Evonik Industries AG

XETRA:EVK

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Q3 2019 earnings conference call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 5th of November 2019. I would like now to hand the conference over to your speaker today, Tim Lange, Head of Investor Relations. Please go ahead, sir.

[Tim Lange, Head of Investor Relations]

Thank you very much, and good morning. And as usual, welcome to our quarterly earnings call. With me are Christian, our CEO; and Ute, our CFO. With that, I hand over directly to Christian for this short presentation.

[Christian Kullmann, CEO & Chairman of the Executive Board]

Thanks, Tim, and also a very warm welcome from my side, and thanks for being with us today. Let's start right away with our short presentation. Ute and I will guide you through the first 4 slides of our quarterly presentation.In quarter 3, the difficult macro environment continued on a similar level as seen in quarter 2, so there was no support from the macro side. Against that backdrop, our growth segments are holding up quite well. Nutrition & Care as well as Resource Efficiency have delivered sequentially more or less stable earnings. On top of the challenging macro situation, we have to deal with another burden, ongoing production constraints in Performance Materials weigh on quarter 3 as well as on quarter 4 earnings. Both situations, an ongoing challenging macro situation as well as own production constraints, forced us to react quickly, and so we did. We further accelerated and intensified our cost-saving measures. That is why we can confirm our EBITDA guidance for 2019. Delivering on our promises is important for us to extend our track record that we have started to build over the last 2 years. More details on our cost discipline on the next chart. Faster progress in our SG&A program and additional contingency measures will provide EUR 40 million support in the second half. This is already visible in quarter 3, mainly in the corporate segment, where the numbers are clearly lower compared to quarter 2. Consequently, we also lowered our full year guidance for the corporate segment, which is now expected tangibly below the prior year level. Where that has come from? Our SG&A program is progressing well. The measures in head count reduction are actually ahead of schedule. This results in EUR 20 million higher savings already for this year. On top, we have implemented additional contingency measures since the middle of this year. This goes across the board, in corporate and in all operating segments, in travel expenses, maintenance costs and personnel expenses. The high internal cost awareness and strict cost discipline on all levels is another proof of the casual change at Evonik. With this short introduction, let me hand over to Ute for the next 2 slides.

[Ute Wolf, CFO & Member of Executive Board]

Thank you, Christian, and welcome from me as well. Chart 5 shows you a more detailed earnings bridge for Q4. I am sure you have done the modeling already this morning with our IR team, so let me just give you the main messages. Our usual Q4 seasonality structurally improved after the MMA divestment. Additionally, this year's earnings seasonality will be mitigated by the following effects. First, Performance Materials should have resolved their production constraints in the course of Q4. Then we expect the license fees in our Active Oxygens business in Q4. In Animal Nutrition, Q4 traditionally is a seasonally strong quarter. And last but not least, the mentioned cost savings are further ramping up. This will bring Q4 to a level of around EUR 500 million and with this, full year earnings to be confirmed stable guidance level. So overall, Q4 will be well supported by the just mentioned effects and our intensified cost discipline. And I want to stress that this is not a onetime effort but rather the implementation of a new mindset, as Christian just described. So you can expect more to come in 2020.Let me also spend some words on the current trading in our segments. In Nutrition & Care, we see the back-end loaded earnings development in Health Care to materialize as expected. Care Solutions continued to benefit from efficiency measures and the portfolio shift to more specialty products. In Animal Nutrition, the picture is rather unchanged: on the one hand, strong volume growth, even above average, supported by the African swine fever; on the other hand, a still negative but easing price effect. It was EUR 30 million in Q3 year-on-year after EUR 40 million in Q2. In Resource Efficiency, the challenging environment of auto and coatings end markets continues. This is visible especially in industry-linked silica applications and in the coating businesses. But the majority of our businesses is holding up quite well, like unchanged strong PA12 business in industrial and consumer goods and strong demand for crosslinkers from the wind industry. In Performance Materials, stable or even slightly improving spreads for MTBE and INA are currently not enough to compensate for year-on-year lower butadiene spreads. Additionally, the production constraints are leaving traces. But with that effect easing in Q4, earnings should be on a comparable level like seen in Q3.Finally, free cash flow on Chart 6. We do confirm, not only our earnings but also our free cash flow guidance. We guided for a significantly higher free cash flow and further specified that today to a level of around EUR 700 million. Despite the challenging macro environment, we have made good structural progress this year. The pension reimbursement gives us EUR 100 million support and the high discipline on net working capital and CapEx result in combined more than EUR 200 million less cash-out.For CapEx, we have already revised our guidance from EUR 950 million to EUR 900 million with our Q2 reporting. And we will manage our CapEx budget very tightly until year-end. Let's see how it finally turns out. But from today's point of view, we might even come out slightly below the EUR 900 million. So we are confident to reach the EUR 700 million for free cash flow, which is good progress and covers our dividend also in this more challenging macro environment. This is what we have promised at the beginning of the year and what we will deliver.In 2020, tight net working [ CapEx ] management will continue and we will have a significantly lower cash-out from bonus payments. Based on that, we see further room for improvement and additional upside in cash generation and cash conversion.That closes our brief presentation. Thank you for your attention so far, and we are now happy to discuss your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Andreas Heine from MainFirst.

