EFTA00598642

ANNUAL REPORT 2015 INDUSTRIES EFTA00598642 Key figures for the Evonik Group Key figures in million 2011 2012 2013 2014 2015 Nutrition & Care Sates 14,540 13,365 12,708 12,917 13,507 Adjusted EBITDA' 2,768 2,467 1,995 1,882 2,465 Key figures Adjusted EBITDA margin 19.0 18.5 15.7 14.6 18.2 in million 2015 2014 Adjusted EBIT° 2,099 1,887 1,404 1,256 1,752 ROCE` in % 18.7 20.4 15.1 12.5 16.6 External sales 4,924 4,075 Net Income 1,011 1,165 2,054 568 991 Adjusted EBITDA 1,435 847 Adjusted net Income 1,256 1,076 806 782 1,128 Adjusted EBITDA margin In % 29.1 20.8 Earnings per share in 2.17 2.50 4.41 1.22 2.13 Adjusted EBIT 1,214 685 Adjusted earnings per share in 2.70 2.31 1.73 1.68 2.42 ROCE In % 41.5 27.1 Total assets as of December 31 16,944 17,166 15,883 15,685 17,005 No. of employees 7,165 6,943 Equity ratio as of December 31 in% 35.8 31.9 43.0 41.6 44.6 Prior-year figures restated. Cash ow from operating activities 1,309 1,420 1,055 1,066 1,971 Capital expenditures° 830 960 1,140 1,123 877 Depreciation and amortization d 647 580 585 606 700 Resource Efficiency Net nand& debt/assets as of December 31 843 1,163 571 400 1,098 No. of employees as of December 31 33,556 33,298 33,650 33,412 33,576 Key figures Figures for 2012 and 2013 contain the former Real Estate segment as a diso:ntinued operation. 2014 figures restated. in million 2015 2014 Earnings before financial result, taxes, depreciation and amortization, after adrustments. b Earnings before financial result and taxes, after arnustrnents. External sales 4,279 4,040 < Return on capital employed. Adjusted EBITDA 896 836 4 Intangible assets. property, plant, equipment and investment property. Due to rounding, sane figures in this report may not add up exactly to the totals stated. Adjusted EBITDA margin in % 20.9 20.7 Adjusted EBIT 675 642 ROCE In % 24.8 25.9 No. of employees 8,662 7,835 prior-year figures restated. Sales by region' Performance Materials Other 3% Germany 10% Key figures in million 2015 2014 Central and External sales 3,435 3,827 South America 7% Adjusted EBITDA 309 325 Other European Countries 31% Adjusted EBITDA margin in % 9.0 8.5 North America 20% Adjusted EBIT 174 204 ROCE In % 11.9 14.6 No. of employees 4,380 4,353 • Elylocation of customer. prior-year figures restated. EFTA00598643 EFTA00598644 6 HER MOM'S THINKING: Doesn't she look sweet? When she grows up, HER BROTHER'S THINKING: she'll be a movie star! Hey, that's my shovel! EFTA00598645 7 bse Kieflerte "1 tur 'ma. A ' I ta cp. • • • ft r$ • t 01 OIS t AT • • SeEittorig ts" • . t& .H. "- bil.. „tr , a .5 4,...400~0010.01SOM Mr. • OUR CUSTOMER'S THINKING: That's really impressive! Even though that diaper is so thin, it can absorb and contain liquid that's many times its own weight. I bet it could absorb all the Water in the wading pool! EFTA00598646 8 NUTRITION& CARE THE INNOVATIVE CORE Today baby diapers are a high-tech product that's From Shanghai to Sao Paulo, a growing middle class attracting new customer groups all he world. with increasing disposable income is buying more and Companies are therefore competing more fiercely to more modern diapers that promise dry baby bottoms, make the best diapers. Evonik supplies the key ingre- quieter nights and happier children. As a result, diaper dient and special know-how to stay in the running. manufacturers in new markets are competing to win over a growing number of customers. Increasing prosperity and rising local birthrates are driving this business. Away from cotton and cellulose, toward superabsorbing Whereas the diaper market in Western Europe and North polymers: That would be a good way to describe the America is growing by less than two percent, and in Japan development of modern diapers—but it wouldn't even be incontinence products and baby diapers are being sold in close to the whole story. Since the 1980s, when diaper equal numbers, the rest of the Asian market is growing by manufacturers started using superabsorbers, there have about eight percent annually—and the Chinese market is been transformations on babies' changing tables and in increasing by an impressive ten percent a year. this fiercely competitive market. Today superabsorbers of the latest generation can absorb 500 times their own In these growth markets the manufacturers are trying to weight in liquid. Almost every diaper manufactured today beat the competition by means of clever marketing and contains a few grams of these granulates. And the granu- especially high-quality diapers. In many cases, the keys to late in every fifth diaper comes from Evonik Industries. success are materials that are very similar to textiles and powerful superabsorbers that make diapers even thinner A great deal of know-how has led to modern diapers and more absorbent. Children enjoy the wearing comfort, and their superabsorbers. Back in the early 1980s, the and parents enjoy having to change diapers less often. first-generation superabsorbers merely absorbed liquid Manufacturers and dealers benefit too, because thinner especially well and then retained it under pressure. diapers take up less of the fiercely contested space on Second-generation superabsorbers could expand against supermarket shelves. And the environment also benefits, pressure—that is, even when the baby was sitting on the because more diapers fit into each delivery truck. diaper. In the third generation the transport of liquid was optimized, so that the entire diaper could be used even if In general, the environmental balance sheet is playing it didn't contain much cellulose. Today the primary goal is an increasingly important role for the customers and to make diapers that absorb liquid even faster and require manufacturers of consumer goods. Evonik is therefore even less material to guarantee long-lasting dryness. continuing to work on environmental issues and giving its customers extensive information about its products' CO2 That's why Evonik is continuing to do research aimed at footprint, which has shrunk by 15 percent in the past four finding new and improved superabsorbers, and why it's years. Thanks in part to yet another hidden piece of high analyzing diaper designs from all over the world in its tech in every fifth diaper that is sold. application laboratories. Why is it expending so much effort? Because of a demanding and steadily growing group of customers—not the children themselves, but their parents. Baby diapers are the biggest market for superabsorbers, followed by incontinence and hygiene products. But superab- sorbers can do much more: They protect undersea cables from invasive seawater. And they absorb and bind the moisture that forms inside the packaging of poultry, meat, fish, fruit and vegetables. These foods stay fresh longer. As water storage media in the soil, superabsorbers also make reliable harvests possible even in regions with a dry climate. EFTA00598647 9 IP Even though it's not always obvious, diapers are a high-tech product. We provide the core ingredient and the key know-how. STEFAN NOWICKI PP Strategic Marketing Director Bay Cate Burinen Line EFTA00598648 10 THE POLICEMAN'S THINKING: That's a novel way to slow THE SHEEPDOG'S THINKING: down traffic. Woof, woo/7 EFTA00598649 11 OUR CUSTOMER'S THINKING: all It shows that there are situations where even the most modern, fuel- efficient, and environmentally friendly lightweight engineering is useless. SI EFTA00598650 12 RESOURCE EFFICIENCY FAR-REACHING CHANGES New materials and manufacturing methods are formance materials, Evonik offers solutions in just about making vehicles not only lighter but also better. every area here. For example, the company has devel- Solutions from Evonik will make just about every oped joining technology systems that use very powerful car more efficient in the future. adhesives instead of weld seams, bolts, and rivets. This not only improves bonds between various materials such as metals and plastics; it also makes possible completely The automotive industry currently faces major challeng- new component concepts and enables thinner materials es, as legislators and associations around the world are to be used to achieve the same degree of component mandating that vehicles should be made more efficient strength, which also reduces weight. Evonik supplies as part of the effort to combat climate change. In other additives for the special adhesives needed here and words, mobility must become cleaner and more econom- also offers a hot melt adhesive system that withstands ical. At the same time, drivers continue to demand a level high stress loads and can thus meet the strictest safety of comfort and safety that requires the inclusion of more requirements in crash tests. and more equipment and systems. For decades, this led to an increase in vehicle weight with every new model Plastics are playing an increasingly important role in generation, and this development basically negated the efforts to make mobility more efficient. They can be numerous advances that had been made with efficient used in place of heavier metal parts and also enable the drive systems, improved aerodynamics, and cleaner fuels. creation of new functions. Even components such as A broad range of innovations is needed to ensure that air intake pipes, which are mounted close to the engine ever more sophisticated equipment can be efficiently and exposed to high levels of stress, can now be manu- put on the road. Such innovations involve everything factured using temperature-resistant high-performance from lightweight designs and materials to more efficient plastics from Evonik. In this case, the weight benefit is powertrains. As a specialist for exceptionally high-per- accompanied by an optimized air flow. EFTA00598651 13 Modern low rolling-resistance tires offer an important efficiency benefit today. These tires contain the silica-silane system from Evonik, which reduces rolling resistance even as it ensures optimal traction on wet roads. The result: longer range and lower fuel consumption and emissions. Evonik is also conducting practical tests with many other powertrain—where up to 20 percent of a vehicle's ener- solutions—for example, in an ultra-lightweight sports car gy is lost—needs to be optimized. Evonik is currently Evonik designed with Roding Automobile, a small-batch establishing a center of competence for such optimization. manufacturer from Bavaria. The vehicle is being used The facility will channel key areas of expertise at to test materials for composites, structural foams, plastic the Group to develop new powertrain technologies. glazing, and oil additives under tough racing conditions. For example, plastics and new coatings in transmissions, combined with specially optimized lubricant additives, At the same time, new series production processes are could help reduce the loss of engine performance during needed if racing innovations are to be transferred to vehide operation. the mass market. Evonik has already accomplished a great deal in this regard with composites. For example, re- Even with 130 years of development experience, there's searchers in Evonik's Composites Project House have still plenty of potential for improving automobiles. The developed systems and processes that enable composites road to climate-friendly mobility will be marked not so to be manufactured more quickly and simply, and less much by leaps in technology as by the combination of a expensively. In the course of their work, they also com- large number of individual improvements. Evonik, with bined properties that were long considered impossible its innovations for everything from vehicle roofs to tires, for plastic materials. This feat was achieved with new fuels, lubricants, and paints, is present just about every- combinations of polymers, crosslinkers, and catalysts, for where in automobiles, which means the company is well example, and it ensures that the potential of composites equipped to participate in every step of the problem's can be exploited more effectively. solution. However, lightweight design alone is not enough to make cars significantly more climate-friendly. In particular, the ii More varied materials are being used in cars —and not just because of lightweight design. We offer solutions that enhance efficiency in numerous ways. ECKART MAN IP Ilead or the Automotive IndustriesTeam (AIT) at Evonik Industries EFTA00598652 14 THE ART LOVER'S THINKING. THE SCHOOLGIRL'S THINKING, Fantastic! Why can't Incredible! That painting is __... I paint like that? older than my parents! EFTA00598653 17 Hair care is a business that also involves emotions. We enable our customers to fulfill very individual needs in terms of hair care and beauty. DR. WOLFGANG GOMM Global Business Director Specialties & Business Director BMA Personal Care Business Line Brazil, Singapore, and China in order to develop new and more precise solutions, such as special formulations, that meet local customers specific needs. In addition to the familiar hair needs, new consumer de- mands must also be taken into account. For example, the latest products also protect the hair from ultraviolet ra- diation and other external influences, thanks to additives from Evonik. This feature is increasingly demanded by customers in China's megacities and elsewhere. There's also a global trend toward natural raw materials, as well as concerns about specific ingredients that are under Natural raw materials in hair and scrutiny even if the reasons are not always scientifically body care products are very popular. justified. Brazilian people love natural extracts, while Consumers are increasingly making many people of the Asian population are buying more sure the products they buy are sustain- and more silicone-free products and people from France ably produced. Accordingly, Evonik tend to choose products without parabens. Evonik has some of the production plants for follows a clear strategy in achieving sustainable targets cosmetics ingredients certified— and creating solutions for our customers. for example, according to the standard of the Roundtable on Sustainable Palm Oil (RSPO). EFTA00598654 16 THE GIRLFRIEND'S THINKING: Always eating fries and still THE CAR LOVER'S THINKING: so slim—how does she do it?! No eating in my car! EFTA00598655 19 OUR CUSTOMER'S THINKING: ...we'll take the usedgrease for the French fries to make biodiesel— !1 that's goodfor the environment and there's no need to grow extra canola. EFTA00598656 20 PERFORMANCE MATERIALS As a world market leader, we contribute to the conservation of resources with our alkoxides. HENRIK HELLMANNS 9! I lead of the Alkox Ides Product line FROM DEEP-FRYING FAT TO BIODIESEL Alkoxides act as catalysts that help to convert natural few years. For example, the share of biodiesel raw mate- oils and fats into biodiesel. Evonik's specialty products rials accounted for by used cooking oils and other waste make it possible to use highly sustainable raw materi- has nearly doubled since 2011. als more extensively. The European Union is also supporting the use of biofuels made from waste products because, unlike raw materials They're greasy and not very healthy, really—but hardly that are especially cultivated for fuel applications, such anyone can resist a portion of crispy French fries. What products do not take up fields that could otherwise be many people don't know is that the deep-frying fat used to grow food crops. Moreover, the recyclability they're made in can be reused in a productive way. How- of such waste products means their use can significantly ever, this fact might soon become common knowledge, reduce greenhouse gas emissions. The importance of because such grease is a perfect raw material for the waste•based biofuels continues to grow even in Brazil large•scale production of environmentally and dimate- and the USA, both of which produce large amounts friendly biofuels for automobiles. biodiesel made from of soybean. old cooking oils and other waste products produces 80 percent lower emissions of the greenhouse gas carbon Companies around the world that produce biodiesel dioxide than does diesel from fossil sources. Moreover, use alkoxides from Evonik Industries. Here, sodium the supply of old cooking oils seems virtually inexhaust- methylate and potassium methylate serve as catalysts ible. For example, Germany's restaurants alone produce for the transesterification of vegetable oils and animal around 200,000 tons of used grease per year and private fats that is needed to produce biodiesel. households offer similar potential. Sodium methylate is the most extensively used catalyst Although most biofuels today are based on renewable worldwide and has been successfully supporting the raw materials such as rapeseed or soybean, the use of production of biodiesel from renewable raw materials for waste•based biodiesel has expanded rapidly over the last many years now. Potassium methylate is the catalyst of EFTA00598657 21 I Evonik supplies its high-perfor- mance alkoxides to numerous growth markets. The products are utilized in the pharma- ceutical industry, for example, in order to synthesize active ingredients. They can also be found in health care products such as Omega-3 and Omega-6 fish oil capsules. choice for the production of biodiesel from used cooking Potassium methylate might actually be on the verge of oils. That's because such oils contain a high share of a spectacular career, as a study has shown that many free fatty acids that form a soap residue, which makes the other types of waste materials could be used to produce manufacturing process more difficult. However, the use of biofuels. If all such waste in the European Union were to potassium methylate leads to the formation of potassium be converted into biofuels, the resulting volume would soaps, which are easier to manage. The production pro- cover around 16 percent of the entire fuel requirement in cess with potassium methylate is therefore more robust, the EU by 2030. This would also make it possible to lower yields are higher, and the quality of the resulting fossil fuel consumption by up to 37 million tons per year— biodiesel is better. which would be a real treat for the environment as well. EFTA00598658 THE MANAGER'S THINKING: THE STUDENT'S THINKING: When I was a little That's weird. Why is boy, I dreamed ofbeing this making me think of a cowboy too. a cigarette ad? EFTA00598659 OUR CUSTOMER'S THINKING: Worldwide meat consumption is stillincreasing. We urgently need to do something to make meat production more friendly to climate and the environment. EFTA00598660 24 NUTRITION& CARE IT'S ALL IN THE MIX Adding correctly dosed amino acids from Evonik to amino acids are optimally metabolized only if they are animal feed makes meat production more efficient consumed in the right mixing ratio. In order to constantly and more environmentally friendly. But the Group's guarantee the correct mixing ratio for every animal spe- animal feed experts are delivering far more than cies and every fodder plant in spite of natural fluctuations, these valuable nutrients in themselves. expert knowledge is required. Evonik Industries therefore supplies not only the four In agricultural meat production, everything revolves most important amino acids for animal feed but also com- around livestock and animal feed. Animal feed accounts plete systems for their targeted dosing. To accomplish for between 60 and 70 percent of the total cost of meat this, the Group also employs its own animal feed spe- production, and it also accounts for most of its environ- cialists and carries out cooperative research with around mental footprint. For example, the cultivation of pro- three dozen universities and research institutes all over tein-rich fodder plants such as soybeans requires vast the world. The objective of this research is to find out amounts of arable land, while other protein sources such what pigs, chickens, dairy cows, fish, and shrimps each as fish meal are accelerating overfishing in the oceans. require in order to thrive. After all, every animal species, every farming method, and every new breed has If animals are not optimally metabolizing their feed, much different requirements. of it is excreted without being used. The additional animal waste pollutes water sources, among other things, and it In order to apply this knowledge in practice, Evonik also wastes environmental as well as economic resources. supports all wholesale producers of mixed animal feed, Today farmers and feed producers are responding to this for example through special analyses, consultation, and challenge by adjusting the nutrients in their animal feed to dosing systems. For example, on behalf of its customers precisely meet the needs of particular animal species. Evonik is using near-infrared spectroscopy (NIR) to regularly check the actual nutrient content of well over Essential amino acids are an important aspect of this 100 different raw materials for animal feed that are sold effort. Amino acids are among the basic building blocks of all over the world. Hundreds of thousands of such all living things. Human beings and animals need to take analyses are integrated into Evonik's advisory service. in amino acids through the food they consume. However, Whether it's Pekin ducks, brood carp or shrimps, Evonik knows the optimal amino acid profile for almost every animal species and has a number of specialized products in its port- folio. Dairy cows, for example benefit from Nlepron2, a methi- onine product that was developed especially for the digestive tract of these ruminants. It moves through the cow's rumen without decomposing and thus can be utilized especially well. EFTA00598661 25 66 We supply a package solution consisting of product and service. That's the only way our customers, and ultimately their animals, can optimally utilize the feed. PP STEFAN MACK Head of the nlethionine &Derivatives Product Line - Evonik employees provide on-site consultation in The addition of between a few hundred grams and a few 120 countries—wherever raw materials for animal feed kilograms of methionine, lysine, threonine or tryptophan grow and meat is produced. Together with their custom- per ton of feed makes a crucial difference. That's why ers, they look at the actual nutrient content of animal the dosage should be extremely precise so that valuable feed, the animals' requirements, current feed prices on nutrients are not wasted once again. Here too, Evonik is the world market, and recently also the environmental a leader when it comes to customer service. For example, footprint, in order to determine how to mix the optimal it provides dosing systems for its customers mixing animal feed in terms of nutritional biology, cost-effective- operations to make sure the feed always contains exactly ness, and environmental friendliness. the nutrients the animals need. EFTA00598662 26 S THESTUDENT'S THINKING: THE GRANDMOTHER'S THINKING: How can a person be so Now you can see what I used awake at 7:30 .?! to go through! EFTA00598663 OUR CUSTOMER'S THINKING: Someone's had a good night's sleep! Latex mattresses are not only robust but also ideally suitedfor many different kinds of sleepers—even people with allergies. EFTA00598664 28 PERFORMANCE MATERIALS BETTER BEDDING More affordable, more ergonomic, and even more suffer from irritation of the eyes and the respiratory tract; sustainable—latex mattresses based on Evonik if you're sensitive to cold, you'll shiver throughout the products promise more comfortable sleep even for winter; and if you have back problems, you'll be kept demanding sleepers. They also apply a chemical by- awake by pain or wake up with stiff muscles. And if you're product useful and efficiently. overweight, you'll tend to sink into your mattress instead of relaxing on top of it. A latex mattress can help you avoid all of these problems. We spend about a third of our lives in bed. That's already reason enough to select materials carefully when you're However, natural latex is expensive, and some of the buying a mattress. After all, the wrong choice can cause regions where latex-producing rubber trees are grown countless problems. If you're allergic to house dust, you'll are under criticism because rain forests are being logged EFTA00598665 29 Evonik products can be found not only in mattresses but also in upholstery cushions and insulation foams. A variety of foams for industry are made especially robust, fine- pored, and evenly textured through the use of additives from Evonik. to make room for rubber tree plantations. Evonik offers a more economical raw material for latex production: butadiene. This chemical is used to produce synthetic latex, which is cheaper and, by contrast to natural latex, does not become brittle when it is exposed to ultraviolet radiation. And because butadiene is a byproduct of the processing of crude oil, its use is practical and sustainable. Most mattress producers use a combination of natural and synthetic latex, in a ratio of up to 40 percent natural with the remainder synthetic latex. Butadiene makes about 40 percent of synthetic latex, but there are also production processes that use an even higher proportion of butadiene. For many people, latex mattresses are a good choice. They are especially appreciated by people who are aller- gic to house dust mites. Latex mattresses have an antibac- terial coating and are therefore more hygienic and easier to keep clean. There's practically no opportunity for dust mites to settle in. When it comes to comfortable sleep, latex mattresses generally also get excellent marks. They For decades, butadiene has been feel pleasantly warm and efficiently filter off moisture. People who are tall and heavy or suffer from backaches an important raw material in the appreciate the high degree of point elasticity, which tire, paper, and plastic industries. results in greater comfort. Who wouldn't be tempted to stay in bed just a little longer? The demand for synthetic rubber will boost growth. DR. GERHARD HIMMEL Vire President Marketing & Sales, Rubber & Plasiles Marketing Area, Performance Intermediates Business Line EFTA00598666 so S THE YOUNG MAN'S THINKING: THE MARRIED COUPLE'S THINKING: A cool party—I wish I could Remember when we were be there right now. young? Those were the days... EFTA00598667 31 OUR CUSTOMER'S THINKING: Beer will also stay fresh longer once those new oxygen-absorbing bottle caps make it to the market. EFTA00598668 fa RESOURCE EFFICIENCY APPETITE FOR MORE Foods and beverages stay fresh with the help of Food products such as meats, sausages, milk and dairy protective "active packaging" on the inside of the products, and beverages react very sensitively to oxygen, normal packages. This helps reduce the amount of traces of which remain even in shrink-wrapped packages. food that's thrown away. Scientists at Evonik develop This oxygen triggers an oxidation process that accelerates the key raw materials for this "active packaging: the growth of microorganisms that cause fresh foods to start tasting and smelling bad—and also lose their vitamin content. In other words, the food spoils. Foods that look tasty and fresh and are attractively pack- aged as well—modern supermarkets have a huge amount A new trend has therefore developed that involves the of products on offer, and this sometimes causes shoppers use of 'active packaging° in which a chemical absorber to buy more than they can consume over a given period. is integrated into the packaging material, where it bonds The problem here is that the food products don't last with the remaining oxygen. Scientists from Evonik de- forever: At some point, sausages will go bad even in the velop such additive•based concentrates, which not only refrigerator, where yoghurt can also turn sour and cheese absorb oxygen but also ensure that transparent packaging moldy. A lot of food therefore ends up in the garbage. foils remain transparent. This is important, because most Germany's Ministry of Food and Agriculture reports that oxygen absorbers on the market change their color to an every German throws away around 82 kilograms of unpleasant-looking yellow as they protect food products. food each year on average, although 64 percent of this amount really doesn't have to go to waste. One third of all the food produced is thrown away, according to the United Nations. Our innovative solutions for the food industry can help ensure that resources are used more efficiently. DR. STEFAN NOROHOFF IP Vice President Active Packaging, Strategy Er NeveGrowth Business, Resource Efficiency Segment EFTA00598669 33 Many companies in the food and packaging industries have already expressed interest in the newly developed VISPARENT° product, despite the fact that it's still being examined by the authorities for approval. The market here harbors great potential—for example, demand for such packaging is very high in Europe, the USA, and Japan. Evonik is already working with leading manufac- turers on the development of formulations that can offer the right solution for each type of packaging. That's be- cause regardless of whether it's transparent foils, plastic containers, or bottle caps—the new oxygen absorber Additive concentrates from Evonik keep cheese, can basically be used with all types of packaging. This will meat, and other foods fresh for a longer period give it a unique standing on the market and very likely of time. Drinks in PET bottles and milk also last ensure that it will make its way into a large number of longer —and bottle caps with oxygen absorbers supermarkets. on the inside extend the shelf life of beer and other beverages as well. EFTA00598670 34 MOTHER'S THINKING. FATHER'S THINKING. Don't hurt yourself, my boy! Put it in the net, son! EFTA00598671 OUR CUSTOMER'S THINKINGI ...as ever, nobody notices the self-adhesive strip on the hockey stick, which defies the icy cold without losing its adhesive properties. EFTA00598672 36 PERFORMANCE MATERIALS STRONG BONDS Special additives from Evonik Industries ensure that that have to stay sticky at low temperatures and not adhesive tape and labels stick extremely reliably become brittle. Stickers on hazardous materials also have wherever it really matters. And they do that even to adhere reliably for a long time and when subjected to when they are taken off and stuck back on. extensive wear and tear. Removable labels have to stick well but not leave any residue when they are taken off. Adhesives have to stay cool even when the going gets This is where the special methacrylate VISIOMER° tough. That also applies fully to adhesive tape, no matter 6976 from the Performance Materials Segment comes whether it's used in sports or at home. However, the ugly into play. When an adhesive containing this substance brown spots that can be found on many bathroom tiles is exposed to ultraviolet light, the adhesive becomes tell another story. Whereas adhesive strips that have just crosslinked. The UV-active monomer VISIOMER° come off the roll seem to hold no matter what, the towel 6976 helps the individual polymers in the adhesive to hooks they support eventually fall off the bathroom wall link up with one another and thus increase the adhesive and only the adhesive itself remains permanently attached strength. What's more, this process increases the ad- to the tiles. The adhesive was weakened by external hesive's chemical stability, insensitivity to temperature influences such as temperature fluctuations, cleaning fluctuations, and resistance to moisture. By changing agents, and ultraviolet light. This is an area where Evonik the dose, it's possible to customize the type and duration can demonstrate its skill. As a result of post-application of the UV influence and thus also the crosslinking to the UV crosslinking, one of the company's additives, VISIO- respective application. MER° 6976, can greatly increase a tape's adhesive force. In endurance testing, it stuck 400 times better than a Another benefit of adhesive tape containing VISIOMER° non-crosslinked adhesive. 6976 is that no solvents are needed to make them. This, in turn, reduces the environmental impact and increases A typical property of the adhesive used in adhesive tape the manufacturers' productivity. Typical areas of appli- is its permanent stickiness. This distinguishes it from cation for such adhesive tape include electronic systems many types of adhesive, which don't become hard and and the industrial assembly of components. The special adhesive until they dry or undergo a chemical reaction. methacrylate is also well suited for everyday applications, This permanent stickiness makes it possible to attach tape particularly those that require strong bonds under unfa- to almost any surface. But it's precisely this versatility that vorable conditions—ice hockey being a good example. makes the use of tape demanding because it limits the tape's adhesive strength. As a result, it's not just adhesive strips on hockey sticks and labels for frozen products II The incorporation of our UV-active monomer VISIOMER° 6976 increases not only a glue's adhesiveness but also its resistance to many external influences such as moisture, temperature fluctuations, and chemicals. IP DR. SABINE K0MMEtT Technical Manager Applied Technology Acrylic Monomer% Engines% Line EFTA00598673 As a post-application crosslinking agent, VISIOMEle 6976 is also suited for other resin systems such as paints and coatings. Such paints are easy to apply before the crosslinking takes place. The natural ultraviolet light from the sun gradually causes the paints to harden and thus become more resistant to external influences. EFTA00598674 is I 4r w THE LITTLE GIRL'S THINKING: THE DOCTOR'S THINKING: When I grow up, I want tube ■plat/ no brown bears are a doctor too! Or a pop star! showing up at my office! EFTA00598675 3 sr. OUR CUSTOMER'S THINKING: Getting a real injection is seldom this much jun. Fortunately, well soon be able to avoid them more and more often. EFTA00598676 40 NUTRITION Er CARE HELPING WHERE IT COUNTS Dosing active ingredients precisely and purposefully is complex molecules, it is very difficult to ensure that they an art in itself. It's an art that Evonik has mastered by will be available inside the body in a targeted way as means of polymers for the pharmaceutical industry— continuously as possible. It is difficult to administer some and one that could generate innovative treatments active ingredients in tablet form, either because they against numerous illnesses. disintegrate in the digestive tract or cannot be absorbed through the intestinal wall. Other active ingredients need to do their work locally, for example in a joint, a certain Today people are growing older than ever before. tissue or an organ, continuously for several weeks or Within four generations, life expectancy has more than months. That requires frequent injections. As a result, the doubled all over the world. In the period since 1990, child concentration of the active ingredient in the tissue peaks mortality has been cut in half. This is primarily thanks to at first, but then gradually decreases. In addition, every the successful struggle against infectious diseases. Today injection increases the patient's risk of infection, not medicine is focusing all the more on noninfectious and to mention the unpleasant direct effects on the patient. chronic diseases, which have long been responsible for the great majority of deaths—especially in developing One solution that involves oral as well as parenteral dos- countries and emerging economies. Diabetes, cancer, age is offered by pharmaceutical polymers from Evonik cardiovascular disease, and diseases of the respiratory Industries. They make it possible to release orally admin- tract are four of the most important fields of medical and istered active ingredients at the right time and place in pharmaceutical research. the gastrointestinal tract and to transport them from there into the bloodstream continuously in precise doses. This Active ingredients that can precisely intervene in the has made it possible to administer some active ingredients body's internal processes even in tiny doses are regard- in tablet form for the first time ever. Others can now ed as especially promising. But researchers are also be taken once a day rather than at regular intervals over increasingly looking for the optimal way to administer 24 hours. Biologically absorbable polymers from Evonik them. Especially in the case of active ingredients with now make it possible to formulate parenteral depot EFTA00598677 medications that can be injected directly beneath the skin or into the affected tissue. There, customized micropar- tides then continuously release the active ingredient in Bioresorbable polymers from Evonik have a targeted way before they themselves are disintegrated proven their worth for years —in the form of and absorbed by the body in a natural process. surgical screws, for example. The screws do not need to be removed, which cuts costs and These depot medications in particular harbor tremendous the risks posed by an additional operation. potential. Evonik is cooperating with major customers Moreover, they can be filled with active ingre- from the pharmaceutical industry and also with creative dients that support healing where it's needed. startups to develop formulations for the treatment of diseases such as cancer and multiple sclerosis, as well as acute injuries, rare diseases such as solar urticaria, which is a severe form of solar allergy, and psychological disorders such as depression and schizophrenia. Evonik is providing important and comprehensive sup- port, especially in its cooperation with creative startups that are developing new types of treatment. From the initial idea to the development of a prototype, creation of the patterns for clinical studies, and manufacture of the final product, Evonik supports the development process and the steps leading toward commercial production. In this way it ensures that an active ingredient actually gets to the places where it's needed. Forms of drug administration that intervene in physiological processes through precise dosing make new types of treatment possible. We are helping our customers to implement them. PP THOMAS RIERMEIER Head or Evonik Marina Polymers fa Services Product Line EFTA00598678 42 • 4 THE SMARTPHONE GENERATION'S THE BIOLOGY TEACHER'S THINKING: THINKING: Cool. Can you gel whale songs Oli, a 2Wegaptera novaeangliae. • as a ring tone? EFTA00598679 OUR CUSTOMER'S THINKING: There are specialpaints to prevent barnacles growing on the hulls ofcontainer ships. It's a pity that such paints don't exist for whales as well. EFTA00598680 44 RESOURCE EFFICIENCY CLEAR SAILING ON THE HIGH SEAS Because anti-fouling protection makes shipping more The ancient Romans were already familiar with the most efficient and sustainable, fleet operators and ship important anti-fouling agents against marine pests: builders are looking for effective protective paints. metals such as lead and copper that prevent the organisms Evonik is making today's paint recipes especially from attaching themselves to the hull. That's why the effective and is also working on the coatings of paints used on ships today contain copper compounds. tomorrow. The typically red color that adorns the hulls of merchant ships is caused by copper oxide in the paint. By contrast, the paints used for recreational craft mostly contain cop- Measuring 400 meters in length and boasting more than per thiocyanate, which is white but much more expensive 80,000 hp, the largest container ships that currently ply than copper oxide. the world's oceans often have up to 19,000 containers on board, representing almost 200,000 tons of freight. Every large merchant ship is painted with hundreds of However, a tenacious enemy of these giants of the seas is tons of coating to protect it against the elements and microscopically small. corrosive cargo. Almost all of the coatings—whether for the deck or the ballast water tanks—contain products In a process called fouling, these tiny microorganisms and from Evonik, which improve the coatings' resistance to algae create a slimy organic film on all ships' hulls that are the rough conditions aboard a ship. In addition, Evonik in the water long enough, no matter whether the vessel products in the formulations of the anti-fouling paints is a luxury yacht or a deep-sea freighter. Once this 'soft ensure that extremely tiny layers continuously peel off to growth' has made itself at home on the hull, it is followed uncover new copper underneath. This keeps hulls clean somewhat later by mussels, barnacles, and other types longer so that fewer stays are needed in dry dock. It also of "hard growth.' These 'stowaways° not only increase ensures that the same effect is achieved with less copper, the ship's weight but also promote the corrosion of the which is beneficial from both an environmental and an hull, thus necessitating frequent maintenance work in dry economic point of view. docks. Fouling particularly increases flow resistance, be- cause only clean and smooth hulls glide optimally through Moreover, Evonik works together with paint manufac- the water. turers and research institutes to create new formulations and new anti-fouling systems. The aim is to create paints This has a huge impact on the energy efficiency of ship- that are especially effective and sustainable. For example, ping and thus on its costs and carbon footprint. That's be- paints might not need any copper in the future, as they cause a strongly fouled container ship can consume up to will create surfaces that mechanically prevent organisms 40 percent more fuel than a clean one. With consumption from attaching themselves to the hull in a kind of lotus figures measured in hundreds of tons of bunker oil per effect for the giants of the seas. The tiny stowaways day, this is a considerable amount, and it is also the main would then no longer pose any threat to the leviathans reason why fleet operators and ship builders use effective of the high seas. anti-fouling products. These products consist of ship paint that keeps fouling at bay for as long as possible. EFTA00598681 Specialty products from Evonik are also helping against undesir- able adhesiveness of a different kind: graffiti. A special surface coating protects facades against spray attacks, repelling spray paint and markers so they can be easily removed. Although subject to the full force of the weather and repeated cleaning, the coat- ing lasts for several years. if We not only supply the components for high-performance coatings, we also know precisely what they have to do and under which conditions. JORGEN LOROSCH Head orthe Paints & Coatings Industry Team EFTA00598682 TO OUR SHAREHOLDERS EFTA00598683 • TO OUR SHAREHOLDERS - MANAGEMENT REPORT - CONSOUDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 47 r- 5 I Our strategy is based on profitable growth, efficiency and values. We are strengthening our leading market positions and concentrating on attractive growth businesses and emerging markets. Innovations and external growth give us access to new growth areas. We are also continuously improving our cost base and technology position. EFTA00598684 ♦s ANNUAL REPORT 2015 EVONIK INDUSTRIES Report of the Supervisory Board Dr. Werner Muller, Chairman of the Supervisory Board A Ours AO\ rialciletAms In 2015, the Supervisory Board of Evonik Industries AG (Evonik) performed the obligations defined by law and the Articles of Incorporation correctly and with the utmost care, and regularly and conscientiously supervised the work of the Executive Board. We supported the Executive Board by providing advice on the management and strategic development of the company. Collaboration between the Executive Board and Supervisory Board The Executive Board always gave us full and timely information on all material issues affecting the Group, and involved us in all fundamental decisions relating to the company. Key areas were business performance and the situation of the company, along with aspects of business policy, corporate planning and Evonik's ongoing strategic development. In addition to reporting at meetings of the Supervisory Board, the Executive Board kept us informed orally and in writing of current business developments and activities of particular significance for Evonik. The Chairman of the Supervisory Board was kept informed of all major business events. EFTA00598685 • TO OUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 49 Rayon of the Supelvisory Booed The Supervisory Board was always consulted at an early stage on decisions of any significance. The t. Supervisory Board's oversight of the Executive Board centered in particular on ensuring the correct, fi orderly, expedient and cost-effective management of Group-wide business activities. The content and scope of reporting by the Executive Board complied with the law, the principles of good corporate governance and the requirements set by the Supervisory Board. Section 16 of the Articles of Incorporation of Evonik Industries AG and the Rules of Procedure of the Supervisory Board set out business activities and measures of fundamental importance on which the Executive Board is required to seek the approval of the Supervisory Board or, in some cases, individual committees. In the past fiscal year, the Supervisory Board took decisions on business activities and measures submitted by the Executive Board after examining them and discussing them with the Executive Board. Meetings and work of the Supervisory Board 2 We examined all issues of importance to the company at five meetings, on March 2, May 19, June 25, September 24 and December 10, 2015. In addition, the Supervisory Board adopted one resolution via a written circulation procedure. In 2015 the work of the Supervisory Board was again prepared and supported by its committees. The committees and their members in the year under review were as follows: • Executive Committee: Dr. Werner Muller (Chairman), Michael Vassiliadis (Deputy Chairman), ainter Adam (until December 10, 2015), Ralf Hermann, Steven Koltes and Dr. Volker Trautz. • Audit Committee: Dr. Siegfried Luther (Chairman and independent financial expert within the meaning of Section 100 Paragraph 5 German Stock Corporation Act/AktG), Karin Erhard (Deputy Chairwoman), Prof. Barbara Grunewald, Jurgen Neding (until September 30, 2015), Norbert Pohlmann (from Octo- ber 1, 2015), Dr. Wilfried Robers and Dr. Christian Wildmoser. • Finance and Investment Committee: Michael Radiger (Chairman), Michael Vassiliadis (Deputy Chairman), Gunter Adam (until December 10, 2015), Martin Albers (from December 11, 2015), Stephan Gemkow, Ralf Hermann, Frank Lallgen, Dr. Werner Muller and Dr. Christian Wildmoser. • Nomination Committee: Dr. Werner Muller (Chairman), Steven Koltes and Dr. Volker Trautz. • Mediation Committee: Dr. Werner Muller (Chairman), Michael Vassiliadis (Deputy Chairman), Ralf Hermann and Dr. Volker Trautz. The tasks allocated to these committees are described in detail in the Corporate Governance Report on pages 63 and 64. The Executive Committee held eight meetings in 2015. The Audit Committee and the Finance and Investment Committee each held four meetings. In addition, the Finance and Investment Committee adopted one resolution via a written circulation procedure. The Nomination Committee met once in the reporting period. There was no need for the Mediation Committee to meet during the reporting period. The chairman or deputy chairperson of each committee reported regularly at the meetings of the Supervisory Board on the issues discussed and decisions taken at committee meetings. The Supervisory Board therefore always had extensive and well-founded information on all matters of significance in the Evonik Group. At its meeting in March, the Supervisory Board focused on examining the annual financial state- ments, which had first been considered in detail by the Audit Committee, and on preparing for the Annual Shareholders' Meeting. It also resolved on measures resulting from an efficiency review conducted with external support in 2014. The meeting in May was dedicated to supplementary information prior to the Annual Shareholders' Meeting. In June, the focus of the meeting was the resignation from the Executive Board of Patrick Wohlhauser, formerly Chief Operating Officer, and the appointment of Dr. Ralph Sven Kaufmann as his successor. At the meeting in September, the Supervisory Board discussed the strategy of the Evonik Group, the extension of the term of office of Thomas Wessel as Chief Human Resources Officer, targets for female members of the Supervisory Board and Executive Board, revision of the objectives for the composition of the Supervisory Board in accordance with Section 5.4.1 Paragraph 2 of the German Corporate Governance Code, and the new version of the Rules of Procedure of the Supervisory Board. EFTA00598686 so ANNUAL REPORT 2015 EVONIK INDUSTRIES At its meeting in December, the Supervisory Board discussed the Declaration of Conformity in compliance with Section 161 of the German Stock Corporation Act (AktG), the budget for 2016, the mid-term planning for the period to 2018, and progress in implementing the measures adopted following the efficiency review. In the reporting period, the main issues discussed by the Executive Committee were: the bonuses for the Executive Board members for 2014 and their objectives for 2015, adjustment of the remuneration of the Executive Board effective January 1, 2016, systematic succession planning for the Executive Board, preparation of a proposal on implementation of the recommendations made by the efficiency review, the change of Chief Operating Officer on the Executive Board, acceptance and discussion of a report by the Chairman of the Executive Board on acquisition considerations, determination of the targets for the proportion of women on the Supervisory Board and Executive Board, and the business situation, current projects and Evonik's share price. At its meeting in March, the Audit Committee examined the annual financial statements of Evonik Industries AG, the consolidated financial statements, and the proposal for the election of the auditor for fiscal 2015. The focus at its meeting in May was the interim report on the first quarter, while in July the meeting focused on the interim report on the first six months. In October, the central issues discussed by the Audit Committee, apart from the interim report on the third quarter, were corporate governance and the compliance update. The attention of the Finance and Investment Committee in the reporting period was mainly concentrated on growth projects and investment controlling (see page 51 "Investment and investment controlling"). In January, the Nomination Committee discussed the implications of the legislation on equal participation of women and men in management positions in the private and public sectors for both groups of repre- sentatives on the Supervisory Board. In addition—apart from the reports required by law—the Supervisory Board and its committees examined and discussed the following issues in detail: Performance and situation of the Evonik Group The Evonik Group posted a very successful business performance despite the challenging macro-economic environment. Although global growth was lower than expected, the Group posted a pleasing volume trend, supported by the new production capacities. There was a particularly strong rise in selling prices in the Nutrition & Care segment, whereas prices in the Performance Materials segment declined, mainly because of the drop in the oil price. Overall, selling prices were on the previous year's level. Sales increased to €13.5 billion in 2015 and adjusted EBITDA improved considerably to €2.47 billion. Implementation of the new management and portfolio structure The Supervisory Board discussed in detail the reorganization of the management and portfolio structure of the Evonik Group, which started in 2014 and was completed in 2015. The principal objective of the reorganization—to take account of the different management needs of the businesses and bring a further improvement in the structural basis for their profitable growth was achieved in the reporting period through the following steps: • Establishment of new legal entities and transfer of management responsibility to the future managing directors of these companies with effect from the start of 2015 • Assumption of the operating business by these new companies through plant management agreements and the associated transfers of undertaking pursuant to Section 613a of the German Civil Code (BGB) effective July 1, 2015 EFTA00598687 • TO OUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION S1 Rip0I1 O r the Supetvisory Boerd • Concentration of Evonik Industries AG from this date as a management holding company on the strategic management and ongoing development of the legal entities. fi This introduced the principle of differentiated management. Consequently, the Nutrition & Care and Resource Efficiency segments now have an even stronger focus on growth, while the Performance Materials segment is run as a financing business. Investment and investment controlling Alongside this, the Supervisory Board and its committees kept a close eye on Evonik's growth course. At our meetings we discussed the development of Evonik's sales, earnings and capacity utilization, the financial and earnings position and the main growth projects, including investment controlling for current projects. The projects considered in detail by the Supervisory Board and the Finance and Investment Committee included: • Preliminary planning for the construction of a further methionine plant (Singapore) • Ongoing construction work on an integrated production complex for oleochemical specialty surfactants (Brazil) • Ongoing construction of a lysine plant (Brazil) • Extension of capacity for polyamide 12 powder (Germany) • Extension of production of high-molecular polyester (Germany) a • Acquisition of Monarch Catalyst Pvt. Ltd. (India) • Joint venture for the construction of a production facility for potassium hydroxide solution and chlorine (Germany) • Construction of a production facility for acrolein cyanhydrin-o-acetate (USA). 0 Divestments During the year the Supervisory Board and the Finance and Investment Committee also closely examined divestment projects, including the following: Divestment of the remaining 10.3 percent stake held by Evonik Industries AG in the real estate company Vivawest GmbH to RAG Aktiengesellschaft, Herne (Germany). Other issues addressed by the Supervisory Board and its committees In addition to the issues and developments outlined above, the main topics addressed by the Supervisory Board and its committees in 2015 were: Proposals for resolutions to be adopted at the Annual Shareholders' Meeting in May 2015, especially the proposal of the Supervisory Board to the Annual Shareholders' Meeting on the appointment of the auditor Revision of the Rules of Procedure of the Supervisory Board Appointment of Dr. Ralph Sven Kaufmann as a member of the Executive Board and renewal of the appointment of Thomas Wessel as a member of the Executive Board (see °Personnel issues relating to the Executive Board and Supervisory Board' on page 55) Resolutions on the Declarations of Conformity in compliance with Section 161 of the German Stock Corporation Act (AktG) in March and December 2015, and the Supervisory Board's report to the Annual Shareholders' Meeting. EFTA00598688 52 ANNUAL REPORT 2015 EVONIK INDUSTRIES Individual disclosure of the attendance at meetings of the Supervisory Board and its committees Finance & Supervisory Executive Investment Audit Nomination Mediation Board Committee Committee Committee Committee Committee Supervisory Board member Presence in % Presence in % Presence in % Presence in % Presence in % Presence in % Dr. Werner MOtler (Chairman) 5/5 100 8/8 100 4/4 100 1/1 100 0/0 Michael Vassilladis (Deputy Chakman) 5/5 100 8/8 100 4/4 100 0/0 GOnter Adam (until December 10, 2015) 4/5 80 7/8 87.5 4/4 100 Martin Albers (from October 1, 2015) 1/1 100 Prof. Barbara Albert 5/5 100 Karin Erhard 5/5 100 4/4 100 Carmen Fuchs (from December 10, 2015) 0/0 Stephan Gemkow 5/5 100 4/4 100 Prof. Barbara Grunwald 5/5 100 4/4 100 Ralf Hermann 5/5 100 8/8 100 3/4 75 0/0 Prof. Wolfgang A. Herrmann 5/5 100 Dieter Kitten 5/5 100 Steven Koltes 4/5 80 7/8 87.5 1/1 100 Frank Lbllgen 5/5 100 3/4 75 Dr. Siegfried Luther 5/5 100 4/4 100 itligen Wading (until September 30, 2015) 4/4 100 3/3 100 Norbert Pohlmann 5/5 100 1/1 100 Dr. Wilfried Robes 5/5 100 4/4 100 Michael ROdiger 5/5 100 4/4 100 Ulrich Terbradc 5/5 100 Dr. Volker Trautz 5/5 100 8/8 100 0/1 0 0/0 Dr. Christian Wlldmoser 5/5 100 I 4/4 100 4/4 100 Corporate governance The Supervisory Board is committed to the principles of good corporate governance. This is based principally on recognition of the provisions of the German Corporate Governance Code, both in the version dated June 24, 2014 and in the present version of May 5, 2015. This does not exclude the possibility of deviation from its recommendations and suggestions in legitimate individual cases. Since it is listed on the stock exchange, Evonik is subject to the obligation contained in Section 161 of the German Stock Corporation Act (AktG) to submit a declaration of the extent to which it has complied with or will comply with the German Corporate Governance Code and which recommendations have not been and will not be met, together with the reasons for this (declaration of conformity). The Executive Board and Supervisory Board issued declarations of conformity in March and December 2015. These are available on the company's website. In addition, the corporate governance report on page 56 f. contains the most recent declaration of conformity from December 2015. The Executive Board and Supervisory Board examined the requirements imposed by the German legislation on equal participation of women and men in management positions in the private and public sectors. In accordance with this, the list of objectives for the composition of the Supervisory Board was amended to state that in the future appointments to the Supervisory Board should ensure at least 30 percent women and at least 30 percent men; this requirement is applicable for new appointments from January 1,2016. Further, the Supervisory Board defined a target of at least 20 percent female members of the Executive Board for the period up to June 30, 2017. EFTA00598689 • TO OUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 33 Repot( of the Supetvisory Baud As an additional objective for its composition, Evonik's Supervisory Board has set a regular limit on membership of no more than three full terms of office to satisfy the new requirements set out in the latest fi version of the German Corporate Governance Code. With the exception of the quotas for men and women to be observed in future appointments, the present composition of the Supervisory Board meets all of the major objectives set for its composition. Further details of the diversity requirements and the list of objectives are set out in the corporate governance report on pages 64 and 65. For 2015, the members of the Supervisory Board will receive attendance fees and purely fixed remu- neration for their work on the Supervisory Board and any membership of committees (see page 133). Members of the Supervisory Board of Evonik Industries AG had no conflicts of interest in 2015. Moreover, there were no consultancy, service or similar contracts with any members of the company's Supervisory Board in 2015. Furthermore, there were no transactions between the company or a company in the Evonik Group on the one hand and Supervisory Board members and related parties on the other. 2 In 2014 the Supervisory Board examined the efficiency of its work with the support of an external consultant. The measures adopted as a result of this review were either implemented in 2015 or adopted as an ongoing process. All of the measures implemented will increase the efficiency of the Supervisory 5 Board and thus bring a further improvement in corporate governance at Evonik. Audit of the annual financial statements PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprufungsgesellschaft (PwC), Dusseldorf (Germany) has audited the financial statements of Evonik Industries AG as of December 31, 2015 prepared in accor- dance with the German Commercial Code (HGB), the consolidated financial statements for the Evonik Group prepared using the International Financial Reporting Standards (IFRS), as permitted by Section 315a Paragraph 1 of the German Commercial Code (HGB), and the combined management report for Evonik Industries AG and the Evonik Group, and has endorsed them with an unqualified opinion pursuant o V to Section 322 of the German Commercial Code (HGB). The Supervisory Board awarded the contract for the audit of the annual financial statements of Evonik Industries AG and the consolidated financial statements of the Evonik Group in line with the resolution taken by the Shareholders' Meeting on May 19, 2015. In accordance with Section 317 Paragraph 4 of the German Commercial Code (HGB), the annual audit includes an audit of the risk identification system. The audit established that the Executive Board has taken the steps required in compliance with Section 91 Paragraph 2 of the German Stock Corporation Act (AktG) to establish an appropriate risk identification system and that this system is suitable for timely identification of developments that could represent a threat to the continued existence of the company. The Executive Board submitted the above documents, together with the auditor's reports and the Executive Board's proposal for the distribution of the profit to all members of the Supervisory Board to prepare for the meeting of the Supervisory Board on March 2, 2016. At its meeting on February 26, 2016 the Audit Committee discussed the annual financial statements, auditor's reports and proposal for the distribution of the profit in the presence of the auditor to prepare for the subsequent examination and discussion of these documents by the full meeting of the Supervisory Board. Further, the Audit Committee requested the auditor to report on its collaboration with the internal audit department and other units involved in risk management, and on the effectiveness of the risk identification system. The auditor reported that the Executive Board had taken the steps required in compliance with Section 91 Paragraph 2 of the German Stock Corporation Act (AktG) to establish an appropriate risk identification system and that this system is suitable to ensure timely identification of developments that could represent a threat to the continued existence of the company. EFTA00598690 54 ANNUAL REPORT 2015 EVONIK INDUSTRIES The Supervisory Board conducted a thorough examination of the annual financial statements of Evonik Industries AG, the consolidated financial statements for the Evonik Group, the combined management report for fiscal 2015 and the Executive Board's proposal for the distribution of the profit and—on the basis of explanations of these documents by the Executive Board—discussed them at its meeting on March 2, 2016. The auditor was also present at this meeting and reported on the main findings of the audit. He also answered questions from the Supervisory Board about the type and extent of the audit and the audit findings. The discussion included the audit of the risk identification system. The Supervisory Board shares the Audit Committee's assessment of the effectiveness of this system. In this way, the Supervisory Board convinced itself that the audit had been conducted properly by the auditor and that both the audit and the audit reports comply with the statutory requirements. Following its thorough examination of the annual financial statements of Evonik Industries AG, the consolidated annual financial statements and the combined management report (including the declaration on corporate governance), the Supervisory Board declares that, based on the outcome of its examination, it has no objections to raise to the annual financial statements of Evonik Industries AG, the consolidated annual financial statements and the combined management report. In line with the recommendation made by the Audit Committee, the Supervisory Board has therefore accepted the audit findings. At its meeting on March 2, 2016, the Supervisory Board therefore endorsed the annual financial statements of Evonik Industries AG and the consolidated annual financial statements. The annual financial statements for 2015 are thus ratified. The Supervisory Board concurs with the Executive Board's assessment of the situation of the company and the Group as expressed in the combined management report. The Super- visory Board considered the Executive Board's proposal for the distribution of the profit, in particular with a view to the dividend policy, the impact on liquidity and its regard for shareholders' interests. This also included an explanation by the Executive Board and a discussion with the auditor. The Supervisory Board then voted in favor of the proposal put forward by the Executive Board for the distribution of the profit. Examination of the report by the Executive Board on relations with affiliated companies The Executive Board has prepared a report on relations with affiliated companies in 2015. This was examined by the auditor, who issued the following unqualified opinion in accordance with Section 313 of the German Stock Corporation Act (AktG): "In accordance with our professional audit and judgment we confirm that 1. the factual disclosures made in this report are correct 2. the company's expenditures in connection with the legal transactions contained in the report were not unreasonably high? The Executive Board submitted the report on relations with affiliated companies and the associated auditor's report to all members of the Supervisory Board to enable them to prepare for the Supervisory Board meeting on March 2, 2016. The Audit Committee conducted a thorough examination of these documents at its meeting on February 26, 2016 to prepare for the examination and resolution by the full Supervisory Board. The mem- bers of the Executive Board provided detailed explanations of the report on relations to affiliated companies and answered questions on it. The auditor, who was present at this meeting, reported on the main findings of the audit of the report on relations with affiliated companies and answered questions raised by members of the Audit Committee. The members of the Audit Committee acknowledged the audit report and the audit opinion. The Audit Committee was able to convince itself of the orderly nature of the audit and audit report and, in particular, came to the conclusion that both the audit report and the audit conducted by the auditor comply with the statutory requirements. The Audit Committee recommended that the Supervisory Board should approve the results of the audit and, since it was of the opinion that there were no objections to the Executive Board's declaration on the report on relations with affiliated companies, should adopt a corresponding resolution. EFTA00598691 • TO OUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION SS Stp0I1Cri the Supelvisory Board The Supervisory Board discussed the report on relations with affiliated companies at its meeting on March 2, 2016. At this meeting too, the members of the Executive Board provided detailed explanations fi of the report on relations with affiliated companies and answered questions on it. Moreover, the auditor was present at this meeting of the Supervisory Board and reported on the main findings of the audit of the report on relations with affiliated companies and answered questions from members of the Super- visory Board. On this basis, the Supervisory Board ascertained that under the circumstances known at the time they were undertaken, the company's expenditures in connection with the transactions outlined in the report on relations with affiliated companies were not unreasonably high and compensation had been received for any disadvantages. In particular, it obtained an explanation of the principles used to determine the relevant activities and the remuneration therefor, especially in the case of transactions of material significance. The Audit Committee had discussed the report on relations with affiliated companies and gave the Supervisory Board a detailed overview of the outcome of its deliberations. The Supervisory Board was able to convince itself of the orderly nature of the audit and audit report and came to the conclusion, in particular, that both the audit report and the audit itself meet the statutory requirements. In particular, it examined the completeness and correctness of the report on relations with affiliated I— companies. No grounds for objection were identified. S The Supervisory Board thus has no objection to raise to the final declaration made by the Executive Board in its report on relations with affiliated companies and concurs with the auditor's findings. Personnel issues relating to the Executive Board and Supervisory Board At its meeting on June 25, 2015, the Supervisory Board first agreed to the early termination of the contract with Patrik Wohlhauser as a member of the Executive Board and his resignation as of June 30, 2015. The Supervisory Board then appointed Dr. Ralph Sven Kaufmann as a member of the Executive Board for three years from July 1, 2015. At its meeting in September, the Supervisory Board reappointed Thomas Wessel to the Executive Board as Chief Human Resources Officer for a further five years from September 1, 2016 until August 31, 2021. There were some changes in the employee representatives on the Supervisory Board in 2015: Jurgen Noding resigned from the Supervisory Board with effect from September 30, 2015. Martin Albers was appointed to the Supervisory Board effective October 1, 2015 through a decision taken by the District Court of Essen on October 2, 2015 in accordance with Section 104 of the German Stock Corporation Act (AktG). Glinter Adam resigned from the Supervisory Board effective December 10, 2015. He was succeeded by Carmen Fuchs, who was elected to the Supervisory Board as a substitute member in accordance with the provisions of the German Codetermination Act (MitbestG) of 1976. The Supervisory Board would like to thank those members who have left for their dedicated commit- ment to the good of the company and its workforce over the years. Concluding remark The Supervisory Board would also like to thank the Executive Board, Works Councils and Executive Staff Councils, and all employees of Evonik Industries AG and its affiliated companies, for their successful work over the past year. The Supervisory Board adopted this report at its meeting on March 2, 2016, in accordance with Section 171 Paragraph 2 of the German Stock Corporation Act (AktG). Essen, March 2, 2016 V\)iett/t4fg On behalf of the Supervisory Board Dr. Werner Muller, Chairman EFTA00598692 S6 ANNUAL REPORT 2015 EVONIK INDUSTRIES Joint report of the Executive Board and Supervisory Board of Evonik Industries AG on Corporate Governance (Corporate Governance Report) 1. Principles of corporate governance and corporate structure Corporate governance comprises all principles for the management and supervision of a company. As an expression of good and responsible corporate management, it is therefore a key element in Evonik's management philosophy. The principles of corporate governance relate mainly to collaboration within the Executive Board and Supervisory Board, between these two boards and between the boards and the shareholders, especially at Shareholders Meetings. They also relate to the company's relationship with other people and organizations with which it has business dealings. Evonik is committed to the German Corporate Governance Code Evonik Industries is a stock corporation established under German law. Its shares have been listed on the stock exchange since April 25, 2013. Alongside compliance with the provisions of the relevant legislation, the basis for ensuring responsible management and supervision of Evonik with a view to a sustained increase in corporate value is our commitment to the German Corporate Governance Code, both in the version dated June 24, 2014, and the revised version of May 5, 2015. This code, which was adopted by the Government Commission on the German Corporate Governance Code, contains both key statutory provisions on the management and supervision of publicly listed German companies and recommendations and suggestions based on nationally and internationally recognized standards of responsible corporate governance. The Executive Board and Supervisory Board of Evonik Industries AG are explicitly committed to responsible corporate governance and identify with the goals of the German Corporate Governance Code. According to the foreword, in the interest of good and proactive corporate governance, a company may deviate from the recommendations set out in the code if this is necessary to reflect enterprise-specific requirements. 