Financial Report

General economic conditions and sector environment

The various products made from industrial gases and related services and technologies are used in almost all branches of industry, but also in the foodstuffs technology, medicine and research and science sectors. For this reason, gross domestic product (GDP) is a highly relevant indicator for the Messer Group’s performance.

In 2017, expectations for global economic growth were well exceeded. According to analyses of the International Monetary Fund (IMF)1 and the World Bank2, the pace of growth accelerated significantly year-on-year. According to the World Bank2, real global GDP is estimated to have increased by 3.0 % in 2017, whereas an increase of 2.4 % was recorded in 2016. The growth trend was virtually synchronous worldwide. The GDP-growth rate picked up in both the emerging and developing countries and the developed industrialized countries. However, in 2017 too, there were still two-speed GDP growth rates, although both at a generally higher level, currently estimated at 4.3 % (2016: 3.7 %) for the emerging and developing countries and 2.3 % (2016: 1.6 %) for the developed industrialized countries.1

Economic development in Europe, in line with the global economic acceleration, improved appreciably in 2017. According to the figures of the Organization for Economic Cooperation and Development (OECD)3 GDP in the euro area rose by an estimated 2.4 % in 2017. If this figure turns out to be correct, the growth rate in the region would have accelerated by a further 0.6 percentage points compared to the previous year. As far as the larger economic areas are concerned, a corresponding acceleration in GDP-growth was recorded in Germany, France and Italy. Only Spain experienced a slight slowdown in GDP-growth. That said, with an estimated growth rate of 3.1 %, Spain remained the faster-growing of the larger economic areas in Europe. Estimated GDP-growth in Europe outside the euro area was again stronger in 2017 than in the euro area, as illustrated by the examples of Slovenia (4.9 %), Poland and the Czech Republic (both 4.3 %) and Hungary (3.9 %).

In China, GDP-growth in 2017, contrary to expectations, did not fall off further but, according to World Bank estimates, even increased from 6.7 % in 2016 to 6.8 %. The Chinese Government is continuing in its endeavor to reduce the Chinese economy’s dependence on exports by boosting domestic demand, with a corresponding focus on consumption and services. So far, however, this has not caused China to lose its top spot in the world’s GDP-growth table.

1 World Economic Outlook, Update January 22, 2018
2 Global Economic Prospects, January 2018
3 OECD Economic Outlook – No.102, Update November 2017

Review of operations

General economic conditions in the fiscal year 2017 were more or less ideal. Especially in China, the Messer Group encountered unexpectedly dynamic economic activity, which was particularly evident in the steel production sector, where business levels picked up sharply, and in the generally strong demand for liquefied gases. This development came at the same time as an economic recovery in Europe, with nearly all countries recording a perceptible upturn. These favorable economic conditions helped the Messer Group in 2017, contrary to our forecast at this stage last year, to achieve a significant year-on-year sales growth in 2017. In the final analysis, sales went up by 7.5 %. Similar to the sales performance, the Messer Group’s EBITDA turned out considerably better than our original forecast for the year. Instead of the sharp decline in EBITDA forecasted for 2017, EBITDA actually increased by more than 16% compared to the previous year. Positive developments in China, which far exceeded expectations, made the decisive contribution to this outcome.

Including the impact of the USPP currency hedge and contrary to the prediction made in the previous year’s management report, the Messer Group again managed to reduce net debt during the reporting period from K€ 379,335 to K€ 290,139 at December 31, 2017.

Overall situation

Results of operations

Messer Group generated worldwide sales of K€ 1,231,847 in 2017 (2016: K€ 1,145,790) which can be analyzed by region as follows:

The Messer Group’s sales in the financial year 2017 were 7.5 % up on the previous year’s figure. Business developed in the various regions as follows:

China, Vietnam, ASEAN and Peru

In local currency terms, sales in China rose by 22 % year-on-year. Here, the partly unexpectedly strong economic growth rate recorded in China had a positive impact on the industrial gases sector. Our companies benefited mainly from the renewed upturn in steel production and in particular from very high demand for liquefied gases, accompanied by rising market prices.

Sales in Vietnam fell by 15 % compared to the previous year. Excluding the one-time contribution to sales resulting from the accounting treatment applied for plants in accordance with IAS 17 (in conjunction with IFRIC 4) in the previous year, sales were 2 % down on the previous year. However, this decline was exclusively attributable to the depreciation of the Vietnamese currency compared to the previous year. In local currency terms, sales grew by a solid 3 % in 2017, driven in part by increased demand from our on-site customer, Hoa Phat, and the utilization of further production capacity for liquefied gases in the north of the country.

Our companies in the ASEAN region made a € 2.5 million contribution to overall sales.

Western Europe

Sales in this region fell 2 % year-on-year, whereby lower sales of our central Engineering Department in the Corporate Office and the generally weaker economic environment in Switzerland played a disproportionately significant role. In all other countries in the region, however, recorded sales growth, with Spain and the Benelux countries posting the biggest growth rates.

