Annual Report 2008 The World Needs Ideas. Overview Evonik Group: Key figures in € million 2006 2007 2008 Sales 14,125 14,444 15,873 EBITDA1) 2,157 2,236 2,171 EBITDA margin in % 15.3 15.5 13.7 EBIT2) 1,179 1,363 1,304 ROCE3) in % 8.4 9.7 9.1 Net income 1,046 876 285 Total assets as of December 31 20,953 19,800 20,099 Equity ratio as of December 31 in % 20.6 25.7 25.8 Cash flow from operating activities 1,142 1,215 388 Capital expenditures4) 935 1,032 1,160 Depreciation and amortization4) 943 862 842 Net financial debt as of December 31 5,434 3,924 4,583 Employees as of December 31 46,430 43,057 40,767 Figures for 2006 as reported; figures for 2007 restated. 1) Earnings before interest, taxes, depreciation, amortization and non-operating result. 2) Earnings before interest, taxes and non-operating result. 3) Return on capital employed. 4) Intangible assets, property, plant, equipment and investment property. A clear structure Evonik Industries Chemicals Energy Real Estate Business areas Industrial Consumer Coatings & Energy Real Estate Business units Chemicals Specialties Additives Inorganic Health & Performance Materials Nutrition Polymers Overview of our business areas Chemicals Business Area: Key figures Chemicals in € million 2008 2007 Evonik Industries is one of the world leaders in specialty chemicals. The six business units in the External sales 11,512 10,571 Chemicals Business Area have a diversified product portfolio ranging from high-performance plastics EBITDA 1,600 1,610 to amino acids for animal feeds, and from synthetic building blocks for the pharmaceuticals industry EBIT 927 930 to products for the growing photovoltaic market. Evonik has some 32,000 employees at more than Capital employed 100 sites around the world and operates chemical production facilities in 28 countries. More than (annual average) 9,336 9,205 80 percent of sales are generated with products where we are positioned among the market leaders ROCE in % 9.9 10.1 and roughly 20 percent of sales come from products, processes and applications developed in the past five years. EBITDA margin in % 13.9 15.2 Figures for 2007 restated. Energy Business Area: Key figures Energy in € million 2008 2007 Our Energy Business Area is the second largest German generator of power from hard coal and has External sales 3,649 3,024 around 10,000 Megawatts (MW) installed capacity worldwide, including about 8,000 MW in Germany. EBITDA 545 581 We rank among the world leaders in the construction of state-of-the-art coal-fired power plants—for EBIT 430 479 instance in Duisburg-Walsum (Germany). This plant will have over 45 percent efficiency. We are also Capital employed well-positioned in renewable energies, a promising global growth market. As a full-service supplier, (annual average) 3,292 3,128 we bundle our engineering and consulting services so we can use the technical expertise and know- ROCE in % 13.1 15.3 how of our roughly 4,700 employees to provide convincing all-round solutions for customers in Germany and abroad. EBITDA margin in % 14.9 19.2 Figures for 2007 restated. Real Estate Business Area: Key figures Real Estate in € million 2008 2007 Evonik Industries is one of the largest private-sector housing companies in Germany with around External sales 375 423 60,000 residential units and a 50 percent stake in THS GmbH, which has about 75,000 residential EBITDA 217 188 units. The regional focus of our Real Estate Business Area, which has more than 400 employees, is EBIT 162 132 the Ruhr District and the “Rhine corridor” comprising the cities of Düsseldorf, Cologne and Bonn. Key indicators such as occupancy rates and tenant turnover are better than the sector average. Because Capital employed (annual average) 1,762 1,596 we use smart housing concepts to improve the quality of life for our tenants, while active manage- ment of operating costs minimizes their ancillary costs. ROCE in % 9.2 8.3 EBITDA margin in % 57.9 44.4 Figures for 2007 restated. Evonik is the creative industrial group with an idea of the future. That opens up good prospects for Evonik’s Chemicals, Energy and Real Estate Business Areas to build on their market leadership in the coming years—and generate substantial growth. After all, one thing is certain: The world needs ideas. That means new approaches to unresolved problems. A different perspective to envision new solutions. Pioneering ideas powered by concentrated creativity. Evonik’s ideas are geared to providing tomorrow’s solutions to today’s challenges. That means ideas for tomorrow’s chemicals. And tomorrow’s energy. And the lifestyle of the future. Contents Evonik Industries AG 4 Letter from the Chairman of the Executive Board 8 What will the future be like? 19 Our idea of the future 28 Combined power: Evonik’s Science-to-Business Centers 30 Management report 32 Performance and business conditions 43 Earnings position 44 Financial condition 48 