[Andreas Heine, Managing Director]

Three, if I may. The first, you already outlined a little bit what you see in Q4 trends. Maybe you can or at least try to give some indications what you expect at least at the beginning of 2020 and how you see that year progressing. Secondly, conversion rate into 2020, you outlined the net working capital and CapEx discipline. Is that the main driver? Or do you see also room from the operating business for improvements, so it is more the technical issue of CapEx being strict and net working capital being strict? Or are other factors driving this as well? Last but not least, on the balance sheet. So looking on the increased pensions and the proceeds you have gathered from the MMA disposal, net debt-to-EBITDA is now, including pension, at 3x. And therefore, the balance sheet is not overly strong. However, EUR 1.5 billion cash are sitting on the balance sheet at negative interest rates. Can you please outline in this context what the room for additional shareholder return from the MMA proceeds might be?

[Christian Kullmann, CEO & Chairman of the Executive Board]

I think we should share answering your questions, Ute and myself. And I would start. Of course, everybody seems to be or is still interested in what kind of beef we are bringing to the table next year. So let me start with this. 2019 was, let me say, a year which was coined by a market environment which was still, let me say, difficult and challenging. And we do believe, we do think, we do expect as of today that this will stay put in 2020, too. It is that we do not see a high, let me say, a high level of uncertainty instead of us saying that there is low visibility. So nobody would be surprised that I cannot give you a precise outlook for 2020. But maybe we could, let me say, go through our assumptions for the next year and then in the second step, Ute will complete the picture on a group level. And saying this, maybe let's start with, yes, Nutrition & Care. Here, 4 out of our 6 businesses -- business lines have really delivered year-on-year, showing higher earnings in this year. And that is what we do believe that is what demonstrates a good and a more resilient end market on the one side. And on the other side, that is paying off by our own efficiency programs. We compensated -- let's follow with Health Care, we compensated in Health Care for the end of a large contract and kept the earnings stable. Next year, we'll see that Health Care is really set for good growth again based on a proper healthy project pipeline. Touching Care Solutions, that business line is benefiting from our efficiency measures. And by the way, the new business line head, Tammo Boinowitz, is really doing great here and particularly in this respect. And moreover, the portfolio shift this year of towards more specialty products is really good paying off. So in 2020, this will continue. And we will see here another candidate for good growth. Baby Care, as you know, we have seen some recovery of volumes this year. And this is supported by our restructuring measures. So we do believe that we will here see in 2020 even some, let me say, upside. Animal Nutrition, we will see in 2020 the first material earnings contributions from our joint venture with Feike Sijbesma, CEO of DSM. Here, we have a joint venture called Veramaris. And this is quite well developing and progressing. And finishing the segment with another attractive and profitable product design. We cannot, today, predict an [ assigning price ] until the end of next year. But let me say it like this, the fact is the market will continue. And that is what we are sure about, we'll continue to grow strongly in 2020. In respect of prices, they are on a 20-year low. And if you see -- if you have a look on the market environment, you could see that, for example, some of our competitors have already canceled products -- projects and closing sites.Talking about Evonik, that means we will continue. We will continue to execute our efficiency program in Animal Nutrition. And that is, and I dare say it is worth to mention that is really paying off -- good paying off. And one thing is let me underpin it, for Evonik, is given it's crystal clear, if the prices would even decline further, we are still prepared to intensify our efficiency measures and to optimize our global cost structure. And there is enough room for good improvement in this respect. Maybe that is in a nutshell an overview of our assumptions talking about next year. Now coming to Resource Efficiency. Here, I would say that we have delivered a year-on-year stable earnings level in this year and in a challenging macroeconomical environment, especially in coatings and in automotive. Despite this, that is demonstrating the strength and the resilience of the segment. For next year, for 2020, from today's point of view, we are not seeing further changes in any of our businesses. Of course, in respect of automotive and with coatings, 2020 will remain challenging. But on the other side of the coin, the majority of the segments, like, for example, PA12 or the very strong silica business, they will