EFTA00598642.pdf

ANNUAL REPORT 2015 INDUSTRIES EFTA00598642 Key figures for the Evonik Group Key figures in million 2011 2012 2013 2014 2015 Sates 14,540 13,365 12,708 12,917 13,507 Adjusted EBITDA' 2,768 2,467 1,995 1,882 2,465 Adjusted EBITDA margin 19.0 18.5 15.7 14.6 18.2 Adjusted EBIT° 2,099 1,887 1,404 1,256 1,752 ROCE` in % 18.7 20.4 15.1 12.5 16.6 Net Income 1,011 1,165 2,054 568 991 Adjusted net Income 1,256 1,076 806 782 1,128 Earnings per share in 2.17 2.50 4.41 1.73 1.22 2.13 Adjusted earnings per share in 2.70 2.31 1.68 2.42 Total assets as of December 31 16,944 17,166 15,883 15,685 17,005 Equity ratio as of December 31 in% 35.8 31.9 43.0 41.6 44.6 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 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 Figures for 2012 and 2013 contain the former Real Estate segment as a diso:ntinued operation. 2014 figures restated. Earnings before financial result, taxes, depreciation and amortization, after adrustments. b Earnings before financial result and taxes, after arnustrnents. < Return on capital employed. 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. Sales by region' Other 3% Germany 10% Central and South America 7% Other European Countries 31% North America 20% • Elylocation of customer. Nutrition & Care Key figures in million 2015 2014 External sales 4,924 4,075 Adjusted EBITDA 1,435 847 Adjusted EBITDA margin In % 29.1 20.8 Adjusted EBIT 1,214 685 ROCE In % 41.5 27.1 No. of employees 7,165 6,943 Prior-year figures restated. Resource Efficiency Key figures in million 2015 2014 External sales 4,279 4,040 Adjusted EBITDA 896 836 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. Performance Materials Key figures in million 2015 2014 External sales 3,435 3,827 Adjusted EBITDA 309 325 Adjusted EBITDA margin in % 9.0 8.5 Adjusted EBIT 174 204 ROCE In % 11.9 14.6 No. of employees 4,380 4,353 prior-year figures restated. EFTA00598643 6 HER MOM'S THINKING: Doesn't she look sweet? When she grows up, she'll be a movie star! HER BROTHER'S THINKING: Hey, that's my shovel! EFTA00598645 bse A Kieflerte "1 tur 'ma. ' • • • ft r $ t 01 OIS ta cp. • t AT I • SeEittorig • ts" • . t& .H. 4,...400~0010.01SOMbil.. "- „t a r , .5 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! 7 EFTA00598646 8 NUTRITION& CARE THE INNOVATIVE CORE Today baby diapers are a high-tech product that's attracting new customer groups all he world. Companies are therefore competing more fiercely to make the best diapers. Evonik supplies the key ingre- dient and special know-how to stay in the running. Away from cotton and cellulose, toward superabsorbing polymers: That would be a good way to describe the development of modern diapers—but it wouldn't even be close to the whole story. Since the 1980s, when diaper manufacturers started using superabsorbers, there have been transformations on babies' changing tables and in this fiercely competitive market. Today superabsorbers of the latest generation can absorb 500 times their own weight in liquid. Almost every diaper manufactured today contains a few grams of these granulates. And the granu- late in every fifth diaper comes from Evonik Industries. A great deal of know-how has led to modern diapers and their superabsorbers. Back in the early 1980s, the first-generation superabsorbers merely absorbed liquid especially well and then retained it under pressure. Second-generation superabsorbers could expand against pressure—that is, even when the baby was sitting on the diaper. In the third generation the transport of liquid was optimized, so that the entire diaper could be used even if it didn't contain much cellulose. Today the primary goal is to make diapers that absorb liquid even faster and require even less material to guarantee long-lasting dryness. That's why Evonik is continuing to do research aimed at finding new and improved superabsorbers, and why it's analyzing diaper designs from all over the world in its 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. From Shanghai to Sao Paulo, a growing middle class with increasing disposable income is buying more and more modern diapers that promise dry baby bottoms, quieter nights and happier children. As a result, diaper manufacturers in new markets are competing to win over a growing number of customers. Increasing prosperity and rising local birthrates are driving this business. Whereas the diaper market in Western Europe and North America is growing by less than two percent, and in Japan incontinence products and baby diapers are being sold in equal numbers, the rest of the Asian market is growing by about eight percent annually—and the Chinese market is increasing by an impressive ten percent a year. In these growth markets the manufacturers are trying to beat the competition by means of clever marketing and especially high-quality diapers. In many cases, the keys to success are materials that are very similar to textiles and powerful superabsorbers that make diapers even thinner and more absorbent. Children enjoy the wearing comfort, and parents enjoy having to change diapers less often. Manufacturers and dealers benefit too, because thinner diapers take up less of the fiercely contested space on supermarket shelves. And the environment also benefits, because more diapers fit into each delivery truck. In general, the environmental balance sheet is playing an increasingly important role for the customers and manufacturers of consumer goods. Evonik is therefore continuing to work on environmental issues and giving its customers extensive information about its products' CO2 footprint, which has shrunk by 15 percent in the past four years. Thanks in part to yet another hidden piece of high tech in every fifth diaper that is sold. 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 Strategic Marketing Director Bay Cate Burinen Line PP EFTA00598648 10 THE POLICEMAN'S THINKING: That's a novel way to slow down traffic. THE SHEEPDOG'S THINKING: Woof, woo/7 EFTA00598649 11 all OUR CUSTOMER'S THINKING: 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 making vehicles not only lighter but also better. Solutions from Evonik will make just about every car more efficient in the future. The automotive industry currently faces major challeng- es, as legislators and associations around the world are mandating that vehicles should be made more efficient as part of the effort to combat climate change. In other words, mobility must become cleaner and more econom- ical. At the same time, drivers continue to demand a level of comfort and safety that requires the inclusion of more and more equipment and systems. For decades, this led to an increase in vehicle weight with every new model generation, and this development basically negated the numerous advances that had been made with efficient drive systems, improved aerodynamics, and cleaner fuels. A broad range of innovations is needed to ensure that ever more sophisticated equipment can be efficiently put on the road. Such innovations involve everything from lightweight designs and materials to more efficient powertrains. As a specialist for exceptionally high-per- formance materials, Evonik offers solutions in just about every area here. For example, the company has devel- oped joining technology systems that use very powerful 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 new component concepts and enables thinner materials to be used to achieve the same degree of component strength, which also reduces weight. Evonik supplies additives for the special adhesives needed here and also offers a hot melt adhesive system that withstands high stress loads and can thus meet the strictest safety requirements in crash tests. Plastics are playing an increasingly important role in efforts to make mobility more efficient. They can be used in place of heavier metal parts and also enable the creation of new functions. Even components such as air intake pipes, which are mounted close to the engine and exposed to high levels of stress, can now be manu- factured using temperature-resistant high-performance plastics from Evonik. In this case, the weight benefit is 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 solutions—for example, in an ultra-lightweight sports car Evonik designed with Roding Automobile, a small-batch manufacturer from Bavaria. The vehicle is being used to test materials for composites, structural foams, plastic glazing, and oil additives under tough racing conditions. At the same time, new series production processes are needed if racing innovations are to be transferred to the mass market. Evonik has already accomplished a great deal in this regard with composites. For example, re- searchers in Evonik's Composites Project House have developed systems and processes that enable composites to be manufactured more quickly and simply, and less expensively. In the course of their work, they also com- bined properties that were long considered impossible for plastic materials. This feat was achieved with new combinations of polymers, crosslinkers, and catalysts, for example, and it ensures that the potential of composites can be exploited more effectively. However, lightweight design alone is not enough to make cars significantly more climate-friendly. In particular, the powertrain—where up to 20 percent of a vehicle's ener- gy is lost—needs to be optimized. Evonik is currently establishing a center of competence for such optimization. The facility will channel key areas of expertise at the Group to develop new powertrain technologies. For example, plastics and new coatings in transmissions, combined with specially optimized lubricant additives, could help reduce the loss of engine performance during vehide operation. Even with 130 years of development experience, there's still plenty of potential for improving automobiles. The road to climate-friendly mobility will be marked not so much by leaps in technology as by the combination of a large number of individual improvements. Evonik, with its innovations for everything from vehicle roofs to tires, fuels, lubricants, and paints, is present just about every- where in automobiles, which means the company is well equipped to participate in every step of the problem's solution. 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 I lead or the Automotive IndustriesTeam (AIT) at Evonik Industries IP 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 scrutiny even if the reasons are not always scientifically justified. Brazilian people love natural extracts, while many people of the Asian population are buying more and more silicone-free products and people from France tend to choose products without parabens. Evonik follows a clear strategy in achieving sustainable targets and creating solutions for our customers. Natural raw materials in hair and body care products are very popular. Consumers are increasingly making sure the products they buy are sustain- ably produced. Accordingly, Evonik has some of the production plants for cosmetics ingredients certified— 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 so slim—how does she do it?! THE CAR LOVER'S THINKING: No eating in my car! EFTA00598655 19 !1 OUR CUSTOMER'S THINKING: ...we'll take the used grease for the French fries to make biodiesel— that's good for 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 I lead of the Alkox Ides Product line 9! FROM DEEP-FRYING FAT TO BIODIESEL Alkoxides act as catalysts that help to convert natural oils and fats into biodiesel. Evonik's specialty products make it possible to use highly sustainable raw materi- als more extensively. They're greasy and not very healthy, really—but hardly anyone can resist a portion of crispy French fries. What many people don't know is that the deep-frying fat they're made in can be reused in a productive way. How- ever, this fact might soon become common knowledge, because such grease is a perfect raw material for the large•scale production of environmentally and dimate- friendly biofuels for automobiles. biodiesel made from old cooking oils and other waste products produces 80 percent lower emissions of the greenhouse gas carbon dioxide than does diesel from fossil sources. Moreover, the supply of old cooking oils seems virtually inexhaust- ible. For example, Germany's restaurants alone produce around 200,000 tons of used grease per year and private households offer similar potential. Although most biofuels today are based on renewable raw materials such as rapeseed or soybean, the use of waste•based biodiesel has expanded rapidly over the last few years. For example, the share of biodiesel raw mate- rials accounted for by used cooking oils and other waste has nearly doubled since 2011. The European Union is also supporting the use of biofuels made from waste products because, unlike raw materials that are especially cultivated for fuel applications, such products do not take up fields that could otherwise be used to grow food crops. Moreover, the recyclability of such waste products means their use can significantly reduce greenhouse gas emissions. The importance of waste•based biofuels continues to grow even in Brazil and the USA, both of which produce large amounts of soybean. Companies around the world that produce biodiesel use alkoxides from Evonik Industries. Here, sodium methylate and potassium methylate serve as catalysts for the transesterification of vegetable oils and animal fats that is needed to produce biodiesel. Sodium methylate is the most extensively used catalyst worldwide and has been successfully supporting the production of biodiesel from renewable raw materials for many years now. Potassium methylate is the catalyst of EFTA00598657 21 choice for the production of biodiesel from used cooking oils. That's because such oils contain a high share of free fatty acids that form a soap residue, which makes the manufacturing process more difficult. However, the use of potassium methylate leads to the formation of potassium soaps, which are easier to manage. The production pro- cess with potassium methylate is therefore more robust, yields are higher, and the quality of the resulting biodiesel is better. 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. Potassium methylate might actually be on the verge of a spectacular career, as a study has shown that many other types of waste materials could be used to produce biofuels. If all such waste in the European Union were to be converted into biofuels, the resulting volume would cover around 16 percent of the entire fuel requirement in the EU by 2030. This would also make it possible to lower fossil fuel consumption by up to 37 million tons per year— which would be a real treat for the environment as well. EFTA00598658 THE MANAGER'S THINKING: When I was a little boy, I dreamed of being a cowboy too. THE STUDENT'S THINKING: That's weird. Why is this making me think of a cigarette ad? EFTA00598659 OUR CUSTOMER'S THINKING: Worldwide meat consumption is still increasing. 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 animal feed makes meat production more efficient and more environmentally friendly. But the Group's animal feed experts are delivering far more than these valuable nutrients in themselves. In agricultural meat production, everything revolves around livestock and animal feed. Animal feed accounts for between 60 and 70 percent of the total cost of meat production, and it also accounts for most of its environ- mental footprint. For example, the cultivation of pro- tein-rich fodder plants such as soybeans requires vast amounts of arable land, while other protein sources such as fish meal are accelerating overfishing in the oceans. If animals are not optimally metabolizing their feed, much of it is excreted without being used. The additional animal waste pollutes water sources, among other things, and it also wastes environmental as well as economic resources. Today farmers and feed producers are responding to this challenge by adjusting the nutrients in their animal feed to precisely meet the needs of particular animal species. Essential amino acids are an important aspect of this effort. Amino acids are among the basic building blocks of all living things. Human beings and animals need to take in amino acids through the food they consume. However, amino acids are optimally metabolized only if they are consumed in the right mixing ratio. In order to constantly guarantee the correct mixing ratio for every animal spe- cies and every fodder plant in spite of natural fluctuations, expert knowledge is required. Evonik Industries therefore supplies not only the four most important amino acids for animal feed but also com- plete systems for their targeted dosing. To accomplish this, the Group also employs its own animal feed spe- cialists and carries out cooperative research with around three dozen universities and research institutes all over the world. The objective of this research is to find out what pigs, chickens, dairy cows, fish, and shrimps each require in order to thrive. After all, every animal species, every farming method, and every new breed has different requirements. In order to apply this knowledge in practice, Evonik supports all wholesale producers of mixed animal feed, for example through special analyses, consultation, and dosing systems. For example, on behalf of its customers Evonik is using near-infrared spectroscopy (NIR) to regularly check the actual nutrient content of well over 100 different raw materials for animal feed that are sold all over the world. Hundreds of thousands of such analyses are integrated into Evonik's advisory service. 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 120 countries—wherever raw materials for animal feed grow and meat is produced. Together with their custom- ers, they look at the actual nutrient content of animal feed, the animals' requirements, current feed prices on the world market, and recently also the environmental footprint, in order to determine how to mix the optimal animal feed in terms of nutritional biology, cost-effective- ness, and environmental friendliness. - The addition of between a few hundred grams and a few kilograms of methionine, lysine, threonine or tryptophan per ton of feed makes a crucial difference. That's why the dosage should be extremely precise so that valuable nutrients are not wasted once again. Here too, Evonik is a leader when it comes to customer service. For example, it provides dosing systems for its customers mixing operations to make sure the feed always contains exactly the nutrients the animals need. EFTA00598662 26 S THESTUDENT'S THINKING: How can a person be so awake at 7:30 .?! THE GRANDMOTHER'S THINKING: Now you can see what I used 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 suited for many different kinds of sleepers—even people with allergies. EFTA00598664 28 PERFORMANCE MATERIALS BETTER BEDDING More affordable, more ergonomic, and even more sustainable—latex mattresses based on Evonik products promise more comfortable sleep even for demanding sleepers. They also apply a chemical by- product useful and efficiently. We spend about a third of our lives in bed. That's already reason enough to select materials carefully when you're buying a mattress. After all, the wrong choice can cause countless problems. If you're allergic to house dust, you'll suffer from irritation of the eyes and the respiratory tract; if you're sensitive to cold, you'll shiver throughout the winter; and if you have back problems, you'll be kept awake by pain or wake up with stiff muscles. And if you're 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. However, natural latex is expensive, and some of the regions where latex-producing rubber trees are grown are under criticism because rain forests are being logged EFTA00598665 29 For decades, butadiene has been an important raw material in the tire, paper, and plastic industries. The demand for synthetic rubber will boost growth. DR. GERHARD HIMMEL Vire President Marketing & Sales, Rubber & Plasiles Marketing Area, Performance Intermediates Business Line 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 feel pleasantly warm and efficiently filter off moisture. People who are tall and heavy or suffer from backaches appreciate the high degree of point elasticity, which results in greater comfort. Who wouldn't be tempted to stay in bed just a little longer? EFTA00598666 so S THE YOUNG MAN'S THINKING: A cool party—I wish I could be there right now. THE MARRIED COUPLE'S THINKING: Remember when we were 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 protective "active packaging" on the inside of the normal packages. This helps reduce the amount of food that's thrown away. Scientists at Evonik develop the key raw materials for this "active packaging: Foods that look tasty and fresh and are attractively pack- aged as well—modern supermarkets have a huge amount of products on offer, and this sometimes causes shoppers to buy more than they can consume over a given period. The problem here is that the food products don't last forever: At some point, sausages will go bad even in the refrigerator, where yoghurt can also turn sour and cheese moldy. A lot of food therefore ends up in the garbage. Germany's Ministry of Food and Agriculture reports that every German throws away around 82 kilograms of food each year on average, although 64 percent of this amount really doesn't have to go to waste. Food products such as meats, sausages, milk and dairy products, and beverages react very sensitively to oxygen, traces of which remain even in shrink-wrapped packages. This oxygen triggers an oxidation process that accelerates 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. A new trend has therefore developed that involves the use of 'active packaging° in which a chemical absorber is integrated into the packaging material, where it bonds with the remaining oxygen. Scientists from Evonik de- velop such additive•based concentrates, which not only absorb oxygen but also ensure that transparent packaging foils remain transparent. This is important, because most oxygen absorbers on the market change their color to an unpleasant-looking yellow as they protect food products. 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 Vice President Active Packaging, Strategy Er NeveGrowth Business, Resource Efficiency Segment IP 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 can basically be used with all types of packaging. This will give it a unique standing on the market and very likely ensure that it will make its way into a large number of supermarkets. Additive concentrates from Evonik keep cheese, meat, and other foods fresh for a longer period of time. Drinks in PET bottles and milk also last longer—and bottle caps with oxygen absorbers on the inside extend the shelf life of beer and other beverages as well. EFTA00598670 34 MOTHER'S THINKING. Don't hurt yourself, my boy! FATHER'S THINKING. 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 adhesive tape and labels stick extremely reliably wherever it really matters. And they do that even when they are taken off and stuck back on. Adhesives have to stay cool even when the going gets tough. That also applies fully to adhesive tape, no matter whether it's used in sports or at home. However, the ugly brown spots that can be found on many bathroom tiles tell another story. Whereas adhesive strips that have just come off the roll seem to hold no matter what, the towel hooks they support eventually fall off the bathroom wall and only the adhesive itself remains permanently attached to the tiles. The adhesive was weakened by external influences such as temperature fluctuations, cleaning agents, and ultraviolet light. This is an area where Evonik can demonstrate its skill. As a result of post-application UV crosslinking, one of the company's additives, VISIO- MER° 6976, can greatly increase a tape's adhesive force. In endurance testing, it stuck 400 times better than a non-crosslinked adhesive. A typical property of the adhesive used in adhesive tape is its permanent stickiness. This distinguishes it from many types of adhesive, which don't become hard and adhesive until they dry or undergo a chemical reaction. This permanent stickiness makes it possible to attach tape to almost any surface. But it's precisely this versatility that 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 that have to stay sticky at low temperatures and not become brittle. Stickers on hazardous materials also have to adhere reliably for a long time and when subjected to extensive wear and tear. Removable labels have to stick well but not leave any residue when they are taken off. This is where the special methacrylate VISIOMER° 6976 from the Performance Materials Segment comes into play. When an adhesive containing this substance is exposed to ultraviolet light, the adhesive becomes crosslinked. The UV-active monomer VISIOMER° 6976 helps the individual polymers in the adhesive to link up with one another and thus increase the adhesive strength. What's more, this process increases the ad- hesive's chemical stability, insensitivity to temperature fluctuations, and resistance to moisture. By changing the dose, it's possible to customize the type and duration of the UV influence and thus also the crosslinking to the respective application. Another benefit of adhesive tape containing VISIOMER° 6976 is that no solvents are needed to make them. This, in turn, reduces the environmental impact and increases the manufacturers' productivity. Typical areas of appli- cation for such adhesive tape include electronic systems and the industrial assembly of components. The special methacrylate is also well suited for everyday applications, particularly those that require strong bonds under unfa- vorable conditions—ice hockey being a good example. 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. DR. SABINE K0MMEtT Technical Manager Applied Technology Acrylic Monomer% Engines% Line IP 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 r 4 w THE LITTLE GIRL'S THINKING: When I grow up, I want tube a doctor too! Or a pop star! THE DOCTOR'S THINKING: ■plat/ no brown bears are 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 an art in itself. It's an art that Evonik has mastered by means of polymers for the pharmaceutical industry— and one that could generate innovative treatments against numerous illnesses. Today people are growing older than ever before. Within four generations, life expectancy has more than doubled all over the world. In the period since 1990, child mortality has been cut in half. This is primarily thanks to the successful struggle against infectious diseases. Today medicine is focusing all the more on noninfectious and chronic diseases, which have long been responsible for the great majority of deaths—especially in developing countries and emerging economies. Diabetes, cancer, cardiovascular disease, and diseases of the respiratory tract are four of the most important fields of medical and pharmaceutical research. Active ingredients that can precisely intervene in the body's internal processes even in tiny doses are regard- ed as especially promising. But researchers are also increasingly looking for the optimal way to administer them. Especially in the case of active ingredients with complex molecules, it is very difficult to ensure that they will be available inside the body in a targeted way as continuously as possible. It is difficult to administer some active ingredients in tablet form, either because they 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 tissue or an organ, continuously for several weeks or months. That requires frequent injections. As a result, the concentration of the active ingredient in the tissue peaks at first, but then gradually decreases. In addition, every injection increases the patient's risk of infection, not to mention the unpleasant direct effects on the patient. One solution that involves oral as well as parenteral dos- age is offered by pharmaceutical polymers from Evonik Industries. They make it possible to release orally admin- istered active ingredients at the right time and place in the gastrointestinal tract and to transport them from there into the bloodstream continuously in precise doses. This has made it possible to administer some active ingredients in tablet form for the first time ever. Others can now be taken once a day rather than at regular intervals over 24 hours. Biologically absorbable polymers from Evonik 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 a targeted way before they themselves are disintegrated and absorbed by the body in a natural process. These depot medications in particular harbor tremendous potential. Evonik is cooperating with major customers from the pharmaceutical industry and also with creative 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. Bioresorbable polymers from Evonik have proven their worth for years—in the form of surgical screws, for example. The screws do not need to be removed, which cuts costs and the risks posed by an additional operation. Moreover, they can be filled with active ingre- dients that support healing 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. THOMAS RIERMEIER Head or Evonik Marina Polymers fa Services Product Line PP 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 special paints to prevent barnacles growing on the hulls of container 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 efficient and sustainable, fleet operators and ship builders are looking for effective protective paints. Evonik is making today's paint recipes especially effective and is also working on the coatings of tomorrow. Measuring 400 meters in length and boasting more than 80,000 hp, the largest container ships that currently ply the world's oceans often have up to 19,000 containers on board, representing almost 200,000 tons of freight. However, a tenacious enemy of these giants of the seas is microscopically small. In a process called fouling, these tiny microorganisms and algae create a slimy organic film on all ships' hulls that are in the water long enough, no matter whether the vessel is a luxury yacht or a deep-sea freighter. Once this 'soft growth' has made itself at home on the hull, it is followed somewhat later by mussels, barnacles, and other types of "hard growth.' These 'stowaways° not only increase the ship's weight but also promote the corrosion of the hull, thus necessitating frequent maintenance work in dry docks. Fouling particularly increases flow resistance, be- cause only clean and smooth hulls glide optimally through the water. This has a huge impact on the energy efficiency of ship- ping and thus on its costs and carbon footprint. That's be- cause a strongly fouled container ship can consume up to 40 percent more fuel than a clean one. With consumption figures measured in hundreds of tons of bunker oil per day, this is a considerable amount, and it is also the main reason why fleet operators and ship builders use effective anti-fouling products. These products consist of ship paint that keeps fouling at bay for as long as possible. The ancient Romans were already familiar with the most important anti-fouling agents against marine pests: metals such as lead and copper that prevent the organisms from attaching themselves to the hull. That's why the paints used on ships today contain copper compounds. 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- per thiocyanate, which is white but much more expensive than copper oxide. Every large merchant ship is painted with hundreds of tons of coating to protect it against the elements and corrosive cargo. Almost all of the coatings—whether for the deck or the ballast water tanks—contain products from Evonik, which improve the coatings' resistance to the rough conditions aboard a ship. In addition, Evonik products in the formulations of the anti-fouling paints ensure that extremely tiny layers continuously peel off to uncover new copper underneath. This keeps hulls clean longer so that fewer stays are needed in dry dock. It also ensures that the same effect is achieved with less copper, which is beneficial from both an environmental and an economic point of view. Moreover, Evonik works together with paint manufac- turers and research institutes to create new formulations and new anti-fouling systems. The aim is to create paints that are especially effective and sustainable. For example, paints might not need any copper in the future, as they will create surfaces that mechanically prevent organisms from attaching themselves to the hull in a kind of lotus effect for the giants of the seas. The tiny stowaways would then no longer pose any threat to the leviathans of the high seas. 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 - CONSOU DATED 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 Supervisory Board's oversight of the Executive Board centered in particular on ensuring the correct, 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 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. t. fi 2 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) • 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). 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. a 0 EFTA00598688 52 ANNUAL REPORT 2015 EVONIK INDUSTRIES Individual disclosure of the attendance at meetings of the Supervisory Board and its committees Supervisory Board member Supervisory Board Finance & Executive Investment Audit Nomination Committee Committee Committee Committee Mediation Committee 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 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. 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 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 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. fi 2 5 o V 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 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 companies. No grounds for objection were identified. 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 fi I— S 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: 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. fi 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 • Risk analysis • Policies & standards • Processes • Training • Awareness raising/communication • Advice & support Detection • Investigations • Whistleblower system • Monitoring & audits • Reporting Response • Corrective measures • Sanctions • Lessons learnt 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 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.' fi 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 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 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. 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. fi 2 S 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- 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, 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. fi 0 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. 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 The number of analysts that cover Evonik increased further in 2015— from 22 to 23. Thirteen of them rated the share as a buy, two as a sell, and eight issued neutral recommen- dations. Their price targets ranged from €29 to €42. The median was €38. In the previous year, the price targets were between €23 and €34 with a median of €30. Analysts' ratings sal 2 Buy 13 Hold a 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 fi to EFTA00598702 70 ANNUAL REPORT 2015 EVONIK INDUSTRIES MANAGEMENT REPORT 1. 2. Bask information on the Evonik Group 1.1 Business model 1.2 Principles and objectives 1.3 Business management systems Business review 71 71 73 74 75 5. 6. 7. Sustainability 5.1 Employees 5.2 Environment, safety and health Events after the reporting date Opportunity and risk report 103 105 110 113 113 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 • Innovations drive profitable growth 1.1 Business model Strong market positions, a clear innovation culture, sustainable business activities Evonik is one of the world's leading specialty chemicals companies. We concentrate on high-growth megatrends, especially health, nutrition, resource efficiency and globali- zation. Our strengths include the balanced spectrum of our business activities, end-markets and regions. Around 80 per- cent of sales come from market-leading positions', which we are systematically expanding. Our strong competitive position is based on integrated technology platforms, innovative strength and working closely with our customers. Our specialty chemicals products make an indispensable contribution to the benefits of our customers' products, which generate their success in global competition. Close cooperation with our customers enables us to build up a deep knowledge of their business, so we can offer products tai- lored to their specifications, and extensive technical service. Our technology centers and customer competence centers play an important role in this around the world. We also have a focus on our customers' customers. Corporate structure Market-oriented research & development is a key driver of profitable growth. This is based on our strong innovation culture, which is rooted in our innovation management and management development. We are convinced that sustainable and responsible busi- ness activities are vital for the future of our company. Evonik therefore accepts responsibility worldwide—for its business, its employees and society. Highly trained employees are a key success factor. They drive forward the company on a daily basis through their hard work and identification. We have therefore developed a wide range of activities to gain and develop talented and qualified employees and to position Evonik as a preferred employer in order to retain them. A decentralized corporate structure To further improve our scope for profitable growth, we reor- ganized our management and portfolio structure effective January 1, 2015. The Executive Board now concentrates on Evonik's strategic development within a management holding structure. The three chemical manufacturing segments' are run by newly established management companies and have 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. c E 3 0 EFTA00598704 72 ANNUAL REPORT 2015 EVONIK INDUSTRIES far greater entrepreneurial independence, so they can operate closer to their markets and customers and improve efficiency still further. The Nutrition & Care segment produces specialty chemi- cals, principally for use in consumer goods for daily needs, and in animal nutrition and healthcare products. 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 heart of the Performance Materials segment is the production of polymer materials and intermediates, mainly for the rubber, plastics and agriculture industries. The Services segment offers services for the chemical segments and external customers at our sites and supports the chemicals businesses and the management holding company by providing standardized Group-wide business services. The Nutrition & Care and Resource Efficiency segments operate principally in markets with high margins, growth rates and entry barriers. They both offer customers customized, innovation-driven solutions and the aim is for them to achieve above-average, profitable growth through innovations, investments and acquisitions. The Performance Materials segment is characterized by processes that make intensive use of energy and raw mate- rials. It therefore concentrates on integrated, cost-optimized technology platforms, efficient workflows, and economies of scale. Our strategic goal for this segment is to contribute earnings to finance the growth of the Evonik Group. In the Evonik's end-markets future, investments and, where appropriate, alliances will concentrate on securing and extending our good market positions. Integrated technology platforms are a competitive advantage Our products are manufactured using highly developed technologies that we are constantly refining. In many cases Evonik has backwardly integrated production complexes where it produces key precursors for its operations in neighboring production facilities. In this way we offer our customers maximum reliability of supply. At the same time, backwardly integrated world-scale production facilities com- bined with technologically demanding production processes act as high entry barriers. Further advantages are leveraged by the use of our integrated technology platforms for several businesses. That generates economies of scale and optimizes the use of product streams because by-products from one production facility can be used as starting materials for other products. This results in optimum utilization of capacity and resources and thus high added value. Moreover, the operating units can share the site energy supply and infrastructure cost- effectively. Broadly diversified end-markets Most of our customers are industrial companies that use our products for further processing. The range of markets in which they operate is diverse and balanced. None of the end-markets that we supply accounts for more than 20 per- cent of our sales. Agriculture Renewable energies Paper and printing Paints and coatings' Metal and oil products Electrical and electronics Pharmaceuticah Other industries Plastics and rubber' Consumer goods and pectoral care products Food and animal feed Automotive and mechanicalengineering 15-20% 10-15% 5-10% <5% • Where not directly assigned to ether end customer industries. EFTA00598705 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Basic information on the Evonik Group Principles and oblecteires • CONSOUDATED FINANCIAL STATEMENTS Global production Evonik has a presence in more than 100 countries and 82 percent of sales are generated outside Germany. We have production facilities in 24 countries on five continents and are therefore close to our markets and our customers. Our largest production sites—Marl, Wesseling and Rheinfelden (Germany), Antwerp (Belgium), Mobile (Alabama, USA), Shanghai (China) and Singapore—have integrated techno- logy platforms used by various units. 1.2 Principles and objectives Profitable growth, enhanced efficiency, values A sustained increase in the value of the company is our overriding goal and the basis for Evonik's strategic alignment. To implement our strategy, we have set demanding financial, safety and environmental targets. Our strategy is based on profitable growth, efficiency and values. We aim to • further increase our leading market positions • concentrate on attractive growth businesses and emerging markets • gain access to new growth areas through innovation and external growth, and • continuously improve our cost and technology position. As growth drivers for our business we have identified the megatrends health, nutrition, resource efficiency and globalization, and the dynamic development of the emerging markets. We take a flexible and disciplined approach to extending our leading market positions around the world. All investment projects are regularly reviewed for changes in the market situation. Innovations are the driving force of future growth. Through them, we gain access to new products and appli- cations, enter attractive future markets and strengthen our market and technology leadership. SUPPLEMENTARY INFORMATION 73 To raise scope for growth and innovations, we are con- tinuously working to improve our cost position. The On Track 2.0 efficiency enhancement program is geared to optimizing production and related workflows, while the Administration Excellence program is designed to optimize our administrative functions' worldwide. The cornerstones of our corporate culture are our corpo- rate values "sparing no effort", 'courage to innovate' and 'responsible action', which represent the balance between economically successful, ecologically responsible and socially appropriate behavior. Our sustainability strategy is based on the megatrends identified in our corporate strategy, supplemented by eco- logical and societal challenges. We are keenly committed to expanding the contribution made by our innovative solutions to sustainable development. Ambitious targets In line with our growth strategy, we set ambitious financial targets in 2013: • We aim to report sales of around €18 billion and adjusted EBITDA of over €3 billion by 2018. • We want to maintain our sound investment-grade rating in the long term. As a responsible specialty chemicals company, we have also defined ambitious non-financial targets. We take our responsibility in the field of safety) particularly seriously. Our objective is to protect our employees and local residents as well as the environment from any potential negative impact of our activities. Accordingly, we set annual limits for occupational safety and plant safety indicators. For 2016 these are once again: The accident frequency' rate should not exceed 1.3. Incident frequency 4 should not exceed 48 5, taking 2008 as the reference base. 