Evonik Industries AG

XETRA:EVK

Earnings Call Transcript 2021-Q4

[Operator]

Dear

ladies

and

gentlemen,

welcome

to

the

Conference

Call

of

Evonik

Industries

AG.

At

our

customers'

request,

this

conference

will

be

recorded.

As a

reminder,

all

participants

will

be

in

a

listen-only

mode.

After

the

presentation,

there

will

be

a

question-and-answer

session.

[Operator Instructions]

May

I

now

hand

you

over

to

Tim

Lange,

who

will

start

the

meeting

today.

Please

go

ahead.

[Tim Lange, Head-Investor Relations, Evonik Industries AG]

Thank

you

very

much

and

good

afternoon

to

our

Q4

Earnings

Conference

Call.

With

me,

as

usual,

are

our

CEO

and

CFO,

Christian

Kullmann

and

Ute

Wolf,

and

I

will

hand

over

directly

to

Christian

for

the

introductory

remarks.

[Christian Kullmann]

Thanks

a

lot,

Tim,

and

also,

very

warm

welcome

from

my

side,

and

thanks

a

lot

for

being

with

us

today.

Under

this,

let's

keep

it,

[ph]



like

the

very

(00:00:57) special

and worrying

circumstances.

There

is

war

in

Europe.

This

was

hardly

imaginable

until

a

few

days

ago.

But

now,

in

the

here

and

now,

it

is

our

reality.

Less

than

two

flight

hours

away

from

Germany,

people

are

dying

from

tanks

and

missile

fires.

Immediately,

after

the

attack

on

Ukraine,

we,

at

Evonik,

have

set

up

a

task

force

to

assess

the

situation

on

an

ongoing

basis.

Evonik

has

59

employees

in

the

region:

3

in

Ukraine

and

56

in

Russia.

We

are

in

constant

exchange,

especially

with

our

colleagues

in

Ukraine

via

SMS

or

social

media.

We

will

do everything

we

can

to

support

our

employees

and,

if

necessary

and

possible,

bring

them

to

Germany.

Our

first

priority

now

is

to

alleviate

human

suffering

and

provide

help where

we can and

that

is

exactly

what

we

will

do.

I

hope

and

I

do

pray

for

the

people

of

Ukraine.

Under

these

circumstances,

it

is

really

difficult

to

switch

to

daily

business

and

the

conference

call

on

financial

figures.

We

will,

nevertheless,

try

to

do

so

for

the

next

hour.

As

a

disclaimer

right

at

the

start,

our

outlook

and

forward-looking

statements

are

based

on

our

currently

observable

positive

sales

and

order

book

development.

As

anybody

else,

we

are

currently

not

able

to

assess

the

impact

on

the

war

in

Ukraine

on

the

overall

economic

development.

For

our

company,

the

different

business

impact

is

limited

with

only

1%

sales

share

in

Russia

and

Ukraine,

of

which

the

biggest

part

is

from methionine.

With

no

production

in

the

region,

we

are

not

impacted

by

any

direct

sanction.

We

are

monitoring

the

situation

closely

on

all

levels,

IT

security,

international

payment

flows,

procurement

and

energy

[ph]



soften (00:03:14).

So,

we

are

prepared

and

we'll

take

the

appropriate

measures.

So

far,

our

introduction

and

personal

statements

on

the

latest

development.

Let's

try

the

hard

cut

and

switch

to

the

latest

development

of

Evonik.

Ladies

and

gentlemen,

let

me

start

with

a

look

back

in

the

rearview

mirror.

Exactly

one

year

ago,

in

March

2021,

here

on

this

call,

I

shared

with

you

my

confidence

about

2021

as

the

year

of

growth

and

progress.

And

despite

the

headwinds

in

the

second

half

of

the

year,

we

grew

EBITDA

double-digit

versus

the

pre-crisis

year

2019

and

we

were

able

to

convert

this

at

a

high

cash

conversion

rate,

with

free

cash

flow

beating

the

2019

level

by

even

32%.

And

these

results

are

not –

are definitely

not

a

one-hit

wonder.

They

extend

and

even

accelerate

our

long-term

growth

track

record

since

2017

when

we,

as

management

team,

have

taken

over.

Our

ambition

level

for

2022,

we

will

strive

to

outperform

our

EBITDA

growth

rate

of

the

last

two

years

and

deliver

the

fifth

year

in

a

row

with

higher

free

cash

flow.

Chart

5

describes

the

track

record

of

the

last

three

years

in

more

detail,

which

can

certainly

be

characterized

as

not

being

the

easiest.

Let

me

briefly

summarize

it

in

two

sentence.

First,

by

never

losing

the

long-term

view

by

consistently

executing

our

strategy

and

by

constantly

improving

the

quality

of

our

portfolio,

we

delivered

on

our

promises.

Here,

we

even

upgraded

our

guidance

in

two

of

the

last

three

years,

something

I

could

really

get

used

to.

An

element

which

has

become

more

and

more

important

growth

driver

for

us

over

the

last

years

is

sustainability.

Here

are

some highlights

across

our

four

different

sustainability

focus

area.

They

are

not

only

nice,

shiny

examples,

but

real

growth

drivers

of

our

business

which

is

expressed

as

a

growing

share

of

next-generation

solution

within

our

group

sales

from

35%

to

37%.