2. Information on corporate management and corporate governance 2.1 Declaration of conformity with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG) Under Section 161 of the German Stock Corporation Act (AktG), the Executive Board and Supervisory Board of Evonik Industries AG are required to annually submit a declaration that the company has been, and is, in compliance with the recommendations of the Government Commission on the German Corporate Governance Code and which recommendations have not been or are not being applied, together with the associated reasons. The declaration has to be made permanently available to the public on the company's website. The Executive Board and Supervisory Board of Evonik Industries AG hereby submit the following declaration pursuant to Section 161 of the German Stock Corporation Act: Since submitting its last declaration of conformity in March 2015, the company has fully complied with all recommendations of the German Corporate Governance Code in the versions dated June 24, 2014 and May 5, 2015, as published in the Federal Gazette on September 30, 2014 and June 12, 2015, respectively, and will continue to do so. EFTA00598693 • TO OUR SHAREHOLDERS - MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Corporate Governance Rayon Further, nearly all suggestions contained in the aforementioned two versions of the German Corporate Governance Code were applied, with the following exceptions: fi The suggestion set forth in Section 2.3.3 of the German Corporate Governance Code (the company should make it possible to follow the general meeting using modern communication media) was not and will not be applied. Instead, for organizational reasons, only the speeches by the Chairman of the Supervisory Board and the Chairman of the Executive Board will be transmitted. This procedure also correlates with widespread practice. Moreover, it cannot be excluded that a more extensive transmission could infringe the personal rights of shareholders, which are to be protected. Further, Section 2.32 Sentence 2, second half-sentence of the German Corporate Governance Code (the representative appointed to exercise shareholders' voting rights in accordance with instructions should also be reachable during the general meeting) was not and will not be applied. Application of this suggestion would only be appropriate in the event of transmission of the general shareholders' meeting in full via modern communication media. Furthermore, the availability of the representatives nominated by the company via electronic media during the meeting as put forward by this suggestion involves technical uncertainties. These and the associated risks for the efficacy of resolutions are to be avoided. Essen, December 2015 The Executive Board The Supervisory Board 2.2 Relevant information on corporate management practices Corporate governance The company complies with the recommendations and—with two exceptions—the suggestions set forth in the German Corporate Governance Code (detailed in section 2.1 above). Compliance Evonik understands compliance as all activities to ensure that the conduct of the company, its governance bodies and its employees respect all applicable mandatory standards such as legal provisions, statutory requirements and prohibitions, in-house directives and voluntary undertakings. The basis for this under- standing and for compliance with these binding standards is set out in Evonik's Code of Conduct. Code of Conduct Evonik's binding Group-wide Code of Conduct contains the most important corporate values and principles and governs the conduct of Evonik, its legal representatives and its employees both internally, in the treatment of one another, and externally in the treatment of the company's shareholders and business partners, representatives of authorities and government bodies, and the general public. It requires all employees to comply with the applicable laws, regulations and other obligations. They are also required to observe ethical standards. All employees receive training in the Code of Conduct and systematic action is taken to deal with any breach of its rules. The Code of Conduct fosters a culture that ensures clear responsibility, mutual trust and respect, dependability and lawfulness. House of Compliance The compliance areas identified as being of specific relevance to our company are bundled in a House of Compliance. Following a refocusing, this still includes the traditional compliance issues: antitrust law, foreign trade law, fighting corruption, data protection and—as a publicly listed company—capital market compliance. Environment, safety, health and quality are bundled in a separate corporate division. EFTA00598694 sa ANNUAL REPORT 2015 EVONIK INDUSTRIES The role of the House of Compliance is to define minimum Group-wide standards for the compliance management systems for these areas and ensure that they are implemented. The process of forming a consensus, sharing experience and coordinating joint activities takes place in the Compliance Committee, which is composed of the heads of the respective units, who have independent responsibility for their areas, and the Head of Corporate Audit. The Compliance Committee is chaired by the Head of Compliance and Antitrust Law. House of Compliance Supervisory Board Executive Board Compliance Committee Compliance Management System The compliance management system to be implemented by each area of compliance on the basis of the defined values and specific targets has to implement the tools shown in the next chart. Measures must be put in place to avoid compliance risks and systematic misconduct, identify cases of misconduct, apply appropriate sanctions, and correct process weaknesses. Compliance Management System (CMS) Responsibility of Management Values and Objectives Prevention Detection Response • Risk analysis • Investigations • Corrective measures • Policies & standards • Whistleblower system • Sanctions • Processes • Monitoring & audits • Lessons learnt • Training • Reporting • Awareness raising/communication • Advice & support Compliance Organization Further information on Evonik's compliance management system and the corresponding areas of focus and action taken in the year under review can be found in the Sustainability Report.' Sustainability Report 2014 (the Sustainability Report 2015 will be published in May 2O16). EFTA00598695 • TO OUR SHAREHOLDERS - MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 59 Corporate Governance Rayon Corporate Responsibility Companies that strive for lasting success on the market need social acceptance as well as reliable fi and responsible corporate governance. Together with Evonik's Code of Conduct, the Global Social Policy (GSP) and our Environment, Safety and Health (ESH) Values contribute to responsible corporate management. In its Global Social Policy, Evonik outlines its principles of social responsibility for its employees and requires them to comply with recognized international standards of conduct such as the International Labor Standards of the International Labour Organisation (ILO) and the Guidelines for Multinational Enterprises issued by the Organisation for Economic Cooperation and Development (OECD). Evonik does not tolerate any conduct that violates the OECD Guidelines for Multinational Enterprises. The govern- ments of the OECD member states and other countries have signed these as a guide to multinational enterprises on how to meet their obligation to ensure responsible corporate conduct. The Global Social Policy states that the company's success and reputation are based fundamentally on the professionalism and commitment of all employees. By joining the United Nations' Global Compact (UN Global Compact), Evonik also gave an undertaking that, within its sphere of influence, it would respect and promote labor rights and human rights, avoid discrimination, protect people and the environment and fight against corruption. As a signatory to the chemical industry's Responsible Care Global Charter, we have also given an undertaking that we will continuously strive to improve our performance in health protection, safety, environmental protection and product stewardship. Evonik has signed the Code of Responsible Conduct for Business, which sets measurable standards that have to be firmly anchored in participating companies. These include fair competition, social partnership, the merit principle and sustainability. We also expect our suppliers to share these principles and accept their responsibility with regard to their own employees and business partners, society and the environment. This is set out in our Supplier Code of Conduct. Further, as a responsible company we have given a commitment to report regularly on our climate performance as part of the world's largest climate initiative, the Carbon Disclosure Project (CDP). This covers internal organizational processes and accountability, as well as transparent and challenging targets. Evonik's sustainability management complies with the provisions of the German Sustainability Code. The main documents containing the guidelines on conduct in the Evonik Group can be found on the following internet sites: • Code of Conduct • Supplier Code of Conduct • ESH Values • Global Social Policy • Code of Responsible Conduct for Business www.wcge.org/download/140918_leitbild-eng_Unterschriften_o.pdf • Responsible Care www.icca-chem.org/en/Home/Responsible-care/ • Sustainability Report Transparency Evonik regards timely and equal public disclosure of information as a key basis of good corporate governance. The Investor Relations section of the company's website provides extensive information in German and English. This includes our financial calendar, which provides a convenient overview of important dates.' EFTA00598696 60 ANNUAL REPORT 201S EVONIK INDUSTRIES Evonik's business performance is outlined principally in our quarterly reports, annual report and investor relations presentations. These are supplemented by information on Evonik's shares, the terms of bond issues and an overview of our credit ratings.' Mandatory publications such as ad-hoc announcements, voting rights announcements and information on directors' dealings are also published immediately on our Investor Relations site.' The offering also includes information on corporate strategy, and Evonik's corporate structure and organization. In addition, the Investor Relations site provides information on Evonik's approach to corporate respon- sibility, and how the management and supervision of the company (corporate governance) are aligned to responsible and sustained value creation.' 2.3 Work of the Executive Board and Supervisory Board The German Stock Corporation Act (AktG) forms the legal basis for the incorporation of Evonik Industries AG. Further details are set forth in the company's Articles of Incorporation and the provisions of the German Corporate Governance Code (see section 2.1 above). Executive Board The Executive Board of Evonik Industries AG is responsible for running the company in the company's interests with a view to sustained value creation, taking into account the interests of the shareholders, employees and other stakeholders. It works together trustfully with the other corporate governance bodies for the good of the company. The Executive Board defines and updates the company's business objectives, its basic strategic focus, business policy and corporate structure. It is responsible for complying with statutory provisions and internal directives, and exerts its influence to ensure that they are observed by Group companies (compliance). Its tasks also include ensuring appropriate risk management and risk controlling within the company. When making appointments to management functions in the company, the Executive Board applies the principles of diversity. In this it strives, in particular, to ensure adequate representation of women. The Executive Board currently has five members. One member is appointed to chair the Executive Board. With the approval of the Supervisory Board, the Executive Board has adopted Rules of Procedure and a plan allocating areas of responsibility. The Chairman coordinates the work of the Executive Board, provides information for the Supervisory Board and maintains regular contact with the Chairman of the Supervisory Board. The members of the Executive Board are jointly responsible for the overall management of the company. They work together constructively and keep each other informed of the main activities and developments in their areas of responsibility. The Executive Board endeavors to take decisions unanimously, but may also adopt resolutions by majority vote. If an equal number of votes is cast, the Chairman has the casting vote. Ensuring that the Supervisory Board receives sufficient information is the joint responsibility of the Executive Board and Supervisory Board. The Executive Board provides the Supervisory Board with the reports to be prepared in accordance with Section 90 of the German Stock Corporation Act (AktG) and the Rules of Procedure of the Supervisory Board. It gives the Supervisory Board timely, regular and full information on all matters that are relevant to the company and Group relating to strategy, planning, business development, risks, risk management and compliance. It outlines deviations between the planned and actual business performance and targets and the reasons therefor. News E, Reports, Share and Bonds & Ratings. For details of the shareholder structure see 'Evonik on the itt rnaeltels* on p. 67 of this annual report. 1 News & Reports/Ad-bac announcements, Share/Voting rights, and Co. orate Governance Directors' Dealings. 1 Sustainable Investments (SRI) and Corporate Governance. EFTA00598697 • TO OUR SHAREHOLDERS - MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 61 Corporate Governance Rayon Further, the Executive Board submits timely reports to the Supervisory Board on business matters and actions for which it is required by the Articles of Incorporation or the Supervisory Board's Rules of fi Procedure to obtain the approval of the Supervisory Board, including the annual budget for the Group. In addition, the Supervisory Board can make further business activities and measures dependent on its consent on a case-by-case basis. Members of the Executive Board are required to act in the interests of the company. They may not pursue personal interests in their decisions, nor may they utilize business opportunities available to the company for themselves. The members of the Executive Board are subject to a comprehensive non-compete obligation during their term of office. They may only assume additional posts, especially seats on the supervisory boards of companies that are not affiliated companies of Evonik Industries AG, with the consent of the Supervisory Board. Where such posts are assumed with the consent of the Supervisory Board, the Executive Board member shall accept the post as a personal office and shall ensure strict confidentiality and strict separation 2 from his/her activities as a member of the company's Executive Board. Every member of the Executive Board is required to disclose any conflict of interests to the Chairman of the Supervisory Board without delay and to inform the other members of the Executive Board. S In fiscal 2015 there were no conflicts of interest relating to members of the Executive Board of Evonik Industries AG. All transactions between the company or companies in the Evonik Group on the one hand and Executive Board members and related parties on the other must take place on terms that are customary in the sector. No such transactions took place in the reporting period. The composition of the Executive Board and membership of supervisory boards and similar governance bodies are outlined on page 216. Supervisory Board The Supervisory Board advises and supervises the Executive Board. It appoints the members of the Executive Board and names one member as the Chairperson of the Executive Board. It also decides on the remuneration of the members of the Executive Board. The Executive Board is required to obtain the approval of the Supervisory Board on decisions of fundamental importance, which are defined in a separate list. These include: • fundamental changes to the structure of the company and the Group • setting the annual budget for the Group • investments exceeding €25 million • the assumption of loans and the issuance of bonds exceeding €300 million with a maturity of more than one year. The Supervisory Board examines the company's annual financial statements, the Executive Board's proposal for the distribution of the profit, the consolidated financial statements for the Group and the combined management report. The Supervisory Board submits a written report on the outcome of the audit to the Shareholders' Meeting. The Supervisory Board is subject to the German Codetermination Act (MitbestG) 1976. In accordance with these statutory provisions, the Supervisory Board comprises twenty members, ten representatives of the shareholders and ten representatives of the workforce. The representatives of the shareholders are elected by the Shareholders' Meeting on the basis of nominations put forward by the Supervisory Board as prepared by the Nomination Committee. The representatives of the employees are elected by the workforce and comprise seven employee representatives and three representatives of the industrial union. The composition of the Supervisory Board should ensure that overall its members have the knowledge, ability and professional experience required to perform their duties. The members of the Supervisory Board may not undertake any duties as officers or advisors to the company's major competitors. EFTA00598698 62 ANNUAL REPORT 2015 EVONIK INDUSTRIES The Supervisory Board should not include more than two former members of the Executive Board. A former member of the Executive Board has been elected to the Supervisory Board. His term of office on the Executive Board ended more than two years before the date of his election to the Supervisory Board. All members of the Supervisory Board shall ensure that they have sufficient time to perform their tasks as a member of the Supervisory Board. Members of the Supervisory Board who are also members of the Executive Board of a publicly listed stock corporation should not hold more than three seats on the Supervisory Boards of listed companies outside their group of companies or Supervisory Boards of companies where comparable demands are made on them. Members of the Supervisory Board must act in the interests of the company and not pursue personal interests in their decisions, nor may they utilize business opportunities available to the company for themselves. Members must disclose conflicts of interest to the Supervisory Board. Any member of the Supervisory Board who discloses a conflict of interest is excluded from resolutions at the meetings of the Supervisory Board dealing with matters relating to the conflict of interest. In its report to the Shareholders' Meeting the Supervisory Board discloses any conflicts of interest that have arisen and how they have been dealt with. Material conflicts of interest relating to a member of the Supervisory Board that are not by nature temporary should lead to termination of his/her term of office. Consultancy, service and similar contracts between a member of the Supervisory Board and the company must be approved by the Supervisory Board. There were no contracts of this type in 2015, nor were there any conflicts of interest relating to members of the Supervisory Board of Evonik Industries AG. The Supervisory Board has adopted Rules of Procedure, which also govern the formation and tasks of the committees. At least two meetings of the Supervisory Board are held in each calendar half-year. In addition, meetings may be convened as required and the Supervisory Board may adopt resolutions outside meetings. If an equal number of votes is cast when taking a decision, and a second vote does not alter this situation, the Chairman of the Supervisory Board has the casting vote. The Supervisory Board has set objectives for its composition, which are taken into account in the proposals put to the Shareholders' Meeting with regard to the regular election of members of the Supervisory Board and the subsequent election of a member of the Supervisory Board: • At least two members should have sound knowledge and experience of regions which are of material importance for the Evonik Group's business, either through their background or through professional experience gained in an international context. • At least two members should have special knowledge and experience of business administration and of finance/accounting or auditing. • At least two members of the Supervisory Board should have specialist knowledge and experience of the area of specialty chemicals. • At least two members should have experience of managing or supervising a major company. • The Supervisory Board should comprise at least 30 percent women and at least 30 percent menl. • The members of the Supervisory Board should not hold consulting or governance positions with customers, suppliers, creditors or other business partners that could lead to a conflict of interests. Deviations from this rule are permitted in legitimate individual cases. • Members of the Supervisory Board should not normally be over 70 when they are elected. • Members of the Supervisory Board should not normally hold office for more than three full terms within the meaning of Section 102, Paragraph 1 of the German Stock Corporation Act (AktG), i.e. normally 15 years. It is possible to deviate from this rule, in particular in the case of a member of the Supervisory Board who directly or indirectly holds at least 25 percent of the company's shares or belongs to the governance body of a shareholder that directly or indirectly holds at least 25 percent of the company's shares. • At least five members of the Supervisory Board should be independent within the meaning of Section 5.4.2 of the German Corporate Governance Code. Applicable for new elections and the appointment of substitute members for one or more members of the Supervisory Board from January 1, 2O16. EFTA00598699 • TO OUR SHAREHOLDERS - MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 63 Coepormt Govtenence Ripen These targets were last revised in September 2015. The present composition of the Supervisory Board satisfies these objectives, apart from the fact that it currently comprises 20 percent women and conse- fi quently does not yet meet the statutory requirement of 30 percent women specified for future elections and appointments (see section 2.4 below). The Supervisory Board and its Nomination Committee will continue to monitor observance of these targets in the future. In the past fiscal year, the Supervisory Board had the following committees: The Executive Committee comprises the Chairman of the Supervisory Board, his deputy and four further members. It undertakes the regular business of the Supervisory Board and advises the Executive Board on fundamental issues relating to the ongoing strategic development of the company. Insofar as is permitted by law, it takes decisions in place of the full Supervisory Board on matters which cannot be deferred until the necessary resolution is passed by the full Supervisory Board without detrimental effects for the company. It also takes decisions on the use of authorized capital. It prepares meetings of the Super- visory Board and, in particular, personnel decisions and resolutions on the remuneration of the Executive Board, including the main contractual elements and the overall remuneration of individual members of the Executive Board. It is also responsible for concluding, amending and terminating employment contracts with the members of the Executive Board, where this does not involve altering or setting remuneration, and represents the company in other transactions of a legal nature with present and former members of the Executive Board and certain related parties. The Audit Committee has six members. The members of the Audit Committee should have specialist knowledge and experience in the application of accounting standards and internal control systems. The Supervisory Board has appointed the Chairman of the Audit Committee as an independent financial expert in accordance with Section 100 Paragraph 5 of the German Stock Corporation Act (AktG). He also meets the more extensive requirements of the German Corporate Governance Code. Acting on behalf of the Supervisory Board, the Audit Committee's principal tasks comprise supervising the accounting process, 0 the efficacy of the internal control system, the risk management system and the internal audit system, the auditing of the financial statements, especially the independence of the auditor, any additional services provided by the auditor, compliance and the related decisions. It prepares the Supervisory Board's proposal to the Shareholders' Meeting on the choice of auditor, and takes decisions on the appointment of the auditor, the focal points of the audit and the agreement on audit fees. Further, it authorizes the Chairman of the Supervisory Board to issue the contract to the auditor. The Audit Committee prepares the decision of the Supervisory Board on approval of the annual financial statements of Evonik Industries AG and the consolidated financial statements for the Group. For this purpose, it is required to conduct a preliminary examination of the annual financial statements of Evonik Industries AG, the consolidated financial statements for the Group, the management report for the Group and the Executive Board's proposal for the distribution of the profit. The auditor of the financial statements must attend these meetings of the Audit Committee. The Audit Committee reviews the interim reports, especially the half-yearly report, discusses the audit review report with the auditor—if an auditor is engaged to conduct a review—and decides whether to raise any objections. Further, it examines issues relating to corporate governance and reports to the Super- visory Board at least once a year on the status, effectiveness and scope to implement any improvements to corporate governance, and on new requirements and new developments in this field. The Finance and Investment Committee has eight members. Its work covers aspects of corporate finance and investment planning. For example, it takes decisions on behalf of the Supervisory Board involving approval for the establishment, acquisition and divestment of businesses, capital measures at other Group companies and real estate transactions with a value of more than €25 million and up to €50 million. If the value of such measures or transactions exceeds the above limit, it prepares for a resolution by the Supervisory Board. The Finance and Investment Committee also takes decisions on the assumption of guarantees and sureties for credits exceeding €50 million and on investments in companies of more than €100 million. EFTA00598700 The Nomination Committee comprises three Supervisory Board members elected as representatives of the shareholders. The task of the Nomination Committee is to prepare a proposal for the Supervisory Board on the candidates to be nominated to the Shareholders' Meeting for election to the Supervisory Board. Finally, there is a Mediation Committee established in accordance with Section 27 Paragraph 3 of the German Codetermination Act 1976. This mandatory committee is composed of the Chairman and Deputy Chairman of the Supervisory Board, one shareholder representative and one employee representative. This committee puts forward proposals to the Supervisory Board on the appointment of members of the Executive Board if the necessary two-thirds majority of the Supervisory Board members is not achieved in the first vote. It is only convened when necessary. All other committees meet regularly and may also hold additional meetings on specific issues in line with their responsibilities as set out in the Rules of Procedure for the Supervisory Board. Further details of the work of the Supervisory Board and its committees in the past fiscal year can be found in the report of the Supervisory Board on page 48. The report of the Supervisory Board also out- lines the composition of the various committees and the meetings attended by members the Supervisory Board. For details of the composition of the Supervisory Board and membership of other supervisory and governance bodies see pages 214 and 215. The Supervisory Board regularly examines the efficiency of its work. Further details can be found in the report of the Supervisory Board on page 53. Directors Dealings Under Section 15a Paragraph 1 of the German Securities Trading Act (WpHG), members of the Executive Board and Supervisory Board and related parties (including spouses, registered same-sex partners and dependent children) are required to notify Evonik Industries AG and the Federal Financial Supervisory Authority (BaFin) of any transactions in shares in Evonik Industries AG or related financial instruments, if the total value of such transactions by a member of the Executive Board or Supervisory Board or a related party is €5,000 or above in a calendar year. The transactions notified are disclosed on the website of Evonik Industries AG. Total holdings of shares in Evonik Industries AG and related financial instruments by members of the Executive Board and Supervisory Board on the reporting date amounted to less than 1 percent of the issued shares. 2.4 Information on statutory diversity requirements The German law on equal participation of women and men in management positions in the private and public sectors came into force on May 1, 2015. The regulations are additional to the diversity requirements set forth in the German Corporate Governance Code, which Evonik has satisfied up to now. The new requirements have been considered by the relevant bodies at Evonik at various levels and the necessary resolutions have been adopted. Since Evonik Industries AG is a publicly listed company and is therefore also subject to German co- determination legislation, its Supervisory Board is required to meet a fixed gender ratio, which is applicable for new appointments from January 1, 2016. The regulation specifies that the Supervisory Board should comprise at least 30 percent women and at least 30 percent men. As of December 31, 2015, four members of the Supervisory Board of Evonik Industries AG were women, two representing the shareholders and two representing the workforce. Thus, on the reporting date 20 percent of Supervisory Board members were women. Evonik will take the new statutory regulations into account for new appointments from January 1, 2016 in order to meet the requirements. In light of this, the Supervisory Board has revised the targets for its composition in accordance with Section 5.4.1 Paragraph 2 of the German Corporate Governance Code to take account of this aspect of diversity (see also the section headed 'Supervisory Board' above). Further, the leg_ EFTA00598701 • TO OUR SHAREHOLDERS - MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 69 Evonik on the cepHel meekets Animal Nutrition field trip A highlight of our capital market communication in 2015 was the Animal Nutrition field trip on October 1. fi Nearly 40 international analysts and investors visited our production site in Antwerp (Belgium). The focus was the Nutrition & Care segment's Animal Nutrition Business Line. The Executive Board started by outlining the company's present corporate strategy and progress with its growth strategy. As well as giving analysts and investors extensive information on all aspects of the animal nutrition business, the management then explained that market conditions remain attractive thanks to the nutrition, globalization and, above all, sustainability megatrends. On the same day, Evonik announced plans to build a further methionine plant in Singapore, which is scheduled to come on stream in 2019. Sound investment grade ratings and a successful bond issue Evonik still has sound investment grade ratings: BBB+ (outlook: stable) from Standard and Poor's and Baa2 (outlook: positive) from Moody's, so we have achieved one of the main goals of our financial strategy. In January 2015 Evonik Industries AG issued a new €750 million bond with a tenor of eight years. The annual coupon of 1.0 percent is the lowest ever on a bond issued by Evonik. The bond is being used to finance ongoing business and the investment program. Further increase in price targets Analysts' ratings The number of analysts that cover Evonik increased further in 2015— sal 2 from 22 to 23. Thirteen of them rated the share as a buy, two as a sell, and eight issued neutral recommen- Buy 13 dations. Their price targets ranged from €29 to €42. The median was Hold a €38. In the previous year, the price to targets were between €23 and €34 with a median of €30. Inclusion in another sustainability index Evonik is included in well-known sustainability stock indices. In 2014 it gained a place in the FTSE4Good Global and STOXX" Global ESG Leaders indices. Since December 2015 we have also been included in the Euronext Vigeo Eurozone 120 index. Investor Relations For further information on our investor relations activities, visit our website at investor-relations. The financial calendar on our website provides a convenient overview of important dates. The website also contains key facts and figures, especially financial and segment data and details of the company's structure and organization. This is supplemented by information on Evonik shares, the terms of bond issues and an over- view of our credit ratings. Current presentations, analysts' estimates and reports on our business performance are also available. C•ntactt PHONE ..49 201177-P/6 I EFTA00598702 70 ANNUAL REPORT 2015 EVONIK INDUSTRIES MANAGEMENT REPORT 1. Bask information on the Evonik Group 71 5. Sustainability 103 1.1 Business model 71 5.1 Employees 105 1.2 Principles and objectives 73 5.2 Environment, safety and health 110 1.3 Business management systems 74 6. Events after the reporting date 113 2. Business review 75 7. Opportunity and risk report 113 2.1 Overall assessment of the 7.1 Opportunity and risk management 113 economic situation 75 7.2 Overall assessment 2.2 Economic background 76 of opportunities and risks 114 2.3 Major events 77 7.3 Planning/market risks 2.4 Business conditions and performance 77 and opportunities 114 2.5 Comparison of forecast and 7.4 Legal/compliance risks actual performance 81 and opportunities 120 2.6 Segment performance 82 7.5 Process/organization risks 121 Nutrition & Care segment 82 Resource Efficiency segment 84 8. Takeover-relevant information 122 Performance Materials segment 86 9. Declaration on corporate governance 125 Services segment 88 2.7 Regional development 88 10. Remuneration report 125 2.8 Earnings position 89 10.1 Remuneration of the 2.9 Financial condition 91 Executive Board 125 2.10 Asset structure 94 10.2 Remuneration of the Supervisory Board 132 3. Performance of Evonik Industries AG 95 11. Report on expected developments 134 4. Research & development 97 11.1 Economic background 134 11.2 Outlook 136 Combined management report for 2015 This management report is a combined management report for the Evonik Group and Evonik Industries AG. Given the influence of the segments, statements relating to the development of the segments in the Evonik Group also apply for Evonik Industries AG. The consolidated financial statements for the Evonik Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) and the financial statements of Evonik Industries AG have been prepared in accordance with the provisions of the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). EFTA00598703 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 71 ask information on the Evonik Group Business model An excellent performance in 2015 Responding vigorously to challenges in 2016 1. Basic information on the Evonik Group • Strong market positions • A balanced portfolio c • Innovations drive profitable growth E 1.1 Business model Market-oriented research & development is a key driver of profitable growth. This is based on our strong innovation Strong market positions, a clear innovation culture, culture, which is rooted in our innovation management and 3 sustainable business activities management development. Evonik is one of the world's leading specialty chemicals We are convinced that sustainable and responsible busi- companies. We concentrate on high-growth megatrends, ness activities are vital for the future of our company. Evonik especially health, nutrition, resource efficiency and globali- therefore accepts responsibility worldwide—for its business, 0 zation. Our strengths include the balanced spectrum of our its employees and society. business activities, end-markets and regions. Around 80 per- Highly trained employees are a key success factor. They cent of sales come from market-leading positions', which we drive forward the company on a daily basis through their hard are systematically expanding. Our strong competitive position work and identification. We have therefore developed a wide is based on integrated technology platforms, innovative range of activities to gain and develop talented and qualified strength and working closely with our customers. employees and to position Evonik as a preferred employer in Our specialty chemicals products make an indispensable order to retain them. contribution to the benefits of our customers' products, which generate their success in global competition. Close A decentralized corporate structure cooperation with our customers enables us to build up a deep To further improve our scope for profitable growth, we reor- knowledge of their business, so we can offer products tai- ganized our management and portfolio structure effective lored to their specifications, and extensive technical service. January 1, 2015. The Executive Board now concentrates on Our technology centers and customer competence centers Evonik's strategic development within a management holding play an important role in this around the world. We also have structure. The three chemical manufacturing segments' are a focus on our customers' customers. run by newly established management companies and have Corporate structure Evonik Segments Nutrition & Care Resource Efficiency Performance Materials Services 1 We define these as ranking 1st, 2nd or 3rd in the relevant markets. 2 Two segments were renamed and some activities were assigned to different segments. The prior-year figures have been restated accordingly. See Note 9.1. EFTA00598704 72 ANNUAL REPORT 2015 EVONIK INDUSTRIES far greater entrepreneurial independence, so they can operate future, investments and, where appropriate, alliances will closer to their markets and customers and improve efficiency concentrate on securing and extending our good market still further. positions. The Nutrition & Care segment produces specialty chemi- cals, principally for use in consumer goods for daily needs, Integrated technology platforms and in animal nutrition and healthcare products. are a competitive advantage The Resource Efficiency segment supplies high- Our products are manufactured using highly developed performance materials for environment-friendly and energy- technologies that we are constantly refining. In many cases efficient system solutions for the automotive, paints, Evonik has backwardly integrated production complexes coatings, adhesives and construction industries and many where it produces key precursors for its operations in other sectors. neighboring production facilities. In this way we offer our The heart of the Performance Materials segment is the customers maximum reliability of supply. At the same time, production of polymer materials and intermediates, mainly backwardly integrated world-scale production facilities com- for the rubber, plastics and agriculture industries. bined with technologically demanding production processes The Services segment offers services for the chemical act as high entry barriers. segments and external customers at our sites and supports Further advantages are leveraged by the use of our the chemicals businesses and the management holding integrated technology platforms for several businesses. That company by providing standardized Group-wide business generates economies of scale and optimizes the use of services. product streams because by-products from one production The Nutrition & Care and Resource Efficiency segments facility can be used as starting materials for other products. operate principally in markets with high margins, growth rates This results in optimum utilization of capacity and resources and entry barriers. They both offer customers customized, and thus high added value. Moreover, the operating units innovation-driven solutions and the aim is for them to achieve can share the site energy supply and infrastructure cost- above-average, profitable growth through innovations, effectively. investments and acquisitions. The Performance Materials segment is characterized by Broadly diversified end-markets processes that make intensive use of energy and raw mate- Most of our customers are industrial companies that use rials. It therefore concentrates on integrated, cost-optimized our products for further processing. The range of markets in technology platforms, efficient workflows, and economies of which they operate is diverse and balanced. None of the scale. Our strategic goal for this segment is to contribute end-markets that we supply accounts for more than 20 per- earnings to finance the growth of the Evonik Group. In the cent of our sales. Evonik's end-markets Agriculture Renewable energies Paper and printing Paints and coatings' Metal and oil products Consumer goods and pectoral care products Electrical and electronics Pharmaceuticah Other industries Food and animal feed Plastics and rubber' Automotive and mechanicalengineering 15-20% 10-15% 5-10% <5% • Where not directly assigned to ether end customer industries. EFTA00598705 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 73 Basic information on the Evonik Group Principles and oblecteires Global production To raise scope for growth and innovations, we are con- Evonik has a presence in more than 100 countries and tinuously working to improve our cost position. The On 82 percent of sales are generated outside Germany. We have Track 2.0 efficiency enhancement program is geared to production facilities in 24 countries on five continents and optimizing production and related workflows, while the are therefore close to our markets and our customers. Our Administration Excellence program is designed to optimize largest production sites—Marl, Wesseling and Rheinfelden our administrative functions' worldwide. (Germany), Antwerp (Belgium), Mobile (Alabama, USA), The cornerstones of our corporate culture are our corpo- Shanghai (China) and Singapore—have integrated techno- rate values "sparing no effort", 'courage to innovate' and logy platforms used by various units. 'responsible action', which represent the balance between economically successful, ecologically responsible and socially appropriate behavior. 1.2 Principles and objectives Our sustainability strategy is based on the megatrends identified in our corporate strategy, supplemented by eco- Profitable growth, enhanced efficiency, values logical and societal challenges. We are keenly committed to A sustained increase in the value of the company is our expanding the contribution made by our innovative solutions overriding goal and the basis for Evonik's strategic alignment. to sustainable development. E To implement our strategy, we have set demanding financial, safety and environmental targets. Ambitious targets In line with our growth strategy, we set ambitious financial Our strategy is based on profitable growth, efficiency and targets in 2013: values. We aim to • We aim to report sales of around €18 billion and adjusted • further increase our leading market positions EBITDA of over €3 billion by 2018. • concentrate on attractive growth businesses and emerging • We want to maintain our sound investment-grade rating markets in the long term. • gain access to new growth areas through innovation and external growth, and As a responsible specialty chemicals company, we have • continuously improve our cost and technology position. also defined ambitious non-financial targets. We take our responsibility in the field of safety ) particularly seriously. As growth drivers for our business we have identified Our objective is to protect our employees and local residents the megatrends health, nutrition, resource efficiency and as well as the environment from any potential negative globalization, and the dynamic development of the emerging impact of our activities. Accordingly, we set annual limits for markets. We take a flexible and disciplined approach to occupational safety and plant safety indicators. For 2016 extending our leading market positions around the world. these are once again: All investment projects are regularly reviewed for changes in The accident frequency' rate should not exceed 1.3. the market situation. Incident frequency 4 should not exceed 48 5, taking 2008 Innovations are the driving force of future growth. as the reference base. Through them, we gain access to new products and appli- cations, enter attractive future markets and strengthen our market and technology leadership. See section headed Business review. 2 See section on Sustainability. I Number of accidents involving Evonik employees and contractors employees under Evonik's direct supervision per 1million working hours. 4 This indicator comprises incidents resulting in the release of substances, fire or explosion, even if there is little or no damage. S Number of incidents per 1million hours worked in the production facilities operated by the segments, taking 2008 as the reference base (expressed in percentage points: 2008 = 100). EFTA00598706 74 ANNUAL REPORT 2015 EVONIK INDUSTRIES We also set ourselves ambitious environmental targets. The The return on capital employed (ROCE) is used as a further aim is to make a contribution to climate protection, minimize indicator of value-driven management of the company. The our ecological footprint, and steadily improve our environ- calculation starts from adjusted EBIT in relation to average mental protection performance. In 2014, we set new targets capital employed. Comparison with the cost of capital, which for the period 2013 to 2020 (reference base: 2012): shows the risk-adjusted return expectations of our investors, • Reduce specific greenhouse gas emissions' by 12 percent indicates relative value creation. This is calculated using • Reduce specific water intake by 10 percent. a weighted average cost of capital, which reflects the return expectations of both shareholders, derived from the capital In the area of sustainable waste management, we are con- asset pricing model, and providers of debt capital. tinuing our efforts to minimize the use of resources. Most important non-financial key performance indicators 1.3 Business management systems Evonik also uses a wide variety of non-financial performance indicators. For example, our annual sustainability report' Most important financial key performance indicators provides information on ecological and societal issues to Financial management of Evonik is based on a consistent supplement our economic reporting. system of value-oriented indicators. These are used to assess Traditionally, we accord special significance to safety, the business performance of the operational units and the which is regarded as a holistic management task that has to Group. Through systematic alignment to these indicators, be lived at all management levels. Our guiding principles on Evonik endeavors to create value by raising profitability and safety are binding for staff at all levels and were reinforced in ensuring profitable growth. 2015 by a global safety culture initiative. In accordance with Our key performance indicator is adjusted EBITDA. To corporate policy, all units at Evonik have an occupational track the attainment of targets, adjusted EBITDA is broken safety target. In addition, all production units have a plant down to the level of the operating units. Adjusted EBITDA safety target. The relevant indicators are accident frequency and the corresponding relative indicator, the adjusted and incident frequency.' EBITDA margin, show the operating performance of an To protect the environment we specifically aim to reduce entity irrespective of the structure of its assets and its invest- emissions of greenhouse gases, not just from our pro- ment profile. They therefore provide a key basis for internal duction but also along the entire value chain. We therefore ▪ and external comparison of the cost structure of business strive continuously to improve our production processes still operations. Since depreciation, amortization and impairment further. That ensures more efficient use of resources and losses are not included, these are also cash-flow based minimizes environmental impact. We regard specific green- parameters. The adjusted EBITDA margin can therefore be house gas emissions as a particularly important environ- taken as an approximation of the return on sales-related mental indicator, which we plan to use as a key non-financial cash flows. performance indicator from fiscal 2017. Energy- and process-related emissions as defined by the Greenhouse Gas Protocol. 2 This report is based on G4, the currently valid guidelines issued by the Global Reporting Initiative (GRI). 2 See sections Principles and objectives and Sustainabilisy. EFTA00598707 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 75 Business review Overall assessment of the economic situation 2. Business review Successful development of the Nutrition & Care and Resource Efficiency growth segments • Very good adjusted EBITDA margin of 18.2 percent, attractive return on capital employed (ROCE) of 16.6 percent 119 • Adjusted net income up 44 percent 2.1 Overall assessment of the from the growth segments, and earnings in the Performance 2 economic situation Materials segment were only down slightly year-on-year. Thanks to our very successful business performance, Strategically, our new Group structure has further improved earnings were high. The adjusted EBITDA margin improved our basis for profitable growth in the future. The selective substantially to 182 percent, which is also excellent by sector expansion of our market-leading positions was also success- standards. The ROCE of 16.6 percent represents a very I ful: The new production capacities that have come on stream attractive return. made a clear contribution to our very good business per- Net income improved 74 percent to €991 million, while formance. We are still implementing our growth investments adjusted net income advanced 44 percent to €1,128 million. in a disciplined manner. To enable our shareholders to participate in this very pleasing Operationally, our business developed extremely well. business trend, at the Annual Shareholders' Meeting the In particular, our two growth segments, Nutrition & Care and Executive Board and Supervisory Board will be proposing Resource Efficiency, were able to raise volume sales further a dividend payment of €1.15 per share. thanks to buoyant demand and increased production capacity. Our financial profile remains good. At year-end 2015 we The positive price trend for some important products that again had a net asset position. The cash flow from operating started in the second half of 2014 continued uninterrupted activities, continuing operations was a strong €1,968 million. until summer 2015 and prices then remained stable in the After deduction of outflows for capital expenditures, the free second half of the year. By contrast, selling prices fell con- cash flow was very high at €1,052 million. Evonik still has siderably in the Performance Materials segment due to the a sound investment grade rating (Moody's: Baal, Standard & sharp drop in the oil price. Overall, selling prices were on a Poor's: BBB+). level with the prior year. Overall, we consider that we are well-positioned for Sales increased by 5 percent to €13,507 million in 2015. the challenges that could result from the weak economic Adjusted EBITDA rose even faster, growing 31 percent to conditions and geopolitical tension in 2016. €2,465 million. Higher earnings contributions mainly came Development of adjusted EBITDA in the Evonik Group million 2011 2,768 2012 2,467 2013 1,995 2014 1.882 2013 2,465 SOD 1.000 1,500 2,000 2,500 3,000 The figure for 2011 includes adjusted EBITDA of €219 million foe the former Rml Estate segment. 2011 restated. EFTA00598708 76 ANNUAL REPORT 2015 EVONIK INDUSTRIES 2.2 Economic background In China, the slowdown in growth caused by the transition to a new economic model with a greater focus on the domestic Weaker global economic momentum market continued. Uncertainty about the economic devel- Global economic conditions were slightly weaker than opment in China increased, especially in the second half of expected in 2015. We estimate that global economic growth the year, resulting in higher volatility on the financial markets. was around 2.6 percent, which was lower than in the pre- vious year (2.7 percent). At the start of 2015, growth of Solid development of end-customer industries 3.0 percent had still been anticipated. Worldwide, the development of Evonik's end-customer The main factors were the continued slowdown of eco- industries differed by region and by sector in the first half nomic activity in the emerging markets, which overshadowed of 2015. the sound economic momentum in the industrialized eco- Demand for food and animal feed continued its very nomies. pleasing trend. There was a year-on-year rise in output of In Europe, the economy picked up in 2015 thanks to the consumer and care products, mainly in North America but European Central Bank's expansionary monetary policy, the also to some extent in Europe. Following a strong first half, depreciation of the euro, and the low oil price. In Germany, growth momentum in the electrical and electronics sector in consumer spending, in particular, was boosted by the good Asia, North America and some parts of Europe weakened in employment situation and lower oil price. By contrast, industry the remainder of the year. Automotive production cooled in only posted modest growth. Asia, but continued to grow at a moderate pace in North During the year the US economy recovered from the America and Europe. Overall though, the general industrial temporary dip at the start of the year, with the main impetus trend in Europe and North America remained weak and coming from consumer spending. Although the appreciation output only increased slightly. of the dollar and lower investment in the oil and gas sector The average price of Evonik's raw materials was lower held back manufacturing industry, the US economy achieved than in 2014. This was due to the substantial drop in the price full employment in 2015. The Federal Reserve raised its key of oil, which triggered a reduction in the price of most of interest rates in the fourth quarter for the first time since Evonik's specific raw materials. 2006, ushering in the reversal of its monetary policy. The euro continued to depreciate against Evonik's most The lower growth in the emerging markets was driven important foreign currency, the US dollar, in 2015 and the by a number of factors: slowing growth in China, declining average exchange rate was considerably lower than in the commodity prices and a deterioration in the financial previous year at US$1.11 (2014: USS1.33). situation as a result of capital outflows and the depreciation of currencies. This had an especially big impact on commod- ity exporting countries. The recession in Brazil and Russia worsened. Development of GDP 2014/2015 in % 24 Global GDP 2.7 1.7 Germany 1.6 1.3 Other European Countries 1.5 2.3 North America 2.4 Central and South America 0.6 4.6 Asia-Pack 4.7 2.6 Middle East, Africa 2.7 -1.0 0 1.0 2.0 3.0 4.0 5.0 2015 (projected) 2014 EFTA00598709 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 77 rumen review Business conddion, and pedonnence Development of Evonik's end-customer industries 2014/2015 in% Overall Consumer and personal we products Food and animal feed Automotive end mechanical engineering Electrical end electronic Metal and oil products Paints end comings' Piper end printing Agricukure 1.0 2.0 2015 (prO)etted) 2014 t Where not directly essigned to other endcustomer industries. 2.3 Major events 2.4 Business conditions and performance At the end of June 2015, Evonik Industries AG divested its A successful business trend remaining 10.3 percent stake in the residential real estate Despite the challenging business conditions, we achieved a company Vivawest GmbH to RAG Aktiengesellschaft for significant year-on-year improvement in adjusted EBITDA in €428 million. Through this transaction, Evonik Industries AG all four quarters. Although global growth was below expec- has now completely withdrawn from its real estate activities tations, high demand enabled our two growth segments, in order to focus on specialty chemicals. The divestment gain Nutrition & Care and Resource Efficiency, to report good is recognized in other operating income. volume trends, aided by new production capacity. Selling At its meeting on June 25, 2015, the Supervisory Board of prices rose considerably in the Nutrition & Care segment but Evonik Industries AG adopted a resolution on ending the decreased in the Performance Materials segment, principally term of office of Patrik Wohlhauser as a member of the due to the lower oil price. Overall, selling prices were on the Executive Board and Chief Operating Officer (COO) by previous year's level. mutual agreement effective June 30,2015. At the same time, Dr. Ralph Sven Kaufmann was appointed to the Executive Board of Evonik Industries AG as the company's new COO with effect from July 1, 2015. EFTA00598710 78 ANNUAL REPORT 2015 EVONIK INDUSTRIES Organic sales growth Adjusted EBITDA by segment Evonik posted organic sales growth of 1 percent as volumes Change were higher and prices were unchanged overall. Sales grew ing million 2015 2014 in % 5 percent to E13,507 million, driven by positive currency Nuuition & Care 1,435 847 69 effects (S percentage points), principally as a consequence Resource Efficiency 896 836 7 of the depreciation of the euro versus the US dollar and the Chinese renminbi yuan. The other effects (-1 percentage Performance Materials 309 325 -5 point) include changes in the scope of consolidation. Services 163 151 8 Corporate, other Change in sales 2015 versus 2014 operations, consolidation -338 -277 -22 Evonik 2,465 1,882 31 in % Priories, figures resisted. Volumes 1 Prices 0 Organic sales growth 1 The Nutrition & Care segment benefited from higher Exchange rates 5 volumes and, above all, higher selling prices accompanied Other effects —1 by lower raw material prices. Its earnings were therefore considerably higher than in the prior year. The Resource Total 5 Efficiency segment improved earnings thanks to higher volumes, high capacity utilization and lower raw material Very good adjusted EBITDA costs. By contrast, the Performance Materials segment was Adjusted EBITDA was E2,465 million, 31 percent above the hampered considerably by the reduction in selling prices, prior-year figure. Alongside positive currency effects, whereas lower raw material costs alleviated the situation. contributory factors were sustained good demand, the posi- Overall, its earnings contribution was slightly lower than in tive price trend and lower raw material costs. The adjusted the previous year. Earnings in the Services segment were EBITDA margin increased from 14.6 percent to a very good higher than in the previous year. The adjusted EBITDA level of 18.2 percent. reported by Corporate, other operations, including consoli- dation, was —E338 million. This includes, among others, expenses for the Corporate Center and strategic research. Sales and reconciliation from adjusted EBITDA to net income Change in 4 mill4a 2015 2014 in % Sales 13,507 12,917 3 Adjusted EBITDA 2,465 1,882 31 Depreciation and amortization -713 -626 Adjusted EMT 1,752 1,256 39 Adjustments -88 -179 thereof attributable to Restructuring -65 -86 impelment losses/reversals ofimpairment losses -63 -37 Acquisition/divestment of sherehoidings 142 1 Other -102 -57 Income before finandal result and income taxes (EBIT) 1,664 1,077 55 Financial result -223 -235 Income before income taxes, continuing operations 1,441 842 71 Income taxes -422 -252 Income after taxes, continuing operations 1,019 590 73 Income after taxes, discontinued operations —17 —9 Income after taxes 1,002 581 72 thereof attributable to non-controlling Interests 11 13 Net Income 991 568 74 Earnings per share 2.13 1.22 Prioaynr figures restated. EFTA00598711 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 79 Business 9esinesscondnions and pedo<meme Reconciliation to adjusted net income Change Jae million 2015 2014 in % Adjusted EBITDA 2,465 1,882 31 Depreciation and amortization -713 -626 Adjusted EMT 1,752 1,236 39 Adjusted financial result -179 -209 Amortization and Impairment losses on Intangible assets 39 59 Adjusted Income before incase taxes' 1,612 1,106 46 Adjusted Income taxes -473 -313 Adjusted Income after taxes' 1,139 793 44 thereof adjusted Income attributable to non-controlling interests 11 11 Adjusted net Income' 1,128 782 44 Adjusted earnings per share' .1€ 2.42 1.68 Continuing opeteiions. The adjustments are the net balance of non-operating Income after taxes, discontinued operations was —E17 mil- income and non-operating expense items which are by lion and mainly relates to the remaining lithium-ion activities, nature one-off or rare and amounted to —E88 million in 2015. which were divested in April 2015. The prior-year figure of The adjustments include restructuring expenses of €65 mil- —€9 million contained operating income from the lithium- lion, mainly for optimization of the product portfolio in the ion business and the stake in STEAG, which was divested in Performance Materials segment and in connection with the September 2014. new Group structure. The impairment losses/reversals of The Evonik Group's net income rose 74 percent to impairment losses totaling —E63 million relate to capitalized €991million. costs for a project in the Resource Efficiency and Performance Adjusted net income, which reflects the operating per- Materials segments that was terminated following a routine formance of the continuing operations, increased 44 percent review of investment projects, a production plant and intan- to €1,128 million in 2015. Adjusted earnings per share there- gible assets in the Performance Materials segment, and an fore rose from €1.68 to €2.42. equity investment in the Nutrition & Care segment. Income of €142 million from the divestment of shareholdings Target for On Track 2.0 achieved— mainly comprised the divestment of the stake in Vivawest. Administration Excellence well on schedule Other adjustments chiefly comprise risk provisioning relating At the start of 2012 we set up the On Track 2.0 efficiency to a contract with a raw materials supplier, expenses for the enhancement program to achieve a continuous improvement reorganization and simplification of corporate structures in in process efficiency, especially in the production function. Europe, and expenses for an increase in provisions for the The goal was to reduce production costs by €500 million partial retirement program to comply with IAS 19. In the prior following realization of this program in the period up to 2016. year, the adjustments totaling —E179 million mainly comprised That has now been achieved. By the end of 2015, measures restructuring expense, principally to optimize administrative with the potential to cut costs by well over €550 million had structures and the product portfolio of the Nutrition & Care been identified and adopted for implementation. segment. Following the successful stock exchange listing and The financial result of —E223 million contains one-off Evonik's strategic focus on the specialty chemicals business, factors of —€44 million mainly for interest expense in con- in September 2013 we launched the Administration Excel- nection with the establishment of provisions. In the previous lence program to further strengthen our competitive position year, this comprised one-off expense of E26 million. Exclud- and optimize the quality of our administrative processes. ing these effects, the improvement in the financial result was This aims to implement measures with cost-improvement higher, mainly because of the considerably lower cost of potential of around €230 million by the end of 2016. By year- refinancing and the voluntary transfers to the contractual end 2015 measures with cost-saving potential of around trust arrangement (CTA). Income before income taxes, €100 million had already been implemented. In addition, continuing operations grew 71 percent to €1,441 million. more than 90 percent of the measures defined had been The income tax rate was 29 percent, which was in line with passed on to the responsible units for implementation. the expected Group tax rate. EFTA00598712 so ANNUAL REPORT 2015 EVONIK INDUSTRIES Specific human resources measures have now been defined suppliers and the majority of our critical suppliers have to achieve the headcount reductions associated with the already taken part in these assessments, which are evaluated savings and will be implemented in consultation with repre- by EcoVadis, an impartial sustainability rating company. sentatives of the workforce to avoid undue hardship. In 2015 Evonik spent around E8.3 billion on raw materials Systematic optimization of the value chain and implemen- and supplies, technical goods, services, energy and other tation of the efficiency enhancement programs support operating supplies. Petrochemical feedstocks accounted for Evonik's strategy of profitable growth. about 25 percent of the total. Overall, raw materials and supplies make up around 59 percent of procurement volume. Efficient and effective procurement Using renewable resources remains very important to Reliable supply, gaining access to new procurement markets, Evonik. In 2015, around 8 percent of raw materials were from and ongoing optimization of material costs are still the key renewable resources. The main applications for these raw tasks for Evonik's procurement function. Procurement in the materials are amino acids and starting products for the company's growth markets will increase further in the future. cosmetics industry. There were a large number of unforeseeable production outages (force majeure) in 2015, especially in the European Very good return on capital employed chemical industry. We essentially managed to secure supply Within our value-oriented management approach, our success to our sites through close cooperation with the suppliers is measured principally by ROCE, which was 16.6 percent in affected and by drawing on alternative suppliers. 2015 and therefore well above our cost of capital, which was To optimize material costs, Evonik uses a total-cost- confirmed as 10.5 percent before taxes in our regular review of-ownership (TCO) approach to procurement, together with for the fiscal year. cross-unit purchasing to leverage savings potential in the pro- cess as a whole and along the entire supply chain. Stepping up collaboration with the business entities is a key success Capital employed, ROCE factor for efficient and effective procurement processes. and Economic Value Added (EVAI The efficiency of the procurement organization has been Joe milloan 2015 2014 optimized further through Administration Excellence. The Intangible assets 3,158 3,067 main leverage was further integration of local and regional procurement into our global procurement structures, and + Property, plant and equipment, Investment property 5,690 5,116 systematic separation of strategic and operational activities + Investments 175 386 within the procurement organization. Ongoing efficiency improvements will remain a core aspect of procurement in + Inventories 1,782 1,681 2016. The main drivers will be automation and harmoni- + Trade accounts receivable 1,923 1,749 zation of global procurement processes, especially in the + Other Interest-free assets 435 497 operating units. - Interest-free proWslons -999 -911 As well as participating in procurement alliances with - Trade accounts payable -1,050 -1,072 other companies and validating new suppliers, we are working - Other Interest-free liabilities -584 -459 intensively to extend strategic relationships with suppliers. • Capital employed' 10,530 10,054 Here we are looking for additional opportunities to reduce risk, optimize costs and enhance cooperation and innovation with the suppliers that are currently of the greatest strategic Adjusted EMT 1,752 1,256 importance. We are aware of our responsibility within the ROCE (adjusted EBIT/ capital employed) in % 16.6 12.5 supply chain. Issues such as safety, health, environmental protection, corporate responsibility and quality play an Cost of capital (capital employed • WACC) 1,106 1,056 integral part in our procurement strategy. These sustainability EVA• (adjusted EMT- cost of capital) 646 200 aspects are also supported by standardized global assess- ments through the Together for Sustainability (TfS) sector Prior-year figures restated. initiative, which was co-founded by Evonik. Evonik's principal 1 Annual averages. EFTA00598713 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION el Business rreiew Comparison of forecast and actual Performance The average capital employed increased by €0.5 billion to in the first half of the year, we raised our guidance at the end €103 billion in 2015. Capital employed was increased by the of the first and second quarters. After the first six months, we rise in property, plant and equipment and higher trade anticipated that at year end we would report sales of around accounts receivable, which resulted from further implemen- €13.5 billion and adjusted EBITDA of around €2.4 billion. tation of our growth investments. The divestment of the stake We clearly achieved this revised forecast, with sales up 5 per- in Vivawest and impairment losses on property, plant and cent at €13,507 million and a 31 percent rise in adjusted equipment had a counter-effect. The considerable improve- EBITDA to €2,465 million. Adjusted EBITDA greatly exceeded ment in ROCE was attributable to higher operating earnings, our original forecast. This was principally attributable to the while the increase in capital employed had a counter-effect. more favorable price trend in the Nutrition & Care segment In the three chemical segments, ROCE is well above and the reduction in raw material costs resulting from the the cost of capital. The return on capital employed in the drop in the oil price. Nutrition & Care and Resource Efficiency segments is well Since the earnings improvement was better than expected, above average. The ROCE for the Group is considerably ROCE was well above the prior-year figure at 16.6 percent. It lower because capital employed also includes identified was also well above the cost of capital, as had been expected. hidden reserves from former business combinations. As a consequence of the disciplined implementation of our growth investments, our capital expenditures totaled ROCE by segment €0.9 billion in 2015 so we did not fully utilize the budget of up to €1.1 billion. $n % 2015 2014 In view of the capital required to fund our growth invest- Nutrition & Care 41.5 27.1 ments, payment of the dividend and the planned cash transfer Resource Efficiency 24.8 25.9 to the CTA, we had expected to report net financial debt. Performance Materials 11.9 14.6 However, we are able to report a net financial asset position Services 9.4 9.7 of €l.l billion thanks to the better-than-expected business performance, the sale of the shares in Vivawest and the fact Evonik (including Corporate, other operations) 16.6 12.5 that capital expenditures were lower than had been budgeted. 0 io Ptior.yeat figures restated. Non-financial safety indicators at a good level Our significant non-financial performance indicators for Clear value creation occupational and plant safety continued their positive long- Economic Value Added (EVA.) is the difference between term trend. A further improvement in our safety indicators is adjusted EBIT and the cost of capital, which is calculated by especially important to us. We have therefore set ambitious multiplying average capital employed by the average cost of long-term targets. However, these indicators can naturally capital (WACC). If EVA* is positive, the Group creates value fluctuate from year to year. (value spread approach). In 2015, we generated EVA* of We had expected to achieve a slight improvement in the €646 million. The hike of €446 million compared with the accident frequency indicator in 2015 and aimed to remain previous year was mainly attributable to the improvement in below our upper limit of 1.3. We clearly achieved this goal, operating earnings. with an accident frequency rate of 1.0. We also aimed for a slight improvement in our incident frequency indicator, with a ceiling of 48. The indicator again 2.5 Comparison of forecast and came in at a good level of 55 and therefore exceeded our actual performance ambitious target despite a slight deterioration compared with the previous year (53). Financial forecast clearly met Based on our systematic analysis of all accidents and In our annual report for 2014 we forecast a slight rise in sales incidents, action has already been initiated to bring about and slightly higher adjusted EBITDA than in the previous year. an improvement. We are stepping up measures to improve Thanks to the very good development of our growth seg- our performance, for example, through our safety culture ments, Nutrition & Care and Resource Efficiency, especially initiative. EFTA00598714 IQ ANNUAL REPORT 201S EVONIK INDUSTRIES 2.6 Segment performance Nutrition & Care segment The Nutrition & Care segment produces specialty chemicals, principally for use in consumer goods for daily needs, and in animal nutrition and healthcare products. The long-term development of this segment's business is driven by socio-economic megatrends. As a result of growth in the world population, demand for food based on animal protein is rising. At the same time, the rise of an affluent middle class in the emerging markets is increasing consumption of animal protein such as meat, eggs, milk and fish, leading to higher demand for better quality day-to-day consumer goods such as personal care products and cosmetics. Moreover, as a result of demographic change the proportion of older people in the developed markets will rise in the long term, leading to higher demand for cosmetics, wellness and healthcare products. Key data for the Nutrition & Care segment Change in E millan 2015 2014 in % External sales 4,924 4,075 21 Adjusted EBITDA 1,435 847 69 Adjusted EBITDA margin in % 29.1 20.8 Adjusted E8IT 1,214 685 77 Capital expenditures 250 458 —45 Depreciation and amortization 212 157 35 Capital employed (annual average) 2,923 2,527 16 ROCE in % 41.5 27.1 No. of employees as of December 31 7,165 6,943 3 Piior.year figure* resiaied Considerable sales growth and the Asia-Pacific region, aided by the new capacity in The Nutrition & Care segment posted an extremely success- China. In the baby care business, volumes declined, princi- ful business performance in 2015 and grew sales 21 percent pally because competitors brought new production capacities to €4,924 million. Alongside slightly higher volumes, the on stream. Sales were therefore down year-on-year. main drivers were considerably higher selling prices and positive currency effects. Substantial increase in adjusted EBITDA In particular, there was a substantial increase in sales of The Nutrition & Care segment's adjusted EBITDA grew essential amino acids for animal nutrition. The strong trend 69 percent to €1,435 million, driven mainly by higher selling to modern and sustainable animal nutrition continues to have prices and positive currency effects. The adjusted EBITDA a positive impact on this business. Thanks to the new pro- margin improved significantly from 20.8 percent in 2014 to duction facility that came on stream in Singapore at the end 29.1 percent. of 2014, we were able to satisfy the significant rise in demand for our methionine products and raise volumes further. Capital expenditures scaled back as planned— Having risen since fall 2014, prices have stabilized at a very Attractive return on capital employed attractive level since summer 2015. Considerably higher sales Capital expenditures in the Nutrition & Care segment were also registered for healthcare products, with exclusive amounted to €250 million. That was well below the prior- synthesis and pharmaceutical polymers for smart drug year figure of €458 million, which was boosted by high delivery systems proving particularly successful. Sales of per- growth-driven investments. Nevertheless, capital expendi- sonal care products were higher, especially in North America tures were well above depreciation, which was €212 million. EFTA00598715 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION R3 8usioess review Segment ptrformance Development of sales in the Nutrition & Care segment In f million 2011 4,081 2012 4,204 2013 4,171 2014 4.075 3r 2015 4,924 0 1.000 2,000 3,003 4,000 5,000 Rgures for 2011 through 2013 reflect the old structure, pnor- year figures restated. 