Evonik: Weak Economy Characterizes Difficult 1Q 2023

Despite a difficult first quarter, Evonik confirms its earnings forecast for 2023.

The first quarter was characterized by muted economic activity and weak demand, with customers still destocking, especially in the first weeks of the new year. Overall, sales fell 11% to €4 billion. Volumes declined by 14%. Higher prices offset some of the volumes lost and compensated for inflation effects. Earnings before interest and taxes, depreciation and amortization (adjusted EBITDA) declined by 44% to €409 million.

“The start to the year was even more challenging than we feared,” said Christian Kullmann, chairman of the Executive Board. “However, we saw signs of a business recovery during the course of the first quarter. Both February and March were better than the preceding month in terms of operating profit.”

Despite the weak operating results, free cash flow reached €21million.

“To achieve our goals with respect to free cash flow this year, further efforts are needed,” said Maike Schuh, CFO since April 1. “We need a lot of discipline in dealing with our working capital and investments. Now, we all have to pull together and show that we can withstand the difficult environment.”

For the whole year, Evonik expects adjusted EBITDA at the lower end of the forecast range of €2.1 to €2.4 billion. The main reasons: falling prices for the animal feed additive methionine and for products of the C4 chain.

Undeterred by the current challenges, Evonik is pressing ahead with its announced portfolio adjustments. The first step in the divestment of the Performance Materials division was the sale of the site in Luelsdorf, Germany, south of Cologne. The divestment of the Superabsorbents business is underway: Investment teasers were sent out in March, and the process is progressing according to plan.

Cost-adjustment measures including cuts in the number of external consultants, reduced business travel, and disciplined hiring are also bearing fruit. However, most of the savings target of €250 million will only be realized later this year.

In the Specialty Additives division, revenue declined 12% to €921 million due to lower volumes. Selling prices were raised to pass on higher raw material and energy costs. Products for the construction and coatings industries generated noticeably lower revenue. Sales of additives for polyurethane foams and consumer durables also declined, mainly due to lower volumes.

Among additives for the automotive industry, a volume decline was offset by higher selling prices, resulting in stable sales. Adjusted EBITDA at €168 million was 33% below the prior-year results. The adjusted EBITDA margin in the first quarter declined to 18.2% from 24.0% year-over-year.