Koninklijke DSM N.V.
Annual Report 2023

Plain-text annual report

2023 Integrated Annual Report DSM B.V. Table of Contents REPORT BY THE MANAGING BOARD .............................. 3 Our company ......................................................................... 3 About DSM ................................................................................................ 3 Science & Research ............................................................................ 4 Business .................................................................................. 5 Taste, Texture & Health - DSM ..................................................... 5 Health, Nutrition & Care - DSM ................................................... 7 Animal Nutrition & Health ...............................................................9 Corporate activities .......................................................................... 10 Financial performance ...................................................................... 11 Non-financial information .............................................. 13 EU Taxonomy ......................................................................................... 13 Governance and Risk Management ............................ 18 Governance and governance framework ............................ 18 Risk Management ............................................................................. 20 Group structure and shares ....................................................... 25 Supervisory Board and Managing Board DSM B.V. ....... 26 Supervisory Board report ............................................................ 30 Auditors..................................................................................................... 31 FINANCIAL STATEMENTS ................................................ 32 Consolidated financial statements ........................... 32 Notes to the consolidated financial statements .......... 39 Parent company financial statements ................... 103 Notes to the parent company financial statements 105 OTHER INFORMATION ...................................................... 115 Independent auditor’s report .................................................... 115 Special statutory rights ............................................................... 126 Forward-looking statements This Integrated Annual Report 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. 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 actual performance and position to differ materially from these statements. The information provided in this Integrated Annual Report is provided as of the date of its issue. DSM does not assume any obligation to update any information or forward- looking statement provided in this Integrated Annual Report unless required by law. The English language version of this Integrated Annual Report prevails over other language versions. DSM Integrated Annual Report 2023 2 REPORT BY THE MANAGING BOARD Our company About DSM DSM is a company organized under Dutch law with its statutory seat in Heerlen, the Netherlands. With the closing of the merger with Firmenich on 8 May 2023, DSM has become part of the dsm-firmenich Group. As part of dsm-firmenich, we are innovators in nutrition and health. We reinvent, manufacture, and combine vital nutrients and flavors to help the world’s growing population thrive sustainably. Our Business Units Our three Business Units are Taste, Texture & Health – DSM; Health, Nutrition & Care – DSM; and Animal Nutrition & Health. They each strive to address the latest consumer needs and wants in a sustainable way. We are uniquely positioned to help our customers realize their ambitions and address evolving consumer trends. We do this by creatively applying proven science and drawing on our data-driven innovation capabilities as well as our exceptional standards of operational excellence. Our Business Units are supported by Group Business Partners such as Science & Research, Finance, Human Resources, Sustainability, Procurement, Legal, Regulatory, Safety, Health and Environment, and Digital & Tech. DSM Integrated Annual Report 2023 3 Our company - Science & Research Science & Research Our approach to Science & Research DSM drives the development of disruptive products and technologies with an end-to-end innovation approach. Sustainability is embedded from the outset and throughout every stage of the process – from discovery, pre-clinical and clinical studies through application development to scale-up and industrialization. By harnessing the expertise of our scientists and investing in our multidisciplinary approach, Science & Research brings progress to life, driving innovation that addresses global challenges and unmet needs in nutrition and health. We provide industry-leading science and research capabilities to drive the innovation required to deliver on our purpose and to provide differentiated solutions that combine the essential, the desirable, and the sustainable. IP and licensing Our group of qualified intellectual property (IP) professionals maximizes the value of DSM innovations and brands through strategic protection and defense of patents and trademark rights in our key markets. The IP team acts as a further differentiator through valuation and protection of IP assets in strategic partnerships, including joint developments, technology licensing (in/out), and IP asset acquisitions or sales. Pushing the envelope By combining all our science capabilities, our Science & Research team strives to pioneer solutions that help shape the future of nutrition and health. Analytical science assists the discovery of novel ingredients and allows us to gain greater understanding of complex biochemical mechanisms and interactions. We respond to real-world problems and seek to contribute meaningfully to well-being and a more sustainable future. In 2023, for example, we facilitated the rapid discovery of two glycan leads for 2024 clinical trials aimed at validating mood and stress benefits in humans. DSM Integrated Annual Report 2023 4 Business – Taste, Texture & Health - DSM Business Taste, Texture & Health - DSM About Taste, Texture & Health - DSM Building on our science-based heritage, biotech know-how, creation & application capabilities, and intimacy with customers, Taste, Texture & Health - DSM (TTH-DSM) addresses one of society’s biggest challenges: how to deliver nutritious, delicious and sustainable food and beverage solutions. TTH-DSM, which primarily encapsulates our Ingredients Solution capabilities, helps accelerate the diet transformation by offering appealing taste and texture and helps feed a growing world population sustainably, while minimizing food loss and waste. Operating environment Several macro-economic factors contributed to a challenging business environment for TTH-DSM in 2023. These included continued inflation of input costs, volatile foreign exchange rates, exceptionally low vitamin prices, and customer destocking as companies continued trying to manage their inventories and costs. The year in review Financial performance 2023 x € million Sales EBITDA 2023 1,435 213 2022 1,545 245 Continued investment in our facilities In Europe, we began the construction of our new headquarters and application labs at the Biotech Campus in Delft (Netherlands). This building will replace the current offices and facilities in Delft and will feature leading-edge facilities for food application development, especially for co-creation with our customers – including a demonstration kitchen and a sensory room, as well as collaborative office spaces. Within the framework of our plant-based platform, we opened an extrusion test center in Tau (Norway) to work on dry texturized proteins, high-moisture extruded proteins, and concentrated process flavors. The creation of this new facility will help in our ambition to become a leading provider of integrated solutions for delicious and nutritious meat and fish alternatives. Innovation In the food and beverage industry, capitalizing on new scientific and business opportunities increasingly depends on the effective deployment of advanced digital technologies – such as artificial intelligence for fermentation and lab automation – to develop new solutions for food and beverages faster and more accurately. In 2023, we further increased our investments in the digital transformation of our science and innovation capabilities, with a clear focus on being able to generate and combine consumer, customer, and technical data insights faster. This is with the dual aim of accelerating internal innovation processes and supporting our customers with faster availability of data useful to them. DSM Integrated Annual Report 2023 5 Business – Taste, Texture & Health - DSM Partnerships We signed an agreement with leading global Chinese dairy producer Yili to partner on research, innovation, sustainability, and more. The agreement paves the way for cross-Business Unit collaboration – we can offer Yili our flavors and ingredients from TTH-DSM, nutrition solutions from HNC-DSM, and animal feed from ANH. In China’s highly competitive market, our unparalleled combined capabilities in taste, texture, and nutrition are what particularly appeal to Yili. DSM Integrated Annual Report 2023 6 Business – Health, Nutrition & Care - DSM Health, Nutrition & Care - DSM About Health, Nutrition & Care - DSM Health, Nutrition & Care - DSM (HNC-DSM) is dedicated to supporting the health of the world’s growing population through nutrition and care solutions. We deliver nutritional solutions that support well-being and proactive health at every stage of life and for every lifestyle. As an end-to-end solutions provider, we partner closely with our customers from product conception to launch, providing unique consumer insights, a broad portfolio of nutritional ingredients, innovative solutions, and expert taste capabilities. HNC-DSM offers solutions for the early life nutrition, dietary supplement, pharmaceutical, medical nutrition, and biomedical materials markets. We address specific consumer nutritional and wellness needs with our direct-to- consumer i-Health business. We also serve the nutrition improvement sector, providing affordable and accessible nutrition fortification solutions for some of the world’s most vulnerable populations. Operating environment Our industry experienced challenging market conditions in 2023. External geopolitical factors and inflation drove up energy, raw material procurement and production costs. Simultaneously, the dietary supplements market was impacted by pressure on consumer discretionary spend, especially in North America, and lower demand for immunity-supporting solutions post COVID. The early life nutrition market faced a highly comparable period (due to product shortages in North America), further exacerbated by a continuing decline in birth rates (especially in China – the largest ELN market) and ongoing destocking. The year in review Financial performance x € million Sales EBITDA 2023 2,806 489 2022 2,990 669 Acquisition of Adare Biome In 2023, we further strengthened our ‘Health from the gut’ offering to meet growing consumer demand for better gut health with nutritional solutions that have scientifically backed health benefits combined with easy application and novel product formats. These clinically proven, multi-ingredient products include our next-generation Humiome® pre-, pro- and postbiotics, GlyCare™ HMOs, Tolerase® digestive enzymes, and Quali® vitamins. In July, we completed the acquisition of Adare Biome, a pioneer and global leader in the development and manufacture of postbiotics. Our strong infrastructure, commercialization and science capabilities will enable us to substantially scale Adare Biome’s industry-leading scientific research. Together with Adare Biome’s team of experts, we are poised to accelerate the creation of next-generation biotics faster and more efficiently than was previously possible, to a wider range of people around the world. Further development of postbiotic business-to-business ingredients and solutions presents opportunities in dietary supplements, early life nutrition, and medical nutrition. DSM Integrated Annual Report 2023 7 Business – Health, Nutrition & Care - DSM Innovation We have defined a number of strategic innovation priorities based on consumer and customer needs across all our business segments. These include providing novel ingredient solutions as well as novel premix and market-ready solutions that deliver nutritional support in segments such as healthy aging and women’s health. In 2023, we accelerated the shift from fish oil to algal sources with the launch of life’s®OMEGA O3020, and led the market in infant nutrition innovation in HMOs. Other notable innovation achievements this year included: • • • • Increasing the bioavailability of vitamins with our ampli® vitamins range The publication by the European Food Safety Authority (EFSA) of the conversion factor for calcidiol (25- hydroxyvitamin D3) in its scientific opinion on the tolerable upper intake level for vitamin D – a major regulatory process milestone for obtaining approval for ampli-D® in the European Union Providing new solutions for one of the world’s biggest nutrient-related disorders with Tolerase® G, the first and only enzyme demonstrated to effectively break down residual gluten molecules Pioneering in biotics-based gut health with the Humiome® brand, an innovative range of ‘Health from the gut’ solutions. Shaped by microbiome science and consumer needs, Humiome® comprises prebiotics, probiotics and postbiotics, along with multi-ingredient custom solutions delivered via microbiome-targeted technology. DSM Integrated Annual Report 2023 8 Business – Animal Nutrition & Health Animal Nutrition & Health About Animal Nutrition & Health As the world’s population continues to grow, more and more land and resources will be required to feed it. Our innovative offering in Animal Nutrition & Health (ANH) helps meet the rising demand for animal protein and support the sustainable transformation of food systems. We combine our professional passion and smart science to deliver new approaches to animal health and nutrition that enable the sustainable production of high-quality animal protein while simultaneously reducing emissions and our reliance on natural resources. Operating environment Overall global animal protein consumption remained resilient throughout the year, driven by good demand for poultry. Market conditions in China remained subdued, with pork demand stabilizing in the second part of the year but not showing the anticipated recovery. Our ANH business operated in an exceptionally challenging environment, being impacted by an imbalance in the global feed additive marketplace due to ongoing destocking as farmers’ profitability was squeezed as a result of substantially higher input costs. This was most pronounced in China, where pork production was loss-making throughout the year. These difficult market conditions led to unprecedentedly low levels of vitamin prices, as well as underutilization of the vitamins asset base, resulting in a very weak performance of the essential ingredients activities of ANH. The year in review Financial performance x € million Sales EBITDA 2023 3,223 (30) 2022 3,784 523 Successful launch of vitamin transformation program In response to the exceptionally challenging macroeconomic environment in the vitamins industry, in mid-2023 the company embarked on a major restructuring program in its vitamin activities to reduce costs and restore profitability. Innovation We offer concrete and measurable solutions that are closely linked to our products, reducing environmental impact while at the same time improving profitability for producers. In 2023, we successfully continued the roll-out of our smart science and innovative solutions, including: • • • Sustell™, the world’s first intelligent sustainability service, designed to improve the environmental footprint and profitability of animal protein production ProAct 360™, our innovative second-generation feed protease, which drives consistent improvements in poultry growth performance and reduces production costs while making animal protein production more sustainable Bovaer®, our cattle feed additive that reduces enteric methane emissions by 30%, helping to cut global warming • Veramaris®, our algae-based omega 3 oil, which helps reduce reliance on marine resources and supports the sustainable growth of aquaculture. DSM Integrated Annual Report 2023 9 Business – Corporate activities Corporate activities Any consolidated activities within continuing operations that are outside the three Business Units are reported as Corporate activities. These comprise operating and service activities, as well as a number of costs that cannot be allocated directly to the Business Units. While this segment reports net sales to third parties from its service units, it normally has a negative operating result. Corporate activities include various holding companies, regional holdings, and corporate overheads. The most significant cost elements are corporate departments and the share-based compensation, see Note 27 Share-based compensation to the consolidated financial statements. DSM Integrated Annual Report 2023 10 Business – Financial performance Financial performance Financial results TTH-DSM’s performance was solid. HNC-DSM, and even more so ANH, were weak in the face of exceptionally low vitamin prices and persistent destocking. In 2023, net sales were € 7,590 million, which was 10% lower than in 2022. The results for the full year were impacted by a combination of unprecedented market dynamics that led to very low vitamin prices, together with a deep destocking cycle. EBITDA, significantly impacted by the vitamin effect and foreign exchange effects, was 59% lower than in the prior year, resulting in a margin decline of 853 basis points. This includes a negative vitamin effect which is estimated at about €500 million, and one-off restructuring, acquisition and integration costs of about €325 million. Income statement and key data x € million Continuing operations Sales EBITDA Operating profit (loss) Net profit (loss) EBITDA margin (in %) DSM Net profit (loss) for the period 2023 2022 Change 7,590 532 (412) (463) 7.0 8,390 1,304 682 475 15.5 -10% -59% -160% -197% 2,326 1,715 36% Net profit (loss) Net loss from continuing operations of €463 million represented a fall of €938 million from the net profit from continuing operations of €475 million posted in 2022. The decrease in the net result for the year is mainly attributable to a decrease in net sales of €800 million (9.5%) to €7,590 million in 2023 and an increase in total operating costs of €300 million. The primary driver behind the increase in total operating costs was impairment charges of €308 million, which chiefly related to the vitamins business. Financial income and expense of continuing operations decreased by €30 million year on year to a net expense of €58 million, which was caused by an increase in interest income of €96 million, partly offset by less favorable fair value changes of derivatives of €59 million. The total effective tax rate on the taxable result for continuing operations in 2023 was 3.4% (2022: 20.9%). This was mainly caused by the geographical spread, changes in tax rates, and non-deductible expenses. The total net profit from continuing and discontinued operations increased by €611 million to €2,326 million. This increase was mainly a result of the net book profit of €2,790 million on the sale of DSM Engineering Materials (DEM) (in comparison with a net book profit of €1,018 million in 2022 on the sale of DSM Protective Materials). Balance sheet The balance sheet total (total assets) decreased to €15.7 billion at year-end (2022: €17.4 billion). Equity decreased by €1.9 billion, which was attributable to dividend payments of -€3.9 billion, the net profit of €2.3 billion, treasury share transactions of -€0.2 billion, and the effect of exchange rate differences of -€0.1 billion. Equity as a percentage of total assets decreased from 62% to 57%. DSM Integrated Annual Report 2023 11 Business – Financial performance Capital expenditure on intangible assets and property, plant and equipment amounted to €546 million for continuing operations in 2023 (€542 million on a cash basis). Including new leases, the additions to intangible assets and property, plant and equipment amounted to €651 million, whereas amortization, depreciation and impairments amounted to €944 million. Acquisitions during the year, mainly related to Adare Biome, resulted in an increase of intangible assets and property, plant and equipment of €326 million. Cash and cash equivalents amounted to €2,181 million at the end of the year, a decrease of €574 million. This decrease resulted from cash inflows from operating activities of €576 million and from investing activities of €2,711 million, offset by a cash outflow from financing activities of € 3,852 million. The decrease in other current assets of €1,013 million mainly results from the decrease in assets held for sale of €1,239 million related to DEM and an increase in receivables on related parties of €279 million. Other liabilities increased by about €245 million, resulting from an increase of payables to related parties of €691 million, were partly offset by a decrease in the liabilities held for sale that mainly related to DEM of €422 million. Balance sheet profile Goodwill and 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 equity and liabilities 2023 x € million 5,210 3,492 499 2,181 4,360 15,742 8,923 111 3,363 3,345 15,742 in % 33 22 3 14 28 100 57 1 21 21 100 2022 x € million 5,147 3,576 552 2,755 5,373 17,403 10,845 95 3,950 2,513 17,403 in % 30 21 3 16 30 100 62 1 23 14 100 Future developments On 13 February 2024, DSM-Firmenich AG completed the voluntary tender offer for 4.2 million DSM B.V. ordinary shares for a total consideration amounting to €400 million. DSM-Firmenich AG will seek to acquire the remaining 1.5% of shares through the statutory buy-out procedure. On 15 February 2024, dsm-firmenich announced the initiation of a process to carve out the ANH business and separate it from the Group. dsm-firmenich expects to be in a position to separate the business in the course of 2025. On 8 March 2024, DSM divested its 100% equity interest in the vitamin C plant DSM Jiangshan. See also Note 30 Events after the balance sheet date to the consolidated financial statements. Management expects that DSM will be able to continue as a going concern. DSM Integrated Annual Report 2023 12 Non-financial information EU Taxonomy Taxonomy regulation The EU Taxonomy entered into force on 12 July 2020, establishing criteria for environmentally sustainable economic activities related to six environmental objectives: • Climate change mitigation (CCM); • Climate change adaptation (CCA); • Sustainable use and protection of water and marine resources (WTR); • • • Transition to a circular economy (CE); Pollution prevention and control (PPC); and Protection and restoration of biodiversity and ecosystems (BIO). The Taxonomy regulation also amended the EU Accounting Directive (2013/34/EU) on non-financial information by expanding the scope of content that needs to be disclosed by large companies in the Management Report. It requires companies to disclose the proportion of their activities that qualify as environmentally sustainable. The first delegated act concerning the technical screening criteria for economic activities with substantial contribution to climate change mitigation and adaptation (the Climate Delegated Act, C2021/4987) was formally adopted on 4 June 2021. A delegated act amending the Climate Delegated Act (covering the environmental objectives of climate change mitigation and adaptation) and an Environmental Delegated Act addressing the remaining four environmental objectives were published in 2023. We welcome the implementation of the EU Taxonomy and assessed its impact on DSM in line with its overall objectives, albeit accepting that parts of the Taxonomy regulation are subject to interpretation, which may lead to variance in its application. Considering the level of complexity as well as the evolving character of the framework, we expect that Taxonomy reporting will develop over time. As such, we shall apply a conservative approach to, and interpretation of, the Taxonomy legislation until we believe it has sufficiently matured. We will periodically revalidate our methodology and our reported KPIs based on the evolution of the regulations and forthcoming guidance from, among others, the European Commission and the European Securities and Markets Authority (ESMA). Disclosures Under the Taxonomy regulation, DSM is required to report on how much Turnover, Capital Expenditure (‘CapEx’) and Operating Expenses (‘OpEx’) are in scope of the Taxonomy Regulation (i.e., ‘Taxonomy-eligible activities’), and how much are aligned with the Taxonomy regulation (i.e., ‘Taxonomy-aligned activities’). In 2023, the required disclosures apply in full to climate change mitigation and climate change adaptation, but simplified reporting requirements are applicable to the remaining four environmental objectives. More specifically, whereas DSM has to disclose both the Taxonomy-eligible and the Taxonomy-aligned proportions for Turnover, CapEx, and OpEx with regard to climate change mitigation and climate change adaptation, DSM only has to report on the Taxonomy-eligible proportions of these KPIs for the new economic activities under CCM and CCA and the remaining four objectives applied for the first time in 2023. DSM Integrated Annual Report 2023 13 Non-financial information – EU Taxonomy Turnover Total turnover, as defined by the Taxonomy regulation, corresponds to the sales from continuing operations as reported on the basis of the income statements in the Consolidated financial statements. In line with 2022, DSM did not identify any Taxonomy-eligible activities with respect to climate change mitigation and climate change adaptation. The publication of the Environmental Delegated Act addressing the remaining four environmental objectives in 2023 resulted in the identification of DSM’s Pharma business (part of HNC-DSM) as an eligible activity under the environmental objective pollution prevention and control. Given the simplified reporting objectives in 2023, DSM only discloses the taxonomy-eligible portion of the revenue related to its Pharma business. Taxonomy-eligible turnover amounted to €253m, or 3.3% of total turnover. CapEx Total CapEx is determined based on the 2023 additions to property, plant and equipment, intangible assets, and additions to right-of-use assets, see also Note 8 Goodwill and intangible assets and Note 9 Property, plant and equipment to the consolidated financial statements. In addition to the CapEx related to the Pharma business, which was identified as an eligible activity, Taxonomy-eligible CapEx includes expenditures related to the purchase of output from Taxonomy-aligned economic activities and individual measures enabling the target activities to become low-carbon or to lead to greenhouse gas reductions. Taxonomy-eligible CapEx amounted to €116m, or 14.0% of total CapEx. DSM does not have to disclose the Taxonomy-aligned proportion of the CapEx related to the Pharma business under the simplified reporting requirements in 2023 and did not establish alignment for the remaining CapEx. Therefore, DSM discloses 0% alignment with respect to the CapEx KPI. OpEx Total OpEx consists of maintenance (including building renovations) and R&D costs, excluding costs and income related to bad debts, government grants, depreciation and amortization, and own work capitalized. Taking into consideration the assessment of the contribution of the Pharma business to both the turnover KPI and the CapEx KPI, the operational expenditure related to this business within DSM’s business model is considered immaterial from an EU Taxonomy perspective. As such, the numerator reflecting the eligible OpEx attributable to this business is considered negligible and DSM discloses 0% eligible and aligned OpEx. DSM Integrated Annual Report 2023 14 Non-financial information – EU Taxonomy Turnover DSM Integrated Annual Report 2023 15 Non-financial information – EU Taxonomy CapEx DSM Integrated Annual Report 2023 16 Non-financial information – EU Taxonomy OpEx DSM Integrated Annual Report 2023 17 Governance and Risk Management Governance and governance framework Governance DSM B.V. is a direct affiliate of DSM-Firmenich AG. It is managed by a Managing Board and supervised by a Supervisory Board. Members of the Managing Board and the Supervisory Board are appointed by the General Meeting of Shareholders. The Company is governed by Dutch law and by its Articles of Association, which can be consulted on the Company website. DSM is part of the dsm-firmenich Group and is organized in three distinct high-performing Business Units. These Business Units are supported by Group Business Partners. More details about the organization can be found in the About DSM section. Diversity As part of dsm-firmenich, we strongly value diversity, and we endeavor to reflect this in our Board memberships. The Supervisory Board has formulated diversity policies for the Supervisory Board and the Managing Board. These policies seek a balanced composition of these bodies, taking into account gender, age, knowledge, experience, and nationality / cultural background. In addition, for the composition of the Supervisory Board, the tenure structure is taken into consideration. In terms of gender diversity, we aim for at least 30% of the positions in our Supervisory Board and Managing Board to be held by women and at least 30% by men. To ensure a balanced composition in terms of nationality / cultural background, our aim is to have not more than 50% of the members of our Supervisory Board drawn from a single nationality. While a diverse composition in terms of nationality / cultural background is also taken into account in the composition of the Managing Board, no quantitative target is set here, given the small number of Managing Board members. Our diversity policies are implemented by applying them to nominations for (re)appointments of Supervisory Board and Managing Board members. In 2023, the Supervisory Board consisted of 30% women, which is in line with Dutch legislation on gender diversity and with the Company’s own diversity policy. Furthermore, the composition of our Supervisory Board is in line with our target of having not more than 50% of the members drawn from a single nationality. Until 1 September 2023, the Managing Board was well balanced in terms of gender, comprising 50% women. In May 2023, DSM-Firmenich AG’s Board of Directors decided to evolve the then existing CO-CEO structure and to appoint Dimitri de Vreeze as sole CEO of dsm-firmenich, effective 1 September 2023. As of the same date, Géraldine Matchett, until then Co-CEO (and holding Chief Financial Officer responsibility), stepped down from the Executive Committee of DSM- Firmenich AG and as a member of the Managing Board of DSM B.V. Ralf Schmeitz, previously Group Controller, was appointed CFO and Member of the Executive Committee of DSM-Firmenich AG, effective 1 September 2023. In light of the Board of Directors’ decision, Ralf Schmeitz was also appointed as Managing Board member of DSM B.V., effective 1 September 2023. DSM Integrated Annual Report 2023 18 Governance and Risk Management – Governance and governance framework Governance framework The figure below depicts the Company’s governance framework and the most important governance elements and regulations at each level. The Company’s internal corporate governance framework is based on its Articles of Association (the ‘Articles of Association’). The