3 Change in the scope of the consolidation

Merger and acquisitions

In 2023, dsm-firmenich acquired businesses for a total consideration of €290 million (in 2022: €77 million). The consideration related to the business combination of DSM and Firmenich amounted to €14,277 million.

Merger of equals between DSM and Firmenich

DSM (headquartered in the Netherlands) and Firmenich (headquartered in Switzerland) entered into a business combination agreement on 30 May 2022 (as amended) to establish one group, dsm-firmenich, a dynamic new creation and innovation partner in nutrition, health and beauty.

On 8 May 2023, the business combination was completed. The merger unites Firmenich’s industry-leading Perfumery and Taste businesses and associated co-creation capabilities with DSM’s Health and Nutrition portfolio and renowned scientific expertise. The identified synergies from the merger include both revenue and cost synergies.

The merger was effected in the second quarter of 2023 through an exchange offer by the Company to the DSM shareholders for all DSM ordinary shares; the subscription of 6,696,477 shares in DSM-Firmenich AG by Goldman Sachs at nominal value for the purposes of placing such shares in the market; and the contribution of all Firmenich shares to the Company against issuance of 91,658,354 dsm-firmenich ordinary shares representing 34.5% of the total issued share capital of the Company and payment of an amount in cash of €3.5 billion. In determining the consideration related to the share contribution, the share price of the dsm-firmenich ordinary shares on 8 May 2023 was used.  

In accordance with IFRS 3, this merger is to be accounted for as a business combination, in which DSM-Firmenich AG – a former subsidiary of Koninklijke DSM N.V. – was identified as the acquirer. The purchase price was provisionally allocated to identifiable assets and liabilities of Firmenich, pending final confirmation of the valuator. This allocation resulted in a goodwill amount of €8,251 million (of which €8,035 million is non-tax-deductible and €216 million is tax-deductible), and intangible assets for technology of €1,044 million, customer relations of €3,407 million and trade names of €648 million.

The fair value step-ups related to identifiable assets and liabilities of Firmenich resulted in additional depreciation and amortization expenses amounting to €184 million and additional finance expenses amounting to €6 million. These amounts are included in the PPA adjustments made to derive the Core adjusted EBIT and Core adjusted net profit from continuing operations, see also Note 2 Alternative performance measures.

The goodwill arising from the merger relates to synergies from complementary product offerings, especially within the newly formed segments TTH and P&B; leveraging on the diverse geographic presence of Firmenich (including strong local community and continued establishments at a global level) with an aim to strengthen the overall product offerings of the company; and increased ability to accelerate growth by addressing shifts in consumer preferences and customer needs driven by global trends. As the Firmenich workforce does not qualify for separate recognition as an intangible asset under IFRS, it was valued to estimate a contributory asset charge for the valuation of the intangible assets and rationalize part of the residual goodwill.

The merger contributed €3,110 million to net sales, €312 million to operating result and €624 million to Adjusted EBITDA during the period from 8 May until 31 December 2023. If the merger had occurred on 1 January 2023, additional net sales would have been approximately €4,807 million, operating result €506 million and Adjusted EBITDA €958 million.

Adare Biome

On 1 July 2023, dsm-firmenich acquired a 100% interest in Adare Biome, headquartered in Houdan (France) for a total cash consideration of €290 million. Adare Biome is a pioneer in the development and manufacturing of postbiotics, a rapidly emerging segment of the gut health market. All identified synergies of this acquisition are revenue synergies.

In accordance with IFRS 3, the purchase price was provisionally allocated to identifiable assets and liabilities acquired, pending final confirmation of the local valuator. This allocation resulted in a non-tax-deductible goodwill amount of €146 million and intangible assets for technology of €105 million, customer relations of €45 million and trade names of €11 million.

The goodwill relates to the value of future intangible assets, the Culturelle® synergy and the assembled workforce. As the Adare Biome workforce does not qualify for separate recognition as an intangible asset under IFRS, it was valued to estimate a contributory asset charge for the valuation of technology and rationalize part of the residual goodwill.

