AWE Vaalsbroek 070928 DSM

8/12/2019 AWE Vaalsbroek 070928 DSM

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DSMs Nutrition cluster is a leading-edgedeveloper and producer of ingredients for human

and animal nutrition, beverages, dietarysupplements and personal care products. Thecluster is comprised of the business groups DSMNutritional Products and DSM Food Specialties,next to the relatively smaller business unit ofDSM Special Products. The clusters totalturnover was ~ 2.5 billion in 2006.

DSM Food Specialties is a global supplier ofadvanced (bio)-ingredients for the food andbeverage industry, primarily based onfermentation and enzyme technology. DSMNutritional Products serves a customer base inthe area of food, animal feed, pharmaceutical andpersonal care industries. DSM Special Products isa leading supplier of benzoic acid and derivativesfor a.o. food, feed and personal care applications.DSMs products have a considerable contributionto the success of the worlds favorite food brandsfor the dairy, processed food, soft drink, fruitjuice, alcoholic beverage and functional foodsegments.

DSM Food Specialties has a strong globalpresence with production facilities in The

Netherlands, Australia, China, France, Italy andthe USA, complemented with various local salesoffices. DSM Food Specialties and DSMNutritional Products enjoy a broad base of sharedknow-how, manufacturing facilities, applicationlabs and infrastructure to serve customers in anoptimal way. By using different channels to themarket, DSM is able to cover almost all(potential) customers for its functional foodsingredients on a global scale.

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The estimated size of the global food ingredientsmarket (excluding agricultural commodities) is

around 30 billion, showing an average annualgrowth of 4-5%. This growth exceeds the averagegrowth of 2-3% of the food market due to higherorganic growth in emerging economies and ashift to higher value ingredients. The market,despite boundaries by e.g. legislation, has rapidlybecome global.

Within the food ingredients market, thefunctionalities taste (flavors, flavor enhancersand sweeteners) and texture (emulsifiers,hydrocolloids and proteins) still generate thelargest part of total sales. Nutritional ingredients(amino acids, carotenoids, dietary enzymes,dietary fibers, herbal extracts,hydrolysates/peptides, minerals, nutritionallipids, pytochemicals, probiotics, vitamins andother nutritional ingredients) exhibit the fastestgrowth and are expected to further acceleratethat growth over the years to come. Processingaids form the next category enjoying aboveaverage growth, driven by the long-term trend tomore natural processed food. Preservation and

coloring are two smaller submarkets.

Important market drivers are the demand forhealthy nutrition, including low sodium and low

fat foods, the need for natural ingredients, cleanlabel (products without (many) additives and/orE-numbers) and convenience.

The market for food ingredients is characterizedby consolidation (particularly in those fields

where organic growth is slowing and/or low) andnew entrants from emerging economies(particularly China). The market for foodingredients is still considered to be fragmented ona global level: the top 10 Food Ingredientscompanies have a combined market share ofabout 30% on a global basis.

DSM Food Specialties focuses on a portfolio ofbio-ingredients and competes with a variety ofplayers in different market niches but to a lesserextent with Chinese players as the latter tend tofocus on high volume and less on specialtyproducts.

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The 2006 Advanced Bio-Ingredient market wasestimated at ~ 2 billion. The Bio-Ingredient

market consists of specialty products based onfermentation processes such as yeast extracts,cultures and food enzymes (excluding lower

value-added products such as active bakers yeast,soy sauce etc.).

DSM Food Specialties is specialized in thedevelopment, manufacturing and marketing ofthese type of Bio-Ingredients based on its strongtechnology position in enzymes andfermentation, its application knowledge andcompetences to market performance ingredientsto the global food industry. The Bio-Ingredientsmarket however, covers only part of the DSMFood Specialties portfolio. Specialty ingredientssuch as DSMs health ingredients, are notincluded.

The Bio-Ingredients market is a knowledge basedmarket, where enzyme and genetic technologiesare key assets. These assets together with therequired high investments make this a market

with high entry barriers for new players,

particularly for the niche applications.

Next to its leading position in the Bio-Ingredientsmarket DSM Food Specialties, together with

DSM Nutritional Products, has a unique portfolioof products in the area of healthy ingredients foruse in functional foods.

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The diagram above shows the simplified valuechain in which DSM Food Specialties operates.