3 Development of adjusted EBITDA in the Nutrition & Care segment inif million 2011 1,099 2012 1.055 2013 922 2014 847 2015 1,435 0 300 600 900 1,200 1,500 Rgures for 2011 through 2013 reflect the old structure; 'Yee, figures restated. tr. The average capital employed increased by E396 million to construction in Antwerp (Belgium), and is scheduled to come E2,923 million, principally because of the high capital expen- on stream in April 2016. This investment is also in the low ditures in previous years. Thanks to the positive earnings double-digit million euro range. trend, ROCE improved to 41.5 percent, up from 27.1 percent In view of the strong growth in the market for in 2014. methionine, Evonik is planning to build a further world-scale production complex alongside the facility on Jurong Island Investment projects to drive growth (Singapore) that came into service in November 2014. In this Since demand for amino acids for modern animal nutrition new, fully backwardly integrated production complex as well, is growing fast, selective capacity increases in this field are all key strategic precursors will be produced by Evonik. a major focus of investment in the Nutrition & Care segment. As part of the global expansion of the production A new facility for biotechnological production of around network for oleochemical specialty surfactants, all pro- 100,000 metric tons of Biolys° (L-lysine), an amino acid duction technologies for the high-growth cosmetics and for animal feed, was completed in Castro (Brazil). This site consumer goods industry were successfully started up at the has excellent access to corn, which is used as a raw material, new facility in Americana (Brazil). very good logistics connections, and is close to our customers Evonik has a global investment initiative to strengthen in the growing Latin American market. its integrated technology platform for specialty silicones In addition, the segment invested in new production in Germany and China. Total planned investment is in the facilities for methionine formulations tailored specifically to triple-digit million euro range. The first capacity expansion in the nutritional requirements of species other than poultry. Essen (Germany) came into operation in 2015. The plants A facility to produce Mepron° for dairy cattle has been there will be extended further over the next few years and erected in Mobile (Alabama, USA). Investment in this plant a new silicone platform will be constructed in Shanghai was in the low double-digit million euro range. Evonik has (China). The silicone platforms are the backbone of signifi- also developed AQUAVI° Met-Met, a dipeptide with two cant business activities in the Nutrition & Care and Resource methionine molecules, for aquaculture of shrimp and other Efficiency segments. crustaceans. The first production facility is currently under EFTA00598716 $4 ANNUAL REPORT 2015 EVONIK INDUSTRIES Resource Efficiency segment The Resource Efficiency segment supplies high-performance materials for environment-friendly and energy- efficient system solutions for the automotive, paints, coatings, adhesives and construction industries and many other sectors. The resource efficiency megatrend is the basis for energy-efficient and environmentally compatible products and is therefore a key factor in the development of this segment's business. Key data for the Resource Efficiency segment Change in E million 2015 2014 In% External sales 4,279 4,040 6 Adjusted EBITDA 896 836 7 Adjusted EBITDA margin in 25 20.9 20.7 Adjusted E8lT 675 642 5 Capital expenditures 241 273 -12 Depreciation and amortization 222 194 14 Capital employed (annual average) 2,726 2,474 10 ROCE in% 24.8 25.9 No. of employees as of December 31 8,662 7,835 11 Ptior.year figure* resialed Higher sales Improvement in earnings Sales in the Resource Efficiency segment grew 6 percent to Adjusted EBITDA in the Resource Efficiency segment €4,279 million. Alongside positive currency effects, this was advanced 7 percent to €896 million, mainly as a result of attributable to organic sales growth resulting from higher higher volumes, better capacity utilization, positive currency volumes and stable selling prices. effects, and lower raw material costs. The adjusted EBITDA There was strong growth in sales of crosslinkers, which margin increased slightly to 20.9 percent. benefited above all from attractive end-markets such as construction and wind energy. Oil additives, which enhance High investment—Return on capital the performance of engines and gears in the automotive, employed still very good construction and transportation industries, were again very Capital expenditures in the Resource Efficiency segment successful. Sales of silica also increased appreciably, mainly remained high at €241 million, but were 12 percent lower due to buoyant demand for products for the silicones and tire than in the previous year. Nevertheless, they were slightly sectors. The catalysts business benefited from the first-time above depreciation, which amounted to €222 million. As a consolidation of the catalyst producer Monarch Catalyst Pvt. result of the expansion of production capacity, the average Ltd., Dombivli (India), which was acquired in June 2015. High capital employed increased by €252 million to €2,726 million. demand for hydrogen peroxide products for traditional appli- ROCE was very good at 24.8 percent, but below the prior- cations, especially in the paper and textile industries, resulted year level of 25.9 percent due to higher capital expenditures, in higher sales. Sales of high performance polymers were which increase capital employed but only impact adjusted around the prior-year level, although this still included the EBIT successively as the new capacity comes into service. solimides business that was divested in September 2014. EFTA00598717 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION OS Business review Segment performance Development of sales in the Resource Efficiency segment Inc ,thmon 2011 1,015 2012 3,131 2013 3,084 2014 1,010 2015 4,279 1,000 2.000 1000 4,000 5,000 Rem% for 2011 through 2013 reflect the old structure; pieties( figures rested. Development of adjusted EBITDA in the Resource Efficiency segment Int million 2011 765 I 2012 663 2013 655 2014 836 2015 896 0 200 400 600 800 1,000 Figures for 2011 through 2013 reflect the old structure; prior-year figures restated. tr• Investment projects to expand market positions which Evonik has a 51 percent stake, started up new capacity The Resource Efficiency segment has almost doubled pro- at the extended production facility for specialty silicas in Ako a. duction capacity for oil additives on Jurong Island (Singapore). (Japan). This facility, which was inaugurated in May 2015, is now As binders for paints, specialty copolyesters are used in Evonik's biggest production plant for oil additives. The addi- coil coatings and, increasingly, in food can coatings. To meet tional capacity enables this segment to meet rising demand rising demand, the segment is investing in a new plant at from customers for more efficient lubricants. the Witten site in Germany. This will have annual capacity of By raising global capacity for precipitated silicas, the several thousand metric tons and is scheduled for completion Resource Efficiency segment is supporting the growth of its in 2018. global customers in the tire, construction, animal feed and nutrition industries. A new production facility is currently Strengthened by selective acquisitions under construction near Sao Paulo (Brazil) and is scheduled The Indian catalyst producer Monarch was acquired in June to start operating in 2016. This will be the first production 2015. This strategic acquisition will strengthen the Resource facility for highly dispersible silica (HD silica) for the South Efficiency segment's market position in activated base and American tire industry. Pre-engineering work has started for precious metal catalysts and extend its business into oil and a new production plant for precipitated silicas in North fat hydrogenation catalysts. America, which is scheduled to be completed in early 2018. In October 2015, the Resource Efficiency segment The entire project is still contingent upon approval by acquired the hydrogen peroxide producer PeroxyChem the relevant bodies. Progress is also being made with the Netherlands B.V., Amsterdam (Netherlands). Its site in expansion of capacity for specialty silicas, primarily for Delfzijl complements the present network of European customers in the food, cosmetic and pharmaceutical sectors. production sites. In fall 2015, DSL. Japan Co., Ltd. (DSL), Tokyo (Japan), in EFTA00598718 as ANNUAL REPORT 2015 EVONIK INDUSTRIES Performance Materials segment The heart of the Performance Materials segment is the production of polymer materials and intermediates, mainly for the rubber, plastics and agriculture industries. Progressive globalization offers market opportunities for this segment, driven by the mobility and urbanization megatrends, which are raising global demand for efficient transportation systems and sustainable construction methods. Key data for the Performance Materials segment Change in E million 2015 2014 In % External sales 3,435 3,827 —10 Adjusted EBITDA 309 325 —S Adjusted EBITDA margin in V. 9.0 8.5 Adjusted E8IT 174 204 —15 Capital expenditures 183 218 —16 Depreciation and amortization 132 109 21 Capital employed (annual avenge) 1,467 1,397 S ROCE in % 11.9 14.6 No. of employees as of December 31 4,380 4,353 1 Prior year figure* resiaied Lower sales Adjusted EBITDA down year-on-year Sales declined 10 percent to €3,435 million in the Perfor- Adjusted EBITDA slipped 5 percent year-on-year to mance Materials segment. Since volume sales were almost €309 million. This was caused by lower selling prices, while stable, the decline was principally due to the oil-driven the decline was checked by the reduction in the cost of oil- reduction in selling prices. By contrast, exchange rates had based raw materials. The adjusted EBITDA margin improved a positive effect. from 8.5 percent to 9.0 percent. Performance intermediates, in particular, reported signifi- cantly lower sales than in the previous year. This was caused Targeted investment—Lower return by a sharp decline in selling prices for products from the inte- on capital employed grated C. platform in the wake of the reduction in the oil To secure its leading market positions, raise efficiency and price. The downward trend gained momentum in the second broaden its technology base, the Performance Materials seg- half of the year. Methacrylate products benefited from good ment invested €183 million in property, plant and equipment demand in the first half of the year. Polymethylmethacrylate in 2015. Capital expenditures therefore exceeded deprecia- (PMMA) for the automotive industry also developed well, tion, which amounted to €132 million. The average capital but market conditions for PMMA sheet remained difficult. employed increased by €70 million to €1,467 million as a Alcoholates for the production of biodiesel posted another result of the segment's selective capital expenditures. ROCE good performance. dropped from 14.6 percent to 11.9 percent, mainly as a con- sequence of the reduction in earnings. EFTA00598719 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 87 Business review $eomeet on,I ornane Development of sales in the Performance Materials segment In f million 2011 4.880 2012 4.843 2013 4,490 2014 3,827 2015 3.435 0 1,000 2.000 3.000 4,000 5,000 Figures for 2011 through 2013 reflect the old structure, prior-year figures restated. Development of adjusted EBITDA In the Performance Materials segment Int million 2011 907 2012 853 2013 552 2014 325 2015 309 0 200 400 800 1,000 Ague.. for 2011 through 2013 reflea the Old structure; paerleor figures restated. Global projects to expand capacity In Mobile (Alabama, USA) the Performance Materials seg- As part of the Europe-wide expansion of capacity for ment has embarked on a substantial capacity increase for a. C.-based products, new plants came on stream in Marl (Ger- ACA (acrolein cyanohydrin-o-acetate). This drives forward many) and Antwerp (Belgium). These have successfully the very successful exclusive partnership with a global leader raised capacity for the plasticizer alcohol isononanol, for in broadband herbicides. The new production plant, which butadiene and for MTBE, an anti-knock additive for fuel. involves total investment in the triple-digit million euro Thanks to a unique new process, some product streams from range, should start operating in early 2017. refineries can be utilized for C. chemistry for the first time. From the second half of 2016 Performance Materials will Total investment was in the triple-digit million euro range. have access to new capacity for sodium cyanide from a joint To ensure sustainable and reliable long-term supply of venture with the Mexican group IDESA. This will greatly potassium derivatives to customers, Evonik has established a strengthen its position in the growing Mexican market. production joint venture with Akzo Nobel to build and oper- ate a membrane electrolysis plant for chlorine and potassium hydride solution in Ibbenburen (Germany). Production is scheduled to start in the fourth quarter of 2017. EFTA00598720 ANNUAL REPORT 2015 EVONIK INDUSTRIES Services segment The Services segment provides site management, utilities, and waste management, technical, process technology, engineering, and logistics services for the chemicals segments and external customers at our sites. It also provides standardized Group-wide administrative services to support the chemicals businesses and the management holding company. Key data for the Services segment Change in E million 2015 2014 In % External sales 828 906 -9 Adjusted EBITDA 163 151 8 Adjusted EBITDA margin in V. 19.7 16.7 Adjusted E8lT 53 49 8 Capital expenditures 177 153 16 Depreciation and amortization 107 101 6 Capital employed (annual avenge) 565 507 11 ROCE in % 9.4 9.7 No. of employees as of December 31 12,668 13,173 -4 Prior-year figure, resiaied The Services segment generates sales both internally, with Adjusted EBITDA increased 8 percent to €163 million, mainly the specialty chemicals segments and Corporate Center because of changes to the internal cross-charging system. (2015: €1,886 million), and with external customers. Exter- Capital expenditures in this segment increased 16 percent nal sales contracted by 9 percent to €828 million in 2015. to €177 million. That was above depreciation, which This was mainly due to the reduction in the price of energy, amounted to €107 million. Numerous infrastructure projects which the segment charges to external customers at our sites. were completed at German sites in 2015. 2.7 Regional development A global presence As part of our growth strategy, we are expanding our pres- Our German sites serve customers throughout Europe and ence in emerging markets. We define these as selected coun- in some overseas markets as well as domestic customers. To tries in Asia, South America, Eastern Europe and the Middle strengthen these sites, we increased capital expenditures to East. In 2015, 82 percent of our sales were generated outside €427 million (2014: €419 million). A new production plant Germany. for C:based products came on stream in Marl in 2015, and in In Germany, sales were 13 percent lower at €2,436 million Essen we extended a production plant for specialty silicones. in 2015. Sales declined considerably in the Performance In addition, many infrastructure projects were completed, Materials segment, mainly as a consequence of the oil price, for example, a freight transport project in Marl and a new but the Nutrition & Care and Resource Efficiency segments control center in Darmstadt. also reported lower sales. EFTA00598721 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 89 Business review ••••• pool on Sales by region slightly to 7 percent. Capital expenditures were 37 percent lower at €67 million. A new production plant for Biolys°, an amino acid for feed additives, was officially opened Other 3% in Castro (Brazil). In addition, a new plant for precipitated Germany 18% silicas is currently under construction in Sao Paulo (Brazil). Atie•Pacitd 21% It is scheduled to come into service in 2016. Substantial rise in sales in Asia-Pacific r - Central end South America 7% Sales grew 17 percent to €2,860 million in the Asia-Pacific region. The Nutrition & Care and Resource Efficiency seg- Other European ments made equal contributions to this, while Performance Couniries 31% Materials posted lower sales. This region's share of Group North America 20% sales increased to 21 percent. Capital expenditures amounted to E86 million, below the previous year's high level of E323 million, which was dominated by construction of the new production complex for the amino acid DL-methionine ON- • Ely Location of customer. in Singapore. A new production plant which opened at this site in 2015 has virtually doubled capacity for oil additives. Sales in the other European countries slipped 2 percent to The expansion of production capacity for specialty silicas €4,148 million. This was caused by an oil price-induced drop at the facility in Ako (Japan) came on stream. in sales in the Performance Materials segment. By contrast, high demand enabled the Nutrition & Care and Resource Efficiency segments to raise sales. This region's share of 2.8 Earnings position Group sales fell to 31 percent. Capital expenditures in this region were €88 million, a decline of 34 percent year- Considerable improvement in income before on-year. A new production plant for C.-based products was income taxes, continuing operations successfully brought into service in Antwerp (Belgium). Sales rose 5 percent to €13,507 million thanks to higher In addition, the first production plant for a new source of demand and positive currency effects. Despite higher sales methionine for shrimp and crustaceans is scheduled for volumes and cost-driving currency effects, the cost of sales completion at this site in April 2016. declined by 2 percent to E9,096 million. The main positive factors were lower raw material costs, along with substantial Higher investment in the Americas cost-savings from the successful implementation of the On In North America, sales grew 15 percent to €2,647 million, Track 2.0 efficiency enhancement program. The gross profit mainly for currency reasons. The principal contributions to on sales therefore increased by 22 percent to €4,411 million. this came from the Nutrition & Care and Resource Efficiency Currency effects and the expansion of business following segments. This region's share of Group sales increased to the start-up of new plants increased selling expenses by 20 percent. Capital expenditures rose 48 percent to €208 mil- 12 percent to E1,447 million. Administrative expenses were lion. A new plant to produce Mepron° for dairy cattle was E693 million, 15 percent higher than in 2014. The main rea- completed in Mobile (Alabama, USA). At the same time, sons for this increase were a change in the system used to work started on expansion of capacity for ACA (acrolein cross-charge services within the Group, higher additions to cyanohydrin-o-acetate) at this site. This is scheduled to come provisions for long-term incentive programs for executives on stream in early 2017. (LTI Plan)' and other variable remuneration components, and Sales totaled E954 million in Central and South America, currency effects. The rise was mitigated by savings made an increase of 23 percent year-on-year. This was driven through the Administration Excellence program. To strengthen mainly by the Nutrition & Care and Resource Efficiency seg- our innovative capability still further, we raised spending on ments. This region's share of Group sates therefore increased research & development by 5 percent to E434 million. I See Note 10.1. EFTA00598722 90 ANNUAL REPORT 2015 EVONIK INDUSTRIES Since the start of 2015, the effects of currency translation of E603 million resulted mainly from provisions for risks arising operating monetary assets and liabilities and the associated from an agreement with a raw material supplier, and expenses hedging instruments have been presented as net amounts in for the reorganization and simplification of corporate other operating income and expenses. This avoids increases structures in Europe. The result from investments recognized in income and expenses as a result of the high currency- at equity was —E15 million and chiefly related to an impair- driven volatility of hedging transactions and hedged items ment loss on an equity investment in the Nutrition & Care during the year, which essentially offset each other. The segment, whereas in the previous year, this item comprised 78 percent increase in other operating income to E445 mil- income of E1O million from the former investment in lion in 2015 was mainly due to higher income from the Vivawest. Income before financial result and income taxes, disposal of assets, especially the sate of the stake in Vivawest. continuing operations improved 55 percent toE1,664 million. The 22 percent increase in other operating expenses to Income statement for the Evonlk Group Change inemalsan 2015 2014 in % Sales 13,507 12,917 5 Cost of sale -9,096 -9,308 -2 Gross profit on sales 4,411 3,609 22 Selling expenses -1,447 -1,289 12 Research and development expenses -434 -413 5 General adminisuative expenses -693 -601 15 Other operating Income 445 250 78 Other operating expenses -603 -493 22 Result from investments recognized at equity -15 14 - Income before finandal result and income taxes, continuing operations 1,664 1,077 SS Financial result -223 -235 -5 Income before income taxes, continuing operations 1,441 442 71 Income taxes -422 -252 67 Income after taxes, continuing operations 1,019 590 73 Income after taxes, discontinued operations -17 -9 89 Income after taxes 1,002 SIM 72 thereof attributable to Non controlling interests 11 13 -15 Shareholders of Evonik industries AG (net Income) 991 S68 74 Prior-year figures restated. Considerable increase in net income 71 percent to E1,441 million. The 67 percent increase in The financial result improved 5 percent to —E223 million. income taxes to E422 million was mainly due to higher This includes one-off factors of —E44 million, mainly for earnings. interest expense in connection with the establishment of pro- Income after taxes, discontinued operations' was —E17 mil- visions. In the prior year, these effects were —E26 million. lion and mainly relates to the remaining lithium-ion activities, Excluding these effects, there was a significant improvement which were divested in April 2015. The prior-year figure of in the financial result, principally as a consequence of far —E9 million contains operating income from the lithium-ion more favorable refinancing and the voluntary cash contribu- business and the stake in STEAG, which was divested in Sep- tion to the contractual trust arrangement (CIA) for pensions. tember 2014. Income after taxes improved 72 percent to Income before income taxes, continuing operations rose E1,002 million. Non-controlling interests in after-tax income See Note 53. EFTA00598723 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 91 Business review Fmancitil (Ord tip, amounted to EV million (2014: E13 million) and comprised Further increase in net financial assets the pro rata profits and losses of fully consolidated sub- Financial debt increased by €626 million compared with sidiaries that are attributable to shareholders outside the year-end 2014 to E1,555 million, essentially as a result of the Evonik Group. E750 million bond issued in January 2M5. In the same period, The Evonik Group's net income rose 74 percent to financial assets increased by E1,324 million toE2,653 million, E991million. mainly because of the high free cash flow ' , proceeds from the new bond issue, and income from the divestment of the stake in Vivawest (E428 million) at the end of June. The divi- 2.9 Financial condition dend of E466 million for fiscal 2014 was paid in May 2015. Overall, net financial assets wereE1,098 million, E698 mil- Central financial management lion higher than at year-end 2014. The principal objectives of financial management are safe- guarding the financial independence of the Evonik Group and Net finandal assets limiting financial risks. We therefore apply a central financing strategy. Borrowing and bond issuance are normally under- Dec. 31, Dec. 31, In E million 2015 2014 taken by Evonik Industries AG or its financing company Non-current financial liabilities' -1,361 -639 Evonik Finance B.V., Amsterdam (Netherlands), whose liabil- I ities are fully guaranteed by Evonik Industries AG. To reduce Current financial -194 -290 external borrowing, surplus liquidity at Group companies is Financial debt -1,555 -929 placed in a cash pool at Group level to cover financing Cash and cash equivalents 2,368 921 requirements in other Group companies. Evonik has a flexible Current securities 262 387 range of corporate financing instruments to meet liquidity Other financial Invesunenu 23 21 requirements for day-to-day business, investments, and the Financial assets 2,653 1,329 repayment of financial debt. Net financial assets as stated on the balance sheet 1,098 400 0 Solid investment grade rating confirmed In 2015 both Moody's and Standard & Poor's (M con- • Excluding derivatives. firmed their credit ratings for Evonik Industries AG. Moil still rates Evonik as Baal with a positive outlook, while Corporate bonds as a central financing instrument S. rating remains BBB+ with a stable outlook. Maintaining a At year-end 2015, the financial debt of E1,555 million com- sound investment grade rating is a central element in our prised two bonds with a total carrying amount ofE1,241 mil- financing strategy to ensure we remain a reliable partner for lion, decentralized bank loans totaling €282 million, and other bond investors and banks in the long term. financial liabilities of E32 million. Following the issuance of a bond with a nominal value of E500 million in 2013, another Active management of pension obligations bond with a nominal value of E750 million was issued in Pension provisions make up the major portion of our total 2015. This matures in 2023 and has a coupon of 1.000 per- debt. They are non-current and depend on the discount rate. cent. On the reporting date, E1.25 billion of the debt issuance The E604 million decline in pension provisions was principally program of up to E3 billion had been used to issue bonds. due to the fact that the discount rate at year end was higher Over 85 percent of the Group's financial liabilities are than in the previous year. Unfunded pension obligations were denominated in euros (2014: over 65 percent). Only Group reduced as scheduled in 2015 by a further voluntary cash con- companies outside the euro zone have financial liabilities in tribution of €219 million' to the contractual trust arrangement other currencies. The relevant currencies include the Chinese (CTA), completing the program of transfers totaling E1.6 bil- renminbi yuan (CNY) and the Brazilian real (BRL). lion that commenced in 2010. At present, there are no plans to allocate further funds to the CTA. Including a refund of €19 million for advance tax payments by the CTA. 1 Cash flow from operating activities, continuing operations, less outflovn for capital expenditures for intangible assets, properly, plant and equipment. EFTA00598724 92 ANNUAL REPORT 2015 EVONIK INDUSTRIES Maturity profile of financial liabilities in Emillion 2016 2017 . 2018 . 2019 I 2020 2021 2022 2023 202411. 0 100 20D 300 400 500 600 700 BOO As of December 31, 2015. Further increase in the strong liquidity position Significant growth projects completed successfully Alongside cash and cash equivalents of E2,368 million and in the specialty chemicals sector Evonik is expanding in busi- investments of E262 million in current securities, Evonik's ness areas and markets where it already has—or intends to central source of liquidity is still a €1.75 billion revolving build—a strong competitive position. Investment projects are credit facility from a syndicate of 27 national and international aimed at utilizing potential for sustained profitable growth banks. This credit facility is divided into two tranches of and value creation. Every project undergoes detailed strategic E875 million each. The second and last option to extend their and economic analyses. In addition, there is a minimum term by one year was exercised in 2015 and they now run until return requirement for every project based on Evonik's cost September 2018 and 2020 respectively. This credit facility of capital. We take a flexible and disciplined approach to was not drawn at any time in 2015. It does not contain any extending our leading market positions. All projects are covenants requiring Evonik to meet specific financial ratios. regularly reviewed for changes in the market situation. Further, as of December 31, 2015, various unused credit Examples of projects completed successfully in 2015 are lines totaling E368 million were available to meet local a new lysine facility in Castro (Brazil), expansion of the requirements, especially in the Asia-Pacific region. production facilities for specialty silicas in Ako (Japan), and expansion of production capacity for butadiene in Antwerp (Belgium), isononanol in Marl (Germany) and the anti-knock agent MTBE in Marl and Antwerp. Major projects completed or virtually completed in 2015 Segment Location Project Nutrition & Care Castro (Brazil) Construction of a new lysine plant Essen (Germany) Expansion of the silicone platform Mobile (Alabama, USA) Construction of a new production facility for Mepron Resource Efficiency Ako (Japan) Expansion of capacity for specialty silicas Singapore Expansion of a facility for oil additives Performance Materials Marl (Germany) and Expansion of capacity for butadiene in Antwerp, the plasticizer Antwerp (Belgium) alcohol isononanol in Marl, and the anti-knock agent MTBE in Marl I and Antwerp For further information on current capital expenditure projects, please see the section en Segment performance. EFTA00598725 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION Rosiness review Fnencisl tand•tion Capital expenditures amounted to €877 million in 2015, Cash flow statement (excerpt) below the previous year's high figure of E1,123 million. In ME million 2015 2014 principle, the related cash outflows are delayed slightly by payment terms. In 2015, cash outflows for property, plant and Cash flow from operating activities, continuing operations 1,968 1,035 equipment totaled E916 million (2014: €1,095 million). The highest proportion of capital expenditures went to Cash flow from operating activities, discontinued operations 3 31 the Nutrition & Care and Resource Efficiency segments Cash flow from operating activities 1,97E 1,066 (29 percent and 27 percent respectively). A further 21 per- cent was allocated to the Performance Materials segment, Cash flow from investing activities, continuing operations —660 —575 and 20 percent was invested in the Services segment. The Cash flow from investing activities, regional focus of capital expenditures was Germany, which discontinued operations — —1 accounted for 49 percent of the total, followed by North 3 Cash flow from investing activities —660 —576 America (24 percent) and the Asia-Pacific region and other Cash flow from financing activities, European countries, which each received 10 percent. continuing operations 133 —1,155 Financial investments totaled €90 million (2014: €114 mil Cash flow from financing activities, lion). They mainly comprised the acquisition of Monarch discontinued operations — — Catalyst Pvt. Ltd., Dombivli (India), and PeroxyChem Nether- Cash flow from financing activities 133 —1,155 lands Amsterdam (Netherlands).' Change in cash and cash equivalents 1,444 —665 A strong cash flow The cash flow from operating activities, continuing opera- The cash flow from investing activities comprised an outflow tions increased by€933 million to €1,968 million, principally of €660 million. This was mainly for capital expenditures on due to the good operating performance. The cash flow from property, plant and equipment and investments, and the cash operating activities, discontinued operations related to the contribution to the CTA. It was countered by cash inflows, lithium-ion business, which has now been divested and, mainly from the disposal of investments, especially the shares a in the prior year, also to the stake in STEAG, which was sold in Vivawest. In 2014 the cash outflow for investing activities 0 in September 2014. In 2015, the cash flow from operating was €576 million. activities, discontinued operations was €3 million, compared with €31 million in 2014. Overall, the cash flow from oper- ating activities increased by €905 million to €1,971million. Cash and cash equivalents December 31, 2015 versus December 31, 2014 MC 3,000 •1968 2,500 +133 +6 2,368 —660 2,000 1,500 921 1,000 500 Dec 31, 2010 Cash flew, Cash flow, ash flow, Dec 31, 2015 Cash and cash operating irreestisg financing Cash and cash equivalents' actWities' activities" equiwkets• • Continuing operations. See section on Segment performance and Note 5.2. EFTA00598726 94 ANNUAL REPORT 2015 EVONIK INDUSTRIES The cash flow from financing activities was €133 million. Current assets increased by €1.3 billion to E6.7 billion. This The cash inflow from the new bond was reduced principally was primarily attributable to a strong rise of €1.4 billion in by the repayment of financial debt and the payment of the cash and cash equivalents to €2.4 billion, principally as a dividend for 2014. In 2014, there was a cash outflow of result of the issue of the new bond in January 2015 and E1,155 million, mainly for the redemption of a bond and the the good operating performance. Owing to the increase in dividend for fiscal 2013. business, trade accounts receivable were €0.1 billion higher The free cash flow was very high at €1,052 million in at €1.8 billion. Inventories and financial assets basically 2015 (2014: —E60 million). The significant improvement was remained constant at €1.8 billion and €0.4 billion respec- mainly due to the very good operating performance and dis- tively. Current assets therefore rose to 39 percent of total ciplined implementation of our growth-driven investments. assets (2014:35 percent). Equity increased by €1.1billion to €7.6 billion as a conse- quence of the good business performance. The equity ratio 2.10 Asset structure rose from 41.6 percent to 44.6 percent. Non-current liabilities increased by€0.1 billion to €6.4 bil- Increase in total assets lion, principally due to the increase in financial liabilities to As of December 31, 2015, total assets were €1.3 billion €1.4 billion in the wake of the bond issue in January 2015. By higher at €17.0 billion. Non-current assets increased slightly contrast, provisions for pensions and other post-employment year-on-year to €10.3 billion. While the value of investments benefits decreased by €0.6 billion to €3.3 billion. Non- recognized at equity decreased by €0.3 billion, mainly current liabilities decreased from 40 percent to 37 percent because of the sale of the stake in Vivawest in June 2015, of total equity and liabilities. property, plant and equipment increased by €0.3 billion to Current liabilities increased by €02 billion to €3.1billion. ES.8 billion as a result of growth-driven investments. Intan- While trade accounts payable were virtually unchanged at gible assets increased slightly, by €0.1 billion, to €3.2 billion. €1.1 billion, other liabilities increased by€0.1 billion. Current In all, non-current assets decreased to 61 percent of total liabilities accounted for an unchanged 18 percent of total assets, down from 65 percent in the prior year. They are equity and liabilities. financed by liabilities with the same maturity structure. Balance sheet structure of the Evonik Group In Emillion 2015' 2014' 2015' 2014' 7,576 6,522 Equity 10.251 (45%) (42%) Nomomient assets 10,320 (61%) (65%) 6,353 6,201 Non-:Decent liabilMes (37%) (40%) Commit assets 6485 5,434 (39%) (35%) 3,076 2,922 Current OWllilkt 08%) (1S%) Total assets 17,005 15485 17,005 15,685 Thal equity and liabilities As of December 31. EFTA00598727 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 9S Pert*mince of Evonik Industries AG 3. Performance of Evonik Industries AG • Management holding company concentrates on strategic development of the Group • High net income of €1,205 million • Proposed increase in the dividend from €1.00 to €1.15 Fmancul statements Evonik Industries AG, Essen (Germany) is the parent com- owners of the assets and liabilities of the plants, while the pany of the Evonik Group. It holds direct and indirect operator recognizes liabilities entered into in its own name stakes in all subsidiaries in the Group. The annual financial and at the same time capitalizes a claim for reimbursement statements for Evonik Industries AG have been prepared against the owners of the plants. As a result of the termination in accordance with the accounting standards set out in the of these agreements, the balance sheet of Evonik Industries AG German Commercial Code (HGB) and the German Stock at year-end 2015 no longer contained any items of this type. 5 Corporation Act (AktG). In the income statement, the arrangement merely gave Since January 1, 2015, the Executive Board of Evonik rise to sales revenues from plant management fees. All other Industries AG has concentrated on the strategic development income and expenses were allocated to the companies of the Evonik Group through a management holding that owned the plants and were recognized in their annual structure. financial statements. In this connection the plant management agreements In connection with the strategic realignment of the Evonik between the company and five subsidiaries were terminated Group, in the first half of the year Evonik Industries AG effective June 30, 2015. These plant management agreements acquired the activities of subsidiaries within the scope of the had been performed on behalf of Evonik Industries AG and management holding company or that serve to support it, for the account of the subsidiaries. The substance of agree- through asset deals. Activities outside its scope were trans- ments of this type is that the companies remain the economic ferred to the subsidiaries. Income statement for Evonik Industries AG E million 2015 2074 Sales 592 216 Increase in work In progress 1 Other operating Income 1,431 425 Cost of materials -235 -2 Personnel expense -337 -206 Depreciation and amortization of intangible assets, property, plant and equipment -15 -6 Other operating expenses -1,294 -647 Operating result 143 -220 Income from Investments 1,509 921 Write-downs of financial assets and current securities -41 -121 Write-ups of financial assets and current securities 10 96 Net Interest expense -157 -86 Income before Income taxes 1,464 590 Income taxes -259 -123 Net Income 1,205 467_ Allocation to revenue reserves -600 -1_ Net profit 605 466 EFTA00598728 96 ANNUAL REPORT 2015 EVONIK INDUSTRIES Balance sheet for Evonik Industries AG Dec. 31, Dec. 31, InEmiRion 2015 2014 Asset Intangible assets, property, plant and equipment 40 20 Financial assets 8,870 8,834 Non-current assets 8,910 8,854 Inventories 8 — Receivables and other assets 2,720 4,354 Securities 249 377 Cash and cash equivalents 2,056 606 Current assets 5,033 5,337 Prepaid expenses and deferred charges 8 7 Total assets 13,951 14,198 Equity and liabilities Issued capital 466 466 Capital reserve 721 720 Revenue reserves 4,235 3,635 Net profit 605 466 Equky 6,027 5,287 Provisions 850 2,278 Payables 7,074 6,633 Total equity and liabilities 13,951 14,198 The earnings performance of Evonik Industries AG is essen- €337 million) are shown in other operating expenses, sepa- tially dependent on income from its subsidiaries, income rately from the currency translation gains. The net effect was and expenses relating to corporate financing and portfolio a gain ofE18 million (2014: €17 million). management activities. Financial management is therefore Income from investments increased by 64 percent to based on an earnings indicator that contains all these effects: €1,509 million, principally because of considerably higher net income. income from profit-and-loss transfer agreements. The increase Sales increased substantially from €216 million to was mainly due to higher profit transfers from subsidiaries as E592 million as a result of activities assumed by Evonik a result of the good operating performance and to one-off Industries AG, especially strategic procurement for the sub- payouts by investments. The write-downs of financial assets sidiaries. Sales revenues include plant management fees of and current securities totaling €41 million and write-ups of €31 million (2014: €48 million). The cost of materials rose financial assets and financial securities totaling E10 million from E2 million in 2014 to €235 million, due to the assump- mainly related to affiliated companies. tion of procurement activities. Personnel expense increased Net interest expense deteriorated considerably from by 64 percent to €337 million, driven mainly by staff trans- €86 million to €157 million. This was mainly due to higher fers in connection with the transfers of undertaking in the interest on pension provisions due to a change in the interest first half of 2015. The other operating income of €1,431 mil- rate and an increase in headcount. This item also contains lion contains income from the disposal of assets totaling interest income and expense from the Group-wide cash pool, €413 million, mainly from the divestment of the stake in which is concentrated at Evonik Industries AG. Vivawest. Further, this item includes currency translation Income before income taxes rose 148 percent to €1,464 mil- gains of €939 million (2014: €354 million). In the gross pre- lion. Income taxes increased to €259 million due to the sentation, currency translation losses of €921 million (2014: increase in income. EFTA00598729 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 97 Research Ea development Net income was 158 percent higher at €1,205 million. Opportunities and risks €599,873,641.46 was allocated to revenue reserves, leaving The most significant operating subsidiaries in Germany have a net profit of €605,000,000.00. A proposal will be put to profit-and-loss transfer agreements with Evonik Industries the Annual Shareholders' Meeting that €69,100,000.00 of AG. In line with the central financing strategy of the Evonik the net profit should be allocated to revenue reserves and Group, most internal and external financing transactions are €535,900,000.00 should be paid out, giving a dividend of handled by Evonik Industries AG. Consequently, Evonik €1.15 per share. Industries AG is essentially exposed to the same risks and The total assets of Evonik Industries AG declined slightly opportunities as the Evonik Group. Further information can from €14.2 billion in the previous year to €14.0 billion. be found in the Opportunity and risk report. Financial assets mainly comprise shares in subsidiaries. The receivables mainly comprise financial receivables of Outlook' for 2016 €2.5 billion (2014: €1.9 billion), principally in connection We anticipate that in 2016 the net income of Evonik with loans and cash pooling activities. In 2014, receivables Industries AG will be below the high level of 2015, which was also included claims for reimbursement in connection with also boosted by the sale of the real estate investment and an plant management (€2.1 billion). Cash and cash equivalents increase in income from investments as a result of one-off increased by €606 million to €2,056 million, mainly because payouts from investments. of the sale of the shares in Vivawest and the bond issue. I Equity increased by €0.7 billion to €6.0 billion, mainly as Report on relations with affiliated companies a consequence of the high earnings. The equity ratio therefore A report on Evonik Industries AG's relations with affiliated improved from 37.2 percent in the prior year to 43.2 percent. companies has been prepared in accordance with Section 312 The provisions of €2.3 billion in 2014 included €1.5 billion of the German Stock Corporation Act (AktG). It concludes relating to the plants managed by Evonik Industries AG. The with the following declaration: "Our company received receivables and liabilities reflect the financing activities of adequate remuneration or compensation for each of the Evonik Industries AG in its role as the holding company for transactions set out in this report on relations with affiliated the Group. Payables include financial liabilities of €6.8 billion companies under the circumstances known to us at the time 0 (2014: €5.7 billion). €5.5 billion (2014: €52 billion) of this when the transactions were undertaken. No actions were comprises liabilities to affiliated companies, mainly in connec- performed or omitted at the instigation of such companies." tion with cash pooling activities. A further €1.3 billion (2014: €0.5 billion) relates to corporate bonds. 4. Research & development • Our vision: Evonik—one of the world's most innovative companies • More than 500 projects in the pipeline • Innovations drive our profitable growth course Innovation strategy firmly anchored strategy. Innovations strengthen our leading market and in corporate strategy technology positions and open up new high-growth business Evonik—one of the world's most innovative companies. That opportunities. The careful selection of our areas of inno- is the vision that guides our research & development (la). vation is guided by the megatrends of relevance for Evonik: As a major driver liofitable growth and value creation, our health, nutrition, resource efficiency and globalization. market-oriented is firmly anchored in our corporate 1 For details of the assumptions, please refer to the Report on expected developments. EFTA00598730 93 ANNUAL REPORT 2015 EVONIK INDUSTRIES Our claim: First-class in Innovation Evonik is one of the most innovative Explore new horizons companies in the world Push radical innovation Cross-unit collaboration O First-class in innovation Increase the value of the innovation pipeline Enhance risk-taking New products, applications, and processes must Trust, openness and transparency make a substantial contribution to sales and profit Improve knowledge sharing Our is aligned to three core strategic objectives: we Evonik has an extensive patent strategy to protect new prod- aim to ucts and processes. The value and quality of our patent port- produce custom-tailored products and solutions in close folio have increased steadily in recent years. collaboration with our customers and partners, to drive their success in international competition Innovative strength and patent protection at Evonik continuously improve our processes, and 2015 make a substantial contribution to profitable growth and to the future of Evonik. No. of new patent applications filed approx. 260 Patents held and applications filed more than 25,000 Our open, learning innovation culture based on a business Registered/pending trademarks more than 7,000 mindset is the key to achieving these goals. It ensures timely No. of projects in the pipeline more than 500 identification of good ideas which we can drive forward and turn into additional sales and earnings. To reinforce Evonik's innovative strength, we organize regular internal conferences In view of the strategic importance of we have raised Ms under the motto Leading Innovation, which are attended by expenses by an average of 6 percent a year since 2010. members of our top management. Given our growth strategy and our vision of being one of the Every year, we present an Innovation Award in various world's most innovative companies, we want to maintain this categories to honor outstanding research achievements. ambitious level and intend to spend more than €4 billion on At the same time, we consistently terminate projects if in the next ten years. there are no prospects of success and take a constructive The reorganization of our management and portfolio attitude to such cases. structure allows more differentiated management and devel- We have a well-stocked innovation pipeline with a bal- opment of our various businesses close to the market. This is anced mixture of more than 500 short-, mid- and long-term also reflected in our innovation strategy: The Nutrition & projects. These are managed with the aid of Idea-to-Profit, Care and Resource Efficiency growth se should a multi-step innovation process developed by Evonik. receive an above-average share of our funds in order Ingredients for the cosmetics industry, membranes, specialty to enter new markets through innovations and alliances. The materials for medical technology, feed and food additives, Performance Materials segment focuses on process optimi- and composites have been identified as promising areas zation and incremental product improvements. of innovation for Evonik. In addition, we aim to steadily extend our clear expertise in catalysis and biotechnolo Decentralized organization of MI To raise the pace of innovation, we want to align our Evonik's global network comprises 35 locations with project portfolio even more closely to these fields, step up approximately 2,700 employees. Around 90 percent of external knowledge sharing, and drive forward the inter- our. is performed by our segments. That includes, first nationalization of our.. and foremost, research geared specifically to their core tech- nologies and markets and the development of new business. EFTA00598731 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 99 Research Fs development exp in million 2011 365 2012 393 2013 394 2014 413 2015 434 100 200 300 400 500 In addition, in close collaboration with our segments, our ness Line started to build up a worldwide network of service strategic innovation unit Creavis is involved in research in laboratories for medical products in 2015. The aim is to new high-tech areas outside the Group's present portfolio. provide technical support for customers who use our bio- Creavis focuses on mid- to long-term innovation projects degradable polymers. The first of these laboratories was that support Evonik's growth and sustainability strategy. For opened in Shanghai (China) in summer 2015. example, the Composites Project House has developed a new composite that combines the benefits of thermoplastics and Hi commitment to in 2015 thermosets. For this innovation Evonik received the 2015 expenses amounted to €434 million in 2015, an Innovation Award presented by CFK Valley, a leading com- increase of 5 percent compared with the previous year petency network for fiber composites. Creavis is currently (€413 million). The ratio of MI expenses to sales was developing a new high-performance surfactant produced 3.2 percent (2014: 3.2 percent). using a biotechnological process. As the driving force behind strategic innovations, the role Breakdown of • expenses o of Corporate Innovation is to provide direction and leadership V for the Evonik Group. This division is headed by the Chief Innovation Officer, who reports directly to the Chairman of Crean: the Executive Board. Furthermore, we bring together our in-house expertise in specialty chemicals, process technology Performance Matellth Notation b Core and engineering at an early stage in projects to facilitate rapid transfer of new processes to efficient industrial production. In recent years, we have also integrated marketing and sales more closely into innovation processes. Resource Efficiency One important success factor for our is close interaction with our customers, which gives us a deep knowl- edge of their specific markets and requirements. Often this collaboration results in new products and applications which provide a sound basis for profitable growth. We are strengthening our position as a strategic partner for our Moreover, in the past four years Evonik has spent €170 mil- customers by raising our presence close to their local lion on building laboratory ca acity and pilot plants. The markets. At the same time, this enables us to position Evonik focus of this investment in facilities was on new and as an attractive employer and gain outstanding experts for extended innovation centers in Essen (Germany), Shanghai the Group. (China), Richmond (Virginia, USA) and Birmingham (Ala- The progressive internationalization of our can be bama, USA). illustrated by two examples. In 2015, Evonik opened new Examples of Evonik's most recent research successes innovation centers in Midrand (South Africa) and Singapore include an innovative microencapsulation process for to develop product solutions specifically for customers in the extended release of medication, and composites for light- personal care sector in Subsaharan Africa, Southeast Asia, weight structures. In addition, work has commenced on Australia and New Zealand. Similarly, the Health Care Busi- a new generation of lubricant additives. EFTA00598732 100 ANNUAL REPORT 2015 EVONIK INDUSTRIES Main products introduced in 2015 Product Description Application Sector VISCOBASE 11-524/526 High-viscosity synthetic base fluid Favorable alternative formulation Automotrve, industrial gears with dispersing properties for modern gear lubricants for cars, trucks and Industrial gears VISCOPLEX 0-192 Easy-to-handle viscosity index Used in gear lubricant formulations Automotive improver based on comb polymers to minimize energy losses In the drivetrain; reduces fuel consumption SILIKOPHEN• AC 950 Heat-resistant, low-toxic High-temperature coating of Machinery and plant engineering, (aromatic-free) silicone resin that Industrial plant; corrosion protection consumer durables and capital goods, cures at ambient temperature of high-volume components automotive SEPURAN• Noble Membrane technology for gas Recovery and treatment of helium Hydrogen: refineries, production separation; several thousand hollow and hydrogen of ammonia and methanol. fibers made from a high-performance Helium: medical institutes, MRT polymer (polylmide) are used as technology, welding and metal- membranes working, electronics Industry, oil and gas production BREAK-THRU• SP 131 and Based on renewable raw materials, Crop protection Agriculture BREAK-THRIP SP 133 biodegradable, very good ecotoxko- logical profile; adjuvant to increase the efficacy of crop protection products WREN AirVold• 360 Defoamer for cement- and gypsum- Dry mortar Construction based construction applications Methacrylic acid Market entry with improved product Synthesis Specialty chemicals anhydride (MAAH) quality from a new plant Innovation drivers at Evonik (A*STAR). Our support for our established partnership with Interdisciplinary collaboration across organizational units and the University of Duisburg-Essen in Germany comprises a regions is regarded as very important at Evonik because it is junior professorship, ten scholarships for doctoral candidates a key source of innovative ideas. In the project houses at and a large number of joint projects and colloquia. We Creavis, experts work with specialists from the operating recently entered into a preferred partnership with the business on scientific tasks. At present the project houses, Technical University of Munich (TUM) through a master which are set up for a defined time period, are working on research agreement. In addition, we regularly organize the research in the innovation areas of medical technology and Evonik Meets Science forum in Germany, China, Japan and composites for lightweight engineering. The Business and the USA to strengthen networking with leading international Innovation Center in Richmond (Virginia, USA), which was research scientists. This is a platform for discussion between inaugurated in summer 2015, is specifically deli ned for our experts and leading scientists from a wide range of interdisciplinary research. It brings together experts disciplines and institutions. with specialists from the Marketing and Sales, Procurement, Our corporate venture capital activities are a special Controlling, HR, IT and Environment, Safety, Health and way of networking and a strategic complement to our Quality functions. understanding of open innovation. We invest selectively in In addition, we are steadily becoming more open to specialized technology funds and promising start-ups of external partners. We cooperate with research institutes, strategic relevance to Evonik. This gives us an insight into universities and other industrial companies so that the latest innovative technologies and business activities aligned to our findings in chemistry, biology and physics can rapidly be growth strategy at a very early stage of development. New transported into our company. Through strategic partnerships projects and technologies are developed in joint projects. In we are linked to leading universities in the USA, China, and this way we speed up our innovative process. We selectively Saudi Arabia, and to Singapore's state-run research agency extended our corporate venture capital portfolio in 2015. EFTA00598733 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 101 Reseoch Fs development Evonik Venture Capital: New investments in 2015 Strategic focus on the following Name Headquarters Technology/business model Evonik competencies JeNaCell GmbH Jena Specialist in nanocellulose generated by An excellent strategic fit with Evonik's expertise (Germany) biotechnological methods, which is used, for in biotechnology and delivery systems for active example, as a wound dressing to improve the medical ingredients. treatment of burns. It can also be loaded with medical active ingredients for controlled release to the skin over time. Wiiw Wearables Inc. Vancouver Winn, is one of the first companies in the world to Evonik is a leading supplier of polyamlde 12 for (Canada) use 30 printing for individualized mass production 3D printing, a highly innovative growth market of biomechanically optimized insoles. with diverse applications. Airborne Oil & Gas Bmulden Airborne Oil & Gas has a unique production The oil and gas Industry is an attractive growth (Netherlands) technology for thermoplastic composite pipes for market for Evonik and an Important area of a whole range of applications in offshore oil and innovation. In addition, it is the market leader in gas production. polyamlde 12, which is marketed as VESTAMID• and used in pipelines for the production and transportation of oil and gas. Synoste Oy Espoo Synoste is a young medical technology company As a technology leader in high-performance (Finland) that has developed a novel implant to 'lengthen' polymers, Evonik supplies polyetherether ketone the legs of patients suffering from limb length (PEEK) for medical applications. Our VESTAKEEP• discrepancy. Unlike conventional methods, after PEEK grades for implants, dental and medical implantation the Implant is activated by an applications set new standards in medical applica- external magnetic field and can correct differences tions thanks to their outstanding biocompatibility of up to 7cm. and biostability. GRC SlnoGreen Fund III Beijing GRC is a Chinese venture capital fund which focuses By investing in the GRC SlnoGreen Fund Ill, (China) on investing in non-listed green-tech companies in Evonik has extended its venture capital activities to Greater China (China, Taiwan and Hong Kong) that Asia. The company now has a presence in the most have unique technological competencies and high important venture capital markets: North America, tr. growth potential. The target sectors include energy Europe and Asia. Investments in venture capital and resource efficiency. environment-friendly funds are a fundamental element of the innovation mobility, sustainability and climate protection. strategy of Evonik Venture Capital because they offer excellent opportunities to speed up the devel- opment of new business and gain access to new growth areas. Focus on sustainability developed the l2P3 (idea to people, planet, profit) innovation Our innovative products, systems and solutions make a con- management process, which allows an extensive sustainability tribution to sustainable development and we are continuousl assessment of new products and processes at an early stage extending our work in this field. Our market-oriented in their development. plays an important role in this. We are aligning our innova- tion pipeline increasingly to sustainable projects and solutions Fostering education and science in response to rising interest from our customers. In this way, Fostering education and science is a core focus of the Evonik we enable them to improve their ecological footprint and Foundation. In 2015 the Foundation supported 18 particularly successfully differentiate themselves from competitors. gifted and committed science students at 17 universities Examples of sustainable products recently launched by Evonik in Germany and in collaboration with foreign universities. include a new ingredient based on renewable resources Regular meetings with these scholarship students, scientific for shampoos and conditioners, an innovative silica-based colloquia and a mentoring program give them an early insight insulating material, and a biological fungicide for agricultural into the day-to-day work of a leading specialty chemicals applications. company. Evonik is also one of the most committed sponsors Together with the Wuppertal Institute for Climate, Environ- of the German government's "Deutschlandstipendium" ment and Energy and the in-house Life-Cycle Management program, with 200 scholarships provided by the Evonik and Innovation Excellence Consulting groups, Creavis has Foundation. EFTA00598734 102 ANNUAL REPORT 2015 EVONIK INDUSTRIES Market-oriented research & development This segment is currently introducing iXsenic°, a new In 2015 our segments once again developed major innovative technology for ultra-high resolution displays developed by products and processes up to market maturity or market the Creavis strategic innovation unit. iXsenics is an inorganic launch. In addition, they drove forward key future-oriented metal oxide semiconductor, which is applied as a solution projects such as new materials and production processes in normal ambient conditions like a coating. The thin-layer for lightweight construction. Special attention was paid to transistors produced in this way allow higher resolution than sustainability and efficient use of resources. the established semiconductor amorphous silicon. In addi- Since summer 2015 our Nutrition Es Care segment has tion, iXsenie can be processed without a vacuum, leading been working with OSM Nutritional Products Ltd. on the to a simpler process with high yields and clear cost benefits. development of algae-based omega-3 fatty acid products for The Resource Efficiency segment has entered into a strategic animal nutrition. Both humans and animals need to absorb partnership with a market-leading plant engineering com- a certain amount of these essential long-chain polyunsatu- pany to ensure that the material, equipment and process rated fatty acids through their diet to ensure healthy growth. are aligned for the production of displays. A manufacturer of At present, most of the omega-3 fatty acids required for displays is planning to use iXsenic° in a new production facil- aquaculture come from fish oil. The development partners ity for flat screens in China. aim to meet the rising global demand for omega-3 fatty acids Olefins, which are used to produce the plasticizer alcohol more resource-efficiently using biotechnological production isononanol and the anti-knock agent MTBE, are an important processes based on marine algae. The anticipated high-quality precursor for our integrated C, production in Marl (Ger- products are intended principally for applications in aqua- many). Olefins mainly come from C, product streams from culture and the nutrition of pets. steam crackers as by-products of ethylene production. This segment has introduced two new environment- Thanks to a unique new process, our Performance Materials friendly adjuvants under the brand name BREAK-THRU° segment can now use product streams from fluid catalytic to improve the performance of crop protection products. cracking (FCC) processes as a source of olefins. These product These biodegradable adjuvants are based on renewable raw streams occur in refineries and are not dependent on the materials, and have an exceptionally good ecotoxicological production of ethylene. Since FCC product streams contain profile. They improve the retention of agrochemicals on unwanted by-products, in the past they were of limited use plants and their diffusion into the leaves. The result is a to the chemical industry. The Performance Materials segment considerable reduction in the amount of crop protection has been using a new process to remove unwanted sub- products required. Both new developments therefore make stances at its new C, plant in Marl (Germany) since summer a multiple contribution to more effective and environmentally 2015. This innovative process has strengthened the segment's friendly agriculture. position as a technology leader. The Resource Efficiency segment has now entered the CAPLUS°, a new amine for scrubbing industrial gas market for nitrogen (N2) with its SEPURAN° membrane streams, has been brought onto the market by Performance technology, building on its success in the treatment of biogas. Materials. Unwanted acid gases such as carbon dioxide and/ The new SEPURAN° N2 hollow fiber membranes allow or hydrogen sulfide have to be removed from natural gas, particularly energy- and cost-saving recovery of nitrogen synthetic gas, biogas and flue gas for various reasons. from air. Investment costs and energy consumption are lower CAPLUS° scrubs these gases far more effectively than than for both the conventional method—separation of air at conventional amines and also increases the performance low temperatures—and previous membrane processes. As an and working life of plants. Following success in the treatment inert gas, nitrogen prevents fires and explosions, extends the of biogas and flue gas, the segment has now entered the shelf-life of food, and can also be used as a protective gas for important natural gas scrubbing market. The first commercial processing chemicals and plastics. The nitrogen market is natural gas scrubber was converted in Southeast Asia. Perfor- worth more than US$10 billion, making it the world's second mance Materials is currently introducing CAPLUS° to other biggest gas market after oxygen. Although SEPURAN° has well-known natural gas producers in the attractive growth only been on the market for four years, it is already making regions of Southeast Asia, the Middle East/North Africa and a positive contribution to earnings. South America. The International Energy Agency estimates that gas consumption will increase by 50 percent by 2035'. I Reference base: 2010. EFTA00598735 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 103 Susisimbility 5. Sustainability Committed employees are a key success factor for Evonik • Ambitious environmental targets • Evonik is well-positioned in sustainability indices and ratings Responsible corporate management Close links between sustainability Sustainability is a core element in our corporate claim Tower and corporate strategy to create". Our products and solutions are used in many areas We are convinced that sustainable business activities and that play a significant role in improving people's lives and responsible conduct by our management and staff at all levels making efficient use of scarce resources. In fall 2015 the are vital for the future of our company. Our sustainability United Nations published 17 goals for global sustainable strategy therefore takes up the megatrends identified in our development, to be achieved by 2030. Our sustainability corporate strategy—health, nutrition, resource efficiency activities support these in many areas. and globalization—supplemented by ecological and societal Evonik is committed to the ten principles of the UN challenges. Global Compact and is guided by the International Labour In view of this, we systematically drove forward the Standards issued by the International Labour Organization, sustainability analysis of our business in 2015 in collaboration and the OECD Guidelines for Multinational Enterprises. with the operational units. This analysis covers the entire In addition, we are involved in many networks such as the value chain of our products and is based on a list of criteria Chemie3 sustainability initiative of the German chemical including elements of the life cycle analysis of the supply industry, and the World Business Council for Sustainable chain, production and subsequent use of the product. This Development (WBCS0), to which more than 200 companies sustainability-oriented evaluation of our business supports worldwide belong. Together with our Code of Conduct, our Evonik's positioning on the capital markets because sustain- 0 V Global Social Policy (GSP) and our Environment, Safety and ability is becoming an increasingly significant element in Health (ESH) Values provide a framework for responsible many investors' investment policies. corporate management. Demand from our customers for products and solutions Furthermore, we are committed to the WBCSD's Vision that balance economic, ecological and social factors is rising 2050: "9 billion people living well, within the limits of steadily. Sustainability is often an additional benefit for the planet." customers that can clinch purchasing decisions and is there- fore a clear growth driver in certain businesses such as amino acids for animal nutrition and the personal care sector. Sustainability management at Evonik Executive Board Overall responsibility for sustalnability Responsible Executive Board member: Chief Human Resources Officer Segments Corporate D Ions Regions Sustainability strategy and networks Specialist regional project-based steering committees and management teams EFTA00598736 104 ANNUAL REPORT 2015 EVONIK INDUSTRIES Accordingly, our market-oriented research & development Important feedback about our sustainability performance also pays special attention to sustainability and efficient use of comes from talking with members of the investment commu- resources. Evonik therefore has a good basis for innovative nity. Alongside financial criteria, more and more investors solutions that will strengthen its market-leading positions in include ecological, social and governance factors in their the future, give it access to new growth markets, and make a investment decisions. Key stakeholder groups for Evonik are tangible contribution to improving sustainable development. shown in the chart below. Reorganization of sustainability management Evonik is well-positioned in leading The Executive Board bears overall responsibility for sustain- sustainability indices and ratings ability and direct responsibility is assigned to the Chief Human Evonik is included in the sustainability-oriented index Resources Officer. In view of the importance of sustainability families FTSE4Good Global, STOXXe Global ESG Leaders for Evonik, the associated topics are assigned to an inde- and Euronext Vigeo Eurozone 120. Important sustainability pendent corporate division at Group level. This division sets rating agencies such as Oekom Research, Sustainalytics and the strategic framework for Evonik's sustainability activities. imug/EIRIS also rank the company among the leaders in the It cooperates closely with the segments to implement this chemical sector. strategy. In 2015 we took part in the assessment for the Dow Jones Sustainability Index (DJSI), which is performed by Evonik in dialogue with RobecoSAM. As a result, Evonik was included in the significant stakeholder groups RobecoSAM Sustainability Yearbook 2016 as a Sustainability At Evonik, sustainability management is characterized by close Leader with the distinction "Silver Class'. This was the first dialogue with stakeholders. This continuous exchange facili- time we took part and we gained a place straight away tates timely identification of trends and future requirements among the top ten of the approximately 70 chemical com- and gives us a better understanding of different perspectives. panies rated worldwide. Overall, it helps Evonik to position itself as a company aligned This provides further motivation for us to drive forward to sustainable business practices. our sustainability activities. In the mid term, we aim to To update our materiality analysis, in fall 2015 we again sharpen our sustainability strategy further, anchor it even asked internal and external stakeholder groups for their views more firmly in the company, and improve the transparency of on the relevance of specific sustainability issues for Evonik. our sustainability performance. Alongside this, our goal is to The results also form the basis for our Sustainability Report enhance our good position in relevant ratings and rankings 2015, which will be prepared for the first time in accordance and step up dialogue with significant stakeholder groups. with the Global Reporting Initiative's G4 guidelines. Evonik's stakeholder groups Interest groups, e.g. local inhabitants, Scientific community non-governmental organizations (NGOs) Media Business associates/customers Evonik Politicians/political Employees decision-makers Equity and debt holders Suppliers EFTA00598737 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 105 Susuansbillty Employes 5.1 Employees Nearly two-thirds of our workforce is employed in Germany. In line with our global positioning, other focal areas of Slight increase in headcount employment are the Asia-Pacific region (2015: 14 percent) At year-end 2015, the Evonik Group had 33,576 employees. and North America (2015:11 percent). The headcount in our continuing operations was 335 higher than at year-end 2014, principally as a result of acquisitions Employees by region, continuing operations and investment in growth projects in the Resource Efficiency and Nutrition & Care segments. Implementation of the Administration Excellence program to enhance efficiency, some small optimization programs in the chemical segments, and divestment of the remaining carbon black activities had a counter-effect. At year-end 2014, the discontinued operations still contained Evonik Litarion GmbH, Kamenz (Germany), which was divested in April 2015. Employees by segment I Dee. 31, Dee. 31, 2015 2014 Nutrition & Care Resource Efficiency 7,165 8,662 6,943 7,835 aL Performance Materials 4,380 4,353 Services 12,668 13,173 Around 24 percent of employees are female (2014: around Other operations 701 937 24 percent). The age structure is still biased towards the 46+ age group, which accounts for 44 percent of employees 2 CoMlnuing operations 33,576 33,241 Discontinued operatiom — 171 (2014: 44 percent). The average age of our employees was 41.7 years in 2015 (2014: 41.6 years). Evonik 33,576 33,412 Piloting' figures resisted. Age structure In the Evonik Group, continuing operations In% Under 21 years 4 21-2S years 26-30 years 10 31-35 years 11 36-40 years 11 41-45 years 12 46—S0 years 15 51—SS years 15 56-60 years 12 Over 60 years 2 2 10 12 14 16 18 EFTA00598738 106 ANNUAL REPORT 2015 EVONIK INDUSTRIES Active support for the reorganization of the Group Exemplary leadership is the heart of our HR strategy The strategic reorganization of the management and port- Our employees are a key factor in the successful and sustain- folio structure of the Evonik Group was supported from an able implementation of our corporate strategy. As a world- early stage in the project by an agreement on key points that leading specialty chemicals company, innovative strength and subsequently formed the basis for the reconciliation of inter- entrepreneurship play a central role as drivers that enable us ests with representatives of the workforce and provided to meet our goals of growth and an increase in efficiency. security for the structural changes and safeguarding employ- Based on this, our Group-wide human resources strategy ment. In all, around 19,000 employees were transferred to is geared to a healthy performance culture, together with the new companies. To secure the operational viability of the dialogue based on partnership and excellence in human new organizational structures, employee representation resources processes. The strategic focus of our human structures were adjusted, Supervisory Boards were estab- resources work is on the principles of "Attract", "Develop", lished in accordance with the 1976 Codetermination Act, the "Perform", "Retain", "Lead" and "HR Excellence". Special new members of our companies were granted the necessary attention is paid to exemplary leadership because this is the powers, and agreements were concluded in respect of the key to the success in the other areas of action. multi-user sites where there will in future be several or In our annual strategy review we defined action for these additional Group companies. key areas in consultation with the operational business enti- ties and regional organizations, taking into account relevant Further optimization of the HR organization political and societal developments. The action defined was The organization of the human resources departments was implemented through projects. also adjusted and optimized to reflect the reorganization of the Group. The aim is to continue to provide uniform, effec- Attract tive and efficient human resources services and sustained The focus here is on positioning Evonik globally as a strong support for the segments in the attainment of their business employer brand. Alongside conventional and modern recruit- targets. ing methods, activities include measures to ensure that Personnel planning is geared to this goal. In 2015 we new employees and executives get off to a good start in successfully established an all-round approach as a basic pre- the company. requisite for high-quality and foresighted human resources work that combines strategic and operational personnel planning and sets a uniform standard for the Group. As a consequence of Evonik's historic roots in a large number of separate companies, the HR systems landscape has so far been very diverse. The HR IT strategy now aims to systematically harmonize the systems landscape. Alongside efficient and effective processes, this should ensure greater transparency and measurability of the success of human resources work. HR strategy corporate strategy HR sttategy HR Excellence EFTA00598739 - TO OUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 107 Susuinebilily EmPlovets Employer branding—Positioning Evonik Our global talent recruitment initiative RISE is designed to as an attractive employer attract talented external candidates for key positions and A strong and uniform global employer brand is an important management posts. The core element of RISE, apart from success factor in the competition to attract the most talented suitability for a specific position, is the potential to take on employees and executives. Our promise "Exploring opportu- more demanding assignments. nities. Growing together." is an expression of our values as an employer: wide-ranging global development opportunities Develop and team spirit. As part of our employer branding, we use In this area, we concentrate on targeted development of creative and unusual methods to fire passion for Evonik talented employees. Group-wide we are therefore stepping in tomorrow's specialists at an early stage. For example, in up structured development opportunities for all employees 2015 we challenged students at ten universities in Germany aligned to requirements. This also lays the foundations for to Battle of Brains, a digital quiz that attracted around 1,000 our sustained policy of filling key positions from within the participants. High-quality prizes were awarded to the best company. three from each university and the winning entrant from each university was invited to attend the Evonik Student Network Vocational and further training for present S Day. In addition, around 100,000 impressions of Battle of and future specialists E Brains were registered in various media (including films on Evonik still recruits specialists from within its own ranks and YouTube). is committed to supporting their vocational training and A variety of awards and surveys confirm that Evonik ongoing development. This is also an element in meeting is already one of Germany's most attractive employers. our corporate responsibility to society and our workforce. For example, in 2015 we ranked third in the chemical and The number of apprentices and, above all, the number of pharmaceutical sector in the employer ranking conducted by apprentices hired by us at the end of their training will be the German news magazine FOCUS. In China, Evonik was aligned even more clearly to the personnel requirements of once again included in the list of the most popular employers our organizational units in the future. published by the Top Employer Institute in 2015. At year-end 2015, we had around 2,050 apprentices at o 17 sites in Germany on more than 40 vocational training V Modern recruiting tools extended courses and combined vocational training and study programs. To build contact to relevant groups of potential employees Around 340 of them were being trained on behalf of other at an early stage, we engage in selective cooperation with companies. We have around 30 places on the "Start in den universities and higher education institutes around the world. Beruf" pre-apprenticeship project, plus about 20 additional These are selected in consultation with the relevant specialist places for refugees. About 590 new apprentices started their departments. training at Evonik in 2015. Apprentices accounted for around In Germany, for example, we support particularly com- 9 percent of our workforce in Germany, which is still well mitted students at 15 universities as part of the German above the national average. Overall, we invested some government's Teutschlandstipendium° program. This includes €65 million in vocational training in 2015. offering them opportunities for internships and supporting Continuous professional development of our skilled per- them in the preparation of their dissertations and theses sonnel geared specifically to the needs of the company is through specific projects at Evonik. another core element of our HR activities. A large number of Through the Evonik Perspectives program we remain in training opportunities are offered through in-house courses contact with students whose performance in internships is and in cooperation with external training partners, either cen- above average. Many participants in this program join Evonik trally or on a decentralized basis by the segments or individual when they finish their studies. sites. Focal areas in 2015 were competency management and In view of the high and growing significance of social leadership skills. media, we have stepped up our activities in this area and further strengthened our presence in such media. EFTA00598740 103 ANNUAL REPORT 2015 EVONIK INDUSTRIES Talent management for executives In addition, two years ago we introduced the "Share" Evonik is committed to the established practice of filling employee share program for personnel in Germany, Belgium executive and other key positions principally from within the and the USA. The high participation rate of around 36 percent company. Our talent management identifies, develops and highlights our employees confidence in Evonik's business fosters employees with potential across hierarchical levels development. In 2015 around 10,000 employees, including and functions. Regular planning conferences with the close apprentices, took part in the "Share" program. They pur- involvement of the Executive Board focus on development chased nearly 280,000 shares and were allocated around and succession planning for corporate talents and executives. 