Dave Huizing - VP IR Geraldine Matchett - CFO Jos Op Heij - SVP Group Controller

Neil Tyler - Redburn Partners James Knight - Exane BNP Paribas Andrew Benson - Citigroup Mutlu Gundogan - ABN AMRO Bank Paul Walsh - Morgan Stanley Patrick Rafaisz - UBS Nicola Tang - Bank of America/Merrill Lynch Martin Roediger - Kepler Cheuvreux John Klein - Berenberg

Thank you, operator. Ladies and gentlemen, good morning and welcome to this conference call on the first quarter results that we published earlier this morning.

I'm sitting here with Mrs. Geraldine Matchett, Chief Financial Officer and Member of the DSM Management Board; and Mr.

Jos Op Heij, Senior Vice President Group Controller. They will elaborate on the results and after that answer your questions.

We realize that it's a very busy morning for most of you with our call just in between Umicore and Air Liquide, so let's help you a bit and run this call until 9.45 to give you some air. Now, it leaves me to remind you that today's presentation may contain forward-looking statements.

In that regard we would like to direct you to the disclaimers about forward-looking statements as published in the press release and on the Web site. Having said that, I can now hand over to Mrs.

Matchett Geraldine.

Thank you, Dave. Good morning, ladies and gentlemen, and welcome to this call on DSM's Q1 2016 results.

Before I get started, I would just like to mention briefly a slight change to our quarterly close, indeed starting from now we intend to handle Q1 and Q3 communication broadly as financial and business updates; and will provide more comprehensive commentary on the half year and the full year, including for example updates on our cost saving and improvement programs. Now the intention here is simply to make the Q1 and Q3 communication effective and to the point, which I hope you will appreciate particularly on a day like today, when we know you're short on time.

Now back to results, and let me start with a few comments on the key slides of our investor presentation that was published this morning together with the press release, and that you can find on our Web site and on our investor relation app. Let me start with the highlights on Slide 2.

As you can see from this slide, we have had a good start of the year with a double-digit EBITDA growth of 19% and an improvement in ROCE at to 9.8%. More specifically, EBITDA in nutrition increased 15% in Q1 when compared with the same period last year, benefitting from a 6% organic growth and from cost saving and improvement program, while the organic growth was achieved in both the animal and human nutrition.

It's worth however highlighting here that the comparative figures for human nutrition in Q1 were relatively easy; and that the sales mix between human and animal nutrition as well as the product mix within human nutrition was favorable for the margin. For materials EBITDA increased 10% compared to Q1 2015, resulting from efficiency and cost saving programs we carried out in recent years, from good margin management and the context of low input costs and from continued focus on improving the quality of the portfolio.

Although we are pleased with these Q1 results, the macroeconomic environment remains uncertain. And therefore we remain vigilant with regards to business conditions for the rest of the year thereby maintaining our outlook.

Recently we have seen positive momentum in the spot prices for some vitamins. The magnitude and timing of these price increases transferring into higher contract prices is at this moment, too early to determine.

Positive benefits would only be visible most likely towards the end of the year. Now, let me comment on a few more specifics starting on Slide 9 for animal nutrition.

Animal nutrition delivered a solid quarter with a 4% organic growth including 5% volume growth. This is especially encouraging considering that Q1 2015 was actually a tough comparable period.

And as you may remember from our comments on the Q4 2015 result the timing of orders was unusually high in December. Overall business conditions in all major regions remained robust with the exception maybe of Latin America, where domestic demand was soft.

Overall, prices declined only slightly versus the same period last year, mainly due to a slightly lower vitamin E price, while currencies had a 7% negative impact on sales owing primarily to the significant drop in the value of the Brazilian real. Now moving to human nutrition, let's go to Slide 10.

Human nutrition delivered a strong quarter with an 8% volume growth, although as already mentioned this is against relatively weak comparative figures in Q1 2015. Prices as well as currency in this business were stable compared to last year and growth reported under other relates to the Aland vitamin C business that we acquired in Q1 2015.

