies of the entity so as to
obtain benefits from its activities. The financial data of
subsidiaries are fully consolidated. Non-controlling interests in
the group’s equity and profit and loss are stated separately. A
joint venture is an entity in which DSM holds an interest and
which is jointly controlled by DSM and one or more other
venturers under a contractual arrangement. Joint ventures are
included in the consolidated financial statements according to
the method of proportionate consolidation.

Subsidiaries and joint ventures are consolidated from the
acquisition date until the date on which DSM ceases to have
control or joint control, respectively. From the acquisition date
onwards, all intra-group balances and transactions and
unrealized profits or losses from intra-group transactions are
eliminated, with one exception: unrealized losses are not
eliminated if there is evidence of an impairment of the asset
transferred. In such cases a value adjustment for impairment of
the asset is recognized.

Business combinations
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, including liabilities incurred
toward the former owners, measured at acquisition date fair
value, and the amount of any non-controlling interest in the
acquiree. Acquisition costs incurred are expensed.

As of the acquisition date identifiable assets acquired, liabilities
assumed and any non-controlling interest in the acquiree are
recognized separately from goodwill. Identifiable assets acquired
and the liabilities assumed are measured at acquisition date fair
value. For each business combination, DSM elects whether it
measures the non-controlling interest in the acquiree at fair value
or at the proportionate share of the acquiree’s identifiable net
assets.

Segmentation
Segment information is presented in respect of the group’s
operating segments about which separate financial information
is available that is regularly evaluated by the chief operating
decision maker. DSM has determined that the Nutrition, Pharma,
Performance Materials, Polymer Intermediates and Innovation
Center clusters represent reportable segments in addition to
Corporate Activities. The Managing Board decides how to
allocate resources and assesses the performance of the
clusters. Cluster performance is reported and reviewed down to
the level of operating profit before exceptional items. The clusters
are organized based on the type of products produced and the
nature of the markets served. The same accounting policies that
are applied for these consolidated financial statements are also
applied by the operating segments. Prices for transactions
between segments are determined on an arm’s length basis.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can reasonably
and consistently be allocated. Selected information on a country
and regional basis is provided in addition to the information about
operating segments.

Foreign currency translation
The presentation currency of the group is the euro.

Each entity of the group records transactions and balance sheet
items in its functional currency. Transactions denominated in
currency other than the functional currency are recorded at the
spot exchange rates prevailing at the date of the transactions.
Monetary assets and liabilities denominated in a currency other
than the functional currency of the entity are translated at the
closing rates. Exchange differences resulting from the settlement
of these transactions and from the translation of monetary items
are recognized in the income statement.

Non-monetary assets denominated in a currency other than the
functional currency continue to be translated against the rate at
initial recognition and will not result in exchange differences.

On consolidation, the balance sheets of subsidiaries and joint
ventures whose functional currency is not the euro are translated
into euro at the closing rate. The income statements of these
entities are translated into euro at the average rates for the
relevant period. Goodwill paid on acquisition is recorded in the
functional currency of the acquired entity. Exchange differences
arising from the translation of the net investment in entities with
a functional currency other than the euro are recorded in Other
comprehensive income. The same applies to exchange
differences arising from borrowings and other financial
instruments in so far as they hedge the currency risk related to
the net investment. On disposal of an entity with a functional
currency other than the euro, the cumulative exchange

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140

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

differences relating to the translation of the net investment are
recognized in the income statement.

Distinction between current and non-current
An asset (liability) is classified as current when it is expected to
be realized (settled) within 12 months after the balance sheet
date.

Intangible assets
Goodwill represents the excess of the cost of an acquisition over
DSM’s share in the net fair value of the identifiable assets and
liabilities of an acquired subsidiary, joint venture or associate.
Goodwill paid on acquisition of subsidiaries and joint ventures is
included in intangible assets. Goodwill paid on acquisition of
associates is included in the carrying amount of these
associates. Goodwill is not amortized but tested for impairment
annually and when there are indications that the carrying amount
may exceed the recoverable amount. A gain or loss on the
disposal of an entity includes the carrying amount of goodwill
relating to the entity sold.

Intangible assets acquired in a business combination are
recognized at fair value on the date of acquisition and
subsequently amortized over their expected useful lives, which
vary from 4 to 20 years.

Acquired licenses, patents and application software are carried
at historical cost less straight-line amortization and less any
impairment losses. The expected useful lives vary from 4 to 15
years. Costs of software maintenance are expensed when
incurred. Capital expenditure that is directly related to the
development of application software is recognized as an
intangible asset and amortized over its estimated useful life
(5-8 years).

Research costs are expensed when incurred. Development
expenditure is capitalized if the recognition criteria are met and
if it is demonstrated that it is technically feasible to complete the
asset, that the entity intends to complete the asset, that the entity
is able to sell the asset, that the asset is capable of generating
future economic benefits, that adequate resources are available
to complete the asset and that the expenditure attributable to
the asset can be reliably measured. Development expenditure is
amortized over the asset’s useful life.

Property, plant and equipment
Property, plant and equipment are measured at cost less
depreciation calculated on a straight-line basis and less any
impairment losses. Interest during construction is capitalized.
Expenditures relating to major scheduled turnarounds are
capitalized and depreciated over the period up to the next
turnaround.

Property, plant and equipment are systematically depreciated
over their estimated useful lives. The estimated remaining lives
of assets are reviewed every year, taking account of commercial
and technological obsolescence as well as normal wear and
tear. The initially assumed expected useful lives are in principle
as follows: for buildings 10-50 years, for plant and machinery
5-15 years, for other equipment 4-10 years. Land is not
depreciated.

An item of property, plant and equipment is derecognized upon
disposal or when no future economic benefits are expected to
arise from the continued use or the sale of the asset. Any gain
or loss arising on derecognition of the asset is recorded in the
income statement.

Leases
Finance leases, which transfer to the group substantially all the
risks and benefits incidental to ownership of the leased item, are
capitalized at inception of the lease at the fair value of the leased
property or, if lower, at the present value of the minimum lease
payments. All other leases are operating leases.

Lease payments for finance leases are apportioned to finance
charges and reduction of the lease liability so as to achieve a
constant rate of interest on the remaining balance of the liability.
Finance charges are included in interest costs. Capitalized
leased assets are depreciated over the shorter of the estimated
useful life of the asset or the lease term. Operating lease
payments are recognized as an expense over the lease term.

Associates
An associate is an entity over which DSM has significant
influence but no control, usually evidenced by a shareholding
that entitles DSM to between 20% and 50% of the voting rights.
Investments in associates are accounted for by the equity
method, which involves recognition in the income statement of
DSM’s share of the associate’s profit or loss for the year. DSM’s
interest in an associate is carried in the balance sheet at its share
in the net assets of the associate together with goodwill paid on
acquisition, less any impairment loss.

When DSM’s share in the loss of an associate exceeds the
carrying amount of the associate, including any other
receivables, the carrying amount is reduced to zero. No further
losses are recognized, unless DSM has responsibility for
obligations relating to the associate.

Other financial assets
Other financial assets comprise other participations, other
receivables and other deferred items.

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Other participations comprise equity interests in entities in which
DSM has no significant influence; they are accounted for as
available-for-sale securities. These other participations are
measured against fair value, with changes in fair value being
recognized in Other comprehensive income (Fair value reserve).
A significant or prolonged decline of the fair value of an equity
interest below cost represents an impairment, which is
recognized in the income statement. On disposal, the cumulative
fair value adjustments of the related other participations are
released from equity and included in the income statement. If a
reliable fair value cannot be established, the other participations
are recognized at cost. The proceeds from these other
participations and the gain or loss upon their disposal are
recognized in the income statement.

Loans and long-term receivables are measured at fair value upon
initial recognition and subsequently at amortized cost, if
necessary after deduction of a value adjustment for bad debts.
The proceeds from these assets and the gain or loss upon their
disposal are recognized in the income statement.

Impairment of assets
When there are indications that the carrying amount of a non-
current asset (an intangible asset or an item of property, plant
and equipment) may exceed the estimated recoverable amount
(the higher of its value in use and fair value less costs to sell), the
possible existence of an impairment loss is investigated. If an
asset does not generate largely independent cash flows, the
recoverable amount is determined for the cash generating unit
to which the asset belongs. In assessing the value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market interest
rates and the risks specific to the asset.

When the recoverable amount of a non-current asset is less than
its carrying amount, the carrying amount is impaired to its
recoverable amount and an impairment charge is recognized in
the income statement. An impairment loss is reversed when
there has been a change in estimate that is relevant for the
determination of the asset’s recoverable amount since the last
impairment loss was recognized.

All financial assets are reviewed for impairment. If there is
objective evidence of impairment as a result of one or more
events after initial recognition, an impairment loss is recognized
in the income statement. Impairment losses for goodwill and
other participations are never reversed.

Inventories
Inventories are stated at the lower of cost and net realizable
value. The first in, first out (FIFO) method of valuation is used
unless the nature of the inventories requires the use of a different

cost formula, in which case the weighted average cost method
is used. The cost of intermediates and finished goods includes
directly attributable costs and related production overhead
expenses. Net realizable value is determined as the estimated
selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs
necessary to make the sale. Products whose manufacturing cost
cannot be calculated because of joint cost components are
stated at net realizable value after deduction of a margin for
selling and distribution efforts.

Current receivables
Current receivables are measured at amortized cost, which
generally corresponds to nominal value, less an adjustment for
bad debts.

Current investments
Deposits held at call with banks with a remaining maturity
between 3 and 12 months are classified as current investments.
They are measured at amortized cost. Proceeds from these
deposits are recognized in the income statement.

Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand
and deposits held at call with banks with a maturity of less than
three months at inception. Bank overdrafts are included in
current liabilities. Cash and cash equivalents are measured at
nominal value.

Non-current assets and disposal groups held for sale
Non-current assets and disposal groups (assets and liabilities
relating to an activity that is to be sold) are classified as ‘held for
sale’ if their carrying amount is to be recovered principally
through a sales transaction rather than through continuing use.
The reclassification takes place when the assets are available for
immediate sale and the sale is highly probable. These conditions
are usually met as from the date on which a first draft of an
agreement to sell is ready for discussion. Non-current assets
held for sale and disposal groups are measured at the lower of
carrying amount and fair value less costs to sell. Non-current
assets held for sale are not depreciated or amortized. For the
sake of clarity, non-current assets and disposal groups that will
be contributed to joint ventures are reported separately from
other assets and liabilities held for sale.

Discontinued operations
Discontinued operations comprise those activities that were
disposed of during the period or which were classified as held
for sale at the end of the period, and represent a separate major
line of business or geographical area that can be clearly
distinguished for operational and financial reporting purposes.

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142

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Royal DSM Shareholders’ equity
DSM’s ordinary shares and cumulative preference shares are
classified as Royal DSM Shareholders’ equity. The price paid for
repurchased DSM shares (treasury shares) is deducted from
Royal DSM Shareholders’ equity until the shares are canceled or
reissued. Dividend to be distributed to holders of cumulative
preference shares is recognized as a liability when the
Supervisory Board approves the proposal for profit distribution.
Dividend to be distributed to holders of ordinary shares is
recognized as a liability when the Annual General Meeting of
Shareholders approves the profit appropriation.

Provisions
Provisions are recognized when all of the following conditions
are met: 1) there is a present legal or constructive obligation as
a result of past events; 2) it is probable that a transfer of
economic benefits will settle the obligation; and 3) a reliable
estimate can be made of the amount of the obligation.

The probable amount required to settle long-term obligations is
discounted if the effect of discounting is material. Where
discounting is used, the increase in the provision due to the
passage of time is recognized as interest costs. However, the
interest costs relating to pension obligations are included in
pension costs.

Borrowings
Borrowings are initially recognized at cost, being the fair value of
the proceeds received, net of transaction costs. Subsequently,
borrowings are stated at amortized cost using the effective
interest method. Amortized cost is calculated by taking into
account any discount or premium. Interest expenses are
accrued and recorded in the income statement for each period.

Where the interest rate risk relating to a long-term borrowing is
hedged, and the hedge is regarded as effective, the carrying
amount of the long-term loan is adjusted for changes in fair value
of the interest component of the loan.

Other current liabilities
Other current liabilities are measured at amortized cost, which
generally corresponds to the nominal value.

Revenue recognition
Revenue from the sale of goods is recognized when the
significant risks and rewards of ownership are transferred to the
buyer. Net sales represent the invoice value less estimated
rebates and cash discounts, and excluding indirect taxes.

Royalty income is recognized in Other operating income or in Net
sales on an accrual basis in accordance with the substance of
the relevant agreements. Interest income is recognized on a

time-proportion basis using the effective interest method.
Dividend income is recognized when the right to receive
payment is established.

Government grants
Government grants are recognized at their fair value if there is
reasonable assurance that the grant will be received and all
related conditions will be complied with. Cost grants are
recognized as income over the periods necessary to match the
grant on a systematic basis to the cost that it is intended to
compensate. If the grant is an investment grant, its fair value is
initially recognized as deferred income in Other non-current
liabilities and then released to the income statement over the
expected useful life of the relevant asset by equal annual
amounts.

Share-based compensation
The costs of option plans are measured by reference to the fair
value of the options on the date on which the options are
granted. The fair value is determined using the Black-Scholes
model, taking into account market conditions linked to the price
of the DSM share. The costs of these options are recognized in
the income statement (Employee benefits costs) during the
vesting period, together with a corresponding increase in equity
in the case of equity settled options or Other non-current
liabilities in the case of cash-settled options (Share Appreciation
Rights). No expense is recognized for options that do not
ultimately vest, except for options whose vesting is conditional
upon a market condition, which are treated as vesting,
irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are met.

Performance shares are granted free of charge and vest after
three years on the achievement of previously determined targets.
The cost of performance shares is measured by reference to the
fair value of the DSM shares on the date on which the
performance shares were granted and is recognized in the
income statement (Employee benefits costs) during the vesting
period, together with a corresponding increase in equity.

Emission rights
DSM is subject to legislation encouraging reductions in
greenhouse-gas emissions and has been awarded emission
rights (principally CO2 emission rights) in a number of
jurisdictions. Emission rights are reserved for meeting delivery
obligations and are recognized at cost (usually zero). Revenue is
recognized when surplus emission rights are sold to third parties.
When actual emissions exceed the emission rights available to
DSM, a provision is recognized for the expected additional costs.

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143

Exceptional items
Exceptional items relate to material non-recurring items of
income and expense arising from circumstances such as:

- write-downs of inventories to net realizable value or of

property, plant and equipment to recoverable amount, as well
as reversals of such write-downs

- acquisition costs incurred and integration costs in the first year

after a business combination

- non-recurring inventory value adjustments related to business

combinations

- restructurings of the activities of an entity
- releases of provisions
- disposals of property, plant and equipment
- disposals of associates or other financial assets
- book results on discontinued operations
- onerous contracts
- litigation settlements

To provide a better understanding of the underlying results of the
period, exceptional items are reported separately if the
aggregate amount of the event or project exceeds € 10 million.

Income tax expense
Income tax expense is recognized in the income statement
except to the extent that it relates to an item recognized directly
within Other comprehensive income or Shareholders’ equity.

Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted at the balance sheet date,
and any adjustment to tax payable in respect to previous years.
Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between
the carrying amount of assets and liabilities and their tax base.
Deferred tax assets and liabilities are measured at the tax rates
and under the tax laws that have been enacted or substantially
enacted at the balance sheet date and are expected to apply
when the related deferred tax assets are realized or the deferred
tax liabilities are settled. Deferred tax assets, including assets
arising from losses carried forward, are recognized to the extent
that it is probable that future taxable profits will be available
against which the deductible temporary differences and unused
tax losses can be utilized. Deferred tax assets and liabilities are
stated at nominal value.

Deferred taxes are not provided for the following temporary
differences: the initial recognition of goodwill, the initial
recognition of assets or liabilities that affect neither accounting
nor taxable profit, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future.

Deferred tax assets and deferred tax liabilities are offset and
presented net when there is a legally enforceable right to set off,
and the assets and liabilities relate to income taxes levied by the
same taxation authority.

Financial derivatives
The group uses financial derivatives such as foreign currency
forward contracts and interest rate swaps to hedge risks
associated with foreign currency and interest rate fluctuations.
Financial derivatives are initially recognized in the balance sheet
at fair value including transaction costs and subsequently
measured at their fair value on each balance sheet date.
Changes in fair value are recognized in the income statement
unless cash flow hedge accounting or net investment hedge
accounting is applied.

Changes in the fair value of financial derivatives designated and
qualifying as cash flow hedges are recognized in Other
comprehensive income (Hedging reserve) to the extent that the
hedge is effective. Upon recognition of the related asset or
liability the cumulative gain or loss is transferred from the
Hedging reserve and included in the carrying amount of the
hedged item if it is a non-financial asset or liability. If the hedged
item is a financial asset or liability, the cumulative gain or loss is
transferred to profit or loss. Changes in the fair value of financial
derivatives designated and qualifying as net investment hedges
are recognized in Other comprehensive income to the extent that
the hedge is effective and the change in fair value is caused by
changes in currency exchange rates. Accumulated gains and
losses are released from Other comprehensive income and are
included in the income statement when the net investment is
disposed of. Changes in the fair value of financial derivatives
designated and qualifying as fair value hedges are immediately
recognized in the income statement, together with any changes
in the fair value of the hedged assets or liabilities attributable to
the hedged risk.

Pensions and other post-employment benefits
For defined benefit plans, pension costs are determined using
the projected-unit-credit method. Actuarial gains and losses are
recognized in Other comprehensive income in the period in
which they occur. Prepaid pension costs relating to defined
benefit plans are capitalized only if they lead to refunds to the
employer or to reductions in future contributions to the plan by
the employer. Prepaid pension costs that do not meet this
recoverability criterion are charged to Other comprehensive
income in the period in which they occur and are recognized as
effects of the asset ceiling. Payments to defined contribution
plans are charged as an expense as they fall due.

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144

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Effect of new accounting standards
The International Accounting Standards Board (IASB) and IFRIC
have issued new standards, amendments to existing standards
and interpretations, some of which are not yet effective or have
not yet been endorsed by the European Union. DSM has
introduced standards and interpretations that became effective
in 2012. The adoption of these standards and interpretations did
not have a material effect on the group's financial performance
or position.

The following new or amended standards became effective in
2012.

The amendment to International Accounting Standard (IAS) 12,
‘Income Taxes’, clarifies the determination of deferred tax on
investment property measured at fair value. DSM holds no
investment property and the amendment had no impact on
DSM’s financial position or performance.

The amendment to IFRS 7, 'Financial Instruments: Disclosures
– Enhanced Derecognition Disclosure Requirements', requires
additional disclosures about financial assets that have been
transferred but not derecognized. Furthermore, the amendment
requires disclosures about continuing involvement in
derecognized assets. The amendment had no impact on DSM’s
financial position, performance or disclosures because such
transfers did not occur in 2012.

Effect of forthcoming accounting standards
The following new standards and amendments to existing
standards are not yet being applied by DSM.

The amendments to IAS 1, ‘Presentation of Items of Other
Comprehensive Income’, changes the grouping of items
presented in other comprehensive income into items that will be
reclassified (or ‘recycled’) to profit or loss at a future point in time
and items that will never be reclassified. The amendment affects
presentation only and has no impact on DSM’s financial position
or performance. It becomes effective for annual periods
beginning on or after 1 July 2012, and will therefore be applied
from 1 January 2013 onwards.

Various amendments to IAS 19, ‘Employee Benefits’, have been
introduced that, among other things, result in the removal of the
corridor mechanism, a change in the concept of expected
returns on plan assets and in the presentation of interest
expense and return on plan assets in financial income and
expense. DSM voluntarily adopted the option to recognize
actuarial gains and losses in Other comprehensive income from
2006 onwards and is therefore not affected by the removal of
the corridor mechanism. The new presentation and
measurement requirements for the benefit expense will be

applied from 1 January 2013 onwards and will have a limited
impact on DSM’s financial position and performance, which is
explained in more detail in note 24: Post-employment benefits.

IFRS 9, 'Financial Instruments: Classification and Measurement',
applies to the classification and measurement of financial assets
and financial liabilities as defined in IAS 39. The standard
represents the first phase in the work of the IASB to replace IAS
39. Since the standard has not yet been endorsed by the
European Union, it is uncertain when it needs to be applied by
DSM. The uncertainty with respect to the subsequent phases of
the project makes it impossible to quantify the impact of the new
standard on DSM’s financial position or performance.

IFRS 10, 'Consolidated Financial Statements', establishes a
single control model that applies to all entities, including special
purpose entities. DSM is in the process of verifying which entities
meet the new criteria for control and therefore have to be
consolidated. The standard will be applied for annual periods
beginning on 1 January 2014 and is not expected to have a
material impact on DSM’s financial position or performance.

IFRS 11, 'Joint Arrangements', removes the option to apply
proportionate consolidation for joint ventures and mandates the
use of the equity method for jointly controlled entities that meet
the new definition of a joint venture. The introduction of this new
standard will change DSM’s financial position and reported
performance because the equity method will replace
proportionate consolidation for these entities. Information on
joint ventures that are affected is provided in note 28: Interests
in joint ventures. The standard will be applied for annual periods
beginning on 1 January 2014.

IFRS 12, 'Disclosure of Involvement with Other Entities', provides
disclosure requirements with respect to interests in subsidiaries,
joint arrangements, associates and structured entities. It is the
complement of the two new standards discussed in the
preceding paragraphs and will be applied at the same time as
these standards.

IFRS 13, 'Fair Value Measurement', becomes the single source
of guidance in IFRS for all fair value measurements. The standard
becomes effective for annual periods beginning on 1 January
2013. The impact of this standard on DSM’s financial position
and performance is being assessed but is not expected to be
material because the standard further clarifies requirements that
already exist.

