Report on Economic Position
Macroeconomic and Sector-Specific Environment
According to the most recently available figures from the International Monetary Fund (IMF), industrial countries faced dampened growth expectations in 2016. Firstly, this was due to the uncertain consequences in connection with the future exit of the United Kingdom from the European Union (“Brexit”). Secondly, economic growth in the United States was weaker than expected in the first half of the year. According to the latest IMF forecasts, global gross domestic product (GDP) increased by 3.1% in 2016, equivalent to a decline of 0.1 percentage points in comparison with 2015. As in the previous year, strong regional differences could be seen. Industrial nations registered a decline in growth to 1.6% (2015: 2.1%). At 4.2% (2015: 4.0%), emerging economies and developing countries achieved an increase in growth rates for the first time in five years. The GDP of the United States, the world’s largest economy, remained behind expectations, growing only by 1.6% (2015: 2.6%). In 2015, growth of 2.8% was forecast for 2016. Growth was slowed by a continued decline in investment in the energy sector and the strong U.S. dollar, which had a dampening impact on export-oriented industrial sectors. As was the case in the United States, the eurozone also registered a decline in GDP growth to 1.7% (2015: 2.0%). By contrast, the emerging economies of Asia registered growth of 6.5% (2015: 6.6%). As in 2015, India (7.6%) and China (6.6%) were the strongest growth drivers. The industrial nations South Korea and Taiwan only generated slight increases in growth, whereas the GDP of Japan stalled at the 2015 level of 0.5%. Korea registered growth of 2.7% (2015: 2.6%) and Taiwan saw growth of 1.0% (2015: 0.6%).
In 2016, organic sales growth at our company was largely attributable to the North America and Latin America regions. While North America accounted for approximately 36% of Group-wide organic growth, Latin America also generated a high share, which amounted to 27.7%. In Latin America, all the business sectors contributed positively to organic sales growth. In North America, growth was driven by our Healthcare business sector. While the Asia-Pacific (APAC) region generated around 56% of organic growth in 2015, it only accounted for a share of roughly 12% in 2016. This was due to the declines in our Performance Materials business sector. For instance, Performance Materials sales in the Asia-Pacific region decreased organically by – 6.6%.33 KB EXCEL
|Development 20161||Development 2015|
|Global pharmaceutical market||6.3%||9.2%|
|Market for multiple sclerosis therapies 2||7.5%||14.9%|
|Market for type 2 diabetes therapies 2||11.2%||11.1%|
|Market for fertility treatment 2||12.6%||10.7%|
|Market for the treatment of colorectal cancer 3||– 0.5%||– 1.7%|
|Market for OTC pharmaceuticals||4.3%||4.9%|
|Market for laboratory products||2.5%||2.9%|
|Share of biopharmaceuticals in the global pharmaceutical market 2||23.3%||22.3%|
|Growth of LC display surface area||4.6%||4.8%|
|Global automobile sales volumes||2.5%||1.3%|
|Materials for production of cosmetics||1.8%||1.5%|
|Semiconductor industry sales||Sales at the previous year’s level||– 2.3%|
According to the latest study published in September 2016 by the pharmaceutical market research firm IMS Health entitled “Global Market Prognosis 2016 – 2020”, the growth of the global pharmaceutical market for 2016 is quantified at 6.3%. By comparison, in 2015, sales growth was still 9.2%. As was already the case in 2015, growth in 2016 was primarily attributable to Latin America and the United States. Whereas growth in the United States fell significantly to 6.3% (2015: 12.0%), at 13.9% the Latin American market continued to see double-digit growth (2015: 16.0%). At 5.7%, the Asia-Pacific region recorded a slight decline in growth (2015: 6.6%). Europe registered a stronger decline to 4.6% (2015: 7.0%).
Not only the growth of the pharmaceutical sector as a whole, but also in particular the development of the biopharmaceutical market are relevant for our business. According to IMS Health, the market volume of biopharmaceuticals was approximately € 208 billion in 2016. In recent years, the share of the global pharmaceutical market accounted for by these products has grown continuously and already amounted to 23.3% in 2016. Globally, the largest share, or 31.2%, was attributable to the United States.