Check

membranes

as

one

example.

Since

the

first

product

launched

in

2011,

we

have

now

delivered gas

separation

membranes

to

more

than

1,000

reference

plants

worldwide.

The

business

is

growing

at

35%

per

year.

Continuing

on

chart

9,

the

other essential

growth

drivers

for

us

is

innovation.

Well,

actually,

sustainability

and

innovation

are

two

sides

of

the

same

coin

for

us.

Also

for

innovation,

just

one,

but

therefore

impressive

figure.

On

our

way

to

reach

our

target

of

more

than

€1

billion

sales

in

our

six

innovation

growth

fields

by

2025,

we

already

achieved

more

than

€500

million

in

the

last

year.

This

is

a

growth

rate

of

above

40%

in

the

last

year,

which

is well

above

the

actually

necessary

25%

annual

growth

rate

to

reach

the

€1

billion

target.

So

it

is

unnecessary

to

say

that

we

are

very

well

on

track

here.

The

high

growth

will

clearly

show

the

acceleration

in

the

commercialization

of

those

innovative

product.

Health

care

solutions

like

our

lipids

or

mRNA

or

active

cosmetic

ingredients

like

our

ceramides

are

just

two

examples.

Ladies

and

gentlemen,

that

was

a

brief

strategic

review

of

the

last

year.

Now,

Ute

will

shed

more

light

on

the

fourth

quarter

result.

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

Thank

you,

Christian,

and

good

afternoon

from

my

side

as

well.

Let

me

start

with

chart

14 as

the

group

summary

of

the

fourth

quarter.

We

had

to

muster

some

challenges

during

the

quarter.

There

was

a

power

plant

outage

in Marl

that

has

cost

us

€20

million

for

externally

sourced

energy.

The

further

sharp

increase

in

raw

materials

impacted

especially

our

two

divisions,

Specialty

Additives

and

Smart

Materials.

Additionally,

Specialty

Additives

was

hindered

in

volume

growth

due

to

raw

material

and

supply

chain

shortages

and

deliberately

the

business

decided

to

be

a

higher

logistic

cost,

fewer

reliable

customer

servicing.

The

Smart

Materials

division

continued

to

cope

with

higher

fixed

costs

like

linked

to

the

PA12

ramp-up.

And

Baby

Care

had

another,

most

likely,

the

last

quarter

of

unfavorable

contract

prices.

The

good

news

about

these

negatives

is

that

all

of

them

are

fading

out

or

even

turning

positive

throughout

the

current

year.

And

on

the

other

side,

the

positive

trends

observed

in

Q4

will

continue

or

even

accelerate

in

2022.

One

of

the

very

positive

trends

are

the

healthy

volume

across

virtually

all

businesses,

as

well

as

the

continuous

and

further

accelerating

prices

and

pricing

campaigns

in

Specialty

Additives

and

Smart

Materials.

In

Performance

Materials,

we

see

a

normalization

in

butadiene.

But

the

other

products

of

our

C4

chain,

namely

Butene-1,

Oxo

products

and

Specialties

are

expected

a

sustained

positive

spread

into

2022

and

they

stand

for

70%

of

our

C4

chain.

And

as

you

know,

Performance

Materials

and

the

product

spread

benefit

from

a

higher

naphtha

price. This is

the

natural hedge

in

our

portfolio

against

higher

oil

prices.

Nutrition

& Care

had

a

strong

finish

of

a

very

successful

year

2021.

The

three

drivers

behind

that

were

the

ramp-up

of

lipid

sales,

the

outstanding

sales

growth

of

more

than

50%

in

active

cosmetic

ingredients,

as

well

as

rising

prices

and

healthy

volumes

in

amino

acids.

And,

again,

all

of

them

will

even

accelerate

in

2022.

So, fading

negative

and

accelerating

positive,

this

is

a

nice

headline

for

the

year

2022.

Let

me

spend

some

more

time

on

raw

materials

and

pricing

initiatives.

On

group

level,

our

own

price

increases

amounted

to

around

€600

million

in

Q4

after

€450

million

in

Q3.

They

already

overcompensate

the

cost

inflation

effects.

This

was

mostly

visible

in

Performance

Materials

and

Nutrition

&

Care

and

explains

their

strong

performance

in

Q4.

In

Specialty

Additives

and

Smart

Materials,

both

the

specialty

character

of

the

business,

as

well

as

another

sharp

increase

in

raw

materials

like siloxanes

or

silicon

metal

resulted

in

a gap,

but

yet

fully

compensate

the

higher

cost.

Nevertheless,

we

have

reached

already

around

80%

in

pass-on

in

Q4.

The

negative

gap

in

2021

will

turn

into

a

positive

gap

in

2022

or,

to

put

it

differently,

the

EBITDA

burden

in

2021

would

turn

into

a

positive

EBITDA

contributor

in

2022.

On

the

cash

flow

side,

we

came

out

at

€950

million

and

achieved

a

conversion

rate

of

40%,

in

line

with

our

long-term

target

level.

Free

cash

flow

in

Q4

came

out

well

below

last

year's

level.

This

had

two

main

reasons.

First,

we

observed

the

expected

higher

tax

prepayments

adapting

to

the

higher

earnings

levels.

Second,

clearly

lower

net

working

capital

inflows.