95,000 bonus shares through the company's subsidy program. To ensure continued business-oriented identification and career development for talented employees, in 2015 Pensions form part of overall compensation we aligned our processes and personnel conferences to the Evonik helps employees provide for security after retirement. management holding structure. Operational and functional Different arrangements are offered depending on regional units and the Corporate Center discuss key potentials within specifics and the conditions prevailing in individual countries. the Group with the Executive Board, along with the next In Germany, Evonik has established a system of company steps in their development and target functions. Alongside pension plans that provide retirement, disability and surviving employee development reviews and various panels, we use dependents pensions through a reinsured support fund. clearly defined indicators, which are reviewed regularly and Mandatory contributions to this fund, supplemented by were revised in 2015. In 2015 we introduced a new program optional contributions through deferred compensation for top-level development: members of Evonik's top man- arrangements, ensure that employees' pension provision agement support personally selected executives in their extends beyond the level funded by their employer. Employer professional development and act as sparring partners for contributions to pension plans are also an important element their future career paths. of total annual remuneration outside Germany, for example in the USA and some European countries. Perform Here the focus is on a healthy performance culture as the Retain basis for the company's success and the personal motivation In spite of the necessary change processes a high level of of every individual employee. Globally, our activities in this employee retention is achieved through our corporate values area are based on appropriate human resources tools comple- and common corporate culture, which foster identification mented by a wide variety of performance incentives. Fair, with the company. performance-related remuneration plays a central role in this, together with the annual performance and development Employee fluctuation 2015a review. No. of In 2015, personnel expenses, including social security fluctuation employees contributions and pension expense, rose 14 percent to rale who left the €3,121 million' as a result of the increase in our headcount in % company and pay rises. Personnel expenses were therefore 23.1 per- By gender cent of sales (2014:21.3 percent). Female 5.2 416 Male 4.5 1,133 Remuneration—Uniform global evaluation criteria By age When shaping remuneration systems, Evonik believes it is Under 30 4.4 295 very important to offer specialists and executives market- 3010 50 3.1 537 oriented and performance-related salaries based on uniform Over 50 7.7 717 global evaluation criteria. The remuneration of many mem- bers of our workforce includes bonus payments that are Evonik 4.7 1,549 dependent on the company's business performance or the • Reference base: no. of employees in each category as of December 31, 2014. personal performance of the employee. Previous reporting base altered in sustainability reports from 2015: instead of unplanned fluctuation. the figure now shows total fluctuation. • See Note 112. EFTA00598741 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 109 Sustainabillty Emplonts Diversity is decisive improve the employability and quality of life of our employ- We place great emphasis on a good mix of employees to ees. For example, in the area of health management seminars ensure diversity of nationality, gender, educational back- are organized throughout Germany to provide information on ground and professional experience, as well as a wide- a healthy diet, handling stress and appropriate physical exer- ranging age structure. We specifically support this through cise. Evonik also offers employees a wide range of sports activities such as gender networks at our major Germany activities—from yoga to conventional gym classes.' sites and various events and formats that bring together Combining work and family life has also had very people, enrich discussions and help build bridges between high priority for Evonik for years and is part of our overall different cultures and backgrounds. The Evonik WoMentoring well@work approach. In 2015 we embarked on a review of initiative entered its second round in 2015. In addition, we our performance in this area in order to uphold our validation again included binding diversity targets in the objectives by the Hertie Foundation as a family-friendly company. Core agreed with our corporate executives. elements of our offering include support in child care and Our diversity strategy also forms the strategic basis flexible worktime models. for our resolutions on implementing the new legislation on At the end of 2015 we also started to revise our regional gender quotas', for which the German government set and country-specific approach to work-life balance. a deadline of September 30, 2015. These resolutions confirm that we will step up the measures already defined and estab- Lead lished as part of our diversity strategy to foster women in In the area of leadership, Evonik builds on a uniform and management positions. concrete Group-wide understanding of leadership, centered on a trustful relationship between employees and managers. Employee survey—Online only for the first time To ensure that sincere and effective leadership is a In our first fully online employee survey run under the motto distinctive quality at all Evonik sites, in 2015 we harmonized t in online" at the end of 2015, around 33,000 employees global training to prepare staff for leadership roles. The aim is worldwide were asked for their input to actively shape the to establish high-quality leadership aligned to our corporate future of the Group. The survey included questions about the culture as a hallmark of Evonik. change process for the ongoing development of Evonik's Strong leaders are essential for value-oriented manage- organizational structure. As a new element, there were ment of the company. In 2015 nearly 70 corporate talents specific questions on occupational safety, which is a top therefore once again made a contribution to the housing priority for Evonik as a specialty chemicals company. The construction project in Vietnam in collaboration with Habitat participation rate was an excellent 83.9 percent. In the for Humanity. As well as direct experience of value-oriented follow-up process, the results of the survey will be translated action, they gained inspiration, which they conveyed back into specific improvement measures in 2016. into our company. In addition, in 2015 two pilot groups embarked on a program that explores ethical conduct, Work-life balance personal values and their relationship to the working Healthy and motivated employees are vital for Evonik's environment. Nearly 30 corporate talents took part in this success and an integral part of our corporate responsibility. program in 2015. Our well@work program covers all aspects that maintain and 1 See Declaration on corporate governance. 2 See section on Environment. safety and health. EFTA00598742 110 ANNUAL REPORT 2015 EVONIK INDUSTRIES 5.2 Environment, safety and health Safety as a management task We take our responsibility in the field of safety particularly Ambitious environmental targets seriously—during production and while shipping products Protecting our environment and the climate are major global to our customers. Our objective is to protect our employees challenges of our age, along with the efficient use of limited and local residents, as well as the environment, against any natural resources in the face of the growing world population potential negative impact of our activities. The Group-wide and increasing affluence. Maintaining the natural basis for "Safety at Evonik" initiative introduced in 2014 has become future generations is part of our corporate responsibility. firmly established as an ongoing process to develop our safety Key areas of action in the ecological arena can be derived culture and a fundamental management approach to all aspects from efficiency requirements. For us, that principally means of occupational and traffic safety. Our guiding principles for reducing energy consumption, minimizing emissions into the safety and our safety culture provide a structure and guidance air and water, and efficient water management. for our corporate targets and activities. Binding principles are We also develop products that contribute to forging a applicable for all employees, from local personnel to our clear link between economic success and ecological progress. management, and provide clear and measurable guidance for However, improving our ecological footprint and remaining their personal conduct and leadership. internationally competitive are also dependent on public acceptance and political opportunity. These conditions are Reduction in accident frequency reflected in our strategic focus. A special focus of our initiative is the safety of our employ- ees—both at work and on the way to and from work—and We have set demanding environmental targets for the period the safety of contractors working at our sites. In 2015, we 2013-2020 (reference base: 2012): registered a further improvement in the accident frequency • Reduce specific greenhouse gas emissions' by 12 percent indicator' for our continuing operations to 1.0, compared • Reduce specific water intake' by 10 percent with 1.2 in the previous year. This indicator has now been stable for several years at our long-term strategic goal of In sustainable waste management, we are continuing our around 1.0. The accident frequency rate was well below efforts to make more efficient use of resources. the target of a maximum of 1.3 defined for 2015. There were no fatal accidents at work involving our In 2015, we made substantial progress in further reducing employees or contractors at our sites in 2015, nor were there emissions at all stages in the value chain. A functioning any fatal traffic accidents involving employees on the way to environmental management system is the basis for this. and from work or on business trips. Integrating it into our corporate processes is an ongoing task The accident frequency indicator for contractors (number and an integral part of sustainability management at Evonik. of work-related accidents involving non-Evonik employees At Evonik, accountability for plants, technical systems, products resulting in absence from work per 1 million working hours) and processes is therefore assigned to the responsible mem- dropped back to 2.9 (2014: 3.6). We attribute this positive bers of staff, for example, through job descriptions and letters result to the steps taken to improve our contractor manage- of delegation. ment principles in 2014. The processes to improve the moni- Our binding Group-wide Environment, Safety and Health toring and evaluation of contractors were implemented at (ESH) strategy, including a set of rules that has been audited all major German sites in 2015 and are now having an effect. externally, forms the basis for our action. Audits are conducted A standard has also been drawn up for our international sites to monitor implementation by the segments, regions and sites. and will be implemented in 2016. Alongside many internal audits in operating units, in 2015 we conducted 17 corporate audits. More than 95 percent of our global production is at sites that have been validated as con- forming to ISO 14001, an internationally recognized environ- mental management standard. Energy- and process-related emissions as defined by the Greenhouse Gas Protocol. 2 Excluding site-specific factors in the use of surface eater or groundwater. 1 Number of accidents involving Evonik employees and contractors employees under Evonik's direct supervision per 1million working hours. EFTA00598743 - TOOUR SI4AREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 111 SusterielsIllty Environment, safety and health Accident frequency indicator Number of accidents per I m is,. oorking hours 2008 1.7 2009 1.2 2010 1,3 2011 1.3 2012 1.4 2013 0.9 2014 1.2 stt 1.0 00 0.5 1.0 1.5 2.0 Incident frequency did not meet our target ence was attributable to one segment and individual sites and Process safety at our plants is another focus of our initiative. measures have already been taken to counter the situation. The concepts to prevent fire and the release of hazardous Another common indicator of plant safety is also used substances are regularly analyzed in detail. The aim is timely in external comparisons. This is defined as the number of identification of risks so we can develop appropriate incidents per 1million hours worked by all employees in the measures that reliably prevent these risks. We monitor Group. Evonik's performance rated by this indicator was 1.3. and evaluate plant safety using the incident frequency To ensure that our safety concepts to prevent the release indicator', which covers incidents involving the release of substances, fire and explosion meet uniformly high safety of substances, fire or explosion, even if there is little or no standards throughout the world, they are developed with damage (process safety performance indicator defined by the the involvement of selected and experienced safety experts, European Chemical Industry Council, Cefic). This indicator who are assigned to our Global Process Safety Competence deteriorated slightly to 55 points in 2015 (2014: 53), so we Center (GPSC) and form the Global Safety Expert Network did not meet our target of maximum 48 points. The differ- led by the GPSC. Incident frequency indicator Number of incidents per 1 million hours worked, taking 2008 as the referent* base 2008 100 2009 75 2010 76 2011 60 2012 46 2013 so 2014 S3 2015 SS 0 20 40 60 80 100 1 Number of incidents per 1million hours worked in the production facilities operated by the segments, taking 2008 as the reference base (expressed in percentage points: 2008 = 100). EFTA00598744 112 ANNUAL REPORT 2015 EVONIK INDUSTRIES High standard of climate reporting established Environmental protection investment Potential to grow our business can be leveraged by systematic and operating costs realignment of our portfolio of products and services, taking We invested €43 million in 2015 to achieve a further improve- global megatrends into account. For Evonik, these include ment in environmental protection. This comprised capital global climate change. We have a large number of innovative expenditures for investment projects undertaken in 2015 products that improve energy efficiency at subsequent stages such as the expansion of capacity for specialty silicas in Ako in the value chain and therefore make an important contri- (Japan), a large number of individual investments in effective bution to reducing the use of resources and cutting emissions. end-of-pipe technologies, and environmental protection Our lubricant and fuel additives are a good example. Hydraulic measures integrated into plants and processes. The high fluids containing our DYNAVISe additives can increase the prior-year figure of €107 million was dominated by the productivity of excavators by up to 30 percent and at the same start-up of major strategic investment projects in the Asian time cut fuel consumption by up to 30 percent. Companies region. These included, in particular, the new methionine that are interested can calculate the exact savings for them- complex in Singapore and the new production facilities for selves using a special calculator on the DYNAVIS't website. isophorone and isophorone diamine in Shanghai (China). Maximum comparability based on complete transparency is Operating costs for environmental protection facilities rose essential to make sustainable business activities measurable considerably to €283 million in 2015 (2014: €259 million), and traceable. principally due to the start-up of methionine production and The Carbon Disclosure Project is currently the world's the use of the environmental protection facilities at the site largest and most important initiative by the financial sector on in Singapore. climate change, bringing together more than 800 institutional investors with combined assets under management of over Health management and USE95 trillion. contingency planning go hand-in-hand This project examines all aspects of corporate policy and To fulfill our responsibility to our employees, we have a wide how it is put into practice in business. It covers both the com- range of measures to protect and maintain their health. These pleteness of reporting and the quality of the information have a firm place in our Group-wide well@work program.' relating to actual climate performance. In 2015, Evonik was Evonik's workplace health protection and promotion mea- able to improve on its very good results for 2014 (91/6). sures focus first and foremost on encouraging a healthy With a ranking of 98/B, Evonik once again did significantly lifestyle with offerings in the areas of exercise, a healthy diet, better than the average of 72/C for the participating MDAX work-life balance, and preventing infections and addiction. companies. To supplement this, special annual campaigns are devoted to different aspects and the company offers voluntary pre- Lower CO, emissions' ventive measures. In 2015, for example, campaigns aimed at CO2 emissions declined slightly from 8.8 million metric tons preventing colorectal cancer were run at many of our sites. in 2014 to 8.7 million metric tons in 2015 although output Standardized processes based on hazard assessments are increased from 10.3 million metric tons to 10.4 million metric used for occupational health management. Potential dangers tons in this period. The decline in emissions was mainly due to in the workplace are systematically identified and measures implementation of specific measures to raise energy efficiency, are developed to assure the health and safety of our em- an altered energy mix in Marl (Germany) as a result of lower ployees. Their effectiveness is monitored through medical availability of the coal-fired power plants due to maintenance check-ups. shut-downs, and the divestment of the remaining carbon Medical contingency management at Evonik is based on black activities in China. The 30 facilities operated by Evonik a global policy that sets out the necessary emergency organi- that fall within the scope of the European Union's Emissions zation and the equipment and personnel to be provided, taking Trading System (EU ETS) emitted 4.0 million metric tons of the regional emergency response infrastructure into account. CO2 in 2015. The reduction of 0.2 million metric tons com- Exercises are conducted regularly to check the functioning of pared with 2014 was mainly due to temporary reductions in this system. coal-based energy generation and lower utilization of the hydrogen plant in Marl. 1 Direct CO2 emissions (Scope 1emissions under the Greenhouse Gas Protocol) come from energy generation and production. Indirect CO2 emissions come from purchased energy (Scope 2 emissions). 2 See also the section on Employees. EFTA00598745 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION TO Opportunity end risk report Oppoitunity and risk mmeigement 6. Events after the reporting date No reportable events have occurred since the reporting date. 7. Opportunity and risk report 7.1 Opportunity and risk management and coordination at Group level. Further responsibilities p— include ongoing development of the methodology used by E Risk strategy the risk management system. The Risk Committee is chaired Evonik's Group-wide internal opportunity and risk manage- by the Chief Financial Officer and composed of represen- ment (referred to generically as risk management in this tatives of the corporate divisions. It validates the Group-wide section) forms a central element in the management of the risk situation and verifies that it is adequately reflected in company. Our risk detection system meets the requirements financial reporting. The Supervisory Board, especially the for publicly listed companies. The aims are to identify oppor- Audit Committee, oversees the risk management system. tunities and risks as early as possible and to define measures In 2015, the companies included in our risk management to counter and minimize any risks and utilize opportunities. system were identical to those in the scope of consolidation That includes risks which could jeopardize the future of the for the financial statements. At companies where we do not company. We only enter into entrepreneurial risks if we are exert a controlling influence, we implement our risk manage- :4 V convinced that in this way we can generate a sustained rise in ment requirements primarily through our presence in manage- the value of the company and, at the same time, permanently ment and supervisory bodies. Corporate Audit monitors risk limit possible negative implications. management in our organizational units to make sure they comply with statutory and internal requirements and to Structure and organization of risk management ensure continuous improvement of risk management. The At Group level risk management is assigned to the Chief system used to identify emerging risks is included in the Financial Officer and is organized on a decentralized basis in annual audit in compliance with the requirements for listed line with Evonik's organizational structure. companies. This audit showed that Evonik's risk detection The segments, corporate divisions and service units bear system is suitable for timely identification of risks that could prime responsibility for risk management. That comprises pose a threat to the company's survival. early identification of risks, estimating their implications, The risk management system is based on the internation- introducing suitable preventive and control measures and the ally recognized COSO Enterprise Management standard. related internal communication. Risk coordinators in the orga- It is implemented through a binding Group-wide policy. nizational units are responsible for agreeing on the relevant Individual risks are systematically identified and managed risk management activities. Risk management is therefore a with the aid of special risk management software. Their key element in various management and decision-making probability of occurrence and the possible damage (potential processes (for example, controlling processes) at all levels in impact) are evaluated and documented, together with their the Group. It includes strategic and operational planning, the expected value (product of probability of occurrence and preparation of investment decisions, projections, and timely potential impact). Analogously to current planning, the evalu- and systematic reporting of risks. ation is based on a period of three years (mid-term planning). A central Corporate Risk Officer coordinates and oversees Opportunities and risks are defined as positive and negative the processes and systems. He is the contact for all risk co- deviations from the plan. ordinators and is responsible for information, documentation EFTA00598746 114 ANNUAL REPORT 2015 EVONIK INDUSTRIES Opportunity/risk matrix >250 e. High ae 50.1-250 opportunities/risks Ew 10.1-50 2.6-10 Moderate opportunities/risks Low 0-2.5 opporturstesinsks 1-10% 11-25% 26-49% 50-75% 76-100% Probability of occurrence The organizational units conduct an extensive annual risk segments. By contrast, the development of the Performance inventory in connection with the mid-term planning process. Materials segment was characterized by considerably more They are required to provide details of the measures to be risks than opportunities. Key factors relating to the risk taken with regard to the risks identified, introduce them categories were the macro-economic environment and the immediately, and track their timely implementation. Internal specific market and competitive situation, especially in the management (for example, reporting by the Risk Committee) markets for amino acids and C, chemicals. From the present takes a mid-term view. The opportunities and risks identified standpoint, the risks for 2016 outweigh the potential oppor- are classified as low, moderate or high (see opportunity and tunities, which are around the same level as last year. risk matrix). The evaluation is always based on a net view, in Sections 7.3 and 7.4 present the opportunities and risks in other words, taking into account risk limitation measures. each category in descending order of significance for the The risk inventory is supplemented by quarterly reviews Evonik Group. Except where otherwise indicated, they apply of all opportunities and risks relating to the present year to for all segments. spot changes in the opportunities and risks that have already been identified and identify new risks and opportunities. The management of risks and opportunities is based on 7.3 Planning/market risks their potential impact and probability of occurrence. All high and opportunities risks are classified as material individual risks, as are moderate risks with an expected value of over €10 million in the mid In accordance with our internal management, opportunities term. The expected value is used exclusively as a basis for and risks in the planning/market category are allocated to risk prioritization and to focus reporting on key issues. quantification classes within sub-categories. The chart shows the highest class to which an individual risk or opportunity is allocated in each sub-category. Individual opportunities and 7.2 Overall assessment risks may also be allocated to the lower risk classes. Where of opportunities and risks two sub-categories have the same profile in the chart, they are ranked first on the basis of opportunities, then listed in Given the measures planned and implemented, no risks have descending order, based on their expected impact. been identified that—either individually or in conjunction with other risks—could jeopardize the continued existence of 1. Sales markets Evonik as a whole, including Evonik Industries AG in its role The macro-economic environment is particularly relevant for as the holding company for the Group. an assessment of opportunities and risks. This applies both to For 2015 we expected slightly more risks than opportu- the development of the global economy and to economic nities. However, some major opportunities were realized trends in specific regions such as Europe, China and other during the year, resulting in a substantial increase in earnings, growth markets. There are also risks associated with geo- especially in the Nutrition & Care and Resource Efficiency political conflicts in some regions and countries. EFTA00598747 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 715 Opportunity end risk capon Planneig/inarket risks and Opportunities Opportunity and risk classes within the planning/market category Sub-category Opportunities Sales markets Financial markets Raw material markets Research Es development Capital expenditures Production - High opportunities/risks Other Energy markets e. Moderate opportuniGes/risks Mergers Er acquisitions Low Human resources opportunities/risks 2 5 E Alongside the general demand situation, intensive competition impact of substandard food quality and food safety, especially in the various market segments harbors both opportunities due to bird flu. We utilize opportunities for profitable future and risks. In particular, competitors in low-wage countries growth by gaining access to new markets as part of our increase competitive pressure through new capacities and strategic development. One attractive market for our portfolio aggressive pricing policies that can impair our selling prices of feed additives is aquaculture, for which we have developed and volume trends. To counter this we are broadening our innovative products. As a result of global population growth, foreign production base and gaining access to new markets rising affluence in emerging markets and overfishing of the in high-growth regions such as Asia and South America. The world's oceans, the global aquaculture market is growing operating units affected also use various methods of increas- faster than other areas of livestock farming. ing customer loyalty to reduce these risks. These include, in Customer concentration is basically low in our chemicals particular, strategic research alliances with customers and segments. None of the end-markets that we supply accounts extending the services offered along the value chain. We are for more than 20 percent of sales. Nevertheless, some oper- constantly developing attractive and competitive new products ational units, especially in the Nutrition & Care and Resource and technologies to mitigate the risk that chemical products Efficiency segments, and the Services segment have a certain could be replaced by new, improved or less expensive dependence on key customers. In the operating business, this materials or technologies. Opportunities arise for our busi- applies in particular to production facilities erected in the ness from unmet demand in individual markets, for example direct vicinity of major customers. The possible loss of a major if our competitors are unable to bring planned new capacity customer could result in lower sales and in impairment losses into service on schedule. on receivables and investments, as well as impacting our The specific market development for individual business long-term raw material agreements or the financial structure activities is another focus in the assessment of opportunities of our affiliates. and risks. This relates to both demand from specific markets and the competitive situation in various industries. Changes 2. Financial markets in demand can impact our business volume and sales. We On the financial markets, the company is exposed to risks and address these risks proactively through permanent market opportunities associated with prices and to liquidity and monitoring, activities to retain customers and gain new default risks. Price-related opportunities and risks result from accounts, and timely endeavors to develop innovative new changes in exchange rates, interest rates and other prices. applications and enter new markets. In principle, these Liquidity risks relate to the ability of the company to meet its opportunities and risks may affect all segments, but they payment obligations, while default risks entail the risk of a are particularly relevant for the Nutrition & Care and Per- loss if a debtor is fully or partially unable to meet its payment formance Materials segments. One potential risk factor for commitments. our amino acids business, for example in Asia, is the possible EFTA00598748 116 ANNUAL REPORT 201S EVONIK INDUSTRIES Minimizing these risks is an important objective of our cor- hedging. The remaining net risk exposure is then fully porate policy. Group-wide policies and principles specify that hedged through currency derivatives. Cash pool positions and all material financial risk positions have to be identified and time deposits in foreign currencies are hedged analogously. evaluated. The risks are limited through selective use of Unlike these portfolio hedges, micro-hedges are concluded derivative and non-derivative financial instruments, taking the for non-current loans and for planned and firmly agreed cost/benefit profile into account. This may include the use of foreign currency payments (for example, planned foreign options for hedging purposes. For financial risk management currency sales, where the aim is to hedge 65 percent of the purposes, Evonik applies the principle of separation of front identified exchange rate risk, and exchange rate risks relating office, risk controlling and back office functions and takes as to planned investments). When hedging planned and firmly its guide the banking-specific "Minimum Requirements for agreed risk positions with financial instruments, hedge Risk Management" (MaRisk) and the requirements of the accounting is used to synchronize the earnings effects of German legislation on corporate control and transparency the recognized hedging instruments with those of the off- (KonTraG). Binding trading limits, responsibilities and controls balance-sheet hedged items. are thus set in accordance with recognized best practices. Evonik manages the opportunities and risks resulting from This forms the basis for selective hedging to limit risks. changes in interest rates in financing and investment activities The risks and opportunities associated with interest on a case-by-case basis. Through the use of fixed-interest rates and exchange rates are managed centrally by the loans and interest rate hedging instruments, 96 percent of all Finance Division of Evonik Industries AG, which also issues financial liabilities were classified as fixed-interest as of the instructions on the management of liquidity and default risks. reporting date and therefore had no material exposure to Financial derivatives' are used exclusively to reduce the risks changes in interest rates. resulting from operating and financing activities and there- Changes in interest rates can have a significant influence fore always relate to corresponding underlying transactions. on the present value of our pension obligations ) and thus Use of financial instruments for speculation is not permitted. entail both risks and opportunities for the Group. Forward exchange contracts, currency swaps and cross- We use scenario analyses ' to assess the possible impact of currency interest rate swaps are used to manage currency opportunities and risks relating to currencies and interest risks. When setting interest terms, we pay attention to care- rates. In view of the rising importance of regions outside the ful structuring of the fixed-to-floating interest ratio; interest euro zone, exchange rate risks and opportunities will increase rate swaps can be used to optimize the situation. Commodity in the long term. swaps are used to hedge the risk of fluctuations in the price Other price risks relating to the financial markets come of coal, natural gas and petrochemical feedstocks. We also mainly from investments in companies that are listed on the use forward contracts to secure the procurement of emissions stock exchange, which IAS 39 specifies have to be recognized allowances to meet statutory obligations. on the balance sheet at their stock market value. Since Evonik A considerable portion of the Evonik Group's financial does not generally undertake such investments with a view to assets and liabilities and its sales are in currencies other than short-term purchase or sale, the unrealized changes in market the euro, which is the Group's reporting currency. The most value are only recognized in the income statement if they important foreign currencies are the US dollar and the Chinese represent a significant or long-term loss of value. Otherwise, renminbi yuan. All cash flows that are planned, firmly agreed they are recognized as changes in equity with no impact on or recognized on the balance sheet as receivables and liabilities profit or loss until such gains or losses are realized through and are not denominated in the functional currency of the sale of the investment. respective company are exposed to the opportunities and At the heart of Evonik's central liquidity risk management risks of changes in exchange rates. Risk positions resulting is a Group-wide cash pool. In addition, the Group's financial from trade accounts receivable and payable in foreign curren- independence is secured through a broadly diversified financ- cies are normally bundled and offset through intragroup ing structure. Further details of the financial derivatives used and their recognition and valuation can be found in Note 10.2 to theconsolidated financial statements. 2 See Note 4 (e). 1 A detailed overview of liquidity risks and their management an be found in Note1O2 to the consolidated financial statements. Details of the financing of the Evonik Group and action to protect liquidity can be found in the section on financial condition. EFTA00598749 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 117 Opportunity end tisk repon Plenrung/mteket Hsks and opp•nunilies Overall, Evonik believes that adequate financing instruments To further reduce the risks with regard to products that have are available to ensure sufficient liquidity at all times. intensive raw material requirements, our aim is to align the Credit risks relating to financial contracts are system- procurement and sales sides in order to pass fluctuations in atically examined when the contracts are concluded and raw material prices along to other stages in the value chain monitored continuously afterwards. Limits are set for each where necessary, for example through price escalation counterparty on the basis of internal or rating-based credit- clauses. The sharp drop in the oil price in the past two years worthiness analyses. has made a significant contribution to reducing the cost of Market opportunities and risks, and liquidity and default procuring raw materials. risks relating to financial instruments also arise from the Short- and mid-term bottlenecks in the availability of management of our pension plan assets. Here, we take an precursors and intermediates are also potential risks. We active approach to risk management, which is combined alleviate these where necessary by substituting suppliers. We with detailed risk controlling. Strategic management of the constantly observe the business performance of suppliers of portfolios takes place via regular active/passive studies. To selected key raw materials to anticipate bottlenecks and avoid minimize risk, we use a range of derivative hedging strategies risks. 2015 was characterized to an usual extent by outages in where appropriate. The broad diversification of asset classes, the supply chain resulting from force majeure. Such events portfolio sizes and asset managers avoids cluster risks. How- can generally be overcome by taking suitable steps in cooper- ever, unavoidable residual risks may remain in the individual ation with the suppliers affected and alternative suppliers. investments. Rising volatility will require increased management of the Goodwill from business combinations is allocated to the various supply chain risks in the future. segments. An impairment test is conducted annually for these Aspects such as safety, health, environmental protection, reporting segments. Impairment losses on these intangible corporate responsibility and quality have a firm place in our assets can result from a change in reporting structure, the procurement strategy. These sustainability aspects are also weighted average cost of capital and, above all, lower cash supported by standardized global assessments through the flow expectations. Together for Sustainability (TfS) sector initiative, which was co-founded by Evonik. Evonik's principal suppliers and the 3. Raw material markets majority of critical suppliers have already taken part in these For our business operations we require both high-volume assessments, which are evaluated by EcoVadis, an impartial commodities and smaller amounts of strategically relevant sustainability rating company. raw materials that have to meet highly demanding specifi- The opportunities and risks arising from changes in the cations. Across the entire spectrum of raw materials, Evonik price of petrochemical feedstocks mainly affect the Perfor- is confronted with opportunities and risks relating to the mance Materials segment because of its high procurement increasing volatility of the availability of raw materials and volume. Risks relating to single sourcing and short-term their prices. Another risk may arise from single-source restrictions on the availability of raw materials mainly affect situations, although the extent of such risks is limited. the Nutrition & Care and Resource Efficiency segments. The operating business is dependent on the price of strategic raw materials, especially petrochemical feedstocks 4. Research & development obtained directly or indirectly from crude oil. The price of Opportunities for Evonik also come from market-oriented crude oil therefore has a considerable influence on both the research & development I), which we regard as an procurement prices of raw materials further down the value important driver of profitable growth. We have a well- chain and energy costs. The price of renewable raw materials stocked pipeline with a balanced mixture of short-, is also highly volatile and depends, among other things, on mid- and long-term projects. On the one hand, we harvest conditions. Another factor influencing price risks is constantly strive to improve our processes to strengthen our changes in exchange rates. cost leadership, and on the other, our projects open the door Some procurement risks are hedged by optimizing to new markets and new fields of technology. Our project global procurement activities, for example, by accessing new portfolio is consistently aligned to the strategy of the relevant markets for raw materials and concluding market-oriented business entities. agreements. The overriding aim of the procurement strategy is to secure the availability of raw materials on the best possible terms. EFTA00598750 118 ANNUAL REPORT 2015 EVONIK INDUSTRIES Further opportunities are being generated by the increasing The resource efficiency megatrend is the basis for a large involvement of external partners (open innovation). We co- number of energy-efficient and environment-friendly operate with research institutes and universities to ensure rapid products from Evonik. One example is precipitated silica, translation of the latest research findings into our company. where we are a market leader. Combining these silicas with We also work with start-ups and other industrial companies silanes allows the manufacture of tires with considerably to facilitate solutions at all stages in the value chain that set us lower rolling resistance than conventional auto tires, resulting apart from our competitors. in fuel savings of up to 8 percent. Here, future growth will Through our venture capital program, we take stakes in be supported, among other factors, by the introduction of companies whose know-how can support us in joint devel- tire labeling regulations in further countries, for example in opments. Brazil in 2016. To utilize the resultant opportunities, we are Opportunities and risks in relate to the viability of increasing our capacity for silica. A new production facility is planned product and process developments and the timing therefore currently under construction in Americana (Brazil). of their implementation. We mainly see significant opportu- This will be the first local producer of highly dispersible silica nities from the introduction of new products that go beyond (HD silica) specifically for the South American tire industry. our present planning in the Resource Efficiency segment. In South America the market for tires with low rolling resis- tance, and thus for HD silica, is growing far faster than the 5. Investments market for normal auto tires. Generating organic growth through investment entails risks The investments described above are included in our as regards the proposed scope and timing of projects. These mid-term planning. Delayed realization or abandonment of risks are addressed through established, structured processes. investment projects, for example because of the political For instance, we take an extremely disciplined approach to situation in certain countries, would adversely affect planned implementing our investment program. Both projects that growth and, in extreme situations, could result in impairment have not yet started and those that are already underway are losses and the associated write-downs on facilities or plants constantly reviewed for changes in the market situation and under construction. By contrast, new projects could result in postponed if necessary. additional earnings in some areas. At the same time, we regard building new production facilities in regions with high growth momentum as an oppor- 6. Production tunity to generate further profitable growth. For example, As a specialty chemicals company, Evonik is exposed to the socio-economic megatrends are driving the development of risk of business interruptions, quality problems and unex- our amino acids business. Following the successful start-up pected technical difficulties. Our products involve complex of a world-scale facility for DL-methionine in Singapore in production processes, some of them with interdependent fall 2014, we are planning to erect another plant at this com- production steps. Consequently, disruption and stoppages can plex by 2019. Global population growth means that demand adversely affect subsequent production steps and products. for animal protein will continue to rise steadily in the future. The outage of production facilities and interruptions in pro- This is being reinforced by a further trend: In the emerging duction workflows could have a significant negative influence markets eating habits in the growing middle class are shifting on business and earnings performance, and could also harm towards western patterns in the wake of rising prosperity and people and the environment. Group-wide policies on project increasing urbanization. Consumption of meat is therefore and quality management, highly qualified employees and increasing sharply in Asian cities, leading to more intensive regular maintenance of our plants effectively minimize these livestock farming in this region. Moreover, environmentally risks. Insofar as is economically viable, we take out insurance compatible agricultural production that makes more efficient to cover damage to our plants and sites and production use of resources is becoming more important worldwide for stoppages, so the financial consequences of potential pro- ecological reasons. duction risks are largely insured. Nevertheless, there is a risk In addition, in emerging markets there is rising demand of unforeseeable individual incidents. from the affluent middle class for personal care products and cosmetics. China and Brazil are important growth markets for personal care products because of their size and momentum. Evonik wants to participate in this growth through new local production capacities. EFTA00598751 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 119 Opportunity end risk report Planning/moket inks and OPPoilumin 7. Other 9. Mergers £7 acquisitions To increase scope for growth and innovations, we are Active portfolio management has high priority for Evonik working steadily to improve our cost position, especially as part of our value-based management approach. We have through the On Track 2.0 and Administration Excellence pro- set out clear procedures for preparing, analyzing and under- grams. Beside the potential to raise strategic flexibility and taking acquisitions and divestments. In particular, these strengthen the operating units as a result of these programs include clear rules on accountability and approval processes. and other restructuring projects, there are risks relating to An intensive examination of potential acquisition targets (due their implementation. These include the risk of failing to diligence) is undertaken before they are acquired. This meet the ambitious timelines, a loss of personnel with key involves systematic identification of all major opportunities expertise, failure to meet financial targets, and higher and risks and an appropriate valuation. Key aspects of this restructuring costs. Stringent project management, including process are strategic focus, earnings power and development involving relevant stakeholders, is used to counter these risks. potential on the one hand, and any legal, financial and environmental risks on the other. New companies are rapidly 8. Energy markets integrated into the Group and thus into our risk management Evonik requires considerable amounts of energy from a wide and controlling processes. Every transaction of this type variety of sources for its chemical facilities and infrastructure. entails a risk that integration of the business may not be The main sources are natural gas, coal and electricity. Oil only successful or that integration costs may be unexpectedly plays a subordinate role in Evonik's energy mix. At several high, thus jeopardizing realization of the planned quantitative major sites, Evonik generates some of its electricity require- and qualitative targets such as synergies. ments itself in resource-efficient co-generation plants. In Where businesses no longer fit our strategy or meet our 2015, we constantly monitored the trend on national and sustainable profitability requirements despite optimization, international energy markets, enabling us to respond cost- we also examine external options. If a planned divestment is consciously. not achieved successfully, this could generate risks that In countries where the sourcing of energy is not impact the Group's earnings position. state-regulated, Evonik procures and trades in energy and— o where necessary—emission allowances (CO2 allowances) 10. Human resources V within the framework of defined risk strategies. The aim is Qualified specialists and managers are the basis for the to balance the risks and opportunities of volatile energy achievement of our strategic and operational targets and thus markets. Depending on how the general conditions develop, a key competitive factor. our segments could be faced with additional costs. Both the loss of key personnel and difficulties in attracting A further significant drop in the price of oil and coal in the and hiring skilled and talented staff could therefore constitute second half of 2015 and high supply on the global gas markets a risk in this context. have led to a drop in electricity and natural gas prices, which To ensure that we can recruit and retain qualified staff has also been felt in Germany and Central Europe. Never- to meet our future requirements, we offer attractive employ- theless, natural gas prices at Evonik's sites in Europe and Asia ment opportunities worldwide, systematic personnel devel- are still far higher than in the USA and Canada. opment, and competitive remuneration. In this way, we retain Risks could also arise from the continued rise in the price and foster high-performers and talented employees, and of emission allowances. In 2015, there was a largely uninter- position Evonik as an attractive employer for prospective rupted upward trend in the price of allowances in European staff. We also maintain close links to universities and pro- emissions trading, unlike the situation for primary and secon- fessional associations to help us recruit suitable youngsters. dary energy sources. Looking at the regulatory environment, Both our employer branding and many internal activities are it remains to be seen which rulings will be applied in Ger- aligned to diversity. The aim is to make Evonik even more many after 2017 to allocate the cost of renewables among attractive to talented specialists and managers. Strategic captive energy generators. human resources planning identifies requirements for a five- Overall, we are exposed to fluctuations in the market year period so timely steps can be taken to cover future price and cost of various energy sources as a result of the personnel needs. We have thus largely limited potential specific demand/supply situation and political events. These human resources risks. entail both opportunities and risks. EFTA00598752 120 ANNUAL REPORT 201S EVONIK INDUSTRIES Opportunities and risks for the development of personnel At present, the issues outlined below represent the main legal expenses could come, for example, from future collective risks. As a matter of principle, we refrain from evaluating agreements. the opportunities and risks of potential legal proceedings or proceedings that have commenced, in order not to influence our position. 7.4 Legal/compliance risks Evonik is currently involved in three ongoing appraisal and opportunities proceedings in connection with the settlement paid to former shareholders. The background relates to the following corpo- The opportunities and risks in this category are far more dif- rate restructuring measures: the domination and profit- ficult to quantify than planning/market risks, as they not only and-loss agreement concluded with RUTGERS GmbH (for- have financial implications but often also involve reputational merly RUTGERS AG) in 1999, the squeeze-out of non- risks for the company and/or criminal law consequences. controlling interests in RUTGERS AG (now RUTGERS Provisions are set up on our balance sheet to cover the finan- GmbH) in 2003, and the squeeze-out of non-controlling cial impact. These are reflected in our system as reducing risk. interests in Degussa AG (now Evonik Degussa GmbH) in In view of this complexity, legal/compliance opportunities 2006. The appraisal proceedings comprise a court review of and risks are not normally assigned to the opportunity/risk the appropriateness of cash settlements or compensation. matrix illustrated above, nor are they allocated to the risk In connection with the divestment of its former energy quantification classes. Major opportunities and risks for the activities, Evonik gave the purchaser various indemnities Group's earnings naturally arise from issues that result in the with regard to the Walsum 10 coal-fired power plant that reversal of or an increase in provisions. was under construction at the time. As a result of technical problems, the commissioning of this plant was delayed by 1. Law, regulatory framework and compliance nearly four years, so commercial operation only started on Evonik is exposed to legal risks resulting, for example, from December 20, 2013. Evonik is of the opinion that the general legal disputes such as claims for compensation, and from contractor is responsible for reimbursement of the majority administrative proceedings and fines. In its operating busi- of additional costs and the damage caused by the delay. Arbi- ness, the Evonik Group is exposed to liability risks, especially tration proceedings are now pending between the project in connection with product liability, patent law, tax law, com- company and the general contractor. petition law, antitrust law and environmental law. Changes in In connection with the divestment of the former carbon public law could also give rise to legal risks or materially alter black activities, the purchaser has requested indemnification such risk positions. As a chemical company with its own from environmental guarantees relating to alleged infringe- power plants, risks of particular relevance here are a possible ment of the US Clean Air Act. Evonik is currently engaged in change in the charges levied under the German Alternative a dispute with the purchaser on this. Energies Act (EEG) and amendments to the European emis- Following a fine imposed by the EU Commission in sions trading regulations. 2002 on various methionine producers (including Evonik), Further, Evonik may be liable for guarantee claims the Brazilian antitrust authorities have filed proceedings relating to divestments. Post-transaction management closely against Evonik in connection with the delivery of methionine monitors any liability and guarantee risks resulting from to Brazil. Evonik is of the opinion that a fine cannot be divestments. We have developed a concept involving high imposed due to the statute of limitations. quality and safety standards to ensure a controlled approach Furthermore, following completion of administrative pro- to such legal risks. ceedings outside Germany, it is not improbable that individual Insurance cover has been purchased for the financial customers could file claims for compensation. consequences of any damage that may nevertheless occur as With regard to employment law, there are risks relating, a result of damage to property, product liability claims and for example, to recalculation of pension commitments entered other risks. Where necessary, Evonik sets up provisions for into by Evonik and its legal predecessors. legal risks. EFTA00598753 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 121 Opportunity end risk repon Piocessiorgenization fists Tax risks relate to differences in the valuation of business 3. Environmental risks processes, capital expenditures and restructuring by the (environment, safety, health, quality) financial authorities and potential retroactive payments in the Evonik is exposed to risks in the fields of plant safety, product wake of tax audits. safety, occupational safety and failure to comply with environ- Compliance means lawful and ethically correct business mental regulations. Group-wide policies on the environment, conduct. All employees are subject to the binding regulations health and safety, and worldwide initiatives taken by the on fair treatment of each other and of business partners set Group and the segments to steadily improve safety in our out in our Code of Conduct. Risks could therefore result production facilities effectively reduce these risks. In addition, from failure to comply with the corresponding regulations.' risks that could arise as a result of the sourcing of raw mate- To minimize compliance risks, extensive training and sensiti- rials and technical services and their impact on our operating zation of employees is undertaken at face-to-face training business are systematically identified and evaluated. More- sessions and/or through e-learning programs. over, audits are conducted at the request of the Executive Board to check the controlled handling of such risks. Further- 2. Risks relating to the protection of more, the Group-wide environment and safety management intellectual property and know-how system, which is validated as conforming to international Innovations play a significant part in Evonik's business success. standards, undergoes constant development and improvement. Protecting know-how and intellectual property is therefore As a responsible chemical company, Evonik ensures that such I of central importance. With markets growing ever closer processes are operated in accordance with the principles of and the globalization of business, a competent approach to the global Responsible Care initiative and the UN Global protecting our competitive edge is a key element in our Compact. investment activities. The company is also exposed to a risk Adequate provisions have been established to secure or that intellectual property cannot be adequately protected, remediate contaminated sites where necessary. Alongside the even through patents, especially when building new produc- need to adjust environmental provisions identified through tion facilities in certain countries. Similarly, the transfer of structured internal processes, for example as a result of know-how in joint ventures and other forms of cooperation changes in the regulatory framework, further unplanned also entails a risk of an outflow of expertise from Evonik. For additions to such provisions may be necessary. 0 example, in the event of the possible separation from a joint venture or other cooperation partner there is no guarantee that the business partner will not continue to use know-how 7.5 Process/organization risks transferred or disclose it to third parties, thereby damaging Evonik's competitive position. 1. General Measures to minimize and avoid such risks are coordi- This risk category covers the interface between risk manage- nated by the Corporate Security Division and the Intellectual ment and the internal control system (ICS). In this category, Property Management unit. The Corporate Security Division risks generally result from specific process shortcomings. has Group-wide responsibility for protecting Evonik's employ- Alongside general weaknesses, these include, in particular, ees, facilities, shipments and know-how. That includes, for risks within the ICS and the accounting-related ICS. Classifi- example, the threat of violence, political unrest, sabotage and cation is therefore based on the list of processes drawn up industrial espionage. Intellectual Property Management pro- by Corporate Audit. Starting from key corporate processes, vides Group-wide support for the development, protection, the existence of relevant control objectives and standard strategic use and commercialization of intellectual property, controls for the main risks identified is checked. In view of for instance through patents and brands. The approximately the types of risk in this category, a purely qualitative assess- 150 employees in this unit are assisted by a global network of ment is normally used. correspondent lawyers. The Corporate Governance Repo;I is contained in this annual report on page 56. EFTA00598754 122 ANNUAL REPORT 201S EVONIK INDUSTRIES The evaluation of specific risks resulting from weaknesses in Services is responsible. Following successful introduction of processes within the organizational units showed very little the control matrix at the major operating companies in China, scope to optimize existing processes because of the efficacy Southeast Asia and, in the course of 2015, the USA and of the current controls. Corresponding scope for improve- Belgium, it will be rolled out successively to further foreign ment has been identified. There are therefore no signs of companies. The aim is to ensure a uniform global standard systematic errors in the Evonik Group's ICS. for the internal control system for financial accounting. An external audit is conducted on the annual financial statements 2. Internal control system for financial accounting of more than 95 percent of companies. The main financial reporting risks are identified in the ICS All data are consolidated by the Accounting Division using through a quantitative and a qualitative analysis. Controls are the SAP SEM-BCS system. Group companies submit their defined for each risk area of the accounting process. Their financial statements via a web-based interface. A range of efficacy is tested at regular intervals and improved where technical validations are performed at this stage. Computer- necessary. All elements of the control process are verified by ized and manual process controls and checking by a second Internal Audit on the basis of random samples. person are the key oversight functions performed in the To ensure the quality of financial statements we have financial reporting process. The preparation of the monthly a Group-wide policy which defines uniform accounting and consolidated income statement and publication of three valuation principles for all German and foreign companies quarterly reports enables us to gain experience with new included in the consolidated financial statements. The major- accounting issues and provide a sound basis for plausibili- ity of companies have delegated the preparation of their zation of the year-end accounts. The Executive Board receives financial statements to Financial Services. Through systematic monthly reports and quarterly reports are submitted to the process orientation, standardization and the utilization of Audit Committee of the Supervisory Board. economies of scale, this leverages sustained cost benefits and Aspects that may represent opportunities or risks for also improves the quality of accounting. Financial Services financial reporting in the future are identified and evaluated has developed a standardized control matrix for the internal early through the risk management system. This allows close control system for financial accounting. This is already meshing of risk management with controlling and accounting applied to all Group companies in Germany for which Financial processes. 8. Information pursuant to Section 289 Paragraph 4 and Section 315 Paragraph 4 of the German Com- mercial Code (HGB) and explanatory report by the Executive Board pursuant to Section 176 Paragraph 1 of the German Stock Corporation Act (AktG) Structure of issued capital Restrictions on voting rights or the transfer of shares The capital stock of Evonik Industries AG is €466,000,000 In connection with Evonik's employee share programs, there and is divided into 466,000,000 no-par registered shares. are restrictions on the ability of participating employees to Each share entitles the holder to one vote. dispose of their shares for a certain time period. In particular, Under Section 5 Paragraph 2 of the Articles of Incorpo- they are required to hold their shares in each case until the end ration, shareholders do not have any claim to the issue of of the next-but-one calendar year after the year of allocation. certificates for their shares unless the issue of a certificate is The Executive Board is not aware of any other restrictions required by the rules of a stock exchange on which the share on voting rights or the transfer of shares. has been admitted for trading. There are no different share classes, nor any shares with special rights. EFTA00598755 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 123 Talceover.rdeveni information Direct and indirect shareholdings Authorization of the Executive Board, especially to that exceed 10 percent of the voting rights issue and repurchase shares Under the German Securities Trading Act (WpHG), every Pursuant to a resolution of the Shareholders Meeting of shareholder whose voting rights in the company reach, March 11, 2013, the Executive Board is authorized until March exceed or drop below a certain level, whether through the 10, 2018, subject to the approval of the Supervisory Board, to purchase or sale of shares or in any other way, must notify purchase up to 10 percent of the company's capital stock. the company and the Federal Financial Supervisory Authority Together with other shares in the company which the (BaFin). Under Section 21 Paragraph 1 of the German Secu- company has already acquired or still owns, or which are rities Trading Act, the relevant thresholds are 3, 5, 10, 15, 20, attributable to it pursuant to Sections 71d and 71e of the 25, 30, 50 and 75 percent of the voting rights. Changes in German Stock Corporation Act (AktG), the shares acquired voting rights between these thresholds are not subject to under this authorization may not, at any time, exceed 10 per- notification under the German Securities Trading Act so the cent of the capital stock. Shares in the company may not be following data may differ from more recent overviews of the purchased for trading purposes. shareholder structure. In compliance with Section 160 Para- Subject to the principle of equal treatment (Section 53a graph 1 No. 8 of the German Stock Corporation Act (AktG), AktG), the purchase may take place via the stock exchange the notes to the financial statements of Evonik Industries AG or via a public offer to all shareholders for the purchase or 5 E contain an overview of all voting rights notifications sub- exchange of shares. In the latter case, notwithstanding the mitted to the company. exclusion of tender rights permitted in specific circumstances, Under Section 289 Paragraph 4 No. 3 and Section 315 the principle of equal treatment (Section 53a AktG) must also Paragraph 4 No. 3 of the German Commercial Code (HGB), be taken into account. all direct and indirect shareholdings exceeding 10 percent of The Annual Shareholders' Meeting on May 20, 2014 ad- the voting rights must be declared. opted an amendment to Section 4 Paragraph 6 of the Articles As of December 31, 2015, the Executive Board had only of Incorporation authorizing the Executive Board until May 1, received notification of one direct shareholding exceeding 2019, subject to the approval of the Supervisory Board, to 10 percent of the voting rights: RAG-Stiftung holds 67.91 per- increase the company's capital stock by up to €116,500,000 cent of the company's shares. (Authorized Capital 2014). The Executive Board is not aware of any further direct or This authorization may be exercised through one or more indirect holdings in the company's capital stock that exceed issuances. 