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 1 million 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 1 million hours worked in the production facilities operated by the segments, taking 2008 as the reference base (expressed in percentage points: 2008 = 100). E EFTA00598706 74 ANNUAL REPORT 2015 EVONIK INDUSTRIES We also set ourselves ambitious environmental targets. The aim is to make a contribution to climate protection, minimize our ecological footprint, and steadily improve our environ- mental protection performance. In 2014, we set new targets for the period 2013 to 2020 (reference base: 2012): • Reduce specific greenhouse gas emissions' by 12 percent • Reduce specific water intake by 10 percent. In the area of sustainable waste management, we are con- tinuing our efforts to minimize the use of resources. 1.3 Business management systems Most important financial key performance indicators Financial management of Evonik is based on a consistent system of value-oriented indicators. These are used to assess the business performance of the operational units and the Group. Through systematic alignment to these indicators, Evonik endeavors to create value by raising profitability and ensuring profitable growth. Our key performance indicator is adjusted EBITDA. To track the attainment of targets, adjusted EBITDA is broken down to the level of the operating units. Adjusted EBITDA and the corresponding relative indicator, the adjusted EBITDA margin, show the operating performance of an entity irrespective of the structure of its assets and its invest- ment profile. They therefore provide a key basis for internal ▪ and external comparison of the cost structure of business operations. Since depreciation, amortization and impairment losses are not included, these are also cash-flow based parameters. The adjusted EBITDA margin can therefore be taken as an approximation of the return on sales-related cash flows. The return on capital employed (ROCE) is used as a further indicator of value-driven management of the company. The calculation starts from adjusted EBIT in relation to average capital employed. Comparison with the cost of capital, which shows the risk-adjusted return expectations of our investors, indicates relative value creation. This is calculated using a weighted average cost of capital, which reflects the return expectations of both shareholders, derived from the capital asset pricing model, and providers of debt capital. Most important non-financial key performance indicators Evonik also uses a wide variety of non-financial performance indicators. For example, our annual sustainability report' provides information on ecological and societal issues to supplement our economic reporting. Traditionally, we accord special significance to safety, which is regarded as a holistic management task that has to be lived at all management levels. Our guiding principles on safety are binding for staff at all levels and were reinforced in 2015 by a global safety culture initiative. In accordance with corporate policy, all units at Evonik have an occupational safety target. In addition, all production units have a plant safety target. The relevant indicators are accident frequency and incident frequency.' To protect the environment we specifically aim to reduce emissions of greenhouse gases, not just from our pro- duction but also along the entire value chain. We therefore strive continuously to improve our production processes still further. That ensures more efficient use of resources and minimizes environmental impact. We regard specific green- house gas emissions as a particularly important environ- mental indicator, which we plan to use as a key non-financial 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 • CONSOU DATED 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 • Adjusted net income up 44 percent 2.1 Overall assessment of the economic situation Strategically, our new Group structure has further improved our basis for profitable growth in the future. The selective expansion of our market-leading positions was also success- ful: The new production capacities that have come on stream made a clear contribution to our very good business per- formance. We are still implementing our growth investments in a disciplined manner. Operationally, our business developed extremely well. In particular, our two growth segments, Nutrition & Care and Resource Efficiency, were able to raise volume sales further thanks to buoyant demand and increased production capacity. The positive price trend for some important products that started in the second half of 2014 continued uninterrupted until summer 2015 and prices then remained stable in the second half of the year. By contrast, selling prices fell con- siderably in the Performance Materials segment due to the sharp drop in the oil price. Overall, selling prices were on a level with the prior year. Sales increased by 5 percent to €13,507 million in 2015. Adjusted EBITDA rose even faster, growing 31 percent to €2,465 million. Higher earnings contributions mainly came Development of adjusted EBITDA in the Evonik Group from the growth segments, and earnings in the Performance Materials segment were only down slightly year-on-year. Thanks to our very successful business performance, earnings were high. The adjusted EBITDA margin improved substantially to 182 percent, which is also excellent by sector standards. The ROCE of 16.6 percent represents a very attractive return. Net income improved 74 percent to €991 million, while adjusted net income advanced 44 percent to €1,128 million. To enable our shareholders to participate in this very pleasing business trend, at the Annual Shareholders' Meeting the Executive Board and Supervisory Board will be proposing a dividend payment of €1.15 per share. Our financial profile remains good. At year-end 2015 we again had a net asset position. The cash flow from operating activities, continuing operations was a strong €1,968 million. After deduction of outflows for capital expenditures, the free cash flow was very high at €1,052 million. Evonik still has a sound investment grade rating (Moody's: Baal, Standard & Poor's: BBB+). Overall, we consider that we are well-positioned for the challenges that could result from the weak economic conditions and geopolitical tension in 2016. 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. 119 2 I EFTA00598708 76 ANNUAL REPORT 2015 EVONIK INDUSTRIES 2.2 Economic background Weaker global economic momentum Global economic conditions were slightly weaker than expected in 2015. We estimate that global economic growth was around 2.6 percent, which was lower than in the pre- vious year (2.7 percent). At the start of 2015, growth of 3.0 percent had still been anticipated. The main factors were the continued slowdown of eco- nomic activity in the emerging markets, which overshadowed the sound economic momentum in the industrialized eco- nomies. In Europe, the economy picked up in 2015 thanks to the European Central Bank's expansionary monetary policy, the depreciation of the euro, and the low oil price. In Germany, consumer spending, in particular, was boosted by the good employment situation and lower oil price. By contrast, industry only posted modest growth. During the year the US economy recovered from the temporary dip at the start of the year, with the main impetus coming from consumer spending. Although the appreciation of the dollar and lower investment in the oil and gas sector held back manufacturing industry, the US economy achieved full employment in 2015. The Federal Reserve raised its key interest rates in the fourth quarter for the first time since 2006, ushering in the reversal of its monetary policy. The lower growth in the emerging markets was driven by a number of factors: slowing growth in China, declining commodity prices and a deterioration in the financial 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 % Global GDP Germany 24 2.7 1.7 1.6 Other European Countries 1.3 1.5 North America Central and South America 0.6 2.3 2.4 Asia-Pack 4.6 4.7 Middle East, Africa -1.0 2.6 2.7 0 1.0 2.0 3.0 4.0 5.0 In China, the slowdown in growth caused by the transition to a new economic model with a greater focus on the domestic market continued. Uncertainty about the economic devel- opment in China increased, especially in the second half of the year, resulting in higher volatility on the financial markets. Solid development of end-customer industries Worldwide, the development of Evonik's end-customer industries differed by region and by sector in the first half of 2015. Demand for food and animal feed continued its very pleasing trend. There was a year-on-year rise in output of consumer and care products, mainly in North America but also to some extent in Europe. Following a strong first half, growth momentum in the electrical and electronics sector in Asia, North America and some parts of Europe weakened in the remainder of the year. Automotive production cooled in Asia, but continued to grow at a moderate pace in North America and Europe. Overall though, the general industrial trend in Europe and North America remained weak and output only increased slightly. The average price of Evonik's raw materials was lower than in 2014. This was due to the substantial drop in the price of oil, which triggered a reduction in the price of most of Evonik's specific raw materials. The euro continued to depreciate against Evonik's most important foreign currency, the US dollar, in 2015 and the average exchange rate was considerably lower than in the previous year at US$1.11 (2014: USS1.33). 2015 (projected) 2014 EFTA00598709 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS rumen review Business conddion, and pedonnence SUPPLEMENTARY INFORMATION 77 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. At the end of June 2015, Evonik Industries AG divested its remaining 10.3 percent stake in the residential real estate company Vivawest GmbH to RAG Aktiengesellschaft for €428 million. Through this transaction, Evonik Industries AG has now completely withdrawn from its real estate activities in order to focus on specialty chemicals. The divestment gain is recognized in other operating income. At its meeting on June 25, 2015, the Supervisory Board of Evonik Industries AG adopted a resolution on ending the term of office of Patrik Wohlhauser as a member of the Executive Board and Chief Operating Officer (COO) by 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. 2.3 Major events 2.4 Business conditions and performance A successful business trend Despite the challenging business conditions, we achieved a significant year-on-year improvement in adjusted EBITDA in all four quarters. Although global growth was below expec- tations, high demand enabled our two growth segments, Nutrition & Care and Resource Efficiency, to report good volume trends, aided by new production capacity. Selling prices rose considerably in the Nutrition & Care segment but decreased in the Performance Materials segment, principally due to the lower oil price. Overall, selling prices were on the previous year's level. EFTA00598710 78 ANNUAL REPORT 2015 EVONIK INDUSTRIES Organic sales growth Evonik posted organic sales growth of 1 percent as volumes were higher and prices were unchanged overall. Sales grew 5 percent to E13,507 million, driven by positive currency effects (S percentage points), principally as a consequence of the depreciation of the euro versus the US dollar and the Chinese renminbi yuan. The other effects (-1 percentage point) include changes in the scope of consolidation. Change in sales 2015 versus 2014 in % Volumes 1 Prices 0 Organic sales growth 1 Exchange rates 5 Other effects —1 Total 5 Very good adjusted EBITDA Adjusted EBITDA was E2,465 million, 31 percent above the prior-year figure. Alongside positive currency effects, contributory factors were sustained good demand, the posi- tive price trend and lower raw material costs. The adjusted EBITDA margin increased from 14.6 percent to a very good level of 18.2 percent. Adjusted EBITDA by segment ing million Change 2015 2014 in % Nuuition & Care 1,435 847 69 Resource Efficiency 896 836 7 Performance Materials 309 325 -5 Services 163 151 8 Corporate, other operations, consolidation -338 -277 -22 Evonik 2,465 1,882 31 Priories, figures resisted. The Nutrition & Care segment benefited from higher volumes and, above all, higher selling prices accompanied by lower raw material prices. Its earnings were therefore considerably higher than in the prior year. The Resource Efficiency segment improved earnings thanks to higher volumes, high capacity utilization and lower raw material costs. By contrast, the Performance Materials segment was hampered considerably by the reduction in selling prices, whereas lower raw material costs alleviated the situation. Overall, its earnings contribution was slightly lower than in the previous year. Earnings in the Services segment were higher than in the previous year. The adjusted EBITDA 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 in 4 mill4a Change 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 of impairment losses -63 -37 Acquisition/divestment of sherehoidings 142 1 Other Income before finandal result and income taxes (EBIT) Financial result -102 -57 1,664 1,077 55 -223 -235 Income before income taxes, continuing operations 1,441 842 71 Income taxes Income after taxes, continuing operations Income after taxes, discontinued operations -422 -252 1,019 590 73 —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 Business 9esinesscondnions and pedo<meme • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 79 Reconciliation to adjusted net income Jae million Change 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 and non-operating expense items which are by nature one-off or rare and amounted to —E88 million in 2015. The adjustments include restructuring expenses of €65 mil- lion, mainly for optimization of the product portfolio in the Performance Materials segment and in connection with the new Group structure. The impairment losses/reversals of impairment losses totaling —E63 million relate to capitalized costs for a project in the Resource Efficiency and Performance Materials segments that was terminated following a routine review of investment projects, a production plant and intan- gible assets in the Performance Materials segment, and an equity investment in the Nutrition & Care segment. Income of €142 million from the divestment of shareholdings mainly comprised the divestment of the stake in Vivawest. Other adjustments chiefly comprise risk provisioning relating to a contract with a raw materials supplier, expenses for the reorganization and simplification of corporate structures in Europe, and expenses for an increase in provisions for the partial retirement program to comply with IAS 19. In the prior year, the adjustments totaling —E179 million mainly comprised restructuring expense, principally to optimize administrative structures and the product portfolio of the Nutrition & Care segment. The financial result of —E223 million contains one-off factors of —€44 million mainly for interest expense in con- nection with the establishment of provisions. In the previous year, this comprised one-off expense of E26 million. Exclud- ing these effects, the improvement in the financial result was higher, mainly because of the considerably lower cost of refinancing and the voluntary transfers to the contractual trust arrangement (CTA). Income before income taxes, continuing operations grew 71 percent to €1,441 million. The income tax rate was 29 percent, which was in line with the expected Group tax rate. Income after taxes, discontinued operations was —E17 mil- lion and mainly relates to the remaining lithium-ion activities, which were divested in April 2015. The prior-year figure of —€9 million contained operating income from the lithium- ion business and the stake in STEAG, which was divested in September 2014. The Evonik Group's net income rose 74 percent to €991 million. Adjusted net income, which reflects the operating per- formance of the continuing operations, increased 44 percent to €1,128 million in 2015. Adjusted earnings per share there- fore rose from €1.68 to €2.42. Target for On Track 2.0 achieved— Administration Excellence well on schedule At the start of 2012 we set up the On Track 2.0 efficiency enhancement program to achieve a continuous improvement in process efficiency, especially in the production function. The goal was to reduce production costs by €500 million following realization of this program in the period up to 2016. That has now been achieved. By the end of 2015, measures with the potential to cut costs by well over €550 million had been identified and adopted for implementation. Following the successful stock exchange listing and Evonik's strategic focus on the specialty chemicals business, in September 2013 we launched the Administration Excel- lence program to further strengthen our competitive position and optimize the quality of our administrative processes. This aims to implement measures with cost-improvement potential of around €230 million by the end of 2016. By year- end 2015 measures with cost-saving potential of around €100 million had already been implemented. In addition, more than 90 percent of the measures defined had been passed on to the responsible units for implementation. EFTA00598712 so ANNUAL REPORT 2015 EVONIK INDUSTRIES Specific human resources measures have now been defined to achieve the headcount reductions associated with the savings and will be implemented in consultation with repre- sentatives of the workforce to avoid undue hardship. Systematic optimization of the value chain and implemen- tation of the efficiency enhancement programs support Evonik's strategy of profitable growth. Efficient and effective procurement Reliable supply, gaining access to new procurement markets, and ongoing optimization of material costs are still the key tasks for Evonik's procurement function. Procurement in the company's growth markets will increase further in the future. There were a large number of unforeseeable production outages (force majeure) in 2015, especially in the European chemical industry. We essentially managed to secure supply to our sites through close cooperation with the suppliers affected and by drawing on alternative suppliers. To optimize material costs, Evonik uses a total-cost- of-ownership (TCO) approach to procurement, together with 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 factor for efficient and effective procurement processes. The efficiency of the procurement organization has been optimized further through Administration Excellence. The main leverage was further integration of local and regional procurement into our global procurement structures, and systematic separation of strategic and operational activities within the procurement organization. Ongoing efficiency improvements will remain a core aspect of procurement in 2016. The main drivers will be automation and harmoni- zation of global procurement processes, especially in the operating units. As well as participating in procurement alliances with other companies and validating new suppliers, we are working intensively to extend strategic relationships with suppliers. 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 importance. We are aware of our responsibility within the supply chain. Issues such as safety, health, environmental protection, corporate responsibility and quality play an integral part in our procurement strategy. These sustainability aspects are also supported by standardized global assess- ments through the Together for Sustainability (TfS) sector initiative, which was co-founded by Evonik. Evonik's principal suppliers and the majority of our critical suppliers have already taken part in these assessments, which are evaluated by EcoVadis, an impartial sustainability rating company. In 2015 Evonik spent around E8.3 billion on raw materials and supplies, technical goods, services, energy and other operating supplies. Petrochemical feedstocks accounted for about 25 percent of the total. Overall, raw materials and supplies make up around 59 percent of procurement volume. Using renewable resources remains very important to Evonik. In 2015, around 8 percent of raw materials were from renewable resources. The main applications for these raw materials are amino acids and starting products for the cosmetics industry. Very good return on capital employed Within our value-oriented management approach, our success is measured principally by ROCE, which was 16.6 percent in 2015 and therefore well above our cost of capital, which was confirmed as 10.5 percent before taxes in our regular review for the fiscal year. Capital employed, ROCE and Economic Value Added (EVAI Joe milloan 2015 2014 Intangible assets 3,158 3,067 + Property, plant and equipment, Investment property 5,690 5,116 + Investments 175 386 + Inventories 1,782 1,681 + Trade accounts receivable 1,923 1,749 + Other Interest-free assets 435 497 - Interest-free proWslons -999 -911 - Trade accounts payable -1,050 -1,072 - Other Interest-free liabilities -584 -459 • Capital employed' 10,530 10,054 Adjusted EMT 1,752 1,256 ROCE (adjusted EBIT/ capital employed) in % 16.6 12.5 Cost of capital (capital employed • WACC) 1,106 1,056 EVA• (adjusted EMT- cost of capital) 646 200 Prior-year figures restated. 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 €103 billion in 2015. Capital employed was increased by the rise in property, plant and equipment and higher trade accounts receivable, which resulted from further implemen- tation of our growth investments. The divestment of the stake in Vivawest and impairment losses on property, plant and equipment had a counter-effect. The considerable improve- ment in ROCE was attributable to higher operating earnings, while the increase in capital employed had a counter-effect. In the three chemical segments, ROCE is well above the cost of capital. The return on capital employed in the Nutrition & Care and Resource Efficiency segments is well above average. The ROCE for the Group is considerably lower because capital employed also includes identified hidden reserves from former business combinations. ROCE by segment $n % 2015 2014 Nutrition & Care 41.5 27.1 Resource Efficiency 24.8 25.9 Performance Materials 11.9 14.6 Services 9.4 9.7 Evonik (including Corporate, other operations) 16.6 12.5 Ptior.yeat figures restated. Clear value creation Economic Value Added (EVA.) is the difference between adjusted EBIT and the cost of capital, which is calculated by multiplying average capital employed by the average cost of capital (WACC). If EVA* is positive, the Group creates value (value spread approach). In 2015, we generated EVA* of €646 million. The hike of €446 million compared with the previous year was mainly attributable to the improvement in operating earnings. 2.5 Comparison of forecast and actual performance Financial forecast clearly met In our annual report for 2014 we forecast a slight rise in sales and slightly higher adjusted EBITDA than in the previous year. Thanks to the very good development of our growth seg- ments, Nutrition & Care and Resource Efficiency, especially in the first half of the year, we raised our guidance at the end of the first and second quarters. After the first six months, we anticipated that at year end we would report sales of around €13.5 billion and adjusted EBITDA of around €2.4 billion. We clearly achieved this revised forecast, with sales up 5 per- cent at €13,507 million and a 31 percent rise in adjusted EBITDA to €2,465 million. Adjusted EBITDA greatly exceeded our original forecast. This was principally attributable to the more favorable price trend in the Nutrition & Care segment and the reduction in raw material costs resulting from the drop in the oil price. Since the earnings improvement was better than expected, ROCE was well above the prior-year figure at 16.6 percent. It was also well above the cost of capital, as had been expected. As a consequence of the disciplined implementation of our growth investments, our capital expenditures totaled €0.9 billion in 2015 so we did not fully utilize the budget of up to €1.1 billion. In view of the capital required to fund our growth invest- ments, payment of the dividend and the planned cash transfer to the CTA, we had expected to report net financial debt. However, we are able to report a net financial asset position of €l.l billion thanks to the better-than-expected business performance, the sale of the shares in Vivawest and the fact that capital expenditures were lower than had been budgeted. Non-financial safety indicators at a good level Our significant non-financial performance indicators for occupational and plant safety continued their positive long- term trend. A further improvement in our safety indicators is especially important to us. We have therefore set ambitious long-term targets. However, these indicators can naturally fluctuate from year to year. We had expected to achieve a slight improvement in the accident frequency indicator in 2015 and aimed to remain below our upper limit of 1.3. We clearly achieved this goal, 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 came in at a good level of 55 and therefore exceeded our ambitious target despite a slight deterioration compared with the previous year (53). Based on our systematic analysis of all accidents and incidents, action has already been initiated to bring about an improvement. We are stepping up measures to improve our performance, for example, through our safety culture initiative. 0 io 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 The Nutrition & Care segment posted an extremely success- ful business performance in 2015 and grew sales 21 percent to €4,924 million. Alongside slightly higher volumes, the main drivers were considerably higher selling prices and positive currency effects. In particular, there was a substantial increase in sales of essential amino acids for animal nutrition. The strong trend to modern and sustainable animal nutrition continues to have a positive impact on this business. Thanks to the new pro- duction facility that came on stream in Singapore at the end of 2014, we were able to satisfy the significant rise in demand for our methionine products and raise volumes further. Having risen since fall 2014, prices have stabilized at a very attractive level since summer 2015. Considerably higher sales were also registered for healthcare products, with exclusive synthesis and pharmaceutical polymers for smart drug delivery systems proving particularly successful. Sales of per- sonal care products were higher, especially in North America and the Asia-Pacific region, aided by the new capacity in China. In the baby care business, volumes declined, princi- pally because competitors brought new production capacities on stream. Sales were therefore down year-on-year. Substantial increase in adjusted EBITDA The Nutrition & Care segment's adjusted EBITDA grew 69 percent to €1,435 million, driven mainly by higher selling prices and positive currency effects. The adjusted EBITDA margin improved significantly from 20.8 percent in 2014 to 29.1 percent. Capital expenditures scaled back as planned— Attractive return on capital employed Capital expenditures in the Nutrition & Care segment amounted to €250 million. That was well below the prior- year figure of €458 million, which was boosted by high growth-driven investments. Nevertheless, capital expendi- 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 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. 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. The average capital employed increased by E396 million to E2,923 million, principally because of the high capital expen- ditures in previous years. Thanks to the positive earnings trend, ROCE improved to 41.5 percent, up from 27.1 percent in 2014. Investment projects to drive growth Since demand for amino acids for modern animal nutrition is growing fast, selective capacity increases in this field are a major focus of investment in the Nutrition & Care segment. A new facility for biotechnological production of around 100,000 metric tons of Biolys° (L-lysine), an amino acid for animal feed, was completed in Castro (Brazil). This site has excellent access to corn, which is used as a raw material, very good logistics connections, and is close to our customers in the growing Latin American market. In addition, the segment invested in new production facilities for methionine formulations tailored specifically to the nutritional requirements of species other than poultry. A facility to produce Mepron° for dairy cattle has been erected in Mobile (Alabama, USA). Investment in this plant was in the low double-digit million euro range. Evonik has also developed AQUAVI° Met-Met, a dipeptide with two methionine molecules, for aquaculture of shrimp and other crustaceans. The first production facility is currently under construction in Antwerp (Belgium), and is scheduled to come on stream in April 2016. This investment is also in the low double-digit million euro range. In view of the strong growth in the market for methionine, Evonik is planning to build a further world-scale production complex alongside the facility on Jurong Island (Singapore) that came into service in November 2014. In this new, fully backwardly integrated production complex as well, all key strategic precursors will be produced by Evonik. As part of the global expansion of the production network for oleochemical specialty surfactants, all pro- duction technologies for the high-growth cosmetics and consumer goods industry were successfully started up at the new facility in Americana (Brazil). Evonik has a global investment initiative to strengthen its integrated technology platform for specialty silicones in Germany and China. Total planned investment is in the triple-digit million euro range. The first capacity expansion in Essen (Germany) came into operation in 2015. The plants there will be extended further over the next few years and a new silicone platform will be constructed in Shanghai (China). The silicone platforms are the backbone of signifi- cant business activities in the Nutrition & Care and Resource Efficiency segments. 3r 3 tr. 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 Sales in the Resource Efficiency segment grew 6 percent to €4,279 million. Alongside positive currency effects, this was attributable to organic sales growth resulting from higher volumes and stable selling prices. There was strong growth in sales of crosslinkers, which benefited above all from attractive end-markets such as construction and wind energy. Oil additives, which enhance the performance of engines and gears in the automotive, construction and transportation industries, were again very successful. Sales of silica also increased appreciably, mainly due to buoyant demand for products for the silicones and tire sectors. The catalysts business benefited from the first-time consolidation of the catalyst producer Monarch Catalyst Pvt. Ltd., Dombivli (India), which was acquired in June 2015. High demand for hydrogen peroxide products for traditional appli- cations, especially in the paper and textile industries, resulted in higher sales. Sales of high performance polymers were around the prior-year level, although this still included the solimides business that was divested in September 2014. Improvement in earnings Adjusted EBITDA in the Resource Efficiency segment advanced 7 percent to €896 million, mainly as a result of higher volumes, better capacity utilization, positive currency effects, and lower raw material costs. The adjusted EBITDA margin increased slightly to 20.9 percent. High investment—Return on capital employed still very good Capital expenditures in the Resource Efficiency segment remained high at €241 million, but were 12 percent lower than in the previous year. Nevertheless, they were slightly above depreciation, which amounted to €222 million. As a result of the expansion of production capacity, the average capital employed increased by €252 million to €2,726 million. ROCE was very good at 24.8 percent, but below the prior- year level of 25.9 percent due to higher capital expenditures, which increase capital employed but only impact adjusted EBIT successively as the new capacity comes into service. 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 2012 2013 2014 2015 1,000 2.000 3,131 3,084 1000 1,015 1,010 4,000 4,279 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 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. Investment projects to expand market positions The Resource Efficiency segment has almost doubled pro- duction capacity for oil additives on Jurong Island (Singapore). This facility, which was inaugurated in May 2015, is now Evonik's biggest production plant for oil additives. The addi- tional capacity enables this segment to meet rising demand from customers for more efficient lubricants. By raising global capacity for precipitated silicas, the Resource Efficiency segment is supporting the growth of its global customers in the tire, construction, animal feed and nutrition industries. A new production facility is currently under construction near Sao Paulo (Brazil) and is scheduled to start operating in 2016. This will be the first production facility for highly dispersible silica (HD silica) for the South American tire industry. Pre-engineering work has started for a new production plant for precipitated silicas in North America, which is scheduled to be completed in early 2018. The entire project is still contingent upon approval by the relevant bodies. Progress is also being made with the expansion of capacity for specialty silicas, primarily for customers in the food, cosmetic and pharmaceutical sectors. In fall 2015, DSL. Japan Co., Ltd. (DSL), Tokyo (Japan), in which Evonik has a 51 percent stake, started up new capacity at the extended production facility for specialty silicas in Ako (Japan). As binders for paints, specialty copolyesters are used in coil coatings and, increasingly, in food can coatings. To meet rising demand, the segment is investing in a new plant at the Witten site in Germany. This will have annual capacity of several thousand metric tons and is scheduled for completion in 2018. Strengthened by selective acquisitions The Indian catalyst producer Monarch was acquired in June 2015. This strategic acquisition will strengthen the Resource Efficiency segment's market position in activated base and precious metal catalysts and extend its business into oil and fat hydrogenation catalysts. In October 2015, the Resource Efficiency segment acquired the hydrogen peroxide producer PeroxyChem Netherlands B.V., Amsterdam (Netherlands). Its site in Delfzijl complements the present network of European production sites. I tr• a. 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 Sales declined 10 percent to €3,435 million in the Perfor- mance Materials segment. Since volume sales were almost stable, the decline was principally due to the oil-driven reduction in selling prices. By contrast, exchange rates had a positive effect. Performance intermediates, in particular, reported signifi- cantly lower sales than in the previous year. This was caused by a sharp decline in selling prices for products from the inte- grated C. platform in the wake of the reduction in the oil price. The downward trend gained momentum in the second half of the year. Methacrylate products benefited from good demand in the first half of the year. Polymethylmethacrylate (PMMA) for the automotive industry also developed well, but market conditions for PMMA sheet remained difficult. Alcoholates for the production of biodiesel posted another good performance. Adjusted EBITDA down year-on-year Adjusted EBITDA slipped 5 percent year-on-year to €309 million. This was caused by lower selling prices, while the decline was checked by the reduction in the cost of oil- based raw materials. The adjusted EBITDA margin improved from 8.5 percent to 9.0 percent. Targeted investment—Lower return on capital employed To secure its leading market positions, raise efficiency and broaden its technology base, the Performance Materials seg- ment invested €183 million in property, plant and equipment in 2015. Capital expenditures therefore exceeded deprecia- tion, which amounted to €132 million. The average capital employed increased by €70 million to €1,467 million as a result of the segment's selective capital expenditures. ROCE dropped from 14.6 percent to 11.9 percent, mainly as a con- sequence of the reduction in earnings. EFTA00598719 TOOUR SHAREHOLDERS • MANAGEMENT REPORT Business review $eomeet on, I ornane • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 87 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 As part of the Europe-wide expansion of capacity for C.-based products, new plants came on stream in Marl (Ger- many) and Antwerp (Belgium). These have successfully raised capacity for the plasticizer alcohol isononanol, for butadiene and for MTBE, an anti-knock additive for fuel. Thanks to a unique new process, some product streams from refineries can be utilized for C. chemistry for the first time. Total investment was in the triple-digit million euro range. To ensure sustainable and reliable long-term supply of potassium derivatives to customers, Evonik has established a 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. In Mobile (Alabama, USA) the Performance Materials seg- ment has embarked on a substantial capacity increase for ACA (acrolein cyanohydrin-o-acetate). This drives forward the very successful exclusive partnership with a global leader in broadband herbicides. The new production plant, which involves total investment in the triple-digit million euro range, should start operating in early 2017. From the second half of 2016 Performance Materials will have access to new capacity for sodium cyanide from a joint venture with the Mexican group IDESA. This will greatly strengthen its position in the growing Mexican market. a. 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 the specialty chemicals segments and Corporate Center (2015: €1,886 million), and with external customers. Exter- nal sales contracted by 9 percent to €828 million in 2015. This was mainly due to the reduction in the price of energy, which the segment charges to external customers at our sites. 2.7 Regional development A global presence As part of our growth strategy, we are expanding our pres- ence in emerging markets. We define these as selected coun- tries in Asia, South America, Eastern Europe and the Middle East. In 2015, 82 percent of our sales were generated outside Germany. In Germany, sales were 13 percent lower at €2,436 million in 2015. Sales declined considerably in the Performance Materials segment, mainly as a consequence of the oil price, but the Nutrition & Care and Resource Efficiency segments also reported lower sales. Adjusted EBITDA increased 8 percent to €163 million, mainly because of changes to the internal cross-charging system. Capital expenditures in this segment increased 16 percent to €177 million. That was above depreciation, which amounted to €107 million. Numerous infrastructure projects were completed at German sites in 2015. Our German sites serve customers throughout Europe and in some overseas markets as well as domestic customers. To strengthen these sites, we increased capital expenditures to €427 million (2014: €419 million). A new production plant for C: based products came on stream in Marl in 2015, and in Essen we extended a production plant for specialty silicones. In addition, many infrastructure projects were completed, for example, a freight transport project in Marl and a new control center in Darmstadt. EFTA00598721 TOOUR SHAREHOLDERS • MANAGEMENT REPORT Business review ••••• pool on • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 89 Sales by region Other 3% Atie•Pacitd 21% Central end South America 7% North America 20% • Ely Location of customer. Germany 18% Other European Couniries 31% Sales in the other European countries slipped 2 percent to €4,148 million. This was caused by an oil price-induced drop 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 Group sales fell to 31 percent. Capital expenditures in this region were €88 million, a decline of 34 percent year- on-year. A new production plant for C.-based products was successfully brought into service in Antwerp (Belgium). In addition, the first production plant for a new source of methionine for shrimp and crustaceans is scheduled for completion at this site in April 2016. Higher investment in the Americas In North America, sales grew 15 percent to €2,647 million, mainly for currency reasons. The principal contributions to this came from the Nutrition & Care and Resource Efficiency segments. This region's share of Group sales increased to 20 percent. Capital expenditures rose 48 percent to €208 mil- lion. A new plant to produce Mepron° for dairy cattle was completed in Mobile (Alabama, USA). At the same time, work started on expansion of capacity for ACA (acrolein cyanohydrin-o-acetate) at this site. This is scheduled to come on stream in early 2017. Sales totaled E954 million in Central and South America, an increase of 23 percent year-on-year. This was driven mainly by the Nutrition & Care and Resource Efficiency seg- ments. This region's share of Group sates therefore increased 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 in Castro (Brazil). In addition, a new plant for precipitated silicas is currently under construction in Sao Paulo (Brazil). It is scheduled to come into service in 2016. Substantial rise in sales in Asia-Pacific Sales grew 17 percent to €2,860 million in the Asia-Pacific region. The Nutrition & Care and Resource Efficiency seg- ments made equal contributions to this, while Performance Materials posted lower sales. This region's share of Group 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 in Singapore. A new production plant which opened at this site in 2015 has virtually doubled capacity for oil additives. The expansion of production capacity for specialty silicas at the facility in Ako (Japan) came on stream. 