This,

on

the

one

hand,

was

caused

by

a

[ph]



valuation

effect in (00:12:12)

inventory

based

on

the

inflated

price

levels.

On

the

other

hand,

inventories

and

goods

in

transit

were

tied

up

in

the

system

due

to

inefficiencies

in

logistics

and

to

avoid

the

risk

of

shortages.

[ph]



The

latter

we

will

reward (00:12:28)

in

2022

and

turn

into

a

clear

free

cash

flow

support.

Taking

the

full-year

perspective

on

cash

flow

again,

we

were

able

to

grow

significantly

in

absolute

terms

for

the

fourth

consecutive

year

and

by

more

than

€230

million

compared

to

the

pre-crisis

year

2019.

With

that,

back

to

Christian

for

the

outlook.

[Christian Kullmann]

Thanks

a

lot,

Ute.

Let's

dive

into

our

full-year

outlook.

Again,

let

me

repeat

the

disclaimer

from

the

start

of

the

call.

Our

outlook

and

forward-looking

statements

are

based

on

our

currently

observable

positive

sales

and

order

book

development.

As

anybody

else,

we

are

currently

not

able

to

assess

the

impact

of

the

war

in

Ukraine

on

the

overall

economic

development.

But

based

on

the

confidence

in

our

resilient

portfolio

and

our

proven

ability

to

manage

challenging

times,

the

direction

is

crystal

clear.

We

are

well

set

for

growth

in

2022.

Resilient

businesses

like

in

Nutrition

&

Care,

the

positive

price

trends

in

amino

acids

for

animal

nutrition,

and

the

natural

hedge

in

Performance

Materials

against

higher

oil

prices

support

this

ambition

level

despite

the

uncertain

economic

environment.

We

aim

to

achieve

an

adjusted

EBITDA

between

€2.5

billion

and

€2.6

billion.

The

range

expresses

our

confidence

in

our

strong

structural

growth

and

our

sustainability

and

innovation

achievement,

as

well

as

the

ramp-up

of

our

pricing

initiatives.

The

narrow

range

is

a

sign

of

trust,

of

trust

in

our

resilient

portfolio

quality

and

based

on

the

conviction

that

virtually

no

business

has

over-earned

in

2021.

And

as

of

today,

I

can

report

that

[ph]



we had

a (00:14:36)

pretty

good

start

into

the

year.

This

is

reflected

in

the

guidance

for

the

first

quarter

of

at

least

10%

EBITDA

growth

year-on-year,

which

is

even

above

the

upper

end

of

the

full

year

guidance

range.

On

free

cash

flow,

the

high

cash

conversion

rate

achieved

in

the

last

years

is

a

level

we will

sustain

going

forward.

Accordingly,

we

guided

cash

conversion

on

a

high

prior

year

level

of

around

40%.

Based

on

the

guided

higher

EBITDA

level,

this

translates

into

a

higher

absolute

cash

flow

number

for

2022

for

the

fifth

year

in

a

row.

Let

me

close

our

presentation

with

a

Save

the

Date.

We

today

spoke

about

the

importance

to

have a

clear

strategy

and

to

stick

to

its

consistent

execution.

Therefore,

we

continue

to

work

on

our

strategic

agenda

and

adapt

it

to

the

ever-changing

environment.

So,

on

May

11,

my

board,

colleagues

and

I

invite

you

to

our

Capital

Markets

Day.

On

this

occasion,

we

will

give

a

strategic

update.

But

you

will

agree

that

there's

no

reason

for

a

revolution

of

the

successful

strategy

over

the

last

years,

rather

an

evolution

into

the

next

transformation

period. Moving

along

with

this,

we

will

focus

in

more

detail

on

two

main

growth

drivers

of

our

portfolio.

First,

sustainability

and

second,

innovation.

With

that,

ladies

and

gentlemen,

thank

you

for

your

interest

and

your

time

so

far.

And

now,

we

are

happy

to

take

your

questions.

[Operator]

Ladies

and

gentlemen, we

will

now

begin

our

question-and-answer

session.

[Operator Instructions]



The

first

question

is

from

Sebastian

Bray,

Berenberg.

Your

line

is

now

open.

Please

go

ahead.

[Sebastian Bray]

Hello.

Good

morning

and

thank

you

for

taking

my

question.

Good

afternoon,

I

should

say.

I

have

two,

please.

The

first

one

is

on

the

cash

flow.

I

don't

know

if

this

was

mentioned

in

previous

quarters,

but

could

you

please

just

elaborate

on

what

the

€145

million

settlement

the

previous

M&A

transaction

refers

to?

Is

that

all

remaining

amount

that

was

for

the

finished

plant

on

PeroxyChem?

But

I'm

not

quite

sure

if

it

was

that

magnitude.

So,

what

is

this

amount,

please?

And

my

second

question

is

on

the

margin

development

in

Nutrition

&

Care.

This

is

quite

positive

if

it

continues

for

the

next,

let's

say,

two,

three

years,

the

Specialties

continue

to

take

share

and

so

on.

Is

it

fair

to

say

at

the

moment,

i.e.,

in

Q4,

the

margin

made

in

methionine

was

pretty

similar

to

the

margin

made

in

health

care?

Thank

you.

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

Yeah.

Good

afternoon,

Sebastian.

I'll

start

with

cash

flow.

These

are

purchase

price

adjustments

from

our methacrylates

sale

and

another

settlement,

which

is a little

bit

older.