10 percent of the voting rights. The new shares may be issued against cash and/or contri- butions in kind. The Executive Board is authorized, subject Appointment and dismissal of Executive Board to the approval of the Supervisory Board, to exclude share- members, amendments to the Articles of Incorporation holders' statutory subscription rights when issuing new shares The appointment and dismissal of members of the Executive in the following cases: Board of Evonik Industries AG is governed by Section 84 of the German Stock Corporation Act (AktG) and Section 31 of • capital increases against contributions in kind the German Codetermination Act (MitbestG), in conjunction • if the capital increase is against cash and the proportionate with Section 6 of the company's Articles of Incorporation. share of the capital stock attributable to the new shares Section 6 of the Articles of Incorporation states that the does not exceed 10 percent of the capital stock, and the Executive Board comprises at least two members. Further, the issue price of the new shares is not significantly below the Supervisory Board is responsible for determining the number stock market price of shares already listed on the stock of members. exchange Changes to the Articles of Incorporation are normally • to exclude fractional amounts arising from the subscrip- resolved by the Annual Shareholders Meeting. Section 20 tion ratio Paragraph 2 of the Articles of Incorporation states that, unless • insofar as is necessary to grant holders and/or creditors of mandatory provisions require otherwise, resolutions shall be warrants or conversion rights or obligors of warrant and/ adopted by a simple majority of the votes cast and—unless, or conversion obligations subscription rights to new besides a majority of the votes, a majority of the capital is shares to the extent that they would be entitled to them required by law—by a simple majority of the capital stock after exercise of their warrants and/or conversion rights represented. or fulfillment of their warrant or conversion obligations Under Section 11 Paragraph 7 of the Articles of Incorpo- • to grant shares to employees (employee stock), provided ration, the Supervisory Board is authorized to resolve on that the new shares for which subscription rights are amendments to the Articles of Incorporation, provided they excluded do not in aggregate account for a proportionate are only editorial. A simple majority vote is sufficient. share of the capital stock in excess of 1 percent • for the execution of a scrip dividend. EFTA00598756 124 ANNUAL REPORT 2015 EVONIK INDUSTRIES The proportionate amount of the capital stock attributable resulting from a takeover bid, these banks could withdraw to the shares for which subscription rights are excluded, the credit facility. On the terms agreed, this applies if together with the proportionate amount of the capital stock a new major shareholder (apart from RAG-Stiftung and attributable to treasury stock or to conversion and/or war- its subsidiaries) acquires direct or indirect voting rights of rant rights or obligations arising from debt instruments, more than 50 percent in Evonik Industries AG—including which are sold or issued after May 20, 2014 under exclusion through a voting rights agreement with one or more other of subscription rights, may not exceed 20 percent of the shareholders (pursuant to Section 30 Paragraph 2 of the capital stock. If the sale or issue takes place in application— German Securities Acquisition and Takeover Act (WpOG)). analogously or mutatis mutandis—of Section 186 Paragraph 3 The company has a debt issuance program to place bonds Sentence 4 of the German Stock Corporation Act (AktG), with a total volume of up to €3 billion. By December 31, this shall also be deemed to constitute exclusion of sub- 2015 two bonds with a total nominal value of C1.25 billion scription rights. had been issued under this program. The issue conditions The Executive Board is authorized, subject to the approval contain a change-of-control clause. In the event of a of the Supervisory Board, to define further details of capital change of control resulting from a takeover bid and a increases out of the Authorized Capital 2014. The authorized deterioration in the credit rating of Evonik Industries AG capital has not yet been utilized. to non-investment grade within 90 days as a result of In connection with the authorization of May 20, 2014 to such change of control, the bondholders have the right issue convertible and/or warrant bonds with a nominal value to demand redemption of the bond at nominal value of up to €1.25 billion up to May 1, 2019, the capital stock is plus accrued interest. A change of control is deemed to conditionally increased by a further C37,280,000 (Conditional have occurred if a person (apart from RAG-Stiftung or a Capital 2014). (direct or indirect) subsidiary of RAG-Stiftung) or persons The conditional capital increase will only be conducted acting in a concerted manner directly or indirectly insofar as holders or creditors of warrant or conversion rights acquire(s) more than SO percent of the voting rights in or obligors of warrant or conversion obligations arising from Evonik Industries AG. warrant bonds and/or convertible bonds issued or guaranteed on the basis of the authorization resolved at the Annual Share- Agreements on payment of compensation by the holders' Meeting of May 20, 2014, exercise their warrants or company to members of the Executive Board or other conversion rights or, insofar as they have an obligation to employees in the event of a change of control exercise the warrants or conversion obligations, meet the Change-of-control clauses are only agreed with members of obligation to exercise the warrant or conversion obligations the Executive Board in connection with long-term remuner- and other forms of settlement are not used. ation. A change of control is defined as cases when another The new shares are entitled to a dividend from the start of company obtains control of Evonik Industries AG as defined the fiscal year in which they are issued. in the German Securities Acquisition and Takeover Act (WpOG) or there is a material change in the company's Significant agreements concluded by the company shareholders as a result of a merger or comparable reorgani- that are contingent upon a change of control resulting zation or business combination. In such cases, the long-term from a takeover bid remuneration due to the eligible employees is calculated Evonik Industries AG is a contracting party in the following immediately and paid into their salary account with their next agreements that are contingent upon a change of control regular salary payment. From the 2013 tranche, the payment resulting from a takeover bid: is calculated pro rata based on the period between the The company has agreed a €1.75 billion syndicated credit grant date and the change of control and the four-year facility with its core banks, which had not been drawn as performance period. of December 31, 2015. In the event of a change of control EFTA00598757 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 12S Remuneration report Remuneration of the Execurive Bard 9. Declaration on corporate governance The declaration on corporate governance in compliance Further, extensive information on corporate governance with Section 289a of the German Commercial Code (HGB) is contained in the Corporate Governance Report in this has been made available to the public on the company's annual report. website at governance. 10. Remuneration report The remuneration report outlines the principles of the remu- of the company. The structure of the remuneration system for neration system for the members of the Executive Board the members of the Executive Board of Evonik Industries AG and the Supervisory Board, together with the structure and is geared to sustained value creation and performance- level of their individual remuneration. This report complies oriented management of the company. It comprises a fixed with the German Commercial Code (HGB), including the monthly base salary, which takes account of the tasks and principles set out in German Accounting Standard No. 17 services performed by the respective member, and a variable (DRS 17), the International Financial Reporting Standards short-term component comprising an annual bonus which is (IFRS), and the requirements of the German Corporate dependent on the attainment of annual performance targets. Governance Code. This is supplemented by a long-term component linked directly to the increase in the value of the company as an incentive for sustained commitment to the company, and the 10.1 Remuneration of the Executive Board customary fringe benefits. The remuneration is reviewed regularly by the Super- Changes on the Executive Board visory Board, where appropriate on the basis of remuneration The appointment of Mr. Patrik Wohlhauser ended on June reports from independent consultants. These reviews exam- 30, 2015 with his resignation from the Executive Board. At its ine the structure and level of remuneration of the Executive meeting on June 25, 2015, the Supervisory Board appointed Board, particularly in comparison with the external market, Dr. Ralph Sven Kaufmann to the Executive Board as Chief and also in relation to remuneration elsewhere in the Operating Officer for three years from July 1, 2015. At company. If this reveals a need to adjust the remuneration its meeting on September 24, 2015, the Supervisory Board system, or the level or structure of remuneration, the extended the appointment of Mr. Thomas Wessel as Executive Committee of the Supervisory Board submits a Chief Human Resources Officer for a further five years until corresponding proposal to the full Supervisory Board for a August 31, 2021. decision. The last external review of the remuneration system for appropriateness was in September 2015. Following this Principles and objectives review, it was decided that from January 1, 2016 the fixed The remuneration system for the Executive Board is designed annual base salary should be increased by €150 thousand for to ensure that members receive adequate remuneration for the Chairman of the Executive Board and by €100 thousand their tasks and responsibilities, and to take direct account of for all other Executive Board members. the performance of each member of the Executive Board and EFTA00598758 126 ANNUAL REPORT 2015 EVONIK INDUSTRIES The chart shows the breakdown of the main remuneration Performance-related components components in 2015, i.e. excluding benefits in kind, other fringe benefits and company pension plans. Short-term variable remuneration The performance-related annual bonus is dependent on the Structure of remuneration of members attainment of business targets measured by performance of the Executive Board a indicators (bonus factor) and the attainment of individual objectives (performance factor). The bonus factor and performance factor are multiplied. The level of the bonus Lontierm remuneration Axed annual base salary factor depends on the achievement of the agreed business (agreed target amounts) approx. 30% targets, and may be between 0 and 200 percent. ROCE, approx. 37% adjusted net income and adjusted EBITDA are defined as business targets. The ROCE target is measured against the mid-term cost of capital, the net income target is derived Annual bonus from a comparison with the prior year, and the EBITDA target (assuming 100% is derived from corporate planning. The company's accident target attainment) agoprox.33% performance in the financial year (number and severity of accidents compared with the previous year) also has an influence. The performance factor rewards the attainment of the ' Excluding fringe benefits and retirement pensions. personal objectives and can vary between 80 percent and 120 percent. The reference indicators are aligned individually to the performance objectives for each member of the Performance-unrelated components Executive Board and normally have a multi-year context within the target-setting framework. Fixed annual base salary If the personal and business targets are achieved in full, The fixed annual base salary is a cash payment for the the contractually agreed bonus is paid. If the company's fiscal year. It takes account of the scope of responsibility of income falls short of the planned level, the bonus factor each Executive Board member and is paid out in twelve equal may—in the extreme case—be zero, regardless of personal installments. attainment. In other words, it is conceivable that a bonus might not be paid for a specific year. The bonus is capped at Benefits in kind and other fringe benefits 200 percent of the target bonus. As benefits in kind and other fringe benefits, members of the The business and personal targets set for Executive Board Executive Board receive, in particular, a company car with a members for the bonus and performance factors are agreed driver, the installation of telecommunications equipment, and in writing at the start of each fiscal year between the Super- an entitlement to an annual medical check-up. Executive visory Board and each member of the Executive Board and Board members may receive a rent subsidy if performance the level of attainment is determined by the Supervisory of their duties requires them to rent a second apartment. Board after the end of the year. Benefits in kind are presented in this remuneration report at the values defined in the tax regulations. Long-term variable remuneration (LTI) Further, members of the Executive Board may receive The members of the Executive Board receive long-term additional remuneration for offices at Group companies that variable remuneration in the form of Long-Term Incentive they hold in the interests of Evonik. Apart from fees for (LTI) Plans. Following Evonik's stock exchange listing, the the attendance of meetings, insofar as such fees are paid to structure of the LTI Plans was redefined as from the 2013 Executive Board members, such payments are deducted from tranche. The general reference base for long-term remuner- their annual bonus or paid over to the company. In this remu- ation is a sustained rise in the value of the company. neration report, remuneration for offices held in the interests of the company is included in other fringe benefits. EFTA00598759 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 127 RenwnetretIon report Remuneration of the Exeturive Some LT! trenches 2070 through 2012 LT! trenches 2073 and subsequent years The [ranches 2010 through 2012 reward achieving or ex- In view of the stock exchange listing of Evonik Industries AG, ceeding the operating earnings targets set in the mid-term the Supervisory Board redesigned the LTI Plan for the period planning and their impact on the value of the company. Each from 2013 so it differs from the tranches 2010 through 2012. tranche runs for five years from January 1of the grant year. Performance is now measured by the absolute performance Entitlements are based on individually agreed target of Evonik's share price and its performance relative to the amounts provided that earnings targets are met. LTI payments MSCI World Chemicals Indexsm. are calculated in the year following the end of the perfor- Based on the contractually agreed target amount, which is mance period, when the necessary indicators are available. defined in euros, a number of virtual shares is calculated Payments are capped at three times the target amount, and using the share price at the start of the performance period. can be zero if the defined lower threshold is not reached. This is based on the price in the last 60 trading days before To determine the value of the company as a basis for the start of the performance period. The performance period ascertaining target attainment, the share price at the end of starts on January 1of the grant year and runs for four years. the performance period is used. For this purpose, the average Since there was no share price at the start of the performance price of shares in Evonik in the three months prior to the end period, as an exception, the virtual shares for the 2013 of the performance period is calculated. In addition, divi- tranche were calculated from the share price in the first dends paid and any capital increases or decreases during the 60 trading days following admission to the stock exchange performance period are taken into account. The cumulative (April 25, 2013). At the end of the performance period, the discrepancy between planned and actual target attainment in starting price of Evonik shares is viewed against the average the performance period and the dividends paid in the last share price at the end of the performance period, including year of the performance period are taken into account in the any dividends per share actually paid in this period. This is calculation. If there is no share price, the value of equity is compared with the performance of the benchmark index determined on the basis of the last share transaction in the (total shareholder return). last twelve months of the performance period. If there was The relative performance may be between 70 and no share transaction in the last twelve months, a fictitious 130 percentage points. If the relative performance is below equity value is used. This is derived by applying a fixed 70 percentage points, the relative performance factor is EBITDA multiple to the company's business performance in deemed to be zero. If the relative performance is above the last full fiscal year. 130 percentage points, the relative performance factor is set Given the structure of the LTI Plans 2010 through 2012, at 130. they did not meet the definition of share-based payment pur- The payment is calculated by multiplying the relative suant to DRS 17.9 until Evonik Industries AG was listed on performance by the number of virtual shares allocated the stock exchange. Consequently, they were not classified as and the average price of Evonik shares at the end of the share-based payments. In each case, payment was contingent performance period. on attainment of the defined performance target and on the Eligible participants are informed of the outcome after the condition that the amount available for distribution was not end of the performance period. They can then opt to accept zero. Accordingly, these tranches were only deemed to have the payment calculated or to extend the performance period been granted in the year in which the respective performance on a one-off basis for a further year. In this case, a renewed period ended. Granting of payments was further conditional calculation is performed at the end of the extended per- on the fact that the stock exchange listing had not taken formance period. Partial exercise at the end of the original place. This final condition was met in 2013, resulting in the performance period is not permitted. The upper limit for reclassification of this remuneration component as a share- these payments is set at 300 percent of the individual target based payment. In accordance with DRS 17, the LTI tranches amount. 2010 through 2012 are therefore regarded as granted as of this date and treated as share-based payments. The fair value of each tranche as of the date of the legally binding commitment was calculated. EFTA00598760 123 ANNUAL REPORT 2015 EVONIK INDUSTRIES The fair values of the LTI tranches 2010 through 2015 as of the date of the legally binding commitment are shown in the next table: LTI tranehes 2010' 2011' 2012' 2013' 2014'. 20156 No. of No. of No. of virtual virtual virtual In €'000 In €000 in 0000 shares in €000 shares In C000 shares in €'000 Dr. Klaus Engel 479 495 43,133 1,028 45,208 47,510 1,482 Dr. Ralph Sven Kaufmann 14,253 447 Christian Kullmann - 13,562 307 28,506 893 Thomas Wessel 96 297 25,880 617 27,125 614 28,506 893 Patrik Wohlhauser 216 297 25,880 617 27,125 614 28,506 893 Ute Wolf 6,470 154 27,125 614 28,506 893 Total 478 791 1,089 101,363 2,416 140,145 3,172 I 175,787 5,507 • No detads are give, of other share-based payments because a speak number of shares or share options was not owed, not can the trenches be converted into a number of virtual shares. b The date of the legally binding commitment corresponds to the grant date. The total expense for all LTI tranches in 2015 was Executive Board members may opt for disbursement of part €4,753 thousand. The breakdown of the expense was as of the capital (maximum 50 percent) in six to ten install- follows: €1,204 thousand for Dr. Engel, €102 thousand for ments. Pension entitlements accrued prior to appointment to Dr. Kaufmann, €329 thousand for Mr. Kullmann, €752 thou- the Executive Board are either integrated into the system as sand for Mr. Wessel, €1,837 thousand for Mr. Wohlhauser, an initial contribution or continue to be managed separately. and €529 thousand for Ms. Wolf. If a member's contract as a member of the Executive Board ends before benefits are payable, no further contributions Company pension plan are credited to the account. However, it continues to The company pension arrangements for Dr. Klaus Engel earn interest at the common market interest rate based on comprise a percentage of his fixed annual base salary, which the average return earned by major German life insurers is dependent on length of service with the company and (at least 2.25 percent M.) until benefits are claimed. is capped at 60 percent. This pension commitment provides Currently, no pension arrangements have been agreed for for a lifelong retirement pension and surviving dependents' Dr. Ralph Sven Kaufmann. benefits. Members of the Executive Board are entitled to pension A defined-contribution system is applicable for Christian benefits after they leave the company if they leave on or Kullmann, Thomas Wessel, Patrik Wohlhauser and Ute Wolf. after reaching the age of 60 or 62 (depending on their This is a capital-based system funded by provisions. The individual pension arrangements) or if they leave as a result company credits a fixed annual amount to their pension of permanent incapacity to work. In addition, Dr. Engel account. This comprises 15 percent of their target remuner- can claim pension benefits from the date of premature termi- ation, i.e. base salary and target bonus (variable short-term nation or non-extension of his contract on the Executive remuneration assuming 100 percent target attainment). The Board, providing he does not give due cause for such termi- guaranteed annual return is 5 percent. The pension benefit nation. Mr. Kullmann, Mr. Wessel and Mr. Wohlhauser have comprises the amount that has accrued on the account, similar claims based on pension entitlements accrued prior to i.e. contributions credited to the account plus interest. their appointment to the Executive Board. In the event of death or disability, the amount that would be In 2015, the service cost for members of the Executive available on the account on the member's 55th birthday, Board totaled €875 thousand (2014: €2,977 thousand) based including projected contributions and interest, is calculated. on the German Commercial Code (HGB) and €2,261 thou- Payment normally comprises a lifelong pension. Alternatively, sand (2014: €1,526 thousand) based on IFRS. EFTA00598761 - TOOUR SHAREHOLDERS a MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 129 Remuneration report Remuneration of the Executive Board Service cost and p value of pension obligations German Commercial Code (HGB) IFRS Settlement amount Present value of the of pension obligations defined benefit obligation Service cost as of Dec. 31 Service cost as of Dec. 31 in C000 2015 2014 2015 2014 2015 2014 2015 2014 Dr. Klaus Engel 114 2,215 14,102 12,148 712 488 16,945 17,162 Dr. Ralph Sven Kaufmann (from July 1, 2015) 2 Christian Kullmann (from July 1, 2014) 217 121 2,787 2,068 414 160 3,732 3,523 a Thomas Wessel 236 251 3,027 2,332 384 280 3,810 3,563 2 Patrik Wohlhauser (until June 30, 2015) 73 254 - 2,917 402 322 - 4,539 Lite Wolf 235 136 998 600 349 276 1,312 986 Total 875 2,977 20,914 20,065 2,261 1,526 25,799 29,773 The difference in service cost for pension commitments If a member's term of office is prematurely terminated, is attributable to differences in the valuation methods used payments may not exceed two years' remuneration, including to calculate the settlement amount in accordance with the variable remuneration components. In no case is remuneration German Commercial Code and the present value of pension payable for periods beyond the remaining term of contract. obligations calculated in accordance with IFRS. The contracts specify that no termination benefits are payable The present value of pension obligations for members if an Executive Board member's contract is terminated of the Executive Board was €20,914 thousand (2014: for reasons for which he or she is responsible. The cap on €20,065 thousand) based on the German Commercial Code termination benefits is based on total remuneration including (HGB) and €25,799 thousand (2014: €29,773 thousand) fringe benefits in the previous fiscal year and, where appro- based on IFRS. priate, the anticipated total remuneration for the current Provisions for pension obligations to former members of fiscal year. the Executive Board and their surviving dependents as of the The termination benefit paid to Patrik Wohlhauser does reporting date were €38,704 thousand (2014: €28,801 thou- not exceed the cap. sand) based on the German Commercial Code (HGB) and In addition, from April 1, 2016 Mr. Wohlhauser will €50,951 thousand (2014: €43,816 thousand) based on IFRS. receive contractual transition payments totaling €1,795 thou- sand (past service cost) until he reaches the age of 60. Rules on termination of service on the Executive Board These will be offset against any other earnings he receives in the future. Cap on termination benefits in the event of premature termination of term of office Post-contractual non-compete agreements In conformance with the German Corporate Governance Post-contractual non-compete agreements have not been Code, the employment contracts with all members of the concluded with members of the Executive Board. Executive Board provide for a cap on termination benefits. Termination benefits Pension Long-term in C000 Fixed remuneration Benefits in kind Annual bonus contributions remuneration Total Patrik Wohthauser 450 11 878 141 9004 2,380° • The termination benefit takes account of the LTI 'ranches 2011 and 2012 and—on a pro rata basis-2016. The LT !ranches 2013 through 2015 will be upheld. b At Mr. Wohlhauser's request, E97S thousand of this amount has been allocated for future pensgin benefits ('deferred compensation•). EFTA00598762 130 ANNUAL REPORT 2015 EVONIK INDUSTRIES Change-of-control clause based on the period between the grant date and the change Change-of-control clauses are only agreed with members of control and the four-year performance period. of the Executive Board in connection with long-term remuneration. A change of control is defined as cases when Remuneration of the Executive Board in fiscal 2015 another company obtains control of Evonik Industries AG as The total remuneration paid to the members of the Executive defined in the German Securities Acquisition and Takeover Board for their work in 2015, including remuneration for the Act (WpOG) or there is a material change in the company's performance of other offices, was €15,608 thousand (2014: shareholders as a result of a merger or comparable reorgani- €10,677 thousand). In 2015 provisions for bonus payments of zation or business combination. In such cases, the long-term €332 thousand for 2014 were reversed. remuneration due to the eligible Executive Board members is Based on the principles outlined, the breakdown of remu- calculated immediately and paid into their salary account. neration for each Executive Board member in 2015 was From the 2013 tranche, the payment is calculated pro rata as follows: Remuneration of the Executive Board Performance-unrelated remuneration Performance-related remuneration Total .emu motion Benefits in kind and in accords e with Fixed remuneration other fringe benefits Annual bonus LTI' DRS 17 in €000 2015 2019 2015 2019 2015 2014 2015 2014 2015 2014 Dr. Klaus Engel 1,100 1,100 22 49 1,959 1,419 1,488 1,023 4,569 3,591 Dr. Ralph Sven Kaufmann° 300 28 585 447 1,360 Christian Kullmann` 600 300 SS 27 1,139 358 893 307 2,687 992 Thomas Wessel' 600 600 77 91 1,045 700 893 614 2,615 2,005 Rata Wohlhauser e 300 600 17 34 522 869 893 614 1,732 2,117 Ute Wolf 600 600 45 89 1,107 669 893 614 2,645 1,972 Total 3,500 3,200 244 290 6,357 4,015 5,507 3,172 15,608 10,677 • Fair value as of the legally binding commitment or grant date. b 2015, pro rata from Oily 1, 2015. • 2014; pro rata from Oily 1,2014. d Correction to the remuneration report 2014: remuneration ofE33 thousand received for other offices bin not stated in the remuneration report for 2014. • 2015; pro rata up to June 30,2015. In 2015, no member of the Executive Board received benefits Remuneration report in accordance with the or corresponding promises from third parties in connection German Corporate Governance Code with his or her service on the Executive Board. Further, as The German Corporate Governance Code recommends that of December 31, 2015 there were no loans or advances to listed companies should also disclose the remuneration of the members of the Executive Board. Executive Board on the basis of a defined table showing the Finally, third-party financial loss insurance cover is pro- granting and allocation of benefits. vided for each member of the Executive Board to cover their statutory liability arising from their work on the Executive Board. In the event of a claim, this provides for a deductible of 10 percent of the damage, up to one-and-a-half times the individual member's fixed annual remuneration. EFTA00598763 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 131 Remuneration report Remuneration of the Executive Bard Benefits granted Dr. Klaus Engel Dr. Ralph Sven Kaufmann Chief Executive Officer Chief Operating Officer (from July 1, 2015) In 4000 2019 2015 2015 (min) 2015 (max) 2014 2015 2015 (min) 2015(max) Fixed compensation 1,100 1,100 1,100 1.100 300 300 300 Fringe benefits 49 22 22 22 28 28 28 Total 1,149 1,122 1,122 1,122 328 328 328 One-year variable compensation 1,150 1,150 2,300 325 650 Multi-year variable compensation 1,023 1,488 3,750 447 1,125 1712014 through 2017 1,023 EH 2015 through 2018 - 1,488 3,750 447 1,125 Total 3,322 3,760 1,122 7,172 1,100 328 2,103 Service cost 488 712 712 712 Total compensation 3,810 4,472 1,834 7,884 1,100 328 2,103 I Christian Kullmann Thomas Wessel Chief Strategic Officer (from July 1, 2014) Chief Human Resources Officer In C000 2014 2015 2015 (min) 2015(max) 2014' 2015 2015 (min) 2015(max) Fixed compensation 300 600 600 600 600 600 600 600 Fringe benefits 27 55 55 55 91 77 77 77 S 0 Total 327 653 655 655 691 677 677 677 1/4, One-year variable compensation 325 650 1,300 650 650 1,300 Multi-year variable compensation 307 893 i — 2,250 614 893 2,250 LT! 2014 through 2077 307 — — — 614 1112015 through 2078 893 - 2,250 893 2,250 Total 959 2,198 655 4,205 1,955 2,220 677 4,227 Service cost 160 414 414 414 280 384 384 384 Total compensation 1,119 2,612 1,069 1 4,619 2,235 2,604 i 1,061 4,611 Rata Wohllsauser Ute Wolf Chief Operating Officer (until June 30, 2015) Chief Financial Officer merle° 2014 2015 2015 (min) 2015(max) 2014 2015 2015 (min) 2015(max) Fixed compensation 600 300 300 300 600 600 600 600 Fringe benefits 34 17 17 17 89 45 45 45 Total 634 317 317 317 689 645 645 645 One-year variable compensation 650 325 - 650 650 650 - 1,300 Multi-year variable compensation 614 893 - 2,250 614 893 - 2,250 1112014 through 2017 614 - - - 614 - - - 1712015 through 2018 - 893 - 2,250 - 893 - 2,250 Total 1,898 1,335 317 3,217 1,933 2,188 645 4,193 Service cost 322 402 402 402 276 349 349 349 Total compensation 2,220 1,937 719 3,619 2,229 2,337 994 4,54E Correction lathe remuneration report 2014: remuneration01433 thousand received by Mr. Wessel for other offices but not stated in the remuneration repot for 2014. EFTA00598764 132 ANNUAL REPORT 2015 EVONIK INDUSTRIES Allocation Dr. Ralph Sven Dr. Klaus Engel Kaufmann Christian Kullmann Thomas Wend Patrik Wehlhauser Ute Wolf Chief Executive Chief Operating Chief Strategic Chief Human Chief Operating Chief Financial Officer Officer Officer Resources Officer Officer Officer (from July 1, 2015) (from July 1, 2019) (until June 30. 2015) in 0000 2014 2015 2014 2015 2019 2015 2014 2015 2014 2015 2014 2015 Fixed compensation 1.100 1,100 600 600 600 300 Fringe benefits 91 77 34 17 Total 677 634 317 One-year variable compensation.'" 1,128 2070 1,170 632 652 585 606 1,170 Multi-year variable compensation L77 2009 through 2073 L77 2010 through 2074 - 420 Total 3,112 3,612 913 653 1,825 1,323 1,785 1,286 902 -1,295 1,815 Service cost 488 712 - 160 419 280 384 322 402 276 349 Total compensation 3,600 4,324 913 813 -2 ,239 1,603 2,169 1,608 1,304 1,571 2,164 • to some casts, fees for other offices held. which are contained i fringe benefits, ere offset against one•yett variable comae., d?, :in, 2014:0r. Engel €26 thousand, Wessel € 53 thousand (including correction of €33 thousand), Wolff thousand; 2015! Wessel €30 thousand. The co•tecr m, nude for Mr. Wessel for 2014 is also offset against his one.year. verisble compensation in 2015. b The one-year veriable compensation for 2014 corresponds to the actual payments made in 2015 for 2014 (a correction has been mode for any discrepancies between the actual payments in 2015 end the estimate made for 2015 in the 2014 remuneration report). • The one-year variable compensation for 2015 has not yet been finalized; estimate based on assumptions made for previsions. Former Executive Board members, including Additional remuneration of €45 thousand is paid for chairing members who left the Executive Board in 2015 the Executive Committee and the Audit Committee, while the Total remuneration of former members of the Executive deputy chairpersons receive €30 thousand each and other Board and their surviving dependents was €2,729 thousand members €30 thousand each. The chairperson of the Finance in 2015 (2014: €1,374 thousand). and Investment Committee receives additional remuneration of €35 thousand, the deputy chairperson €27.5 thousand, and the other members €27.5 thousand each. The addi- 10.2 Remuneration of the tional remuneration for the Nomination Committee and the Supervisory Board Mediation Committee is €30 thousand for the chairperson, €15 thousand for the deputy chairperson and €15 thousand The remuneration of the Supervisory Board is governed each for the other members. Members of the Mediation by Section 15 of the Articles of Incorporation of Evonik Committee are only entitled to the additional remuneration if Industries AG. the committee meets during the year. The remuneration system takes account of the responsi- Further, members of the Supervisory Board receive a fee bilities and scope of activities of the members of the Super- of €1 thousand for each meeting of the Supervisory Board visory Board. In addition to reimbursement of their expenses and its committees that they attend. If several meetings are and value-added tax payable on their remuneration and held on the same day, this fee is only paid once. expenses, the members of the Supervisory Board receive a Members who only serve on the Supervisory Board for fixed annual payment. Their remuneration does not include part of a fiscal year receive remuneration on a pro rata basis. a variable component. This also applies for increases in the remuneration for the Different levels of fixed annual remuneration are Chairman and Deputy Chairman of the Supervisory Board paid to the Chairman (€200 thousand), Deputy Chairman and any increased remuneration paid for membership of or (€130 thousand) and other members of the Supervisory chairing a committee. Board (€90 thousand). EFTA00598765 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION ttl Remuneration report Renunciation of the Supervisory Board Remuneration of the Supervisory Board Remuneration for Fixed 'enunciation membership Ma committee Attendance fees Total In C000 2015 2014 2015 2014 2015 2014 2015 2014 GOnter Adam (until December 10, 2015) 58 58 10 10 158 158 Martin Albers (from October 1, 2015) 23 2 26 Prof. Barbara Albert (from July 1, 2014) 45 95 47 Dr. peter Bettermann (until June 30, 2014) 45 -I 48 Karin Erhard 90 30 20 129 117 Carmen Fuchs (from December 10, 2015) 8 Stephan Gemkow 90 28 9 127 126 I Ralf Giesen (until April 30, 2014) 30 19 53 Prof. Barbara Grunewald 90 90 30 30 9 9 129 129 Ralf Hermann 90 90 58 58 10 9 158 157 Prof. Wolfgang A. Herrmann 90 90 5 95 95 Dieter Kleren 90 90 95 95 Steven Koltes 90 90 45 45 8 S 143 140 Frank Ldllgen a (from May 1, 2014) 90 60 28 18 8 7 126 85 Dr. Siegfried Luther 90 90 45 45 10 10 145 145 Dr. Werner Muller 200 200 103 103 16 13 319 316 Jurgen ituitng (until September 30, 2015)• 68 110 30 11 98 151 Norbert Pohlmann 90 90 8 6 S 104 95 Dr. Wilfried Roben 90 90 30 30 9 10 129 130 Michael ftUdiger 90 90 35 35 9 9 134 134 Ulrich Terbrack 90 90 95 95 Dr. Volker Tout: 90 90 45 45 8 6 143 141 Michael Vasslliadis 130 130 58 58 12 10 200 198 Dr. Christian Wlldmoser 90 90 58 58 14 13 162 161 Total 1,959 1,970 684 680 175 166 2,818 2,816 Mr. Mang was also a member of the Supervisory Boa d of (von& Services GmbH until J ly 31,2014. The remuneration and attendance fees paid to the Super- Finally, third-party financial loss insurance cover is provided visory Board in 2014 and 2015 is presented on a cost basis. for each member of the Supervisory Board to cover their For members who joined or left the Supervisory Board during statutory liability arising from their work on the Supervisory 2014 and 2015, the amounts are calculated on a pro rata basis. Board. In the event of a claim, this provides for a deductible As of December 31,2015 there were no loans or advances of 10 percent of the damage, up to one-and-a-half times the to members of the Supervisory Board. In 2015, the members individual member's fixed annual remuneration. of the Supervisory Board did not receive any remuneration for services provided personally, especially consulting and referral services. EFTA00598766 134 ANNUAL REPORT 2015 EVONIK INDUSTRIES 11. Report on expected developments • Slightly weaker global economic development • Slightly lower sales and adjusted EBITDA of between €2.0 billion and C2.2 billion expected • ROCE expected to be well above the cost of capital again 11.1 Economic background We still see the USA as the keystone of global economic growth, but we expect the growth rate to drop to 2.2 percent Weaker global economic growth momentum in 2016. Domestic consumer spending will probably make the anticipated for 2016 biggest contribution here, while capital spending and foreign We anticipate that global economic conditions will once trade are likely to be lower than in 2015. again be characterized by differing regional growth trends in The present challenges in the emerging markets will 2016. The continued economic upturn in the industrialized presumably continue in 2016 and could even be exacerbated economies will probably be held back by slower growth in by the Fed's monetary policy. If the Fed raises interest rates the emerging markets. Overall, we expect a slight reduction as planned in 2016, this could accelerate the outflow of capital in global momentum in 2016, with the growth rate dropping from emerging markets and increase the cost of financing to 2.5 percent, compared with 2.6 percent in 2015. their high levels of debt. Overall, we expect economic growth We assume that in 2016 the industrialized economies will in the emerging markets to be around the 2015 level, but the continue to benefit from an expansionary monetary policy downside risks remain high. and that the oil price will boost consumer spending. In view We assume that growth will slow further in China. Given of this, we expect the fragile upturn in Europe to continue, the Chinese government's willingness to take action to sup- although momentum will be lower than in 2015. port the economy, we expect gross domestic product to rise We anticipate that the German economy will grow by by 6.5 percent in 2016. 1.8 percent in 2016, with consumer spending remaining the However, the projection for the global economy is still main growth driver. By contrast, we expect little impetus to marked by considerable uncertainty. Apart from geopolitical come from capital expenditures and foreign trade. conflicts, action by central banks could cause the global eco- nomic development to differ from our expectations. GDP forecast for 2016 In % 2.5 Global GOP 23 1.8 Germany 1.7 Other European Countries 1.6 13 2.2 North America 2.3 Central and South America Ad Asia-Frack 4A Middle Eat. Afek4 1.4 24 -1.0 0 1.0 2.0 3.0 4.0 5.0 2016 — 2015 (projected) EFTA00598767 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 13S Report on expected deve4opmems Eronoemc background Forecast for Evonik's end-customer industries 2016' in % 2.2 Industry overall 2.3 Consumer end personal care products Food end enigma reed Automotive end mechanical engineering Construction Elastics and rubber. Pharmaceuticals Decide.' end electronics I Metal and oil products Paints and coatings° Paper end printing Agdcukure 0 1.0 10 3.0 4.0 j a. 2016 a. 2015 (projected) ' Rounded *mounts. where not directly assigned to other end.cvstorner industries. Along with global economic momentum, trends in our end- The development of our end-customer industries is likely customer industries influence the development of Evonik's to have a varied impact on industrial value chains and our market environment. While the general industrial trend was business. We anticipate that global inflation will remain at weak in 2015 with low growth in output, and only a few the present low level as a result of slower growth and price industries registering moderate growth, looking ahead to pressure from commodities. Moreover, significant deflationary 2016 we only anticipate slight additional impetus in view trends could emerge in some areas. of the fragile macro-economic environment. Cyclical end- We expect that the weaker cyclical momentum and cur- customer industries such as the construction, automotive, rent increase in supply will continue to have an impact on the mechanical engineering, and electrical and electronics sectors raw material markets. Evonik's specific raw materials will be will probably report slower growth. There could be some slightly more expensive compared with the end of 2015/early isolated positive impetus on a regional basis, especially in 2016, but overall we expect our internal raw material cost Europe, which is Evonik's most important market. In other index to remain below the average for 2015. This scenario is key end-customer industries such as pharmaceuticals, food based on the assumption that the average oil price will be and animal feed, and the consumer goods and personal care slightly lower in 2016 than in 2015. Risks here still include sectors, we assume that the pace of growth will continue. geopolitical conflicts, which could adversely affect supply. EFTA00598768 136 ANNUAL REPORT 201S EVONIK INDUSTRIES 11.2 Outlook We expect that the Resource Efficiency segment will continue the previous year's successful business development despite Basis for our forecast: weaker global growth. • Global growth of 2.5 percent In the Performance Materials segment, the year-on-year • Euro/US dollar exchange rate around the same level as decline in the oil price, in particular, will result in a further 2015 (approx. US51.10) reduction in selling prices, putting downward pressure on • Internal raw material cost index lower than in prior year this segment's operating performance. The continued systematic implementation of our On Sales and earnings Track 2.0 and Administration Excellence efficiency enhance- The anticipated weak global growth momentum outlined in ment programs will also contribute to earnings in 2016. The the section headed "Economic background" will also affect earnings impact of lower raw material prices on individual the development of our business in 2016. businesses will vary, but should largely balance out across the Following a very successful year in 2015, we expect portfolio as a whole. to report slightly lower sales in 2016 (2015: €13.5 billion). The return on capital employed (ROCE) should again be Thanks to our strong market positions, balanced portfolio above the cost of capital in 2016, although it will be slightly and concentration on high-growth businesses, we assume lower than in 2015 (16.6 percent) due to the overall reduction continued high demand for our products and appreciable in earnings. volume growth despite the difficult macro-economic condi- tions. The new production capacities taken into service in Financing and investments recent years and further intensification of sales activities We anticipate that capital expenditures will be around should also contribute to this. We expect selling prices to the 2015 level (€0.9 billion) and thus slightly higher than develop solidly across most of our product portfolio. How- depreciation and amortization. The free cash flow should ever, lower selling prices are anticipated for some businesses therefore be clearly positive again, but will fall short of the in the Nutrition & Care and Performance Materials segments, high level reported for 2015 (€1.1 billion) owing to the leading to the forecast slight reduction in overall sales. weaker operating earnings trend. Nevertheless, we are confident that our business will continue to develop successfully in 2016 and expect to report Occupational and plant safety adjusted EBITDA of between €2.0 billion and €2.2 billion We assume that the accident frequency' indicator will be (2015:€2.47 billion). stable in 2016 (2015: 1.0) and expect it to be below the upper For the majority of businesses in the Nutrition & Care limit of 1.3 defined for 2015. Our long-term goal is still a segment we are expecting a stable or slightly positive busi- sustained value of less than 1.0. We are retaining our target ness trend compared with the previous year. We assume that of a maximum of 48 for the plant safety indicator incident the price of essential amino acids for animal nutrition will frequency' in 2016 and expect it to be between 48 and 53, normalize from the very high prior-year level. Moreover, a slight improvement compared with 2015 (55). the baby care business will be affected by persistently high competitive pressure. 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. Number of accidents involving Evonik employees and contractors employees under Evonik's direct supervision per 1million working hours. 2 Number of incidents per 1 million hours worked in the production facilities operated by the segments, taking 2008 as the reference base (expressed in percentage points: 2008= 100). EFTA00598769 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 137 Cornett,' CONSOLIDATED FINANCIAL STATEMENTS 2 Income statement 138 1 Statement of comprehensive income 139 Balance sheet 140 Statement of changes in equity 142 Cash flow statement 143 Notes to the consolidated financial statements of the Evonik Group 144 1. Segment report 144 2. General information 146 3. Basis of preparation of the financial statements 146 4. Discussion of assumptions and estimation uncertainties 158 5. Changes in the Group 160 6. Notes to the income statement 169 7. Notes to the balance sheet 173 8. Notes to the cash flow statement 188 9. Notes on the segment report 189 10. Other disclosures 192 11. Disclosures in compliance with German legislation 208 EFTA00598770 1.18 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Income statement Income statement for the Evonik Group Nate 2015 2014 Sales 6.1 13,507 12,917 Cost of sales 6.2 —9,096 —9,308 Gross profit on sales 4,411 3,609 Selling expenses 6.2 —1,447 —1,289 Research and development expenses 6.2 -434 -413 General administrative expenses 6.2 -693 -601 Other operating income 6.3 445 250 Other operating expenses 6.4 -603 -493 Result from investments recognized at equity 6.5 -15 14 Income before flnandal result and Income taxes, continuing operations 1,664 1,077 Interest income 46 71 Interest expense -245 -289 Other financial income/expense -24 -17 Finandal result 6.6 -223 -233 Income before Income taxes, continuing operations 1,441 342 Income taxes 6.7 -422 -252 Income after taxes, continuing operations 1,019 590 Income after taxes, discontinued operations 5.3 -17 -9 Income after taxes 1,002 331 thereof attributable to Non-controlling interests 11 13 Shareholders of Evonik Industries AG (net Income) 991 568 Earnings per share In((bask and diluted) 6.8 •2.13 •1.22 Prior-year figures restated. EFTA00598771 70004 SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 119 Income statement Steternent of foroprohonfive Income Statement of comprehensive income Statement of comprehensive income for the Evonik Group Jr.0 mi ,r, 2015 2014 Income after taxes 1,002 581 Comprehensive income that will be reclassified subsequently to profit or loss 2.7 185 Gains/losses on available-for-sate securities 21 -11 Gains/losses on hedging instruments 32 -142 Currency translation adjustment 245 295 Attributable to the equity method (after income taxes) 6 - Deferred taxes -17 43 Comprehensive income that will not be reclassified subsequently to profit or loss 253 -601 8 Remeasurement of the net defined benefit liability for defined benefit pension plans 361 -844 Attributable to the equity method (after income taxes) -4 -7 Deferred taxes -104 250 i g Other comprehenshro income after taxes 540 -416 Total comprehensive income 1,542 165 thereof attributable to Non-controlling interests 12 19 LI Shareholders of Evonik Industries AG 1,530 146 Total comprehensive income attributable to shareholders of Evonik Industries AG 1,530 146 thereof attributable to continuing operations 1,547 156 discontinued operations -17 -10 EFTA00598772 140 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Balance sheet Balance sheet for the Evonik Group InE Sloan Nate Doc. 31, 2015 Dee. 31, 2014 Intangible assets 7.1 3,168 3,100 Property, plant and equipment 72 5,808 5,515 Investments recognized at equity 73 53 357 Financial assets 7A 116 83 Deferred taxes 7.12 1,110 1,127 Current Income tax assets 7.12 11 11 Other receivables 7.6 54 58 Non-current assets 10,320 10,251 Inventories 73 1,763 1,778 Current income tax assets 7.12 111 211 Trade accounts receivable 7.6 1,813 1,720 Other receivables 7A 265 303 Financial assets 7A 365 449 Cash and cash equivalents 8.3 2,368 921 6,685 5,382 Assets held for sale 5.3 — 52 Current assets 6,685 5,434 Total assets 17,005 15,685 Prbr•yeer figures resoled. EFTA00598773 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 141 Balance Sheen in E million Note Dec. 31, 2015 Dec. 31, 2014 Issued capital 466 466 Capital reserve 1,166 1,165 Accumulated Income 5,821 5,040 Accumulated other comprehensive Income 40 —244 Equity attributable to shareholders of Evonik Industries AG 7,493 6,427 Equity atuibutable to non-controlling Interests 83 95 Equity 7.7 7,576 6,522 Provisions for pensions and other post-employment benefits 7.8 3,349 3,953 .2 Other provisions 7.9 854 903 5 Deferred taxes 7.12 479 449 i g Other Income tax liabilities 7.12 150 199 Financial liabilities 7.10 1,415 666 Other payables 7.11 106 71 Non-current liabilities 6,353 6,241 S Other provisions 7.9 1.177 957 0 Other Income tax liabilities 7.12 209 105 Financial liabilities 7.10 291 469 a- Trade accounts payable 7.11 1.090 1,126 Other payables 7.11 309 247 3.076 2,904 Liabilities associated with assets held for sale 5.3 18 Current liabilities 3.076 2,922 Total equity and liabilities 17,005 15,685 Polor•year liguies resisted. EFTA00598774 142 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Statement of changes in equity Statement of changes in equity for the Evonik Group Note 7.7 Accumulated Attributable to Attributable other corn- shareholders to non- Capital Accumulated Treasury prehensive of Evonik controlling Total In Emilhon Issued capital reserve income shares income Industries AG interests 44oity As of January 1, 2014 466 1,165 5,547 — —420 6,758 78 6,836 Capital Increases/decreases — — — — — — — — Dividend distribution — — —466 — — —466 -5 —471 Purdiase of treasury shares — — — —13 — —13 — —13 Share-based payment — 3 — — — 3 — 3 Sale of treasury shares — —3 — 13 — 10 — 10 Income after taxes — — 568 — — 568 13 581 Other comprehensive income after taxes - - -601 - 179 -422 6 -416 Total comprehensive Income - - -33 - 179 146 19 165 Other changes - - -8 - -3 -11 3 -a As of December 31, 2014 466 1,165 5,040 - -244 6,427 95 6,522 Capital Increases/decreases - - - - - - 3 3 Dividend distribution - - -466 - - -466 -11 -477 Purdiase of treasury shares - - - -14 - -14 -14 Share-based payment - 3 - - - 3 3 Sale of treasury shares - -2 - 14 - 12 - ; 12 Income after taxes - - 991 - - 991 11 1,002 Other comprehensive income after taxes - - 253 - 286 539 1 540 Total comprehensive Income - - 1,244 - 286 1,530 12 1,542 Other changes - - 3 - -2 1 -16 -15 - - As of December 31, 2015 466 1,166 5,821 - 40 7,493 83 7,576 EFTA00598775 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 143 Statement of ch•nges in equity Cob flow swernent Cash flow statement Cash flow statement for the Evonik Group roe million Note 2015 2014 Income before financial result and income taxes, continuing operations 1,664 1,077 Depreciation, amortization, impairment losses/reversal of impairment losses on non-current assets 764 656 Result from investments recognized at equity 15 -14 Gains/tosses on the disposal of non-current assets -144 -4 Change in inventories 52 -90 Change in trade accounts receivable -44 -29 Change in trade accounts payable and current advance payments received from customers -18 28 Change in provisions for pensions and other post-employment benefits —162 —165 Change in other provisions 111 —43 Change in miscellaneous assets/liabilities 92 —70 Cash outflows for interest —67 —114 Cash inflows from interest 22 13 Cash inflows from dividends 19 20 Cash Inflows/outflows for income taxes —336 —230 Cosh flow from operating activities, continuing operations 1,966 1,035 Cash flow from operating activities, discontinued operations 3 31 Cash flow from operating activities 8.1 1,971 1,066 LI a Cash outflows for investments In intangible assets, property, plant and equipment -916 -1,095 Cash outflows for investments In shareholdings -70 -114 Cash Inflows from divestments of intangible assets, property, plant and equipment 13 17 Cash Inflows/outflows from divestment of shareholdings 421 578 Cash Inflows/outflows relating to securities, deposits and loans 111 248 Transfers to the pension trust fund (CTA) -219 -209 Cash flow from investing activities, continuing operations -660 -575 Cash flow from investing activities, discontinued operations - -1 Cosh flow from investing acthAties 8.2 —660 —576 Cash inflows/outflows relating to capital contributions 3 — Cash outflows for dividends to shareholders of Evonik Industries AG —466 —466 Cash outflows for dividends to non-controlling Interests —11 —5 Cash outflows for the purchase of treasury shares —14 —13 Cash Inflows from the sale of treasury shares 15 13 Cash Inflows from the addition of financial liabilities 844 207 Cash outflows for repayment of financial liabilities —238 —891 Cash flow from financing activities, continuing operations 133 -1,155 Cash flow from financing activities, discontinued operations - - Cash flow from financing activities 133 -1,155 Change In cosh and cash equivalents 1,444 -665 Cash and cash equivalents as of January 1 921 1,572 Change in cash and cash equivalents 1,444 -665 Changes In exchange rates and other changes In cash and cash equivalents 3 14 Cash and cash equivalents as on the balance sheet as of December 31 8.3 i 2,368 921 Mos-year figures resisted. EFTA00598776 144 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Notes to the consolidated financial statements of the Evonik Group 1. Segment report Segment report by operating segments Note 9.1 Nutrition Er Care Resource Efficiency Performance Materials InE million 2015 2014 2015 2014 2015 2014 External sales 4,924 4,075 4,279 4,040 3,435 3,827 Internal sales 34 27 53 84 133 156 Total sales 4,958 4,102 4,332 4.124 3,568 3,983 Result from investments recognized at equity —25 —4 1 1 -1 Adjusted EBITDA 1,435 847 896 836 309 325 Adjusted EBITDA margin m % 29.1 20.8 20.9 20.7 9.0 8.5 Adjusted EBIT 1,214 685 675 642 174 204 Capital employed (annual average 2,923 2,527 2,726 2,474 1,467 1,397 ROLE in% 41.5 27.1 24.8 25.9 11.9 14.6 Depreciation and amortization' —212 —157 -222 -194 -132 -109 Capital expenditures' 250 458 241 273 183 218 Financial Investments S 2 54 42 22 No. of employees as of December 31 7,165 6,943 8,662 7,835 4,380 4,353 Prior-year figures restated. • For intangible assets. property, plant and equipment. For the segmentation of impairment losses and reversals of impairment losses, see Notes 6.3 and 6.4. Segment report by regions Note 9.2 Germany Other European countries North Amerio InEmillran 2015 2014 2015 2014 2015 2014 External sates 2,436 2,814 4,148 4,235 2,647 2,310 Goodwill as of December 31' 1,542 1,542 546 544 370 330 Other intangible assets, property plant and equipment as of December 31' 2,832 2,777 555 534 1,052 863 Capital expenditures 427 419 88 133 208 141 No. of employees as of December 31 21,514 21,435 2,681 2,741 3,801 3,709 Prior•yeer figures restated. • Non•current assets according to IFRS 833 b. EFTA00598777 TOOLIR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 145 Notes Segment report Total Group Services Other operations Corporate, consolidation (continuing operations) 2015 2014 2015 2014 2015 2014 2015 2014 828 906 51 104 -10 -35 13,507 12,917 1,886 1,865 87 71 -2,194 -2,203 - - 2,715 2,771 138 175 -2,204 -2,238 13,507 12,917 E 9 7 1 23 - -13 -15 14 .2 S 163 151 -81 -54 -257 -223 2,465 1,882 E 19.7 16.7 - - - - 18.2 14.6 g 53 49 -96 -68 -268 -256 1,752 1,256 565 507 11 801 2,838 2,348 10,530 10,054 9.4 9.7 - - - - 16.6 12.5 -107 -101 -15 -14 -12 -31 -700 -606 177 153 24 20 2 1 877 1,123 ra 6 6 2 64 1 - 90 114 12,668 13,173 391 775 310 162 33,576 33,241 Total Group Central and South America Asia-Pacific Middle East, Africa (continuing operations) 2015 2014 2015 2014 2015 2014 954 777 12,917 32 29 250 2,695 178 172 1,587 1,564 8 10 6,212 5,920 323 1 1 668 611 161 125 33,576 33,241 EFTA00598778 146 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 2. General information The income statement has been prepared using the cost- of-sales method. Expenses are divided by function. Evonik Industries AG is an international specialty chemicals The statement of comprehensive income is a reconcilia- company headquartered in Germany. Its registered office is at tion from income after taxes as shown in the income state- Rellinghauser Strafte 1-11, 45128 Essen (Germany), and the ment to the Group's total comprehensive income, taking into company is registered in the Commercial Register at Essen account other comprehensive income. District Court under HR8 No.19474. On the balance sheet, assets and liabilities are classified by The present consolidated financial statements of Evonik maturity. They are classified as current if they are due or Industries AG and its subsidiaries (referred to jointly as expected to be realized within twelve months from the Evonik or the Group) were prepared by the Executive Board reporting date. of Evonik Industries AG at its meeting on February 19, 2016, The statement of changes in equity shows changes in discussed at the meeting of the Audit Committee on Feb- the issued capital, reserves attributable to shareholders of ruary 26, 2016, and presented to the Supervisory Board for Evonik Industries AG and changes in non-controlling interests approval at its meeting on March 2, 2016. The consolidated in the reporting period. Transactions with shareholders in financial statements are published in the German Federal their capacity as owners are also shown separately here. Gazette (Bundesanzeiger). The cash flow statement provides information on the Group's cash flows. The cash flow from operating activities is calculated using the indirect method, where income before 3. Basis of preparation of the financial result and income taxes from continuing operations financial statements is adjusted for the effects of non-cash income and expenses and items that are allocated to investing or financing activities. Certain other changes in amounts shown on the balance 3.1 Compliance with IFRS sheet are added to the result. The Notes contain basic information on the financial As permitted by Section 315 a Paragraph 1 of the German statements, supplementary information on the above compo- Commercial Code (HGB), the present consolidated financial nents of the financial statements and further information such statements have been prepared on the basis of the Inter- as the segment report. national Financial Reporting Standards (IFRS) and comply with these standards. The IFRS comprise the standards (IFRS, IAS) issued by the International Accounting Standards Board 3.3 New accounting standards (IASB), London (UK) and the interpretations (IFRIC, SIC) of the IFRS Interpretations Committee (IFRS IC), as adopted by Accounting standards to be applied for the first time the European Union. A number of revised and newly issued standards and inter- pretations had to be applied for the first time in fiscal 2015. However, they did not have a material impact on the consoli- 3.2 Presentation of the dated financial statements. financial statements Accounting standards that are not yet mandatory The consolidated financial statements cover the period from The IASB has issued further accounting standards which did January 1 to December 31, 2015 and are presented in euros. not become mandatory in fiscal 2015 or have not yet been All amounts are stated in millions of euros million) except officially adopted by the European Union. The accounting where otherwise indicated. In some cases, rounding may standards that could be of relevance for the consolidated mean that the figures in this report do not add up exactly to financial statements are outlined below. They will probably the totals stated, and percentages do not correlate exactly to be applied for the first time from the date on which they the figures presented. come into force. The recognition and valuation principles and items presented in the consolidated financial statements are in principle consistent from one period to the next. Deviations from this principle are outlined in Note 3.3 where they relate to changes to accounting standards, and in Note 3.4 or the relevant Notes where they relate to other changes. To enhance the clarity of presentation, some items are combined in the income statement, statement of comprehensive income, balance sheet and statement of changes in equity and explained in the Notes. EFTA00598779 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 147 Notes Basis 01 ptepatation oI the linandal statements Accounting standards that are not yet mandatory Standard a: Issued by the IASB b: Effective date as per IASB c: Effective date as per EU d: Publication in the Official Journal of the EU Subject of standard—Expected impact on the consolidated financial statements Amendments to IFRS 11 a: May 6, 2014 The amendments clarify recognition of acquisitions of interests in a joint operation where the Accounting for b: Jan. 1, 2016 joint operation constitutes a business. They stipulate that the principles of accounting for business Acquisitions of Interests c: Jan. 1, 2016 combinations (IFRS 3) also apply for the acquisition of interests in Joint operations of this type. in Joint Operations d: Nov. 25, 2015 This amendment is not currently relevant for the consolidated financial statements. IFRS 15 Revenue a: May 28, 2014/ IFRS 15 contains extensive new rules for the recognition of revenues arising from contracts with from Contracts Sep. 11, 2015 customers for all sectors. A five-step model outlines in detail aspects such as identifying distinct with Customers b: Jan. 1, 2018 performance obligations, the level of the expected consideration, taking into account variable price c: open components, and the distribution of the expected consideration among the Identified performance d: open obligations. There are now uniform criteria to determine whether a performance obligation is to be satisfied at a point in time or over time. In addition, IFRS 15 will result in a considerable increase in disclosures in the notes to the consolidated financial statements. This new standard will replace the following current standards and interpretations: IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and SIC-31. An analysis of contracts has identified a possible need for change. E A change in the timing of revenue recognition may result from identification of an additional S performance obligation, a change in the assessment of whether revenue is realized at a point in time or over time, or of the timing of the transfer of control. The following could be identified as separate performance obligations: • Dosing systems, which were previously transferred as an additional benefit in connection with the sale of a product • Freight and transportation services provided after transfer of control • Extended warranties that go well beyond the statutory requirements and contain a service • component • Exclusive sales rights. 0 An altered assessment of whether the performance obligation Is satisfied at a point in time or over time is possible in the following cases: • License agreements • Development contracts. An altered assessment of the time of the transfer of control is possible for agreements on consignment warehouses. Further, under IFRS 15 the level of revenues recognized over the total period may differ from previous practice. This is possible in the follovnng cases: • Prepayments by customers, where it may be necessary to recognize a financing component that would increase sales • Agreements on the unconditional repurchase of products • Exchange-type transactions between competitors. Finally, the cost of services that are incurred after inception of the contract and can be clearly assigned to the contract must be capitalized and depreciated over the period of time in which the associated goods were transferred to the customer or the services were provided. This may affect application technology services. In the next step, the quantitative impact on the consolidated financial statements will be analyzed in more detail. IFRS 9 Financial a: July 24, 2014 IFRS 9 is the replacement for IAS 39 Financial Instruments: Recognition and Measurement. Instruments b: Jan. 1, 2018 The main changes in IFRS 9 compared with the old standard IAS 39 comprise the introduction of c: open completely new classification and measurement rules for financial assets, the introduction of a d: open new impairment model which should result in more timely recognition of losses, extension of the permitted hedged items, a modified assessment of the effectiveness of hedge accounting relationships, and extended information in the notes. The impact on the consolidated financial statements is currently being examined. Amendments to IFRS 10 a: Sep. 11, 2014/ The purpose of this amendment is to eliminate an inconsistency between IFRS 10 and IAS 28 in the and IAS 28 Sale or Dec. 17, 2015 event of the sale or contribution of assets to an associate or joint venture. The amendment provides Contribution of Assets b: open that in the future the full gain or loss resulting from such transactions should only be recognized if between an Investor c: open the assets sold or contributed constitute a business as defined in IFRS 3. Otherwise, only partial gain and its Associate or d: open or loss recognition will be permitted. The legal form of the assets sold or contributed is not relevant. Joint Venture In 2015, the IASB postponed the date of first-time application indefinitely. This amendment is not currently relevant for the consolidated financial statements. EFTA00598780 148 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Accounting standards that are not yet mandatory Standard a: Issued by the IASB b: Effective date as per IASB c: Effective date as per EU d: Publication in the Official Journal of the EU Subject of standard—Expected impact on the consolidated financial statements Annual Improvement a: Sep. 25, 2014 Annual Improvements to IFRSs 2012-2014 Cycle contains amendments to IFRS 5, IFRS 7, IAS 19 Process (IFRSs b: Jan. 1, 2016 and IAS 34. They comprise improvements and clarification of existing standards. The amendments 2012-2014 Cycle) c Jan. 1, 2016 are not currently relevant for the consolidated financial statements. d: Dec. 16, 2015 Amendments to IAS 1 a: Dec. 18, 2014 Through these amendments the IASB eliminates uncertainty relating to the application of the Disclosure Initiative b: Jan. 1, 2016 materiality principle outlined in IAS 1, and the subdivision of items in the balance sheet and statement c: Jan. 1, 2016 of comprehensive income. Further clarifications and improvements relate to the presentation of d: Dec. 19, 2015 sub-totals, the structure of disclosures in the notes to the financial statements, and information on significant accounting policies. These amendments only affect the disclosures in the notes to the consolidated financial statements. IFRS 16 Leases a: Jan. 13, 2016 The new standard has far-reaching implications for the recognition of leases by the lessee. Under b: Jan. 1, 2019 IAS 17, the transfer of substantially all opportunities and risks of the leased asset was decisive for c: open recognition of a lease by the lessee. In future, the lessee will generally recognize each lease on the d: open balance sheet in the form of a right-of-use for the leased asset and a corresponding liability. For lessors, by contrast, the accounting principles are essentially unchanged, especially as regards the continued requirements for the classification of leases. IFRS 16 supersedes IAS 17 and the associated interpretations IFRIC 4, SIC-15 and SIC-27. The impact on the consolidated financial statements will be examined at a later date. Amendments to IAS 12 a: Jan. 19, 2016 The amendments clarify the recognition of deferred tax assets for unrealized losses on debt Recognition of b: Jan. 1, 2017 instruments recognized at fair value. The impact on the consolidated financial statements is Deferred Tax Assets c: open currently being examined. for Unrealised Losses d: open Amendments to IAS 7 a: Jan. 29, 2016 The changes relate to additional disclosure requirements for notes to financial statements to enable Statements b: Jan. 1, 2017 users to evaluate changes in liabilities from a company's financing activities. These amendments of Cash Flows c: open affect the disclosures in the notes to the consolidated financial statements. d: open 3.4 Changes in presentation, structure The following changes have been made to the presentation: and accounting principles the result from investments recognized at equity is now allocated to income before financial result and income Effective January 1, 2015, the Executive Board of Evonik taxes from continuing operations Industries AG altered the management and portfolio struc- • greater differentiation in the allocation of income and ture to further improve the opportunities for profitable expenses from currency translation and currency hedging; growth. This has greatly increased the entrepreneurial these are recognized in income before financial result and independence of the three chemical segments. In line with income taxes from continuing operations where they this, changes have been made to the presentation of the relate to the operating business, and in the financial result income statement to ensure clear separation of operational where they relate to financing and financing-related income and expenses and to better • more transparent presentation of the economic signifi- reflect the reorganized responsibilities. Further, this improves cance of the results of currency translation and currency comparability with competitors. hedging by switching from a gross to a net view.' Cf. the explanations on currency management and the associated results in Note 10.2. EFTA00598781 - TOOUR SHAREHOLDERS - MANAGEMENT REPORT 4 CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 149 Notes Basis of preparation of the rinandal statements The following prior-period items have been restated: 3.5 Consolidation methods and scope of consolidation Impact of changes in the presentation of the consolidated income statement of the Evonik Group Scope of consolidation (excerpt) Alongside Evonik Industries AG, all material German and for- eign subsidiaries directly or indirectly controlled by Evonik 2014 Industries AG are fully consolidated in the consolidated finan- Input of cial statements of Evonik Industries AG. Evonik Industries AG in € million change controls a company if it is exposed to, or has rights to, vari- Other operating income -450 able returns from its involvement with the company and has Other operating expenses 467 the ability to affect those returns through its power over the Result from investments recognized at equity 14 company. Income before financial result and Income texas, Joint operations are included in the consolidated financial continuing operations 31 statements on a pro rata basis. A joint operation is an Result from investments recognized at equity -14 arrangement where the parties that have joint control have Other financial Income -17 rights to the assets, and obligations for the liabilities, relating to the arrangement. Financial result -31 Joint ventures and associates are generally recognized at Income before income taxes, continuing operations equity. A joint venture is a joint arrangement where the Group has joint control, together with other parties, and has There was no impact on net income or on basic or diluted rights to the net assets of the arrangement. Associates are earnings per share. companies where the Evonik Group has a significant influence For reasons of materiality, investment property, which but does not have control or joint control of financial and was previously shown as a separate line item on the balance operating policies. sheet, is now included in property, plant and equipment. As Companies whose influence on the assets, financial 0 of December 31, 2015, investment property amounting to position and earnings of the Group, both individually and in €10 million (2014: €10 million) was included in this item. aggregate, is negligible are carried at amortized cost. With effect from January 1, 2015, the determination of the Changes in the scope of consolidation are outlined in discount rate used to value newly acquired pension entitle- Note 5.1. ments (service cost) in the euro zone was adjusted. While the discount rate for service cost was previously derived from Consolidation methods total cash flows relating to pension entitlements (present The financial statements of the consolidated German and employees, vested rights of former employees, retirees), it is foreign subsidiaries are prepared using uniform accounting now based on cash flows relating to present employees, since and valuation principles. only they acquire new entitlements. Capital is consolidated at the time of acquisition by offset- Before this change, the discount rate as of January 1, 2015 ting the carrying amount of the business acquired against the would have been 2.50 percent. The new discount rate for pro rata revalued equity of the subsidiary. Ancillary acquisi- newly acquired entitlements is 2.75 percent. The service cost tion costs are not included in the carrying amount of the was therefore €15 million lower as of December 31, 2015. As subsidiary. Instead they are recognized as expense in the a change in estimation, this adjustment is entirely prospective. income statement. The assets and liabilities (net assets) of the subsidiary are included at their fair values. If shares in the subsidiary are held before acquiring control, they must be revalued and any resultant change in value must be recog- nized in the income statement in other operating income or other operating expenses. Gains or losses recognized in other comprehensive income must be derecognized in the same way as if the acquirer had divested the shares previously held. Any remaining excess of the acquisition cost over the fair value of the net assets is recognized as goodwill. Negative differences are included in income following a renewed examination of the fair value of the net assets. EFTA00598782 150 FINANCIAL REPORT 2O1S EVONIK INDUSTRIES Changes in shareholdings in a previously consolidated sub- Joint operations are recognized in the consolidated financial sidiary that do not result in a loss of control are recognized statements at the proportionate amount of their assets and directly in equity as a transaction between owners. In this liabilities, revenues and expenses in accordance with Evonik's case, the shares attributable to the owners of the parent rights and obligations. company and to the other shareholders are adjusted to reflect The same consolidation principles apply for companies the changes in their respective stakes in the subsidiary. Any accounted for using the equity method. In this case, any good- difference between this adjustment and the fair value of the will is recognized in the carrying amount of the investment. consideration paid or received is recognized directly in equity The financial statements of the companies recognized at and allocated to the shares attributable to the owners of equity are prepared using uniform accounting and valuation the parent company. Directly related transaction costs are principles, see Note 3.7 Investments recognized at equity". also recognized as a transaction between owners that has no impact on income, with the exception of costs for the issu- ance of debt or equity instruments, which are still measured 3.6 Currency translation in accordance with the criteria for recognizing financial instruments. Cash inflows and outflows relating to these The financial statements of Evonik Industries AG and its sub- transactions are presented in the cash flow from financing sidiaries are generally prepared in their functional currency. activities. The functional currency is the currency used in the primary A subsidiary must be deconsolidated as of the date on economic area in which the respective company operates. which control is lost. The net assets of the subsidiary and In the separate financial statements prepared by these the non-controlling interests (in other words, the parent companies, business transactions in foreign currencies are company's share in the net assets of the subsidiary) are translated at the exchange rate on the date of initial recogni- derecognized. The gain or loss on the divestments must be tion. Any gains or losses resulting from the valuation of mon- calculated from the Group viewpoint. It is derived from the etary assets and liabilities in foreign currencies are recognized difference between the proceeds of the divestment (selling in other operating income, other operating expenses, or price less costs to sell) and the parent company's share in the other financial result at the closing rate on the reporting date. divested net assets of the subsidiary (including the remaining In the consolidated financial statements, the assets and hidden reserves and liabilities, and any goodwill shown on liabilities of all foreign subsidiaries are translated from their the balance sheet). The shares in the former subsidiary still functional currency into euros at closing rates on the report- held by Evonik are revalued at fair value as of the date on ing date. Goodwill and hidden assets and liabilities from the which control is lost. All resulting gains and losses are recog- acquisition of a foreign subsidiary are translated at the closing nized in the income statement as other operating income or rate as assets and liabilities of the foreign subsidiary. Income other operating expenses. In addition, amounts shown in and expense items are translated at average exchange rates equity under accumulated other comprehensive income are for the year. The average annual exchange rates comprise the also reclassified to the income statement, except where mean of the exchange rates at month-end over the past 13 another accounting standard requires direct transfer to reve- months. Translation differences compared to the prior year nue reserves. and translation differences between the income statement Intragroup income and expenses, profits, losses, receivables and balance sheet are recognized in other comprehensive and liabilities between consolidated subsidiaries are fully income. They are only reclassified to the income statement eliminated. In the case of joint operations, elimination is pro when the foreign subsidiary is divested. rata. Write-downs on shares in such companies recognized in The equity of foreign companies recognized using the the separate financial statements are reversed. equity method is translated in the same way. EFTA00598783 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 151 Notes Basis ol preparation ol the financial statement, Exchange Average annual rates Closing rates Dec. 31, Dec. 31, Cl corresponds to 2015 2014 2015 2019 Brazilian real (BRL) 3.70 3.12 4.31 3.22 British pound (GBP) 0.73 0.81 0.73 0.78 Chinese renrninbi yuan (CNY) 6.99 8.17 7.06 7.54 Japanese yen OPY) 134.52 140.83 131.07 145.23 Singapore dollar (SGD) 1.53 1.62 1.54 1.61 US dollar (USD) 1.11 1.33 1.09 1.21 3.7 Accounting policies Revenues from services are recognized, assuming that the general principles for revenue recognition in the period are E Revenue recognition met, when the percentage of completion can be reliably measured. Where the provision of services extends over (a) Sales more than one reporting period, revenues are recognized Sales revenues arise from normal business activity. proportionately to the total service to be provided. The Nutrition & Care, Resource Efficiency and Perfor- mance Materials segments mainly generate sales by selling (b) Other revenues specialty chemicals to industrial customers for further pro- Other revenues are only recognized if they can be determined cessing. The Services segment principally provides services reliably and it is sufficiently probable that the economic for the chemicals businesses, the management holding com- benefit will flow to the company. 