On behalf of the Board of Directors and the Compensation Committee, we here present the very first compensation report of DSM-Firmenich AG. The report has a somewhat atypical nature. DSM-Firmenich AG (the Company) is the parent company of the merger combination DSM and Firmenich. This report concerns the remuneration from the first date the Company stock was traded on Euronext Amsterdam (18 April 2023). For this reason, there will be no comparison with the previous year. The actual 2023 remuneration will be considered against the background of the remuneration philosophy and principles set for the new Company. Furthermore, the actual remuneration provided in 2023 is reviewed against the maximum total amount of remuneration as approved by the General Meetings held on 18 April 2023 and 29 June 2023 respectively.
Category of one
As a newly established company in a category of one, domiciled in Switzerland, dsm-firmenich required a new remuneration set-up, fit for the purpose of the new entity, its combined business, and its leadership team. DSM and Firmenich historically had different remuneration schemes for their respective boards and executive committees, primarily due to their domiciles and industry. Furthermore, the new Company is substantially larger and more complex than each of the separate entities. We therefore developed a greenfield approach tailored to our new operating model, business strategy, and market references.
Consultation of stakeholders
At the inception of the new Company, the compensation approach was validated by the legal representatives of the then shareholders at the General Meeting of Danube AG (renamed DSM-Firmenich AG) on 18 April 2023. The meeting approved the maximum total amount of remuneration for the Board of Directors for the period until the Extraordinary General Meeting (EGM) of DSM-Firmenich AG on 29 June 2023, and the maximum aggregated remuneration for the Executive Committee for the (remaining term of the) financial year 2023. As we aim to be transparent regarding the remuneration of the Board of Directors and the Executive Committee, we have thoroughly consulted with investors and shareholder representatives to obtain their feedback on the proposed remuneration structure. We are grateful for their active engagement and constructive dialogue. The information used in this respect can be viewed on the company website. Our investors and shareholder representatives embraced the proposed remuneration structure and its underlying philosophy and considerations. Their feedback and recommendations have been taken into account in the proposals for the Board of Directors remuneration over the period between the EGM of 29 June 2023 until the 2024 Annual General Meeting (AGM) as well as the for the Executive Committee Members over the financial year 2024. All proposals were approved at the EGM on 29 June 2023: 97.18% voted in favor of the proposed maximum amount of remuneration for the Board of Directors, while 96.97% of the votes cast were in favor of the proposed maximum amount of compensation for the Executive Committee.
First quarter 2023
This compensation report covers the period starting 18 April until 31 December 2023. Obviously, no reference can be made to remuneration provided in previous years. Between 1 January and 18 April 2023, the then responsible Members of the respective legacy boards and executive committees were compensated on the basis of approved policies and practices at DSM and Firmenich separately.
The business in 2023
dsm-firmenich seeks to tackle the opportunity between what society needs, what people individually want, and what the planet demands in the areas of nutrition, health, and beauty. We therefore creatively apply proven science and draw on our data-driven innovation capabilities as well as exceptional standards of operational excellence. In close cooperation with our customers, we create solutions that are essential for life as well as desirable for consumers yet simultaneously more sustainable for the planet.
The Company is well advanced in the integration process, while our customers are positive toward our enhanced business proposition. This gives confidence regarding the delivery of our synergy targets.
We operated in a tough macro-economic environment in 2023, characterized by unprecedented low vitamin prices, but also by a continued destocking cycle and negative foreign exchange effects. In this challenging context, Perfumery & Beauty recorded good performance while performance in Taste, Texture & Health was solid. Health, Nutrition & Care, but especially Animal Nutrition & Health, were weak on exceptionally low vitamin prices and destocking. A vitamin transformation program, as well as cash flow generation were made key priorities in 2023.
Early 2024, the Company announced the initiation of a process to separate out the Animal Nutrition & Health (ANH) business from the Group. This should strongly reduce our exposure to vitamins earnings volatility and reduce our capital intensity in line with our long-term strategy. We believe that the full potential of our attractive and future-oriented ANH business could be best realized through a different ownership structure.
In view of the economic environment and especially the historically low vitamins prices, revenue and margins lagged behind expectations, whereas we delivered a very strong performance on cash. Consequently, the Short-Term Incentive achievement was below target. Our workforce has, remained very engaged, driving a successful integration. We remain very confident of achieving our integration objectives as well as securing lasting performance from our Business Units.
This report has been prepared in compliance with Article 734 et seqq. of the Swiss Code of Obligations. It comprises information required under the Swiss Code of Obligations and considers the Swiss Code of best practice for corporate governance.
In 2023, we embarked on a journey, building a new Company with the distinct purpose to bring progress to life. This is a journey we undertake together with all our stakeholders and on which we will continue to seek dialogue with investors and shareholder representatives regarding remuneration matters.
Carla Mahieu Chair
Compensation Committee