Regulations of the Supervisory Board and the Managing Board further clarify the duties, powers and regulations of the governing bodies of the Company. DSM Integrated Annual Report 2023 19 Governance and Risk Management – Risk Management Risk Management Our risk management framework is based on the COSO Enterprise Risk Management model. It supports DSM’s Group, Business Unit and Business Partner functions in managing risks that might prevent us from achieving our strategic, financial, and operational objectives and in protecting company assets, including reputation. It also supports compliance with laws and regulations, as well as reliable financial and non-financial reporting. Our approach to Risk Management Until 9 May 2023, DSM was responsible for its risk management, with its Managing Board bearing the accountability for the management of all risks associated with DSM’s strategy and business objectives. With the creation of dsm-firmenich, enterprise risk management for DSM has become part of dsm-firmenich’s risk management activities. The Managing Board continues to be accountable for risk management within DSM as part of their responsibilities within dsm- firmenich. The risk management framework of dsm-firmenich - described in the below sections - also applies to DSM as part of the dsm-firmenich Group. Risk management framework The building-blocks of our risk management framework are shown in the diagram. Governance and culture form the foundation, on which the pillars of the risk management process – strategy & objective-setting, risk identification & assessment, risk mitigation & control activities, monitoring & improvement – stand to protect our value & integrity. Communication & reporting ensures the connection between the pillars and the sharing of adequate information with internal and external stakeholders. The building-blocks are summarized in the paragraphs below. Risk management framework Governance & culture As part of the dsm-firmenich Group, the DSM Group applies the Operating Model Framework that was determined by the Executive Committee of DSM-Firmenich AG, with the approval of the Board of Directors of DSM-Firmenich AG. The Operating Model Framework functions as guidance for the operations of, and cooperation within, the Group, the Business Units and Business Partners, who are therefore jointly responsible for achieving our objectives and managing the associated risks. DSM Integrated Annual Report 2023 20 Governance and Risk Management – Risk Management Strategy & objective-setting Our Group strategy and objectives are determined by the Board of Directors of DSM-Firmenich AG, supported by the Executive Committee of DSM-Firmenich AG. The DSM Group strategy and objectives are translated into specific plans and priorities for Business Unit and Business Partner leadership and are elaborated in further detail for lower levels in the organization. Risk identification & assessment The realization of an ambitious strategy will always entail risks. To enable informed decision-making, these risks are identified and assessed at all levels in the organization. Risk assessments may focus on various topics (e.g., Safety, Health and Environment (SHE), security, climate) and are regularly updated. Risk mitigation & control activities Mitigating actions and controls are defined and implemented for the most relevant risks. Controls include policies, standards, Segregation of Duties (SoD) management, business continuity management , and business performance reviews. Control activities, which can be preventive or detective, are integrated into our business processes and are executed by the first line. Monitoring & improvement The Internal Control department within Legal, Regulatory, Risk & Compliance owns the Internal Control Framework. It defines the standard set of key controls that must be performed by the first line, and it aims to ensure reliable financial reporting, mitigate fraud risks, and safeguard our assets. The effectiveness of the key controls is independently tested by the Internal Control department. Communication & reporting Reviewing of risks and incidents takes place via structured processes, and if needed on an ad-hoc basis. DSM Integrated Annual Report 2023 21 Governance and Risk Management – Risk Management Material risks and uncertainties Within the framework of the dsm-firmenich risk management process, risk assessments are performed at all levels in the DSM organization and can focus on varying topics. Material risks for our Business Units and Business Partner functions are reported to our CEO twice a year via the Risk & Incident Report. Our risk profile The below list details the five most important short-term risks that might have material impact within three years and have the potential to prevent us from successfully implementing our strategy and achieving our targets, despite the mitigations in place. Top risks and related mitigating actions Digital transformation Risk description Mitigations Having an integrated digital backbone is essential to In the new operating model of dsm-firmenich including implement efficient and robust business processes DSM, the Business Partners have allocated dedicated that meet the expectations of our customers. resources to drive digitally-enabled process excellence. Therefore, successful execution of our digital Furthermore, the capacity and capability in Digital & Tech transformation roadmap is important to deliver on our are being strengthened. strategic and financial targets. All key projects are subject to quality reviews by a multi- The implementation of this roadmap is complex. This, disciplinary, independent team of experts at specific in combination with some resource constraints, means moments throughout project implementation. there is a risk that the digital transformation roadmap is not implemented according to plan or does not bring the full benefits as aimed for. Geopolitical instability Risk description Mitigations DSM operates globally and could therefore be affected Our business continuity management governance and by geopolitical instability and related economic processes are strengthened as part of the • • • decline, such as: Trade restrictions, raw material and energy shortages, and supply disruptions, hampering our ability to supply our customers Lower economic growth and declining disposable implementation of the new operating model within dsm- firmenich including DSM. To reduce the impact of possible disruptions, preventive actions are taken, such as reducing single-source positions, qualifying back-up manufacturing sites, and optimizing safety stocks. income, impacting demand for our products Continuous monitoring of possible disruptions in our Inflation, putting pressure on our margins supply chains enables us to act with speed as and when needed. We hedge part of our exposure to purchasing price fluctuations and currency fluctuations. DSM Integrated Annual Report 2023 22 Governance and Risk Management – Risk Management In economic downturns, we have the flexibility to offer solutions to serve the changing needs of our customers and end-consumers. Commodity markets Risk description Mitigations DSM operates in highly competitive markets. There is a We prioritize high-growth and higher-margin market risk that some competitors may benefit from a lower segments. To address the needs of customers and end- cost position and where we cannot differentiate consumers in these segments, we develop innovative ourselves sufficiently, this could impact our sales products and services and offer differentiating value volumes and margins. propositions. We use our wide-ranging expertise, our scientific, technical and data-driven innovation capabilities, and our broad portfolio of natural and renewable ingredients. In all our Business Units, we focus on maximizing operational performance and apply strict cost control. We launched the vitamin transformation program to improve profitability, structurally reduce our exposure to price fluctuations, and deliver significant cost savings. Talent availability Risk description Mitigations The success of DSM depends on its employees, We successfully implemented the new operating model including – but not limited to – scientists, researchers, and organization within dsm-firmenich including DSM flavorists, and experts in digital and data science. and have launched our new purpose and values. In view of the tight labor market, the ongoing challenges of the macro-economic environment, and the demands associated with any major merger and integration process, there is a risk that we cannot Throughout the entire process, we frequently connect with our employees to update them on the status of the integration and the challenges we face as a company. We answer their questions and address their concerns. attract, retain, develop, and engage the people with the Building on this foundation, we are executing our plans required expertise, experience, and mindset needed for integrated rewards, people development, well-being, for the implementation of our strategy. engagement, and Diversity, Equity & Inclusion. We continue to monitor retention rates as well as employee engagement and take action as and when needed. DSM Integrated Annual Report 2023 23 Governance and Risk Management – Risk Management Cyber attack Risk description Mitigations As external cyber threats remain high, DSM is exposed We are implementing a single, integrated cyber security to the risk of cyber attacks. This could lead to discontinuity of operations and loss of integrity or framework covering the domains of information technology, operations technology, and R&D laboratory confidentiality of information. systems. Since the ‘human firewall’ remains critically important, we have intensified our phishing tests to keep employee awareness high – something that is especially important during times of change. To mitigate the impact of a potential cyber attack, we are strengthening our business continuity plans and disaster recovery plans. Other important risks There are also more generic business risks, such as business continuity, sourcing, intellectual property, tax, changing legislation and regulations, and increasing non-financial reporting requirements. Our risk management framework is set up to adequately monitor and respond to these risks. All relevant risks are taken into account in the preparation of our financial statements. DSM Integrated Annual Report 2023 24 Governance and Risk Management – Group structure and shares Group structure and shares Group structure DSM B.V. and Group companies DSM B.V. is the parent company of the DSM Group and a direct affiliate of DSM-Firmenich AG. DSM B.V. is a company organized under Dutch law with its statutory seat in Heerlen and its registered office at Wilhelminasingel 39, 6227BE Maastricht, the Netherlands. On 31 May 2023, after the delisting of the DSM Ordinary Shares (see Delisting Ordinary Shares Koninklijke DSM N.V.), DSM B.V. became a private limited liability company with the conversion of the former Koninklijke DSM N.V. from a Dutch public limited liability company (naamloze vennootschap) into a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid). Shares Delisting Ordinary Shares Koninklijke DSM N.V. The last trading date of the DSM Ordinary Shares was 30 May 2023. The delisting of the DSM Ordinary Shares was effective on 31 May 2023. Buy-out procedure DSM-Firmenich AG commenced the statutory buy-out procedure in accordance with Articles 2:359c DCC and 2:201a DCC to acquire the DSM Ordinary Shares that were not tendered in the Exchange Offer (the Buy-Out) (or otherwise acquired by DSM-Firmenich AG) as DSM-Firmenich AG holds more than 95% of DSM's aggregate issued and outstanding ordinary share capital as of the Post-Closing Acceptance Settlement Date as defined on page 4 of the Offering Circular. On 14 May 2024, the Enterprise Court of the Amsterdam Court of Appeal awarded DSM-Firmenich AG’s claims in the Buy-Out. Former bearer shares Former DSM bearer shares are subject to the Buy-Out scenario. Further information can be found in the dsm-firmenich Offering Circular dated 22 November 2022; see paragraph 14.27. DSM Integrated Annual Report 2023 25 Governance and Risk Management – Supervisory Board and Managing Board DSM B.V. Supervisory Board and Managing Board DSM B.V. Supervisory Board The Supervisory Board is composed of the following three members. Thomas Leysen, Chairman of the Supervisory Board, Chairman of the Board of Directors of DSM-Firmenich AG and Member of its Compensation Committee since 2023 Thomas Leysen has spent a large part of his career at Umicore, which was transformed under his leadership from a metals producer to a materials technology group with leading positions in battery materials, automotive catalysts, and precious metals recycling. He was CEO of the company until 2008, after which he became Chairman of the Supervisory Board. He has long been committed to the promotion of sustainability development, and was the founding chair of The Shift, a coalition of businesses and non-governmental organizations in Belgium. He was Chairman of the Federation of Enterprises in Belgium between 2008 and 2011. Between 2011 and 2020, he was Chairman of the Board of KBC Group, a banking and insurance group with activities mainly in Belgium, Central Europe and Ireland. He was Member of the Supervisory Board of Koninklijke DSM N.V. as of 2020 and served as its Chairman Nationality Year of Birth Education Listed Company Boards Non-Listed Company Boards Other Memberships from 2021 to 2023, until DSM and Firmenich merged. Belgian 1960 Master’s degree, Law, Katholieke Universiteit Leuven (Belgium) • Umicore: Non-Executive Chair of the Supervisory Board • Mediahuis: Non-Executive Chair of the Board • • • Mayer van den Bergh Museum: Chair of the Board of Trustees King Baudouin Foundation US: Chair of the Foundation Flemish Heritage Council: Council Chair DSM Integrated Annual Report 2023 26 Governance and Risk Management – Supervisory Board and Managing Board DSM B.V. John Ramsay, Member of the Supervisory Board, Member of the Board of Directors of DSM-Firmenich AG and Chairman of its Audit & Risk Committee since 2023 John Ramsay started his career at KPMG before entering the corporate world in 1984, when he joined ICI. He held several, increasingly senior, accounting and finance positions within ICI, which would later become AstraZeneca. John played a leading role in planning and executing the merger of AstraZeneca’s agribusiness with Novartis, including the integration and disposal of various businesses post-merger. He also played a leading role in the formation and stock exchange listing of the Syngenta business and became its Group Controller in 2001. In that role, he had to build up the group’s finance function from scratch, establishing the organization and reporting systems after the IPO. His last executive position was Chief Financial Officer (CFO) and Interim CEO of Syngenta AG, which he held until 2016. He has served as Non-Executive Board Member of G4S and was a was a Member of the Supervisory Board of Koninklijke DSM N.V. during a six-year tenure, until DSM and Firmenich merged in 2023. Nationality Year of Birth Education Listed Company Boards British 1957 Chartered Accountant • RHI Magnesita N.V.: Non-Executive Director • Croda International PLC: Non-Executive Director • Babcock International PLC: Non-Executive Director Non-Listed Company Boards Other Memberships N/A N/A Corien Wortmann, Member of the Supervisory Board, Member of the Board of Directors of DSM-Firmenich AG, Member of its Sustainability Committee and Member of its Audit & Risk Commmittee since 2023 Corien Wortmann served as Chair of the Board of ABP Pension Fund, a world leader in responsible investing, from 2015 to 2022. She was a Member of the European Parliament for the European People’s Party from (EPP) 2004 to 2014, and the EPP’s Vice President Economy, Finance and Environment. She is currently a Non-Executive Member and Vice Chair of the Board of Directors of Aegon Ltd, Member of the Capital Market Advisory Board of the AFM, Board Member of the Impact Economy Foundation, and Chair of the Supervisory Board of Netspar, a network for studies on pensions, aging and retirement. She has served as Chair of the Supervisory Board of Save the Children (Netherlands), as a Jury Member of the Business Woman of the Year Prize at Veuve Clicquot, and as Co-Chair of the European High Level Expert Group Next CMU. She was a Member of the Supervisory Board of Koninklijke DSM N.V. during a two-year tenure, until DSM and Firmenich merged in 2023. Nationality Year of Birth Dutch 1959 DSM Integrated Annual Report 2023 27 Governance and Risk Management – Supervisory Board and Managing Board DSM B.V. Education Master’s Degree in Political Science and Economics, Vrije Universiteit Amsterdam (Netherlands) Listed Company Boards Non-Listed Company Boards Other Memberships Aegon N.V: Non-Executive Vice-Chair of the Board N/A • Impact Economy Foundation: Advisory Board Member • Netspar: Chair of the Supervisory Board • Capital Markets Advisory Board of the Dutch Financial Markets Authority: Member • Koninklijke Hollandsche Maatschappij der Wetenschappen: Member DSM Integrated Annual Report 2023 28 Governance and Risk Management – Supervisory Board and Managing Board DSM B.V. Managing Board The Managing Board is composed of the following two members. Dimitri de Vreeze, Chief Executive Officer since 2023 Dimitri de Vreeze was appointed as member to DSM B.V.’s Managing Board in 2013 and served as DSM’s Co-CEO from 2020, having joined the company in 1990. Starting in Finance, he took on leadership roles in various Business Units around the world before being named Young Captain of the Year in the Netherlands in 2006. He has been instrumental in setting DSM’s strategy and executing its transformation journey to a fully focused health, nutrition, and bioscience company, including the development of DSM’s Food System Commitments, a series of quantifiable 2030 targets aimed at addressing urgent societal and environmental challenges linked to how the world produces and consumes food. He chairs the Young Captain Foundation, awarding and elevating young leadership potential, and is also the Chair of the ALV United World College Maastricht, bringing together young people from all directions of life to work together toward a peaceful and sustainable future. Nationality Year of Birth Education Dutch 1967 • Master’s in Business Economics, University of Groningen (Netherlands) • Master’s in Finance and Control from Maastricht University (Netherlands) Ralf Schmeitz, Chief Financial Officer since 2023 Ralf Schmeitz was appointed as Managing Board member (CFO) of DSM B.V. in September 2023, marking a significant milestone in his journey with the company. He initially joined the company in 2006 , and his path has been marked by outstanding achievements and a track record of strong performance. Ralf has played a pivotal role in propelling the transformation of the Finance function and in navigating substantial portfolio changes. Prior to his CFO role, Ralf held the position of Head of Group Finance, overseeing Finance & Control, Treasury and Taxation. In his last role, he held the position of Group Controller, spearheading both the Business Controlling and Accounting teams. Ralf began his career at PwC, laying strong foundations and building financial and strategic acumen, and then moved to Hewlett Packard, where he assumed diverse leadership responsibilities in Finance. Nationality Year of Birth Education Dutch 1972 • Master’s degree, Economics, Maastricht University (Netherlands) • Master’s degree Accountancy, Maastricht University (Netherlands) • Master’s degree in Business Valuation, Erasmus University, Rotterdam (Netherlands) DSM Integrated Annual Report 2023 29 Governance and Risk Management – Supervisory Board report Supervisory Board report This report provides information on the way the Supervisory Board performed its duties in 2023. Change in the composition of the Supervisory Board In 2023, the size of the Supervisory Board decreased from eight to three Board members due to the changes in the Group structure caused by the merger with Firmenich. The composition of DSM’s Supervisory Board is diverse in terms of gender, nationality, background, knowledge, and experience. The Supervisory Board comprises two men and one woman. One member is Belgian, one British, and one Dutch. The current Supervisory Board members are Thomas Leysen (Chair), John Ramsay, and Corien Wortmann. For detailed information on their backgrounds, see Supervisory Board and Managing Board DSM B.V. For information on the composition of the Supervisory Board prior to the merger between DSM and Firmenich, please refer to page 236 of the Offering Circular. Supervision and advice The Supervisory Board performs its duties of supervising and advising the Managing Board with respect both to recurring standard agenda items for Supervisory Board meetings and to specific topics that become relevant at any given point in time. In view of and prior to the merger between DSM and Firmenich, the Supervisory Board was actively involved in the preparations and approval process for the merger. In view of the launch of an industry-wide investigation into the fragrances sector, including Firmenich, by the European, US, UK, and Swiss competition authorities in March 2023, the investigations were discussed in the full Supervisory Board meeting. This resulted in the Second Supplement to the Offering Circular. Furthermore, the Supervisory Board was also involved in the discussions leading to the acquisition of Adare Biome. Another prominent agenda item is an update on business performance, financials, treasury, and investor relations topics. As part of this agenda item, the Supervisory Board tracked the company’s financial performance, as well as approved the annual Budget and the annual Finance and Capital Expenditure Plan. It was additionally updated on capital market expectations, and deliberated on any additional treasury topics as needed. A bridge financing facility as part of the annual Finance Plan was approved to cover the financial aspects related to the closing of the merger. In the area of financials and auditing, discussions were held with KPMG about the audit plan and strategy, DSM B.V.’s reporting requirements, audit report, and financial statements for 2023. Financial statements 2023 The Report of the Managing Board and the financial statements for 2023 were submitted by the Managing Board to the Supervisory Board, in accordance with the provisions of Articles 17.2 and 22 of the Articles of Association, and were subsequently approved by the Supervisory Board on 14 May 2024. The financial statements were audited by the external auditor KPMG, who issued an unqualified opinion (see the Independent auditor’s report). The Supervisory Board established that the external auditor was independent of DSM. The Supervisory Board will submit the 2023 financial statements to the 2024 Annual General Meeting of Shareholders, and will propose that the shareholders adopt them and release the Managing Board from all liability in respect of its managerial activities and release the Supervisory Board from all liability in respect of its supervision of the Managing Board. The profit appropriation as proposed by the Managing Board and approved by the Supervisory Board is presented in Note 6 Shareholders’ equity to the parent company financial statements. DSM Integrated Annual Report 2023 30 Governance and Risk Management – Auditors Auditors Mandate and term of office KPMG was appointed as Group and statutory auditors of DSM B.V. for the financial year 2023. The Supervisory Board reconsiders on an annual basis whether the external auditors should be proposed to the Annual General Meeting for re- election. Assurance fees The assurance fees paid to KPMG in its capacity as statutory and Group auditor for the 2023 consolidated financial statements, the fees for any other audit instructions, non-audit tax services, as well as for other non-audit services can be found in Note 29 Service fees paid to external auditors to the consolidated financial statements. The scope of the audit of the 2023 consolidated financial statements was approved by the Supervisory Board and defined in an engagement and fee letter signed by the CEO and the CFO. Auditor Rotation The Audit Rules of the European Union require DSM B.V. to rotate its external auditor for the financial year 2025. In view of this requirement, the Supervisory Board of DSM B.V. initiated an auditor selection process in the third quarter of 2023 and mandated a Selection Committee to conduct a tender process for the selection of the external auditor. The Selection Committee consisted of Supervisory Board member John Ramsay and the Managing Board. The Selection Committee oversaw the execution of the tender process, which was performed by a Tender Team consisting of the employees from the Finance and Procurement teams. The amended Audit Directive (2014/56/EU) and the Audit Regulation (537/2014/EU) of the European Union, which prescribe specific requirements on the appointment of statutory auditors or audit firms, were considered in the audit tender process. In addition, the Selection Committee considered the report of the Dutch Authority for the Financial Markets (AFM) published in February 2021, which provides recommendations on the external auditor selection. The auditor selection criteria, which were validated by the Supervisory Board, emphasize the requirements for independence, the ability to provide financial & non-financial assurance, global footprint, quality ratings, and an excellent professional knowledge network of IT, systems, processes & controls. Considering the results of the audit tender process and the recommendation of the Selection Committee, the Supervisory Board approved the recommendation (subject to the powers of the General Meeting of Shareholders). The Supervisory Board of DSM B.V. will propose to the 2024 Annual General Meeting of Shareholders to approve the appointment of PricewaterhouseCoopers as external auditor for DSM B.V. starting from the financial year 2025. DSM Integrated Annual Report 2023 31 FINANCIAL STATEMENTS Consolidated financial statements The financial statements of DSM include the consolidated financial statements and the parent company financial statements. DSM (the ‘Company’ or the ‘Group’) is the former Koninklijke (or Royal) DSM Group, a sub-group of the dsm- firmenich Group, a new group following the merger between DSM and Firmenich that took place on 8 May 2023. The parent company of the sub-group DSM is DSM B.V., domiciled in Heerlen (Netherlands). Its main shareholder is DSM- Firmenich AG, listed on the Euronext Amsterdam stock exchange. These consolidated financial statements comprise DSM B.V. and its subsidiaries (the ‘Group’). A list of main participations of the Group can be found in Note 3 Financial assets to the parent company financial statements. The financial year 2023 covers the period from 1 January 2023 to 31 December 2023. DSM Integrated Annual Report 2023 32 Consolidated financial statements Consolidated income statement x € million Continuing operations Net sales Cost of sales Gross profit Marketing & Sales Research & Development General & Administrative Other operating income Other operating expense Operating profit (loss) Finance income Finance expense Profit (loss) before tax Income tax expense Share of net profit of associates and joint ventures Other results related to associates and joint ventures Net profit (loss) from continuing operations Net profit from discontinued operations Net profit for the period Attributable to: - Holders of shares parent company - Non-controlling interests - Dividend on cumulative preference shares Notes 2023 2022 5 5 5 5 5 5 5 6 6 7 10 10 3 17 16 16 7,590 (6,021) 1,569 (1,051) (352) (619) 155 (114) (412) 129 (187) (470) 16 (8) (1) (463) 2,789 2,326 2,312 8 6 8,390 (5,700) 2,690 (1,235) (295) (534) 107 (51) 682 71 (159) 594 (124) 12 (7) 475 1,240 1,715 1,694 15 6 The accompanying notes are an integral part of these consolidated financial statements. DSM Integrated Annual Report 2023 33 Consolidated financial statements Consolidated statement of comprehensive income x € million Net profit for the period Other comprehensive income Remeasurements of defined benefit liability Fair value changes in other participating interests and other financial instruments Related tax Items that will not be reclassified to profit or loss Exchange differences on translation of foreign operations - Change for the period - Reclassified to the income statement on loss of significant influence Hedging reserve - Change for the period - Reclassified to the income statement Equity accounted investees – share of other comprehensive income Related tax Items that may subsequently be reclassified to profit or loss Notes 2023 2,326 2022 1,715 24 11 16 16 (35) (37) 9 (63) (101) - 27 - (1) (2) (77) 10 (61) (10) (61) 264 (16) (6) 53 - (7) 288 Total other comprehensive income (140) 227 Total comprehensive income for the period, net of tax 2,186 1,942 Attributable to: - Holders of shares parent company - Non-controlling interests 17 16 2,184 2 1,930 12 DSM Integrated Annual Report 2023 34 Consolidated financial statements Consolidated balance sheet at 31 December x € million Assets Goodwill and intangible assets Property, plant and equipment Deferred tax assets Prepaid pension costs Share in associates and joint ventures Derivatives Other non-current assets Non-current assets Inventories Trade receivables Income tax receivables Other current receivables Derivatives Financial investments Cash and cash equivalents Assets held for sale Current assets Total assets Equity and liabilities Shareholders' equity Non-controlling interests Equity Deferred tax liabilities Employee benefit liabilities Provisions Borrowings Derivatives Other non-current liabilities Non-current liabilities Employee benefit liabilities Provisions Borrowings Derivatives Trade payables Income tax payables Other current liabilities Liabilities held for sale Current liabilities Total equity and liabilities Notes 2023 2022 8 9 7 24 10 23 11 12 13 13 13 23 14 15 3 17 16 7 24 18 19 23 20 24 18 19 23 21 21 21 3 5,210 3,492 169 15 55 46 214 9,201 2,318 1,535 79 286 35 101 2,181 6 6,541 5,147 3,576 95 19 61 82 295 9,275 2,339 1,508 36 78 42 125 2,755 1,245 8,128 15,742 17,403 8,814 109 10,743 102 8,923 10,845 454 289 77 2,487 3 130 476 287 50 2,978 4 205 3,440 4,000 2 34 631 28 1,364 133 1,179 8 5 45 86 23 1,415 64 490 430 3,379 2,558 15,742 17,403 DSM Integrated Annual Report 2023 35 Consolidated financial statements Consolidated statement of changes in equity (Note 16) Share capital Share premium Treasury shares Other reserves Retained earnings Shareholders ' equity Non- controlling interests x € million Balance at 1 January 2022 Total comprehensive income Dividend Options / performance shares granted Options / performance shares vested / canceled Repurchase of shares Reissued shares Acquisition (divestment) of subsidiary with NCI Transfer Other changes Balance at 31 December 2022 . Total comprehensive income Dividend Options / performance shares granted Options / performance shares vested / canceled Reissued shares Repurchase of shares Cancellation of shares Acquisition of subsidiary with NCI Divestment of subsidiary with NCI Transfer Other changes Balance at 31 December 2023 328 471 (177) - - - - - - - - - - - - - - - - - - - - - - (210) 191 - - - 328 471 (196) - - - - - - (67) - - - - - - - - - - (2) - - - - 261 469 - - - - 63 (256) 345 - - 44 - - 8,540 1,700 (459) 9,318 1,930 (459) - 34 29 - (50) - 17 - - (210) 141 - (11) - 79 12 - - - - - (4) 11 4 Total Equity 9,397 1,942 (459) 34 - (210) 141 (4) - 4 9,777 10,743 102 10,845 2,292 (3,935) 2,184 (3,935) - 23 23 (39) - (276) - - (4) (4) - 24 (256) - - - 35 (4) 2 - - - - - - - (4) 9 - 2,186 (3,935) 23 - 24 (256) - - (4) 44 (4) 156 230 - 34 (29) - - - (28) - 363 (108) - 23 (23) - - - - - (5) - 250 7,834 8,814 109 8,923 DSM Integrated Annual Report 2023 36 Consolidated financial statements Consolidated cash flow statement (Note 26) x € million 2023 2022 Operating activities Net profit for the period Share of profit of associates and joint ventures (including discontinued operations)¹ Income tax expenses (including discontinued operations)¹ Profit before tax (including discontinued operations)¹ Finance income and expense (including discontinued operations)¹ Operating profit (including discontinued operations)¹ Depreciation, amortization and impairments (including discontinued operations)¹ EBITDA (including discontinued operations)¹ - (Gain) or loss from disposals - Acquisition- / divestment-related - Changes in provisions - Changes in employee benefits - Share-based compensation - Income taxes paid / received - Other non-cash items Operating cash flow before changes in working capital Changes in: Inventories Trade receivables Trade payables Changes in operating working capital Changes in non-operating working capital Changes in working capital 2,326 9 21 2,356 59 2,415 944 3,359 (2,770) - 10 (34) 23 (107) 97 578 58 46 (66) 38 (40) (2) 1,715 (5) 190 1,900 94 1,994 652 2,646 (1,024) 4 (33) (15) 34 (131) (19) 1,462 (442) (133) 116 (459) (38) (497) Cash provided by operating activities 1 The Consolidated cash flow statement includes an analysis of all cash flows in total, therefore including both continuing and discontinued operations. For the amounts related to discontinued operations split by activities and a reconciliation of profit from continuing operations to total, including discontinued operations, see Note 3 Change in the scope of the consolidation to the consolidated financial statements. 