Quarterly Report • Nov 4, 2016
Quarterly Report
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3rd quarter 2016 | 1st nine months 2016
3rd quarter:
1st nine months:
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| Sales | 3,164 | 3,365 | 9,527 | 10,309 |
| a Adjusted EBITDA |
578 | 653 | 1,728 | 1,964 |
| Adjusted EBITDA margin in % |
18.3 | 19.4 | 18.1 | 19.1 |
| Adjusted EBIT b | 396 | 473 | 1,191 | 1,444 |
| Income before financial result and income taxes, continuing operations (EBIT) | 381 | 382 | 1,117 | 1,438 |
| Net income | 223 | 188 | 628 | 862 |
| Adjusted net income | 247 | 296 | 748 | 923 |
| Earnings per share in € | 0.48 | 0.40 | 1.35 | 1.85 |
| Adjusted earnings per share in € | 0.53 | 0.64 | 1.61 | 1.98 |
| Cash flow from operating activities, continuing operations | 500 | 717 | 1,098 | 1,329 |
| Capital expenditures | 217 | 206 | 589 | 585 |
| Net financial assets as on the balance sheet as of September 30 | – | – | 837 | 963 |
| No. of employees as of September 30 | – | – | 34,277 | 33,650 |
a Earnings before financial result, taxes, depreciation and amortization, after adjustments.
b Earnings before financial result and taxes, after adjustments.
Sales by segment 1st nine months 2016
Due to rounding, some figures in this report may not add up exactly to the totals stated.
a By location of customer.
Consolidated interim financial statements
Business conditions and performance Business performance •Interim management report • Interim financial statements 3
As expected, global economic growth was weak in the first nine months of 2016. The economic slowdown continued in the emerging markets. This was attributable to lower growth in China, softer demand from the industrialized countries, low raw material prices, and declining global trade. In Brazil, there were increasing signs in the third quarter that the recession could have bottomed out.
Economic momentum was also low in the developed economies in the first nine months of 2016. Following a weak start to the year, the US economy picked up in the second and third quarters, driven mainly by consumer spending. However, the pace of growth was lower than in the past.
In Europe, the moderate growth continued, supported by consumer spending, sustained favorable financing conditions, and a slight rise in state spending. There was a slight deterioration in economic sentiment in the third quarter as a reaction to the Brexit vote. The cooling of the British economy had a slightly negative impact on the European economy. In Germany, the economy was driven principally by private consumption and public spending and by the rise in construction spending, but was held back by weaker foreign trade.
Evonik's end-customer industries posted solid growth overall in the first nine months of this year. Demand for consumer and care products developed well overall, despite regional differences, and registered an upturn in the third quarter, especially in Europe. Automotive output rose yearon-year in Asia and in some cases in Europe. By contrast, the pace of demand for food and animal feed slowed somewhat compared with the previous year. The general industrial trend remained weak in the first nine months of 2016, with output rising only slightly in Europe and dropping back in North America and Latin America.
On May 6, 2016, Evonik signed a purchase agreement for the specialty and coating additives business (Performance Materials Division) of the US company Air Products and Chemicals, Inc., Allentown (Pennsylvania, USA) for US\$3.8 billion (approximately €3.5 billion). This will strengthen Evonik's leading position on the attractive growth market for specialty additives. The business to be acquired will be integrated into our Nutrition & Care and Resource Efficiency growth segments. The proposed acquisition is contingent on the approval of the relevant antitrust authorities. We secured the financing in September by issuing three bonds at an average interest rate of 0.35 percent. So far this year, the planned acquisition has resulted in project expenses, and financing and currency hedging costs totaling €59 million.
The positive volume trend continued in the third quarter of 2016, with good demand for our products worldwide. Selling prices declined further, partly because lower raw material prices were passed on to customers. Adjusted EBITDA was level with the previous quarter but 11 percent lower than in the exceptionally strong prior-year quarter. The decline was due to the Nutrition & Care segment, where selling prices normalized from the high prior-year level. The Resource Efficiency segment posted a very good performance and improved earnings considerably. Earnings were also up in the Performance Materials and Services segments. The adjusted EBITDA margin remained very good at 18.3 percent.
The Evonik Group posted a drop of 6 percent in sales to €3,164 million. While volumes were higher (3 percentage points) and currency effects were slightly positive (1 percentage point), the decline was mainly caused by the year-onyear drop in selling prices (– 10 percentage points).
Adjusted EBITDA was €578 million, 11 percent less than in the exceptionally strong prior-year quarter. The adjusted EBITDA margin was very good at 18.3 percent (Q3 2015: 19.4 percent). Adjusted EBIT dropped 16 percent to €396 million.
| in % | 1st quarter 2016 |
2nd quarter 2016 |
3rd quarter 2016 |
1st nine months 2016 |
|---|---|---|---|---|
| Volumes | – | 4 | 3 | 2 |
| Prices | –7 | –10 | –10 | –9 |
| Organic sales growth |
–7 | –6 | –7 | –7 |
| Exchange rates | –1 | – | 1 | – |
| Other effects | –1 | –1 | – | –1 |
| Total | –9 | –7 | –6 | –8 |
2016 2015
The adjustments of – €15 million include project expenses of €6 million in connection with the planned acquisition of Air Products' specialty and coating additives business, which are recognized in acquisition/divestment of shareholdings. The prior-year adjustments of – €91 million mainly comprised restructuring expenses, and impairment losses for an equity investment in the Nutrition & Care segment and a production facility in the Performance Materials segment.
Business performance
| 3rd quarter | 1st nine months | |||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | Change in % |
2016 | 2015 | Change in % |
| Sales | 3,164 | 3,365 | –6 | 9,527 | 10,309 | –8 |
| Adjusted EBITDA | 578 | 653 | –11 | 1,728 | 1,964 | –12 |
| D epreciation and amortization |
–182 | –180 | –537 | –520 | ||
| Adjusted EBIT | 396 | 473 | –16 | 1,191 | 1,444 | –18 |
| A djustments |
–15 | –91 | –74 | –6 | ||
| thereof attributable to | ||||||
| Restructuring | –1 | –20 | –25 | –41 | ||
| Impairment losses/reversals of impairment losses | –1 | –24 | –18 | –47 | ||
| Acquisition/divestment of shareholdings | –6 | – | –17 | 142 | ||
| Other | –7 | –47 | –14 | –60 | ||
| Financial result | –55 | –86 | –183 | –200 | ||
| Income before income taxes, continuing operations | 326 | 296 | 10 | 934 | 1,238 | –25 |
| I ncome taxes |
–100 | –105 | –297 | –354 | ||
| Income after taxes, continuing operations | 226 | 191 | 18 | 637 | 884 | –28 |
| I ncome after taxes, discontinued operations |
1 | – | 1 | –15 | ||
| Income after taxes | 227 | 191 | 19 | 638 | 869 | –27 |
| thereof attributable to non-controlling interests | 4 | 3 | 10 | 7 | ||
| Net income | 223 | 188 | 19 | 628 | 862 | –27 |
| Earnings per share in € | 0.48 | 0.40 | – | 1.35 | 1.85 | – |
The financial result improved considerably, from – €86 million to – €55 million. It should be noted that the prior-year figure contains one-off factors of – €28 million comprising interest expense in connection with the establishment of provisions. Income before income taxes, continuing operations was 10 percent higher at €326 million. The income tax rate was 31 percent, and thus roughly in line with the expected Group tax rate. Overall, net income increased 19 percent to €223 million as a result of the reduced impact of one-off factors.
The calculation of adjusted net income (after adjustment for exceptional factors) improves comparability of the earnings power of the continuing operations, especially on a longterm view, and thus facilitates the forecasting of future development. Adjusted net income fell 17 percent to €247 million in the third quarter. Adjusted earnings per share dropped from €0.64 to €0.53.
Business performance in the first nine months of 2016 Sales declined 8 percent to €9,527 million. This was mainly due to lower selling prices (–9 percentage points), while the increase in volume sales (2 percentage points) cushioned the decline.
Adjusted EBITDA was 12 percent below the very high prior-year level at €1,728 million. The adjusted EBITDA margin was a very good 18.1 percent, compared with 19.1 percent in the first nine months of 2015. Adjusted EBIT dropped 18 percent to €1,191 million.