South-Eastern Europe

Sales of the Messer Group in South-Eastern Europe rose sharply by 8 % or (7 % excluding exchange rate factors). With the exception of our business activities in Albania and Romania, all countries posted strong sales growth. The highest rates of increase occurred in Hungary at 13 %, followed by Serbia and Croatia, with growth in each case of around 8 %. Strong sales growth in Hungary was also bolstered by the acquisition of the industrial gases activities of Air Liquide in Hungary with effect from June 1, 2016.

Central Europe

Compared to the previous year, sales recorded for the Central Europe region were up by just under 5 % (or 3 % excluding exchange rate factors). In particular the excellent business climate in Poland, from which Messer’s local activities benefited, and a good performance in Slovakia contributed to the increase.

The Group recorded an EBITDA of K€ 289,827 for the fiscal year 2017 (2016: K€ 249,057).

Contrary to our previous year's prediction, the Messer Group's EBITDA rose by 16% year-on-year.

Overall the Messer Group recorded a group net profit (including profit attributable to minority interests) of K€ 83,663 for the fiscal year 2017 (2016: K€ 67,238). The gross profit amounted to K€ 557,510 (45.3 % of sales) and the operating profit amounted to K€ 139,080 (11.3 % of sales). Compared to the previous year, the operating profit increased by K€ 32,054.

The operating result includes a positive effect of K€ 5,113 from the reversal of impairment losses on property, plant and equipment and a negative effect of K€ 2,745 from the write-down of the ASCO brand. In addition, an impairment loss of K€ 15,339 was recorded in 2017 on goodwill.

In the previous year, the operating result was influenced by two offsetting factors. On the one hand, application of IFRIC 4 had a one-time positive impact on sales of € 6 million for newly commissioned plants, while on the other, impairment losses and reversals of impairment losses on property, plant and equipment had a net negative impact of K€ 4,400.

Profit before tax and minority interests is stated after a net interest expense of K€ 18,647, which represented an improvement of K€ 2,563 on the previous year due to the lower level of debt during the year. Other financial result for the year 2017 deteriorated by K€ 6,258 compared to the previous year, mainly reflecting negative changes in the fair value measurement of derivatives with income statement effect.

Taking into account all of the above factors, the group profit attributable to equity holders of the parent company totaled K€ 59,864 and was therefore K€ 8,186 higher than in the previous year.

Financial position

Group Treasury is responsible for overall liquidity, interest rate and currency management. The most important objective of Group Treasury is to ensure that a minimum level of liquidity is always available to ensure solvency at all times. High levels of liquid funds help to improve our flexibility, security and independence. If necessary, we can call on additional liquidity potential under further various available credit lines amounting to € 54.3 million.


Net debt as of December 31, 2017 stood at K€ 290,139 (2016: K€ 379,335) and is broken down as follows:

The Messer Group reduced net debt in 2017 by K€ 89,196 compared to the previous year. Based on financial liabilities of K€ 481,463 at the end of the reporting period, the ratio of financial debt to the balance sheet total was 21.8 %.

Cash flow statement

At K€ 281,234 the total of cash flows from operating activities was K€ 51,906 higher than in the previous year. In addition to the higher net profit for the year, this trend is also largely attributable to a decrease finance lease receivables. These receivables fall within the scope of application of IAS 17 (in conjunction with IFRIC 4) and are reduced in line with customer payments.

The change in cash flows from investing activities again reflected the continued high level of investments by the Messer Group. The bulk of the outflows related to investments in property, plant and equipment. In addition, the acquisition of the shares in Universal Industrial Gas Sdn. Bhd, Malaysia, resulted in cash outflows relating to intangible assets.

Cash flows from financing activities amounting to K€ 78,235 were K€ 49,222 lower than for the previous fiscal year. After a scheduled increase in financial debt repayment in the previous year, outflows for repayments were somewhat lower in 2017. At the same time, cash holdings went up.

Liquid funds held by the Messer Group at December 31, 2017 totaled K€ 176,014, compared to K€ 113,984 one year earlier.

In 2018, the Messer Group will require further capital to fund its expanding business operations and scheduled capital expenditure and to repay loans and interest as they fall due, even though our focus in the medium term will be to consolidate net debt levels relating to operations outside China. These funds will be generated out of cash flows from operating activities, existing funds and credit lines available to the Group. The Messer Group’s strong position in the various markets in which it already operates, combined with expansion into new markets, will enable us to maintain our robust financial position.

The Group has committed to purchase or to invest in the construction and maintenance of various production facilities. Obligations under these agreements represent commitments to purchase plant and equipment at market prices in the future. The Group is also party to long-term contracts which give rise to obligations. As of December 31, 2017, purchase and capital expenditure commitments and long-term contracts amounted to K€ 128,378 (2016: K€ 73,655).

Capital expenditure

Capital expenditure continues to be focused on safeguarding existing business and opening up opportunities for growth. In accordance with normal business principles, the Messer Group invests primarily in projects which will secure supply capabilities and/or which create opportunities for profitable growth. Furthermore regular investments are made in the modernization of production plants and distribution channels.

