Sippenteppich, Anónimo.1501 Alemania, Bischofliches Dom-

DSM Fibre Intermediates

Further profit improvement DSM Fibre Intermediates produces

caprolactam and acrylonitrile, which are raw materials for synthetic fibers and plastics. Caprolactam is the raw material for nylon 6 (also called polyamide 6). Nylon 6 is a versatile material, which in the form of fibers is used in sports and leisure clothes, military equipment, and also in tires and carpets. It is increasingly used as a high-performance construction material in, for example, the electronics and automotive industries, in packaging materials and in medical applications. Nylon 6 has reached the mature phase of its life cycle, where market demand and selling prices are strongly influenced by economic cycles.

DSM Fibre Intermediates has caprolactam plants in the Netherlands, the USA and China, with a total capacity of more than 500,000 tons per year. This makes it the largest merchant producer in the world, with a market share of 15%. In addition, the business group produces about one million tons of fertilizer (ammonium sulfate) per year as a co-product.

Acrylonitrile is a raw material used in textile fibers, ABS plastics, latex rubber and water purification products. The business group’s acrylonitrile production capacity is 235,000 tons per year. With a market share of 25%, DSM is a major player in the merchant acrylonitrile market in Europe.

DSM Fibre Intermediates also produces about 25,000 tons per year of sodium cyanide, which is used in detergents, in water purification products and in the synthesis of vitamins and antibiotics.

DSM Melamine

Difficult year for successful business Melamine is a product used in impregnating resins and adhesive resins for the wood- processing industry. It boosts the scratch, moisture and heat resistance of wood- based products. Melamine can be combined with softwood from rapidly growing trees to obtain high-quality panels that can replace hardwood. One of its main applications is in laminated flooring, which is a market that has been expanding rapidly for several years, particularly in Europe and China. Melamine is also used in many other products, such as car paints, durable plastic tableware, euro bank notes and flame retardants.

With a market share of about 25%, DSM Melamine is the global leader in melamine. The business group is well established, with production plants on three continents and a sophisticated technical support system in place for its customers. It earns more than half its sales from long-term contracts. DSM Melamine’s aggregate production capacity is 240,000 tons per year. The new plant in Geleen (Netherlands), which is based on advanced SLP technology, is not yet producing at capacity, but is expected to reach its capacity level in 2006.

Strategy

DSM Fibre Intermediates’ distinguishing characteristics are its process technology, reliability and service. The business group aims to exploit its global cost and technology leadership position in caprolactam while growing its position in China parallel to a further strengthening in Europe and North America. For acrylonitrile, DSM Fibre Intermediates aims to

strengthen its manufacturing base to maintain its solid position in Europe.

Business review

Global demand for caprolactam grew in 2005 compared with 2004. Prices were on average higher than in 2004 as demand was strong even in the face of high raw material prices. Energy-related raw material prices (e.g. ammonia prices) remained volatile and high relative to historical norms but declined slightly compared to 2004. Natural gas prices in the USA skyrocketed in the second half of 2005. Margins were on average higher than in 2004, helped by sustained high selling prices and the effects of cost control measures.

Demand for acrylonitrile was comparable to 2004. The steady rise in raw material prices, especially for propylene, could be recouped with higher selling prices.

DSM Fibre Intermediates closed the year 2005 with a higher profit than in the previous year thanks to higher margins.

Projects

The capacity of DSM Fibre Intermediates’ caprolactam plant in Nanjing (China) was expanded to 140,000 tons per year on the basis of DSM’s HPOPlus® _technology, during a shutdown of the plant from May until September. The plant will reach its new capacity level in 2006. The expansion will make the business group the leading supplier in the rapidly growing Chinese market. DSM Fibre Intermediates is planning an additional expansion to support this market growth. It is studying the feasibility of expanding the capacity of its acrylonitrile plant in Geleen (Netherlands) by 40,000 tons per year.

Section 2 Review of business

Life Science Products DSM Nutritional Products Performance Materials Industrial Chemicals Other Activities

Review of business

Industrial Chemicals

Strategy

DSM Melamine’s objective is to further strengthen its leading position in a market that is growing at an average rate of 6-7% per annum. From a demand point of view, the long-term outlook is reasonably good due to the growing scarcity of hardwood. Due to the high price of natural gas, the prices of raw materials and auxiliary materials for the production of melamine are at a structurally higher level than in the past. There is an ongoing need to increase the scale of operations still further and to gain access to low-cost raw materials, in order to achieve the necessary further reduction in costs. Major customers expect their suppliers to provide them with products and support services all over the world. The melamine industry is therefore likely to see a restructuring.

