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Performance Materials

9.8 KBEXCEL
Performance Materials
Key figures        
      Change
€ million 2019 2018 € million %
Net sales 2,574 2,406 168 7.0%
Operating result (EBIT)1 307 508 -200 -39.5%
Margin (% of net sales)1 11.9% 21.1%    
EBITDA1 637 769 -132 -17.1%
Margin (% of net sales)1 24.8% 32.0%    
EBITDA pre1 803 786 18 2.3%
Margin (% of net sales)1 31.2% 32.7%    
Business free cash flow1 641 588 54 9.1%
1 Not defined by International Financial Reporting Standards (IFRSs).

Development of net sales and results of operations

In 2019, net sales of the Performance Materials business sector rose by 7.0% to € 2,574 million (2018: € 2,406 million). This growth was attributable to additional net sales from the acquisitions of Versum Materials and Intermolecular (10.4%) and positive exchange rate effects of 3.1%. Both of these positive effects more than offset a decline in net sales in the original franchises.

The net sales in the individual quarters as well as the respective organic growth rates in 2019 are presented in the following graph: 

Performance Materials 

Net sales and organic growth1 by quarters2

€ million/organic growth in %
Not defined by International Financial Reporting Standards (IFRSs).
Quarterly breakdown unaudited.

Organic sales growth of the individual quarters developed from 3.2% in the first quarter of 2019 to -15.2% in the fourth quarter of 2019. The performance in the second half of 2019 was attributable, in particular, to the strong 2018 figures for Display Solutions.

As expected, the Display Solutions business unit, consisting mainly of the business with liquid crystals, photoresists for display applications, and OLED materials, recorded an organic decline in 2019. This organic decline of -8.6% was partly offset by positive exchange rate effects of 2.8%. Capacity ramp-up projects for panel makers in China had shown a strong performance in the third quarter of 2018, peaking in the fourth quarter of 2018. Although net sales in the first two quarters of 2019 continued to benefit from this ramp-up of production capacity, they did so to a comparatively lesser extent.

Following the acquisitions of Versum Materials and Intermolecular, the Semiconductor Solutions business unit has been structured into two new franchises: Semiconductor Materials and Delivery Systems & Services. Semiconductor Materials will continue to concentrate on the distribution and development of materials-based solutions for the semiconductor industry. Delivery Systems & Services focuses on the development and use of delivery systems for semiconductor manufacturers. Furthermore, Delivery Systems & Services will provide services for the installation of systems and safe handling of the specialist materials they process.

Overall, in 2019, customer silicon wafer processing remained below expectations against the backdrop of continued weakness in the semiconductor market. Weighed down by weak market activity, net sales in the original Semiconductor Solutions business units declined organically by -3.6%. However, this was more than offset by positive exchange rate effects of 4.1%.

Driven by the acquisitions of Versum Materials and Intermolecular, overall growth in Semiconductor Solutions was 42.5%. The proportion of Performance Materials sales accounted for by this business unit thus rose from 25% to 33%.

Net sales of the Surface Solutions business unit in fiscal 2019 were down -1.9% overall. An organic decline of -4.2%, attributable to weaker demand from the automotive segment in particular, was partly offset by positive exchange rate effects of 2.3%.

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Performance Materials
Net sales by business unit
€ million 2019 Share organic growth1 Exchange rate effects
Acquisitions/­
divestments
Total change 2018 Share
Display Solutions 1,256 49% -8.6% 2.8% -5.7% 1,332 55%
Semiconductor Solutions 848 33% -3.6% 4.1% 42.0% 42.5% 596 25%
Surface Solutions 468 18% -4.2% 2.3% -1.9% 476 20%
Other 2 0% 8.7% 2.4% 11.1% 1 0%
Performance Materials 2,574 100% -6.5% 3.1% 10.4% 7.0% 2,406 100%
1 Not defined by International Financial Reporting Standards (IFRSs).

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

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Performance Materials
Net sales by region
€ million 2019 Share organic growth1 Exchange rate effects
Acquisitions/­
divestments
Total change 2018 Share
Europe 217 9% -5.5% 0.1% 4.2% -1.2% 220 9%
North America 267 10% -7.0% 4.9% 27.0% 24.9% 214 9%
Asia-Pacific (APAC) 2,041 79% -6.8% 3.2% 9.2% 5.6% 1,932 80%
Latin America 32 1% -2.0% 0.2% 0.9% -0.9% 32 2%
Middle East and Africa (MEA) 17 1% 48.3% 2.0% 71.8% > 100.0% 8 0%
Performance Materials 2,574 100% -6.5% 3.1% 10.4% 7.0% 2,406 100%
1 Not defined by International Financial Reporting Standards (IFRSs).

The following table presents the composition of EBITDA pre for 2019 in comparison with 2018. The IFRS figures have been modified to reflect the elimination of adjustments included in the respective functional costs.