The acquisition of Adare Biome contributed €12 million to net sales, -€5 million to operating result and €2 million to Adjusted EBITDA during the second half year. If the acquisition had occurred on 1 January 2023, additional net sales would have been approximately €29 million, operating result -€5 million and Adjusted EBITDA €6 million.

Finalization of Prodap PPA

In the reporting year, the Purchase Price Allocation (PPA) related to the acquisition of Prodap in Brazil in 2022 was finalized without any changes in relation to the purchase price allocation as disclosed in the annual report of 2022.

Valuation techniques intangible assets

Part of a PPA is the recognition of intangible assets which are recognized apart from goodwill. The valuation techniques dsm-firmenich used for measuring the fair value of these intangible assets in 2023 were as follows:

The acquired technology of Firmenich was valued by applying the relief-from-royalty (RfR) method, a form of the income approach whereby the value of an asset is estimated by capitalizing the royalties saved as a result of owning the asset. Technology was identified the key business driver and leading intangible assets of Adare Biome, and therefore the multi-period excess earnings method (MEEM) was applied to value it.

The trade names were valued by applying the RfR method, a form of the income approach whereby the value of an asset is estimated by capitalizing the royalties saved as a result of owning the asset.

The fair values of customer relationships were determined by applying the MEEM approach, considering the present value of the projected cash flow revenues and adjusted for retention.

The favourable contract has been valued using the incremental cash flows (ICF) approach.

Summary merger and acquisitions in 2023

The accounting of the merger and the acquisitions upon closing impacted dsm-firmenich’s consolidated balance sheet 2023 as shown in the below table (measured at the date of acquisition).

The fair value of the acquired receivables is based on the gross contractual amounts, adjusted for estimated contractual cash flows not expected to be collected. 

Part of the contingent liabilities recognized relate to ongoing audits covering tax filings for periods prior to the merger of DSM and Firmenich. There is no assurance that the tax authorities conducting these tax audits follow dsm-firmenich’s application and interpretation of local tax laws underlying these filings.

Divestments

Divestment of Engineering Materials

On 1 April 2023, the company completed the divestment of its Engineering Materials business (DEM) to Advent International and LANXESS. Prior to this divestment, the results of this business (the ‘disposal group’) were reclassified to discontinued operations.

Summary of divestments in 2023

See below table for the book result of the divestments that took place in the reporting year.

Impact on comprehensive income

The impact of the business that has been presented as discontinued operations in the income statement and statement of comprehensive income, is presented in the below tables.

The operating profit in discontinued operations amounting to €2,827 million comprises the regular activities of the DEM business in the first three months of the reporting year (-€2 million) and the book profit on the sale of the DEM business on 1 April 2023 (€2,827 million) and other APM adjustments (€2 million). The business results reclassified to discontinued operations include also intercompany recharges that ceased to be earned/incurred on disposal. Corporate costs have been excluded from the reclassification to discontinued operations. The comparative numbers in the Income statement and the Statement of comprehensive income are re-presented as if the activities of the DEM business had been discontinued from the start of the comparative year 2022. In addition, these comparative numbers also include eight months of results related to former DSM’s Protective Materials business, which was divested in September 2022.

See also the section Assets and liabilities held for sale.

Impact on cash flow statement

The impact of the business that has been included as discontinued operations in the cash flow statement is shown in the following table.

See also Note 26 Notes to the cash flow statement.

Assets and liabilities held for sale

Jiangshan

The production of vitamin C in Jiangshan, China, which had already been significantly reduced since the end of 2022, was completely shut down in mid-May. dsm-firmenich is committed to the sale of its vitamin C business in Jiangshan (China), and therefore classified end of 2023 the assets and liabilities as held for sale.

Impact on balance sheet

The impact of the reclassification of the regarding activities on the dsm-firmenich consolidated balance sheet is presented in the following table.