The adjustments of – €74 million include restructuring expenses of €25 million, principally for optimization of the portfolio structure of the Performance Materials segment. The impairment losses/reversals of impairment losses amounting to – €18 million mainly related to an equity investment in the Nutrition & Care segment. Project expenses of €17 million for the planned acquisition of Air Products' specialty and coating additives business were assigned to the acquisition/divestment of business operations. The adjustments of – €6 million reported for the prior-year period contained restructuring expenses, impairment losses and income from the divestment of the stake in Vivawest.
| 3rd quarter | 1st nine months | |||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | Change in % |
2016 | 2015 | Change in % |
| Adjusted EBITDA | 578 | 653 | –11 | 1,728 | 1,964 | –12 |
| D epreciation and amortization |
–182 | –180 | –537 | –520 | ||
| Adjusted EBIT | 396 | 473 | –16 | 1,191 | 1,444 | –18 |
| A djusted financial result |
–50 | –58 | –137 | –157 | ||
| A mortization and impairment losses on intangible assets |
11 | 10 | 31 | 29 | ||
| Adjusted income before income taxes a | 357 | 425 | –16 | 1,085 | 1,316 | –18 |
| A djusted income taxes |
–106 | –126 | –327 | –386 | ||
| Adjusted income after taxes a | 251 | 299 | –16 | 758 | 930 | –18 |
| thereof adjusted income attributable to non-controlling interests |
4 | 3 | 10 | 7 | ||
| Adjusted net incomea | 247 | 296 | –17 | 748 | 923 | –19 |
| Adjusted earnings per sharea in € | 0.53 | 0.64 | – | 1.61 | 1.98 | – |
a Continuing operations.
The financial result of – €183 million contains currency hedging and financing expenses of €42 million for the planned acquisition. In the prior year, one-off factors amounted to – €43 million, mainly interest expense in connection with the establishment of provisions. Overall, income before income taxes, continuing operations was 25 percent lower at €934 million. The income tax rate was 32 percent, which was above the expected rate for the Group, primarily because of non-tax-deductible expenses and non-period taxes.
Net income was €628 million, down 27 percent from the high prior-year level, which contained the proceeds from the divestment of the stake in Vivawest.
Adjusted net income dropped 19 percent to €748 million, while adjusted earnings per share declined from €1.98 to €1.61.
| 3rd quarter | 1st nine months | |||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | Change in % |
2016 | 2015 | Change in % |
| External sales | 1,066 | 1,240 | –14 | 3,223 | 3,716 | –13 |
| Adjusted EBITDA | 239 | 382 | –37 | 796 | 1,116 | –29 |
| Adjusted EBITDA margin in % |
22.4 | 30.8 | – | 24.7 | 30.0 | – |
| Adjusted EBIT | 182 | 328 | –45 | 634 | 954 | –34 |
| Capital expenditures | 59 | 64 | –8 | 162 | 177 | –8 |
| No. of employees as of September 30 | – | – | – | 7,550 | 7,062 | 7 |
In the Nutrition & Care segment sales declined 14 percent to €1,066 million in the third quarter of 2016. Since volumes were stable compared with the strong prior-year period, this was mainly attributable to lower selling prices.
As expected, within essential amino acids for animal nutrition the price of methionine was below the record level of 2015. Selling prices of the other amino acids were also lower than in the prior-year period. Demand for methionine, in particular, weakened again slightly following a good second quarter. Overall, sales of amino acids were down significantly year-on-year as a result of lower selling prices. The principal factor holding back the baby care business was overcapacity. Sales declined considerably as a result of perceptibly lower volumes and declining prices as lower raw material costs were passed on to customers. By contrast, additives for polyurethane foams posted higher sales, with high demand in all major end-markets worldwide. The health care business also developed very well, with good volume growth coming from new projects in the pharmaceuticals business.
Adjusted EBITDA was €239 million, which was below the very high prior-year level of €382 million, mainly on price grounds. The adjusted EBITDA margin dropped to 22.4 percent.
2016 2015
In the first nine months of 2016 sales in the Nutrition & Care segment dropped by 13 percent to €3,223 million. Since volumes were virtually unchanged, the decline was attributable to far lower selling prices. Adjusted EBITDA was 29 percent below the very strong prior-year level at €796 million. The adjusted EBITDA margin remains very good at 24.7 percent.
To implement the Nutrition & Care segment's growth strategy, we have made selective acquisitions to strengthen our portfolio:
In March 2016, we acquired MedPalett AS, Sandnes (Norway). This company markets food ingredients containing anthocyanins, which are known for their natural antioxidant properties and expand the advanced food ingredients offering of our health care business.
To extend the portfolio of active ingredients for personal care products, in May 2016 we acquired the start-up Alkion Biopharma SAS, Evry (France). This company specializes in biotechnologically produced plant-based active ingredients for the cosmetics industry.
At the start of July 2016 we acquired the probiotics business of NOREL S.A., Madrid (Spain). This comprises the existing probiotics product portfolio and the production site in León (Spain). This acquisition extends our portfolio of products for sustainable and healthy animal nutrition solutions. Priobiotics play a key role as natural alternatives to antibiotics and antibiotic growth promoters.
To further strengthen the health care business, at the end of August 2016 we acquired the business of Transferra Nanosciences Inc., Burnaby (Canada), which specializes in developing liposomal drug delivery systems.
| 3rd quarter | 1st nine months | |||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | Change in % |
2016 | 2015 | Change in % |
| External sales | 1,117 | 1,044 | 7 | 3,392 | 3,278 | 3 |
| Adjusted EBITDA | 262 | 216 | 21 | 788 | 714 | 10 |
| Adjusted EBITDA margin in % |
23.5 | 20.7 | – | 23.2 | 21.8 | – |
| Adjusted EBIT | 205 | 161 | 27 | 619 | 553 | 12 |
| Capital expenditures | 68 | 63 | 8 | 180 | 160 | 13 |
| No. of employees as of September 30 | – | – | – | 8,879 | 8,549 | 4 |
The Resource Efficiency segment continued its successful business performance in the third quarter of 2016. Sales rose 7 percent to €1,117 million, driven principally by clear volume growth. Selling prices slipped slightly, mainly because lower raw material costs were passed on to customers.
Silicas posted higher sales thanks to an upturn in demand, especially from the tire and coatings industries. Business with high-performance polymers was also very positive, with the strong rise in sales coming principally from higher volumes. The coating additives business, which mainly supplies technical solutions for coating technologies, also benefited from higher demand. In the active oxygen products business, conventional applications for hydrogen peroxide continued to develop well, with the production facility in the Netherlands which we acquired in October 2015 making a contribution to this.
Adjusted EBITDA advanced 21 percent to €262 million, mainly as a consequence of higher volumes and favorable raw material costs. The adjusted EBITDA margin improved to a very good 23.5 percent.
In the first nine months of the year, sales in the Resource Efficiency segment rose 3 percent to €3,392 million. This was mainly due to higher volumes, while the reduction in selling prices driven by raw material prices had a counter-effect. Adjusted EBITDA rose by 10 percent to €788 million. The adjusted EBITDA margin improved from 21.8 percent to 23.2 percent.
2016 2015
| 3rd quarter | 1st nine months | |||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | Change in % |
2016 | 2015 | Change in % |
| External sales | 797 | 858 | –7 | 2,399 | 2,646 | –9 |
| Adjusted EBITDA | 104 | 94 | 11 | 273 | 247 | 11 |
| Adjusted EBITDA margin in % |
13.0 | 11.0 | – | 11.4 | 9.3 | – |
| Adjusted EBIT | 70 | 57 | 23 | 170 | 150 | 13 |
| Capital expenditures | 42 | 34 | 24 | 107 | 123 | –13 |
| No. of employees as of September 30 | – | – | – | 4,421 | 4,387 | 1 |
In the Performance Materials segment, sales dropped 7 percent to €797 million in the third quarter of 2016. The main reason was the reduction in selling prices as lower raw material costs were passed on to customers. By contrast, volumes rose considerably thanks to good demand.
Volumes of performance intermediates benefited from rising demand and the new production capacities in Marl (Germany) and Antwerp (Belgium). However, selling prices declined further as a result of the drop in the price of oil, leading to a considerable drop in sales. Demand for methacrylates continued to pick up, especially in the coatings and automotive industries, but sales were only at the prior-year level, mainly on price grounds.
Adjusted EBITDA grew 11 percent to €104 million. This was primarily due to a rise in volumes, high capacity utilization at production facilities, and the initial effects of cost-cutting measures. The adjusted EBITDA margin was 13.0 percent, up from 11.0 percent in the third quarter of 2015.
In the first nine months of the year, sales in the Performance Materials segment shrank 9 percent to €2,399 million. With volumes up, the decline was caused by the oil-driven drop in selling prices. Adjusted EBITDA improved 11 percent to €273 million and the adjusted EBITDA margin rose to 11.4 percent.