2.8 Earnings position Considerable improvement in income before income taxes, continuing operations Sales rose 5 percent to €13,507 million thanks to higher demand and positive currency effects. Despite higher sales volumes and cost-driving currency effects, the cost of sales declined by 2 percent to E9,096 million. The main positive factors were lower raw material costs, along with substantial cost-savings from the successful implementation of the On Track 2.0 efficiency enhancement program. The gross profit on sales therefore increased by 22 percent to €4,411 million. Currency effects and the expansion of business following the start-up of new plants increased selling expenses by 12 percent to E1,447 million. Administrative expenses were E693 million, 15 percent higher than in 2014. The main rea- sons for this increase were a change in the system used to cross-charge services within the Group, higher additions to provisions for long-term incentive programs for executives (LTI Plan)' and other variable remuneration components, and currency effects. The rise was mitigated by savings made through the Administration Excellence program. To strengthen our innovative capability still further, we raised spending on research & development by 5 percent to E434 million. r - ON- I See Note 10.1. EFTA00598722 90 ANNUAL REPORT 2015 EVONIK INDUSTRIES Since the start of 2015, the effects of currency translation of operating monetary assets and liabilities and the associated hedging instruments have been presented as net amounts in other operating income and expenses. This avoids increases in income and expenses as a result of the high currency- driven volatility of hedging transactions and hedged items during the year, which essentially offset each other. The 78 percent increase in other operating income to E445 mil- lion in 2015 was mainly due to higher income from the disposal of assets, especially the sate of the stake in Vivawest. The 22 percent increase in other operating expenses to Income statement for the Evonlk Group inemalsan Change 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 E603 million resulted mainly from provisions for risks arising from an agreement with a raw material supplier, and expenses for the reorganization and simplification of corporate structures in Europe. The result from investments recognized at equity was —E15 million and chiefly related to an impair- ment loss on an equity investment in the Nutrition & Care segment, whereas in the previous year, this item comprised income of E1O million from the former investment in Vivawest. Income before financial result and income taxes, continuing operations improved 55 percent to E1,664 million. Prior-year figures restated. Considerable increase in net income The financial result improved 5 percent to —E223 million. This includes one-off factors of —E44 million, mainly for interest expense in connection with the establishment of pro- visions. In the prior year, these effects were —E26 million. Excluding these effects, there was a significant improvement in the financial result, principally as a consequence of far more favorable refinancing and the voluntary cash contribu- tion to the contractual trust arrangement (CIA) for pensions. Income before income taxes, continuing operations rose 71 percent to E1,441 million. The 67 percent increase in income taxes to E422 million was mainly due to higher earnings. Income after taxes, discontinued operations' was —E17 mil- lion and mainly relates to the remaining lithium-ion activities, which were divested in April 2015. The prior-year figure of —E9 million contains operating income from the lithium-ion business and the stake in STEAG, which was divested in Sep- tember 2014. Income after taxes improved 72 percent to E1,002 million. Non-controlling interests in after-tax income See Note 53. EFTA00598723 TOOUR SHAREHOLDERS • MANAGEMENT REPORT Business review Fmancitil (Ord tip, • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 91 amounted to EV million (2014: E13 million) and comprised the pro rata profits and losses of fully consolidated sub- sidiaries that are attributable to shareholders outside the Evonik Group. The Evonik Group's net income rose 74 percent to E991 million. 2.9 Financial condition Central financial management The principal objectives of financial management are safe- guarding the financial independence of the Evonik Group and limiting financial risks. We therefore apply a central financing strategy. Borrowing and bond issuance are normally under- taken by Evonik Industries AG or its financing company Evonik Finance B.V., Amsterdam (Netherlands), whose liabil- ities are fully guaranteed by Evonik Industries AG. To reduce external borrowing, surplus liquidity at Group companies is placed in a cash pool at Group level to cover financing requirements in other Group companies. Evonik has a flexible range of corporate financing instruments to meet liquidity requirements for day-to-day business, investments, and the repayment of financial debt. Solid investment grade rating confirmed In 2015 both Moody's and Standard & Poor's (M con- firmed their credit ratings for Evonik Industries AG. Moil still rates Evonik as Baal with a positive outlook, while rating remains BBB+ with a stable outlook. Maintaining a sound investment grade rating is a central element in our financing strategy to ensure we remain a reliable partner for bond investors and banks in the long term. Active management of pension obligations Pension provisions make up the major portion of our total debt. They are non-current and depend on the discount rate. The E604 million decline in pension provisions was principally due to the fact that the discount rate at year end was higher than in the previous year. Unfunded pension obligations were reduced as scheduled in 2015 by a further voluntary cash con- tribution of €219 million' to the contractual trust arrangement (CTA), completing the program of transfers totaling E1.6 bil- lion that commenced in 2010. At present, there are no plans to allocate further funds to the CTA. Further increase in net financial assets Financial debt increased by €626 million compared with year-end 2014 to E1,555 million, essentially as a result of the E750 million bond issued in January 2M5. In the same period, financial assets increased by E1,324 million to E2,653 million, 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- dend of E466 million for fiscal 2014 was paid in May 2015. Overall, net financial assets were E1,098 million, E698 mil- lion higher than at year-end 2014. Net finandal assets In E million Non-current financial liabilities' Current financial Financial debt Cash and cash equivalents Current securities Other financial Invesunenu Financial assets Net financial assets as stated on the balance sheet • Excluding derivatives. Dec. 31, Dec. 31, 2015 2014 -1,361 -639 -194 -290 -1,555 -929 2,368 921 262 387 23 21 2,653 1,329 1,098 400 Corporate bonds as a central financing instrument At year-end 2015, the financial debt of E1,555 million com- prised two bonds with a total carrying amount of E1,241 mil- lion, decentralized bank loans totaling €282 million, and other financial liabilities of E32 million. Following the issuance of a bond with a nominal value of E500 million in 2013, another bond with a nominal value of E750 million was issued in 2015. This matures in 2023 and has a coupon of 1.000 per- cent. On the reporting date, E1.25 billion of the debt issuance program of up to E3 billion had been used to issue bonds. Over 85 percent of the Group's financial liabilities are denominated in euros (2014: over 65 percent). Only Group companies outside the euro zone have financial liabilities in other currencies. The relevant currencies include the Chinese renminbi yuan (CNY) and the Brazilian real (BRL). 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. I S. 0 EFTA00598724 92 ANNUAL REPORT 2015 EVONIK INDUSTRIES Maturity profile of financial liabilities in E million 2016 2017 . 2018 . 2019 I 2020 2021 2022 2023 202411. 700 0 100 20D 300 400 500 600 BOO As of December 31, 2015. Further increase in the strong liquidity position Alongside cash and cash equivalents of E2,368 million and investments of E262 million in current securities, Evonik's central source of liquidity is still a €1.75 billion revolving credit facility from a syndicate of 27 national and international banks. This credit facility is divided into two tranches of E875 million each. The second and last option to extend their term by one year was exercised in 2015 and they now run until September 2018 and 2020 respectively. This credit facility was not drawn at any time in 2015. It does not contain any covenants requiring Evonik to meet specific financial ratios. Further, as of December 31, 2015, various unused credit lines totaling E368 million were available to meet local requirements, especially in the Asia-Pacific region. Major projects completed or virtually completed in 2015 Significant growth projects completed successfully in the specialty chemicals sector Evonik is expanding in busi- ness areas and markets where it already has—or intends to build—a strong competitive position. Investment projects are aimed at utilizing potential for sustained profitable growth and value creation. Every project undergoes detailed strategic and economic analyses. In addition, there is a minimum return requirement for every project based on Evonik's cost of capital. We take a flexible and disciplined approach to extending our leading market positions. All projects are regularly reviewed for changes in the market situation. Examples of projects completed successfully in 2015 are a new lysine facility in Castro (Brazil), expansion of the 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. Segment Nutrition & Care Resource Efficiency Performance Materials Location Castro (Brazil) Essen (Germany) Mobile (Alabama, USA) Ako (Japan) Singapore Marl (Germany) and Antwerp (Belgium) Project Construction of a new lysine plant Expansion of the silicone platform Construction of a new production facility for Mepron Expansion of capacity for specialty silicas Expansion of a facility for oil additives Expansion of capacity for butadiene in Antwerp, the plasticizer 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 Rosiness review Fnencisl tand•tion • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION Capital expenditures amounted to €877 million in 2015, below the previous year's high figure of E1,123 million. In principle, the related cash outflows are delayed slightly by payment terms. In 2015, cash outflows for property, plant and equipment totaled E916 million (2014: €1,095 million). The highest proportion of capital expenditures went to the Nutrition & Care and Resource Efficiency segments (29 percent and 27 percent respectively). A further 21 per- cent was allocated to the Performance Materials segment, and 20 percent was invested in the Services segment. The regional focus of capital expenditures was Germany, which accounted for 49 percent of the total, followed by North America (24 percent) and the Asia-Pacific region and other European countries, which each received 10 percent. Financial investments totaled €90 million (2014: €114 mil lion). They mainly comprised the acquisition of Monarch Catalyst Pvt. Ltd., Dombivli (India), and PeroxyChem Nether- lands Amsterdam (Netherlands).' A strong cash flow The cash flow from operating activities, continuing opera- tions increased by€933 million to €1,968 million, principally due to the good operating performance. The cash flow from operating activities, discontinued operations related to the lithium-ion business, which has now been divested and, in the prior year, also to the stake in STEAG, which was sold in September 2014. In 2015, the cash flow from operating 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 €1,971 million. Cash flow statement (excerpt) ME million 2015 2014 Cash flow from operating activities, continuing operations 1,968 1,035 Cash flow from operating activities, discontinued operations 3 31 Cash flow from operating activities 1,97E 1,066 Cash flow from investing activities, continuing operations —660 —575 Cash flow from investing activities, discontinued operations — —1 Cash flow from investing activities —660 —576 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 cash and cash equivalents 1,444 —665 The cash flow from investing activities comprised an outflow of €660 million. This was mainly for capital expenditures on property, plant and equipment and investments, and the cash contribution to the CTA. It was countered by cash inflows, mainly from the disposal of investments, especially the shares in Vivawest. In 2014 the cash outflow for investing activities was €576 million. Cash and cash equivalents December 31, 2015 versus December 31, 2014 MC 3,000 2,500 2,000 1,500 1,000 500 •1968 +6 2,368 +133 —660 921 Cash operating actWities' Dec 31, 2010 Cash and cash equivalents' flew, Cash flow, irreestisg activities" ash flow, financing Dec 31, 2015 Cash and cash equiwkets• • Continuing operations. See section on Segment performance and Note 5.2. 3 a 0 EFTA00598726 94 ANNUAL REPORT 2015 EVONIK INDUSTRIES The cash flow from financing activities was €133 million. The cash inflow from the new bond was reduced principally by the repayment of financial debt and the payment of the dividend for 2014. In 2014, there was a cash outflow of E1,155 million, mainly for the redemption of a bond and the dividend for fiscal 2013. The free cash flow was very high at €1,052 million in 2015 (2014: —E60 million). The significant improvement was mainly due to the very good operating performance and dis- ciplined implementation of our growth-driven investments. 2.10 Asset structure Increase in total assets As of December 31, 2015, total assets were €1.3 billion higher at €17.0 billion. Non-current assets increased slightly year-on-year to €10.3 billion. While the value of investments recognized at equity decreased by €0.3 billion, mainly because of the sale of the stake in Vivawest in June 2015, property, plant and equipment increased by €0.3 billion to ES.8 billion as a result of growth-driven investments. Intan- gible assets increased slightly, by €0.1 billion, to €3.2 billion. In all, non-current assets decreased to 61 percent of total assets, down from 65 percent in the prior year. They are financed by liabilities with the same maturity structure. Balance sheet structure of the Evonik Group Current assets increased by €1.3 billion to E6.7 billion. This was primarily attributable to a strong rise of €1.4 billion in cash and cash equivalents to €2.4 billion, principally as a result of the issue of the new bond in January 2015 and the good operating performance. Owing to the increase in business, trade accounts receivable were €0.1 billion higher at €1.8 billion. Inventories and financial assets basically remained constant at €1.8 billion and €0.4 billion respec- tively. Current assets therefore rose to 39 percent of total assets (2014:35 percent). Equity increased by €1.1 billion to €7.6 billion as a conse- quence of the good business performance. The equity ratio rose from 41.6 percent to 44.6 percent. Non-current liabilities increased by€0.1 billion to €6.4 bil- lion, principally due to the increase in financial liabilities to €1.4 billion in the wake of the bond issue in January 2015. By contrast, provisions for pensions and other post-employment benefits decreased by €0.6 billion to €3.3 billion. Non- current liabilities decreased from 40 percent to 37 percent of total equity and liabilities. Current liabilities increased by €02 billion to €3.1 billion. While trade accounts payable were virtually unchanged at €1.1 billion, other liabilities increased by€0.1 billion. Current liabilities accounted for an unchanged 18 percent of total equity and liabilities. In E million 2015' 2014' 2015' 2014' 7,576 6,522 Equity Nomomient assets 10,320 10.251 (45%) (42%) (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 • CONSOU DATED 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 Evonik Industries AG, Essen (Germany) is the parent com- pany of the Evonik Group. It holds direct and indirect stakes in all subsidiaries in the Group. The annual financial statements for Evonik Industries AG have been prepared in accordance with the accounting standards set out in the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). Since January 1, 2015, the Executive Board of Evonik Industries AG has concentrated on the strategic development of the Evonik Group through a management holding structure. In this connection the plant management agreements between the company and five subsidiaries were terminated effective June 30, 2015. These plant management agreements had been performed on behalf of Evonik Industries AG and for the account of the subsidiaries. The substance of agree- ments of this type is that the companies remain the economic 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 owners of the assets and liabilities of the plants, while the operator recognizes liabilities entered into in its own name and at the same time capitalizes a claim for reimbursement against the owners of the plants. As a result of the termination of these agreements, the balance sheet of Evonik Industries AG at year-end 2015 no longer contained any items of this type. In the income statement, the arrangement merely gave rise to sales revenues from plant management fees. All other income and expenses were allocated to the companies that owned the plants and were recognized in their annual financial statements. In connection with the strategic realignment of the Evonik Group, in the first half of the year Evonik Industries AG acquired the activities of subsidiaries within the scope of the management holding company or that serve to support it, through asset deals. Activities outside its scope were trans- ferred to the subsidiaries. Fmancul statements 5 EFTA00598728 96 ANNUAL REPORT 2015 EVONIK INDUSTRIES Balance sheet for Evonik Industries AG InEmiRion Dec. 31, Dec. 31, 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- tially dependent on income from its subsidiaries, income and expenses relating to corporate financing and portfolio management activities. Financial management is therefore based on an earnings indicator that contains all these effects: net income. Sales increased substantially from €216 million to E592 million as a result of activities assumed by Evonik Industries AG, especially strategic procurement for the sub- sidiaries. Sales revenues include plant management fees of €31 million (2014: €48 million). The cost of materials rose from E2 million in 2014 to €235 million, due to the assump- tion of procurement activities. Personnel expense increased by 64 percent to €337 million, driven mainly by staff trans- fers in connection with the transfers of undertaking in the first half of 2015. The other operating income of €1,431 mil- lion contains income from the disposal of assets totaling €413 million, mainly from the divestment of the stake in Vivawest. Further, this item includes currency translation gains of €939 million (2014: €354 million). In the gross pre- sentation, currency translation losses of €921 million (2014: €337 million) are shown in other operating expenses, sepa- rately from the currency translation gains. The net effect was a gain of E18 million (2014: €17 million). Income from investments increased by 64 percent to €1,509 million, principally because of considerably higher income from profit-and-loss transfer agreements. The increase was mainly due to higher profit transfers from subsidiaries as a result of the good operating performance and to one-off payouts by investments. The write-downs of financial assets and current securities totaling €41 million and write-ups of financial assets and financial securities totaling E10 million mainly related to affiliated companies. Net interest expense deteriorated considerably from €86 million to €157 million. This was mainly due to higher interest on pension provisions due to a change in the interest rate and an increase in headcount. This item also contains interest income and expense from the Group-wide cash pool, which is concentrated at Evonik Industries AG. Income before income taxes rose 148 percent to €1,464 mil- lion. Income taxes increased to €259 million due to the increase in income. EFTA00598729 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Research Ea development • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 97 Net income was 158 percent higher at €1,205 million. €599,873,641.46 was allocated to revenue reserves, leaving a net profit of €605,000,000.00. A proposal will be put to the Annual Shareholders' Meeting that €69,100,000.00 of the net profit should be allocated to revenue reserves and €535,900,000.00 should be paid out, giving a dividend of €1.15 per share. The total assets of Evonik Industries AG declined slightly from €14.2 billion in the previous year to €14.0 billion. Financial assets mainly comprise shares in subsidiaries. The receivables mainly comprise financial receivables of €2.5 billion (2014: €1.9 billion), principally in connection with loans and cash pooling activities. In 2014, receivables also included claims for reimbursement in connection with plant management (€2.1 billion). Cash and cash equivalents increased by €606 million to €2,056 million, mainly because of the sale of the shares in Vivawest and the bond issue. Equity increased by €0.7 billion to €6.0 billion, mainly as a consequence of the high earnings. The equity ratio therefore improved from 37.2 percent in the prior year to 43.2 percent. The provisions of €2.3 billion in 2014 included €1.5 billion relating to the plants managed by Evonik Industries AG. The receivables and liabilities reflect the financing activities of Evonik Industries AG in its role as the holding company for the Group. Payables include financial liabilities of €6.8 billion (2014: €5.7 billion). €5.5 billion (2014: €52 billion) of this comprises liabilities to affiliated companies, mainly in connec- tion with cash pooling activities. A further €1.3 billion (2014: €0.5 billion) relates to corporate bonds. Opportunities and risks The most significant operating subsidiaries in Germany have profit-and-loss transfer agreements with Evonik Industries AG. In line with the central financing strategy of the Evonik Group, most internal and external financing transactions are handled by Evonik Industries AG. Consequently, Evonik Industries AG is essentially exposed to the same risks and opportunities as the Evonik Group. Further information can be found in the Opportunity and risk report. Outlook' for 2016 We anticipate that in 2016 the net income of Evonik Industries AG will be below the high level of 2015, which was also boosted by the sale of the real estate investment and an increase in income from investments as a result of one-off payouts from investments. Report on relations with affiliated companies A report on Evonik Industries AG's relations with affiliated companies has been prepared in accordance with Section 312 of the German Stock Corporation Act (AktG). It concludes with the following declaration: "Our company received adequate remuneration or compensation for each of the transactions set out in this report on relations with affiliated companies under the circumstances known to us at the time when the transactions were undertaken. No actions were performed or omitted at the instigation of such companies." 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 in corporate strategy Evonik—one of the world's most innovative companies. That is the vision that guides our research & development (la). As a major driver liofitable growth and value creation, our market-oriented is firmly anchored in our corporate strategy. Innovations strengthen our leading market and technology positions and open up new high-growth business opportunities. The careful selection of our areas of inno- vation is guided by the megatrends of relevance for Evonik: health, nutrition, resource efficiency and globalization. 1 For details of the assumptions, please refer to the Report on expected developments. I 0 EFTA00598730 93 ANNUAL REPORT 2015 EVONIK INDUSTRIES Our claim: First-class in Innovation Evonik is one of the most innovative companies in the world O Increase the value of the innovation pipeline New products, applications, and processes must make a substantial contribution to sales and profit First-class in innovation Explore new horizons Push radical innovation Cross-unit collaboration Enhance risk-taking Trust, openness and transparency Improve knowledge sharing Our is aligned to three core strategic objectives: we aim to produce custom-tailored products and solutions in close collaboration with our customers and partners, to drive their success in international competition continuously improve our processes, and make a substantial contribution to profitable growth and to the future of Evonik. Our open, learning innovation culture based on a business mindset is the key to achieving these goals. It ensures timely 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 under the motto Leading Innovation, which are attended by members of our top management. Every year, we present an Innovation Award in various categories to honor outstanding research achievements. At the same time, we consistently terminate projects if there are no prospects of success and take a constructive attitude to such cases. We have a well-stocked innovation pipeline with a bal- anced mixture of more than 500 short-, mid- and long-term projects. These are managed with the aid of Idea-to-Profit, a multi-step innovation process developed by Evonik. Ingredients for the cosmetics industry, membranes, specialty materials for medical technology, feed and food additives, and composites have been identified as promising areas of innovation for Evonik. In addition, we aim to steadily extend our clear expertise in catalysis and biotechnolo To raise the pace of innovation, we want to align our project portfolio even more closely to these fields, step up external knowledge sharing, and drive forward the inter- nationalization of our.. Evonik has an extensive patent strategy to protect new prod- ucts and processes. The value and quality of our patent port- folio have increased steadily in recent years. Innovative strength and patent protection at Evonik No. of new patent applications filed Patents held and applications filed Registered/pending trademarks No. of projects in the pipeline 2015 approx. 260 more than 25,000 more than 7,000 more than 500 In view of the strategic importance of M s we have raised expenses by an average of 6 percent a year since 2010. Given our growth strategy and our vision of being one of the world's most innovative companies, we want to maintain this ambitious level and intend to spend more than €4 billion on in the next ten years. The reorganization of our management and portfolio structure allows more differentiated management and devel- opment of our various businesses close to the market. This is also reflected in our innovation strategy: The Nutrition & Care and Resource Efficiency growth se should receive an above-average share of our funds in order to enter new markets through innovations and alliances. The Performance Materials segment focuses on process optimi- zation and incremental product improvements. Decentralized organization of MI Evonik's global network comprises 35 locations with approximately 2,700 employees. Around 90 percent of our. is performed by our segments. That includes, first and foremost, research geared specifically to their core tech- nologies and markets and the development of new business. EFTA00598731 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Research Fs development • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 99 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 strategic innovation unit Creavis is involved in research in new high-tech areas outside the Group's present portfolio. Creavis focuses on mid- to long-term innovation projects that support Evonik's growth and sustainability strategy. For example, the Composites Project House has developed a new composite that combines the benefits of thermoplastics and thermosets. For this innovation Evonik received the 2015 Innovation Award presented by CFK Valley, a leading com- petency network for fiber composites. Creavis is currently developing a new high-performance surfactant produced using a biotechnological process. As the driving force behind strategic innovations, the role of Corporate Innovation is to provide direction and leadership for the Evonik Group. This division is headed by the Chief Innovation Officer, who reports directly to the Chairman of the Executive Board. Furthermore, we bring together our in-house expertise in specialty chemicals, process technology 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. 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 customers by raising our presence close to their local markets. At the same time, this enables us to position Evonik as an attractive employer and gain outstanding experts for the Group. The progressive internationalization of our can be illustrated by two examples. In 2015, Evonik opened new innovation centers in Midrand (South Africa) and Singapore to develop product solutions specifically for customers in the personal care sector in Subsaharan Africa, Southeast Asia, Australia and New Zealand. Similarly, the Health Care Busi- ness Line started to build up a worldwide network of service laboratories for medical products in 2015. The aim is to provide technical support for customers who use our bio- degradable polymers. The first of these laboratories was opened in Shanghai (China) in summer 2015. Hi commitment to in 2015 expenses amounted to €434 million in 2015, an increase of 5 percent compared with the previous year (€413 million). The ratio of MI expenses to sales was 3.2 percent (2014: 3.2 percent). Breakdown of • expenses Crean: Performance Matellth Resource Efficiency Notation b Core Moreover, in the past four years Evonik has spent €170 mil- lion on building laboratory ca acity and pilot plants. The focus of this investment in facilities was on new and extended innovation centers in Essen (Germany), Shanghai (China), Richmond (Virginia, USA) and Birmingham (Ala- bama, USA). Examples of Evonik's most recent research successes include an innovative microencapsulation process for extended release of medication, and composites for light- weight structures. In addition, work has commenced on a new generation of lubricant additives. o V EFTA00598732 100 ANNUAL REPORT 2015 EVONIK INDUSTRIES Main products introduced in 2015 Product VISCOBASE 11-524/526 VISCOPLEX 0-192 SILIKOPHEN• AC 950 SEPURAN• Noble BREAK-THRU• SP 131 and BREAK-THRIP SP 133 WREN AirVold• 360 Methacrylic acid anhydride (MAAH) Description High-viscosity synthetic base fluid with dispersing properties Easy-to-handle viscosity index improver based on comb polymers Heat-resistant, low-toxic (aromatic-free) silicone resin that cures at ambient temperature Membrane technology for gas separation; several thousand hollow fibers made from a high-performance polymer (polylmide) are used as membranes Based on renewable raw materials, biodegradable, very good ecotoxko- logical profile; adjuvant to increase the efficacy of crop protection products Defoamer for cement- and gypsum- based construction applications Market entry with improved product quality from a new plant Application Favorable alternative formulation for modern gear lubricants for cars, trucks and Industrial gears Used in gear lubricant formulations to minimize energy losses In the drivetrain; reduces fuel consumption High-temperature coating of Industrial plant; corrosion protection of high-volume components Recovery and treatment of helium and hydrogen Crop protection Dry mortar Synthesis Innovation drivers at Evonik Interdisciplinary collaboration across organizational units and regions is regarded as very important at Evonik because it is a key source of innovative ideas. In the project houses at Creavis, experts work with specialists from the operating business on scientific tasks. At present the project houses, which are set up for a defined time period, are working on research in the innovation areas of medical technology and composites for lightweight engineering. The Business and Innovation Center in Richmond (Virginia, USA), which was inaugurated in summer 2015, is specifically deli ned for interdisciplinary research. It brings together experts with specialists from the Marketing and Sales, Procurement, Controlling, HR, IT and Environment, Safety, Health and Quality functions. In addition, we are steadily becoming more open to external partners. We cooperate with research institutes, universities and other industrial companies so that the latest findings in chemistry, biology and physics can rapidly be transported into our company. Through strategic partnerships we are linked to leading universities in the USA, China, and Saudi Arabia, and to Singapore's state-run research agency Sector Automotrve, industrial gears Automotive Machinery and plant engineering, consumer durables and capital goods, automotive Hydrogen: refineries, production of ammonia and methanol. Helium: medical institutes, MRT technology, welding and metal- working, electronics Industry, oil and gas production Agriculture Construction Specialty chemicals (A*STAR). Our support for our established partnership with the University of Duisburg-Essen in Germany comprises a junior professorship, ten scholarships for doctoral candidates and a large number of joint projects and colloquia. We recently entered into a preferred partnership with the Technical University of Munich (TUM) through a master research agreement. In addition, we regularly organize the Evonik Meets Science forum in Germany, China, Japan and the USA to strengthen networking with leading international research scientists. This is a platform for discussion between our experts and leading scientists from a wide range of disciplines and institutions. Our corporate venture capital activities are a special way of networking and a strategic complement to our understanding of open innovation. We invest selectively in specialized technology funds and promising start-ups of strategic relevance to Evonik. This gives us an insight into innovative technologies and business activities aligned to our growth strategy at a very early stage of development. New projects and technologies are developed in joint projects. In this way we speed up our innovative process. We selectively extended our corporate venture capital portfolio in 2015. EFTA00598733 TOOUR SHAREHOLDERS • MANAGEMENT REPORT Reseoch Fs development • CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 101 Evonik Venture Capital: New investments in 2015 Name JeNaCell GmbH Jena (Germany) Headquarters Technology/business model Specialist in nanocellulose generated by biotechnological methods, which is used, for example, as a wound dressing to improve the 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 (Canada) use 30 printing for individualized mass production of biomechanically optimized insoles. Airborne Oil & Gas Bmulden (Netherlands) Synoste Oy Espoo (Finland) Strategic focus on the following Evonik competencies An excellent strategic fit with Evonik's expertise in biotechnology and delivery systems for active medical ingredients. Evonik is a leading supplier of polyamlde 12 for 3D printing, a highly innovative growth market with diverse applications. Airborne Oil & Gas has a unique production technology for thermoplastic composite pipes for a whole range of applications in offshore oil and gas production. The oil and gas Industry is an attractive growth market for Evonik and an Important area of innovation. In addition, it is the market leader in polyamlde 12, which is marketed as VESTAMID• and used in pipelines for the production and transportation of oil and gas. As a technology leader in high-performance polymers, Evonik supplies polyetherether ketone (PEEK) for medical applications. Our VESTAKEEP• PEEK grades for implants, dental and medical applications set new standards in medical applica- tions thanks to their outstanding biocompatibility and biostability. Synoste is a young medical technology company that has developed a novel implant to 'lengthen' the legs of patients suffering from limb length discrepancy. Unlike conventional methods, after implantation the Implant is activated by an external magnetic field and can correct differences of up to 7cm. GRC SlnoGreen Fund III Beijing GRC is a Chinese venture capital fund which focuses (China) on investing in non-listed green-tech companies in Greater China (China, Taiwan and Hong Kong) that have unique technological competencies and high growth potential. The target sectors include energy and resource efficiency. environment-friendly mobility, sustainability and climate protection. By investing in the GRC SlnoGreen Fund Ill, Evonik has extended its venture capital activities to Asia. The company now has a presence in the most important venture capital markets: North America, Europe and Asia. Investments in venture capital funds are a fundamental element of the innovation 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 Our innovative products, systems and solutions make a con- tribution to sustainable development and we are continuousl extending our work in this field. Our market-oriented plays an important role in this. We are aligning our innova- tion pipeline increasingly to sustainable projects and solutions in response to rising interest from our customers. In this way, we enable them to improve their ecological footprint and successfully differentiate themselves from competitors. Examples of sustainable products recently launched by Evonik include a new ingredient based on renewable resources for shampoos and conditioners, an innovative silica-based insulating material, and a biological fungicide for agricultural applications. Together with the Wuppertal Institute for Climate, Environ- ment and Energy and the in-house Life-Cycle Management and Innovation Excellence Consulting groups, Creavis has developed the l2P3 (idea to people, planet, profit) innovation management process, which allows an extensive sustainability assessment of new products and processes at an early stage in their development. Fostering education and science Fostering education and science is a core focus of the Evonik Foundation. In 2015 the Foundation supported 18 particularly gifted and committed science students at 17 universities in Germany and in collaboration with foreign universities. Regular meetings with these scholarship students, scientific colloquia and a mentoring program give them an early insight into the day-to-day work of a leading specialty chemicals company. Evonik is also one of the most committed sponsors of the German government's "Deutschlandstipendium" program, with 200 scholarships provided by the Evonik Foundation. tr. EFTA00598734 102 ANNUAL REPORT 2015 EVONIK INDUSTRIES Market-oriented research & development In 2015 our segments once again developed major innovative products and processes up to market maturity or market launch. In addition, they drove forward key future-oriented projects such as new materials and production processes for lightweight construction. Special attention was paid to sustainability and efficient use of resources. Since summer 2015 our Nutrition Es Care segment has been working with OSM Nutritional Products Ltd. on the development of algae-based omega-3 fatty acid products for animal nutrition. Both humans and animals need to absorb a certain amount of these essential long-chain polyunsatu- rated fatty acids through their diet to ensure healthy growth. At present, most of the omega-3 fatty acids required for aquaculture come from fish oil. The development partners aim to meet the rising global demand for omega-3 fatty acids more resource-efficiently using biotechnological production processes based on marine algae. The anticipated high-quality products are intended principally for applications in aqua- culture and the nutrition of pets. This segment has introduced two new environment- friendly adjuvants under the brand name BREAK-THRU° to improve the performance of crop protection products. These biodegradable adjuvants are based on renewable raw materials, and have an exceptionally good ecotoxicological profile. They improve the retention of agrochemicals on plants and their diffusion into the leaves. The result is a considerable reduction in the amount of crop protection products required. Both new developments therefore make a multiple contribution to more effective and environmentally friendly agriculture. The Resource Efficiency segment has now entered the market for nitrogen (N2) with its SEPURAN° membrane technology, building on its success in the treatment of biogas. The new SEPURAN° N2 hollow fiber membranes allow particularly energy- and cost-saving recovery of nitrogen from air. Investment costs and energy consumption are lower than for both the conventional method—separation of air at low temperatures—and previous membrane processes. As an inert gas, nitrogen prevents fires and explosions, extends the shelf-life of food, and can also be used as a protective gas for processing chemicals and plastics. The nitrogen market is worth more than US$10 billion, making it the world's second biggest gas market after oxygen. Although SEPURAN° has only been on the market for four years, it is already making a positive contribution to earnings. This segment is currently introducing iXsenic°, a new technology for ultra-high resolution displays developed by the Creavis strategic innovation unit. iXsenics is an inorganic metal oxide semiconductor, which is applied as a solution in normal ambient conditions like a coating. The thin-layer transistors produced in this way allow higher resolution than the established semiconductor amorphous silicon. In addi- tion, iXsenie can be processed without a vacuum, leading to a simpler process with high yields and clear cost benefits. The Resource Efficiency segment has entered into a strategic partnership with a market-leading plant engineering com- pany to ensure that the material, equipment and process are aligned for the production of displays. A manufacturer of displays is planning to use iXsenic° in a new production facil- ity for flat screens in China. Olefins, which are used to produce the plasticizer alcohol isononanol and the anti-knock agent MTBE, are an important precursor for our integrated C, production in Marl (Ger- many). Olefins mainly come from C, product streams from steam crackers as by-products of ethylene production. Thanks to a unique new process, our Performance Materials segment can now use product streams from fluid catalytic cracking (FCC) processes as a source of olefins. These product streams occur in refineries and are not dependent on the production of ethylene. Since FCC product streams contain unwanted by-products, in the past they were of limited use to the chemical industry. The Performance Materials segment has been using a new process to remove unwanted sub- stances at its new C, plant in Marl (Germany) since summer 2015. This innovative process has strengthened the segment's position as a technology leader. CAPLUS°, a new amine for scrubbing industrial gas streams, has been brought onto the market by Performance Materials. Unwanted acid gases such as carbon dioxide and/ or hydrogen sulfide have to be removed from natural gas, synthetic gas, biogas and flue gas for various reasons. CAPLUS° scrubs these gases far more effectively than conventional amines and also increases the performance and working life of plants. Following success in the treatment of biogas and flue gas, the segment has now entered the important natural gas scrubbing market. The first commercial natural gas scrubber was converted in Southeast Asia. Perfor- mance Materials is currently introducing CAPLUS° to other well-known natural gas producers in the attractive growth regions of Southeast Asia, the Middle East/North Africa and 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 • CONSOU DATED 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 Sustainability is a core element in our corporate claim Tower to create". Our products and solutions are used in many areas that play a significant role in improving people's lives and making efficient use of scarce resources. In fall 2015 the United Nations published 17 goals for global sustainable development, to be achieved by 2030. Our sustainability activities support these in many areas. Evonik is committed to the ten principles of the UN Global Compact and is guided by the International Labour Standards issued by the International Labour Organization, and the OECD Guidelines for Multinational Enterprises. In addition, we are involved in many networks such as the Chemie3 sustainability initiative of the German chemical industry, and the World Business Council for Sustainable Development (WBCS0), to which more than 200 companies worldwide belong. Together with our Code of Conduct, our Global Social Policy (GSP) and our Environment, Safety and Health (ESH) Values provide a framework for responsible corporate management. Furthermore, we are committed to the WBCSD's Vision 2050: "9 billion people living well, within the limits of the planet." Sustainability management at Evonik Close links between sustainability and corporate strategy We are convinced that sustainable business activities and responsible conduct by our management and staff at all levels are vital for the future of our company. Our sustainability strategy therefore takes up the megatrends identified in our corporate strategy—health, nutrition, resource efficiency and globalization—supplemented by ecological and societal challenges. In view of this, we systematically drove forward the sustainability analysis of our business in 2015 in collaboration with the operational units. This analysis covers the entire value chain of our products and is based on a list of criteria including elements of the life cycle analysis of the supply chain, production and subsequent use of the product. This sustainability-oriented evaluation of our business supports Evonik's positioning on the capital markets because sustain- ability is becoming an increasingly significant element in many investors' investment policies. Demand from our customers for products and solutions that balance economic, ecological and social factors is rising steadily. Sustainability is often an additional benefit for 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. 