Evonik Industries AG

XETRA:EVK

Earnings Call Analysis

Evonik Industries Delivers Strong EBITDA and Strategic Portfolio Realignment

In Q3 2024, Evonik Industries achieved a 15% EBITDA margin, reflecting a 5 basis points rise from earlier in the year, despite slight volume declines. The company has initiated a strategic exit from underperforming segments, cutting 350 million EUR in sales and enhancing focus on high-potential areas. They aim for 525 million EUR in gross savings for 2025, offsetting 200 million EUR in rising operational costs. Free cash flow is affirmed at a robust 40% conversion rate, driven by steady market growth forecasted at 3-4% in 2025.

Consistent Performance and Cost Management

Evonik Industries reported a strong third quarter performance, marked by a notable increase in margins to 15%, up from a previous low point this year, reflecting effective cost-saving initiatives. Despite slight declines in volumes, the improvement in margins indicates robust operational efficiency. Free cash flow generation continues to be a focal point, with the company confirming a conversion rate target of around 40% for the year, reinforcing investor confidence in its financial health.

Strategic Portfolio Realignment

The company is undergoing a significant portfolio realignment, planning to exit businesses within the health care and coating & adhesive resins sectors that collectively generated EUR 350 million in sales with negative EBITDA. This move aims to redirect management resources towards more profitable ventures and is expected to enhance overall financial metrics. The exit from these underperforming units is anticipated to boost EBITDA margins by 10% for the remaining businesses in that segment by the end of next year.

Innovation Focus for Future Growth

Evonik has defined three new innovation growth areas: Biosolutions, circular economy, and energy transition. These focus areas tap into significant sustainability trends and are projected to contribute an additional EUR 1.5 billion in sales by 2032. The company's commitment to R&D in these fields showcases its proactive approach, ensuring long-term growth opportunities amidst challenging macroeconomic conditions.

Outlook on Top-Line Performance

Looking ahead to 2025, Evonik expects steady overall market growth of 3% to 4%, driven particularly by demand in Asia, which is anticipated to exceed 4%. The company aims to maintain price stability despite the incoming competition in certain segments, such as methionine, where they are focused on sustaining margin discipline rather than competing aggressively for market share.

Challenges and Adjustments in Health Care

In the health care segment, while core businesses like oral drug delivery and lipids have shown resilience, Evonik faces challenges from declining demand for amino acids. To realign its strategy, the company is closing facilities in Hanau, which is expected to improve operational efficiency in the long run. However, the overall health care performance has been below expectations, reflecting the ongoing adjustments post-COVID.

2025 Cost Savings Initiatives

Evonik is ramping up its cost savings initiatives, targeting gross savings of EUR 525 million for 2025, compared to EUR 400 million in 2024. However, projected factor cost increases of around EUR 200 million in 2025 may offset these savings, suggesting that net gains will be less than earlier forecasts. The strategic focus will remain on operational excellence to mitigate these cost pressures.

Market Position and Strategic Outlook

Evonik has positioned itself strategically to withstand potential tariffs or trade barriers, particularly in the U.S. market, where they have balanced their revenue streams across regions. This diversity allows for greater resilience against geopolitical risks. The management’s outlook maintains a cautious but optimistic stance, emphasizing efficiency and profitability over aggressive expansion.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Evonik Industries Q3 2024 Earnings Conference Call. I'm Vicky, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Kullmann, CEO. Please go ahead, sir.

[Christian Kullmann, executive]

Ladies and gentlemen, good morning, and a very warm welcome from my side and the side of the team either to our quarterly earnings call. It is another quarter in which we have delivered on expectations. It is another quarter of sector-leading earnings growth, and still another quarter of free cash flow generation.

Some of you might say, no, wait a moment, I've heard that introduction before. And you know what, yes, you're right, it is correct. That was my -- but good news like that never got out of fashion and confirm our focus on consistent delivery.

