The Exceptional
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CREATING the exceptional ANNUAL REPORT 2016 Key figures for the Evonik Group Key figures in € million 2012 2013 2014 2015 2016 Sales 13,365 12,708 12,917 13,507 12,732 Adjusted EBITDA a 2,467 1,995 1,882 2,465 2,165 Adjusted EBITDA margin in % 18.5 15.7 14.6 18.2 17.0 Adjusted EBIT b 1,887 1,404 1,256 1,752 1,448 ROCE c in % 20.4 15.1 12.5 16.6 14.0 Net income 1,165 2,054 568 991 844 Adjusted net income 1,076 806 782 1,128 930 Earnings per share in € 2.50 4.41 1.22 2.13 1.81 Adjusted earnings per share in € 2.31 1.73 1.68 2.42 1.99 Total assets as of December 31 17,166 15,883 15,685 17,005 19,645 Equity ratio as of December 31 in % 31.9 43.0 41.6 44.6 39.5 Cash flow from operating activities 1,420 1,055 1,066 1,971 1,758 Free cash flow d 490 – 49 – 60 1,052 810 Capital expenditures e 960 1,140 1,123 877 960 Depreciation and amortization e 580 585 606 700 707 Net financial debt/assets as of December 31 – 1,163 571 400 1,098 1,111 No. of employees as of December 31 33,298 33,650 33,412 33,576 34,351 Figures for 2012 and 2013 contain the former Real Estate segment as a discontinued operation. a Earnings before financial result, taxes, depreciation and amortization, after adjustments. b Earnings before financial result and taxes, after adjustments. c Return on capital employed. d Cash flow from operating activities, continuing operations, less cash outflows for capital expenditures on intangible assets, property, plant and equipment. e Intangible assets, property, plant and equipment. Due to rounding, some figures in this report may not add up exactly to the totals stated. Sales by segment Sales by region a Corporate/Other 1 % Services 5 % Other 3 % Germany 19 % Performance Nutrition & Care 34 % Asia-Pacific 22 % Materials 25 % Central and South America 6 % Other European Countries 30 % North America 20 % Resource Efficiency 35 % a By location of customer. Nutrition & Care The Nutrition & Care segment produces specialty Key figures chemicals, principally for use in consumer goods for daily needs, and in animal nutrition and healthcare in € million 2016 2015 products. External sales 4,316 4,924 Adjusted EBITDA 1,006 1,435 • Growth drivers: rising prosperity in Adjusted EBITDA margin in % 23.3 29.1 emerging markets and the aging population Adjusted EBIT 795 1,214 in industrialized countries. • Leading market positions in ROCE in % 26.8 41.5 superabsorbents (# 1–2), DL-methionine (# 1), No. of employees 7,594 7,165 pharmaceutical polymers (# 2). Resource Efficiency The Resource Efficiency segment supplies high- Key figures performance materials for environment-friendly and energy-efficient systems to the automotive, in € million 2016 2015 paints, coatings, adhesives, construction industries External sales 4,473 4,279 and many other sectors. Adjusted EBITDA 977 896 Adjusted EBITDA margin in % 21.8 20.9 • Growth drivers: trend to renewable energies Adjusted EBIT 751 675 and environment-friendly solutions. • Leading market positions in silica (# 1), isophorone ROCE in % 27.1 24.8 chemistry (# 1), oil additives (# 1). No. of employees 8,928 8,662 Performance Materials The heart of the Performance Materials segment Key figures is the production of polymer materials and intermediates, mainly for the rubber, plastics and in € million 2016 2015 agriculture industries. External sales 3,245 3,435 Adjusted EBITDA 371 309 • Growth drivers: intelligent design of chemicals Adjusted EBITDA margin in % 11.4 9.0 business. Adjusted EBIT 234 174 • Leading market positions in butene-1 (# 1), ROCE in % 18.3 11.9 alkoxides (# 1), methacrylate polymers (# 1-2). No. of employees 4,393 4,380 CONTENTS THE 2 Letter from the Chairman of the Executive Board 5 The Executive Board 6 Creating the exceptional ESSENCE 26 TO OUR SHAREHOLDERS 28 Report of the Supervisory Board 36 Joint report of the Executive Board and the Supervisory Board of Evonik Industries AG on OF A YEAR. Corporate Governance 46 Evonik on the capital markets 50 MANAGEMENT REPORT 51 Basic information on the Evonik Group 54 Business review 75 Performance of Evonik Industries AG 78 Research & development 83 Sustainability 92 Events after the reporting date 93 Opportunity and risk report 103 Takeover-relevant information 105 Declaration on corporate governance 106 Remuneration report 114 Report on expected developments 117 CONSOLIDATED FINANCIAL STATEMENTS 118 Income statement 119 Statement of comprehensive income 120 Balance sheet 122 Statement of changes in equity 123 Cash flow statement 124 Notes to the consolidated financial statements of the Evonik Group 191 SUPPLEMENTARY INFORMATION 192 Independent Auditor’s report 197 Further information on corporate officers 200 Market positions 201 Alternative Performance Measures 202 Glossary 