2016 2015
| 3rd quarter | 1st nine months | |||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | Change in % |
2016 | 2015 | Change in % |
| External sales | 173 | 207 | –16 | 503 | 626 | –20 |
| Adjusted EBITDA | 50 | 46 | 9 | 119 | 119 | – |
| Adjusted EBITDA margin in % |
28.9 | 22.2 | – | 23.7 | 19.0 | – |
| Adjusted EBIT | 21 | 18 | 17 | 32 | 40 | –20 |
| Capital expenditures | 41 | 40 | 3 | 126 | 110 | 15 |
| No. of employees as of September 30 | – | – | – | 12,896 | 12,747 | 1 |
Prior-year figures restated.
Earnings, financial and asset position Financial and asset position •Interim management report • Interim financial statements 11
Sales fell 16 percent to €173 million in the third quarter. The decline was due to an energy and raw material-driven drop in revenues from procurement and energy supply for external customers at our sites. Adjusted EBITDA increased 9 percent to €50 million, mainly because of higher earnings from Utilities and Waste Management at our sites.
In the first nine months sales contracted by 20 percent to €503 million. Adjusted EBITDA was almost unchanged yearon-year at €119 million.
Sales declined 8 percent to €9,527 million in the first nine months of 2016. Given the slight rise in volumes, this was mainly caused by lower selling prices. The cost of sales was down 9 percent year-on-year at €6,297 million, principally due to the reduction in raw material costs. The gross profit on sales therefore decreased by just 5 percent to €3,230 million. Selling expenses increased by 4 percent to €1,108 million, mainly due to the expansion of business resulting from new production facilities. Research and development expenses increased by 5 percent to €321 million. General administrative expenses were €5 million lower at €504 million.
Other operating income was €174 million, €152 million below the high prior-year level, which contained the income from the divestment of the stake in Vivawest. The €61 million drop in other operating expenses to €336 million is principally due to lower impairment losses. The result from investments recognized at equity was – €18 million and primarily comprised an impairment loss on one company. Income before financial result and income taxes, continuing operations dropped 22 percent to €1,117 million.
The financial result of – €183 million contains currency hedging and financing expenses of €42 million in connection with the planned acquisition. The prior-year figure comprised one-off factors of – €43 million, mainly interest expense in connection with the establishment of provisions. Income before income taxes, continuing operations was 25 percent lower at €934 million. The income tax rate was 32 percent, which was above the expected Group tax rate, mainly due to non-tax-deductible expenses and taxes relating to other periods. Income after taxes, continuing operations dropped 28 percent to €637 million.
Income after taxes, discontinued operations was €1 million and comprised post-divestment income from businesses sold in prior periods. The prior-year figure of – €15 million was mainly attributable to the remaining lithium-ion activities, which were divested in April 2015. Net income was €628 million, 27 percent below the prior-year level, which contained the proceeds from the divestment of the stake in Vivawest.
In September 2016 Evonik successfully placed bonds with a nominal value of €1.9 billion on the capital market via its subsidiary Evonik Finance B.V. The proceeds will be used to finance the planned acquisition of Air Products' specialty and coating additives business. As well as the bonds, internal funding of around €1.6 billion will be used to finance the purchase price of around €3.5 billion (US\$3.8 billion). Three fixed-rate tranches were issued: a €650 million tranche with a tenor of 4.5 years and a coupon of 0 percent p.a., a €750 million tranche with a tenor of 8 years and a coupon of 0,375 percent p.a., and a €500 million tranche with a tenor of 12 years and a coupon of 0.750 percent p.a.
| in € million | Sept. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| on-current financial liabilities a N |
–3,241 | –1,361 |
| Current financial liabilities a | –292 | –194 |
| Financial debt | –3,533 | –1,555 |
| Cash and cash equivalents | 4,340 | 2,368 |
| Current securities | 11 | 262 |
| O ther financial investments |
19 | 23 |
| Financial assets | 4,370 | 2,653 |
| Net financial assets as stated on the balance sheet | 837 | 1,098 |
a Excluding derivatives.
As of September 30, 2016, financial debt was €3,533 million, a substantial increase of €1,978 million compared with yearend 2015, principally as a result of the bond issues. Financial assets increased by €1,717 million to €4,370 million. Alongside the proceeds from the bond issues, this was due to the positive free cash flow, while the dividend payment for fiscal 2015 had a counter-effect. Net financial assets decreased by €261 million compared with December 31, 2015 to €837 million.
While the Standard & Poor's rating agency left the rating of Evonik Industries AG unchanged at BBB+ with a stable outlook, Moody's raised its rating one notch from Baa2 with a positive outlook to Baa1 with a stable outlook on May 10, 2016. This was Moody's response to the announcement of the planned acquisition of Air Products' specialty and coating additives business. Moody's expects Evonik's business profile to improve as a result of economies of scale and greater diversification.
In the first nine months of 2016, capital expenditures for property, plant and equipment were €589 million, in line with the first nine months of 2015 (€585 million). A new production facility for ROHACELL structural foam was completed in Shanghai (China). Applications for this product include aircraft and automotive engineering. In Brazil, a new facility for biotechnological production of Biolys (L-lysine) for modern animal nutrition came into service in Castro and a production plant for precipitated silica, which is mainly used in tires with reduced rolling resistance, came on stream at the site in Americana. In Antwerp (Belgium), we invested in the world's first production plant for Aquavi Met-Met, a new source of methionine developed specifically for shrimp and other crustaceans. In addition, a thin-film composites plant for membrane coating was taken into service in Marl (Germany). In principle, there is a slight timing difference in outflows for property, plant and equipment due to payment terms. In the reporting period, cash outflows for property, plant and equipment totaled €610 million (9M 2015: €655 million).
The financial investments totaling €145 million mainly comprised the acquisition of the Norwegian company MedPalett AS and the business of the Canadian company Transferra Nanosciences Inc. and the Spanish company NOREL S.A.
The cash flow from operating activities declined to €1,098 million in the first nine months of 2016, a drop of €234 million compared with the prior-year period. This was mainly caused by lower operating earnings and higher income tax payments, with a clearly positive counter-effect coming from the change in working capital.
| 1st nine months | |||
|---|---|---|---|
| in € million | 2015 | ||
| Cash flow from operating activities, continuing operations | 1,098 | 1,329 | |
| Cash flow from operating activities, discontinued operations | – | 3 | |
| Cash flow from operating activities | 1,098 | 1,332 | |
| Cash flow from investing activities | –504 | –180 | |
| Cash flow from financing activities | 1,382 | 269 | |
| Change in cash and cash equivalents | 1,976 | 1,421 |
In the cash flow from investing activities, the repayment of current securities (€235 million), in particular, had a positive effect. Together with cash outflows for property, plant and equipment and the acquisition of shareholdings, the total outflow was €504 million. In the prior-year period, cash outflows for capital expenditures for property, plant and equipment were offset by the proceeds from the divestment of the stake in Vivawest, so the total outflow was only €180 million.
The cash inflow for financing activities totaling €1,382 million mainly comprised the proceeds of the bond issues. In the prior-year period, there was an inflow of €269 million, principally from the issuance of a bond.
In the first nine months of 2016, the free cash flow1 was €488 million, compared with €674 million in the prior-year period.
The discount rate for pensions in the euro-zone countries declined considerably to 1.50 percent as of June 30, 2016 (year-end 2015: 2.75 percent) and was unchanged in the third quarter. The decline led to an increase of €1.6 billion in pension provisions to €4.9 billion as of September 30, 2016, without recognition in profit or loss. In line with this, deferred tax assets increased by €0.5 billion to €1.6 billion. The increase in pension provisions and the corresponding rise in deferred tax assets reduced equity by €1.2 billion but was not recognized in profit or loss.
Total assets were €19.2 billion as of September 30, 2016, €2.2 billion higher than at year-end 2015. Non-current assets rose by €0.6 billion to €10.9 billion as a result of higher deferred tax assets. Current assets increased by €1.6 billion to €8.3 billion, mainly because of the considerable rise in cash and cash equivalents.
Equity decreased by €1.0 billion to €6.6 billion, principally as a result of the remeasurement of the net defined benefit liability for defined benefit pension plans. The equity ratio decreased from 44.6 percent to 34.2 percent.
Research and development (R&D) expenses increased by 5 percent to €321 million in the first nine months of 2016. Highlights of our R&D activities were the start-up of our Friction & Motion competence center for enhanced energy efficiency, investment in the Irish medical device company Vivasure Medical Ltd., and involvement of the Open Platform Program of US PC and printer manufacturer HP Inc.
The main topics addressed by the Friction & Motion competence center established by the Resource Efficiency segment's Oil Additives Business Line are energy efficiency and reducing carbon emissions. The aim is to identify potential for savings and improvements in various areas of application. Its work will include e-mobility, robotics and drone technology.
