Royal DSM Integrated Annual Report 2017 DSM at a glance Nutrition DSM Nutritional Products and DSM Food Specialties form our Nutrition business. DSM Nutritional Products provides solutions for animal feed, food and beverages, pharmaceuticals, infant nutrition, dietary supplements and personal care. DSM Food Specialties is a leading global supplier of specialty food enzymes, cultures, bio-preservation, hydrocolloids, savory, and sugar reduction solutions. Materials DSM’s Materials business includes DSM Engineering Plastics, DSM Dyneema, and DSM Resins & Functional Materials. DSM is a global player in specialty plastics for the electrical components and electronics, automotive, fl exible food packaging and consumer goods industries. The materials portfolio also includes Dyneema®, the world’s strongest fi ber™, as well as resins for paints, industrial applications and optical fi ber coatings. Innovation Center DSM Innovation Center accelerates the innovation power and speed of our core businesses. It also has a business development role, focusing on areas outside the current scope of the business groups. The company has three Emerging Business Areas: DSM Biomedical, DSM Bio-based Products & Services and DSM Advanced Solar. Partnerships As part of DSM’s strategic transformation and move away from more commoditized and cyclical areas, we established joint ventures: DSM Sinochem Pharmaceuticals, Patheon and ChemicaInvest. In 2017, DSM divested Patheon for proceeds of about € 1.5 billion. People Planet 21,054 75% 26% 21% Workforce Employee engagement Greenhouse-gas effi ciency Purchased electricity (at year-end 2017, index, up 4% from improvement, cumulative from renewable sources, excluding affi liates) 2016 versus 2008 (on track) up from 8% in 2016 27/73 17% 21% 3% Female/male ratio Female executives, Innovation sales as % Energy effi ciency stable versus 20161 up 2% from 2016 of total sales. Target of improvement, cumulative ~20% achieved. verus 2015. Ambition of more than 10% in 2025. 0.36 Frequency Index of 23 Recordable Injuries up Water consumption, up from from 0.33 in 20162 22 in 2016 (in million m3) 1 The companies that are not integrated into the HR systems (approx. 10% of the total workforce) are not taken into account. Brighter Living Solutions 2 Per 100 DSM employees and contractor employees. 62% Sales of Brighter Living Solutions (ECO+ / People+), aiming for 65% by 2020 Climate and energy More than 200 million solar panels contain our solutions. 90% of cars sold today contain our materials. Profi t € 8,632 € 1,445 15% Net sales (in millions) Adjusted EBITDA1 Adjusted EBITDA growth up 9% from € 7,920 (in millions) versus versus 2016 € 1,262 in 2016 +190 12.3% € 996 € 546 ROCE growth (in bps) ROCE versus 10.4% Cash provided by operating Capital expenditure versus 2016 in 2016 activities (in millions) versus (cash-based), up from € 1,018 in 2016 € 475 in 2016 (in millions) € 1,781 € 10.07 € 1.85 Net profi t (in millions), Net earnings per ordinary Proposed dividend per up from € 629 in 2016 share, versus € 3.52 ordinary share2 for 2017, in 2016 up from € 1.75 in 2016 1 See page 167 for reconciliation. 2 Subject to approval by the Annual General Meeting of Shareholders. Circular and bio-based economy From bio-based resins to fully recyclable carpets, DSM is fi nding solutions. Our materials are in virtually every mobile device on the market. Nutrition As the #1 supplier of vitamins, and with a broad portfolio of food ingredients, we support good health at every age. DSM – Bright Science. Brighter Living.™ Our purpose is to create brighter lives for people today and generations to come. We use our unique competences in health, nutrition and materials to create solutions that nourish, protect and improve performance. DSM uses Bright Science to create Brighter Living for people today and generations to come. Based on a deep understanding of key global trends that are driving societies, markets and customers, we create solutions to some of the world's biggest challenges, thus adding to both our own and our customers' success. We believe that DSM's continued success will be driven by our ability to create shared value for all stakeholders, now and in the future. Our customers derive value from being able to offer end-users improved products and services; society and the planet derive value from the impact of more sustainable, longer-lasting, safer, healthier and more nutritious alternatives; and, as a result, DSM and its shareholders derive value from stronger growth and profitability. Finally, our employees feel engaged and motivated both through the contribution they make to a better world and the success this creates for the company in which they work. More information on 'How DSM creates value for its stakeholders' can be found on page 24. DSM – Bright Science. Brighter Living.