From now on, however, I promise only news, no replace. News on our cost-saving initiatives, which are more and more reflected in our numbers, news on the realignment of our portfolio, where we continue to address underperforming businesses, and news in innovation, where we have defined our 3 new growth areas.

Maike, you want to start with the numbers?

[Maike Schuh, executive]

Sure, Christian, and welcome from me as well. In the third quarter, we have increased our margin to 15%, which is not only an improvement by 5 basis points from the trough level in 2023, but also a further improvement compared to Q2 despite flat or even slightly declining volumes sequentially. This is another proof point that our cost-saving initiatives are more and more paying off, and will further ramp up next year.

On the one hand, admittedly, we will partly revert our short-term contingencies, which we started in 2023. They were designed to immediately counter the drastic volume declines back then. Now with volumes coming back, we will and have to visit more trade fairs again or enable more training for our employees.

So EUR 100 million of the contingencies will come back in 2025. But that is more than offset by the ramp-up of the savings under our Evonik Tailor Made program as well as by our business optimization measures. For example, we will start the backward integration of our U.S. methionine plant in Mobile in the second half of 2025. That will result in a quite notable improvement of our cost position. [Audio Gap]

[Christian Kullmann, executive]

[Audio Gap] I guess, business optimization is a perfect keyword somewhat like a buzzword for me. Three weeks ago, we have communicated the realignment of our 2 business lines, health care and coating & adhesive resins. Both have one thing in common. They have, for sure, very good businesses and quite weak ones.

We tried, we tried hard to restructure the weak ones for quite some time and now decided to pull the report. We'll exit our divest businesses with combined sales of EUR 350 million and negative EBITDA. This will not only enable us to focus management resources and CapEx on the areas where the strongest growth with the strongest growth potential. It will also to improve the financial KPIs quite drastically.

In the case of Coating Adhesive Resins, for example, the EBITDA margin will improve by more than 10% once the businesses are exited or divested. This should be the case by the end of next year. But we are not only working on the cost side. There's also good progress on the growth part.

You know our 6 innovation growth fields. They continue to deliver good growth despite the quite challenging macro environment. They have generated around EUR 700 million of new sales over the last 8 years at an average EBITDA margin of around 20%.

So we thought it is about time to focus and sharpen our innovation activities further. At our R&D press event back in September, it was, we have defined 3 new innovation growth area, which will from now on takes the place of the 6 growth fields: Biosolutions, circular economy and energy transition, some of the most imminent sustainability trends in our industry and at our customers.

And we are positioned quite strongly here already today. So we [Audio Gap] another EUR 1.5 billion of new sales from these growth areas by the year 2032. Nucleic asset-based medicines. [ Anion ] exchange membranes for water electrolysis or ceramic membrane for lithium recovery are only 3 very promising examples of our innovation pipeline.

With that, Maike, I guess it is your turn because now back to the numbers.

[Maike Schuh, executive]

Well, I think I can keep that quite short today. There are not many surprises and that is quite positive news in today's environment. We told you 3 months ago that we expect Q3 EBITDA on the level of Q2, and it is fully in line. We are confirming our free cash flow target for the year with a conversion rate around 40%. And we are confirming our EBITDA outlook range.

Looking into Q4, we see the usual year-end seasonality, which is only somewhat more pronounced in Performance Materials. So we will have a quite solid finish of what is a pretty decent year for Evonik, and can from now on, put our focus on the next year 2025. So far, from our side, a presentation below 10 minutes confirms our new efficiency focus. We are now ready to take your questions.

[Operator]

[Operator Instructions] The first question is from Thomas Wrigglesworth, Morgan Stanley.

[Thomas Wrigglesworth, analyst]

Two questions, if I may. The first is on the Animal Nutrition business. Can you just talk -- break out the volumes in Nutrition & Care between the 2 businesses? I'm just keen to understand what you think the underlying rate of growth for Animal Nutrition is and how you see that progressing into 2025? That's my first question.

