We Are Changing the Parameters Annual Report 2014 of H&R AG Profile
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We are Changing the Parameters Annual Report 2014 of H&R AG Profile As an internationally established specialist chemicals company, we process crude oil derivatives into high-quality products for a large variety of industries. With more than 1,550 employees, we generated €1.0 billion in sales revenues in 2014. In the years ahead we intend to further increase the value added by our refineries by means of targeted efficiency increase measures and continuous improvements in our processes. At the same time, we intend to expand internationally and to benefit from growth in the world’s key economic regions. Our financial year 2014 During the financial year, we generated decent sales revenues of €1.0 billion. Nevertheless, the sudden drop in crude-oil prices at year-end prevented us from posting better operating earnings. Still, we accomplished a lot in 2014 and laid the groundwork for stabilizing and expanding the company internationally by integrating the Chinese businesses. T. 01 THE H&R GROUP IN FIGURES Change in IN € MILLION 2014 2013 absolute terms Sales revenue 1,058.6 1,214.4 -155.8 Operating result (EBITDA) 31.5 32.6 -1.1 EBIT 5.8 -4.1 9.9 Earnings before taxes -7.8 -16.8 9.0 Consolidated earnings (before minority interests) -15.6 -14.0 -1.6 Consolidated earnings (after minority interests) -15.4 -14.0 -1.4 Consolidated earnings per share (undiluted, in €) -0.49 -0.47 -0.02 Dividend per share (in €) – – – Operating cash flow -0.4 88.9 -89.3 Equity ratio (in %) 35.2 31.8 3.4 Employees as of 31 December (absolute) 1,553 1,405 -148 T. 02 THE SEGMENTS IN FIGURES IN € MILLION Revenue 2014 Revenue 2013 EBITDA 2014 EBITDA 2013 Chemical and Pharmaceutical Raw Materials Refining The ChemPharm Refining Segment produces speciality products from crude oil in the two domestic refineries in Hamburg and Salzbergen. 768.7 941.0 18.2 20.6 Chemical-Pharmaceutical Raw Materials Sales Our ChemPharm Sales Segment comprises the mixing and conversion plants abroad and our international sales activities. 244.7 231.7 18.8 16.5 Plastics Our Plastics Segment manufactures high-precision plastic parts along with the associated tools and moulds. 56.5 62.7 -1.5 0.7 Transfer -11.3 -21.0 -3.9 -5.1 Our sites Together with our subsidiaries, we form a global conglomerate of refineries, speciality production plants and sales companies that meet customers’ requirements for white oils, wax emulsions, paraffins, plasticisers and many other products. CHEMICAL-PHARMACEUTICAL RAW MATERIALS Hamburg/Salzbergen (Germany) // Laverton (Australia) // Tipton (Great Britain) // Mumbai (India) // Port Klang/Batu Caves (Malaysia) // Auckland (New Zealand) // Nuth (The Netherlands) // Singapore (Singapore) // Durban (South Africa) // Bangkok/Si Racha (Thailand) // Prague (Czech Republic) // Ningbo/Daixi/Fushun/Hong Kong (China) PLASTICS Coburg (Germany) // Wuxi (China) // Dačice (Czech Republic) Our business model We take a product of crude oil destillation and apply intelligent processes to obtain more than 800 innovative, environmentally friendly and high-quality products such as plasticisers, white oils and paraffins. High-precision plastic parts complete our product portfolio. Our input material has an almost inexhaustible potential, and our products are an important building block in the processes and products of a great number of industries. These are excellent conditions that promise success also for the future. PLASTICISERS PROCESS OILS Car tyres, conveyor belts Printing colour oils, plastics and wetsuits and dust binders NEWS PLASTICS Automotive suppliers PARAFFINS Packaging, food, CRUDE OIL DERIVATIVES construction materials and candles PLASTIC COMPONENTS Medical devices BASE OILS Base materials for the production of lubricants WHITE OILS Cosmetics, medicines and detergents We are Changing the Parameters Contents 2 TO THE SHAREHOLDERS 44 GROUP MANAGEMENT 96 CONSOLIDATED 158 ADDITIONAL 2) 4 Letter from the Executive REPORT FINANCIAL STATEMENTS INFORMATION Board 46 Group fundamentals 98 Consolidated balance sheet 160 Glossary 12 Company representative 53 Financial report 100 Consolidated income 162 List of graphics and tables bodies 64 Non-financial performance statement 163 Six-year overview 14 We are Changing the indicators 101 Consolidated statement 164 Financial calendar Parameters 70 Earnings, financial and asset of comprehensive income 165 Contact details 24 Supervisory Board report position of H&R AG 102 Consolidated statement of 29 Corporate governance 73 Other statutory disclosures changes in shareholders’ report1) 76 Key events following equity 40 H&R on the capital market the balance sheet date 104 Consolidated cash flow 77 Forecast report statement 83 Risk report 105 Notes 156 Attestation by the legal representatives 157 Auditor’s report 1) Includes the remuneration report and the declaration on corporate governance in line with Art. 289a of the German Commercial Code (HGB), which both form part of the Group management report. 