We have made a strategic addition to the applications portfolio for products produced by the Health Care Business Line in the Nutrition & Care segment through our venture capital activities. The investment in medical technology company Vivasure and its innovative technology allows fully bioabsorbable, sutureless and entirely synthetic closure of large-bore arteriotomies (incisions in minimally invasive procedures). The stake in Vivasure opens up new applications for Evonik's RESOMER business for the production of medical products and pharmaceutical formulations.
Evonik is also extending its exposure to the attractive 3D printing market. The High Performance Polymers Business Line in the Resource Efficiency segment is participating in the Open Platform Program of HP Inc. As part of this it is bringing new custom-tailored powders for the HP Multi Jet Fusion™ technology onto the market. HP's technology opens up new applications for 3D printing and paves the way for research into new materials for the future.
1 Cash flow from operating activities, continuing operations, less outflows for capital expenditures for intangible assets, property, plant and equipment.
As of September 30, 2016, the Evonik Group had 34,277 employees. The increase of 701 compared with year-end 2015 was principally due to expansion of our business, including acquisitions and the start-up of new capacity.
| Sept. 30, 2016 |
Dec. 31, 2015 |
|
|---|---|---|
| Nutrition & Care | 7,550 | 7,165 |
| Resource Efficiency | 8,879 | 8,662 |
| Performance Materials | 4,421 | 4,380 |
| Services | 12,896 | 12,668 |
| Other operations | 531 | 701 |
| Evonik | 34,277 | 33,576 |
Prior-year figures restated.
As an international Group with a diversified portfolio of specialty chemicals, Evonik is exposed to a wide range of opportunities and risks. The risk categories and principal individual opportunities and risks relating to our earnings, financial and asset position, and the structure of our risk management system were described in detail in the opportunity and risk report, which forms part of the Management Report for 2015.
In view of the continued volatility of the operating environment, we regularly and systematically monitor and analyze the markets, sectors and growth prospects of relevance for our segments. Based on current market trends in our Nutrition & Care, Resource Efficiency and Performance Materials segments, we see fewer opportunities and risks for this year than in our assessment at the end of 2015. There are still no risks that could jeopardize the continued existence of the Evonik Group or major individual companies.
No material events have occurred since the reporting date.
Our expectations for global economic conditions in 2016 have altered marginally compared with the start of the year: Overall we anticipate slightly lower momentum in the global economy, with a year-on-year growth rate of 2.4 percent in 2016. We expect the present weak growth in the emerging markets to continue, although the recessions in Brazil and Russia should have bottomed out. The economic upturn in some developed economies will probably be dampened by the heightened uncertainty in the wake of the Brexit decision and the run-up to the elections in the USA.
Basis for our forecast:
We still expect to report slightly lower sales in 2016 (2015: €13.5 billion). Thanks to our strong market positions, balanced portfolio and concentration on high-growth businesses, we assume continued high demand for our products and appreciable volume growth despite the difficult macro-economic conditions. The new production capacities taken into service in recent years and further intensification of sales activities are also contributing to this. Selling prices are declining considerably, especially in the Nutrition & Care and Performance Materials segments, leading to the forecast slight reduction in overall sales.
We are confirming the outlook for adjusted EBITDA specified at the end of the first six months: We are confident that we can realize adjusted EBITDA in the upper half of the anticipated range of €2.0 billion to €2.2 billion (2015: €2.47 billion).
For the majority of businesses in the Nutrition & Care segment we are expecting a stable or slightly positive business trend compared with the previous year. As expected, the price of essential amino acids for animal nutrition is continuing to normalize from the very high prior-year level. Moreover, the baby care business is still suffering from persistently high competitive pressure.
We expect that the Resource Efficiency segment will be able to improve on the previous year's successful business development despite weaker global growth.
In the Performance Materials segment, the year-on-year decline in the oil price, in particular, has resulted in a further reduction in selling prices. Nevertheless, we are confident that this decline will be more than offset on the earnings side.
The continued systematic implementation of our On Track 2.0 and Administration Excellence efficiency enhancement programs will also contribute to earnings in 2016. The earnings impact of lower raw material prices on individual businesses will vary, but should largely balance out across the portfolio as a whole.
The return on capital employed (ROCE) should again be above the cost of capital in 2016, although it will be slightly lower than in 2015 (16.6 percent) due to the overall reduction in earnings.
We anticipate that capital expenditures will be around the 2015 level (€0.9 billion) and thus slightly higher than depreciation and amortization. The free cash flow should therefore be clearly positive again, but will fall short of the high level reported for 2015 (€1.1 billion) owing to the weaker operating earnings trend.
This report contains forward-looking statements based on the present expectations, assumptions and forecasts made by the Executive Board and the information available to it. These forward-looking statements do not constitute a guarantee of future developments and earnings expectations. Future performance and developments depend on a wide variety of factors which contain a number of risks and unforeseeable factors and are based on assumptions that may prove incorrect.
Income statement for the Evonik Group
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| S ales |
3,164 | 3,365 | 9,527 | 10,309 |
| Cost of sales | –2,106 | –2,245 | –6,297 | –6,907 |
| G ross profit on sales |
1,058 | 1,120 | 3,230 | 3,402 |
| S elling expenses |
–369 | –352 | –1,108 | –1,063 |
| R esearch and development expenses |
–109 | –102 | –321 | –307 |
| General administrative expenses | –175 | –166 | –504 | –509 |
| O ther operating income |
39 | 41 | 174 | 326 |
| O ther operating expenses |
–63 | –143 | –336 | –397 |
| R esult from investments recognized at equity |
– | –16 | –18 | –14 |
| Income before financial result and income taxes, continuing operations |
381 | 382 | 1,117 | 1,438 |
| I nterest income |
7 | 1 | 36 | 15 |
| I nterest expense |
–65 | –82 | –175 | –192 |
| O ther financial income/expense |
3 | –5 | –44 | –23 |
| F inancial result |
–55 | –86 | –183 | –200 |
| Income before income taxes, continuing operations | 326 | 296 | 934 | 1,238 |
| I ncome taxes |
–100 | –105 | –297 | –354 |
| Income after taxes, continuing operations | 226 | 191 | 637 | 884 |
| I ncome after taxes, discontinued operations |
1 | – | 1 | –15 |
| Income after taxes | 227 | 191 | 638 | 869 |
| thereof attributable to | ||||
| N on-controlling interests |
4 | 3 | 10 | 7 |
| S hareholders of Evonik Industries AG (net income) |
223 | 188 | 628 | 862 |
| Earnings per share in € (basic and diluted) | 0.48 | 0.40 | 1.35 | 1.85 |
17
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| Income after taxes | 227 | 191 | 638 | 869 |
| Gains/losses on available-for-sale securities | 12 | 10 | 12 | 21 |
| Gains/losses on hedging instruments | 15 | 45 | 115 | 26 |
| Currency translation adjustment | –53 | –89 | –42 | 143 |
| A ttributable to the equity method (after income taxes) |
– | 4 | 1 | 6 |
| D eferred taxes |
–5 | –18 | –28 | –16 |
| C omprehensive income that will be reclassified subsequently to profit or loss |
–31 | –48 | 58 | 180 |
| R emeasurement of the net defined benefit liability for defined benefit pension plans |
99 | –336 | –1,646 | 128 |
