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Report on Economic Position

Macroeconomic and Sector-Specific Environment

The development of our net sales in 2015 was influenced by general global trends and by the growing importance of the Asia-Pacific region (APAC). In 2015, the APAC region accounted for approximately 56% of the organic growth in Group sales. All business sectors made positive contributions to the overall organic sales growth of the APAC region. In 2015, Healthcare and Performance Materials generated the APAC region’s largest share of sales in absolute terms. At 10.4%, the highest organic sales growth in the region was achieved by Healthcare. Life Science and Performance Materials followed far behind, with organic growth rates of 5.5% and 0.8%, respectively.

According to the most recent report by the International Monetary Fund (IMF), the recovery in industrialized countries continued in 2015, whereas economic activity in emerging economies and developing countries weakened for the fifth year in a row. The IMF reported that global gross domestic product (GDP) rose by 3.1% in 2015, representing a decrease of 0.3 percentage points compared with 2014. While industrialized countries generated an increase of 1.9%, at 4.0% emerging economies again made the largest contribution to global growth.

According to the latest information, in 2015 the GDP of the United States, the world’s largest economy, grew by 2.5% (2014: 2.4%), which was 0.6 percentage points short of the 2014 forecast. Growth in the United States slowed down in 2015 due to a decline in investment spending by the oil industry and a harsh winter. For the eurozone, the IMF noted a 1.5% increase in GDP in 2015 (2014: 0.9%). In Asia (excluding Japan), GDP grew in 2015 by 6.6% (2014: 6.8%). India (7.3%) and China (6.9%) made noteworthy contributions to this development. Japan, South Korea and Taiwan remained behind the previous year’s growth expectations. However, with GDP growth of 0.6%, Japan returned to positive territory (2014: 0.0%). By contrast, economic activity slightly weakened in South Korea, with GDP growth of 2.7% (2014: 3.3%) and in Taiwan, with growth of 2.2% (2014: 3.8%).


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Development in 20151 Development in 2014
Healthcare
Global pharmaceutical market 8.9% 8.7%
Market for multiple sclerosis therapies2 8.0% 19.0%
Market for type 2 diabetes therapies2 2.0% 9.0%
Market for infertility treatment2 – 7.0% 1.0%
Market for the treatment of colorectal cancer2 – 1.7% – 5.8%
Market for OTC pharmaceuticals 4.9% 4.0%
 
Life Science
Market for laboratory products 3.0% 2.8%
Share of biopharmaceuticals in the global pharmaceutical market 24.0% 23.0%
 
Performance Materials
Growth of LC display surface area declining growth
dynamics
13.8%
Global automobile sales volumes slightly weaker growth 4.0%
Materials for production of cosmetics 2.0% 1.8%
Semiconductor industry sales sales at the previous year’s level 8.0%
1
Predicted development. Final development data for 2015 were not available for all industries when this report was prepared.
2
Growth figures are based on market data stated in U.S. dollars. Market data from EvaluatePharma on the growth of indications are based on published company reports and are subject to exchange rate fluctuations.
Owing to the development of the € / US$ exchange rate in 2014 – 2015, market growth in U.S. dollars is weaker than when viewed in terms of euros.

Healthcare

The IMS Health Global Market Prognosis 2015–2019, a study published by IMS Health, expects an 8.9% increase in sales for the global pharmaceutical market in 2015 (2014: 8.7%). This sales increase is primarily attributable to Latin America and the United States. The U.S. pharmaceutical market saw growth of 11.4% (2014: 12.6%) and in Latin America, growth was as high as 15.8% (2014: 11.6%). At 7.0%, growth of the Chinese market was weaker compared with the previous year (2014: 11.2%). However, at 5.8%, European market growth continued (2014: 4.1%).

Not only the growth of the pharmaceutical sector as a whole, but also in particular the development of the biopharmaceutical market are relevant for our business. According to EvaluatePharma, the share of sales accounted for by biopharmaceuticals as a proportion of the overall pharmaceutical market has steadily increased since 2006, amounting to 24.0% in 2015. In absolute terms, global biopharmaceutical sales amounted to around US$ 183 billion in 2015. For the coming years, EvaluatePharma continues to expect increasing sales of biopharmaceuticals. It is also likely that the trend towards biopharmaceuticals making up an ever greater share of the overall pharmaceutical market will continue.