Second question is on silicas and the tire businesses. We're seeing a number of announcements from some of your customers, I assume who are talking about closure of capacity in Europe, potential kind of low demand environment. I wanted your interpretation of what's happening in the industry. Is the shift from European tire manufacturers to Asian tire manufacturers going to be a challenge for the business?

[Tim Lange, executive]

Tom, just one clarification on the first question. What do you mean with the 2 businesses and the volume split in Animal Nutrition?

[Thomas Wrigglesworth, analyst]

Sorry, you've given a 3% year-on-year volume growth for Nutrition & Care. So I just wanted to understand how much of -- what the volume growth is Health & Care versus Animal Nutrition? And what you're seeing the underlying growth rate in Animal Nutrition at?

[Tim Lange, executive]

Okay. Understood. Christian starts with Silica and then Maike can...

[Christian Kullmann, executive]

Okay. Tom, here are some details, some color about our silica business. As you have already seen, it was for us in silica, a pretty good quarter across virtually I may say all industries. We have seen a pretty good demand, which translated to the volume growth of year-on-year, 6% plus. So it was similar to the first and to the second quarter, maybe as add-on. We have on this way, on this path, we have additionally improved our cost positions, which has helped us. For example so far, we have already reduced the head count in our silica business of around 100 employees which was, as already mentioned, in respect of our cost position really helpful. That is an ongoing process -- of the biggest market, the biggest end market. It is for sure right now that here, you should think about the tire demand, the tire industry.

By having said this, you should, let me say, consider that roughly 2/3, 2/3 of the tire market I've talked about is focused in the replacement businesses. So having said this, the year 2024 in respect of silica, the growth is pretty well underpinned.

And maybe sugar on the icing or icing on the sugar as you like it, you should consider that also the smaller markets, so for example, specialty silica for food, specialty silica for agro, specialty silica in the electronics area, is also running pretty well. So that is what I could give you as an answer to the silica question. With this, I hand over to Maike.

[Maike Schuh, executive]

Yes. Good morning, Tom, from my side as well. After the clarification regarding Animal Nutrition and Health & Care. So the growth rate we see in both let's say, businesses is roughly 3%. Animal Nutrition, a little lower, but Health & Care, roughly 3% with Care Solutions stronger and Health Care a bit weaker.

And then regarding your market expectations, I think you were asking about the outlook in 2025 and not the short term Q4 so I focus on that one. So the market expected -- is expected to grow further off in 2025, pretty much in line what we have seen now in 2024 by 3% to 4%, especially driven by Asia, above 4%.

On the one hand side, we have commented on the new supply coming to the market. But also we see, of course, some recent capacity reductions, CJ, for example, with the 60 kt capacity reduction. Sumitomo with a capacity reduction in 2 steps, '23 and '24, up to 70 kt.

So we really see that the smaller players with unfavorable positions on the cost curve really are expected to review their positions in midterm. And maybe one more word about prices, we expect them so far to stay relatively solid. We see a slow in cent-wise decline, and we assume that this will stay like we see that right now. I hope that helps.

[Operator]

The next question from Chetan Udeshi, JPMorgan.

[Chetan Udeshi, analyst]

I really appreciate your short introduction. I don't know if it's a sign of efficiency, but at least it's a sign for us for better time management.

I just wanted to go back to the Slide 5 of your presentation, which talks about all the key moving parts on savings. And I think I can see some of the numbers listed there, but if I look at your cash flow statement in third quarter, there is a big positive number in the miscellaneous assets and liabilities, which you have called out to be related to bonus accruals. And it's in Q3 alone. It seems to be -- it's like EUR 120 million. So I'm just curious as we look into next year, how will that line item develop? Is it going to be stable? Is it going to be lower in terms of accruals? How do you see bonus accruals impacting your cost base next year?

And just on top, if you can help us to understand what is your typical wage inflation that you see every year? Because I guess that's something we'll have to incorporate in our bridge for next year?