0 pany, and external customers at Evonik's sites; for further Interest income is recognized on a pro rata temporis basis details see Note 9.1. using the effective interest method. Income from royalties is Prices are contractually agreed between the parties to a accrued on the basis of the commercial terms of the under- transaction. Sales revenues are measured as the fair value of lying contract and recognized on a pro rata basis. Dividend the consideration received or to be received less value-added income is recognized as of the date of the right to receipt of tax and any discounts or bulk rebates granted. The general the payment. principle for revenue recognition is that both the revenues and the related costs can be measured reliably. It must also be Intangible assets sufficiently probable that the economic benefit will flow to Intangible assets are capitalized at acquisition or production the company. cost. Intangible assets with a finite useful life are amortized Revenues from the sale of products are recognized, and an impairment test is conducted if there are indications assuming that the general principles for revenue recognition of a possible impairment, see Note 3.7 Impairment test". are met, when the main opportunities and risks associated Depending on the type of intangible asset, amortization with title to the products pass to the customer. This is gener- is recognized in the cost of sales, selling expenses, research ally determined by the international terms for commercial and development expenses or general administrative transactions (Incoterms9. Provisions are established for expenses. Intangible assets with an indefinite useful life are general risks arising from such sales on the basis of previous not amortized; instead they are tested for impairment at least experience. once a year. Goodwill has an indefinite useful life and is tested for impairment at least once a year. EFTA00598784 132 FINANCIAL REPORT 201S EVONIK INDUSTRIES Franchises, trademarks and licenses are amortized over their Borrowing costs that can be allocated directly to the acquisi- estimated useful life of between 5 and 25 years using the tion, construction or production of a qualifying asset are straight-line method. Some rights have an indefinite useful included in the cost of acquisition or production. A qualifying life. These are trademarks with no restrictions on their use. asset is an asset for which more than a year is required to get They are tested annually for impairment and to check that their it ready for its intended use. useful life is still indefinite. If the assessment of the useful life Government grants for the purchase or construction of of such trademarks has altered and is reclassified as finite, property, plant and equipment reduce the cost of acquisition their carrying amounts are amortized over their estimated or production of such assets. They are reflected in the income remaining useful life using the straight-line method. statement over the useful life of the assets through lower Development costs are capitalized if they can be clearly depreciation. assigned to a newly developed product or process that is Property, plant and equipment are depreciated using the technically feasible and is designated for captive use or straight-line method over the expected useful life of the commercialization. Capitalized development costs mainly assets. relate to the development of new products and are amortized using the straight-line method over their estimated useful life Useful life of property, plant and equipment of between 3 and 15 years. in years The majority of other intangible assets are acquired cus- tomer relationships. These are amortized over their expected Buildings 5-50 useful life. Their useful life is estimated on the basis of Plant and machinery 2-25 contractual data and experience and is generally between 2 Other plant, office furniture and equipment 3-25 and 11 years. Amortization takes account of both useful life and probability of continuance of the customer relationship in the form of a churn rate. If major components of an asset have different useful lives, they are recognized and depreciated separately. Property, plant and equipment Spare parts and servicing equipment that meet the require- Property, plant and equipment are carried at acquisition or ments for recognition as property, plant and equipment are production cost and depreciated over their useful life. If there recognized as such, rather than as inventories. Minor repairs are indications of a possible impairment, an impairment test and other maintenance work are expensed in the period in is conducted as outlined in Note 3.7 "Impairment test". which they are incurred. The cost of acquisition includes expenses directly If there is a high probability that the project will be real- attributable to the acquisition. The cost of production of ized, costs incurred for planning and pre-engineering work self-manufactured assets comprises all direct costs, plus the for capital expenditure projects are capitalized. Depreciation systematically allocable fixed and variable material costs is recognized in line with the useful life of the project. and manufacturing overheads. Costs relating to obligations to Gains and losses from the disposal of property, plant and dismantle or remove non-current assets at the end of their equipment are calculated as the difference between the net useful life are capitalized as acquisition or production costs at proceeds of sale and the carrying amount and recognized in the time of acquisition or production. other operating income or other operating expenses. Acquisition and production costs may also include transfers from gains and losses on cash flow hedges entered into to Impairment test hedge foreign currency exposures in connection with the If there are indications of possible impairment, an impairment purchase of plants, which were recognized in the statement test is conducted on intangible assets, property plant and of comprehensive income until they were reclassified to equipment in accordance with IAS 36 Impairment of Assets. property, plant and equipment. Goodwill and other intangible assets with an indefinite useful life are tested for impairment at least once a year. The impairment test on such assets is generally conducted for a cash-generating unit (CGU), which is the smallest identifi- able group of assets that generates independent cash flows, or for a group of CGUs. EFTA00598785 - TO OUR SHAREHOLDERS - MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 153 Note, Basis ol preparation ol the financial statements The impairment test comprises comparing the recoverable prices and the increase in wages and salaries used in the mid- amount of the CGU/group of CGUs with its carrying term planning are derived from internal and external market amount. The recoverable amount is determined as the higher expectations and are set centrally by Evonik. The specific of the fair value less costs of disposal and the value in use of growth rates for individual segments are derived from expe- the CGU/group of CGUs. An impairment loss is recognized rience and future expectations; a terminal growth rate is also if the recoverable amount of a CGU/group of CGUs is below assumed. its carrying amount. The impairment loss is reversed—except The expected future cash flows are discounted using the in the case of goodwill—if the reason for the original impair- weighted average cost of capital (WACC) after taxes. WACC ment charge no longer applies. is determined for each segment on the basis of a capital asset When testing goodwill for impairment, the recoverable pricing model and is the weighted average cost of debt and value of goodwill is determined from the fair value less costs equity. The cost of equity is determined from the risk-free of disposal of the relevant segment. The fair value less costs interest rate and a risk premium. An identical thirty-year risk- of disposal is determined as the present value of future cash free interest rate is used for all segments. The risk premium flows using a valuation model and on the basis of non- is derived by multiplying the beta factor by the market risk observable inputs (Level 3 of the fair value hierarchy). Future premium. The cost of debt comprises a risk-free interest rate cash flows are derived from the current three-year mid-term plus a premium for the credit risk, taking into account the E plan. The mid-term planning is based on a mixture of expe- average tax rate. rience and expectations of future market trends. The main The beta factor, the credit risk premium and the capital economic data, such as growth in gross domestic product, the structure are obtained from the capital market by comparison development of exchange rates, raw material and energy with the values for the peer group for the segment. Parameters used in impairment testing and allocation of goodwill by segment WACC after taxes(in%) Terminal growth rate (N%) Goodwill (Int militia) 0 Dec. 31, Oec. 31, io 2015 2014 1 2015 2014 2015 2014 Nutrition & Care 7.19 7.01 1.50 1.50 1,023 1,021 Resource Efficiency 8.38 9.28 1.50 1.50 1,186 892 Performance Materials 8.83 8.58 1.50 1.50 492 717 Services 8.16 8.31 1.50 1.50 63 51 Corporate, other operations 7.75 8.06 1.50 1.50 14 The carrying amounts of goodwill are allocated among the year resulted from the reorganization of various activities, see segments for the purpose of impairment testing. The good- Note 9.1. All other goodwill is recognized immediately in the will allocated to the three chemical segments principally segments. relates to earlier acquisitions of shares in Evonik Degussa For impairment testing of other intangible assets, and GmbH (Evonik Degussa), Essen (Germany). In the segment property, plant and equipment, the recoverable amount is reporting, it is assigned to 'Corporate, consolidation'. Changes normally determined by calculating the value in use of the in the allocation of this goodwill compared with the previous CGU/group of CGUs. EFTA00598786 154 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Investments recognized at equity determined uniformly as an average or using the first-in Associates and joint ventures are generally recognized using first-out method. The cost of production of finished goods the equity method if Evonik is able to exert a significant and work in progress comprises the cost of raw materials and influence or exercises joint control. supplies, directly attributable personnel expenses, other Initially they are measured at cost of acquisition. The cost direct costs and fixed and variable overheads that can be of acquisition also contains all ancillary acquisition costs systematically assigned to production (based on normal oper- directly attributable to the investment. ating capacity). The cost of inventories may also contain For initial measurement, the difference between the cost gains and losses from cash flow hedges entered into to hedge of acquisition and the investor's share in the investee's equity the exchange rates or price of goods in connection with the must be determined. This is then analyzed to see whether it procurement of raw materials and which were included in contains hidden reserves or hidden liabilities. Any positive other comprehensive income in the statement of comprehen- difference remaining after allocation of hidden reserves or sive income until they were reclassified to the inventories liabilities is treated as goodwill and recognized in the carrying acquired. amount of the investment. Negative differences are included in income by increasing the carrying amount of the investment. Cash and cash equivalents Starting from the cost of acquisition of the investment, This item contains checks, cash and cash equivalents and in subsequent periods its carrying amount is increased or balances held at banks. It also contains highly liquid financial reduced by the investor's share in the investee's net income. instruments with a maturity, calculated as of the date of Further adjustments to the carrying amount of the invest- purchase, of no more than three months, provided that they ment are necessary if the equity of the investment alters as can be converted into cash and cash equivalents at any time a result of items contained in other comprehensive income. and are only subject to negligible fluctuations in value. They Subsequent measurement must take into account deprecia- are measured at fair value. tion of the hidden reserves identified at the time of initial recognition, which must be deducted from the investor's Provisions for pensions and other share in the investee's net income. To avoid dual recognition, post-employment benefits any dividends received must be deducted from the carrying Provisions for pensions and other post-employment benefits amount. are measured using the projected unit credit method for de- If there are indications of a possible impairment, the fined benefit obligations in accordance with IAS 19 Employee investment must be tested for impairment, see Note 3.7 Benefits. This method takes account of future salary and "Impairment test". There is no separate impairment test for pension increases as well as pension obligations and accrued the goodwill. Rather, the impairment test is performed for entitlements as of the reporting date. In Germany, valuation the entire carrying amount of the investment. Accordingly, is based on the biometric data in the 2005 G mortality tables impairment losses are not allocated to the goodwill included published by Klaus Heubeck. For the companies in the UK, in the carrying amount of the investment and can thus be the S1PXA tables are used, and for the USA PPA mortality reversed in full in subsequent periods. tables are used. Pension obligations in the remainder of the Group are determined using country-specific parameters and Inventories measurement principles. Inventories are measured at the lower of cost and net realiz- Actuarial gains and losses relating to pension obligations able value. The historical cost of acquisition or production and income from plan assets (apart from interest income) are is the upper limit. The net realizable value corresponds to derived from the difference between the expected pension the selling price in the ordinary course of business less the obligations and the actual obligation calculated at year end, production and selling expenses incurred prior to sale. The cost and from deviations between the expected and actual fair of inventories of similar structure or for similar applications is value of plan assets calculated at year end. EFTA00598787 - TOOUR SHAREHOLDERS - MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 1SS Not•a Sinn of piepaiatioo of the financial statement, Changes that arise during a year as a result of actuarial gains/ Provisions relating to legal risks are allocated to the various losses relating to pension obligations, income from plan assets categories of provisions on the basis of their type. They (excluding interest income), changes in the asset ceiling contain appropriate expenses for, e.g. court and lawyers' (excluding interest cost) and income from claims to refunds fees, payments to plaintiffs and any payments for settlement (excluding interest income) are offset directly in other com- or indemnity. The level of such provisions is based, among prehensive income. other factors, on the type of dispute or claim, status of the The benefit obligations at year end are compared with legal proceedings, the opinion of lawyers, experience of the fair value of the plan assets (funded status). Pension comparable cases and probability assumptions. provisions are derived from this, taking the asset ceiling into account. Deferred taxes, other income taxes Defined contribution plans result in an expense in the In compliance with IAS 12 Income Taxes, deferred tax assets period in which the contribution is made. Defined contribu- and liabilities are established for temporary valuation and tion plans exist for both company pension plans and state recognition differences between the assets and liabilities pension plans (statutory pension insurance). recognized in the balance sheets prepared for tax purposes and those prepared in accordance with IFRS. Tax-deductible Other provisions loss carryfowards that will probably be utilized in the future E Other provisions are liabilities of uncertain timing or amount. are capitalized at the amount of the deferred tax asset, taking a They are established to cover a present legal or constructive into account whether they can be carried forward for a obligation to third parties based on past events that will prob- limited or unlimited period. The recognition of deferred tax ably lead to a cash outflow. If there are several obligations of assets at companies with tax-deductible loss carryforwards is the same type, the probability of a cash outflow is calculated based, on the one hand, on current planning calculations, for these obligations as an aggregate. It must also be possible which are normally for a five-year period, and on the other to reliably estimate the level of the obligation. hand, the availability of sufficient temporary tax differences. Provisions are based on the probable settlement obliga- Deferred tax assets are recognized where it is probable that tions and take account of future cost increases. Non-current future taxable income will be generated, which can cover 0 provisions are discounted. Current provisions and the current these temporary differences. Where the realization of deferred portion of non-current provisions are not discounted. Provi- tax assets is unlikely, they are written down. sions are adjusted over time to take account of new findings. Deferred tax assets and liabilities are netted if the com- Reversals of provisions are recognized as income in the pany is permitted to net other income tax assets and liabilities functional areas to which the original expense for the provi- and if the deferred tax assets and liabilities relate to income sion was charged. taxes in the same tax jurisdiction. Long-Term Incentive Plans are included in personnel- The tax rates used to calculate deferred taxes are those related provisions. These are performance-related remuner- valid under current legislation or that have been announced ation plans for Evonik's executives and members of the Exec- as being applicable as of the date when the temporary utive Board. The resulting obligations are determined as a differences will probably be settled. The overall tax rate cash compensation payment and expensed in accordance used to calculate deferred taxes for companies in Germany is with IFRS 2 Share-based Payment. 30 percent. In addition to 15 percent German corporation tax, Restructuring provisions are only established if construc- the tax rate includes a solidarity surcharge of 5.5 percent of tive obligations exist on the basis of a formal, detailed plan the German corporation tax and average trade tax of around and those affected have been given justifiable expectations 14 percent. The tax rates used for foreign companies are their that the restructuring will be carried out. national tax rates. These vary between 10 percent (Hungary) and 40 percent (USA). EFTA00598788 156 FINANCIAL REPORT 201S EVONIK INDUSTRIES Other income taxes for the reporting period and previous The categories used by the Group are outlined below: periods are recognized on the basis of the expected payment Loans and receivables principally comprise trade accounts or refund. They are calculated using the company-specific tax receivable and loans. The assets assigned to this category are rates applicable on the reporting date. Uncertain tax assets valued at amortized cost using the effective interest rate and liabilities are recognized as soon as their probability of method. If there are objective indications based on historical occurrence is more than 50 percent. Uncertain income tax empirical values that it will not be possible to collect the positions are recognized on the basis of their most likely full amounts due under the customary conditions, an impair- amount. ment loss is recognized. This is measured as the difference between the carrying amount of the asset and the present Financial instruments value of the estimated future payments calculated using the Financial instruments comprise contractually agreed rights original effective interest rate. Impairment losses are recog- and obligations resulting in an inflow or outflow of financial nized in the income statement. If the original reason for the assets or the issue of equity instruments. They are divided impairment loss no longer applies, it is reversed to income, into derivative and non-derivative financial instruments and but only up to the amortized cost. are recognized on the balance sheet as financial assets or Available-for-sale assets comprise equity instruments that financial liabilities or as trade accounts receivable or trade are not consolidated or recognized at equity, and other secu- accounts payable. rities. If no fair value is available for such assets or the fair Financial instruments are initially measured at fair value value cannot be determined reliably, for example, in the case plus any directly attributable transaction costs. Transaction of equity instruments that are not listed on a stock exchange, costs for financial instruments held at fair value through the assets are recognized at amortized cost. Changes in the profit or loss are included directly in the income statement. fair value are recognized in other comprehensive income, To measure non-current financial instruments that do not taking into account deferred taxes. Financial assets are exam- bear interest at market rates, the expected future cash flows ined for objective indications of impairment on every report- are discounted to the date of acquisition using the effective ing date. A material or lasting reduction in the fair value to interest rate (present value). The effective interest rate takes below the cost of acquisition is regarded as an indication of account of all directly attributable fees that are by nature impairment. In the case of equities, a decline in the fair value interest. Subsequent measurement is based on the classifica- of at least 20 percent compared with the cost of acquisition is tion of the financial instruments. regarded as material. In such cases, the corresponding losses are derecognized from other comprehensive income and (a) Non-derivative financial instruments recognized in the income statement. If the reason for the Evonik classifies non-derivative financial instruments as impairment loss no longer applies, the reversal is recognized financial assets in the categories loans and receivables or in other comprehensive income. Only debt instruments that available-for-sale. They are initially recognized at the settle- are allocated to this category are written back by up to the ment date. Financial assets are derecognized when the con- amount of the original impairment in the income statement. tractual rights to receive payments lapse or are transferred Impairment losses are not reversed if they apply to invest- and Evonik has transferred substantially all opportunities and ments and other financial assets whose fair value cannot be risks associated with ownership. There were no instances reliably determined. where the Group sold financial assets and the assets were still The category at amortized cost mainly refers to trade reported in the financial statements on the basis of continuing accounts payable and loans. The liabilities assigned to this involvement. category are valued at amortized cost using the effective Non-derivative financial instruments that constitute finan- interest rate method. cial liabilities are recognized at amortized cost. Financial liabilities are derecognized when the obligation has been settled or canceled, or has expired. EFTA00598789 - TO OUR SHAREHOLDERS - MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 1T/ Note, Resit of ptepetetion of the tinencial sotemeno b) Derivative financial instruments The purpose of cash flow hedges is to minimize the risk of Derivative financial instruments are used to hedge the risk of volatility of future cash flows from a recognized asset or changes in exchange rates, the price of commodities and liability or a forecast transaction that is considered highly interest rates. Hedging instruments are recognized on the probable. The effective portion of changes in the fair value of balance sheet either on a stand-alone basis or as a valuation a hedging instrument is recognized in other comprehensive unit with the corresponding hedged items (hedge account- income and the ineffective portion of the change in value is ing). Initial recognition is on the trading date. If no stock recognized in the income statement. Amounts recognized in exchange or market price is available for the derivative from other comprehensive income are reclassified to the income an active market, the fair value is determined using financial statement as soon as the hedged item has an impact on the valuation methods. The market price of options is determined income statement. In the case of interest rate hedges, such using established option pricing models. Commodity deriva- amounts are included in net interest income or expense, tives are valued with the aid of spot prices and forward rates while in the case of sales hedges they are included in the while interest rate derivatives are valued by discounting corresponding sales revenues, and hedges on the procure- future cash flows. ment of goods are included directly in the cost of sales. If the Stand-alone financial derivatives are assigned to the hedged future transaction comprises a non-financial asset or category at fair value through profit or loss and classified a non-financial liability, the gain or loss previously recognized E as held for trading. Financial instruments assigned to this in other comprehensive income is included in the cost of acqui- category are recognized at fair value on each reporting date. sition of the asset or liability when it is initially recognized. Any gain or loss resulting from a change in their fair value is The purpose of a hedge of a net investment is to reduce t. recognized in the income statement. the foreign currency risk involved in an investment in a com- Both the hedging instrument and the hedged item have to pany whose functional currency is not the euro. Such hedges meet specific criteria to qualify for hedge accounting. In par- are accounted for in the same way as cash flow hedges. Gains ticular, hedge accounting requires extensive documentation and losses recognized in other comprehensive income are of the hedging relationship, together with evidence that the reclassified to the income statement when the foreign sub- expected and actual effectiveness of the hedge is between 80 sidiary is divested or investment in it is reduced. 0 and 125 percent. A derivative no longer qualifies for hedge accounting if these conditions are not fulfilled. In the case of Leasing cash flow hedges, hedge accounting must also be halted if A lease comprises an agreement that transfers the right to the forecast transaction no longer appears probable. In such use an asset for a certain period in return for one or more cases, the amount recognized in other comprehensive income payments. The Group is mainly party to operating leases as is reclassified to the income statement. either lessor or lessee. The related income and expenses are Depending on the type of hedge, hedging instruments recognized in the income statement in the period in which and the associated hedged items for which hedge accounting they are received or incurred. is used, are valued as outlined below: The purpose of fair value hedges is to hedge the fair value Assets held for sale and the associated liabilities of assets or liabilities reflected on the balance sheet. Changes Non-current assets are classified as held for sale if the corre- in the fair value of the hedging instrument as well as changes sponding carrying amount is to be realized principally in the fair value of the hedged item are recognized in the through a sale transaction rather than through continued use. income statement. If off-balance-sheet firm commitments are Such assets must be available for immediate sale in their hedged, changes in the fair value of the firm commitment present condition, on terms that are usual and customary resulting from changes in the hedged risk give rise to recog- for the sale of such assets, and sale must be highly probable. nition of an asset or a liability which affects income. In view If the associated liabilities are to be sold with the asset as part of this method, changes in the value of the hedged item and of the transaction, these must also be presented separately. the hedge cancel each other out in the income statement. EFTA00598790 158 FINANCIAL REPORT 2015 EVONIK INDUSTRIES The assets and liabilities must be measured in accordance Fair value measurement is based on a three-level hierarchy: with the relevant accounting standards immediately before Where available, the fair value is determined from the quoted initial classification as held for sale. They are subsequently prices for identical assets or liabilities in an active market valued at the lower of the carrying amount and fair value less without adjustment (Level 1). If such data are not available, costs to sell. Where the assets and liabilities do not fall within measurement based on directly or indirectly observable the scope of the measurement criteria set out in IFRS 5 inputs is used (Level 2). In all other cases, valuation methods Non-current Assets Held for Sale and Discontinued Opera- that are not based on observable market data are used tions, subsequent revaluation is performed in accordance (Level 3). Where input factors from different levels are used, with the relevant accounting standards. the level applicable for the lowest material input factor is Unless they are classified as discontinued operations, the determined and the overall fair value is assigned to this level. results of the valuation and the sale of the asset are still included in income from continuing operations. Contingent liabilities, contingent receivables and other financial commitments Discontinued operations Contingent liabilities, except for those recognized in connec- A discontinued operation is either a major line of business or tion with a business combination, are possible or present geographical area of the company that is to be sold or shut obligations arising from past events where an outflow of down on the basis of a single coordinated plan, either as a resources is not improbable but which are not recognized on whole or in parts, or a subsidiary acquired with a view to the balance sheet. resale. Contingent receivables are possible assets arising from The income from the operating activities and the measure- past events, which cannot be recognized on the balance ment and divestment of discontinued operations is reported sheet, and whose existence will be confirmed by the occur- separately from the continuing operations on the income rence or non-occurrence of one or more uncertain future statement. Similarly, the cash flow from the operating activi- events that are not fully under the company's control. A con- ties of discontinued operations is reported separately from tingent receivable is indicated where an inflow resulting from the continuing operations in the cash flow statement. its economic benefits is probable. Other financial commitments result from non-onerous Determination of fair value executory contracts, continuous obligations, statutory require- The fair value is the price that would be received for the sale ments and other commercial obligations that are not already of an asset or transfer of a liability in an orderly transaction included in the liabilities shown on the balance sheet or in between market participants at the measurement date. It is contingent liabilities and that are of significance for an assess- therefore an exit price based on a hypothetical transaction on ment of the company's financial position. the reporting date. If there are several markets for the asset or liability, the principal market or, as a secondary criterion, the most advantageous market to which the reporting entity 4. Discussion of assumptions and has access is used. Transaction costs are not included in fair estimation uncertainties value. They are accounted for as prescribed by the applicable accounting standard. The fair value of non-financial assets is The preparation of consolidated financial statements involves determined as the best use from a market perspective; this assumptions and estimates about the future. Evidently, the may differ from current use of the asset. In the measurement subsequent circumstances do not always match the estimates of financial assets and liabilities, the credit default risk is made. Adjustments to estimates are recognized in income as taken into account. soon as better information is available. The estimates and assumptions that constitute a considerable risk that the carry- ing amounts of assets and liabilities may have to be adjusted within the next fiscal year are discussed below. EFTA00598791 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 159 N•t,, Discussion of ossumocions end estaimion uncenointies (a) Impairment testing of goodwill be ruled out that the fiscal authorities will take a different Testing goodwill for impairment also involves assumptions view on the correct interpretation of tax regulations. Changes and estimates regarding, for example, future cash flows, in assumptions regarding the correct interpretation of tax expected terminal growth rates and discount rates. The rele- regulations, for example, as a result of changes in legal deci- vant assumptions may change, leading to impairment losses sions, are reflected in the recognition of uncertain income tax in future periods. assets and liabilities for the corresponding fiscal year. In the impairment test on goodwill in the Performance Materials segment, the recoverable amount exceeded the (d) Impairment of other assets carrying amount of the segment by €119 million. The reduc- Estimates are made about the useful life, depreciation/amor- tion in this amount compared with the previous year was tization period and value of other intangible assets, property, mainly due to the new management and portfolio structure plant and equipment, investments, and loans and receivables. introduced on January 1, 2015. In this context, the segment These estimates are based on experience and planning data, was defined essentially as a product-oriented, energy and which contain assumptions on business conditions, sector raw material intensive supplier that will in future concentrate trends and the creditworthiness of customers. on securing and extending its good market positions. This If there is a considerable change in such assumptions or included reallocation of operations between the segments, circumstances, the estimates have to be reviewed. This may E see Note 9.1, which had a negative impact on the difference result in impairment of the related assets. between the recoverable amount and carrying amount of the Performance Materials segment. The recoverable amount (e) Valuation of provisions for pensions would correspond to the carrying amount of the segment if and other post-employment benefits the weighted average cost of capital after taxes increased by The valuation of provisions for pensions and other post- 0.4 percentage points, or if there was a reduction of 5.0 per- employment benefits is subject, among other things, to cent in the net cash flow or of 0.5 percentage points in the assumptions about discount rates, expected future salary and terminal growth rate. pension increases, the cost trend for healthcare, and mortality In the Nutrition & Care, Resource Efficiency and Services tables. The actual data may differ from these assumptions 0 segments, a relative increase in the weighted average cost of as a result of changes in economic or market conditions. capital after taxes of 10 percent or a reduction of 10 percent Sensitivity depends on the interest rate as of December 31 of in the net cash flow or terminal growth rate would not result the respective fiscal year, which is used as the discount rate, in an impairment loss. see Note 7.8. A reduction of 1 percentage point in the Group-wide (b) Impairment testing of deferred tax assets discount rate, assuming other parameters remain unchanged, Deferred tax assets may only be recognized if it is probable would increase the present value of the defined benefit obli- that sufficient taxable income will be available in the future. gation by €1,906 million (2014: €1,976 million). Conversely, Deferred taxes are calculated on the basis of the tax increasing the discount rate by 1 percentage point, assuming rates applicable on the date when temporary differences are other parameters do not change, would decrease the defined likely to be reversed. If these expectations are not met, an benefit obligation by €1,456 million (2014: €1,518 million). impairment loss must be recognized in income for the A reduction of 1percentage point in the assumed Group- deferred tax assets. wide salary increases would reduce the defined benefit obligation by €162 million (2014: €185 million). Conversely, (c) Uncertain income tax positions assuming other parameters remain unchanged, a rise of 1 per- Group companies are liable to pay income tax in many coun- centage point in the assumed Group-wide salary rises would tries around the world. When evaluating global income tax increase the defined benefit obligation by €175 million (2014: assets and liabilities, there may be some uncertainty relating, €198 million). in particular, to the interpretation of tax regulations. It cannot EFTA00598792 160 FINANCIAL REPORT 2015 EVONIK INDUSTRIES A reduction of 1 percentage point in the assumed Group- (f) Valuation of other provisions wide pension increase, assuming other parameters remain Other provisions, especially provisions for recultivation and unchanged, would reduce the defined benefit obligation by environmental protection, in connection with legal risks and €841 million (2014: €857 million). Conversely, assuming for restructuring are naturally exposed to significant fore- other parameters remain unchanged, a rise of 1 percentage casting uncertainties regarding the level and timing of the point in the assumed Group-wide pension rises would obligation. The company has to make assumptions about the increase the defined benefit obligation by €999 million probability of occurrence of an obligation or future trends, (2014: €1,025 million). such as value of the costs, on the basis of experience. Assuming all other parameters remain unchanged, a reduc- Non-current provisions in particular are exposed to fore- tion of 20 percent in mortality in the retirement phase would casting uncertainties. In addition, the level of non-current increase the defined benefit obligation by €762 million provisions depends to a large extent on the selection and (2014: €768 million). development of the market-oriented discount rate. The If the trend in healthcare costs were to increase by 1 per- Group uses different interest rates for different currencies 1 centage point, the accumulated healthcare benefit obligation and terms to maturity. would increase by €16 million (2014: €14 million). Con- versely, a reduction of 1 percentage point in the cost trend would reduce the accumulated healthcare obligation by €14 million (2014: €12 million). 5. Changes in the Group 5.1 Scope of consolidation and list of shareholdings Changes in the scope of consolidation Other No. of to-npnc. Germany countries Total Even& industries AG and consolidated subsidiaries As of December 31, 20'14 42 98 140 Acquisitions - 2 2 Other companies consolidated for the first time - 1 1 Divestments -1 -1 -2 Intraroup mergers -2 - -2 Other companies deconsolidated - -1 -1 As of December 31, 2015 39 99 138 joint operations As of December 31, 20'14 2 2 4 Other companies consolidated for the first time 1 - 1 As of December 31, 2015 3 2 5 Investments recognized at equity As of December 31, 20'14 S 9 14 Divestments -1 - -1 Other companies deconsolidated -1 -1 -2 As of December 31, 20'15 3 8 11 45 109 154 EFTA00598793 TO OUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 161 Notes Changes in the Group Further information on acquisitions and divestments in 2015 parent company, a subsidiary included in the consolidated can be found in Note 5.2. financial statements or a person acting on behalf of these The following list shows Evonik's shareholdings in accor- companies. dance with Section 313 Paragraph 2 of the German Commer- German subsidiaries that make use of the provisions of cial Code (HGB). Sections 264 Paragraph 3 and 264b of the German Commer- The shareholdings have been calculated in accordance cial Code (HGB) on exemption from disclosure of annual with Section 16 of the German Stock Corporation Act (AktG). financial statements and the preparation of notes to their Accordingly, the calculation includes shares held by the financial statements and a management report are indicated. Consolidated subsidiaries Shareholding Name of company Registered office in% Consolidated subsidiaries Germany AQura GmbH Hanau • 100.00 BK-Wolfgang-Warme GmbH Hanau 100.00 CyPlus GmbH Hanau 100.00 DeAM Treasury 1 Spezlalfoads der Evonik Industries AG Essen b 0.00 Evonik Betelligungs-GmbH Frankfurt am Main • 100.00 Evonlk Catering Semites GmbH Marl • 100.00 Evonlk Creavls GmbH Essen • 100.00 Evonlk Dahlenbum GmbH Dahlenburg • 100.00 Evonik Degussa GmbH Essen 100.00 Evonik Goldschmidt Rewo GmbH Essen 100.00 Evonik Gorapur GmbH Wittenburg • 100.00 Evonik Gorapur Verwahungs-GmbH Wittenburg 100.00 Evonik Manse GmbH Geesthadit • 100.00 Evonik IP GmbH Eschbom • 100.00 Evonik Nuultion & Care GmbH Essen • 100.00 Evonik O0 Additives GmbH Essen 100.00 Evonik Performance Materials GmbH Essen • 100.00 Evonik Pwoxygens Holding GmbH Essen 100.00 Evonik Projekt-Betelligungs-GmbH & Co. KG Essen 99.00 Evonik Projekt-Betelligung Verwaltungs-GmbH Essen 100.00 Evonik Real Estate GmbH & Co. KG Marl • 100.00 Evonik Real Estate Verwaltungs•GmbH Marl 100.00 Evonik Resource Efficiency GmbH Essen • 100.00 Evonlk Risk and Insurance Services GmbH Essen • 100.00 Evonik Rohm GmbH Essen 100.00 Evonik Technochemie GmbH Essen • 100.00 Evonik Technology & Infrastructure GmbH Essen • 100.00 Evonik Venture Capital GmbH Hanau • 100.00 Gotdschmldt ETB GmbH Berlin • 100.00 HD Ceracat GmbH Frankfurt am Main 100.00 HAS integrierte Logistik &Service GmbH Marl • 100.00 KMV Vermogensverwaltungs-GmbH Marl 100.00 Mench-Kunststofftedinik GmbH Bad KtInig • 100.00 EFTA00598794 162 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Consolidated subsidiaries Shareholding Name of company Registered office in% RSV Vrwaltungs•GmbH Essen 100.00 RCIV Vermilgensverwaltungs-GmbH Essen 100.00 ROTGERS Dlenstlelstungs•GmbH Essen 100.00 ROTGERS GmbH Essen 100.00 Stockhausen UnterstOtzungseinriduung GmbH Krefeld 100.00 Westgas GmbH Marl 100.00 Other counalea Degussa International Inc Wilmington (Delaware, USA) 100.00 DSL. Japan Co., Ltd. Tokyo (Japan) 51.00 Egesil Kimya Sanayl ye Titres A.S. Istanbul (Turkey) 51.00 Evonik Acrylics Africa (Pty) Ltd. Johannesburg (South Africa) 51.00 Evonik Aerosil France S.A.R.L. Salalse•sur•Sanne (France) 100.00 Evonik Africa (Pty) Ltd. Midrand (South Africa) 100.00 Evonik Agroferm Th. Kaba (Hungary) 100.00 Evonik Amalgamation Ltd. Milton Keynes (UK) 100.00 Evonik Australia Ply Ltd. Mount Waverley (Australia) 100.00 Evonik Canada Inc. Calgary (Canada) 100.00 Evonik Catalysts India Pvt. Ltd. DomblvIl (India) 100.00 Evonik CB LLC Wilmington (Delaware, USA) 100.00 Evonik Colombia S.A.S. Medellin (Colombia) 100.00 Evonik Corporation Parsippany (New Jersey, USA) 100.00 Evonik Cyro Canada Inc. Etobicoke (Canada) 100.00 Evonik Cyro LLC Wilmington (Delaware, USA) 100.00 Evonik Degussa Africa (Pty) Ltd. Midrand (South Africa) 100.00 Evonik Degussa Antwerpen . Antwerp (Belgium) 100.00 Evonik Degussa Argentina S.A. Buenos Aires (Argentina) 100.00 Evonik Degussa Brasil Ltda. Sao Paulo (Brazil) 100.00 Evonik Degussa Carbons, Inc. Wilmington (Delaware, USA) 100.00 Evonik Degussa Chile S.A. Santiago (Chile) 99.99 Evonik Degussa (China) Co., Ltd. Beijing (China) 100.00 Evonik Degussa International AG Zurich (Switzerland) 100.00 Evonik Dutch Holding B.V. Amsterdam (Netherlands) 100.00 Evonik Espana y Portugal, SA.U. Granollers (Spain) 100.00 Evonik Fermas s.r.o. Slovenski Cupla (Slovakia) 100.00 Evonik Fibres GmbH Sd,drfling (Austria) 100.00 Evonik Finance B.V. Amsterdam (Netherlands) 100.00 Evonik Foams Inc. Wilmington (Delaware, USA) 100.00 Evonik Forhouse Optical Polymers Corporation Taichung (Taiwan) 51.00 Evonik France S.A.S. Ham (France) 100.00 Evonik Goldschmidt UK Ltd. Milton Keynes (UK) 100.00 Evonik Gulf FZE Dubai (United Arab Emirates) 100.00 EFTA00598795 TO OUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 163 Not., Changes in the Group Consolidated subsidiaries Shareholding Name of company Registered office in% Evonik Hong Kong Ltd. Hong Kong (Hong Kong) 100.00 Evonik India Pvt. Ltd. Mumbai (India) 100.00 Evonik Industries de Mexico, SA de C.V. Mexico City (Mexico) 100.00 Evonik International Holding B.V. Amsterdam (Netherlands) 100.00 Evonik Iran AG Teheran (Iran) 100.00 Evonik Italia Pandino (Italy) 100.00 Evonik Japan Co., Ltd. Tokyo (Japan) 100.00 Evonik Jayhawk Fine Chemicals Corporation Canon City (Nevada, USA) 100.00 Evonik Korea Ltd. Seoul (South Korea) 100.00 Evonik Limited Egypt Cairo (Egypt) 100.00 Evonik Malaysia Sdn. Bhd. Kuala Lumpur (Malaysia) 100.00 Evonik MedAvox M. (In liquidation) Milan (Italy) 100.00 Evonik Membrane Extraction Technology Limited Milton Keynes (UK) 100.00 Evonik Methionine SEA Pte. Ltd. Singapore (Singapore) 100.00 Evonik Metllatos S.A. Rosario (Argentina) 100.00 Evonik Mexico, S.A. de C.V. Mexico City (Mexico) 100.00 Evonik Oil Additives Asia Pacific Pte. Ltd. Singapore (Singapore) 100.00 Evonik Oil Additives Canada Inc. Morrisburg (Canada) 100.00 Evonik Oil Additives SAS. Lauterbourg (Rance) 100.00 gR Evonik Oil Additives USA, Inc. Horsham (Pennsylvania, USA) 100.00 Evonik Oxeno Antwerpen. Antwerp (Belgium) 100.00 Evonik Para-Chemie GmbH Gramatneusiedl (Austria) 99.00 Evonik Pension Scheme Trustee Limited Milton Keynes (UK) 100.00 Evonik Peroxid GmbH Weissenstein (Austria) 100.00 Evonik Peroxide Africa (Pty) Ltd. Umbogintwini (South Africa) 100.00 Evonik Peroxide Holding B.V. Amsterdam (Netherlands) 100.00 Evonik Peroxide Ltd. Morrinsvilk (New Zealand) 100.00 Evonik Peroxide Netherlands B.V. Amsterdam (Netherlands) 100.00 Evonik Re S.A. Luxembourg (Luxembourg) 100.00 Evonik Realm (Nanning) Pharmaceutical Co., Ltd. Nanning (China) 100.00 Evonik Rexim S.A.S. Ham (France) 100.00 Evonik (SEA) Pte. Ltd. Singapore (Singapore) 100.00 Evonik Servidos, S.A. de C.V. Mexico City (Mexico) 100.00 Evonik (Shanghai) Investment Management Co., Ltd. Shanghai (China) 100.00 Evonik Silquimica, S.A.U. Zubillaga-Lantaron (Spain) 100.00 Evonik Speciality Organics Ltd. Milton Keynes (UK) 100.00 Evonik Specialty Chemicals Olin) Co., Ltd. Jilin (China) 100.00 Evonik Specialty Chemicals (Shanghai) Co., Ltd. Shanghai (China) 100.00 Evonik Taiwan Ltd. Taipei (Taiwan) 100.00 Evonik Tasnee Marketing LLC Riyadh (Saudi Arabia) 75.00 Evonik Thal Aerosil Co., Ltd. Bangkok (Thailand) 100.00 Evonik (Thailand) Ltd. Bangkok (Thailand) 100.00 EFTA00598796 164 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Consolidated subsidiaries Shareholding Name of company Registered office in% Evonik Tianda (Llaoyang) Chemical Additive Co., Ltd. Liaoyang (China) 97.04 Evonik Ticaret Ltd. Sirked Tuzla/istanbul (Turkey) 100.00 Evonik Trustee Limited Milton Keynes (UK) 100.00 Evonik UK Holdings Ltd. Milton Keynes (UK) 100.00 Evonik United Silica Industrial Ltd. Taoyuan Hsien (Taiwan) 100.00 Evonik United Silica (Siam) Ltd. Rayong (Thailand) 70.00 Evonik Vietnam Limited Liability Company Ho-Chi-Minh City (Vietnam) 100.00 Evonik Wellink Silica (Napping) Co., Ltd. Nanping (China) 60.00 Insilco Ltd. GaJraula (India) 73.11 IIDA Evonik High Performance Polymers (Changchun) Co., Ltd. Changchun (China) 84.04 Laporte Industries Ltd. Milton Keynes (UK) 100.00 Laporte Nederland (Holding) B.V. Amsterdam (Netherlands) 100.00 Nilok Chemicals Inc. (in liquidation) Parsippany (New Jersey, USA) 100.00 Nippon Aerosil Co., Ltd. Tokyo (Japan) 80.00 OOO DESTEK Podolsk (Russian Federation) 62.25 OOO Evonik Chimia Moscow (Russian Federation) 100.00 PT. Evonik Indonesia Clkarang Bekasl (Indonesia) 100.00 PT. Evonik Sumi Asih Belcasi Timur (Indonesia) 75.00 Roha B.V. Tilburg (Netherlands) 100.00 RUTGERS Organics Corporation State College (Pennsylvania, USA) 100.00 SKC Evonik Peroxide Korea Co., Ltd. Ulsan (South Korea) 55.00 Sflbond Corporation Weston (Michigan, USA) 100.00 Stockhausen Nederland B.V. Amsterdam (Netherlands) 100.00 • Utilizes the exemptions permitted under Sections 264 Paragraph 3 and 264b of the German CommercialCode (HGB). b Fully consolidated 'vectored entity in accordance with IFRS 10.88 in conjunction with 819 04. DeAM-Fonds Treasury 1 is a special purpose segregated the opportunities and risks of this special purpose entity. alternative investment fund (AIF) with fixed investment terms Evonik plays a role in setting the investment strategy by pursuant to Section 284 of the German Capital Investment defining the basic focus of the fund in the Investment Com- Act (KAGB). It was established by Evonik at Deutsche Asset mittee and through general and special contractual terms. & Wealth Management Investment GmbH (DeAWM), Frank- Contractually, Evonik is the principal and DeAWM is the furt am Main (Germany). Evonik does not hold any shares in agent. The fund therefore constitutes a structured entity, this company but it is the sole investor and owns all the which has to be fully consolidated as Evonik exercises control. investment certificates. Evonik is therefore fully exposed to No financial or other assistance has been granted or pledged. EFTA00598797 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION US Non Changes in the Group Joint operations recognized on a pro rata basis Shareholding Name of company Registered office in% Point operations Germany Neolyse IbbenbOren GmbH ibbenberen 50.00 StoHaas Marl GmbH Marl 50.00 StoHaas Monomer GmbH & Co. KG Marl 50.00 Other countries ROH Delaware LLC Deer Park (Texas, USA) 50.00 ROH Delaware LP Deer Park (Texas, USA) 50.00 At the joint operations there is no difference between the The purpose of StoHaas Monomer GmbH & Co. KG and shareholding and proportion of the voting rights. its wholly owned subsidiaries StoHaas Marl GmbH, ROH The purpose of Neolyse Ibbenburen GmbH is the joint Delaware LLC and ROH Delaware LP is joint production of production of potassium hydroxide solution and chlorine acrylic acid (CAA) for use by Evonik and its partner Dow for use by Evonik and its partner Akzo Nobel Industrial Chemicals Inc. (formerly ROHM AND HAAS TEXAS, INC.). Chemicals GmbH. Companies recognized at equity Shareholding Name of company Registered office in% joint ventures Other countries CyPlus Mesa,MI. de C.V. Mexico City (Mexico) 50.00 Daicel-Evonik Ltd. Tokyo (Japan) 50.00 Evonik Headwaters LLD Milton Keynes (UK) 50.00 Evonik Lansing (Rlzhao) Chemical Industrial Co., Ltd. Riahao (China) 50.00 Evonik Trelbacher GmbH Trelbach/Althofen (Austria) 50.00 LiteCon GmbH Hanigtherg/MUrzzuschlag (Austria) 49.00 Rusferm Limited Nicosia (Cyprus) 49.00 Saudi Acrylic Polymers Company, Ltd. Ju bail (Saudi Arabia) 25.00 Associates Germany ARG mbH & Co. KG Duisburg 19.93 T0V NORD InfraChem GmbH & Co. KG Marl 49.00 T0V NORD InfraChem Verwaltungsgesellschaft mbH Marl 49.00 feonik is able to exercise a materiel influence under contractual agreements. EFTA00598798 VA FINANCIAL REPORT 2015 EVONIK INDUSTRIES Companies recognized at amortized cost Shareholding Name of company Registered office in% Non-consolidated subsidiaries Germany PKU Pulverkautschuk Union GmbH (In liquidation) Marl 100.00 Studlengesellschaft Kohle mbH Mülheim 84.18 Other countries EGL Ltd. Milton Keynes (UK) 100.00 Evonik Guatemala, S.A. Guatemala City (Guatemala) 100.00 Evonik International Costa Rica, S.A. Santa Ma (Costa Rica) 100.00 Laporte Chemicals Ltd. Milton Keynes (UK) 100.00 LLC 'Evonik Ukraine Kiev (Ukraine) 100.00 lane ventures Germany dev.log GmbH (in formation) Niederkassel 50.00 Faserwerke Hüls Gesellschaft mit beschr6nkter Haftung Marl 50.00 StoHaas Management GmbH Marl 50.00 Other countries Idevo Servicios, SA. de C.V. Mexico City (Mexico) 50.00 RSC Evonik Sweeteners Co., Ltd. Bangkok (Thailand) 50.00 Associates Germany ARG Verwaltungs GmbH Duisburg 20.00 Industriepark Münchsmünster GmbH Er Co. KG Münchsmünster 30.00 Indusulepark Münchsmünster Verwaltungsgesellsdaft mit beschr6nkter Haftung Münchsmünster 38.00 Umschlag Terminal Marl GmbH & Co. KG Marl 50.00 Umschlag Terminal Marl Verwaltungs-GmbH Marl 50.00 Vivawest GmbH Essen a 25.00 Based on the nature of the plan meets, these shares were menaced In accordance with IAS 19. Evonik holds more than 5 percent of the voting rights in Acquisitions the following company, which is defined as a large stock Evonik acquired all shares in Monarch Catalyst Pvt. Ltd. corporation in accordance with Section 267 Paragraph 3 of (Monarch), Dombivli (India) on June 5, 2015. Monarch's the German Commercial Code (HGB) (disclosure pursuant to global activities in the field of oil and fat hydrogenation Section 313 Paragraph 2 No. 4 Sentence 2 German Commer- catalysts extend Evonik's portfolio of catalysts. In addition, this cial Code (HGB)): acquisition strengthens Evonik's market position in activated Borussia Dortmund GmbH & Co. KGaA, Dortmund (Ger- base and precious metal catalysts in India and on the Asian many) (shareholding: 14.78 percent; fiscal year 2014/2015: market. The company has been renamed Evonik Catalysts income after taxes: €2.4 million; equity: E324 million). India Pvt. Ltd. On October 30, 2015, Evonik acquired all shares in PeroxyChem Netherlands B.V., Amsterdam (Netherlands) from 5.2 Acquisitions and divestments PeroxyChem Cooperatief U.A., Amsterdam (Netherlands). The production facilities in Delfzijl (Netherlands) complement This section provides a more detailed overview of the prin- Evonik's European production network for hydrogen peroxide, cipal changes in the scope of consolidation in the reporting comprising three European sites in Antwerp (Belgium), Rhein- period, divided into acquisitions and divestments. felden (Germany) and Weissenstein (Austria). The company has been renamed Evonik Peroxide Netherlands B.V. EFTA00598799 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 167 Notes (barges rr, lie Group Both acquisitions have been integrated into the Resource The aggregate impact of the divestments on the balance sheet Efficiency segment. Their aggregate impact on the balance at the time of deconsolidation or divestment was as follows: sheet as of the date of first-time consolidation was as follows: Impact of divestments on the balance sheet Impact of the acquisitions on the balance sheet Carrying amounts Fair value inEmillion divested inEmmen recognized Non-current assets Non-current assets 54 Current assets 35 Current assets 21 thereof cash and cash equivalents 7 thereof receivables 11 Non-current liabilities -5 thereof cash and cash equivalents 1 Current liabilities -9 Non-current liabilities —14 Current liabilities —12 Net assets 49 The deconsolidation of subsidiaries resulted in a loss of Goodwill 5 E €4 million (2014: gain of C5 million), which is recognized in Cost of acquisition (purchase price) 54 other operating expenses and in income after taxes, dis- continued operations. The purchase prices were settled out of cash and cash Divestment of investments recognized at equity equivalents. Transaction costs of €1 million relating to these Under an agreement dated June 23, 2015, Evonik sold acquisitions are included in other operating expenses. The 10.3 percent of the shares in Vivawest GmbH (Vivawest), goodwill is not tax-deductible and mainly comprises the Essen (Germany), to RAG Aktiengesellschaft, Herne (Ger- expected future benefits of assets that were not individually many), for a purchase price of €428 million. The transaction 0 identifiable or for which recognition is not permitted, for was closed on June 29, 2015. The proceeds from this trans- example, anticipated synergies and the workforce. action amounted to €143 million. In the segment report, Both since the date of acquisition and on a pro forma basis these shares were previously included in other operations. since January 1, 2015, the aggregate sales generated by the acquisitions were less than €45 million and the aggregate earnings after taxes were under €5 million. Sales and earnings 5.3 Assets held for sale were not material relative to the Resource Efficiency segment and discontinued operations as a whole. Assets held for sale and the associated liabilities have to Divestments of subsidiaries be stated separately from other assets and liabilities on the Under an agreement dated April 29, 2015, Evonik sold its balance sheet. The amounts recognized for these assets and 100 percent stake in Evonik Litarion GmbH, Kamenz (Ger- liabilities in the previous year do not have to be restated. many) to Electrovaya GmbH, Chisseldorf (Germany). It was Businesses whose assets and liabilities have been classified agreed not to disclose the purchase price. This divestment as held for sale may also meet the criteria for classification as was closed on the date on which the agreement was signed. discontinued operations, especially if a separate, significant Under an agreement dated September 30, 2015, Evonik business area is to be disposed of. The income and expenses sold its 52 percent stake in Qingdao Evonik Chemical Co., Ltd., of such discontinued operations have to be stated separately Jiaozhou (China) to Orion Engineered Carbons International from those of continuing operations in the income statement. GmbH, Frankfurt (Germany). It was agreed not to disclose the The cash flows also have to be stated separately. The prior- purchase price. The stake was deconsolidated on October 27, period figures have to be restated in the income statement 2015 and was classified as held for sale until that date. and the cash flow statement. Until completion of these transactions, the shares were The 100 percent stake in Evonik Litarion GmbH, com- included in the segment report in other operations. prising the remaining lithium-ion business, was classified as a discontinued operation until the divestment was completed on April 29, 2015. EFTA00598800 166 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Impact of the discontinued operations on the income statement Operating income Divestment gains/losses Income after taxes, after taxes after taxes discontinued operations in €million 2015 2014 2015 2014 2015 2014 Lithium ion business —8 21 —7 -1 —15 20 Former Energy Business Area —30 —2 —2 —29 —9 —17 —9 No tax was incurred in connection with the divestment proceeds. Operating Income, discontinued operations In f nullKon 2015 2014 Lithium•ion business 10 90 Former Energy Business Area — 145 Income 10 233 Lithium•ion business —18 —62 Former Energy Business Area — —175 Expenses —18 —237 Lithium•ion business —8 28 Former Energy Business Area - -30 Operating Income before Income taxes, discontinued operations -8 -2 Lithium•ion business - -7 Former Energy Business Area - - Income taxes - -7 Lithium•ion business -8 21 Former Energy Business Area — —30 Operating Income after taxes, discontinued operations -8 -9 The operating income before income taxes from the lithium- On the cash flow statement, the cash flows from the ope- ion business included impairment losses of €7 million in rating, investing and financing activities of the discontinued fiscal 2015. operations only comprise cash flows generated through As of December 31, 2015, there were no assets or liabilities transactions with third parties. The net cash flows reflect the classified as held for sale on the balance sheet. change in cash and cash equivalents and intragroup cash pooling activities. Cash flow from discontinued operations In f Sloan 2015 2014 Lithium•lon business 3 7 Former Energy Business Area — 24 Cash flow from operating activities 3 31 Lithium•ion business — —1 Former Energy Business Area — — Cash flow from Investing activities — —1 Lithium•lon business 3 6 Former Energy Business Area — 24 Change in cash and cash equivalents, discontinued operations 3 30 EFTA00598801 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 169 Notts Notes. to the mcome statement 6. Notes to the income statement The income from non-core operations contains income from occasional, unplanned business activities that are not intended 6.1 Sales to be permanent operations. The income from restructuring measures mainly comprises The sales of €13,507 million (2014: €12,917 million) principally income in connection with the planned optimization of admin- comprise revenues from the sale of goods and services. istrative and service structures and workflows, and income relating to the exit from the photovoltaic business. This item also includes income that by nature would otherwise be 6.2 Function costs allocated to other line items in other operating income. An explanation of the economic effect of the net income Function costs are derived from cost accounting data. IFRS from currency translation of operating monetary assets and accounting policies are the central recognition principles used liabilities is provided in Note 10.2. at Evonik. Therefore, implicit costs may not be allocated to Other income includes insurance refunds, research sub- the functional areas. Function costs are determined after sidies, commission income, income from the sale of scrap and internal cross-charging to ensure that they take account of income relating to other periods. transactions between the functional areas. Other operating income includes a total of €7 million E Evonik divides function costs into the cost of sales, selling (2014: €10 million) from the divestment of property, plant expenses, research and development expenses and general and equipment, and €146 million (2014: €13 million) from administrative expenses. the sale of investments and business operations. In 2015 Operating expenses that cannot be allocated to the func- the income from the sale of investments mainly came from tional areas are recognized as other operating expenses. the sale of the 10.3 percent shareholding in Vivawest, see Note 5.2. Further, other operating income contains a total of €17 mil- 6.3 Other operating income lion (2014: €6 million) from the reversal of impairment losses. This comprises €10 million (2014: €4 million) in accordance Other operating income with IAS 39 Financial Instruments: Recognition and Mea- it surement relating to trade accounts receivable. inEmotion 2015 2014 The income from reversals of impairment losses in accor- Income from the disposal of assets 153 20 dance with IAS 36 Impairment of Assets totaling €7 million Income from non-core operations 55 SS (2014: €2 million) relates to the following segments: Income from the reversal of provisions 44 30 Income from restructuring measures 43 11 income from the reversal thereof income from of impairment losses by segment the disposal of assets 3 in Erniition 2015 2014 thereof income from the reversal of provisions 37 6 Resource Efficiency 6 1 thereof income from Performance Materials — 1 the reversal of impairment losses 5 Other operations Net income from currency translation of 7 2 operating monetary assets and liabilities 35 39 Income from the reversal of impairment losses 12 6 Other income 103 89 445 250 thereof adjustments 216 30 EFTA00598802 170 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Evonik defines non-operating income and expenses that are An explanation of the economic effect of the net expenses by nature one-off or rare as adjustments. These adjustments for operational currency hedging is provided in Note 10.2. are included in other operating income and expenses in Losses from the disposal of assets comprise €9 million the income statement. The adjustments recognized in other (2014: €16 million) from the divestment of property, plant operating income relate to the following functional areas: and equipment and, in the prior year, losses of €3 million from the sale of investments and business operations. Adjustments included in other operating income The increase in other expense is mainly due to provisions for risks arising from an agreement with a raw material in E million 2015 2014 supplier, and to expenses for the reorganization and simplifi- Production-related 11 1 cation of corporate structures in Euro e. This item also Administration-related 35 includes expenses for outsourcing, projects, non-core Other 170 29 operations, commission payments, other taxes, and legal and 216 30 consultancy fees. Other operating expenses contains impairment losses totaling €75 million (2014: €66 million). The impairment losses on financial instruments, which are calculated in accor- 6.4 Other operating expenses dance with IAS 39 Financial Instruments: Recognition and Measurement, totaled €12 million (2014: €19 million) and Other operating expenses relate to trade accounts receivable. Impairment losses on assets classified until now as held for in Emillion 2015 2014 sale recognized in accordance with IFRS 5 totaled €3 million Expenses for restructuring measures 108 97 (2014: €2 million). thereof Impairment losses 6 2 Impairment losses determined in accordance with IAS 36 Net expenses for operational Impairment of Assets in response to indications of a possible currency hedging 71 44 impairment were divided among the segments as shown in Impairment losses 69 64 the table below: Expenses for recultivation and environmental protection 10 6 Impairment losses by segment Losses on the disposal of assets 9 19 in E million 2015 2014 Expenses relating to the REACH Regulation 8 6 Performance Materials 43 38 Other expense 328 257 Resource Efficiency 11 3 603 493 Nutrition Er Care 5 2 thereof adiustments 290 209 Services 1 2 60 45 The expenses for restructuring measures mainly contain expenses for optimization of the product portfolio in the The impairment losses relate principally to capitalized costs Performance Materials segment and in connection with the for a project in the Resource Efficiency and Performance new Group structure. This item also includes expenses that Materials segments that was terminated following a routine by nature would otherwise be allocated to other line items in review of investment projects, and a production plant and other operating expenses. intangible assets in the Performance Materials segment. EFTA00598803 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 171 Notts Notes to the noose statement The determination of the value in use of the production plant 6.6 Financial result in the Performance Materials segment did not generate a positive value; the discount rate used was the weighted cost Financial result of capital of the segment, see Note 3.7. The recoverable in Clutha, 2015 2014 value of the other assets was not determined as the assets were not considered to have any further benefit. Income from securities and loans 4 S The adjustments recognized in other operating expenses Interest and similar income relate to the following functional areas: from derivatives 8 6 Other interest-type income 34 60 Adjustments included In other operating expanses Interest Income 46 71 Interest expense on financial liabilities —47 —50 Jae million 2015 2014 Interest and similar expenses Production-related 129 88 for derivatives —29 —19 Sales-related 12 - Interest expense on accrued Interest -related 7 - on other provisions —23 —60 Adminisuation-related 67 60 Net Interest expense for pensions —96 —120 Other 75 61 Other interest-type expense —50 —40 290 209 Interest expense —245 —289 Result from currency translation of financing-related assets and liabilities —22 —39 I Income from financing-related 3 6.5 Result from investments currency hedging 16 23 recognized at equity Miscellaneous financial Income and expenses —18 -1 Result from investments recognized at equity Other financial Income -24 -17 -223 -235 in e million 2015 2014 Income from measurement at equity 11 18 Expenses for measurement at equity -26 -4 Borrowing costs of €5 million (2014: €35 million) are capital- -15 14 ized. The average underlying cost of financing was 3.1 percent (2014: 5.5 percent). An explanation of the economic effect of the result from The expenses for measurement at equity in 2015 include an currency translation of financing-related assets and liabilities impairment loss of €14 million on an equity investment in the is provided in Note 10.2. Nutrition & Care segment, which is contained in adjustments. The miscellaneous financial expenses of €18 million In the prior year, income from measurement at equity mainly relate to impairment losses on an equity investment. included income of €10 million in connection with the 10.3 percent shareholding in Vivawest, which was sold in the second quarter of 2015 and was previously recognized at equity, see Note 5.2. EFTA00598804 172 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 6.7 Income taxes The impairment losses on deferred taxes previously recog- nized totals E3 million (including €2 million from loss Income taxes shown in the income statement carryfowards). This is countered by reversals of 415 million, mainly in connection with loss carryforwards. 