New IFRIC interpretations are not expected to have a material
effect on the consolidated financial statements.

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145

Consolidated statements

Consolidated income statement for the year ended 31 December 2012

x € million

Notes

Continuing operations

Discontinued

Total

Before

Exceptional

Total

operations

exceptional

items

(note 6)

Net sales

Cost of sales

Gross margin

Marketing and sales

Research and development

General and administrative

Other operating income

Other operating expense

Operating profit

Interest costs

Other financial income and expense

Share of the profit of associates

Profit before income tax expense

Income tax expense

Profit for the year

Reclassification of the net result from activities disposed of

Total

Of which:

- Profit attributable to non-controlling interests

- Net profit attributable to equity holders of Koninklijke DSM N.V.

Net profit attributable to equity holders of Koninklijke DSM N.V.

Dividend on cumulative preference shares

9,131

(6,719)

2,412

(952)

(381)

(492)

(32)

(1,777)

635

(102)

543

(96)

447

437

(10)

(29)

(2)

(60)

(106)

(165)

(194)

(149)

9,131

(6,748)

2,383

(952)

(383)

(552)

(138)

(1,942)

441

(102)

349

(51)

298

288

(10)

Net profit available to holders of ordinary shares

427

(149)

278

Earnings per share (in € ) (see note 17 Earnings per ordinary share):

- Basic

- Diluted

1.68

1.67

9,131

(6,748)

2,383

(952)

(383)

(552)

(138)

(1,942)

441

(102)

349

(51)

298

288

(10)

278

1.68

1.67

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146

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Consolidated income statement for the year ended 31 December 2011

x € million

Notes

Continuing operations

Discontinued

Total

Before

Exceptional

Total

operations

exceptional

items

(note 6)

Net sales

Cost of sales

Gross margin

Marketing and sales

Research and development

General and administrative

Other operating income

Other operating expense

Operating profit

Interest costs

Other financial income and expense

Share of the profit of associates

Profit before income tax expense

Income tax expense

Profit for the year

Reclassification of the net result from activities disposed of

Total

Of which:

- Profit attributable to non-controlling interests

- Net profit attributable to equity holders of Koninklijke DSM N.V.

Net profit attributable to equity holders of Koninklijke DSM N.V.

Dividend on cumulative preference shares

Net profit available to holders of ordinary shares

Earnings per share (in € ) (see note 17 Earnings per ordinary share):

- Basic

- Diluted

9,048

(6,479)

2,569

(882)

(378)

(474)

(40)

(1,703)

866

(99)

787

(147)

640

594

(10)

584

(48)

(13)

(29)

(77)

140

111

199

9,048

(6,527)

2,521

(882)

(378)

(487)

(69)

(1,732)

789

(99)

157

850

(122)

728

111

839

793

(10)

783

4.06

4.03

145

(98)

(10)

(3)

(6)

112

(1)

139

(7)

132

(111)

9,193

(6,625)

2,568

(892)

(381)

(493)

196

(70)

(1,640)

928

(99)

157

989

(129)

860

814

(10)

804

4.86

4.82

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147

Consolidated statement of comprehensive income

x € million

Other

Retained earnings

Total

Non-

Total

reserves

Actuarial

Other

gains and

losses

controlling

interests

2011

Change in Dutch pension plan

Exchange differences on translation of foreign operations

- Related income tax expense

Change in Actuarial gains and losses

- Related income tax expense

Change in asset ceiling

- Related income tax expense

Change in Fair value reserve

- Related income tax expense

Change in Hedging reserve

- Related income tax expense

Other comprehensive income

Profit for the year

Total comprehensive income

2012

(85)

(120)

(108)

Exchange differences on translation of foreign operations

(28)

- Related income tax expense

Change in Actuarial gains and losses

- Related income tax expense

Change in Fair value reserve

- Related income tax expense

Change in Hedging reserve

- Related income tax expense

Other comprehensive income

Profit for the year

Total comprehensive income

(8)

(22)

(44)

765

(41)

735

(133)

(100)

(765)

814

(41)

(85)

(120)

(138)

814

676

288

(28)

(133)

(8)

(22)

(144)

288

144

(41)

(85)

(120)

(128)

860

732

(27)

(133)

(8)

(22)

(143)

298

155

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Consolidated balance sheet as at 31 December

x € million

Assets

Non-current assets

Intangible assets

Property, plant and equipment

Deferred tax assets

Associates

Other financial assets

Current assets

Inventories

Trade receivables

Other receivables

Financial derivatives

Current investments

Cash and cash equivalents

Assets held for sale

Total

Equity and liabilities

Equity

Shareholders' equity

Non-controlling interests

Non-current liabilities

Deferred tax liabilities

Employee benefits liabilities

Provisions

Borrowings

Other non-current liabilities

Current liabilities

Employee benefits liabilities

Provisions

Borrowings

Financial derivatives

Trade payables

Other current liabilities

Liabilities held for sale

Total

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149

Notes

2012

2011

2,793

3,811

340

141

7,125

1,803

1,569

230

1,121

4,797

4,841

11,966

5,874

168

6,042

236

388

125

1,922

2,765

642

299

1,453

628

3,145

3,159

11,966

1,786

3,405

292

135

5,653

1,573

1,551

153

2,058

5,474

5,504

11,157

5,784

190

5,974

192

322

116

2,029

2,728

160

326

1,348

557

2,440

2,455

11,157

Consolidated statement of changes in equity (note 16)

x € million

Treasury

Other

Retained earnings

Total

Non-

capital

premium

reserves

Actuarial

Other

gains and

losses

controlling

interests

Total

Equity

Balance at 1 January 2011

338

489

(542)

381

(647)

5,462

5,481

5,577

Dividend paid

Options / performance shares granted

Options / performance shares

exercised / cancelled and SARs cancelled

Proceeds from reissued shares

Change in DSM's share in subsidiaries

Repurchase of shares

Total comprehensive income

213

(357)

(18)

(242)

(12)

(242)

201

(357)

(108)

735

676

(4)

(246)

201

(357)

732

Balance at 31 December 2011

338

489

(686)

274

5,281

5,784

190

5,974

Dividend paid

Options / performance shares granted

Options / performance shares

exercised / cancelled and SARs cancelled

Proceeds from reissued shares

Change in DSM's share in subsidiaries

Total comprehensive income

207

(13)

(254)

(25)

(254)

182

(44)

(100)

288

144

(48)

(302)

182

155

Balance at 31 December 2012

338

489

(479)

235

(12)

5,303

5,874

168

6,042

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150

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Consolidated cash flow statement (note 26)

x € million

Operating activities

Profit for the year

Income tax

Profit before income tax expense

Share of the profit of associates

Net finance costs

- Before exceptional items

- Exceptional items

Operating profit

Depreciation, amortization and impairments

Earnings before interest, tax, depreciation and amortization

Adjustments for:

- (Gain) or loss from disposals

- Change in provisions

- Defined benefit plans

Interest received

Interest paid

Income tax received

Income tax paid

Other

Changes, excluding working capital

Operating cash flow before changes in working capital

Changes in operating working capital:

- Inventories

- Trade receivables

- Trade payables

Changes in other working capital

Changes in working capital

Cash provided by operating activities

2012

298

349

(2)

441

500

941

(194)

747

(17)

730

2011

860

129

989

(3)

(140)

928

502

1,430

(316)

1,114

(232)

882

(201)

(33)

(211)

103

(161)

(95)

(112)

(123)

(25)

(260)

(7)

(28)

103

(196)

(79)

(34)

(140)

(16)

(1)

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151

Consolidated cash flow statement (note 26) continued

x € million

Cash provided by operating activities

2012

730

2011

882

Investing activities

Capital expenditure for:

- Intangible assets

- Property, plant and equipment

Proceeds from disposal of property, plant and equipment

Acquisition of subsidiaries and associates

Cash from net investment hedge

Proceeds from disposal of subsidiaries and businesses

Change in fixed-term deposits

Other financial assets:

- Capital payments and acquisitions

- Change in loans granted

- Proceeds from disposals

(82)

(604)

(1,262)

(12)

(19)

(54)

(423)

(929)

(77)

513

748

(3)

221

Cash from / used in investing activities

(1,856)

Financing activities

Capital payments non-controlling interests

Loans taken up

Repayment of loans

Change in debt to credit institutions

Issue of commercial paper

Dividend paid

Proceeds from reissued shares

Repurchase of shares

Cash used in financing activities

Change in cash and cash equivalents

Cash and cash equivalents at 1 January

Exchange differences relating to cash held

Cash and cash equivalents at 31 December

(114)

300

(210)

(50)

(155)

111

(357)

171

(955)

2,058

1,121

(342)

547

1,453

2,058

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152

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Notes to the consolidated financial statements of Royal DSM

1 General information

Unless stated otherwise, all amounts are in € million.

In conformity with article 402, Book 2 of the Dutch Civil Code, a condensed income statement is included in the separate financial
statements of the parent company.

A list of DSM participations has been filed with the Chamber of Commerce for Limburg (Netherlands) and is available from the
company upon request. The list can also be downloaded from the company’s website.

The preparation of financial statements requires estimates and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. The
policies that management considers to be the most important to the presentation of the financial condition and results of operations
are discussed in the relevant notes. The same holds for the issues that require management judgments or estimates about matters
that are inherently uncertain. Management cautions that future events often vary from forecasts and that estimates routinely require
adjustment. Areas of judgment that have the most significant effect on the amounts recognized in the financial statements relate
to the categorization of certain items as 'exceptional', the identification of cash generating units and the classification of activities
as 'held for sale' and 'discontinued operations'.

Key assumptions and estimates that need to be made by management relate to the useful lives of non-current assets (notes 8 and
9), the establishment of provisions for retirement and other post-employment benefits (note 24), the recognition and measurement
of income taxes (note 7) and the determination of fair values for financial instruments (note 23) and for share-based compensation
(note 27). Estimates are based on historical quoted market prices, experience and assumptions that are considered reasonable
under the circumstances.

Exchange rates
The currency exchange rates that were used in preparing the consolidated statements are listed below for the most important
currencies.

1 euro =

Exchange rate at balance sheet date

Average exchange rate

US dollar

Swiss franc

Pound sterling

100 Japanese yen

Chinese renminbi

2012

2011

2012

2011

1.32

1.21

0.82

1.14

8.29

1.29

1.22

0.84

1.00

8.24

1.29

1.21

0.81

1.03

8.11

1.39

1.23

0.87

1.11

9.00

Presentation of consolidated income statement
From 2010 onwards DSM has presented expenses in the consolidated income statement in accordance with their function. This
allows the presentation of gross margin on the face of the income statement, which is a widely used performance measure in the
industry. The composition of the costs allocated to the individual functions is explained below.

Cost of sales encompasses all manufacturing cost (including raw materials and energy) related to goods and services captured
in net sales. They are measured at their actual cost based on FIFO, or weighted average cost.

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153

Marketing and sales relates to the selling and marketing of goods and services, and also includes all costs that are directly related
to the sale of goods, but that are not originated by the manufacturing of the goods (e.g. freight).

Research and development consists of:

- research, which is defined as original and planned investigation undertaken with the prospect of gaining new scientific or technical

knowledge and understanding;

- development, which is defined as the application of research findings or other knowledge to a plan or design for the production
of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial
production or use.

General and administrative relates to the strategic and governance role of the general management of the company as well as
the representation of DSM as a whole in the financial, political or business community. It also relates to business support activities
of staff departments that are not directly related to the other functional areas.

Segment reporting
Since 2011 DSM has presented business segments and geographical information in accordance with the strategy DSM in motion:
driving focused growth. Geographical information is provided for Western Europe, Eastern Europe, North America, Latin America,
Asia and rest of the world, with separate specifications for the Netherlands, China, India and Japan. Information on the activities,
products and services of the segments is available in the Review of business in the Report by the Managing Board.

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154

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

2 Change in the scope of the consolidation

Acquisitions

2012
On 22 June 2012 DSM obtained control of Kensey Nash Corporation by acquiring 100% of the shares. From that date onwards
the financial statements of Kensey Nash have been consolidated by DSM and reported in the segment Innovation Center. The
acquisition will strengthen and complement DSM’s biomedical business, one of the Emerging Business Areas of DSM. Kensey
Nash is a US based, technology-driven biomedical company, primarily focused on regenerative medicine utilizing its proprietary
collagen and synthetic polymer technology. Kensey Nash has annual sales of approximately USD 90 million and employs about
325 people. In accordance with IFRS 3 the purchase price of Kensey Nash needs to be allocated to identifiable assets and liabilities
acquired. Goodwill paid for the acquisition of Kensey Nash amounted to € 128 million. The goodwill primarily resulted from the skills
and knowledge of the workforce, sales synergies in relation to the opportunities for cross-selling and certain fixed cost synergies
that are unique to DSM.

On 18 July 2012 DSM obtained control of Ocean Nutrition Canada (ONC) by acquiring 100% of the shares. From that date onwards
the financial statements of ONC are consolidated by DSM and reported in the Nutrition segment. The acquisition expands DSM’s
Nutritional Lipids growth platform. ONC is a leader in fish-oil derived Omega-3 fatty acids for dietary supplements, highly
complementary to DSM’s acquisition of Martek in 2011. ONC has annual sales of approximately CAD 190 million and employs
about 415 people. In accordance with IFRS 3 the purchase price of ONC needs to be allocated to identifiable assets and liabilities
acquired. Goodwill paid for the acquisition of ONC amounted to € 238 million. The goodwill primarily resulted from the skills and
knowledge of the workforce, sales synergies in relation to the opportunities for cross-selling and certain operating and variable cost
synergies that are unique to DSM.

On 18 December 2012 DSM obtained control of Fortitech, Inc. by acquiring 100 % of the shares. From that date onwards the
financial statements of Fortitech are consolidated by DSM and reported in the Nutrition segment. The acquisition strengthens
DSM’s Human Nutrition and Health business, by expanding the company’s value chain presence and adding additional capabilities.
Fortitech has annual sales of approximately USD 270 million and employs about 520 people. In accordance with IFRS 3 the
purchase price of Fortitech needs to be allocated to identifiable assets and liabilities acquired. This so-called purchase price
allocation together with the conversion of the financial statements to IFRS has not been completed and therefore the consolidation
is based on the unadjusted balance sheet of Fortitech. Once the purchase price allocation is completed the value of assets and
liabilities will be adjusted and the final goodwill will be determined. Sales and profit of Fortitech in the period between the acquisition
and the end of the year 2012 were immaterial for DSM as a result of the limited number of working days that remained and the
impact of the holiday period.

Up to one year from the acquisition date the initial accounting for business combinations needs to be adjusted to reflect additional
information that has been received about facts and circumstances that existed at the acquisition date and would have affected the
measurement of amounts recognized as of that date. As a result of such adjustments the values of assets and liabilities recognized
may change in the one year period from the acquisition date.

The impact of all acquisitions made in 2012 on DSM's consolidated balance sheet, at the date of acquisition, is summarized in the
following table.

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155

2012

Assets

Intangible assets

Property, plant and equipment

Other non-current assets

Inventories

Receivables

Cash and cash equivalents

Kensey Nash

Ocean Nutrition

Fortitech, Inc.

Other

acquisitions

Book

value

Fair

value

Book

value

Fair

value

Book

value

Fair

value

Book

value

Fair

value

Book

value

136

114

Total assets

132

250

143

283

133

Non-controlling interests

Liabilities

Non-current liabilities

Current liabilities

Non-controlling interests and

liabilities

Net assets

Acquisition price (in cash)

Acquisition price (payable)

Consideration

Goodwill

Goodwill available for tax purposes

(included in the above)

Acquisition costs recognized in

exceptional items

Contingent liabilities included in fair value

111

139

216

267

128

132

151

390

(1)

389

238

474

487

405

Total

Fair

value

286

204

117

185

103

460

758

206

207

221

300

239

458

120

122

1,200

1,265

807

The acquisition of Kensey Nash contributed € 35 million to net sales in 2012. If the acquisition had occurred on 1 January 2012,
additional net sales would have been approximately € 67 million. The acquisition contributed € 14 million to EBITDA. Kensey Nash
related exceptional items amounted to € 8 before tax (see note 6: Exceptional items).

The acquisition of ONC contributed € 60 million to net sales in 2012. If the acquisition had occurred on 1 January 2012, additional
net sales would have been approximately € 131 million. The acquisition contributed € 15 million to EBITDA. ONC related exceptional
items amounted to € 20 before tax (see note 6: Exceptional items).

Other acquisitions comprise Verenium, Cilpaz & Laba, the cultures and enzymes business of Cargill and Oatwell.

Together, the acquisitions in 2012 contributed € 103 million to net sales. If all acquisitions had occurred on 1 January 2012,
additional net sales would have been approximately € 253 million (excluding Fortitech). The acquisitions in 2012 contributed € 26
million to EBITDA; this would have been approximately € 53 million (excluding Fortitech) if they had all occurred on 1 January 2012.

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156

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

2011
In February, DSM acquired 100% of the shares of Martek Biosciences Corporation (Martek), for a total consideration of € 789
million. The goodwill of € 337 million primarily results from the know-how of the employees, the ability to retain these employees
and DSM specific synergies, notably the ability to cross-sell Martek's technology through the DSM network. Before acquisition
Martek had annual sales of approximately USD 450 million and employed about 600 people. In consolidation, a part of the additional
Martek sales was offset by the shift of ARA sales from DSM Food Specialties to Martek from external sales to internal supplies.

The acquisition of Martek contributed € 284 million to net sales. If the acquisition had occurred on 1 January 2011, additional net
sales would have been approximately € 335 million. The acquisition of Martek contributed € 88 million to EBITDA. Martek related
exceptional items amounted to € 46 million before tax (for further information on exceptional items see note 6: Exceptional items).

DSM acquired a 51% stake in AGI Corporation of Taiwan in July 2011, through a subscription for newly issued shares combined
with a public tender offer, for a total consideration of € 41 million. Before acquisition AGI had annual sales of around € 100 million
and employed more than 300 people.

In October, DSM acquired a majority share of 91.75% in Shandong ICD, High Performance Fiber Co., Ltd., based in Laiwu, China.
Shandong ICD is a manufacturer of ultra high molecular weight polyethylene and employs about 300 people.

The acquisitions in 2011 contributed € 316 million to net sales. If all acquisitions had occurred on 1 January 2011, additional net
sales would have been approximately € 400 million. The acquisitions in 2011 contributed € 90 million to EBITDA; this would have
been approximately € 109 million if they had all occurred on 1 January 2011.

The impact of all acquisitions made in 2011 on DSM's consolidated balance sheet, at the date of acquisition, is summarized in the
following table.

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157

2011

Assets

Intangible assets

Property, plant and equipment

Other non-current assets

Inventories

Receivables

Cash and cash equivalents

Martek

AGI Taiwan

Shandong ICD

Other

acquisitions

Book

value

Fair

value

Book

value

Fair

value

Book

value

Fair

value

Book

value

Fair

value

Book

value

124

150

243

131

140

250

Total

Fair

value

292

241

110

Total assets

474

587

Non-controlling interests

Liabilities

Non-current liabilities

Current liabilities

Non-controlling interests and

liabilities

Net assets

Acquisition price (in cash)

Acquisition price (payable)

Consideration

Goodwill

Goodwill available for tax purposes

(include in the above)

Acquisition costs recognized in

exceptional items

Contingent liabilities included in fair value

135

381

452

789

337

112

662

819

106

173

232

489

587

939

974

387

Other acquisitions comprise C5 Yeast Company, Vitatene, the premix unit of Fatrom and Volgaplast.

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158

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Disposals

2012
There were no material disposals in 2012.

2011
In the second quarter of 2011 DSM completed the sale of DSM Elastomers (Keltan®) to LANXESS for € 338 million on a cash and
debt-free basis. In view of the disposal the related activities are reported as discontinued operations and comparatives have been
re-presented. The impact of the deconsolidation of these activities on the DSM financial statements is presented in the following
table:

Assets

Intangible assets and Property, plant and equipment

Other non-current assets

Inventories

Receivables

Cash and cash equivalents

Total assets

Non-controlling interests

Liabilities

Non-current liabilities

Current liabilities

Non-controlling interests and liabilities

Net assets at fair value

Consideration, net of selling costs, translation differences and net debt

Book profit

Income tax

Net book profit

Before disposal the business was classified as assets and liabilities held for sale.

The impact of the disposal on the cash flow statement is presented in the following table:

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net change in cash and cash equivalents

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159

(132)

(5)

(84)

(50)

(40)

(2)

(37)

(311)

(34)

(277)

387

110

111

2011

(14)

(3)

(17)

In the third quarter of 2011 DSM completed the formation of the DSM Sinochem Pharmaceuticals joint venture, which has been
consolidated on a 50% proportionate basis from 1 September 2011 onwards. As a consequence of the transaction 50% of the
assets and liabilities of DSM's Anti-Infectives business were effectively sold to the joint venture partner. DSM continues to account
for the assets and liabilities that are retained in the business on the basis of existing book values. In view of DSM's continuing
involvement with the business the related activities remain part of continuing operations. The impact of the 50% disposal is
presented in the following table:

Assets

Intangible assets and Property, plant and equipment

Other non-current assets

Inventories

Receivables

Cash and cash equivalents

Total assets

Non-controlling interests

Liabilities

Non-current liabilities

Current liabilities

Non-controlling interests and liabilities

Net assets at fair value

Consideration, net of selling costs, translation differences and net debt

Impairment

Book profit

Income tax

Net book profit

(72)

(17)

(41)

(67)

(17)

(4)

(26)

(92)

(214)

(122)

(92)

166

(62)

Before disposal the business was classified as assets/liabilities to be contributed to joint ventures.