When

we

sold

carbon

black,

there

was

a

dispute

often

in

– with

regard

to

the

US

Clean

Air

Act,

which

was

also

settled

this

year.

These

two

should

make

up

the

biggest

part

of

this

€145

million.

[Christian Kullmann]

Okay.

And

then, I

will

take

the

second

question.

Hi

also

from

my

side.

Good

to

hear

you.

And

I

guess

your

assumption

is,

fair

to

say,

that

the

margin

development

in methionine and

in

health

care

are

quite

similar.

So,

yes,

I

would

agree

about

your

assumption.

[Operator]

Mr.

Bray,

we

couldn't

hear

you

at

the

moment.

Could

you

please

repeat

if

you

had

anything

else

to

say?

[Sebastian Bray]

No.

Apologies

if

you

couldn't

hear

me.

I

said

thank

you

for

taking

my

questions.

I'm

happy

to

pass on.

[Operator]

All

right.

Thank

you.

[Operator Instructions]



The

next

question

is

from

Martin

Rödiger,

Kepler

Cheuvreux.

Your

line

is

now

open.

Please

go

ahead.

[Martin Rödiger, Analyst, Kepler Cheuvreux SA /Germany/]

Yes.

Thanks

and

good

afternoon.

I

have

three

questions.

First

is

on

energy

cost.

Can

you

disclose

what

has

been

the

absolute

energy

cost

in

the

year

2020

and

in

the

year

2021?

What

is your

expectation

for

2022

and

what

would

be

the

level

based

on

today's

energy

prices

if

your

energy

hedges

are

running

out?

Second

question

is

on

methionine.

I

was

a

bit

surprised

to

see

your

announcement

about

the

investment

in

the

US.

I

understand

it's

a

quite

lucrative

investment,

but

this

is

a

capital-intensive business.

So,

can

you

please

explain

how

this

investment

fits

to your

strategy

of

focusing

on

low

capital-intensive

activities?

And

the

third

question

is

on

free

cash

flow

guidance.

I'm

still

trying

to

get

my

head

around

that.

You

expect

significantly

lower

net

working

capital

outflows,

but

it

should

be

clear

that

selling

prices

are

further

rising,

input

costs

are

rising.

Volumes

are

rising.

So,

what

makes

you

confident

that

net

working

capital

will

shrink

in

2022?

Thanks.

[Christian Kullmann]

Hi,

Martin.

Good

to

hear

you.

Christian

speaking.

First

of

all,

it

is

to

underpin

that

our

methionine

business.

We

do

take

this

business

as

a

cash

cow.

And

in

this

respect,

nothing

has

changed.

Second,

having

said

so,

it

means

that

we

have

to

constantly

and

continuously

increase

the

efficiency

and

to

improve

our

cost

position.

It

is

not

about

being

the

market

leader

with

this.

It

is

about

being

the

cost

leader.

And

following

this

idea,

I

would

invite

you

[indiscernible]



(00:22:24) a

tiny

revenue

into

the

past,

that

we

have

closed

our

methionine

production,

for

example,

in

Wesseling

that

we

started

a

lot

of

activities

to

cut

and

to

reduce

costs

coming

out

of

a

double-digit

million

cost

savings

per

annum.

And

now

it

is

to

say,

okay,

from

a

strategical

point

of

view,

that

we

do

have

three

main

hubs

all

over

the

world,

one

in

Asia,

Singapore,

one

in

Europe,

Antwerp,

and

one

in

the

United

States

of

America,

which

is

in

Mobile,

Alabama.

And

here,

it

is

need

to

better

our

cost

positions

over

the

course

of

the

next

years.

So

in

other

words,

this

investment

you

have

tackled

helps

us

to

extend

and

to

expand

our

leading

cost

position

from

methionine

in

North

America.

And

we

will

definitely

benefit

from

this

nicely.

So

we

will

see

here

significant

annual

savings

of

about

€15

million – a

little

bit

more

than

€15

million.

And

it

is

worthwhile

to

mention

that

it

will help

and

increase

the

supply

security

which

is

needed

to

make

sure

that

we

could

provide

our

customers

with

a

sufficient

amount

of

methionine.

So,

to

sum

it

up,

no

change

of

strategy

in

this

respect.

But

because

following

the

strategy

we

have

given

to

you

that

methionine

is

a

cash

cow,

it

is

[ph]



time

by

time

needs

to

better

hear (00:24:02)

our

cost

position

and

this

is

a

good

opportunity

we are

going

to

tackle.

With

this,

I

do

hand

over

to

Ute.

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

Yeah.

Thank

you.

Martin,

good

afternoon.

First,

on

the

energy

costs,

we

had

energy

costs

in

2021

of

around

€700

million.

The

comparison

with

2020

makes

only

limited

sense

as

2020

with

COVID,

of

course,

was

not

a

normal

year.

I

think

for

this

year,

we

will

see

another €200

million,

€250

million

increase,

maybe

a

little

bit

more

depending

on

the

overall

gas

price

and

market

situation.

We

are

hedging

three

years

in

advance.

Of

course,

the

first

year

has

a

very

high

hedge

rate

and

then

the

following

years

have

lower

hedge

rates.

We

have

increased

the

hedge

rates

a

little

bit

already

back

in

last

year.

