Business Development

General Business Setting

Overall Economic Situation

In 2023, the global economy was notably influenced by persistent and emerging geopolitical conflicts, contributing to an overall challenging economic environment. Russia’s war against Ukraine since February 2022 and renewed conflicts in the Middle East, aside from their devastating humanitarian repercussions, remained pivotal factors causing ongoing uncertainty regarding the availability and pricing of raw materials and the stability of global supply chains. Following 3.5 % global growth in the preceding year, the International Monetary Fund (IMF) currently projects a 3.1 % increase in global economic output for 2023. This indicates that, similar to the previous year, the achieved growth rate remains below average. For the second consecutive year, economic activity in numerous countries was characterized by diminishing yet still historically high inflation rates. Elevated cost levels and countermeasures implemented through monetary policies subdued markets across various sectors. China’s economic development in 2023 exhibited deflationary tendencies, and the ongoing crisis in the real estate sector further weakened the country’s growth for the year.

The IMF projects that growth in the Eurozone remained weak in 2023. Following a 3.4 % growth rate in the previous year, economic output is projected to have contracted to 0.5 %. The economic region faced significant challenges, particularly stemming from the consequences of high inflation and the subsequent decline in demand. This impact was felt across all major markets, albeit to varying degrees. The IMF estimates indicate that Germany even witnessed a slight reduction to -0.3 % in economic output, compared to a growth rate of 1.8 % in the preceding year. This decline can be attributed mainly to the substantial reliance on Russian gas and the uncertainty surrounding energy supplies due to Russia’s ongoing war against Ukraine. The IMF also notes that growth rates in other Eurozone markets experienced a downturn but remained positive. For instance, Italy saw growth of 0.7 %, France 0.8 %, and Spain 2.4 %.

Based on the latest IMF estimates, the overall economic development in the Americas showed modest positive growth in 2023, against a backdrop of decreasing inflation. The U.S. is reported to have achieved 2.5 % growth in gross value added, while Canada grew by 1.1 %. In the Latin American countries, growth reached 2.5 %, indicating a slight weakening compared to the previous year. This decline is primarily attributed to a significant contraction in Argentina, as projected by the IMF, plummeting from 5.0 % growth in the previous year to -1.1 %. Meanwhile, Brazil is estimated to have achieved growth of 3.1 %, maintaining a similar trajectory as in the preceding year, according to IMF estimates.

According to the IMF, there is an overall increase in gross domestic product projected for Asia in 2023. China, which recorded 3.0 % growth in the previous year, experienced a slight resurgence with forecasted growth of 5.2 % in 2023. However, it fell short of matching the growth of previous years. India, with growth of 7.2 % in the preceding year, largely sustained its momentum and achieved 6.7 % growth in gross value added, as estimated by the IMF. The countries comprising the ASEAN-5 group, after a 5.5 % increase in the previous year, achieved an overall growth rate of 4.2 %. Although Japan’s growth remained modest at 1.9 %, it marked an improvement over the previous year.
 

Industry Specific Framework Conditions

The American Chemistry Council (ACC) estimates that global chemical production grew by 0.3 % in the past fiscal year (previous year: 1.8 %). This indicates that the growth in the chemical industry remained below the overall economic growth rate for 2023. The cyclical downturn in demand for chemical industry products was observable across all markets, albeit to differing extents.

The German Chemical Industry Association (VCI) estimates that Germany, Europe’s largest chemical producer, experienced an industry-wide decline of 8 % in the past fiscal year. Excluding the pharmaceutical sector’s share, the VCI forecasts a steeper decline of 11 %. Additionally, the American Chemistry Council (ACC) reports that the chemical industry in Europe as a whole performed significantly below the global average, registering a decline of -6.6 %.

According to the ACC, chemical production excluding pharmaceutical products in the USA also fell by 1.0 % overall and was therefore below the overall economic trend. According to the ACC, production in North America as a whole fell by as much as 1.9 %. In Latin America, the industry was even weaker than in the north of the continent, with an overall decline of 3.6 %.

As per the ACC, the chemical industry in the Asia-Pacific region grew by 3.7 % in the 2023 fiscal year. As a result, it remained the only region to exhibit significant growth.