According to EvaluatePharma, among our therapeutic areas of focus, particularly the markets for multiple sclerosis therapies and type 2 diabetes treatments showed the highest growth, increasing by 8.0% (2014: 19.0%) and 2.0% (2014: 9.0%), respectively. Moreover, it should be emphasized that the market for infertility treatments recorded a sales decline of – 7.0% (2014: 1.0%). Despite this difficult environment, the Biopharma business generated an organic sales increase of around 3.7% with Gonal-f®, a hormone used in the treatment of infertility. In 2015, the market for oncology drugs to treat colorectal cancer declined by a further 1.7% in comparison with the previous year (2014: -5.8%).

In a market study, the company Nicholas Hall quantified growth of the global over-the-counter pharmaceutical market at 4.9% in 2015 (2014: 4.0%). The market growth drivers were India at 8.9% (2014: 9.0%) as well as Latin America at 7.0% (2014: 8.2%). The Japanese and western European markets showed the weakest growth dynamics of 0.2% and 3.3%, respectively.

Life Science

Our Life Science business sector is a leading supplier of products and services for general laboratory applications, as well as researching, developing and producing drug therapies of biological and chemical origin.

For the global laboratory product market relevant to Bioscience and Lab Solutions, the market research firm Frost & Sullivan calculated growth of 3.0% for 2015 (2014: 2.8%). Growth was primarily driven by biopharmaceutical industry customers, specifically emerging biotech start-ups. The stabilization of U.S. academic funding also helped to improve the performance and prospects of research tools markets. In comparison with 2014, the European market grew by 1.9% (2014: 1.6%), especially as a result of positive market developments from the EU Research and Innovation program Horizon 2020. Growth of the U.S. market improved to 3.2% (2014: + 3.0%) thanks to the robust performance of the biotech industry. Emerging economies delivered higher growth; however, a slowdown in China was visible.

The demand for Process Solutions products depends heavily on the volume of biological product sales as well as the research & development activities of biopharmaceutical companies. Global biopharmaceuticals are approaching US$ 200 billion in sales and are expected to double by 2020. According to EvaluatePharma, there are more than 7,500 active biologics projects in the pipeline, 25% of which are monoclonal antibodies. Biosimilars are a small, but fast-growing part of the pharmaceutical market. In 2015, IMS expects spending on biosimilars to reach US$ 2 billion annually, or approximately 1% of total global spending on biologics.

Performance Materials

With our Liquid Crystals business, we are the leading producer of liquid crystal mixtures for the display industry. Based on data collected by market researchers at DisplaySearch, in recent years the display industry has achieved growth rates in display surface areas averaging 10%. This dynamic growth was driven by higher sales volumes and increasing average display sizes. Owing to weak demand for televisions, 2015 saw waning growth dynamics. The display industry remains a growth sector in which the leading display technology is based on liquid crystals. OLED technology, for which we also rank among the leading material suppliers, is gaining importance in the high-quality display sector.

The markets for automotive coatings and cosmetics are crucial to our Pigments business. As reported by the German Automobile Industry Association (VDA), global automobile sales increased by 4% in 2014. The growth drivers were China (+ 13%), the United States (+ 6%) and western Europe (+ 5%), whereas automotive sales volumes declined in Latin America and eastern Europe. Owing to the weakening of economic activity in China, global growth of the automotive industry is expected to come in slightly weaker in 2015. According to Euromonitor International, global consumption of materials used to produce cosmetics grew by 2%, with Asia reporting the highest growth rate of 5%.

The semiconductor industry is the most important sales market for the business with integrated circuit materials (IC Materials). The long-term growth of the semiconductor industry has a cyclical demand pattern. According to Gartner, a market research institute specializing in the technology and electronics markets, in 2015 the industry’s sales were at the previous year’s level as a result of declining demand in the PC business. In 2014, dynamic growth of 8% was recorded.