Outlook

Macroeconomic and sector-specific risks

Economic growth in 2017 significantly exceeded predictions in many areas and was virtually synchronous worldwide. As a result of these developments, some leading economic institutes now believe that the global economy has reached its growth potential and that it will now enter a phase of stabilization. For example, the World Bank1 is only predicting a marginal acceleration in the global GDP rate from 3.0 % in 2017 to 3.1 % in 2018. The OECD2 prediction for global economic growth is similar, with GDP now expected to grow at 3.7 % in 2018 compared to 3.6 % in 2017. This relatively stable global economic development, which is expected to last until 2019/20, is based mainly on the favorable financing conditions worldwide which, together with evenly-balanced and stable commodities prices, ultimately promotes investment and raises the underlying sentiment of most businesses. At the same time, it is becoming clear that assumptions also need to take account of a potential slowdown of the world economy due to factors such the ageing global population and declining productivity gains. For 2018, both the World Bank and the IWF3 forecast that the developed industrialized countries will continue to grow at a similar rate to the previous year and that the emerging and developing countries will achieve another slight increase. The IMF forecasts GDP-growth of 2.3 % in 2018 (2017: 2.3 %) for the developed industrialized countries as a whole. However, a general slowdown in economic growth is already expected within the individual industrialized countries, which will be offset only by a further significant increase in US GDP-growth to 2.7 % in 2018 compared to 2.3 % in 2017. For the emerging and developing countries, with GDP-growth forecast to rise to 4.9 % in 2018 (2017: 4.7 %), economic growth is gradually expected to peak. In China, on the other hand, the ongoing process of change embarked upon with a view to strengthening domestic demand on the basis of consumption and services is expected to result in a return to the trend towards a decelerating growth rate. The IMF and World Bank forecast GDP growth rates for 2018 of between 6.6 % and 6.4 %.

The World Bank and the IWF again point out clear forecasting risks in their pronouncements for 2018, which arise primarily from a sudden change in the favorable financing conditions and disruptions on the global financial markets.

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

Outlook for the Messer Group

The Messer Group’s net financial debt to EBITDA ratio stood at 1.0 at December 31, 2017, whilst the corresponding ratio for our operations excluding China was 1.8. The medium-term forecast for the Messer Group continues to show lower net debt levels for our business activities outside China. By investing on a sound basis, we also intend to raise sales at a pace appropriate for the prevailing economic conditions and to take advantage of selected opportunities in order to stabilize or improve the profitability of the Messer Group.

We continue to view economic prospects in Europe with cautious optimism, although regional pressure on prices and intense competition and a re-emergence of the crisis in the steel industry or a potential financial crisis could hold down growth. The main focus of our business performance in Europe is on exploiting new production capacities created in recent years (in particular in Germany, France, Austria, Poland and Spain) to the maximum extent, and successfully creating new production capacities and customer projects at selected locations (e.g. in Serbia, Slovenia and Hungary). Future investment decisions will be taken in line with the stated strategy of consolidating net debt levels in the medium term.

The China region accounted for approximately a third of sales and more than 40 % of the EBITDA of the Messer Group in 2017. The net debt/ EBITDA ratio for the China region was negative 0.15. This means that cash funds exceeded financial debt by € 17.6 million, underlining the continuing importance of Chinese operations for sales, profitability and internal financing of the Messer Group.

We remain confident in our prediction that the market in which we intend to participate on a broad basis will continue to grow at an above-average rate. Accordingly, the process of diversifying the sales profile in China will be continued. In this respect, we have reached an advanced stage in the implementation of a comprehensive package of measures. These measures include concentrating on new business in non-steel sectors, the development of applications technology for the liquefied gases business and the expansion of the specialty gases and CO2 business.

According to the current estimates of the various economic research institutes, we expect energy costs, which are all-important for our industry, not to rise disproportionately for the time being.

The main financial performance indicators for the Messer Group are forecast to develop as follows in the coming year:

Overall assessment by management

In view of the inherent uncertainties, the Messer Group draws up its forecasts on a prudent basis. The budget for 2018 was prepared before the fourth quarter 2017, which was highly successful due to a strong performance, particularly in China. With the benefit of hindsight, the expectations built in the budget for 2018 are therefore cautious in terms of forecast sales, EBITDA and ROCE. On the basis of the results for the first two months of the fiscal year 2018, we now expect the positive trend of 2017 to continue in China in the fiscal year 2018 too.

We drew up the budget on the assumption that the new financial year 2018 would reflect a continuation of the economic recovery phase across Europe, albeit at a decelerating pace. In China, the growth rate is likely to return to decelerating trend. Global economic conditions are currently positive despite the continued existence of some significant risks which create major challenges in accurately assessing future economic developments. Risks and uncertainties which may impact on economic conditions that are relevant for the Messer Group’s business are seen primarily in possible upheavals in the wake of expected changes in monetary policies, the uncertain outcome of the continued transformation of the Chinese economy, the still incalculable impact of “Brexit” and a potential trade war. This will continue to be accompanied by the unforeseeable stresses and strains from the trouble spots, especially in the North African and Arabian region.

The Messer Group considers that it is well placed to meet the forthcoming challenges – although it continues to deem it wise to adopt a prudent stance with regard to short-term expectations. The budgeted decrease in sales is mainly attributable to the assumption that the growth rate in China will normalize again compared with 2017 and that the euro will become stronger as a currency for transactions. The predicted deterioration in EBITDA and ROCE reflects the expected decline in sales, compounded by a less favorable forecast of other operating items.

Future investment decisions will be taken in line with the stated strategy of consolidating net debt levels for existing operations in the medium term. A commensurate level of Investments appropriate to this objective is planned for 2018 to take advantage of opportunities arising in China, Vietnam and ASEAN. A solid earnings performance is expected to successfully counteract any sustained increase in net debt at the Messer Group.

Forward-looking assertions

The Outlook Report contains forward-looking assertions which are based on the management’s current appraisal of future developments. These assertions are not to be interpreted as a guarantee that these expectations will in fact be met. Future business performance and earnings of the Messer Group are dependent upon a number of risks and uncertainties and may therefore diverge significantly from the forward-looking assertions made here.

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