The Performance Materials cluster comprises the business groups DSM Engineering Plastics (including the Dyneema business unit), DSM Resins and DSM Elastomers. On 1 January 2008 DSM Dyneema became a business group.

All of these units specialize in the manufacture of technologically sophisticated, high-quality products that are tailored to meet customers’ performance criteria. The products are used in a wide variety of end-use markets: the automotive industry, the aviation industry, the electrics & electronics industry, the sports and leisure industries, the paint and coatings industry and the construction industry.

• Sustained volume growth but impacted by caprolactam force majeure and slow automotive sales in the United States.
• Investment program to build for further growth in China/India running at full speed
• Announcement of PA4T, a new high-performance polymer

DSM Engineering Plastics is a global player in polyamides (polyamide 6, polyamide 66 and polyamide 46), polyesters (PBT, PET and TPE-E), polycarbonate (PC and PC blends) and extrudable adhesive resins. These materials are used mainly in technical components for the electrics and electronics, automotive, engineering and packaging industries.

With a global market share of about 5%, DSM is one of the world leaders. DSM is the global market leader in high-heat polyamide. DSM Engineering Plastics has production sites in Emmen and Geleen (Netherlands), Genk (Belgium), Evansville (United States), Jiangyin (China) and Pune (India).

DSM Engineering Plastics wants to further strengthen its leadership position with a strong focus on performance materials and specialties. All activities are centered on creating value for the business group’s customers and for DSM. Thanks to its outstanding knowledge of products and applications, combined with excellent service levels, the business group is increasingly able to position itself as a valuable, solutions-oriented business partner.

The markets for engineering plastics once again showed growth in 2007 but this growth was lower than anticipated because lower consumer confidence resulted in reduced consumer spending. The automotive market (especially in the United States) and the electronics markets felt the impact of this.

Despite these developments, DSM Engineering Plastics saw sales volumes develop positively in all main markets (electronics, electrical, automotive, packaging, consumer and industrial markets). Raw-material prices remained at high levels, which, together with the unfavorable exchange rates, kept margins under pressure.

Price increases were not yet sufficient to restore margins to the required levels. A production outage for our main raw material caprolactam caused supply problems for our polyamide 6 products in Europe and limited our growth. Sales rose by 2%; operating profit was lower.

The construction of new plants continued. In Jiangyin (China) a new Akulon^® polyamide 6 polymer plant is being built and in Geleen (Netherlands) the second Stanyl^® polymer plant is under construction. Both factories are due to start up in 2008.

Investment decisions were taken to develop a new compounding site in Pune (India) to replace the existing site with extended capacity to cope with strong demand development. This site is due to start in 2008. Also a decision was taken for the first extension of the new compounding site in Jiangyin (China) that had been inaugurated in 2006. The capacity is to be increased by 50% at the end of 2008.

In 2007, DSM announced the development of PA4T, a new high-performance polymer. Stanyl^® Diablo was also introduced, an innovative new Stanyl^® technology. Components made of Stanyl^® Diablo have a very long useful life in extreme environments where other materials disintegrate. Stanyl^® Diablo is particularly interesting for the automotive industry, where it helps increase fuel efficiency and reduces CO₂ emissions by saving weight through metal replacement.

• Continued strong growth globally
• Further expansion of manufacturing capacity in the United States
• Pamako Engineering AG acquisition adds new technology

Dyneema^® (a high-modulus polyethylene fiber) is the strongest fiber in the world on a weight-for-weight basis. It was invented and developed by DSM and is an important component in ropes, cables and nets in the fishing, shipping and offshore industries. Dyneema^® is also used in safety gloves for the metalworking industry and in fine yarns for applications in sporting goods and the medical sector. In addition, it is applied in bullet-resistant armor and clothing for law-enforcement personnel and the military. Dyneema^® is produced in Heerlen (Netherlands) and in Greenville, North Carolina (United States). DSM Dyneema is also a partner in a high-modulus-polyethylene (HMPE) manufacturing joint venture in Japan.

DSM Dyneema is expanding around the world in selected, high-margin markets offering high profitability. The company will continue to focus on the further development of ultra-strong polyethylene fiber and UD (unidirectional sheet) technology.

The year 2007 was another good year. All markets for Dyneema^® products showed growth, and sales increased in all geographic regions. Sales growth was particularly strong in North America and Asia. Total sales increased by 22%. DSM Dyneema’s operating profit was up from 2006 due to higher volumes.

