Evonik’s Q2 hit with “significant profit decline” amid EU recession and impacted Chinese economy

14 Aug 2023 --- Evonik, Germany’s second-largest chemicals company, posted an adjusted EBITDA of €450 million (US$492 million) in the second quarter of 2023 alongside a negative free cash flow and net loss. The company’s adjusted EBITDA fell by 38% when compared with Q2 2022.

However, the adjusted EBITDA improved compared with the first quarter of €409 million (US$447 million). The earnings were reportedly buoyed by “strict cost-cutting measures.” The cost cuts were made to safeguard gains since the second half of 2022. 

Products for the health and care industry recorded lower volumes overall. Adjusted EBITDA fell 62% to €71 million (US$77.5 million), mainly due to price declines in essential amino acids.

Sales in the Nutrition & Care division decreased by 13% to €893 million (US$976 million). Selling prices were noticeably lower, while volumes increased slightly.

“Germany is in a recession, Europe as well, and the economy in China is not picking up as we had hoped. Unfortunately, the second quarter showed no meaningful turnaround for our business,” says Christian Kullmann, chairman of the Executive Board at Evonik.

Evonik reports a higher adjusted EBITDA than its previous quarter.Negative cash flow
The company is set to save €250 million (US$273 million) in the current year by not filling vacant positions, cutting down on the use of external service providers and restricting business travel. In June, Evonik reached 40% of target savings.

Evonik claims the “economic downturn” caused group sales to reduce by 19% to €3.89 billion (US$4.25 billion) in the second quarter compared to the previous year.

The free cash flow was a seasonal negative €203 million (US$221.8 million) in the second quarter, an improvement compared with the negative €239 million (US$261 million) in the same period of 2022.

Evonik reports it will limit capital expenditures in 2023 to around €850 million (US$929 million). The corresponding budget was already cut from €975 million (US$1 billion) to €900 million (US$984 million) earlier this year. 

Cash focus
Evonik posted a net loss of €270 million (US$295 million) in the second quarter. The chemicals company says this is primarily a result of “impairment charges totaling €390 million (US$426 million), mainly on production facilities of methionine worldwide, as well as for silica in Europe and North America.”

Evonik expects continued weak demand for its services in 2023 without any recovery throughout the year’s second half. 

“We are now steering the company toward cash. We are keeping the money together to remain financially capable of acting,” concludes Maike Schuh, chief financial officer at Evonik. 

Financial growth and decline Evonik’s health and care industry recorded lower volumes overall, mainly due to price declines in essential amino acids. 
In other financial news, Synthetic biotechnology pioneer Amyris filed for bankruptcy in the US, announcing plans to continue operating its consumer brands after they are sold off through retail partners and e-commerce platforms. 

Marking a significant milestone in completing the merger between DSM and Firmenich, the combined company revealed its half-year results for 2023. The total sales for the year’s first half amounted to €6.15 billion (US$6.76 billion), indicating a 5% decline compared to H1 2022.

The company said it was due to headwinds faced by the Animal Nutrition & Health segment as a cause of weak vitamin market conditions, high input prices and elevated inventories, which also had a lesser impact on the Health, Nutrition & Care segment.

On the other hand, personal care and cosmetics giants Procter & Gamble Company, Colgate-Palmolive, E.L.F. Beauty and Edgewell Personal Care have each released financial outlooks pertaining to their business performances in the recent quarter and fiscal year.

The industry is still affected by high raw material costs and softness in some markets like China. However, companies have reported a rise in sales amid these economic conditions, supported by price increases.

Edited by Sabine Waldeck