The raw material companies form the bridgebetween farmers and food manufacturers andprovide food raw materials (e.g. flour, sugar, salt).These are followed by the food ingredientplayers, processing companies such as DSM FoodSpecialties, that focus on adding functionalities tobasic foods by offering sophisticated and specificingredients. Subsequently, the foodmanufacturers produce processed food that theretailers and the foodservice operators bring tothe end-consumer.

DSM Food Specialties focuses on translatingspecific consumer demands, into niche (IP-protected) products. DSM Food Specialties ismainly active in specialty ingredients with a(relatively) high value and margin and stronggrowth profile. Thanks to its positioning, DSMFood Specialties has established global leadingpositions worldwide in almost all of itsproduct/market combinations.

Growth differs per stage of the value chain but nopart is isolated. As a slow-down in growth for

Western retail food markets manifested itself overthe period 2000-2005, also at the front end of the

value chain, where DSM is active, pressure wasfelt. This pressure was intensified by theincreasing penetration of private label products.

Processed food ingredients and additivesrepresent roughly 1-2% of the value of the finalfood product (hence a small percentage of thepurchase value for food manufacturers), whilstthe added value of the ingredients is essential interms of performance and contribution to theend-products taste, texture and otherfunctionalities such as health benefits.

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Todays consumer in the Western World isincreasingly concerned with healthier eating.

Within the trend towards healthier food, a shift isseen from food that is low in negatives, to highin positives, whilst taste remains a key qualifierfor the consumer. A firm focus is placed onreducing levels of salt, sugar and fat. The saltreduction programme in the UK, for example,sets clear guidelines for usage levels. Similardevelopments are taking place in the USA andother European countries. Recent EU legislationapproves health claims for products, which meeta specific nutritional profile. Scientificbackground and clinical test data to substantiatethese claims are of high importance.

In emerging countries a similar trend is discernedas a larger proportion of the population can affordpre-processed foods. An increasing share ofpeople depend on shops rather than backyards toprovide their food. Average food spend keepspace with GDP growth.

Furthermore, there is a growing demand for easy-to-prepare (heat & serve) food products, snacking

and grazing and meal assembly with a primefocus on taste. Also, food consumed out of home

in 1975 amounted to 20% whilst in 2006 thatfigure had increased to 45% in Western countries.

In addition to this convenience aspect, eatinghabits have also shifted to experimenting withethnic foods, both of which have strengthenedthe trend of eating out (vs. at home).

The trend towards increased individuality inmodern society, together with the demographicchanges such as one-person households,increasingly elderly population andknowledgeable consumers, reinforce the demandfor more convenience, yet high quality (pre-processed) foods.

Fuelled by the recent widely-dispersed reports oncontaminated ingredients and products, foodsafety is stepping back into the spotlight. It hasreturned to the table as an important factor indecision making processes. As will be elaboratedon later in this presentation, this is an importantaspect and an interesting differentiation area forDSM Food Specialties. For customers of DSM,quality means protecting their brand value.

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In addition to the mentioned consumer trends,shifts in the business-to-business environment

have also influenced the role of companies suchas DSM.

Retailers Private Label Products start to win moreand more shelf space, growing from an image oflow cost alternative to a quality brand. Foodand Beverage manufacturers with A-brands areunder increasing pressure to differentiatethemselves, by branding and introducing newinnovative line extensions and/or products. Withthe Private Label Products quickly following suitand innovating themselves, there is a significantpull for innovation from the value chain onspecialty companies such as DSM.

Hence, throughout the years the (technical)innovation drive gradually shifted up the valuechain towards the ingredient suppliers. Next tothe private label companies gaining strength, thisnatural consequence was reinforced byshortening product life cycles, rising consumerdemand for variety and stagnating R&D budgetsat food manufacturers. The obvious solution is in-

sourcing of product innovation. Innovative foodingredient companies such as DSM, are seizing

this market opportunity, and extend their role inthe value chain to higher value nutritional

ingredients and services.

This means that larger companies, such as DSMseek to link with key downstream parts of the

value chain. An example is shown on the nextpage. As a innovation service provider DSM hasgood insight into the issues and challenges atcustomers and trends set by end-consumers.

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As outlined on the previous page, A-brandcompanies may exert an innovation pull on food

ingredient suppliers and have become to rely onthem more than in the past. In fact, theingredient suppliers are increasingly the onesproviding the innovation. The example aboveshows indeed, how a large company such asNestl, presented DSM during their seminar in

June, as one of their key suppliers for innovativesolutions.