576 965 DSM Integrated Annual Report 2023 37 Consolidated financial statements Consolidated cash flow statement (Note 26) continued x € million Cash provided by operating activities Investing activities Capital expenditure for intangible assets Capital expenditure for property, plant and equipment Proceeds from disposal of property, plant and equipment Payments regarding drawing rights Acquisition of subsidiaries Disposal of subsidiaries Payments for short-term financial investments Proceeds from short-term financial investments Other financial assets (incl. associates): - Dividends received - Capital payments and acquisitions - Proceeds from disposals - Additions to loans granted - Repayment of loans granted Interest received Cash from / (used in) investing activities Financing activities Contributions from non-controlling interests Proceeds from borrowings Repayment of borrowings Payments of lease liabilities Change in debt to credit institutions Proceeds from re-issued treasury shares Repurchase of shares Dividend paid Interest paid Funding cash pool Other Cash (used in) / from financing activities Cash and cash equivalents at the beginning of the period Net increase / (decrease) in cash and cash equivalents Effect of movements in exchange rates on cash held Cash and cash equivalents at the end of the period 2023 576 (103) (439) 20 (8) (389) 3,533 (150) 187 4 (15) 26 (35) 31 49 2,711 - 2 (21) (52) (1) 8 (256) (3,935) (14) 425 (8) (3,852) 2,755 (565) (9) 2,181 2022 965 (138) (506) 17 (7) (74) 1,366 (638) 1,001 4 (33) 30 (152) - 6 876 5 51 (29) (57) (21) 25 (210) (345) (52) - (12) (645) 1,561 1,196 (2) 2,755 See Note 26 Notes to the cash flow statements to the consolidated financial statements for selected comments on statement of cash flow. DSM Integrated Annual Report 2023 38 Consolidated financial statements – Notes to the consolidated financial statements Notes to the consolidated financial statements 1 General information 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 and the provisions of section 362-8 of Book 2 of the Dutch Civil Code. In the following notes, all amounts are shown in millions of euros (€), unless otherwise stated. Changes in accounting policies DSM adopted International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12) upon their release on 23 May 2023. DSM applies the temporary mandatory exception from deferred tax accounting for the top-up tax, which is effective immediately. Pillar Two legislation has been enacted or substantively enacted in a number of jurisdictions in which DSM operates. Since the newly enacted tax legislation was not yet in effect in these jurisdictions in 2023, there is no current tax impact for the group for the year ended 31 December 2023. DSM actively monitors developments and the global legislative status of Pillar Two implementation in the jurisdictions where it operates. Furthermore, an assessment is made regarding the potential Pillar Two impact. Based on this assessment and considering the jurisdictions where the Pillar Two legislation is currently enacted or substantively enacted, DSM does not expect Pillar Two to have a material impact for the financial year 2024. Other new or amended standards that are effective from 1 January 2023 do not have a material effect on DSM’s consolidated financial statements. In addition, new or amended standards effective after 1 January 2023 were neither adopted early, nor are they expected to have significant impact. Group material accounting policies The below information outlines the general Group material accounting policies. Other specific material accounting policies that management considers to be the most important for the presentation of the financial position and results of DSM’s operations are included in the relevant notes and applied throughout the consolidated financial statements. Principles of consolidation As a parent company, DSM is exposed, or has a right, to the variable returns from its involvement with its subsidiaries and has the ability to affect the returns through its power over the subsidiaries. The financial data of subsidiaries are fully consolidated. Non-controlling interests in the Group's equity and profit and loss are stated separately. Subsidiaries are consolidated from the acquisition date until the date on which DSM ceases to have control. From the acquisition date onwards, all intra-group balances and transactions and unrealized profits or losses from intra-group transactions are eliminated. DSM Integrated Annual Report 2023 39 Consolidated financial statements – Notes to the consolidated financial statements A joint arrangement 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. A joint arrangement can either be a joint venture whereby DSM and the other partner(s) have rights to the net assets of the arrangement, or a joint operation where DSM and the partner(s) have rights to the assets and obligations for the liabilities of the arrangement. For joint ventures, the investment in the net assets is recognized and accounted for in accordance with the equity method, see also Note 10 Associates and joint arrangements to the consolidated financial statements. For a joint operation, assets, liabilities, revenues, and expenses are recognized in the financial statements of DSM in accordance with the contractual entitlement or obligations of DSM. Foreign currencies The DSM's presentation currency is the euro (€), which is also the parent company's functional currency. Each entity of the Group records transactions and balance sheet items in its functional currency. Transactions denominated in a 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 items that are measured on the basis of historical costs 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 that do not have the euro as their functional currency are translated into euros at the closing rate. The income statements of these entities are translated into euros at the average rates for the relevant period. The functional currency in which goodwill paid on acquisition is recorded is based on the business case underlying the corresponding business combination. 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 insofar as those instruments 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 differences relating to the translation of the net investment are recognized in profit or loss. The currency exchange rates that were used in preparing the consolidated financial statements are listed below for the most important currencies. 1 euro = US dollar Swiss franc Brazilian real Chinese renminbi Exchange rate at 31 December 2023 1.11 0.93 5.36 7.85 2022 1.07 0.98 5.64 7.36 Average exchange rate 2023 1.08 0.97 5.40 7.66 2022 1.05 1.00 5.44 7.08 DSM Integrated Annual Report 2023 40 Consolidated financial statements – Notes to the consolidated financial statements 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. Income is recognized when surplus emission rights are sold to third parties. When actual emissions exceed the emission rights available to DSM, a liability is recognized for the expected additional costs. Significant accounting estimates and judgments The preparation of the consolidated financial statements requires management to make estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. Actual outcomes could differ from those estimates. The estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Furthermore, the application of the Group’s accounting policies may require management to make judgments, apart from those involving estimates, that can have a significant effect on the amounts recognized in the financial statements. Areas of management estimates and judgments that have the most significant effect on the amounts recognized in the financial statements are disclosed, along with the material accounting policies, in the relevant notes. Presentation of Consolidated income statement DSM presents expenses in the Consolidated income statement in accordance with their function. This allows the presentation of gross profit 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 costs (including raw materials, employee benefits, and depreciation and amortization) related to goods and services captured in net sales. These are measured at their actual cost based on weighted average cost, or FIFO. Marketing & 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 are not originated by the manufacturing of the goods (e.g., outbound freight). Research & 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 that do not meet the accounting requirements for capitalization General & 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. DSM Integrated Annual Report 2023 41 Consolidated financial statements – Notes to the consolidated financial statements 2 Alternative performance measures Accounting policy In monitoring the financial performance of DSM, management uses EBITDA as an Alternative performance measure (APM) not defined by IFRS. An APM should not be viewed in isolation as an alternative to the equivalent IFRS measure and should be used as supplementary information in conjunction with the most directly comparable IFRS measure. An APM does not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. In line with common industry practice, EBITDA is used as a metric to review DSM’s financial performance. Earnings before interest, tax, depreciation and amortization (EBITDA) is defined as the IFRS metric operating profit plus depreciation, amortization, and impairments. Reconciliation of Alternative performance measures (continuing operations) Operating profit (loss) Depreciation, amortization and impairments EBITDA 2023 (412) 944 532 2022 682 622 1,304 3 Change in the scope of consolidation Accounting policy Business combinations Business combinations are accounted for using the acquisition method from the moment control is transferred to the Group. The cost of an acquisition is measured as the aggregate of the consideration transferred, including assets transferred, shares issued, and liabilities incurred, measured at acquisition date fair value. Acquisition-related costs incurred are expensed, except if related to the issue of debt or equity securities. 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. Any contingent consideration payable is measured at fair value at the acquisition date; subsequent changes in the fair value of the contingent consideration resulting from events after the acquisition date are recognized in profit or loss. For business combinations with the acquisition date in the prior reporting period, comparative information is revised in case adjustments are made during the measurement period to the provisional amounts, determined as part of the purchase price allocation (PPA), based on information available at the acquisition date. 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 letter of intent or agreement to sell is ready for signing. Non-current assets and disposal groups held for sale 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. DSM Integrated Annual Report 2023 42 Consolidated financial statements – Notes to the consolidated financial statements 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. Classification as a discontinued operation occurs when the operation meets the criteria to be classified as held for sale. Estimates and judgments Key estimates DSM makes in the accounting for changes in the scope of consolidation relate to the determination of fair values for assets acquired and liabilities assumed in business combinations. These estimates are based on historical quoted market prices plus past experience, and are validated by external valuation specialists where deemed necessary by management. Acquisitions In 2023, DSM acquired businesses for a total consideration of €292 million (in 2022: €77 million). Adare Biome On 1 July 2023, DSM acquired a 100% interest in Adare Biome, headquartered in Houdan (France) for a total cash consideration of €290 million. Adare Biome is a pioneer in the development and manufacturing of postbiotics, a rapidly emerging segment of the gut health market. All identified synergies of this acquisition are revenue synergies. In accordance with IFRS 3, the purchase price was provisionally allocated to identifiable assets and liabilities acquired, pending final confirmation of the local valuator. This allocation resulted in a non-tax-deductible goodwill amount of €146 million and intangible assets for technology of €105 million, customer relations of €45 million, and trade names of €11 million. The goodwill relates to the value of future intangible assets, the Culturelle® synergy, and the assembled workforce. As the Adare Biome workforce does not qualify for separate recognition as an intangible asset under IFRS, it was valued to estimate a contributory asset charge for the valuation of technology and rationalize part of the residual goodwill. The acquisition of Adare Biome contributed €12 million to net sales, -€5 million to operating result, and €2 million to EBITDA during the second half year. If the acquisition had occurred on 1 January 2023, additional net sales would have been approximately €29 million, operating result -€5 million, and EBITDA €6 million. Finalization of Prodap PPA In the reporting year, the Purchase Price Allocation (PPA) related to the acquisition of Prodap in Brazil in 2022 was finalized without any changes in relation to the purchase price allocation as disclosed in the DSM Integrated Annual Report of 2022. Valuation techniques intangible assets Part of a PPA is the recognition of intangible assets which are recognized apart from goodwill. The valuation techniques DSM used for measuring the fair value of these intangible assets in 2023 were as follows: Technology was identified as the key business driver and leading intangible assets of Adare Biome, and therefore the multi-period excess earnings method (MEEM) was applied to value it. The trade names were valued by applying the relief from royalty (RfR) method, a form of the income approach whereby the value of an asset is estimated by capitalizing the royalties saved as a result of owning the asset. The fair values of customer relationships were determined by applying the MEEM approach, considering the present value of the projected cash flow revenues and adjusted for retention. DSM Integrated Annual Report 2023 43 Consolidated financial statements – Notes to the consolidated financial statements Summary acquisitions in 2023 The accounting of the acquisitions upon closing impacted DSM’s consolidated balance sheet 2023 as shown in the below table (measured at the date of acquisition). Impact acquisitions on balance sheet in 2023 Fair value Assets Intangible assets Property, plant and equipment Inventories Receivables and other current assets Cash and cash equivalents Total assets Non-controlling interests and liabilities Non-current liabilities Current liabilities Total non-controlling interests and liabilities Net assets Acquisition price (in cash) Other Consideration Goodwill Acquisition costs (excluding inventory step-up) Adare Biome Other acquisitions Total 161 17 8 13 1 200 46 10 56 144 290 - 290 146 4 1 - - - - 1 - - - 1 2 - 2 1 - 162 17 8 13 1 201 46 10 56 145 292 - 292 147 4 The fair value of the acquired receivables is based on the gross contractual amounts, adjusted for estimated contractual cash flows not expected to be collected. Divestments Divestment of Engineering Materials On 1 April 2023, the company completed the divestment of its Engineering Materials business (DEM) to Advent International and LANXESS. Prior to this divestment, the results of this business (the ‘disposal group’) were reclassified to discontinued operations. Summary of divestments in 2023 See below table for the book result of the divestments that took place in the reporting year. DSM Integrated Annual Report 2023 44 Consolidated financial statements – Notes to the consolidated financial statements Engineering Materials (DEM) Other Total Assets Goodwill and intangible assets Property, plant and equipment Other non-current assets Inventories Receivables and other current assets Cash and cash equivalents Total assets Non-controlling interests and liabilities Non-current liabilities Current liabilities Total liabilities Net assets Non-controlling interest Net assets dsm-firmenich shareholders Consideration (net of selling costs, translation differences and net debt) Book result 2023 Income tax Net book result (217) (374) (32) (329) (264) (161) (1,377) (74) (439) (513) (864) (3) (861) 3,689 2,828 (38) 2,790 - - - - (1) (8) (9) - (5) (5) (4) - (4) 1 (3) - (3) (217) (374) (32) (329) (265) (169) (1,386) (74) (444) (518) (868) (3) (865) 3,690 2,825 (38) 2,787 Impact on comprehensive income The impact of the business that has been presented as discontinued operations in the income statement and statement of comprehensive income is presented in the below tables. Net sales EBITDA Total expenses Operating profit Financial income and expense Profit (loss) before income tax expense Income tax expense Results related to associates and joint ventures Continuing operations 7,590 2023 Discontinued operations 388 532 8,272 (412) (58) (470) 16 2,827 (2,439) 2,827 (1) 2,826 (37) Total 7,978 3,359 5,833 2,415 (59) 2,356 (21) (9) - (9) Net profit (loss) for the year (463) 2,789 2,326 Of which: Continuing operations 8,390 2022 Discontinued operations 2,090 1,304 7,708 682 (88) 594 (124) 5 475 1,342 778 1,312 (6) 1,306 (66) - 1,240 Total 10,480 2,646 8,486 1,994 (94) 1,900 (190) 5 1,715 - Attributable to non-controlling interests - Dividend on Cumulative Preference Shares - Available to holders of ordinary shares 8 6 (477) - - 2,789 8 6 2,312 13 6 456 2 - 1,238 15 6 1,694 DSM Integrated Annual Report 2023 45 Consolidated financial statements – Notes to the consolidated financial statements The operating profit in discontinued operations amounting to €2,827 million comprises the regular activities of the DEM business in the first three months of the reporting year (-€1 million) and the book profit on the sale of the DEM business on 1 April 2023 (€2,828 million). The business results reclassified to discontinued operations include also intercompany recharges that ceased to be earned/incurred on disposal. Corporate costs have been excluded from the reclassification to discontinued operations. The comparative numbers in the Income statement and the Statement of comprehensive income are re-presented as if the activities of the DEM business had been discontinued from the start of the comparative year 2022. In addition, these comparative numbers also include eight months of results related to former DSM’s Protective Materials business, which was divested in September 2022. See also the section Assets and liabilities held for sale here below. Net profit from discontinued operations Other comprehensive income Remeasurements of defined benefit pension plans Fair value changes in Other participating interests and other financial instruments Items that will not be reclassified to profit or loss Exchange differences on translation of foreign operations - Change for the year Items that may subsequently be reclassified to profit or loss 2023 2,789 - - - (4) (4) 2022 1,240 1 (1) - (44) (44) Total comprehensive income discontinued operations 2,785 1,196 Of which: - Attributable to non-controlling interests - Available to equity holders of DSM - 2,785 1 1,195 Impact on cash flow statement The impact of the business that has been included as discontinued operations in the cash flow statement is shown in the following table. Net cash provided by / (used in): - Operating activities - Investing activities Net change in cash and cash equivalents 2023 2022 70 3,517 3,587 190 1,291 1,481 See also Note 26 Notes to the cash flow statements to the consolidated financial statements. Assets and liabilities held for sale Jiangshan The production of vitamin C in Jiangshan, China, which had already been significantly reduced since the end of 2022, was completely shut down in mid-May. At the end of 2023, the assets and liabilities of Jiangshan met the criteria for classification as held for sale. Impact on balance sheet The impact of the reclassification of the above-mentioned activities on the DSM consolidated balance sheet is presented in the following table. DSM Integrated Annual Report 2023 46 Consolidated financial statements – Notes to the consolidated financial statements Assets Non-current assets Other non-current assets Current assets Inventories Receivables Total assets Liabilities Non-current liabilities Current liabilities Total liabilities Net assets 2023 1 4 1 6 2 6 8 (2) 4 Segment information Accounting policy DSM has segmented its operations by business activity from which revenues are earned and expenses incurred. These operating results are regularly reviewed by the Managing Board, DSM’s Chief Operating Decision Maker (CODM), to make decisions about resources to be allocated to the operating segments and assess their performance. DSM uses EBITDA as the main indicator to evaluate the consolidated performance as well as the performance per operating segment. Discrete financial information is available for each identified operating segment. DSM has determined that Taste, Texture & Health - DSM (TTH-DSM), Health, Nutrition & Care - DSM (HNC-DSM), and Animal Nutrition & Health (ANH) represent reportable operating segments in addition to the reportable segment Corporate Activities. The same accounting policies that are applied for the consolidated financial statements of DSM are also applied for the operating segments. Prices for transactions between segments are determined on an arm’s length basis at market-based prices. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can reasonably and consistently be allocated. Interest income, interest expense, and income tax expense or income are not allocated to segments as these amounts are not included in the measure of segment profit or loss reviewed by the Managing Board. Selected information on a country and regional basis is provided in addition to the information about operating segments. Operating segments DSM is organized into three Business Units: • Taste, Texture & Health - DSM (TTH-DSM) helps customers create food and beverage products that are delicious, nutritious, affordable, and sustainable. This Business Unit provides enjoyment and nourishment for consumers, business success for customers, and better health for people and planet This Business Unit mainly consists of the Ingredients Solutions business • Health, Nutrition & Care - DSM (HNC-DSM) provides people solutions to help them look after their health by adding critical nutrients to diet. This Business Unit drives medical innovation forward, helping to accelerate recovery times and enhancing quality of life. This Business Unit mainly consists of DSM’s former Health, Nutrition & Care business, including the Personal Care & Aroma Ingredients business • Animal Nutrition & Health (ANH) delivers healthy animal proteins efficiently and sustainably, harnessing the power of data to make animal farming practices more sustainable, productive, and transparent DSM Integrated Annual Report 2023 47 Consolidated financial statements – Notes to the consolidated financial statements For 2023, these Business Units have been identified as the reportable operating segments of DSM. Any consolidated activities outside the three reportable operating segments above are reported as the reportable segment ‘Corporate Activities’. These consist of corporate operating and service activities that are not further allocated to the operating segments. DSM does not have a single external customer that represents 10% or more of total sales. Geographical information 2022 Net sales (by destination) Nether- lands Switzer- land Rest of EMEA North America Latin America China Rest of Asia Total In € millions In % . Workforce at year-end (headcount)¹ Intangible assets and property, plant and equipment at year-end (carrying amount) 402 5 156 2 2,305 26 1,869 22 1,507 18 803 10 1,348 17 8,390 100 2,642 2,232 4,366 2,618 2,302 4,591 1,931 20,682 1,304 1,852 2,105 2,143 404 774 141 8,723 . 2023 Net sales (by destination) In € millions In % . Workforce at period-end (headcount) Intangible assets and property, plant and equipment at period-end (carrying amount) 1 Refers to total Group, including discontinued operations. Reportable segments 388 5 165 2 2,072 27 1,711 23 1,331 18 780 10 1,143 15 7,590 100 1,783 2,274 4,274 2,447 2,555 3,785 1,737 18,855 1,665 1,950 2,220 1,937 422 423 85 8,702 2022 Net sales EBITDA1 Operating profit . 2023 Net sales Taste, Texture & Health - DSM Health, Nutrition & Care - DSM Animal Nutrition & Health Corporate Activities Total continuing operations Discontinued operations TOTAL 1,545 2,990 3,784 71 8,390 2,090 10,480 245 115 669 420 523 328 (133) (181) 1,304 682 1,342 1,312 2,646 1,994 1,435 2,806 3,223 126 7,590 388 7,978 EBITDA1 Operating profit . 1 See Note 2 Alternative performance measures to the consolidated financial statements for the reconciliation to IFRS performance measures. (30) (504) (140) (204) 532 (412) 489 211 213 85 2,827 2,827 3,359 2,415 DSM Integrated Annual Report 2023 48 Consolidated financial statements – Notes to the consolidated financial statements 5 Net sales and costs Accounting policy Revenue from contracts with customers is recognized by identifying the contract and its performance obligations as well as determination and allocation of the transaction price to these performance obligations. Net sales represent the invoice value less estimated rebates, cash discounts, and indirect taxes. No element of financing is deemed present as sales are made with a short-term credit term. The payment terms are determined per business segment on a customer basis. DSM has neither specific obligations for returns or refunds, nor specific warranties or other related obligations. Sale of goods At DSM, revenue related to the sale of goods is recognized in the income statement when the performance obligation is satisfied. This is at the point in time when transfer of control of the goods passes to the buyer. Fulfilment of the performance obligations related to goods sold is measured using the commercial shipment terms as an indicator for the transfer of control. Revenue recognized is measured at the fair value of the contractual transaction price allocated to the performance obligation that is satisfied. Rendering of services Income coming from the rendering of services is recognized when the service, i.e., the performance obligation, has been performed. Fulfillment of the performance obligations for services rendered is identified according to the individual contract. The revenue recognized is measured at the fair value of the contractual transaction price allocated to the performance obligation that is satisfied. Licensing (royalties) Income related to the sale or licensing of technologies or technological expertise is recognized in the income statement either at a point in time or over time, depending on when the contractually identified performance obligations are satisfied. Performance obligations related to license income include the transfer of rights and obligations associated with those technologies. License income is reported in Net sales when the income is part of the ordinary and recurring activities of the business and, if this is not the case, it is reported in Other operating income. Net sales Goods sold Services rendered Royalties Total Disaggregation of net sales Taste, Texture & Health - DSM (TTH-DSM) Health, Nutrition & Care - DSM (HNC-DSM) Animal Nutrition & Health (ANH) Corporate Activities Total 2023 7,325 253 12 7,590 2023 1,435 2,806 3,223 126 7,590 2022 8,191 193 6 8,390 2022 1,545 2,990 3,784 71 8,390 Total costs In 2023, total operating costs (the total costs included in operating profit) amounted to €8.0 billion, €0.3 billion higher than in 2022, when these costs stood at €7.7 billion. Total operating costs in 2023 included Cost of sales amounting to €6.0 billion (2022: €5.7 billion); gross profit as a percentage of net sales stood at 21% (2022: 32%). DSM Integrated Annual Report 2023 49 Consolidated financial statements – Notes to the consolidated financial statements Employee benefit costs Wages and salaries Social security costs Pension costs (see also Note 24) Share-based compensation (see also Note 27) Total Depreciation, amortization and impairments Amortization of intangible assets Depreciation of property, plant and equipment owned Depreciation of right-of-use assets Impairment losses Total 2023 1,426 181 96 23 1,726 2022 1,353 169 102 35 1,659 2023 2022 245 340 51 308 944 234 325 49 14 622 Impairments of PPE, goodwill, and intangible assets of €308 million mainly relate to the vitamins business. Due to the weakening of the vitamins market, the company has taken several measures, including the restructuring of its vitamin asset footprint, to significantly reduce the costs. This includes the closure of the Xinghuo vitamin B6 plant in China and the refocusing of the company’s vitamin C activities on its specialty Quali®-C from Dalry (UK) only. The production of vitamin C in Jiangshan (China), which had already been significantly reduced since the end of 2022, was completely shut down in mid-May. At the end of 2023, the assets and liabilities of Jiangshan met the criteria for classification as held for sale. Other operating income Release of provisions Gain on sale of assets and activities Insurance benefits Amendments / settlements to pension plans Earn-out payments and other settlements Lease income Royalties Sale of emission rights Sundry Total Other operating expense Additions to provisions Exchange differences Acquisitions / disposals Damages w.r.t insurance Sundry Total DSM Integrated Annual Report 2023 2023 2022 - 23 22 1 57 4 2 8 38 10 31 12 2 9 7 4 - 32 155 107 2023 2022 22 13 56 - 23 114 4 18 3 4 22 51 50 Consolidated financial statements – Notes to the consolidated financial statements 6 Finance income and expense 2023 2022 Finance income Interest income from third parties Interest income from related parties Fair value change in derivatives Sundry Total finance income Finance expense Interest expense from third parties Interest expense from related parties Interest relating to lease liabilities Interest relating to defined benefit plans Fair value change in derivatives Capitalized interest during construction Exchange differences Unwinding of discounted payables Sundry Total finance expense Total finance income and expense 93 25 6 5 129 (91) (20) (5) (7) (33) 4 (8) (22) (5) (187) (58) 22 - 46 3 71 (101) - (6) (3) (14) 3 (2) (23) (13) (159) (88) In 2023, the interest rate applied in the capitalization of interest during construction was 2.5% (same as in 2022). DSM Integrated Annual Report 2023 51 Consolidated financial statements – Notes to the consolidated financial statements 7 Income tax Accounting policy Income tax expense is recognized in the income statement except to the extent that it relates to an item recognized directly in Other comprehensive income or Shareholders’ equity. Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable with respect to previous years. The current tax position also reflects any uncertainty related to income taxes. Current tax assets and liabilities are offset only if certain criteria are met. 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 that have been enacted or substantially enacted at the balance sheet date, and reflect any uncertainty related to income taxes 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 and tax credits, are reassessed over time and 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 recognized 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 offset, and the assets and liabilities relate to income taxes levied by the same taxation authority. Estimates and judgments Key estimates for income tax generally relate to uncertain tax positions that could result from different interpretation of tax legislation by local tax authorities in the countries where DSM operates. For the measurement of the uncertainty, DSM uses the most likely amount or the expected value method to estimate the underlying risk. This requires judgements and final outcome may deviate from the estimates. DSM Integrated Annual Report 2023 52 Consolidated financial statements – Notes to the consolidated financial statements Income tax The income tax benefit on continuing operations was €16 million, which represents an effective income tax rate of 3.4% (2022: tax expense of €124 million, representing an effective income tax rate of 20.9%). The amount excludes tax expense from discontinued operations of €37 million (2022: €66 million) and can be broken down as follows. Current tax (expense) / benefit: - Current year - Prior-year adjustments - Tax credits compensated - Non-recoverable withholding tax Total current tax (expense) / benefit Deferred tax (expense) / benefit: - Originating from temporary differences and their reversal - Prior-year adjustments - Change in tax rate - Changes arising from write-down of deferred tax assets - Changes in previously and newly recognized tax losses and tax credits Total deferred tax (expense) / benefit Total tax (expense) / benefit 2023 2022 (121) 8 10 (4) (107) 139 4 4 (33) 9 123 16 (121) 16 3 (5) (107) (16) (17) 15 7 (6) (17) (124) The relationship between the income tax rate in the Netherlands and the effective tax rate on the taxable result can be explained as follows. Effective tax rate (continuing operations) In % Domestic income tax rate Tax effects of: - Deviating rates - Change in tax rates - Tax-exempt income and non-deductible expense - Other effects Effective tax rate 2023 25.8 (22.0) 0.8 5.2 (6.4) 3.4 2022 25.8 (5.4) (2.4) 1.9 1.0 20.9 The total effective tax rate on the taxable result in 2023 was 3.4% (2022: 20.9%). The variation in effective tax rate arises due to changes in the total Group result in combination with the geographical spread of our results within the Group, changes in tax rates under local tax law, tax-exempt income and non-deductible expenses. Due to the loss position in 2023, items such as the geographical spread of our results and non-deductible expenses led to a reduction of our effective tax rate. DSM Integrated Annual Report 2023 53 Consolidated financial statements – Notes to the consolidated financial statements The balance of the deferred tax assets and deferred tax liabilities fell by €96 million owing to the changes presented in the following table. Deferred tax assets and liabilities Balance at 1 January Deferred tax assets Deferred tax liabilities Total Changes: - Income tax income / (expense) in income statement - Income tax: change in tax percentage Total income statement - Income tax expense in OCI - Acquisitions and disposals - Exchange differences - Reclassification to held for sale - Transfer Balance at 31 December Of which: - Deferred tax assets - Deferred tax liabilities 2023 2022 95 (476) (381) 106 4 110 7 (44) 3 - 20 203 (490) (287) (52) 15 (37) (17) (6) (13) (21) - (285) (381) 169 (454) 95 (476) 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. For particular tax treatments whose acceptance by the relevant tax authorities is uncertain, DSM either recognizes a liability or reflects the uncertainty in the recognition and measurement of its current and deferred tax assets and liabilities. The deferred tax assets and liabilities relate to the following balance sheet items. Deferred tax assets and liabilities by balance sheet item Intangible assets Property, plant and equipment Right-of-use assets Financial assets Inventories Receivables Lease liabilities non-current Other non-current liabilities Non-current provisions Other current liabilities Lease liabilities current Tax losses carried forward and credits Set-off Total 2023 2022 Deferred tax assets 11 Deferred tax liabilities (378) Deferred tax assets 28 Deferred tax liabilities (368) 29 - 35 59 7 18 1 49 45 9 263 59 (153) 169 (167) (24) (14) (7) (13) - (2) - (2) - (607) - 153 (454) 15 - 28 36 5 25 1 41 66 11 256 47 (208) 95 (181) (34) (25) (46) (22) - (2) - (6) - (684) - 208 (476) DSM Integrated Annual Report 2023 54 Consolidated financial statements – Notes to the consolidated financial statements No deferred tax assets were recognized for loss carryforwards amounting to €188 million (2022: €153 million). Unrecognized loss carryforwards amounting to €78 million will expire in the years up to and including 2028 (2022: €54 million up to and including 2027), €1 million between 2029 and 2033 (2022: €30 million between 2028 and 2032) and the remaining €110 million in 2034 and beyond (2022: €69 million between 2033 and beyond). In addition, an amount of €9 million (2022: €17 million) of withholding taxes was unrecognized. No deferred tax liability is recognized on temporary differences relating to unremitted retained earnings of subsidiaries as the group is able to control the timings of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future. The amount of unremitted retained earnings on which no deferred tax liability has been provided for represents €592 million (2022: €875 million). The valuation of deferred tax assets depends on the probability of the reversal of temporary differences and the utilization of tax loss carryforwards, tax credits and withholding tax. 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 probable. DSM has to assess the likelihood that deferred tax assets will be recovered from future taxable profits. 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 have an impact on the company's financial position and profit for the year. 8 GoodwilI and intangible assets Accounting policy Goodwill 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 in a business combination. Goodwill paid on acquisition of subsidiaries is included in intangible assets. Goodwill paid on acquisition of joint ventures or associates is included in the carrying amount of these entities. Goodwill recognized as an intangible asset is 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 as part of a business combination Intangible assets acquired in a business combination are recognized at fair value on the date of acquisition and subsequently amortized on a straight-line basis over their expected useful lives. The expected useful lives vary from 4 to 20 years. Separately acquired intangible assets Separately acquired licenses, patents, application software and other purchased rights are carried at historical cost less straight-line amortization and less any impairment losses. The expected useful lives vary from 4 to 20 years. 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 to 8 years). Costs of software maintenance are expensed when incurred. Internally generated intangible assets Research costs are expensed when incurred. An internally generated intangible asset arising from development expenditure is recognized 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 DSM Integrated Annual Report 2023 55 Consolidated financial statements – Notes to the consolidated financial statements can be reliably measured. Development expenditure that meets the recognition criteria is amortized over the asset’s useful life on a straight-line basis. As long as internally generated intangible assets are under construction, these intangible assets are not amortized as they are not yet available for use. Instead, they are subject to a review for impairment annually, or more frequently if events or circumstances indicate this is necessary. Any impairment is charged to the income statement as it arises. Impairment of non-financial assets When there are indications that the carrying amount of a non-financial asset (goodwill, 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 of disposal), 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 (CGU) 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 or CGU. When the recoverable amount of a non-financial asset or a CGU is less than its carrying amount, the carrying amount is impaired to its recoverable amount and an impairment charge is recognized in profit or loss. 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. Impairment losses for goodwill are never reversed. Estimates and judgments Key estimates and judgments DSM makes in the accounting for goodwill and intangible assets relate to: • • • The amortization period of intangible assets, which depends on their useful lives The determination of CGUs, which depends on the capacity of the asset or group of assets to generate independent cash flows The estimation and allocation of future cash flows, growth rates, discount rates and fair values minus costs of disposal for the impairment testing of goodwill and intangible assets. These estimates are based on historical and current market rates, quoted prices, experience, current business outlooks, and validated by external valuation specialists, where deemed necessary by management. DSM Integrated Annual Report 2023 56 Consolidated financial statements – Notes to the consolidated financial statements Goodwill and intangible assets Goodwill Customer base Brands and trademarks Technology and formulas Internally generated Software, licenses and patents Other Total Balance at 1 January 2022 Cost 2,943 1,140 Amortization and impairment losses 14 Carrying amount 2,928 Changes in carrying amount: - Capital expenditure - Put into operation - Acquisitions - Disposal subs - Amortization - Impairment losses - Exchange differences - Reclassification to held for sale - Transfers - Other Balance at 31 December 2022 - - 52 (46) - (4) 80 (26) - - 56 468 672 - - 11 (66) - 14 - 22 (19) 117 52 65 - - 4 (10) - 3 - - (3) 898 592 570 659 6,919 161 737 - - 17 - (58) - 16 - 22 1 (2) 395 174 345 1,609 197 396 314 5,309 8 90 - (7) (49) (3) 6 - (1) 8 52 130 (100) 2 (7) (34) 5 10 (11) - (1) (6) - 10 - (4) (23) - - (182) (43) 2 (240) 138 - 86 (64) (240) (2) 129 (219) - 10 (162) Cost 2,989 1,249 124 1,005 612 576 270 6,825 Amortization and impairment losses Carrying amount - Of which acquisition related . Changes in carrying amount: - Capital expenditure - Put into operation - Acquisitions - Disposal subs - Amortization - Impairment losses - Exchange differences - Reclassification to held for sale - Transfers - Other Balance at 31 December 2023 5 2,984 2,984 - - 147 - - (28) (63) - - - 56 596 653 653 1 2 45 - (61) (3) 5 - 3 - (8) 62 62 62 - 2 11 - (8) - - - 20 - 25 270 735 735 - 1 105 - (63) (13) 4 - 12 - 46 363 249 186 390 196 74 1,678 5,147 2 - 36 4,472 2 57 - - (66) (1) 7 - (5) - (6) 98 (62) - - (38) (13) 11 2 (12) - (14) 2 - 1 - (9) (7) (4) - (11) (8) (36) 103 - 309 - (245) (65) (40) 2 7 (8) 63 Cost 3,061 1,305 158 1,127 673 612 258 7,194 Amortization and impairment losses Carrying amount - Of which acquisition-related 21 3,040 3,040 660 645 645 71 87 87 346 781 781 430 243 236 376 220 38 1,984 5,210 - - 13 4,566 The amortization and impairment losses of goodwill and intangible assets are included in Cost of sales, Marketing & Sales, Research & Development and General & Administrative expenses. Where DSM acquired entities in business combinations, they were accounted for by the acquisition method, resulting in recognition of mainly goodwill, customer- and marketing-related, and technology-based 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 where appropriate. DSM Integrated Annual Report 2023 57 Consolidated financial statements – Notes to the consolidated financial statements Other significant intangibles were mainly obtained during the acquisitions of Erber Group and Glycom in 2020, and F&F Amyris and First Choice Ingredients in 2021. Intangible assets are amortized on a straight-line basis and subject to impairment trigger testing. There are no intangible assets with an indefinite useful life (same as in 2022). The carrying amount of the internally generated intangible assets includes €133 million (2022: €143 million) that relates mainly to strategic projects which are not being amortized yet. The recoverable amount of these projects was estimated based on the present value of the future cash flows expected to be derived from the projects (value-in-use). Goodwill The CGUs DSM identified in 2023 were Taste, Texture & Health – DSM (TTH-DSM), (F&B), Health, Nutrition & Care (HNC), and Animal Nutrition & Health (ANH). Goodwill per Cash generating unit Taste, Texture & Health - DSM (TTH-DSM) Health, Nutrition & Care - DSM (HNC-DSM) Animal Nutrition & Health (ANH) Total 2023 577 1,480 983 3,040 2022 544 1,429 1,011 2,984 The annual impairment tests of goodwill are performed in the fourth quarter. The recoverable amount of the CGUs is based on a value-in-use calculation. The cash flow projections are derived from dsm-firmenich’s overall business plan as DSM does not operate in isolation from the dsm-firmenich Group. DSM’s derived business plan is adopted by the Managing Board. The DSM specific cash flow projections are based on the derived budget for 2024, as approved by DSM’s management, which is extrapolated throughout the remainder of the forecast period using management’s internal forecasts. The key assumptions in the cash flow projections relate to the market growth for the CGUs and the related revenue projections, EBITDA developments, and the rates used for discounting cash flows. For the CGUs HNC-DSM and ANH, which are considered mature businesses, a forecast period of five years is applied before they come to a terminal value. For TTH-DSM, an initial forecast period of ten years was applied, reflecting the extended period of time during which the identified synergies arising from the merger are expected to contribute to the growth of this CGU. The terminal value growth rate is determined with the assumption of inflationary growth. Key assumptions for goodwill impairment tests Forecast period (years) - Mature business - Emerging business Terminal value growth Pre-tax discount rate Taste, Texture & Health - DSM (TTH-DSM) Health, Nutrition & Care - DSM (HNC-DSM) Animal Nutrition & Health (ANH) Organic sales growth (year 1–5) Taste, Texture & Health - DSM (TTH-DSM) Health, Nutrition & Care - DSM (HNC-DSM) Animal Nutrition & Health (ANH) 2023 2022 5 10 2.0% 8.3% 7.9% 9.2% 5 10 1.5% 8.7% 9.1% 10.7% 3%–8% 6%–7% 4%–8% 5%–8% 5%–8% 4%–7% DSM Integrated Annual Report 2023 58 Consolidated financial statements – Notes to the consolidated financial statements For ANH and HNC-DSM, the growth assumptions are based on the growth of the global food and feed markets, and the vitamin transformation program; for TTH-DSM, on the growth assumptions of the global food and beverage markets. A sensitivity test was performed on the impairment tests of the CGUs and showed that the conclusions of these tests would not have been different if a reasonable possible adverse change in key parameters had been assumed. 9 Property, plant and equipment Accounting policy Property, plant and equipment owned Items of Property, plant and equipment owned are measured at cost less depreciation calculated on a straight-line basis over their estimated useful lives and less any impairment losses. Borrowing costs during construction are capitalized when the underlying asset under construction meets the recognition criteria of a qualifying asset. Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with the item will flow to the Group. Expenditures relating to major scheduled turnarounds are capitalized and depreciated over the period up to the next turnaround. 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: • Buildings 10–50 years • • Plant and equipment 4–15 years Land is not depreciated An item of property, plant and equipment owned 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 profit or loss. Right-of-use assets (leases) DSM mainly leases offices, warehouses, vehicles, machinery, and other equipment. The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are measured at cost less any depreciation on a straight-line basis over the expected lease term, less any impairment losses, and adjusted for remeasurements of the lease liability. In line with the initially assumed expected useful life of the corresponding asset class within Property, plant and equipment, the minimum expected lease term for building leases is in principle 10 years. However, the contractual terms or specific circumstances could require applying the shorter non- cancellable period in determining the expected lease term. For vehicle leases, the expected lease term is set equal to the contractual term (4–5 years). Impairment of Property, plant and equipment If there is an indication of impairment, the carrying amount of an item of Property, plant and equipment or the cash generating unit (CGU) to which it belongs is reviewed and the recoverable amount of the asset or the CGU is estimated. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. 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. Estimates and judgments Key estimates and judgments DSM makes in the accounting for items of property, plant and equipment relate to: • The depreciation period of items of property, plant and equipment, which depend on their useful lives DSM Integrated Annual Report 2023 59 Consolidated financial statements – Notes to the consolidated financial statements • • The determination of the lease term for lease contracts based on assessment of available renewal options. Estimates are based on the underlying asset class, past practices and current business outlooks The estimation and allocation of future cash flows, growth rates, discount rates and fair values minus costs of disposal for the impairment testing of items of property, plant and equipment. These estimates are based on historical and current market rates, experience, and current business outlooks DSM Integrated Annual Report 2023 60 Consolidated financial statements – Notes to the consolidated financial statements Composition of Property, plant and equipment Property, plant and equipment owned Right-of-use assets Total Property, plant and equipment owned 2023 3,266 226 3,492 Land and buildings Plant and equipment Under construction Not used for operating activities Balance at 1 January 2022 Cost Depreciation and impairments Carrying amount at 1 January 2022 Changes in carrying amount: - Capital expenditure - Put into operation - Acquisitions - Disposals and deconsolidations - Depreciation - Impairment losses - Exchange differences - Reclassification to held for sale - Transfer to RoU assets - Other changes Balance at 31 December 2022 Cost Depreciation and impairments Carrying amount at 31 December 2022 . Changes in carrying amount: - Capital expenditure - Put into operation - Acquisitions - Disposals and deconsolidations - Depreciation - Impairment losses - Exchange differences - Reclassification to held for sale - Other reclassifications Balance at 31 December 2023 Cost Depreciation and impairments Carrying amount at 31 December 2023 DSM Integrated Annual Report 2023 2,108 946 1,162 7 70 2 (55) (71) (2) 28 (55) 2 2 (72) 5,707 3,673 2,034 48 303 1 (161) (271) (16) 42 (243) (2) (1) (300) 1,929 4,625 839 1,090 2,891 1,734 7 38 6 (3) (71) (64) 4 - 13 (70) 1,937 917 1,020 42 259 7 (2) (269) (187) (11) - 72 (89) 4,965 3,320 1,645 564 1 563 443 (373) - (22) - - 9 (42) (6) - 9 572 - 572 394 (297) 3 - - 8 3 - (88) 23 595 - 595 8 - 8 - - - - - - - - (2) - (2) 6 - 6 - - - - - - - - - - 6 - 6 2022 3,402 174 3,576 Total 8,387 4,620 3,767 498 - 3 (238) (342) (18) 79 (340) (8) 1 (365) 7,132 3,730 3,402 443 - 16 (5) (340) (243) (4) - (3) (136) 7,503 4,237 3,266 61 Consolidated financial statements – Notes to the consolidated financial statements In 2023, impairment losses of €243 million (2022: €18 million) were recognized on Property, plant and equipment, which mainly relate to the impairment of the Jiangshan site (€119 million) and the impairment of the vitamin B6 production line on the Xinghuo site (€106 million). For acquisitions, see Note 3 Change in the scope of consolidation to the consolidated financial statements. Right-of-use assets Land and buildings Plant and equipment Total Balance at 1 January 2022 136 61 197 Changes in carrying amount: New leases / terminations Remeasurements Depreciation Derecognition Exchange rate differences Reclassification to held for sale Balance at 31 December 2022 Cost Depreciation and impairments Carrying amount at 31 December 2022 . Changes in carrying amount: Acquisition New leases / terminations Depreciation Exchange rate differences Impairments Balance at 31 December 2023 Cost Depreciation and impairments Carrying amount 8 12 (33) (2) 4 (6) (17) 219 100 119 1 92 (34) (4) - 55 289 115 174 14 - (17) - 1 (4) (6) 92 37 55 - 13 (17) 1 - (3) 95 43 52 22 12 (50) (2) 5 (10) (23) 311 137 174 1 105 (51) (3) - 52 384 158 226 For the disclosures on the lease liabilities that correspond with the right-of-use assets, see Note 19 Borrowings to the consolidated financial statements. 10 Associates and joint arrangements Accounting policy An associate is an entity over which DSM has significant influence but no control or joint control, usually evidenced by a shareholding that entitles DSM to between 20% and 50% of the voting rights. A joint venture is an entity over which DSM has joint control and is entitled to its share of the net assets and liabilities. Investments in associates and joint ventures are initially recognized at cost, including transaction costs. Subsequent to initial recognition, these investments are accounted for by the equity method, which involves recognition in the income DSM Integrated Annual Report 2023 62 Consolidated financial statements – Notes to the consolidated financial statements statement of DSM’s share of the associate’s or joint venture’s profit or loss for the year determined in accordance with the accounting policies of DSM. Any other results at DSM in relation to associated companies are recognized under Other results related to associates and joint ventures. DSM’s interest in an associate or joint venture is carried in the balance sheet at its share in the net assets of the associate or joint venture together with goodwill paid on acquisition, less any impairment loss. When DSM’s share in the loss of an associate or joint venture exceeds the carrying amount of that entity, the carrying amount is reduced to zero. No further losses are recognized unless DSM has responsibility for obligations relating to the entity. Associates and joint ventures The following table analyses, in aggregate, the carrying amount and share of profit of associates and joint ventures. Balance at 1 January - Share of the profit of associates and joint ventures - Other comprehensive income - Capital payments - Dividends received - Acquisitions - Disposals - Other Balance at 31 December Associates 53 (9) (2) 5 (1) - - - 46 2023 Joint ventures 8 1 - - - - - - 9 2022 Total Total 61 (8) (2) 5 (1) - - - 55 64 10 - 4 (2) - (9) (6) 61 Joint operations The operations Veramaris®1 (2017) and Avansya (2019) are accounted for in accordance with IFRS 11 for joint operations. DSM therefore recognizes their amounts for the assets, liabilities, revenues, and expenses in accordance with the contractual entitlement and obligations of DSM, see also Note 1 General Information to the consolidated financial statements. 11 Other non-current assets Accounting policy Other non-current assets comprise loans to associates and joint ventures, other participating interests and other long- term investments and receivables. Other participating interests comprise equity interests in entities in which DSM has no significant influence. DSM generally applies the irrevocable election upon initial recognition to present subsequent changes in the fair values of these interests in Other comprehensive income (OCI). Fair value changes in OCI will not be recycled through profit and loss upon disposal of the interest. All dividends received will be presented in profit or loss. DSM’s business model objective for loans granted is ‘held-to-collect contractual cash flows only’. Held to collect loans, other receivables and other deferred items, for which the contractual cash flows consist solely of principal and interest, are measured at amortized cost, using the effective interest method, which generally corresponds to the nominal value, 1 This trademark is owned by Veramaris V.O.F. DSM Integrated Annual Report 2023 63 Consolidated financial statements – Notes to the consolidated financial statements less an adjustment for expected credit loss. Upon disposal of these assets, the gain or loss is recognized in profit or loss. Other long-term investments and receivables, for which the contractual cash flows are not solely principal and interest, are recognized at fair value, with changes in fair value recognized in profit or loss. Loans associates and joint ventures Other participating interests Other receivables Other Total Balance at 1 January 2022 Changes: - Charged to the income statement - Disposals - Capital payments - Loans granted / prepayments - Repayments / (receipts) - Exchange differences - Transfers - Changes in fair value - Expected credit loss (ECL) adjustment and impairments - Reclassification from/to held for sale - Other changes Balance at 31 December 2022 . Changes: - Charged to the income statement - Acquisitions - Disposals - Capital payments - Loans granted / prepayments - Repayments / (receipts) - Exchange differences - Transfer shares held in DSM-Firmenich AG from treasury shares - Other transfers - Changes in fair value through OCI - Other changes Balance at 31 December 2023 1 - - - 1 - - - - - - - 2 - - - - 3 - - - - - (1) 4 191 - (24) 28 - - - - (66) - (4) - 125 - - (10) 10 - - - 44 - (37) 7 139 31 1 - - 127 1 (7) 16 - (11) - - 158 (1) - - - 13 - (1) - (24) - (82) 63 4 (1) - - - 3 - - - - - 4 10 - - - - - (4) (1) - 4 - (1) 8 227 - (24) 28 128 4 (7) 16 (66) (11) (4) 4 295 (1) - (10) 10 16 (4) (2) 44 (20) (37) (77) 214 Other participating interests’ increased mainly due to the transfer of shares held in DSM-Firmenich AG (€44 million) from treasury shares. The transfer is the result of the exchange of shares of former DSM N.V. to DSM-Firmenich AG shares, prior to the merger with Firmenich. ‘Changes in fair value through OCI’ consists mainly of the value decrease of our minority share in Amyris, Inc. (-€24 million) and of the value adjustment of shares held in DSM-Firmenich AG from cost price to market value (-€8 million). These changes are posted to the Fair value reserve in Other comprehensive income. DSM Integrated Annual Report 2023 64 Consolidated financial statements – Notes to the consolidated financial statements 12 Inventories Accounting policy Inventories are stated at the lower of cost and net realizable value. The cost of intermediates, work-in-progress 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. Allowances for slow-moving and obsolete inventories have been made. Cost is generally determined using the weighted average cost formula, unless the nature of the inventories warrants the use of the first in, first out (FIFO) method of valuation. Raw materials and consumables Intermediates and finished goods Adjustments to lower net realizable value Total Changes in the adjustment to net realizable value Balance at 1 January Additions charged to income statement Utilization / reversals Exchange differences Disposal Transfer Reclassification to held for sale Balance at 31 December 2023 676 1,716 2,392 (74) 2,318 2023 (66) (29) 21 1 28 (2) (27) (74) 2022 596 1,809 2,405 (66) 2,339 2022 (82) (31) 20 (2) 15 (10) 24 (66) DSM Integrated Annual Report 2023 65 Consolidated financial statements – Notes to the consolidated financial statements 13 Current receivables Accounting policy Current receivables, for which the contractual cash flows are solely principal and interest, are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost, which generally corresponds to their nominal, non-discounted value, less an adjustment for expected credit loss. Loss allowances for trade receivables are always measured at lifetime expected credit loss – see also Note 23 Financial Instruments and risks to the consolidated financial statements. 2023 2022 Trade receivables Trade accounts receivable Other trade receivables Other receivables from related parties Deferred items Receivables from associates Expected credit loss Total Trade receivables Income tax receivable Other current receivables Other taxes and social security contributions Related party cash pool Employee-related receivables Acquisition-/disposal-related receivables Interest Loans Other receivables Deferred items Total Other current receivables Total current receivables 1,183 231 101 38 - 1,553 (18) 1,535 79 17 178 7 5 - 69 9 1 286 1,900 1,306 182 - 31 1 1,520 (12) 1,508 36 23 - 3 7 1 24 8 12 78 1,622 Information about the expected credit loss that relates to trade accounts receivable resulting in a loss allowance is included under Credit risk in Note 23 Financial instruments and risks to the consolidated financial statements. Deferred items comprised €39 million (2022: €43 million) in prepaid expenses that include advance payments for any expenditure that would have otherwise been made during the next 12 months. Related party cash pool relates to the receivables from DSM Finance B.V., the dsm-firmenich finance entity, with entities of the dsm-firmenich Group. See Note 26 Notes to the cash flow statements to the consolidated financial statements for further info. DSM Integrated Annual Report 2023 66 Consolidated financial statements – Notes to the consolidated financial statements 14 Current investments Accounting policy Current investments are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. Deposits with banks with a maturity between three and 12 months are classified as current investments. Fixed term deposits Total 2023 101 101 2022 125 125 All fixed-term deposits have been placed with institutions with a high credit rating in line with our counterparty policy. The purpose of the deposits is either to meet short-term cash commitments, or to manage liquidity to such extent that yields are optimized while allowing DSM sufficient freedom in fulfilling its (strategic) goals. For more information regarding the counterparty policy, see Note 23 Financial instruments and risks to the consolidated financial statements. 