continue to benefit from our strong customer relationship and from our tailor-made solutions in those businesses. Maybe one thing to add, you should take in mind that next year in the course of 2020, we will have the ramp-ups of our new silica plants in Antwerp and in Charleston.Taking a look to Performance Materials. Yes, the current -- in the current weaker environment, we would not assume a recovery of volumes and of spreads in the next year. But on the other side, and there's always another side, with the negative impact from limited raw material supply and outages in this year, this segment should be in 2020 at least on a stable level. So maybe this is our view in respect of what we do expect, what we assume and what we see for the next year. And with this, I want to hand over to Ute.

[Ute Wolf, CFO & Member of Executive Board]

Yes. Thank you, Christian. Yes, some more technical comments from my side. Pension service costs will be higher as the pension interest rate is low so that could be another EUR 30 million to EUR 50 million negative effect. On the other hand, FX rates are strong or better, so more or less, that could be then compensated by that. We will not have one-offs like ramp-up costs for Me6 or for Veramaris and other plants that will also weigh on the profitability of this year. And Andreas, as you were asking, is there also operational improvement? That's clearly a qualitative improvement, the startup of Veramaris, much better profitability also like before. So I think there is also step-by-step qualitative improvement in our earnings also in next year. Then we have the license fees in Active Oxygens. This year, they might not reappear at the same level, but it is part of the strategy [ to ] license out the HPPO process instead of investing ourselves. So that was a clear strategic decision we took some 2 years ago. So there also will be license income next year, maybe not exactly at the level of this year. But I think in relation to the overall EBITDA level for Resource Efficiency, that should be not the biggest effect.We will also continue to execute our cost programs like we did in this year. Our SG&A program will deliver additional EUR 80 million in gross savings with a high retention rate. Plus we have the running programs in the different business lines, like Animal Nutrition, Baby Care or Care Solutions. But beyond that, there still remains, of course, some level of uncertainty and low visibility. So we have started early to prepare different scenarios for next year and defined measures which are necessary also in a more doom scenario so that we really are prepared on the cost side. So if the macro environment stays difficult, we have to cut costs further and we will do that. And this is what we prepare since a couple of weeks already here internally. The measures I defined and ready implement, some already have been started to be implemented and they will come on top of our SG&A savings. So overall in 2020, you can expect a stabilizing effect from the contingencies and cost-saving initiatives like you have seen that in this year as well. For the free cash flow, I think that was the second question. Of course, that depends a little bit also on the precise EBITDA outlook, which we do not have today. But I can give you some structural improvement that we expect for 2020. We will have the unchanged benefit from the pension reimbursement so that's more or less no change year-over-year. We will have substantially lower bonus payments in 2020. The positive effect can be roughly EUR 100 million as the cash-out this year was extraordinarily high. And next year, we will not have a 100% payout ratio as, of course, the year was rather challenging. We will implement further net working capital discipline, so no big outflow expected for next year. That helps also in the qualitative structure of the cash flow. And of course, we'll have a tight CapEx regime. On the other hand, if macro environment is somewhat in a slower growth scenario, then we do not need maybe so much growth CapEx that we thought some years ago. So that overall, I think, supports the cash flow for next year. And it's our clear intention to improve the cash conversion ratio as well. So we were at 25% last year. This year, we will be above 30%, which is more or less in line with the average. And for 2020, we strive for further improvement in our cash conversion rate, both with structural things but also with a higher quality in earnings step-by-step that, I think, Christian and I described.The third question was on balance sheet leverage. Yes, we have a negative interest on the cash we received for the MMA disposal. On the other side, we will have a bond repayment next year. So that is a rather short-term view. The priority for the employment of the funds is more or less unchanged. It's, first of all, reinvestment, be it in organic or also other M&A projects. But also share buybacks are on the list, have been on the list the whole time. But please keep in mind that we need certain preconditions to really have a reasonable process here. But it is on the list as it has been all the time.