Following the turbulence on the energy markets in 2022 caused by Russia’s war against Ukraine, resulting in significant increases in the price of crude oil, the overall situation stabilized somewhat in 2023. Although the price of a barrel of Brent crude oil continued to exhibit strong fluctuations throughout the year, it did not reach the previous year’s highs, peaking at 94 U.S. dollars in September 2023. By the end of the year, the price of a barrel of Brent gradually declined to 78 U.S. dollars. The average price for the year, at 82 U.S dollars, remained well below the previous year’s level of 99 U.S. dollars.
 

Important Events for Business Development

In 2023, non-operating effects impacted ALTANA’s earnings and financial position as well as its net assets.

Non-operating effects from acquisitions stemmed from two significant transactions in the 2023 fiscal year. On August 15, 2023, the BYK division acquired the business of Imaginant Inc., based in Rochester, New York, thereby enhancing its portfolio in ultrasonic measuring and testing instruments. Imaginant will be integrated into the instrument business of the BYK companies in the U.S. and Germany, resulting in a slightly positive effect on both sales and earnings. On September 29, 2023, the ELANTAS division completed the acquisition of the Swiss Von Roll Group, marking the second-largest acquisition in the history of the ALTANA Group. This move allowed ELANTAS to expand its portfolio, particularly in the high voltage insulation sector. The acquisition positively impacted sales, but the earnings situation was slightly burdened by acquisition and integration costs.

The fluctuation of ALTANA’s key exchange rates against the Group currency, the euro, predominantly exerted a negative impact on sales development in 2023 and, to a lesser extent, on earnings development. These adverse effects were slightly more pronounced than initially anticipated by ALTANA. The most significant impact in 2023 was attributed to the change in the exchange rate of the euro to the Chinese renminbi, averaging CNY 7.66 for one euro, which was higher than the previous year ( CNY 7.08 for one euro). Further substantial negative effects arising from exchangerate changes were observed in the ratio of the U.S. dollar to the euro, standing at 1.08 U.S. dollars for one euro, lower than the previous year (1.05 U.S. dollars for one euro). A similar trend was noted in the Indian rupee, with a ratio of 89.30 INR to the euro (compared to the previous year’s 82.69 INR for one euro), and the Japanese yen, with a ratio of 151.99 JPY for one euro (compared to the previous year’s 138.03 JPY to the euro). In contrast, there were slightly positive effects in 2023 due to the depreciation of the Swiss franc and the Mexican peso against the euro. The average exchange rate of the euro to the Swiss franc decreased from 1.00 CHF for one euro to 0.97 CHF to the euro in 2023, and the average exchange rate of the euro to the Mexican peso decreased from 21.19 MXN for one euro to 19.18 MXN to the euro in 2023. In addition, differences in exchange rates as of the balance sheet date had a net negative im pact on balance sheet items compared to the previous year.

The decline in sales development was evident across all regions, although the intensity varied due to specific conditions in each sales region. Consequently, there were slight shifts in the regional sales structure. Europe, with a 38 % share of total Group sales (compared to 36 % in the previous year), remained the most important sales region for ALTANA. However, it experienced a sales decline of 4 %, or even 7 % when adjusted for acquisitions and exchange-rate effects. This decrease reflects the overall market slowdown, although Europe’s overall development fared slightly better than in other key sales regions for ALTANA. Germany, the market with the highest sales, encountered a disproportionately high loss compared to other markets in the Eurozone. Sales growth compared to the previous year was only achieved in some Eastern European markets.

Sales in the Americas in 2023 were down 11 % on the previous year, or 12 % adjusted for exchange-rate and acquisition effects. Sales in the U.S. fell by 12 % in operational terms. The share of total Group sales decreased to 19 % in 2023 (previous year: 20 %). However, as in the previous year, the U.S. remained the Group’s strongest market in terms of sales. Sales also fell in all other countries in the region, in some cases in the double-digit range. Canada lost 14 % in operational terms, followed by Mexico and Brazil. The Americas’ share of Group sales fell slightly to 29 % in 2023 (previous year: 30 %).