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 0 V EFTA00598736 104 ANNUAL REPORT 2015 EVONIK INDUSTRIES Accordingly, our market-oriented research & development pays special attention to sustainability and efficient use of resources. Evonik therefore has a good basis for innovative solutions that will strengthen its market-leading positions in the future, give it access to new growth markets, and make a tangible contribution to improving sustainable development. Reorganization of sustainability management The Executive Board bears overall responsibility for sustain- ability and direct responsibility is assigned to the Chief Human Resources Officer. In view of the importance of sustainability for Evonik, the associated topics are assigned to an inde- pendent corporate division at Group level. This division sets the strategic framework for Evonik's sustainability activities. It cooperates closely with the segments to implement this strategy. Evonik in dialogue with significant stakeholder groups At Evonik, sustainability management is characterized by close dialogue with stakeholders. This continuous exchange facili- tates timely identification of trends and future requirements and gives us a better understanding of different perspectives. Overall, it helps Evonik to position itself as a company aligned to sustainable business practices. To update our materiality analysis, in fall 2015 we again asked internal and external stakeholder groups for their views on the relevance of specific sustainability issues for Evonik. The results also form the basis for our Sustainability Report 2015, which will be prepared for the first time in accordance with the Global Reporting Initiative's G4 guidelines. Evonik's stakeholder groups Important feedback about our sustainability performance also comes from talking with members of the investment commu- nity. Alongside financial criteria, more and more investors include ecological, social and governance factors in their investment decisions. Key stakeholder groups for Evonik are shown in the chart below. Evonik is well-positioned in leading sustainability indices and ratings Evonik is included in the sustainability-oriented index families FTSE4Good Global, STOXXe Global ESG Leaders and Euronext Vigeo Eurozone 120. Important sustainability rating agencies such as Oekom Research, Sustainalytics and imug/EIRIS also rank the company among the leaders in the chemical sector. In 2015 we took part in the assessment for the Dow Jones Sustainability Index (DJSI), which is performed by RobecoSAM. As a result, Evonik was included in the RobecoSAM Sustainability Yearbook 2016 as a Sustainability Leader with the distinction "Silver Class'. This was the first time we took part and we gained a place straight away among the top ten of the approximately 70 chemical com- panies rated worldwide. This provides further motivation for us to drive forward our sustainability activities. In the mid term, we aim to sharpen our sustainability strategy further, anchor it even more firmly in the company, and improve the transparency of our sustainability performance. Alongside this, our goal is to enhance our good position in relevant ratings and rankings and step up dialogue with significant stakeholder groups. Interest groups, e.g. local inhabitants, non-governmental organizations (NGOs) Media Politicians/political decision-makers Scientific community Evonik Equity and debt holders Business associates/customers Employees Suppliers EFTA00598737 TOOUR SHAREHOLDERS • MANAGEMENT REPORT Susuansbillty Employes • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 105 5.1 Employees Slight increase in headcount At year-end 2015, the Evonik Group had 33,576 employees. The headcount in our continuing operations was 335 higher than at year-end 2014, principally as a result of acquisitions 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 Dee. 31, Dee. 31, 2015 2014 Nutrition & Care 7,165 6,943 Resource Efficiency 8,662 7,835 Performance Materials 4,380 4,353 Services 12,668 13,173 Other operations 701 937 CoMlnuing operations 33,576 33,241 Discontinued operatiom — 171 Evonik 33,576 33,412 Piloting' figures resisted. Age structure In the Evonik Group, continuing operations Nearly two-thirds of our workforce is employed in Germany. In line with our global positioning, other focal areas of employment are the Asia-Pacific region (2015: 14 percent) and North America (2015:11 percent). Employees by region, continuing operations Around 24 percent of employees are female (2014: around 24 percent). The age structure is still biased towards the 46+ age group, which accounts for 44 percent of employees (2014: 44 percent). The average age of our employees was 41.7 years in 2015 (2014: 41.6 years). In% Under 21 years 21-2S years 26-30 years 31-35 years 36-40 years 41-45 years 46—S0 years 51—SS years 56-60 years Over 60 years 4 10 11 11 12 15 15 12 2 2 10 12 14 16 18 I a L 2 EFTA00598738 106 ANNUAL REPORT 2015 EVONIK INDUSTRIES Active support for the reorganization of the Group The strategic reorganization of the management and port- folio structure of the Evonik Group was supported from an early stage in the project by an agreement on key points that subsequently formed the basis for the reconciliation of inter- ests with representatives of the workforce and provided security for the structural changes and safeguarding employ- ment. In all, around 19,000 employees were transferred to the new companies. To secure the operational viability of the new organizational structures, employee representation structures were adjusted, Supervisory Boards were estab- lished in accordance with the 1976 Codetermination Act, the new members of our companies were granted the necessary powers, and agreements were concluded in respect of the multi-user sites where there will in future be several or additional Group companies. Further optimization of the HR organization The organization of the human resources departments was also adjusted and optimized to reflect the reorganization of the Group. The aim is to continue to provide uniform, effec- tive and efficient human resources services and sustained support for the segments in the attainment of their business targets. Personnel planning is geared to this goal. In 2015 we successfully established an all-round approach as a basic pre- 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 Exemplary leadership is the heart of our HR strategy Our employees are a key factor in the successful and sustain- able implementation of our corporate strategy. As a world- leading specialty chemicals company, innovative strength and entrepreneurship play a central role as drivers that enable us to meet our goals of growth and an increase in efficiency. Based on this, our Group-wide human resources strategy is geared to a healthy performance culture, together with dialogue based on partnership and excellence in human resources processes. The strategic focus of our human resources work is on the principles of "Attract", "Develop", "Perform", "Retain", "Lead" and "HR Excellence". Special attention is paid to exemplary leadership because this is the key to the success in the other areas of action. In our annual strategy review we defined action for these key areas in consultation with the operational business enti- ties and regional organizations, taking into account relevant political and societal developments. The action defined was implemented through projects. Attract The focus here is on positioning Evonik globally as a strong employer brand. Alongside conventional and modern recruit- ing methods, activities include measures to ensure that new employees and executives get off to a good start in the company. corporate strategy HR sttategy HR Excellence EFTA00598739 - TO OUR SHAREHOLDERS • MANAGEMENT REPORT Susuinebilily EmPlovets • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 107 Employer branding—Positioning Evonik as an attractive employer A strong and uniform global employer brand is an important success factor in the competition to attract the most talented employees and executives. Our promise "Exploring opportu- nities. Growing together." is an expression of our values as an employer: wide-ranging global development opportunities and team spirit. As part of our employer branding, we use creative and unusual methods to fire passion for Evonik in tomorrow's specialists at an early stage. For example, in 2015 we challenged students at ten universities in Germany to Battle of Brains, a digital quiz that attracted around 1,000 participants. High-quality prizes were awarded to the best three from each university and the winning entrant from each university was invited to attend the Evonik Student Network Day. In addition, around 100,000 impressions of Battle of Brains were registered in various media (including films on YouTube). A variety of awards and surveys confirm that Evonik is already one of Germany's most attractive employers. For example, in 2015 we ranked third in the chemical and pharmaceutical sector in the employer ranking conducted by the German news magazine FOCUS. In China, Evonik was once again included in the list of the most popular employers published by the Top Employer Institute in 2015. Modern recruiting tools extended To build contact to relevant groups of potential employees at an early stage, we engage in selective cooperation with universities and higher education institutes around the world. These are selected in consultation with the relevant specialist departments. In Germany, for example, we support particularly com- mitted students at 15 universities as part of the German government's Teutschlandstipendium° program. This includes offering them opportunities for internships and supporting them in the preparation of their dissertations and theses through specific projects at Evonik. Through the Evonik Perspectives program we remain in contact with students whose performance in internships is above average. Many participants in this program join Evonik when they finish their studies. In view of the high and growing significance of social media, we have stepped up our activities in this area and further strengthened our presence in such media. Our global talent recruitment initiative RISE is designed to attract talented external candidates for key positions and management posts. The core element of RISE, apart from suitability for a specific position, is the potential to take on more demanding assignments. Develop In this area, we concentrate on targeted development of talented employees. Group-wide we are therefore stepping up structured development opportunities for all employees aligned to requirements. This also lays the foundations for our sustained policy of filling key positions from within the company. Vocational and further training for present and future specialists Evonik still recruits specialists from within its own ranks and is committed to supporting their vocational training and ongoing development. This is also an element in meeting our corporate responsibility to society and our workforce. The number of apprentices and, above all, the number of apprentices hired by us at the end of their training will be aligned even more clearly to the personnel requirements of our organizational units in the future. At year-end 2015, we had around 2,050 apprentices at 17 sites in Germany on more than 40 vocational training courses and combined vocational training and study programs. Around 340 of them were being trained on behalf of other companies. We have around 30 places on the "Start in den Beruf" pre-apprenticeship project, plus about 20 additional places for refugees. About 590 new apprentices started their training at Evonik in 2015. Apprentices accounted for around 9 percent of our workforce in Germany, which is still well above the national average. Overall, we invested some €65 million in vocational training in 2015. Continuous professional development of our skilled per- sonnel geared specifically to the needs of the company is another core element of our HR activities. A large number of training opportunities are offered through in-house courses and in cooperation with external training partners, either cen- trally or on a decentralized basis by the segments or individual sites. Focal areas in 2015 were competency management and leadership skills. S E o V EFTA00598740 103 ANNUAL REPORT 2015 EVONIK INDUSTRIES Talent management for executives Evonik is committed to the established practice of filling executive and other key positions principally from within the company. Our talent management identifies, develops and fosters employees with potential across hierarchical levels and functions. Regular planning conferences with the close involvement of the Executive Board focus on development and succession planning for corporate talents and executives. To ensure continued business-oriented identification and career development for talented employees, in 2015 we aligned our processes and personnel conferences to the management holding structure. Operational and functional units and the Corporate Center discuss key potentials within the Group with the Executive Board, along with the next steps in their development and target functions. Alongside employee development reviews and various panels, we use clearly defined indicators, which are reviewed regularly and were revised in 2015. In 2015 we introduced a new program for top-level development: members of Evonik's top man- agement support personally selected executives in their professional development and act as sparring partners for their future career paths. Perform Here the focus is on a healthy performance culture as the basis for the company's success and the personal motivation of every individual employee. Globally, our activities in this area are based on appropriate human resources tools comple- mented by a wide variety of performance incentives. Fair, performance-related remuneration plays a central role in this, together with the annual performance and development review. In 2015, personnel expenses, including social security contributions and pension expense, rose 14 percent to €3,121 million' as a result of the increase in our headcount and pay rises. Personnel expenses were therefore 23.1 per- cent of sales (2014:21.3 percent). Remuneration—Uniform global evaluation criteria When shaping remuneration systems, Evonik believes it is very important to offer specialists and executives market- oriented and performance-related salaries based on uniform global evaluation criteria. The remuneration of many mem- bers of our workforce includes bonus payments that are dependent on the company's business performance or the personal performance of the employee. • See Note 112. In addition, two years ago we introduced the "Share" employee share program for personnel in Germany, Belgium and the USA. The high participation rate of around 36 percent highlights our employees confidence in Evonik's business development. In 2015 around 10,000 employees, including apprentices, took part in the "Share" program. They pur- chased nearly 280,000 shares and were allocated around 95,000 bonus shares through the company's subsidy program. Pensions form part of overall compensation Evonik helps employees provide for security after retirement. Different arrangements are offered depending on regional specifics and the conditions prevailing in individual countries. In Germany, Evonik has established a system of company pension plans that provide retirement, disability and surviving dependents pensions through a reinsured support fund. Mandatory contributions to this fund, supplemented by optional contributions through deferred compensation arrangements, ensure that employees' pension provision extends beyond the level funded by their employer. Employer contributions to pension plans are also an important element of total annual remuneration outside Germany, for example in the USA and some European countries. Retain In spite of the necessary change processes a high level of employee retention is achieved through our corporate values and common corporate culture, which foster identification with the company. Employee fluctuation 2015a fluctuation rale in % No. of employees who left the company By gender Female 5.2 416 Male 4.5 1,133 By age Under 30 4.4 295 3010 50 3.1 537 Over 50 7.7 717 Evonik 4.7 1,549 • Reference base: no. of employees in each category as of December 31, 2014. Previous reporting base altered in sustainability reports from 2015: instead of unplanned fluctuation. the figure now shows total fluctuation. EFTA00598741 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Sustainabillty Emplonts • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 109 Diversity is decisive We place great emphasis on a good mix of employees to ensure diversity of nationality, gender, educational back- ground and professional experience, as well as a wide- ranging age structure. We specifically support this through activities such as gender networks at our major Germany sites and various events and formats that bring together people, enrich discussions and help build bridges between different cultures and backgrounds. The Evonik WoMentoring initiative entered its second round in 2015. In addition, we again included binding diversity targets in the objectives agreed with our corporate executives. Our diversity strategy also forms the strategic basis for our resolutions on implementing the new legislation on gender quotas', for which the German government set a deadline of September 30, 2015. These resolutions confirm that we will step up the measures already defined and estab- lished as part of our diversity strategy to foster women in management positions. Employee survey—Online only for the first time In our first fully online employee survey run under the motto t in online" at the end of 2015, around 33,000 employees worldwide were asked for their input to actively shape the future of the Group. The survey included questions about the change process for the ongoing development of Evonik's organizational structure. As a new element, there were specific questions on occupational safety, which is a top priority for Evonik as a specialty chemicals company. The participation rate was an excellent 83.9 percent. In the follow-up process, the results of the survey will be translated into specific improvement measures in 2016. Work-life balance Healthy and motivated employees are vital for Evonik's success and an integral part of our corporate responsibility. Our well@work program covers all aspects that maintain and 1 See Declaration on corporate governance. 2 See section on Environment. safety and health. improve the employability and quality of life of our employ- ees. For example, in the area of health management seminars are organized throughout Germany to provide information on a healthy diet, handling stress and appropriate physical exer- cise. Evonik also offers employees a wide range of sports activities—from yoga to conventional gym classes.' Combining work and family life has also had very high priority for Evonik for years and is part of our overall well@work approach. In 2015 we embarked on a review of our performance in this area in order to uphold our validation by the Hertie Foundation as a family-friendly company. Core elements of our offering include support in child care and flexible worktime models. At the end of 2015 we also started to revise our regional and country-specific approach to work-life balance. Lead In the area of leadership, Evonik builds on a uniform and concrete Group-wide understanding of leadership, centered on a trustful relationship between employees and managers. To ensure that sincere and effective leadership is a distinctive quality at all Evonik sites, in 2015 we harmonized global training to prepare staff for leadership roles. The aim is to establish high-quality leadership aligned to our corporate culture as a hallmark of Evonik. Strong leaders are essential for value-oriented manage- ment of the company. In 2015 nearly 70 corporate talents therefore once again made a contribution to the housing construction project in Vietnam in collaboration with Habitat for Humanity. As well as direct experience of value-oriented action, they gained inspiration, which they conveyed back into our company. In addition, in 2015 two pilot groups embarked on a program that explores ethical conduct, personal values and their relationship to the working environment. Nearly 30 corporate talents took part in this program in 2015. EFTA00598742 110 ANNUAL REPORT 2015 EVONIK INDUSTRIES 5.2 Environment, safety and health Ambitious environmental targets Protecting our environment and the climate are major global challenges of our age, along with the efficient use of limited natural resources in the face of the growing world population and increasing affluence. Maintaining the natural basis for future generations is part of our corporate responsibility. Key areas of action in the ecological arena can be derived from efficiency requirements. For us, that principally means reducing energy consumption, minimizing emissions into the air and water, and efficient water management. We also develop products that contribute to forging a clear link between economic success and ecological progress. However, improving our ecological footprint and remaining internationally competitive are also dependent on public acceptance and political opportunity. These conditions are reflected in our strategic focus. We have set demanding environmental targets for the period 2013-2020 (reference base: 2012): • Reduce specific greenhouse gas emissions' by 12 percent • Reduce specific water intake' by 10 percent In sustainable waste management, we are continuing our efforts to make more efficient use of resources. In 2015, we made substantial progress in further reducing emissions at all stages in the value chain. A functioning environmental management system is the basis for this. Integrating it into our corporate processes is an ongoing task and an integral part of sustainability management at Evonik. At Evonik, accountability for plants, technical systems, products and processes is therefore assigned to the responsible mem- bers of staff, for example, through job descriptions and letters of delegation. Our binding Group-wide Environment, Safety and Health (ESH) strategy, including a set of rules that has been audited externally, forms the basis for our action. Audits are conducted to monitor implementation by the segments, regions and sites. 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. Safety as a management task We take our responsibility in the field of safety particularly seriously—during production and while shipping products to our customers. Our objective is to protect our employees and local residents, as well as the environment, against any potential negative impact of our activities. The Group-wide "Safety at Evonik" initiative introduced in 2014 has become firmly established as an ongoing process to develop our safety culture and a fundamental management approach to all aspects of occupational and traffic safety. Our guiding principles for safety and our safety culture provide a structure and guidance for our corporate targets and activities. Binding principles are applicable for all employees, from local personnel to our management, and provide clear and measurable guidance for their personal conduct and leadership. Reduction in accident frequency 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 the safety of contractors working at our sites. In 2015, we registered a further improvement in the accident frequency indicator' for our continuing operations to 1.0, compared with 1.2 in the previous year. This indicator has now been stable for several years at our long-term strategic goal of around 1.0. The accident frequency rate was well below the target of a maximum of 1.3 defined for 2015. There were no fatal accidents at work involving our employees or contractors at our sites in 2015, nor were there any fatal traffic accidents involving employees on the way to and from work or on business trips. The accident frequency indicator for contractors (number of work-related accidents involving non-Evonik employees resulting in absence from work per 1 million working hours) dropped back to 2.9 (2014: 3.6). We attribute this positive result to the steps taken to improve our contractor manage- ment principles in 2014. The processes to improve the moni- toring and evaluation of contractors were implemented at all major German sites in 2015 and are now having an effect. A standard has also been drawn up for our international sites and will be implemented in 2016. 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 1 million working hours. EFTA00598743 - TOOUR SI4AREHOLDERS • MANAGEMENT REPORT SusterielsIllty Environment, safety and health • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 111 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 Incident frequency did not meet our target Process safety at our plants is another focus of our initiative. The concepts to prevent fire and the release of hazardous substances are regularly analyzed in detail. The aim is timely identification of risks so we can develop appropriate measures that reliably prevent these risks. We monitor and evaluate plant safety using the incident frequency indicator', which covers incidents involving the release of substances, fire or explosion, even if there is little or no damage (process safety performance indicator defined by the European Chemical Industry Council, Cefic). This indicator deteriorated slightly to 55 points in 2015 (2014: 53), so we did not meet our target of maximum 48 points. The differ- Incident frequency indicator 1.0 1.5 2.0 ence was attributable to one segment and individual sites and measures have already been taken to counter the situation. Another common indicator of plant safety is also used in external comparisons. This is defined as the number of incidents per 1 million hours worked by all employees in the Group. Evonik's performance rated by this indicator was 1.3. To ensure that our safety concepts to prevent the release of substances, fire and explosion meet uniformly high safety standards throughout the world, they are developed with the involvement of selected and experienced safety experts, who are assigned to our Global Process Safety Competence Center (GPSC) and form the Global Safety Expert Network led by the GPSC. Number of incidents per 1 million hours worked, taking 2008 as the referent* base 2008 2009 2010 2011 2012 46 60 2013 2014 2015 0 20 40 so S3 SS 75 76 100 60 80 100 1 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). EFTA00598744 112 ANNUAL REPORT 2015 EVONIK INDUSTRIES High standard of climate reporting established Potential to grow our business can be leveraged by systematic realignment of our portfolio of products and services, taking global megatrends into account. For Evonik, these include global climate change. We have a large number of innovative products that improve energy efficiency at subsequent stages in the value chain and therefore make an important contri- bution to reducing the use of resources and cutting emissions. Our lubricant and fuel additives are a good example. Hydraulic fluids containing our DYNAVISe additives can increase the productivity of excavators by up to 30 percent and at the same time cut fuel consumption by up to 30 percent. Companies that are interested can calculate the exact savings for them- selves using a special calculator on the DYNAVIS't website. Maximum comparability based on complete transparency is essential to make sustainable business activities measurable and traceable. The Carbon Disclosure Project is currently the world's largest and most important initiative by the financial sector on climate change, bringing together more than 800 institutional investors with combined assets under management of over USE95 trillion. This project examines all aspects of corporate policy and how it is put into practice in business. It covers both the com- pleteness of reporting and the quality of the information relating to actual climate performance. In 2015, Evonik was able to improve on its very good results for 2014 (91/6). With a ranking of 98/B, Evonik once again did significantly better than the average of 72/C for the participating MDAX companies. Lower CO, emissions' CO2 emissions declined slightly from 8.8 million metric tons in 2014 to 8.7 million metric tons in 2015 although output increased from 10.3 million metric tons to 10.4 million metric tons in this period. The decline in emissions was mainly due to implementation of specific measures to raise energy efficiency, an altered energy mix in Marl (Germany) as a result of lower availability of the coal-fired power plants due to maintenance shut-downs, and the divestment of the remaining carbon black activities in China. The 30 facilities operated by Evonik that fall within the scope of the European Union's Emissions Trading System (EU ETS) emitted 4.0 million metric tons of CO2 in 2015. The reduction of 0.2 million metric tons com- pared with 2014 was mainly due to temporary reductions in coal-based energy generation and lower utilization of the hydrogen plant in Marl. Environmental protection investment and operating costs We invested €43 million in 2015 to achieve a further improve- ment in environmental protection. This comprised capital expenditures for investment projects undertaken in 2015 such as the expansion of capacity for specialty silicas in Ako (Japan), a large number of individual investments in effective end-of-pipe technologies, and environmental protection measures integrated into plants and processes. The high prior-year figure of €107 million was dominated by the start-up of major strategic investment projects in the Asian region. These included, in particular, the new methionine complex in Singapore and the new production facilities for isophorone and isophorone diamine in Shanghai (China). Operating costs for environmental protection facilities rose considerably to €283 million in 2015 (2014: €259 million), principally due to the start-up of methionine production and the use of the environmental protection facilities at the site in Singapore. Health management and contingency planning go hand-in-hand To fulfill our responsibility to our employees, we have a wide range of measures to protect and maintain their health. These have a firm place in our Group-wide well@work program.' Evonik's workplace health protection and promotion mea- sures focus first and foremost on encouraging a healthy lifestyle with offerings in the areas of exercise, a healthy diet, work-life balance, and preventing infections and addiction. To supplement this, special annual campaigns are devoted to different aspects and the company offers voluntary pre- ventive measures. In 2015, for example, campaigns aimed at preventing colorectal cancer were run at many of our sites. Standardized processes based on hazard assessments are used for occupational health management. Potential dangers in the workplace are systematically identified and measures are developed to assure the health and safety of our em- ployees. Their effectiveness is monitored through medical check-ups. Medical contingency management at Evonik is based on a global policy that sets out the necessary emergency organi- zation and the equipment and personnel to be provided, taking the regional emergency response infrastructure into account. Exercises are conducted regularly to check the functioning of this system. 1 Direct CO2 emissions (Scope 1 emissions 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 Opportunity end risk report Oppoitunity and risk mmeigement • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION TO 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 Risk strategy Evonik's Group-wide internal opportunity and risk manage- ment (referred to generically as risk management in this section) forms a central element in the management of the company. Our risk detection system meets the requirements for publicly listed companies. The aims are to identify oppor- tunities and risks as early as possible and to define measures to counter and minimize any risks and utilize opportunities. That includes risks which could jeopardize the future of the company. We only enter into entrepreneurial risks if we are convinced that in this way we can generate a sustained rise in the value of the company and, at the same time, permanently limit possible negative implications. Structure and organization of risk management At Group level risk management is assigned to the Chief Financial Officer and is organized on a decentralized basis in line with Evonik's organizational structure. The segments, corporate divisions and service units bear prime responsibility for risk management. That comprises early identification of risks, estimating their implications, introducing suitable preventive and control measures and the related internal communication. Risk coordinators in the orga- nizational units are responsible for agreeing on the relevant risk management activities. Risk management is therefore a key element in various management and decision-making processes (for example, controlling processes) at all levels in the Group. It includes strategic and operational planning, the preparation of investment decisions, projections, and timely and systematic reporting of risks. A central Corporate Risk Officer coordinates and oversees the processes and systems. He is the contact for all risk co- ordinators and is responsible for information, documentation and coordination at Group level. Further responsibilities include ongoing development of the methodology used by the risk management system. The Risk Committee is chaired by the Chief Financial Officer and composed of represen- tatives of the corporate divisions. It validates the Group-wide risk situation and verifies that it is adequately reflected in financial reporting. The Supervisory Board, especially the Audit Committee, oversees the risk management system. In 2015, the companies included in our risk management system were identical to those in the scope of consolidation for the financial statements. At companies where we do not exert a controlling influence, we implement our risk manage- ment requirements primarily through our presence in manage- ment and supervisory bodies. Corporate Audit monitors risk management in our organizational units to make sure they comply with statutory and internal requirements and to ensure continuous improvement of risk management. The system used to identify emerging risks is included in the annual audit in compliance with the requirements for listed companies. This audit showed that Evonik's risk detection system is suitable for timely identification of risks that could pose a threat to the company's survival. The risk management system is based on the internation- ally recognized COSO Enterprise Management standard. It is implemented through a binding Group-wide policy. Individual risks are systematically identified and managed with the aid of special risk management software. Their probability of occurrence and the possible damage (potential impact) are evaluated and documented, together with their expected value (product of probability of occurrence and potential impact). Analogously to current planning, the evalu- ation is based on a period of three years (mid-term planning). Opportunities and risks are defined as positive and negative deviations from the plan. p— E :4 V EFTA00598746 114 ANNUAL REPORT 2015 EVONIK INDUSTRIES Opportunity/risk matrix ea Ew >250 50.1-250 10.1-50 2.6-10 0-2.5 1-10% 11-25% 26-49% 50-75% 76-100% Probability of occurrence e. High opportunities/risks Moderate opportunities/risks Low opporturstesinsks The organizational units conduct an extensive annual risk inventory in connection with the mid-term planning process. They are required to provide details of the measures to be taken with regard to the risks identified, introduce them immediately, and track their timely implementation. Internal management (for example, reporting by the Risk Committee) takes a mid-term view. The opportunities and risks identified are classified as low, moderate or high (see opportunity and risk matrix). The evaluation is always based on a net view, in other words, taking into account risk limitation measures. The risk inventory is supplemented by quarterly reviews of all opportunities and risks relating to the present year to 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 their potential impact and probability of occurrence. All high risks are classified as material individual risks, as are moderate risks with an expected value of over €10 million in the mid term. The expected value is used exclusively as a basis for prioritization and to focus reporting on key issues. 7.2 Overall assessment of opportunities and risks Given the measures planned and implemented, no risks have been identified that—either individually or in conjunction with other risks—could jeopardize the continued existence of Evonik as a whole, including Evonik Industries AG in its role as the holding company for the Group. For 2015 we expected slightly more risks than opportu- nities. However, some major opportunities were realized during the year, resulting in a substantial increase in earnings, especially in the Nutrition & Care and Resource Efficiency segments. By contrast, the development of the Performance Materials segment was characterized by considerably more risks than opportunities. Key factors relating to the risk categories were the macro-economic environment and the specific market and competitive situation, especially in the markets for amino acids and C, chemicals. From the present standpoint, the risks for 2016 outweigh the potential oppor- tunities, which are around the same level as last year. Sections 7.3 and 7.4 present the opportunities and risks in each category in descending order of significance for the Evonik Group. Except where otherwise indicated, they apply for all segments. 7.3 Planning/market risks and opportunities In accordance with our internal management, opportunities and risks in the planning/market category are allocated to risk 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 risks may also be allocated to the lower risk classes. Where two sub-categories have the same profile in the chart, they are ranked first on the basis of opportunities, then listed in descending order, based on their expected impact. 1. Sales markets The macro-economic environment is particularly relevant for an assessment of opportunities and risks. This applies both to the development of the global economy and to economic trends in specific regions such as Europe, China and other growth markets. There are also risks associated with geo- political conflicts in some regions and countries. EFTA00598747 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Opportunity end risk capon Planneig/inarket risks and Opportunities • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 715 Opportunity and risk classes within the planning/market category Sub-category Sales markets Financial markets Raw material markets Research Es development Capital expenditures Production Other Energy markets Mergers Er acquisitions Human resources Opportunities - High opportunities/risks e. Moderate opportuniGes/risks Low opportunities/risks Alongside the general demand situation, intensive competition in the various market segments harbors both opportunities and risks. In particular, competitors in low-wage countries increase competitive pressure through new capacities and aggressive pricing policies that can impair our selling prices and volume trends. To counter this we are broadening our foreign production base and gaining access to new markets in high-growth regions such as Asia and South America. The operating units affected also use various methods of increas- ing customer loyalty to reduce these risks. These include, in particular, strategic research alliances with customers and extending the services offered along the value chain. We are constantly developing attractive and competitive new products and technologies to mitigate the risk that chemical products could be replaced by new, improved or less expensive materials or technologies. Opportunities arise for our busi- ness from unmet demand in individual markets, for example if our competitors are unable to bring planned new capacity into service on schedule. The specific market development for individual business activities is another focus in the assessment of opportunities and risks. This relates to both demand from specific markets and the competitive situation in various industries. Changes in demand can impact our business volume and sales. We address these risks proactively through permanent market monitoring, activities to retain customers and gain new accounts, and timely endeavors to develop innovative new applications and enter new markets. In principle, these opportunities and risks may affect all segments, but they are particularly relevant for the Nutrition & Care and Per- formance Materials segments. One potential risk factor for our amino acids business, for example in Asia, is the possible impact of substandard food quality and food safety, especially due to bird flu. We utilize opportunities for profitable future growth by gaining access to new markets as part of our strategic development. One attractive market for our portfolio of feed additives is aquaculture, for which we have developed innovative products. As a result of global population growth, rising affluence in emerging markets and overfishing of the world's oceans, the global aquaculture market is growing faster than other areas of livestock farming. Customer concentration is basically low in our chemicals segments. None of the end-markets that we supply accounts for more than 20 percent of sales. Nevertheless, some oper- ational units, especially in the Nutrition & Care and Resource Efficiency segments, and the Services segment have a certain dependence on key customers. In the operating business, this applies in particular to production facilities erected in the direct vicinity of major customers. The possible loss of a major customer could result in lower sales and in impairment losses on receivables and investments, as well as impacting our long-term raw material agreements or the financial structure of our affiliates. 