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160

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Assets and liabilities held for sale

2012
DSM stopped actively trying to dispose of the Maleic Anhydride and Derivatives business of DSM Pharmaceutical Products in Linz
(Austria) in 2012 and this business is no longer classified as ‘assets/liabilities held for sale’. The activities were re-integrated into
the Pharma Cluster and reported in that segment from the first quarter of 2012 onwards. Comparative information for the previous
period has not been adjusted.

In view of the agreements reached regarding the sale of DEXPlastomers and parts of Euroresins, these businesses were reclassified
as held for sale. Before reclassification these activities were reported under Corporate Activities and DSM Resins & Functional
Materials, respectively.

2011
In view of the expected disposal of the Maleic Anhydride and Derivatives business of DSM Pharmaceutical Products in Linz (Austria),
this business was classified as held for sale.

Deconsolidation

2012
There were no material deconsolidations in 2012.

2011
As a result of the divestment of DSM Elastomers, DSM's interests in Sitech Manufacturing Services C.V., Sitech Utility Holding
Beheer B.V. and Sitech Utility Holding C.V. were also reduced. At the end of June DSM only retained significant influence on the
financial and operating policy decisions of these companies and therefore consolidation was terminated. The remaining investments
in these entities were recognized at their fair value at the time when consolidation was terminated and accounted for in accordance
with the equity method. The impact of the derecognition on the balance sheet and on the result was immaterial.

Other changes

2012
There were no material changes in the percentage of ownership of subsidiaries in 2012.

2011
In 2011 the following changes in DSM's share in subsidiaries occurred without impacting the classification of the participations.

Sitech Services B.V.

Sitech Manufacturing Services Beheer B.V.

Sitech IAZI B.V.

Sitech Site Services B.V.

1 All as a result of the disposal of DSM Elastomers

DSM share

Old

77%

New1

70%

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161

3 Segment information

Business segments1

2012

Financial performance

Net sales

Supplies to other clusters

Supplies

EBITDA

Operating profit

Exceptional items

Nutrition

Pharma

Perform-

Polymer

Inno-

Corpo-

Elimina-

Total

tinued

tions

Continuing operations

Discon-

Elimina-

Total

ance

Interme-

vation

rate

tions

Materials

diates

Center

Activities

opera-

tions

3,667

726

2,772

1,596

448

102

268

9,131

(601)

3,752

765

2,797

2,044

105

269

(601)

9,131

793

613

(85)

(19)

280

146

(40)

129

(11)

(38)

(63)

(94)

(139)

(39)

Operating profit including

exceptional items

528

(38)

106

Depreciation and amortization

Impairments

Impairments in exceptional

items

Additions to provisions

Share of the profit of

associates

R&D costs3

Wages, salaries and social

177

151

128

105

security costs

657

187

338

Financial position

Total assets

Total liabilities

Capital employed at year-end

Capital expenditure and

acquisitions

Share in equity of associates

5,157

1,324

4,122

1,193

1,051

2,174

333

766

666

2,026

109

964

446

447

214

(63)

(178)

559

507

303

326

2,061

3,080

216

EBITDA / net sales (in %)

21.6

5.4

10.1

8.1

Workforce4

Average in fte

Year-end (headcount)

9,208

9,489

3,281

3,314

5,359

5,354

1,444

1,474

622

668

3,012

3,199

9,131

1,109

635

(194)

441

451

122

381

1,636

11,966

5,924

8,084

1,980

12.1

22,926

23,498

1,109

635

(194)

441

451

122

381

1,636

11,966

5,924

8,084

1,980

12.1

22,926

23,498

1 For a description of the types of products and services of each segment please refer to the Review of business in the Report by the Managing Board. Supplies from DSM Polymer
Intermediates to DSM Engineering Plastics were executed at cost. Transfers between other segments were fairly limited and were generally executed at market-based prices.

2 Corporate Activities also includes costs for regional holdings, corporate overhead and share-based compensation.
3 R&D costs relate to the functional area Research and development and exclude R&D costs included in the functional areas Costs of sales and Marketing and sales as well as

R&D expenditure capitalized.

4 The workforces of joint ventures have been included on a proportionate basis.
5

Including the reversal of previously recognized impairment losses for € 12 million at DSM Sinochem Parmaceuticals.

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162

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Business segments1

2011

Financial performance

Net sales

Supplies to other clusters

Supplies

EBITDA

Operating profit

Exceptional items

Operating profit including

exceptional items

Nutrition

Pharma

Perform-

Polymer

Inno-

Corpo-

Elimina-

Total

tinued

tions

Continuing operations

Discon-

Elimina-

Total

ance

Interme-

vation

rate

tions

Materials

diates

Center

Activities

opera-

tions

3,370

677

2,752

1,820

435

3,438

698

2,773

2,255

369

9,048

(571)

145

(7)

9,193

392

(571)

9,049

151

(7)

9,193

(57)

(69)

735

577

(51)

526

293

162

(33)

380

339

(91)

(135)

(15)

129

339

(69)

(150)

(8)

121

107

Depreciation and amortization

155

Impairments

Impairments in exceptional

items

Additions to provisions

Share of the profit of

associates

R&D costs3

Wages, salaries and social

146

security costs

597

179

319

Financial position

Total assets

Total liabilities

Capital employed at year-end

Capital expenditure and

acquisitions

Share in equity of associates

3,826

1,115

3,015

950

1,104

2,085

294

800

601

2,013

258

835

417

387

255

174

322

3,052

2,733

173

EBITDA / net sales (in %)

21.8

5.3

10.6

20.9

Workforce4

Average in fte

Year-end (headcount)

8,051

8,329

3,174

3,324

5,454

5,599

1,376

1,439

348

383

3,417

3,150

1,296

866

(77)

110

789

139

397

378

1,518

11,157

5,183

6,562

1,500

14.3

21,820

22,224

1,325

895

928

397

381

1,529

11,157

5,183

6,562

1,502

14.4

21,820

22,224

R&D expenditure capitalized.

4 The workforces of joint ventures have been included on a proportionate basis.

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163

Geographical information

2012

Net sales by origin

In € million

In %

Net sales by destination

In € million

In %

Total assets

Intangible assets and Property, plant

and equipment

Capital expenditure

Carrying amount

The

Rest of

Eastern

North

Latin

China

India

Japan

Rest of

Total

Continuing operations

Nether-

Western

Europe

America

lands

Europe

3,046

2,655

119

1,628

309

939

605

2,684

538

1,819

671

1,323

Asia

172

783

the

world

9,131

100

228

9,131

100

163

118

317

3,613

2,556

109

3,554

347

1,187

134

310

11,966

226

129

1,568

1,406

127

2,676

174

672

119

715

6,604

Workforce at year-end1

6,007

6,305

438

4,724

978

3,449

541

146

746

164

23,498

2011

Net sales by origin

In € million

In %

Net sales by destination

In € million

In %

Total assets

Intangible assets and Property, plant

and equipment

Capital expenditure

Carrying amount

3,151

2,601

1,505

247

987

662

2,689

514

1,692

589

1,438

118

167

299

228

793

9,048

100

205

9,048

100

4,184

2,594

2,342

269

1,121

150

273

11,157

154

114

1,445

1,266

1,723

148

539

526

5,191

Workforce at year-end1

6,205

6,398

334

3,650

824

3,423

481

146

627

136

22,224

1 The workforces of joint ventures have been included on a proportionate basis

DSM has no single external customer that represents 10 percent or more of revenues and therefore information about major
customers is not provided.

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164

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

4 Total costs

Other operating income

In 2012 total operating costs of continuing operations before
exceptional items amounted to € 8.5 billion, € 0.3 billion higher
than in 2011, when these costs stood at € 8.2 billion. Total
operating costs in 2012 included Cost of sales to an amount of
€ 6.7 billion (2011: € 6.5 billion); gross margin in % of net sales
stood at 26% (2011: 28%).

Employee benefits costs

Continuing operations before

exceptional items

Release of provisions

Gain on assets, activities, scrap,

waste material, emission rights,

royalties and licenses sold

Insurance benefits

2012

2011

Claims

Earn-out payments

Sundry

1,398

213

125

1,310

Total

189

125

Other operating expense

Continuing operations before

exceptional items

Wages and salaries

Social security costs

Pension costs (see also note 24)

Share-based compensation (see

also note 27)

Total

2012

2011

1,761

1,643

2012

2011

Depreciation, amortization and impairments

Continuing operations before

exceptional items

Additions to provisions

Loss from the disposal or closure

Continuing operations before

exceptional items

Amortization of intangible assets

Depreciation of property, plant

and equipment

Impairment losses

Total

2012

2011

of assets and activities

Exchange differences

Costs of financial instruments

Earn-out payments

111

340

474

Damages

Sundry

Total

314

430

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165

5 Net finance costs

6 Exceptional items

2012

2011

2012

2011

Continuing operations before

exceptional items

Interest costs

Interest expense

Capitalized interest during

construction

Interest charge on discounted

provisions

Total

Other financial income and

expense

Interest income

Exchange differences

Result from other securities

Sundry

Total

Net finance costs

Cost of sales:

- Impairments of property, plant

and equipment and business

107

100

activities

- Other costs

(6)

102

(12)

(1)

(8)

(2)

(18)

(4)

(17)

Research and development:

- Impairment of intangible assets

- Other costs

General and administrative:

- Impairment of Property, Plant

and Equipment

- Other costs

Other operating income:

- Release of provisions

- Book gain on disposals

Other operating expense:

- Additions to provisions

- Other costs

In 2012 the interest rate applied in the capitalization of interest
during construction was 5% (2011: 5%).

Operating profit

Other financial income and

expense

Total, before income tax expense

Income tax expense

Profit for the year

Reclassification of the net result

from activities disposed of

Net result from exceptional

items

(25)

(4)

(29)

(2)

(1)

(59)

(60)

(106)

(194)

(10)

(38)

(48)

(13)

(28)

(77)

140

(194)

(149)

111

(149)

199

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166

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

2012

2011

The exceptional items in 2012 are listed below:

The exceptional items in 2011 are listed below:

- The impairments of property, plant and equipment and
business activities in Cost of sales mainly relate to DSM
Nutritional Products, DSM Pharmaceutical Products and DSM
Sinochem Pharmaceuticals. Also included is the reversal of an
impairment at DSM Sinochem Pharmaceuticals of € 12 million.
For further information see note 9 Property, plant and
equipment.

- Other costs in Cost of sales mainly relate to restructuring

costs.

- Other costs in General and administrative relate to acquisition
and integration costs (€ 34 million) and restructuring costs
(€ 25 million).

- Additions to provisions relate to the costs of restructuring, as
part of the Profit Improvement Program (€ 95 million) and to
legal costs (€ 11 million). For further information see note 18
Provisions.

- The impairments of property, plant and equipment and

business activities in Cost of sales relate to DSM Resins (see
also Other operating expense).

- Other costs in Cost of sales and General and administrative
mainly relate to the acquisition of Martek and include the
acquisition costs (€ 13 million) and non-recurring costs related
to value adjustments of inventories (€ 33 million).

- Legal claims have been included under other costs in Cost of
sales (€ 5 million) and Other operating expense (€ 5 million).
- The book profit on disposals relates to the establishment of

the DSM Sinochem Pharmaceuticals joint venture. For further
information see note 2 Changes in the scope of consolidation.
- A restructuring program of € 28 million within DSM Resins has
been included under Cost of sales (€ 5 million) and Other
operating expense (€ 23 million). For further information see
note 18 Provisions.

- Other financial income and expense relates to the book profit
before tax on the sale of the Danisco shares (€ 140 million). For
further information see note 11 Other financial assets.

- The reclassification of the net result from activities disposed of
relates to the result from the disposal of activities. This consists
of the book profit after tax on the disposal of DSM Elastomers
For further information see note 2 Changes in the scope of
consolidation.

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167

The balance of deferred tax assets and deferred tax liabilities
increased by € 4 million owing to the changes presented in the
table below:

2012

25.0

(5.6)

3.8

17.6

(3.0)

14.6

2011

25.0

(4.9)

(0.5)

(0.9)

18.7

0.3

(5.9)

13.1

2012

2011

292

(192)

100

(78)

326

(155)

171

(49)

(77)

(7)

7 Income tax

The income tax expense on the total result was € 51 million,
which represents an effective income tax rate of 14.6%
(2011: € 129 million, representing an effective income tax rate of
13.1%) and can be broken down as follows:

in %

Domestic income tax rate

Tax effects of:

- Deviating rates

- Tax-exempt income and non-

2012

2011

deductible expense

- Other effects

(84)

Effective tax rate continuing

operations

Discontinued operations

(80)

Exceptional items

Total effective tax rate

(50)

(8)

(49)

(129)

Balance at 1 January

Deferred tax assets

Deferred tax liabilities

Total

Changes:

- Income tax expense in income

statement

- Income tax expense in other

comprehensive income

- Acquisitions and disposals

- Change in scope of

consolidation

- Exchange differences

- Reclassification to held for sale

Current tax expense:

- Current year

- Prior-year adjustments

Deferred tax expense:

- Originating from temporary

differences and their reversal

- Prior-year adjustments

- Change in tax rate

- Change in tax losses and tax

credits recognized

Total

Of which related to:

- The result from continuing

operations before exceptional

(87)

(82)

(10)

(51)

items

(96)

(147)

- The result from exceptional

items continuing operations

- The result from discontinued

operations

(7)

The effective income tax rate on the result from continuing
operations before exceptional items was 17.6% in 2012
(2011: 18.7%). This decrease was mainly caused by a different
geographic spread of results and the application of preferential
tax regimes in countries where DSM is operating. The tax rate
for continuing operations for 2013 will be at about the same level
as 2012. The relationship between the income tax rate in the
Netherlands and the effective tax rate on the result from
continuing operations is as follows:

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168

Balance at 31 December

104

100

Of which:

- Deferred tax assets

- Deferred tax liabilities

340

(236)

292

(192)

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

In various countries DSM has taken standpoints regarding its tax position which may at any time be challenged, or have already
been challenged, by the tax authorities because the authorities in question interpret the law differently. In determining the probability
of realization of deferred tax assets and liabilities these uncertainties are taken into account.

The deferred tax assets and liabilities relate to the following balance sheet items:

Intangible assets

Property, plant and equipment

Financial assets

Inventories

Receivables

Other non-current liabilities

Non-current provisions

Non-current borrowings

Other current liabilities

Tax losses carried forward

Set-off

Total

2012

2011

Deferred tax

assets

liabilities

assets

liabilities

320

286

(266)

340

(170)

(266)

(2)

(34)

(18)

(2)

(5)

(502)

266

(236)

275

260

(243)

292

(112)

(254)

(3)

(30)

(20)

(2)

(8)

(6)

(435)

243

(192)

No deferred tax assets were recognized for loss carryforwards amounting to € 91 million (2011: € 103 million). Unrecognized loss
carryforwards amounting to € 32 million will expire in the years up to and including 2017, (2011: € 40 million up to and including
2016), € 29 million between 2018 and 2022 (2011: € 26 million between 2017 and 2021) and the remaining € 30 million between
2023 and 2027 (2011: € 37 million between 2022 and 2026).

The valuation of deferred tax assets depends on the probability of the reversal of temporary differences and the utilization of tax
loss carryforwards. Deferred tax assets are recognized for future tax benefits arising from temporary differences and for tax loss
carryforwards to the extent that the tax benefits are likely to be realized. In the Netherlands tax losses may be carried forward for
9 years. For the entities in the Dutch tax consolidation, losses will start to expire in 2019. Other foreign tax loss carryforwards
primarily exist in the US and Austria. US tax losses will start to expire in 2024. Austrian tax losses can be carried forward for an
indefinite period of time. DSM has to assess the likelihood that deferred tax assets will be recovered from future taxable profit.
Deferred tax assets are reduced if, and to the extent that, it is not probable that all or some portion of the deferred tax assets will
be realized. In the event that actual future results differ from estimates, and depending on tax strategies that DSM may be able to
implement, changes to the measurement of deferred taxes could be required, which could impact on the company’s financial
position and profit for the year.

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169

8 Intangible assets

Balance at 1 January 2011

Cost

Amortization and impairment losses

Carrying amount

Changes in carrying amount:

- Capital expenditure

- Put into operation

- Acquisitions

- Disposals and deconsolidations

- Amortization

- Impairments

- Exchange differences

- Other reclassifications

Balance at 31 December 2011

Cost

Amortization and impairment losses

Carrying amount

Changes in carrying amount:

- Capital expenditure

- Put into operation

- Acquisitions

- Disposals and deconsolidations

- Amortization

- Impairments

- Exchange differences

- Reclassifications to held for sale

- Other reclassifications

Balance at 31 December 2012

Cost

Amortization and impairment losses

Total

Goodwill

Licenses

Under

Development

Other

and patents

construction

projects

1,605

535

1,070

679

(83)

(7)

716

855

164

691

387

421

2,393

607

1,281

169

1,786

1,112

1,093

(111)

(19)

(44)

1,007

3,519

726

807

(1)

(31)

776

2,052

164

158

(32)

(6)

(8)

134

(11)

(4)

(1)

185

(23)

115

(59)

(9)

131

124

(2)

(1)

(3)

(1)

516

282

234

271

(76)

(7)

244

841

363

478

278

(99)

(5)

(11)

(14)

180

1,123

465

658

Carrying amount

2,793

1,888

Over the past few years DSM has acquired several entities in business combinations that have been accounted for by the purchase
method, resulting in recognition of goodwill and other intangible assets. The amounts assigned to the acquired assets and liabilities
are based on assumptions and estimates about their fair values. In making these estimates, management consults independent,
qualified appraisers if appropriate. A change in assumptions and estimates could change the values allocated to certain assets

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170

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

and their estimated useful lives, which could affect the amount or timing of charges to the income statement, such as amortization
of intangible assets.

The breakdown of the carrying amount of goodwill at year-end 2012 is as follows:

Acquisition

2012

2011

Cash generating unit

Functional

Year of

Currency

acquisition

Fortitech1

Martek

NeoResins

Ocean Nutrition

Catalytica

Kensey Nash

The Polymer Technology Group

Pentapharm

Culture and enzymes business of Cargill

Shandong ICD

Novamid

AGI Corporation

Syntech Far East

Zhejiang Zhongken Biotechnology

C5 Yeast Company

Crina

DSM Japan Engineering Plastics

Fatrom

Other acquisitions

405

352

358

227

166

123

360

358

170

Total

1,888

1,112

DSM Nutritional Products

DSM Resins & Functional Materials

DSM Nutritional Products

DSM Pharmaceuticals, Inc.

DSM Biomedical

DSM Nutritional Products

USD

EUR

CAD

USD

CHF

DSM Food Specialties

EUR/USD

DSM Dyneema

DSM Engineering Plastics

DSM Resins & Functional Materials

DSM Food Specialties

DSM Bio-based Products & Services

DSM Nutritional Products

DSM Engineering Plastics

DSM Nutritional Products

CNY

JPY

TWD

HKD

CNY

EUR

CHF

EUR

RON

2012

2011

2005

2012

2001

2012

2008

2007

2012

2011

2010

2011

2005

2010

2011

2006

2003

2011

1 Goodwill related to the acquisition of Fortitech is a preliminary amount based upon the purchase price minus the book value according to US GAAP

The annual impairment tests of goodwill are performed in the fourth quarter. The recoverable amount of the cash generating units
concerned is based on a value-in-use calculation. The cash flow projections for the first five years are derived from DSM’s business
plan (Corporate Strategy Dialogue) as adopted by the Managing Board. Cash flow projections beyond the five year planning period
are extrapolated taking into account the growth rates that have been determined to apply for the specific cash generating unit in
the Annual Strategic Review. The key assumptions in the cash flow projections relate to the market growth for the cash generating
units and the related revenue projections. DSM Nutritional Products, DSM Resins & Functional Materials and DSM Pharmaceuticals,
Inc. are three cash generating units to which significant amounts of goodwill are allocated. The growth assumptions for these cash
generating units are based on the growth of the global food and feed markets, the demand for advanced coating resins that is
influenced by growth in the building and construction markets and the growth of the American market for pharmaceutical custom
manufacturing services, respectively, and range between 0% and 5%. From 2012 onwards the DSM Innovation Center is split into
two separate cash generating units: DSM Biomedical and DSM Bio-based Products & Services. The goodwill of both Kensey Nash
and the Polymer Technology Group (PTG) is allocated to DSM Biomedical, which therefore is the fourth cash generating unit to
which a significant amount of goodwill is allocated. Growth in this cash generating unit is dependent on developments in the market
for medical devices. The pre-tax discount rate is between 7.5% and 11.5% (2011: between 7.5% and 14%) depending on the risk
profile of the cash generating unit. The terminal value for the period after ten years is determined with the assumption of no growth.

A stress test was performed on the impairment tests of the cash generating units. This showed that the conclusions of these tests
would not have been different if reasonably possible adverse changes in key parameters had been assumed. The value-in-use of

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171

cash generating units with significant amounts of goodwill clearly exceeds their carrying amount. The market capitalization of DSM
at 31 December 2012 amounted to € 8,307 million (31 December 2011: € 6,502 million) and was clearly above the carrying amount
of net assets, providing an additional indication that goodwill is not impaired.

