Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Evonik Industries AG (EVKIF, Financial) reported another quarter of sector-leading earnings growth.
- The company generated very strong free cash flow, significantly exceeding prior year's figures.
- Targeted investments in growth areas like the biosurfactants plant are expected to contribute to future growth.
- The Evonik Tailor Made program is progressing well, with significant cost savings expected by 2025.
- The company has upgraded its EBITDA outlook range, indicating strong performance and confidence in future results.
Negative Points
- The overall market environment remains sluggish, impacting demand and growth.
- Performance materials are expected to be down sequentially in Q3.
- The company faces competitive pressure in its Crosslinkers segment, affecting Specialty Additives' performance.
- Visibility beyond August remains limited, adding uncertainty to future projections.
- The company has ruled out any M&A activities for the next two years, potentially limiting growth opportunities.
Q & A Highlights
Q: Can you clarify if M&A being off the agenda for the next two years also applies to divestments? Specifically, what about the potential divestment of performance materials or other non-core assets?
A: We will continue with the disciplined sale of the C4 business and other non-core assets. The super absorbent business signing is done, and we expect to close soon. However, we will not pursue acquisitions for the next two years, focusing instead on internal restructuring and disciplined investments in organic growth. (Christian Kullmann, CEO)
Q: Could you provide more details on the ramp-up of the biosurfactants plant and its market potential?
A: The biosurfactants market is expected to reach EUR1 billion by 2023, with our target being 40% market share by 2032, translating to around EUR300 million in sales. The new plant in Slovakia should be running at full capacity by 2026, generating triple-digit million sales and EBITDA margins of 25%. (Maike Schuh, CFO)
Q: What are your expectations for the smart materials segment and its margin potential?
A: We expect to improve profitability in smart materials through higher utilization rates and cost-saving initiatives. Current utilization is slightly above 70%, and we aim to increase this as market conditions improve. (Christian Kullmann, CEO)
Q: Given your strong cash generation and no M&A plans, how will you allocate capital? Will you focus on debt reduction or increasing dividends?
A: We will stay disciplined with investments in organic growth and innovation. We aim to maintain our attractive dividend level and work on an attractive balance sheet. We will also listen to shareholder preferences regarding capital allocation. (Christian Kullmann, CEO)
Q: Can you provide insights into the healthcare and consumer care business margins and any plans to improve them?
A: The healthcare business is H2-centered, with better margins expected in the second half. We are pruning the business line and ramping up our lipid plant production in the US. Care solutions are also seeing constant improvements with the new biosurfactants plant. (Maike Schuh, CFO)
Q: What is your outlook for 2025, considering the current economic and political environment?
A: Despite potential headwinds, we are confident due to significant savings from the Evonik Tailor Made program, business restructuring benefits, and lower energy costs. We aim to perform better than this year by focusing on self-help measures and investing in growth areas. (Christian Kullmann, CEO)
Q: How do you view the current market cycle and your position within it? Have we hit the bottom, or are there more challenges ahead?
A: We believe we have hit the trough in 2023 with super low volumes and profitability. We are seeing improvements, with current utilization rates around 75%. However, we remain cautious as the macro environment is not fully recovered. (Maike Schuh, CFO)
Q: What are the key parameters for your guidance range, and why is the range still wide despite H1 being in the books?
A: We have increased our guidance range by EUR200 million, reflecting our strong performance. The midpoint has shifted from EUR1.85 billion to EUR2.05 billion. We prefer to be conservative, given the uncertain macro environment. (Christian Kullmann, CEO)
Q: What are your plans for CapEx, and will you return to the mid-term range of EUR900 million to EUR1 billion annually?
A: The current CapEx guidance is EUR750 million, which is on the lower end. We do not foresee needing to significantly increase CapEx in the near term, as our current utilization rates do not require additional debottlenecking investments. (Maike Schuh, CFO)
Q: What is the status of the Crosslinkers segment, and when do you expect Specialty Additives to return to historical EBITDA levels?
A: Crosslinkers still face competitive pressure, but we managed inventory well in Q2. Specialty Additives' recovery is limited by Crosslinkers' performance, and we are working on improving this segment. (Maike Schuh, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