In order to continuously feed the innovationfunnel across the value chain, DSM anticipates anincreasing interdependency between food andbeverage manufacturers and the food ingredientsuppliers. DSM is ready to fulfill that role andhas, as the slide above illustrates, already a goodpartnership basis with leading companies.

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Next to the expansion of the innovation role offood ingredient suppliers in the value chain, the

food ingredient market in itself is also expected tocontinue to grow. The share of food ingredientsas part of the total food market was estimated at alevel of 1.1% in the year 2000 and is indicated togrow to a share of 1.4% by 2015.

This growth is fuelled by the following demandtrends:i) increase in processed food driven by

urbanization and convenienceii) growth of pre-processed food in emerging

economiesiii) demand for more added value nutritional

ingredients and natural ingredients in theWestern World

As a consequence of the trends above, the foodingredient market exceeds the market growth forfood in general: whilst the emerging economiesstart to buy more pre-processed foods (requiringbasic functionalities).

Throughout the years a shift towards (technical)

innovation was established in the value chain.With product life cycles shortening, consumer

demand for variety rising, the increasing threat ofprivate label products and the stagnating R&D

budget (as percentage of sales) at foodmanufacturers, innovation has to be sourced inmore and more, creating a new role foringredient suppliers.

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The basic food pyramid (on the left) reflects thegrowing consumer demands for special

nutritional properties as the GDP/capita levelrises: starting from a basic staple food level, viatastier and special food requirements up to ahighly personalized level of nutrition.

Not surprisingly, the Food Ingredients supplyside demonstrates a similar structure withfunctional solutions for each stage growing insophistication. Especially in the Western Worldthe food trends are moving up that pyramid,towards higher value ingredients. Whereas in theemerging countries advanced process ingredientsare the focal point to ensure the growing demandfor pre-processed foods can be met.

The oval illustrates the segments where DSMplays an active role, with its business groupsDSM Nutritional Products, DSM Food Specialtiesand the Emerging Business Area PersonalizedNutrition. DSM is well positioned for the future:as the market continues to develop and growtowards the top end of the pyramids, the businessenvironment will move from a scale-based

playing field to a more knowledge and valuebased context where technology and IP practices

form the competitive battlefield. DSM FoodSpecialties currently has important IP positions

and will extend these towards the future.

The next section of the presentation willelucidate on how DSM Food Specialtiesparticipates in key segments with a specific focuson capturing maximum value. As a trueinnovation partner, DSM offers a broad scope oftechnological solutions for special end-marketapplications.

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Ingredients made by DSM Food Specialties forman essential part of many every-day food products

and contribute to a large extent to the quality ofour lives.

DSM Food Specialties pursues a leadershipposition through a guaranteed quality andtraceability record next to its innovation platform.

DSM Food Specialties portfolio is divided overfour, globally operating units, specialized in thefollowing segments: Dairy Ingredients, SavoryIngredients, Enzymes and Functional FoodIngredients. Traditionally, DSM has been verystrong in serving customers in Western Europeand North America based on a unique productportfolio applied in the dairy, baking, savory andbeverage industry. Today, focus is rapidly shiftingto emerging markets such as in China, India,Russia and Brazil. Not only by selling thetraditional range of products but especially bydeveloping ingredients dedicated to specificmarket conditions, supported by local production,blending and application facilities.

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DSM Food Specialties is a successful player in thefood ingredients industry and has shown an

overall average growth of 7% over the pastsix years and around 10% over last three years forthe ongoing businesses. This track record

validates the strategic approach over the pastyears and has put DSM in an excellent positionfor future growth in the food ingredients market.

DSM Food Specialties strategy for the comingyears is to accelerate its commercial success byimproving its commercialization process ofproduct and technology innovation whilstcontinuing to grow and maintaining itsstrongholds in current markets (Europe/USA)and driving growth in non-traditional/newmarkets (Eastern Europe, Asia and Latin

America). First investments in these non-traditional markets have been executed and willbe touched upon later in the presentation.

In addition to its broad offering of functionalitiesfor food applications and its strong track record,DSM Food Specialties has a tight quality and foodsafety procedure in place and a broad research

and IP platform. The latter two are consideredkey assets for future growth and differentiation.

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In the Western world the food chain has becomeaccustomed to high quality products and had

almost started to take a basic food safety level forgranted. Recently however, concerns started toincrease again around an increasing number ofhigh publicity cases of tainted supply.