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Performance Materials
Reconciliation EBITDA pre1
  2019 20182 Change
€ million IFRSs Elimination of adjustments Pre1 IFRSs Elimination of adjustments Pre1 Pre1
Net sales 2,574 2,574 2,406 2,406 7.0%
Cost of sales -1,437 51 -1,386 -1,231 -1,230 12.6%
Gross profit 1,137 51 1,188 1,175 1,175 1.1%
Marketing and selling expenses -329 6 -323 -255 -255 26.8%
Administration expenses -118 11 -107 -107 17 -90 18.8%
Research and development costs -267 26 -241 -242 -242 -0.5%
Impairment losses and reversals of impairment losses on financial assets (net) -1 -1
Other operating income and expenses -116 80 -37 -64 21 -43 -14.6%
Operating result (EBIT)1 307     508      
Depreciation/amortization/impairment losses/reversals of impairment losses 330 -7 323 261 -21 241 34.1%
EBITDA1 637     769      
Restructuring expenses 61 -61 1 -1  
Integration expenses/IT expenses 23 -23 15 -15  
Gains (-)/losses (+) on the divestment of businesses  
Acquisition-related adjustments 82 -82  
Other adjustments 1 -1  
EBITDA pre1 803 803 786 786 2.3%
thereof: organic growth1             -12.3%
thereof: exchange rate effects             6.1%
thereof: acquisitions/divestments             8.5%
1 Not defined by International Financial Reporting Standard (IFRSs).
2 Previous year’s figures have been adjusted; see Note (45) “Effects from new accounting standards and other presentation changes” in the Notes to the Consolidated Financial Statements.

Gross profit of the Performance Materials business sector after adjustments rose by 1.1% to € 1,188 million in fiscal 2019 (2018: € 1,175 million). A key driver of this increase was the contribution provided by the Versum Materials acquisition, which more than offset the lower absorption of fixed costs amid the organic decline in sales in the Semiconductor Solutions and Surface Solutions business units. At 46.2% (2018: 48.9%), the gross margin in 2019 was below the previous year’s level. Not including adjustments, the operating result (EBIT) decreased by € 200 million to € 307 million in 2019 (2018: € 508 million). The main drivers here were the restructuring expenses for the Bright Future transformation program, the acquisition and integration expenses for Versum Materials and Intermolecular, and IT expenses for enterprise resource planning (ERP) systems. These effects were only partly offset by the additional EBIT contribution from acquisitions. The rise in marketing and selling expenses and in administrative expenses was due to the additional costs of the Versum Materials and Intermolecular organizations. The so far successful implementation of the Bright Future transformation program more than offset the additional expenses of the Versum Materials and Intermolecular organizations in the adjusted research and development costs. EBITDA pre of the business sector grew by 2.3% to € 803 million (2018: € 786 million). The additional EBITDA pre from the acquisitions (8.5%) and positive foreign exchange effects (6.1%) more than offset the expected decline in organic EBITDA pre (-12.3%). The organic EBITDA pre development included favorable effects from the application of IFRS 16 “Leases” amounting to € 12 million. At 31.2%, the EBITDA pre margin in 2019 was down on the prior-year figure (2018: 32.7%).

EBITDA pre developed roughly in line with net sales over the first three quarters of 2019. The highly positive development in the fourth quarter of 2019 is attributable to additional EBITDA pre from the acquired businesses.

Performance Materials 

EBITDA pre1 and change by quarter2

€ million/change in %
Not defined by International Financial Reporting Standards (IFRSs).
Quarterly breakdown unaudited.

Development of business free cash flow

The business free cash flow of the Performance Materials business sector rose by 9.1% to € 641 million in 2019 (2018: € 588 million). Higher EBITDA pre and the reduction in receivables in fiscal 2019 substantially offset higher investments.

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Performance Materials
Business free cash flow1
      Change
€ million 2019 2018 € million %
EBITDA pre1 803 786 18 2.3%
Investments in property, plant and equipment, software as well as advance payments for intangible assets -158 -118 -40 33.9%
Changes in inventories -251 -44 -207 >100.0%
Changes in trade accounts receivable as well as receivables from royalties and licenses -88 -36 -51 >100.0%
Lease payments2 -11      
Elimination first-time consolidations of Versum/Intermolecular 346      
Business free cash flow1 641 588 54 9.1%
1 Not defined by International Financial Reporting Standards (IFRSs).
2 Excluding payments for low-value leases and interest components included in lease payments.

The development of business free cash flow items in the individual quarters in comparison with 2018 is presented in the following overview:

Performance Materials 

Business free cash flow1 and change by quarter2

€ million/change in %
Not defined by International Financial Reporting Standards (IFRSs).
Quarterly breakdown unaudited.