Evonik Reports Lower Profits Amid Economic Slowdown in 2023

Essen, Germany – German specialty chemicals manufacturer Evonik Industries is navigating a challenging global economic landscape, demonstrating resilience despite a November 4th report revealing a third-quarter core profit drop of 22 percent. While the decline, attributed to subdued demand and persistent market headwinds, is significant, the company exceeded market expectations, signaling a degree of stability in a volatile environment.

The company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 19 percent to €577 million in the third quarter, mirroring the €578 million achieved in the second quarter. This positive trend continues, with Evonik reporting an adjusted EBITDA of €1.68 billion for the first nine months of 2024, surpassing the total for the entire fiscal year 2023.

“We have delivered the third positive quarterly result in a row,” stated Christian Kullmann, Chairman of the Executive Board. “This is all the more remarkable given that the economic crisis is blowing a cold headwind in our faces. Nevertheless, we will achieve our financial targets for the current year. We are on the right track, and our team performance is strong.”

Group sales for the third quarter increased by 2 percent to €3.83 billion, driven by a 5 percent rise in volumes, while prices remained relatively stable. The adjusted EBITDA margin improved by 2.2 percentage points to 15.1 percent, compared to 12.9 percent in 2023, reflecting the company’s stringent cost discipline.

However, free cash flow decreased from €469 million to €357 million during the third quarter, a fluctuation attributed to a more balanced distribution of cash inflows throughout the first three quarters of the year. As of September 30, 2024, total free cash flow reached €701 million, a substantial €415 million increase compared to the same period in 2023.

“Our adjusted EBITDA and free cash flow trends are clearly pointing in the right direction – upward,” noted Maike Schuh, Chief Financial Officer. “This success is based on our increased focus on the right, less cyclical markets, our restructuring programs and our cost discipline. We are continuously working our way out of the trough of 2023.”

Evonik’s performance in 2023 was impacted by declining prices, particularly in animal nutrition, alongside broader macroeconomic challenges including high inflation, fluctuating energy prices, and the ongoing war in Ukraine. The company had initially forecast a lower core profit for 2023, anticipating adjusted EBITDA between €2.1 billion and €2.4 billion, compared to the €2.49 billion reported for 2022.

The company’s global reach extends to over 100 countries, with 2023 sales totaling €15.3 billion and an operating profit of €1.66 billion. Evonik positions itself as a leader in specialty chemicals, focusing on innovative and sustainable solutions for its customers.

Evonik is currently investing a “double-digit million euro amount” in a new project, with construction commencing in the summer of 2023. The facility is scheduled to begin operations in 2025.

The recent positive results come after a difficult period for the German chemical sector. In December 2022, Germany’s VCI chemical association predicted a further decline in industrial production for 2023, citing the war in Ukraine and ongoing supply chain disruptions. Evonik has responded by implementing cost-saving measures, including restrictions on business travel and external consulting, and a more disciplined approach to hiring, targeting savings of €250 million.

The company’s resilience, as highlighted by its ability to outperform market expectations despite challenging conditions, underscores the importance of strategic adjustments and cost management in navigating the current global economic climate. Evonik’s focus on less cyclical markets and ongoing restructuring efforts appear to be mitigating the impact of broader macroeconomic headwinds.