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Foreword

Foreword

Dear Readers,

2015 was a year in which much happened and that saw our world become embroiled in a great many political conflicts.

The annexation of the Crimea by Russia, civil wars in Afghanistan, Syria and Iraq as well as the Islamic terror being perpetrated by ISIS and Boko Haram have cost many thousands of innocent lives. The brutal attacks in Paris in November 2015 that claimed 130 lives shook Europe's liberal values to their core. France's President Hollande declared war on Islamic terror and forged world-wide military alliances with the purpose of destroying the "Islamic State" terror militia.

Nearly 60 million people around the world are fleeing their homeland in search of a better life. Europe is still unable to cope with the flood of arriving refugees. Our population is rendering exemplary assistance. One of the most important tasks in the coming years will be to quickly and successfully integrate the new arrivals into German society.

Compared with these intractable political conflicts and refugee problems, the financial crisis in Greece seemed rather harmless, though detrimental to the stability of the European single currency.

Despite all these negative developments, the global economy still grew by over three per cent in 2015, with Europe recording a moderate rise in growth of 1.7 per cent and North America of around 2.8 per cent. The developing countries in Asia were still the main growth engines, whereby the strong growth enjoyed by China in recent years slowed. Industrial companies are increasingly moving to Southeast Asia where wages are still comparatively low. The service industry is growing at a disproportionate rate and determining the process of change in the Chinese economy.

The future now lies in the ten Southeast Asiatic countries that have united to form the ASEAN Union (Association of South East Asian Nations). Over 600 million people live here and generate a gross domestic product (GDP) of USD 2.3 trillion or USD 3,745 per head. In comparison with the European Union, there is a great deal of catch-up potential that is still to be tapped.

Our company is following this trend, and so began construction of a third air separation plant in Vietnam. We also succeeded in concluding a long-term on-site contract with Samsung for a nitrogen generator to supply a new smartphone factory near Hanoi. Both plants will go on stream in 2016.

In order to develop the markets in the other ASEAN countries, we have established an office and a consulting firm in Singapore. We already have a number of specific projects ongoing in Indonesia, the Philippines, Malaysia and Thailand upon which I will be in a position to report at the end of 2016.

Our diversification strategy for China was successfully pursued in 2015 with the commissioning of two CO2 plants in Chengdu and Kunming, a new specialty gases plant in Suzhou and a krypton and xenon production facility in Panzhihua. A new air separation plant went into operation in Panzhihua and further production facilities are currently under construction in the provinces of Zhejiang, Jiangsu and Hunan. A gas bottling facility in Changsha should strengthen our cylinder gas business in China.

Following the substantial investments made in recent years, we now need to fully exploit the capacity of the existing plants in China and operate them profitably.
Application engineering plays a pivotal role here and, with the help of our European colleagues, we have already managed to win a number of major customers for liquid gases in the metallurgy sector.

Despite the current economic slowdown in China, we still see sufficient potential to successfully grow our business there over the coming years.

There were great disparities to be seen in the business trend in the European countries. Above average economic growth was experienced in Poland and the Baltic states, from which our national subsidiaries there also benefited. Growth in Western Europe was rather subdued, however.
We commissioned new plants in Estonia, Poland and Serbia. Additional plants are under construction in Slovenia, Belgium (CO2) and Hungary. We also further expanded our filling plant for cylinder gas in Siegen.

As part of an ongoing consolidation of the European industry, we reached agreement in 2015 with our competitor Air Liquide on a country swap. We sold our holding company in Turkey and are acquiring in return Air Liquide's holding company in Hungary.
The country swap that was agreed upon in 2014 with Praxair in France and Italy has already been concluded and will lead to synergies with Messer France this year.

The economic weakness in the global market has had a greater impact on our sister company, Messer Eutectic Castolin. The decline in oil prices has led to a global reduction in contracts for repair and maintenance work in the field of oil and gas exploration, an important sector for Castolin Eutectic.

Following the successful commissioning of our new Castolin facilities in Japan, Poland, Mexico, Dubai, Thailand, Singapore and Dalian, China in 2014, we are now hoping for a higher degree of utilisation in 2016. The new technologies we acquired through the purchase last year of Whertec and Monitor have been rolled out on a wider international basis over the course of this past year.
Boiler coatings and wear plates are the strategically important fields that we will continue to push in 2016.

In summer, Messer Cutting Systems celebrated the twentieth anniversary of its factory in Kunshan (China). At the same time, a new production building for laser cutting machines went into operation in Kunshan.
Our cutting machines factory in India achieved a gratifying level of growth.

Our third division for diagnostic devices has signed contractual agreements to set up a new joint venture in China. The new enterprise, involving BIT and the Chinese medical devices company EDAN, is set to start manufacturing haematology instruments for the Chinese market in 2016. We expect it to enjoy above average growth over the coming years.

All in all, we can be very satisfied with the way Messer developed during 2015, although growth has slowed noticeably. For this reason, we are somewhat cautious in our outlook, although we did develop many ideas for the sound growth of the group at our management conference in autumn which will be implemented during 2016.

Loyal customers and employees remain the cornerstones of our success.

I therefore ask that you continue to give us your support and help Messer move forward in a difficult market.

I thank you for your partnership, friendship and your confidence.

Yours,
Stefan Messer


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