With the global technological, social and politicaldevelopments, DSM expects that the demand forguaranteed quality, reliability and traceability inall food and health sectors will grow. Recentcostly product recalls have increased sensitivity,especially for food ingredients. Furthermore,increased consumer awareness, related toingredients and environmental and socio-ethicalconsiderations strengthen this trend. DSM seesthat brand owners increasingly focus on reducingtheir risks related to the enormous cost of recalls,destruction of goods, loss of sales and product,and brand value destruction. They do so throughtheir choice of ingredient partners like DSM.

For DSM quality assurance and food safety havealways been at the top of the agenda. As such,DSM is extremely well positioned to fill the void

around these sensitivities and demands forguaranteed quality. One example of how DSM

differentiates itself in this respect is the Vitamin Cbrand, launched earlier this year: Quali-C.

DSMs Quali-C branded product differentiatesitself as a guaranteed high quality, pure and safeproduct that provides premium vitamin C withthe widest range of quality and serviceguarantees. In fact, the concept stretches beyond

vitamin C: it is all about trust and peace-of-mindthat DSM can offer as a supplier at the front endof the supply chain. Hence, branding becomesimportant to differentiate in the market also inthe business-to-business arena.

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DSMs leading enzyme and fermentationtechnology is part of the companys backbone and

enables DSM to develop enzymes that helpcustomers to achieve their manufacturing goals(e.g. cost reduction, improved efficiency, asustainable production, waste reduction) or asuccessful new product. The strength of DSMFood Specialties technology base is that it coversall required disciplines from genetics andfermentation to application and nutrition. DSM isin a unique position to combine all basicdisciplines and broad expertise in biotechnology

with nutritional market intelligence andconsumer insights, which gives DSM FoodSpecialties a competitive edge over other players.

Furthermore, involving expertise from otherDSM R&D groups (e.g. within the nutritioncluster), the knowledge base of a large group of1,200 scientists can be leveraged and turned into

value. This is regarded as a key asset for thedevelopment of new innovations, in anenvironment where Intellectual Propertybecomes the differentiator, rather than mere scale(see pyramids diagram presented earlier). DSM

Food Specialties follows a pro-active patentstrategy. These have laid the basis for a number of

new DSM products, such as PreventASe,PeptoPro, and Brewers Clarex. And new

products still to come.

Currently, DSM has over 1.5 billion worth ofturnover based on white biotechnology processes.This strong base will continue to serve as agrowth platform for DSM. For example, animportant source for discovering new enzymes isour know-how of, amongst others, the completegenome of Aspergillus Niger. DSM was leading inunraveling the genetic code of this fungi and isrecognized worldwide as leading in AspergillesNiger patents. The complete genome has beenpublished in Nature Biotechnology. With sharingthe Aspergillus Niger genome project in thepublic domain DSM has only started to embarkon more open innovation approach that willfurther boost the innovation efforts over the yearsto come.

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DSM is one of the biggest suppliers (top 3) ofdairy ingredients in the world. Dairy ingredients

supplies enzymes, starter cultures andpreservation systems for cheese and yogurt,functional food ingredients, and tests for thedetection of residues of antibiotics. DSMsproducts cover the whole spectrum of the dairyindustry: from farm to finished product. Dairy isan extremely important market to dominate asdairy products are the preferred carrier forfunctional food ingredients, thanks to theconsumers healthy image perception of dairyproducts.

DSM Food Specialties is able to maintain its primeposition in the dairy industry not only as a resultof its strong portfolio but especially by continuousinnovation. A new product introduced earlier this

year, Accelerzyme, that accelerates cheesematuration, is a good example. For cheesemanufacturers ripening speed, development ofdesired taste and the elimination of off-flavors arecritical for their success. Accelerzyme CPG sets anew global standard in cheese ripening enzymes,offering improved maturation speed whilst

guaranteeing reliable and predictable processingwithout undesired side-effects.

The dairy market is still growing. Dairy (andyoghurt in particular) is the most popular carrier

for a variety of health ingredients and bioactives.Manufacturers focus on the benefits of dairy likeconvenience, health and indulgence resulting in

value-added products (such as weightmanagement drinking yoghurts, fermented dairydrinks, low fat dairy products and flavoredprobiotic drinking yoghurts) and on thedevelopment of more and more products forspecific target groups (women, elderly, kids,men). Another growth accelerator is the marketgrowth for fermented milk products and cheesemarkets in developing countries.