Notwithstanding the easier comparative period, good performance is also attributable to stronger sales in the food and beverage segments in Europe and Asia, as well as improved sales in our U.S. dietary supplement market both in fish oil and the vitamin based supplements.

I Health our U.S. consumer business, again delivered double-digit sales growth and our infant nutrition business performed well in a healthy market.

We're particularly pleased that, despite ongoing soft market conditions in the North American food and beverage and dietary supplement market, our sales were markedly up versus the same quarter last year, showing some early success from our growth initiative. For the coming quarter the growth rate is likely to reflect a more normal comparison.

Now, let's turn our attention to materials by moving to Slide 11. Materials remained robust, benefiting from cost saving programs we implemented over recent years and the shift towards the higher-value products in products -- in our portfolio.

In addition, low import costs continued to support the margin during the quarter. This resulted in this EBITDA margin -- this EBITDA increase, sorry, of 10%.

In terms of top line development, volumes in Q1 were slightly up whilst the prices were down 6% versus prior on the back of the lower input costs. In terms of profitability, materials delivered an EBITDA margin of 15.8% compared to 13.6% in Q1 2015.

However, one still has to take into account that this margin is supported by low input costs, although this positive effect diminished somewhat by the end of the quarter. Now, to finish, let me just go back maybe to Slide 4 on key financials.

To conclude, I would say that we have had an overall -- we are overall pleased with the start of the year. Animal nutrition was solid and continued to outperform the market.

Human nutrition delivered a very encouraging performance, albeit against relatively weak comparative figures. Under materials, results remain robust, supported by the continued, but fading, tailwind of the low input cost.

Additionally, we continue to make good progress in terms of our operating cash flow. Our return on capital employed improved significantly, thanks to the 41% increase in EBIT.

Nonetheless, it's only one quarter and it is too early to convert these results into full-year trends, especially as we do not expect an improvement in macroeconomic environment. We will continue to focus on our cost saving and improvement programs, in order to deliver our strategic targets.

Therefore, we maintain our positive outlook which we gave two months ago and reiterate that, as stated in the press release, we aim to deliver increased full-year EBITDA and ROCE in line with the strategic target we set out in our strategy 2018, delivering profitable growth. And with this I would like to open the floor for questions.

Operator?

Three questions from me, please; they'll be quite quick. Firstly, I wonder if you're able to quantify the extent of cost savings achieved so far compared to what you expect to achieve this year.

Secondly, in the human nutrition figure, I appreciate the easier comparative. But within the 8% volume growth, I wonder if you could try and give us an indication of how much of that you think is market growth, what you thought the Company -- the weighted average of market growth was.

And then, finally, on the topic of vitamin prices, inevitably there's going to be a few questions on this, I suppose, but in your view what is causing the supply shortages and have you seen your competitors responding to these to any degree? Thank you.

Firstly, when it comes to your question on cost savings, now, as you know, the magnitude of the program is quite substantial. As we mentioned at the Capital Markets Day, last year we locked in 25 million.

Now, we also indicated that we would provide an update at the half-year, so at this stage we will not disclose the cost savings per se. Now, the good news is that we are on track with all the actions.

You remember all the measure sheets, etc., that I mentioned at the Capital Markets Day. So, that is going well and we're seeing already the benefit, particularly Q1 over Q1.

So, that's on the cost savings. Now, in terms of the growth in human, of course, 8% is nice and this comes from a number of areas.

The most satisfying and the most encouraging is that in the U.S. market, where the market remains actually quite soft, if you look at the Nielsen data, we managed to grow 10%, and one of the things we put forward is that we wanted to repair our performance in this market.

So, this is definitely a step in the right direction for us, but we're also seeing that the good result was coming from, as we indicate here, the food and beverage segments in Europe and Asia, i-Health and also infant is doing well. Now, if we come back to what we were saying, and we can reiterate here, in fact, the underlying market growth is pretty similar to what we have seen in the past.