The other intangible assets are listed in the following table:

Application software

Marketing-related

Customer-related

Technology-based

Other

Total

Total 2011

Cost

Amortization

Carrying

Of which

2012

2011

amount

acquisition-

195

305

496

(143)

(13)

(60)

(225)

(24)

1,123

(465)

841

(363)

245

271

658

478

245

236

566

378

154

169

378

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172

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

9 Property, plant and equipment

Total

Land and

Plant and

Other

Under

Not used

buildings

machinery

equip-

construc-

for operating

ment

tion

activities

Balance at 1 January 2011

Cost

Depreciation and impairment losses

6,684

3,741

1,749

803

4,323

2,769

199

147

Carrying amount

2,943

946

1,554

Changes in carrying amount:

- Capital expenditure

- Put into operation

- Acquisitions

- Disposals

- Deconsolidations

- Depreciation

- Impairment losses

- Exchange differences

- Reclassification from held for sale

- Other reclassifications

- Other changes

Balance at 31 December 2011

Cost

Depreciation and impairment losses

Changes in carrying amount:

- Capital expenditure

- Put into operation

- Acquisitions

- Disposals

- Deconsolidations

- Depreciation

- Impairment losses

- Impairment reversals

- Exchange differences

- Reclassification from held for sale

- Other reclassifications

- Other changes

Balance at 31 December 2012

Cost

Depreciation and impairment losses

386

385

433

(259)

(10)

(2)

(5)

(7)

(2)

207

593

592

573

(593)

(2)

(4)

(3)

(6)

(3)

(14)

(1)

(8)

(16)

(1)

(3)

474

241

(4)

(1)

(314)

(98)

108

(15)

(2)

(1)

(62)

(6)

178

111

(238)

(89)

462

114

131

633

204

(23)

(340)

(42)

(25)

(7)

(5)

(1)

136

(20)

(68)

(10)

(8)

(1)

423

(3)

(256)

(29)

(13)

(3)

406

148

262

(24)

8,265

4,454

2,155

947

5,271

3,324

252

170

570

568

Carrying amount

3,811

1,208

1,947

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173

Carrying amount

3,405

1,060

1,685

7,651

4,246

1,943

883

4,867

3,182

221

159

Property, plant and equipment includes assets acquired under
finance lease agreements with a carrying amount of € 4 million
(31 December 2011: € 7 million). The related commitments are
included under Borrowings and amount to € 4 million
(31 December 2011: € 7 million). The total of the minimum lease
payments at the balance sheet date amounts to € 4 million
(31 December 2011: € 7 million) and their present values to
€ 3 million (31 December 2011: € 6 million).

comprised ten individual cash generating units. On the basis of
this new cash generating unit structure and the business plan for
the joint venture agreed between DSM and Sinochem an
impairment test was performed. It was determined that the
carrying value of certain cash generating units exceeded their
value in use and therefore an impairment charge of € 62 million
was recognized. Subsequently DSM contributed the impaired
assets of DSM Anti-infectives (reported in the Pharma segment)
to the joint venture.

Overview of minimum lease payments in time:

10 Associates

2013

2014-2017

After 2017

Total

Balance at 1 January

2012

2011

In 2012 an impairment on Property, plant & equipment of € 42
million was recognized. This mainly related to an impairment of
€ 18 million at DSM Nutritional Products and an impairment of
€ 7 million at DSM Pharmaceutical Products. Furthermore an
impairment of € 6 million was recognized in a cash generating
unit of DSM Sinochem Pharmaceuticals which was more than
off set by reversals of previous impairments in three other cash
generating units of € 12 million. In all cases the recoverable
amount was determined on the basis of the value in use the
assets or cash generating units.

In 2011, on balance an impairment of € 98 million was
recognized. This mainly related to an impairment at DSM Anti-
Infectives of € 62 million, at DSM Fibre Intermediates of € 14
million and an impairment at DSM Dyneema of € 7 million. In the
context of the formation of the joint venture with Sinochem,
management determined that DSM Sinochem Pharmaceuticals

Changes:

- Share of profit

- Capital payments

- Dividend received

- New loans

- Disposals

- Consolidation changes

- Reclassification to held for sale

- Transfers

- Exchange differences

Balance at 31 December

Of which loans granted

(1)

DSM's share in its most important associates and the financial
information on all associates on a 100% basis is disclosed in note
29: Interests in associates.

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

11 Other financial assets

Total

Other

participations

receivables

Other

deferred

items

Balance at 1 January 2011

270

207

Changes:

- Charged to the income statement

- Acquisitions

- Capital payments

- Earn-out payments related to disposals

- Disposals

- Consolidation changes

- Loans granted

- Repayments

- Exchange differences

- Transfers

- Changes in fair value

- Reclassification from held for sale

- Other changes

Balance at 31 December 2011

Changes:

- Charged to the income statement

- Acquisitions

- Capital payments

- Earn-out payments related to disposals

- Disposals

- Consolidation changes

- Loans granted

- Repayments

- Exchange differences

- Transfers

- Changes in fair value

- Reclassification from held for sale

- Other changes

Balance at 31 December 2012

(15)

(222)

(4)

(6)

135

(13)

(3)

(1)

(3)

(8)

(3)

141

(222)

(3)

(8)

(1)

(8)

(4)

(12)

(3)

(1)

(17)

(3)

(7)

(1)

(7)

(2)

Other participations relate to equity instruments in companies whose activities support DSM’s business and which can be quoted
or unquoted. In Other participations an amount of € 31 million is included that relates to equity instruments whose fair value cannot
be measured reliably (2011: € 30 million). These instruments are therefore measured at cost.

The disposal in 2011 within Other participations relates to the sale of the shares in Danisco, which resulted in a profit of € 140
million before tax, which was reported as an exceptional item.

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175

12 Inventories

13 Receivables

2012

2011

2012

2011

Raw materials and consumables

Intermediates and finished goods

533

1,320

473

1,143

Trade receivables

Trade accounts receivable

1,544

1,536

Adjustments to lower net

realizable value

1,853

1,616

Receivables from associates

Deferred items

(50)

(43)

Adjustment for bad debts

1,592

(23)

1,571

(20)

Total

1,803

1,573

Total

1,569

1,551

The carrying amount of inventories adjusted to net realizable
value (before reclassification to held for sale) was € 161 million
(2011: € 159 million).

Changes in the adjustment to net realizable value

Balance at 1 January 2011

Additions charged to income statement

Utilization / reversals

Exchange differences

Other

Balance at 31 December 2011

Additions charged to income statement

Utilization / reversals

Exchange differences

Other

Balance at 31 December 2012

(50)

(90)

(1)

(43)

(57)

(50)

Other receivables

Income taxes receivable

Other taxes and social security

contributions

Government grants

Loans

Other receivables

Deferred items

Total

103

230

153

Deferred items comprise € 31 million (2011: € 28 million) in
prepaid expenses that will impact profit or loss in future periods.

The increase in government grants mainly related to DSM Food
Specialties. The increase in loans was partly caused by the joint
financing with local government of an innovation campus in the
Netherlands.

DSM has a deferred receivable of € 39 million excluding accrued
interest (2011: € 39 million) from Sinochem Group (the joint
venture partner in DSM Sinochem Pharmaceuticals) that is due
when the new Yushu factory is ready for commercial full
production which is included in other receivables.

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176

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

With respect to trade accounts receivable that are neither
impaired nor past due, there are no indications that the debtors
will not meet their payment obligations. An aging overview of
trade receivables related to commercial transactions amounting
to € 1,411 million (2011: € 1,367 million) is provided below. The
remaining balance reported as trade receivables amounting to
€ 133 million (2011: € 169 million) is excluded from this analysis
because it principally concerns reclaimable VAT and accruals
that are not related to the payment behavior of customers.

15 Cash and cash equivalents

Deposits

Cash at bank and in hand

Payments in transit

Bills of exchange

2012

2011

1,034

920

1,122

Aging overview

Total

1,121

2,058

Cash at year-end 2012 was not being used as collateral (same
as in 2011). It was restricted for an amount of € 5 million (in 2011:
€ 2 million).

in %

2012

2011

Neither past due nor impaired

1-29 days overdue

30-89 days overdue

90 days or more overdue

The changes in the allowance for doubtful accounts receivable
are as follows:

Balance at 1 January 2011

Additions charged to income statement

Deductions

Acquisitions

Exchange differences

Balance at 31 December 2011

Additions charged to income statement

Deductions

Acquisitions

Exchange differences

Balance at 31 December 2012

14 Current investments

(18)

(5)

(1)

(20)

(11)

(23)

Fixed term deposits

Total

2012

2011

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177

16 Equity

Balance at 1 January

Net profit

Net exchange differences

Net actuarial gains/(losses) on defined benefit obligations

Net asset ceiling related to defined benefit obligations

Dividend

Proceeds from reissue of ordinary shares

Repurchase of shares

Other changes

Balance at 31 December

After the balance sheet date the following dividends were declared by the Managing Board:

Per cumulative preference share A: € 0.23 (2011: € 0.23)

Per ordinary share: € 1.50 (2011: € 1.45)

Total

2012

5,974

298

(26)

(100)

(302)

182

2011

5,577

860

(31)

(246)

201

(357)

(94)

6,042

5,974

2012

253

263

2011

237

247

The proposed final dividend on ordinary shares is subject to approval by the Annual General Meeting of Shareholders and has not
been deducted from Equity. Shareholders will be provided with the opportunity to receive dividends in cash or in the form of ordinary
shares.

For a description of the rules of profit appropriation and of the statutory rights attached to preference shares B, see page 218 .

Share capital
On 31 December 2012 the authorized capital amounted to € 1,125 million (2011: € 1,125 million), distributed over 330,960,000
ordinary shares, 44,040,000 cumulative preference shares A and 375,000,000 cumulative preference shares B. All shares have a
nominal value of € 1.50 each.

The changes in the number of issued and outstanding shares in 2011 and 2012 are shown in the following table.

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Issued shares

Treasury shares

Ordinary

Cumprefs A

Ordinary

Balance at 1 January 2011

181,425,000

44,040,000

14,957,368

Reissue of shares in connection with share-based payments

Repurchase of shares

Dividend in the form of ordinary shares

(3,568,018)

9,000,000

(2,221,738)

Balance at 31 December 2011

181,425,000

44,040,000

18,167,612

Number of treasury shares at 31 December 2011

(18,167,612)

Number of shares outstanding at 31 December 2011

163,257,388

44,040,000

Balance at 1 January 2012

181,425,000

44,040,000

Reissue of shares in connection with share-based payments

Repurchase of shares

Dividend in the form of ordinary shares

18,167,612

(3,049,509)

(2,377,191)

Balance at 31 December 2012

181,425,000

44,040,000

12,740,912

Number of treasury shares at 31 December 2012

(12,740,912)

Number of shares outstanding at 31 December 2012

168,684,088

44,040,000

The average number of ordinary shares outstanding in 2012 was 165,543,091 (2011: 165,566,944). All shares issued are fully
paid.

The cumulative preference shares A have been classified as equity because there is no mandatory redemption and distributions
to the shareholders are at the discretion of DSM.

On 31 December 2012 no cumulative preference shares B were outstanding.

Share premium
Of the total share premium of € 489 million (2011: € 489 million), an amount of € 112 million (2011: € 114 million) can be regarded
as entirely free of tax.

Treasury shares
On 31 December 2011 DSM possessed 18,167,612 ordinary shares (nominal value € 27 million, 8.1% of the share capital). The
average purchase price of the ordinary treasury shares was € 37.75. As at 31 December 2011, 6,919,350 of the total number of
treasury shares outstanding were held for servicing management and personnel share-option rights. The remainder, 11,248,262
shares, is the balance of shares that were purchased under the company's share buy-back program in 2007 and 2008 and shares
that were reissued as stock dividend in 2011.

On 31 December 2012 DSM possessed 12,740,912 ordinary shares (nominal value € 19 million, 5.7% of the share capital). The
average purchase price of the ordinary treasury shares was € 37.61. As at 31 December 2012, 3,869,841 of the total number of
treasury shares outstanding were held for servicing management and personnel share-option rights. The remainder, 8,871,071
shares, is the balance of shares that were purchased under the company's share buy-back program in 2007 and 2008 and shares
that were reissued as stock dividend in 2011 and 2012.

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179

Other reserves in Shareholder's equity

Balance at 1 January 2011

381

218

Total

Translation

Hedging

Reserve for

Fair value

reserve

share-based

reserve

compensation

Changes:

Fair-value changes of derivatives

Release to income statement

Disposals

Fair-value changes of other financial assets

Exchange differences

Options and performance shares granted

Options and performance shares exercised/cancelled

Income tax

Total changes

Balance at 31 December 2011

Changes:

Fair-value changes of derivatives

Release to income statement

Disposals

Fair-value changes of other financial assets

Exchange differences

Options and performance shares granted

Options and performance shares exercised/cancelled

Income tax

Total changes

Balance at 31 December 2012

(116)

(4)

(139)

(18)

(107)

274

(44)

(8)

(28)

(13)

(39)

235

271

(28)

(27)

244

(116)

(4)

(96)

(21)

(44)

(9)

(30)

(18)

(13)

(139)

(65)

(16)

(8)

(24)

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180

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

17 Earnings per ordinary share

in €

2011

Net profit available to holders of ordinary shares (in € million)1

- Basic earnings

- Impact of reclassification of net result from activities disposed of

- Basic earnings after reclassification of the net result

from discontinued operations to exceptional items

- Diluted earnings

- Impact of reclassification of net result from activities disposed of

- Diluted earnings after reclassification of the net result

from discontinued operations to exceptional items

- Dividend distributed in the period (including stock dividend)

- Dividend for the year

- Average number of ordinary shares outstanding (x 1000)

- Effect of dilution due to share options (x 1000)

- Adjusted average number of ordinary shares (x 1000)

2012

Net profit available to holders of ordinary shares (in € million)1

- Basic earnings

- Diluted earnings

- Dividend distributed in the period (including stock dividend)

- Dividend for the year

- Average number of ordinary shares outstanding (x 1000)

- Effect of dilution due to share options (x 1000)

- Adjusted average number of ordinary shares (x 1000)

1 Reconciliation to profit for the year is provided in the consolidated income statement

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181

Continuing operations

Discontinued

Total

operations

Before

Exceptional

Total

exceptional

items

584

3.53

3.50

199

0.53

0.67

1.20

0.53

0.66

1.19

783

4.06

0.67

4.73

4.03

0.66

4.69

0.80

(0.67)

0.13

0.79

(0.66)

0.13

427

2.58

(149)

(0.90)

278

1.68

2.56

(0.89)

1.67

804

4.86

4.82

1.40

1.45

165,567

1,068

166,635

278

1.68

1.67

1.48

1.50

165,543

1,345

166,888

18 Provisions

The total of non-current and current provisions increased by € 47 million. This is the balance of the following changes:

Restructuring

Environmental

Other long-term

Other provisions

Total

costs and

termination

benefits

costs

employee

benefits

Balance at 1 January 2011

126

Changes in 2011:

- Additions

- Releases

- Uses

- Acquisitions

- Exchange differences

- Reclassifications

Total changes

Balance at 1 January 2012

Of which current

Changes in 2012:

- Additions

- Releases

- Uses

- Acquisitions

- Exchange differences

- Reclassifications

Total changes

Balance at 31 December 2012

Of which current

(8)

(13)

(2)

(51)

(4)

(3)

(1)

(5)

(1)

(2)

(3)

(5)

(11)

(1)

(23)

(11)

(17)

(29)

159

122

(3)

(82)

206

In cases where the effect of the time value of money is material, provisions are measured at the present value of the expenditures
expected to be required to settle the obligation. The discount rate used is based on swap rates for various terms, increased by 75
to 100 basis points depending on those terms. The balance of provisions measured at present value increased by € 1 million in
2012 in view of the passage of time and changes in the discount rate.

The provisions for restructuring costs and termination benefits mainly relate to the costs of redundancy schemes connected to the
dismissal and transfer of employees and costs of termination of contracts. These provisions have an average life of 1 to 3 years.

The provisions for environmental costs relate to soil clean-up obligations, among other things. These provisions have an average
life of more than 10 years.

The provisions for other long-term employee benefits mainly relate to length-of-service and end-of-service payments.

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182

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Several items have been combined under Other provisions, for example onerous contracts and legal fees. These provisions have
an average life of 1 to 3 years.

The additions to the provisions for restructuring costs and termination benefits in 2012 mainly relate to the restructuring projects
in connection with the Profit Improvement Program.

19 Borrowings

Debenture loans

Private loans

Finance lease liabilities

Credit institutions / commercial paper

Total

1,734

320

506

2,564

2012

Of which

current

135

506

642

Total

1,729

308

145

2,189

2011

Of which

current

145

160

In agreements governing loans with a residual amount at year-end 2012 of € 1,962 million, of which USD 150 million of a short-
term nature (31 December 2011: € 1,962 million, of which none of a short-term nature), clauses have been included which restrict
the provision of security. The documentation of the € 300 million bond issued in November 2005, which was increased by
€ 200 million in September 2008, the documentation of the € 750 million bond issued in October 2007 and the documentation of
the € 500 million bond issued in March 2009 include a change-of-control clause. This clause allows the bond investors to request
repayment at par if 50% or more of the DSM shares are controlled by a third party or if the company is downgraded below investment
grade (< BBB-). In December 2012 Moody's confirmed their A3 credit rating for DSM but upgraded the outlook from stable to
positive. Standard & Poor's upgraded DSM's credit rating in 2010 from A- to A with a stable outlook, which was reconfirmed in
2012.

At 31 December 2012, there were no borrowings with a remaining term of more than five years (31 December 2011: € 744 million).

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183

The schedule of repayment of borrowings (excluding debt to
credit institutions and commercial paper) is as follows:

The average effective interest rate on the portfolio of borrowings
outstanding in 2012, including financial instruments related to
these borrowings, amounted to 4.3% (2011: 4.3%).

2012

2013

2014

2015

2016 and 2017

After 2017

2012

2011

A breakdown of debenture loans is given below:

137

543

618

760

130

537

607

755

2012

2011

EUR loan

4.00%

5.25%

5.75%

2005-2015

2007-2017

2009-2014

490

745

499

488

744

497

Total

2,058

2,044

Total

1,734

1,729

A breakdown of the borrowings by currency (excluding debt to
credit institutions and commercial paper) is given in the following
table:

EUR

USD

CNY

Other

Total

2012

2011

1,753

231

1,752

240

2,058

2,044

On balance, total borrowings increased by € 375 million owing
to the following changes:

Balance at 1 January

2,189

2,097

2012

2011

Loans taken up

Repayments

Changes in fair value

Acquisitions/disposals

(De)consolidations

Changes in debt to credit

institutions/commercial paper

Exchange differences

Reclassification from held for sale

Other changes

(114)

103

361

(10)

(50)

(13)

Balance at 31 December

2,564

2,189

All debenture loans have a fixed interest rate.

The original amount of € 300 million of the 4% EUR loan
2005-2015 was swapped into CHF to hedge the currency risk
of net investments in CHF-denominated subsidiaries. This
original amount of the loan was pre-hedged (cash flow hedge) in
2005 by means of a forward starting swap, which led to a lower
effective fixed interest rate of 3.66%. The loan increase of
€ 192 million (after discount and fair value adjustments), was
swapped to floating rates in August 2009 by means of an interest
rate swap (fair value hedge). In August 2011 the swap to floating
was unwound and an interest advantage of 1.54% per annum
was locked in for the remaining life time. The effective interest
rate for the increase now amounts to 3.67% (2011: floating at
2.17% above 1 month Euribor until unwinding of fixed-floating
swap).

As in 2011, at year-end 2012 the 5.25% EUR loan 2007-2017
was swapped into CHF for an amount of € 325 million to hedge
the currency risk of net investments in CHF-denominated
subsidiaries. In 2006 and 2007 the loan had been partly pre-
hedged (cash flow hedge) by means of forward starting swaps,
leading to a lower effective fixed interest rate of 4.89% for the full
loan.

Of the € 500 million 5.75% EUR loan 2009-2014 € 300 million
was swapped to floating rates in September 2009 by means of
an interest rate swap (fair value hedge). In August 2011 the swap
to floating was unwound and an interest advantage of 1.31% per
annum was locked in for the remaining life time. The effective
interest now amounts to 5.1% for the whole loan (2011: until
unwinding of swap floating part at 3.48% above 1 month Euribor
and 5.88% on fixed part).

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184

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

In November 2010 pre-hedge contracts were concluded for an
intended refinancing in 2014 of the 5.75% EUR loan 2009-2014
at a 10 year interest rate of 3.42% excluding DSM spread.

20 Other non-current liabilities

In November 2011 pre-hedge contracts were concluded for an
intended refinancing in 2015 of the 4% EUR loan 2005-2015 at
a 10 year interest rate of 3.20% excluding DSM spread. At year-
end 2012 the fair value of the pre-hedge contracts amounted to
€ 112 million negative (year-end 2011 € 27 million negative),
which is recognized in the hedging reserve.

Investment grants

Deferred items

Other non-current liabilities

Total

A breakdown of private loans is given below:

2012

2011

The increase in investment grants is mainly relating to DSM Food
Specialties. The decrease in deferred items mainly relates to the
amortization of interest rate swaps.

2012

2011

CNY loan

floating

2008-2014

21 Current liabilities

(12 months)

5.51%

5.61%

USD loan

Other loans

Total

2003-2013

2003-2015

114

117

116

Trade payables

320

308

Received in advance

The fixed interest rate of the 5.51% USD loan 2003-2013 was
swapped into a floating rate by means of an interest rate swap
(fair value hedge). During 2005 this interest rate swap was
unwound. The gain from this transaction is recognized in income
over the remaing life of the bond, leading to an effective fixed
USD interest rate of 4.29% for the loan. This 5.51% USD loan
was assigned as a net investment hedge to hedge the currency
risk of net investments in USD-denominated subsidiaries.

The currency component of the 5.61% USD loan 2003-2015
was swapped into euros (cash flow hedge). The resulting EUR
liability was swapped into CHF to hedge the currency risk of net-
investments in CHF-denominated subsidiaries (net-investment
hedge).