In the past fiscal year, Asia saw a further decline in its share of total Group sales, decreasing from 33 % to 31 %. Down by 13 %, the region marked the most substantial nominal drop in sales. Adjusted primarily for negative exchangerate effects, the operating sales decline amounted to 9 %. India and China, the key markets in the region, were the main contributors to this trend. While India emerged as the most dynamic market for ALTANA in 2023, experiencing 8 % operating growth, China witnessed a 10 % decline in operating sales. The region’s most significant individual market in terms of sales sustained a continued drop in demand, with its share of the Group’s total sales falling from 18 % to 17 %. The countries in the Middle East and the South East Asia region also reported a notable decline in sales figures.

The most important cost parameter for ALTANA, variable raw-material and packaging costs, remained at a high level overall in 2023. The material usage ratio, the ratio of these costs to sales, was 46.1 % in the first quarter and developed with slight fluctuations to 46.3 % by the fourth quarter. For 2023 as a whole, the material usage ratio was 46.5 %, below the previous year’s figure of 48.9 % and lower than we had forecast. The material costs developed differently in the four divisions. While ELANTAS and ACTEGA benefited from the decline in raw-material prices, the cost of materials ratios in the BYK and ECKART divisions were slightly higher on average than in the previous year.

In 2023, cost trends no longer showed the significant increase of the previous year. Inflation experienced a slight decline, while energy and freight costs remained elevated compared to the long-term average. Notably, personnel costs saw a significant rise, driven by inflation-related catch-up effects. Besides wage increases, the acquisition of the Von Roll Group, with the assumption of 982 employees at the end of 2023, temporally impacted personnel costs in absolute terms. The ratio of total personnel costs to sales increased to 22.7 % (compared to 19.7 % in the previous year) due to the decline in sales. Depreciation and amortization increased by 2 % in a year-to-year comparison.

Within production costs, personnel costs in particular were higher than in the previous year due to the increase in staff resulting from the acquisition of the Von Roll Group, while energy costs and other variable cost components fell due to the decline in the volume produced.

The absolute decline in selling expenses is mainly due to lower sales compared to the previous year. Freight costs and other volume-related costs such as sales bonuses fell significantly. Depreciation and amortization also fell in the realm of selling expenses. Travel expenses, on the other hand, increased overall in this cost area.

In 2023, ALTANA again increased its research and development expenses. The reasons for the increase were, on the one hand, the integration of the Von Roll Group’s research and development activities and, on the other, an increase in personnel costs. The ratio of research and development costs to total sales increased from 6.4 % to 7.2 % in 2023 and was thus in line with our target of around 7 %.

Administrative expenses increased the most compared to the previous year. The main reason was the costs associated with the strategic projects and the acquisitions made in preparation. Increases in personnel costs and higher travel expenses were also a contributing factor. The ratio of administrative expenses to sales rose to 5.2 %, higher than the previous year’s level of 4.4 %.

The positive balance of other operating income and expenses totaled € 11.1 million in 2023, higher than the previous year’s figure (€ 8.5  million). This figure was positively impacted by one-off special income from the reversal of a provision as a risk provision for possible bad debts. Earnings before interest and taxes (EBIT) amounted to € 216.3 million, 19.3 % down on the previous year’s figure (€ 287.5 million) in operational terms.

At € - 7.1 million, the financial result was below the previous year’s figure of € 7.0 million. This is partially because net interest developed negatively in 2023 due to higher employee benefit obligations. The previous year’s balance also included income from the sale of shares in dp polar GmbH, Eggenstein-Leopoldshafen. The result from companies accounted for using the equity method changed from € 10.9 million in the previous year to € - 43.0 million in 2023. The reason for the positive prior-year figure were valuation effects in connection with the investment in Landa Corporation Ltd. following a capital increase by a third-party investor.

Earnings before taxes (EBT) fell to € 166.3 million (previous year: € 305.5 million), while earnings after taxes (EAT) decreased to € 110.2 million (previous year: € 232.4 million). At 27 %, the adjusted income tax rate was higher than in the previous year (25 %).