DSM N.V.

Het Overloon 1
6411 TE Heerlen
The Netherlands
Telephone: (45) 578-8111
Fax: (45) 571-3741
Web site: http://www.dsm.nl

Public Company
Incorporated: 1902
Employees: 21,504
Sales: EUR 6.6 billion (2002)
Stock Exchanges: Euronext Amsterdam Swiss SEAQ International
Ticker Symbol: DSM
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325320 Pesticide and Other Agricultural Chemical Manufacturing; 325211 Plastics Material and Resin Manufacturing; 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

DSM N.V. operates as an integrated specialty chemicals group with operations in more than 40 countries. Originally established as a state-owned coal company, DSM has evolved into a manufacturer of life science products, performance materials, and industrial chemicals that are used in the pharmaceutical, food and feed, automotive, and electronics industries. The company sold off its petrochemicals business in 2002 as part of its strategy to become a leading force in the specialty chemicals industry.

Operating as a State-Owned Coal Company: Early 1900s

Near the turn of the century many Dutch companies had tried and failed to establish operations, or even purchase an interest in Holland’s energy supply. All coal production, including that within the country and that imported, was held entirely by foreigners. Not only did this leave Holland vulnerable to political and economic changes in other countries, but there was the fear in Holland itself that the continuing exploitation of the coal mining concessions by foreigners would lead to destruction of the local agrarian communities. More experienced in trade than in production and mining, Dutch businesses repeatedly failed to form their own energy companies. For this reason, the government decided to take measures to rectify the situation.

In 1902 the government established Dutch State Mines, a government owned but competitively operated company. The company was run by a politically independent managing board of directors and given full authority to create company objectives based on economic and competitive principles rather than on any state ideology. The company staff was not comprised of civil servants, but was given separate status and pay competitive with that in private industry, enabling the company to attract talented businessmen. The Ministry of Finance was responsible for the overall expenditures of the company, but profits could be retained by the company to finance its own operations. Since 1939 the company has paid taxes on those profits, as well as dividends to the state, the sole shareholder. DSM increased its holdings to include four large mines and two coking plants operated in Dutch Limburg. Soon afterward, the company’s production of anthracite and bituminous coal grew to 12 million tons per year, about two-thirds of all Dutch output.

The company later formed its own coke and gas production business. When coke oven gas was no longer used exclusively for the public gas supply, however, DSM moved into other areas. In 1929 the company’s nitrogen works, utilizing the coke oven gas, were established to produce fertilizers. Gradually, DSM began to produce other chemicals. Yet it was the postwar energy shortage that stimulated significant growth for the company through the coal and coke production facilities. After 1945 a large corporate research laboratory was established and the chemical works expanded to include the production of plastics. Up to 1960 DSM remained small internationally, occasionally adding to its production line items such as yarn and fiber feedstocks.

Opportunity Outside the Coal Industry: 1960s–80s

In the 1960s Holland’s national government, like many other European governments, was forced to accept the fact that coal was an outmoded energy source, and that it was time to close the country’s collieries and coking plants. The coal and coke operations had given DSM nearly two-thirds of its total sales and profits. With this source of its profits gone, however, the company had to expand its chemical works simply to survive. Therefore, from 1965 to 1979 a major investment program was carried out with two objectives—continuity of the company and profitability. In 1967 DSM became a Naamloze Vennootschap (an unquoted public limited company). The company was no longer dependent upon the Ministry of Finance, but would have to continue operations on investments from the capital markets. DSM also hoped to enter into joint ventures with other companies, which would not have been easily done if it remained under the Ministry of Finance. The state’s control was reduced to the appointments of the Board of Supervisory Directors, and to the final approval of company policy.

By 1970 all coal mining operations in The Netherlands had been phased out. During this time, the gas distribution operations were transferred from DSM to N.V. Nederlandse Gasunie. The company’s use of coke oven gas was replaced by natural gas and petroleum products for chemical production. In the northern part of Holland there was a supply of naphta gas, and pipelines were constructed to transport this gas inland from Antwerp and Rotterdam on the coast. More pipelines were built to exchange ethylene, an important chemical intermediate, with other companies. In cooperation with a number of Dutch companies, DSM moved into the production of industrial chemicals, plastics, and resins, while spinning off its European fertilizer businesses into a wholly owned subsidiary called Unie van Kunstmestfabrieken (UKF).

With European chemical production becoming extremely competitive during the 1960s and 1970s, particularly in West Germany, DSM concentrated not only on expanding its market share, but on what it could produce from the basic materials obtained from its own cracking installations. DSM also improved its marketing organization by acquiring controlling interests in companies that already had captive markets and by creating a worldwide sales organization. To market its own discoveries from company research laboratories, DSM established another subsidiary called Stamicarbon. Much of DSM’s early expansion occurred in the United Kingdom, the United States, Mexico, Brazil, Belgium, and West Germany. By 1976 DSM ranked 61st in the Fortune 500 list of non-U.S. firms, employed 32,000 people, and had achieved sales of nearly 10 billion guilders.

In the 1980s DSM handled the state’s 40 percent interest in the distribution operations of the Dutch natural gas reserves through its subsidiary DSM-Aardgas B.V. Nevertheless, the national government still had direct control over the sale and pricing policy of the gas and retained final power of approval on all export contracts.