15 Cash and cash equivalents Accounting policy Cash and cash equivalents comprise cash at banks and in hand and deposits held at call with banks with a maturity of less than three months at inception. Deposits will be classified as ‘cash equivalent’ if held at banks with a maturity of less than three months at inception. Deposits will be classified as ‘current investments’ if the maturity is more than three months but less than or equal to one year. Bank overdrafts are included in current liabilities. Included in cash and cash equivalents are investments in money-market funds that do not meet the SPPI (Solely Payments of Principal & Interest) criterion but are held to meet short-term cash demand. Money-market fund investments have been placed with institutions with a high credit rating in line with our counterparty policy. Cash and cash equivalents are measured at amortized cost, or at fair value through profit and loss. Composition of cash and cash equivalents Deposits Money-market funds Cash at bank and in hand Payments in transit Total 2023 284 931 964 2 2,181 2022 23 1,493 1,221 18 2,755 The purpose of the deposits and money-market funds is either to meet short-term cash commitments, or to manage liquidity to such an extent that yields are optimized, while allowing DSM sufficient freedom in fulfilling its (strategic) goals. Cash at year-end 2023 was not being used as collateral and therefore was not restricted (same as in 2022). In a few countries, DSM faces cross-border foreign exchange controls and/or other legal restrictions that limit its ability to make these balances available at short notice for general use by the Group. The amount of cash held in these countries DSM Integrated Annual Report 2023 67 Consolidated financial statements – Notes to the consolidated financial statements was €64 million at year-end 2023 (2022: €105 million). The cash will generally be invested or held in the relevant country and, given the other liquidity resources available to the Group, does not significantly affect the ability of the Group to meet its obligations. For more information regarding the counterparty policy, see Note 23 Financial instruments and risks to the consolidated financial statements. 16 Equity Accounting policy DSM classifies ordinary shares and other financial instruments, for which settlement of the contractual obligations is at the sole discretion of DSM, as equity. The price paid for repurchased DSM shares (treasury shares) is deducted from DSM shareholders’ equity until the shares are reissued. Treasury shares are presented in the treasury share reserve. When treasury shares are sold or reissued, the amount received is recognized as an increase in equity. 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. Movements in equity Balance at 1 January Net profit for the year Other comprehensive income Options / share units granted Dividend Proceeds from reissue of ordinary shares Acquisition of NCI without a change in control Acquisition (divestment) of subsidiary with NCI Repurchase of shares Transfer Other changes 2023 10,845 2,326 (140) 23 (3,935) 24 - (4) (256) 44 (4) 2022 9,397 1,715 227 34 (459) 141 - (4) (210) - 4 Balance at 31 December 8,923 10,845 Share capital On 31 December 2023, the capital amounted to €261 million, consisting of 174 million ordinary shares, distributed over 167.3 million shares held by its parent DSM-Firmenich AG, and 6.7 million by the non-tendered shareholders. All shares have a nominal value of €1.50 each. The outstanding shares provide an entitlement of one vote per share at the General Meeting of Shareholders. All rights attached to the company’s shares held by the Group (treasury shares) are suspended until those shares are reissued. The changes in the number of issued and outstanding shares in 2022 and 2023 are shown in the following table. DSM Integrated Annual Report 2023 68 Consolidated financial statements – Notes to the consolidated financial statements Development issued and outstanding shares of DSM B.V. (Koninklijke DSM N.V. until 31 May 2023) Balance at 1 January 2022 Reissue of shares in connection with share-based payments Repurchase of shares Dividend in the form of ordinary shares Balance at 31 December 2022 Number of treasury shares at 31 December 2022 Number of shares outstanding at 31 December 2022 . Issued shares Ordinary 174,786,029 Issued shares Cumprefs A 44,040,000 174,786,029 44,040,000 (1,710,632) 173,075,397 44,040,000 Balance at 1 January 2023 174,786,029 44,040,000 Reissue of shares in connection with share-based payments Treasury shares DSM N.V. swapped to DSM-Firmenich AG shares Cancellation of shares Balance at 31 December 2023 - (767,995) 174,018,034 (44,040,000) - Treasury shares Ordinary 1,817,299 (617,967) 1,330,000 (818,700) 1,710,632 1,710,632 (280,021) (662,616) (767,995) - On 28 April 2023, 44.0 million outstanding Cumulative preference shares A Koninklijke DSM N.V. were repurchased for the amount of €256 million. On 31 May 2023, all Cumulative preference shares A and B were canceled. Share premium The share premium decreased by €2 million due to the cancellation of 0.8 million ordinary shares. Treasury shares In 2023, the Group did not repurchase own shares to fulfil its obligations under the share-based compensation plans. During the merger process, the DSM N.V. treasury shares were swapped into shares of DSM-Firmenich AG, the parent of the Group. Hence, these shares are no longer considered treasury shares for DSM. The DSM-Firmenich AG shares held by DSM are recognized in Other participating interests (OPI). DSM Integrated Annual Report 2023 69 Consolidated financial statements – Notes to the consolidated financial statements Other reserves in Shareholders equity Translation reserve Hedging reserve Balance at 1 January 2022 177 (77) Reserve for share-based compensation 39 Fair value reserve Total 17 156 Changes: Fair-value changes of derivatives Release to income statement Fair-value changes of other financial assets Exchange differences Options and performance shares granted Options and performance shares exercised/canceled Transfer to retained earnings Income tax Total changes Balance at 31 December 2022 . Changes: Fair-value changes of derivatives Release to income statement Fair-value changes of other financial assets Exchange differences Options and performance shares granted Options and performance shares exercised/canceled Transfer to retained earnings Income tax Total changes Balance at 31 December 2023 - (16) - 267 - - - (4) 247 424 - - - (96) - - - (1) (97) 327 (6) 53 - - - - - (3) 44 (33) 27 - - - - - - (1) 26 (7) - - - - 34 (29) - - 5 44 - - - - 23 (23) - - - 44 - - (61) - - - (28) - (89) (72) - - (37) - - - (5) - (42) (114) (6) 37 (61) 267 34 (29) (28) (7) 207 363 27 - (37) (96) 23 (23) (5) (2) (113) 250 For information on the reserves, see Note 6 Shareholders’ equity to the parent company financial statements. Dividend Prior to the merger, dividend was paid to the holders of cumulative preference shares A and of non-tendered ordinary shares of Koninklijke DSM N.V. Dividend distribution in the reporting year Shareholders DSM B.V. (formerly Koninklijke DSM N.V.) Per cumulative preference share A: €0.14 (2022: €0.13) Per ordinary share: Interim dividend ordinary shares: €0 (2022: 0.93) Final dividend listed ordinary shares: €1.66 (2022: €1.70) Final dividend ordinary shares held by DSM-Firmenich AG: €1.66 Special dividend listed ordinary shares: €20.92 Special dividend ordinary shares held by DSM-Firmenich AG: €20.92 Total 2023 2022 6 - 11 278 140 3,500 3,935 6 161 292 - - - 459 DSM Integrated Annual Report 2023 70 Consolidated financial statements – Notes to the consolidated financial statements 17 Non-controlling interests Accounting policy Non-controlling interests in subsidiaries are measured at the proportionate share of the subsidiaries’ identifiable net assets. % of non-controlling interest Balance at 1 January Changes: - Share of profit/charged to income statement - Acquisitions - Divestments - Transfers - Capital payments - Exchange differences Total changes Balance at 31 December Andre Pectin 25% 46 5 - - - - (3) 2 48 2023 Yimante Other Total 2022 25% 47 8 - - 9 - (3) 14 61 9 102 79 (5) - (4) - - - (9) - 8 - (4) 9 - (6) 7 109 15 - (4) 11 4 (3) 23 102 The shareholding by DSM in Yimante Health Ingredients (Jingzhou) Company Ltd. is 75%. The profit will be distributed in a 50:50 proportion. The impact of this arrangement has led to a transfer of €9 million (2022: €11 million) within equity from shareholders’ equity to non-controlling interest. DSM Integrated Annual Report 2023 71 Consolidated financial statements – Notes to the consolidated financial statements Not fully-owned subsidiaries on a 100% basis Andre Pectin Yimante Other Total 2023 2022 Assets Intangible assets Property, plant and equipment Other non-current assets Inventories Receivables Current investments Cash and cash equivalents Total assets . Liabilities Provisions (non-current) Borrowings (non-current) Other non-current liabilities Borrowings and derivatives (current) Other current liabilities Total liabilities Net assets (100% basis) Net sales Net profit for the year Cash provided by / (used in) operating activities 42 38 2 42 35 51 1 211 10 - - - 8 18 193 95 21 15 20 127 37 18 47 - 7 256 1 - 1 66 21 89 167 219 35 55 12 50 37 1 14 - 4 118 - 74 1 - 40 115 3 25 (23) (7) 74 215 76 61 96 51 12 585 11 74 2 66 69 222 363 339 33 63 92 310 91 68 109 44 41 755 14 167 2 50 112 345 410 159 56 91 DSM Integrated Annual Report 2023 72 Consolidated financial statements – Notes to the consolidated financial statements 18 Provisions Accounting policy Provisions are recognized when there is a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. The underlying assumptions in the recognition of provisions are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 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. Where discounting is used, the increase in the provision due to the passage of time is recognized as financial expense. Differences between the final obligations and the initial estimates are recognized in the consolidated income statement in the period in which such determination is made. Estimates and judgments Key estimates made in the accounting for provisions relate to the estimates made in determining the likelihood and timing of potential cash flows included in their measurement. Balance at 1 January 2022 Of which current Changes: - Additions - Releases - Uses - Other change Total changes Balance at 31 December 2022 Of which current . Changes: - Additions - Releases - Uses - Other change Total changes Balance at 31 December 2023 Of which current Restructuring costs and termination benefits 53 49 44 (15) (41) - (12) 41 39 48 (9) (41) - (2) 39 25 Environmental costs Other provisions Total 37 4 - (5) (3) - (8) 29 2 4 - (3) 3 4 33 3 34 10 8 (8) (7) (2) (9) 25 4 24 - (7) (3) 14 39 6 124 63 52 (28) (51) (2) (29) 95 45 76 (9) (51) - 16 111 34 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 rate used for discounting decreased from 4.2% to 3.5%. Depending on the risk profile, the discount rates used at the end of 2023 vary from 3.5% to 5.7% (2022: 4.2% to 5.8%). The balance of provisions measured at present value increased by less than €2 million in 2023 in view of the passage of time (similar to 2022). DSM Integrated Annual Report 2023 73 Consolidated financial statements – Notes to the consolidated financial statements The provisions for restructuring costs and termination benefits mainly relate to the costs of redundancy schemes connected to the dismissal of employees and costs of termination of contracts. These provisions generally have a term of one to three years. The restructuring program following up on the change in strategy, aiming to concentrate on Health, Nutrition and Bioscience, which was launched at the end of 2021, was finalized in 2023, with €8 million being used during the year. Furthermore, a restructuring program following up on (the preparation of) the merger of DSM with Firmenich, which was launched in 2022, was also continued. An additional €8 million was recognized for this program, and €9 million was used during the year. A restructuring provision of €26 million was created, following the announced restructuring of the vitamin asset footprint, of which €12 million had been used by the end of 2023. The other additions to the provisions for restructuring costs and termination benefits in 2023 relate mainly to the various smaller restructuring projects (same as in 2022). The provisions for environmental costs relate to soil clean-up obligations, among other things. These provisions have an average life of around 30 years. Several items have been combined under Other provisions, for example, demolition costs, onerous contracts and legal claims. These provisions have an average life of one to 10 years. 19 Borrowings Accounting policy Borrowings Borrowings, including bonds, are not held for trading and are initially recognized at fair value of the proceeds received, net of transaction costs. Subsequently, borrowings are stated at amortized cost using the effective interest method with any discount or premium on the borrowing amortized over the applicable term. The corresponding interest expenses are recorded as financial expense in profit or loss. Lease liabilities The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, DSM uses its incremental borrowing rate as the discount rate. In determining the incremental borrowing rate, DSM applies the practical expedient to use a single discount rate to portfolios of leases with reasonably similar characteristics, as reflected in the contractual currency and expected lease term of these contracts. In general, DSM splits the contractual consideration into a lease and a non-lease component based on their relative stand-alone prices. For vehicle leases, however, DSM applies the practical expedient not to make this split but rather accounts for the fixed consideration as a single lease component. Over time, the lease liability is increased by the interest expense related to the unwinding of the lease liability and decreased by the lease payments made. The lease liability is remeasured when DSM reassesses or modifies the contractual terms and conditions, including indexation. Payments related to short-term leases (leases with a term shorter than 12 months) are recognized on a straight-line basis in profit or loss. DSM Integrated Annual Report 2023 74 Consolidated financial statements – Notes to the consolidated financial statements Borrowings Bonds Private loans Lease liabilities Credit institutions Total 2023 Total 2,743 108 240 27 3,118 Of which current 500 56 48 27 631 2022 Total 2,741 116 179 28 3,064 Of which current - 14 44 28 86 In agreements governing loans with a residual amount at year-end 2023 of €2,743 million (31 December 2022: €2,741 million), negative pledge clauses have been included that restrict the provision of security. At 31 December 2023, there was €617 million in borrowings outstanding with a remaining term of more than 5 years (at 31 December 2022, €1,044 million). The schedule of repayment of borrowings is as follows. Borrowings by maturity 2023 2024 2025 2026 2027 and 2028 After 2028 Total A breakdown by currency is given in the following table. Borrowings by currency EUR CNY USD CHF BRL Other Total 2023 - 631 538 788 544 617 3,118 2023 2,843 50 78 99 16 32 3,118 2022 86 558 579 775 528 538 3,064 2022 2,833 80 84 20 19 28 3,064 DSM Integrated Annual Report 2023 75 Consolidated financial statements – Notes to the consolidated financial statements On balance, total borrowings increased by €54 million due to the following changes. Movements of borrowings Balance at 1 January Loans taken up Repayments Unwinding (interest) Acquisitions / consolidation changes Transfers Disposals Reclassification to held for sale Changes in debt to credit institutions New lease arrangements (incl. remeasurements) Payment of lease liabilities Exchange differences Balance at 31 December A breakdown of bonds is given below. 2023 3,064 - (33) 6 - 28 - - - 102 (49) - 3,118 Bonds EUR loan EUR loan EUR loan EUR loan EUR loan Total 2.38% 1.00% 0.75% 0.25% 0.63% 2014—2024 2015—2025 2016—2026 2020—2028 2020—2032 Nominal amount 500 500 750 500 500 2,750 2023 500 500 749 498 496 2,743 2022 3,098 51 (29) 9 9 - (28) (8) (21) 34 (57) 6 3,064 2022 500 499 749 496 498 2,741 The bonds issued by DSM B.V. have a fixed interest rate and are listed on the AEX. • • • • • The 2.375% EUR bond 2014–2024 of €500 million was pre-hedged by means of forward starting swaps, resulting in an effective interest rate for this bond of 3.97%, including the settlement of the pre-hedge The 1% EUR bond 2015–2025 of €500 million was pre-hedged by means of forward starting swaps, resulting in an effective interest rate for this bond at 3.65%, including the settlement of the pre-hedge The 0.75% EUR bond 2016–2026 of €750 million was pre-hedged by means of a collar resulting in an effective interest rate for this bond of 1.08%, including the settlement of the pre-hedge The 0.25% EUR bond 2020–2028 of €500 million has an effective interest rate of 0.29% The 0.625% EUR bond 2020–2032 of €500 million has an effective interest rate of 0.70% A breakdown of private loans is given below. Private loans CNY loan Other loans Total DSM Integrated Annual Report 2023 2023 2022 39 69 108 63 53 116 76 Consolidated financial statements – Notes to the consolidated financial statements A breakdown of the lease liabilities is given below. Lease liabilities by maturity 2023 2024 2025 2026 2027 2028 After 2028 Total undiscounted lease liabilities at 31 December Lease liabilities included in the Balance Sheet at 31 December Current Non-current 2023 2022 - 49 37 29 22 17 140 294 240 48 192 49 40 28 20 15 10 50 212 179 44 135 In addition to the contractual lease commitments, DSM has identified explicit renewal options available to DSM, which are currently not reasonably certain to be exercised and are therefore not included in the measurement of the lease. The associated future lease payments which are uncommitted and optional for DSM, are estimated around €181 million (undiscounted; 2022: €86 million). The interest expense on the lease liabilities was €5 million (2022: €6 million) and the total repayments of the lease liabilities amounted to €52 million in 2023 (2022: €57 million). These cash flows are reported as financing cash flows. DSM’s policy regarding financial risk management is described in Note 23 Financial instruments and risks to the consolidated financial statements. 20 Other non-current liabilities Accounting policy Other liabilities are measured at amortized cost, which generally corresponds to the nominal value, or at fair value through profit and loss. The latter is mainly applied to acquisition-related liabilities. 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, which are grants that compensate DSM for expenses incurred, 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 profit or loss over the expected useful life of the relevant asset. Investment grants / customer funding Deferred items Acquisition-/divestment-related liabilities Other Total 2023 54 30 45 1 130 2022 55 25 123 2 205 The change in the Other non-current liabilities includes the settlement of an earn-out liability relating to a previous acquisition. See also Note 3 Change in the scope of the consolidation to the consolidated financial statements. DSM Integrated Annual Report 2023 77 Consolidated financial statements – Notes to the consolidated financial statements 21 Current liabilities Accounting policy Other liabilities are measured at amortized cost, which generally corresponds to the nominal value, or at fair value through profit and loss. The latter is mainly applied to acquisition-related liabilities. Trade payables Received in advance Trade accounts payable Notes and cheques due Total Trade payables Income tax payable Other current liabilities Other taxes and social security contributions Interest Pensions Investment creditors Employee-related liabilities Payables associates and joint ventures relating to cash facility Related party cash pool Acquisition-/divestment-related liabilities Other Total Other current liabilities Total current liabilities 2023 2022 8 1,356 - 1,364 133 56 20 1 117 218 3 691 73 - 1,179 2,676 4 1,410 1 1,415 64 46 23 2 118 246 2 - 53 - 490 1,969 Included in trade accounts payable are amounts due to suppliers which could be part of a supply chain finance arrangement between the supplier and a third-party bank. DSM suppliers have the option to enter into such supply chain finance arrangements with third party banks, which provides them with the option of earlier payment based on terms linked to DSM’s investment grade credit rating. If a supplier chooses to participate in such an arrangement, this does not impact the classification of the trade payable for DSM, as these supply chain finance arrangements are concluded between the banks and the suppliers and do not alter the payment conditions between the supplier and DSM. Therefore, these amounts remain classified as trade payables. Related party cash pool relates to the payable of DSM Finance B.V., the DSM finance entity within the dsm-firmenich group. See Note 26 Notes to the cash flow statements to the consolidated financial statements for further info. 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. Guarantee obligations on behalf of associates and third parties Outstanding orders for projects under construction Other Total DSM Integrated Annual Report 2023 2023 2022 170 - 76 246 178 6 104 288 78 Consolidated financial statements – Notes to the consolidated financial statements Guarantee obligations are principally related to VAT and duties on the one hand and to financing obligations of associated companies or related third parties on the other. Guarantee obligations will only lead to a cash outflow when called upon. At year-end, no obligations had been called upon. Most of the outstanding orders for projects under construction will be completed in 2024. Other relates mainly to contingent liabilities in contracts for catalysts. 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 to the consolidated financial statements. In 2015, an award was issued against DSM Sinochem Pharmaceuticals India Private Ltd. (DSP India) in a protracted arbitration case in India going back to 2004 involving a joint venture that DSP India had formed with Hindustan Antibiotics Ltd., which suspended its operations in 2003. DSP India (renamed to Centrient Pharmaceuticals after divestment by former DSM in 2018) is covered by an indemnity from DSM B.V. for this case. In 2015, DSP India made an application with the Civil Court in Pune (India) to set aside the arbitral award. The award amounts to INR 127.5 crore (€14 million as at year-end 2023) excluding interest of 12% per year as of 2004. In 2019, former DSM provided the Bombay High Court a bank guarantee of INR 150 crore (€16 million as at year-end 2023). At the end of 2023, the application proceedings were still pending. DSM views this case as unfounded and is of the opinion that the likelihood of the award being ultimately set aside is high. Therefore, no liability is recognized in respect of this case. In 2019, Brazilian tax authorities disagreed with certain tax treatment as applied by the company in 2014–2016, which would have an effect on such prior year income tax returns of around BRL 100 million (€19 million as at year-end 2023), including penalties and interest. DSM views this case as unfounded and considers that the possibility of winning this case is high, as confirmed by external legal counsel. Therefore, no liability relating to this case is recognized. During 2023 no relevant developments took place that alter this view. 23 Financial instruments and risks Policies on financial risks As an international company, DSM is exposed to financial risks in the normal course of business. A major objective of Group Treasury is to minimize the impact of market, liquidity and credit risk on the value of the company and its profitability. In order to achieve this, a systematic financial and risk management system has been established. Furthermore an internal control framework is in place, and the controls are monitored and tested periodically. The derivatives contracts used by DSM are entered into exclusively in connection with the corresponding underlying transaction (hedged item) relating to normal operating business. The instruments used are customary products, such as currency swaps, cross-currency interest rate swaps, collars, forward exchange contracts and interest rate swaps. An important element of DSM’s capital management is the allocation of cash flow. DSM primarily allocates cash flow to investments aimed at strengthening its business positions and securing the payment of dividends to its shareholders. The remaining cash flow is further used for acquisitions and partnerships that strengthen DSM’s competences and market positions. The net debt to equity ratio (gearing) is 8.1 (2022: 0.8), see also Note 25 Net debt to the consolidated financial statements. DSM Integrated Annual Report 2023 79 Consolidated financial statements – Notes to the consolidated financial statements Liquidity risk Liquidity risk is the financial risk that an entity does not have and/or cannot access enough liquid cash and/or assets to meet its obligations. This can happen if the entity’s credit rating falls, or when it experiences sudden unexpected cash outflows or an unexpected drop in cash inflows, or some other event that causes counterparties to avoid trading with or lending to the entity. Additionally, an entity can be indirectly exposed to market liquidity risk if the financial markets on which it depends are subject to loss of liquidity. The primary objective of liquidity management is to optimize the corporate cash position, among other things, by securing availability of sufficient liquidity for execution of payments by DSM entities, at the right time and in the right place. At 31 December 2023, DSM had cash and cash equivalents of €2,181 million (2022: €2,755 million). At the end of 2023, DSM B.V has a committed credit facility amounting to €1.0 billion, maturing on 28 May 2025. The agreement for the committed credit facility has neither financial covenants nor material adverse changes clauses. The committed credit facility links the interest rate to DSM’s greenhouse gas (GHG) emission reduction. At year-end 2023, no loans had been taken up under the committed credit facilities. The bridge financing facility contracted in 2022 by DSM was cancelled in 2023 and there were no drawings under the facility. In 2023, a bridge financing facility amounting to €1.0 billion was contracted by DSM B.V., maturing on 13 December 2025 and there is no drawing under the facility at year-end. Furthermore, DSM B.V. has a commercial paper program amounting to €2.0 billion (2022: €2.0 billion). The company will use the commercial paper program to a total of not more than €1.0 billion (2022: €1.0 billion). At 31 December 2023, no commercial paper had been issued (same as 2022). 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 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. The remaining maturities presented in the following table provide an overview of the timing of the cash flows related to these instruments. Financial assets are not linked to financial liabilities in order to meet cash outflows on these liabilities. DSM Integrated Annual Report 2023 80 Consolidated financial statements – Notes to the consolidated financial statements Carrying amount Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Financial liabilities 2022 Borrowings Monetary liabilities Guarantees Derivatives Interest payments Cash at redemption¹ Total . 2023 Borrowings Monetary liabilities Guarantees Derivatives Interest payments Cash at redemption¹ 3,064 2,110 178 27 100 9 5,488 3,118 2,739 170 30 78 7 86 1,969 14 23 27 2 2,121 631 2,682 18 27 29 2 558 579 775 45 28 3 27 2 59 - 1 15 1 15 - - 10 1 663 655 801 538 788 35 1 - 18 1 6 4 3 10 1 17 3 - - 4 1 25 After 5 years 1,044 12 136 - 17 2 1,211 617 10 147 - 13 1 22 10 - - 4 1 37 527 3 - - 4 1 Total 3,389 1 Difference between nominal redemption and amortized costs. 6,142 593 812 535 788 The following table reflects the exposure of the derivatives to liquidity risk. It contains the cash flows from derivatives with positive fair values and from derivatives with negative fair values so as to provide a complete overview of the derivative-related cash flows. The amounts are gross and undiscounted. Derivatives cash flow 2022 Inflow Outflow 2023 Inflow Outflow 2023 2024 2025 2026 2027 Total 2,287 (2,270) 52 (52) 2,407 (2,396) 33 (34) 23 (23) 29 (33) 13 (16) 4 (4) 5 (4) 2,405 (2,393) 2,448 (2,439) Market risk Market risk can be subdivided into interest rate risk, currency risk and price risk. Interest rate risk Interest rate risk is the risk that adverse movements of interest rates lead to high costs on interest-bearing debt or assets, which negatively impact the company’s capability to honor its commitments. The aim is to minimize the interest rate risks associated with the financing of the company and thus at the same time optimizing the net interest costs. This translates into a certain desired profile of fixed-interest and floating-interest positions, including cash and cash equivalents, with the floating-interest position not exceeding 60% of net debt. There were no outstanding fixed-floating interest rate swaps (end of 2022 none). The following analysis of the sensitivity of borrowings, assets and related derivatives to interest rate movements assumes an instantaneous 1% change in interest rates for all maturities from their level on 31 December 2023, with all other variables held constant. A 1% reduction in interest rates would result in a €21 million pre-tax loss in the income statement DSM Integrated Annual Report 2023 81 Consolidated financial statements – Notes to the consolidated financial statements and equity on the basis of the composition of financial instruments on 31 December 2023, 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 financial instruments with a floating interest rate on 31 December 2023 to changes in interest rates is set out in the following table. For more information regarding fixed or floating interest, see Note 19 Borrowings to the consolidated financial statements. Sensitivity to change in interest rate Loans to associates and joint ventures Current investments Cash and cash equivalents Short-term borrowings Long-term borrowings 2023 Sensitivity Carrying amount 2022 Sensitivity Carrying amount 4 101 2,181 (631) (2,487) +1% - 1 22 (1) (1) (1%) - (1) (22) 1 1 2 125 2,755 (86) (2,978) +1% - 1 28 - (1) (1%) - (1) (28) - 1 Currency risk Currency risk is the risk that adverse movements of foreign currencies negatively impact the results of operations and the financial condition of the company, for example due to losses on assets or liabilities in foreign currencies. The aim is to hedge 100% of the currency risks resulting from sales and purchases at the moment of recognition of the receivables and payables. This is realized by transferring at spot rates the respective exposures to the Group, which are, consequently (on a netted basis), hedged externally. In addition, operating companies may — under strict conditions — opt for hedging currency risks from firm commitments and forecast transactions. The currencies giving rise to these risks are primarily USD, CHF and JPY. The risks arising from currency exposures are regularly reviewed and hedged when appropriate. DSM uses currency forward contracts, spot contracts, and average-rate currency forwards and options to hedge the exposure to fluctuations in foreign exchange rates. At year-end, these instruments had remaining maturities of less than one year. For the hedging of currency risks from firm commitments and forecast transaction cash flows, hedge accounting is applied. Hedge accounting is not applied for hedges of recognized trade receivables and trade payables hedged with short-term derivatives. 