'Other' con- InE million 2015 2014 tains other income taxes and deferred taxes relating to Other Income texas 508 225 different periods. thereof relating to other periods 21 -18 Deferred taxes -se 27 thereof relating to other periods -24 12 6.8 Earnings per share thereof relating to temporary differences -85 1 Earnings per share as shown in the income statement are 422 252 calculated by dividing net income by the weighted average number of shares issued, i.e. 466,000,000 shares. Net income The tax reconciliation shows the development of expected comprises the total earnings for the year less non-controlling income taxes relative to the effective income taxes stated in interests, including the earnings of discontinued operations. the income statement. As in the previous year, the expected Earnings per share could be diluted by potential ordinary income taxes are based on an overall tax rate of 30 percent, shares. Since there were no potential ordinary shares in either comprising German corporation tax of 15 percent, a solidarity 2015 or 2014, diluted earnings per share are identical to basic surcharge of 5.5 percent and an average trade tax rate of earnings per share. around 14 percent. The effective income taxes include other income taxes and deferred taxes. Earnings per share In C million 2015 2014 Tax recondllation Income after taxes, continuing operations 1,019 590 in emillinn 2015 2014 Income after taxes, discontinued operations —17 —9 Income before Income taxes, Less Income after taxes attributable to continuing operations 1,441 842 non-controlling interests -11 -13 Expected income taxes 432 253 Income after taxes attributable to Variances due to differences in shareholders of Evonik Industries AG the assessment base for trade tax 5 2 (net income) 991 568 Deviation from the expected tax rate 17 21 Earnings per share inE (basic and diluted) Changes in the valuation from continuing operations 2.19 1.27 of deferred taxes —9 5 from discontinued operations -0.04 -0.02 Losses not affecting deferred taxes less earnings per share attributable to and the use of loss carryforwards 24 —6 non-controlling interests -0.02 -0.03 Changes In tax rates and tax legislation 1 — Earnings per share In t Non-deductible expenses 35 19 (basic and diluted) attributable to shareholders of Evonlk indusbles AG .2.13 .1.22 Interest ceiling — 1 Tax-free income —88 —28 Result from investments recognized at equity 4 —5 Other 1 —10 Effective income taxes (current Income taxes and deferred taxes) 422 252 Effective income tax rate in% 29.3 29.9 EFTA00598805 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 173 Noun Notes to the balance 'heel 7. Notes to the balance sheet 7.1 Intangible assets Change in intangible assets Nandises, Capitalized Other modems,ks, development intangible Goodwill and licenses costs assets Total Cost of acquisition/production As of January 1, 2014 2,730 1,647 169 488 5,034 Currency translation 56 10 3 69 Additions from business combinations 12 13 14 39 Other additions 12 7 19 Disposal —9 —18 Reclassification 20 —2 —14 4 E As of December 31, 2014 2,792 1,693 165 497 5,147 Currency translation 64 7 2 73 Additions from business combinations 5 1 16 22 Other additions 10 15 25 Disposal —54 —54 Reclassification 9 —3 6 As of December 31, 2015 2,861 1,666 165 527 5,219 Amortization and impairment losses 0 As of January 1, 2014 102 1,311 148 435 1,996 Currency translation 7 1 8 Additions from business combinations Amortization 48 2 57 Impairment losses 2 Reversals of impairment losses Disposal —9 —16 Reclassification —11 1 10 As of December 31, 2014 1,348 149 453 2,047 Currency translation S 6 Additions from business combinations Amortization 33 1 39 Impairment losses 2 12 14 Reversals of Impairment losses —1 —1 Disposal —53 —54 Reclassification —4 4 As of December 31, 2015 97 1,330 162 462 2,051 Carrying amounts as of December 31, 2014 2,69S 345 16 44 3,100 Carrying amounts as of December 31, 2015 2,764 336 3 65 3,160 Franchises, trademarks and licenses include trademarks with As in the previous year, on the reporting date there were an indefinite useful life totaling E203 million (2014: no intangible assets to which title was restricted and no E202 million). commitments to purchase intangible assets. EFTA00598806 174 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 7.2 Property, plant and equipment Change in property, plant and equipment Advance Other plant, payments and Land, land rights Plant and office furniture construction in Emillion and buildings machinery and equipment in progress Total Cost of acquisition/production As of January 1, 2014 2,765 10,753 979 1,140 15,637 Currency translation 85 335 12 31 463 Additions from business combinations 5 9 1 - 15 Other additions 131 334 41 598 1,104 Disposal -65 -330 -30 -35 -460 Reclassification 235 685 22 -936 6 As of December 31, 2014 3,156 11,786 1,025 798 16,765 Currency translation 69 265 7 -8 333 Additions from business combinations 22 13 - 1 36 Other additions 52 271 44 485 852 Disposal —26 —185 —44 —2 —257 Reclassification 101 546 15 —663 —1 As of December 31, 2015 3,374 12,696 1,047 611 17,728 Deprecation and Impairment losses As of January 1, 2014 1,525 8,486 778 16 10,805 Currency translation 31 212 8 — 251 Additions from business combinations 1 2 — — 3 Depredation 60 425 64 — 549 Impairment losses 2 8 — 36 46 Reversals of Impairment losses — —2 — — —2 Disposal —56 —292 —29 —25 —402 Reclassification — 1 —1 — — As of December 31, 2014 1,563 8,840 820 27 11,250 Currency translation 28 176 5 — 209 Additions from business combinations — — — — — Depreciation 77 516 68 — 661 Impairment losses 1 33 — 19 53 Reversals of impairment losses — —6 — — —6 Disposal —20 —187 —42 — —249 Reclassification —9 24 —10 —3 2 As of December 31, 2015 1,640 9,396 841 43 11,920 Carrying amounts as of December 31, 20'14 1,593 2,946 205 771 5,515 Carrying amounts as of December 31, 2015 1,734 3,300 206 568 5,808 Prio-year figures restated. The Group had commitments of E159 million (2014: E105 mil- Maturity structure of future minimum lease payments lion) to purchase property, plant and equipment. (lessor; operating leases) As a lessor, Evonik mainly leases out land under operating In E million 2015 2014 leases. The nominal values of future minimum lease pay- ments for these assets over the non-cancelable term of the Due within 1 year 9 9 lease are due as follows: Due in more than 1 and up to S yews 23 20 Due in more than 5 years 152 120 184 149 EFTA00598807 • TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATEDFINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 175 Noun Notts to the balance sheet 7.3 Investments recognized at equity The condensed financial data for the investments recognized at equity which are classified individually as non-material for This item comprises associates and joint ventures recognized Evonik, based on Evonik's interest, are as follows: using the equity method, see Note 5.1. Condensed financial data for individually Investments recognized at equity non-material investments recognized at equity Dee. 31, Dec. 31, Associates Joint ventures lite ninon 2015 2014 In E million Carrying amount of material associates 300 Carrying Carrying amount of individually amount as of non-material associates 7 2 December 31 Carrying amount of individually non-material Joint ventures 46 55 Income after 53 357 taxes, continuing operations Total compre- In the previous year, Vivawest was classified as material hensive Income for the Evonik Group. The shares in Vivawest, which were recognized at equity, were divested in the second quarter of 2015, see Note 5.2. Income from investments recognized For information on contingent liabilities to associates and at equity of E1 million (2014: €10 million) is recognized in joint ventures see Note 10.3. connection with Vivawest. 7.4 Financial assets Financial assets Dec 31, 2015 Dec.31, 2014 thereof thereof Ine melon Total non-current Total non-current Other Investments 74 74 64 64 Loans 29 24 12 a Securities and similar claims 265 3 392 5 Receivables from derivatives 84 11 35 3 Other finandal assets 29 4 29 3 481 116 532 83 (a) Other investments Further, other investments contains unlisted equity instruments Other investments include shares in Borussia Dortmund GmbH that are recognized at the cost of acquisition since their fair & Co. KGaA, Dortmund (Germany) totaling €55 million value cannot be determined reliably. (2014: €53 million), which are recognized at their stock market value as of the reporting date. This investment is therefore exposed to a market price risk and is allocated to the category available-for-sale. EFTA00598808 176 FINANCIAL REPORT 2015 EVONIK INDUSTRIES (b) Loans (e) Other financial assets Loans are recognized at amortized cost. They are exposed to Other financial assets comprise time deposits at banks, an interest rate risk, which can affect their fair value or future receivables from profit-and-loss transfer agreements with cash flows. investments that are not fully consolidated, and claims relating to the termination of contracts. Risk and maturity structure of loans Risk and maturity structure of other financial assets Dec. 31, Dec. 31, InE million 2015 2014 Dec. 31, Dec. 31, in 2015 2014 Impaired loans 3 Nominal value 3 2 Impaired other (Mandel assets 3 Impairment losses —2 Nominal value 10 Non-Impaired loans 26 12 Impairment losses —7 Not yet due 26 12 Non-Impaired other flnandal assets 26 29 Overdue Not yet due 26 29 29 12 Overdue 29 29 As in the previous year, Evonik did not renegotiate the terms and conditions of any non-current loans in 2015. (f) Security pledged Financial assets pledged as security for Group liabilities (c) Securities and similar claims amounted to E1 million (2014: E2 million). They comprised Securities and similar claims mainly comprise bonds and current securities provided as security for commitments to money market paper purchased to invest liquid funds. They employees under the partial retirement program in Germany. are exposed to an interest rate risk, which can affect their fair value or future cash flows. All securities are classified as available-for-sale and are measured at market price. 7.5 Inventories Securities listed on a stock exchange are exposed to a risk of changes in their market price. Inventories As in the previous year, this item contains various securities Dec. 31, Dec. 31, and similar claims totaling approximately E250 million which Jae Shan 2015 2014 are bundled in a fully consolidated segregated investment Raw materials and supplies 438 414 fund, see Note 5.1. The units in an investment fund totaling Work in progress 65 78 E127 million included in the previous year were sold in 2015. Finished goods and merdiandise 1,260 1,286 (d) Receivables from derivatives 1,763 1,778 Receivables from derivatives Impairment losses on raw materials, supplies and merchan- Dec. 31, Dec. 31, InEmillion 2015 2014 dise totaling E37 million were recognized in 2015 (2014: E47 million), while reversals of impairment losses amounted Receivables horn cross-currency Interest rate swaps 33 4 to E25 million (2014: E21 million). Reversals of impairment losses were mainly due to higher selling prices and improved Receivables from forward exchange contracts and currency swaps 51 31 market conditions. 84 35 EFTA00598809 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 177 Notes Noses to the balance she! 7.6 Trade accounts receivable, other receivables Trade accounts receivable, other receivables Dec. 31, 2015 Dec. 31, 2014 thereof thereof in E million Teal 11041-CINfellt Total non-current Trade accounts receivable 1,813 1,720 Advance payments made 26 1 37 2 Miscellaneous other receivables 241 47 281 48 Deferred expenses 52 6 43 8 2,132 54 2,081 SS y e Risk and maturity structure of (b) Authorized capital 8 trade accounts receivable Under a resolution adopted by the Annual Shareholders' 2 Meeting on May 20, 2014 on authorized capital, the Executive Dec. 31, Dec. 31, in C nnP on 2015 2014 Board is authorized until May 1, 2019, subject to the approval of the Supervisory Board, to increase the company's capital Impaired receivables 4 3 stock by up to €116,500,000 by issuing new registered shares 1• Nominal value 16 15 with no par value (Authorized Capital 2014). Oat Impairment losses -12 -12 This authorization may be exercised through one or more Non-Impaired receivables 1,809 1,717 issuances. Not yet due 1,540 1,479 a Overdue 269 238 The new shares may be issued against cash and/or contribu- up to 3 months 235 212 tions in kind. The Executive Board is authorized, subject to the more than 3 and up to 6 months 7 15 approval of the Supervisory Board, to exclude shareholders' statutory subscription rights when issuing new shares in the more than 6 and up to 9 months 13 1 following cases: more than 9 and up to 12 months 6 1 • capital increases against contributions in kind more than 1 year 8 9 • if the capital increase is against cash and the proportionate 1,813 1,720 share of the capital stock attributable to the new shares does not exceed 10 percent of the capital stock, and the issue price of the new shares is not significantly below the At year end, trade accounts receivable totaling E497 million stock market price of shares already listed on the stock (2014: E498 million) were covered by credit insurance, exchange and E10 million (2014: E3 million) were covered by other • to exclude fractional amounts arising from the subscrip- collateral. No terms were renegotiated for trade accounts tion ratio receivable not yet due. In the prior year, the terms for receiv- • insofar as is necessary to grant holders and/or creditors of ables with a carrying amount of E2 million were renegotiated warrants or conversion rights or obligors of warrant and/ and would otherwise have been impaired or overdue. or conversion obligations subscription rights to new shares to the extent that they would be entitled to them after exercise of their warrants and/or conversion rights 7.7 Equity or fulfillment of their warrant or conversion obligations to grant shares to employees (employee stock), provided (a) Issued capital that the new shares for which subscription rights are As in the previous year, the company's fully paid-up capital excluded do not in aggregate account for a proportionate was €466,000,000 on the reporting date. It is divided into share of the capital stock in excess of 1 percent 466,000,000 no-par registered shares. for the execution of a scrip dividend. EFTA00598810 lit FINANCIAL REPORT 2015 EVONIK INDUSTRIES The proportionate amount of the capital stock attributable (d) Treasury shares to the shares for which subscription rights are excluded, On March 6, 2015, Evonik Industries AG announced that it together with the proportionate amount of the capital stock would be utilizing the authorization granted by the Annual attributable to treasury stock or to conversion and/or war- Shareholders' Meeting on March 11, 2013 to purchase shares rant rights or obligations arising from debt instruments, in the company totaling up to €113.4 million by April 23, 2015 which are sold or issued after May 20, 2014 under exclusion at the latest. The purpose of purchasing the shares was of subscription rights, may not exceed 20 percent of the to grant shares to employees of Evonik Industries AG and capital stock. If the sale or issue takes place in application— certain subordinated companies in the Evonik Group as part analogously or mutatis mutandis—of Section 186 Paragraph of an employee share program. 3 Sentence 4 of the German Stock Corporation Act (AktG), Through this share buyback program, by April 20, 2015 this shall also be deemed to constitute exclusion of subscrip- Evonik Industries AG purchased a total of 415,533 shares in tion rights. the company (corresponding to 0.1 percent or €415,533 of The Executive Board is authorized, subject to the approval the capital stock). A total of €13.9 million was spent on the of the Supervisory Board, to define further details of capital shares, corresponding to an average price of €33.43 per increases out of the Authorized Capital 2014. share. The purchases were made from March 10, 2015 at an The authorized capital has not yet been utilized. average daily volume of around 15,400 shares on each Xetra trading day through a bank acting on the instructions of (c) Conditional capital Evonik Industries AG. The consideration for each share Under a further resolution adopted by the Annual Share- repurchased (excluding ancillary costs) could not exceed or holders' Meeting of May 20, 2014, the capital stock is con- fall short of the opening price as set in the opening auction ditionally increased by up to €37,280,000, divided into up to for the trading day for shares in Evonik Industries AG in Xetra 37,280,000 registered shares with no par value (Conditional trading on the Frankfurt Stock Exchange by more than 5 per- Capital 2014). This conditional capital increase relates to cent. At the end of April, 374,627 ordinary shares (including a resolution of the above Shareholder's Meeting granting 95,748 bonus shares) were transferred to participating authorization to issue convertible and/or warrant bonds. employees on the basis of the share price and the exchange The conditional capital increase will only be conducted rate for the US dollar prevailing on April 23, 2015. The insofar as holders or creditors of warrant or conversion rights remaining 40,906 ordinary shares were sold to third parties or obligors of warrant or conversion obligations arising by April 27, 2015. As of December 31, 2015, Evonik Industries from warrant bonds and/or convertible bonds issued or AG therefore no longer held any treasury shares. guaranteed on the basis of the authorization resolved at the Annual Shareholders' Meeting of May 20, 2014, exercise (e) Capital reserve their warrants or conversion rights or, insofar as they have an The capital reserve mainly contains other payments received obligation to exercise the warrants or conversion obligations, from shareholders pursuant to Section 272 Paragraph 2 No. 4 meet the obligation to exercise the warrant or conversion of the German Commercial Code (HGB). obligations and other forms of settlement are not used. In principle, the shareholders have a statutory right to sub- (f) Accumulated income scription rights to the convertible and/or warrant bonds; the The accumulated income of €5,821 million (2014: €5,040 mil- authorization sets out specific cases where the Executive lion) comprises both Group earnings from 2015 and previous Board may exclude subscription rights to convertible and/or years, and other comprehensive income from the remeasure- warrant bonds, subject to the approval of the Supervisory ment of the net benefit liability for defined benefit pension Board. The new shares shall be issued at the warrant or plans. Income after taxes corresponds to the net income conversion price set in accordance with the above provisions attributable to shareholders of Evonik Industries AG, as stated of the resolution. in the income statement for fiscal 2015. However, under Ger- The new shares are entitled to a dividend from the start of man stock corporation law, only revenue reserves from the the fiscal year in which they are issued. separate financial statements drawn up by Evonik Industries AG The Executive Board is authorized, subject to the approval which are not subject to any restrictions are available for dis- of the Supervisory Board, to define further details of capital tribution. As of December 31, 2015, the profit reserves of increases out of the conditional capital. Evonik Industries AG totaled €4,235 million (2014: €3,635 mil- The conditional capital has not yet been utilized. lion). €47 million of this comprised the statutory reserve that is not available for distribution. EFTA00598811 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 179 Notes Notes to the balance sheet A proposal will be submitted to the Annual Shareholders' the value of financial instruments that are expected to be Meeting that the net profit of Evonik Industries AG of temporary and thus not charged to income. The reserve for €605,000,000.00 for 2015 should be used to pay a dividend gains and losses on hedging instruments comprises changes of €535,900,000.00 and the remaining €69,100,000.00 in the fair value of the effective portion of hedging instru- should be allocated to revenue reserves. That corresponds to ments that are accounted for as cash flow hedges or net a dividend of €1.15 per no-par share. investment hedges. The reserve for revaluation surplus for acquisitions made in stages contains the change in the fair (g) Accumulated other comprehensive income value of shares previously held in subsidiaries that were con- Accumulated other comprehensive income contains gains and solidated for the first time on or before December 31, 2009. losses that are not included in the income statement. The The reserve for currency translation adjustment comprises reserve for gains and losses on available-for-sale securities differences arising from the translation of foreign financial contains remeasurement amounts resulting from changes in statements. Change in accumulated other comprehensive income attributable to shareholders of Evonik Industries AG Revaluation Gains/losses on Gains/losses surplus for Currency E available-for-sale on hedging acquisitions translation S in € million securities instruments in stages adjustment Total As of January 1, 2014 1 20 17 -458 -420 Other comprehensive income as in the statement of comprehensive Income -10 -103 292 179 Recognized gains and losses -11 -186 -197 Amounts reclassified to the income statement 45 45 Amounts reclassified to assets and liabilities -1 -1 Currency translation adjustment 289 289 0 Attributable to the equity method (after income taxes) -3 3 Deferred taxes 42 43 Other changes -3 -3 As of December 31, 2014 -33 14 -166 -244 Other comprehensive income as in the statement of comprehensive income 15 24 247 286 Recognized gains and losses 12 -171 -159 Amounts reclassified to the income statement 9 202 211 Amounts reclassified to assets and liabilities 1 1 Currency translation adjustment 244 244 Attributable to the equity method (after income taxes) 3 3 6 Deferred taxes -11 -17 Other changes -2 -2 As of December 31, 2015 -59 12 81 40 EFTA00598812 ISO FINANCIAL REPORT 2015 EVONIK INDUSTRIES In 2015, an overall hedging result of —E202 million (2014: 7.8 Provisions for pensions and —E45 million) was reclassified from the reserve for gains/ other post-employment benefits losses on hedging instruments to the income statement as follows: Provisions for pensions are established to cover benefit plans for retirement, disability and surviving dependents' pensions. Reclassification of hedging results from accumulated The benefit obligations vary depending on the legal, tax and other comprehensive income to the income statement economic circumstances in the various countries in which the companies operate. The level of the benefit obligations in Emillion 2015 2014 generally depends on length of service and remuneration. Sales —182 17 At the German companies, occupational pension plans are Cost of safes —4 — predominantly defined benefit plans. They are primarily Other operating income/expenses 1 —59 funded by provisions, pension fund assets and a contractual Net Interest expense —3 —3 trust arrangement (CTA). The pension plans at foreign companies may be either Other financial income —14 - defined contribution or defined benefit plans. -202 —45 The present value of the defined benefit obligations and the fair value of the plan assets as of December 31, 2015 (h) Non-controlling interests mainly relate to the following countries: Non-controlling interests amounting to E83 million (2014: E95 million) comprise shares in the issued capital and reserves Breakdown of the present value of the defined benefit of consolidated subsidiaries that are not attributable to the obligation and the fair value of plan assets 2015 shareholders of Evonik Industries AG. 2015 There were no changes in subsidiaries without loss of control in 2015 or 2014. Defined benefit ME million obligation Plan assets Change in accumulated other comprehensive income Evonik total 10,542 7,302 attributable to non-controlling interests thereof Germany 9,099 6,066 Currency thereof pension fund/reinsured translation support fund 3,933 3,102 Ina/million adjustment Total thereof funded through CIA 4,845 2,964 As of January 1, 2014 -4 —4 thereof USA 720 451 Other comprehenshro Income as In the thereof UK 564 670 statement of comprehensive Income 6 6 Currency translation adjustment 6 6 As of December 31, 2014 2 2 Breakdown of the present value of the defined benefit Other comprehensive Income as In the obligation and the fair value of plan assets 2014 statement of comprehensive Income 1 1 2014 Currency translation adjustment 1 1 Defined As of December 31, 2015 3 1 3 benefit Ine million obligation Plan assets Evonik total 10,630 6,811 thereof Germany 9,334 5,670 thereof pension fund/ reinsured support fund 3,892 3,025 thereof funded through CIA 5,092 2,645 thereof USA 675 433 thereof UK 551 662 EFTA00598813 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 181 Notes Nimes to the balance sheet The main pension plans for employees in Germany are as Direct pension commitments: These comprise various follows: defined benefit plans where the pension benefit is generally Pension fund (Pensionskasse): There are a number of directly or indirectly linked to the final salary. Most of these closed pension plans. Income-related contributions are con- plans grant higher benefits for income components above the verted into defined benefits and invested with the company- ceiling for contributions to the state pension insurance plan owned Degussa Pension Fund. The structure of the tariffs, or are intended exclusively to cover such income components. including investment of the assets, is subject to oversight All final salary plans are closed and in most cases they now by the supervisory authority for the insurance sector. The only operate through the protection of the accrued benefits pension fund is a multi-employer fund. It is funded on a pro- for insurees who are currently still working. jected benefit basis. The level of plan assets required to cover Direct commitments of this type are now only used for the projected benefits is derived from a technical business senior executives and voluntary deferred compensation plan approved by the supervisory authority, and from statutory arrangements. In such cases, a defined benefit is calculated requirements. Funding must be sufficient at all times to cover on the basis of an income-related contribution or an amount benefits, which have to be upheld even if the employer's credited by the employee. Insurees can choose between contributions are terminated. The company contribution to various forms of payment, for example, as a lump sum, an V Tariff DuPK is calculated to ensure that, together with the annuity or installment payments. The benefits include a fixed E employee contributions, funding of the resulting entitlements pension increase of 1 percent a year. in line with the technical business plan is assured. The Plan assets for large Group companies, which account for company contribution to the Marl and Troisdorf tariffs is the vast majority of obligations under direct commitments, proposed by the responsible actuary and is based on the are managed by Evonik Pensionstreuhand e.V. This fund funds required to cover the benefits. As the sponsoring is not subject to regulatory oversight or minimum funding company of this pension fund, Evonik Degussa GmbH has a requirements. It uses an asset-liability matching strategy, contractual obligation to cover benefits under the Marl and whereby changes in obligations are offset through changes Troisdorf tariffs if sufficient funding is not available. This in the plan assets. In this strategy, the interest rate and credit obligation is not limited to the company where the insurees sensitivities of the liabilities are partially replicated in the 0 are employed. The obligation was assumed on the basis of plan assets. a requirement stipulated by the supervisory authority when these tariffs were established. At that time, only company Description of the potential risks arising from pension plans: employees were insured in the plan. At present, it is not Most German pension plans grant lifelong pension bene- possible to estimate whether this obligation could be of fits. A specific risk here is that rising life expectancy could relevance as a supplement to the tools set out in the pension increase the benefit obligation. In most cases, increases in the fund regulation, such as increasing company contributions or benefits paid by these funds are linked to the consumer price cutting benefits in the event of a loss. index. This entails an additional inflation risk. In the case of Support fund (Unterstutzungskasse): This is the plan plans where employees can choose between a lump-sum that is open to new employees. It also allows for deferred payment or an annuity, there is a risk that the option could be compensation arrangements. Income-related contributions selected on the basis of individual assessments of health and are converted into defined benefits and invested with the life expectancy. company-owned Degussa Pension Fund. The structure of the For final salary plans, the benefit risk relates to future tariffs, including investment of the assets, is subject to over- salary trends for employees covered by collective agreements sight by the supervisory authorit for the insurance sector. and exempt employees and, in some cases, changes in the Pension increases of 1 percent M. are a firm commitment. ceiling for contributions to statutory pension insurance. The support fund meets the criteria for classification as a Where assets are invested externally by the pension fund, multi-employer plan. It is funded through reinsurance with support fund and Evonik Pensionstreuhand e.V., plans are the Degussa Pension Fund, which maintains sufficient fund- exposed to a capital market risk. Depending on the com- ing for this in compliance with the German Insurance Super- position of the investment portfolio, this comprises a risk of vision Act and the ordinances issued by the supervisory changes in value and income risks which could mean that the authority. Funding must be sufficient at all times to cover assumed performance or return is not generated over the benefits, which have to be upheld even if the employer's term of the investment. Under German legislation on occupa- contributions are terminated. The level of benefits is based tional pensions, the employer is liable to cover firm benefit on the contributions paid into the fund. The support fund commitments and guaranteed returns. does not have any arrangements under which the Group is liable for the obligations of companies outside the Evonik Group in the event of inadequate funding. EFTA00598814 162 FINANCIAL REPORT 2015 EVONIK INDUSTRIES The main pension plans for employees in the USA: The discount rate for Germany and the euro-zone countries In the USA there are unfunded, fully funded and partially is extrapolated from a yield structure curve derived from funded pension plans and post-employment benefits under AA-rated corporate bonds denominated in euros and, where healthcare plans. The majority of the obligations relate there are no longer any market data, a yield curve for to funded plans. The defined benefit pension plans in the zero-coupon German government bonds, taking into account USA are not open to new employees. Benefits are based on a a risk premium for euro-denominated AA-rated corporate range of parameters such as final salary, average salary during bonds. The data on AA-rated euro-denominated corporate career, individual pension accounts, and fixed benefits. Most bonds is based on bonds with an AA rating from at least one plans include a lump-sum option with a corresponding risk to of the major rating agencies. The yield structure curve the company that this will be utilized. Minimum funding derived from AA-rated euro-denominated corporate bonds is levels have to be observed. To avoid volatility this is supported used to determine the present value of the cash flows from by an asset-liability matching strategy. This is implemented company pension obligations. The discount rate comprises primarily through US government bonds and corporate the rounded constant interest rate that results in the same bonds denominated in US dollars. The assets are managed by present value when applied to the cash flow. a pension trust. Analogous methods are used in the UK and the USA. As of December 31, 2015, the rounded discount rate was The main pension plans for employees in the UK: 4.41 percent for the USA (2014: 4.06 percent) and 3.62 per- In the UK, plans are organized through external trusts and cent for the UK (2014: 3.50 percent). the majority of the assets are invested in funds. The majority of the obligations relate to vested benefits for former Change in the present value of the employees and retirees. Only one plan is still open to new defined benefit obligation employees. Almost all plans are final salary plans. The plan in E million 2015 2014 assets are subject to the asset ceiling. They are required to meet minimum funding requirements that are agreed with the Present value of the defined benefit obligation as of January 1 10,650 9,042 trustees. Similarly, surplus assets cannot be returned to the companies without the approval of the trustees. The invest- Current service cost 191 172 ment strategy for plan assets is an asset-liability matching Interest cost 281 341 strategy which is implemented principally through inflation- Employee contributions 46 45 linked British government bonds and British corporate bonds. Actuarial gains (—) and losses (.) The table shows the weighted average assumptions used (remeasurement component) —371 1,332 for the actuarial valuation of the obligations: of which based on financial assumptions —423 1,298 of which based on Assumptions used in the actuarial valuation demographic assumptions 16 14 of pension obligations of which changes In the past fiscal year 36 20 Benefits paid —433 —404 Group Germany Past service cost 1 1 2015 2014 2015 2014 Changes at the companies 70 9 Discount rate as Gain/loss from settlement -1 1 of December 31 2.91 2.65 2.75 2.50 Payments for settlement of plans -3 -4 Future salary increases 2.55 2.58 2.50 2.50 Currency translation 111 115 Future pension Present value of the defined increases 1.70 1.72 1.75 1.75 benefit obligation as of December 31 10,542 10,650 Healthcare cost trend 7.00 7.25 -I The weighted term of the obligations is 16.1 years (2014: 16.5 years). EFTA00598815 TOODR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 133 Notes Notestothebalance thee! Breakdown of the present value of the In 2015, the employer contributions mainly comprised cash defined benefit obligation contributions of €200 million (2014: E200 million), and payments to Evonik Pensionstreuhand e.V. of E19 million lite million 2015 2014 (2014: E9 million) in settlement of tax payments from the Unfunded plans 357 385 previous year. Partially or fully funded plans 10,057 10,142 Healthcare benefit obligations 128 123 Present value of the defined benefit obligation es of December 31 10,542 10,650 Change in the fair value of plan assets in E million 2015 2014 Felt value of plan assets as of January 1 6,811 3,778 1P• Interest income from plan assets 189 224 Employer contributions 364 344 Employee contributions 11 12 E g Income from assets excluding interest Income from plan assets (remeasurement component) -26 526 Other administrative expense -5 -3 1 Benefits paid -185 -163 Payments for settlement of plans -3 -4 Changes at the companies 55 4 4- Currency translation 91 93 a V0 Fair value of plan assets as of December 31 7,302 6,811 Breakdown of the fair value of plan assets Der.. 31, 2015 Dec. 31, 2014 int million in % int million in % Cash/balances with banks 108 1.5 136 2.0 Shares—active market 705 9.7 490 7.2 Shares—no active market - - - - Government bonds—active market 1,128 15.5 1,662 24.4 Government bonds—no active market 58 0.8 61 0.9 Corporate bonds—active market Z187 29.9 1,696 24.9 Corporate bonds—no active market 36 0.5 34 0.5 Other bonds—active market 454 6.2 266 3.9 Other bonds—no active market 681 9.3 715 10.5 Real estate, direct and indirect investments—active market 14 0.2 14 0.2 Real estate, direct and indirect investments—no active market 1,249 17.0 1,090 16.0 Other investment funds—active market 1 - 450 6.6 Other Investment funds—no active market - - - - Alternative investments (Infrastructure/hedge funds/commodities)—active market 524 7.2 116 1.7 Alternative investments (Infrastructure/hedge funds/commoditles)—no active market 114 1.6 54 0.8 Other—active market 38 0.5 27 0.4 Other—no active market 10 0.1 - - 7,302 100.0 6,811 100.0 EFTA00598816 164 FINANCIAL REPORT 2015 EVONIK INDUSTRIES In 2015, as in 2014, none of the other assets were used by the The pension provisions recognized on the balance sheet Company. included healthcare benefit entitlements, mainly of retirees of US subsidiaries. Chang* in the asset ailing Expected change in benefit payments in Emilio:on 2015 2014 Asset ceiling as of January 1 114 67 Reporting Int mill on period Prior year Interest expense on the unrecognized portion of plan assets 4 3 2015 242 Changes in asset ceiling, excluding interest 2016 245 249 expense (remeasurement component) —16 38 2017 255 255 Changes at the companies — 6 2018 254 254 Currency translation 7 — 2019 258 258 Asset ceiling as of December 31 109 114 2020 261 Change in pension provisions Employer contributions of €168 million are expected to be incurred for 2015 (2014: €155 million). Dec. 31, Dec. 31, InE Shen 2015 2014 The net interest expense is included in the financial result, see Note 6.6. The other amounts are allocated to the Pension provisions recognized en the balance sheet as of January 1 3,953 3,331 functional areas as personnel expense (personnel expenses). A breakdown of overall personnel expense is given in Current service cost 191 172 Note 11.2. Past service cost 1 1 Foreign subsidiaries paid a total of €18 million (2014: Gain/loss from settlement —1 1 €18 million) into defined contribution plans, which are also Net interest cost 96 120 included in personnel expense (pension expenses). Employee contributions 35 33 Further, €138 million (2014: €126 million) were paid into Other administrative expense 5 3 defined-contribution state plans (statutory pension insurance) Changes recognized in 00 in Germany and abroad. This is also reported in personnel (remeasurement) —361 844 expense (expenses for social security contributions). Benefits paid —248 —241 Employer contributions —364 —344 Changes at the companies 15 5 Currency translation 27 28 Pension provisions recognized on the balance sheet as of December 31 3,349 3,953 7.9 Other provisions Other provisions Dec. 31, 2015 Dec. 31, 2014 thereof thereof In C million Total non-Current Total non-current Personnel-related 900 358 808 336 ftecultivation and environmental protection 313 262 304 266 Restructuring 322 95 321 209 Sales and procurement 131 4 76 6 Other taxes and interest on taxes 63 35 59 20 Dismantling obligations 9 8 7 7 Other obligations 293 92 285 59 2,031 554 1,860 903 EFTA00598817 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 165 Notes Notes to the balance sheet Overall, the other provisions were €171 million higher than with the settlement paid to former shareholders, indemnities in 2014, principally due to the change in personnel-related in respect of the Walsum 10 coal-fired power plant in con- provisions and provisions for sales and procurement. It is nection with the divestment of the former Energy Business expected that slightly more than half of total provisions will Area, and a claim from the purchaser of the former carbon be utilized in 2016. black business for indemnification from environmental guar- Provisions relating to material legal risks amounted to antees. A provision has been recognized for the expected €231 million (2014: €204 million) and are allocated to the costs of a legal dispute involving proceedings to fine Evonik various categories of provisions on the basis of their type. in connection with deliveries of methionine to Brazil. The The principal legal risks for which provisions have been set background to these cases is outlined in detail in section 7.4 up relate to three ongoing appraisal proceedings in connection of the Management Report. Change in other provisions Recultivation, Other taxes, Personnel- environmental Sales, interest Dismantling Other in E million reined protection Restructuring procurement on taxes obligations obligations Total As of January 1, 2015 808 304 321 76 59 7 285 1,860 E Additions 514 22 66 109 37 1 112 861 S Utilization -433 -16 -22 -44 -3 - -SO -568 Reversal -12 -3 -46 -11 -30 - -45 -147 Addition of accrued interest/ interest rate adjustments 16 2 2 - - - 20 Other 7 4 1 1 - 1 -9 5 As of December 31, 2015 900 i 313 322 131 63 9 293 2,031 0 Personnel-related provisions are established for many differ- ments, expenses for the termination of contracts, dismantling ent reasons. They include provisions for bonuses and variable and soil reclamation expenses, rents for unused facilities remuneration, statutory and other early retirement arrange- and all other shutdown and wind-up expenses. At year-end ments, lifetime working arrangements and anniversary 2015 they included provisions for a program introduced to bonuses. About one quarter of non-current personnel-related strengthen our competitive position and optimize the quality provisions will result in payments after the end of 2020. of administrative processes, and provisions relating to the Provisions are established for recultivation and environ- divestment of the former Energy Business Area in 2011. mental protection on the basis of laws, contracts and regula- Most of the non-current portion of all restructuring provi- tory requirements. They cover soil reclamation obligations, sions will be utilized by the end of 2020. water protection, the recultivation of landfills and site The provisions for sales and procurement relate principally decontamination obligations. Slightly more than half of the to guarantee obligations, outstanding commission payments, non-current provisions will result in payments after the end price discounts and rebates, and impending losses. Almost all of 2020. of these provisions will be utilized within one year. Provisions for restructuring are based on defined restruc- Provisions for other taxes and interest on taxes mainly turing measures. Such measures comprise programs which are comprise property tax, value-added tax and interest obligations planned and controlled by the company and will materially relating to all types of taxes. The non-current portion will be alter one of the company's areas of business activity or the utilized by the end of 2020. way in which a business activity is carried out. Restructuring Provisions for dismantling obligations relate to dismantling provisions may only be established for costs that are directly that is not part of a restructuring program. Most of the non- attributable to the restructuring program. These include current portion will be utilized after the end of 2020. severance packages, redundancy and early retirement arrange- EFTA00598818 186 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Provisions for other obligations comprise provisions for a changes in public law regulations, for example, in connection variety of obligations that cannot be allocated to the above with the levy on renewable energy sources and European categories. These include provisions for legal disputes, emissions trading. The provisions for material legal risks administrative proceedings or fines, liability risks and guaran- included in this category amount to E115 million (2014: tee claims relating to divestments. This item also includes E87 million). The non-current portion of provisions for other provisions for legal and consultancy expenses, audit fees, and obligations will mainly be utilized by year-end 2020. 7.10 Financial liabilities Financial liabilities Dec.31, 2013 Dec. 31, 2014 thereof thereof InF million TOW non-current Teed non-current Bonds 1,241 1,241 496 496 Liabilities to banks 282 118 406 136 Loans from non-banks 14 7 Liabilities from derivatives 151 53 206 27 Other financial liabilities 18 3 20 7 1,706 1,415 1,135 666 (a) Bonds (b) Loans from non-banks In 2015, Evonik Industries AG issued a bond with a nominal The accrual ofEN million (2014: E7 million) for payment of value of E750 million and an annual coupon of 1.000 percent the coupon on the bonds is recognized in current loans from which matures in January 2023. The issue price was 99.337 per- non-banks. cent. Further, this item comprises a bond issued by Evonik Industries AG in 2013 with a nominal value of E500 million (c) Liabilities from derivatives and an annual coupon of 1.875 percent which matures in April 2020. The issue price was 99.185 percent. The discount Liabilities from derivatives is credited over the maturity of each bond using the effective Dec. 31, Dec. 31, interest rate method. Ine million 2015 2014 Fixed-interest bonds are exposed to a risk of price fluctu Liabilities from cross-currency ations while variable-rate liabilities are exposed to a risk interest rate swaps 34 18 of changes in interest rates. These risks may affect their Liabilities from forward exchange fair value or future cash flows. The bond issued by Evonik contracts and currency swaps 96 184 Industries AG in 2013 was quoted on the stock market at Liabilities from commodity derivatives 21 4 104.940 percent on the reporting date (2014: 105.855 per- 151 206 cent), giving a market value ofE525 million (2014: E529 mil lion). The bond issued in January 2015 was quoted at 97.810 percent on the reporting date, giving a market value of E734 million. EFTA00598819 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 147 Notes Notes to the balance sheet 7.11 Trade accounts payable, other payables Trade accounts payable, other payables Dec. 31, 2015 Dec. 31, 2014 thereof thereof Jae million Total non-current Total non-current Trade accounts payable 1,090 — 1,126 — Advance payments received 31 — 17 — Miscellaneous other payables 295 45 271 60 Deferred income 89 61 30 11 1,505 106 1,444 71 7.12 Deferred taxes, other income taxes Deferred taxes and other income taxes reported on the balance sheet Dee. 31, 2015 Dee. 31, 2014 thereof thereof int million Total non-current Total non-current Deferred tax assets 1,110 926 1,127 978 Current income tax assets 122 11 222 11 Deferred tax liabilities 479 425 449 401 . Other income tax liabilides 359 150 304 199 In accordance with IAS 1 Presentation of Financial State- ments, the current elements of deferred taxes are reported on the balance sheet under non-current assets and liabilities. Deferred taxes by balance sheet item Deferred tax risers Deferred tax liabilities Dec. 31, Dec. 31, Dec. 31, Dec. 31, InE million 2015 2014 2015 2014 Assets Intangible assets 3 3 125 127 Property, plant and equipment, Investment property 43 41 409 404 Financial assets 559 602 97 115 Inventories 72 42 — 1 Recehtables and other assets 301 152 18 18 Liabilities Provisions 1,086 1,104 856 692 Payables 76 93 30 31 Special tax allowance reserves (based on local law) — — 13 12 Loss carryforwards 40 39 — — Tax credits 1 1 - - Other 3 1 5 — Deferred taxes (gross) 2,184 2,078 1,553 1,400 Netting —1,074 —951 —1,074 —951 Deferred taxes (net) 1,110 1,127 479 449 Prior year figures restated. EFTA00598820 10EI FINANCIAL REPORT 2015 EVONIK INDUSTRIES No deferred tax assets were recognized on temporary differ- Tax Act (KStG). Evonik is in a position to manage the timing ences of €273 million (2014: €229 million) because it is not of the reversal of temporary differences. probable that there will be sufficient future taxable income to Deferred tax assets of €15 million (2014: €19 million) enable them to be realized. were recognized for companies that made a loss. Utilization The total taxable temporary differences relating to shares will be ensured by suitable measures. in subsidiaries, associates and joint ventures, for which no In addition to tax loss carryforwards for which deferred deferred taxes were recognized, were €514 million. €434 mil- taxes were recognized, there were tax loss carryforwards lion of this amount is only subject to a tax rate of around that were not utilizable and for which no deferred taxes were 1.5 percent, based on Section 8b of the German Corporation recognized. Tax loss carryforwards by expiration date Corporation taxes Local taxes Tax credits (German and foreign) (German and foreign) (foregn) In C million 2015 2014 2015 2014 2015 2014 Up to 1 year 42 More than 1 and up to 5 years 168 123 More than 5 and up to 10 years 4 11_ Unlimited 270 265 158 126 6 29 484 389 158 126 6 29 8. Notes to the cash flow statement 8.2 Cash flow from investing activities The cash flow statement shows the changes in cash and cash The cash inflows from divestments and outflows for invest- equivalents of the Group in the reporting period. The cash ments in shareholdings include the following: flows are classified by operating, investing and financing The gross purchase prices for the acquisition of shares in activities. subsidiaries consolidated for the first time amounted to The net cash flow from discontinued operations that is €54 million (2014: €38 million). As in the previous year, the attributable to third parties is shown separately. entire purchase prices led to a cash outflow. In the course of The impact of changes in the scope of consolidation has these acquisitions, cash and cash equivalents of €1 million been eliminated. were acquired in each year. Interest paid and interest and dividends received are The selling prices for the divestment of business activities included in operating activities, while dividends paid are totaled €14 million (2014: €41 million). As in the previous assigned to financing activities. year the full amount was settled in cash and cash equivalents. The divestments included outflows of cash and cash equiv- alents totaling C7 million (2014: €38 million). 8.1 Cash flow from operating activities The purchase price of €428 million for the sale of the remaining 10.3 percent shareholding in Vivawest was settled The cash flow from operating activities is calculated using the in full. indirect method. Income before the financial result and income Further, cash outflows of €9 million (2014: €15 million) taxes, continuing operations, is adjusted for the effects of were recorded in connection with the divestment of former non-cash income and expenses and items that are allocated business areas. This amount was booked as an expense in to investing or financing activities. Certain other changes in previous years. amounts shown on the balance sheet are calculated and added to the result. EFTA00598821 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 189 Notes Noon on lie, ettort.e?0,1 8.3 Cash and cash equivalents The remaining lithium-ion activities, which were divested in the second quarter of 2015 and were classified as discontinued The cash and cash equivalents of €2,368 million (2014: operations until then, see Notes 5.2 and 5.3, are shown in the €921million) comprise the cash and cash equivalents shown segment report in the column 'Other operations'. Since the in the balance sheet. column "Total Group" no longer contains any discontinued operations, an adjustment is made for these activities in the column 'Corporate, consolidation'. 9. Notes on the segment report Evonik's segments are outlined below: 9.1 Reporting based on operating segments (a) Nutrition & Care The Nutrition & Care segment produces specialty chemicals, The Executive Board of Evonik Industries AG decides on the principally for use in consumer goods for daily needs, and in allocation of resources and evaluates the earnings power animal nutrition and healthcare products. of the Group's operations on the basis of the following Ingredients, additives and system solutions for high- reporting segments, which reflect the core operating busi- quality consumer goods and specific industrial applications E ness (subsequently referred to as segments): are focal areas of this segment. It has outstanding knowledge • Nutrition & Care (2014: Consumer, Health & Nutrition) of interfacial chemistry. Its products are based on an exten- • Resource Efficiency sive range of oleochemical derivatives, organically modified • Performance Materials (2014: Specialty Materials) silicones, and active ingredients produced by biotechnology. • Services. Key success factors are high innovative capability, integrated j technology platforms and strategic partnerships with import- The reporting based on operating segments therefore reflects ant consumer goods manufacturers. The Nutrition & Care the internal reporting and management structure of the segment also produces and markets essential amino acids Evonik Group (management approach). for animal nutrition. One factor in its success is years of 0 The same accounting standards are applied as for external experience of chemical synthesis and biotechnology, which financial reporting, see Notes 3.4 to 3.7. Evonik regards as major growth drivers. Other significant In connection with the new management and portfolio competitive advantages for this segment are its global distri- structure, see Note 3.4, with effect from January 1, 2015 bution network and extensive and differentiated service some segments were renamed, some activities were reallo- offering. The Nutrition & Care segment is also a strategic cated among the segments, and the definition of the main partner for the healthcare industry. management parameter adjusted EBITDA was modified. To ensure that adjusted EBITDA better reflects respon- (b) Resource Efficiency sibilities, income and expenses relating to financing and The Resource Efficiency segment supplies high-performance liquidity management have been transferred from adjusted materials for environment-friendly and energy-efficient sys- EBITDA to the financial result. These mainly comprise the tem solutions for the automotive, paints, coatings, adhesives results from currency translation of loans and the related and construction industries and many other sectors. hedging. This change also affects adjusted EBIT. A central feature of the segment is its integrated silicon Further, the following activities have been reallocated technology platform. Key customers include the tire, elec- among the segments: tronics, construction and fiber optics industries. This seg- • The Active Oxygens and High Performance Polymers ment's core competency is the production, design and struc- activities are now part of the Resource Efficiency segment turing of the specific surface properties of inorganic particles. (2014: part of the Specialty Materials segment) Its offering is complemented by fumed specialty oxides, • CyPlus Technologies is now part of the Performance chlorosilanes and organofunctional silanes. It also develops Materials segment (2014: part of the Consumer, Health & and manufactures a broad spectrum of catalysts in close Nutrition segment) and collaboration with customers. It supplies high-quality additives • some service functions have been transferred from Corpo- to the paints, coatings, adhesives and sealants industry. rate to the Services segment. Further, it produces high-performance oil additives and The prior-year figures have been restated where applicable. additives for hydraulic fluids. In addition, this segment manufactures materials based on polyetherether ketone EFTA00598822 190 FINANCIAL REPORT 2015 EVONIK INDUSTRIES (PEEK) and polyimides to meet high-tech mechanical, 9.3 Notes to the segment data thermal and chemical requirements. Thanks to its innovative capability, the Resource Efficiency segment has gained access External sales reflect the segments' sales with parties outside to new growth markets for hydrogen peroxide. the Group. Sales generated between the segments are internal sales and are cross-charged at market prices or using the (c) Performance Materials cost-plus method. The heart of the Performance Materials segment is the production of polymer materials and intermediates, mainly Reconciliation from the sales for the rubber, plastics and agricultural sectors. of all reporting segments to Group sales Success factors for this segment are advanced chemical processes, which Evonik has developed systematically over in E awn 2015 2014 decades, including its integrated technology platforms for Sales, reporting segments 15,573 14,980 methylmethacrylate (MMA) and C4 chemistry. It also produces Sales, other operations 138 175 alcoholates, which are used as catalysts in the production Corporate, consolidation, of biodiesel. less discontinued operations -2,204 -2.238 Sales, corporate, other operations, (d) Services consolidation -2,066 -2,063 The Services segment provides site management, utilities, External sales of the Evonik Group 13,507 12,917 and waste management, technical, process technology, engi- neering, and logistics services for the chemicals segments and external customers at Evonik's sites. External sales by country (location of customer) This segment also supports the chemicals businesses and Jae million 2015 2014 the management holding company by providing standardized USA 2,458 2,128 Group-wide administrative and business-support services, for example, in the areas of IT, human resources, accounting and Germany 2,436 2,814 legal services. China 1,087 882 Switzerland 750 816 (e) Other operations, Corporate and consolidation Netherlands 499 SOS Other operations contains the Group's business activities that UK 453 463 are not assigned to any of the reporting segments. France 400 396 The column headed "Corporate, consolidation" includes Brazil 398 327 the management holding company, strategic research, hidden Japan 351 318 reserves and liabilities and goodwill relating to former acquisitions of shares in Evonik Degussa and intersegment Italy 337 371 consolidation effects. Other countries 4,338 3,897 External sales of the Evonik Group 13,507 12,917 9.2 Reporting based on regions The result from investments recognized at equity corresponds For this purpose, countries and country groups are aggregated to the result for these investments as reported in the income into regions. Details of the reporting based on regions is out- statement; see Note 6.5. lined in more detail in Note 9.3. The Executive Board of Evonik Industries AG uses ad- justed EBITDA as the main parameter to measure operating performance. Adjusted EBITDA is the main earnings param- eter that can be influenced by the segment management. It comprises earnings before financial result, income taxes, depreciation, amortization and impairment losses/reversal of impairment losses; after adjustments. EFTA00598823 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 191 Notea Notes on the segment report Recondliation from adjusted EBITDA of the reporting segments to income before income taxes, continuing operations Inif million 2015 2014 Adjusted EBITDA, reporting segments 2,803 2,159 Adjusted EBITDA, other operations —81 —54 Adjusted EBITDA, Corporate —269 —202 Consolidation 4 —13 Less discontinued operations 8 —8 Adjusted EBITDA, Corporate, other operations, consolidation —338 —277 Adjusted EBITDA 2,465 1,882 Depreciation —700 —606 Impairment losses/reversals of impairment losses —80 -63 Depreciation, amortization, impairment losses/reversal of Impairment losses included in adjustments 67 43 Depredation and amortization -713 -626 E Adjusted EMT 1,752 1,256 S Adjustments' -88 —179 Financial result —223 —235 Income before Income taxes, continuing operations 1,441 842 3 See management report, setting, 2.4 Stamm performance. The adjusted EBITDA margin is the ratio of adjusted EBITDA Additions to investments recognized at equity, other invest- 0 to external sales. ments, non-current loans and non-current securities and Adjusted EBIT comprises earnings before financial result similar claims made in the reporting period are recognized as and income taxes, after adjustments. It is used to calculate the financial investments. The acquisition of subsidiaries is shown internal management parameter return on capital employed as an addition to financial investments in the year of acqui- (ROCE). sition (including goodwill from capital consolidation). Capital employed comprises the net assets required by the The headcount is taken on the reporting date. It shows reporting segments for their operations. It is calculated by the number of employees. Part-time employees are included determining the total of intangible assets, property, plant as absolute figures. The headcount by region is based on the and equipment, investments, inventories, trade accounts location of the subsidiaries. receivable, and other non-interest-bearing assets. The sum of Goodwill and other intangible assets, and property, plant interest-free provisions, trade accounts payable, and other and equipment are segmented by the location of the subsid- interest-free liabilities is then deducted from this. iaries. Together, these assets comprise the non-current assets in ROCE is another major internal management parameter accordance with IF RS 8 Operating Segments (cf. IFRS 8.33 b). used by the Group. It is calculated from the ratio of adjusted EBIT to capital employed. To smooth the closing date effect, Breakdown of non-current assets by country the calculation uses average capital employed in the reporting Dee. 31, Dec. 31, period. IA E million 2015 2014 Depreciation and amortization relate to the depletion in Germany 4,373 4,319 the value of intangible assets, property, plant and equipment USA 1,321 1,065 over their estimated useful life. Capital expenditures comprise additions to intangible China 871 878 assets (excluding goodwill from capital consolidation), prop- Singapore 613 622 erty, plant and equipment. Additions resulting from changes Belgium 546 535 in the scope of consolidation are not taken into account. Other countries 1,252 1,196 Capital expenditures by region are based on the location of Non-current assets 8,976 8,615 the subsidiaries. EFTA00598824 192 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 10. Other disclosures Entitlements are based on individually agreed target amounts provided that earnings targets are met (lower threshold). LTI 10.1 Performance-related remuneration payments are calculated in the year following the end of the performance period, when the necessary indicators are avail- Evonik's remuneration system comprises a basic salary, annual able. Payments are capped at three times the target amount, short-term incentive payments and, as a long-term compo- and can be zero if the defined lower threshold is not reached. nent, the Long-Term Incentive (LTI) Plans for members of the To determine the value of the company as a basis for Executive Board and other executives of the Evonik Group. ascertaining target attainment, the share price at the end of Since Evonik did not have a quoted share price, for both the performance period is used. For this purpose, the average members of the Executive Board and other executives the price of shares in Evonik in the three months prior to the targets for the annual tranches of these LTI Plans issued up end of the performance period is calculated. In addition, to and including 2012 were based on the development of dividends paid and any capital increases or decreases during uniformly defined business indicators. However, the target the performance period are taken into account. The cumula- amounts and performance periods of the plans differed. tive discrepancy between planned and actual target attain- Following the stock exchange listing, the performance of ment in the performance period and the dividends paid in the Evonik shares became the central element in the LTI Plan for last year of the performance period are taken into account in the first time in 2013. The redesigned LTI Plan was introduced the calculation. If there is no share price, the value of equity for both Executive Board members and other executives. is determined on the basis of the last share transaction in the Following the stock exchange listing of Evonik Industries AG, last twelve months of the performance period. If there was the performance of shares in the company also became rele- no share transaction in the last twelve months, a fictitious vant for the valuation of the pre-2013 LTI Plans. equity value is used. This is derived by applying a fixed All LTI Plans are share-based payments with cash settle- EBITDA multiple to the company's business performance in ment. They are valued on the reporting date using a Monte the last full fiscal year. Carlo simulation, which models exercise patterns. The LTI As of December 31, 2015, there was a provision of Plans result in personnel expense which is distributed over €0.1 million for the tranches for members of the Executive the term of each tranche. Board for the years 2011 and 2012 (2014: €0.6 million includ- ing the 2010 tranche). In keeping with the terms of the plan, (a) Evonik LTI Plan for members of the Executive regular exercise of the 2010 tranche took place in 2015 Board—Tranches 2010 through 2012 (€0.4 million). The reference base for this long-term remuneration compo- The 2011 tranche of the Evonik LTI Plan for Executive nent is a sustained rise in the value of the company. The plan Board members was vested as of December 31, 2015 but had rewards achieving or exceeding the operating earnings no intrinsic value as of this date. targets set in the mid-term planning and their impact on the value of the company. Each of these tranches runs for five years from January 1of the year in which it was granted. LTI Plan for Executive Board members—Tranches 2010 through 2012 2012 Uanche 2011 tranche 2010 lianche Grant date Date Dec. 18, 2012 Sep. 30, 2011 Aug. 31, 2010 Performance period from - to Jan. 1, 2012 - Jan. 1, 2011 - Jan. 1, 2010 - Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Expense (*)/income (-) for the period int '000 20 -128 2 Carrying amount of provision int '000 94 0 0 EFTA00598825 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 193 Notes OI*4 cIHIflu es (b) Evonik LTI PLan for executives-2012 tranche (c) Evonik LTI Plan for Executive Board members and The reference base for this long-term remuneration compo- other executives—Tranches 2013 through 2015 nent is also a sustained rise in the value of the company. The In view of the stock exchange listing of Evonik Industries AG, plan rewards achieving or exceeding the operating earnings the Supervisory Board redesigned the LTI Plan for the period targets set in the mid-term planning (75 percent) and eco- from 2013 so it differs from the tranches 2010 through 2012. nomic value added (EVA) (25 percent). Each tranche runs for Performance is measured by the absolute performance of three years from May 1of the year in which it is granted. Evonik's share price and its performance relative to the MSCI Entitlements are based on individually agreed target World Chemicals Indexs^^. amounts provided that earnings targets are met (lower Based on the contractually agreed target amount, which is threshold). LTI payments are calculated in the year following defined in euros, a number of virtual shares is calculated the end of the performance period, when the necessary using the share price at the start of the performance period. indicators are available. Payments are capped at double the This is based on the price in the last 60 trading days before target amount, and can be zero if the defined lower threshold the start of the performance period. The performance period is not reached. starts on January 1of the grant year and runs for four years. To determine the value of the company as a basis for Since there was no share price at the start of the performance ascertaining target attainment, the share price at the end of period, as an exception, the virtual shares for the 2013 E the performance period is used. For this purpose, the average tranche were calculated from the share price in the first price of shares in Evonik in the three months prior to the 60 trading days following admission to the stock exchange end of the performance period is calculated. In addition, (April 25, 2013). At the end of the performance period, the dividends paid and any capital increases or decreases during starting price of Evonik shares is viewed against the average the performance period are taken into account. The cumula- share price at the end of the performance period. This is j tive discrepancy between planned and actual target attainment compared with the performance of the benchmark index I in the performance period and the dividends paid in the last (total shareholder return). year of the performance period are taken into account in the If the relative performance is below 70 percentage points, calculation. If there is no share price, the value of equity is the relative performance factor is deemed to be zero. If the determined on the basis of the last share transaction in the relative performance is above 130 percentage points, the last twelve months of the performance period. If there was relative performance factor is set at 130. no share transaction in the last twelve months, a fictitious The payment is calculated by multiplying the relative equity value is used. This is derived by applying a fixed EBITDA performance by the number of virtual shares allocated and multiple to the company's business performance in the last the average price of Evonik shares at the end of the perfor- full fiscal year. The actual EVA values in the performance mance period. period are used to measure attainment of the EVA target. At the end of the performance period, there is an option In keeping with the terms of the plan, regular exercise of to extend it once for a further year. Partial exercise at the end the 2012 tranche took place in 2015 (€7.6 million). Conse- of the original performance period is not permitted. The quently, no provision was necessary as of December 31, 2015 upper limit for these payments is set at 300 percent of the (2014: €1.1 million). individual target amount. Since the previous performance periods for the LTI Plan LTI Plan for executives-2012 tranche for executives, including the 2012 tranche, were three years, the 2013 tranche for executives was set to allow the first half 2012 tranche of the 2013 tranche to be exercised after three years and the Grant date Date Dec. 19, 2012 second half after four years. As a further incentive for the Performance period from - to May 1, 2012 - transition, the payments for this tranche are multiplied by 1.2. Apr. 30, 2015 As from 2014, a four-year performance period is applied for Expense (.)/income (-) executives. As of December 31, 2015, there was a provision of for the period in € '000 6,508 €28.3 million (2014: €9.1 million) for the LTI Plans for 2013, Carrying amount of provision in € '000 0 2014 and 2015. EFTA00598826 194 FINANCIAL REPORT 2015 EVONIK INDUSTRIES LTI Plan for Executive Board members—Tranches 2013, 2014 and 2015 2015 eranehe 2014 treadle 2013 tranche Grant date Date Apr. 29, 2015 Apr. 14, 2014 Aug. 14, 2013 Virtual shares granted No. 175,787 140,145 153,123 Virtual shares forfeited No. 51,760 Virtual shares as of December 31, 2015 No. 175,787 Performance period from -to Jan. 1, 2015 - Jan. 1, 2014 — Jan. 1, 2013 — Dec. 31, 2018 Dec 31, 2017 Dec. 31, 2016 Expense (r.)/income (-) for the period InE '000 1,825 1,661 1,373 Carrying amount of provision InE'000 1,825 2,355 2,351 LTI Plan for executives—Tranches 2013, 2014 and 2015 2015 vanche 2014 Randle 2013 tranche Grant date Date May 18, 2015 Apr. 11,2014 Aug. 27, 2013 Virtual shares granted No. 535,195 420,598 395,422 Virtual shares forfeited No. 8,137 10,870 Virtual shares as of December 31, 2015 No. 535,195 412,461 384,552 Performance period from - to Jan. 1, 2015 - Jan. 1, 2014 - Jan. 1, 2013 - Dec. 31, 2018 Dec. 31,2017 Dec. 31, 2016 Expense (a)/income (—) for the period In € '000 3,844 3,779 6,800 Carrying amount of provision InE '000 3,844 5,826 12,138 As of December 31, 2015, total provisions for share-based payment amounted to E28.4 million (2014: €10.8 million). In 2015, total expense including expense for share-based payment, including the 2012 tranche, was €25.7 million (2014: E2.1 million). 