As a result of our worldwide network and keyaccount management DSM Food Specialties is

very well positioned at the broad customer base.By combining the sales forces of functional foodingredients with the dairy sales teams DSM isable to efficiently cultivate this market.

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DSM Food Specialties, with its SavoryIngredients, is a major supplier (number two on

the market) to the flavorings and flavor enhancerindustry. DSMs yeast extracts are applied inproducts such as soups, instant meals, sauces andsavory snacks. DSM has a global presence withan extensive customer base, covering thecomplete culinary market supplying a wide rangeof savory components.

DSMs vast knowledge of yeast extracts has put itat the privileged position to develop productsoutside the savory (umami/culinary) territory.

Just recently introduced to the market (June2007) is our new range of taste potentiators:Delite, BSalt and DSalt. This new range is derivedfrom a yeast-based extract. It enables saltreplacement up to 50% in bread and cheese,

whilst boosting the salt flavor. Simultaneously itreduces off-notes, reduces bitterness and deliversfat enhancement. Delite, BSalt and DSalt respond

well to strong consumer demand and a growingpressure by (N)GOs to improve nutritionalprofiles, e.g. reduced salt intake. Currently keycustomers are testing these taste potentiators in

their products and seeing positive results.

Continuation of growth is foreseen. The growingdemand for easy-to-prepare (convenient) healthy

food products with prime focus on taste, theincreasing interest in foreign cuisine, theincreased focus on food minus (low sodium, lowfat, low sugar) and natural (preservative free)products will further boost the savory ingredientsmarket.

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The enzymes division produces a wide range offood enzymes for applications such as baking,

fruit processing, beer brewing and themanufacturing of other alcoholic beverages.

Again, DSM enjoys a strong and leading globalposition in food enzymes for dairy, baking,beverages and food processing. From the firstdiscovery in 1906 (Amylase) to the launch ofBrewers Clarex in 2006, our 100 years ofinnovation has made DSM a leader in theformulation of new enzymes for the foodindustry.

The growth potential for DSM Food Specialties inthe enzymes food market is based onexpectations that the market for specificfunctionalities will grow. New innovations willexpand the total food enzyme marketsignificantly: new functionalities and convertingchemical processing into enzyme processing.

A good example to show DSMs capabilities inradical innovation in enzymes is BrewersClarex. (This product is a new concept for beerstabilization, stepping away from traditional

stabilization methods, which prevents chill hazeformation in all types of beer.) The application of

the product leads to significant energy and wastesavings in the brewing process. The product is

commercially available and growing.

In March of this year DSM introducedCakeZyme. CakeZyme is a uniquetechnological breakthrough for the cake andpastry industry. Designed for use in a variety ofbaking applications, CakeZyme is a convenient,easy to use, enzyme-based ingredient that offersmanufacturers a range of benefits includingenhanced product quality, improved nutritionalprofile, extended shelf-life and reduced overallmanufacturing costs.

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Nutritional science led by consumer needs:Functional Food Ingredients of DSM Food

Specialties translate consumer health needs intosafe, reliable food ingredients with scientificallyproven benefits.

DSMs functional food portfolio serves severaltarget segments: metabolic syndrome(combination of medical disorders that increaseones risk for cardiovascular disease and diabetes),infant nutrition, weight management, diabetes,nutritional lipids and innovative drinks.

At present one of our star products in functionalfoods is Arachidonic Acid (ARA). ARA (incombination with DHA) is essential for growthand proper brain development in infants. ARA isnaturally found in breast milk. ARA is applied inbaby food. DSM is researching other applicationsat present. DSM Food Specialties partners withthe American firm Martek BiosciencesCorporation involving the production and supplyof ARA. Together, DSM and Martek are the globalmarket leader with > 90% market share.

New peptides form the basis of several of ourradical innovations. DSM is on the verge of

presenting the latest peptide innovation to themarket: InsuVital, a peptide mix to helpdiabetics maintain healthy glucose levels.Peptides can be much wider applied. We areresearching other applications at present, such aslowering blood pressure and performanceimprovement by lowering stress. Already on themarket for a few years is PeptoPro, an ingredientfor fast muscle recovery and increasedendurance; improving performance, and as suchused by, amongst others, the Dutch Olympicteam. PeptoPro is available to consumers indifferent applications in a.o. the USA and TheNetherlands.