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. 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 2023, 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. DSM Integrated Annual Report 2023 82 Consolidated financial statements – Notes to the consolidated financial statements Sensitivity to change in exchange rate 2023 Sensitivity Carrying amount 2022 Sensitivity Carrying amount +10% (10%) +10% (10%) Loans to associates and joint ventures Current investments Cash and cash equivalents Short-term borrowings (excluding lease liabilities) Long-term borrowings (excluding lease liabilities) Lease liabilities Currency forward contracts Average-rate forwards used for economic hedging¹ Other derivatives 1 Fair-value change reported in Hedging reserve. 4 101 2,181 (583) (2,295) (240) (19) 25 44 - 7 21 (9) (1) (19) (36) (5) (6) - (7) (21) 9 1 19 36 5 6 2 125 2,755 (42) (2,843) (179) 1 18 78 - 5 29 (4) (6) (14) 14 (19) 1 - (5) (29) 4 6 14 (14) 19 (1) Sensitivity changes on these positions will generally be recognized in profit or loss or in the translation reserve in equity, with the exception of the instruments for which cash flow hedge accounting or net-investment hedge accounting is applied. In case of a strengthening or weakening of the euro against USD, CHF and CNY (being the key currencies), this would affect the translation of financial instruments denominated in these currencies taking into account the effect of hedge accounting and assuming all other variables being constant. EUR USD (10% movement) CHF (10% movement) CNY (10% movement) Profit or loss Equity Strengthening Weakening Strengthening Weakening (19) 26 (128) 19 (26) 128 (299) (167) (66) 299 167 66 Price risk Financial instruments that are subject to changes in stock exchange prices or indexes are subject to a price risk. At year- end 2023, mainly other participating interests are subject to price risks. Credit risk Credit risk is the risk that a (commercial or financial) counterparty may not be able to honor a financial commitment according to the contractual agreement with DSM. The company manages the credit risk to which it is exposed by applying credit limits per institution and by dealing exclusively with institutions that have a high credit rating. At the balance sheet date, there were no significant concentrations of credit risks. For all financial assets measured at amortized cost, the estimation of the loss allowance for doubtful accounts receivable is based on an expected credit loss (ECL) model. For trade receivables, DSM uses an allowance matrix to measure the lifetime ECL for trade receivables. The loss rates depend among other things on the specified aging categories and are based on historical write-off percentages, taking market developments into account. DSM Integrated Annual Report 2023 83 Consolidated financial statements – Notes to the consolidated financial statements For other financial assets, DSM applies an ECL model that reflects the size and significance of DSM’s exposure to credit loss. The ECL is based on the allocation of a credit risk grade which is based on data that is determined to be predictive of the risk of loss (including but not limited to external ratings, audited financial statements, management accounts and cash flow projections and available press information about customers) and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default and are aligned to external credit rating definitions from Moody’s. Risk of default is herewith considered as the risk of bankruptcy, or any legal impediment to the timely payment of either interest and/or principal, as well as missed or delayed disbursement of either interest and/or principal. The loss allowance on non-current financial assets that has been taken into consideration at the end of 2023 was €0 million (2022: €2 million). With regard to treasury activities (for example cash, cash equivalents and derivatives held with banks or financial institutions) it is ensured that financial transactions are only concluded with counterparties that have at least a Moody’s credit rating of A3 for long-term instruments. At Business Unit level, outstanding receivables are continuously monitored by management. Appropriate allowances are made for any credit risks that have been identified in line with the expected credit loss policy. The development of the outstanding trade accounts receivable per aging category is as follows. Neither past due nor impaired 1–29 days overdue 30–89 days overdue 90 days or more overdue Total 2023 1,090 56 16 21 1,183 2022 1,117 69 100 20 1,306 The table below provides information about the credit risk exposure per aging category and the ECL for trade accounts receivable of €18 million at 31 December 2023 (31 December 2022: €12 million), see Note 13 Current receivables to the consolidated financial statements. Neither past due nor impaired 1–29 days overdue 30–89 days overdue 90 days or more overdue Total Weighted average loss rate 0.2% 0.0% 0.0% 76.2% 2023 Gross carrying amount 1,090 56 16 21 1,183 Expected credit loss (2) - - (16) (18) Weighted average loss rate 0.1% 0.0% 1.0% 53.0% 2022 Gross carrying amount 1,117 69 100 20 1,306 Expected credit loss (1) - (1) (10) (12) DSM Integrated Annual Report 2023 84 Consolidated financial statements – Notes to the consolidated financial statements The changes in the expected credit loss for trade accounts receivable are as follows. Balance at 1 January Net remeasurement of expected credit loss Deductions Disposals Exchange differences Balance at 31 December 2023 (12) (7) 1 - - (18) 2022 (23) 7 3 1 - (12) 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. DSM has International Swaps and Derivatives Association (ISDA) agreements in place with its financial counterparties that allow for the netting of exposures in case of a default of either party, but do not meet the criteria for offsetting in the balance sheet. The following table presents the carrying amounts of the derivative financial instruments subject to these agreements. No significant agreements or financial instruments were available at the reporting date that would reduce the maximum exposure to credit risk. Exposure to credit risk related to derivatives Receivables from derivatives presented in the balance sheet Related amounts not offset in the balance sheet Net amount Liabilities from derivatives presented in the balance sheet Related amounts not offset in the balance sheet Net amount Notional value of derivative financial instruments 2023 2022 81 (12) 69 (31) 12 (19) 124 (23) 101 (27) 23 (4) Cross-currency interest rate swaps Forward exchange contracts, currency options, currency swaps Other derivatives Total Non- current (25) 2023 2022 Current Total Non-current Current Total (31) (56) (29) (87) (116) (2) - (27) (761) - (763) - (792) (819) (7) - (973) (1) (980) (1) (36) (1,061) (1,097) Information about financial assets is presented in Note 10 Associates and joint arrangements, Note 11 Other financial assets, Note 13 Current receivables, Note 14 Current investments and Note 15 Cash and cash equivalents to the consolidated financial statements. DSM may grant corporate guarantees for credit support of subsidiaries and associates, to get access to credit facilities which are necessary for their operating working capital needs and which cannot be funded by the corporate cash pools and/or for bank guarantees needed for local governmental requirements. Information on guarantees is presented in Note 22 Contingent liabilities and other financial obligations to the consolidated financial statements. DSM Integrated Annual Report 2023 85 Consolidated financial statements – Notes to the consolidated financial statements Hedge accounting DSM uses derivative financial instruments to manage financial risks relating to business operations and does not enter into speculative derivative positions. The purpose of cash flow hedges is to minimize the risk of volatility of future cash flows. These may result from a recognized asset or liability or a forecast transaction that is considered highly probable (firm commitment). DSM determines the existence of an economic relationship between the hedging instrument and hedging item based on currency, amount and timing of their respective cash-flows. The hedge ratio is dependent on the risk analysis related to the specific cash flow, and can vary from 50% to 100%. Changes in fair value as a result of changes in interest (for cash flows hedges) or as a result of changes in exchange rate (for firm commitment hedges) are recognized in Other comprehensive income (Hedging reserve), and ineffectiveness (mainly as a result of changes in timing of the hedged transactions) will be recognized in the income statement. As soon as the forecast transaction is realized (the underlying hedged item materializes), the amount recognized in the Other comprehensive income will be reclassified to the income statement. In case the hedged future transaction is a non-financial asset or liability, the gain or loss recognized in Other comprehensive income will be included in the cost of acquisition of the asset or liability. The purpose of a hedge of a net investment is to reduce the foreign currency translation risk of an investment in a company whose functional currency is not the euro. Changes in fair value are recognized in Other comprehensive income (Translation reserve), and ineffectiveness will be recognized in the income statement. The amount recognized in Other comprehensive income will be reclassified to the income statement, upon divestment of the respective foreign subsidiary. The purpose of a fair value hedge is to hedge the fair value of assets or liabilities reflected on the balance sheet. Changes of fair value in hedging instruments, as well as hedged items, will be recognized in the income statement. Cash flow hedges In 2023, DSM hedged USD 498 million (2022: USD 611 million) of its 2024 projected net cash flow in USD against the EUR by means of average-rate currency forward contracts at an average exchange rate of USD 1.10 per EUR for the four quarters of 2024. Each quarter, the relevant hedges for that quarter will be settled and recognized in the income statement. In 2023, DSM also hedged JPY 7,535 million (2022: JPY 5,687 million) of its 2024 projected net cash flow in JPY against the EUR by means of average-rate currency forward contracts at an average exchange rate of JPY 147.11 per EUR for the four quarters of 2024. DSM also hedged the projected CHF obligations against the EUR, namely CHF 393 million (2022: CHF 417 million) at an average exchange rate of CHF 0.95 per EUR. These hedges have fixed the exchange rate for part of the USD and JPY receipts and CHF payments in 2024. Cash flow hedge accounting is applied for these hedges. As a result of similar hedges concluded in 2022 for the year 2023, €24 million positive was recognized in the 2023 operating profit of the segments involved in accordance with the realization of the expected cash flows. There was no ineffectiveness in relation to these hedges. DSM Integrated Annual Report 2023 86 Consolidated financial statements – Notes to the consolidated financial statements Net investment hedges The partial hedging of the currency risk associated with the translation of DSM’s CHF-denominated investments was zero at end of 2023 (same as 2022). 2022 Nominal amount hedged item Carrying amount assets Carrying amount liabilities Line item balance sheet Change in the value of the hedging instrument Costs of hedging recognized in OCI Reclassified from hedging reserve to income statement Line item income statement . 2023 Nominal amount hedged item Carrying amount assets Carrying amount liabilities Line item balance sheet Change in the value of the hedging instrument Costs of hedging recognized in OCI Reclassified from hedging reserve to income statement Line item income statement Cash flow hedges Foreign currency risk Inventory purchases Other 29 1 - Derivatives 4 4 10 Cost of sales 12 1 - Derivatives - - 2 Cost of sales 194 18 - Derivatives (28) 1 30 Sales 108 25 (1) Derivatives (6) (30) (24) Sales Fair value of financial instruments The fair value of 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. 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: 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 and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for the financial assets and financial liabilities measured at amortized cost if the carrying amount is a reasonable approximation of the fair value. DSM Integrated Annual Report 2023 87 Consolidated financial statements – Notes to the consolidated financial statements Fair value of financial instruments Carrying amount Fair Value Amort. Cost Fair value hedging instr. FVTPL FVOCI Total Level 1 Level 2 Level 3 Total Assets 2022 Non-current derivatives Other participating interests Non-current loans to associates and JVs Other non-current receivables Trade receivables Other current receivables Current derivatives Current investments Cash and cash equivalents Liabilities 2022 Non-current borrowings Non-current derivatives Other non-current liabilities Current borrowings Current derivatives Trade payables Other current liabilities . Assets 2023 Non-current derivatives Other participating interests Non-current loans to associates and JVs Other non-current receivables Trade receivables Other current receivables Current derivatives Current investments Cash and cash equivalents Liabilities 2023 Non-current borrowings Non-current derivatives Other non-current liabilities Current borrowings Current derivatives Trade payables Other current liabilities - - 2 158 1,508 78 - 125 1,262 (2,978) - (82) (86) - (1,415) (490) - - 4 63 1,535 286 - 101 1,250 (2,487) - (85) (631) - (1,364) (1,179) 4 - - - - - 42 - - - (4) - - (23) - - 2 - - - - - 35 - - - (3) - - (28) - - 78 - - - - - - - 1,493 - - (123) - - - - 44 - - - - - - - 931 - - (45) - - - - - 125 - - - - - - - - - - - - - - - 139 - - - - - - - - - - - - - - 82 125 2 158 1,508 78 42 125 2,755 (2,978) (4) (205) (86) (23) (1,415) (490) 46 139 4 63 1,535 286 35 101 2,181 (2,487) (3) (130) (631) (28) (1,364) (1,179) - 27 82 62 - 36 82 125 - 42 1,493 - - - 42 1,493 (2,432) - - - - - (4) - - (23) - - (123) - - (2,432) (4) (123) - (23) - 38 46 78 - 23 46 139 - 35 931 - - - 35 931 (2,065) - - (498) - - (3) - - (28) - - (45) - - (2,065) (3) (45) (498) (28) DSM Integrated Annual Report 2023 88 Consolidated financial statements – Notes to the consolidated financial statements 24 Employee benefits Accounting policy Short-term employee benefits Short-term employee benefits are generally recognized as an expense in the period the employee renders services to DSM. Post-employment benefits: Defined contribution plans For DSM’s defined contribution plans, the obligations are limited to the payment of contributions, which are recognized as Employee benefit costs. Post-employment benefits: Defined benefit plans For defined benefit plans, the aggregate of the value of the defined benefit obligation and the fair value of plan assets for each plan is recognized as a net defined benefit liability or asset. Defined benefit obligations are determined using the projected unit credit method. Plan assets are recognized at fair value. If the fair value of plan assets exceeds the present value of the defined benefit obligation, a net asset is only recognized to the extent that the asset is available for refunds to the employer or for reductions in future contributions to the plan. Defined benefit pension costs consist of three elements: service costs, net interest, and remeasurements. Service costs are part of Employee benefit costs and consist of current service costs. Past service costs and results of plan settlements are included in Other operating income or expense. Net interest is part of Finance income and expense and is determined on the basis of the value of the net defined benefit asset or liability at the start of the year, and on the interest on high-quality corporate bonds. Remeasurements are actuarial gains and losses, the return (or interest cost) on net plan assets (or liabilities) excluding amounts included in net interest and changes in the effect of the asset ceiling. These remeasurements are recognized in Other comprehensive income as they occur and are not recycled through profit or loss at a later stage. Post-employment defined benefit plans include pension plans and other post-employment benefits. Other employee benefits The service cost, the net interest on the net defined liability (asset) and remeasurements of the net defined liability (asset) related to other long-term employee benefits, such as jubilee and incentive plans, are recognized in profit or loss. Estimates and judgments Management makes 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. Changes in these key assumptions can have a significant impact on the projected defined benefit obligations, funding requirements and periodic costs incurred. The Employee benefit liabilities of €291 million (2022: €292 million) consist of €249 million related to pensions (2022: €247 million), €20 million related to other post-employment benefits (2022: €16 million) and €22 million related to other employee benefits (2022: €29 million). See also the table below. Employee benefit liabilities Pension plans and other post-employment benefits Other employee benefits Total Of which current DSM Integrated Annual Report 2023 2023 2022 269 22 291 2 263 29 292 5 89 Consolidated financial statements – Notes to the consolidated financial statements 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 and Switzerland. Post-employment benefits are employee benefits (other than termination benefits and short-term employee benefits) that are payable after the completion of employment. 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 charges for post-employment benefit costs recognized in the income statement (Note 5 Net sales and costs to the consolidated financial statements) relate to the following. Post-employment benefit costs Defined benefit plans: - Current service costs pension plans - Other post-employment benefits Defined contribution plans Total pension costs included in employee benefit costs - Pension costs included in Other operating (income) / expense Total in operating profit, continuing operations Pension costs included in Financial income and expense Total continuing operations Discontinued operations Total Of which: - Defined contribution plans - Defined benefit plans 2023 2022 30 3 63 96 (1) 95 7 102 4 106 65 41 38 3 61 102 (2) 100 3 103 19 122 79 43 For 2024, costs for the defined benefit plans relating to pensions are expected to be €43 million (2023: €40 million). Changes in net liabilities of the post-employment benefits recognized in the balance sheet are shown in the following overview. DSM Integrated Annual Report 2023 90 Impact of minimum funding requirement/ asset ceiling - Net liabilities/ (assets) recognized in the balance sheet 269 Consolidated financial statements – Notes to the consolidated financial statements Balance at 1 January 2022 Included in income statement: - Current service cost - Interest expense / (income) Total included in income statement Included in other comprehensive income: - Loss / (gain) from change in financial assumptions - Return on plan assets excluding interest income - Asset ceiling change, excluding movement through income statement Total included in other comprehensive income Other - Benefits paid (including transfers in and out) - Contributions by plan participants - Employer contributions - Currency translation adjustment and other - Reclassification held for sale Total other Funded and unfunded defined benefit obligations 2,156 40 19 59 (500) - - (500) (84) 19 - 63 (5) (7) Fair value of plan assets (1,887) - (16) (16) - 369 - 369 70 (19) (42) (68) - (59) - - - - - 126 126 - - - 3 - 3 Balance at 31 December 2022 1,708 (1,593) 129 . Net defined benefit assets Net defined benefit liabilities Total . - Current service cost - Interest (expense) / income Total included in income statement Included in other comprehensive income: - Loss / (gain) from change in demographic assumptions - Loss / (gain) from change in financial assumptions - Experience loss / (gain) - Return on plan assets excluding interest income - Asset ceiling change, excluding movement through income statement Total included in other comprehensive income Other - Benefits paid (including transfers in and out) - Contributions by plan participants - Employer contributions - Settlements - Balance sheet transfer - Acquisition / disposals - Currency translation adjustment and other Total other . Balance at 31 December 2023 . Net defined benefit assets Net defined benefit liabilities Total DSM Integrated Annual Report 2023 35 49 84 (3) 112 26 - - 135 (90) 20 - (190) 4 3 79 (174) - (45) (45) - - - (43) - (43) 67 (20) (46) 186 - - (84) 103 - 3 3 - - - - (58) (58) - - - - - - 5 5 1,753 (1,578) 79 254 (15) 269 254 91 40 3 43 (500) 369 126 (5) (14) - (42) (2) (5) (63) 244 (19) 263 244 35 7 42 (3) 112 26 (43) (58) 34 (23) - (46) (4) 4 3 - (66) Consolidated financial statements – Notes to the consolidated financial statements The fair value of the plan assets consists of 93% of quoted assets (2022: 94%). Pension-plan assets by category Equities Bonds Derivatives Property Insurance policies Other Cash and bank deposits Total plan assets 2023 2022 445 606 - 362 2 140 22 389 730 - 350 1 108 15 1,577 1,593 The pension-plan assets include neither ordinary DSM shares nor property occupied by DSM. The countries with the most significant defined benefit obligations for DSM are specified in the following table. Defined benefit plans in core countries Switzerland United States of America United Kingdom Germany Other countries Total Defined benefit plans 2022 Funded and unfunded defined benefit obligations Fair value of plan assets Net excess of liabilities/(assets) over obligations Unrecognized assets due to asset ceiling Net excess of liabilities/(assets) over obligations recognized . Composed of Net defined benefit assets Net defined benefit liabilities Total changes . Defined benefit plans 2023 Funded and unfunded defined benefit obligations Fair value of plan assets Net excess of liabilities/(assets) over obligations Unrecognized assets due to asset ceiling Net excess of liabilities/(assets) over obligations recognized . Composed of Net defined benefit assets Net defined benefit liabilities Total changes DSM Integrated Annual Report 2023 1,096 (1,228) (132) 124 (8) (9) 1 (8) 1,320 (1,407) (87) 79 (8) (9) 1 (8) 201 (203) 159 (154) (2) 4 2 (10) 12 2 9 (6) 3 - 3 (6) 9 3 5 1 6 - 6 6 164 (154) 10 - 10 - 10 10 244 (8) 236 - 236 - 236 236 244 (11) 233 - 233 - 233 233 8 - 8 - 8 - 8 8 16 - 16 - 16 - 16 16 1,708 (1,593) 115 129 244 (19) 263 244 1,753 (1,578) 175 79 254 (15) 269 254 92 Consolidated financial statements – Notes to the consolidated financial statements The main actuarial assumptions for the year (weighted averages) are: Actuarial assumptions for major plans 2022 Discount rate Price inflation Salary increase Pension increase . 2023 Discount rate Price inflation Salary increase Pension increase Switzerland United States of America United Kingdom Germany 2.20% 1.25% 2.25% 0.00% 1.30% 1.25% 2.25% 0.00% 5.40% 0.00% 3.00% 0.00% 5.00% 0.00% 3.00% 0.00% 4.80% 3.35% 0.00% 3.15% 4.50% 3.15% 0.00% 3.00% 3.70% 0.00% 3.20% 2.60% 3.20% 0.00% 2.80% 2.20% The above-mentioned actuarial assumptions are harmonized for all defined benefit plans in a country. Sensitivities of significant actuarial assumptions The discount rate, the future increase in wages and salaries and the pension increase rate were identified as significant actuarial assumptions. The following impacts on the defined benefit obligation are to be expected. • A 0.25% increase/decrease in the discount rate would lead to a decrease/increase of 2.6% (2022: 2.5%) in the defined benefit obligation • A 0.25% increase/decrease in the expected increase in salaries/wages would lead to an increase/decrease of 0.3% (2022: 0.3%) in the defined benefit obligation • A 0.25% increase/decrease in the expected rate of pension increase would lead to an increase/decrease of less than 1.4% (2022: 0.6%) in the defined benefit obligation The sensitivity analysis is based on realistically possible changes as at the end of the reporting year. Each change in a significant actuarial assumption was analyzed separately as part of the test. Interdependencies were not taken into account. Main defined benefit plans description 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. DSM‘s current policy is to offer defined contribution retirement benefit plans to new employees wherever possible. However, DSM still has a (small) number of defined benefit pension and healthcare schemes from the past or in countries where legislation does not allow us to offer a defined contribution scheme. Generally, these schemes have been funded through external trusts or foundations, where DSM faces the potential risk of funding shortfalls. DSM Integrated Annual Report 2023 93 Consolidated financial statements – Notes to the consolidated financial statements The most significant defined benefit schemes are: • • • • DSM Nutritional Products (DNP) AG Pension Plan in Switzerland (DNP AG) DSM UK Pension Scheme in the UK Consolidated Pension Plan of DSM North America, Inc. in the US Pension Plan at DSM Nutritional Products GmbH in Germany (DNP GmbH) For each plan, the following characteristics are relevant: DNP AG Pension Plan in Switzerland The DNP AG Pension Plan is a typical Swiss Cash Balance plan. For accounting purposes, this plan is qualified as a defined benefit plan. It is a contribution-based plan, with no promise of indexation for on-going pensions. The Swiss state minimal requirements for occupational benefit plans have however to be respected. The purpose of the plan is to protect the (legacy) DSM employees against the economic consequences of retirement, disability and death. The employer and employees pay contributions to the pension plan at rates set out in the pension plans rules based on a percentage of salary. The amount of the retirement account can be taken by the employee at retirement in the form of pension or capital. The weighted average duration of the defined benefit obligation is 10.8 years (2022: 10.0 years) which could be seen as an indication of the maturity profile of the scheme. According to the Swiss Federal Law on Occupational Retirement, Survivors and Disability (LPP/BVG), the Swiss Pension plans are managed by independent and legally autonomous entities which have the legal structure of foundation. The Pension Boards are composed of equal numbers of employee and employer representatives. Each year, the Pension Boards decide the level of interest, if any, to apply to the retirement accounts in accordance with the pension policy. It is also responsible for the investment of the assets and defining the investment strategy for long-term returns with an acceptable level of risk. The plan assets are collectively invested (no individual investment choice). DSM UK Pension Scheme The DSM UK Pension Scheme was closed as of 30 September 2016 for all pension accruals. An unconditional indexation policy is applicable for the vested pension rights. The weighted average duration of the defined benefit obligation is 13.9 years (2022: 14.3 years), which could be seen as an indication of the maturity profile of the scheme. The pension plan is managed and controlled by a DSM company pension fund. The Board of Trustees consists of representatives of the employer and the employees who have an independent role. Till last year, there were two company guarantees in place: (1) a guarantee from DNP AG (capped at GBP 14 million) related to the 2012 valuation, and (2) a guarantee from DSM B.V. (capped at GBP 11 million) related to arrangements with respect to former UK divestments. Both guarantees were surrendered by a one-time payment of the company. There is a long-term de-risking strategy for the DSM UK Pension Scheme in place with the objective to align the company’s intentions and the Trustees responsibility with respect to this plan. Consolidated Plan of DSM North America, Inc. in the US The Consolidated Plan in the US has been closed to new entrants since 2014. As of 31 December 2016, the plan was closed for pension accrual of the non-unionized employees, and as a result of the DRF divestment in 2021, it was fully frozen for all unionized employees as well. In December 2023, all pension liabilities within the plan were fully settled with an insurance company. DSM Integrated Annual Report 2023 94 Consolidated financial statements – Notes to the consolidated financial statements As a result of the settlement, the weighted average duration of the defined obligations is 0.0 years (2022: 9.7 years). The pension plan was managed and controlled by a DSM company pension fund. The pension fund will finalize the last formalities and will finally be liquidated. DNP GmbH Pension Plan in Germany The DNP GmbH Pension Plan in Germany has been closed to new entrants as of 31 December 2008. The accrual is still applicable for employees who have been participating in the plan since 2008. The pension plan is a final-pay pension plan (averaged over the last 12 months prior to retirement) and service-related benefit. The liability is on the balance sheet of DSM Nutritional Products GmbH. No assets are allocated to this liability. All reimbursements will be paid out by the local company. The weighted average duration of the defined benefit obligation is 12.0 years (2022: 12.9 years), which could be seen as an indication of the maturity profile of the scheme. Other employee benefits Other employee benefits comprise jubilees, long-term incentive (LTI) plans to senior management and deferred compensation liabilities. The changes in other employee benefits are listed below. Balance at 1 January 2022 Of which current Changes: - Additions - Uses - Reclassification to held for sale Total changes Balance at 31 December 2022 Of which current . Changes: - Acquisition - Additions - Releases - Uses - Other change Total changes Balance at 31 December 2023 Of which current Other employee benefits 40 5 (3) (4) (4) (11) 29 5 - 2 (2) (7) - (7) 22 2 DSM Integrated Annual Report 2023 95 Consolidated financial statements – Notes to the consolidated financial statements 25 Net debt The development of the components of net debt is as follows. Balance at 1 January 2022 Change from operating activities Change from investing activities Reclassification from non-current to current Transfers Dividend Interest Proceeds from reissued shares New/unwinding leases Repurchase of shares Other Change from financing activities Exchange differences Total changes Cash and cash equivalents 1,561 965 876 - (58) (345) (52) 25 - (210) (5) (645) (2) Current investments 489 - (364) - - - - - - - - - - 1,194 (364) Non- current borrowings (2,995) Current borrowings Derivatives Total (103) 29 (1,019) (9) 7 40 17 - - - (34) - - 23 (4) 17 - 20 (40) 39 - - - - - - (1) (2) 17 65 1,021 - 539 - 2 - - - - - (5) - - (345) (52) 25 (34) (210) (10) (3) (626) 6 (2) 68 932 Balance at 31 December 2022 2,755 125 (2,978) (86) 97 (87) . Change from operating activities Change from investing activities Reclassification from non-current to current Transfers Dividend to shareholders on AEX Interest Proceeds from reissued shares New/unwinding leases Repurchase of shares Funding cash pool Other Change from financing activities Exchange differences Total changes Balance at 31 December 2023 576 2,711 - (73) (3,935) (14) 8 - (256) 425 (7) (3,852) (9) (574) 2,181 - (24) - - - - - - - - - - - - - 544 57 - (2) - (108) - - - 491 - - (13) (544) 12 - - - - - - - (532) (51) 525 - 2,674 - - - 4 - (3,935) (16) - - 8 (108) - (256) - 425 - - (7) 4 (3,889) - - (9) (24) 491 (545) (47) (699) 101 (2,487) (631) 50 (786) For the explanation of change related to Funding cash pool, see Note 26 Notes to the cash flow statements to the consolidated financial statements. In 2023, the gearing (net debt / equity plus net debt) was 8.1% (in 2022: 0.8%). DSM Integrated Annual Report 2023 96 Consolidated financial statements – Notes to the consolidated financial statements 26 Notes to the cash flow statements 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 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. The Consolidated cash flow statement includes an analysis of all cash flows in total, therefore including both continuing and discontinued operations. For the amounts related to discontinued operations split by activities and a reconciliation of results from continuing operations to total, see Note 3 Change in the scope of the consolidation to the consolidated financial statements. 