DSM’s policy regarding financial-risk management is described
in note 23.

2012

2011

1,374

1,300

Trade accounts payable

Notes and cheques due

Owing to associates

Total

1,453

1,348

Other current liabilities

Income taxes payable

Other taxes and social security

contributions

Interest

Pensions

Investment creditors

Other liabilities

Deferred items

Total

141

318

628

106

292

557

22 Contingent liabilities and other financial obligations

The contingent liabilities and other financial obligations in the
following table are not recognized in the balance sheet.

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185

2012

2011

23 Financial instruments and risks

Operating leases and rents

Guarantee obligations on behalf of

associates and third parties

Outstanding orders for projects

under construction

Other

Total

158

259

156

271

Guarantee obligations are principally related to value added tax
and duties on the one hand and to financing obligations of
associates on the other. Most of the outstanding orders for
projects under construction will be completed in 2013. Property,
plant and equipment under operating leases primarily concerns
catalysts, buildings and various equipment items.

The commitments for operating leases and rents are spread as
follows:

2012

2013

2014

2015

2016 and 2017

After 2017

Total

2012

2011

Litigation
DSM has a process in place to monitor legal claims periodically
and systematically.

DSM is involved in several legal proceedings, most of which are
related to the ordinary course of business. DSM does not expect
these proceedings to result in liabilities that have a material effect
on the company's financial position. In cases where it is probable
that the outcome of the proceedings will be unfavorable, and the
financial outcome can be measured reliably, a provision has
been recognized in the financial statements and disclosed in
note 18: Provisions.

Policies on financial risks
General
The main financial risks faced by DSM relate to liquidity risk and
market risk (comprising interest rate risk, currency risk, price risk
and credit risk). DSM’s financial policy is aimed at minimizing the
effects of fluctuations in currency-exchange and interest rates
on its results in the short term and following market rates in the
long term. DSM uses financial derivatives to manage financial
risks relating to business operations and does not enter into
speculative derivative positions. DSM's financial policy, including
policies and processes for managing capital, is discussed more
extensively on page 110 of the Report by the Managing Board.

Liquidity risk
DSM has two committed credit facilities: one of € 400 million
maturing in April 2013 and one of € 500 million refinanced in
September 2011 and maturing in September 2016. The latter
had an extension option in 2012, which was utilized, bringing the
maturity to September 2017. In 2013 there is a second extension
option (to extend the final maturity by another year). Together,
the facilities amount to a total of € 900 million (2011: € 900
million). Furthermore, DSM has a commercial-paper program
amounting to € 1,500 million (2011: € 1,500 million). The
company will use the commercial-paper program to a total of not
more than € 900 million (2011: € 900 million). The agreements
for the committed credit facilities neither have financial covenants
nor material adverse changes clauses. On 31 December 2012
no loans were taken up under the committed credit facilities.
DSM has no derivative contracts to manage currency risk or
interest rate risk outstanding under which margin calls by the
counterparty would be permitted.

Floating-rate and fixed-rate borrowings and short-term
monetary liabilities analyzed by maturity are summarized in the
following table. Borrowings excluding credit institutions are
shown after taking into account related interest rate derivatives
in designated hedging relationships. DSM manages financial
liabilities and related derivative contracts on the basis of the
remaining contractual maturities of these instruments. Therefore
the remaining maturities presented in the following table provide
an appropriate understanding of the timing of the cash flows
related to these instruments, and amounts are not expected to
differ from those reported. Financial assets are not linked to
financial liabilities in order to meet cash outflows on these
liabilities.

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186

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

2011

Within 1 year

Within 1 to 2 years

Within 2 to 3 years

Within 3 to 4 years

Within 4 to 5 years

After 5 years

Total

2012

Within 1 year

Within 1 to 2 years

Within 2 to 3 years

Within 3 to 4 years

Within 4 to 5 years

After 5 years

Total

Fixed-rate

Floating-rate

Short-term

Subtotal

Interest

Cash at
1

Total cash

borrowings

monetary

payments

redemption

out

liabilities

2,050

2,065

130

537

607

744

2,050

4,094

378

2,587

2,724

543

618

751

121

499

605

744

1,980

121

505

618

751

2,160

223

607

675

780

4,492

2,819

614

684

786

1,996

2,587

4,646

288

4,950

1 Difference between nominal redemption and amortized costs

Interest rate risk
DSM’s interest rate risk policy is aimed at minimizing the interest rate risks associated with the financing of the company and thus
at the same time optimizing the net interest costs. This policy translates into a certain desired profile of fixed-interest and floating-
interest positions, including cash and cash equivalents, with the floating-interest position in principle not exceeding 60% of net
debt.

On 31 December 2012, DSM had no outstanding fixed-floating interest rate swaps other than the pre-hedges for refinancing in
2014 and 2015, respectively (see note 19).

The following analysis of the sensitivity of borrowings and related financial derivatives to interest rate movements assumes an
immediate 1% change in interest rates for all currencies and maturities from their level on 31 December 2012, with all other variables
held constant. A 1% reduction in interest rates would result in a € 6 million pre-tax loss in the income statement on the basis of the
composition of financial instruments on 31 December 2012 as floating-rate borrowings are more than compensated for by floating-
rate assets (mainly cash). The opposite applies in the case of a 1% increase in interest rates. The sensitivity of the fair value of
financial instruments on 31 December 2012 to changes in interest rates is set out in the following table.

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187

2012

2011

Carrying

Fair value

Sensitivity of fair value

Carrying

Fair value

Sensitivity of fair value

amount

to change in interest of:

amount

to change in interest of:

+1%

(1%)

+1%

(1%)

Current investments

Cash and cash equivalents

Short-term borrowings

Long-term borrowings

Interest rate swaps (fixed to floating and pre-

hedges)

1,121

(642)

1,121

(646)

(1,922)

(2,142)

(112)

(1)

(66)

2,058

(160)

2,058

(160)

2,029

(2,239)

(104)

(27)

(85)

(91)

Currency risk
It is DSM’s policy to hedge 100% of the currency risks resulting from sales and purchases at the moment of recognition of the
trade receivables and trade payables. In addition, operating companies may – under strict conditions – opt for hedging currency
risks from firm commitments and forecasted transactions. The currencies giving rise to these risks are primarily USD, GBP and
JPY. The risks arising from currency exposures are regularly reviewed and hedged when appropriate. DSM uses average-rate
currency forward contracts, currency forward contracts, spot contracts, and average-rate currency options to hedge the exposure
to fluctuations in foreign exchange rates. At year-end, these instruments had remaining maturities of less than one year.

To hedge intercompany loans, receivables and payables denominated in currencies other than the functional currency of the
subsidiaries, DSM uses currency swaps or forward contracts. Only for some larger internal loans with a total notional amount of
€ 1,482 million, hedge accounting is applied for these instruments. On 31 December 2012, the notional amount of the currency
forward contracts was € 3,458 million (2011: € 3,358 million).

In 2012 DSM hedged USD 919 million (2011 USD 812 million) of its projected net cash flow in USD in 2013, of which USD 379
million against EUR and USD 540 million against CHF by means of average-rate currency forward contracts at an average exchange
rate of USD 1.28 per euro and CHF 0.94 per US dollar, respectively, for the four quarters of 2013. In 2012 DSM also hedged
JPY 5,100 million (2011: JPY 7,000 million) of its projected net cash flow in JPY in 2013, of which JPY 4,000 million against
Swiss franc and JPY 1,100 million against the euro by means of average-rate currency forward contracts at an average exchange
rate of JPY 83 per Swiss franc and JPY 99 per euro, respectively, for the four quarters of 2013. DSM continued the hedge, started
in 2011, of projected GBP cash obligation against CHF: GBP 50 million at an average exchange rate of CHF 1.46 per British pound.
These hedges have fixed the exchange rate for part of the USD and JPY receipts and GBP payments in 2013. Cash flow hedge
accounting is applied for these hedges. As a result of similar hedges concluded in 2011 for the year 2012, in 2012 € 25 million
negative (2011: € 68 million positive) was recognized in the operating income of the segments involved in accordance with the
realization of the expected cash flows. There was no material ineffectiveness in relation to these hedges.

The currency risk associated with the translation of DSM's net investment in entities denominated in currencies other than the euro
was partially hedged at year-end 2012. CHF-denominated net assets have been partially hedged by currency swaps
(2012: CHF 1,061 million; 2011: CHF 1,061 million). USD-denominated net assets have been partially hedged through a USD loan
(2012: USD 150 million; 2011 USD 150 million). There was no material ineffectiveness in relation to these hedges.

The following analysis of the sensitivity of net borrowings and derivative financial instruments to currency movements against the
euro assumes a 10% change in all foreign currency rates against the euro from their level on 31 December, with all other variables
held constant. A +10% change indicates a strengthening of the foreign currencies against the euro. A -10% change represents a
weakening of the foreign currencies against the euro.

In 2012 no gains or losses relating to fair value hedges were included in Other financial income and expense (2011: € 13 million
gain).

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188

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Carrying

Fair value

Sensitivity of fair value to

Carrying

Fair value

Sensitivity of fair value to

amount

change in all exchange

amount

change in all exchange

2012

2011

rates of:

+10%

(10%)

rates of:

+10%

(10%)

Current investments

Cash and cash equivalents

Short-term borrowings

Long-term borrowings

Interest rate swaps

Cross currency swaps

Currency forward contracts

Cross currency swaps related to net

1,121

(642)

1,121

(646)

(1,922)

(2,142)

(112)

(53)

(112)

(53)

investments in foreign entities1

(113)

Average-rate forwards used for economic

hedging2

(24)

(20)

(216)

(92)

(28)

(56)

216

(29)

2,058

(160)

2,058

(160)

(2,029)

(2,239)

(27)

(104)

(1)

(27)

(104)

(1)

(117)

(27)

(6)

(31)

(132)

(94)

(31)

(76)

132

(66)

1 Fair-value change reported in Translation reserve
2 Fair-value change reported in Hedging reserve

The following analysis of the sensitivity of net borrowings and derivative financial instruments to currency movements against the
euro assumes a 10% change in the USD exchange rate against all foreign currencies and the euro from the level on 31 December,
with all other variables held constant. A +10% change indicates a strengthening of the USD against the foreign currencies and the
euro and a -10% change represents a weakening of the USD against the foreign currencies and the euro.

2012

2011

Carrying

Fair value

Sensitivity of fair value

Carrying

Fair value

Sensitivity of fair value

amount

to change in USD

amount

+10%

(10%)

to change in USD

+10%

(10%)

Current investments

Cash and cash equivalents

Short-term borrowings

Long-term borrowings

Interest rate swaps

Cross currency swaps

Currency forward contracts

Cross currency swaps related to net

1,121

(642)

1,121

(646)

(1,922)

(2,142)

(112)

(53)

(112)

(53)

(13)

(184)

(8)

investments in foreign entities1

(113)

Average-rate forwards used for economic

(7)

184

2,058

(160)

2,058

(160)

(2,029)

(2,239)

(27)

(104)

(1)

(27)

(104)

(1)

(117)

(1)

(26)

(126)

hedging2

(70)

(27)

(63)

(3)

126

(5)

1 Fair-value change reported in Translation reserve
2 Fair-value change reported in Hedging reserve

Fair-value changes on these positions will generally be recognized in profit or loss, with the exception of the instruments for which
cash flow hedge accounting or net-investment hedge accounting is applied. Cash flow hedge accounting is applied for the average
rate forwards and average-rate currency options used for economic hedging; the fair value changes of these derivatives are

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189

recognized in the Hedging reserve in equity until recognition of the related cash flows. Net-investment hedge accounting is applied
for the cross currency swaps used to protect net investments in foreign entities; the fair-value changes of these derivatives are
recognized in the Translation reserve in equity until the net investment is disposed of, to the extent that the changes in fair value
are caused by changes in currency-exchange rates.

Price risk
Financial instruments that are subject to changes in stock exchange prices or indexes are subject to a price risk. At year-end 2012
price risks related to investments in securities were limited.

Credit risk
DSM manages the credit risk to which it is exposed by applying credit limits per institution and by dealing exclusively with institutions
having a high credit rating. In September 2011 individual credit limits for financial institutions were reviewed and reduced by about
50% in anticipation of increasing exposure to credit risk as rising cash levels of DSM coincided with a still questionable stability of
banks. Given this economic environment, DSM decided to invest most of its cash position in deposits with a maximum maturity of
one month and with banks with a Moody's credit rating of AA3 or higher. This policy has been consistently applied since that time.

At the balance sheet date there were no significant concentrations of credit risk.

With regard to treasury activities it is ensured that financial transactions are only concluded with counterparties that have at least
a Moody's credit rating of P1 for short-term instruments or A3 for long-term instruments. At business group level, outstanding
receivables are continuously monitored by the management of the operating companies. Appropriate allowances are made for
credit risks that have been identified (as listed in note 13). It is therefore unlikely that significant losses will arise in relation to
receivables that have not been provided for.

The maximum exposure to credit risk is represented by the carrying amounts of financial assets that are recognized in the balance
sheet, including derivative financial instruments. No significant agreements or financial instruments were available at the reporting
date that would reduce the maximum exposure to credit risk. Information about financial assets is presented in note 10 Associates,
note 11 Other financial assets, note 13 Receivables, note 14 Current investments, note 15 Cash and cash equivalents and note
23 Financial instruments and risks.

Fair value of financial instruments
In the following table the carrying amounts and the estimated fair values of financial instruments are disclosed:

Assets

Other participations

Other non-current receivables

Current receivables

Financial derivatives

Current investments

Cash and cash equivalents

Liabilities

Non-current borrowings

Other non-current liabilities

Current borrowings

Financial derivatives

Other current liabilities

31 December 2012

31 December 2011

Carrying amount

Fair value

Carrying amount

Fair value

1,799

1,121

1,922

642

299

2,081

1,799

1,121

2,142

646

299

2,081

1,704

2,058

2,029

160

326

1,905

1,704

2,058

2,239

160

326

1,905

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

The following methods and assumptions were used to determine the fair value of financial instruments: cash, current investments,
current receivables, current borrowings and other current liabilities are stated at carrying amount, which approximates fair value in
view of the short maturity of these instruments. The fair values of financial derivatives and long-term instruments are based on
calculations, quoted market prices or quotes obtained from intermediaries.

The portfolio of derivatives consists of average rate forward contracts that are valued against average foreign exchange forward
rates obtained from Bloomberg and other derivatives that are valued using a discounted cash flow model, applicable market yield
curves and foreign exchange spot rates. All inputs for the fair value calculations represent observable market data that are obtained
from external sources that are deemed to be independent and reliable.

DSM uses the following hierarchy for determining the fair value of financial instruments measured at fair value:

- Level 1: quoted prices in active markets for identical assets or liabilities
- Level 2: other techniques for which all inputs that have a significant effect on the fair value are observable, either directly or

indirectly

- Level 3: techniques that use inputs that have a significant effect on the fair value that are not based on observable market data.

The following table shows the carrying amounts of the financial derivatives recognized, broken down by type and purpose:

Interest rate swaps

Currency swaps

Total financial derivatives related to borrowings

Currency forward contracts

Balance at 31 December 2011

Interest rate swaps

Currency swaps

Total financial derivatives related to borrowings

Currency forward contracts

Balance at 31 December 2012

Fair value hierarchy

Assets

Liabilities

Total

Level 2

(27)

(224)

(251)

(75)

(326)

(112)

(182)

(294)

(5)

(299)

(27)

(221)

(248)

(28)

(276)

(112)

(166)

(278)

(237)

During the year there were no transfers between individual levels of the fair value hierarchy.

24 Post-employment benefits

The group operates a number of defined benefit plans and defined contribution plans throughout the world, the assets of which
are generally held in separately administered funds. The pension plans are generally funded by payments from employees and from
the relevant group companies. The group also provides certain additional healthcare benefits to retired employees in the US.

Post-employment benefits relate to obligations that will be settled in the future and require assumptions to project benefit
obligations. Post-employment benefit accounting is intended to reflect the recognition of post-employment benefits over the
employee’s approximate service period, based on the terms of the plans and the investment and funding. The accounting requires
management to make assumptions regarding variables such as discount rate, future salary increases, life expectancy, and future
healthcare costs. Management consults with external actuaries regarding these assumptions at least annually for significant plans.

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191

Changes in these key assumptions can have a significant impact
on the projected defined benefit obligations, funding
requirements and periodic costs incurred.

The charges for pension costs recognized in the income
statement (note 4) relate to the following:

- Return on plan assets and interest costs on defined benefit
obligations which are currently reported in EBITDA will be
reported in financial income and expense from 2013 onwards
which will shift approximately € 15 million out of operating
profit to financial income and expense.

2012

2011

All these changes have been taken into account for the
determination of the expected costs for 2013 that are presented
below.

Defined benefit plans:

- Pension plans

- Healthcare plans

- Other post-employment benefits

Defined contribution plans

Total continuing activities

Discontinued activities

Exceptional items

Total

101

125

For 2013, costs for the defined benefit plans relating to pensions
and healthcare will be € 48 million (2012 € 24 million).

Changes in Prepaid pension costs and Employee benefits
liabilities recognized in the balance sheet are disclosed in the
following overview:

2012

2011

125

Prepaid pension costs

126

Employee benefits liabilities

(328)

(133)

(24)

(2)

(102)

(430)

(321)

(320)

(41)

(32)

(2)

(1)

(8)

(328)

In 2010 DSM agreed with the labor unions to change the Dutch
pension plan as of 2011. The plan was converted from final-pay
to average-pay and as of 1 January 2012 the pensionable age
was raised from 65 to 66 years, in line with developments in the
Netherlands. The new agreement covers a period of 5 years and
obliges DSM to pay a fixed premium. In view of the fact that DSM
has no further obligation than to pay the agreed premium, the
changed plan has been accounted for as a defined contribution
plan since 2011.

On 1 January 2013 accounting for defined benefit pension plans
changed as a result of the introduction of the revised IAS 19,
‘Employee Benefits’. Three important changes were introduced.

- The application of the corridor mechanism was abolished
which means that all actuarial gains and losses had to be
recognized in other comprehensive income immediately. This
change will not impact DSM because immediate recognition
of actuarial gains and losses is already applied since 2006.
- The expected return on pension assets were no longer used
for the determination of annual pension costs. Instead interest
costs or benefits are calculated on the net balance of pension
assets and liabilities. Because the expected return on plan
assets was usually higher than the discount rate this change
will increase annual defined benefit pension costs for DSM by
approximately € 10 million.

Balance at 1 January

Changes:

- Balance of actuarial

gains/(losses)

- Balance of asset ceiling

- Employee benefits costs

- Contributions by employer

- Exchange differences

- Reclassification from/to held for

sale

- Acquisitions / disposals

- Other changes

Total changes

Balance at 31 December

Of which:

- Prepaid pension costs

- Employee benefits liabilities

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The Employee benefits liabilities of € 430 million
(2011: € 328 million) consist of € 386 million (2011: € 288 million)
related to pensions, € 31 million (2011: € 28 million) related to
healthcare and other costs and € 13 million (2011: € 12 million)
related to other post-employment benefits.

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Pensions
The DSM group companies have various pension plans, which
are geared to the local regulations and practices in the countries
in which they operate. As these plans are designed to comply
with the statutory framework, tax legislation, local customs and
economic situation of the countries concerned, it follows that the
nature of the plans varies from country to country. The plans are
based on local legal and contractual obligations.

Defined benefit plans are applicable to certain employees in
Germany, the UK, Switzerland, the US and Austria. The rights
that can be derived from these plans are based primarily on
length of service and the majority of the plans are based on final
salary. The majority of the obligations are funded and have been
transferred to independent pension funds and life-insurance
companies.

Fair value of plan assets

Balance at 1 January

- Change in Dutch pension plan

Changes:

- Expected return on plan assets

- Actuarial gains/(losses)

Actual return on plan assets

- Contributions by employer

- Contributions by employees

- Exchange differences

- Benefits paid

The most important unfunded plans are in Germany and Austria.
Together they amount to € 274 million (2011: € 213 million).

Balance at 31 December

2012

2011

817

(45)

931

5,440

(4,699)

741

(18)

(36)

817

The amounts recognized in the balance sheet are as follows:

The changes in the present value of the defined benefit
obligations and in the fair value of plan assets of the major plans
are listed below:

Present value of defined benefit obligations

Balance at 1 January

- Change in Dutch pension plan

Changes:

- Service costs

- Interest costs

- Contributions by employees

- Actuarial (gains)/losses

- Past service costs

- Curtailments

- Exchange differences

- Benefits paid

2012

1,105

183

(8)

(1)

(45)

Present value of funded

2011

obligations

Fair value of plan assets

5,543

(4,524)

1,019

(36)

Present value of unfunded

obligations

Funded status

Effect of asset ceiling

Net liabilities / net assets

Of which:

- Liabilities (Employee benefits

liabilities)

Balance at 31 December

1,317

1,105

- Assets (Prepaid pension costs)

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2012

2011

(1,036)

931

(105)

(281)

(386)

(886)

817

(69)

(219)

(288)

The changes in the net assets / liabilities recognized in the balance sheet are as follows:

2012

2011

Balance at 1 January

Expense recognized in the income statement

Actuarial gains/(losses) recognized directly in Other comprehensive income during the year

Asset ceiling recognized directly in Other comprehensive income during the year

Contributions by employer

Exchange differences

Balance at 31 December

(288)

(20)

(129)

(386)

In 2013 DSM is expected to contribute € 42 million (actual 2012: € 50 million) to its defined benefit plans.

The major categories of pension-plan assets as a percentage of total plan assets are as follows:

Bonds

Equities

Property

Other

The pension-plan assets include neither ordinary DSM shares nor property occupied by DSM.