2. Financial markets On the financial markets, the company is exposed to risks and opportunities associated with prices and to liquidity and default risks. Price-related opportunities and risks result from changes in exchange rates, interest rates and other prices. Liquidity risks relate to the ability of the company to meet its payment obligations, while default risks entail the risk of a loss if a debtor is fully or partially unable to meet its payment commitments. 2 5 E EFTA00598748 116 ANNUAL REPORT 201S EVONIK INDUSTRIES Minimizing these risks is an important objective of our cor- porate policy. Group-wide policies and principles specify that all material financial risk positions have to be identified and evaluated. The risks are limited through selective use of derivative and non-derivative financial instruments, taking the cost/benefit profile into account. This may include the use of options for hedging purposes. For financial risk management purposes, Evonik applies the principle of separation of front office, risk controlling and back office functions and takes as its guide the banking-specific "Minimum Requirements for Risk Management" (MaRisk) and the requirements of the German legislation on corporate control and transparency (KonTraG). Binding trading limits, responsibilities and controls are thus set in accordance with recognized best practices. This forms the basis for selective hedging to limit risks. The risks and opportunities associated with interest rates and exchange rates are managed centrally by the Finance Division of Evonik Industries AG, which also issues instructions on the management of liquidity and default risks. Financial derivatives' are used exclusively to reduce the risks resulting from operating and financing activities and there- fore always relate to corresponding underlying transactions. Use of financial instruments for speculation is not permitted. Forward exchange contracts, currency swaps and cross- currency interest rate swaps are used to manage currency risks. When setting interest terms, we pay attention to care- ful structuring of the fixed-to-floating interest ratio; interest rate swaps can be used to optimize the situation. Commodity swaps are used to hedge the risk of fluctuations in the price of coal, natural gas and petrochemical feedstocks. We also use forward contracts to secure the procurement of emissions allowances to meet statutory obligations. A considerable portion of the Evonik Group's financial assets and liabilities and its sales are in currencies other than the euro, which is the Group's reporting currency. The most important foreign currencies are the US dollar and the Chinese renminbi yuan. All cash flows that are planned, firmly agreed or recognized on the balance sheet as receivables and liabilities and are not denominated in the functional currency of the respective company are exposed to the opportunities and risks of changes in exchange rates. Risk positions resulting from trade accounts receivable and payable in foreign curren- cies are normally bundled and offset through intragroup hedging. The remaining net risk exposure is then fully hedged through currency derivatives. Cash pool positions and time deposits in foreign currencies are hedged analogously. Unlike these portfolio hedges, micro-hedges are concluded for non-current loans and for planned and firmly agreed foreign currency payments (for example, planned foreign currency sales, where the aim is to hedge 65 percent of the identified exchange rate risk, and exchange rate risks relating to planned investments). When hedging planned and firmly agreed risk positions with financial instruments, hedge accounting is used to synchronize the earnings effects of the recognized hedging instruments with those of the off- balance-sheet hedged items. Evonik manages the opportunities and risks resulting from changes in interest rates in financing and investment activities on a case-by-case basis. Through the use of fixed-interest loans and interest rate hedging instruments, 96 percent of all financial liabilities were classified as fixed-interest as of the reporting date and therefore had no material exposure to changes in interest rates. Changes in interest rates can have a significant influence on the present value of our pension obligations) and thus entail both risks and opportunities for the Group. We use scenario analyses ' to assess the possible impact of opportunities and risks relating to currencies and interest rates. In view of the rising importance of regions outside the euro zone, exchange rate risks and opportunities will increase in the long term. Other price risks relating to the financial markets come mainly from investments in companies that are listed on the stock exchange, which IAS 39 specifies have to be recognized on the balance sheet at their stock market value. Since Evonik does not generally undertake such investments with a view to short-term purchase or sale, the unrealized changes in market value are only recognized in the income statement if they represent a significant or long-term loss of value. Otherwise, they are recognized as changes in equity with no impact on profit or loss until such gains or losses are realized through sale of the investment. At the heart of Evonik's central liquidity risk management is a Group-wide cash pool. In addition, the Group's financial independence is secured through a broadly diversified financ- 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 Opportunity end tisk repon Plenrung/mteket Hsks and opp•nunilies • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 117 Overall, Evonik believes that adequate financing instruments are available to ensure sufficient liquidity at all times. Credit risks relating to financial contracts are system- atically examined when the contracts are concluded and monitored continuously afterwards. Limits are set for each counterparty on the basis of internal or rating-based credit- worthiness analyses. Market opportunities and risks, and liquidity and default risks relating to financial instruments also arise from the management of our pension plan assets. Here, we take an active approach to risk management, which is combined with detailed risk controlling. Strategic management of the portfolios takes place via regular active/passive studies. To minimize risk, we use a range of derivative hedging strategies where appropriate. The broad diversification of asset classes, portfolio sizes and asset managers avoids cluster risks. How- ever, unavoidable residual risks may remain in the individual investments. Goodwill from business combinations is allocated to the segments. An impairment test is conducted annually for these reporting segments. Impairment losses on these intangible assets can result from a change in reporting structure, the weighted average cost of capital and, above all, lower cash flow expectations. 3. Raw material markets For our business operations we require both high-volume commodities and smaller amounts of strategically relevant raw materials that have to meet highly demanding specifi- cations. Across the entire spectrum of raw materials, Evonik is confronted with opportunities and risks relating to the increasing volatility of the availability of raw materials and their prices. Another risk may arise from single-source situations, although the extent of such risks is limited. The operating business is dependent on the price of strategic raw materials, especially petrochemical feedstocks obtained directly or indirectly from crude oil. The price of crude oil therefore has a considerable influence on both the procurement prices of raw materials further down the value chain and energy costs. The price of renewable raw materials is also highly volatile and depends, among other things, on harvest conditions. Another factor influencing price risks is changes in exchange rates. Some procurement risks are hedged by optimizing global procurement activities, for example, by accessing new markets for raw materials and concluding market-oriented agreements. The overriding aim of the procurement strategy is to secure the availability of raw materials on the best possible terms. To further reduce the risks with regard to products that have intensive raw material requirements, our aim is to align the procurement and sales sides in order to pass fluctuations in raw material prices along to other stages in the value chain where necessary, for example through price escalation clauses. The sharp drop in the oil price in the past two years has made a significant contribution to reducing the cost of procuring raw materials. Short- and mid-term bottlenecks in the availability of precursors and intermediates are also potential risks. We alleviate these where necessary by substituting suppliers. We constantly observe the business performance of suppliers of selected key raw materials to anticipate bottlenecks and avoid risks. 2015 was characterized to an usual extent by outages in the supply chain resulting from force majeure. Such events can generally be overcome by taking suitable steps in cooper- ation with the suppliers affected and alternative suppliers. Rising volatility will require increased management of the various supply chain risks in the future. Aspects such as safety, health, environmental protection, corporate responsibility and quality have a firm place in our procurement strategy. These sustainability aspects are also supported by standardized global assessments through the Together for Sustainability (TfS) sector initiative, which was co-founded by Evonik. Evonik's principal suppliers and the majority of critical suppliers have already taken part in these assessments, which are evaluated by EcoVadis, an impartial sustainability rating company. The opportunities and risks arising from changes in the price of petrochemical feedstocks mainly affect the Perfor- mance Materials segment because of its high procurement volume. Risks relating to single sourcing and short-term restrictions on the availability of raw materials mainly affect the Nutrition & Care and Resource Efficiency segments. 4. Research & development Opportunities for Evonik also come from market-oriented research & development I ) , which we regard as an important driver of profitable growth. We have a well- stocked pipeline with a balanced mixture of short-, mid- and long-term projects. On the one hand, we constantly strive to improve our processes to strengthen our cost leadership, and on the other, our projects open the door to new markets and new fields of technology. Our project portfolio is consistently aligned to the strategy of the relevant business entities. EFTA00598750 118 ANNUAL REPORT 2015 EVONIK INDUSTRIES Further opportunities are being generated by the increasing involvement of external partners (open innovation). We co- operate with research institutes and universities to ensure rapid translation of the latest research findings into our company. We also work with start-ups and other industrial companies to facilitate solutions at all stages in the value chain that set us apart from our competitors. Through our venture capital program, we take stakes in companies whose know-how can support us in joint devel- opments. Opportunities and risks in relate to the viability of planned product and process developments and the timing of their implementation. We mainly see significant opportu- nities from the introduction of new products that go beyond our present planning in the Resource Efficiency segment. 5. Investments Generating organic growth through investment entails risks as regards the proposed scope and timing of projects. These risks are addressed through established, structured processes. For instance, we take an extremely disciplined approach to implementing our investment program. Both projects that have not yet started and those that are already underway are constantly reviewed for changes in the market situation and postponed if necessary. At the same time, we regard building new production facilities in regions with high growth momentum as an oppor- tunity to generate further profitable growth. For example, socio-economic megatrends are driving the development of our amino acids business. Following the successful start-up of a world-scale facility for DL-methionine in Singapore in fall 2014, we are planning to erect another plant at this com- plex by 2019. Global population growth means that demand for animal protein will continue to rise steadily in the future. This is being reinforced by a further trend: In the emerging markets eating habits in the growing middle class are shifting towards western patterns in the wake of rising prosperity and increasing urbanization. Consumption of meat is therefore increasing sharply in Asian cities, leading to more intensive livestock farming in this region. Moreover, environmentally compatible agricultural production that makes more efficient use of resources is becoming more important worldwide for ecological reasons. In addition, in emerging markets there is rising demand 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. The resource efficiency megatrend is the basis for a large number of energy-efficient and environment-friendly products from Evonik. One example is precipitated silica, where we are a market leader. Combining these silicas with silanes allows the manufacture of tires with considerably lower rolling resistance than conventional auto tires, resulting in fuel savings of up to 8 percent. Here, future growth will be supported, among other factors, by the introduction of tire labeling regulations in further countries, for example in Brazil in 2016. To utilize the resultant opportunities, we are increasing our capacity for silica. A new production facility is therefore currently under construction in Americana (Brazil). This will be the first local producer of highly dispersible silica (HD silica) specifically for the South American tire industry. In South America the market for tires with low rolling resis- tance, and thus for HD silica, is growing far faster than the market for normal auto tires. The investments described above are included in our mid-term planning. Delayed realization or abandonment of investment projects, for example because of the political situation in certain countries, would adversely affect planned growth and, in extreme situations, could result in impairment losses and the associated write-downs on facilities or plants under construction. By contrast, new projects could result in additional earnings in some areas. 6. Production As a specialty chemicals company, Evonik is exposed to the risk of business interruptions, quality problems and unex- pected technical difficulties. Our products involve complex production processes, some of them with interdependent production steps. Consequently, disruption and stoppages can adversely affect subsequent production steps and products. The outage of production facilities and interruptions in pro- duction workflows could have a significant negative influence on business and earnings performance, and could also harm people and the environment. Group-wide policies on project and quality management, highly qualified employees and regular maintenance of our plants effectively minimize these risks. Insofar as is economically viable, we take out insurance to cover damage to our plants and sites and production stoppages, so the financial consequences of potential pro- duction risks are largely insured. Nevertheless, there is a risk of unforeseeable individual incidents. EFTA00598751 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Opportunity end risk report Planning/moket inks and OPPoilumin • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 119 7. Other To increase scope for growth and innovations, we are working steadily to improve our cost position, especially through the On Track 2.0 and Administration Excellence pro- grams. Beside the potential to raise strategic flexibility and strengthen the operating units as a result of these programs and other restructuring projects, there are risks relating to their implementation. These include the risk of failing to meet the ambitious timelines, a loss of personnel with key expertise, failure to meet financial targets, and higher restructuring costs. Stringent project management, including involving relevant stakeholders, is used to counter these risks. 8. Energy markets Evonik requires considerable amounts of energy from a wide variety of sources for its chemical facilities and infrastructure. The main sources are natural gas, coal and electricity. Oil only plays a subordinate role in Evonik's energy mix. At several major sites, Evonik generates some of its electricity require- ments itself in resource-efficient co-generation plants. In 2015, we constantly monitored the trend on national and international energy markets, enabling us to respond cost- consciously. In countries where the sourcing of energy is not state-regulated, Evonik procures and trades in energy and— where necessary—emission allowances (CO2 allowances) within the framework of defined risk strategies. The aim is to balance the risks and opportunities of volatile energy markets. Depending on how the general conditions develop, our segments could be faced with additional costs. A further significant drop in the price of oil and coal in the second half of 2015 and high supply on the global gas markets have led to a drop in electricity and natural gas prices, which has also been felt in Germany and Central Europe. Never- theless, natural gas prices at Evonik's sites in Europe and Asia are still far higher than in the USA and Canada. Risks could also arise from the continued rise in the price of emission allowances. In 2015, there was a largely uninter- rupted upward trend in the price of allowances in European emissions trading, unlike the situation for primary and secon- dary energy sources. Looking at the regulatory environment, it remains to be seen which rulings will be applied in Ger- many after 2017 to allocate the cost of renewables among captive energy generators. Overall, we are exposed to fluctuations in the market price and cost of various energy sources as a result of the specific demand/supply situation and political events. These entail both opportunities and risks. 9. Mergers £7 acquisitions Active portfolio management has high priority for Evonik as part of our value-based management approach. We have set out clear procedures for preparing, analyzing and under- taking acquisitions and divestments. In particular, these include clear rules on accountability and approval processes. An intensive examination of potential acquisition targets (due diligence) is undertaken before they are acquired. This involves systematic identification of all major opportunities and risks and an appropriate valuation. Key aspects of this process are strategic focus, earnings power and development potential on the one hand, and any legal, financial and environmental risks on the other. New companies are rapidly integrated into the Group and thus into our risk management and controlling processes. Every transaction of this type entails a risk that integration of the business may not be successful or that integration costs may be unexpectedly high, thus jeopardizing realization of the planned quantitative and qualitative targets such as synergies. Where businesses no longer fit our strategy or meet our sustainable profitability requirements despite optimization, we also examine external options. If a planned divestment is not achieved successfully, this could generate risks that impact the Group's earnings position. 10. Human resources Qualified specialists and managers are the basis for the achievement of our strategic and operational targets and thus a key competitive factor. Both the loss of key personnel and difficulties in attracting and hiring skilled and talented staff could therefore constitute a risk in this context. To ensure that we can recruit and retain qualified staff to meet our future requirements, we offer attractive employ- ment opportunities worldwide, systematic personnel devel- opment, and competitive remuneration. In this way, we retain and foster high-performers and talented employees, and position Evonik as an attractive employer for prospective staff. We also maintain close links to universities and pro- fessional associations to help us recruit suitable youngsters. Both our employer branding and many internal activities are aligned to diversity. The aim is to make Evonik even more attractive to talented specialists and managers. Strategic human resources planning identifies requirements for a five- year period so timely steps can be taken to cover future personnel needs. We have thus largely limited potential human resources risks. o V EFTA00598752 120 ANNUAL REPORT 201S EVONIK INDUSTRIES Opportunities and risks for the development of personnel expenses could come, for example, from future collective agreements. 7.4 Legal/compliance risks and opportunities The opportunities and risks in this category are far more dif- ficult to quantify than planning/market risks, as they not only have financial implications but often also involve reputational risks for the company and/or criminal law consequences. Provisions are set up on our balance sheet to cover the finan- cial impact. These are reflected in our system as reducing risk. In view of this complexity, legal/compliance opportunities and risks are not normally assigned to the opportunity/risk matrix illustrated above, nor are they allocated to the risk quantification classes. Major opportunities and risks for the Group's earnings naturally arise from issues that result in the reversal of or an increase in provisions. 1. Law, regulatory framework and compliance Evonik is exposed to legal risks resulting, for example, from legal disputes such as claims for compensation, and from administrative proceedings and fines. In its operating busi- ness, the Evonik Group is exposed to liability risks, especially in connection with product liability, patent law, tax law, com- petition law, antitrust law and environmental law. Changes in public law could also give rise to legal risks or materially alter such risk positions. As a chemical company with its own power plants, risks of particular relevance here are a possible change in the charges levied under the German Alternative Energies Act (EEG) and amendments to the European emis- sions trading regulations. Further, Evonik may be liable for guarantee claims relating to divestments. Post-transaction management closely monitors any liability and guarantee risks resulting from divestments. We have developed a concept involving high quality and safety standards to ensure a controlled approach to such legal risks. Insurance cover has been purchased for the financial consequences of any damage that may nevertheless occur as a result of damage to property, product liability claims and other risks. Where necessary, Evonik sets up provisions for legal risks. At present, the issues outlined below represent the main legal risks. As a matter of principle, we refrain from evaluating the opportunities and risks of potential legal proceedings or proceedings that have commenced, in order not to influence our position. Evonik is currently involved in three ongoing appraisal proceedings in connection with the settlement paid to former shareholders. The background relates to the following corpo- rate restructuring measures: the domination and profit- and-loss agreement concluded with RUTGERS GmbH (for- merly RUTGERS AG) in 1999, the squeeze-out of non- controlling interests in RUTGERS AG (now RUTGERS GmbH) in 2003, and the squeeze-out of non-controlling interests in Degussa AG (now Evonik Degussa GmbH) in 2006. The appraisal proceedings comprise a court review of the appropriateness of cash settlements or compensation. In connection with the divestment of its former energy activities, Evonik gave the purchaser various indemnities with regard to the Walsum 10 coal-fired power plant that was under construction at the time. As a result of technical problems, the commissioning of this plant was delayed by nearly four years, so commercial operation only started on December 20, 2013. Evonik is of the opinion that the general contractor is responsible for reimbursement of the majority of additional costs and the damage caused by the delay. Arbi- tration proceedings are now pending between the project company and the general contractor. In connection with the divestment of the former carbon black activities, the purchaser has requested indemnification from environmental guarantees relating to alleged infringe- ment of the US Clean Air Act. Evonik is currently engaged in a dispute with the purchaser on this. Following a fine imposed by the EU Commission in 2002 on various methionine producers (including Evonik), the Brazilian antitrust authorities have filed proceedings against Evonik in connection with the delivery of methionine to Brazil. Evonik is of the opinion that a fine cannot be imposed due to the statute of limitations. Furthermore, following completion of administrative pro- ceedings outside Germany, it is not improbable that individual customers could file claims for compensation. With regard to employment law, there are risks relating, for example, to recalculation of pension commitments entered into by Evonik and its legal predecessors. EFTA00598753 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Opportunity end risk repon Piocessiorgenization fists • CONSOU DATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 121 Tax risks relate to differences in the valuation of business processes, capital expenditures and restructuring by the financial authorities and potential retroactive payments in the wake of tax audits. Compliance means lawful and ethically correct business conduct. All employees are subject to the binding regulations on fair treatment of each other and of business partners set out in our Code of Conduct. Risks could therefore result from failure to comply with the corresponding regulations.' To minimize compliance risks, extensive training and sensiti- zation of employees is undertaken at face-to-face training sessions and/or through e-learning programs. 2. Risks relating to the protection of intellectual property and know-how Innovations play a significant part in Evonik's business success. Protecting know-how and intellectual property is therefore of central importance. With markets growing ever closer and the globalization of business, a competent approach to protecting our competitive edge is a key element in our investment activities. The company is also exposed to a risk that intellectual property cannot be adequately protected, even through patents, especially when building new produc- tion facilities in certain countries. Similarly, the transfer of know-how in joint ventures and other forms of cooperation also entails a risk of an outflow of expertise from Evonik. For 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 transferred or disclose it to third parties, thereby damaging Evonik's competitive position. Measures to minimize and avoid such risks are coordi- nated by the Corporate Security Division and the Intellectual Property Management unit. The Corporate Security Division has Group-wide responsibility for protecting Evonik's employ- ees, facilities, shipments and know-how. That includes, for example, the threat of violence, political unrest, sabotage and industrial espionage. Intellectual Property Management pro- vides Group-wide support for the development, protection, strategic use and commercialization of intellectual property, for instance through patents and brands. The approximately 150 employees in this unit are assisted by a global network of correspondent lawyers. 3. Environmental risks (environment, safety, health, quality) Evonik is exposed to risks in the fields of plant safety, product safety, occupational safety and failure to comply with environ- mental regulations. Group-wide policies on the environment, health and safety, and worldwide initiatives taken by the Group and the segments to steadily improve safety in our production facilities effectively reduce these risks. In addition, risks that could arise as a result of the sourcing of raw mate- rials and technical services and their impact on our operating business are systematically identified and evaluated. More- over, audits are conducted at the request of the Executive Board to check the controlled handling of such risks. Further- more, the Group-wide environment and safety management system, which is validated as conforming to international standards, undergoes constant development and improvement. As a responsible chemical company, Evonik ensures that such processes are operated in accordance with the principles of the global Responsible Care initiative and the UN Global Compact. Adequate provisions have been established to secure or remediate contaminated sites where necessary. Alongside the need to adjust environmental provisions identified through structured internal processes, for example as a result of changes in the regulatory framework, further unplanned additions to such provisions may be necessary. 7.5 Process/organization risks 1. General This risk category covers the interface between risk manage- ment and the internal control system (ICS). In this category, risks generally result from specific process shortcomings. Alongside general weaknesses, these include, in particular, risks within the ICS and the accounting-related ICS. Classifi- cation is therefore based on the list of processes drawn up by Corporate Audit. Starting from key corporate processes, the existence of relevant control objectives and standard controls for the main risks identified is checked. In view of the types of risk in this category, a purely qualitative assess- ment is normally used. I 0 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 processes within the organizational units showed very little scope to optimize existing processes because of the efficacy of the current controls. Corresponding scope for improve- ment has been identified. There are therefore no signs of systematic errors in the Evonik Group's ICS. 2. Internal control system for financial accounting The main financial reporting risks are identified in the ICS through a quantitative and a qualitative analysis. Controls are defined for each risk area of the accounting process. Their efficacy is tested at regular intervals and improved where necessary. All elements of the control process are verified by Internal Audit on the basis of random samples. To ensure the quality of financial statements we have a Group-wide policy which defines uniform accounting and valuation principles for all German and foreign companies included in the consolidated financial statements. The major- ity of companies have delegated the preparation of their financial statements to Financial Services. Through systematic process orientation, standardization and the utilization of economies of scale, this leverages sustained cost benefits and also improves the quality of accounting. Financial Services has developed a standardized control matrix for the internal control system for financial accounting. This is already applied to all Group companies in Germany for which Financial Services is responsible. Following successful introduction of the control matrix at the major operating companies in China, Southeast Asia and, in the course of 2015, the USA and Belgium, it will be rolled out successively to further foreign companies. The aim is to ensure a uniform global standard for the internal control system for financial accounting. An external audit is conducted on the annual financial statements of more than 95 percent of companies. All data are consolidated by the Accounting Division using the SAP SEM-BCS system. Group companies submit their financial statements via a web-based interface. A range of technical validations are performed at this stage. Computer- ized and manual process controls and checking by a second person are the key oversight functions performed in the financial reporting process. The preparation of the monthly consolidated income statement and publication of three quarterly reports enables us to gain experience with new accounting issues and provide a sound basis for plausibili- zation of the year-end accounts. The Executive Board receives monthly reports and quarterly reports are submitted to the Audit Committee of the Supervisory Board. Aspects that may represent opportunities or risks for financial reporting in the future are identified and evaluated early through the risk management system. This allows close meshing of risk management with controlling and accounting 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 The capital stock of Evonik Industries AG is €466,000,000 and is divided into 466,000,000 no-par registered shares. Each share entitles the holder to one vote. Under Section 5 Paragraph 2 of the Articles of Incorpo- ration, shareholders do not have any claim to the issue of certificates for their shares unless the issue of a certificate is required by the rules of a stock exchange on which the share has been admitted for trading. There are no different share classes, nor any shares with special rights. Restrictions on voting rights or the transfer of shares In connection with Evonik's employee share programs, there are restrictions on the ability of participating employees to dispose of their shares for a certain time period. In particular, they are required to hold their shares in each case until the end of the next-but-one calendar year after the year of allocation. The Executive Board is not aware of any other restrictions on voting rights or the transfer of shares. EFTA00598755 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT CONSOU DATED FINANCIAL STATEMENTS Talceover.rdeveni information SUPPLEMENTARY INFORMATION 123 Direct and indirect shareholdings that exceed 10 percent of the voting rights Under the German Securities Trading Act (WpHG), every shareholder whose voting rights in the company reach, exceed or drop below a certain level, whether through the purchase or sale of shares or in any other way, must notify the company and the Federal Financial Supervisory Authority (BaFin). Under Section 21 Paragraph 1 of the German Secu- rities Trading Act, the relevant thresholds are 3, 5, 10, 15, 20, 25, 30, 50 and 75 percent of the voting rights. Changes in voting rights between these thresholds are not subject to notification under the German Securities Trading Act so the following data may differ from more recent overviews of the shareholder structure. In compliance with Section 160 Para- graph 1 No. 8 of the German Stock Corporation Act (AktG), the notes to the financial statements of Evonik Industries AG contain an overview of all voting rights notifications sub- mitted to the company. Under Section 289 Paragraph 4 No. 3 and Section 315 Paragraph 4 No. 3 of the German Commercial Code (HGB), all direct and indirect shareholdings exceeding 10 percent of the voting rights must be declared. As of December 31, 2015, the Executive Board had only received notification of one direct shareholding exceeding 10 percent of the voting rights: RAG-Stiftung holds 67.91 per- cent of the company's shares. The Executive Board is not aware of any further direct or indirect holdings in the company's capital stock that exceed 10 percent of the voting rights. Appointment and dismissal of Executive Board members, amendments to the Articles of Incorporation The appointment and dismissal of members of the Executive Board of Evonik Industries AG is governed by Section 84 of the German Stock Corporation Act (AktG) and Section 31 of the German Codetermination Act (MitbestG), in conjunction with Section 6 of the company's Articles of Incorporation. Section 6 of the Articles of Incorporation states that the Executive Board comprises at least two members. Further, the Supervisory Board is responsible for determining the number of members. Changes to the Articles of Incorporation are normally resolved by the Annual Shareholders Meeting. Section 20 Paragraph 2 of the Articles of Incorporation states that, unless mandatory provisions require otherwise, resolutions shall be adopted by a simple majority of the votes cast and—unless, besides a majority of the votes, a majority of the capital is required by law—by a simple majority of the capital stock represented. Under Section 11 Paragraph 7 of the Articles of Incorpo- ration, the Supervisory Board is authorized to resolve on amendments to the Articles of Incorporation, provided they are only editorial. A simple majority vote is sufficient. Authorization of the Executive Board, especially to issue and repurchase shares Pursuant to a resolution of the Shareholders Meeting of March 11, 2013, the Executive Board is authorized until March 10, 2018, subject to the approval of the Supervisory Board, to purchase up to 10 percent of the company's capital stock. Together with other shares in the company which the company has already acquired or still owns, or which are attributable to it pursuant to Sections 71d and 71e of the German Stock Corporation Act (AktG), the shares acquired under this authorization may not, at any time, exceed 10 per- cent of the capital stock. Shares in the company may not be purchased for trading purposes. Subject to the principle of equal treatment (Section 53a AktG), the purchase may take place via the stock exchange or via a public offer to all shareholders for the purchase or exchange of shares. In the latter case, notwithstanding the exclusion of tender rights permitted in specific circumstances, the principle of equal treatment (Section 53a AktG) must also be taken into account. The Annual Shareholders' Meeting on May 20, 2014 ad- opted an amendment to Section 4 Paragraph 6 of the Articles of Incorporation authorizing the Executive Board until May 1, 2019, subject to the approval of the Supervisory Board, to increase the company's capital stock by up to €116,500,000 (Authorized Capital 2014). This authorization may be exercised through one or more issuances. The new shares may be issued against cash and/or contri- butions in kind. The Executive Board is authorized, subject to the approval of the Supervisory Board, to exclude share- holders' statutory subscription rights when issuing new shares in the following cases: • capital increases against contributions in kind • if the capital increase is against cash and the proportionate 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 stock market price of shares already listed on the stock exchange • to exclude fractional amounts arising from the subscrip- tion ratio • insofar as is necessary to grant holders and/or creditors of warrants or conversion rights or obligors of warrant and/ 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 or fulfillment of their warrant or conversion obligations • to grant shares to employees (employee stock), provided that the new shares for which subscription rights are excluded do not in aggregate account for a proportionate share of the capital stock in excess of 1 percent • for the execution of a scrip dividend. 5 E EFTA00598756 124 ANNUAL REPORT 2015 EVONIK INDUSTRIES The proportionate amount of the capital stock attributable to the shares for which subscription rights are excluded, together with the proportionate amount of the capital stock attributable to treasury stock or to conversion and/or war- rant rights or obligations arising from debt instruments, which are sold or issued after May 20, 2014 under exclusion of subscription rights, may not exceed 20 percent of the capital stock. If the sale or issue takes place in application— analogously or mutatis mutandis—of Section 186 Paragraph 3 Sentence 4 of the German Stock Corporation Act (AktG), this shall also be deemed to constitute exclusion of sub- scription rights. The Executive Board is authorized, subject to the approval of the Supervisory Board, to define further details of capital increases out of the Authorized Capital 2014. The authorized capital has not yet been utilized. In connection with the authorization of May 20, 2014 to issue convertible and/or warrant bonds with a nominal value of up to €1.25 billion up to May 1, 2019, the capital stock is conditionally increased by a further C37,280,000 (Conditional Capital 2014). The conditional capital increase will only be conducted insofar as holders or creditors of warrant or conversion rights or obligors of warrant or conversion obligations arising from warrant bonds and/or convertible bonds issued or guaranteed on the basis of the authorization resolved at the Annual Share- holders' Meeting of May 20, 2014, exercise their warrants or conversion rights or, insofar as they have an obligation to exercise the warrants or conversion obligations, meet the obligation to exercise the warrant or conversion obligations and other forms of settlement are not used. The new shares are entitled to a dividend from the start of the fiscal year in which they are issued. Significant agreements concluded by the company that are contingent upon a change of control resulting from a takeover bid Evonik Industries AG is a contracting party in the following agreements that are contingent upon a change of control resulting from a takeover bid: The company has agreed a €1.75 billion syndicated credit facility with its core banks, which had not been drawn as of December 31, 2015. In the event of a change of control resulting from a takeover bid, these banks could withdraw the credit facility. On the terms agreed, this applies if a new major shareholder (apart from RAG-Stiftung and its subsidiaries) acquires direct or indirect voting rights of more than 50 percent in Evonik Industries AG—including through a voting rights agreement with one or more other shareholders (pursuant to Section 30 Paragraph 2 of the German Securities Acquisition and Takeover Act (WpOG)). The company has a debt issuance program to place bonds with a total volume of up to €3 billion. By December 31, 2015 two bonds with a total nominal value of C1.25 billion had been issued under this program. The issue conditions contain a change-of-control clause. In the event of a change of control resulting from a takeover bid and a deterioration in the credit rating of Evonik Industries AG to non-investment grade within 90 days as a result of such change of control, the bondholders have the right to demand redemption of the bond at nominal value plus accrued interest. A change of control is deemed to have occurred if a person (apart from RAG-Stiftung or a (direct or indirect) subsidiary of RAG-Stiftung) or persons acting in a concerted manner directly or indirectly acquire(s) more than SO percent of the voting rights in Evonik Industries AG. Agreements on payment of compensation by the company to members of the Executive Board or other employees in the event of a change of control Change-of-control clauses are only agreed with members of the Executive Board in connection with long-term remuner- ation. A change of control is defined as cases when another company obtains control of Evonik Industries AG as defined in the German Securities Acquisition and Takeover Act (WpOG) or there is a material change in the company's shareholders as a result of a merger or comparable reorgani- zation or business combination. In such cases, the long-term remuneration due to the eligible employees is calculated immediately and paid into their salary account with their next regular salary payment. From the 2013 tranche, the payment is calculated pro rata based on the period between the grant date and the change of control and the four-year performance period. EFTA00598757 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT Remuneration report Remuneration of the Execurive Bard • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 12S 9. Declaration on corporate governance The declaration on corporate governance in compliance with Section 289a of the German Commercial Code (HGB) has been made available to the public on the company's website at governance. 