[Christian Kullmann, CEO & Chairman of the Executive Board]

Andreas, maybe one more sentence to sum it up. If it would start raining [ bricks ] next year, we would be prepared. We would be prepared because of our sustainable cost-cutting measures and there is more to come. And maybe a tidy story. When I have taken helm in summer 2017, I have asked all my management team and the representatives of codetermination to start to create a cost-cutting program. And a lot of guys have asked me, "Oh, Christian, what are you up to? And is it really useful? The wheat is standing high and the sun is shining." Nobody is asking those questions anymore. Or in other words, the transformation program we have started in summer 2017, there were some slight, let me say, headwind because of this. Now don't get me wrong, the macroeconomical situation, I guess, is something like a booster for the casual change and for the transformation program of Evonik. And therefore, it is a chance which is really helping us to accelerate even some more painful measures to make sure that we will see a year -- in 2020, a year where we were able to stand the pace and to deliver once again what we will announce to you.

[Operator]

And the next question comes from the line of Alexandra Thrum from Morgan Stanley.

[Alexandra Thrum, Equity Analyst]

Just 2 clarifications on next year. Do you still expect to see some synergies in 2020 from previous acquisitions? And if you could help quantify the one-offs that we've had this year as well, the negative one-offs, that is. My second question was just on CapEx. Obviously, you've been quite disciplined and reduced your CapEx for this year. How much of that is just deferring CapEx into next year? And could we actually see an uplift in that scenario? And then just final question as it relates to your Singapore plant [ in methionine ]. If we see chicken prices continue as they have been forecast and say double-digit chicken production growth next year, could you actually ramp up that Singapore plant quicker and do that without pressuring prices further?

[Christian Kullmann, CEO & Chairman of the Executive Board]

Thanks a lot for your question, Alexandra. I may take the first one and then I will hand over to Ute. The first one, let me give you some more color about the CapEx level next year. First of all, the CapEx level depends on which macro scenario becomes reality in the next year. If you look to this, we have proven a tight CapEx management and we've cut our CapEx budget from -- in the first step, from EUR 950 million to EUR 900 million. And now it might come out even slightly below EUR 900 million this year. If we look to the next year, yes, we will continue. We will continue with a tight CapEx management. And I do assume that if a further weak environment will stay put, that you can expect that our CapEx will start with an 8 in 2020. So once more, tight CapEx management will continue. And this year, the first step, we've cut, we've reduced the CapEx budget from EUR 950 million to EUR 900 million. It could come out even slightly below EUR 900 million in this year. And for next year, if this stays put, you can expect that the CapEx budget will start with an 8 as first number. So with this, I will hand over to Ute.