The total expense recognized in the income statement is as follows:

2012

59%

27%

(280)

(29)

(38)

(1)

(288)

2011

61%

28%

Current service costs

Interest on obligation

Expected return on plan assets

Past service costs

(Gains)/losses on curtailments

Costs related to defined benefit plans

2012

2011

(40)

(8)

(1)

(38)

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

The main actuarial assumptions for the year (weighted averages) are:

Discount rate

Price inflation

Salary increase

Pension increase

2012

2011

Plans outside the

Netherlands

2.80%

1.82%

2.69%

2.13%

3.90%

2.03%

2.87%

2.17%

Expected return on plan assets

2.25%-6.57%

In the Netherlands there is only one defined benefit plan which is immaterial for the group

The assumptions for the expected return on plan assets are based on a review of historical returns of the asset classes in which
the assets of the pension plans are invested and the expected long-term allocation of the assets over these classes. The 2012
assumptions are used for the determination of costs related to defined benefit plans for 2013 with the exception of the expected
return on plan assets.

Year-end amounts for the current and previous periods are as follows:

2012

2011

2010

2009

2008

Defined benefit obligations

Plan assets

(1,317)

931

(1,105)

817

(5,543)

5,440

(4,942)

4,876

(4,454)

4,213

Funded status of asset/(liability)

(386)

(288)

(103)

(66)

(241)

Experience adjustments on plan assets, gain/(loss)

Experience adjustments on plan liabilities, gain/(loss)

Gain/(loss) on liabilities due to changes in assumptions

(27)

(157)

(18)

(8)

(12)

245

(466)

485

(40)

(336)

(1,402)

106

Healthcare and other costs
In some countries, particularly in the US, group companies provide retired employees and their surviving dependants with post-
employment benefits other than pensions, mainly allowances for healthcare expenses and life-insurance premiums. Some of these
are unfunded; in these cases, approved expense claims are reimbursed out of the financial resources of the group companies
concerned.

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195

The amounts included in the balance sheet are as follows:

Present value of funded obligations

Fair value of plan assets (including reimbursement rights)

Present value of unfunded obligations

Funded status

Unrecognized past service costs

Net liability (Employee benefits liabilities)

The amounts recognized in the income statement are as follows:

Current service costs

Interest costs

Expected return on plan assets and reimbursement rights

Costs related to healthcare plans

2012

2011

(14)

(7)

(24)

(31)

(13)

(6)

(22)

(28)

2012

2011

(1)

(2)

The changes in the net liability for post-employment healthcare and other costs recognized in the balance sheet (Employee benefits
liabilities) can be shown as follows:

Balance at 1 January

Expense recognized in the income statement

Actuarial gains/(losses) recognized directly in equity

Benefits paid/employer contributions

Exchange differences

Balance at 31 December

2012

(28)

(2)

(3)

(31)

2011

(23)

(2)

(3)

(1)

(28)

In 2013 DSM is expected to contribute € 2 million (actual 2012: € 1 million) to its post-employment healthcare and other plans.

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

The main actuarial assumptions for post-employment healthcare costs (weighted averages) for the year are:

Discount rate

Price inflation

Salary increase

Healthcare-cost trend (initial rate)1

Healthcare-cost trend (ultimate rate)

Initial pre-medicare trend: 11.00%; initial post-medicare trend: 7.00%

2012

2011

4.10%

2.00%

3.00%

10.94%

4.75%

5.00%

2.75%

3.75%

11.00%

4.75%

The 2012 assumptions are used for the determination of post-employment healthcare costs for 2013.

A one-percentage-point change in assumed healthcare cost trend rates would have the following impact:

2011

Effect on the aggregate of service costs and interest costs (increase)

Effect on defined obligation (increase)

2012

Effect on the aggregate of service costs and interest costs (increase)

Effect on defined obligation (increase)

Amounts for the current and previous periods are as follows:

One-percentage-

point increase

point decrease

(2)

Defined benefit obligations

Plan assets (including reimbursement rights)

Funded status of asset/(liability)

Experience adjustments on plan assets / liabilities (loss)

Gain/(loss) on liabilities due to changes in assumptions

2012

2011

2010

2009

2008

(38)

(31)

(4)

(35)

(28)

(1)

(2)

(29)

(23)

(1)

(28)

(22)

(1)

(43)

(35)

(2)

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25 Net debt

The development of the components of net debt is as follows:

Borrowings:

- Non-current borrowings

- Current borrowings

Total borrowings

Current investments

Cash and cash equivalents

Financial derivatives, assets (see also note 23)

Financial derivatives, liabilities (see also note 23)

Net debt

26 Notes to the cash flow statement

2012

1,922

642

2,564

(12)

(1,121)

(62)

299

1,668

2011

2,029

160

2,189

(89)

(2,058)

(50)

326

318

The cash flow statement provides an explanation of the changes in cash and cash equivalents. It is prepared on the basis of a
comparison of the balance sheets as at 1 January and 31 December. Changes that do not involve cash flows, such as changes
in exchange rates, amortization, depreciation, impairment losses and transfers to other balance sheet items, are eliminated.

Changes in working capital due to the acquisition or disposal of consolidated companies are included under Investing activities.

Most of the changes in the cash flow statement can be traced back to the detailed statements of changes for the balance sheet
items concerned. For those balance sheet items for which no detailed statement of changes is included, the table below shows
the link between the change according to the balance sheet and the change according to the cash flow statement:

Operating working capital

Balance at 1 January

Balance at 31 December

Balance sheet change

Adjustments:

- Exchange differences

- Changes in consolidation (including acquisitions and disposals)

- Reclassification from / to held for sale

- Transfers / non cash value adjustments

Total change in perating working capital according to the cash flow statement

2012

2011

1,776

1,919

143

(169)

(2)

1,424

1,776

352

(27)

(121)

260

In 2012 the operating working capital of continuing operations, before reclassification to assets held for sale was € 1,936 million,
which amounts to 20.7% of annualized fourth quarter net sales (2011: 20.2%). Besides the business impact this increase was due
to acquisitions, changes in consolidation and an exchange rate effect.

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198

Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

27 Share-based compensation

Under the DSM Stock Incentive Plan, performance based and non-performance based stock options or Share Appreciation Rights
(SARs) are granted to senior management. Such a grant takes place on the first day on which the DSM stock is quoted ex-dividend
following the Annual General Meeting of Shareholders. The opening price of the DSM stock on that day is the exercise price of the
stock options and SARs.

Since 2011 only stock options have been granted, and Share Appreciation Rights are no longer used as share-based
compensation.

Stock Options and SARs have a term of eight years and are subject to a vesting period of three years. After this three-year period
one third of the stock options and SARs (non-performance-related) will vest and two thirds of the stock options and SARs that are
performance based will become exercisable in whole, in part, or not at all, depending on the total shareholder return (TSR) achieved
by DSM in comparison with a peer group. Non-vested performance based stock options and SARs will be forfeited. If employment
is terminated prior to the vesting date, specific rules regarding vesting and forfeitures apply. The exercise of stock incentives is
regulated.

Since 2010 only performance shares have been granted to the members of the Managing Board (no longer stock options).
Performance shares vest after three years upon the realization of a predefined performance measure. The performance schedule
is the same as that for stock options.

All stock options and performance shares are settled by physical delivery of DSM shares, while SARs are settled in cash.

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199

Overview of stock options and Share Appreciation Rights for management

Year of issue

Outstanding

In 2012

Outstanding

Fair value

Exercise

Expiry date

at 31 Dec.

Granted

Exercised

Average

price (€ )

Forfeited/

at 31 Dec.

expired

2012

on grant

date (€ )

price (€ )

2011

124,275

246,228

668,831

1,078,392

1,491,526

2,801,313

2,921,763

3,214,438

3,304,813

2004

2005

2006

2007

2008

20091,2

20101

20111

2012

(113,725)

(211,953)

(278,931)

(381,516)

(621,800)

(1,042,951)

(135,450)

41.99

42.51

43.77

43.69

43.28

43.22

42.94

(10,550)

(1,875)

(5,000)

(3,125)

32,400

384,900

693,751

866,601

(862,287)3

896,075

(186,875)3

2,599,438

(196,000)3

3,018,438

(24,000)3

3,280,813

2.97

6.15

8.95

7.69

5.73

2.83

6.07

9.60

6.88

17.90

2 Apr. 2012

29.05

8 Apr. 2013

38.30 31 Mar. 2014

33.60 30 Mar. 2015

29.79 28 Mar. 2016

21.10 27 Mar. 2017

33.10

6 Apr. 2018

46.20

2 May 2019

40.90 15 May 2020

2012 Total

12,546,766

3,304,813

(2,786,326)

43.23

(1,292,837)

11,772,416

Of which

vested

4,104,602

at 31 Dec.

2010

3,382,177

at 31 Dec.

2011

2011 Total

13,215,892

3,286,038

(3,059,315)

44.68

(895,849)

12,546,766

Of which

vested

4,379,866

4,104,602

1 Stock options will partly vest, and may therefore be immediately exercised, upon termination of employment in connection with retirement or early retirement. The remaining term
to exercise stock options or SARs after their vesting as a result of retirement or early retirement is limited to three years (the remaining term to exercise in the case of regular
vesting is five years).

2 Based on TSR performance, the stock incentives tied to performance granted in 2009 did only partially vest; the remaining part has been forfeited.
3 Number of forfeited options included: (2009) 862.287, (2010) 174.875, (2011) 184.000 and (2012) 24.000.

Certain employees in the Netherlands are entitled to employee stock options that are granted on the first day on which the DSM
stock is quoted ex-dividend following the Annual General Meeting of Shareholders. The opening price of the DSM stock on that
day is the exercise price of the stock options. Employee stock options can immediately be exercised and have a term of 5 years.

Overview of stock options for employees

Year of issue

Outstanding

In 2012

Outstanding

Fair value

at 31 Dec.

Granted

Exercised

Average

price (€ )

Forfeited/

at 31 Dec.

expired

2012

on grant

date (€ )

2007

2008

2009

2011

2012

(117,937)

(48,174)

(39,507)

42.74

43.00

42.85

(19,377)

(1,665)

(2,058)

(28,295)

(16,440)

78,804

105,449

574,010

579,805

4.27

3.27

2.31

10.35

6.79

636,810

(40,565)

44.99

2011

137,314

128,643

147,014

602,305

Exercise

price (€ )

Exercise

period

until

33.60

29.79

21.10

46.20

40.90

Mar. 2012

Mar. 2013

Mar. 2014

May 2016

May 2017

2012 Total

1,015,276

636,810

(246,183)

43.18

(67,835)

1,338,068

2011 Total

974,067

694,490

(483,203)

43.30

(170,078)

1,015,276

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

Based on the 2009 result, no employee option rights were granted in 2010.

Measurement of fair value
The costs of option plans are measured by reference to the fair value of the options at the date at which the options are granted.
The fair value is determined using the Black-Scholes model, taking into account market conditions linked to the price of the DSM
share. Stock-price volatility is determined on the basis of historical volatilities of the DSM share price measured each month over
a period equal to the expected option life. The costs of these options are recognized in the income statement (Employee benefits
costs).

The following assumptions were used in the Black-Scholes model to determine the fair value at grant date:

Management options

Risk-free rate

Expected option life in years

Nominal option life in years

Share price

Exercise price

Volatility

Expected dividend

Fair value of option granted

Employee options

Risk-free rate

Expected option life in years

Nominal option life in years

Share price

Exercise price

Volatility

Expected dividend

Fair value of option granted

2012

0.80%

40.9

28%

3.55%

6.88

2011

2.79%

46.2

26%

2.92%

9.6

0.25%

2.11%

2.5

40.9

34%

3.55%

6.79

2.5

46.2

40%

2.92%

10.35

In the costs for wages and salaries an amount of € 25 million is included for share-based compensation (2011: € 19 million). In the
following table the share-based compensation is specified:

Stock options

Share appreciation rights

Performance shares

Total expense

2012

2011

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28 Interests in joint ventures

DSM’s share in its most important joint ventures (joint ventures with a net asset value higher than € 25 million on a 100% basis) is
disclosed below:

Company

Location

Country

DSM interest

DSM Sinochem Pharmaceuticals, Ltd.1

DEXPlastomers V.o.F.

Percivia LLC

POET-DSM Advanced Biofuels LLC

1 The joint venture was started on 1 September 2011

2012

2011

Hong Kong

Heerlen

Wilmington

Sioux Falls

50%

The financial data of all joint ventures are included in the consolidated financial statements according to the method of proportionate
consolidation. DSM’s interests in the assets and liabilities, income and expense of all these joint ventures, before reclassification
to held for sale, are disclosed below (on a 50% basis):

Non-current assets

Current assets

Non-current liabilities

Current liabilities

Net assets

Net sales

Expenses

Net profit

2012

2011

201

232

(32)

(182)

219

254

(284)

(30)

130

207

(37)

(154)

146

112

(106)

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

29 Interests in associates

DSM’s share in its most important associates (associates with a net asset value higher than € 25 million on a 100% basis) is disclosed
below:

Company

Location

Country

DSM interest

Xinhui Meida - DSM Nylon Chips Co., Ltd.

Guangzhou

2012

25%

2011

25%

Investments in associates are accounted for by the equity method. The following table provides summarized financial information
on all associates on a 100% basis.

Non-current assets

Current assets

Non-current liabilities

Current liabilities

Net assets

Net sales

Net result

1 Before reclassification to held for sale

30 Related parties

2012

20111

145

(48)

(92)

460

176

(43)

(159)

443

Koninklijke DSM N.V. is the group holding company that is listed on the NYSE Euronext stock exchange in Amsterdam. The financial
statements of the company are included in the chapter Parent company financial statements.

In the ordinary course of business, DSM buys and sells goods and services to various related parties in which DSM has significant
influence. Transactions are conducted under terms and conditions that are equivalent to those that apply to arm's length
transactions. In 2011 significant transactions with Sitech Manufacturing Services C.V. occurred. This unit was consolidated until
the second quarter of 2011 and became associate as of July 2011 (see note 2).

Transactions and relationships with related parties are reported in the table below.

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Sales to related parties

Purchases from related parties

Loans to related parties

Receivables from related parties

Payables to related parties

1 Relates to continuing operations of DSM and includes the full year

20121

20111

147

266

135

249

DSM has provided guarantees to third parties for debts of associates for an amount of € 85 million (2011: € 85 million).

Other related-parties disclosure relates entirely to the key management of DSM, being represented by the company's Managing
Board and Supervisory Board.

The total remuneration and related costs (including pension expenditures and other commitments and excluding costs related to
long term incentives) of the current members of the Managing Board amounted to € 6.5 million (2011: € 5.5 million). This includes
fixed annual salary including other items to the amount of € 3.2 million (2011: € 3.1 million), short-term incentives to the amount of
€ 2.2 million (2011: € 2.0 million), and pension expenditure amounting to € 0.4 million (2011: € 0.4 million). In 2012 the costs included
an amount of € 0.7 million in respect of the non-recurring Dutch crisis levy. For further information about the remuneration of the
members of the Managing Board see note 10 to the financial statements of the parent company.

Members of the Supervisory Board received a fixed remuneration (included in General and administrative) totaling € 0.5 million
(2011: € 0.3 million).

Further information about the remuneration of Managing Board members and Supervisory Board members and their share option
rights is given in the report by the Supervisory Board, from page 122 onwards.

31 Service fees paid to external auditors

The service fees recognized in the financial statements 2012 for the service of Ernst & Young amounted to € 2.7 million
(2011: € 3.2 million). The amounts per service category are shown in the following table.

Audit of the financial statements

Other assurance services

Total assurance services

Tax services

Sundry services

Total

Total service fee

Of which Ernst & Young

Accountants LLP (Netherlands)

2012

2011

2012

2011

4.8

0.5

5.3

2.1

0.5

7.9

4.4

1.3

5.7

1.9

0.4

8.0

2.2

0.5

2.7

1.9

1.3

3.2

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Consolidated financial statements

Summary of significant accounting policies
Consolidated statements
Notes to the consolidated financial statements of
Royal DSM

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Parent company financial
statements

Balance sheet at 31 December of Koninklijke DSM N.V.

x € million

Assets

Non-current assets

Intangible assets

Property, plant and equipment

Financial assets

Deferred tax assets

Other non-current assets

Current assets

Receivables

Cash and cash equivalents

Total

Shareholders' equity and liabilities

Shareholders' equity

Share capital

Share premium

Treasury shares

Other reserves

Retained earnings

Proft for the year

Non-current liabilities

Provisions

Borrowings

Current liabilities

Provisions

Borrowings

Financial derivatives

Other current liabilities

Total

Income statement

x € million

Share in results of subsidiaries, joint ventures and associates (after income tax expense)

Other income and expense

Net profit attributable to equity holders of Koninklijke DSM N.V.

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Notes

2012

2011

424

12,336

114

12,894

131

172

411

12,118

12,635

135

175

13,066

12,810

338

489

(479)

429

4,809

288

5,874

1,848

1,849

414

262

4,667

5,343

338

489

(698)

274

4,567

814

5,784

1,962

1,964

181

4,880

5,062

13,066

12,810

2012

406

(118)

288

2011

868

(54)

814

Parent company financial statements

Notes to the parent company financial statements

1 General

Unless stated otherwise, all amounts are in € million.

The Parent company financial statements are the financial statements of Koninklijke DSM N.V., which have been prepared in
accordance with accounting principles generally accepted in the Netherlands.

The accounting policies used are the same as those used in the consolidated financial statements, in accordance with the provisions
of article 362-8 of Book 2 of the Dutch Civil Code. In these separate financial statements investments in subsidiaries are accounted
for using the net asset value. The balance sheet presentation is aligned with the consolidated financial statements in order to
enhance transparency and facilitate understanding. In conformity with article 402, Book 2 of the Dutch Civil Code, a condensed
income statement is included in the separate financial statements of the parent company.

Information on the use of financial instruments and on related risks for the group is provided in the Notes to the consolidated
financial statements of Royal DSM.

2 Intangible assets

The carrying amount of intangible assets mainly comprises goodwill on the acquisition of NeoResins in 2005 (€ 358 million), Crina
in 2006 (€ 8 million) and Pentapharm in 2007 (€ 32 million).

3 Property, plant and equipment

This item mainly relates to land and buildings and corporate IT projects. Capital expenditure in 2012 was € 9 million
(2011: € 2 million), while the depreciation charge in 2012 was € 1 million (2011: € 1 million). The historical cost of property, plant
and equipment as at 31 December 2012 was € 57 million (2011: € 48 million); accumulated depreciation amounted to
€ 39 million (2011: € 38 million).

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4 Financial assets

Balance at 1 January 2011

11,383

11,055

315

Total

Subsidiaries

Other loans

Share in equity

Loans

- Changes:

- Share in profit

- Dividend received

- Capital payments

- Net actuarial gains/(losses)

- Net asset ceiling

- Intra-group transfers

- Change in Fair value reserve

- Change in Hedging reserve

- Exchange differences

- Disposals

- New loans

- Transfers

868

(593)

553

(31)

(65)

(48)

(94)

(6)

868

(593)

553

(31)

(65)

(48)

(94)

Balance at 31 December 2011

12,118

11,794

315

Changes:

- Share in profit

- Dividend received

- Capital payments

- Net actuarial gains/(losses)

- Change in Fair value reserve

- Change in Hedging reserve

- Exchange differences

- New loans

- Transfers

406

(557)

442

(100)

(7)

(23)

(6)

406

(557)

442

(100)

(7)

(23)

Balance at 31 December 2012

12,336

12,017

315

(6)

5 Receivables

Receivable from subsidiaries

Loans to subsidiaries

Other receivables / deferred items

Total

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2012

2011

113

131

135

Parent company financial statements

Notes to the parent company financial statements

6 Shareholders' equity

Balance at 1 January

Net profit

Exchange differences, net of income tax

Net actuarial gains/(losses) on defined benefit obligations

Net asset ceiling related to defined benefit plans

Dividend

Repurchase of shares

Proceeds from reissue of ordinary shares

Other changes

2012

5,784

288

(27)

(100)

(254)

182

2011

5,481

814

(31)

(242)

(357)

201

(136)

Balance at 31 December

5,874

5,784

For details see the consolidated statement of changes in equity (note 16).

Legal reserve
Since the profits retained in Koninklijke DSM N.V.'s subsidiaries can be distributed, and received in the Netherlands, no legal reserve
for retained profits is required. In Shareholders' equity an amount of € 245 million (2011: € 273 million) is included for Translation
reserve, -€ 29 million (2011: -€ 21 million) for Hedging reserve and -€ 24 million (2011: -€ 16 million) for Fair value reserve.

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7 Provisions

The total of non-current and current provisions decreased by € 2 million compared to 2011. This is the net effect of the following
changes:

Environmental costs

Other provisions

Total

Balance at 1 January 2011

Changes in 2011:

- Additions

- Uses

- Releases

Total changes

Balance at 31 December 2011

Of which current

Balance at 1 January 2012

Changes in 2012:

- Additions

- Uses

- Releases

Total changes

Balance at 31 December 2012

Of which current

8 Borrowings

Debenture loans

Private loans

Commercial paper

Total

(1)

(2)

(1)

(2)

(3)

(2)

2012

2011

Total

Of which current

Total

Of which current

1,734

228

300

2,262

114

300

414

1,729

233

1,962

At 31 December 2012, there were no borrowings with a remaining term of more than 5 years (31 December 2011: € 744 million).

