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DSM Reports 2006 Results


* Operating profit for 2006 EUR 835 million, 6% higher than in 2005.
* Net profit EUR 547 million, up 4% from 2005.
* Solid volume growth (5%), especially in Performance Materials (9%).
* Proposed dividend EUR 1.00 per ordinary share.
* Outlook: Operating profit in 2007 expected to be lower than in 2006,
but on track with Vision 2010.

The Operating profit from continuing operations for the full year 2006 was EUR 835 million, up EUR 48 million (6%) from 2005. Net profit was EUR 547 million, up EUR 20 million (4%). The net profit included a negative contribution of EUR 4 million from exceptional items (EUR 36 million negative in 2005).

At EUR 186 million, the Operating profit from continuing operations for the fourth quarter of 2006 was EUR 6 million (3%) higher than in Q4 2005. Net profit amounted to EUR 89 million, down 21% from the fourth quarter of 2005 (EUR 112 million).

Commenting on DSM's results, Peter Elverding, Chairman of the DSM Managing Board, said: "In 2006 we made a flying start in implementing our strategy Vision 2010 - Building on Strengths. We have greatly increased our innovation efforts and have supported these efforts with selected acquisitions, which will put us in a good position for future growth. In 2006 we launched more than 25 new products and applications. We also started several investment projects, especially in performance materials, which will contribute to sales growth in the near future. We increased our presence in emerging economies; our sales, investments and workforces in these regions grew strongly, especially in China. We made important additional steps towards operational excellence and fixed costs increased only slightly. All this happened in a business context that was not unambiguously positive. Economic growth developed very satisfactorily, but raw-material and energy prices reached unprecedented levels and were highly volatile, while the US dollar remained weak. Nevertheless, we succeeded in posting a record operating profit for the second year in a row. This was mainly due to solid volume growth (5%) and the ongoing efforts to optimize our operations.

"As, in 2006 we were ahead of the targets that we had set ourselves in Vision 2010, the benchmark for 2007 will be quite challenging. In 2007 I expect continued good volume growth, but some attractive contracts related to the acquisition in 2003 of Roche's Vitamins division (now DSM Nutritional Products) will come to an end. Since the second part of 2006 we have faced intensified competition in some of the more mature parts of DSM Nutritional Products' portfolio. DSM as the market leader has deliberately chosen to defend and further strengthen its market position even at the expense of margins. It is most likely that this will temporarily have a stronger effect than the positive impact of the introduction of new innovative products. Last but not least, we have started the year 2007 with a US dollar exchange rate that is clearly below last year's average and with high natural gas prices. However, DSM remains committed to further increasing its innovation efforts and the associated expenditure. I expect that in 2007 we will stay on track in achieving our Vision 2010 targets, although, for the reasons I have just mentioned, I expect that the operating profit this year will be lower than in the record year 2006."

Vision 2010
DSM's new strategy program Vision 2010 - Building on Strengths focuses on accelerating the profitable and innovative growth of the

company's specialties portfolio. The overall objective is strong value creation, to be accomplished via three main levers.

In market-driven growth and innovation DSM devoted significant additional resources to innovation. The additional spend in 2006 amounted to more than EUR 25 million. A considerable number of new products and new applications of existing products were introduced in the market. As part of its open innovation policy DSM acquired CRINA, a pioneering company in plant extracts used as feed additives, and acquired full ownership of LTP, a company with a technology platform based on formulated lipids. In venturing DSM stepped up its activities by making a total of five investments. In performance materials DSM invested in several projects, such as a second Stanyl(R) line, a tenth Dyneema(R) line, a second Stamylan(R) UH plant, a new waterborne coating resins line and a polyamide film grade plant in China.
DSM's increased presence in emerging economies is best illustrated by the 23% increase in DSM's sales in these countries. In China and India, a considerable number of investments were made in new production facilities, expansion or de-bottlenecking of existing plants, and cooperation with industrial or scientific partners.
In Operational Excellence the main focus is on Manufacturing Excellence (continuous improvement of the overall efficiency of DSM's production base), purchasing (EUR 100 million in purchasing savings in 2006) and restructuring measures in response to business circumstances (in 2006 at DSM Pharmaceutical Products, DSM Anti-Infectives and DSM Nutritional Products).

In parallel with Vision 2010 DSM decided to start a share buy-back program amounting to EUR 750 million. This represents approximately 10% of the shares outstanding. In 2006, the first phase of this program was executed as planned for an amount of EUR 242 million. Through this program DSM is creating direct shareholder value.

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