™ Royal DSM is a global science-based company active in health, nutrition and materials. By connecting its unique competences in life sciences and materials sciences, DSM is driving economic prosperity, environmental progress and social advances to create sustainable value for all stakeholders simultaneously. DSM delivers innovative solutions that nourish, protect and improve performance in global markets such as food and dietary supplements, personal care, feed, medical devices, automotive, paints, electrical and electronics, life protection, alternative energy and bio-based materials. DSM and its associated companies deliver annual net sales of about € 10 billion with approximately 25,000 employees. The company is listed on Euronext Amsterdam. More information can be found at www.dsm.com. © 2018 Royal DSM. All rights reserved. Bright Science. Brighter Living. 2017 www.dsm.com Table of contents 6 Key data 118 Report by the Supervisory Board 125 Remuneration policy for the Managing Board 7 Letter from the CEO 10 DSM and the Sustainable Development Goals 130 Supervisory Board and Managing Board Royal DSM 18 Report by the Managing Board 132 What still went wrong in 2017 18 Strategy 2018 24 How DSM creates value for its stakeholders 134 Information about the DSM share 26 Stakeholders 34 People 137 Sustainability statements 46 Planet 52 Profit 151 Consolidated financial statements 151 Summary of significant accounting policies 68 Review of business 158 Consolidated financial statements 68 Nutrition 164 Notes to the consolidated financial statements 82 Materials of Royal DSM 90 Innovation Center 96 Corporate Activities 215 Parent company financial statements 97 Partnerships 217 Notes to the parent company financial statements 98 Financial and reporting policies 229 Other information 98 Financial policy 229 Independent auditor's report 99 Reporting policy 234 Assurance report of the independent auditor 236 Special statutory rights 101 Corporate governance and risk management 236 Important dates 101 Introduction 104 Dutch Corporate Governance Code 237 DSM figures: five-year summary 104 Governance framework 108 DSM Code of Business Conduct 240 Explanation of some concepts and ratios 112 Risk management 117 Statements of the Managing Board 243 List of abbreviations Forward-looking statements This document may contain forward-looking statements with respect to DSM's future (financial) performance and position. Such statements are based on current expectations, estimates and projections of DSM and information currently available to the company. Examples of forward-looking statements include statements made or implied about the company's strategy, estimates of sales growth, financial results, cost savings and future developments in its existing businesses as well as the impact of future acquisitions, and the company's financial position. These statements can be management estimates based on information provided by specialized agencies or advisors. DSM cautions readers that such statements involve certain risks and uncertainties that are difficult to predict and therefore it should be understood that many factors can cause the company's actual performance and position to differ materially from these statements. These factors include, but are not limited to, macro-economic, market and business trends and conditions, (low-cost) competition, legal claims, the company's ability to protect intellectual property, changes in legislation, changes in exchange and interest rates, changes in tax rates, pension costs, raw material and energy prices, employee costs, the implementation of the company's strategy, the company's ability to identify and complete acquisitions and to successfully integrate acquired companies, the company's ability to realize planned divestments, savings, restructuring or benefits, the company's ability to identify, develop and successfully commercialize new products, markets or technologies, economic and/or political changes and other developments in countries and markets in which DSM operates. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the 'Risk Management' chapter. As a result, DSM's actual future performance, position and/or financial results may differ materially from the plans, goals and expectations set forth in such forward- looking statements. DSM has no obligation to update the statements contained in this document, unless required by law. The English language version of this document is leading. Bright Science. Brighter Living. 2017 5 www.dsm.com Key data Key data1 20172 20162 People Workforce at 31 December (headcount) 21,054 20,786 Female/male ratio3