So

from

that

point

of

view,

I

think

we're

pretty

well-positioned

here.

Please

keep

in

mind

that

the

discussion

on

high

gas

rate is

a

European

one.

In

the

US

or

in

America

and

in

Asia,

we

have

a

different

picture.

So

–

and,

of

course,

we

always

see – we

have

to

see

the

full

group.

I

think

to

speculate

what

would

it

be

without

hedges

is

somewhat,

I

think,

going

very

far

because

you

never

know

when

would

you

buy.

So,

I

think

we

should

leave

it

with

the

numbers

we

know

and

not

with

the

numbers

that

might

come

depending

on

whatever

scenario.

Of

course,

higher

energy

costs

are

part

of

our

pricing

initiatives

and

in

some

of

the

products

we

have

also

energy

prices

as

part

of

pricing

formulas.

So,

a

big

part

of

that

will

be

passed

on

to

our

customers.

The

question

regarding

net

working

capital

is

a

very

valid

one.

You

are

right.

We

had

quite

a

buildup

of –

in

last

year

and,

of

course,

now

as

raw

materials

are

still

rising,

that

goes

into

the

valuation

of

our

inventories.

But

of

course,

we

have

also

rising

prices

on

the

sales

side.

And

this

year,

that

should

overcompensate

the

rise

in

raw

mat

and

energy.

So,

from

that

point

of

view,

from

Q2

and

Q3

onwards,

we

will

have

also

more

cash

in

from

our

receivables

and

this

is

how

we

look

at

it.

So,

first

quarter,

I

think

will

still

be

influenced

by

this

rise

in

raw

material

prices.

But

then

I

think

in

the

consecutive

quarters,

step

by

step,

that

should,

in

the

end,

level

out.

[Martin Rödiger, Analyst, Kepler Cheuvreux SA /Germany/]

Thank

you.

Can

I

have

a

follow-up

question

on

the

free

cash

flow

in

general,

the

free

cash

flow

guidance?

On

page

35,

I

see

that

you also

factor

in

M&A

in

the

free

cash

flow.

Are

there

any

disposal

proceeds

baked

in

your

free

cash

flow

guidance

for

2022?

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

I

don't

know

which

page

35

you

mean.

Normally...

[Martin Rödiger, Analyst, Kepler Cheuvreux SA /Germany/]

On

the

presentation...

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

...M&A

is

not

part

of

our

free

cash

flow.

It's

the

CapEx

is

in

that...

[Christian Kullmann]

I

think

that's

the

net

debt

bridge

we

refer to

[indiscernible]



(00:27:20)

[indiscernible]

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

(00:27:20)

but

not

in

the

free

cash

flow.

[Martin Rödiger, Analyst, Kepler Cheuvreux SA /Germany/]

Okay.

Thanks.

[Operator]

The

next

question

is

from

Geoff

Haire,

UBS.

Your

line

is

now

open.

Please

go

ahead.

[Geoff Haire, Analyst, UBS AG (London Branch)]

Good

afternoon.

Thank

you

for

taking

the

questions.

Two

questions

from

me.

You're

clearly

guiding

to

10%

EBITDA

growth

in

Q1,

although

I

look

at

the

midpoint

of

your

2022

guidance

for

the

year

at

7%.

There's

a

slowdown

as

we

go

through

the

rest

of

the

year.

Can

you just

talk a

little

bit

about

what

that's

relating

to?

Or

is

it

just

cautiousness?

And

then

secondly,

I

was just

wondering

if

you

could

give

us

some

thoughts

on

how

we

should

think

about

the

LNP

sales

for

2022,

given

we

are

seeing

COVID,

obviously,

easing

in

the

Northern

Hemisphere

at

least

as

we

go

through

this

year.

[Christian Kullmann]

Ute?

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

So,

I'll

start

with

Q1.

Geoff,

good

afternoon,

[ph]



and

I

think

that is (00:28:31)

Christian's

favorite

topic.

Yeah.

So,

I

think

what

we

see

is

really customer

demand

is

strong

across

all

divisions.

We

really

see

continued

strong

and

resilient

demand

and

we

see

that

our

price

increases

are

accepted

quite

well

and

fulfilled

quite

well.

We

have

also

strong

order

book

in

our

industry-related

businesses.

So,

the

consumer

side,

of

course,

there

is

still

some

pent-up

demand,

but

also

in

industry-related

business.

As

we

said,

of

course,

we

are

now

having

another

increase

in

raw

material,

energy,

logistics,

we

discussed

that.

But as

I said, the

price

increases

accelerate further

and at

this price, they

will

outpace this

cost

increase on

the

energy and

material side.

From

that

point

of

view,

we have

a

strong

start

into

the year.

That's

why

we

see

that

very positive

guidance.

Of

course, you

might argue

it's

more positive

than

the

full year,

but on the

other

side,

we have

more visibility

on

Q1

than

on

the

full

year.

So

maybe,

I

think

that

explains

why

your

math

is

not

working

between

the

Q1

and

the

full

year.

[Christian Kullmann]

Okay.

And

I'll

take

the

second

question

about

the

lipids

and,

yes,

I'm

really

excited

about

the

business

because

it

is

one

of

our

growth

drivers

in

future.

So,

last

year,

we

have

crossed

€100 million

revenues

for

mRNA

and

the

lipid-based

therapies.