| A ttributable to the equity method (after income taxes) |
– | – | – | –4 |
| D eferred taxes |
–31 | 99 | 495 | –40 |
| C omprehensive income that will not be reclassified subsequently to profit or loss |
68 | –237 | –1,151 | 84 |
| Other comprehensive income after taxes | 37 | –285 | –1,093 | 264 |
| Total comprehensive income | 264 | –94 | –455 | 1,133 |
| thereof attributable to | ||||
| N on-controlling interests |
4 | –1 | 12 | 10 |
| S hareholders of Evonik Industries AG |
260 | –93 | –467 | 1,123 |
| Total comprehensive income attributable to shareholders of Evonik Industries AG |
260 | –93 | –467 | 1,123 |
| thereof attributable to | ||||
| Continuing operations | 259 | –93 | –468 | 1,138 |
| D iscontinued operations |
1 | – | 1 | –15 |
| in € million | Sept. 30, 2016 | Dec. 31, 2015 |
|---|---|---|
| I ntangible assets |
3,259 | 3,168 |
| Property, plant and equipment | 5,845 | 5,808 |
| I nvestments recognized at equity |
45 | 53 |
| Financial assets | 167 | 116 |
| D eferred taxes |
1,579 | 1,110 |
| O ther income tax assets |
10 | 11 |
| O ther receivables |
52 | 54 |
| Non-current assets | 10,957 | 10,320 |
| I nventories |
1,648 | 1,763 |
| O ther income tax assets |
117 | 111 |
| T rade accounts receivable |
1,709 | 1,813 |
| O ther receivables |
314 | 265 |
| Financial assets | 147 | 365 |
| Cash and cash equivalents | 4,340 | 2,368 |
| Current assets | 8,275 | 6,685 |
| Total assets | 19,232 | 17,005 |
| in € million | Sept. 30, 2016 | Dec. 31, 2015 |
|---|---|---|
| I ssued capital |
466 | 466 |
| Capital reserve | 1,166 | 1,166 |
| A ccumulated income |
4,765 | 5,821 |
| A ccumulated other comprehensive income |
94 | 40 |
| E quity attributable to shareholders of Evonik Industries AG |
6,491 | 7,493 |
| E quity attributable to non-controlling interests |
90 | 83 |
| Equity | 6,581 | 7,576 |
| Provisions for pensions and other post-employment benefits | 4,917 | 3,349 |
| O ther provisions |
880 | 854 |
| D eferred taxes |
462 | 479 |
| O ther income tax liabilities |
168 | 150 |
| Financial liabilities | 3,294 | 1,415 |
| O ther liabilities |
56 | 106 |
| Non-current liabilities | 9,777 | 6,353 |
| O ther provisions |
1,010 | 1,177 |
| O ther income tax liabilities |
123 | 209 |
| Financial liabilities | 333 | 291 |
| T rade accounts payable |
961 | 1,090 |
| O ther liabilities |
447 | 309 |
| Current liabilities | 2,874 | 3,076 |
| Total equity and liabilities | 19,232 | 17,005 |
| in € million | Issued capital | Capital reserve |
Accumulated income |
Treasury shares |
Accumulated other com prehensive income |
Attributable to share holders of Evonik Industries AG |
Attributable to non controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|
| As of January 1, 2015 | 466 | 1,165 | 5,040 | – | –244 | 6,427 | 95 | 6,522 |
| Capital increases/decreases | – | – | – | – | – | – | 1 | 1 |
| Dividend distribution | – | – | –466 | – | – | –466 | –10 | –476 |
| Purchase of treasury shares | – | – | – | –14 | – | –14 | – | –14 |
| Share-based payment | – | 3 | – | – | – | 3 | – | 3 |
| Sale of treasury shares | – | –2 | – | 14 | – | 12 | – | 12 |
| I ncome after taxes |
– | – | 862 | – | – | 862 | 7 | 869 |
| O ther comprehensive income after taxes |
– | – | 84 | – | 177 | 261 | 3 | 264 |
| Total comprehensive income | – | – | 946 | – | 177 | 1,123 | 10 | 1,133 |
| Other changes | – | – | 2 | – | –2 | – | – | – |
| As of September 30, 2015 | 466 | 1,166 | 5,522 | – | –69 | 7,085 | 96 | 7,181 |
| As of January 1, 2016 | 466 | 1,166 | 5,821 | – | 40 | 7,493 | 83 | 7,576 |
| Capital increases/decreases | – | – | – | – | – | – | 4 | 4 |
| Dividend distribution | – | – | –536 | – | – | –536 | –9 | –545 |
| Purchase of treasury shares | – | – | – | –15 | – | –15 | – | –15 |
| Share-based payment | – | 3 | – | – | – | 3 | – | 3 |
| Sale of treasury shares | – | –3 | – | 15 | – | 12 | – | 12 |
| I ncome after taxes |
– | – | 628 | – | – | 628 | 10 | 638 |
| O ther comprehensive income after taxes |
– | – | –1,151 | – | 56 | –1,095 | 2 | –1,093 |
| Total comprehensive income | – | – | –523 | – | 56 | –467 | 12 | –455 |
| Other changes | – | – | 3 | – | –2 | 1 | – | 1 |
| As of September 30, 2016 | 466 | 1,166 | 4,765 | – | 94 | 6,491 | 90 | 6,581 |
Cash flow statement
21
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| I ncome before financial result and income taxes, continuing operations |
381 | 382 | 1,117 | 1,438 |
| D epreciation, amortization, impairment losses/reversal of impairment losses on non-current assets |
178 | 188 | 537 | 556 |
| R esult from investments recognized at equity |
– | 16 | 18 | 14 |
| Gains/losses on the disposal of non-current assets | –1 | 2 | –1 | –145 |
| Change in inventories | –3 | –42 | 112 | 16 |
| Change in trade accounts receivable | 43 | 82 | 103 | –216 |
| Change in trade accounts payable and current advance payments from customers | 46 | –30 | –108 | –104 |
| Change in provisions for pensions and other post-employment benefits | –58 | –57 | –125 | –117 |
| Change in other provisions | 90 | 147 | –160 | 19 |
| Change in miscellaneous assets/liabilities | –15 | 47 | 43 | 92 |
| Cash outflows for interest | –28 | –13 | –88 | –56 |
| Cash inflows from interest | 5 | 3 | 33 | 9 |
| Cash inflows from dividends | 3 | – | 7 | 18 |
| Cash inflows/outflows for income taxes | –141 | –8 | –390 | –195 |
| Cash flow from operating activities, continuing operations | 500 | 717 | 1,098 | 1,329 |
| Cash flow from operating activities, discontinued operations | – | – | – | 3 |
| Cash flow from operating activities | 500 | 717 | 1,098 | 1,332 |
| Cash outflows for investments in intangible assets, property, plant and equipment | –220 | –209 | –610 | –655 |
| Cash outflows for investments in shareholdings | –48 | –2 | –135 | –42 |
| Cash inflows from divestments of intangible assets, property, plant and equipment | 15 | 5 | 19 | 13 |
| Cash inflows/outflows from divestment of shareholdings | 1 | –3 | 1 | 420 |
| Cash inflows/outflows relating to securities, deposits and loans | –8 | 72 | 235 | 102 |
| T ransfers to the pension trust fund (CTA) |
– | –8 | –14 | –18 |
| Cash flow from investing activities | –260 | –145 | –504 | –180 |
| Cash inflows/outflows relating to capital contributions | – | 1 | 4 | 1 |
| Cash outflows for dividends to shareholders of Evonik Industries AG | – | – | –536 | –466 |
| Cash outflows for dividends to non-controlling interests | –1 | – | –9 | –10 |
| Cash outflows for the purchase of treasury shares | – | – | –15 | –14 |
| Cash inflows from the sale of treasury shares | – | – | 15 | 15 |
| Cash inflows from the addition of financial liabilities | 1,974 | 29 | 2,063 | 854 |
| Cash outflows for repayment of financial liabilities | –31 | –25 | –98 | –111 |
| Cash outflows in connection with financial transactions | – | – | –42 | – |
| Cash flow from financing activities | 1,942 | 5 | 1,382 | 269 |
| Change in cash and cash equivalents | 2,182 | 577 | 1,976 | 1,421 |
| Cash and cash equivalents as of July 1/January 1 | 2,156 | 1,778 | 2,368 | 921 |
| Change in cash and cash equivalents | 2,182 | 577 | 1,976 | 1,421 |
| Changes in exchange rates and other changes in cash and cash equivalents | 2 | –12 | –4 | 1 |
| Cash and cash equivalents as of September 30 | 4,340 | 2,343 | 4,340 | 2,343 |
| Cash and cash equivalents included in assets held for sale | – | –1 | – | –1 |
| Cash and cash equivalents as on the balance sheet as of September 30 | 4,340 | 2,342 | 4,340 | 2,342 |
| Nutrition & Care | Resource Efficiency | Performance Materials | |||||
|---|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| External sales | 1,066 | 1,240 | 1,117 | 1,044 | 797 | 858 | |
| Internal sales | 8 | 8 | 8 | 12 | 30 | 33 | |
| Total sales | 1,074 | 1,248 | 1,125 | 1,056 | 827 | 891 | |
| Adjusted EBITDA | 239 | 382 | 262 | 216 | 104 | 94 | |
| A djusted EBITDA margin in % |
22.4 | 30.8 | 23.5 | 20.7 | 13.0 | 11.0 | |
| Adjusted EBIT | 182 | 328 | 205 | 161 | 70 | 57 | |
| Capital expenditures | 59 | 64 | 68 | 63 | 42 | 34 | |
| Financial investments | 44 | – | 1 | – | 5 | – |
Prior-year figures restated.
| Germany | Other European countries | North America | |||||
|---|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| External sales | 627 | 664 | 926 | 1,056 | 621 | 646 | |
| Capital expenditures | 109 | 97 | 15 | 16 | 54 | 51 |
Prior-year figures restated.
