Evonik Industries AG (EVKIF) reported a margin increase to 15% in Q3, showing improvement despite flat or slightly declining volumes.
The company is successfully implementing cost-saving initiatives, which are expected to ramp up further in 2025.
Evonik is realigning its portfolio by exiting underperforming businesses, which is expected to improve financial KPIs significantly.
The company has defined three new innovation growth areas: biosolutions, circular economy, and energy transition, aiming for EUR1.5 billion in new sales by 2032.
Evonik confirmed its free cash flow target for the year with a conversion rate around 40% and maintained its EBITDA outlook range.
Negative Points
Evonik will revert EUR100 million of short-term contingencies in 2025, which were initially implemented to counter drastic volume declines.
The performance materials segment is experiencing weaker dynamics, impacting the potential for strategic transactions in the near term.
The healthcare segment is facing operational challenges, particularly in the amino acids business, leading to site closures.
The company anticipates a more pronounced year-end seasonality in Q4, especially affecting performance materials.
Evonik faces potential challenges from new supply in the methionine market, particularly from Chinese competitors.
Q & A Highlights
Q: Can you provide insights into the growth rate for animal nutrition and the impact of the shift from European to Asian tire manufacturers on your silica business? A: The growth rate for animal nutrition is slightly lower than the 3% seen in health and care, with care solutions performing stronger. The silica business experienced a 6% volume growth year-on-year, driven by strong demand across industries, including the tire market, which is largely focused on replacement business. The shift to Asian manufacturers is not expected to significantly impact growth in 2024. - Christian Kullmann, Executive Vice President
Q: How will bonus accruals and wage inflation affect your cost base next year? A: We anticipate higher bonus payouts in 2024 compared to 2023, leading to increased accruals. Wage inflation is expected to be around 4%, which will be offset by operational efficiency measures. Despite these factors, we aim to maintain a strong free cash flow conversion rate of 40%. - Maike Schuh, Chief Financial Officer
Q: What is the outlook for the performance materials market, and how does it affect potential divestment plans? A: The performance materials market is experiencing a weakening trend, particularly in rubber, auto, and construction sectors. We are not in a hurry to divest and will wait for a more favorable market environment to maximize value from any potential sale. - Christian Kullmann, Executive Vice President
Q: Can you elaborate on the performance of high-performance polymers and the seasonality expected in Q4? A: High-performance polymers have seen positive volume development, particularly in automotive and consumer goods sectors. For Q4, we expect typical seasonality with a slightly more pronounced decline in performance materials, similar to Q4 2023. - Maike Schuh, Chief Financial Officer
Q: How is the healthcare segment performing, excluding non-core businesses? A: The core healthcare business, including oral drug delivery and lipids, is performing well. However, we face challenges in the amino acids segment, leading to strategic decisions to close certain capacities to improve cost positions. - Christian Kullmann, Executive Vice President
Q: What are the expected net savings from cost initiatives in 2025, and how are specialty additives performing? A: We expect high double-digit million net savings in 2025 after accounting for factor cost increases. Specialty additives have shown double-digit volume growth, driven by strong performance in oil additives, foams, and coating additives. - Maike Schuh, Chief Financial Officer and Christian Kullmann, Executive Vice President
Q: How does Evonik plan to address the competitive landscape in the methionine market? A: We expect methionine prices to remain stable despite new supply from Chinese competitors. Our strategy focuses on maintaining price discipline rather than aggressively pursuing market share. - Maike Schuh, Chief Financial Officer
Q: Is there any consideration for splitting the company similar to Solvay's strategy? A: There are no plans to split the company. We believe in maintaining our current structure and strategy, which is not aligned with such a move. - Christian Kullmann, Executive Vice President