So, we're looking to a 2%/3% market growth. Our ambition is to be above that.

Now, of course, at 8% we're clearly above, but there it's partly our comps. Mid-term we’re looking to 3%/4% for our nutrition business.

So, hopefully that gives you a bit more color. Now, of course, the question on the vitamins, so what we are seeing is clearly a positive momentum in the vitamin space.

Now, if you remember, last year, particularly in the case of vitamin E, we were of the opinion that below €5, really, the prices must be pretty close to the trough. And it’s nice to see that that is now being confirmed and that there’s an upward trend.

Now, let’s not forget these are spot prices, so for one you never know how long they’re going to last. But also, it’s important to highlight that spot prices that you see today actually relate to Q3 orders.

So, the big question is how quickly do we translate a positive environment into our own contract prices which are actually locked in sometimes for quite a bit longer than that. So, while we won’t comment as to the market dynamics per se, and every vitamin has its own story, the main message is that for us it is a positive momentum but with the benefits coming later, most probably towards the end of the year.

Good morning. A couple of questions around materials, when you talk about the input benefits fading, does that mean you’re not seeing any more incremental benefit or you expect the margins to return to more normal levels, whatever normal means, but actually contracting a little bit?

And then, secondly, in terms of the progression through the quarter, did you see any pick-up in activity towards the quarter end, potential restocking with inputs maybe turning around, or the oil price turning around? Thank you.

So firstly, on the materials, so if you recall, and it is something that we’ve been flagging now for a few quarters. What you see is that when the input costs come down, the whole discipline is to maintain our pricing and to increase the gap.

So what we’re seeing is that this, particularly near the end of the quarter, started narrowing again. So it’s fair to say that the margin at this quarter is benefiting from that.

The delta is pretty similar to what we’ve indicated before which is probably around 100 basis points to 150 basis points, if you were to normalize entirely the impact. Now, there’s also an element of numerator versus denominator.

The same EBIT over a lower, versus a lower sales price, mathematically gives you a higher margin. So one is in terms of absolute earnings, the other one is simply the calculations behind the margin itself.

So that’s really what the message is around this input cost effect. As for the activity level and what you’re referring to, we have not ourselves seen a particular pick-up in the activity by the end of the quarter.

Now, I would like to highlight here that what is good is that in the last two quarters last year we were negative volumes, now we’ve gone into positive territory at plus 1. Now, of course, it is not very big, but it is still heading in the right direction, but with no marked distinction of, in terms of end of March or something like that.

Thanks very much. Just something on the materials you talked about, I think you did, mix effects are improving in the quality of the business.

I wondered if you could flesh that out. Can you give any guidance for the full year for the associates line, I know there’s a whole series of businesses in there?

And can you explain a little bit, you talked about, I think 10% volume growth in supplements. How you’re, if you like, bucking the trend of the market, what you’re doing there to improve things and how sustainable the market share gain that you appear to have achieved is, or the market recovery that you’ve achieved is?

Thanks.

Okay, sure Andrew, no problem. The mix effect was actually referenced to the nutrition business rather than the materials business.

Here what we’re seeing is that the growth, the stronger growth in human versus animal is favorable. Generally speaking, we do have…

Sorry, sorry [indiscernible] try to make, you say the focus on improving the quality of the portfolio, so…

Apologies, I thought you were talking about the mix. Yes, well the quality of the portfolio and that really goes back to what we were describing at the Capital Markets Day, where we are gradually having a more and more specialty focus portfolio, which does, and this is actually not unrelated to the fact we’ve managed to hang on to the spreads as the input costs go down, is that we have an increasing proportion of our activities in materials linked to value proposition as opposed to cost plus dynamics.

So the message there is very much in line with what we’ve been saying since the Capital Markets Day, so nothing new. When it comes to the associates, the net income is, indeed, a net loss for the quarter.

Now, in our commentary you will have seen in the press release that the EBITDA was somewhat lower for the quarter. Now we are restricted as to how much we can comment about that, particularly in the case of Patheon, given its pre-IPO state.