Notes Segment report
| Services | Other operations | Corporate, consolidation | Total Group (continuing operations) |
||||
|---|---|---|---|---|---|---|---|
| 2015 | 2016 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| 207 | 173 | 11 | 16 | – | – | 3,164 | 3,365 |
| 466 | 473 | 10 | 24 | –529 | –543 | – | – |
| 673 | 646 | 21 | 40 | –529 | –543 | 3,164 | 3,365 |
| 46 | 50 | –21 | –34 | –56 | –51 | 578 | 653 |
| 22.2 | 28.9 | – | – | – | – | 18.3 | 19.4 |
| 18 | 21 | –24 | –38 | –58 | –53 | 396 | 473 |
| 40 | 41 | 6 | 5 | 1 | – | 217 | 206 |
| – | 3 | – | 1 | – | – | 53 | 1 |
| Other European countries North America |
Central and South America | Asia-Pacific | Middle East, Africa | Total Group (continuing operations) |
||||
|---|---|---|---|---|---|---|---|---|
| 2016 2015 2016 2015 |
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| 926 1,056 621 646 |
201 | 231 | 683 | 657 | 106 | 111 | 3,164 | 3,365 |
| 16 54 51 |
9 | 18 | 30 | 24 | – | – | 217 | 206 |
| Nutrition & Care | Resource Efficiency | Performance Materials | ||||
|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| External sales | 3,223 | 3,716 | 3,392 | 3,278 | 2,399 | 2,646 |
| Internal sales | 24 | 25 | 30 | 41 | 80 | 99 |
| Total sales | 3,247 | 3,741 | 3,422 | 3,319 | 2,479 | 2,745 |
| Adjusted EBITDA | 796 | 1,116 | 788 | 714 | 273 | 247 |
| A djusted EBITDA margin in % |
24.7 | 30.0 | 23.2 | 21.8 | 11.4 | 9.3 |
| Adjusted EBIT | 634 | 954 | 619 | 553 | 170 | 150 |
| Capital expenditures | 162 | 177 | 180 | 160 | 107 | 123 |
| Financial investments | 111 | – | 15 | 32 | 14 | 12 |
| No. of employees as of September 30 |
7,550 | 7,062 | 8,879 | 8,549 | 4,421 | 4,387 |
Prior-year figures restated.
| Germany | Other European countries | North America | |||||
|---|---|---|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| External sales | 1,820 | 1,996 | 2,919 | 3,178 | 1,854 | 1,969 | |
| Goodwill as of September 30a | 1,544 | 1,542 | 578 | 546 | 386 | 359 | |
| Other intangible assets, property, plant and equipment as of September 30a |
2,871 | 2,777 | 565 | 539 | 1,114 | 972 | |
| Capital expenditures | 278 | 277 | 49 | 65 | 162 | 125 | |
| No. of employees as of September 30 |
21,792 | 21,572 | 2,724 | 2,643 | 3,913 | 3,761 |
Prior-year figures restated.
a Non-current assets according to IFRS 8.33 b.
Notes Segment report
| Other operations | Services | |||||
|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | ||||
| 10 | 626 | 503 | ||||
| 30 | 1,382 | 1,438 | ||||
| 40 | 2,008 | 1,941 | ||||
| –80 | 119 | 119 | ||||
| – | 19.0 | 23.7 | ||||
| –89 | 40 | 32 | ||||
| 13 | 110 | 126 | ||||
| 1 | 4 | 4 | ||||
| 209 | 12,747 | 12,896 |
| Central and South America | Asia-Pacific | Middle East, Africa | Total Group (continuing operations) |
|||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| 1,969 | 587 | 700 | 2,036 | 2,132 | 311 | 334 | 9,527 | 10,309 |
| 359 | 32 | 32 | 285 | 270 | – | – | 2,825 | 2,749 |
| 972 | 213 | 170 | 1,507 | 1,580 | 9 | 9 | 6,279 | 6,047 |
| 125 | 21 | 57 | 78 | 60 | 1 | 1 | 589 | 585 |
| 3,761 | 728 | 627 | 4,939 | 4,893 | 181 | 154 | 34,277 | 33,650 |
Evonik Industries AG is an international specialty chemicals company headquartered in Germany.
The present condensed and consolidated interim financial statements (consolidated interim financial statements) of Evonik Industries AG and its subsidiaries (referred to jointly as Evonik or the Evonik Group) as of September 30, 2016, have been prepared in accordance with the provisions of IAS 34 Interim Financial Reporting, and in application of Section 315a Paragraph 1 of the German Commercial Code (HGB) using the International Financial Reporting Standards (IFRS) and comply with these standards. The IFRS comprise the standards (IFRS, IAS) issued by the International Accounting Standards Board (IASB), London (UK) and the interpretations (IFRIC, SIC) of the IFRS Interpretations Committee (IFRS IC), as adopted by the European Union.
The consolidated interim financial statements as of September 30, 2016 are presented in euros. The reporting period is January 1 to September 30, 2016. All amounts are stated in millions of euros (€ million) except where otherwise indicated. The basis for the consolidated interim financial statements comprises the consolidated financial statements for the Evonik Group as of December 31, 2015, which should be referred to for further information.
The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the consolidated financial statements as of December 31, 2015.
The scope of consolidation changed as follows in the reporting period:
| No. of companies | Germany | Other countries |
Total |
|---|---|---|---|
| Evonik Industries AG and consolidated subsidiaries | |||
| A s of December 31, 2015 |
39 | 99 | 138 |
| A cquisitions |
– | 1 | 1 |
| O ther companies consolidated for the first time |
2 | 1 | 3 |
| I ntragroup mergers |
–2 | – | –2 |
| O ther companies deconsolidated |
–1 | – | –1 |
| A s of September 30, 2016 |
38 | 101 | 139 |
| Joint operations | |||
| A s of December 31, 2015 |
3 | 2 | 5 |
| A s of September 30, 2016 |
3 | 2 | 5 |
| Investments recognized at equity | |||
| A s of December 31, 2015 |
3 | 8 | 11 |
| A cquisitions |
– | 1 | 1 |
| O ther companies included at equity for the first time |
1 | – | 1 |
| A s of September 30, 2016 |
4 | 9 | 13 |
| 45 | 112 | 157 |
This section provides a more detailed overview of the principal changes in the scope of consolidation in the reporting period, divided into acquisitions and divestments.
On March 3, 2016 Evonik acquired all shares in MedPalett AS (MedPalett), Sandnes (Norway) from Biolink Group AS, Sandnes (Norway). This company specializes in food ingredients containing anthocyanins, which are known for their natural antioxidant properties. Numerous international studies indicate broad health-promoting properties, including the prevention of cardiovascular disease. The aim of this acquisition is to expand the portfolio of the Health Care Business Line in the area of advanced food ingredients.
On July 4, 2016 Evonik acquired the probiotics business of NOREL S.A. (NOREL), Madrid (Spain), one of the world's leading suppliers of feed additives, through an asset deal. The acquisition comprises the existing probiotics product portfolio and the production site in León (Spain). Priobiotics play a key role for Evonik as natural alternatives to antibiotics and antibiotic growth promoters. This acquisition positions Evonik as an innovative solution provider in the field of antibiotic-free animal nutrition.
Effective August 31, 2016, Evonik acquired the business of biotech company Transferra Nanosciences Inc. (Transferra), Burnaby (Canada) through an asset deal. Transferra is a contract development and manufacturing organization that uses its expertise in liposomal drug delivery systems to provide both products and services for the development of pharmaceuticals. This acquisition enables Evonik to extend the portfolio of its Health Care Business Line in the area of parental drug formulation.
The acquisitions have been integrated into the Nutrition & Care segment. Their combined impact on the balance sheet as of their respective acquistion dates was as follows:
| in € million | Fair value recognized |
|---|---|
| N on-current assets |
36 |
| Current assets | 9 |
| thereof receivables | 2 |
| thereof cash and cash equivalents | 1 |
| N on-current liabilities |
–5 |
| Current liabilities | –6 |
| Net assets | 34 |
| Goodwill | 63 |
| Cost of acquisition (purchase price) | 97 |
Initial recognition of the business of NOREL and Transferra is based on a provisional purchase price allocation.
Transaction costs of €1 million relating to the three acquisitions are included in other operating expenses.
The goodwill mainly comprises the expected future benefits of assets that were not individually identifiable or for which recognition is not permitted, for example, anticipated synergies and the workforce. The provisional goodwill in connection with the asset deals is €27 million and is expected to be tax-deductible.
The contributions made by the acquisitions to sales and earnings were not material relative to the Nutrition & Care segment as a whole, either since the date of acquisition or on a pro forma basis in the period since January 1, 2016.
There were no material divestments in the reporting period.