And the second question I had was just given weaker dynamics in the Performance Materials market as we see today, is it fair to assume that the sale of this business or any strategic transaction on this business is unlikely in the near term?

[Maike Schuh, executive]

All right then. I suggest I start with your questions regarding the free cash flow, Chetan. So basically maybe starting with the broad assumption that, of course, our free cash flow indication for the -- for 2025, obviously, it's one of our major KPIs. So the cash flow conversion rate remains clearly our target for the next year as well for 40%. So what are the moving parts? And you mentioned the one with the accruals.

Of course, we have the moving parts, self-help measures, ETM, et cetera. So we see that we have first larger cash outs expected, but they will be clearly overcompensated. What we have mentioned also when we started the program, they will be clearly overcompensated by higher net savings and also not only cash-wise but also EBITDA-wise. So CapEx was quite low in 2024. We have also mentioned before that a more sustainable level is roughly EUR 800 million or even above.

Yes, we see a higher bonus payout for 2024 compared to 2023. So we see now the higher accruals, especially if you compare them to 2023 where we had a major declining in the bonus. And so we have higher accruals this year and we'll have higher cash out next year.

Everything else of the free cash flow, of course, depends on the operating performance, and this is too early now to be more specific. But to make that very clear, we are confident to continue our strong free cash flow track record of the last years. And then I take the wage inflation. We assume that it's roughly 4% compensated -- operational efficiency measures.

[Christian Kullmann, executive]

Okay. And then I take the question about the future of C4. Chetan, thanks a lot for this question. Are we under pressure? Are we in a hurry? These are rhetorical question because the answer is crystal clear. And therefore, it is no, we are not. And what does it mean in respect of our C4 business?

Everybody knows and is familiar with. Here, we talk about a cyclical business. And yes, we have a pretty good first half of the year. And now over the course of the second half of the year, it is becoming -- weakening.

Depending on specific markets like rubber, auto or the construction and the differences in specific regions, for example, Europe, we here do see that it will become a little bit -- not a little bit, but it will become a weakener in the second half of the year as it was in the first year. That is what we have taken in consideration and that is what we are contributing to in respect of our strategy to find, to identify the right point of time to start the divestment process to get a maximized value out of this process. And that is, of course, as of today, not the right point of time we. So we will continuously monitor and analyze market situation. And then we will keep you informed about when we are going to start the process, the official divestment process. But as of today, we will not.

[Operator]

The next question from Andreas Heine, Stifel.

[Andreas Heine, analyst]

Yes, 3 short ones, if I may. The first is on high-performance polymers. Can you elucidate a little bit more how that business is running, you invested a lot, and the Smart Materials business was growing by volume 2% and silica more than that. That's why I guess that high-performance polymers is still not up too much in volume.

And the second one is on Q4 actually. How do you see the seasonality in this year? So last year, yourself, but also our customers were running down inventories like health to optimize the balance sheet. How is that proceeding this year? And the last one is in health care. Health care is pretty weak. Is that just the estimate of the COVID boom you had or is there something different ongoing? So is it something structurally what you see here? Or do we have just to wait that pipeline projects come to the market?

[Tim Lange, executive]

Thank you, Andreas. I suggest, Maike, the first 2 on PA12 and on the Q4 outlook and seasonality. And Christian continues with health care.

[Maike Schuh, executive]

Yes, Andreas. Regarding your PA12 question, we have seen a positive volume development in PA12. Although very clearly, the demand remains impacted by the overall weak macro situation. We see sequentially some volume improvement because on the one hand side, automotive remains relatively stable, strongly, of course, particularly in Asia regarding the conversion to e-mobility. Home appliances, I think we have mentioned that before with the dishwashers, is stabilizing as the corona effects are now fading.

Consumer goods are also getting more and more positive. A new channel to market is high-end running shoes. And also the additive manufacturing is getting a bit stronger after the destocking. We had to make some price concessions, especially here in Europe. But on the other hand, we have very, very clearly furthered the cost-cutting measures initiated, and we see a very high cost discipline to support our EBITDA growth.