So on that one I would recommend that you have a look at their documentation that is available, but basically there were improvement activities, non-recurring activities at the Italian sites which had a one-time impact on the Q1, but beyond that, I can't comment. Now, please remember that particularly Patheon and our new -- ChemicaInvest joint venture with CVC are pretty highly leveraged.

So these structures, there is a delta between EBITDA and net income, which is substantial because of the financing costs in those structures. But we do not provide a guidance because we are -- of course, they're associates, so we are not in control per se.

But this is where the negative is coming from, so worth having a look in our comments, more at the top line and the EBITDA margin. And the comment that we were making about the 10%, that was actually, I think you're referring to my comment on the U.S.

markets. So there, if you recall some of the difficulties that we faced in human nutrition over a few quarters back were related to our performance within the U.S.

market space so, not only the market itself, but also our own performance, in particular by going -- by becoming more involved with private label players for instance, we disenfranchised a bit some of our client base. This has been repaired.

We also are finding good dynamics in our Omega-3 sales. Again it's more to do with us than the market, because the Nielsen data shows that Omega-3 market per se in the U.S.

is still declining somewhat. It's fine in the other countries.

And the dietary supplement is only growing low single-digit around 2%. So the 10% step up for us is a very encouraging sign that our efforts in terms of growth initiatives and at repairing our U.S.

operations are starting to have an impact.

I have three questions. Let me start with the first one on cost savings.

If I look at your work force, that remained flat in the quarter. Can you tell us when we can expect this number to come down and savings from that to kick in?

The second question is on Patheon. I understand that it's difficult for you to comment, but since you have already commented in the press release about the Ferentino site, what makes you certain that it's a non-recurring element?

Because I do understand that the FDA's involved with that site? And then thirdly is also on the associates, is on DSM Sinochem.

We see the EBITDA margin improving every quarter actually, so can you tell us what your plans are in terms of disposing this stake? When can we expect an announcement here?

Thank you.

And so in terms of the work force yes, if you look in absolute global terms you will see our FTE is stable. However, if you look at the breakdown by geography and by segments you will see that for example, in the Netherlands, we actually have a 200 FT delta, Q1 to Q1.

So they are -- the shifts are happening, it's just that in the mix of overall business we also have growth areas. You see the absolute number indeed not moving very much, but it is on its way and there's also of course a timing effect.

So while we are able to take the actions necessary and provide for the related costs, the actual FTE delta comes later as the people physically depart the organization. So that's really the explanation behind the FTE.

Now, for Patheon, I hope you will forgive me but I really don't want to get into trouble with our U.S. lawyers by saying any more than what is in the press release.

So, please have a look there it's all fully documented what is happening and going forward. As for DSP it's nice to see that there's a good progression.

Now you know that our associates, as described in our strategy, we intend to at some stage exit and monetize. Now, this business is progressing well, which of course is helpful, but there is no fixed timing yet to be communicated on the next steps there.

Other than of course we're happy with the progress of the business.

It's actually Paul Walsh, Morgan Stanley. I just wondered if -- I know you're not going to be drawn on the amount of cost savings year-on-year that's contributed to the strong EBITDA progression, but I wondered if you could just give us a bit more in terms of that bridge year-on-year between volumes, you talked about better margins in nutrition because of price mix, but I think for the division as a whole price mix was fairly stable, even with human nutrition improving.

So I wonder if you could just give us a bit more on that as well. But I just was trying to understand a bit better the moving parts year-on-year driving that strong increase in EBITDA.

Was it drop through of volumes? Was it the cost savings?

Just an order would be helpful, thank you. And then my second question, you mentioned it just now about the amount of leverage on some of the JVs and associates.

You might not have the number to hand, but can you just remind me what the amount of debt is across all three of the JVs that you have? It would be helpful.

Thank you.

Okay, well, I'm afraid I may disappoint you on both questions. Indeed, if you look at the mix of the positive development of the business and the improvements we really have a combination of both.