10.2 Additional information on financial instruments Rights of set-off for financial assets the gross and net amounts of recognized financial instru- and financial liabilities ments that are set off in the balance sheet. Amounts subject To enhance the comparability of financial statements as to a legally enforceable master netting arrangement or similar regards the different netting rules for financial instruments agreement but which are not set off in the balance sheet also under IFRS and US GAAP and inform users of the financial have to be disclosed. These include financial instruments that statements of the potential effect of netting arrangements on do not fully meet the stringent netting requirements of the company's financial position, IFRS 7 requires disclosure of IAS 32.42 and amounts relating to financial collateral. EFTA00598827 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 195 Notes Other disclosures Offsetting rights for financial assets Affected by enforceable master netting arrangements Netting of financial assets or similar arrangements Gross Receivables amount of Amounts that do transactions Amounts recognized not fully Amounts affected by set off in for the meet the related to netting accordance relevant offsetting financial In€mlllon arrangements with IAS 32 transactions criteria collateral Net amount December 31, 2015 Receivables from derivatives 83 83 53 30 Other financial assets 10 8 2 2 Trade accounts receivable 716 51 665 665 809 59 750 S3 697 December 31, 2014 Receivables from derivatives 34 34 31 3 Other financial assets Trade accounts receivable 311 30 281 281 345 30 315 31 204 Offsetting rights for financial liabilities Affected by enforceable master netting acrangements Netting of financial liabilities or similar arrangements Gross Liabilities amount of Amounts that do transactions Amounts recognized not fully Amounts affected by set off in for the meet the related to netting accordance relevant offsetting financial in E million arrangements with IAS 32 transactions criteria collateral Net amount December 31, 2015 Liabilities from derivatives 144 — 144 53 — 91 Other financial liabilities 6 6 — — — — Trade accounts payable 386 85 301 — — 301 536 91 445 53 — 392 December 31,2014 Liabilities from derivatives 201 — 201 31 — 170 Other financial liabilities — — — — — — Trade accounts payable 222 91 131 — — 131 423 91 332 31 — 301 EFTA00598828 196 FINANCIAL REPORT 2015 EVONIK INDUSTRIES The amounts disclosed for trade accounts receivable and pay- A corresponding disclosure has become established as able result from credit notes granted and received that were best practice since the relevant provisions of IFRS 7 came set off against existing receivables or liabilities relating to the into effect. The prior-year figures are therefore restated same counterparty. There are no master netting arrange- accordingly. ments for trade accounts. The master agreements concluded by Evonik with counterparties for derivatives transactions Results of financial instruments by valuation category provide for limited offsetting arrangements, especially if one The income and expenses, gains and losses from financial of the contractual parties should become insolvent. instruments reflected in the income statement are allocated to the following valuation categories: Net result by valuation category 2015 Net result by valuation category 2015 Financial instruments Liabilities at Available-for- Loans and held for amortized in f million sale assets receivables trading cost Proceeds from disposals -3 - - -3 Income from derivatives - -55 - -55 Impairment losses/reversals of impairment losses -16 -2 - - -18 Net interest expense 1 3 -22 -52 -70 Income from other investments 1 - - 1 —17 1 —77 —52 —145 Net result by valuation category 2014 Net result by valuation category 2014 Financial instruments liabilities at Available-for- Loans and held for amortized in C million sale assets receivables trading cost Proceeds from disposals — — — Income from derivatives — 21 — —21 Impairment losses/reversals of impairment losses —2 —14 — — —16 Net interest expense 1 4 —13 —85 —93 Income from other investments —10 —34 —85 -130 Income from derivatives does not include income from As in 2014, net interest expense did not include any interest derivative financial instruments for which hedge accounting income on the impaired portion of financial assets or trade is applied. accounts receivable. EFTA00598829 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 197 Notes Other disclosures Carrying amounts by valuation category the presentation on the balance sheet. The following tables and fair values of financial instruments present the carrying amounts of each class broken down Financial instruments that fall within the scope of IFRS 7 to the IAS 39 valuation categories. Assets and liabilities not Financial Instruments: Disclosures are to be disclosed by allocated to any category are shown in a separate column. classes that take into account the characteristics of the The total carrying amount per class or balance sheet item is financial instruments. At Evonik, the classification is based on then compared to the fair value. Carrying amounts and fair values of financial assets as of December 31, 2015 Carrying amount by valuation category Dee. 31, 2015 Not Available-for- Loans and Assets held allocated to Carrying inEmotion sale assets receivables for trading any category amount Fair value Financial assets 339 58 24 60 481 462 Other investments' 74 74 55 Loans 29 29 29 E Securities and similar claims 265 265 265 Receivables from derivatives 24 84 84 Other financial assets 29 29 29 Trade accounts receivable 1,813 1,813 1,813 01 Cash and cash equivalents 2,368 2,368 2,368 339 4,239 24 60 4,662 I 4,643 • The difference between the carrying amount and fair value results from investments measured at cost of acquisition for which no fair value could bedeterrnmed reliably (419 Shen). Carrying amounts and fair values of financial assets as of December 11, 2014 Carrying amount by valuation category Dec. 31, 2014 Not Available-for- Loans and Assets held allocated to Carrying in( million sale assets receivables for trading any category amount Fair value Financial assets 456 41 19 16 532 521 Other investments' 64 64 53 Loans 12 12 12 Securities and similar claims 392 392 392 Receivables from derivatives 19 16 35 35 Other financial assets 29 29 29 Trade accounts receivable 1,720 1,720 1,720 Cash and cash equivalents 921 921 921 456 2,682 19 16 3,173 3,162 • The difference between the carrying amount end fair value results from investments measured at cost 04 acquisition for which no fair value<ould bedetertnined reliably (4811 milon). EFTA00598830 19$ FINANCIAL REPORT 2015 EVONIK INDUSTRIES Carrying amounts and fair values of financial liabilities as of December 31, 2015 Carrying amount by valuation category Dee. 31, 2015 Liabilities Liabilities at Not held fee amortized allocated to Carrying in €maim wading cost any category 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 Loans from non banks 14 14 14 Liabilities from derivatives 19 132 151 151 Other financial liabilities 17 1 18 18 Trade accounts payable 1,090 1,090 1,090 19 2,644 133 2,796 2,809 Carrying amounts and fair values of finandal liabilities as of December 31, 2014 Carrying amount by valuation category Dec. 31, 2014 Liabilities Liabilities at Not held for amortized allocated to Carrying In gmillion trading cost any category amount Fair value Financial liabilities 36 928 171 1,135 1,171 Bonds - 496 — 496 529 Liabilities to banks — 406 — 406 409 Loans from non banks — 7 — 7 7 Liabilities from derivatives 36 — 170 206 206 Other financial liabilities — 19 1 20 20 Trade accounts payable — 1,126 — 1,126 1,126 36 2,034 171 2,261 2,297 That part of derivative financial instruments for which hedge accounting is applied is not allocated to any of the valuation categories. EFTA00598831 TO OUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 199 Notes Other disclosures Financial instruments recognized at fair value The fair value determination is based on the three-level hierarchy stipulated by IFRS 13 Fair Value Measurement, which is outlined in section 3.7. The following table shows the financial instruments that are measured at fair value on a recurring basis after initial recognition on the balance sheet: Financial instruments recognized at fair value as of December 31, 2015 Dec. 31, Fair value based on 2015 Directly Publicly observable Individual quoted market- valuation market prices related prices parameters in E 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 Financial instruments recognized at fair value as of December 31, 2014 t. Dec. 31, a Fair value based on 2014 0 Directly Publicly observable Individual quoted market- valuation market prices related prices parameters in E minion (Level 1) (Level 2) (Level 3) Other investments 53 — — 53 Securities and similar claims 392 — — 392 Receivables from derivatives — 35 — 35 Liabilities from derivatives — —206 — —206 The financial instruments allocated to Level 1are recognized method on the basis of the exchange rates at the European at their present stock market price. They comprise all securi- Central Bank, observed interest rate structure curves, ties and one equity investment. As of the present reporting observed commodity prices, and observed credit default date, all derivatives are allocated to Level 2. They comprise premiums. currency, interest rate and commodity derivatives whose fair No derivatives were reclassified to other levels in the fair value was determined with the aid of a discounted cash flow value hierarchy in fiscal 2015. EFTA00598832 200 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Fair value of financial instruments The other investments that are recognized on the balance recognized at amortized cost sheet at amortized cost comprise investments in equity The fair value of bonds is their directly observable stock market instruments for which there is no quoted price in an active price on the reporting date. For loans, other financial assets, market and whose fair values cannot be determined reliably liabilities to banks, loans from non-banks, and other financial in accordance with one of the three levels of the fair value liabilities the fair value is determined as the present value of hierarchy. There is no intention of selling these investments. the expected future cash inflows or outflows and is therefore allocated to Level 2. Discounting is based on the interest rate Notional value of derivatives for the respective maturity on the reporting date, taking the The notional value of interest rate swaps is the principal on creditworthiness of the counterparties into account. Since the which the swap agreement is based, while the notional value majority of other financial receivables and liabilities, and of the cross-currency interest rate swaps, forward exchange trade accounts receivable and payable are current, their fair contracts and currency swaps is the hedged foreign exchange values—like the fair value of cash and cash equivalents— amount converted into euros. The notional value of the com- correspond to their carrying amounts. modity derivatives is the hedged procurement cost translated into euros. Notional value of derivative financial instruments Dec. 31, 2015 Dec. 31, 2014 thereof therecIl thereof thereof in f million Total current non-current Total current non-current Cross-currency interest rate swaps 678 110 568 390 31 359 Forward exchange contracts and currency swaps 5,190 4,842 348 4,462 4,135 327 Commodity derivatives 111 15 96 26 15 11 5,979 4,967 1,012 4,878 4,181 697 Hedge accounting nated hedges had a positive fair value of €17 million (2014: Hedge accounting was applied for the following major trans- negative fair value of €52 million). The hedge reserve is actions in 2015: €18 million (2014:€11 million). Between December 2011 and December 2012 Evonik (a) Cash flow hedges successively purchased a total of ten forward starting payer As of the balance sheet date, forward exchange contracts swaps with a notional value of €50 million each to hedge the and currency swaps were used to hedge forecast foreign interest rate risk of a highly probable refinancing transaction currency sales amounting to around €1,950 million (2014: totaling €500 million forecast for 2013. In this way, a 5-year around €1,600 million) up to March 2017 against exchange swap rate of 1.6 percent was locked in for a period of five rate movements. These hedging instruments had a nega- years starting from June 2013. The expected refinancing took tive fair value of €56 million (2014: negative fair value of place in spring 2013 through the issue of a new bond by €96 million). At year-end 2015, losses of €56 million (2014: Evonik Industries AG. The hedge was terminated when the losses of 96 million) were recognized in the hedge reserve. financing terms were fixed. The realized hedging expense of Evonik hedges the currency risk arising from intragroup €15 million will be released to net interest expense over the foreign currency loans against the functional currency of the original hedged financing period using the effective interest relevant Group company through cross-currency interest rate method. At year-end 2015, a negative fair value of €8 million swaps, forward exchange contracts and currency swaps. The was recognized in the hedge reserve for this transaction notional value of these cash flow hedges on the reporting (2014: negative fair value of €11 million). date was €1,413 million (2014: €1,065 million). The desig- EFTA00598833 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 201 Notes 011*, di,(Ic.,.wet As of year-end 2015, commodity swaps with a negative fair The financial derivatives contracts used by Evonik are entered value of €21 million (2014: negative fair value of €4 million) into exclusively in connection with a corresponding under- were used to hedge forecast purchases of raw materials lying transaction (hedged item) relating to normal operating against price fluctuations up to 2019. For these swaps, a nega- business, which provides a risk profile directly opposite to that tive fair value of €20 million was recognized in the hedge of the hedge. The instruments used are customary products reserve in 2015 (2014: negative fair value of €4 million). found on the market. For the management of interest rates The effectiveness of the hedge relations was determined and exchange rates, they comprise currency swaps, forward using the dollar offset method, critical term match, the hypo- exchange contracts, cross-currency interest rate swaps and thetical derivatives method, regression analysis and sensitivity interest rate swaps. Commodity swaps are used to hedge the analyses. When hedging the currency risk of highly probable risk of fluctuations in the price of coal, natural gas, electricity forecast transactions, in general only the spot components of and petrochemical feedstocks. The procurement of emission forward exchange contracts used to hedge currency risks are allowances to meet obligations pursuant to Section 6 of the designated as hedges. In 2015, the valuation of cash flow German Emissions Trading Act (TEHG) can be optimized hedges did not contain any ineffective portion (2014: income through use of EUA-CER swaps and EUA or CER futures. of €1 million). (a) Market risk (b) Hedge of a net investment Market risk can basically be subdivided into exchange rate, Since March 2010 the investment in UK subsidiaries has been interest rate and commodity risks. The management of these hedged against foreign currency risks on a rolling basis. The risks is explained below. hedging contracts normally have terms of a few months. As Exchange rate risks relate to both the sourcing of raw of December 31, 2015, the notional value of the hedges was materials and the sale of end-products in currencies other £65 million, as in the previous year. At year-end 2015, the than the functional currency of the company concerned. One outstanding hedging contracts had a positive fair value of aim of currency risk management is to protect the company's €2 million (2014: negative fair value of €1 million). Between operating business from fluctuations in earnings and cash the start of hedging in March 2010 and year-end 2015, total flows resulting from changes in exchange rates. Any opposite expenses of €19 million (2014: €12 million) were assigned to effects arising from procurement and sales activities are taken the hedge reserve. into account. Another objective of currency management is to In July 2015, the investment in a subsidiary in Switzerland eliminate the currency risk relating to financing transactions was hedged against foreign currency risks. The hedging that are not denominated in the functional currency of the contracts have a notional value of CHF 69 million and a term respective Group companies. of nine months. The fair value of the outstanding hedging For currency hedging of risk positions on the balance contracts was €2 million. Between the start of this hedging sheet, Evonik uses a portfolio approach: the risk positions transaction and the reporting date, income of €2 million was resulting from foreign currency receivables and liabilities allocated to the hedge reserve. are generally netted and bundled via intragroup hedging; the resulting net positions are then hedged via market deriva- Notes on financial risk management tives. Currency management is carried out separately for As an international company, Evonik is exposed to financial operational risk positions (mainly trade accounts receivable risks in the normal course of business. A major objective of and payable in foreign currencies) and risk positions arising corporate policy is to minimize the impact of market, liquidity from financing activities. Currency translation and hedging and default risks on both the value of the company and results are disclosed in the income statement in line with profitability in order to check adverse fluctuations in cash this distinction. The net presentation of the results reflects flows and earnings without forgoing the opportunity to both their economic substance and the risk management benefit from positive market trends. For this purpose a undertaken by Evonik. systematic financial and risk management system has been established. Interest rate and exchange rate risks are managed centrally by the Finance Division of Evonik Industries AG, while commodity risks are managed by the segments in accordance with established corporate policies. EFTA00598834 202 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Net currency result inE Sloan 2015 2014 From operating currency exposure and assodated hedging instruments Gross income from currency translation 189 135 Gross expenses for currency translation -154 -96 Net result from currency translation of operating monetary assets and liabilities 35 39 Gross income from currency hedging 180 122 Gross expenses for currency hedging -251 -166 Net result from operational currency hedging -71 -44 From finandng-related currency exposure and associated hedging instruments Gross income from currency translation 266 113 Gross expenses for currency translation -288 -152 Net result from currency translation of finandng-related monetary assets and liabilities -22 -39 Gross income from currency hedging 192 118 Gross expenses for currency hedging -176 -95 Net result from financing-related currency hedging 16 23 Net currency result (operational and finandng-related) -42 -21 The net currency result is determined principally by the swap The aim of Interest rate management is to protect net premiums at the start of hedging, and the time lag between income from the negative effects of fluctuations in market the hedges and changes in the hedged foreign currency items interest rates. Interest rate risk is managed by using derivative recognized on the balance sheet during the hedging period. and non-derivative financial instruments. The aim is to Since hedge accounting is applied for micro-hedging of achieve an appropriate ratio of fixed rates (with interest foreign currency balance sheet exposure (for example, rates fixed for more than one year) and variable rates (terms financing-related currency hedging of non-current loans of less than one year), taking costs and risks into account. through cross-currency interest rate swaps) and for hedging At year-end 2015, 94 percent (2014: 85 percent) of non- of planned or firmly agreed cash flows in foreign currencies derivative financial instruments were hedged by fixed- (for example, hedging of planned sales revenues), their interest contracts. hedge results are only reflected in the net currency result Several scenario analyses were carried out to measure with the corresponding ineffective portion or any forward exchange rate and interest rate risk as of December 31, 2015. components that are excluded from the hedge accounting The most important currencies for Evonik are the US relationship. By contrast, the effective results of these hedges dollar (USD) and the Chinese renminbi yuan (CNY/CNH). are recognized in accumulated other comprehensive income CNH is the technical market designation for renminbi that until the hedged transaction is realized. Subsequently, they are tradable and deliverable outside the territory of China. are recognized in sales if they were used as a sales hedge, A sensitivity analysis was performed for these currencies inventories or the cost of sales if they were used to hedge by modeling a change of 5 percent and 10 percent in the cost risks relating to procurement, or in the first-time recog- exchange rate relative to all other currencies to simulate nition of property, plant and equipment if the purpose was to the possible loss of value of derivative and non-derivative hedge the foreign currency risk relating to the procurement financial instruments in the event of the appreciation or of assets of this type. In the case of currency hedges for loans depreciation of these currencies. The percentage standard for which cash flow hedge accounting is applied, the effec- deviations of changes in exchange rates versus the euro in tive portion of the hedge is derecognized from accumulated 2015 was 0.7 percent for the USD (2014: 2.6 percent), and other comprehensive income to offset the income or 0.7 percent for the CNY/CNH (2014: 2.7 percent). expenses from currency translation of monetary assets and liabilities triggered by the hedged item. See Note 7.7 (g). EFTA00598835 TOOLIR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 203 Notes Other disclosures the results of these scenarios were as follows: Commodity risks result from changes in the market prices for the purchase and sale of raw materials. Raw materials were USD sensitivity analysis purchased principally to meet in-house demand. Other factors of importance for Evonik's risk position are the availability Dec. 31, 2015 Dec. 31, 2019 and price of raw materials, starting products and intermedi- Impact on Impact on I Impact on Impact on ates. In particular, raw material prices of significance to the Jae million income equity income equity Evonik Group are dependent on exchange rates and the +5% -1 -64 3 -51 price of crude oil. Commodity management, which is the -5% 1 64 -3 51 responsibility of the segments, involves identifying procure- +10% -1 -127 -103 ment risks and defining effective measures to minimize them. -10% 1 127 -s 103 For example, price escalation clauses and swaps are used to reduce price volatility. Pricing and procurement risks are reduced through worldwide procurement and optimized processes to ensure immediate sourcing of additional raw CNY/CNH sensitivity analysis material requirements. Further, use of alternative raw mate- Dee. 31. 2015 Dec. 31, 2019 rials is examined for various production processes and Evonik is working on the development of alternative production Impact on Impact on Impact on Impact on in E million income equity income equity technologies. Financial derivatives were also used on a small scale +5% -11 -1 -9 to hedge procurement price risks. If the price of natural gas -5% 11 1 9 had been 10 percent higher or lower, the impact of the +10% -23 -1 -17 fluctuation in the value of the commodity derivatives on the -10% 23 17 hedge reserve would have been +E2 million or —E2 million at year-end 2015 (as in 2014). If the price of naphtha-based petrochemical feedstocks had been 10 percent higher or t. 2 Several scenarios were also simulated for interest rates. lower, the impact of the fluctuation in the value of the com- 0 These analyzed shifts of 50,100 and 150 basis points in the modity derivatives on the hedge reserve would have been euro interest rate curve to simulate the possible loss of value +E7 million or —E7 million at year-end 2015. In both cases, of derivative and non-derivative financial instruments. The the impact on income would have been negligible. Similarly, scenarios are summarized in the table: there was no impact on income in the previous year. EUR Interest rate sensitivity analysis (b) Liquidity risk Liquidity risk is managed through business planning to ensure Dec.31, 2015 Dec. 31, 2014 that the funds required to finance the current operating Impact on Impact on impact on impact on business and current and future investments in all Group Jae million income equity income equity companies are available at the right time and in the right +SO basis points 1 — 2 - currency at optimum cost. Liquidity requirements for busi- -50 basis points —1 — —2 — ness operations, investments and other financial activities +100 basis points 1 — 4 1 are derived from a financing status and liquidity planning, —100 basis points —1 — —4 —1 which form part of liquidity risk management. Liquidity is pooled in a central cash management pool where this makes +150 basis points 2 — 6 1 economic sense and is legally permissible. Central liquidity —150 basis points —2 — —7 —1 risk management facilitates low-cost borrowing and advanta- geous offsetting of financial requirements. EFTA00598836 204 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Alongside cash and cash equivalents of E2,368 million and meet specific financial ratios and was not drawn at any time investments ofE262 million in current securities, the Group's in fiscal 2015. central source of liquidity is a E1.75 billion revolving credit Further, as of December 31, 2015, various unused credit facility from a syndicate of 27 national and international lines totaling E368 million were available to meet local banks. This credit facility is divided into two tranches of requirements, especially in the Asia-Pacific region. The table E875 million each. The second and last option to extend shows the remaining maturity of the non-derivative financial their term by one year was exercised in 2015 and they now instruments based on the agreed dates for interest and run until September 2018 and 2020 respectively. This credit redemption payments. facility does not contain any covenants requiring Evonik to Remaining maturity of non-derivative financial instruments 2015 Dec.31, Payments due in 2015 more than 1 more than 3 and up to and up to more than in Emillion up to 1 year 3 years 5 years S years Rumba liabilities 211 89 381 796 1,677 Bonds 3 34 534 772 1,343 Liabilities to banks 179 52 47 24 302 Loans from non-banks 14 - - - 14 Other financial liabilities 15 3 — — 18 Trade accounts payable 1,086 4 — — 1,090 Remaining maturity of non-derivative financial instruments 2014 Dec. 31. Payments due in 2014 more than 1 more than 3 and up to and up to more than In Emillion up to 1 year 3 years S years 5 years Financial IlabIlltles 320 94 45 559 1,018 Bonds 9 19 19 509 556 Liabilities to banks 291 72 24 48 435 Loans from non-banks 7 7 Other financial liabilities 13 3 2 20 Trade accounts payable 1,126 1,126 The Group met all payment terms agreed for its financial liabilities. EFTA00598837 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 205 Notes Other disclosures The breakdown of the sum of interest and redemption pay- Since netting was not agreed for forward exchange contracts, ments by maturity in the following table relates to derivative currency swaps and cross-currency interest rate swaps, they financial instruments with positive and negative fair values. are presented as gross amounts: The table shows the net value of cash inflows and outflows. Remaining maturity of derivative financial instruments 2015 Doc. 31, Payments due in 2015 more than 1 and up to more than in l million up to 1 year 3 years 3 years Receivables from derivatives 50 4 54 Cross-currency Interest rale swaps 13 4 17 Cash inflows 123 41 173 Cash outflows -110 -37 -156 .2 Forward exchange contracts and currency swaps 37 37 Cash Inflows 2,118 137 2,255 Cash outflows -2,081 -137 -2,218 I Commodity derivatives Liabilities from derivatives -122 -43 -57 -222 Cross-currency Interest rate swaps -12 -27 -53 -92 Cash inflows 23 57 314 394 a Cash outflows -35 -84 -367 -486 0 Forward exchange contracts and currency swaps -102 -7 -109 Cash Inflows 2690 202 2,893 Cash outflows -2,792 -209 -1 -3,002 Commodity derivatives -8 -9 -21 Remaining maturity of derivative financial instruments 2014 Dec. 31, Paymentsdue in 2014 more than 1 and up to more than In! million up tot year 3 years 3 years Receivables from derivatives 23 —4 19 Cross-currency Interest rate swaps —5 —5 —10 Cash Inflows 26 63 89 Cash outflows —31 —68 —99 Forward exchange contracts and currency swaps 28 1 29 Cash Inflows 1,141 28 1,169 Cash outflows —1,113 —27 —1,140 Commodity derivatives liabilities from derivatives —198 —36 -33 -267 Cross-currency Interest rate swaps —7 —24 -33 -64 Cash inflows 19 28 262 309 Cash outflows —26 —52 -295 -373 Forward exchange contracts and currency swaps —188 -11 -199 Cash inflows 2,832 286 1 3,119 Cash outflows -3,020 -297 -1 -3,318 Commodity derivatives -3 -1 -4 EFTA00598838 206 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Receivables from cross-currency interest rate swaps comprise basis of this analysis, a maximum risk exposure limit is set transactions with negative net cash flows resulting from for the contracting party. The credit standing of contracting positive inflows in euros and negative outflows in foreign parties is updated constantly via ratings or scoring processes. currencies. In each maturity bracket, the foreign currency In addition, a specific limit is set for financial counter- outflows translated into euros exceeded the actual euro parties for each type of risk (money market, capital market and inflows. To calculate the present value, the foreign currency derivatives). Maximum limits for each contracting party are side of these swaps is discounted using a yield curve for the set on the basis of the creditworthiness analyses. These are foreign currency while the euro side is discounted using a predominantly based on the ratings issued by international euro yield curve. Since interest rates in the foreign currencies rating agencies and our own internal credit analysis. In addi- are higher, discounting results in a positive fair value and thus tion, the development of the price of credit default swaps and a positive overall carrying amount for the instruments despite equity prices (where available) is analyzed. Country limits the negative net cash flows. This phenomenon is encoun- are set for the money and capital markets to ensure diversifi- tered in particular with the Chinese renminbi yuan (CNH) cation of country risks. and the Brazilian real (BRL). Credit management also covers derivative financial instru- ments, where the risk of default is equivalent to the positive (c) Risk of default fair value. This risk is minimized by setting high standards for Credit risk management divides default risks into three the creditworthiness of counterparties. Only common instru- categories, which are analyzed separately on the basis of ments found on the market with sufficient liquidity are used. their specific features. The three categories are debtor and Consequently, no material risk of default is expected in this creditor risk, country risk, and the risk of default by financial field. As for non-derivative financial instruments, there is also counterparties. a default risk amounting to the positive fair value. This can be The debtor and creditor default risks are analyzed and minimized by regular creditworthiness reviews. We do not monitored continuously with the aid of an internal limit anticipate any material risk of default here either. system. Political risk (country risk) is also taken into account Owing to the diversity of business and the large number for export orders so that the overall risk assessment takes of customers, there were no significant cluster risks. account of both political and economic risk factors. On the 10.3 Related parties In addition to the subsidiaries included in the consolidated and Gabriel Acquisitions GmbH (Gabriel Acquisitions), financial statements, the Group maintains relationships Gadebusch (Germany), as it can still exercise a significant with related parties, i.e. companies, the government and indi- influence through the appointment of representatives to the viduals. Supervisory Board of Evonik Industries AG. Further related As of December 31, 2015, related parties with which parties comprise fellow subsidiaries of Evonik owned by the Group maintains business relationships included RAG- RAG-Stiftung and associates and joint ventures of Evonik, Stiftung, Essen (Germany), due to its controlling interest, which are recognized at equity. Business relations with related parties (companies) RAG-Stiftung Fellow subsidiaries Joint ventures Associates InEmiguon 2015 2014 2015 2014 2015 2014 2015 2014 Goods and servkes supplied - - 2 2 25 32 1 9 Goods and services received - - -57 -66 -1 - -2 -2 Other Income - - 143 - 4 - - 6 Receivables as of December 31 - - 1 - 7 3 - 1 Liabilities as of December 31 - - - - - - -1 - Contingent liabilities as of December 31 - - - - -44 -33 -1 -2 EFTA00598839 TO OUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 207 Notes Other disclosures The dividend for fiscal 2014 was paid following the adoption The Federal Republic of Germany and the federal states of of the resolution by the Annual Shareholders' Meeting on North Rhine-Westphalia and the Saarland are also classified May 19, 2015. RAG-Stiftung, Essen (Germany) received as related parties as they are able to exercise a significant E316 million, Gabriel Acquisitions GmbH, Gadebusch (Ger- influence on RAG-Stiftung through their membership of the many) received E24 million, and The Gabriel Finance Limited Board of Trustees of RAG-Stiftung. Partnership, St. Helier (jersey), received E20 million. Transactions effected between Evonik and these federal In 2015, Evonik received dividends of E18 million (2014: and state governments and their subsidiaries or joint ventures E44 million), mainly from associates. in the reporting period comprised generally available govern- The other income from fellow subsidiaries comprised the ment grants and subsidies, and investments in their securities. divestment of the 10.3 percent shareholding in Vivawest to Further, customary business relationships were maintained RAG Aktiengesellschaft, see Note 5.2. with the Deutsche Bahn Group, and the Duisport Group. The contingent liabilities recognized as of December 31, Individuals defined as related parties also include mem- 2015 comprise E44 million relating to a joint venture and bers of the management who are directly or indirectly result mainly from a guarantee of E39 million granted to responsible for corporate planning, management and over- secure a loan for the joint venture Saudi Acrylic Polymers sight, and members of their families. At Evonik, these parties Company, Ltd., Jubail (Saudi Arabia). In addition, two guar- comprise the Executive Board and Supervisory Board of 8 antees totaling E5 million were provided as collateral for Evonik Industries AG, the Executive Board and Board of a facility for hedging transactions at the joint venture CyPlus Trustees of RAG-Stiftung, and other management members Idesa, de C.V., Mexico City (Mexico). who hold key positions in the Group. 1• Remuneration paid to related parties (Individual persons Executive Brad Supervisory Board Other management of Evonik Industries AG of Evonik Industries AG members t. 2 Int000 2015 2014 2015 2014 2015 2014 Short-term remuneration 10,101 7,472 Z818 2,816 12,982 I 4,317 Share-based payments 4,753 850 2,322 121 Current service cost for pension 4. and other post-employment benefits 2,261 1,526 933 493 Termination benefits 2,380 Short-term remuneration comprises both amounts not related The present value of pension obligations (defined benefit to performance and short-term performance-related payments. obligations) was €25,799 thousand (2014: €29,773 thou- As of December 31, 2015, there were provisions of sand) for the Executive Board, and €17,631 thousand (2014: €6,688 thousand (2014: €3,676 thousand) for short-term €10,672 thousand) for other members of the management. performance-related remuneration of members of the Exec- Further, the employee representatives elected to the Super- utive Board and E9,160 thousand (2014: €1,677 thousand) visory Board of Evonik Industries AG continued to receive the for other management members. regular salary agreed in their employment contract. The level At year-end 2015, provisions for share-based payment of their salary provided appropriate remuneration for the amounted toE6,624 thousand (2014: €2,291 thousand) for the exercise of their functions and tasks in the company. Executive Board and E2,408 thousand (2014: E942 thou- In 2015, business relations with the Evonik Group sand) for other management members. amounting to E4 million (2014: E2 million) were maintained Further, as of December 31, 2015 there were provisions by one member of the Board of Trustees of RAG-Stiftung for termination benefits for the Executive Board totaling through companies attributable to this person. This amount E878 thousand. principally comprised goods and services supplied. The liabil- The information on share-based payment relates to ex- ities were less thanEl million on the reporting date. penses for fiscal 2015 for the LTI tranches 2010 through 2015 Apart from the relationships stated above, Evonik did for the Executive Board and LTI tranches 2012 through 2015 not have any other significant business relationships with for other management members. related parties. EFTA00598840 208 FINANCIAL REPORT 201S EVONIK INDUSTRIES 10.4 Contingent liabilities, The purpose of this program is to provide an incentive to contingent receivables and other managers to contribute to the future growth and sustained performance of the Group. financial commitments On the reporting date, the managers participating in this program held an indirect stake of 0.06 percent (2014: Contingent liabilities mainly comprise guarantee and war- 0.31 percent) in Evonik Industries AG. The cash contribution ranty obligations totaling €70 million (2014: €56 million). for this was equivalent to the market value of the partnership They include a guarantee of €44 million in favor of a joint shares and was determined by a suitable enterprise valuation venture, see Note 10.3, and indemnity obligations of €10 mil- method. Since the managers paid the fair value of the lion in connection with divestments, which expire in the shares when they acquired them, the fair value of the equity period up to December 31, 2017. instruments allocated in return was zero. For this reason, Furthermore, following completion of administrative no expense would have to be recognized at any time, either proceedings in foreign jurisdictions, it is not improbable that in the event of an exit or if a manager were to leave the individual customers could file claims for compensation. company. Since the probability is considered low, Evonik is of the Evonik will not at any time be required to make payments opinion that the risk is in the low double-digit-euro range. to the eligible managers under this program. There were no contingent receivables as of Decem- ber 31, 2015. Other financial commitments are outlined below. 10.6 Events after the reporting date As a lessee, Evonik is mainly party to operating leases for land and buildings, plant and machinery, and office furniture There were no material events after the reporting date. and equipment. The table shows the nominal value of obligations from future minimum lease payments for leased assets with the Disclosures in compliance with following payment terms: German legislation Maturity structure of future minimum lease payments Information on shareholdings pursuant (lessee; operating leases) to Section 313 Paragraph 2 of the inc mlllgn 2015 2014 German Commercial Code (HGB) • Due within 1 year 92 78 Due in more than 1 and up to 5 years 246 211 The Group's shareholdings are listed in Note 5.1. The list Due in more than 5 years 218 179 indicates which companies have made use of the provisions 556 469 in Sections 264 Paragraph 3 and 264 b of the German Com- mercial Code (HGB) on exemption from disclosure of annual financial statements and the preparation of notes to their Total payments of €99 million (2014: €108 million) were financial statements and a management report. recognized as expense for operating leases in the reporting period. As in the previous year, the entire amount related to minimum lease payments. No contingent rental payments 11.2 Personnel expense and number of were made. employees pursuant to Section 314 Paragraph 1No. 4 of the German 10.5 Other agreements between Commercial Code (HGB) managers and third parties Personnel expense In connection with the acquisition of 25.01 percent of the in C mill 2015 2014 shares in Evonik Industries AG by Gabriel Acquisitions in Wages and salaries 2,520 2,200 2008, selected managers at Evonik were granted a right to Social security contributions 370 341 participate indirectly in Evonik's success. To this end, the managers purchased, at market price, limited partnership Pension expenses 209 192 shares in the partnership Angel MEP GmbH & Co. KG, Other personnel expense 22 16 Frankfurt am Main (Germany), which held 4.24 percent of 3,121 2,749 the shares in Evonik Industries AG at year-end 2015 (2014: Pilor•year figuresrennet 17.93 percent) jointly with Gabriel Holding through three intermediate companies (Gabriel Investments, Gabriel Acqui- sitions, and The Gabriel Finance Limited Partnership). EFTA00598841 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 209 Notes Disclosures in compliance with German legwletion Wages and salaries also include expenses related to restruc- 11.3 Remuneration of the Executive Board turing. and Supervisory Board pursuant to The net interest expense for pension provisions is shown in the financial result, see Note 6.6. Section 314 Paragraph 1No. 6 of the The table shows the annual average headcount for the German Commercial Code (HGB) continuing operations: The total remuneration paid to the members of the Executive Headcount (annual average) Board of Evonik Industries for their work in 2015, including remuneration of the former Executive Board member No. of employees 2015 2014 Mr. Wohlhauser, was €15,608 thousand (2014: €10,677 thou- Nutrition & Care 6,984 6,960 sand). In 2015 provisions of €332 thousand for bonus pay- Resource Efficiency 8,240 7,951 ments for 2014 were reversed. Performance Materials 4,322 4,387 Further details, including an individual breakdown of Services 12,852 12,844 remuneration, can be found in the remuneration report in the Corporate, other operations 861 960 combined management report. Total remuneration of former members of the Executive 33,259 33,102 E Board and their surviving dependents was €2,729 thousand Pnowyear figures restated. in 2015 (2014: €1,374 thousand). As of the balance sheet date, the present value of pension obligations (defined benefit obligations) for former members of the Executive Board and their surviving dependents 3 amounted to €50,951 thousand (2014: €43,816 thousand). The remuneration of the Supervisory Board for 2015 totaled €2,818 thousand (2014: €2,816 thousand). c" 0 '0 11.4 Auditor's fees pursuant to Section 314 Paragraph 1No. 9 of the German Commercial Code (HGB) The auditor for the consolidated financial statements of the Evonik Group was PricewaterhouseCoopers Aktiengesell- schaft Wirtschaftsprufungsgesellschaft (PwC), Dusseldorf (Germany). The fees for services provided by the PwC Group were as follows: Auditor's fees Germany Other countries Total fees in E million 2015 2014 2015 2014 2015 2014 Auditing of annual financial statements 4.1 3.6 4.7 3.8 8.8 7.4 Other audit-related services 1.3 1.7 0.6 0.6 1.9 2.3 Tax consultation services 1.4 0.2 0.3 0.2 1.7 Other services 0.4 0.7 0.4 0.7 5.3 7.4 5.5 4.7 11.3 12.1 The fees for auditing annual financial statements included Other audit-related services comprised services apart from expenses for the audit of the consolidated financial state- the auditing of annual financial statements, especially the ments and of the separate annual financial statements of review of interim financial statements, and other assurance Evonik Industries AG and its German and foreign subsidiaries. services in connection with projects and other business- related issues. EFTA00598842 210 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 11.5 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group in accor- dance with German accepted accounting principles, and the management report for the Group, which is combined with the management report for Evonik Industries AG, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the material opportunities and risks associated with the expected development of the Group. Essen, February 19, 2016 Evonik Industries AG The Executive Board Dr. Engel Dr. Kaufmann Kullmann Wessel Wolf EFTA00598843 TOOUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 211 COnlVit) SUPPLEMENTARY INFORMATION Independent Auditor's Report 212 Further information on corporate officers 214 Market positions 217 Glossary 219 Imprint 225 r EFTA00598844 212 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Independent Auditor's Report To Evonik Industries AG, Essen we are required to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about Report on the Consolidated Financial Statements whether the consolidated financial statements are free from We have audited the accompanying consolidated financial material misstatement. statements of Evonik Industries AG, Essen, and its subsid- An audit involves performing audit procedures to obtain audit iaries, which comprise the income statement, the statement evidence about the amounts and disclosures in the consoli- of comprehensive income, the balance sheet, the statement of dated financial statements. The selection of audit procedures changes in equity, the statement of cash flows and the notes depends on the auditor's professional judgment. This includes to the consolidated financial statements for the business year the assessment of the risks of material misstatement of from January 1 to December 31, 2015. the consolidated financial statements, whether due to fraud or error. In assessing those risks, the auditor considers the Executive Board's Responsibility internal control system relevant to the entity's preparation of for the Consolidated Financial Statements consolidated financial statements that give a true and fair The Executive Board of Evonik Industries AG, Essen, is respon- view. The aim of this is to plan and perform audit procedures sible for the preparation of these consolidated financial that are appropriate in the given circumstances, but not for statements. This responsibility includes ensuring that these the purpose of expressing an opinion on the effectiveness of consolidated financial statements are prepared in accordance the group's internal control system. An audit also includes with International Financial Reporting Standards, as adopted evaluating the appropriateness of accounting policies used by the EU, and the additional requirements of German com- and the reasonableness of accounting estimates made by the mercial law pursuant to § (Article) 315a Abs. (paragraph) 1 Executive Board, as well as evaluating the overall presentation HGB ("Handelsgesetzbuchy: German Commercial Code) of the consolidated financial statements. and that these consolidated financial statements give a true We believe that the audit evidence we have obtained and fair view of the net assets, financial position and results is sufficient and appropriate to provide a basis for our audit of operations of the group in accordance with these require- opinion. ments. The Executive Board is also responsible for the internal controls which the Executive Board determines are Audit Opinion necessary to enable the preparation of consolidated financial According to § 322 Abs. (paragraph) 3 Satz (sentence) 1 HGB, statements that are free from material misstatement, whether we state that our audit of the consolidated financial statements due to fraud or error. has not led to any reservations. In our opinion based on the findings of our audit, the con- Auditor's Responsibility solidated financial statements comply, in all material respects, Our responsibility is to express an opinion on these consoli- with IFRSs, as adopted by the EU, and the additional require- dated financial statements based on our audit. We conducted ments of German commercial law pursuant to § 315a Abs.1 our audit in accordance with § 317 HGB and German generally HGB and give a true and fair view of the net assets and finan- accepted standards for the audit of financial statements pro- cial position of the Group as at December 31, 2015 as well as mulgated by the Institut der WirtschaftsprOfer (Institute of the results of operations for the business year then ended, Public Auditors in Germany) (IDW) and additionally observed in accordance with these requirements. the International Standards on Auditing (ISA). Accordingly, EFTA00598845 - TOOUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION Independent Auditor's Report Report on the Group Management Report According to § 322 Abs. 3 Satz 1 HGB we state that our We have audited the accompanying management report for audit of the combined management report has not led to any the Evonik Group, which is combined with the management reservations. report of the company, Evonik Industries AG, Essen, for the In our opinion based on the findings of our audit of the business year from January 1 to December 31, 2015. The consolidated financial statements and combined management Executive Board of Evonik Industries AG, Essen, is responsible report, the combined management report is consistent with for the preparation of the combined management report in the consolidated financial statements, as a whole provides accordance with the requirements of German commercial law a suitable view of the Group's position and suitably presents applicable pursuant to § 315a Abs.1 HGB. We conducted our the opportunities and risks of future development. audit in accordance with § 317 Abs. 2 HGB and German generally accepted standards for the audit of the combined management report promulgated by the Institut der Wirt- Dusseldorf, February 22, 2016 schaftsprufer (Institute of Public Auditors in Germany) (IDW). Accordingly, we are required to plan and perform the audit of Pricewaterhouse Coopers the combined management report to obtain reasonable Aktiengesellschaft assurance about whether the combined management report Wirtschaftspriifungsgesellschaft is consistent with the consolidated financial statements and the audit findings, as a whole provides a suitable view of the Group's position and suitably presents the opportunities and Lutz Granderath Antje Schlotter risks of future development. (German Public Auditor) (German Public Auditor) 0 EFTA00598846 214 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Further information on corporate officers Supervisory Board of Evonik Industries AG Dr. Werner Muller, :Wilhelm an der Ruhr Karin Erhard, Hanover Chairman of the Supervisory Board Board Secretary to the Pay-Scale/Finances Chairman of the Executive Board of RAG-Stiftung Division of the Mining, Chemical and a) Borussia Dortmund GmbH & Co. KGaA Energy Industrial Union (IG BCE) RAG Aktiengesellschaft (Chair) a) INEOS Deutschland GmbH RAG Deutsche Steinkohle AG (Chair) INEOS KdIn GmbH b) Contilia GmbH Stadler Rail AG, Bussnang (Switzerland) Carmen Fuchs, Alzenau (since December 10,2015) Michael Vassiliadis, Hanover Deputy Chairperson of the Deputy Chairman of the Supervisory Board Works Council for the Hanau facilities Chairman of the Mining, Chemical a) Pensionskasse Degussa VVaG and Energy Industrial Union (IG BCE) a) BASF SE Stephan Gemkow, Overath K+S AG Chairman of the Management Board RAG Aktiengesellschaft of Franz Haniel & Cie. GmbH RAG Deutsche Steinkohle AG a) TAKKT AG (Chair) STEAG GmbH b) JetBlue Airways Corporation, New York (USA) b) RAG-Stiftung Prof. Barbara Grunewald, Bonn Martin Albers, Dorsten Chair for Civil Law and Commercial Law (since October 1,2015) at the University of Cologne Deputy Chairman of the Works Council for the Essen Campus facilities Ralf Hermann, Herten a) Pensionskasse Degussa VVaG Chairman of the Group Works Council b) PEAG Holding GmbH of Evonik Industries AG b) RAG-Stiftung Prof. Barbara Albert, Darmstadt Professor of Solid State Chemistry at the Eduard- Prof. Wolfgang A. Herrmann, Freising Zintl Institute of Inorganic and Physical Chemistry President of Munich Technical University at Darmstadt Technical University b) Bayerische Forschungsallianz GmbH (Chair) Dieter Kleren, Wesseling Chairman of the Works Council for the Wesseling facilities EFTA00598847 - TOOUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED CINANCIN. STATEMENTS • SUPPLEMENTARY INFORMATION 215 Further Information on corporate officers Steven Koltes, St. Moritz (Switzerland) Ulrich Terbrack, Reinheim Co-Chairman CVC Capital Partners Group Deputy Chairman of the Group Works Council b) Frontiers Media S.A. (Switzerland) of Evonik Industries AG Kaltroco Limited (Jersey) Dr. Volker Trautz, Munich Frank Lollgen, Cologne Former Chairman of the Management Board Regional Director North Rhine of the Mining, of LyondellBasell Industries Chemical and Energy Industrial Union (IG BCE) a) Citigroup Global Markets Deutschland AG a) Bayer AG (since November 3, 2015) Solar Tower Technologies AG (until July 31, 2015) b) Abbott Management GmbH b) CERONA Companhia de Energia Renovavel, Sao Paulo (Brazil) Dr. Siegfried Luther, Glitersloh OSF Merchant Banking, Sao Paulo (Brazil) Former CFO of Bertelsmann AG Perstorp Holding AB, Malm0 (Sweden) a) Schaeffler AG Sparkasse Gutersloh Dr. Christian Wildmoser, Surpierre (Switzerland) Managing Director of CVC Capital Partners Norbert Pohlmann, Essen Switzerland GmbH Chairman of the Works Council b) Sigma Group Holdings S.a r.l. (Luxembourg) for the Goldschmidtstrage facilities a) BKK Novitas The following gentlemen left the Dr. Wilfried Robers, Gescher Supervisory Board in 2015: Chairman of the Group Executive Staff Council of Evonik Industries AG Gunter Adam, Freigericht a) Pensionskasse Degussa VVaG (until December 10, 2015) Deputy Chairman of the Group Works Council Michael Rudiger, Utting am Ammersee of Evonik Industries AG Chairman of DekaBank Deutsche Girozentrale Chairman of the Works Council a) Deka Immobilien GmbH for the Hanau facilities Deka Investment GmbH (Chair) Landesbank Berlin Investment GmbH (Chair) Jurgen Nocling, Duisburg Liquiditats-Konsortialbank GmbH (Chair) (until September 30, 2015) b) DekaBank Deutsche Girozentrale Chairman of the Works Council Luxembourg S.A. (Luxembourg) (until March 20, 2015) for the Essen Campus facilities a) Membership of other statutory supervisory boards. b) Membership of comparable German and foreign supervisory bodies of business enterprises pursuant to Section 125 Paragraph 1Sentence 5 of the German Stock Corporation Act (AMC). EFTA00598848 216 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Executive Board of Evonik Industries AG Dr. Klaus Engel, Mulheirn an der Ruhr Thomas Wessel, Herten Chairman of the Executive Board Chief Human Resources Officer a) NATIONAL-BANK AG Responsible for Technology & Infrastructure b) Borussia Dortmund Geschaftsfahrungs-GmbH a) Evonik Nutrition & Care GmbH (since July 1, 2015 4 ) Evonik Resource Efficiency GmbH (since July 1, 2015•) Dr. Ralph Sven Kaufmann, Dusseldorf Evonik Performance Materials GmbH (since July 1, 2015) (since July 1, 2015 *) Responsible for the Nutrition & Care, Evonik Technology & Infrastructure GmbH Resource Efficiency and Performance Materials segments (since July 1, 2015*, Chair since September 3, 2015) a) Evonik Nutrition & Care GmbH Pensionskasse Degussa VVaG (since July 1, Juli 2015*, Chair since September 14, 2015) Vivawest GmbH Evonik Resource Efficiency GmbH Vivawest Wohnen GmbH (since July 1, 2015*, Chair since September 3, 2015) b) Gesellschaft zur Sicherung von Evonik Performance Materials GmbH Bergmannswohnungen mbH (since July 1, 2015*, Chair since October 16, 2015) Ute Wolf, Dusseldorf Christian Kullmann, Hamminkeln Chief Financial Officer Chief Strategic Officer a) Deutsche AWM Investment GmbH (since July 1, 2015) a) Borussia Dortmund GmbH & Co. KGaA Evonik Nutrition & Care GmbH (since July 1, 2015 4 ) Evonik Performance Materials GmbH Evonik Resource Efficiency GmbH (since July 1, 2015•) (since July 1, 2015 *) Evonik Performance Materials GmbH (since July 1, 2015 *) Pensionskasse Degussa VVaG b) Advanced Metallurgical Group ■, Amsterdam (Netherlands) (until May 7, 2015) The following gentleman left the Executive Board in 2015: Patrik Wohlhauser, Kelkheim (until June 30, 2015) Responsible for the Nutrition & Care, Resource Efficiency and Performance Materials segments b) Jungbunzlauer Holding AG, Basel (Switzerland) a) Membership of statutory supervisory boards. b) Membership of comparable German and foreign supervisory bodies of business enterprises pursuant to Section 125 Paragraph 1 Sentence 5 of the German Stock Corporation Act (AMC). * Until August 21,2015 defined as a comparable supervisory body pursuant to Section 125 Paragraph 1 Sentence 5 of the German Stock Corporation Act (AMC). EFTA00598849 TOOUR SHAREHOLDERS • MANAGEMENT REPORT - CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 217 Muhl pmition, Market positions Market positions 2015' Global Capacit In Product Application ranking* metric tons.. Nutrition & Care Amphoterk surfactants Shampoos, shower gels 1 d Ceramides, phytosphingosines Cosmetics 1 d Fat chemistry, quaternary derivatives Fabric softeners 1 d Organically modified silicones Additives for polyurethane foams, cosmetics, radiation-cured separation coatings 1-2 d SUpel3bSOrbelltS Diapers, feminine hygiene products, incontinence products, technical applications 1-2 570,000 Amino acids and amino acid derivatives Pharmaceutical intermediates and infusion solutions 3 d Exclusive synthesis Intermediates and active substances for pharmaceuticals and specialty applications 3 d Pharmaceutical polymers Drug delivery systems (e.g. tablet coatings) and medical products (e.g. bloresorbable implants) 2 d DL-methlonlne Animal nutrition 1 580,000 Resource Effidency Hydrogen peroxide Bleaching of pulp and textiles, oxidation agent for the chemical industry, starting product for polyurethane 2 >900,000 Activated nickel catalysts Life sciences and fine chemicals, industrial chemicals 3 d Precious metal powder catalysts Life sciences and fine chemicals, industrial chemicals 1 d Oil and fat hydrogenation catalysts Life sciences and fine chemicals, industrial chemicals 3 d Amorphous polyalphaolefins Thermoplastic hot melt adhesives 1 d Polybutadienes Automotive manufacturing (adhesives and sealants) 2 d Polyester resins Can- and coil coating, reactive hot melt adhesives 1 d Thermoplastic and Binders for paints and coatings reactive methacrylate resins 1-2 d Organically modified silicones Binders for paints and printing inks 2 d Isophorone chemistry Environment-friendly coating systems, high-performance composites (crosslinkers) 1 a PEEK Special applications in the oil and gas, automotive and aviation industries, electronics/semiconductors, specialty medical technology (e.g. implants) 3 d Polyamide 12 High-performance specialty polymer applications (e.g. automotive, medical, sport, gas and offshore oil pipelines) 1 d Oil additives Viscosity index improvers 1 d Organosilanes, chlorosilanes Rubber, silicone rubber, paints and coatings, adhesives and sealants, building protection materials, pharmaceuticals, cosmetics, optical fibers l b d Fumed silicas, fumed metal oxides, Silicone rubber, paints and coatings, adhesives, sealants and plastics, precipitated silicas, matting agents pharmaceuticals, cosmetics, high-temperature insulation, electronics, reinforcement of rubber, consumer products, additives for the coatings and printing inks Industry 1 600,000 EFTA00598850 218 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Market positions 2015' Global Capacitui Product Application ranking' metric tons.. Performance Materials Butene-1 Co-monomer for polyoleflns 1' 235,000 DINP High-molecular plasticizers for use In flexible PVC 2 220,000 Isononanol Intermediate for high-molecular plasticizers 2 400,000 Cyanudc chloride Industrial applications and specialties (e.g. crosslinkers and optical brighteners), crop protection (especially Chinese producers) 3 31,000 Alcoholates Catalysts for biodiesel, pharmaceuticals, agrochemlcals and other applications 1 >200,000 Methacrylate monomers Dispersions, coatings, plastics, additives, adhesives, optical lenses 1-2 a Methacrylate polymers Construction materials for the automotive and electrical/electronics Industries, (PMMA molding compounds and specialty medical technology, architecture, design and communication applications PMMA semi-finished products) 1-2 400,000 ' families assessment based on various individual market reponsbnronnstion and in•hoose market research. b Chlocosilanes: Neely traded volumes. Overall assessment—market position differs depending on application. Freely traded volumes. d No data available. EFTA00598851 - TOOUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 219 Glans/ y Glossary Technical terms Accident frequency (occupational safety indicator) Biodiesel Number of accidents involving Evonik employees and Biodiesel is mainly produced from renewable raw materials. contractors' employees under Evonik's direct supervision In many countries, it is already mandatory to add a proportion per 1million working hours. of biodiesel to mineral diesel fuel. Higher percentages are expected to improve climate protection and reduce depen- Active packaging dence on imports. Evonik produces alkoxides which are used Active packaging improves the storage conditions for food. as catalysts for efficient high-yield production of biodiesel. For example, oxygen absorbers remove oxygen from the Using Evonik's catalysts, biodiesel can be manufactured in a atmosphere, thereby increasing the shelf-life of packaged water-free process. As a result, fewer unwanted by-products food through reduced oxidation and maintaining its quality are generated, leading to less contamination, so separation (e.g. color, taste). Evonik is developing VISPARENT", a and processing are facilitated. portfolio of oxygen absorbers for a wide range of end-uses, including transparent packaging. Butadiene Butadiene is mainly used in synthetic rubber, for example for Amino acids the manufacture of tires. It also has a wide range of applica- Amino acids are building blocks for proteins that are used tions in elastomers and plastics. For example, it enhances in animal nutrition. They are used to ensure that the amino the resistance of rubber gloves and is an important precursor acid content of animal feed is optimally aligned to require- for the production of latex mattresses. ments. As a result, livestock needs less feed. That also reduces excretion of nitrogen and undigested nutrients, which C, chemistry improves the carbon footprint of livestock farming and C, crack is a by-product of crude oil refining. It is produced reduces overfertilization of the soil. Evonik markets all four in a steam cracker when naphtha is split into ethylene and major essential amino acids for animal nutrition, i.e. DL- propylene. After isolation, Evonik processes the C, hydro- methionine (MetAMINO1, L-lysine (Biolyse), L-threonine carbons and places them on the market, for example as (ThreAMINO®) and L-tryptophan (TrypAMINO1. Evonik butadiene for tires and butene-1 for the plastics industry. also produces amino acids and their derivatives in pharma- Isobutene is processed into methyl tertiary butylether ceutical quality for use in infusion solutions for parenteral (MTBE), which is used as an anti-knock agent in fuel. In nutrition, as starting products for animal cell cultures, and in further processing steps, it manufactures high-chain alco- the manufacture of active ingredients. hols and plasticizers for flexible PVC. Evonik's integrated C, technology platform ensures excellent product yields. Anti-fouling All hydrocarbons contained in C, crack are processed Special paints protect ships from fouling: algae, mussels cost-effectively. and barnacles that adhere to the vessel and greatly increase drag as they sail. Anti-fouling coatings therefore bring sub- Composites stantial fuel-savings. Evonik's specialty ingredients provide Composites are composed of at least two different materials, particularly long-lasting protection. for example a matrix material reinforced with fibers. By combining the properties of the materials carefully, it is possible to produce components that are very light yet extremely tough. EFTA00598852 220 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Cosmetic ingredients for hair care products Hydrogen peroxide Evonik produces a wide range of cosmetic ingredients such Hydrogen is one of the cleanest and most versatile chemicals. as conditioning agents, surfactants and thickening agents Because of its positive properties it is used in a wide range for shampoos and conditioners, and active ingredients to of applications. Traditionally, hydrogen peroxide has been repair damaged hair. Surfactants provide cleansing proper- used as an environmentally benign bleaching agent in the ties, while thickeners give the products the right viscosity pulp and textile industries. It is also used for antiseptic and rheology. The conditioning additives improve the packaging, to clean silicon wafers in the manufacture of smoothness and structure of hair, making it easier to comb. printed circuit boards and as an active ingredient in pharma- They can also provide additional protection against heat, ceuticals. Thanks to the innovative Hydrogen Peroxide UV irradiation and static charge. to Propylene Oxide (HPPO) process developed by Evonik and ThyssenKrupp Industrial Solutions, this environment- Diversity friendly oxidation agent is also used in the direct chemical We define diversity not simply as the best possible balance synthesis of propylene oxide, which is an important starting between male and female employees, but also between product for polyurethanes. different educational backgrounds, experience of working in different organizational units and functional areas, Incident frequency (plant safety indicator) a broad age range and a variety of nationalities, in other This indicator is based on the process safety performance words, diversity in all its facets. indicator defined by the European Chemical Industry Council (Cefic). Analogously to the accident frequency indicator for Greenhouse Gas Protocol (GHG Protocol) occupational safety, it covers incidents involving the release The Greenhouse Gas Protocol is regarded as the most of substances, fire or explosion, even if there is little or no widespread voluntary international standard for calculating damage. It is calculated from the number of incidents per and compiling data on greenhouse gas emissions from 1 million working hours in the segments' production facilities. industry. It was developed by the World Business Council for Sustainable Development (WBCSD) and the World Integrated technology platforms Resource Institute (WRI). Integrated technology platforms allow efficient use of product streams and thus high added value by utilizing High performance polymers by-products from one production process as starting Evonik is a specialist for high performance polymers. These products for others. That saves resources, reduces CO2 have particularly high strength, making them a welcome emissions and leverages cost-efficiency. Examples of alternative to metals in many fields, for example in light- integrated technology platforms in the Evonik Group are weight structures, medical implants and industrial applica- isophorone and silicon. tions. Depending on where they are used, such materials have to withstand high temperatures, aggressive chemicals Isophorone/isophorone diamine/isophorone diisocyanate and significant mechanical strain. Isophorone is used as a solvent, for example in the paints and coatings industry. It is also used to produce the derivatives isophorone diamine and isophorone diisocyanate. Isophorone diamine is an important curing agent for epoxy resin sys- tems, for example to strengthen rotor blades. Isophorone diisocyanate is used to produce light- and weather-resistant polyurethanes, for example, for coating instrument panels and other plastic components. EFTA00598853 - TOOUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 221 Glosmey Monomers Polyimides Monomers are low-molecular-weight, reactive molecules Polyimide fibers are mainly used in filter media to remove that can build polymers. particulates from hot flue gases in coal-fired power plants, waste incinerators and cement plants. Oil additives As a leading global supplier of oil additives, Evonik develops Polymers innovative technologies that improve the operational effi- Long-chain, short-chain or crosslinked molecules ciency of engines, gears and hydraulic systems. Specific and (macromolecules) produced by linking smaller molecules customized improvements in the flow properties of lubri- (monomers). cants over a wide temperature range play an important role. Depending on the application, Evonik markets these tech- Polyurethane (PUR) nologies as DRIVONT^^, NUFLUXTM and DYNAVIS°. Polymers with excellent thermal and sound insulating properties and a very broad spectrum of applications. PEEK Flexible, foamed PUR is used for cushions, mattresses and Polyetherether ketones (PEEK) are partially crystalline interior trims. Applications for rigid PUR include automotive high-performance polymers with outstanding mechanical engineering, construction and refrigerators. properties and very good temperature resistance. In view of their exceptionally high mechanical, thermal and chemical REACH properties, they are mainly used in functional compo- REACH (Registration, Evaluation, Authorisation and Restric- nents and assemblies in automotive engineering, aviation, tion of Chemicals) is the European chemicals regulation. electronics and medical products. Responsible Care Plasticizers Responsible Care is a global initiative of the chemical Plasticizers are chemical compounds that make PVC plastics industry. Its goals are a continuous improvement in health, flexible. Alongside conventional products, Evonik markets safety and environmental performance. It therefore makes phthalate-free plasticizers. an important contribution to sustainability. Plastic glazing Silanes Glazing made of PLEXIGLAS° is up to 50 percent lighter Silanes are a group of chemical compounds, comprising than glass. That makes it attractive for automotive engi- silicon and hydrogen. Evonik produces three types of silanes: neering. PLEXIGLAS° also has excellent transparency, very — Organofunctional silanes have at least one functional good resistance to weathering, pleasant acoustic properties hydrocarbon group. They are used to produce high-perfor- and outstanding moldability, which opens up completely mance additives that improve the properties of inorganic new design options compared with conventional glazing. particles, resins and polymers. For example, they enhance the bonding properties of adhesives, make plastics heat- PMMA resistant, and add flame-retardant properties to cables. Abbreviation for polymethylmethacrylate. This is a — Sulfur-functional silanes have revolutionized the pro- colorless polymer (acrylic glass) that can be colored in duction of tires, where they are used with precipitated a range of shades. Properties: high light transmittance, silicas to improve key properties such as rolling resistance good moldability, exceptionally high weather resistance. and wet grip. Applications: automotive and aviation engineering, — Chlorosilanes are important precursors, for example for architecture, lighting, design, electronics and communica- the semiconductor and optical fiber sectors. tions technology. Best-known brand: PLEXIGLAS°, which is marketed as ACRYLITE° in the Americas. Form supplied: thermoplastic molding compounds, cast or extruded semi- finished goods (sheet, film, tubes, rods). EFTA00598854 222 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Silicas Sustainability Evonik manufactures both precipitated silicas using a Sustainability is based on the need to balance the economic, wet route and fumed silicas which are produced by a flame ecological and social dimensions. Sustainable development process. Silicas are also known as silicon dioxide. These is a commitment to the perspectives for the lives of future ultra-fine particles are used in a wide range of applications, generations, as expressed in the Vision 2050 published by including the life sciences (pharmaceuticals and cosmetics), the World Business Council for Sustainable Development construction, adhesives and sealants, paints and coatings, (WBCSD) and the United Nations' 17 goals for sustainable furniture manufacture and electronics applications such as development. At the same time, sustainable development is polishing computer chips and the production of toners for an opportunity to establish a successful long-term corporate digital printing. They also play a key role in energy-saving strategy that combines business success with social and tires with low rolling resistance ("green' tires). societal responsibility and protection of the environment. Silica-silane system UN Global Compact Silicas are used in combination with silanes to reinforce The United Nations Global Compact is the biggest and most the tread of modern tires. The silica-silane system greatly important global initiative for responsible business manage- reduces rolling resistance, resulting in fuel savings of up to ment. Signatories are committed to align their business 8 percent compared with conventional auto tires. It also operations and strategies to ten universally recognized improves grip on wet and wintry roads. principles relating to human rights, labor, environmental protection and fighting corruption. Structural foams Structural foams are popular for lightweight construction VISIOMERt specialty methacrylates because they are light and stable. ROHACELI, is the brand Evonik markets the VISIOMER® brand of specialty meth- name for Evonik's polymethacrylimide (PMI) structural acrylates as important precursors for adhesive formulations foams, which have been used for many years in planes and sealing compounds. Applications include automotive and helicopters. Now they are increasingly being used in engineering and boat building as well as pressure-sensitive sandwich structures in the automotive industry. and anaerobic adhesives which allow application-specific optimization of bonding properties. Superabsorbents Crosslinked polymers that are insoluble in water and can Vision 2050 absorb and store large quantities of aqueous liquid through For the Vision 2050 project 29 corporate members of the a mechanism that causes them to swell and form hydro gels. World Business Council for Sustainable Development The liquid is not released even under pressure. Consequently, (WBCSD) developed a common agenda for a world geared these polymers are mainly used in diapers. Special forms to sustainability by 2050 and pathways to achieve this of superabsorbents are used in agriculture to regulate the vision. Evonik was involved in this project and is committed moisture in soil. They can absorbe large quantities of water, to the Vision 2050 which is expressed as "9 billion people and release it to the plants during dry periods. living well within the limits of the planet". World-scale facility A large-scale production facility. World-scale facilities are often more economical because fixed costs per metric ton decline as output increases. EFTA00598855 - TOOUR SHAREHOLDERS MANAGEMENT REPORT CONSOLIDATED FINANCIAL STATEMENTS • SUPPLEMENTARY INFORMATION 223 Glonry Financial and economic terms Adjusted EBIT CTA Earnings before financial result and taxes, after adjustments. Abbreviation for contractual trust arrangement. This is a Earnings parameter showing Evonik's operating earnings model used by Evonik to transfer some of its pension obli- performance irrespective of the structure of its assets. gations to a trust established especially for this purpose: Evonik Pensionstreuhand e. V., Essen (Germany). The assets Adjusted EBITDA transferred to this trust secure employees' pensions. Earnings before financial result, taxes, depreciation and amortization, after adjustments. Earnings parameter showing EVA'° Evonik's operating earnings performance irrespective of Abbreviation for economic value added. Indicator used for the structure of its assets and its investment profile. This is value-oriented management of the Evonik Group. EVA* is a cash flow-related parameter which is used in particular calculated from the difference between adjusted EBIT and in the adjusted EBITDA margin to show the relationship to the cost of capital employed. If EVA* is positive, value is sales as a basis for comparison with competitors. created. Adjustments Hedge accounting Evonik adjusts its operating earnings to take account of non- This refers to accounting for hedging transactions and the operating income and expense items that are one-off or by associated hedged items as a single valuation unit. The pur- nature rare. Consequently, these items do not form part of pose of hedge accounting is to synchronize the otherwise adjusted EBIT and adjusted EBTIDA. The adjustments mainly different periods in which the hedged item and hedge comprise income and expenses relating to the acquisition impact on earnings. and divestment of business operations, impairment losses/ reversals of impairment losses and restructuring expenses. Hedging Hedging is the strategy used to offset the exposure of busi- Compliance ness transactions to risks such as changes in exchange rates, Compliance refers to all activities to ensure that the conduct interest rates and raw material prices. The company enters of the company, its governance bodies and its employees into an additional transaction whose profile is exactly oppo- respect all applicable mandatory standards such as legal site to the profile of the hedge transaction. Derivative finan- provisions, statutory provisions and prohibitions, in-house cial instruments such as forward contracts, swaps and directives and voluntary undertakings entered into by Evonik. options are used as hedging instruments. Corporate governance IFRS Corporate governance comprises all principles underlying the Abbreviation for International Financial Reporting Standards. management and oversight of a company. As an expression Since 2005 companies listed on stock exchanges in the of good and responsible management of the company, it is European Union have been required to prepare consolidated therefore a central element in a company's management financial statements in accordance with IFRS. philosophy. The principles of corporate governance relate mainly to collaboration within the Executive Board and Supervisory Board and between these two boards and the shareholders, especially at Shareholders' Meetings. They also relate to the company's relationship with other people and organizations with which it has business dealings. EFTA00598856 224 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Rating Swaps (currency swaps, interest rate swaps) In the financial community, a rating is an assessment of the Derivative financial instruments used to hedge currency or creditworthiness of a debtor. Ratings are generally awarded interest rate risks by swapping cash flows. Currency swaps by specialized rating agencies. The probability of default is entail swapping payments in different currencies, while calculated on the basis of specific criteria and debtors are interest rate swaps comprise swapping fixed interest rates assigned to rating classes that are indicated by rating codes. are variable rates. Ratings are also awarded for corporate and government bonds. A rating indirectly affects the debtor's business Venture capital activity. Normally a better rating enables a debtor to obtain Venture capital is risk capital that is made available to fund favorable terms for borrowing. innovative concepts and ideas, generally at high-growth small and mid-sized enterprises. Through Evonik Venture ROCE Capital GmbH, Evonik aims to invest up to€100 million in The return on capital employed is a measure of the profit- promising start-ups and leading specialized venture capital ability of capital employed. It is calculated by dividing in the mid term. adjusted EBIT by the average capital employed in the reporting period. Volatility Volatility is a measure of the fluctuation in the price of Stakeholders traded goods, e.g. shares, currencies, interest rates, in a In a corporate context, the term stakeholders refers to all given period. It expresses the standard deviation of relative natural or legal persons with an interest in the development changes in prices over a given period (e.g. a year). The of an enterprise. Stakeholders range from owners and term is often used to denote the fluctuation in prices or employees through customers and suppliers to the state and interest rates on entire markets. general public. EFTA00598857 225 CREDITS PUBLISHER PICTURE CREDITS Evonik Industries AG Page 1: Getty Images Rellinghauser StraBe 1-11 Page 2: Andreas Pohlmann/Evonik 45128 Essen Page 5: Andreas Pohlmann/Evonik Germany Pages 6-7: Getty Images Pages 8-9: Thinkstock, Getty Images Pages 10-11: Getty Images CONTACT Pages 12-13: Getty Images Communications Pages 14-15: vario images, Lady Lilith, 1868 (oil on canvas), Rossetti, Phone +49 201 177-3341 Dante Gabriel Charles (1828-82) / Delaware Art Museum, Fax +49 201 177-3013 Wilmington, USA / Samuel and Mary R. Bancroft Memorial; Miss Sarah Campbell, 1777-78 (oil on canvas), Reynolds, Sir Joshua (1723-92) / Yale Center for British Art, INVESTOR RELATIONS Paul Mellon Collection; St. Mary Magdalene, 1500-10 Phone +49 201 177-3146 (oil on panel), Cosimo, Piero di (ca.1462-1521) / Fax +49 201 177-3148 Palazzo Barberini, Rome, Italy / Bridgeman Images (3), Getty Images (4) Pages 16-17: Corbis, Thinkstock CONCEPT, DESIGN, AND REALIZATION Pages 18-19: Getty Images BISSINGER[+] GmbH Pages 20-21: iStock, Fotolia HGB Hamburger Geschaftsberichte GmbH & Co. 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Printing inks containing heavy metals are not used. To minimize emissions resulting from distribution of this report we utilize efficient transportation logistics. If you no longer need this report, please pass it on to someone else or dispose of it in a paper recycling facility. EFTA00598858 Evonik Industries AG Rellinghauser StraSe 1-11 45128 Essen, Germany Evonik. Power to create. EV9.9111 EFTA00598859 EFTA00598860 EFTA00598861 EFTA00598862 EFTA00598863 EFTA00598864 EFTA00598865 EFTA00598866 EFTA00598867 EFTA00598868 EFTA00598869 EFTA00598870 EFTA00598871