10. Remuneration report The remuneration report outlines the principles of the remu- neration system for the members of the Executive Board and the Supervisory Board, together with the structure and level of their individual remuneration. This report complies with the German Commercial Code (HGB), including the principles set out in German Accounting Standard No. 17 (DRS 17), the International Financial Reporting Standards (IFRS), and the requirements of the German Corporate Governance Code. 10.1 Remuneration of the Executive Board Changes on the Executive Board The appointment of Mr. Patrik Wohlhauser ended on June 30, 2015 with his resignation from the Executive Board. At its meeting on June 25, 2015, the Supervisory Board appointed Dr. Ralph Sven Kaufmann to the Executive Board as Chief Operating Officer for three years from July 1, 2015. At its meeting on September 24, 2015, the Supervisory Board extended the appointment of Mr. Thomas Wessel as Chief Human Resources Officer for a further five years until August 31, 2021. Principles and objectives The remuneration system for the Executive Board is designed to ensure that members receive adequate remuneration for their tasks and responsibilities, and to take direct account of the performance of each member of the Executive Board and Further, extensive information on corporate governance is contained in the Corporate Governance Report in this annual report. of the company. The structure of the remuneration system for the members of the Executive Board of Evonik Industries AG is geared to sustained value creation and performance- oriented management of the company. It comprises a fixed monthly base salary, which takes account of the tasks and services performed by the respective member, and a variable short-term component comprising an annual bonus which is dependent on the attainment of annual performance targets. 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 customary fringe benefits. The remuneration is reviewed regularly by the Super- visory Board, where appropriate on the basis of remuneration reports from independent consultants. These reviews exam- ine the structure and level of remuneration of the Executive Board, particularly in comparison with the external market, and also in relation to remuneration elsewhere in the company. If this reveals a need to adjust the remuneration system, or the level or structure of remuneration, the Executive Committee of the Supervisory Board submits a corresponding proposal to the full Supervisory Board for a decision. The last external review of the remuneration system for appropriateness was in September 2015. Following this review, it was decided that from January 1, 2016 the fixed annual base salary should be increased by €150 thousand for the Chairman of the Executive Board and by €100 thousand for all other Executive Board members. EFTA00598758 126 ANNUAL REPORT 2015 EVONIK INDUSTRIES The chart shows the breakdown of the main remuneration components in 2015, i.e. excluding benefits in kind, other fringe benefits and company pension plans. Structure of remuneration of members of the Executive Board a Lontierm remuneration (agreed target amounts) approx. 37% Axed annual base salary approx. 30% Annual bonus (assuming 100% target attainment) agoprox.33% ' Excluding fringe benefits and retirement pensions. Performance-unrelated components Fixed annual base salary The fixed annual base salary is a cash payment for the fiscal year. It takes account of the scope of responsibility of each Executive Board member and is paid out in twelve equal installments. Benefits in kind and other fringe benefits As benefits in kind and other fringe benefits, members of the Executive Board receive, in particular, a company car with a driver, the installation of telecommunications equipment, and an entitlement to an annual medical check-up. Executive Board members may receive a rent subsidy if performance of their duties requires them to rent a second apartment. Benefits in kind are presented in this remuneration report at the values defined in the tax regulations. Further, members of the Executive Board may receive additional remuneration for offices at Group companies that they hold in the interests of Evonik. Apart from fees for the attendance of meetings, insofar as such fees are paid to Executive Board members, such payments are deducted from their annual bonus or paid over to the company. In this remu- neration report, remuneration for offices held in the interests of the company is included in other fringe benefits. Performance-related components Short-term variable remuneration The performance-related annual bonus is dependent on the attainment of business targets measured by performance indicators (bonus factor) and the attainment of individual objectives (performance factor). The bonus factor and performance factor are multiplied. The level of the bonus factor depends on the achievement of the agreed business targets, and may be between 0 and 200 percent. ROCE, 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 from a comparison with the prior year, and the EBITDA target is derived from corporate planning. The company's accident 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 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 Executive Board and normally have a multi-year context within the target-setting framework. If the personal and business targets are achieved in full, the contractually agreed bonus is paid. If the company's income falls short of the planned level, the bonus factor may—in the extreme case—be zero, regardless of personal attainment. In other words, it is conceivable that a bonus might not be paid for a specific year. The bonus is capped at 200 percent of the target bonus. The business and personal targets set for Executive Board members for the bonus and performance factors are agreed in writing at the start of each fiscal year between the Super- visory Board and each member of the Executive Board and the level of attainment is determined by the Supervisory Board after the end of the year. Long-term variable remuneration (LTI) The members of the Executive Board receive long-term variable remuneration in the form of Long-Term Incentive (LTI) Plans. Following Evonik's stock exchange listing, the structure of the LTI Plans was redefined as from the 2013 tranche. The general reference base for long-term remuner- ation is a sustained rise in the value of the company. EFTA00598759 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT RenwnetretIon report Remuneration of the Exeturive Some • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 127 LT! trenches 2070 through 2012 The [ranches 2010 through 2012 reward achieving or ex- ceeding the operating earnings targets set in the mid-term planning and their impact on the value of the company. Each tranche runs for five years from January 1 of the grant year. Entitlements are based on individually agreed target amounts provided that earnings targets are met. LTI payments are calculated in the year following the end of the perfor- mance period, when the necessary indicators are available. Payments are capped at three times the target amount, and can be zero if the defined lower threshold is not reached. To determine the value of the company as a basis for ascertaining target attainment, the share price at the end of the performance period is used. For this purpose, the average price of shares in Evonik in the three months prior to the end of the performance period is calculated. In addition, divi- dends paid and any capital increases or decreases during the performance period are taken into account. The cumulative discrepancy between planned and actual target attainment in the performance period and the dividends paid in the last year of the performance period are taken into account in the calculation. If there is no share price, the value of equity is determined on the basis of the last share transaction in the last twelve months of the performance period. If there was no share transaction in the last twelve months, a fictitious equity value is used. This is derived by applying a fixed EBITDA multiple to the company's business performance in the last full fiscal year. Given the structure of the LTI Plans 2010 through 2012, they did not meet the definition of share-based payment pur- suant to DRS 17.9 until Evonik Industries AG was listed on the stock exchange. Consequently, they were not classified as share-based payments. In each case, payment was contingent on attainment of the defined performance target and on the condition that the amount available for distribution was not zero. Accordingly, these tranches were only deemed to have been granted in the year in which the respective performance period ended. Granting of payments was further conditional on the fact that the stock exchange listing had not taken place. This final condition was met in 2013, resulting in the reclassification of this remuneration component as a share- based payment. In accordance with DRS 17, the LTI tranches 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. LT! trenches 2073 and subsequent years In view of the stock exchange listing of Evonik Industries AG, the Supervisory Board redesigned the LTI Plan for the period from 2013 so it differs from the tranches 2010 through 2012. Performance is now measured by the absolute performance of Evonik's share price and its performance relative to the MSCI World Chemicals Indexsm. Based on the contractually agreed target amount, which is defined in euros, a number of virtual shares is calculated using the share price at the start of the performance period. This is based on the price in the last 60 trading days before the start of the performance period. The performance period starts on January 1 of the grant year and runs for four years. Since there was no share price at the start of the performance period, as an exception, the virtual shares for the 2013 tranche were calculated from the share price in the first 60 trading days following admission to the stock exchange (April 25, 2013). At the end of the performance period, the starting price of Evonik shares is viewed against the average share price at the end of the performance period, including any dividends per share actually paid in this period. This is compared with the performance of the benchmark index (total shareholder return). The relative performance may be between 70 and 130 percentage points. If the relative performance is below 70 percentage points, the relative performance factor is deemed to be zero. If the relative performance is above 130 percentage points, the relative performance factor is set at 130. The payment is calculated by multiplying the relative performance by the number of virtual shares allocated and the average price of Evonik shares at the end of the performance period. Eligible participants are informed of the outcome after the end of the performance period. They can then opt to accept the payment calculated or to extend the performance period on a one-off basis for a further year. In this case, a renewed calculation is performed at the end of the extended per- formance period. Partial exercise at the end of the original performance period is not permitted. The upper limit for these payments is set at 300 percent of the individual target amount. 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 Dr. Klaus Engel Dr. Ralph Sven Kaufmann Christian Kullmann Thomas Wessel Patrik Wohlhauser Ute Wolf Total 2010' 2011' 2012' 2013' 2014'. 20156 In €'000 In €000 in 0000 No. of No. of virtual virtual shares in €000 shares In C000 479 495 43,133 96 297 25,880 216 297 25,880 478 791 1,089 6,470 101,363 1,028 45,208 - 13,562 617 27,125 617 27,125 154 27,125 2,416 140,145 307 614 614 614 3,172 I No. of virtual shares 47,510 14,253 28,506 28,506 28,506 28,506 175,787 in €'000 1,482 447 893 893 893 893 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 €4,753 thousand. The breakdown of the expense was as follows: €1,204 thousand for Dr. Engel, €102 thousand for Dr. Kaufmann, €329 thousand for Mr. Kullmann, €752 thou- sand for Mr. Wessel, €1,837 thousand for Mr. Wohlhauser, and €529 thousand for Ms. Wolf. Company pension plan The company pension arrangements for Dr. Klaus Engel comprise a percentage of his fixed annual base salary, which is dependent on length of service with the company and is capped at 60 percent. This pension commitment provides for a lifelong retirement pension and surviving dependents' benefits. A defined-contribution system is applicable for Christian Kullmann, Thomas Wessel, Patrik Wohlhauser and Ute Wolf. This is a capital-based system funded by provisions. The company credits a fixed annual amount to their pension account. This comprises 15 percent of their target remuner- ation, i.e. base salary and target bonus (variable short-term remuneration assuming 100 percent target attainment). The guaranteed annual return is 5 percent. The pension benefit comprises the amount that has accrued on the account, i.e. contributions credited to the account plus interest. In the event of death or disability, the amount that would be available on the account on the member's 55th birthday, including projected contributions and interest, is calculated. Payment normally comprises a lifelong pension. Alternatively, Executive Board members may opt for disbursement of part of the capital (maximum 50 percent) in six to ten install- ments. Pension entitlements accrued prior to appointment to the Executive Board are either integrated into the system as an initial contribution or continue to be managed separately. If a member's contract as a member of the Executive Board ends before benefits are payable, no further contributions are credited to the account. However, it continues to earn interest at the common market interest rate based on the average return earned by major German life insurers (at least 2.25 percent M.) until benefits are claimed. Currently, no pension arrangements have been agreed for Dr. Ralph Sven Kaufmann. Members of the Executive Board are entitled to pension benefits after they leave the company if they leave on or after reaching the age of 60 or 62 (depending on their individual pension arrangements) or if they leave as a result of permanent incapacity to work. In addition, Dr. Engel can claim pension benefits from the date of premature termi- nation or non-extension of his contract on the Executive Board, providing he does not give due cause for such termi- nation. Mr. Kullmann, Mr. Wessel and Mr. Wohlhauser have similar claims based on pension entitlements accrued prior to their appointment to the Executive Board. In 2015, the service cost for members of the Executive Board totaled €875 thousand (2014: €2,977 thousand) based on the German Commercial Code (HGB) and €2,261 thou- sand (2014: €1,526 thousand) based on IFRS. EFTA00598761 - TOOUR SHAREHOLDERS a MANAGEMENT REPORT Remuneration report Remuneration of the Executive Board • CONSOUDATED FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 129 Service cost and p value of pension obligations German Commercial Code (HGB) Settlement amount of pension obligations as of Dec. 31 IFRS Service cost Present value of the defined benefit obligation as of Dec. 31 Service cost 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) Christian Kullmann (from July 1, 2014) 217 121 2,787 2,068 414 160 3,732 3,523 2 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 is attributable to differences in the valuation methods used to calculate the settlement amount in accordance with the German Commercial Code and the present value of pension obligations calculated in accordance with IFRS. The present value of pension obligations for members of the Executive Board was €20,914 thousand (2014: €20,065 thousand) based on the German Commercial Code (HGB) and €25,799 thousand (2014: €29,773 thousand) based on IFRS. Provisions for pension obligations to former members of the Executive Board and their surviving dependents as of the reporting date were €38,704 thousand (2014: €28,801 thou- sand) based on the German Commercial Code (HGB) and €50,951 thousand (2014: €43,816 thousand) based on IFRS. Rules on termination of service on the Executive Board Cap on termination benefits in the event of premature termination of term of office In conformance with the German Corporate Governance Code, the employment contracts with all members of the Executive Board provide for a cap on termination benefits. Termination benefits If a member's term of office is prematurely terminated, payments may not exceed two years' remuneration, including variable remuneration components. In no case is remuneration payable for periods beyond the remaining term of contract. The contracts specify that no termination benefits are payable if an Executive Board member's contract is terminated for reasons for which he or she is responsible. The cap on termination benefits is based on total remuneration including fringe benefits in the previous fiscal year and, where appro- priate, the anticipated total remuneration for the current fiscal year. The termination benefit paid to Patrik Wohlhauser does not exceed the cap. In addition, from April 1, 2016 Mr. Wohlhauser will receive contractual transition payments totaling €1,795 thou- sand (past service cost) until he reaches the age of 60. These will be offset against any other earnings he receives in the future. Post-contractual non-compete agreements Post-contractual non-compete agreements have not been concluded with members of the Executive Board. in C000 Fixed remuneration Benefits in kind Annual bonus Pension contributions Long-term 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 Change-of-control clauses are only agreed with members of the Executive Board in connection with long-term remuneration. A change of control is defined as cases when another company obtains control of Evonik Industries AG as defined in the German Securities Acquisition and Takeover Act (WpOG) or there is a material change in the company's shareholders as a result of a merger or comparable reorgani- zation or business combination. In such cases, the long-term remuneration due to the eligible Executive Board members is calculated immediately and paid into their salary account. From the 2013 tranche, the payment is calculated pro rata Remuneration of the Executive Board based on the period between the grant date and the change of control and the four-year performance period. Remuneration of the Executive Board in fiscal 2015 The total remuneration paid to the members of the Executive Board for their work in 2015, including remuneration for the performance of other offices, was €15,608 thousand (2014: €10,677 thousand). In 2015 provisions for bonus payments of €332 thousand for 2014 were reversed. Based on the principles outlined, the breakdown of remu- neration for each Executive Board member in 2015 was as follows: Performance-unrelated remuneration Performance-related remuneration Total .emu motion in accords e with DRS 17 Fixed remuneration Benefits in kind and other fringe benefits Annual bonus LTI' 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 Wohlhausere 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 of E33 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 or corresponding promises from third parties in connection with his or her service on the Executive Board. Further, as of December 31, 2015 there were no loans or advances to members of the Executive Board. Finally, third-party financial loss insurance cover is pro- 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. Remuneration report in accordance with the German Corporate Governance Code The German Corporate Governance Code recommends that listed companies should also disclose the remuneration of the Executive Board on the basis of a defined table showing the granting and allocation of benefits. EFTA00598763 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS - SUPPLEMENTARY INFORMATION 131 Remuneration report Remuneration of the Executive Bard Benefits granted In 4000 Fixed compensation 1,100 Fringe benefits 49 Total 1,149 One-year variable compensation 1,150 Multi-year variable compensation 1,023 1712014 through 2017 1,023 EH 2015 through 2018 - Total 3,322 Service cost 488 Total compensation 3,810 Dr. Klaus Engel Dr. Ralph Sven Kaufmann Chief Executive Officer 2019 2015 2015 (min) 2015 (max) 1,100 1,100 1.100 22 22 22 1,122 1,122 1,122 1,150 2,300 1,488 Chief Operating Officer (from July 1, 2015) 2014 2015 2015 (min) 2015(max) 300 300 300 28 28 28 328 328 328 325 650 3,750 447 1,125 1,488 3,760 1,122 712 712 4,472 1,834 3,750 447 1,125 7,172 1,100 328 2,103 712 7,884 1,100 328 2,103 In C000 Fixed compensation Fringe benefits Total One-year variable compensation Multi-year variable compensation LT! 2014 through 2077 1112015 through 2078 Total Service cost Total compensation Christian Kullmann Thomas Wessel Chief Strategic Officer (from July 1, 2014) Chief Human Resources Officer 2014 2015 2015 (min) 2015(max) 2014' 2015 2015 (min) 2015(max) 300 600 600 600 600 600 600 600 27 55 55 55 91 77 77 77 327 653 655 655 691 677 677 677 325 307 307 959 160 1,119 650 1,300 650 650 893 i — 2,250 — — — 893 - 2,250 2,198 655 4,205 414 414 414 2,612 1,069 1 4,619 614 893 614 1,955 280 2,235 893 2,220 384 2,604 i 677 384 1,061 1,300 2,250 2,250 4,227 384 4,611 merle° Rata Wohllsauser Ute Wolf Chief Operating Officer (until June 30, 2015) Chief Financial Officer 2014 2015 2015 (min) 2015(max) 2014 2015 2015 (min) 2015(max) Fixed compensation 600 300 300 300 600 600 600 600 45 645 1,300 Fringe benefits 34 17 17 17 89 45 45 Total 634 317 317 317 689 645 645 One-year variable compensation 650 325 - 650 650 650 - 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. I S 0 1/4, 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 Fixed compensation Fringe benefits Total One-year variable compensation.'" Multi-year variable compensation L77 2009 through 2073 L77 2010 through 2074 1.100 1,100 1,128 2070 - 420 Total 3,112 Service cost 488 Total compensation 3,600 3,612 712 4,324 2019 2015 2014 600 91 913 653 - 160 913 813 1,170 632 2015 2014 2015 600 600 300 77 34 17 677 634 317 1,825 419 -2 ,239 1,323 280 1,603 1,286 322 1,608 902 402 1,304 1,785 384 2,169 652 585 2014 2015 606 1,170 -1 ,295 1,815 276 349 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 members who left the Executive Board in 2015 Total remuneration of former members of the Executive Board and their surviving dependents was €2,729 thousand in 2015 (2014: €1,374 thousand). 10.2 Remuneration of the Supervisory Board The remuneration of the Supervisory Board is governed by Section 15 of the Articles of Incorporation of Evonik Industries AG. The remuneration system takes account of the responsi- bilities and scope of activities of the members of the Super- visory Board. In addition to reimbursement of their expenses and value-added tax payable on their remuneration and expenses, the members of the Supervisory Board receive a fixed annual payment. Their remuneration does not include a variable component. Different levels of fixed annual remuneration are paid to the Chairman (€200 thousand), Deputy Chairman (€130 thousand) and other members of the Supervisory Board (€90 thousand). Additional remuneration of €45 thousand is paid for chairing the Executive Committee and the Audit Committee, while the deputy chairpersons receive €30 thousand each and other members €30 thousand each. The chairperson of the Finance 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- tional remuneration for the Nomination Committee and the Mediation Committee is €30 thousand for the chairperson, €15 thousand for the deputy chairperson and €15 thousand each for the other members. Members of the Mediation Committee are only entitled to the additional remuneration if the committee meets during the year. Further, members of the Supervisory Board receive a fee of €1 thousand for each meeting of the Supervisory Board and its committees that they attend. If several meetings are held on the same day, this fee is only paid once. Members who only serve on the Supervisory Board for part of a fiscal year receive remuneration on a pro rata basis. This also applies for increases in the remuneration for the Chairman and Deputy Chairman of the Supervisory Board and any increased remuneration paid for membership of or chairing a committee. EFTA00598765 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Remuneration report Renunciation of the Supervisory Board - SUPPLEMENTARY INFORMATION ttl Remuneration of the Supervisory Board Fixed 'enunciation Remuneration for 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 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 (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- visory Board in 2014 and 2015 is presented on a cost basis. For members who joined or left the Supervisory Board during 2014 and 2015, the amounts are calculated on a pro rata basis. As of December 31,2015 there were no loans or advances to members of the Supervisory Board. In 2015, the members of the Supervisory Board did not receive any remuneration for services provided personally, especially consulting and referral services. Finally, third-party financial loss insurance cover is provided for each member of the Supervisory Board to cover their statutory liability arising from their work on the Supervisory 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. I a 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 Weaker global economic growth momentum anticipated for 2016 We anticipate that global economic conditions will once again be characterized by differing regional growth trends in 2016. The continued economic upturn in the industrialized economies will probably be held back by slower growth in the emerging markets. Overall, we expect a slight reduction in global momentum in 2016, with the growth rate dropping to 2.5 percent, compared with 2.6 percent in 2015. We assume that in 2016 the industrialized economies will continue to benefit from an expansionary monetary policy and that the oil price will boost consumer spending. In view of this, we expect the fragile upturn in Europe to continue, although momentum will be lower than in 2015. We anticipate that the German economy will grow by 1.8 percent in 2016, with consumer spending remaining the main growth driver. By contrast, we expect little impetus to come from capital expenditures and foreign trade. GDP forecast for 2016 In % Global GOP 2.5 23 Germany 1.8 1.7 Other European Countries North America 13 1.6 .2 2 2.3 Central and South America Asia-Frack Middle Eat. Afek4 Ad 4A 1.424 -1.0 0 1.0 2.0 3.0 4.0 5.0 We still see the USA as the keystone of global economic growth, but we expect the growth rate to drop to 2.2 percent in 2016. Domestic consumer spending will probably make the biggest contribution here, while capital spending and foreign trade are likely to be lower than in 2015. The present challenges in the emerging markets will presumably continue in 2016 and could even be exacerbated by the Fed's monetary policy. If the Fed raises interest rates as planned in 2016, this could accelerate the outflow of capital from emerging markets and increase the cost of financing their high levels of debt. Overall, we expect economic growth in the emerging markets to be around the 2015 level, but the downside risks remain high. We assume that growth will slow further in China. Given the Chinese government's willingness to take action to sup- port the economy, we expect gross domestic product to rise by 6.5 percent in 2016. However, the projection for the global economy is still marked by considerable uncertainty. Apart from geopolitical conflicts, action by central banks could cause the global eco- nomic development to differ from our expectations. 2016 — 2015 (projected) EFTA00598767 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOU DATED FINANCIAL STATEMENTS Report on expected deve4opmems Eronoemc background - SUPPLEMENTARY INFORMATION 13S Forecast for Evonik's end-customer industries 2016' in % Industry overall 2.2 2.3 Consumer end personal care products Food end enigma reed Automotive end mechanical engineering Construction Elastics and rubber. Pharmaceuticals Decide.' end electronics Metal and oil products Paints and coatings° Paper end printing Agdcukure 0 1.0 10 3.0 4.0 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- customer industries influence the development of Evonik's market environment. While the general industrial trend was weak in 2015 with low growth in output, and only a few industries registering moderate growth, looking ahead to 2016 we only anticipate slight additional impetus in view of the fragile macro-economic environment. Cyclical end- customer industries such as the construction, automotive, mechanical engineering, and electrical and electronics sectors will probably report slower growth. There could be some isolated positive impetus on a regional basis, especially in Europe, which is Evonik's most important market. In other key end-customer industries such as pharmaceuticals, food and animal feed, and the consumer goods and personal care sectors, we assume that the pace of growth will continue. The development of our end-customer industries is likely to have a varied impact on industrial value chains and our business. We anticipate that global inflation will remain at the present low level as a result of slower growth and price pressure from commodities. Moreover, significant deflationary trends could emerge in some areas. We expect that the weaker cyclical momentum and cur- rent increase in supply will continue to have an impact on the raw material markets. Evonik's specific raw materials will be slightly more expensive compared with the end of 2015/early 2016, but overall we expect our internal raw material cost index to remain below the average for 2015. This scenario is based on the assumption that the average oil price will be slightly lower in 2016 than in 2015. Risks here still include geopolitical conflicts, which could adversely affect supply. I j EFTA00598768 136 ANNUAL REPORT 201S EVONIK INDUSTRIES 11.2 Outlook Basis for our forecast: • Global growth of 2.5 percent • Euro/US dollar exchange rate around the same level as 2015 (approx. US51.10) • Internal raw material cost index lower than in prior year Sales and earnings The anticipated weak global growth momentum outlined in the section headed "Economic background" will also affect the development of our business in 2016. Following a very successful year in 2015, we expect to report slightly lower sales in 2016 (2015: €13.5 billion). Thanks to our strong market positions, balanced portfolio and concentration on high-growth businesses, we assume continued high demand for our products and appreciable volume growth despite the difficult macro-economic condi- tions. The new production capacities taken into service in recent years and further intensification of sales activities should also contribute to this. We expect selling prices to develop solidly across most of our product portfolio. How- ever, lower selling prices are anticipated for some businesses in the Nutrition & Care and Performance Materials segments, leading to the forecast slight reduction in overall sales. Nevertheless, we are confident that our business will continue to develop successfully in 2016 and expect to report adjusted EBITDA of between €2.0 billion and €2.2 billion (2015:€2.47 billion). For the majority of businesses in the Nutrition & Care segment we are expecting a stable or slightly positive busi- ness trend compared with the previous year. We assume that the price of essential amino acids for animal nutrition will normalize from the very high prior-year level. Moreover, the baby care business will be affected by persistently high competitive pressure. We expect that the Resource Efficiency segment will continue the previous year's successful business development despite weaker global growth. In the Performance Materials segment, the year-on-year decline in the oil price, in particular, will result in a further reduction in selling prices, putting downward pressure on this segment's operating performance. The continued systematic implementation of our On Track 2.0 and Administration Excellence efficiency enhance- ment programs will also contribute to earnings in 2016. The earnings impact of lower raw material prices on individual businesses will vary, but should largely balance out across the portfolio as a whole. The return on capital employed (ROCE) should again be above the cost of capital in 2016, although it will be slightly lower than in 2015 (16.6 percent) due to the overall reduction in earnings. Financing and investments We anticipate that capital expenditures will be around the 2015 level (€0.9 billion) and thus slightly higher than depreciation and amortization. The free cash flow should therefore be clearly positive again, but will fall short of the high level reported for 2015 (€1.1 billion) owing to the weaker operating earnings trend. Occupational and plant safety We assume that the accident frequency' indicator will be stable in 2016 (2015: 1.0) and expect it to be below the upper limit of 1.3 defined for 2015. Our long-term goal is still a sustained value of less than 1.0. We are retaining our target of a maximum of 48 for the plant safety indicator incident frequency' in 2016 and expect it to be between 48 and 53, a slight improvement compared with 2015 (55). 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 1 million 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 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 Other comprehenshro income after taxes 540 -416 Total comprehensive income 1,542 165 thereof attributable to Non-controlling interests 12 19 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 8 gi LI 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 gi 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 957 7.9 1.177 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 -477 -14 3 12 1,002 Dividend distribution - - -466 - - -466 -11 Purdiase of treasury shares - - - -14 - -14 Share-based payment - 3 - - - 3 12 991 539 1,530 1 - 7,493 - ; Sale of treasury shares - -2 - 14 - Income after taxes - - 991 - - 11 Other comprehensive income after taxes - - 253 - 286 1 540 1,542 -15 7,576 Total comprehensive Income - - 1,244 - 286 12 -16 - 83 Other changes - - 3 - -2 As of December 31, 2015 466 1,166 5,821 - 40 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 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. LI a 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 InE million Nutrition Er Care Resource Efficiency Performance Materials 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 9 7 1 23 - -13 -15 14 163 151 -81 -54 -257 -223 2,465 1,882 19.7 16.7 - - - - 18.2 14.6 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 6 6 2 64 1 - 90 114 12,668 13,173 391 775 310 162 33,576 33,241 Central and South America 2015 954 32 Asia-Pacific Middle East, Africa 178 668 2014 777 29 172 611 2015 2014 2015 1,587 1,564 8 10 6,212 250 323 1 1 Total Group (continuing operations) 2014 12,917 2,695 5,920 161 125 33,576 33,241 E .2S gE r a EFTA00598778 146 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 2. General information Evonik Industries AG is an international specialty chemicals company headquartered in Germany. Its registered office is at Rellinghauser Strafte 1-11, 45128 Essen (Germany), and the company is registered in the Commercial Register at Essen District Court under HR8 No.19474. The present consolidated financial statements of Evonik Industries AG and its subsidiaries (referred to jointly as Evonik or the Group) were prepared by the Executive Board of Evonik Industries AG at its meeting on February 19, 2016, discussed at the meeting of the Audit Committee on Feb- ruary 26, 2016, and presented to the Supervisory Board for approval at its meeting on March 2, 2016. The consolidated financial statements are published in the German Federal Gazette (Bundesanzeiger). 3. Basis of preparation of the financial statements 3.1 Compliance with IFRS As permitted by Section 315 a Paragraph 1 of the German Commercial Code (HGB), the present consolidated financial statements have been prepared on the basis of the Inter- national Financial Reporting Standards (IFRS) and comply with these standards. The IFRS comprise the standards (IFRS, IAS) issued by the International Accounting Standards Board (IASB), London (UK) and the interpretations (IFRIC, SIC) of the IFRS Interpretations Committee (IFRS IC), as adopted by the European Union. 3.2 Presentation of the financial statements The consolidated financial statements cover the period from January 1 to December 31, 2015 and are presented in euros. All amounts are stated in millions of euros million) except where otherwise indicated. In some cases, rounding may mean that the figures in this report do not add up exactly to the totals stated, and percentages do not correlate exactly to the figures presented. 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. The income statement has been prepared using the cost- of-sales method. Expenses are divided by function. The statement of comprehensive income is a reconcilia- tion from income after taxes as shown in the income state- ment to the Group's total comprehensive income, taking into account other comprehensive income. On the balance sheet, assets and liabilities are classified by maturity. They are classified as current if they are due or expected to be realized within twelve months from the reporting date. The statement of changes in equity shows changes in the issued capital, reserves attributable to shareholders of Evonik Industries AG and changes in non-controlling interests in the reporting period. Transactions with shareholders in their capacity as owners are also shown separately here. 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 financial result and income taxes from continuing operations 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 sheet are added to the result. The Notes contain basic information on the financial statements, supplementary information on the above compo- nents of the financial statements and further information such as the segment report. 3.3 New accounting standards Accounting standards to be applied for the first time 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- dated financial statements. Accounting standards that are not yet mandatory The IASB has issued further accounting standards which did not become mandatory in fiscal 2015 or have not yet been officially adopted by the European Union. The accounting standards that could be of relevance for the consolidated financial statements are outlined below. They will probably be applied for the first time from the date on which they come into force. 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 Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments Subject of standard—Expected impact on the consolidated financial statements a: May 6, 2014 The amendments clarify recognition of acquisitions of interests in a joint operation where the b: Jan. 1, 2016 joint operation constitutes a business. They stipulate that the principles of accounting for business c: Jan. 1, 2016 combinations (IFRS 3) also apply for the acquisition of interests in Joint operations of this type. d: Nov. 25, 2015 This amendment is not currently relevant for the consolidated financial statements. a: May 28, 2014/ Sep. 11, 2015 b: Jan. 1, 2018 c: open d: open a: July 24, 2014 b: Jan. 1, 2018 c: open d: open Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture a: Sep. 11, 2014/ Dec. 17, 2015 b: open c: open d: open IFRS 15 contains extensive new rules for the recognition of revenues arising from contracts with customers for all sectors. A five-step model outlines in detail aspects such as identifying distinct performance obligations, the level of the expected consideration, taking into account variable price components, and the distribution of the expected consideration among the Identified performance 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. A change in the timing of revenue recognition may result from identification of an additional 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. 