Annual Report 2016DEENCN
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Klaus Engel, 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.

Although the expansive monetary policy of the European Central Bank caused private consumption, in particular, to improve somewhat, there are still unanswered questions about the risks in the banking system and the consequences of the UK’s decision to leave the EU.

In this volatile and challenging environment, Evonik has continued to pursue its successful course. The adjusted EBITDA was extremely good in 2015 and was expected to be between €2.0 billion and €2.2 billion in 2016. We did in fact achieve this goal, with EBITDA amounting to €2.165 billion, which was near the top of the forecast range.

However, our sales of €12.7 billion are considerably below the prior year’s high level. This result is mainly due to lower raw material costs, which caused the prices we can charge to decline as well. By contrast, in 2016 our volume sales increased once again by comparison with the previous year.

We expect the conditions for the global economy to improve slightly in fiscal 2017, leading to global growth of 2.6 percent. At the same time, difficult political and geopolitical conditions still remain. This applies especially to the European Union, in which several key elections will be held in 2017.

At Evonik, we continue to look to the future with confidence. Because our investments will continue to pay off this year, we expect our adjusted EBITDA to surpass that of 2016. In our outlook, we assume the result will lie between €2.2 billion and €2.4 billion.

Evonik will celebrate its tenth anniversary in September 2017. In 2007 Werner Müller unveiled our carefully covered corporate headquarters in Essen. The new name “Evonik Industries” was clearly visible on the building’s roof.
Since then, we have been systematically enhancing our company, with creativity and an eye on the future. We weathered the global financial and economic crisis safely, launched Evonik on the stock market successfully, divested our real-estate business and our energy unit, and consistently focused the company’s operations on chemicals.

At the same time, we made our enterprise more international step by step and commissioned state-of- the-art production facilities in locations including Singapore, China, North America, and Brazil. Through our acquisition of the specialty additives business of Air Products we took a big and important step in the strategic development of our portfolio. We are substantially expanding this profitable business for Evonik in America and Asia and thus becoming one of the world’s leading suppliers of specialty additives. These business activities and the new employees are being rapidly integrated into our fast-growing Resource Efficiency and Nutrition & Care segments. Our expectations regarding the future development of specialty additives are correspondingly high.

We are similarly optimistic about our worldwide silica business, which we can strengthen through another acquisition. Our acquisition of the silica unit of the family-run company J. M. Huber in the USA is enabling us to expand our presence in North America and Asia in this business as well—especially in the consumer-related sector. We expect to close this transaction successfully in the course of this year after receiving approval from the antitrust authorities.

Our silica business is also getting a boost from the construction of a new facility in the southern USA. Production at the facility is scheduled to begin in 2018. We have also invested in the silica sector in Brazil, where we put our new silica plant into operation in Americana last summer.

In order to further safeguard our growth opportunities in the methionine business, last October we began construction of a new production complex for methionine in Singapore, because the demand for animal feed additives is steadily increasing, especially in Asia. At our European locations as well, we have continued to prepare ourselves for the future. Last fall we held the ground-breaking ceremony for our new polyamide 12 powder facility in Marl, which will expand our production capacity for polyamide 12 powder by 50 percent. In this segment, we see especially strong growth potential in 3D printing.

In Weiterstadt, we are building a new stretching and polishing facility for PLEXIGLAS®, sold under the ACRYLITE trademark in the Americas, which is scheduled to go into operation in early 2018. This plant will enable us to make substantially bigger and more uniform sheets of PLEXIGLAS® for the aviation industry, for example.

At the same time, we are also expanding our membrane production operations in Schörfling, Austria. The membrane business is an outstanding example of our use of innovative products to enter new markets. That’s because innovation, closeness to our customers, and creativity are crucial drivers of Evonik’s profitable growth. We want to invest a total of €4 billion in innovations by 2025. During the last fiscal year, we spent no less than €438 million on research & development. This investment is paying off, as it enabled us to submit around 230 new patents in 2016. We achieved about ten percent of our total sales with products that are less than five years old.

The “fourth Industrial Revolution” will be accompanied by pioneering innovations, and the associated digital transition is also affecting the chemical industry. For us, it is not only bringing technological progress but also opening up considerable potential for new business models, new supply-chain concepts, and new sales channels. Accordingly, we have adapted our organization in a timely and interdisciplinary process in order to identify and exploit at an early stage all the opportunities that the digital transition offers to Evonik.

But in spite of all this enthusiasm for innovation, outside of our daily business activities we have held fast to something that is very dear to us—our social commitment. For example, as we celebrate the tenth year of our existence, the Evonik Foundation will further intensify its diverse activities as a promoter of education, science, culture, and sports.

We will continue to focus in particular on the education and training of refugees and underprivileged young people from Germany.

Sustainable success in business operations and socially beneficial activities can only be achieved over the long term if a company has employees who are highly qualified, committed, and open to the world. We have them at Evonik—and that makes me very optimistic about our company’s present and its future.

The Executive Board, from left: Ralph Sven Kaufmann, Christian Kullmann, Ute Wolf, Klaus Engel, Thomas Wessel