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Parent company financial statements

Notes to the parent company financial statements

The repayment schedule for borrowings (excluding commercial
paper) is as follows:

9 Other current liabilities

2013

2014

2015

2016 and 2017

2018 through 2022

2012

2011

114

499

604

745

117

497

604

744

2012

2011

Owing to subsidiaries

4,585

4,781

Other liabilities

Deferred items

Total

4,667

4,880

Total

1,962

In agreements governing loans with a residual amount at year-
end 2012 of € 1,962 million, of which € 114 million of a current
nature (31 December 2011: € 1,962 million, of which none of a
current nature), clauses have been included which restrict the
provision of security. More information on borrowings is provided
in note 19 (Borrowings) to the consolidated financial statements.

10 Remuneration of the members of the Managing Board

Contingent liabilities
Guarantee obligations on behalf of affiliated companies and third
parties amounted to € 199 million (31 December 2011:
€ 178 million). Koninklijke DSM N.V. has declared in writing that
it accepts several liabilities for debts arising from acts-in-law of
a number of consolidated companies. These debts are included
in the consolidated balance sheet.

Remuneration
The remuneration of the members of the Managing Board is determined by the Supervisory Board within the framework of the
remuneration policy as approved by the Annual General Meeting of Shareholders. More details about the remuneration policy are
included in the Report by the Supervisory Board from page 122 onwards.

The remuneration and related costs (including pension expenditure and other commitments and excluding costs related to long
term incentives) of the current members of the Managing Board amounted to € 6.5 million (2011: € 5.5 million). Total costs for DSM
in 2012 included € 0.7 million in respect of the non-recurring Dutch crisis levy, which is a payment to the Dutch tax authorities
based on salaries paid to executives that does not benefit the executives privately. The remuneration of the individual current
members of the Managing Board and the related amounts of crisis levy were as follows:

x € thousand

Salary including other items

Short-term incentive

Pension expenditure

Crisis levy

Feike Sijbesma

Stefan Doboczky

Nico Gerardu

Rolf-Dieter Schwalb

Stephan Tanda

2012

9571

554

551

554

2011

2012

2011

847

601

532

559

657

279

431

424

412

684

n.a.

464

444

452

2012

124

2011

110

Total

3,167

3,071

2,203

2,044

448

384

Including a one time payment in 2012 with respect to 25 years of service

2012

255

195

101

698

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Outstanding and exercised stock incentives
The following table shows the stock incentives of the individual members of the Managing Board and the rights exercised.

Overview of stock options

Year of issue Outstanding at

In 2012

Outstanding at

Average share

Exercise

Expiry date

31 Dec. 2011

Exercised

Forfeited/

31 Dec. 2012

price at

price (€ )

expired

exercise (€ )

Feike Sijbesma

Of which vested

Stefan Doboczky

Of which vested

Nico Gerardu

Of which vested

Rolf-Dieter Schwalb

Of which vested

Stephan Tanda

Of which vested

2005

2006

2007

2008

2009

Total

2008

2009

2010

Total

2005

2006

2007

2008

2009

Total

2007

2008

2009

Total

2007

2008

2009

Total

7,500

15,000

22,500

28,125

37,500

110,625

73,125

9,375

36,000

81,375

9,375

18,000

15,000

22,500

30,000

108,000

78,000

22,500

30,000

75,000

45,000

22,500

30,000

75,000

45,000

(7,500)

40.51

29.05

8 Apr. 2013

(7,500)

(18,750)

(9,375)

(24,000)

(12,000)

(33,375)

(12,000)

(18,000)

(15,000)

15,000

22,500

28,125

18,750

84,375

36,000

15,000

22,500

15,000

75,000

22,500

15,000

60,000

22,500

15,000

60,000

38.30 31 Mar. 2014

33.60 30 Mar. 2015

29.79 28 Mar. 2016

21.10 27 Mar. 2017

40.83

29.79 28 Mar. 2016

21.10 27 Mar. 2017

33.10

6 Apr. 2018

43.14

29.05

8 Apr. 2013

38.30 31 Mar. 2014

33.60 30 Mar. 2015

29.79 28 Mar. 2016

21.10 27 Mar. 2017

33.60 30 Mar. 2015

29.79 28 Mar. 2016

21.10 27 Mar. 2017

33.60 30 Mar. 2015

29.79 28 Mar. 2016

21.10 27 Mar. 2017

Since 2010 the Managing Board has been granted performance shares instead of stock options.

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Parent company financial statements

Notes to the parent company financial statements

Overview of performance shares

Year of issue Outstanding

In 2012

Outstanding

Vested as of

Year of

Share price

at 31 Dec.

Granted

Exercised

Forfeited /

at 31 Dec.

31 Dec.

vesting

at date

expired

2012

of grant (€ )

Feike Sijbesma

Stefan Doboczky

Nico Gerardu

Rolf-Dieter Schwalb

Stephan Tanda

2011

2,000

4,000

6,000

7,500

10,000

28,500

24,000

82,000

16,000

4,000

6,000

8,000

19,000

16,000

59,000

6,000

8,000

19,000

16,000

55,000

3,956

6,000

8,000

19,000

16,000

52,956

20051

20061

20071

20081

20091

2010

2011

2012

Total

2011

2012

Total

20061

20071

20081

20091

2010

2011

2012

Total

20071

20081

20091

2010

2011

2012

Total

20071

20081

20091

2010

2011

2012

Total

2,000

4,000

6,000

7,500

5,000

2008

2009

2010

2011

2012

(5,000)

2,000

4,000

6,000

7,500

5,000

28,500

24,000

31,000

(5,000)

108,000

24,500

31,000

20,000

(4,000)

20,000

(4,000)

20,000

(4,000)

20,000

(4,000)

16,000

20,000

36,000

4,000

6,000

4,000

19,000

16,000

20,000

75,000

6,000

4,000

19,000

16,000

20,000

71,000

3,956

6,000

4,000

19,000

16,000

20,000

68,956

4,000

6,000

4,000

20,000

6,000

4,000

16,000

3,956

6,000

4,000

13,956

2009

2010

2011

2012

2010

2011

2012

2010

2011

2012

29.05

38.30

33.60

29.79

21.10

33.10

46.20

40.90

46.20

40.90

38.30

33.60

29.79

21.10

33.10

46.20

40.90

33.60

29.79

21.10

33.10

46.20

40.90

33.60

29.79

21.10

33.10

46.20

40.90

1 The shares of the series 2005, 2006, 2007, 2008 and 2009 have vested and have been delivered to the individual Board members. The retention period expires in the fifth year

after the year of vesting or at termination of employment if this occurs earlier.

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Shares
In addition to the performance shares granted under the DSM Stock Incentive Plan, the current members of the Managing Board
have themselves invested in DSM shares. At year-end 2012 the current members of the Managing Board together held 64,556
shares (year-end 2011: 60,056) in Koninklijke DSM N.V.

Loans
The company does not provide any loans to members of the Managing Board.

11 Remuneration of the members of the Supervisory Board

The total remuneration (annual fixed fee and annual committee membership fee) of the members of the Supervisory Board amounted
to € 0.5 million (2011: € 0.3 million).

The remuneration of the individual members of the Supervisory Board was as follows:

in €

Annual fixed fee

Committee fee

Other costs

Total

Rob Routs, chairman from 28 April 2011

Ewald Kist, deputy chairman

Victoria Haynes (from 11 May 2012)

Pierre Hochuli

Eileen Kennedy (from 11 May 2012)

Pauline van der Meer Mohr (from 28 April 2011)

Claudio Sonder

Tom de Swaan

Cor Herkströter, chairman until 28 April 2011

Total

Total 2011

64,602

46,401

31,923

46,401

31,923

46,401

12,333

6,666

13,500

3,333

12,333

13,500

16,167

2012

2011

1,250

4,804

9,938

1,250

9,938

4,804

7,250

4,804

78,185

63,538

48,527

61,151

45,194

63,538

67,151

67,372

59,268

51,845

n.a.

48,255

n.a.

37,544

48,255

53,678

20,750

360,453

90,165

44,038

494,656

319,595

245,010

58,668

15,917

319,595

At year-end 2012 the members of the Supervisory Board held no shares in Koninklijke DSM N.V. (same as in 2011).

Heerlen, 18 February 2013

Heerlen, 19 February 2013

Managing Board,

Supervisory Board,

Feike Sijbesma, CEO/Chairman
Rolf-Dieter Schwalb, CFO
Stefan Doboczky
Nico Gerardu
Stephan Tanda

Rob Routs, Chairman
Ewald Kist, Deputy Chairman
Victoria Haynes
Pierre Hochuli
Eileen Kennedy
Pauline van der Meer Mohr
Claudio Sonder
Tom de Swaan

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Parent company financial statements

Notes to the parent company financial statements

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215

Other information

Independent Auditor's Report on the
Financial Statements

To the Shareholders and the Supervisory Board of Royal DSM

Report on the financial statements
We have audited the accompanying financial statements 2012
of Koninklijke DSM N.V. (hereafter: Royal DSM), Heerlen. The
financial statements include the consolidated financial
statements and the company financial statements. The
consolidated financial statements comprise the consolidated
balance sheet as at 31 December 2012, the consolidated
income statement, the consolidated statement of
comprehensive income, the consolidated statement of changes
in equity and the consolidated cash flow statement for the year
then ended, and notes, comprising a summary of the significant
accounting policies and other explanatory information. The
parent company financial statements comprise the company
balance sheet as at 31 December 2012, the company income
statement for the year then ended and the notes, comprising a
summary of the accounting policies and other explanatory
information.

Management's responsibility
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union and with Part 9 of Book 2 of the Dutch Civil
Code, and for the preparation of the Report by the Managing
Board in accordance with Part 9 of Book 2 of the Dutch Civil
Code. Furthermore management is responsible for such internal
control as it determines is necessary to enable the preparation
of the financial statements that are free from material
misstatement, whether due to fraud or error.

Auditor's responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in
accordance with Dutch law, including the Dutch Standards on
Auditing. This requires that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material
misstatement. An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the
auditor's judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and
fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness

of the entity's internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial
statements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit
opinion.

Opinion with respect to the consolidated financial statements
In our opinion, the consolidated financial statements give a true
and fair view of the financial position of Royal DSM as at 31
December 2012, its result and its cash flows for the year then
ended in accordance with International Financial Reporting
Standards as adopted by the European Union and with Part 9
of Book 2 of the Dutch Civil Code.

Opinion with respect to the company financial statements
In our opinion, the company financial statements give a true and
fair view of the financial position of Royal DSM as at 31 December
2012 and of its result for the year then ended in accordance with
Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements
Pursuant to the legal requirement under Section 2:393 sub 5 at
e and f of the Dutch Civil Code, we have no deficiencies to report
as a result of our examination whether the Report by the
Managing Board as set out on page 10 to page 122 , to the
extent we can assess, has been prepared in accordance with
Part 9 of Book 2 of this Code, and whether the information as
required under Section 2:392 sub 1 at b-h has been annexed.
Further we report that the Report by the Managing Board as set
out on page 10 to page 122 , to the extent we can assess, is
consistent with the financial statements as required by Section
2:391 sub 4 of the Dutch Civil Code.

Eindhoven, February 19, 2013

P.J.A.M. Jongstra, Ernst & Young Accountants LLP

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216

Other information

Independent Auditor's Report on the Financial
Statements
Independent Assurance Report on Sustainability
Information
Profit appropriation
Special statutory rights
Important dates

Independent Assurance Report on
Sustainability Information

The main procedures that we have performed with respect to
the Sustainability Information are:

To the Supervisory Board and shareholders of Royal DSM

- assessing the suitability of the reporting principles used and

its consistent application;

Engagement
We have reviewed the Sustainability Information in the
accompanying Integrated Annual Report 2012 of Koninklijke
DSM N.V. (hereafter Royal DSM). The Sustainability Information
comprises the following sections DSM in motion: driving focused
growth, Growth driver: Sustainability, Stakeholder engagement,
People in 2012 and Planet in 2012 (hereafter ’the Sustainability
Information‘), as included in the Report by the Managing Board
on page 10 to page 122 in the Integrated Annual Report 2012.

- reviewing the design and existence of systems and processes
for information management, internal control and processing
of the qualitative and quantitative data in the Sustainability
Information, at corporate level;

- interviews of relevant staff at corporate level responsible for

the reported information on specific issues including
sustainability strategy, employee engagement survey, ECO+
and safety;

- reviewing, on a test basis, whether the qualitative information

Responsibility
The Managing Board of Royal DSM is responsible for the
preparation of the Sustainability Information, stakeholder
engagement and the selection of material topics in accordance
with the criteria applied. The decisions made by management in
respect of the scope of the Integrated Report and the internal
reporting guidelines are set forth in the section entitled Reporting
policy in the Integrated report from page 110 . Our responsibility
is to provide limited assurance that the Sustainability Information
is correctly presented in accordance with the criteria applied.

Criteria applied
Royal DSM applies the G3 guidelines of the Global Reporting
Initiative supported with the internal reporting guidelines as
described in the Reporting Policy from page 110 . It is important
to view the performance data in the context of these criteria. We
believe that these criteria are suitable in the view of the purpose
of our assurance engagement.

Procedures performed
We conducted our engagement in accordance with Dutch law,
including the Dutch Standards 3410N, Assurance Engagements
with respect to Sustainability Reports. This requires that we
comply with ethical requirements and plan and perform
procedures to obtain sufficient and appropriate evidence to
substantiate our conclusion. Procedures to obtain limited level
of assurance are less extensive in relation to both the risk
assessment procedures, including an understanding of internal
control, and the procedures performed in response to the
assessed risks, than those for a reasonable level of assurance
and therefore less assurance is provided.

is supported by sufficient evidence;

- reviewing the environmental data submitted by all sites for
central aggregation, together with an assessment of the
quality of the data validation process at corporate level;

- reviewing the people data submitted by all Business Groups
for central aggregation, together with an assessment of the
quality of the data validation process at corporate level;

- reviewing the results of procedures performed as part of the
Operational Audits at key Royal DSM sites in 2010-2012 with
respect to Sustainability Information carried out by the
Corporate Operational Audit department of Royal DSM;

- reviews on the results of people and environmental data trends
and the explanations provided in the Sustainability Information
and discussed these with management at corporate level;
- media and internet searches on environmental, safety and

social issues relating to Royal DSM, to obtain information on
relevant sustainability issues in the reporting period;

- evaluating the overall view presented in the Sustainability

Information and reviewing it against the GRI application level
declared by Royal DSM in the letter of the Chairman from page
6 .

We believe that the assurance evidence we have obtained is
sufficient and appropriate to provide a basis for our conclusion.

Conclusion
Based on our assurance procedures performed to obtain limited
assurance on the Sustainability Information, nothing came to our
attention that causes us to believe that the Sustainability
Information is not, in all material respects, correctly presented in
accordance with the Sustainability Reporting Guidelines (G3) of
the Global Reporting Initiative and the internal reporting criteria
as described from page 110 .

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217

Other
We also report, to the extent of our competence, that information
on sustainability in other sections of the Integrated Annual Report
is consistent with the Sustainability Information.

Eindhoven, 19 February 2013

P.J.A.M. Jongstra, Ernst & Young Accountants LLP

Profit appropriation

According to article 32 of the Articles of Association of Koninklijke
DSM N.V. and with the approval of the Supervisory Board, every
year the Managing Board determines the portion of the net profit
to be appropriated to the reserves. For the year 2012 the net
profit is € 288 million and the amount to be appropriated to the
reserves has been established at € 25 million. From the
subsequent balance of the net profit (€ 263 million), dividend is
first distributed on the cumulative preference shares B. At the
end of 2012 no cumprefs B were in issue. Subsequently, a
4.348% dividend is distributed on the cumulative preference
shares A, based on a share price of € 5.29 per cumulative
preference share A. For 2012 this distribution amounts to
€ 0.23 per share, which is € 10 million in total. An interim dividend
of € 0.08 per cumulative preference share A having been paid in
August 2012, the final dividend will then amount to € 0.15 per
cumulative preference share A.

The profits remaining after distribution of these dividends on the
cumulative preference shares A (€ 278 million) will be put at the
disposal of the Annual General Meeting of Shareholders in
accordance with the provisions of Article 32, section 6 of the
Articles of Association.

The Managing Board proposes a dividend on ordinary shares
outstanding for the year 2012 of € 1.50 per share. An interim
dividend of € 0.48 per ordinary share having been paid in August
2012, the final dividend would then amount to € 1.02 per ordinary
share.

If the Annual General Meeting of Shareholders makes a decision
in accordance with the proposal, the net profit will be
appropriated as follows:

in € million

Net profit

Profit appropriation:

- To be added to the reserves

- Dividend on cumprefs A

- Interim dividend on ordinary

- Final dividend distributable on

ordinary shares

2012

2011

288

814

173

567

163

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On 31 December 2012 the board of the Foundation was
composed as follows:

Gerard Kleisterlee, chairman
Cees Maas, vice-chairman
Mick den Boogert

Important dates

Annual General Meeting of Shareholders

The Annual General Meeting of Shareholders is to be held at the DSM

head office in Heerlen (Netherlands) on Friday, 3 May 2013 at 14.00

hours.

Important dates

Publication of first-quarter results

Thursday, 2 May 2013

Ex-dividend quotation

Publication of second-quarter

Tuesday, 7 May 2013

results

Tuesday, 6 August 2013

Publication of third-quarter results

Tuesday, 5 November 2013

Annual report 2013

Wednesday, 26 February 2014

Other information

Independent Auditor's Report on the Financial
Statements
Independent Assurance Report on Sustainability
Information
Profit appropriation
Special statutory rights
Important dates

Special statutory rights

DSM Preference Shares Foundation
The DSM Preference Shares Foundation was established in
1989.

By virtue of DSM's Articles of Association, 375,000,000
cumulative preference shares B can be issued. The listing
prospectus of 1989 stated that if, without the approval of the
Managing Board and Supervisory Board, either a bid is made for
the ordinary shares or a significant participation in ordinary
shares is built up, or such an event is likely to occur, then these
preference shares B may be issued, which shares shall have the
same voting rights as the ordinary shares.

Under an agreement entered into in 1999, and subsequently
amended, between the DSM Preference Shares Foundation and
DSM, the Foundation has the right to acquire such preference
shares (call option) to a maximum corresponding to 100% of the
capital issued in any form other than preference shares B, less
one.

The objective of the Foundation is to promote the interest of
DSM, and the enterprise maintained by DSM and all parties
connected therewith, whereby influences that would threaten
the continuity, independence or identity, contrary to the
aforementioned interests, are resisted to the maximum extent
possible.

The purpose of the agreement with the Foundation is, among
other things, for the Foundation to allow DSM the opportunity to
determine its position, for example with regard to a possible
bidder for DSM shares or a party or parties tempting to obtain
(de facto) control, to examine any plans in detail and, to the
extent applicable, to look for (better) alternatives. Preference
shares B will not be outstanding longer than necessary. As soon
as there are no longer any reasons for the preference shares B
to remain outstanding, the Managing Board will convene a
General Meeting of Shareholders and recommend the
cancellation of the preference shares B that are still outstanding.

The Foundation acquired no preference shares B in 2012.

The DSM Preference Shares Foundation is an independent legal
entity within the meaning of article 5:71, first paragraph, under c
of the Dutch Act on Financial Supervision (Wet op het financieel
toezicht).

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DSM figures: five-year summary

Balance sheet

x € million

Assets

Intangible assets

Property, plant and equipment

Deferred tax assets

Prepaid pension costs

Associates

Other financial assets

Non-current assets

Inventories

Receivables

Financial derivatives

Current investments

Cash and cash equivalents

Assets to be contributed to joint ventures

Other assets held for sale

Current assets

Total assets

Equity and liabilities

Shareholders' equity

Non-controlling interests

Equity

Deferred tax liabilities

Employee benefits liabilities

Provisions

Borrowings

Other non-current liabilities

Non-current liabilities

Employee benefits liabilities

Provisions

Borrowings

Financial derivatives

Current liabilities

Liabilities to be contributed to joint ventures

Other liabilities held for sale

Current liabilities

2012

2011

2010

2009

2008

2,793

3,811

340

141

7,125

1,803

1,799

1,121

4,797

1,786

3,405

292

135

5,653

1,573

1,704

2,058

5,474

4,841

5,504

1,070

2,943

326

270

4,635

1,340

1,477

134

837

1,453

5,241

317

287

5,845

1,053

3,477

322

282

233

1,200

3,641

392

137

176

5,385

5,565

1,359

1,410

1,340

4,204

1,765

1,632

601

4,088

4,229

4,088

11,966

11,157

10,480

9,614

9,653

5,874

168

6,042

236

388

125

1,922

2,765

642

299

2,081

3,145

5,784

190

5,974

192

322

116

2,029

2,728

160

326

1,905

2,440

3,159

2,455

5,481

5,577

155

297

1,992

2,570

105

219

1,789

2,170

104

2,333

4,949

5,011

115

298

103

2,066

2,631

102

138

1,638

1,965

4,633

4,695

122

314

190

1,559

2,250

734

179

1,680

2,708

1,972

2,708

Total equity and liabilities

11,966

11,157

10,480

9,614

9,653

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DSM figures: five-year summary

Income statement

x € million

Net sales

2012

2011

2010

2009

2008

9,131

9,193

9,050

7,866

9,297

Operating profit plus depreciation and amortization (EBITDA)

1,109

1,325

1,278

917

1,357

Operating profit (EBIT)

Net finance costs

Income tax expense

Share of the profit of associates

Net profit before exceptional items

Net profit from exceptional items

Profit for the year

Profit attributable to non-controlling interests

Net profit attributable to equity holders of Koninklijke DSM N.V.