[Ute Wolf, CFO & Member of Executive Board]

Yes. To your question on the synergies, there is still a smaller portion of synergies next year, like EUR 10 million to EUR 20 million. No integration costs anymore, of course, as the integration lies largely behind us. The one-offs in 2019 are ramp-up costs for Me6 plant, for our Veramaris plant and partially also for our silica plant. And on the other hand, the earnings effect from the raw material constraints in our C4 business, which appeared at the beginning of the year and also now in Q3, so that could sum up to EUR 40 million over the whole year just to give you a rough indication. The Me6 ramp-up, we have always said we will ramp up the plant according to market needs and market growth. So the facility is technically ready, technically running very smoothly, very well, and very flexible to drive utilization as we needed for production and delivery into the market. As the demand is currently very strong, as you said that, of course, we are fully flexible and also happy to ramp up here the plant maybe somewhat quicker than originally thought.

[Operator]

And the next question comes from the line of Chetan Udeshi from JPMorgan.

[Chetan Udeshi, Research Analyst]

Yes. I was just looking at that slide, where you showed acceleration in terms of cost savings on SG&A. And I'm just trying to figure out, if I look at the first 3 quarters of this year and see the change in SG&A, actually it's down only EUR 24 million. And I'm assuming there is some benefit from lower bonus accruals, maybe I don't know if IFRS 16 benefits. So I'm just trying to understand, is there some offset on the selling expenses line, which is probably offsetting any of the benefit you have in terms of cost-cutting? Or is it more reflected in some of the other lines? Maybe I don't know, I have not calculated for G&A, but maybe if you can help us just sort of bridge that gap in terms of how much you [ actually ] can see on P&L, that will be useful.The second question was just a clarification because I think, Ute, you probably mentioned it already, but your pension provisions have risen because of the lower discount rate. Can you remind us now what is the sort of coverage ratio? Because I think at the end of last year, it was probably around [ 70% ] or so whether that has deteriorated significantly or there is a small change overall from that level.

[Ute Wolf, CFO & Member of Executive Board]

Yes. Chetan, thank you for the questions. For the pension funding ratio, that fluctuates always a little a couple of percent. So it also depends, of course, on the development of the assets. So I would say we are between 65% and 70%. And that's the range where we want to be. And then regarding the cost savings, the bonus, that will play so much in the other segment as the biggest portion of our employees is in the services, and of course, in the operating segment. So from that point of view, the bonus has a relatively small effect here. The cost savings are not only to be seen in corporate and others. It's also internal services, like IT, procurement, HR, which then translate into the cost lines of the business segments. So from that point of view, you only see part of that in the corporate segment. And of course, our program does not only tackle admin but also marketing and sales. And if you look at the overall P&L, you also see that our sales expenses have gone down. Of course, there is a little bit of a volume effect in there as well but also a clear fixed cost cut effect in that. And on the other side, we had some [ effect of ] cost increase and there, that works against us. But this is how the overall SG&A savings distribute in the segment of the group.

[Chetan Udeshi, Research Analyst]

Can I just follow up on the previous comment around the sort of ramp-up costs? Did you say EUR 40 million was the total of ramp-up cost and the raw material...

[Ute Wolf, CFO & Member of Executive Board]

No. That was the effect from the raw material constraints and from -- in our C4 chemistry, which has been appearing at the beginning of the year already, you might remember in Q1, and we now also have some in Q3.

[Chetan Udeshi, Research Analyst]

And what will be the ramp-up costs you might have had for the full year, you think, for all the different projects? I think methionine was EUR 15 million each in Q1 and Q2. But I don't know if that's the right number. But anything material also from other projects you might have had?

[Ute Wolf, CFO & Member of Executive Board]

Roughly EUR 30 million, I think, is a fair assumption. Of course, for Veramaris and silica, it's much lower as these are smaller facilities, smaller sites. We say up to 10% of invest costs, so I think that's a good guidance for ramp-up costs.

[Operator]

And the next question comes from the line of Michael Schäfer from Commerzbank.