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 is the replacement for IAS 39 Financial Instruments: Recognition and Measurement. The main changes in IFRS 9 compared with the old standard IAS 39 comprise the introduction of completely new classification and measurement rules for financial assets, the introduction of a 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. The purpose of this amendment is to eliminate an inconsistency between IFRS 10 and IAS 28 in the event of the sale or contribution of assets to an associate or joint venture. The amendment provides that in the future the full gain or loss resulting from such transactions should only be recognized if the assets sold or contributed constitute a business as defined in IFRS 3. Otherwise, only partial gain or loss recognition will be permitted. The legal form of the assets sold or contributed is not relevant. In 2015, the IASB postponed the date of first-time application indefinitely. This amendment is not currently relevant for the consolidated financial statements. E S 0 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 Annual Improvement Process (IFRSs 2012-2014 Cycle) Amendments to IAS 1 Disclosure Initiative IFRS 16 Leases a: Sep. 25, 2014 b: Jan. 1, 2016 c Jan. 1, 2016 d: Dec. 16, 2015 Subject of standard—Expected impact on the consolidated financial statements Annual Improvements to IFRSs 2012-2014 Cycle contains amendments to IFRS 5, IFRS 7, IAS 19 and IAS 34. They comprise improvements and clarification of existing standards. The amendments are not currently relevant for the consolidated financial statements. a: Dec. 18, 2014 Through these amendments the IASB eliminates uncertainty relating to the application of the 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. a: Jan. 13, 2016 b: Jan. 1, 2019 c: open d: open Amendments to IAS 12 a: Jan. 19, 2016 Recognition of b: Jan. 1, 2017 Deferred Tax Assets c: open for Unrealised Losses d: open Amendments to IAS 7 a: Jan. 29, 2016 Statements b: Jan. 1, 2017 of Cash Flows c: open d: open The new standard has far-reaching implications for the recognition of leases by the lessee. Under IAS 17, the transfer of substantially all opportunities and risks of the leased asset was decisive for recognition of a lease by the lessee. In future, the lessee will generally recognize each lease on the 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. The amendments clarify the recognition of deferred tax assets for unrealized losses on debt instruments recognized at fair value. The impact on the consolidated financial statements is currently being examined. The changes relate to additional disclosure requirements for notes to financial statements to enable users to evaluate changes in liabilities from a company's financing activities. These amendments affect the disclosures in the notes to the consolidated financial statements. 3.4 Changes in presentation, structure and accounting principles Effective January 1, 2015, the Executive Board of Evonik Industries AG altered the management and portfolio struc- ture to further improve the opportunities for profitable growth. This has greatly increased the entrepreneurial independence of the three chemical segments. In line with this, changes have been made to the presentation of the income statement to ensure clear separation of operational and financing-related income and expenses and to better reflect the reorganized responsibilities. Further, this improves comparability with competitors. The following changes have been made to the presentation: the result from investments recognized at equity is now allocated to income before financial result and income taxes from continuing operations • greater differentiation in the allocation of income and expenses from currency translation and currency hedging; these are recognized in income before financial result and income taxes from continuing operations where they relate to the operating business, and in the financial result where they relate to financing • more transparent presentation of the economic signifi- cance of the results of currency translation and currency 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: Impact of changes in the presentation of the consolidated income statement of the Evonik Group (excerpt) in € million Other operating income Other operating expenses Result from investments recognized at equity Income before financial result and Income texas, continuing operations 2014 Input of change -450 467 14 31 Result from investments recognized at equity -14 Other financial Income Financial result Income before income taxes, continuing operations -17 -31 There was no impact on net income or on basic or diluted earnings per share. For reasons of materiality, investment property, which was previously shown as a separate line item on the balance sheet, is now included in property, plant and equipment. As of December 31, 2015, investment property amounting to €10 million (2014: €10 million) was included in this item. With effect from January 1, 2015, the determination of the discount rate used to value newly acquired pension entitle- ments (service cost) in the euro zone was adjusted. While the discount rate for service cost was previously derived from total cash flows relating to pension entitlements (present employees, vested rights of former employees, retirees), it is now based on cash flows relating to present employees, since only they acquire new entitlements. Before this change, the discount rate as of January 1, 2015 would have been 2.50 percent. The new discount rate for newly acquired entitlements is 2.75 percent. The service cost was therefore €15 million lower as of December 31, 2015. As a change in estimation, this adjustment is entirely prospective. 3.5 Consolidation methods and scope of consolidation Scope of consolidation Alongside Evonik Industries AG, all material German and for- eign subsidiaries directly or indirectly controlled by Evonik Industries AG are fully consolidated in the consolidated finan- cial statements of Evonik Industries AG. Evonik Industries AG controls a company if it is exposed to, or has rights to, vari- able returns from its involvement with the company and has the ability to affect those returns through its power over the company. Joint operations are included in the consolidated financial statements on a pro rata basis. A joint operation is an arrangement where the parties that have joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint ventures and associates are generally recognized at equity. A joint venture is a joint arrangement where the Group has joint control, together with other parties, and has rights to the net assets of the arrangement. Associates are companies where the Evonik Group has a significant influence but does not have control or joint control of financial and operating policies. Companies whose influence on the assets, financial position and earnings of the Group, both individually and in aggregate, is negligible are carried at amortized cost. Changes in the scope of consolidation are outlined in Note 5.1. Consolidation methods The financial statements of the consolidated German and foreign subsidiaries are prepared using uniform accounting and valuation principles. Capital is consolidated at the time of acquisition by offset- ting the carrying amount of the business acquired against the pro rata revalued equity of the subsidiary. Ancillary acquisi- tion costs are not included in the carrying amount of the subsidiary. Instead they are recognized as expense in the 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. 0 EFTA00598782 150 FINANCIAL REPORT 2O1S EVONIK INDUSTRIES Changes in shareholdings in a previously consolidated sub- sidiary that do not result in a loss of control are recognized directly in equity as a transaction between owners. In this case, the shares attributable to the owners of the parent company and to the other shareholders are adjusted to reflect the changes in their respective stakes in the subsidiary. Any difference between this adjustment and the fair value of the consideration paid or received is recognized directly in equity and allocated to the shares attributable to the owners of the parent company. Directly related transaction costs are 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 in accordance with the criteria for recognizing financial instruments. Cash inflows and outflows relating to these transactions are presented in the cash flow from financing activities. A subsidiary must be deconsolidated as of the date on which control is lost. The net assets of the subsidiary and the non-controlling interests (in other words, the parent company's share in the net assets of the subsidiary) are derecognized. The gain or loss on the divestments must be calculated from the Group viewpoint. It is derived from the difference between the proceeds of the divestment (selling price less costs to sell) and the parent company's share in the divested net assets of the subsidiary (including the remaining hidden reserves and liabilities, and any goodwill shown on the balance sheet). The shares in the former subsidiary still held by Evonik are revalued at fair value as of the date on which control is lost. All resulting gains and losses are recog- nized in the income statement as other operating income or other operating expenses. In addition, amounts shown in equity under accumulated other comprehensive income are also reclassified to the income statement, except where another accounting standard requires direct transfer to reve- nue reserves. Intragroup income and expenses, profits, losses, receivables and liabilities between consolidated subsidiaries are fully eliminated. In the case of joint operations, elimination is pro rata. Write-downs on shares in such companies recognized in the separate financial statements are reversed. Joint operations are recognized in the consolidated financial statements at the proportionate amount of their assets and liabilities, revenues and expenses in accordance with Evonik's rights and obligations. The same consolidation principles apply for companies accounted for using the equity method. In this case, any good- will is recognized in the carrying amount of the investment. The financial statements of the companies recognized at equity are prepared using uniform accounting and valuation principles, see Note 3.7 Investments recognized at equity". 3.6 Currency translation The financial statements of Evonik Industries AG and its sub- sidiaries are generally prepared in their functional currency. The functional currency is the currency used in the primary economic area in which the respective company operates. In the separate financial statements prepared by these companies, business transactions in foreign currencies are translated at the exchange rate on the date of initial recogni- tion. Any gains or losses resulting from the valuation of mon- etary assets and liabilities in foreign currencies are recognized in other operating income, other operating expenses, or other financial result at the closing rate on the reporting date. In the consolidated financial statements, the assets and liabilities of all foreign subsidiaries are translated from their functional currency into euros at closing rates on the report- ing date. Goodwill and hidden assets and liabilities from the acquisition of a foreign subsidiary are translated at the closing rate as assets and liabilities of the foreign subsidiary. Income and expense items are translated at average exchange rates for the year. The average annual exchange rates comprise the mean of the exchange rates at month-end over the past 13 months. Translation differences compared to the prior year and translation differences between the income statement and balance sheet are recognized in other comprehensive income. They are only reclassified to the income statement when the foreign subsidiary is divested. The equity of foreign companies recognized using the equity method is translated in the same way. EFTA00598783 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Notes Basis ol preparation ol the financial statement, • SUPPLEMENTARY INFORMATION 151 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 Revenue recognition (a) Sales Sales revenues arise from normal business activity. The Nutrition & Care, Resource Efficiency and Perfor- mance Materials segments mainly generate sales by selling specialty chemicals to industrial customers for further pro- cessing. The Services segment principally provides services for the chemicals businesses, the management holding com- pany, and external customers at Evonik's sites; for further details see Note 9.1. Prices are contractually agreed between the parties to a transaction. Sales revenues are measured as the fair value of the consideration received or to be received less value-added tax and any discounts or bulk rebates granted. The general principle for revenue recognition is that both the revenues and the related costs can be measured reliably. It must also be sufficiently probable that the economic benefit will flow to the company. Revenues from the sale of products are recognized, assuming that the general principles for revenue recognition are met, when the main opportunities and risks associated with title to the products pass to the customer. This is gener- ally determined by the international terms for commercial transactions (Incoterms9. Provisions are established for general risks arising from such sales on the basis of previous experience. Revenues from services are recognized, assuming that the general principles for revenue recognition in the period are met, when the percentage of completion can be reliably measured. Where the provision of services extends over more than one reporting period, revenues are recognized proportionately to the total service to be provided. (b) Other revenues Other revenues are only recognized if they can be determined reliably and it is sufficiently probable that the economic benefit will flow to the company. Interest income is recognized on a pro rata temporis basis using the effective interest method. Income from royalties is accrued on the basis of the commercial terms of the under- lying contract and recognized on a pro rata basis. Dividend income is recognized as of the date of the right to receipt of the payment. Intangible assets Intangible assets are capitalized at acquisition or production cost. Intangible assets with a finite useful life are amortized and an impairment test is conducted if there are indications of a possible impairment, see Note 3.7 Impairment test". Depending on the type of intangible asset, amortization is recognized in the cost of sales, selling expenses, research and development expenses or general administrative expenses. Intangible assets with an indefinite useful life are not amortized; instead they are tested for impairment at least once a year. Goodwill has an indefinite useful life and is tested for impairment at least once a year. E 0 EFTA00598784 132 FINANCIAL REPORT 201S EVONIK INDUSTRIES Franchises, trademarks and licenses are amortized over their estimated useful life of between 5 and 25 years using the straight-line method. Some rights have an indefinite useful life. These are trademarks with no restrictions on their use. They are tested annually for impairment and to check that their useful life is still indefinite. If the assessment of the useful life of such trademarks has altered and is reclassified as finite, their carrying amounts are amortized over their estimated remaining useful life using the straight-line method. Development costs are capitalized if they can be clearly assigned to a newly developed product or process that is technically feasible and is designated for captive use or commercialization. Capitalized development costs mainly relate to the development of new products and are amortized using the straight-line method over their estimated useful life of between 3 and 15 years. The majority of other intangible assets are acquired cus- tomer relationships. These are amortized over their expected useful life. Their useful life is estimated on the basis of contractual data and experience and is generally between 2 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. Property, plant and equipment Property, plant and equipment are carried at acquisition or production cost and depreciated over their useful life. If there are indications of a possible impairment, an impairment test is conducted as outlined in Note 3.7 "Impairment test". The cost of acquisition includes expenses directly attributable to the acquisition. The cost of production of self-manufactured assets comprises all direct costs, plus the systematically allocable fixed and variable material costs and manufacturing overheads. Costs relating to obligations to dismantle or remove non-current assets at the end of their useful life are capitalized as acquisition or production costs at the time of acquisition or production. Acquisition and production costs may also include transfers from gains and losses on cash flow hedges entered into to hedge foreign currency exposures in connection with the purchase of plants, which were recognized in the statement of comprehensive income until they were reclassified to property, plant and equipment. Borrowing costs that can be allocated directly to the acquisi- tion, construction or production of a qualifying asset are included in the cost of acquisition or production. A qualifying asset is an asset for which more than a year is required to get it ready for its intended use. Government grants for the purchase or construction of property, plant and equipment reduce the cost of acquisition or production of such assets. They are reflected in the income statement over the useful life of the assets through lower depreciation. Property, plant and equipment are depreciated using the straight-line method over the expected useful life of the assets. Useful life of property, plant and equipment in years Buildings Plant and machinery Other plant, office furniture and equipment 5-50 2-25 3-25 If major components of an asset have different useful lives, they are recognized and depreciated separately. Spare parts and servicing equipment that meet the require- ments for recognition as property, plant and equipment are recognized as such, rather than as inventories. Minor repairs and other maintenance work are expensed in the period in which they are incurred. If there is a high probability that the project will be real- ized, costs incurred for planning and pre-engineering work for capital expenditure projects are capitalized. Depreciation is recognized in line with the useful life of the project. Gains and losses from the disposal of property, plant and equipment are calculated as the difference between the net proceeds of sale and the carrying amount and recognized in other operating income or other operating expenses. Impairment test If there are indications of possible impairment, an impairment test is conducted on intangible assets, property plant and equipment in accordance with IAS 36 Impairment of Assets. 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 Note, Basis ol preparation ol the financial statements • SUPPLEMENTARY INFORMATION 153 The impairment test comprises comparing the recoverable amount of the CGU/group of CGUs with its carrying amount. The recoverable amount is determined as the higher of the fair value less costs of disposal and the value in use of the CGU/group of CGUs. An impairment loss is recognized if the recoverable amount of a CGU/group of CGUs is below its carrying amount. The impairment loss is reversed—except in the case of goodwill—if the reason for the original impair- ment charge no longer applies. When testing goodwill for impairment, the recoverable value of goodwill is determined from the fair value less costs of disposal of the relevant segment. The fair value less costs of disposal is determined as the present value of future cash flows using a valuation model and on the basis of non- observable inputs (Level 3 of the fair value hierarchy). Future cash flows are derived from the current three-year mid-term plan. The mid-term planning is based on a mixture of expe- rience and expectations of future market trends. The main economic data, such as growth in gross domestic product, the development of exchange rates, raw material and energy prices and the increase in wages and salaries used in the mid- term planning are derived from internal and external market expectations and are set centrally by Evonik. The specific growth rates for individual segments are derived from expe- rience and future expectations; a terminal growth rate is also assumed. The expected future cash flows are discounted using the weighted average cost of capital (WACC) after taxes. WACC is determined for each segment on the basis of a capital asset pricing model and is the weighted average cost of debt and equity. The cost of equity is determined from the risk-free interest rate and a risk premium. An identical thirty-year risk- free interest rate is used for all segments. The risk premium is derived by multiplying the beta factor by the market risk premium. The cost of debt comprises a risk-free interest rate plus a premium for the credit risk, taking into account the average tax rate. The beta factor, the credit risk premium and the capital structure are obtained from the capital market by comparison 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%) 2015 2014 Nutrition & Care 7.19 7.01 Resource Efficiency 8.38 9.28 Performance Materials 8.83 8.58 Services 8.16 8.31 Corporate, other operations 7.75 8.06 The carrying amounts of goodwill are allocated among the segments for the purpose of impairment testing. The good- will allocated to the three chemical segments principally relates to earlier acquisitions of shares in Evonik Degussa GmbH (Evonik Degussa), Essen (Germany). In the segment reporting, it is assigned to 'Corporate, consolidation'. Changes in the allocation of this goodwill compared with the previous Terminal growth rate (N%) Goodwill (Int militia) 1 2015 2014 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 Dec. 31, 2015 1,023 1,186 492 63 Oec. 31, 2014 1,021 892 717 51 14 year resulted from the reorganization of various activities, see Note 9.1. All other goodwill is recognized immediately in the segments. For impairment testing of other intangible assets, and property, plant and equipment, the recoverable amount is normally determined by calculating the value in use of the CGU/group of CGUs. E 0 io EFTA00598786 154 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Investments recognized at equity Associates and joint ventures are generally recognized using the equity method if Evonik is able to exert a significant influence or exercises joint control. Initially they are measured at cost of acquisition. The cost of acquisition also contains all ancillary acquisition costs directly attributable to the investment. For initial measurement, the difference between the cost of acquisition and the investor's share in the investee's equity must be determined. This is then analyzed to see whether it contains hidden reserves or hidden liabilities. Any positive difference remaining after allocation of hidden reserves or liabilities is treated as goodwill and recognized in the carrying amount of the investment. Negative differences are included in income by increasing the carrying amount of the investment. Starting from the cost of acquisition of the investment, in subsequent periods its carrying amount is increased or reduced by the investor's share in the investee's net income. Further adjustments to the carrying amount of the invest- ment are necessary if the equity of the investment alters as a result of items contained in other comprehensive income. Subsequent measurement must take into account deprecia- tion of the hidden reserves identified at the time of initial recognition, which must be deducted from the investor's share in the investee's net income. To avoid dual recognition, any dividends received must be deducted from the carrying amount. If there are indications of a possible impairment, the investment must be tested for impairment, see Note 3.7 "Impairment test". There is no separate impairment test for the goodwill. Rather, the impairment test is performed for the entire carrying amount of the investment. Accordingly, impairment losses are not allocated to the goodwill included in the carrying amount of the investment and can thus be reversed in full in subsequent periods. Inventories Inventories are measured at the lower of cost and net realiz- able value. The historical cost of acquisition or production is the upper limit. The net realizable value corresponds to the selling price in the ordinary course of business less the production and selling expenses incurred prior to sale. The cost of inventories of similar structure or for similar applications is determined uniformly as an average or using the first-in first-out method. The cost of production of finished goods and work in progress comprises the cost of raw materials and supplies, directly attributable personnel expenses, other direct costs and fixed and variable overheads that can be systematically assigned to production (based on normal oper- ating capacity). The cost of inventories may also contain gains and losses from cash flow hedges entered into to hedge the exchange rates or price of goods in connection with the procurement of raw materials and which were included in other comprehensive income in the statement of comprehen- sive income until they were reclassified to the inventories acquired. Cash and cash equivalents This item contains checks, cash and cash equivalents and balances held at banks. It also contains highly liquid financial instruments with a maturity, calculated as of the date of purchase, of no more than three months, provided that they can be converted into cash and cash equivalents at any time and are only subject to negligible fluctuations in value. They are measured at fair value. Provisions for pensions and other post-employment benefits Provisions for pensions and other post-employment benefits are measured using the projected unit credit method for de- fined benefit obligations in accordance with IAS 19 Employee Benefits. This method takes account of future salary and pension increases as well as pension obligations and accrued entitlements as of the reporting date. In Germany, valuation is based on the biometric data in the 2005 G mortality tables published by Klaus Heubeck. For the companies in the UK, the S1PXA tables are used, and for the USA PPA mortality tables are used. Pension obligations in the remainder of the Group are determined using country-specific parameters and measurement principles. Actuarial gains and losses relating to pension obligations and income from plan assets (apart from interest income) are derived from the difference between the expected pension obligations and the actual obligation calculated at year end, and from deviations between the expected and actual fair value of plan assets calculated at year end. EFTA00598787 - TOOUR SHAREHOLDERS - MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Not•a Sinn of piepaiatioo of the financial statement, • SUPPLEMENTARY INFORMATION 1SS Changes that arise during a year as a result of actuarial gains/ losses relating to pension obligations, income from plan assets (excluding interest income), changes in the asset ceiling (excluding interest cost) and income from claims to refunds (excluding interest income) are offset directly in other com- prehensive income. The benefit obligations at year end are compared with the fair value of the plan assets (funded status). Pension provisions are derived from this, taking the asset ceiling into account. Defined contribution plans result in an expense in the period in which the contribution is made. Defined contribu- tion plans exist for both company pension plans and state pension plans (statutory pension insurance). Other provisions Other provisions are liabilities of uncertain timing or amount. They are established to cover a present legal or constructive obligation to third parties based on past events that will prob- ably lead to a cash outflow. If there are several obligations of the same type, the probability of a cash outflow is calculated for these obligations as an aggregate. It must also be possible to reliably estimate the level of the obligation. Provisions are based on the probable settlement obliga- tions and take account of future cost increases. Non-current provisions are discounted. Current provisions and the current portion of non-current provisions are not discounted. Provi- sions are adjusted over time to take account of new findings. Reversals of provisions are recognized as income in the functional areas to which the original expense for the provi- sion was charged. Long-Term Incentive Plans are included in personnel- related provisions. These are performance-related remuner- ation plans for Evonik's executives and members of the Exec- utive Board. The resulting obligations are determined as a cash compensation payment and expensed in accordance with IFRS 2 Share-based Payment. Restructuring provisions are only established if construc- tive obligations exist on the basis of a formal, detailed plan and those affected have been given justifiable expectations that the restructuring will be carried out. Provisions relating to legal risks are allocated to the various categories of provisions on the basis of their type. They contain appropriate expenses for, e.g. court and lawyers' fees, payments to plaintiffs and any payments for settlement or indemnity. The level of such provisions is based, among other factors, on the type of dispute or claim, status of the legal proceedings, the opinion of lawyers, experience of comparable cases and probability assumptions. Deferred taxes, other income taxes In compliance with IAS 12 Income Taxes, deferred tax assets and liabilities are established for temporary valuation and recognition differences between the assets and liabilities recognized in the balance sheets prepared for tax purposes and those prepared in accordance with IFRS. Tax-deductible loss carryfowards that will probably be utilized in the future are capitalized at the amount of the deferred tax asset, taking into account whether they can be carried forward for a limited or unlimited period. The recognition of deferred tax assets at companies with tax-deductible loss carryforwards is based, on the one hand, on current planning calculations, which are normally for a five-year period, and on the other hand, the availability of sufficient temporary tax differences. Deferred tax assets are recognized where it is probable that future taxable income will be generated, which can cover these temporary differences. Where the realization of deferred tax assets is unlikely, they are written down. Deferred tax assets and liabilities are netted if the com- pany is permitted to net other income tax assets and liabilities and if the deferred tax assets and liabilities relate to income taxes in the same tax jurisdiction. The tax rates used to calculate deferred taxes are those valid under current legislation or that have been announced as being applicable as of the date when the temporary differences will probably be settled. The overall tax rate used to calculate deferred taxes for companies in Germany is 30 percent. In addition to 15 percent German corporation tax, the tax rate includes a solidarity surcharge of 5.5 percent of the German corporation tax and average trade tax of around 14 percent. The tax rates used for foreign companies are their national tax rates. These vary between 10 percent (Hungary) and 40 percent (USA). E a 0 EFTA00598788 156 FINANCIAL REPORT 201S EVONIK INDUSTRIES Other income taxes for the reporting period and previous periods are recognized on the basis of the expected payment or refund. They are calculated using the company-specific tax rates applicable on the reporting date. Uncertain tax assets and liabilities are recognized as soon as their probability of occurrence is more than 50 percent. Uncertain income tax positions are recognized on the basis of their most likely amount. Financial instruments Financial instruments comprise contractually agreed rights and obligations resulting in an inflow or outflow of financial assets or the issue of equity instruments. They are divided into derivative and non-derivative financial instruments and are recognized on the balance sheet as financial assets or financial liabilities or as trade accounts receivable or trade accounts payable. Financial instruments are initially measured at fair value plus any directly attributable transaction costs. Transaction costs for financial instruments held at fair value through profit or loss are included directly in the income statement. To measure non-current financial instruments that do not bear interest at market rates, the expected future cash flows are discounted to the date of acquisition using the effective interest rate (present value). The effective interest rate takes account of all directly attributable fees that are by nature interest. Subsequent measurement is based on the classifica- tion of the financial instruments. (a) Non-derivative financial instruments Evonik classifies non-derivative financial instruments as financial assets in the categories loans and receivables or available-for-sale. They are initially recognized at the settle- ment date. Financial assets are derecognized when the con- tractual rights to receive payments lapse or are transferred and Evonik has transferred substantially all opportunities and risks associated with ownership. There were no instances where the Group sold financial assets and the assets were still reported in the financial statements on the basis of continuing involvement. Non-derivative financial instruments that constitute finan- cial liabilities are recognized at amortized cost. Financial liabilities are derecognized when the obligation has been settled or canceled, or has expired. The categories used by the Group are outlined below: Loans and receivables principally comprise trade accounts receivable and loans. The assets assigned to this category are valued at amortized cost using the effective interest rate method. If there are objective indications based on historical empirical values that it will not be possible to collect the full amounts due under the customary conditions, an impair- ment loss is recognized. This is measured as the difference between the carrying amount of the asset and the present value of the estimated future payments calculated using the original effective interest rate. Impairment losses are recog- nized in the income statement. If the original reason for the impairment loss no longer applies, it is reversed to income, but only up to the amortized cost. Available-for-sale assets comprise equity instruments that are not consolidated or recognized at equity, and other secu- rities. If no fair value is available for such assets or the fair value cannot be determined reliably, for example, in the case of equity instruments that are not listed on a stock exchange, the assets are recognized at amortized cost. Changes in the fair value are recognized in other comprehensive income, taking into account deferred taxes. Financial assets are exam- ined for objective indications of impairment on every report- ing date. A material or lasting reduction in the fair value to below the cost of acquisition is regarded as an indication of impairment. In the case of equities, a decline in the fair value of at least 20 percent compared with the cost of acquisition is regarded as material. In such cases, the corresponding losses are derecognized from other comprehensive income and recognized in the income statement. If the reason for the impairment loss no longer applies, the reversal is recognized in other comprehensive income. Only debt instruments that are allocated to this category are written back by up to the amount of the original impairment in the income statement. Impairment losses are not reversed if they apply to invest- ments and other financial assets whose fair value cannot be reliably determined. The category at amortized cost mainly refers to trade accounts payable and loans. The liabilities assigned to this category are valued at amortized cost using the effective interest rate method. EFTA00598789 - TO OUR SHAREHOLDERS - MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Note, Resit of ptepetetion of the tinencial sotemeno • SUPPLEMENTARY INFORMATION 1T/ b) Derivative financial instruments Derivative financial instruments are used to hedge the risk of changes in exchange rates, the price of commodities and interest rates. Hedging instruments are recognized on the balance sheet either on a stand-alone basis or as a valuation unit with the corresponding hedged items (hedge account- ing). Initial recognition is on the trading date. If no stock exchange or market price is available for the derivative from an active market, the fair value is determined using financial valuation methods. The market price of options is determined using established option pricing models. Commodity deriva- tives are valued with the aid of spot prices and forward rates while interest rate derivatives are valued by discounting future cash flows. Stand-alone financial derivatives are assigned to the category at fair value through profit or loss and classified as held for trading. Financial instruments assigned to this category are recognized at fair value on each reporting date. Any gain or loss resulting from a change in their fair value is recognized in the income statement. Both the hedging instrument and the hedged item have to meet specific criteria to qualify for hedge accounting. In par- ticular, hedge accounting requires extensive documentation of the hedging relationship, together with evidence that the expected and actual effectiveness of the hedge is between 80 and 125 percent. A derivative no longer qualifies for hedge accounting if these conditions are not fulfilled. In the case of cash flow hedges, hedge accounting must also be halted if the forecast transaction no longer appears probable. In such cases, the amount recognized in other comprehensive income is reclassified to the income statement. Depending on the type of hedge, hedging instruments and the associated hedged items for which hedge accounting is used, are valued as outlined below: The purpose of fair value hedges is to hedge the fair value of assets or liabilities reflected on the balance sheet. Changes in the fair value of the hedging instrument as well as changes in the fair value of the hedged item are recognized in the income statement. If off-balance-sheet firm commitments are hedged, changes in the fair value of the firm commitment resulting from changes in the hedged risk give rise to recog- nition of an asset or a liability which affects income. In view of this method, changes in the value of the hedged item and the hedge cancel each other out in the income statement. The purpose of cash flow hedges is to minimize the risk of volatility of future cash flows from a recognized asset or liability or a forecast transaction that is considered highly probable. The effective portion of changes in the fair value of a hedging instrument is recognized in other comprehensive income and the ineffective portion of the change in value is recognized in the income statement. Amounts recognized in other comprehensive income are reclassified to the income statement as soon as the hedged item has an impact on the income statement. In the case of interest rate hedges, such amounts are included in net interest income or expense, while in the case of sales hedges they are included in the corresponding sales revenues, and hedges on the procure- ment of goods are included directly in the cost of sales. If the hedged future transaction comprises a non-financial asset or a non-financial liability, the gain or loss previously recognized in other comprehensive income is included in the cost of acqui- sition of the asset or liability when it is initially recognized. The purpose of a hedge of a net investment is to reduce the foreign currency risk involved in an investment in a com- pany whose functional currency is not the euro. Such hedges are accounted for in the same way as cash flow hedges. Gains and losses recognized in other comprehensive income are reclassified to the income statement when the foreign sub- sidiary is divested or investment in it is reduced. Leasing A lease comprises an agreement that transfers the right to use an asset for a certain period in return for one or more payments. The Group is mainly party to operating leases as either lessor or lessee. The related income and expenses are recognized in the income statement in the period in which they are received or incurred. Assets held for sale and the associated liabilities Non-current assets are classified as held for sale if the corre- sponding carrying amount is to be realized principally through a sale transaction rather than through continued use. Such assets must be available for immediate sale in their present condition, on terms that are usual and customary for the sale of such assets, and sale must be highly probable. If the associated liabilities are to be sold with the asset as part of the transaction, these must also be presented separately. E t. 0 EFTA00598790 158 FINANCIAL REPORT 2015 EVONIK INDUSTRIES The assets and liabilities must be measured in accordance with the relevant accounting standards immediately before initial classification as held for sale. They are subsequently valued at the lower of the carrying amount and fair value less costs to sell. Where the assets and liabilities do not fall within the scope of the measurement criteria set out in IFRS 5 Non-current Assets Held for Sale and Discontinued Opera- tions, subsequent revaluation is performed in accordance with the relevant accounting standards. Unless they are classified as discontinued operations, the results of the valuation and the sale of the asset are still included in income from continuing operations. Discontinued operations A discontinued operation is either a major line of business or geographical area of the company that is to be sold or shut down on the basis of a single coordinated plan, either as a whole or in parts, or a subsidiary acquired with a view to resale. The income from the operating activities and the measure- ment and divestment of discontinued operations is reported separately from the continuing operations on the income statement. Similarly, the cash flow from the operating activi- ties of discontinued operations is reported separately from the continuing operations in the cash flow statement. Determination of fair value The fair value is the price that would be received for the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. It is therefore an exit price based on a hypothetical transaction on 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 has access is used. Transaction costs are not included in fair value. They are accounted for as prescribed by the applicable accounting standard. The fair value of non-financial assets is determined as the best use from a market perspective; this may differ from current use of the asset. In the measurement of financial assets and liabilities, the credit default risk is taken into account. Fair value measurement is based on a three-level hierarchy: Where available, the fair value is determined from the quoted prices for identical assets or liabilities in an active market without adjustment (Level 1). If such data are not available, measurement based on directly or indirectly observable inputs is used (Level 2). In all other cases, valuation methods that are not based on observable market data are used (Level 3). Where input factors from different levels are used, the level applicable for the lowest material input factor is determined and the overall fair value is assigned to this level. Contingent liabilities, contingent receivables and other financial commitments Contingent liabilities, except for those recognized in connec- tion with a business combination, are possible or present obligations arising from past events where an outflow of resources is not improbable but which are not recognized on the balance sheet. Contingent receivables are possible assets arising from past events, which cannot be recognized on the balance sheet, and whose existence will be confirmed by the occur- rence or non-occurrence of one or more uncertain future events that are not fully under the company's control. A con- tingent receivable is indicated where an inflow resulting from its economic benefits is probable. Other financial commitments result from non-onerous executory contracts, continuous obligations, statutory require- ments and other commercial obligations that are not already included in the liabilities shown on the balance sheet or in contingent liabilities and that are of significance for an assess- ment of the company's financial position. 