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2015 | 2016 | 2015 | |
| I ncome from the reversal of provisions |
4 | 6 | 50 | 28 |
| I ncome from restructuring measures |
8 | – | 18 | 3 |
| I ncome from the disposal of assets |
2 | 2 | 3 | 152 |
| N et income from currency translation of operating monetary assets and liabilities |
– | – | – | 36 |
| O ther income |
25 | 33 | 103 | 107 |
| 39 | 41 | 174 | 326 | |
| thereof adjustments | 10 | 4 | 70 | 159 |
The currency translation and operational currency hedging results are recognized in other operating income or other operating expenses as appropriate. Currency management and the presentation of the earnings effects derived from this are outlined in Note 8.1.
The income from the reversal of provisions amounting to €50 million (9M 2015: €28 million) was mainly attributable to renegotiation of an agreement for the supply of raw materials, as a result of which the original risk provisioning is no longer necessary. Further reversals of provisions totaling €16 million (9M 2015: €3 million) are recognized in income from restructuring measures.
The other income of €103 million (9M 2015: €107 million) comprises, among other things, income from non-core operations, income from insurance premiums and refunds, and rental income from leases.
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| E xpenses for restructuring measures |
9 | 20 | 43 | 44 |
| N et expenses for currency translation of operating monetary assets and liabilities |
2 | 5 | 16 | – |
| I mpairment losses |
9 | 14 | 14 | 43 |
| N et expenses for operational currency hedging |
7 | 5 | 13 | 59 |
| E xpenses relating to the REA CH Regulation |
2 | 2 | 7 | 6 |
| Losses on the disposal of assets | 1 | 3 | 3 | 7 |
| O ther expense |
33 | 94 | 240 | 238 |
| 63 | 143 | 336 | 397 | |
| thereof adjustments | 25 | 81 | 127 | 151 |
The expenses for restructuring measures amounting to €43 million (9M 2015: €44 million) mainly comprise expenses for optimization of the portfolio structure in the Performance Materials segment and expenses in connection with optimization of administrative structures. This item also includes expenses that would by nature otherwise be included in other categories of other operating expenses.
The other expense of €240 million (9M 2015: €238 million) comprises expenses in connection with the waiver of receivables, outsourcing, projects for the acquisition of companies and business operations, environmental protection, non-core businesses, and legal and consultancy fees.
The result from investments recognized at equity was – €18 million (9M 2015: – €14 million) and mainly comprises an impairment loss on an equity investment in the Nutrition & Care segment, which is recognized in adjustments.
Interest income includes €24 million in connection with tax refunds in the first nine months of the year.
€5 million of the interest expense relates to financing of the planned acquisition of the specialty and coating additives business (Performance Materials Division) of the US company Air Products and Chemicals Inc., Allentown (Pennsylvania, USA). In addition, expenses of €37 million were incurred in connection with hedging of the purchase price. They are recognized in other financial income/expense in the line item net income from financing-related currency hedging. Both amounts are factored out when calculating the adjusted financial result.
In 2015, the Executive Board of Evonik Industries AG decided to purchase shares in the company, utilizing the resolution adopted by the Annual Shareholders' Meeting on March 11, 2013 authorizing it to buy back shares in the company. The Supervisory Board has approved this share buy-back program, which relates to the share-based employee participation program (employee share program) Share.2016 launched by Evonik Industries AG in March 2016. The period during which eligible employees could acquire shares ended on March 25, 2016. The lock-up period for Evonik shares purchased or granted through the Share.2016 program ends on December 31, 2018.
Overall, Evonik Industries AG purchased 574,115 ordinary shares on the capital market at an average price of €25.90 per share. In April 2016, 511,868 of these ordinary shares (including 130,327 bonus shares) were transferred to participating employees on the basis of the share price and the exchange rate for the US dollar prevailing on April 13, 2016. The remaining 62,247 ordinary shares were sold to third parties by April 19, 2016.
As of September 30, 2016, Evonik therefore no longer held any treasury shares.
Compared with December 31, 2015, provisions for pensions and other post-employment benefits had increased by a total of €1,568 million to €4,917 million as of September 30, 2016. This figure includes €1,646 million recognized in equity with no impact on income after taxes. This increase had no impact on income and was mainly due to a discount rate of 1.50 percent for the euro-zone countries, compared with a rate of 2.75 percent as of December 31, 2015. By contrast, the development of the market value of the plan assets was better than expected as of September 30, 2016. The €1,646 million change in provisions for pensions and other postemployment benefits, which had no impact on income, and the change of €495 million in the related deferred tax assets are reflected in a reduction of €1,151 million in other comprehensive income from the remeasurement of the net defined benefit liability for defined benefit pension plans, which is recognized in equity under accumulated income.
Non-current financial liabilities increased by €1,879 million to €3,294 million. This mainly resulted from the issue of bonds with a nominal value of €1,900 million by Evonik Finance B.V., a subsidiary of Evonik Industries AG, in September 2016. A total of three fixed-interest tranches were issued: a €650 million tranche with a tenor of 4.5 years and a coupon of 0 percent p.a., a €750 million tranche with a tenor of 8 years and a coupon of 0.375 percent p.a., and a €500 million tranche with a tenor of 12 years and a coupon of 0.750 percent p.a.
31
The following table shows a reconciliation from adjusted EBITDA for the reporting segments to income before income taxes for the Group's continuing operations.
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| Adjusted EBITDA , reporting segments |
655 | 738 | 1,976 | 2,196 |
| A djusted EBITDA , other operations |
–21 | –34 | –80 | –79 |
| A djusted EBITDA , Corporate |
–56 | –52 | –167 | –162 |
| Consolidation | – | 1 | –1 | 1 |
| Less discontinued operations | – | – | – | 8 |
| Adjusted EBITDA | 578 | 653 | 1,728 | 1,964 |
| D epreciation |
–175 | –176 | –526 | –516 |
| I mpairment losses/reversals of impairment losses |
–8 | –29 | –35 | –54 |
| D epreciation, amortization, impairment losses/reversal of impairment losses included in adjustments |
1 | 25 | 24 | 50 |
| Depreciation and amortization | –182 | –180 | –537 | –520 |
| Adjusted EBIT | 396 | 473 | 1,191 | 1,444 |
| A djustments |
–15 | –91 | –74 | –6 |
| Financial result | –55 | –86 | –183 | –200 |
| Income before income taxes, continuing operations | 326 | 296 | 934 | 1,238 |
Prior-year figures restated.
For reasons of simplification, in the segment report by regions in the past the results from hedging of planned sales were allocated to sales in the country where the counterparty of the hedging transaction was based. Since financial management is largely centralized, this was mainly Germany. From January 1, 2016, by contrast, hedging results are allocated to the country to which the associated hedged sales are allocated. The prior-year figures have been restated where applicable.
The following overview shows the carrying amounts and fair values of all financial assets and liabilities. That part of derivative financial instruments for which hedge accounting is applied is not allocated to any of the categories.
| Carrying amounts by valuation category | Sept. 30, 2016 | |||||
|---|---|---|---|---|---|---|
| in € million | Available for-sale assets |
Loans and receivables |
Assets held for trading |
Not allocated to any category |
Carrying amount |
Fair value |
| Financial assets | 108 | 87 | 5 | 114 | 314 | 283 |
| ther investments a O |
97 | – | – | – | 97 | 66 |
| Loans | – | 59 | – | – | 59 | 59 |
| S ecurities and similar claims |
11 | – | – | – | 11 | 11 |
| R eceivables from derivatives |
– | – | 5 | 114 | 119 | 119 |
| O ther financial assets |
– | 28 | – | – | 28 | 28 |
| Trade accounts receivable | – | 1,709 | – | – | 1,709 | 1,709 |
| Cash and cash equivalents | – | 4,340 | – | – | 4,340 | 4,340 |
| 108 | 6,136 | 5 | 114 | 6,363 | 6,332 |
a The difference between the carrying amount and fair value results from equity investments recognized at cost of acquisition as the fair value cannot be determined reliably (€31million).
| Carrying amounts by valuation category | Dec. 31, 2015 | |||||
|---|---|---|---|---|---|---|
| in € million | Available for-sale assets |
Loans and receivables |
Assets held for trading |
Not allocated to any category |
Carrying amount |
Fair value |
| Financial assets | 339 | 58 | 24 | 60 | 481 | 462 |
| ther investments a O |
74 | – | – | – | 74 | 55 |
| Loans | – | 29 | – | – | 29 | 29 |
| S ecurities and similar claims |
265 | – | – | – | 265 | 265 |
| R eceivables from derivatives |
– | – | 24 | 60 | 84 | 84 |
| O ther financial assets |
– | 29 | – | – | 29 | 29 |
| Trade accounts receivable | – | 1,813 | – | – | 1,813 | 1,813 |
| Cash and cash equivalents | – | 2,368 | – | – | 2,368 | 2,368 |
| 339 | 4,239 | 24 | 60 | 4,662 | 4,643 |
a The difference between the carrying amount and fair value results from equity investments recognized at cost of acquisition as the fair value cannot be determined reliably (€19 million).