The growth potential for DSM Food Specialties inthe Functional Food market is significant. Theseexpectations are based on the possibility toexpand the products presence in a broad range ofapplications, promising outcomes fromingredients currently in our innovation pipelineand the growth of the total market.

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In todays world two clear developments arevisible, with devastating results: under-/mal- and

over-nutrition.

On one hand the world deals with under-nutrition: > 170 million children areunderweight; 850 million people and 300 millionchildren suffer from under-nutrition; 2 billionpeople suffer from hidden hunger.Simultaneously, problems on the other side of thespectrum are just as serious. Not only in the

West, but also in other parts of the world over-nutrition poses a real problem: > 1 billion adultsare overweight; ~ 300 million adults are clinicallyobese. As a result: type-2 diabetes, cardiovasculardisease, hypertension, stroke and arthritis are onthe rise.

DSMs Nutrition cluster targets the health-drivenmarket needs in both the Western world and inthe emerging areas. Addressing the latterchallenge, DSM is involved in several projects tofortify staple foods and work on the base of thepyramid project (more detail on these can befound via our website).

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Health management by prevention becomesincreasingly important globally. Aging

populations, increased life expectancy, rise inchronic diseases, a demand for improved qualityof life and an increased financial burden fosterthis need for prevention.

Prevention through nutrition could become key.Additional learnings show for instance that wheatfiber can help prevent constipation, folic acid(vitamin B-11) can prevent 70% of neural tubedefects and potassium-rich foods lower bloodpressure. However, evidence-based progressiveclaim development is of the utmost importance inthis and is moving forward.

The innovation program of DSM Food Specialtieshas been targeted to two areas where we found astrong match between the needs of the marketand our competences: Metabolic Syndrome andFitness and Wellness. The innovations comingfrom these areas can be easily distilled tonutrition optimalisation (less or more) orfunctionality.

Partnering with other companies can sometimesbe essential to become better positioned in

certain areas. This so-called open innovationapproach includes collaboration with suppliers,customers, patient organizations, start-ups and

venturing. Our successful ingredient Fabulessfor weight management is the result of such anapproach (see next page for example).

Consumer insights are vital in order tounderstand the future needs of the consumer andto be able to translate nutritional and healthclaims into consumer benefits. DSM investsheavily in qualitative and quantitative consumerresearch on a global basis, but also collaborates

with patient organizations such as EuropeanGenetic Alliances Network (EGAN) and theInternational Genetic Alliance (IGA).

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Since the introduction of Fabuless (in 2006)the product has experienced a growing interest

and products containing Fabuless have beenintroduced in various countries: France, Belgium,Spain, Netherlands, Finland, Norway, UK, NewZealand, Germany, Portugal and Turkey.

Fabuless is an excellent example of aningredient that enhances DSMs customers end-product. With Fabuless manufacturers candevelop unique new products and concepts thatappeal to consumers worldwide in the area of

weight management.

Independent consumer research has revealed thattodays health-conscious consumer believes thatsuccessful weight management is achieved bestthrough appetite reduction. Fabuless triggersthe natural appetite control mechanism: naturalingredients delay the hunger signals to the brain.Hence, consumers feel satisfied longer andconsequently eat less. The patented Fabulesshas no side effects and can be applied in dairyproducts and supplements.

InsuVital is a new, natural ingredient forhealthy blood glucose management and of

interest to end-consumers who are at risk ofdeveloping diabetes. When consumed,

InsuVital has an immediate effect and helps thebody release insulin from the very first mouthful.Better meal time glucose control helps loweroverall blood sugar levels and postprandial bloodglucose levels are reduced to a level seen in non-diabetics.

InsuVital was pre-launched earlier this year andat present customers are testing this ingredient.DSM is the first to launch such an ingredient;currently no comparable products are availableon the market. Alternative products are sugar-freeor low GI products. These products compromiseon taste and do not have the direct effect on theblood glucose levels after a meal. DSM is indiscussion with several parties regarding theimplementation of this product.

Future impact of diabetes will be high on theworld economy: 175 million people in the worldhave diabetes, for 2025 the number of 300million is calculated.

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DSM Food Specialties developed Delvotest

(applicable at farmer, dairy industry and

regulatory level) to test milk for the presence ofantibiotic residues. The detection of antibioticresidues in milk and milk products is of greateconomic value to the dairy industry andregulatory level, in order to safeguard the qualityof milk and milk products. This unique, fully-automated testing system offers milk controlstations and dairies the fastest broad spectrumtest on the market today.