If the tone is that it is all coming from the improvement program this is not right. We are seeing a very favorable development in human nutrition and, as I described, particularly in the U.S.

market. Now some geographies of course, you always have a bit of a mixed performance.

If I look at Latin America and, there, human is definitely struggling a bit, animal is still holding up, but we're watching for a soft market there. We have that favorable dynamic in terms of, we're growing in our somewhat higher profitability parts of our activities.

You know that i-Health is there, but infant is also in that category. So it really is -- in our view it's a very encouraging and we're happy with our Q1 numbers, over and beyond the cost improvements.

Now, we are also very active in that respect and we are on track with what we want to deliver, and so we felt it fair to raise it there. But please read this from a qualitative point of view as really a combination of both, rather than a whole predominance of one versus the other.

Understood, okay.

As for the leverage, now I certainly don't have that at hand. Now you can find actually a lot of disclosures on our associates in the Annual Report; notes 8 or 9 or something, like that.

You will see there a breakdown of their balance sheet and their income statement, so that's probably the best source.

Just coming back to the nutrition segment, so my understanding is that the human nutrition piece is a better mix piece, so higher ASP, higher margin piece. Maybe that's not correct.

But I would have thought price mix would have been more at a divisional level, given the strength in human nutrition. Or is there something else going on in the overall divisional price mix number for nutrition?

No, so we have two things, so we have, and I tried to say it but it was maybe not a very clear sentence. We have two mix effects.

We have the mix that we have the human nutrition overall growing faster than animal. So there it's favorable and we've always indicated that, overall, our profitability on the human nutrition side is a bit higher.

Within human nutrition, then it's the mix that I just referred to in terms of the product. So you have a double mix benefit.

There's actually only one question remaining. Can you explain a bit big swing in the operating cash flow in the other line?

Thank you.

Okay, yes absolutely, you may recall that last year in our operating cash flow we had an outflow in derivatives. We actually had several outflows on derivatives.

What you see there is that the number was quite a bit bigger last year, because of this one-time effect, in the order of 120 million, if I'm not mistaken. Now, what you see now remaining in other, are things such as the exceptional items, etc.

So this year's number is a much more normal number than the prior-year comparison.

Hello, thank you for taking the question I just wanted to ask a question on vitamin prices. Obviously, I appreciate the spot prices are moving all over the place and it's too early to say in terms of magnitude and timing.

But thinking longer term, if you were to see sustained vitamin E prices at this level, and if I look back to at the Capital Markets Day slides where you bridge between 2010 and 2015, and you had the 280 negative impact on EBITDA from vitamin E, is there any reason why, this time around you wouldn't be able to see the reverse of this impact, a sort of pro rata basis as in the moves that you've seen in vitamin E prices -- spot prices today then my other question on vitamin A. Maybe could you give a bit of detail in terms of exposure and profitability versus some of the other products in your portfolio and then one final question, sorry, on FX, any comments on guidance for the year?

Indeed, there's been a lot of coverage of the vitamin progression in prices, etc., and, as you said correctly in your question, these are very much spot prices. Now, I see where you're coming from, and to be sure, if this is to be maintained and we are able to lock it into our contracts, etc., so there's a number of ifs.

Will this have a positive effect on our results, absolutely. Now, where it becomes a little bit more complicated is in quantifying both the timing and the magnitude of that.

Now, one thing to bear in mind is the vitamins have a different price in all the different products that we have, both within nutrition, but within animal very different. Now, our Feedinfo is very much only animal nutrition-related.

And the other thing is they vary depending on the geography. So to use the history as an absolute proxy for what comes next is actually a bit dangerous, because you’re moving from a different base than you were over the last five years, and the markets, of course, has evolved in the meantime.

So while we are very encouraged by the overall environment and the spot prices are going up, and, believe me, we will try and lock in as much of that as we can for ourselves, the dynamic is a lot more complicated than just doing the math over the history and saying this reverts exactly in the same way. So what we will do is, going forward, is, of course, update as we see the impacts coming in.