Then regarding your Q4, we will see -- actually, we see the usual seasonality we see and we plan with the usual seasonality, a bit higher, a little bit more pronounced, basically because we have the further earnings decline in Performance Materials. And so that will be close to what we have Q4 2023. To remind you, we have seen a breakeven in Q4. So this is what we have to plan for regarding Performance Materials.

[Christian Kullmann, executive]

Okay. Thanks a lot, Maike. And now about Health Care. In a nutshell, mixed picture. On the one side, we have a pretty good development and therefore, delivery on our numbers and figures in respect of oral drug, for example, and for sure in respect of our lipids, they are running pretty well.

On the other side, as mentioned already during my introduction statement, we do suffer from the amino acids -- from the keto amino acids, so from our exclusive synthesis businesses, in particular, in Hanau. And that is why we have taken decision and that is a very strong and hard one to say, okay, here, we will close these sites in Hanau, which will help us to better the perspectives for this business. So business of the Health Care is -- the core business is pretty intact and it is running well, as mentioned oral drug delivery and our lipids.

And on the other side, those businesses where we have to suffer from a new situation, a new competitive strong situation, as I've -- the amino acid business, we have taken the decision. And to that end, we will close those capacities in Hanau to better our cost position. A final statement. Regularly, usually, we have, over the course of the fourth quarter, let's keep it like this, a typical strong revenue development. That will this year be a little bit less pronounced, a little bit less pronounced because of the global economic environment.

[Operator]

The next question is from Sebastian Bray, Berenberg.

[Sebastian Bray, analyst]

I have 3, please. The first is when you look at the Tech & Infrastructure segment line for EBITDA in 2025, what do you tend towards thinking as an underlying run rate for that business?

My second question is on Health Care. If we exclude the businesses that have been classified as noncore or where something is going to be done on the portfolio or scope side, how is the underlying business actually performing in Q3? It seems to have been fine, but was it up year-on-year or flat?

My third question is on Performance Materials. I -- it builds on the question that Chetan asked earlier. Relative to the expectations set out at the 2022 Capital Markets Day to find a partner for this business or divest it. Has anything changed in the company's approach or is it just that the M&A markets have not been open enough in European chemicals for making a transaction of this size?

[Christian Kullmann, executive]

Sebastian, I'll take the last one and the first one, and the answer to the last one is very easy. No, our strategy remains, and our strategy, we stay put to our strategy, though it is in respect of the perspectives of our C4 business, goes without saying that here, we stay put. And it depends on an attractive occasion.

And the first question was about our infrastructure and technology division. Here, you have asked about some numbers and figures. So I will give you a little bit more color about, and to provide you with some more details. Our technology and infrastructure division in 2023 has reached revenues of about -- by some rule of EUR 3 billion.

Next is you have to split this EUR 3 billion up, which means 25% belong to the technology, and around 3/3 belong to the infrastructure. And out of this infrastructure, these give or take EUR 2 billion, roughly the half, half of it belongs to our sites and the respective infrastructure capacities in Marl and in Wesseling. So having -- on options line on the table, which means it could come to a straight sale, we could start to negotiate about joint venture or other partnering models, role models. So that is what is still lying on the table.

And if you think about the EBITDA, the [ TE ] division has gained in 2023. It was around EUR 220 million exclusively external businesses, and in future, thinking about the respective sites in Marl and in Wesseling, the -- as of today, internal business will become external.

So in other words, that would definitely translate into higher EBITDA margin of this stand-alone business. Having said this, it is my pleasure to hand over to Maike.

[Maike Schuh, executive]

Thank you. Good morning, Sebastian. Facing -- regarding health care, still some operating challenges. So as mentioned before by Christian, the underlying business is doing okay. But you have to keep in mind that we are still having a relatively, let's call it, young product portfolio. So we have, for example, long-term supply agreements with Phathom in the U.S., the biopharmaceutical company for gastric acid-related diseases.