A look at the therapeutic areas of relevance to us shows differing developments. The markets for the therapeutic areas multiple sclerosis grew by 7.5% (2015: 14.9%), type 2 diabetes1 by 11.2% (2015: 11.1%) as well as fertility by 12.6% (2015: 10.7%). By contrast, the market for oncology drugs for the treatment of colorectal cancer declined by – 0.5% (2015: – 1.7%).
According to the market research firm Nicholas Hall, the growth of the global over-the-counter pharmaceutical market was 4.3% in 2016, which represents a slight decline of 0.6 percentage points in comparison with 2015. In 2016, growth was driven by the Asia-Pacific region, which generated growth of 5.5% (2015: 5.1%). As in 2015, India achieved the strongest growth of 7.7% (2015: 8.9%). At 2.2%, growth was weakest in western Europe (2015: 3.3%) and Japan (2015: 0.2%).
1 Excluding the United States.
Our Life Science business sector is a leading supplier of products and services for both research and applied laboratory applications, as well as for formulating, purifying, manufacturing, and quality-assuring drug therapies of biological and chemical origin.
For the laboratory product market relevant to Research Solutions and Applied Solutions, the market research firm Frost & Sullivan expects growth of 2.5% for 2016 (2015: 2.9%). A period of heightened uncertainty in the second half of 2016 dampened growth versus 2015. Growth was primarily driven by biopharmaceutical industry customers, specifically emerging biotech start-ups. In comparison with 2015, European market growth slowed to 1.5% (2015: 1.9%), driven by a weaker euro and economic uncertainty, for instance as regards the unexpected Brexit vote. Growth of the U.S. market was 2.7% (2015: 3.0%), with the slowdown influenced by the U.S. presidential election and delay in passing a 2017 federal budget. Emerging economies delivered higher growth; however, a slowdown in China was visible, with modest improvements expected in this market over the next few years.
The demand for Process Solutions products depends heavily on the volume of biological product sales as well as the productivity of research and development activities of biopharmaceutical companies. As previously stated, the market volume for biopharmaceuticals was € 208 billion in 2016, representing a 23.3% share of the global pharmaceutical market. According to EvaluatePharma, there are more than 8,500 active biologics projects in pre-clinical and clinical development, of which monoclonal antibodies represent 28% (2015: 25%). Biosimilars are a small, but fast-growing part of the pharmaceutical market. In 2016, biosimilars sales are expected to reach US$ 1.4 billion annually before growing to US$ 8 billion in 2022.
With its liquid crystals business, we are is the leading producer of liquid crystal mixtures for the display industry. The dynamic growth rates of display surfaces have declined to an average of 5% in recent years according to surveys by the market researchers at IHS DisplaySearch. This growth was mainly attributable to increasing average display size amid largely stagnating sales volumes. The display industry remains a growth sector in which the leading display technology is based on liquid crystals. OLED technology, for which we also rank among the leading material suppliers, is gaining importance in the high-end display sector.
The markets for automotive coatings and cosmetics are crucial to our Pigments business. As reported by the Center of Automotive Management (CAM) in Bergisch-Gladbach, Germany, global automobile sales volumes rose by 1.3% in 2015. As in the previous years, the growth drivers were China, western Europe and the United States while significant declines in automotive sales volumes were registered particularly in Brazil and Russia. For 2016, a slight recovery in the global growth of the automotive market is expected. According to Euromonitor International, global consumption of materials used to produce cosmetics grew by 2%, with Asia reporting the highest growth rate of 4%.
The semiconductor industry is the most important sales market for the business with integrated circuit materials (IC Materials). The long-term growth of the semiconductor industry has a cyclical demand pattern. According to Gartner, a market research institute specializing in the technology and electronics markets, in 2016 the industry’s sales were at the previous year’s level since the growth of smartphone applications was offset by declining demand in the PC business. The decline in 2015 of – 2.3% was likewise due to the weakness of the PC business.