[Michael Schäfer, Equity Analyst of Chemicals]

First one is sticking to Veramaris. In your opening remarks, you said that you're -- that basically the progress is well. And I just wonder whether you can update us on what should we expect basically on the ramp-up side in the upcoming quarters. Maybe if you can help us also already modeling some of the sales you're expecting and also maybe the kind of earnings contribution you're expecting from this one heading into 2020 and then 2021. This will be my first question. And the second is coming back to Performance Materials. Ute, you mentioned a EUR 40 million burden we should account for in 2019. So I really want to get a better understanding of what really drives the, let's say, regular-type of either availability issues, outages, raw material constraints, et cetera. Is this something which is structural from your point of view, is this entirely related to your suppliers? What kind of -- what should we expect in the years to come? Are there significant CapEx needs from your point in order to tackle this one? So this would be my second question.

[Ute Wolf, CFO & Member of Executive Board]

Okay. Michael, thank you for the questions. I start with the second question and then Christian will elaborate on Veramaris. So for the C4 chain, we said limited raw material availability in the beginning of the year. This was due to outages at our supplier. So of course, we only have limited influence in that. And there were shutdowns and also unplanned outages or unexpected turnarounds at our supplier. Then in the current quarter, we've had a plant outage, which then brought some more technical difficulty. So then we had also an unplanned work to do in some of our facilities. That has nothing to do with CapEx levels of the last years. It's just if you had such a big maintenance overhaul, things can always happen. And then you have some individual things that happen on top and this is what we have experienced. As we said, the business is working very consistently to tackle all these technical issues so that they should be back on track in the next couple of days or weeks. So that is more or less what we have seen this year. So it's isolated incidents on suppliers' level, in our level, which can happen here and there. The total effect for this year is around EUR 40 million, as we said it.

[Christian Kullmann, CEO & Chairman of the Executive Board]

Just a couple of weeks before, Feike has dropped me a line and we've talked about Veramaris. And we, he and me, so both of us, we are really confident and are convinced that this is a great investment in the future. So for 2020, for the next year, we do expect in respect of the earnings contribution, an amount of a low double-digit, already of a low double-digit amount in respect of the earnings contribution and charted for next year will be to expand the customer base, which is already on a good level. So we are, in this respect, very hopeful that we could -- ramping up this business, we could earn sales potentials of roughly EUR 200 million for the JV that would be split up 50-50. So this is the story -- the actual story, the current story about Veramaris.

[Operator]

And the next questions come from the line of Gunther Zechmann from Bernstein.

[Gunther Zechmann, Research Analyst]

Pretty good carpet bombing on Andreas' question at the beginning. Maybe I can just follow up with some precision bombing on a couple of follow-up questions. Firstly, how will you further progress on the contingency measures that you outlined in 2020, depending on the macro environment as well? So what are the key levers that you have at your disposal for incremental progress over 2019 next year? And combined with --that's more on a fixed cost. But also secondly, what do you see on the variable costs going into 2020? So that's question 1a, 1b. And then second question is on license income in Active Oxygen, how big could that business be for Evonik in the long term, please?

[Christian Kullmann, CEO & Chairman of the Executive Board]

Gunther, thanks a lot for your question. Let me start with the cost savings -- the potential of cost savings in next year. First of all, we do expect EUR 80 million from the SG&A program. And besides this, moreover, we do expect EUR 30 million from the Adjust 2020 program plus the restructuring programs we have initiated in the Baby Care business and in the Care Solutions business. So this amount of in total EUR 100 million, we do see as given because all the activities in respect of cost-cutting, restructuring, reshuffling, bettering the efficiency of the company are spelled letter-by-letter to the word being sustainable. And this is what you could definitely rely on because we have shown that what we are -- what we have announced since 2017 in this respect was strongly and definitely delivered. So this is about the SG&A program and about the cost-cutting programs in those business lines I have mentioned. Moreover, we have implemented a toolbox which we have developed through the SG&A program. That is what we could make use of for more activities in this respect. But I cannot give you for today the exact level of this additional amount because we have to see how strong the macro environment headwinds will blow in the next year. But one thing is that is what you can take really for granted that we are prepared to activate those additional cost-cutting positions.