It

was

splitted

up,

one

half

was

about

pure

lipid

production

and

the

other

half,

that

is

worthwhile

to

mention,

was

about

the development

and

manufacturing

of

a

very

complex

parenteral

lipid

nanoparticle

system.

Taking

this

in

consideration,

this

translates,

for

me

and

for

the

company

and,

hopefully,

for

you,

into

higher

sales

in

2022.

And

why

am

I

excited

about

the

future

of

this

business?

Yes,

as

of

today,

it

is

focused

on

fighting

the

corona

pandemic,

but

in

future,

there

is

much

more

growth

we

do

expect

from

different

opportunities

and

options

like,

for

example,

fighting

cancer

and

a

lot

of

other

ideas we

do

have.

And

here,

in

this

respect,

we

have

already

started

deep

discussions

and

negotiations

with

a

lot

of

potential

customers

and

they

are

really

keen

on

making

use

of

our

capabilities

to

foster

their

own

ideas

about

this

brilliant

new

technology.

So,

sum

it

up,

good

start

or

good

amount

of

revenues

we have

reached

last

year.

And

this

year,

we

will

definitely

see

higher

sales

in

this

area

of

mRNA

and

lipid-based

therapies

if

I

compare

it

to

the

last

year.

So,

you

talk

to

CEO

which

is

filled

up

with

hope

and

confidence

about

the

future

of

this

business.

Please

forgive

me

that

I

talked

about

a

little bit

more

excited

about

it

than

you

might

have

expected

it,

but

I'm

really

here

convinced

about

and

therefore

forgive

me

on

my

bold

statement

about

the

future

of

our

business

in

this

respect.

[Geoff Haire, Analyst, UBS AG (London Branch)]

Can

I

just

follow up

on

that?

Is

the

growth

in

2022

expected

to

come

from

– more

from

lipids

or

the

delivery

systems

that

you're

developing,

or

both?

[Christian Kullmann]

From

both.

Take

it

as

a

mixed –

a

pretty

nice

mixed

picture.

So,

from

both

sides,

we

do

expect

similar

growth.

And

if

I

look

through

our

order

books,

they

are

already

filled

up.

So,

yes

from

both

sides.

[Geoff Haire, Analyst, UBS AG (London Branch)]

Okay.

Thank

you.

[Operator]

The

next

question

is

from

Georgina

Fraser,

Goldman

Sachs.

Your

line

is

now

open.

Please

go

ahead.

[Georgina Fraser, Analyst, Goldman Sachs International]

Hi.

Thank

you.

Good

afternoon,

Christian

and Ute.

First,

I

just

want

to thank

you

for

your

sincere

words

related

to

difficult

context

in

which

you're

running

your

business

and

that

we're

all

working

in.

I

know

there

are

various

scenarios

that

are

impossible

to

predict,

but

I

was

wondering

if

you

could

describe

the

key

end

market

assumptions

that

you

made

in

the

guidance

range

that

you

gave

today,

and

maybe

if

you

could

break

out

how

much

of

your

growth

is

driven

by

capacity

expansion

versus

margin

recovery.

My

second

question

is

that

we

have

seen

limited

wage

inflation

in

recent

years,

but

we

are

undeniably

in

a

strong

inflation

environment.

And

so

I

was just

wondering

if

you

factored

in

higher

labor

costs

in

your

outlook,

and

if

so,

at

what

rate.

And

then

I

have

one

final

question

on

the

lipids

business,

would

Evonik

prefer

to

grow

its

capabilities

organically

or

are

acquisitions

in

this

field

also

possible?

Thank

you.

[Christian Kullmann]

Good

to

hear

you.

Thinking

about

the –

our

strategy

in

respect

of

enhancing –

of

expanding

and

extending

our

lipid

capacities,

we

do

not

have

in

mind

here

to

tackle

M&A

opportunities.

Here

it

is

to

grow

organically

because

we

do

have

the

capacities.

We

do

have

the

staff

to

do

it

on

our

own.

And

by

the

way,

it

is

not

so

costly

if

we

would

do

it

here,

this

respect

with

M&A.

So,

here

we

focus

on

our

–

on

investments

in

organic

growth

so

far.

The second,

about

higher

labor

costs

and

the inflation,

I

do

not

worry

about

it

because

I'm

convinced.

I'm

convinced

that

the

head

of

the

trade

union,

Michael

Vassiliadis,

we

have

good

and

fruitful

and

open-minded

negotiations

and

the

outcome

of

this

will

be,

let

me

say,

reasonable.

So

I

do

not

hesitate

about

the

results

of

those

kind

of

discussions.

[ph]



There

have

been

(00:35:14) some

more

questions.

Maybe

Ute,

you

could

assist.

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

Yeah.

Yeah.

I

will

take

the

first

one,

the

key

end

market

assumptions

and

key

growth

drivers.

I

think

we

should

go

through

this

division

by

division.

If

we

look

at

Specialty

Additives

here,

of

course,

we

have

Crosslinkers

with

high

volume

demand

in

their

applications.

We

have

Comfort/Insulation

where

there

is

also

some

pent-up

demand.

We

have

Oil

Additives

that

were

constrained

last

year

as

raw

material

shortages

and

logistic

constraints

were limiting

their

growth.

So

I

think

there,

it

is

really

a

mix

of

demand

growth,

better

usage

of

capacities.