207 Credits Through its acquisition of the specialty additives business of Air Products and the silica business of J. M. Huber in 2016, Evonik further strengthened its position in attractive markets and thus took important steps to ensure the Group’s continued global growth in the future. We put together our own team of experts for the implementa- tion of our digitalization strat- egy and founded a separate company that operates like a startup. Our aim is to use new business models to open up a market that is worth billions. To achieve this goal, we need know-how and, above all, cre- ativity—an area of competence that, more than any other, is synonymous with Evonik’s suc- cess. The proofs of our creativ- ity include innovative products such as probiotics for farm animals, powders for 3D print- ers, and PLEXIGLAS panels for significantly larger airplane windows. “Creating the exceptional” is the motto of the following pages, where we’d like to pres- ent to you some of our ideas that combine disparate themes and connect well thought-out solu- tions. These solutions will have a significant impact on our work and on the global markets in the future. As a result, this backward look is also a look at a future that harbors a wealth of opportunities. 2 LETTER FROM THE CHAIRMAN OF THE EXECUTIVE BOARD KLAUS ENGEL Chairman of the Executive Board Our company can look back on a successful business year 2016—which, however, was also characterized by difficult conditions and major political events. The global economy grew by a mere 2.3 percent in 2016. This was below our economists’ average expectations at the beginning of the year. This weak growth was mainly due to the rather sluggish development of the North American economy. Growth was further impacted by the economic slowdown in the emerging markets. The economy of Latin America remained in a recession that was characterized by great regional differences. 3 Although the expansive monetary policy of the Since then, we have been systematically enhancing European Central Bank caused private consump- our company, with creativity and an eye on the tion, in particular, to improve somewhat, there are future. We weathered the global financial and eco- still unanswered questions about the risks in the nomic crisis safely, launched Evonik on the stock banking system and the consequences of the UK’s market successfully, divested our real-estate busi- decision to leave the EU. ness and our energy unit, and consistently focused the company’s operations on chemicals. In this volatile and challenging environment, Evonik has continued to pursue its successful At the same time, we made our enterprise more course. The adjusted EBITDA was extremely international step by step and commissioned state- good in 2015 and was expected to be between of-the-art production facilities in locations includ- €2.0 billion and €2.2 billion in 2016. We did in ing Singapore, China, North America, and Brazil. fact achieve this goal, with EBITDA amounting Through our acquisition of the specialty additives to €2.165 billion, which was near the top of the business of Air Products we took a big and import- forecast range. ant step in the strategic development of our port- folio. We are substantially expanding this profit- However, our sales of €12.7 billion are consider- able business for Evonik in America and Asia and ably below the prior year’s high level. This result thus becoming one of the world’s leading suppliers is mainly due to lower raw material costs, which of specialty additives. These business activities caused the prices we can charge to decline as well. and the new employees are being rapidly inte- By contrast, in 2016 our volume sales increased grated into our fast-growing Resource Efficiency once again by comparison with the previous year. and Nutrition & Care segments. Our expectations regarding the future development of specialty We expect the conditions for the global economy additives are correspondingly high. to improve slightly in fiscal 2017, leading to global growth of 2.6 percent. At the same time, difficult We are similarly optimistic about our worldwide political and geopolitical conditions still remain. silica business, which we can strengthen through This applies especially to the European Union, in another acquisition. Our acquisi tion of the silica which several key elections will be held in 2017. unit of the family-run company J. M. Huber in the USA is enabling us to expand our presence At Evonik, we continue to look to the future in North America and Asia in this business as with confidence. Because our investments will well—especially in the consumer-related sector. continue to pay off this year, we expect our We expect to close this transaction successfully in adjusted EBITDA to surpass that of 2016.