[Ute Wolf, CFO & Member of Executive Board]

Okay. On the variable cost, which is more or less raw material, we expect overall raw material markets to be longer in 2020, so leading to rather stable raw material prices. Of course, factors like political tensions or stricter environmental regulations can always have pressure on some selected raw materials. But of course, this is something we're used to monitor slowly and tackle when it pops up. If we look at petrochemicals market, they are also expected to be longer in 2020 as demand remains relatively weak. In the U.S., there is good investment levels and additional crackers. In Asia, this will lead to more material availability. So for the major synthetic organic products, like acetone, ethylene oxide or propylene oxide, we expect a longer market and good material availability and rather stable prices here.For oleochemicals, the supply situation is also expected to be good and to continue on high inventory levels. However, higher demand for biodiesel, food and feed applications, can here and there, might not be fully matched by increasing productivity. Therefore, slight increase in prices is expected in general, although this on historically relatively low levels. In the inorganics markets, we also see a generally more friendly environment, where lower prices for commodities and flat prices for specialties are expected. Demand in industrial applications weaken and inventories are high while consumer market and noncyclical business are still stable. So that is more or less the picture we see there.Your question towards the licenses. I think a level of EUR 20 million to EUR 30 million is a good proxy. But again, it's really not the main driver of the overall Resource Efficiency segment. What comes on top is, of course, catalyst sales then as follow-up, which is then an ongoing effect in our catalyst business line.

[Gunther Zechmann, Research Analyst]

And just on the last question, that was -- I think what you gave, that EUR 20 million to EUR 30 million, I understand was a run rate of licenses, sort of 1 maybe 2 licenses per year. I'm just wondering how big that business can be overall to you longer term.

[Ute Wolf, CFO & Member of Executive Board]

As I said, license might not appear every single year. So we changed our strategy here some years ago that we do not invest ourselves but rather go down the route of licensing. That's also of course, a CapEx consideration or was a CapEx consideration at the time. Again, yearly license fees can be around EUR 20 million, sometimes might be somewhat higher. That structure is from year-to-year. But if you really take that fluctuation and compare it into the overall EBITDA of Resource Efficiency, I think that should not the biggest point of concern. And again for the catalyst business, of course, that is then an ongoing business to deliver the catalyst into the facilities of our customer.

[Operator]

The next question comes from the line of Georgina Iwamoto from Goldman Sachs.

[Georgina Iwamoto, Associate]

I've got 3. The first one is just -- I noticed that you didn't pay any cash taxes this quarter versus the cash-out of EUR 100 million last year. I'm just wondering if you could elaborate on why that was and what to expect for 4Q next year? And then a question, just a follow-up on the Active Oxygens licenses, can you just remind us what the kind of structure of those licenses is? Is it a one-off payment? And how long is the kind of lifespan? Is it something that we would expect customers to renew at some stage? And then my final question is a bit longer-term-looking. We've been through, so far, a difficult 2019, another year of kind of lower profitability and weaker volumes. And I was just wondering if you could think sort of 2 to 3 years ahead, how do you think Evonik is going to kind of work towards reaching its group margin targets and ambitions to grow volumes above GDP?

[Ute Wolf, CFO & Member of Executive Board]

Okay, Georgina, I'll start with the cash taxes. Of course, when earnings are a little bit lower than cash prepayments -- tax prepayments, and this is what you see on the cash taxes as well, is lower from that point of view in that given quarter. I think for the full year, of course, cash taxes are there, is then lower than last year. Overall, we see some cash taxes for the full year like EUR 250 million, around that level, give or take, of course, some fluctuations here. For next year, I think it could be on a similar level, depending on how, of course, the earnings then grow.On the Active Oxygens licenses, it's mainly an upfront payment and then you'll get some smaller payments later. But again really, it does not really drive the overall Resource Efficiency or earnings too much. So that's why I think we've given you some indications here. And I think that should be it in discussion of these licenses.