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. Acquisition of subsidiaries of €389 million consists of the cash related part of the consideration for Adare Biome of €290 million and acquisition/integration/earn-out related costs of €100 million, offset partly by the cash held by the acquired entities of €1 million. The disposal of subsidiaries, businesses and associates of €3,533 million consists primarily of the cash impact of the divestment of the Engineering Materials business for €3,553 million. See also Note 3 Change in the scope of the consolidation to the consolidated financial statements. Funding Cash pool Funding cash pool relates to Group cash management facility within the dsm-firmenich Group. Cash balances of the dsm-firmenich Group are pooled and transferred to a centralized treasury function within DSM to the extent legally and fiscally possible. Cash balances of dsm-firmenich subsidiaries are swept daily to bank accounts centrally held by DSM Finance B.V., to the extent legally possible, which as such result in a receivable balance on or payable balance to DSM Finance B.V. 27 Share-based compensation Accounting policy Share-based compensation at DSM consists of the granting of Performance Share Units (PSUs) and Restricted Share Units (RSUs), and stock option plans to eligible employees. PSUs and RSUs generally vest after three years on the achievement of predefined vesting conditions. The cost of PSUs and RSUs is measured by reference to the fair value of the DSM-Firmenich AG and former Koninklijke DSM N.V. shares on the date on which the PSUs and RSUs were granted or modified. The cost is recognized in profit or loss (Employee benefit costs) during the vesting period, together with a corresponding increase in equity. The transaction is classified as an equity-settled transaction because DSM has no obligation to settle the transaction with its eligible employees. The obligation to settle was transferred to DSM-Firmenich AG (the parent and issuing entity) following the swap of shares after the merger. Vesting conditions other than market conditions are considered by adjusting the number of equity instruments, so that the amount recognized during the vesting period in employee benefit costs is based on the number of share units that eventually vest. DSM Integrated Annual Report 2023 97 Consolidated financial statements – Notes to the consolidated financial statements Estimates and judgments Key estimates related to share-based compensation costs for PSUs and RSUs are the estimation of fair values of the shares on the grant or modification date, and the number of shares that will vest. An independent third party conducts the fair value calculation as far as vesting is tied to market conditions, using the Monte Carlo method. Restricted- and Performance Share Unit Plan Following the merger, all shares in the Restricted- and Performance Share Unit Plan based on former Koninklijke DSM N.V shares of the plans were converted to shares of DSM-Firmenich AG. The DSM and dsm-firmenich Restricted- and Performance Share Unit Plans provide rules for the grant of RSUs and/or PSUs to eligible employees. Considering the plan rules that allow multiple grant dates, best practice is to effectuate the grant of share units on the last trading day at the Amsterdam Stock Exchange in March. In principle PSUs will be granted; RSUs may be granted in specific circumstances. The number of share units to be granted is based on job level, contribution, and the face value of the dsm-firmenich share over a reference period. As a result, the number of share units to be granted annually will fluctuate with the share price development. RSUs and PSUs are subject to a vesting period of 3 years starting at the grant date. Vesting of RSUs is subject to continued employment until the vesting date (‘time vesting’). In addition, vesting of PSUs is also subject to the achievement of predefined performance targets at the end of the performance period. In view of the merger of equals between DSM and Firmenich, it was decided (as included in the Offering Circular) that the PSUs granted under DSM’s Long-Term Incentive plan in 2021 and 2022, respectively, shall vest against the average of the vesting result achieved over the vesting that occurred in 2020, 2021 and 2022. Non-vested share units will be forfeited. If employment is terminated prior to the vesting date, specific rules regarding vesting and forfeitures apply. As included in the Offering Circular, all rights of eligible persons recorded as outstanding immediately prior to the settlement of the merger related to equity grants made under DSM legacy plans related to DSM stock, such as PSUs, RSUs or stock options, have been exchanged for equivalent rights related to dsm-firmenich stock (‘roll-over’). The 2023 grant of PSUs under the dsm-firmenich Restricted- and Performance Share Unit Plan to Members of the Executive Committee and other eligible employees is based on the at target level; in 2023 this concerned 156,299 share units. At DSM, grants to the Executive Committee were based on the maximum number to vest while the grant to other eligible employees is – as of 2021 – based on the ‘at-target’ grant level (in previous years this was the ‘maximum number’ that could vest). This ‘at-target’ grant level includes RSUs as well as PSUs. The 2020 grant vested 31 March 2023. The vesting percentage for the Managing Board / Executive Committee was 105% of the at target grant (or 70% of the maximum to vest i.e., the number initially granted). For other eligible employees, all outstanding RSUs vested the vesting date, while the vesting % for the PSUs was 135% of the at target grant. In total 110,985 share units of this series vested. DSM Integrated Annual Report 2023 98 Consolidated financial statements – Notes to the consolidated financial statements Overview of share units eligible employees from DSM Year of grant In 2023 Granted Vested¹ Outstanding at 31 Dec. 2022 Forfeited/ expired Outstanding at 31 Dec. 2023 Share price at date of grant (€) Expiry date 2020 2021 2022 2023 2023 Total 97,386 83,711 85,707 - 14,762 - - 156,299 (110,985) (11,650) (10,165) (1,546) (1,163) (2,178) (3,033) (2,864) - 69,883 72,509 151,889 103.50 144.30 162.50 97.67 31 Mar 2023 31 Mar 2024 31 Mar 2025 31 Mar 2026 266,804 at 31 Dec. 2021 171,061 (134,346) (9,238) 294,281 at 31 Dec. 2022 2022 Total 1 Restricted- and Performance Share Units may partly vest upon termination of employment in connection with, for example, divestments, reti rement or 266,804 (24,630) 236,833 (35,885) 90,486 early retirement. In September 2022, a group of senior key employees (excluding the Co-CEOs) at DSM received an RSU grant, which was subject to completion of the merger between DSM and Firmenich. As the merger was completed, the RSUs were finally granted. Upon vesting, the respective grant will be settled in cash. These cash-settled RSUs vest in September 2025 and have a fair value on 31 December 2023 of €92.00. Overview of cash-settled RSUs Year of grant Granted Outstanding at 31 Dec. 2022 In 2023 Vested Forfeited/ expired Outstanding at 31 Dec. 2023 Share price at date of grant (€) Expiry date 2022 92,861 194 (4,141) (4,130) 84,784 117.45 30 Sep 2025 Measurement of fair value The following assumptions were used to determine the fair value of the equity-settled share units at grant date. Assumptions equity-settled share units Share units granted to certain executives Risk-free rate¹ Expected share life in years Nominal share life in years Share price in €¹ Expected dividend in € Fair value of share granted in € 1 The differences in the risk-free rate and share price are due to different grant dates. 2023 2022 2.79% 3 3 100.50 1.00 97.67 0.25% 3 3 162.50 2.50 156.37 Share-based compensation An amount of €23 million is included in the costs for wages and salaries for share-based compensation (2022: €35 million). The following table specifies the share-based compensation. Share-based compensation Stock options Equity-settled share units Cash-settled share units Total expense DSM Integrated Annual Report 2023 2023 2022 - 18 5 23 7 27 1 35 99 Consolidated financial statements – Notes to the consolidated financial statements 28 Related parties Accounting policy DSM has identified its key management personnel, the other entities from the dsm-firmenich Group and its associates and joint ventures as related parties. For associates and joint ventures, see also Note 10 Associates and joint arrangements to the consolidated financial statements. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, as defined by IAS 24 ‘Related Parties’. IAS 24 requires disclosure of key management personnel split in the total of short-term employee benefits (salary and short-term incentive), post- employment (pension expenditure) and other long-term benefits, termination benefits and share-based payment cost (share-based compensation). Transactions with related parties DSM-Firmenich AG (equity holder) Sales to Receivables from In-house cash receivables (payables) Interest from Firmenich entities Sales to Receivables from In-house cash receivables (payables) Associates and joint ventures Sales to Purchases from Loans to Receivables from Payables to Interest from Commitments to 2023 2022 17 33 (692) 4 62 46 177 8 96 4 16 3 - 6 - - - - - - 18 35 1 17 4 1 - DSM issued dividends to DSM-Firmenich AG for respectively €3.5 billion as part of the merger with Firmenich group and €278 million as regular dividends in 2023. See Note 26 Notes to the cash flow statements and Note 16 Equity to the consolidated financial statements for more information on those transactions. DSM recharged to DSM-Firmenich AG €14 million of cost recharge. DSM may issue guarantees as credit enhancement of associates to acquire bank facilities for these associates. DSM has provided guarantees to third parties for debts of associates for an amount of €28 million (2022: €60 million). Expected credit losses for receivables from related parties amount to zero (same as 2022). Other related-parties disclosures relate entirely to key management of DSM, being represented by the company’s management. For further details about their remuneration, see below. Key management personnel The remuneration of key personnel concerns the Supervisory Board and Executive Committee (which includes the Managing Board) of Koninklijke DSM N.V., renamed DSM B.V. DSM Integrated Annual Report 2023 100 Consolidated financial statements – Notes to the consolidated financial statements On April 18, 2023, DSM-Firmenich AG, the parent company of the merger combination DSM and Firmenich, was listed on Euronext Amsterdam. As a result, the expenses reported herein concern two periods. The first period is about the remuneration awarded to the members of the Supervisory Board and the Executive Committee (including the Managing Board) of DSM, insofar as their appointment in such capacity relates to the period from 1 January 2023 until 18 April 2023. The second period concerns the remuneration awarded to the members of the Supervisory Board and the Managing Board DSM B.V., insofar as their appointment in such capacity relates to the period from 18 April 2023 until 31 December 2023. For that period, their costs were borne by DSM-Firmenich AG and not directly charged to DSM.B.V. or its subsidiaries. Remuneration expenses Supervisory Board, Managing Board, and Executive Committee of DSM awarded to members of the Supervisory Board, Managing Board and Executive Committee of DSM appointed in that capacity for the period 1 January 2023 until 18 April 2023 x € thousand 2023 2022 Base salary / Supervisory Board fees Employer pension contribution Short-Term Incentive¹ Share-based compensation² Other³ Total 1 Short-Term Incentive based on target level minus weight of EBITDA target. 2,391 471 869 2,518 16,562 6,521 1,197 3,399 7,778 6,612 22,811 25,507 2 Represents the expenses of Performance Share Units (PSUs) awarded according to IFRS rules. These costs are considered over the vesting period and therefore cover several years. 3 Includes benefits, severance payments for Executive Committee members that left the Company because of the merger, special payments as included in the Offering Circular (issued 22 November 2022) related to the merger, settlement DSM STI Deferral and Matching Plan, social security contributions and obligations following Article 32bb of the Dutch Wage Tax Act (1964). 29 Service fees paid to external auditors The service fees recognized in the financial statements 2023 for the services of KPMG amounted to €6.4 million (2022: €8.8 million). The amounts per service category are shown in the following table. Audit of the Group financial statements Audit of other (statutory) financial statements Other assurance services Permitted non-assurance services Total assurance services charged to DSM Total service fee KPMG 2023 5.5 0.7 0.1 0.1 6.4 KPMG 2022 4.7 0.9 3.2 - 8.8 Of which KPMG NL KPMG NL 2022 3.2 0.1 2.8 - 6.1 2023 3.7 - 0.1 0.1 3.9 The service fees mentioned in the table for the audit of the financial statements 2023 (2022) relate to the total fees for the audit of the financial statements 2023 (2022), irrespective of whether the activities were performed during the financial year 2023 (2022). The other assurance services rendered by KPMG in 2023 mainly relate to a review engagement. KPMG did provide permitted non-assurance services related to regulatory filings, agreed-upon procedures on certain information for the (external) pension fund and their auditor. DSM Integrated Annual Report 2023 101 Consolidated financial statements – Notes to the consolidated financial statements 30 Events after the balance sheet date On 13 February 2024, DSM-Firmenich AG completed the voluntary tender offer of 8 January 2024 for 4,163,287 DSM B.V. ordinary shares for a total consideration amounting to €400 million. DSM-Firmenich AG now holds 98.5% of the shares of DSM B.V. The company will seek to acquire the remaining 1.5% shares through the statutory buy-out procedure at the Enterprise Chamber of the Amsterdam Court of Appeal, which started on 17 July 2023. On 14 May 2024, the Enterprise Court of the Amsterdam Court of Appeal awarded DSM-Firmenich AG’s claims in the Buy-Out. On 15 February 2024, dsm-firmenich announced the initiation of a process to carve-out and separate out the Animal Nutrition & Health (ANH) business from the Group. The company believes that the full potential of the ANH business could be best realized through a different ownership structure for which all potential separation options will be considered. dsm-firmenich would expect to be in a position to separate the business in the course of 2025 On 8 March 2024, DSM successfully sold and transferred its 100% equity interest in the vitamin C plant DSM Jiangshan Pharmaceutical Co., Ltd. (Jinjiang, China) to Jingjiang Cosfocus Health Technology Co., Ltd. DSM Integrated Annual Report 2023 102 Parent company financial statements Balance sheet at 31 December of DSM B.V. before profit appropriation x € million Assets Intangible assets Financial assets Deferred tax assets Other deferred items Non-current assets Receivables Cash and cash equivalents Current assets Total Shareholders' equity and liabilities Share capital Share premium Treasury shares Legal reserves Other reserves, incl. retained earnings Undistributed results: - Net profit for the year - Less: interim dividend Shareholders' equity Borrowings Other non-current liabilities Non-current liabilities Current liabilities Borrowings Other current liabilities Current liabilities Total Notes 2023 2022 2 3 4 5 6 6 6 6 6 6 6 6 6 7 7 8 469 13,110 53 2 13,634 81 - 81 466 15,634 52 1 16,153 51 1 52 13,715 16,205 261 469 - 778 4,988 2,318 - 8,814 2,243 8 2,251 500 2,150 2,650 13,715 328 471 (196) 829 7,774 1,700 (163) 10,743 2,741 8 2,749 - 2,713 2,713 16,205 The accompanying notes are an integral part of these parent company financial statements. DSM Integrated Annual Report 2023 103 Parent company financial statements Income statement of DSM B.V. x € million Other income Cost of outsourced work and other external costs Wages and salaries Other movements in the value of intangible assets Other operating expense Total operating expenses Operating profit (loss) Financial income Financial expense Profit (loss) before income tax Income tax Share of the profit of subsidiaries Profit after income tax Income from receivables attributable to non-current assets and from investments Net profit available to equity holders of DSM B.V. Notes 1 10 11 11 4 3 2023 1 (1) (4) - (1) (6) (5) 83 (229) (151) 44 2,425 2,318 - 2,318 2022 18 (21) (8) - (1) (30) (12) 7 (114) (119) 25 1,794 1,700 - 1,700 DSM Integrated Annual Report 2023 104 Parent company financial statements – Notes to the parent company financial statements Notes to the parent company financial statements 1 General Unless stated otherwise, all amounts are in € million. Summary of the accounting policies These separate financial statements have been prepared in accordance with Title 9, Book 2 of the Dutch Civil Code. The accounting policies used are the same as those used in the consolidated EU-IFRS 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, with separate presentation of the goodwill component under intangible fixed assets. Results on transactions involving the transfer of assets and liabilities between the Company and its participating interests and mutually between participating interests themselves are eliminated to the extent that they can be considered as not realized. For an appropriate interpretation of these statutory financial statements, the separate financial statements should be read in conjunction with the consolidated financial statements. Participating interests with a negative net asset value are valued at nil. This measurement also covers any receivables provided to the participating interests that are, in substance, an extension of the net investment. In particular, this relates to loans for which settlement is neither planned nor likely to occur in the foreseeable future. A share in the profits of the participating interest in subsequent years will only be recognized if and to the extent that the cumulative unrecognized share of loss has been absorbed. If the Company fully or partially guarantees the debts of the relevant participating interest, or if has the constructive obligation to enable the participating interest to pay its debts (for its share therein), then a provision is recognized accordingly to the amount of the estimated payments by the Company on behalf of the participating interest. Information on the use of financial instruments and on related risks for the group is provided in Note 23 Financial instruments and risks to the consolidated financial statements. The Company makes use of the option to eliminate intragroup expected credit losses against the book value of loans and receivables from the Company to participating interests, instead of elimination against the equity value / net asset value of the participating interests. Other income consists mainly of the charge out of the parent company related corporate overhead and services to the group companies, which is fully realized in the Netherlands. Statutory and fiscal seat The entity Koninklijke DSM N.V. changed its legal form to DSM B.V on 31 May 2023 as a result of the merger with Firmenich group. The statutory seat of DSM B.V. is Heerlen (Netherlands). A list of DSM B.V.’s participations has been filed with the Chamber of Commerce (Netherlands) and is available from the company upon request. DSM is registered in the Dutch Commercial Register under number 14022069. The company forms a fiscal unity for corporate income tax and VAT purposes together with the group companies in the Netherlands. Each of the companies recognizes the portion of corporate income tax that the relevant company would owe as an independent tax payer, taking into account tax liabilities applicable to the company, as well as the tax position of the fiscal unity. DSM Integrated Annual Report 2023 105 Parent company financial statements – Notes to the parent company financial statements 2 Intangible assets The carrying amount of intangible assets comprises goodwill on the acquisition of the Erber Group in 2020 (€423 million), Pentapharm in 2007 (€36 million) and Crina in 2006 (€10 million). For full information on these assets including the discussion of the related impairment tests, see Note 8 Goodwill and intangible assets to the consolidated financial statements. Intangible assets of DSM B.V. Balance at 1 January 2022 Cost Amortization and impairment losses Carrying amount Changes in carrying amount: - Exchange rate difference Balance at 31 December 2022 Cost Amortization and impairment losses Carrying amount Changes in carrying amount: - Exchange rate difference Balance at 31 December 2023 Cost Amortization and impairment losses Carrying amount Total 469 5 464 2 471 5 466 3 475 6 469 DSM Integrated Annual Report 2023 106 Parent company financial statements – Notes to the parent company financial statements 3 Financial assets Share in Subsidiaries Balance at 1 January 2022 13,784 Other participating interests 5 Receivables Total - 13,789 Changes: - Share in profit - Dividend received - Disposal of subsidiaries - Net actuarial gains/(losses) - Change in Fair value reserve - Change in Hedging reserve - Exchange differences - Intra-group transfers - Other Balance at 31 December 2022 Changes: - Share in profit - Capital payments - Dividend received - Disposal of subsidiaries - Net actuarial gains/(losses) - Change in Fair value reserve - Change in Hedging reserve - Exchange differences - Intra-group transfers - Transfer - Other Balance at 31 December 2023 1,794 (99) (74) (3) (62) 22 272 - (7) 15,627 2,425 1,089 (5,540) (411) (25) (34) 26 (87) - - (3) 13,067 - - - - - - - - 2 7 - - - - - (8) - - - 44 - 43 - - - - - - - - - - - - - - - - - - - - - 1,794 (99) (74) (3) (62) 22 272 - (5) 15,634 2,425 1,089 (5,540) (411) (25) (42) 26 (87) - 44 (3) 13,110 The disposal of subsidiaries relates to the divestment of the DSM Engineering Materials business. The dividend received mainly relates to the proceeds of the disposal. A list of DSM participations can be downloaded from the company website. 4 Deferred tax assets and income tax The deferred tax asset of €53 million (2022: €52 million) relates to net operating losses and temporary differences in the Dutch fiscal unity. The effective tax rate in 2023 was 29% (2022: 21%). The variation in the effective tax rate arises due to changes in the result in combination with among others changes in tax exempt income, tax positions and non-deductible expenses. DSM Integrated Annual Report 2023 107 Parent company financial statements – Notes to the parent company financial statements 5 Receivables Receivables from subsidiaries Other receivables Total 2023 2022 75 6 81 13 38 51 The carrying values of the receivables are a reasonable approximation of their respective fair values, given the short maturities of the positions and the fact that allowances for doubtful debts have been recognized, if necessary. All receivables have an estimated maturity shorter than one year. The Receivables from subsidiaries of €75 million (2022: €13 million) mainly include receivables relating to the Dutch fiscal unity. Other receivables €6 million (2022: €38 million) mainly consist of VAT and other tax receivables and prepaid expenses. DSM Integrated Annual Report 2023 108 Parent company financial statements – Notes to the parent company financial statements 6 Shareholders’ equity Share capital Share prem. Treas. shares Trans- lation res. Capital dev. costs Part. inte- rest Reval. reserve Hedg. reserve Fair value res. Share- based comp. Undistri buted results Ret. Earn. Legal reserves Other reserves Total share- holder equity 328 471 (177) 177 239 121 (77) 17 39 6,644 1,536 9,318 x € million Balance at 31 December 2021 Added to other reserves Net profit Dividend Reissued shares Repurchase of shares Fair value changes of derivatives Release to income statement Fair value changes of other financial assets Exchange differences Options and performance shares granted Options and performance shares exercised/cancel ed Transfer to retained earnings Changes in joint ventures and associates Income tax Remeasurement s of defined benefit pension plans Balance at 31 December 2022 . Added to other reserves Net profit Dividend Reissued shares Repurchase of shares Cancellation of shares Fair value changes of derivatives Release to income statement Fair value changes of other financial assets Exchange differences Options and performance shares granted - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 191 (210) - - - - - - - - - - - - - - (16) - - - - - - - - - 267 - - - - (4) - - - - - 17 61 - - - - - - - - - - 328 471 (196) 424 256 182 - - - - - - - - - - - - - 63 (256) (67) (2) 345 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 - - (102) - - - - - - - - - - - - - - - DSM Integrated Annual Report 2023 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (29) 29 - (28) - (50) - - - - (11) (10) - - - 10 (33) (72) 44 7,802 1,537 10,743 - - - - - - - (61) - - - - - - - - (6) 53 - - - - - - (3) - - - - - - 27 - - - - - - - - - - - - (37) - - - - - - - - - - - 34 - - - - - - - - - - 1,536 - (296) (50) (1,536) 1,700 (163) - - 1,700 (459) 141 - (210) - - - - - - - - - - - - - - - (6) 37 (61) 267 34 - - (11) (17) 10 (256) - 27 6 (37) (103) 23 109 1,537 - (3,935) (39) (1,537) 2,318 - - - 2,318 (3,935) 24 - (276) - - - (1) - - - - - - 23 - - Parent company financial statements – Notes to the parent company financial statements Share capital Share prem. Treas. shares Trans- lation res. Capital dev. costs Part. inte- rest Reval. reserve Hedg. reserve Fair value res. Share- based comp. Undistri buted results Ret. Earn. Legal reserves Other reserves Total share- holder equity - - - - - - - - - (23) 23 - - - - - - - - - - - - - - 44 - - - - - (17) 37 - - - - - (1) - - - - - - - - - - - - - - - - - - - - - 44 - (5) - (15) - - - (1) - - - - - - - - - - (9) 9 (34) (4) - - - - (9) 7 (34) (4) 261 469 - 327 239 219 - (7) (114) 44 5,058 2,318 8,814 x € million Options and performance shares exercised/cancel ed Transfer to other participating interests Transfer to retained earnings Changes in joint ventures and associates Income tax Remeasurement s of defined benefit pension plans Other Balance at 31 December 2023 For details see the consolidated statement of changes in Note 16 Equity to the consolidated financial statements. Legal reserves In Shareholders’ equity, a total amount of €778 million (2022: €829 million) is included for legal reserves required by Dutch law. The translation reserve relates to exchange gains and losses arising from the translation of the functional currency of foreign operations to the reporting currency of DSM B.V. Further, a legal reserve is recorded for capitalized development costs. The legal reserve for participating interests is recorded to the extent that there are limitations for DSM B.V. to arrange profit distributions from its participating interests. The hedging reserve relates to cash flow hedge accounting. The negative hedge reserve of -€7 million (2022: -€33 million) as part of the legal reserve should be deducted from the freely distributable reserve. In addition, a revaluation reserve has been included for fair value changes of unquoted equity instruments of participating interests with no frequent notations owned by DSM; debit balances are recorded as part of Other reserves, which are considered freely distributable reserves. Other reserves The Other reserves comprise a Fair value reserve for fair value changes of unquoted equity instruments of participating interests with frequent notations, debit balances of the legal reserve for fair value changes of unquoted equity instruments of participating interests owned by DSM, and a Reserve for share-based compensation. In the ‘Consolidated financial statements’, the Other reserves consist of the Translation reserve, Fair value reserve, Hedging reserve and Reserve for share-based compensation. See Note 16 Equity to the consolidated financial statements. Profit appropriation According to article 23 of the Articles of Association of DSM B.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 2023, the net profit is €2,318million (2022: €1,700 million) and the amount to be appropriated to the reserves has been established at €1,645 million (2022: €1, 533 million). DSM Integrated Annual Report 2023 110 Parent company financial statements – Notes to the parent company financial statements The remaining undistributed profit of €673 million (2022: €161 million after distribution of dividends on the Cumulative Preference Shares A) will be put at the disposal of the Annual General Meeting of Shareholders in accordance with the provisions of Article 32, section 5 of the Articles of Association. The Managing Board proposes to add the remaining undistributed profit to the reserves (2022: dividend on ordinary shares of €0.93 per share). No interim dividend for the year 2023 was paid. If the Annual General Meeting of Shareholders decides in accordance with the proposal, the net profit will be appropriated as follows. in € million Net profit for the year Profit appropriation: - To be added to the reserves - Dividend on Cumulative Preference Shares A - Interim dividend on ordinary shares - Final dividend distributable on ordinary shares 7 Borrowings Bonds Total 2023 2,318 2,318 - - - 2022 1,700 1,533 6 161 - 2023 Total 2,743 2,743 Of which current 500 500 2022 Total 2,741 2,741 Of which current - - At 31 December 2023, there were five bonds (€2,743 million, maturing in 2024, 2025, 2026 and from 2026 through 2032). The repayment schedule for borrowings is as follows. Borrowings by maturity 2024 2025 and 2026 After 2026 Total 2023 500 1,249 994 2,743 2022 500 1,248 993 2,741 In agreements governing loans with a residual amount at year-end 2023 of €2,743 million (31 December 2022: €2,741 million), 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. 