2) Combined management report for H&R AG and the H&R Group. Further information Informative notes Information on sustainability Link to the H&R homepage i Useful information Sites and business model of H&R AG 2 TO THE SHAREHOLDERS Annual Report 2014 H&R AG TO THE SHAREHOLDERS 4 Letter from the Executive Board 12 Company representative bodies 14 We are Changing the Parameters 24 Supervisory Board report 29 Corporate Governance 40 H&R on the capital market H&R AG Annual Report 2014 TO THE SHAREHOLDERS 3 In 2014, the markets once again presented the company with challenges. But the H&R that emerged is more flexible, more stable and more diversified. Financial year 2014 proved to be full of challenges for H&R AG. Geopolitical crises, the economic situation in the Eurozone, the fall in the price of crude oil at year-end, industry issues – business conditions were anything but ideal for H&R AG. Nevertheless, during the past year, we focused and worked especially hard. For most of the year, we accomplished a great deal. Greater flexibility in managing raw materials positively affected our allocation ratio of primary products to by-products. The takeover of the important business activities in China will enhance our position in international business in the future and it gave us added stability at year-end 2014. Key Topics in Financial Year 2014 – Significant increase in the percentage of primary products processed at our refineries – Operating income on track for almost ten months, but full-year EBITDA nevertheless unsatisfactory due to the drop in the price of crude oil – Integration of the Chinese businesses allows H&R AG to start the new financial year in a stronger position 4 TO THE SHAREHOLDERS Annual Report 2014 H&R AG Brief des Vorstands 5 TO THE SHAREHOLDERS Letter from the Executive Board Dear Shareholders, dear Partners of H&R AG, H&R AG focused and worked hard throughout the past financial year and accomplished a lot during most of the year. As an economic region, Europe faced some major challenges right at the beginning of the year due to the geopolitical situation involving the trouble spot of Ukraine. The impact of the sanctions against Russia, the risk of rising energy prices and the discussion about the continuing crisis in the Eurozone were just three of the issues German companies had to deal with during the spring. For us, in particular, additional industry concerns were added to the mix during the course of the year. Market conditions for lubricant refineries forced many operators in Western Europe to reduce capacity. However, this did not automatically lead directly to improved earnings at the remaining refineries – including H&R’s refineries in Hamburg and Salzbergen. To an extent, producers in Eastern Europe competed for the remaining market share, thereby substantially increasing competitive pressure. H&R AG had already made the conscious decision the previous year to avoid placing its hopes solely on a recovery of the global economy and its industry partners and instead to rely on its own efforts. This meant that the management of raw materials and energy took on special importance when the company was compelled to address the price war over by-products. By using more expensive, but at the same time higher-quality raw materials and by changing the way the Hamburg refinery operates, we positi- vely affected our ratio of primary products to by-products for the long term. In the third quarter in particular, we gained momentum with improved earnings, despite lower sales revenues. Although sales revenues were lower, this was attributable exclusively to the lower raw material prices, which as a component of material costs affected revenues; the order book and custo- mer demand remained strong. At the same time, the fact that commodity purchases were cheaper overall, combined with a noticeable recovery in ICIS pricing for base oils from mid-year, had a positive impact on our results. By integrating the Chinese specialty business of the Hansen & Rosenthal Group into H&R AG, we com- pleted yet another ad-hoc project that has enabled us to systematically focus on our business model while enhancing our international presence. 6 Annual Report 2014 H&R AG H&R AG Annual Report 2014 7 Until shortly before the end of 2014, the company was therefore well on the way to achieving, and perhaps even surpassing, its earnings targets. However, the rapid drop in the price of crude oil at year-end 2014 once again put pressure on H&R AG. As part of its refining process, the company buys raw materials that can only be utilized over the course of a production run that lasts several weeks. As a result of the sudden drop in price, high levels of in- ventories that had not yet been processed were bought at prices that were significantly more expensive than current market prices.