[Christian Kullmann, CEO & Chairman of the Executive Board]

You've asked what do we see for the long-term future -- in the long-term future to make Evonik a better company. First of all, we will focus on our 4 growth engines. As you know: Animal Nutrition, Health & Care, Smart Materials and Specialty Additives. These are the businesses we exclusively invest in, in respect of organic growth and in respect of decent and disciplined M&A. Second, and that is of high relevance for the whole company, that we're focused on the very disciplined cost-cutting activities, which we will further implement and go on with this in a very sustainable way. So those are the core pillars. Let me convey it like this, these are the core pillars to make Evonik a better company. And this is what we are totally convinced will be paid off over the next years.

[Georgina Iwamoto, Associate]

Okay. And then I guess just as a bit of a follow-up then, if you could kind of look at portfolio management from a kind of disposal candidate potential, if you could just remind us which parts of the portfolio you would be less committed to in the long term, which are noncore? And if there are any areas of the business where volumes have been disappointing and might not contribute to the strategy that you see in the long run.

[Christian Kullmann, CEO & Chairman of the Executive Board]

First of all, it's a brilliant question, and I could guess that everybody is really keen on getting some more information out of it. But given this, that everything outside our growth engines is what we have to look to in this respect. But I do really think that you would agree with me, and everybody who's on the line would agree with me that it is not very -- that it would be, from my point of view, not very prudent to comment on this in detail now. Please forgive me.

[Operator]

And the next question comes from the line of Thomas Swoboda from Societe Generale.

[Thomas Swoboda, Research Analyst]

I just have one small question left. And it is regarding the raw material supply in Performance Materials. Can you expect any kind of reimbursement for the lost earnings in 2019 from your supplier and any kind of insurance or whatever you can expect in 2020?

[Ute Wolf, CFO & Member of Executive Board]

Thomas, it's Ute. There are very clear rules when there's a force majeure or not. So we have no reimbursement here. So that stays in our -- or goes out of our pocket.

[Operator]

And the next question comes from the line of Mubasher Chaudhry from Citi.

[Mubasher Ahmed Chaudhry, Vice President]

I was just wondering if you can please provide some color on how the corporate costs are likely to develop going into next year, i.e., should we be thinking of the levels that we are in 2019 as the new base going forward? And the second question is around how you're thinking about M&A, given the situation with PeroxyChem. Are you on hold until things are resolved from that side from further bolt-on and additional M&A? And if not, how is that pipeline looking?

[Ute Wolf, CFO & Member of Executive Board]

Okay, Thomas. Thank you very much for the question. Corporate costs, I think we've reached a good level. So that should be then also the ambition going forward, of course, over time with some more improvement potential. And on the question of M&A. So PeroxyChem, of course, the court case has started some weeks ago. So it will take a couple of weeks or months until we see the decision there. We expect the decision early 2020. So from that point of view, we have to see how bad it's in the end decided. We are monitoring also smaller M&A possibilities and opportunities all the time. I think we -- Christian also laid out in his speech that we are very disciplined on M&A. We focus on our growth engines. And if we have suitable opportunities there, we, here and there, do an acquisition. So far, they have been smaller acquisitions. And I think that perfectly describes our approach.

[Operator]

And this was our last question. I'm now handing the call over back to Tim Lange, Head of Investor Relations. Please go ahead, sir.

[Tim Lange, Head of Investor Relations]

Thank you. And I'm handing everything over to Chris for the final words for the day.

[Christian Kullmann, CEO & Chairman of the Executive Board]

Ladies and gentlemen, please allow me a final reference to our Capital Markets Day, which will take place on the 1st of April in London next year. No, that is no April Fools. The Evonik Management Board with Ute, Harald, Thomas and me will come over to London. And we will look back on what we have already achieved over the last 2 years, and maybe more important for you, look ahead on what still lies ahead of us. Please already pencil the date into your diary. Further information on the event will follow in due course. That closes today's call. And I'm really thankful for your attention, wish you a good day, and goodbye.

[Operator]

Thank you. That does conclude our conference for today. Thank you for your participation. You may all disconnect.