Dividend on cumulative preference shares

Net profit available to holders of ordinary shares

Key figures and ratios

Capital employed1

Capital expenditure:

- Intangible assets and Property, plant and equipment

- Acquisitions

Disposals

Depreciation, amortization and impairments

Net debt

Dividend

635

(94)

(96)

447

(149)

298

(10)

288

(10)

278

895

(82)

(155)

661

199

860

(46)

814

(10)

804

838

(93)

(185)

565

(40)

525

(18)

507

(10)

497

443

(113)

(83)

(4)

243

336

337

(10)

327

903

(102)

(196)

(3)

602

(31)

571

577

(10)

567

8,084

6,581

5,468

5,673

6,558

715

1,265

474

1,668

263

528

974

742

430

318

247

427

377

440

(108)

234

472

(5)

287

474

830

205

587

152

454

1,781

204

Workforce at 31 December, headcount

Employee benefits costs (x € million)

23,498

1,761

22,224

1,655

21,911

1,566

22,738

1,532

23,591

1,465

Ratios1

- ROCE in %

- Net sales / average capital employed

- Current assets / current liabilities

- Equity / total assets

- Gearing (net debt / equity plus net debt)

- EBIT / net sales in %

- Net profit / average Shareholders' equity available to holders

of ordinary shares in %

- EBITDA / net finance costs

1 Before reclassification to held for sale

8.9

1.29

1.53

0.50

0.22

7.0

5.0

11.8

14.3

1.53

2.24

0.54

0.05

9.7

14.9

16.2

15.0

1.62

2.42

0.53

(0.02)

9.3

10.0

13.7

7.2

1.29

2.14

0.52

0.14

5.6

7.2

8.1

14.4

1.48

1.51

0.49

0.28

9.7

11.9

13.3

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Information about ordinary DSM shares

per ordinary share in €

2012

2011

2010

2009

2008

Core earnings

Net profit before exceptional items

Net profit

Cash flow

Dividend:

- Interim dividend

- Final dividend

Pay-out including dividend on cumulative preference shares as

% of net profit before exceptional items

Dividend yield (dividend as % of average price of an ordinary

DSM share)

Share prices on NYSE Euronext Amsterdam (closing price):

- Highest price

- Lowest price

- At 31 December

(x 1000)

Number of ordinary shares outstanding:

- At 31 December

- Average

Daily trading volumes on NYSE Euronext Amsterdam:

- Average

- Lowest

- Highest

1 Subject to approval by the Annual General Meeting of Shareholders

2.78

2.58

1.68

4.82

1.501

0.48

1.02

3.7

3.66

4.86

7.89

1.45

0.45

1.00

3.6

2.97

3.27

3.03

5.62

1.35

0.40

0.95

3.8

1.52

1.44

2.01

6.05

1.20

0.40

0.80

4.8

3.72

3.64

3.45

6.20

1.20

0.40

0.80

3.9

46.29

36.33

45.79

46.82

30.54

35.85

42.85

30.43

42.61

34.84

16.93

34.46

41.27

15.76

18.33

168,684

165,543

163,257

165,567

166,468

164,047

163,037

162,364

162,227

164,196

823

225

2,720

1,028

191

3,512

995

3,629

1,270

4,376

1,783

152

5,894

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DSM figures: five-year summary

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223

Explanation of some concepts and
ratios

PEOPLE
Absenteeism
Absenteeism at DSM is determined by calculating the total
absence due to illness in hours as a percentage of the total
number of available working hours. The total number of available
working hours is calculated by multiplying the average actual
workforce in FTEs for the period in question by the number of
hours corresponding to one FTE (52 weeks multiplied by the
‘normal’ number of hours per week, not taking into account leave
of absence and holidays).

United Nations’ Universal Declaration of Human Rights
On 10 December 1948, the General Assembly of the United
Nations adopted and proclaimed the Universal Declaration of
Human Rights. Following this historic act, the Assembly called
upon all Member countries to publicize the text of the Declaration
and ‘to cause it to be disseminated, displayed, read and
expounded principally in schools and other educational
institutions, without distinction based on the political status of
countries or territories.’

FI
Frequency Index: a way to measure for safety performance. The
number of accidents of a particular category per 100 employees
per year.

PLANET
Biofuel
A fuel which is derived from renewable organic resources, as
distinct from one which is derived from non-renewable resources
such as oil and natural gas.

LWC-rate DSM own
The LWC-rate DSM own is the number of lost workday cases
per 100 DSM employees in the past 12 months:
LWC-rate = 100 * (number of LWCs (past 12 months) / average
effective manpower (past 12 months))

People+
DSM’s People+ strategy will deliver measurably better solutions
to improve the lives of people. The company has defined a new
People+ framework based on broad stakeholder analyses. The
dimensions of health, comfort and well-being, working
conditions and community development have been identified as
distinct and instrumental categories to measure People+ impact
at product level. Based upon the stakeholder input DSM has
designed a measurement tool, which will be further developed
in collaboration with The Sustainability Consortium, customers
and other stakeholders.

REC-rate DSM all
The REC-rate DSM all is the number of recordable injuries per
100 DSM employees and contractor employees in the past 12
months:
REC-rate = 100 * (number of RECs (past 12 months) / average
effective manpower including contractor employees (past 12
months))

SHE
Safety, Health and Environment.

United Nations Global Compact
A strategic policy initiative for businesses that are committed to
aligning their operations and strategies with ten universally
accepted principles in the areas of human rights, labor,
environment and anti-corruption.

Carbon footprint
The impact of a certain activity in terms of the emission of non-
renewable CO2 to the atmosphere.

Circular economy
Circular economy refers to an economy that is restorative and in
which materials flows are of two types, biological nutrients,
designed to reenter the biosphere safely, and technical nutrients,
which are designed to circulate at high quality without entering
the biosphere throughout their entire lifecycle.

CO2
Carbon dioxide, a gas that naturally occurs in the atmosphere.
It is part of the natural carbon cycle through photosynthesis and
respiration. It is also generated as a by-product of combustion.
Carbon dioxide is a greenhouse gas.

Cradle to Cradle®
A holistic economic, industrial and social framework that seeks
to create solutions that are not only eco-efficient but also
essentially waste free throughout their lifecycle.

Chemical Oxygen Demand (COD)
COD is an indicator of the degree of pollution of wastewater by
organic substances.

ECO+
ECO+ solutions are products and services that, when
considered over their whole life cycle, offer clear ecological
benefits (in other words, a clearly lower eco-footprint) compared
to the mainstream solutions they compete with. These ecological
benefits can be created at any stage of the product life cycle −
from raw material through manufacturing and use to potential re-
use and end-of-life disposal. ECO+ solutions, in short, create
more value with less environmental impact. The qualification
ECO+ is based upon internal expert opinions where various

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Explanation of some concepts and ratios

impact categories are evaluated. For a growing number of
products these expert opinions are supported by Life Cycle
Assessments.

N
Nitrogen. A mostly inert gas constituting 78% of the earth’s
atmosphere, nitrogen is present in all living organisms.

Eco-efficiency
Eco-efficiency is a concept (created in 1992 by WBCSD) that
refers to the creation of more goods and services while using
less resources and creating less waste and pollution throughout
their entire life cycle. DSM applies the concept to its ECO+
program. In the context of DSM’s SHE targets, eco-efficiency
relates specifically to the reduction of emissions and energy and
water consumption, relative to the production volumes of DSM’s
plants.

Greenhouse-gas emissions (GHGE) reduction over volume
related revenue (VRR)
The GHGE definition is according to the Kyoto Protocol and
includes carbon dioxide (CO2), methane, nitrous oxide (N2O),
sulfur hexafluoride, hydrofluorocarbons and perfluorocarbons.
VRR is net sales adjusted for changes in selling prices, exchange
rates and the impact of acquisitions and divestments. GHGE/
VRR is one of the ratios in the Long-Term Incentive part of the
Managing Board remuneration and relates to a three-year
period.

GRI
The Global Reporting Initiative (GRI) has developed Sustainability
Reporting Guidelines that strive to increase the transparency and
accountability of economic, environmental, and social
performance. The GRI was established in 1997 in partnership
with the United Nations’ Environment Programme. It is an
international, multi-stakeholder and independent institution
whose mission is to develop and disseminate globally applicable
Sustainability Reporting Guidelines. These Guidelines are for
voluntary use by organizations for reporting on the economic,
environmental, and social dimensions of their activities,
products, and services.

LCA
Life Cycle Assessment (LCA) identifies the material, energy and
waste flows associated with a product or process over its entire
life cycle to determine environmental impacts and potential
improvements; this full life cycle approach is also referred to as
‘Cradle to Grave’. It is also possible to assess a partial life cycle
of a product or process with the most common type being
‘Cradle to Gate’ which assesses the environmental impacts of a
manufacturing process without accounting for use phase or end
of life impacts. There are many different environmental impact
categories that can be assessed using LCA; at DSM the
standard approach is to evaluate the carbon footprint
and eco-footprint.

N2O
Nitrous oxide. A gas that is formed during combustion. When
emitted to the environment, it contributes to global warming.

NOx
Nitrogen oxides. These gases are released mainly during
combustion and cause acidification.

Renewable resources
A natural resource which is replenished by natural processes at
a rate comparable to, or faster than, its rate of consumption by
humans or other users. The term covers perpetual resources
such as solar radiation, tides, winds and hydroelectricity as well
as fuels derived from organic matter (bio-based fuels).

SO2
Sulfur dioxide. This gas is formed during the combustion of fossil
fuels and cause acidification.

VOC
Volatile organic compounds. The term covers a wide range of
chemical compounds, such as organic solvents, some of which
can be harmful.

PROFIT
General
In calculating financial profitability ratios, use is made of the
average of the opening and closing values of balance sheet items
in the year under review.

The financial indicators per ordinary share are calculated on the
basis of the average number of ordinary shares outstanding
(average daily number). In calculating Shareholders’ equity per
ordinary share, however, the number of shares outstanding at
year-end is used.

In calculating the figures per ordinary share and the ‘net profit as
a percentage of average Shareholders’ equity available to
holders of ordinary shares’, the amounts available to the holders
of cumulative preference shares are deducted from the profits
and from Shareholders’ equity.

Capital employed
The total of the carrying amount of intangible assets and
property, plant and equipment, inventories, trade receivables
and other receivables, less trade payables and other current
liabilities.

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Capital expenditure
This includes all investments in intangible assets and property,
plant and equipment as well as the acquisition of subsidiaries
and associates and related cash flows.

Cash flow
Cash flow is net profit plus depreciation, amortization and
impairments.

Core earnings
Core earnings represent profit or loss from continuing operations
excluding exceptional items and excluding amortization of
intangible assets recognized from the application of purchase
accounting for business combinations.

Disposals
This includes the disposal of intangible assets and property,
plant and equipment as well as the disposal of participating
interests and other securities.

Earnings before interest, tax, depreciation and amortization
(EBITDA)
EBITDA is the sum total of operating profit plus depreciation and
amortization.

Earnings per ordinary share
Net profit attributable to equity holders of Koninklijke DSM N.V.
minus dividend on cumulative preference shares, divided by the
average number of ordinary shares outstanding.

Operating working capital
The total of inventories and trade receivables, less trade
payables.

Return on capital employed (ROCE)
Operating profit as a percentage of weighted average capital
employed.

Total shareholder return (TSR)
Total shareholder return is capital gain plus dividend paid.

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List of abbreviations

ADR

AFM

ANH

APA

API

ARA

BIO

BMI

BMM

BRIC

CEFIC

American Depositary Receipts

Netherlands Authority for the Financial Markets

Animal Nutrition & Health

Aminopenicillanic acid

Active pharmaceutical ingredients

Arachidonic acid

Biotechnology Industry Organization

Body mass index

BioMedical Materials

Brazil, Russia, India and China

Conseil Européen des Fédérations de l'Industrie Chimique

(European Chemical Industry Council)

CEP

Certification of suitability to the monograph of the European

Pharmacopoeia

cGMP

Current Good Manufacturing Practice

Contract manufacturing organization

Corporate Multi-year Plan Responsible Care

HNH

HPO

IAS

IASB

ICCA

IFRIC

IFRS

ILO

IOF

IUCN

KPI

LCA

LTI

LWC

NGO

NIP

Human Nutrition & Health

Hydroxylamine phosphate oxime

International Accounting Standards

International Accounting Standards Board

International Council of Chemical Associations

International Financial Reporting Interpretation Committee

International Financial Reporting Standards

International Labor Organization

International Osteoporosis Foundation

Intellectual property

International Union for the Conservation of Nature

Key performance indicator

Life cycle assessment

Long-Term Incentive

Lost workday case

Non-governmental organization

DSM's Nutrition Improvement Program

Corporate Operational Auditing department

NOC*NSF

Dutch Olympic Committee

Chemical oxygen demand

Corporate Risk Assessment

Corporate Social Responsibility

DSM Anti-Infectives

DSM Business Academy

DSM Engineering Plastics

DSM Fibre Intermediates

DSM Food Specialties

Docosahexaenoic acid

NPS

NYSE

OECD

PDN

PSI

PUFA

R&D

Net Promoter Score

New York Stock Exchange

Organization for Economic Cooperation and Development

Stichting Pensioenfonds DSM Nederland

Petajoule

Process safety incident

Polyunsatured fatty acid

Research & development

REACH

Registration, Evaluation, Authorization and Restriction of

CMO

CMP

COA

COD

CRA

CSR

DAI

DBA

DEP

DFI

DFS

DHA

DNCC

DSM Nanjing Chemical Co., Ltd.

DNP

DPC

DPP

DSP

EBA

EBIT

DSM Nutritional Products

DSM Pharma Chemicals

DSM Pharmaceutical Products

DSM Sinochem Pharmaceuticals

Emerging Business Area

Earnings before interest and taxes (Operating Profit)

EBITDA

Earnings before interest, taxes, depreciation and amortization

ECP-EPN

Electronic Commerce Platform Netherlands

EPAA

ERDF

FDA

FIFO

FTE

GAIN

GDP

GHG

European Partnership for Alternatives to Animal Testing

European Regional Development Fund

The US Food and Drug Administration

First in, first out

Full-time equivalent

Global Alliance for Improved Nutrition

Gross domestic product

Greenhouse gas

ROCE

SAM

SAR

SHE

SSC

SSP

STI

TDC

TSR

Chemical substances

Return on capital employed

Sustainable Asset Management

Share appreciation rights

Safety, Health and Environment

Semi-synthetic cephalosporins

Semi-synthetic penicillins

Short-Term Incentive

Total direct compensation

Terajoule

Total shareholder return

UHMwPE

Ultra high molecular weight polyethylene

USAID

USDA

VNCI

VOC

VRR

United States Agency for International Development

United States Department of Agriculture

Association of the Dutch Chemical Industry

Volatile organic compound

Volume related revenue

GHGE

Greenhouse-gas emissions

WBCSD

World Business Council for Sustainable Development

GHS

GMP

GPS

GRI

Globally Harmonized System

Good Manufacturing Practice

Global Product Strategy

Global Reporting Initiative

WEF

WFP

World Economic Forum

United Nations World Food Programme

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227

Photographs by Bart Koetsier

The photographs1 in this 2012 Integrated Annual Report were made by Bart Koetsier from Hollandse Hoogte Photo Agency in
Amsterdam. They were shot on locations in Europe, Asia and North America. Being portraits of scientists working for DSM and
people whose lives have been positively affected by DSM products or solutions, the photographs capture the company’s brand
promise of Bright Science. Brighter Living.™

Bart Koetsier graduated with honors from the Amsterdam Photo Academy in 2009. His photographs have appeared in leading
newspapers in the Netherlands and Belgium. In January 2013 he was nominated for the prestigious Dutch Silver Camera award
for photo journalism and won second prize in the category Portraits.

The portraits in this annual report are part of DSM’s extensive art collection, which currently comprises approximately 700 works.
The collection supports and reinforces DSM’s strategy and image by connecting to major themes such as innovation, sustainability
and high growth economies. The aim of the DSM Art Collection is to bring DSM employees worldwide into contact with
contemporary art, and to offer them an inspiring work environment.

The portraits are currently being exhibited at the DSM offices in Shanghai (CN), Heerlen (NL) and Sittard-Geleen (NL).

1 With the exception of the photograph on page 11.

Bright Science. Brighter Living. 2012 www.dsm.com

228

Life Sciences and Materials Sciences

DSM, the Life Sciences and Materials Sciences company

Our purpose is to create brighter lives for people today and generations to come. We connect our unique competences in Life

Sciences and Materials Sciences to create solutions that nourish, protect and improve performance.

DSM uses its Bright Science to create Brighter Living for people today and for generations to come. Based on a deep understanding

of key global trends that are driving societies, markets and customers, DSM creates solutions to some of the world’s biggest

challenges, thus adding to both its own and its customers’ success.

DSM believes that its continued success will be driven by its ability to create shared value for all stakeholders, now and in the future.

It creates sustainable shared value by innovating in ways that allow its customers to provide better People, Planet and Profit

solutions − solutions to the challenges facing society, the environment and end-users. In this way, DSM’s customers derive value

from being able to offer end-users improved products; society and the planet derive value from the impact of more sustainable,

longer-lasting, safer, healthier and more nutritious alternatives; and, as a result, DSM and its shareholders derive value from stronger

growth and profitability. Finally, DSM’s employees feel engaged and motivated both through the contribution they make to a better

world and the success this creates for the company in which they work.

DSM – Bright Science. Brighter Living.™

Royal DSM 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 23,500 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.

Bright Science. Brighter Living. 2012 www.dsm.com

Royal DSM
Bright Science. Brighter Living.™

DSM has transformed itself into a leading Life Sciences and
Materials Sciences company that is active in health, nutrition and
materials and creates value for its customers by helping them
provide solutions to the world’s great challenges. DSM uses its
bright science to create brighter lives for people today and
generations to come by providing the ingredients to develop
innovative, more sustainable, healthier, more nutritious and
better performing products.

DSM has a very strong starting position to realize its ambitious
growth targets as set in its strategy for the period till 2015, all
based on its strong global market position (with about 38 percent
of its total sales of € 9.1 billion coming from high growth
economies), its unique technological knowledge as a basis for
innovation, its strong track record in sustainability, its very solid
balance sheet, and the experience and expertise of its 23,500
people.

DSM believes that its continued success will be driven by
creating shared value for all stakeholders, now and in the future.
It creates sustainable shared value by innovating in ways that
allow its customers to provide better People, Planet and Profit
solutions to the challenges facing society, the environment and
end-users. In this way, DSM’s customers derive value from being
able to offer end-users improved products. Society and the
planet derive value from the impact of more sustainable, longer-
lasting, safer, healthier and more nutritious alternatives. DSM
and its shareholders derive value from stronger growth and
profitability.

What's more, DSM’s employees feel engaged and motivated
through the contribution they make to a better world and the
success this creates for the company in which they work. In
short, DSM is a multi-stakeholder-oriented company with a triple
bottom line (People-Planet-Profit) creating value for its
customers, shareholders and employees as well as society at
large.

As a global company, DSM is actively engaged in addressing the
same key trends that face all its stakeholders: meeting changing
demands arising from global shifts in demographics and
technology, mitigating the impact of climate change while
searching for new forms of energy and trying not just to feed but
also to improve the health of a growing population.

In DSM’s Life Sciences markets, these trends manifest
themselves through the related impacts of increasing personal
wealth, urbanization and expanding life expectancy.

Urbanization drives the consumption of processed foods and the
need for a more efficient food chain, while rising wealth translates
into increased demand for proteins from meat, fish, eggs and

milk – in turn driving demand for DSM’s food and feed products.
Food security (access to nutritious food for all people at all times)
is one of the main themes to which DSM is contributing.

At the same time, a focus on healthy and active aging is driving
demand for fortified foods and supplements. And finally, an aging
population means increased healthcare spending, which DSM
addresses through its engagement in preventive health and
services to pharmaceutical companies.

Performance and sustainability are key drivers impacting
demand in DSM’s Materials Sciences markets, where the
company is accelerating the transformation toward the
production and use of materials that are lighter, healthier, safer,
stronger and more durable and that have lower environmental
footprints throughout their value chains than traditional materials.

Bringing DSM’s Life Sciences and Materials Sciences
competences together offers cross-fertilization opportunities
allowing further advances. This cross-fertilization is managed
through DSM’s Emerging Business Areas. A thorough
understanding of how advanced materials can be used in the
human body to strengthen or replace body parts and accurately
deliver medicines is driving DSM’s biomedical materials
business. By merging its broad biotechnology capability with its
materials businesses, DSM is able to find renewable solutions
for the post fossil age by creating bio-based materials and
building blocks and by actively working to create commercially
viable cellulosic biofuels that do not compete with the food value
chain.

While DSM continues to meet the needs of customers in the
mature markets of North America and Western Europe − which
remain central to its core business – the company’s investment
focus is increasingly on the high growth economies such as Asia,
Central and Eastern Europe, and Latin America. In these markets
DSM expects 70 percent of its growth up to 2015. DSM
consequently is becoming steadily more international, enabling
it to bring a global perspective to the challenges of all its
customers. In addition to achieving sustainable, innovative
organic growth, DSM will continue to take advantage of
opportunities to acquire exciting businesses and to partner with
others to the benefit of all its stakeholders. And finally, the
company will continue to improve its shareholder returns,
supported by its solid dividend policy.

In short, after having transformed itself into a Life Sciences and
Materials Sciences company, DSM now focuses on further
growing the company through an integrated strategy, using four
growth drivers: High Growth Economies, Innovation,
Sustainability and Acquisitions & Partnerships.

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Questions about or feedback on this report
can be addressed to:

Royal DSM
P.O. Box 6500
6401 JH Heerlen
The Netherlands
T +31 (0)45 578 8111
E media.relations@dsm.com

www.dsm.com

For the printing of this report 100% biological ink was used, and the use
of solar energy saved over 1020 kg of CO2 and 1060 kWh of electricity.

Bright Science. Brighter Living.™

Royal DSM Integrated Annual Report 2012

DSM AR2012 Cover_def.indd 1-3

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