DSM performed well in 2007 with good sales growth and strong results in light of the challenges faced by the company during the year. The US dollar weakened significantly and raw-materials and energy prices remained high. Some favorable contracts in relation to the acquisition of Roche vitamins expired during the year and in some business segments DSM had to deal with strong competition. DSM managed, however, to increase sales volumes and selling prices and saw only a slight increase in fixed out-of-pocket costs compared to the previous year, despite higher expenditure on innovation, being an important investment in future profitable growth. In anti-infectives DSM saw a rapid temporary price increase in 2007. In the area of Nutrition we were able to successfully differentiate ourselves from the competition.

In 2007, sales from continuing operations increased by 5%. Organic sales growth amounted to 7%. This is 2% above the strategic target of 5%. Organic volume growth amounted to 3%, selling prices increased by 4%. Exchange rates on balance had a negative effect of 3%.

The volume increase was particularly strong in the Nutrition and Performance Materials clusters. The Industrial Chemicals cluster succeeded in achieving good volume growth while at the same time passing on the increased feedstock and energy costs in selling prices. The strongest price increase was realized by the Pharma cluster due to temporary shortages on the market for anti-infectives.

The operating profit from continuing operations amounted to €823 million, a decrease of 1% compared to the record of 2006.

Value creation clearly materialized once again in 2007, as the CFROI of 8.3% surpassed the company’s weighted average cost of capital by 80 basis points.

The Nutrition cluster realized sales growth of 6%. Organic volume growth amounted to 7% while prices were 2% higher. Exchange rates had a negative effect of 4%.

In DSM Nutritional Products both Animal Nutrition and Health and Human Nutrition and Health achieved solid volume growth. The negative price trend in the more mature part of the business was stopped and partly reversed by a differentiation strategy. Nevertheless, DSM Nutritional Products’ operating profit declined as higher organic growth did not fully compensate for the expiration of the Roche contracts, higher energy and raw-material costs, higher innovation expenditure and negative exchange-rate effects.

DSM Food Specialties’ sales and operating profit decreased due to the contractual phasing-out of the phytase tolling business in 2006. Higher sales volumes and margins as well as lower fixed costs caused a strong improvement (back to a small profit) at DSM Special Products.

The Pharma cluster saw sales rise by 7% due to the much higher selling prices at DSM Anti-Infectives. Prices contributed 11% to the sales growth, while volumes declined by 3%.

The operating result of DSM Anti-Infectives improved strongly from the loss in 2006, as a result of much higher prices and the effect of restructuring measures. Volumes declined due to strong inventory effects in the volatile markets. The effect of higher selling prices had almost disappeared at the end of the fourth quarter.

The operating profit of DSM Pharmaceutical Products was close to the level of 2006, as the business group was almost able to compensate for the expiration of Roche contracts. DSM increased its innovation effort, specifically in the development of a new technology platform for active ingredients for generic drugs.

Increased volumes and higher selling prices resulted in a sales increase of 5%. Organic volume growth was 5%. Negative exchange-rate effects of 2% offset the higher price levels (2% higher on average). Operating profit decreased slightly, caused by DSM Engineering Plastics mainly due to a production outage of DSM Fibre Intermediates’ caprolactam plant.

Higher fixed costs due to a higher activity level and increased innovation efforts affected the operating profit of all business groups, as did higher feedstock costs.

DSM Dyneema’s operating profit was higher due to higher volumes.DSM Resins’ operating profit was slightly higher as a result of higher sales volumes, margins and fixed costs. DSM Elastomers posted a slightly higher operating profit; higher sales volumes were partly offset by lower margins as a result of strongly increased raw-material prices and a weak US dollar.

The Industrial Chemicals cluster showed a full-year sales increase of 3%. Organic volume growth amounted to 3% and prices were on average 5% higher. Exchange-rate effects had a negative impact of 4%. The strong increases in energy and raw-material prices could on balance be fully passed on to the market.

DSM Fibre Intermediates’ result increased thanks to higher margins. The operating profit of DSM Melamine increased strongly due to higher selling prices and the positive effect of its withdrawal from the AMEL joint venture in 2006. Higher margins led to a higher operating profit for DSM Agro. Lower prices for gas and a lower production level resulted in a lower operating profit at DSM Energy.

DSM decided to bring forward the mid-term evaluation of its Vision 2010 – Building on Strengths strategy, originally planned for 2008. In this mid-term review, the company’s strategic direction and priorities were scrutinized, and progress made was evaluated. DSM is convinced that it has chosen the right strategic direction with Vision 2010 and that its evolution towards a Life Sciences and Materials Sciences company should be accelerated. Therefore, DSM will spur the growth of its core activities in the realms of Life Sciences and Materials Sciences and has raised its ambitions for organic growth in these fields. Ongoing commitment to innovation will drive this growth, actively exploiting the company's potential created by its unique and coherent portfolio of market positions and technologies. Further on, more details will be given.

In addition we announced a number of changes to our financial policies, such as a new dividend policy. A 20% increase in the dividend, to €1.20 per ordinary share, will be proposed at the Annual General Meeting of Shareholders of 2008. Furthermore, having completed the share buy-back program initiated in 2006, DSM has started a new program for a total consideration of €750 million, to be completed in 2008. DSM may halt the buy-back at any time, if a major acquisition needs financing.

DSM also reconfirmed its commitment to sustainability and will actively pursue this to reach the ambitious targets for 2010 set in its Triple P (People, Planet, Profit) program.

DSM’s financial position remained strong in 2007. Higher costs for energy, raw materials and innovation investments could be largely offset by price increases and by strict cost-control programs. Fixed out-of-pocket costs, amounting to €2.3 billion in 2007, increased only slightly compared to the previous year.

The rating institutions maintained their Single A credit rating for DSM. The company aims to generate a healthy cash flow. In 2007, cash flow from operating activities showed a 31% increase to €825 million.

Net debt stood at €1,338 million at year-end, an increase of €417 million. The increase was mainly due to the share buy-back program. DSM initiated a second €750 million buy-back program in 2007, after successfully completing the first program of €750 million. Gearing stood at 20% at year-end.

Capital expenditure (excluding acquisitions) amounted to €475 million, €51 million more than the level of depreciation and amortization before exceptional items. As indicated in Vision 2010, DSM expects the annual average level of capital expenditure to be approximately €0.5 billion.