| Carrying amounts by valuation category | Sept. 30, 2016 | |||||
|---|---|---|---|---|---|---|
| in € million | Liabilities held for trading |
Liabilities at amortized cost |
Not allocated to any category |
Carrying amount |
Fair value | |
| Financial liabilities | 12 | 3,533 | 82 | 3,627 | 3,707 | |
| Bonds | – | 3,126 | – | 3,126 | 3,203 | |
| Liabilities to banks | – | 371 | – | 371 | 374 | |
| Liabilities from derivatives | 12 | – | 82 | 94 | 94 | |
| O ther financial liabilities |
– | 36 | – | 36 | 36 | |
| Trade accounts payable | – | 961 | – | 961 | 961 | |
| 12 | 4,494 | 82 | 4,588 | 4,668 |
| Carrying amounts by valuation category | Dec. 31, 2015 | |||||
|---|---|---|---|---|---|---|
| in € million | Liabilities held for trading |
Liabilities at amortized cost |
Not allocated to any category |
Carrying amount |
Fair value | |
| Financial liabilities | 19 | 1,554 | 133 | 1,706 | 1,719 | |
| Bonds | – | 1,241 | – | 1,241 | 1,258 | |
| Liabilities to banks | – | 282 | – | 282 | 278 | |
| Liabilities from derivatives | 19 | – | 132 | 151 | 151 | |
| O ther financial liabilities |
– | 31 | 1 | 32 | 32 | |
| Trade accounts payable | – | 1,090 | – | 1,090 | 1,090 | |
| 19 | 2,644 | 133 | 2,796 | 2,809 |
The fair value determination is based on the three-level hierarchy stipulated by IFRS 13 Fair Value Measurement:
The following table shows the financial instruments that are measured at fair value on a recurring basis after initial recognition on the balance sheet:
| Fair value based on | Sept. 30, 2016 |
|||
|---|---|---|---|---|
| in € million | Level 1 | Level 2 | Level 3 | |
| Other investments | 66 | – | – | 66 |
| Securities and similar claims | 11 | – | – | 11 |
| Receivables from derivatives | – | 119 | – | 119 |
| Liabilities from derivatives | – | –94 | – | –94 |
| Fair value based on | |||||
|---|---|---|---|---|---|
| in € million | Level 1 | Level 2 | Level 3 | ||
| Other investments | 55 | – | – | 55 | |
| Securities and similar claims | 265 | – | – | 265 | |
| Receivables from derivatives | – | 84 | – | 84 | |
| Liabilities from derivatives | – | –151 | – | –151 |
The financial instruments allocated to Level 1 are recognized at their present stock market price. They comprise all securities and one equity investment. As of the present reporting date, all derivatives are allocated to Level 2. They comprise currency, interest rate and commodity derivatives whose fair value was determined with the aid of a discounted cash flow method on the basis of the exchange rates at the European Central Bank, observed interest rate structure curves, observed commodity prices, and observed credit default premiums. There were no transfers between the levels of the fair value hierarchy in the reporting period.
The fair value of financial instruments recognized at amortized cost is calculated as follows:
The fair value of bonds is their directly observable stock market price on the reporting date. For loans, other financial assets, liabilities to banks, and other financial liabilities, the fair value is determined as the present value of the expected future cash inflows or outflows and is therefore allocated to Level 2. Discounting is based on the interest rate for the respective maturity on the reporting date, taking the creditworthiness of the counterparties into account. Since the majority of other financial receivables and liabilities and trade accounts receivable and payable are current, their fair values—like the fair value of cash and cash equivalents correspond to their carrying amounts.
The other investments that are recognized on the balance sheet at amortized cost comprise investments in equity instruments for which there is no quoted price in an active market and whose fair values cannot be determined reliably in accordance with one of the three levels of the fair value hierarchy. There is no intention of selling these investments.
35
In the currency hedging of on-balance-sheet risk items, Evonik generally uses the portfolio approach: The risk positions resulting from foreign currency receivables and liabilities are generally netted and bundled via intragroup hedging; the resulting net positions are then hedged via market derivatives. Currency management is carried out separately for operational risk positions (mainly trade accounts receivable and payable in foreign currencies) and risk positions arising from financing activities. Currency translation and hedging results are disclosed in the income statement in line with this distinction. The net presentation of the respective results reflects both their economic substance and the management of the risk positions at Evonik.
| 3rd quarter | 1st nine months | |||
|---|---|---|---|---|
| in € million | 2016 | 2015 | 2016 | 2015 |
| From operating currency exposure and associated hedging instruments | ||||
| Gross income from currency translation | 90 | 28 | 163 | 148 |
| Gross expenses for currency translation | –92 | –33 | –179 | –112 |
| N et result from currency translation of operating monetary assets and liabilities |
–2 | –5 | –16 | 36 |
| Gross income from currency hedging | 24 | 91 | 46 | 237 |
| Gross expenses for currency hedging | –31 | –96 | –59 | –296 |
| N et result from operational currency hedging |
–7 | –5 | –13 | –59 |
| From financing-related currency exposure and associated hedging instruments | ||||
| Gross income from currency translation | 63 | 6 | 192 | 182 |
| Gross expenses for currency translation | –52 | –99 | –144 | –190 |
| N et result from currency translation of financing-related monetary assets and liabilities |
11 | –93 | 48 | –8 |
| Gross income from currency hedging | – | 99 | 62 | 162 |
| Gross expenses for currency hedging | –7 | –9 | –152 | –159 |
| N et result from financing-related currency hedging |
–7 | 90 | –90 | 3 |
| Net currency result (operational and financing-related) | –5 | –13 | –71 | –28 |
The net currency result is determined principally by the swap rate and option premiums at the start of hedging and changes in the hedged foreign currency items recognized on the balance sheet during the hedging period. Since hedge accounting is applied for micro-hedging of foreign currency balance sheet exposure (for example, financing-related currency hedging of non-current loans through cross-currency interest rate swaps) and for hedging of planned or firmly agreed cash flows in foreign currencies (for example, hedging of planned sales revenues), their hedge results are only reflected in the net currency result with the corresponding ineffective portion or any forward components that are excluded from the hedge accounting relationship. By contrast, the effective results of these hedges are recognized in accumulated other comprehensive income until the hedged transaction is realized. Upon realization of the hedged transaction they are transferred to the income statement to offset the countereffect of the hedged transaction.
There has not been any material change in related party transactions since December 31, 2015.
The dividend for fiscal 2015 was paid in the second quarter of 2016, following the adoption of the resolution by the Annual Shareholders' Meeting on May 18, 2016.
RAG-Stiftung, Essen (Germany) received €364 million and The Gabriel Finance Limited Partnership, St. Helier (Jersey) received €23 million.
There has not been any material change in contingent assets and liabilities since the consolidated financial statements as of December 31, 2015.
No material events have occurred since the reporting date.
Essen, October 27, 2016
Evonik Industries AG The Executive Board
| Dr. Kaufmann |
|---|
Wessel Wolf
To Evonik Industries AG, Essen,
We have reviewed the condensed consolidated interim financial statements—comprising the condensed income statement, condensed statement of comprehensive income, condensed balance sheet, condensed statement of changes in equity, condensed cash flow statement and selected explanatory notes—and the interim Group management report for Evonik Industries AG, Essen, for the period from January 1, 2016 to September 30, 2016, which are part of the quarterly financial report pursuant to § (Article) 37w WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim Group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the company's Executive Board. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim Group management report based on our review.
We conducted our review of the condensed consolidated interim financial statements and the interim Group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) and additionally observed the International Standard on Review Engagements "Review of Interim Financial Information performed by the Independent Auditor of the Entity" (ISRE 2410). These standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim Group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion.
Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
Düsseldorf, October 28, 2016
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
Lutz Granderath Antje Schlotter
German Public Auditor German Public Auditor
| Event | Date |
|---|---|
| Report on Q4 2016 and FY 2016 | March 2, 2017 |
| Interim report Q1 2017 | May 5, 2017 |
| Annual Shareholders' Meeting 2017 | May 23, 2017 |
| Interim report Q2 2017 | August 3, 2017 |
| Interim report Q3 2017 | November 3, 2017 |
Evonik Industries AG Rellinghauser Str. 1 – 11 45128 Essen, Germany www.evonik.com
Communication Phone +49 201 177-3315 [email protected]
Investor Relations Phone +49 201 177-3146 [email protected]
BISSINGER[+] GmbH HGB Hamburger Geschäftsberichte GmbH & Co. KG
The English version is a translation of the German version and is provided for information only.
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