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Case Study: DSM, Examining Effective Long-Term Roadmaps in Action

Laying out a clear perspective on growth, risk and capital allocation ensures that all stakeholders have a firm grasp of a company’s approach and enhances shareholder belief in real opportunities, even despite the presence of short-term pressures.
Dec 20 2018

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Resourceful global companies and their investors recognize the distinct advantages of long-term planning. A long-horizon view of goals, and the path to achieving them, help open the lines of communication and strategy between a company and its shareholder community. Laying out a clear perspective on growth, risk and capital allocation ensures that all stakeholders have a firm grasp of a company’s approach and enhances shareholder belief in real opportunities, even despite the presence of short-term pressures in some cases.

dsm-logo-jpg-versionKoninklijke DSM N.V., more commonly known as DSM, is a Dutch multinational and a Member of FCLTGlobal. At the end of 2017 DSM employed 21,054 people in around 50 countries and posted net sales of €8,632 million. Originally a state-owned coal mining company founded in 1902, DSM has always worked systematically from long-term focused risks and opportunities-based assessments, translated these into five-to-ten-year strategic plans. With a remarkable record of continuous transformation, today DSM is considered a global leader in Nutrition, Health and Sustainable Living specialties.

For the past 10 years, DSM has prioritized sustainability as its key business driver. The combination of the shifting business portfolio and DSM’s sustainability-based growth initiatives require that investors understand the long-term plan and appreciate the company’s strategic investment goals. To achieve that understanding, Investor Relations worked alongside Corporate Communications with leadership from the Board, CEO and CFO to develop a unified communications strategy designed to focus on the long-term story-line and create stakeholder buy-in, in support of the long-term plan.

To keep things simple and straightforward, DSM focuses on just two high level long-term financial objectives, sharing target ranges for adjusted EBITDA (earnings before interest taxes depreciation and amortization) and average annual adjusted net operating free cash flow. By sharing just two headline targets at the group level, the company has the flexibility to adjust to changes in the operating environment while maintaining a focus on the future.

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These objectives are tied to a handful of key performance indicators (KPIs) that allow investors to track progress toward the company’s long-term targets. These KPIs include topline sales growth targets, segment margins, tax rate, working capital ratios and capital expenditure plans. Next to these financial metrics, DSM also communicates a number of Sustainability (ESG) KPI’s which it uses to steer the business activities.

To communicate the value-proposition while building credibility for the strategy, DSM also shares a detailed annual Factbook which includes a review of past performance against guidance metrics, segment milestones toward achieving group targets, the details of key projects contributing to core growth initiatives, and the company’s long-term objectives.

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In deciding what to share with investors David Huizing, Vice President of Investor Relations, suggested, “Short-term information isn’t that relevant for evaluating the company’s longer-term value generation potential, but be very transparent about the strategic actions your company is taking. KPIs that track these actions offer solid prove points along the path, building credibility by documenting related progress.”

DSM has applied their long-term communications strategy beyond investor guidance. To focus the investment community on long-term trends in the business, the company changed their financial reporting from quarterly to cumulative year-to-date results. This approach puts current results in the context of strategic progress toward mid-to-longer-term financial targets in an effort to minimize short-term issues get overly emphasized. As a Euronext-listed company, DSM has the option to forgo quarterly reporting entirely. But to accommodate the approximately 40% of DSM shareholders that are US-based and accustomed to quarterly reporting, the company opted to go with this cumulative reporting hybrid strategy, finding it strikes a balance between transparency while maintaining their long-term focus. 

DSM has found transparency around strategic actions and consistent reporting on KPIs gives investors the data points they need to have confidence in the DSM sustainability story – ultimately attracting the sort of long-term investment partners the company set out to court in the first place. The company estimates today that only 1-2% of DSM shareholders can be considered definitively short-term, and find that the majority of their investor base welcome the long-term approach to managing the business and communicating the strategy. As Huizing put it, “It is okay to dare to ignore the very short-term focused investors who aren’t interested in being long-term partners with the company.”

Building on our research on long-term corporate-investor relations, FCLTGlobal will publish a whitepaper in the coming year that continues to explore the dynamic between corporations and their investors and shares how strategic roadmaps can make this touchpoint more transparent. Visit our Research section to learn more about our work on long-term plans and strengthening the investor-corporate dialogue.