If

we

go

to

Smart

Materials,

of

course,

here

is

a

big

driver.

Our

new

PA12

capacity

[indiscernible]



(00:36:12)

clearly

one

driver

of the

new

capacity.

But

also,

if

we

look

at

the

other

businesses

like

active

oxygens,

they

have

seen

growth

in

2021

both

in

the

traditional

and

also

in

the

specialty

applications

and

we

have

enough

capacity

here

to

grow

the

business

also

in

this

year.

If

we

look

at

coating

additives,

I

think

also

here,

good

growth

so

I

think

that

is

what

really

drives

the

growth

in

the

more

material-oriented

division.

If

we

look

at

Nutrition

&

Care,

we

discussed

it

here

and

there

already.

We

have

good

demand

in

our

overall

animal

nutrition,

good

price

levels for

all

the

amino

acids

and

since

many,

many

years,

very,

very

solid

and

healthy

demand

and

volume

growth.

If

we

look

at

Care

Solutions,

again,

they

increased

the

sales

with

our

active

ingredients

dramatically.

They

are

working

on

that.

They

have

two

smaller

M&A

acquisitions

that

they

integrate,

of

course,

that

will

fuel

growth.

And

so,

I

think

that

is for

that

Care Solutions,

Health

Care,

we

discussed

with

our

lipids

nanoparticle

business,

but

also

with

other

applications

where

we

have

a

good

pipeline

with

pharma

polymers

growing

at

very,

very

good

margins

over

the

last

few years.

I

think

that

more

or

less

described

the

picture

that

we

have

in

our

outlook.

[Georgina Fraser, Analyst, Goldman Sachs International]

That's

really

helpful.

Thank

you both.

[Operator]

The

next

question

is

from

Chetan

Udeshi,

JPMorgan. Your

line

is

now

open.

Please

go

ahead.

[Chetan Udeshi, Analyst, JPMorgan Securities Plc]

Yeah.

Hi.

Thank

you

for

taking

my

question.

I

had

one

question.

Maybe

this

is

for

Christian

given

that

you're

also

Head

of

the

German

Chemical

Industry

Association.

I

believe

it's

a

broader

question.

How

do

you

see

this

huge

spike

in

energy

prices

impacting

the

German

chemical

industry

and

the

competitiveness

of

the

industry?

I'm

not

asking

this

from

a

Q1

or

Q2

perspective. It's

more

a

philosophical

question

from

a,

say,

the

structural

perspective.

And

second,

I

mean,

the

Q1

guidance,

can

you –

is

it

driven

– is

that

growth

driven

primarily

by

methionine

prices?

Or

do

you see

other

segments

also

contributing

to

that

more

than

10% growth

for

the

earnings?

[Christian Kullmann]

Chetan,

good

to

hear

you.

And

while

thinking

about

how

to

answer

your

first

question,

I'll

try

to

answer

your

second

one.

And

to

be

very

clear

about

this,

it

is

not, not

exclusively

driven

by

methionine.

It

is

a

broad

and

therefore

bright

growth

in

all areas

of

our

businesses.

So

it

is,

let

me

say,

very

well

underpinned

in

Smart

Materials

and

Specialty

Additives

and

in

Nutrition

&

Care,

too.

And

sometimes,

to

give

a

little bit

more

color

about

this,

sometimes

Caspar

Gammelin,

the

Head

of

the

Nutrition

&

Care

Division,

with

a

twinkle

in his

eye,

looked

at

me

and

said,

Christian,

you

know

what?

I'm

a little

bit

not

really

satisfied

because

this

so

attractive

growth

rates

we

do

have

in

Care

Solutions

and

in

our

Health

Care

business,

they

are

not

really

treasured,

for

example,

by

the

capital

markets

because

everybody

is

talking

about

methionine

and

methionine.

So,

having

said

this,

now

coming

to

your

first

question,

there

is –

I

should

–

I

would

try

to

differentiate

the

answer

a

little

bit,

splitting

it

up

and

saying,

first

of

all,

those

German

companies

who

are

global

players,

they

could

definitely

better

– in

a

better

way

balance

the

energy

prices

out

because

they

do

business

all

over

the

world.

And

here,

the

energy

prices,

the

uplift

of

energy

prices

is

really,

let

me

say,

pressing

some

kind

of

pressure

on

the

mid-cap

companies

here

in

Germany

because

they

do

not

have

the

chance

of

diluting

the

increase

of

those

energy

prices.

But

second,

it

is

definitely

worthwhile

to

mention

being

in

touch

with

the

Minister

of

Economy,

Mr.

Habeck,

in

Berlin.

We

are

in

good

speaking

terms

about

the

question

how

he

could

help

to

ease

the

energy

prices

here

in

Germany,

impacting

German

industry

overall.

And

in

this

respect,

I'm

confident

that

we

will

create,

over

the

course

of

the

year,

might

be

not

some

kind

of –

that

we

will

not

be

able

to

resolve

it.

But

I'm

confident

that

we

will

find

a

way

to

relieve

those

energy

prices

here

for

German

industry.

So,

my

first

answer

was

very

concrete.

And

my

second answer

was

as

you

had expected

it

more

on

a

level

of

a

philosopher,

but

I'm

not.

[Chetan Udeshi, Analyst, JPMorgan Securities Plc]

Understood.

Thank

you.