The Messer Group’s capital expenditure on property, plant and equipment and financial investments totaled € 144 million. The capital expenditure ratio corresponds to 11.7 % of sales. The principal investments during the fiscal year in property, plant and equipment were the construction of air separation plants in Vietnam, Slovenia and Hungary and production plants in China.

Overall, capital expenditure on property, plant and equipment totaled € 143 million in 2016, compared to € 119 million in 2016. Investments in financial assets related to the payment of the full purchase price for the acquisition of 60 % of the shares in Universal Industrial Gas Sdn. Bhd. in Malaysia (K€ 1,985). Furthermore the companies Messer (Thailand) Co., Ltd, Thailand, and Pt. Chemindo Inti Usaha, Indonesia, were established as part of our planned entry to the ASEAN region.

Capital expenditure by region was as follows:

In China, Messer’s investment projects are focused on pushing ahead with the strategy of customer diversification compared to the existing business model. This includes a gas supply system for high-purity industrial gases for an on-site customer from the electronics industry in Sichuan province, the pipeline connection of customers in a chemical industrial park in Chongqing province and a semi-automated filling plant in Hunan province.

In Vietnam, construction work started on the fourth air separation plant for on-site customer Hoa Phat at its production site to the east of Hanoi and two further air separation plants for its new steelworks in the center of the country in Dung Quat.

Capital expenditure in Europe remains focused on investment in distribution channels and selected growth projects. The selected growth projects include the completion of the project to expand the existing air gas and CO2 production capacities in Hungary, the construction of the first air separation plant in Slovenia, which ensures future supply independence of our industrial gas activities there, the construction of a first CO2 production plant in Bulgaria and the expansion of the CO2 production capacities in Bosnia. In addition, we invested in the selective expansion and/or modernization of filling plants in Germany, Poland and the Netherlands, and the takeover of an industrial gas trading business in Warsaw, Poland.

Net assets

The balance sheet total at December 31, 2017 amounted to K€ 2,206,026, of which the largest proportion (76.8 %) related to non-current assets (2016: 79.2 %). Tangible and intangible assets represented the largest combined item on the assets side of the balance sheet (67.3 %). The carrying amount of these two items together increased by K€ 40,688. Non-current lease receivables and cash at banks account for 6.2 % and 8.0 % respectively of total assets.

Currency factors (including amounts attributable to minority interests) had the effect of decreasing the balance sheet total by K€ 33,875 and were attributable mainly to our Chinese and Serbian companies.

The equity ratio (including minority interests) increased to 61.0 % (2016: 59.3 %). Gross debt accounted for 21.8 % of the balance sheet total and decreased by K€ 45,198 compared to one year earlier. The refinancing concluded in 2015 and debt repayment in 2017 led to further improvement of the financing structure in terms of the long-term financing of assets.

Cost of capital percentage for employed capital

The ROCE for the past year was 10.71 %, calculated as follows:

Operating assets

Net working capital stood at K€ 104,432 at the end of the reporting period (2016: K€ 99,997) and comprised the following:

The increase in net working capital compared to the previous year is largely attributable to the higher level of inventories. The K€ 4,781 increase in inventories was mainly in the area of work in progress in conjunction with customer projects involving our companies in Germany.

The ratio of inventories less advance payments from customers plus receivables on the one hand and trade payables on the other was, as in the previous year, approximately 2:1; the ratio of net working capital to sales went down from 8.7 % to 8.4 %.

DSO (Days Sales Outstanding) decreased by nine days from 65 to 56 days. The decrease in DSO related in particular to China and Switzerland and was attributable to improvements in the management of receivables and the conduct of our customers with regard to payments.

Overall statement on the Group‘s financial condition

Benefiting from an almost ideal economic climate, sales of the Messer Group rose by 7.5 % year-on-year. Our business activities in Asia – and first and foremost in China – made a strong contribution to this result.

The EBITDA margin improved sharply to 23.5 %, while EBITDA surged from approximately € 249 million to € 290 million.

The Messer Group’s return on capital employed (ROCE) improved to 10.71 % (2016: 7.23 %). Instead of the sharp decline in ROCE forecasted for 2017, ROCE actually increased significantly, which was attributable to the unexpectedly and extraordinarily favorable economic trend for our business in China.

Good progress was also made in consolidating net debt levels relating to our operations outside China, which forms the focus of our medium-term planning. In 2017, for instance, net debt relating to our operations outside China relevant for the net debt covenants was reduced year-on-year by a further € 23.8 million to € 306.7 million. This trend is also reflected in the total net debt figure of approximately € 290 million for the Messer Group, which was down by a further € 89 million compared to the end of the previous year.

These overall very favorable developments represent good progress and are testimony to the stability and sustainability of the Group‘s business model. The Messer Group, operating in the two principal regions of Europe and China, has a global presence and good regional diversification in a number of countries or provinces within the two principal regions, so that falling demand in individual markets or downturns in specific sectors can often be offset.

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