By reducing the number of stages in the milktesting process (compared to using traditional

water baths), the DelvotestAccelerator increasestetsing output and profitability. It also guaranteescomplete traceability. Delvotest is the globallyrecognized leading standard in antibiotic residuetesting in milk.

PreventASe (a so-called asparaginase enzymepreparation) is a new product in the portfolioand revolutionary in the industry. This enzyme isable to reduce acrylamide in food to levels up to90%. PreventASe can be easily added to

dough-based products such as biscuits, bread,crackers, breakfast cereals and snacks.

Acrylamide is an undesired side-product formed

during the baking process. Currently, temperatureand other conditions have to be strictly controlled

to effectively reduce formation of this molecule.DSMs PreventASe, is the first process aid thatremoves acrylamide to up to 90% and does notaffect taste, odor and color.

Applying asparaginase in food in order to reduceacrylamide formation has been identified by

various institutions, amongst which theConfederation of the Food and Drink Industriesof the EU and several (semi-)governmentalinstitutions in Europe, as a very promisingtechnology to fight acrylamide. Next to own trialsin DSMs Food Innovation Center, some foodproduction companies have completed testproductions with PreventASe, all withsatisfactory results. A German manufacturer ofbiscuits will launch the product in Germansupermarkets in the course of October. Anothermilestone that DSM Food Specialties hasachieved, is the positive advice oncommercialization of PreventASe forapplication in heated foodstuffs by the Frenchfood health safety agency (AFSSA) (followed by a

positive advice from the DGCCRF). Earlier, theFDA granted a GRAS safety notification toPreventASe.

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DSM Food Specialties has a sustainable andprofitable position. The company has been able to

develop a strong position in bio-ingredients andspecialty products, where differentiation isrealized through good IP positions andguaranteed quality rather than by competition onscale.

DSM is well positioned with its leading enzymeand biotechnology expertise and excellentproduct traceability record.

The nutrition market is a fast growing market.Growth is accelerated by market trends such ashealth & vitality, convenience, food safety, butalso by changes in the value chain (private labelsand innovation partnerships between foodmanufacturers and ingredient suppliers).Partnering with leading food companies is a keydifferentiator and DSM Food Specialties, havingestablished a strong base, will continue to buildon this.

In non-traditional markets (Eastern Europe, Asiaand Latin America) there is still room for growth

for DSM Food Specialties. First investments tobenefit from this growth are being made.

At present the product development pipeline isfilled with a number of promising products. The

Functional Food area is a key focal point,especially areas such as the prevention of themajor lifestyle diseases.

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DISCLAIMER

This document contains forward-looking statements. These statements are based on current expectations,estimates and projections of DSM management and information currently available to the company. Thestatements involve certain risks and uncertainties that are difficult to predict and therefore DSM does not

guarantee that its expectations will be realized. Furthermore, DSM has no obligation to update thestatements contained in this document.


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Abbreviationlist

AFSSA Agence Franaise de Scurit Sanitaire des Aliments

AGA Accelerated Growth Area

API Active Pharmaceutical Ingredient

BG Business group

bn billion

CAGR Compound Annual Growth Rate

cGMP current Good Manufacturing Practice

CHO Chinese Hamster Ovary (Cells)

DAI DSM Anti-Infectives

DEA Drug Enforcement Agency

DGCCRF Direction Gnrale de la Concurrence, de la Consommation et de la

Rpression des Fraudes

DHA Docosa Hexaenoic Acid

DPC DSM Pharma Chemicals

DPI DSM Pharmaceuticals inc

DPP DSM Pharmaceutical Products

EBA Emerging Business Area

EGAN European Genetic Alliance Network

EMEA European Medicines Agency for the evaluation of Medicinal Products

ESIM Exclusive Synthesis and IntermediatesFDA Food and Drug Administration

GI Glycemic Index

GRAS Generally Recognized as Safe

ICCL Innovation Cocreation Lab

IGA Internarional Gentic Alliance

IP Intellectual Property

LPH Large Pharma House

m million

NBD New Business Development

NME New Molocular Entities

nRI non-Registered Intermediate

OTC non-prescription Over The Counter

QA Quality Assurance

R&D research & development

RSM Registered Starting Material

UHMWPE Ultra High Molecular Weight Polyethylene

UV Ultra Violet

AWE Vaalsbroek 070928 DSM

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