Business review

Demand for melamine grew by 2% in 2005. Following the exceptional growth in 2004, in the first half of 2005 the business group saw customers depleting their stocks. China was once again the center of growth in 2005. DSM has developed formulations for low-formaldehyde-emission resins. Together with customers it has successfully devised new applications, for example in OSB (Oriented Strand Board) panels and flame retardants. Furthermore, formulations have been developed that give resins a longer shelf life and thus increase the geographical reach of a resins plant. In 2005 the prices of natural gas and

ammonia in the USA reached record highs, due in part to the hurricanes. In line with this, the AMEL plant, a 50/50 production joint venture with Cytec, saw its production costs increase significantly. Given the price of melamine on the world market, DSM’s production operations in the USA were loss-making.

In Europe and Asia, too, the costs of raw materials and auxiliaries increased very strongly. Melamine prices did not increase until the fourth quarter. As a result, margins were considerably lower than in previous years. The 2005 operating result was slightly positive.

Projects

Mid-2005 DSM announced to Cytec that it would pull out of the AMEL joint venture with effect from August 2007 at the latest. DSM will take timely measures to ensure continuity of supply to its American customers.

DSM intends to implement major capacity expansions in response to market growth in Asia and the need for a low-cost supply of the markets in the USA. Negotiations on a new 120,000 metric tons/year plant, based on DSM’s proprietary gas phase know- how, are progressing well. The plant is expected to come on stream at the end of 2008.

DSM Agro

Once again a better performance DSM Agro is a producer of ammonia and high nitrogen fertilizers for grasslands and agricultural crops, which it supplies mainly to agricultural wholesalers in Western Europe. DSM Agro is the market leader in the Netherlands and ranks among the market leaders in Germany, France and Belgium. It is the number 2 supplier of calcium ammonium nitrate (CAN) and ammonium sulfate (AS) in Western Europe. Its fertilizer production facilities are located in Geleen and IJmuiden (Netherlands). DSM Agro operates world-scale ammonia plants in Geleen.

Strategy

DSM Agro’s strategy is to maintain a profitable position in Western Europe. On top of this, DSM Agro makes an additional contribution to DSM’s cash flow by providing DSM’s production facilities at the Geleen site with a sustainable and secure supply of raw materials and auxiliaries at the lowest possible cost. DSM Agro also supplies these raw materials (such as ammonia, nitric acid and carbon dioxide) to third parties in Europe.

Business review

The year 2004 had been characterized by a balanced market with good returns, but in 2005 the fertilizer market was relatively tight. Following a hesitant start in the first quarter, the situation developed favorably in the course of the year. Bad farming conditions led to weak demand in Western Europe, but this turned around in the second quarter as weather conditions improved. Backed by globally high urea and ammonia prices – resulting from high gas prices and a healthy ammonia balance – at the end of the first half of 2005 healthy fertilizer prices were recorded. This situation continued in the second half of the year with the fertilizer balance becoming very tight and customers rushing for materials, leading to record price increases towards the end of the year. These developments helped DSM Agro achieve an even better performance than in the already strong 2004.

Projects

DSM Agro is well underway with on-line- ordering via webshop and business-to- business connectivity in 2005. These activities were expanded further in 2005; almost 50% of fertilizer turnover is now e-enabled. The facilities in IJmuiden have been upgraded to ensure a larger volume and broader portfolio of fertilizer specialties. The Copernicus project in Geleen and Operational Excellence programs in IJmuiden led to substantial cost reductions at both sites in 2005, and will also further improve DSM Agro’s competitive position in 2006.

DSM Energy

Very strong profit increase

DSM Energy participates in the exploration and production of oil and gas on the Dutch Continental Shelf. The business group is also involved in the transportation of oil and gas through its ownership of pipelines on the Shelf. DSM usually participates as non- operator with a stake of up to 25% in the oil and gas joint ventures. At year-end, the business group had a share in nineteen producing oil and gas fields and participated in four gas field developments. All fields are located in fifteen production licenses.

Strategy

DSM Energy’s strategic mission is to maximize cash flow by minimizing cost and maximizing production in the existing licenses.

Business review

In 2005 a gas discovery was made in offshore block G14. The fast-track development decision for this field was taken at the end of the year. The development of two other new fields in the same block was completed and production started up in November 2005. The production license for the A/B blocks, containing six shallow gas accumulations, was granted. The development of three of these reservoirs started in 2005. Total production of the group decreased from 2.3 million bbls of oil equivalent in 2004 to 2.0 million bbls in 2005.

The production decline is due to the fact that most fields in the portfolio are mature and their production capacity is decreasing due to pressure decline and increasing water-cut. The new Q1-b field, started up in 2004, contributed nearly 50% to the group’s overall production.

The remaining reserves at the end of the year in the producing fields were about nine million bbls of oil equivalent, the same as the year before. The discovery of the new G14 gas fields compensated for the reduction in reserves resulting from the production of two million bbls in 2005. In spite of the production decline the business group’s operating profit increased very strongly compared to 2004. This was due to the increased oil price. The average Brent price in 2005 was $ 54 per barrel, compared to $ 38 per barrel in 2004.

Section 2 Review of business

Life Science Products DSM Nutritional Products Performance Materials Industrial Chemicals Other Activities