During this time period, management at DSM considered that its major investment and expansion programs were completed and felt that work must begin on streamlining company operations. While continuing to emphasize the production of bulk chemicals, DSM recognized that sales for these products would grow more slowly in the future and that the company must increase the number of special and fine chemicals in its product line. With the fall in oil prices and the low dollar, profits in the mid-1980s were unimpressive but steady. In 1986 sales dropped by 34 percent in fertilizers, by 25 percent in chemical products, and by 32 percent in plastics. Resins sales did rise by 8 percent, however. DSM’s operating profits for the year were Dfl 727 million. With this decline in sales, DSM increased funds for its research and development division. Quite a number of new polymer blends were developed, as well as new production techniques. In 1989 DSM began its privatization in one of the largest listings of state-owned shares. The offering was extremely successful, with shares selling at Dfl 116.

Focusing on Specialty Chemicals: 1990s and Beyond

As a publicly listed company, DSM spent the majority of the 1990s focused on growth and developing products for the pharmaceutical, food, and automotive industries. The company’s strategy continued to bend toward the specialty and fine chemicals sector—these chemicals generally had profit margins higher than those for petrochemicals. As such, the firm made several key acquisitions. During 1996 DSM purchased chemical manufacturers Chemie Linz of Austria and Deretil of Spain. Two years later the firm made a $1.3 billion play for Royal Gist-brocades NV, a chemicals manufacturer catering to the pharmaceutical and food sectors. As a result of the deal, DSM gained a leading position in the global antibiotics market and also strengthened its position as a supplier of ingredients for flavors, beverages, and dairy products. DSM chairman Simon de Bree commented on the lucrative nature of the union in a 1998 Chemical Market Reporter article: “There are no other companies which are spread across such a range of clearly-defined technologies, pooled into a single source. We have the most complete tool box of any company in our target markets of pharma and food industry.”

Company Perspectives:

“Vision 2005: Focus and Value” is the company strategy that will carry DSM to a turnover level of EUR 10 billion by 2005. About 80 percent of this will come from specialties such as high-quality biotech and chemical products and materials. These, in turn, make their way to the pharmaceutical industry, food sectors, the automotive market, and to manufacturers of electrical equipment and electronics. With “Vision 2005,” DSM is continuing its focus to take a leading worldwide position in activities with greater added value, strong growth, and stable results.

A third major acquisition took place in 2000 when DSM purchased California-based Catalytica Pharmaceuticals Inc. for approximately $800 million. The deal gave DSM a foothold in the U.S. fine chemicals manufacturing market and bolstered its specialty chemicals sales by 31 percent. DSM also gained access to Catalytica’s pipeline of 35 new drugs that were in developmental stages. During this time period, DSM launched its “Vision 2005: Focus and Value” strategy, which was centered on transforming the company into a leading specialty chemicals firm focused on life science products and performance materials. The company appeared to be moving in a positive direction. In 2000 DSM reported record financial results—sales of EUR 8 billion and net profit of EUR 580 million.

DSM’s 100th anniversary celebration in 2002 was marked by the sale of its petrochemicals business. The move—part of the company’s Vision 2005 strategy—proved to be a significant milestone in the company’s quest to become a major specialty chemicals concern. The company sold the business to Saudi Basic Industries Corporation, the largest petrochemical producer in the Middle East, for nearly $2 billion and planned to use the proceeds to make further investments in its Vision 2005 strategy. In fact, the firm’s next move came in late 2002 when it announced that it planned to purchase Roche Holdings Ltd.’s vitamin and fine chemicals division for EUR 1.95 billion in order to bolster its life science unit. When complete, the deal would secure DSM as the leader in the global vitamin market.

Principal Operating Units

Life Science Products; Performance Materials; Industrial Chemicals.

Principal Competitors

BASF AF; Bayer AG; E.I. du Pont de Nemours and Company.

Key Dates:

1902:

The Dutch government forms the Dutch States Mines.

1929:

The firm’s nitrogen works, utilizing coke gas ovens, are established to produce fertilizers.

1967:

DSM becomes an unquoted public limited company.

1970:

By now, all coal mining operations in The Netherlands have been phased out.

1989:

The company is privatized through a public listing.

1998:

Royal Gist-brocades NV is acquired.

2000:

The firm purchases Catalytica Pharmaceuticals Inc.

2002:

DSM sells its petrochemicals business to SABIC.

Further Reading

“DSM Has Formally Signed the Contract to Buy Roche’s Vitamins, Carotenoids and Fine Chemicals Business,” European Cosmetic Markets, March 2003, p. 78.

“DSM Sees Fine Chemical Sales Over 1 Bin Nfl in 1996,” AFX News, January 18, 1996.

Firn, David, “DSM Bucks Sector Trend,” Financial Times London, April 29, 2003, p. 29.

Milmo, Sean, “DSM to Acquire Gist-brocades in Pharma Move,” Chemical Market Reporter, March 2, 1998, p. 1.

“Overselling, Oversold—The Privatisation of Chemicals Conglomerate DSM Required Plenty of Hype to Interest Punters,” Banker, April 1, 1989.

Sinclair, Neil, “DSM in Record ‘00 Pfts But Warns of Economic Slowdown,” Chemical News & Intelligence, February 7, 2001.

Walsh, Kerri, “DSM Swallows Catalytica’s Pharmaceuticals Business,” Chemical Week, August 9, 2000, p. 8.

—update: Christina M. Stansell