And we have a lot of new steps in our assets and in our production. So it's more difficult to perform at the same level with new steps versus a repeat only operations we see somewhere else. So the oral drug delivery is doing fine. The lipids are running well. But as I said, we are still facing operating challenges. I hope that answers your question.

[Sebastian Bray, analyst]

Helpful. And the -- I want to hazard a guess at what the number at EBITDA could be for the year '25 for Tech and Infrastructure. Do I just take the run rate in Q3? Or let's call it, minus EUR 32 million or minus EUR 40 million for the full year '25?

The reason that I'm asking is there's been quite a lot of variability in this line partly associated with energy price volatility in the last 2 or 3 years. And net of the cost savings, it's a little difficult to say what the underlying annual EBITDA is.

[Tim Lange, executive]

That's true also for us internally. So I would ask you for some patience here. As Christian explained, there's a lot of moving parts, different buckets in the infrastructure, technology, different sites that will stay with Evonik, that will leave Evonik. As we said, energy trading, that's just passed through and only business -- and we'll keep you updated on the underlying and relevant EBITDA. Christian has given you an idea about the sales number. And EBITDA is a bit more complex. So maybe it's better for the time being to start with the sales number, and we will give you an indication on EBITDA a bit further down the street.

[Operator]

The next question from Martin Roediger, Kepler Cheuvreux.

[Martin Roediger, analyst]

3 questions. Sorry, I have to come back to the Slide 5 of your handout. You showed the EUR 525 million gross savings for 2025 versus the EUR 400 million gross savings in 2024, but you faced some factor cost increases and the reversal of short-term contingencies. When you look at the net savings, what is the delta between 2024 and 2025 in your P&L, not in your cash flow, I guess the delta is less than EUR 125 million.

The second question is on Specialty Additives. Can you provide some color which products benefited from this 8% volume growth? You say that virtually all activities performed well, except crosslinkers which means that all other activities, excluding crosslinkers must have grown by double digit. And how does it come because the macro environment is not really strong.

And thirdly, regarding the effects from the U.S. elections, do you have any exports from Europe to the U.S., which might be affected from any higher tariffs in the U.S.

[Tim Lange, executive]

Thank you, Martin. I think Maike starts with the net savings, and then we come through Specialty Additives and the U.S. question.

[Maike Schuh, executive]

All right. Martin, yes, regarding Slide 5 and your question regarding the net savings, I guess, your you are absolutely right that it's not the full EUR 125 million. So you've got that absolutely right. So the factor cost increases go, course are going against the gross cost savings from ETM and the business optimization. So we are roughly expecting EUR 200 million factor cost increases expected in 2025. So that's to give you an idea [Audio Gap] of EUR 5 billion.

However, we compensate a large part by the operational excellence measures. We do that year-over-year. So it's your yield optimization purchasing, et cetera. But still, very clearly, we still have a mid-double-digit number of net factor cost increases. That means the EUR 125 million additional gross savings you calculated minus the net factor cost increase will still remain in our EBITDA with a high double-digit million additional net savings for the full year 2024. And with that, I hand over to Christian.

[Christian Kullmann, executive]

Thanks for that. Martin, I take the last 2 questions. Answer to your question about specialty additives, I couldn't agree more. You are totally right. All businesses have run pretty well. And we have seen in the -- in those businesses in Specialty Additives, except the crosslinkers double-digit volume growth year-on-year, think about our oil additives, think about the foams, the foam additives and think about, for example, coating additives here is pretty holding true that they are, as of today, shown a really attractive year with all of them double-digit volume growth.

Yes, once more, I couldn't agree more about your assumption of those businesses. And now back to the question in respect of taxes and tariffs. We could be afraid of in respect of the United States of America trade policy. When we've taken helm in summer 2017, becoming the CEO of Evonik. One of our decisions was to say let's rebalance our portfolio or maybe even all the more also from geostrategic point of view, which means in concrete that we aim to have 1/3 of our revenues in the United States, 1/3 in Europe and 1/3 in Asia.