Between 1998 and 2007 sales volumes for Dyneema^® more than quadrupled and the business clearly outgrew all direct competitors. Demand for light but strong, convenient-to-use material continues to show steady and rapid growth, driven by a range of social and economic factors such as the general increase in safety awareness in production industries, an increasing demand for personal-safety products, the growing demand for easy-to-handle, durable materials in the marine industry and the increase in leisure time and prosperity.

Production capacity for Dyneema^® in the United States for the life protection market was expanded by another 25% in 2007. By adding extra capacity to its highly integrated Greenville site, DSM remains able to meet increasing demand for its products and underlines its high commitment to the long-term development of the US market. Also, a decision was made to invest in a new technical service center at DSM’s Stanley, North Carolina (United States) facility. Investing in further growth of Dyneema^® fiber and UD materials helps DSM maintain its global market leadership position.

New technology for the production of UHMWPE (Ultra High Molecular Weight Polyethylene) based products was acquired in March through the acquisition of Pamako Engineering AG in Zurich (Switzerland). This new technology is complementary to the existing business for Dyneema^® fiber and Dyneema^® UD.

In 2007 several new products were introduced. The new Dyneema^® HB50 represents the latest top-of-the-line solution for monolithic (fiber-only) inserts to be used in hard ballistic armor. The new Dyneema^® HB51, designed for and manufactured in the American market, is the best-in-class material for protective backing behind the body armor’s strike face in a hybrid construction. Both new materials offer the ideal combination of enhanced ballistic performance and lightweight comfort.

Also, new spun yarn gloves with Dyneema^® were introduced in the United States. This introduction opens up a significant new market for protective gloves. Gloves with Dyneema^® protect hands against a wide range of mechanical and cut hazards. They feel softer than cotton, enable better air circulation and have high abrasion and chemical resistance, which is undiminished by repeated washings.

In the medical segment, independent studies carried out in 2007 show that Dyneema Purity^®, a high-performance specialty polyethylene fiber developed by DSM Dyneema specifically for medical applications promotes better tissue formation than traditional polyester in orthopedic suture applications. This is excellent news for orthopedic surgeons, as one of their most important concerns when using artificial, non-degradable sutures is rapid healing of the tissue surrounding the sutures.

In the 2007 prestigious America’s Cup race, all boats including that of the winning Alinghi team were rigged with state-of-the-art running rigging made with Dyneema^®. This provided a number of benefits, including lower stretch and significant weight savings.

The DSM site in Greenville, North Carolina (United States) that is used by both DSM Pharmaceuticals, Inc. and DSM Dyneema was selected as Industry of the Year for 2007 by the community in Pitt County, where it is located. The award recognizes a manufacturer or distributor that has done a great job in the community.

• Strong organic sales growth in 2007
• DSM NeoResins+ expansion in Meppen (Germany) completed, new expansions in Waalwijk (Netherlands) and Shunde (China) announced
• Innovative strength recognized by two prestigious awards

DSM Resins manufactures and sells high-quality resins which are used in a wide variety of everyday applications. By focusing on value-added and eco-friendly solutions, DSM Resins is able to capture many growth opportunities thanks to its market-driven innovation efforts.

DSM Resins consists of four business units: DSM Powder Coating Resins, DSM NeoResins+, DSM Desotech and DSM Composite Resins.

In 2007 DSM Resins made further progress in all of its four business units and introduced a broad range of new, innovative products. These will help the business group to achieve its ambition of double-digit sales growth towards 2010.

DSM Resins’ sales growth in 2007 was mostly volume-driven. Most facilities operated at full or nearly full capacity during the year, increasing the need for capacity expansion. DSM Resins is investing heavily in market-driven innovation by developing new technologies and products for existing and new applications.

Successful price management in combination with new products from innovation efforts, increasing presence in emerging economies and a strong commitment to operational excellence will form the basis for the improvement of DSM Resins’ overall profitability in the coming years.

Trends in the market call for eco-friendly systems, driven by more stringent legislation in combination with the customers’ need for improved durability, lower weight, ease of use and lower system costs.

DSM Resins’ innovation drive is aimed at providing solutions that lead to lower emissions and energy savings. By offering lightweight composite resins to replace metal, significant savings can be achieved. Also, waterborne resins for paints and coatings contribute to a more sustainable world with lower emissions and superior quality.

The innovation focus will be in particular on inter-material replacement of metal and concrete by composite resins and emission-free water-based and powder-coating resin technologies.

DSM Resins aims to achieve about €250 million in extra sales in 2010 through innovation. By the year 2010, 20% of the resins portfolio will be based on new products. At the same time, the existing product portfolio will be rejuvenated.

