● Adjusted EBITDA fell by 44% to EUR 409 million in the first quarter
● It is estimated that the annual profit will be at the lower limit of the expected target
● Successfully sold the production base in Ruhrstorf, Germany
Despite the difficult first quarter, Evonik confirmed its expected profitability target for 2023. Evonik Executive Board Chairman Christian Kullermann Kullmann said: "The beginning of the year was more challenging than we expected. Nevertheless, we saw signs of business recovery in the first quarter. Operating profit increased month-on-month in both February and March."
In the first quarter of 2023, the economy is sluggish, market demand is weak, and customers are still reducing inventories, especially in the first few weeks of the year. Evonik's first-quarter sales fell 11 percent to 4 billion euros. Sales fell 14%. By raising selling prices, Evonik partially offset the impact of lower volumes and inflation. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell by 44 percent to 409 million euros.
Despite the weak operating performance, Evonik generated free cash flow of 21 million euros in the first quarter. Maike, CFO since April 1 "In order to achieve our full-year free cash flow goals, we must continue our efforts and work together through this difficult period through disciplined management of working capital and investments," Schuh said.
Evonik expects adjusted EBITDA for the full year 2023 to be at the lower end of the expected target range of 2.1 billion to 2.4 billion euros, mainly due to lower prices for the animal feed additive methionine and C4 products.
Despite the challenges, Evonik will continue to push forward with product portfolio adjustments. Evonik is divesting its Functional Materials business unit and has sold its production site in Ruhrstorf, Germany. The divestiture of the super absorbent business is also progressing steadily: the investment notice was released in March, and relevant work is currently being carried out as planned.
Evonik has implemented a series of cost adjustment measures, including cutting external consulting services, reducing business travel, and strictly controlling recruitment, etc., which have paid off. Evonik expects to achieve its cost reduction target of 250 million euros later this year.
The company is also accelerating the implementation of sustainable development strategy. In March, Evonik started to build a new world-class pharmaceutical lipid production plant in the United States; a clinical-level production plant in Hanau, Germany was also officially completed. In February, a new gas separation membrane plant was commissioned in Austria.
Business Unit Performance
Specialty Additives business unit: Lower volumes in the first quarter resulted in a 12% decline in sales to EUR 921 million. Product selling prices increased, thereby passing on higher raw material and energy costs. Sales of products used in the construction and coatings industries decreased significantly. Declining sales of additives used in polyurethane foam and consumer durables contributed to lower sales. For additives used in the automotive industry, lower sales prices were offset by higher selling prices, and sales remained stable. Adjusted EBITDA of the Specialty Additives business unit was EUR 168 million, down 33 percent year-on-year. Adjusted EBITDA margin fell to 18.2% in the first quarter from 24.0% a year earlier.
Nutrition & Consumer Chemicals: A significant reduction in volumes in the first quarter led to a 15% decline in sales to EUR 886 million. Evonik is adjusting the business model of the animal nutrition business line to enhance the competitiveness and profitability of the amino acid business. The continued decline in methionine prices suggests that the measure is imminent. Sales in that business fell sharply. In contrast, sales of products for the health and care industry declined, although sales were only slightly lower compared to the previous year due to higher selling prices. Adjusted EBITDA in the Nutrition & Consumer Chemicals segment fell by 66 percent to EUR 76 million. Adjusted EBITDA margin fell to 8.6% from 21.4% in the first quarter of 2022.
Smart Materials business unit: Lower volumes in the first quarter resulted in a 7% decline in sales to EUR 1,188 million. The increase in raw material costs led to an increase in product sales prices. Sales of inorganic products decreased significantly due to lower market demand. The increase in selling prices reflected higher variable costs. The new production capacity of the high-performance polymer polyamide (PA12) production plant in Marr, Germany, meets the strong demand of the market. Adjusted EBITDA in the Smart Materials business unit fell by 23 percent to 164 million euros due to lower volumes and higher raw material costs. Adjusted EBITDA margin fell to 13.8 percent from 16.5 percent.
Functional Materials: First-quarter sales fell by 16% to EUR 707 million due to lower volumes and selling prices. Declining demand for carbon 4 products and falling prices led to a significant decline in sales. An increase in the sales price of superabsorbents led to an increase in sales. Adjusted EBITDA in the Functional Materials segment fell by 55 percent to EUR 37 million, mainly due to lower volumes. Adjusted EBITDA margin fell to 5.2 percent from 9.7 percent.
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