Asset structure 49 Research and development 52 Performance of the business areas 52 Chemicals Business Area 66 Energy Business Area 70 Real Estate Business Area 73 Regional development 75 Performance of Evonik Industries AG 77 Corporate responsibility 77 Environment, safety and health 80 Employees 84 Events after the end of the reporting period 84 Risk report 89 Outlook 90 Consolidated financial statements 92 Income statement 93 Balance sheet 94 Statement of changes in equity 96 Cash flow statement 97 Notes to the consolidated financial statements 169 Supplementary information 169 Auditor’s report 170 Report of the Supervisory Board 172 Further information on corporate officers 174 Major shareholdings Letter from the Chairman of the Executive Board 2008 was a watershed in the history of the global economy. The repercussions of the financial crisis broadened into a global economic crisis at a speed that had been hardly considered possible and it is not yet possible to predict when it will end. Uncertainty is dominating the conduct of many investors, businesses and consumers. Against this background, Evonik Industries held up well last year and we essentially achieved our objectives. The road ahead is strewn with major challenges. Nevertheless, I am confident that the company can come through this difficult phase. Because we actively shape our own future: We take action and have the courage and determination to drive forward the expansion of our business. And because we are positioning ourselves foresight­ edly in tomorrow’s key markets. One reason for our confidence is Evonik’s broadly based innovation pipeline. We have earmarked over €300 million for this in 2009. In the past five years alone we have invested more than €1.5 billion in research and development. The strategic alliance we concluded with Daimler AG last December on industrial development of lithium­ion technology is further impressive evidence of the wealth of opportunity contained in our portfolio. This alliance between the technology leader Evonik and one of the world leaders in the automotive in­ dustry to produce alternative drives paves the way for serial manufacturing of electric vehicles, with Evonik‘s lithium­ion technology at their heart. That opens up a multi­billion market, where we will play a leading role, especially in Europe. Evonik has an idea of the future. Our products, technologies and solutions provide answers to many significant societal issues. Megatrends like energy efficiency, health & wellness and globalization & demographic change are key drivers of our business. That is why we are systematically strengthening our position on the photovoltaic market, where we achieved some important milestones in 2008. Our joint venture with SolarWorld, which uses innova­ tive technology to produce solar silicon, is a pioneer in this sector. Another pioneering role is played by our energy efficiency research center, which opened in October. We will be investing some €50 million here in the period up to 2013. The Evonik Group’s second fiscal year confirmed its strong position as an industrial group with three business areas. Although the economy started to cool early on, especially in North America, we retained our ambitious targets and can be satisfied overall, despite the particularly harsh economic headwind in the final quarter of the year. The Energy and Real Estate Business Areas exceeded our expectations. Even in the specialty chemicals business our diversified portfolio supported our business. Major end­markets such as the automotive, construction and plastics industries were increasingly affected by the deteriorating global economic conditions. However, this was offset by an unchanged good business performance by our Health & Nutrition Business Unit. The Evonik Group grew sales by roughly 10 percent to around 4 Annual Report 2008 Evonik Industries “Our goal is to create value for our customers, employees and stakeholders and provide jobs with a future. By developing Evonik we aim to remain true to our motto of continual self- renewal.” Dr. Klaus Engel, Chairman of the Executive Board of Evonik Industries AG €15.9 billion. EBITDA (operating profit before depreciation, amortization and the non­operating result) was virtually unchanged year­on­year at approxi­ mately €2.2 billion. Capital expenditures were about €1.2 billion, above both the previous year’s level of €1 billion and depreciation, which amounted to €842 million. The key financial data for the Evonik Group in 2008 highlight our sound, future­oriented position. That was rewarded by the capital markets. Last summer, CVC Capital Partners joined RAG­Stiftung as a second major inves­ tor that supports the growth strategy of our company. Like RAG­Stiftung and Evonik’s management CVC is convinced of Evonik’s potential. We want to use this as a basis for sustained profitable growth in the coming years.