Now, I really want to reiterate here, be very careful, because the spot prices, particularly Feedinfo relate mainly to orders in Q3. Now our animal business, we price minimum three months up to six months quite often.

And in the human space, it's actually quite often on an annual contract. So what we are seeing here is that there will be, whatever happens, a time delay in that benefit.

Now to your question on vitamin A, we really don’t break down all the different vitamins. As you remember our pie chart, we have a heck of lot of ingredients and the top 10 ingredients that represents a lot more than about one quarter of our earnings in human nutrition.

So we start becoming very detailed, and I have to maybe have a word of caution here that providing undue detail in our product mix and profitability is not in the interest, neither of the company, nor the shareholders. Now, in FX, which is your last question, if you remember last year we had a positive net-net of about €35 million for the company.

Now, as we see the exchange rates today, it's broadly flat. So we have a U.S.

dollar that is a little bit positive. The Swiss franc has weakened a little bit, if you take the comparative exchange rate for last year, so that is, in our case, helpful.

But you also see in our basket of currencies, the Brazilian real that has dropped off by 22%. So all-in-all, including the hedge effect, we’re pretty much neutral at today’s exchange rates.

I have just two questions. The first is on the interest expenses, which appeared relatively high for me at €37 million.

I remember that you had in mind, for the full year 2016, €120 million expenses. Is that still the case?

Or do we have to change that assumption? And the second question is again on the associate, I apologize, it’s a follow up question on Andrew’s question.

You had in the past, also in mind, a figure for that profit line I think it was €50 million, excluding one-offs for the full year. Is that also still in place, or should we also make some revisions here?

Thanks.

Firstly, very good question on the interest expense, Q1 was a bit on the high side and there were a couple of one-times and movements in fair values in there. So we’re still looking at, expecting €120 million maybe €125 million for the full year, so no revisions in guidance there.

As to the associates, a big word of warning, Q4 number was not guidance the €50 million you’re referring to was the reported number for Q4 and in there, there is actually a one-time benefit in discontinued operations. So really there was no attempt in our side in Q4 to provide guidance, as we never do.

The €50 million is not a reference number.

Okay, thanks.

We still have time for one last question operator.

Just two very quick ones left. The first one is could you give an indication on the impact that exchange rates had on the costs, so not on the top line, but on the costs?

And then secondly, would you be in position to recover some of the exchange rate impact in emerging markets, Brazil, through pricing throughout the year? Thank you.

Okay. So on the cost basis, let me think aloud here.

As you know, the delta between our cost mix and our sales mix is the Swiss franc. So with the Swiss franc weakening a little bit, it’s more in the favorable domain.

But other than that, I would say not a very different statement as I’ve made on the sales. As for the emerging economies, what we’re seeing is in Brazil, for instance, we have been able, in our animal nutrition so far, to push through some of the FX impact, because we source some of the raw materials, like phosphoric acid, in U.S.

dollars. And that needs to go through the pricing and that’s the Tortuga business.

So far we’ve been reasonably successful at doing that. But in the case of Brazil, we are mindful that the market is soft, particularly the domestic market.

So we will have to see whether we manage to maintain that going forward.

Okay. Maybe Geraldine you still want to make some closing remarks?

Well, really the closing remarks are that overall we're happy with the results. We feel that we have delivered a strong first quarter supported by all the businesses.

As I mentioned we have a nutrition business with good organic growth and a nice margin of 18%. And we have results in materials remaining robust, which is very helpful.

So all in all an encouraging quarter but it is still a little early days to necessarily translate that onto the full year but we're confident we'll deliver our targets.

Thank you, Geraldine. This concludes our conference call for today.

Thank you very much for your attention and your questions, and if you've any further questions on the background information, please feel free to contact us. One warning, tomorrow is King's Day in the Netherlands, so that will be Thursday then for you, if you don't make it today.

Okay, thank you very much and with that I hand back to the operator.