● Adjusted EBITDA in the third quarter reached 485 million euros, an increase of 8% from the second quarter
● Protect operating income and free cash flow through cost control measures
● Technology and infrastructure business units will be split and administrative departments will be streamlined
Thanks to strict cost control measures, Evonik's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter of 2023 increased by 8% from the second quarter to 485 million euros. However, adjusted EBITDA was still down 21% from the same period last year due to continued weak demand.
"The economic recovery will still take a long time. Therefore, we are focusing on the aspects we can control, and the results are now emerging," said Kullerman, Chairman of the Executive Board of Evonik.
In the third quarter of 2023, Evonik's sales fell by 23% to 3.77 billion euros. Sales volume fell by 5% and selling price fell by 6%. Methionine prices bottomed out in the third quarter and have recovered slightly since then. In addition, the ongoing transformation project of the animal nutrition business line has achieved initial cost reduction effects.
Through strict management of working capital and prudent evaluation of investments, Evonik's free cash flow increased by 63% in the third quarter to 469 million euros. Despite the significant decline in adjusted EBITDA, cash flow in the first nine months remained above year-ago levels. Evonik remains committed to increasing its cash conversion rate to around 40% this year (2022: 32%).
Chief Financial Officer Maike Schuh said: "We are strengthening cash flow management, and the effects have begun to show, and we will benefit from it in the fourth quarter. In order to further strengthen our financial foundation, we will continue to strictly manage investments and other expenses next year."
Since the second half of 2022, Evonik has taken a series of measures, including not filling vacant positions, reducing external services, cutting travel, etc., to ensure profits. As of September 30, Evonik had saved approximately 175 million euros in costs, completing 70% of its annual cost reduction target of 250 million euros. Currently, the group's fixed costs are significantly below last year's levels. In 2024, Evonik will continue to implement the above cost reduction measures.
Evonik had a net loss of 96 million euros in the third quarter. This was mainly due to weak business performance and impairment provisions. The super absorbent business that Evonik planned to divest caused an impairment loss of 233 million euros. In 2022, the group's profit for the same period was 214 million euros.
In September, Evonik strengthened its corporate strategy: two core business units are undergoing strategic reorganization to better concentrate resources and strengthen support for three major growth business units. The Technology and Infrastructure business unit is being demerged. In the future, technology departments will benefit from the integration of technology capabilities on a global scale, regardless of geography. The production sites in Marl, Germany, Wesseling, Germany, and Antwerp, Belgium, where the Infrastructure segment operates, will become independent legal entities. This move is intended to increase access to financing and ensure that the infrastructure at these bases maintains high-quality operations.
In addition, Evonik also launched the "Evonik Tailor" program (Evonik Tailor Made), aiming to reduce the complexity of business operations and achieve clearer division of responsibilities. The project will create management departments based on specific needs: achieve faster decision-making and more efficient processes through a new organizational structure; reduce management levels to make administration more cost-effective.
Evonik is continuing to invest in sustainable products: In September, Evonik announced another expansion of production capacity at its site in Schulflin, Austria. The gas separation membranes manufactured at this base can efficiently separate biogas or hydrogen from mixed gases.
Evonik expects market demand to remain weak and not recover for the rest of the year, and confirmed the guidance published in August: Adjusted EBITDA for the full year 2023 is expected to be between 1.6 billion and 1.8 billion euros, with sales of 1.4 billion euros. between 100 million euros and 16 billion euros. Evonik plans to control capital expenditures this year at around 850 million euros.
Business unit performance
Specialty Additives Business Unit: Third quarter sales fell 21% to €882 million due to lower volumes, negative currency effects and lower selling prices. Last year's figures included sales from the TAA derivatives business, which was spun off at the end of 2022. Products used in the construction and coatings industries experienced weak demand across regions and slightly lower selling prices, resulting in a sharp decline in sales. Sales of additives used in polyurethane foams and consumer durables also declined due to lower volumes and lower selling prices. Sales of additives used in the automotive industry fell, while selling prices fell slightly due to lower raw material costs. Adjusted EBITDA of the Specialty Additives business unit was 173 million euros, a year-on-year decrease of 29%. Adjusted EBITDA margin fell to 19.6% from 21.8% in the same period last year.
Nutritional & Consumer Chemicals Business Unit: Despite increased demand, sales fell 13% to 924 million in the third quarter of 2023 due to lower selling prices than in the same period last year and negative currency effects EUR. The demand for essential amino acids for animal nutrition has increased, but the selling price is still significantly lower than the level of the same period last year, resulting in a decline in sales. The overall demand for products used in the medical and health industry is good, and selling prices have also increased. However, sales declined due to exchange rate effects. Adjusted EBITDA for the Nutrition & Consumer Chemicals business unit decreased 14% year over year. Adjusted EBITDA margin fell slightly to 13.7% from 13.9% in the same period last year.
�Energy Materials Business Unit:Sales fell by 19% to €1.1 billion in the third quarter of 2023 due to lower volumes, negative currency effects and weaker selling prices. The softer selling prices were partly due to lower raw material costs. Sales of inorganic products fell significantly due to lower demand. Affected by the decline in raw material costs, selling prices have also declined. In the second quarter, maintenance work on two polyamide 12 production facilities was completed and put into operation, thus having a positive impact on the Performance Polymers business. Sales were roughly the same as last year. Adjusted EBITDA of the Smart Materials business unit fell by 28% to 135 million euros. This was primarily due to lower sales volumes and selling prices, offset by lower variable costs. Adjusted EBITDA margin fell to 12.3% from 13.8% in the same period last year.
Functional Materials Business Unit: Sales fell by 23% to €616 million in the third quarter of 2023 due to lower sales volumes and selling prices as well as negative currency effects. Data for the previous year include sales at the Luelsdorf site in Germany, which was sold on June 30, 2023. Demand for carbon 4 products (high-performance intermediates) is stable, but sales have declined due to a significant drop in selling prices. Sales of super absorbents were also lower than the same period last year due to lower demand in the European market. Adjusted EBITDA of the Functional Materials business unit fell by 46% to 34 million euros. Adjusted EBITDA margin fell to 5.5% from 7.9% in the same period last year.
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