8 Other current liabilities Liabilities to subsidiaries Other liabilities Total 2023 2,109 41 2,150 2022 2,691 22 2,713 The Liabilities to subsidiaries concern mainly the current account toward the DSM internal financing company. These liabilities carry a short-term maturity and are interest-bearing. The decrease of this current account in 2023 is mainly caused by changing financing needs. DSM Integrated Annual Report 2023 111 Parent company financial statements – Notes to the parent company financial statements The carrying values of the recorded liabilities are a reasonable approximation of their respective fair values, given the short maturities of the positions. All liabilities have an estimated maturity shorter than one year. 9 Contingent liabilities Guarantee obligations on behalf of affiliated companies and third parties amounted to €569 million (31 December 2022: €591 million). DSM B.V. has declared in writing that it accepts several liabilities for debts arising from acts in law of a number of consolidated companies (including relating to the Dutch fiscal unity for income tax and VAT). These debts are included in the consolidated balance sheet. 10 Personnel During the 2023 financial year, the number of staff employed by DSM B.V. amounted to 2 employees from 1 January until 18 April and no employees from 18 April till the end of the year (full year 2022: 2 employees). Both were employed inside the Netherlands. 11 Financial income and expense Financial income of €83 million (2022: €7 million) consists of interest income on outstanding in-house cash balances; financial expense of €229 million (2022: €114 million) mainly consists of the interest expense on debit in-house cash balances (€176 million) and interest costs on bonds issued and the counterpart of the net investment hedge (€53 million). See also Note 19 Borrowings and Note 23 Financial instruments and risks to the consolidated financial statements. 12 Remuneration of key personnel Introduction The remuneration of key personnel concerns the Supervisory Board and the Executive Committee (which includes the Managing Board) of Koninklijke DSM N.V., renamed DSM B.V. On April 18, 2023, DSM-Firmenich AG, the parent company of the merger combination DSM and Firmenich, was listed on Euronext Amsterdam. As a result, the expenses reported herein concern two periods. The first period is about the remuneration awarded to the members of the Supervisory Board and the Executive Committee (including the Managing Board) of Royal DSM, insofar as their appointment in such capacity relates to the period from 1 January 2023 until 18 April 2023. The second period concerns the remuneration awarded to the members of the Supervisory Board and the Managing Board DSM B.V., insofar as their appointment in such capacity relates to the period from 18 April 2023 until 31 December 2023. Remuneration of members of the Supervisory Board, Managing Board and Executive Committee appointed in that capacity for the period 1 January 2023 until 18 April 2023 The remuneration policy for the Supervisory Board and the Managing Board as approved by the 2019 Annual General Meeting of DSM applied. The remuneration awarded to members of the Supervisory Board, the Executive Committee (that includes the Managing Board) of DSM, insofar as their appointment in such capacity relates to the period from 1 January 2023 until 18 April 2023 is laid out in the below table. It concerns: • The remuneration (for the period between 1 January until 18 April 2023) of the members of the Supervisory Board of DSM who transferred to the Board of Directors of DSM-Firmenich AG on 18 April 2023. The 2023 remuneration awarded by DSM-Firmenich AG for the period after 18 April 2023 is accounted for in the remuneration report included in the Integrated Annual Report of DSM-Firmenich AG DSM Integrated Annual Report 2023 112 Parent company financial statements – Notes to the parent company financial statements • • • The remuneration (for the period between 1 January and 18 April 2023) of the members of the Managing Board and Executive Committee of DSM who transferred to the Executive Committee of DSM-Firmenich AG on 18 April 2023. The 2023 remuneration awarded by DSM-Firmenich AG for the period after 18 April 2023 is accounted for in the remuneration report included in the Integrated Annual Report of DSM-Firmenich AG The remuneration (for the period between 1 January and 18 April 2023) for members of the Executive Committee of DSM who remained employed by DSM-Firmenich AG in another capacity and who no longer meet the criteria of key personnel as of 18 April 2023 Remuneration expenses incurred in financial year 2023 for members of the Supervisory Board or the Executive Committee of DSM who were not appointed as a member of the Board of Directors or Executive Committee DSM- Firmenich AG nor in another capacity and who left the organization after and due to the merger. The total remuneration expenses incurred, amount to €22.8 million (2022: €25.5 million). Comparing the remuneration expenses reported for 2023 with those of 2022 can only be done with extreme caution, because the expenses for 2023 are characterized by the special circumstance of the merger and contain several one-off items. Total remuneration expenses awarded to members of the Supervisory Board, Managing Board and Executive Committee of DSM appointed in that capacity for the period 1 January 2023 until 18 April 2023 2022 2023 Base salary/Supervisory Board fees Pension contributions Short-Term Incentive¹ Share-based compensation² Other³ 2,391 471 869 2,518 16,562 6,521 1,197 3,399 7,778 6,612 Total remuneration Of which Managing Board remuneration Of which Supervisory Board remuneration 1 Short-Term Incentive based on at-target level minus the weight of EBITDA target pro-rated for the period 1 January to 1 April 2023 or at target pay-out 22,811 3,613 243 25,507 6,717 844 over the period of employment in 2023 2 Represents the expenses of Performance Share Units (PSUs) awarded according to IFRS rules. These costs are considered over the vesting period and therefore cover several years 3 Includes: (i) Settlement of the STI Deferral and Matching scheme (€4.6m) and special bonus payments (€3.5m) as included in the Offering Circular (issued 22 November 2022) related to the merger (ii) Severance payments for ExCo members that left the Company because of the merger (€1.8m); payments in lieu of notice (€1.3m) a nd obligations following Article 32bb of the Dutch Wage Tax Act (1964) (€2.2m) (iii) Social security contributions (€0.6m) and contractual items related to International Assignment arrangements (€1.6m) (iv) Other (€1.0m) Remuneration members Supervisory Board and Managing Board appointed in that capacity for the period 18 April 2023 until 31 December 2023 No remuneration was awarded to members of the Supervisory Board and the Managing Board of DSM B.V. appointed in that capacity for the period from 18 April 2023 to 31 December 2023. DSM Integrated Annual Report 2023 113 Parent company financial statements – Notes to the parent company financial statements Maastricht, 14 May 2024 Maastricht, 14 May 2024 Managing Board, Supervisory Board, Dimitri de Vreeze, CEO Thomas Leysen, Chair Ralf Schmeitz, CFO John Ramsay, Deputy Chair Corien Wortmann DSM Integrated Annual Report 2023 114 OTHER INFORMATION Independent auditor’s report To: the General Meeting of Shareholders and the Supervisory Board of DSM B.V. Report on the audit of the financial statements 2023 included in the annual report Our opinion In our opinion: • • the accompanying consolidated financial statements give a true and fair view of the financial position of DSM B.V. as at 31 December 2023 and of its result and its cash flows for the year then ended, in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code. the accompanying parent company financial statements give a true and fair view of the financial position of DSM B.V. as at 31 December 2023 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code. What we have audited We have audited the financial statements 2023 of DSM B.V. (the ‘Company’ or ‘DSM’) based in Heerlen. The financial statements include the consolidated financial statements and the parent company financial statements. The consolidated financial statements comprise: 1. 2. 3. the consolidated balance sheet as at 31 December 2023; the following consolidated statements for 2023: the income statement, the statements of comprehensive income and changes in equity, and the cash flow statement; and the notes comprising group material accounting policies and other explanatory information. The company financial statements comprise: 1. 2. 3. the parent company balance sheet as 31 December 2023; the parent company income statement for 2023; and the notes comprising a summary of the accounting policies and other explanatory information. DSM Integrated Annual Report 2023 115 Independent auditor’s report Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of our report. We are independent of DSM in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics). We designed our audit procedures in the context of our audit of the financial statements as a whole and in forming our opinion thereon. The information in respect of going concern, fraud and non-compliance with laws and regulations, climate and the key audit matters was addressed in this context, and we do not provide a separate opinion or conclusion on these matters. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information in support of our opinion Summary Materiality Materiality of EUR 30 million 3.1% of the 5-years’ averaged earnings before interest, taxes, depreciation and amortization Group audit Audit coverage of 77% of total assets Audit coverage of 75% of revenue Risk of material misstatements related to Fraud, NOCLAR, Going concern and Climate risks Fraud risks: presumed risk of management override of controls, presumed risk of revenue recognition and goodwill impairment testing Animal Nutrition & Health identified and further described in the section ‘Audit response to the risk of fraud and non-compliance with laws and regulations’. Non-compliance with laws and regulations (NOCLAR) risks: no reportable risk of material misstatements related to NOCLAR risks identified. Going concern risks: no going concern risks identified. Climate-related risks: We have considered the impact of climate-related risks on the financial statements and described our approach and observations in the section ‘Audit response to climate-related risks’. Key audit matters Goodwill impairment testing Animal Nutrition & Health Vitamin transformation program Materiality Based on our professional judgement we determined the materiality for the financial statements as a whole at EUR 30 million (2022: EUR 32.5 million). The materiality is determined with reference to the 5-years’ averaged earnings before interest, taxes, depreciation and amortization (‘EBITDA’) to reflect the volatility in the vitamins market and the significant impairments and merger-related costs in 2023. Materiality as a percentage of the 5-years’ averaged EBITDA is 3.1%. Compared to the previous year, we have changed the benchmark for determining materiality from profit before income tax to EBITDA. We consider EBITDA a more representative metric to assess the Company’s performance than profit DSM Integrated Annual Report 2023 116 Independent auditor’s report before income tax expense. We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons. We agreed with the Supervisory Board that misstatements identified during our audit in excess of EUR 1.5 million would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds. Scope of the group audit DSM is at the head of a group of components. The financial information of this group is included in the financial statements of DSM. In our group audit we identified significant components. These are components that are (i) of individual financial significance to the group, or (ii) that, due to their specific nature or circumstances, are likely to include significant risks of material misstatement to the group financial statements. We identified five significant components in Switzerland, the Netherlands, the United States and Brazil. We have: • • • performed audit procedures at group level in respect of the parent entity, the group consolidation, the financial statement disclosures, treasury, shared service center activities and a number of more complex accounting and valuation items. This included procedures performed regarding the annual goodwill impairment tests, other asset impairment (trigger) assessments, income tax for the Dutch fiscal unities, acquisitions of subsidiaries and accounting for divestments. used the work of local KPMG auditors (‘component auditors’) when auditing reporting packages or performing specified audit procedures at component level. for the residual population we performed analytical procedures in order to corroborate that our scoping remained appropriate throughout the audit. By performing the procedures mentioned above at components, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the financial statements. Our procedures as described above can be summarized as follows: 66% Audit of the complete reporting package 56% Audit of the complete reporting package Total assets 11% Specified audit procedures Revenue 19% Specified audit procedures 23% Covered by additional procedures performed at group level 25% Covered by additional procedures performed at group level DSM Integrated Annual Report 2023 117 Independent auditor’s report Audit response to the risk of fraud and non-compliance with laws and regulations As part of our audit, we have gained insights into DSM and its business environment and the DSM’s risk management in relation to fraud and non-compliance. Our procedures included, among other things, assessing the code of business ethics, alert cases (whistleblowing procedures), compliance policies and its procedures to investigate indications of possible fraud and non-compliance. Furthermore, we performed relevant inquiries with the Managing Board, Supervisory Board and other relevant functions, such as Corporate Operational Audit department, Legal Counsel and Fraud Committee and evaluated correspondence with relevant supervisory authorities and regulators. We have also incorporated elements of unpredictability in our audit, such as: changes in the scope of the group audit and specific risk assessment procedures on possible non-compliance with local laws and regulations within the group, and involved forensic specialists in our audit procedures. As a result from our risk assessment, we identified the following laws and regulations as those most likely to have a material effect on the financial statements in case of non-compliance: • Health and safety regulation (reflecting the nature of DSM’s production and distribution processes); • Environmental regulation (reflecting the environmental clean-up responsibilities related to mainly DSM’s former production and distribution processes); • Competition legislation (reflecting DSM’s operations across the world and potential investigations by national competition authorities); • Consumer product law relating to product safety (reflecting the nature of DSM’s diverse product base). • Anti-bribery and corruption (reflecting DSM’s significant operations in jurisdictions with high perceived levels of public sector corruption) Based on the above and on the auditing standards, we identified the following fraud risks that are relevant to our audit, including the relevant presumed risks laid down in the auditing standards, and responded as follows: Management override of controls (a presumed risk) Risk: - Management is in a unique position to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Responses: - We evaluated the design and the implementation of internal controls that mitigate fraud risks, such as controls related to journal entries. - We performed a data analysis of high-risk journal entries and evaluated key estimates and judgments for bias by management, including retrospective reviews of prior years’ estimates such as with respect to impairment testing of goodwill, acquisition-related and internally generated intangibles and employee benefit liabilities. Where we identified instances of unexpected journal entries or other risks through our data analytics, we performed additional audit procedures to address each identified risk, including testing of transactions back to source information. Revenue recognition (a presumed risk) Risk: - We identified a fraud risk in relation to the recognition of revenue of goods sold. This risk inherently includes the fraud risk that management deliberately overstates revenue in the cut-off period, as management may feel pressure to achieve planned results for the current year. Responses: - We evaluated the design and the implementation of internal controls that mitigate fraud risks with respect to revenue recognition. DSM Integrated Annual Report 2023 118 Independent auditor’s report - - - In June 2023, dsm-firmenich AG issued a trading update in which it lowered the full year 2023 outlook. As DSM forms a significant part of the dsm-firmenich group, we assessed the effect thereof on our fraud risk assessment, and concluded to focus the fraud risk with respect to revenue recognition specifically to sales cut- off before year-end. This was also confirmed by the risk assessment of our component auditors based on an assessment of local facts and circumstances. To assess whether revenue was recognized in the appropriate period, for selected sales transactions recognized before year-end we inspected agreements with the customers and shipping documents. Further, we inspected selected credit notes issued before year-end to assess whether revenue was recognized appropriately. - We performed journal entry testing, specifically taking into account high risk criteria in relation to revenues. Our audit procedures did not reveal indications and/or reasonable suspicion of fraud and non-compliance that are considered material for our audit. Our evaluation of procedures performed related to fraud did not result in a key audit matter. We communicated our risk assessment, audit responses and results to the Managing Board and the Supervisory Board. Our audit procedures did not reveal indications and/or reasonable suspicion of fraud and non-compliance that are considered material for our audit. Audit response to going concern The managing board has performed its going concern assessment and has not identified any going concern risks. To assess the management board’s assessment, we have performed, among other things, the following procedures: • we considered whether the Managing Board’s assessment of the going concern risks includes all relevant information of which we are aware as a result of our audit; • we inspected the financing agreements for terms or conditions that could lead to significant going concern risks; • we analyzed the operating results forecast and the related cash flows compared to the actual results of 2023, developments in the business sector, macro-economic developments impacting amongst others vitamins prices and any information of which we are aware as a result of our audit; • we analyzed the company’s financial position as at year-end and compared it to the previous financial year in terms of indicators that could identify significant going concern risks. The outcome of our risk assessment procedures did not give reason to perform additional audit procedures on management’s going concern assessment. Audit response to climate-related risks Management prepared the financial statements, including considering whether the implications from climate-related risks and commitments have been appropriately accounted for and disclosed, in accordance with the applicable financial reporting framework. The climate-related risks are managed by DSM as part of its regular risk management process and as such are taken into account in the preparation of the financial statements. As part of our audit we performed a risk assessment of the impact of climate-related risk and the commitments and ambitions made by DSM in respect of climate change on the 2023 financial statements and our audit approach. Based on the procedures performed we considered whether there is a risk of material misstatement specific to climate relative to the going concern assumption and valuation of long-lived assets. Considering the risk assessment work performed, we did not identify a risk of material misstatement specific to climate and thus no further audit response was considered necessary. DSM Integrated Annual Report 2023 119 Independent auditor’s report Our key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed. Compared to last year the key audit matter with respect to the transformation of the DSM businesses and divestment of Protective Materials business are not included, as these specifically relate to the financial year 2022 and previous years. The announced divestment of Engineering Materials business is also not included as a key audit matter considering the measurement and presentation was already assessed in previous year and the level of subjectivity is considered relatively limited. Furthermore, compared to last year the key audit matter with respect to the goodwill impairment testing Animal Nutrition & Health and the vitamins transformation have been added as both were related to 2023 events which were most significant to our audit. DSM Integrated Annual Report 2023 120 Independent auditor’s report Goodwill impairment testing Animal Nutrition & Health Description As of 31 December 2023, the consolidated financial statements included goodwill amounting to EUR 3,040 million of which EUR 983 million is allocated to the Animal Nutrition and Health (‘ANH’) cash generating unit. Goodwill is assessed for impairment by management at least annually by determining the recoverable amount (the higher of its value in use and fair value less costs of disposal), which is then compared to the carrying amount. Management applies judgment in assessing the cash flow projections of the (groups of) cash generating units at which level goodwill is allocated and determining the relevant valuation assumptions. Valuation of goodwill is a key audit matter because the impairment test process is complex. It involves a high degree of management judgment and assumptions, such as cash flow forecasts, growth rates and discount rates of the CGU, being used in the Group’s impairment tests. As disclosed in note 30 to the financial statements on 15 February 2024, dsm-firmenich AG announced to separate business unit Animal Nutrition & Health (ANH) from the Group. Management considered the effects of the decision in the preparation of the consolidated financial statements. Our response We obtained and documented our understanding of the impairment testing process, the sensitivity analysis and tested the design and implementation of the relevant controls therein. We assessed the determination of the CGUs taking into account the IFRS accounting standards and our knowledge of the organisation, structure and governance of the DSM Group. We assessed the Group’s ability to accurately prepare cash flow projections for their CGUs by comparing the actual financial performance to the projections made earlier. We evaluated the accuracy of impairment test, the reasonableness of the key assumptions used to determine the recoverable amounts – including long term growth rates and discount rates based on our understanding of the related CGUs’ cash flow projections – and the methodology used by management to prepare its cash flow forecasts. We involved our in-house valuation specialists with specialized skills and knowledge who assisted in assessing the reasonableness of the discount rates and long term growth rates through testing the source information underlying their determination, and in developing a range of independent estimates and comparing those to the discount and long term growth rates applied by management. We inquired and challenged BU management on their initiatives to realize sales and margin growth and we have spoken with the Vitamins Transformation program director. We also considered the adequacy of the disclosures on impairment testing and sensitivity tests in the consolidated financial statements. We have also considered the accuracy of the disclosure regarding the ANH separation. Our observation We consider that the outcome of management’s impairment testing of the ANH cash generating unit is appropriate and adequately disclosed in Note 8 to the financial statements. DSM Integrated Annual Report 2023 121 Independent auditor’s report Vitamins transformation program Description During 2023 the Group decided to implement a vitamins transformation program to enable acceleration of strategic actions. This company-wide program is designed to improve the profitability of its vitamin activities and structurally reduce exposure to volatility from price fluctuations. The plan included a restructuring of the vitamin asset footprint resulting in the closure of the vitamin B6 plant in Xinghuo (China) and the termination of vitamin C production in the plant in Jiangshan (China). As the company has ceased to use these plants. management prepared an impairment assessment for the plants and related assets on a stand-alone basis. Based on the impairment assessment, losses for the affected property, plant and equipment were recognized in the amount of EUR 106 million for the vitamin B6 Xinghuo plant respectively EUR 125 million for the vitamin C Jiangshan plant. Furthermore, a liability was recognized for remaining contractual obligations. As per 31 December 2023 the assets and liabilities related to the vitamin C business in Jiangshan are classified as held for sale. Given the financial impact and the non-recurring nature of these events, the accounting for these impairments is significant to our audit of the financial statements. Our response We inquired management and inspected relevant documentation to gain an understanding of the vitamins transformation program. Further, we evaluated management’s assessment of impairment indicators as a result of the restructuring of the vitamins assets footprint for the Xinghuo and Jiangshan plants in China and tested the design and implementation of the relevant controls therein. As a result of the identified impairment indicators, the management has prepared impairment tests. We assessed the results of management’s impairment tests and evaluated the appropriateness of the recoverable amount determined for both plants. For both plants we inspected underlying documentation, amongst others related to internal and external communication of the closure and applicable contractual obligations. In addition for the closure of the Xinghuo vitamin B6 plant, we performed a site visit and observed that the plant is no longer in use. We enquired local employees and management about future plans and relevant government regulations. We also considered the adequacy of the disclosures on the impairments in the consolidated financial statements. Our observation We consider that the impairments are appropriately reflected in the financial statements and adequately disclosed in Note 9 to the financial statements DSM Integrated Annual Report 2023 122 Independent auditor’s report Report on the other information included in the annual report In addition to the financial statements and our auditor’s report thereon, the annual report contains other information. Based on the following procedures performed, we conclude that the other information: • • is consistent with the financial statements and does not contain material misstatements; and contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the management report and other information. We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements. The Managing Board is responsible for the preparation of the other information, including the information as required by Part 9 of Book 2 of the Dutch Civil Code. Report on other legal and regulatory requirements Engagement We were initially appointed by the Annual General Meeting of Shareholders as auditor of DSM on 7 May 2014 (at that time Royal DSM N.V.), as of the audit for the year 2015 and have operated as statutory auditor ever since that financial year. No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audits of public-interest entities. Description of responsibilities regarding the financial statements Responsibilities of the Managing Board and the Supervisory Board for the financial statements The Managing Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Managing Board is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In that respect the Managing Board, under supervision of the Supervisory Board, is responsible for the prevention and detection of fraud and non-compliance with laws and regulations, including determining measures to resolve the consequences of it and to prevent recurrence. As part of the preparation of the financial statements, the Managing Board is responsible for assessing DSM’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Managing Board should prepare the financial statements using the going concern basis of accounting unless the Managing Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Managing Board should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements. The Supervisory Board is responsible for overseeing the DSM’s financial reporting process. DSM Integrated Annual Report 2023 123 Independent auditor’s report Our responsibilities for the audit of the financial statements Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion. A further description of our responsibilities for the audit of the financial statements is included in appendix of this auditor's report. This description forms part of our auditor’s report. Amstelveen, 14 May 2024 KPMG Accountants N.V. P. J. Groenland – van der Linden RA Appendix: Description of our responsibilities for the audit of the financial statements DSM Integrated Annual Report 2023 124 Independent auditor’s report Appendix Description of our responsibilities for the audit of the financial statements We have exercised professional judgement and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included among others: • • • • • • identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than the risk resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; obtaining an understanding of internal control relevant to the audit 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 DSM’s internal control; evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Managing Board; concluding on the appropriateness of the Managing Board’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on DSM’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern; evaluating the overall presentation, structure and content of the financial statements, including the disclosures; and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We are solely responsible for the opinion and therefore responsible to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the financial statements. In this respect we are also responsible for directing, supervising and performing the group audit. We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit. In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audits of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report. We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest. DSM Integrated Annual Report 2023 125 Other information – Special statutory rights Special statutory rights DSM does not hold any special statutory rights. Together with DSM B.V.’s conversion into a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid), the Articles of Association of the Company were amended. By virtue of the amended Articles of Association, Cumulative Preference Shares B can no longer be issued. The DSM Preference Shares Foundation that had the right to acquire such Preference Shares (call option), ceased to exist on July 17, 2023. 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