4. Discussion of assumptions and estimation uncertainties The preparation of consolidated financial statements involves assumptions and estimates about the future. Evidently, the subsequent circumstances do not always match the estimates made. Adjustments to estimates are recognized in income as 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 N•t,, Discussion of ossumocions end estaimion uncenointies SUPPLEMENTARY INFORMATION 159 (a) Impairment testing of goodwill Testing goodwill for impairment also involves assumptions and estimates regarding, for example, future cash flows, expected terminal growth rates and discount rates. The rele- vant assumptions may change, leading to impairment losses in future periods. In the impairment test on goodwill in the Performance Materials segment, the recoverable amount exceeded the carrying amount of the segment by €119 million. The reduc- tion in this amount compared with the previous year was mainly due to the new management and portfolio structure introduced on January 1, 2015. In this context, the segment was defined essentially as a product-oriented, energy and raw material intensive supplier that will in future concentrate on securing and extending its good market positions. This included reallocation of operations between the segments, see Note 9.1, which had a negative impact on the difference between the recoverable amount and carrying amount of the Performance Materials segment. The recoverable amount would correspond to the carrying amount of the segment if the weighted average cost of capital after taxes increased by 0.4 percentage points, or if there was a reduction of 5.0 per- cent in the net cash flow or of 0.5 percentage points in the terminal growth rate. In the Nutrition & Care, Resource Efficiency and Services segments, a relative increase in the weighted average cost of capital after taxes of 10 percent or a reduction of 10 percent in the net cash flow or terminal growth rate would not result in an impairment loss. (b) Impairment testing of deferred tax assets Deferred tax assets may only be recognized if it is probable that sufficient taxable income will be available in the future. Deferred taxes are calculated on the basis of the tax rates applicable on the date when temporary differences are likely to be reversed. If these expectations are not met, an impairment loss must be recognized in income for the deferred tax assets. (c) Uncertain income tax positions Group companies are liable to pay income tax in many coun- tries around the world. When evaluating global income tax assets and liabilities, there may be some uncertainty relating, in particular, to the interpretation of tax regulations. It cannot be ruled out that the fiscal authorities will take a different view on the correct interpretation of tax regulations. Changes in assumptions regarding the correct interpretation of tax regulations, for example, as a result of changes in legal deci- sions, are reflected in the recognition of uncertain income tax assets and liabilities for the corresponding fiscal year. (d) Impairment of other assets Estimates are made about the useful life, depreciation/amor- tization period and value of other intangible assets, property, plant and equipment, investments, and loans and receivables. These estimates are based on experience and planning data, which contain assumptions on business conditions, sector trends and the creditworthiness of customers. If there is a considerable change in such assumptions or circumstances, the estimates have to be reviewed. This may result in impairment of the related assets. (e) Valuation of provisions for pensions and other post-employment benefits The valuation of provisions for pensions and other post- employment benefits is subject, among other things, to assumptions about discount rates, expected future salary and pension increases, the cost trend for healthcare, and mortality tables. The actual data may differ from these assumptions as a result of changes in economic or market conditions. Sensitivity depends on the interest rate as of December 31 of the respective fiscal year, which is used as the discount rate, see Note 7.8. A reduction of 1 percentage point in the Group-wide discount rate, assuming other parameters remain unchanged, would increase the present value of the defined benefit obli- gation by €1,906 million (2014: €1,976 million). Conversely, increasing the discount rate by 1 percentage point, assuming other parameters do not change, would decrease the defined benefit obligation by €1,456 million (2014: €1,518 million). A reduction of 1 percentage point in the assumed Group- wide salary increases would reduce the defined benefit obligation by €162 million (2014: €185 million). Conversely, assuming other parameters remain unchanged, a rise of 1 per- centage point in the assumed Group-wide salary rises would increase the defined benefit obligation by €175 million (2014: €198 million). E 0 EFTA00598792 160 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 1 A reduction of 1 percentage point in the assumed Group- wide pension increase, assuming other parameters remain unchanged, would reduce the defined benefit obligation by €841 million (2014: €857 million). Conversely, assuming other parameters remain unchanged, a rise of 1 percentage point in the assumed Group-wide pension rises would increase the defined benefit obligation by €999 million (2014: €1,025 million). Assuming all other parameters remain unchanged, a reduc- tion of 20 percent in mortality in the retirement phase would increase the defined benefit obligation by €762 million (2014: €768 million). If the trend in healthcare costs were to increase by 1 per- centage point, the accumulated healthcare benefit obligation 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). (f) Valuation of other provisions Other provisions, especially provisions for recultivation and environmental protection, in connection with legal risks and for restructuring are naturally exposed to significant fore- casting uncertainties regarding the level and timing of the obligation. The company has to make assumptions about the probability of occurrence of an obligation or future trends, such as value of the costs, on the basis of experience. Non-current provisions in particular are exposed to fore- casting uncertainties. In addition, the level of non-current provisions depends to a large extent on the selection and development of the market-oriented discount rate. The Group uses different interest rates for different currencies and terms to maturity. 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 Notes Changes in the Group • SUPPLEMENTARY INFORMATION 161 Further information on acquisitions and divestments in 2015 can be found in Note 5.2. The following list shows Evonik's shareholdings in accor- dance with Section 313 Paragraph 2 of the German Commer- cial Code (HGB). The shareholdings have been calculated in accordance with Section 16 of the German Stock Corporation Act (AktG). Accordingly, the calculation includes shares held by the 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 parent company, a subsidiary included in the consolidated financial statements or a person acting on behalf of these companies. German subsidiaries that make use of the provisions of Sections 264 Paragraph 3 and 264b of the German Commer- cial Code (HGB) on exemption from disclosure of annual financial statements and the preparation of notes to their financial statements and a management report are indicated. 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 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 gR 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 alternative investment fund (AIF) with fixed investment terms pursuant to Section 284 of the German Capital Investment Act (KAGB). It was established by Evonik at Deutsche Asset & Wealth Management Investment GmbH (DeAWM), Frank- furt am Main (Germany). Evonik does not hold any shares in this company but it is the sole investor and owns all the investment certificates. Evonik is therefore fully exposed to the opportunities and risks of this special purpose entity. Evonik plays a role in setting the investment strategy by defining the basic focus of the fund in the Investment Com- mittee and through general and special contractual terms. Contractually, Evonik is the principal and DeAWM is the agent. The fund therefore constitutes a structured entity, which has to be fully consolidated as Evonik exercises control. No financial or other assistance has been granted or pledged. EFTA00598797 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Non Changes in the Group • SUPPLEMENTARY INFORMATION US Joint operations recognized on a pro rata basis Name of company Shareholding 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 shareholding and proportion of the voting rights. The purpose of Neolyse Ibbenburen GmbH is the joint production of potassium hydroxide solution and chlorine for use by Evonik and its partner Akzo Nobel Industrial Chemicals GmbH. The purpose of StoHaas Monomer GmbH & Co. KG and its wholly owned subsidiaries StoHaas Marl GmbH, ROH Delaware LLC and ROH Delaware LP is joint production of acrylic acid (CAA) for use by Evonik and its partner Dow Chemicals Inc. (formerly ROHM AND HAAS TEXAS, INC.). Companies recognized at equity Name of company joint ventures Other countries CyPlus Mesa, MI. de C.V. Daicel-Evonik Ltd. Evonik Headwaters LLD Evonik Lansing (Rlzhao) Chemical Industrial Co., Ltd. Evonik Trelbacher GmbH LiteCon GmbH Rusferm Limited Saudi Acrylic Polymers Company, Ltd. Associates Germany ARG mbH & Co. KG T0V NORD InfraChem GmbH & Co. KG T0V NORD InfraChem Verwaltungsgesellschaft mbH Registered office Shareholding in% Mexico City (Mexico) Tokyo (Japan) Milton Keynes (UK) Riahao (China) Trelbach/Althofen (Austria) Hanigtherg/MUrzzuschlag (Austria) Nicosia (Cyprus) Ju bail (Saudi Arabia) 50.00 50.00 Duisburg Marl Marl 50.00 50.00 50.00 49.00 49.00 25.00 19.93 49.00 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 lane ventures Kiev (Ukraine) 100.00 Germany 50.00 dev.log GmbH (in formation) Niederkassel 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 the following company, which is defined as a large stock corporation in accordance with Section 267 Paragraph 3 of the German Commercial Code (HGB) (disclosure pursuant to Section 313 Paragraph 2 No. 4 Sentence 2 German Commer- cial Code (HGB)): Borussia Dortmund GmbH & Co. KGaA, Dortmund (Ger- many) (shareholding: 14.78 percent; fiscal year 2014/2015: income after taxes: €2.4 million; equity: E324 million). 5.2 Acquisitions and divestments This section provides a more detailed overview of the prin- cipal changes in the scope of consolidation in the reporting period, divided into acquisitions and divestments. Acquisitions Evonik acquired all shares in Monarch Catalyst Pvt. Ltd. (Monarch), Dombivli (India) on June 5, 2015. Monarch's global activities in the field of oil and fat hydrogenation catalysts extend Evonik's portfolio of catalysts. In addition, this acquisition strengthens Evonik's market position in activated base and precious metal catalysts in India and on the Asian market. The company has been renamed Evonik Catalysts India Pvt. Ltd. On October 30, 2015, Evonik acquired all shares in PeroxyChem Netherlands B.V., Amsterdam (Netherlands) from PeroxyChem Cooperatief U.A., Amsterdam (Netherlands). The production facilities in Delfzijl (Netherlands) complement Evonik's European production network for hydrogen peroxide, comprising three European sites in Antwerp (Belgium), Rhein- 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 Efficiency segment. Their aggregate impact on the balance sheet as of the date of first-time consolidation was as follows: Impact of the acquisitions on the balance sheet inEmmen Non-current assets Current assets thereof receivables thereof cash and cash equivalents Non-current liabilities Current liabilities Net assets Goodwill Cost of acquisition (purchase price) Fair value recognized 54 21 11 1 —14 —12 49 5 54 The purchase prices were settled out of cash and cash equivalents. Transaction costs of €1 million relating to these acquisitions are included in other operating expenses. The goodwill is not tax-deductible and mainly comprises the expected future benefits of assets that were not individually identifiable or for which recognition is not permitted, for example, anticipated synergies and the workforce. Both since the date of acquisition and on a pro forma basis 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 were not material relative to the Resource Efficiency segment as a whole. Divestments of subsidiaries Under an agreement dated April 29, 2015, Evonik sold its 100 percent stake in Evonik Litarion GmbH, Kamenz (Ger- many) to Electrovaya GmbH, Chisseldorf (Germany). It was agreed not to disclose the purchase price. This divestment was closed on the date on which the agreement was signed. Under an agreement dated September 30, 2015, Evonik sold its 52 percent stake in Qingdao Evonik Chemical Co., Ltd., Jiaozhou (China) to Orion Engineered Carbons International GmbH, Frankfurt (Germany). It was agreed not to disclose the purchase price. The stake was deconsolidated on October 27, 2015 and was classified as held for sale until that date. Until completion of these transactions, the shares were included in the segment report in other operations. The aggregate impact of the divestments on the balance sheet at the time of deconsolidation or divestment was as follows: Impact of divestments on the balance sheet in E million Non-current assets Current assets thereof cash and cash equivalents Non-current liabilities Current liabilities Carrying amounts divested 35 7 - 5 - 9 The deconsolidation of subsidiaries resulted in a loss of €4 million (2014: gain of C5 million), which is recognized in other operating expenses and in income after taxes, dis- continued operations. Divestment of investments recognized at equity Under an agreement dated June 23, 2015, Evonik sold 10.3 percent of the shares in Vivawest GmbH (Vivawest), Essen (Germany), to RAG Aktiengesellschaft, Herne (Ger- many), for a purchase price of €428 million. The transaction was closed on June 29, 2015. The proceeds from this trans- action amounted to €143 million. In the segment report, these shares were previously included in other operations. 5.3 Assets held for sale and discontinued operations Assets held for sale and the associated liabilities have to be stated separately from other assets and liabilities on the balance sheet. The amounts recognized for these assets and liabilities in the previous year do not have to be restated. Businesses whose assets and liabilities have been classified as held for sale may also meet the criteria for classification as discontinued operations, especially if a separate, significant business area is to be disposed of. The income and expenses of such discontinued operations have to be stated separately from those of continuing operations in the income statement. The cash flows also have to be stated separately. The prior- period figures have to be restated in the income statement and the cash flow statement. The 100 percent stake in Evonik Litarion GmbH, com- prising the remaining lithium-ion business, was classified as a discontinued operation until the divestment was completed on April 29, 2015. E 0 EFTA00598800 166 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Impact of the discontinued operations on the income statement Operating income after taxes in €million 2015 Divestment gains/losses Income after taxes, after taxes discontinued operations 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- ion business included impairment losses of €7 million in fiscal 2015. As of December 31, 2015, there were no assets or liabilities classified as held for sale on the balance sheet. 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 On the cash flow statement, the cash flows from the ope- rating, investing and financing activities of the discontinued operations only comprise cash flows generated through transactions with third parties. The net cash flows reflect the change in cash and cash equivalents and intragroup cash pooling activities. EFTA00598801 - TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Notts Notes. to the mcome statement • SUPPLEMENTARY INFORMATION 169 6. Notes to the income statement 6.1 Sales The sales of €13,507 million (2014: €12,917 million) principally comprise revenues from the sale of goods and services. 6.2 Function costs Function costs are derived from cost accounting data. IFRS accounting policies are the central recognition principles used at Evonik. Therefore, implicit costs may not be allocated to the functional areas. Function costs are determined after internal cross-charging to ensure that they take account of transactions between the functional areas. Evonik divides function costs into the cost of sales, selling expenses, research and development expenses and general administrative expenses. Operating expenses that cannot be allocated to the func- tional areas are recognized as other operating expenses. 6.3 Other operating income Other operating income inEmotion 2015 2014 Income from the disposal of assets 153 20 Income from non-core operations 55 SS Income from the reversal of provisions 44 30 Income from restructuring measures 43 11 thereof income from the disposal of assets 3 thereof income from the reversal of provisions thereof income from the reversal of impairment losses 37 6 5 Net income from currency translation of 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 The income from non-core operations contains income from occasional, unplanned business activities that are not intended to be permanent operations. The income from restructuring measures mainly comprises income in connection with the planned optimization of admin- 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 allocated to other line items in other operating income. An explanation of the economic effect of the net income from currency translation of operating monetary assets and liabilities is provided in Note 10.2. Other income includes insurance refunds, research sub- sidies, commission income, income from the sale of scrap and income relating to other periods. Other operating income includes a total of €7 million (2014: €10 million) from the divestment of property, plant and equipment, and €146 million (2014: €13 million) from the sale of investments and business operations. In 2015 the income from the sale of investments mainly came from the sale of the 10.3 percent shareholding in Vivawest, see Note 5.2. Further, other operating income contains a total of €17 mil- lion (2014: €6 million) from the reversal of impairment losses. This comprises €10 million (2014: €4 million) in accordance with IAS 39 Financial Instruments: Recognition and Mea- surement relating to trade accounts receivable. The income from reversals of impairment losses in accor- dance with IAS 36 Impairment of Assets totaling €7 million (2014: €2 million) relates to the following segments: income from the reversal of impairment losses by segment in Erniition 2015 2014 Resource Efficiency 6 1 Performance Materials — 1 Other operations 7 2 E it EFTA00598802 170 FINANCIAL REPORT 2015 EVONIK INDUSTRIES Evonik defines non-operating income and expenses that are by nature one-off or rare as adjustments. These adjustments are included in other operating income and expenses in the income statement. The adjustments recognized in other operating income relate to the following functional areas: Adjustments included in other operating income in E million 2015 2014 Production-related 11 1 Administration-related 35 Other 170 29 216 30 6.4 Other operating expenses Other operating expenses in E million 2015 2014 Expenses for restructuring measures 108 97 thereof Impairment losses 6 2 Net expenses for operational currency hedging 71 44 Impairment losses 69 64 Expenses for recultivation and environmental protection 10 6 Losses on the disposal of assets 9 19 Expenses relating to the REACH Regulation 8 6 Other expense 328 257 603 493 thereof adiustments 290 209 The expenses for restructuring measures mainly contain expenses for optimization of the product portfolio in the Performance Materials segment and in connection with the new Group structure. This item also includes expenses that by nature would otherwise be allocated to other line items in other operating expenses. An explanation of the economic effect of the net expenses for operational currency hedging is provided in Note 10.2. Losses from the disposal of assets comprise €9 million (2014: €16 million) from the divestment of property, plant and equipment and, in the prior year, losses of €3 million from the sale of investments and business operations. The increase in other expense is mainly due to provisions for risks arising from an agreement with a raw material supplier, and to expenses for the reorganization and simplifi- cation of corporate structures in Euro e. This item also includes expenses for outsourcing, projects, non-core operations, commission payments, other taxes, and legal and 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- dance with IAS 39 Financial Instruments: Recognition and Measurement, totaled €12 million (2014: €19 million) and relate to trade accounts receivable. Impairment losses on assets classified until now as held for sale recognized in accordance with IFRS 5 totaled €3 million (2014: €2 million). Impairment losses determined in accordance with IAS 36 Impairment of Assets in response to indications of a possible impairment were divided among the segments as shown in the table below: Impairment losses by segment in E million 2015 2014 Performance Materials 43 38 Resource Efficiency 11 3 Nutrition Er Care 5 2 Services 1 2 60 45 The impairment losses relate principally to capitalized costs for a project in the Resource Efficiency and Performance Materials segments that was terminated following a routine review of investment projects, and a production plant and intangible assets in the Performance Materials segment. EFTA00598803 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Notts Notes to the noose statement SUPPLEMENTARY INFORMATION 171 The determination of the value in use of the production plant in the Performance Materials segment did not generate a positive value; the discount rate used was the weighted cost of capital of the segment, see Note 3.7. The recoverable value of the other assets was not determined as the assets were not considered to have any further benefit. The adjustments recognized in other operating expenses relate to the following functional areas: Adjustments included In other operating expanses Jae million 2015 2014 Production-related 129 88 Sales-related 12 - 7 - -related Adminisuation-related 67 60 Other 75 61 290 209 6.5 Result from investments recognized at equity Result from investments recognized at equity in e million 2015 2014 Income from measurement at equity 11 18 Expenses for measurement at equity -26 -4 -15 14 The expenses for measurement at equity in 2015 include an impairment loss of €14 million on an equity investment in the Nutrition & Care segment, which is contained in adjustments. In the prior year, income from measurement at equity 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. 6.6 Financial result Financial result in Clutha, 2015 2014 Income from securities and loans 4 S Interest and similar income from derivatives 8 6 Other interest-type income 34 60 Interest Income 46 71 Interest expense on financial liabilities —47 —50 Interest and similar expenses for derivatives —29 —19 Interest expense on accrued Interest on other provisions —23 —60 Net Interest expense for pensions —96 —120 Other interest-type expense —50 —40 Interest expense —245 —289 Result from currency translation of financing-related assets and liabilities —22 —39 Income from financing-related currency hedging 16 23 Miscellaneous financial Income and expenses —18 -1 Other financial Income -24 -17 -223 -235 Borrowing costs of €5 million (2014: €35 million) are capital- 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 currency translation of financing-related assets and liabilities is provided in Note 10.2. The miscellaneous financial expenses of €18 million mainly relate to impairment losses on an equity investment. I 3 EFTA00598804 172 FINANCIAL REPORT 2015 EVONIK INDUSTRIES 6.7 Income taxes Income taxes shown in the income statement InE million 2015 2014 Other Income texas 508 225 thereof relating to other periods 21 -18 Deferred taxes -se 27 thereof relating to other periods -24 12 thereof relating to temporary differences -85 1 422 252 The tax reconciliation shows the development of expected income taxes relative to the effective income taxes stated in the income statement. As in the previous year, the expected income taxes are based on an overall tax rate of 30 percent, comprising German corporation tax of 15 percent, a solidarity surcharge of 5.5 percent and an average trade tax rate of around 14 percent. The effective income taxes include other income taxes and deferred taxes. Tax recondllation in emillinn 2015 2014 Income before Income taxes, continuing operations 1,441 842 Expected income taxes 432 253 Variances due to differences in the assessment base for trade tax 5 2 Deviation from the expected tax rate 17 21 Changes in the valuation of deferred taxes —9 5 Losses not affecting deferred taxes and the use of loss carryforwards 24 —6 Changes In tax rates and tax legislation 1 — Non-deductible expenses 35 19 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 The impairment losses on deferred taxes previously recog- nized totals E3 million (including €2 million from loss carryfowards). This is countered by reversals of 415 million, mainly in connection with loss carryforwards. 'Other' con- tains other income taxes and deferred taxes relating to different periods. 6.8 Earnings per share Earnings per share as shown in the income statement are calculated by dividing net income by the weighted average number of shares issued, i.e. 466,000,000 shares. Net income comprises the total earnings for the year less non-controlling interests, including the earnings of discontinued operations. Earnings per share could be diluted by potential ordinary shares. Since there were no potential ordinary shares in either 2015 or 2014, diluted earnings per share are identical to basic earnings per share. Earnings per share In C million 2015 2014 Income after taxes, continuing operations 1,019 590 Income after taxes, discontinued operations —17 —9 Less Income after taxes attributable to non-controlling interests -11 -13 Income after taxes attributable to shareholders of Evonik Industries AG (net income) 991 568 Earnings per share in E (basic and diluted) from continuing operations 2.19 1.27 from discontinued operations -0.04 -0.02 less earnings per share attributable to non-controlling interests -0.02 -0.03 Earnings per share In t (basic and diluted) attributable to shareholders of Evonlk indusbles AG .2.13 .1.22 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 2,792 165 497 5,147 1,693 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 in E million Advance Other plant, payments and Land, land rights Plant and office furniture construction 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 2,946 841 43 11,920 Carrying amounts as of December 31, 20'14 1,593 205 771 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- lion) to purchase property, plant and equipment. As a lessor, Evonik mainly leases out land under operating leases. The nominal values of future minimum lease pay- ments for these assets over the non-cancelable term of the lease are due as follows: Maturity structure of future minimum lease payments (lessor; operating leases) In E million 2015 2014 Due within 1 year 9 9 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 This item comprises associates and joint ventures recognized using the equity method, see Note 5.1. Investments recognized at equity lite ninon Carrying amount of material associates Carrying amount of individually non-material associates Carrying amount of individually non-material Joint ventures Dee. 31, Dec. 31, 2015 2014 300 7 2 46 55 53 357 In the previous year, Vivawest was classified as material 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 at equity of E1 million (2014: €10 million) is recognized in connection with Vivawest. 7.4 Financial assets Financial assets Ine melon Dec 31, 2015 Dec.31, 2014 thereof Total non-current thereof 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 The condensed financial data for the investments recognized at equity which are classified individually as non-material for Evonik, based on Evonik's interest, are as follows: Condensed financial data for individually non-material investments recognized at equity Associates Joint ventures In E million Carrying amount as of December 31 Income after taxes, continuing operations Total compre- hensive Income For information on contingent liabilities to associates and joint ventures see Note 10.3. (a) Other investments Other investments include shares in Borussia Dortmund GmbH & Co. KGaA, Dortmund (Germany) totaling €55 million (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. Further, other investments contains unlisted equity instruments that are recognized at the cost of acquisition since their fair value cannot be determined reliably. EFTA00598808 176 FINANCIAL REPORT 2015 EVONIK INDUSTRIES (b) Loans Loans are recognized at amortized cost. They are exposed to an interest rate risk, which can affect their fair value or future cash flows. Risk and maturity structure of loans Dec. 31, Dec. 31, InE million 2015 2014 Impaired loans 3 Nominal value 3 2 Impairment losses —2 Non-Impaired loans 26 12 Not yet due 26 12 Overdue 29 12 As in the previous year, Evonik did not renegotiate the terms and conditions of any non-current loans in 2015. (c) Securities and similar claims Securities and similar claims mainly comprise bonds and money market paper purchased to invest liquid funds. They 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. Securities listed on a stock exchange are exposed to a risk of changes in their market price. As in the previous year, this item contains various securities and similar claims totaling approximately E250 million which are bundled in a fully consolidated segregated investment fund, see Note 5.1. The units in an investment fund totaling E127 million included in the previous year were sold in 2015. (d) Receivables from derivatives Receivables from derivatives InEmillion Dec. 31, Dec. 31, 2015 2014 Receivables horn cross-currency Interest rate swaps 33 4 Receivables from forward exchange contracts and currency swaps 51 31 84 35 (e) Other financial assets Other financial assets comprise time deposits at banks, receivables from profit-and-loss transfer agreements with investments that are not fully consolidated, and claims relating to the termination of contracts. Risk and maturity structure of other financial assets Dec. 31, Dec. 31, in 2015 2014 Impaired other (Mandel assets 3 Nominal value 10 Impairment losses —7 Non-Impaired other flnandal assets 26 29 Not yet due 26 29 Overdue 29 29 (f) Security pledged Financial assets pledged as security for Group liabilities amounted to E1 million (2014: E2 million). They comprised current securities provided as security for commitments to employees under the partial retirement program in Germany. 7.5 Inventories Inventories Jae Shan Dec. 31, Dec. 31, 2015 2014 Raw materials and supplies 438 414 Work in progress 65 78 Finished goods and merdiandise 1,260 1,286 1,763 1,778 Impairment losses on raw materials, supplies and merchan- dise totaling E37 million were recognized in 2015 (2014: E47 million), while reversals of impairment losses amounted to E25 million (2014: E21 million). Reversals of impairment losses were mainly due to higher selling prices and improved market conditions. EFTA00598809 TOOUR SHAREHOLDERS • MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Notes Noses to the balance she! • SUPPLEMENTARY INFORMATION 177 7.6 Trade accounts receivable, other receivables Trade accounts receivable, other receivables in E million Dec. 31, 2015 Dec. 31, 2014 thereof Teal 11041-CINfellt thereof 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 Risk and maturity structure of trade accounts receivable Dec. 31, Dec. 31, in C nnP on 2015 2014 Impaired receivables 4 3 Nominal value 16 15 Impairment losses -12 -12 Non-Impaired receivables 1,809 1,717 Not yet due 1,540 1,479 Overdue 269 238 up to 3 months 235 212 more than 3 and up to 6 months 7 15 more than 6 and up to 9 months 13 1 more than 9 and up to 12 months 6 1 more than 1 year 8 9 1,813 1,720 At year end, trade accounts receivable totaling E497 million (2014: E498 million) were covered by credit insurance, and E10 million (2014: E3 million) were covered by other collateral. No terms were renegotiated for trade accounts receivable not yet due. In the prior year, the terms for receiv- ables with a carrying amount of E2 million were renegotiated and would otherwise have been impaired or overdue. 7.7 Equity (a) Issued capital As in the previous year, the company's fully paid-up capital was €466,000,000 on the reporting date. It is divided into 466,000,000 no-par registered shares. (b) Authorized capital Under a resolution adopted by the Annual Shareholders' Meeting on May 20, 2014 on authorized capital, the Executive Board is authorized until May 1, 2019, subject to the approval of the Supervisory Board, to increase the company's capital stock by up to €116,500,000 by issuing new registered shares with no par value (Authorized Capital 2014). This authorization may be exercised through one or more issuances. The new shares may be issued against cash and/or contribu- tions in kind. The Executive Board is authorized, subject to the approval of the Supervisory Board, to exclude shareholders' statutory subscription rights when issuing new shares in the following cases: • capital increases against contributions in kind • if the capital increase is against cash and the proportionate 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 stock market price of shares already listed on the stock exchange • to exclude fractional amounts arising from the subscrip- tion ratio • insofar as is necessary to grant holders and/or creditors of warrants or conversion rights or obligors of warrant and/ 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 or fulfillment of their warrant or conversion obligations to grant shares to employees (employee stock), provided that the new shares for which subscription rights are excluded do not in aggregate account for a proportionate share of the capital stock in excess of 1 percent for the execution of a scrip dividend. y e 8 2 1• Oat a EFTA00598810 lit FINANCIAL REPORT 2015 EVONIK INDUSTRIES The proportionate amount of the capital stock attributable to the shares for which subscription rights are excluded, together with the proportionate amount of the capital stock attributable to treasury stock or to conversion and/or war- rant rights or obligations arising from debt instruments, which are sold or issued after May 20, 2014 under exclusion of subscription rights, may not exceed 20 percent of the capital stock. If the sale or issue takes place in application— analogously or mutatis mutandis—of Section 186 Paragraph 3 Sentence 4 of the German Stock Corporation Act (AktG), this shall also be deemed to constitute exclusion of subscrip- tion rights. The Executive Board is authorized, subject to the approval of the Supervisory Board, to define further details of capital increases out of the Authorized Capital 2014. The authorized capital has not yet been utilized. (c) Conditional capital Under a further resolution adopted by the Annual Share- holders' Meeting of May 20, 2014, the capital stock is con- ditionally increased by up to €37,280,000, divided into up to 37,280,000 registered shares with no par value (Conditional Capital 2014). This conditional capital increase relates to a resolution of the above Shareholder's Meeting granting authorization to issue convertible and/or warrant bonds. The conditional capital increase will only be conducted insofar as holders or creditors of warrant or conversion rights or obligors of warrant or conversion obligations arising from warrant bonds and/or convertible bonds issued or guaranteed on the basis of the authorization resolved at the Annual Shareholders' Meeting of May 20, 2014, exercise their warrants or conversion rights or, insofar as they have an obligation to exercise the warrants or conversion obligations, meet the obligation to exercise the warrant or conversion obligations and other forms of settlement are not used. In principle, the shareholders have a statutory right to sub- scription rights to the convertible and/or warrant bonds; the authorization sets out specific cases where the Executive Board may exclude subscription rights to convertible and/or warrant bonds, subject to the approval of the Supervisory Board. The new shares shall be issued at the warrant or conversion price set in accordance with the above provisions of the resolution. The new shares are entitled to a dividend from the start of the fiscal year in which they are issued. The Executive Board is authorized, subject to the approval of the Supervisory Board, to define further details of capital increases out of the conditional capital. The conditional capital has not yet been utilized. (d) Treasury shares On March 6, 2015, Evonik Industries AG announced that it would be utilizing the authorization granted by the Annual Shareholders' Meeting on March 11, 2013 to purchase shares in the company totaling up to €113.4 million by April 23, 2015 at the latest. The purpose of purchasing the shares was to grant shares to employees of Evonik Industries AG and certain subordinated companies in the Evonik Group as part of an employee share program. Through this share buyback program, by April 20, 2015 Evonik Industries AG purchased a total of 415,533 shares in the company (corresponding to 0.1 percent or €415,533 of the capital stock). A total of €13.9 million was spent on the shares, corresponding to an average price of €33.43 per share. The purchases were made from March 10, 2015 at an average daily volume of around 15,400 shares on each Xetra trading day through a bank acting on the instructions of Evonik Industries AG. The consideration for each share repurchased (excluding ancillary costs) could not exceed or fall short of the opening price as set in the opening auction for the trading day for shares in Evonik Industries AG in Xetra trading on the Frankfurt Stock Exchange by more than 5 per- cent. At the end of April, 374,627 ordinary shares (including 95,748 bonus shares) were transferred to participating employees on the basis of the share price and the exchange rate for the US dollar prevailing on April 23, 2015. The remaining 40,906 ordinary shares were sold to third parties by April 27, 2015. As of December 31, 2015, Evonik Industries AG therefore no longer held any treasury shares. (e) Capital reserve The capital reserve mainly contains other payments received from shareholders pursuant to Section 272 Paragraph 2 No. 4 of the German Commercial Code (HGB). (f) Accumulated income The accumulated income of €5,821 million (2014: €5,040 mil- lion) comprises both Group earnings from 2015 and previous years, and other comprehensive income from the remeasure- ment of the net benefit liability for defined benefit pension plans. Income after taxes corresponds to the net income attributable to shareholders of Evonik Industries AG, as stated in the income statement for fiscal 2015. However, under Ger- man stock corporation law, only revenue reserves from the separate financial statements drawn up by Evonik Industries AG which are not subject to any restrictions are available for dis- tribution. As of December 31, 2015, the profit reserves of Evonik Industries AG totaled €4,235 million (2014: €3,635 mil- lion). €47 million of this comprised the statutory reserve that is not available for distribution. EFTA00598811 - TOOUR SHAREHOLDERS MANAGEMENT REPORT • CONSOLIDATED FINANCIAL STATEMENTS Notes Notes to the balance sheet SUPPLEMENTARY INFORMATION 179 A proposal will be submitted to the Annual Shareholders' Meeting that the net profit of Evonik Industries AG of €605,000,000.00 for 2015 should be used to pay a dividend of €535,900,000.00 and the remaining €69,100,000.00 should be allocated to revenue reserves. That corresponds to a dividend of €1.15 per no-par share. (g) Accumulated other comprehensive income Accumulated other comprehensive income contains gains and losses that are not included in the income statement. The reserve for gains and losses on available-for-sale securities contains remeasurement amounts resulting from changes in the value of financial instruments that are expected to be temporary and thus not charged to income. The reserve for gains and losses on hedging instruments comprises changes in the fair value of the effective portion of hedging instru- ments that are accounted for as cash flow hedges or net investment hedges. The reserve for revaluation surplus for acquisitions made in stages contains the change in the fair value of shares previously held in subsidiaries that were con- solidated for the first time on or before December 31, 2009. The reserve for currency translation adjustment comprises differences arising from the translation of foreign financial statements. Change in accumulated other comprehensive income attributable to shareholders of Evonik Industries AG Revaluation Gains/losses on Gains/losses surplus for Currency available-for-sale on hedging acquisitions translation E 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: —E45 million) was reclassified from the reserve for gains/ losses on hedging instruments to the income statement as follows: Reclassification of hedging results from accumulated other comprehensive income to the income statement in E million Sales 2015 2014 —182 17 Cost of safes —4 — Other operating income/expenses 1 —59 Net Interest expense —3 —3 Other financial income —14 - -202 —45 (h) Non-controlling interests Non-controlling interests amounting to E83 million (2014: E95 million) comprise shares in the issued capital and reserves of consolidated subsidiaries that are not attributable to the shareholders of Evonik Industries AG. There were no changes in subsidiaries without loss of control in 2015 or 2014. Change in accumulated other comprehensive income attributable to non-controlling interests Currency translation Ina/million adjustment Total As of January 1, 2014 -4 —4 Other comprehenshro Income as In the statement of comprehensive Income 6 6 Currency translation adjustment 6 6 As of December 31, 2014 2 2 Other comprehensive Income as In the statement of comprehensive Income 1 1 Currency translation adjustment 1 1 As of December 31, 2015 3 1 3 7.8 Provisions for pensions and other post-employment benefit