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Performance Materials

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Performance Materials

Key figures

Change
€ million 2018 2017 € million in %
Net sales 2,406 2,446 – 40 – 1.7%
Operating result (EBIT)1 508 689 – 181 – 26.3%
Margin (% of net sales)1 21.1% 28.2%
EBITDA1 769 947 – 178 – 18.8%
Margin (% of net sales)1 32.0% 38.7%
EBITDA pre1 786 980 – 194 – 19.8%
Margin (% of net sales)1 32.7% 40.1%
Business free cash flow1 588 906 – 318 – 35.1%
1
Not defined by International Financial Reporting Standards (IFRSs).

Development of net sales and results of ­operations

In 2018, net sales of the Performance Materials business sector decreased by – 1.7% to € 2,406 million (2017: € 2,446 million). This drop was mainly attributable to adverse exchange rate effects of – 3.4% or € 83 million. They resulted primarily from a weaker U.S. dollar over the previous year and declining Asian currencies such as the Taiwan dollar and the Japanese yen.

The Semiconductor Solutions business unit, which pools the business for materials to produce integrated circuits, generated strong organic sales growth in 2018, as expected.

Sales in the Surface Solutions business unit fell short of expectations and were below the prior year’s figure due to factors including the decline in demand for automobiles in Europe, North America and China.

The Display Solutions business unit recorded organic sales that were just positive owing to rising demand and strong growth in the OLED area and to non-recurring project-related liquid crystal sales, above all in the third and fourth quarters of 2018.

The net sales in the individual quarters as well as the respective organic growth rates in 2018 are presented in the following graph:

PERFORMANCE ­MATERIALS

Net sales and organic growth1 by quarters2

€ million/organic growth in %

1 Not defined by International Financial Reporting Standards (IFRSs).
2 Quarterly breakdown unaudited.

Net sales of the Performance Materials business sector by region developed as follows:

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Performance Materials

Net sales by region

€ million 2018 Share Organic growth1 Exchange rate effects Acquisitions/ divestments Total change 2017 Share
Europe 220 9% – 4.8% – 0.3% – 5.0% 231 9%
North America 214 9% 0.3% – 4.6% – 4.3% 223 9%
Asia-Pacific (APAC) 1,932 80% 2.9% – 3.5% – 0.7% 1,945 80%
Latin America 32 2% – 3.8% – 8.3% – 12.1% 37 2%
Middle East and Africa (MEA) 8 0% – 18.4% – 1.6% – 20.0% 10 0%
Performance Materials 2,406 100% 1.7% – 3.4% – 1.7% 2,446 100%
1
Not defined by International Financial Reporting Standards (IFRSs).

The development of results of operations is set out below:

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Performance Materials

Results of operations

Change
€ million 2018 in % 2017 in % € million in %
Net sales 2,406 100.0% 2,446 100.0% – 40 – 1.7%
Cost of sales – 1,231 – 51.2% – 1,145 – 46.8% – 86 7.5%
Gross profit 1,175 48.8% 1,301 53.2% – 127 – 9.7%
 
Marketing and selling expenses – 255 – 10.6% – 242 – 9.9% – 13 5.2%
Administration expenses – 90 – 3.7% – 72 – 2.9% – 18 25.1%
Research and development costs – 242 – 10.1% – 225 – 9.2% – 17 7.5%
Remaining operating expenses and income – 81 – 3.3% – 73 – 3.0% – 7 9.8%
Operating result (EBIT)1 508 21.1% 689 28.2% – 181 – 26.3%
 
Depreciation/amortization/impairment losses/reversals of impairment losses 261 10.9% 258 10.5% 3 1.3%
(of which: adjustments) (21) (26) (– 5) (– 19.1%)
EBITDA1 769 32.0% 947 38.7% – 178 – 18.8%
 
Restructuring expenses 1 5 – 4 – 78.5%
Integration expenses/IT expenses 15 20 – 6 – 27.1%
Gains (–) / losses (+) on the divestment of businesses 1 – 1
Acquisition-related adjustments
Other adjustments 1 7 – 6 – 89.5%
EBITDA pre1 786 32.7% 980 40.1% – 194 – 19.8%
1
Not defined by International Financial Reporting Standards (IFRSs).

In 2018, gross profit was € 127 million below the previous year’s level and amounted to € 1,175 million (2017: € 1,301 million), resulting in an expected reduction in the gross margin to 48.8% (2017: 53.2%). The development of the gross margin is essentially explained by the price declines observed in the display industry and by falling sales in the Surface Solutions business unit.

The operating result (EBIT) decreased to € 508 million in 2018 (2017: € 689 million). In addition to the sales and margin-related decline in gross profit, this was due to higher marketing and selling expenses as well as additional research and development costs. While the rise in marketing and selling expenses was primarily attributable to logistics costs, the increase in research costs was chiefly due to the tapping of new growth areas in materials for the production of integrated circuits.

EBITDA pre of the business sector declined by – 19.8% to € 786 million (2017: € 980 million). The negative foreign exchange impact of – 6.9% lowered this key performance indicator. Consequently, at 32.7%, the EBITDA pre margin was below the prior-year figure (2017: 40.1%).

The development of EBITDA pre in the individual quarters in comparison with 2017 is presented in the following overview:

PERFORMANCE ­MATERIALS

EBITDA pre1 and change by quarter2

€ million/change in %

1 Not defined by International Financial Reporting Standards (IFRSs).
2 Quarterly breakdown unaudited.

Development of business free cash flow

At € 588 million, the business free cash flow of the Performance Materials business sector in 2018 fell short of the prior-year figure (2017: € 906 million). This resulted from the reduction in EBITDA pre, a rise in receivables as of the 2018 balance sheet date that was primarily due to one-time project-related sales of liquid crystals in the fourth quarter of 2018, and higher inventories in the Surface Solutions business unit.

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Performance Materials

Business free cash flow1

Change
€ million 2018 2017 € million in %
EBITDA pre1 786 980 – 194 – 19.8%
Investments in property, plant and equipment, software as well as advance payments from intangible assets – 118 – 125 7 – 5.6%
Changes in inventories – 44 – 14 – 30 > 100.0%
Changes in trade accounts receivable and receivables from royalties and licenses – 36 65 – 101 > 100.0%
Business free cash flow1 588 906 – 318 – 35.1%
1
Not defined by International Financial Reporting Standards (IFRSs).

The development of business free cash flow items in the individual quarters in comparison with 2017 is presented in the following overview:

PERFORMANCE ­MATERIALS

Business free cash flow1 and change by quarter2

€ million/change in %

1 Not defined by International Financial Reporting Standards (IFRSs).
2 Quarterly breakdown unaudited.