Evonik Reports 2Q, 1H 2014 Results

Evonik announced that it achieved organic sales growth in the first six months of 2014, noting that it had slight organic sales growth to €6.4 billion and Adjusted EBITDA margin of 14.5%. The operating results were solid, although they were below the good prior-year level due to the erosion of selling prices for some important products.

Evonik is confirming and specifying its outlook for 2014 as a whole. The company still anticipates that sales will rise slightly (2013: €12.7 billion), and that adjusted EBITDA will be between €1.8 billion and €2.1 billion (2013: €2.0 billion).

On the price front, Evonik expects the stabilization that has been evident so far to continue. In some businesses, a slightly positive price trend is visible. However, so far this does not apply to the Specialty Materials segment, where price trends have remained below the original expectations. If this should continue for the remainder of this year, Evonik currently assumes that adjusted EBITDA will probably be in the lower rather than the upper part of the €1.8 billion to €2.1 billion range.

“Strong demand for our products was registered worldwide in the second quarter of 2014 in a slightly positive economic environment. Our business developed solidly overall,” said Klaus Engel, chairman of the Executive Board of Evonik Industries AG. “Overall, the clear downward price trend for some important products observed in previous quarters slowed perceptibly. The earnings performance of all our segments improved slightly compared with the first quarter.”

The overall global economic development was slightly weaker than expected in the first half of 2014. Although the sustained upward trend in global growth continued, no additional momentum was generated in the second quarter.

In the first six months of 2014, Group sales posted organic growth of 2%. This was driven by higher volumes (5%), while selling prices were lower (-3%). Taking into account currency effects (-2%), sales amounted to €6,448 million, up from the prior-period figure of €6,421 million.

Adjusted EBITDA fell 16% to €936 million (H1 2013: €1,115 million), mainly due to erosion of selling prices for some important products. The adjusted EBITDA margin therefore declined from 17.4% to 14.5%.

The adjustments of -€79 million relate, among other things, to restructuring expenses, impairment losses, mainly in connection with a project in the Specialty Materials segment that was terminated following a routine review of investment projects, and the at-equity carrying amount of STEAG. The prior-year figure of -€93 million mainly comprised income, expenses and impairment losses in connection with the shutdown of production plants in the Resource Efficiency and Specialty Materials segments.

Income before income taxes, continuing operations was 29% lower at €424 million (H1 2013: €601 million). Income after taxes, discontinued operations totaled €21 million. It mainly related to the lithium-ion business and resulted principally from revaluation in connection with the sale of the shares in Li-Tec Battery and Deutsche Accumotive to Daimler AG.

Overall, the Group’s net income dropped 37% to €305 million in the first six months of 2014 (H1 2013: €486 million).

The cash flow from operating activities, continuing operations increased by €111 million to €303 million in the first six months of 2014, mainly due to a considerably lower increase in net working capital and lower income tax payments. Including the cash flow from discontinued operations, the cash flow from operating activities increased by €99 million to €308 million.

To extend its leading market positions, Evonik started up new production capacity in Asia. More than €100 million has been invested in an integrated production complex for isophorone and isophorone diamine in Shanghai (China). Isophorone chemicals increase the service life of, for example, heavy-duty surfaces, and also facilitate environment-friendly coating technologies. In Rayong (Thailand), an extended production plant for precipitated silica was brought into service.

Growth in South-East Asia is driven principally by fuel-saving tires and life-science applications. A new hydrogen peroxide plant with production capacity of 230,000 metric tons p.a. has been completed in Jilin (China). The product will be supplied to a neighboring Chinese partner, which will use it to produce propylene oxide at a newly erected plant based on an innovative process developed by Evonik and ThyssenKrupp Uhde.

At the end of June 2014, net financial debt was €150 million, partly due to ongoing investment spending and the dividend of €466 million for fiscal 2013, which was paid in May. At year-end 2013 Evonik had net financial assets of €571 million.

Evonik registered strong demand for its products worldwide in the second quarter of 2014. The clear downward price trend observed in previous quarters slowed perceptibly. Both sales and adjusted EBITDA improved slightly compared to the first quarter of 2014, with all segments contributing to the improvement in earnings.

Group sales grew 1% to €3,247 million in the second quarter of 2014 (Q2 2013: €3,209 million). Evonik posted organic sales growth of 3%, driven by a considerable rise in volumes (5%age points), which was countered by slight erosion of selling prices (-2%age points). Currency effects clipped sales by 2%age points.

Adjusted EBITDA was €473 million, 7% below the year-back figure of €509 million, mainly due to lower selling prices for some important products. The adjusted EBITDA margin slipped from 15.9% to 14.6%.

Looking at the global economic background, even though the development in the first six months was somewhat weaker than had been anticipated, Evonik still expects to see a slight upturn in global growth in 2014 as a whole. That said, the stepwise recovery in the global economy is affected by increasing structural challenges in the emerging markets and the uncertainty arising from ongoing political disputes and military conflicts. Despite the expected upturn in demand, the decline in producer prices observed in 2013 will not be reversed in all end-customer industries in 2014.