In the United States, we have already delivered on this goal and target which means we will -- if it comes to additional import taxes, if it comes to additional protectionism, we will have the chance with our capacities in respect of specialty additives, in respect of methionine, in respect -- we will even benefit from those protectionism activities we maybe could expect from the new President because we are pretty well located in the United States of America, in other words, behind those protectionism walls.

Second, as of today, we would not be heavily -- we would not be heavily impacted because of this geostrategical footprint of Evonik Industries, we would not be heavily impacted by additional protection [Audio Gap] new government of the United States of America in respect of our U.S. business. So far, so good.

[Martin Roediger, analyst]

Excuse me, I have a follow-up on the specialty additives answer. When you have double-digit volume growth in a lousy macro environment, does that mean that you gain market share in oil additives, foam additives and coating additives?

[Christian Kullmann, executive]

Martin, that means, first of all, that the quality of our goods and products is highly appreciated by our customers. And yes, it means additionally, that in certain businesses to a certain extent, we have been able to better, and therefore to grow -- couldn't be clearer. Hope you are satisfied.

[Operator]

The next question from Jaideep Pandya, On Field Research.

[Jaideep Pandya, analyst]

Just want to talk about your methionine strategy sort of considering the 2 of your competitors in China which are going to build 2 large plants, liquid and powder plants. And China, I suppose it's growing more on the liquid direction. And I suppose you haven't really grown your methionine volumes much in the last couple of years.

So I mean, is your strategy in methionine basically to maintain price discipline, shed share to your Chinese peers? Or are you going to resort to defending your share. And therefore, we could see some more of a price competition environment in 2025 and 2026. That's my first question.

Second question is actually on additives. I remember, I think a couple of years ago, you alluded to utilization being down significantly in some of your plants. You've had a very good volume environment in the last few quarters. Just wondering where are we in terms of utilization now across additives and maybe also across materials.

And then the last question. I mean, I take a try at this. When you look at Evonik's portfolio outside Performance Materials, you've got 3 divisions, and one could argue that you are probably the next Solvay as a candidate for splitting the company. Is that something too crazy a thought for you? Or is this something which potentially or at least on paper could be under evaluation?

[Maike Schuh, executive]

I suggest I take the first 2 questions and then I hand over to Christian. Good morning, Jaideep. And regarding your methionine strategy, yes, I mentioned before. So market is growing. And so the new supply you mentioned totally correctly is coming into the market, especially, of course, from our Chinese competitor, NHU, with a new plant of 100 Kt that is -- we have the expansion of [ Alliance ] 1 and 2 in NHU in the first half of the year. And so we -- yes, we see that clearly coming in China.

However, very clearly, we expect, I mentioned that before, we expect that the prices stay solid for the start into the year. So we really expect only a very, very slow and cent-wise decline. To make that also clear is that with these growing market, 3% to 4%, we are not forced to fight for a market share. But for us, methionine is a financing business, and so we stay in the market like we are right now.

Then utilization rates also for the additive business is still below 80%. So there is still, let's say, room for improvement for us. And then regarding the potential split of the company, I hand over to Christian.

[Christian Kullmann, executive]

Thanks a lot, Maike. Thanks a lot for the question. Let's keep it [ naturally ]. If I should give you somewhat like a hint, how we, how I think about the potential split, I would say it is similar to the idea starting to breed pineapples on the Mount Everest. So it is anything else than possible, and that is how we do judge upon our potential idea of splitting the company up -- so as breeding grass pineapples on the Mount Everest.

[Operator]

Ladies and gentlemen, this was the last question.

[Christian Kullmann, executive]

Okay. And having said this, from the moderator, it is about me to say that brings us to the end of the call. And we -- the whole team, Maike and myself wish you a pleasant autumn and winter and a happy new year. And don't forget to celebrate Christmas. And with this, take care, and bye-bye.