With the award of two prestigious innovation prizes, the innovative strength of DSM Resins was recognized in 2007. DSM Composite Resins received the Design and Technology Awards for best innovative material for Turane^™ at the European trade fair Materialica. DSM Composite Resins also received the JEC Innovation Award for best innovation in composite resin materials (Turane^™) during the International China Composites Expo. Turane^™ was used in the bodywork of the lightweight Nuna4, the winner of the Panasonic World Solar Challenge for solar-powered vehicles.

Shortages in raw materials, as witnessed in 2006 for isophthalic acid, did not occur in 2007. DSM Resins met its target of achieving strong organic sales growth in 2007 with a slightly higher operating profit, as a balance of higher sales volumes, margins and fixed costs.

In 2007, DSM NeoResins+ introduced Neocryl^®, a water-based resin for exterior paints in window frames. Apart from reduced emissions, the product has no odor and dries much faster. DSM NeoResins+ also introduced NeoRad^®.

DSM Desotech’s subsidiary Somos launched a NanoTool, used for wind-tunnel test parts for optimization in aerodynamics for Formula 1 racing.

DSM Powder Coatings introduced HiTone^®, a hybrid polyester resin with enhanced pigment affinity, enabling the formulation of white and light powder coatings for thin-film applications.

The first ever full-composite bridge with products of DSM Composite Resins was installed in Dronten, the Netherlands. The bridge is stronger than concrete but at the same time twelve times lighter. It takes 15 minutes to install, compared to 1 to 2 days for a conventional concrete bridge.

In 2007, DSM NeoResins+ made further progress with the closure, announced in 2006, of the production site in Landskrona, Sweden. The closure was necessary because of a reduced demand for alkyd solvent-borne coating systems due to new regulations in the European Union.

DSM NeoResins+ completed the construction of a new factory for waterborne resins in Meppen, Germany. Also, it announced an investment of €30 million in the building of a new factory for waterborne emulsion resins in Waalwijk (Netherlands), due to open in 2008.

At the same time, DSM Resins is making further progress in China with the opening of a new plant in Xinghuo for Neoxil^® sizings and binders.

• Strong development of global business
• Innovative Keltan ACE^™ production technology announced
• Global branding campaign launched

DSM Elastomers manufactures synthetic rubbers (EPDM) for use in cars and other transportation vehicles, white goods, various industrial products and construction materials and as motor-oil additives. The group is one of the global market leaders in EPDM rubber with a market share of 20%. DSM Elastomers has production plants in Geleen (Netherlands) and Triunfo (Brazil). DSM Elastomers works to maintain its position as the global development leader in the EPDM market by constantly renewing its product range and maintaining the low-cost position of its plants in Geleen and Triunfo.

DSM Thermoplastic Elastomers is the #2 global producer of TPVs (EPDM-based – fully vulcanized – thermoplastic elastomers). These TPVs are used in a wide variety of applications including automotive, consumer, electrical, food, building, medical and industrial applications. DSM Thermoplastic Elastomers operates plants in Genk (Belgium) and Leominster, Massachusetts (United States) and has its global headquarters in Leominster. DSM Thermoplastic Elastomers’ strategy is to maximize the growth of TPV, replacing thermoset rubber and PVC, through the development of new advanced technology solutions.

Global demand at DSM Elastomers for EPDM was strong throughout 2007. Demand in the emerging economies continued to show healthy growth, mainly driven by growing demand in the automotive industry. The demand in North America continued to suffer from the restructuring of the automotive industry and its suppliers. Moreover, the downturn in the housing market is affecting the building and construction industry.

In 2007 DSM Elastomers developed well in all regions, particularly in Asia and South America. Raw-material prices continued to increase, especially towards the end of the year. The company was not able to fully safeguard its margins by passing on these cost increases to the market. The continuous weakening of the US dollar caused pressure on both prices and margins.

At DSM Thermoplastic Elastomers, sales growth exceeded expectations in 2007, causing shortages in TPV supplies. Capacity was expanded during 2007 enabling the company to support continuous growth of TPV demand until a new plant comes on stream by the end of 2008. Price increases were implemented in 2007 to compensate for increases in raw-material costs. In 2007 a new generation of low-hardness Sarlink^® grades was developed.

Sales of the business group increased by 3% in 2007; operating profit was slightly higher.

Substantial progress was made in the development of the Advanced Catalysis Elastomers (ACE^™) technology. Commercial-scale production of the first innovative range of products will commence at the end of 2008.

In response to ongoing industry trends in key markets (automotive and building & construction), DSM Elastomers will launch several new products in 2008 based on proprietary technologies to further grow and strengthen its global market position.

At the end of 2007 a newly built reactive extrusion line commenced production. This line will focus on producing specialty elastomeric materials.