[Operator]

The

next

question

is

from

[indiscernible]



(00:41:51)

Research.

Your

line

is

now

open.

Please

go

ahead.

My

first

question

really

is

around

your

competitive

landscape,

especially

focusing

on

Wanhua

who

is

potentially

a

very

small

competitor

today,

but

going

to

enter

PA12

[indiscernible]



(00:42:13)

in

the

next

year

or

so

and

then

the

move

from

them

to

also

entry

into

methionine.

So,

just

when

you

look

at

your

competitive

landscape

today,

given

you

guys

are

so

downstream

and

you've

had

technology

advantage

and

innovation

advantage

over

the

years,

I

mean,

what

is

your

intel

on

new

competition,

especially

on

products

where

it's

been

sort

of,

if

I

may

use

the

word,

in

few

hands

or

few

company

hands

as technology

over

the

years?

That's

my

first

question.

The

second

question to

you,

Christian,

is

really

around

the

share

price, and

I

apologize

for

asking

this

question.

But

you've

done

a

fantastic

job

over

the

last

four

years

in

EBITDA

growth

and

in cash

flow

as

well.

But

share

prices

remain

between

€25

and

€30.

From

your

point

of

view,

I

mean,

what

is

it

that

you

guys

want

to

do

to

unlock

value

here?

Is

it

a

share buyback

or

is

it value

here.

Is

it

a

share

buyback

or

is

it

a

special

dividend?

Or

is

it

– how

are

your

conversations

with

your

anchor

shareholder,

for

that

matter?

Because,

frankly,

for

me,

this

is

the

biggest

problem,

is

to

what

you

could

do

to,

sort

of,

breach

€30 million. Thanks

a

lot.

[Christian Kullmann]

Pleasure.

Maybe

to

the

– let

me

start

with

the

first

question,

the

competitive

landscape

and

here

in

respect

talking

about

Wanhua.

You

would

make

a

brilliant

mistake

to

underestimate

the

potentials

and

the

perspectives

of

Wanhua

and

that

is

a

mistake

we

do

not

want

to

do.

Second,

the

more

specialty

technologies,

businesses,

markets

are, the

more

it

is

about

customer

intimacy,

the

better

the

position

of

Evonik

in

the

respect,

for

example,

of

PA12.

And

as

you

could

see,

as

you

could

observe,

there

is

a

remarkable

delay

of

Wanhua

to

ramp-up

their

PA12

capacities,

and

here,

in

comparison

to

us,

we

are

front

runner.

So,

to

sum

it

up,

I

do

like

competition

because

that

is

the

best

chance

for

us

to

make

the

difference.

And

each

and

everybody

is

really

invited

to

tackle

our

markets

and

to

see

what

will

come

out

of

it.

Competition

helps us

to

become

better.

Second,

[ph]



OEA

(00:44:58),

it's

a

very

German

phrase.

It's

close

to

goodness

gracious,

as

I

look

and

Ute

[ph]



is

the (00:45:07) same

to

our share

price, we

are

really, let's

keep it

like

this, disappointed. And

as

you

know, the

members of

the extended

board

of

directors are shareholders.

So, it

is anything

else than

sufficient,

if

I

look

to

the

development

of

our

share

price.

What

could

we

do?

It

is

not

about

thinking

about

super

dividends

or

super

some-whatever,

something

else

then.

It

is

about

to

remain

and

to

stay

put

to

our

strategy,

which

translates

into

good

EBITDA

growth,

which

translate

into

good

free

cash

flow

growth

over

the

course

of

the

last

five

years

in

a

row

and

I'm

confident

– and

I

have

rolled

my

sleeves

up

for

it

and

I

am

going

to

work

my

knuckles

bloody

for

it

to

make

Evonik

together

with Ute

and

the

members

of

the

[ph]



Senate (00:46:06)

Board

of

Directors

a

better

company.

And

therefore,

I'm

convinced

that

there

will

be

a

point

of

time

when

this

blossoming

up

of

the

company

will

be

recognized

by

the

credit

investors

and

that

will

help

to

lift

the

share

price

up.

So,

stay

put.

Move

ahead.

Roll

our

sleeves

up.

Work

our

knuckles

bloody

and

create

more

and

better

growth

and

more

and

better

growth

perspectives.

That

is

what

I

do

have in

mind

about

–

let me say that that

is

what

we

do

have

in

mind

about

thinking

about

the

future.

Thanks

a

lot.

[Christian Kullmann]

Thanks.

[Operator]

And

the

next

question

is

from

Thomas

Swoboda,

Société

Générale.

Your

line

is

now

open.

Please

go

ahead.

[Thomas Swoboda, Analyst, Société Générale SA (Germany)]

Yes,

sure.

Good

afternoon,

everybody.

I

have

two

questions,

two

related

on

your

portfolio

cleanup

opportunities.

Firstly,

on

Baby

Care,

I

heard

you

saying

that

the

contracts

are

set

to

roll

forward

and

the

margins

are

set

to

improve. But

I

think

there

is

also

a

antidumping

probe

in

the

US

which

should

help

earnings.

So,

I

figure this

business

could

become

very

quickly

a

triple-digit

EBITDA

again.

So,

my

question

here

is,

is

it

fair

to

assume

that

Baby

Care

is

finally

to

go

out

this

this

year

or

do

you

still

have

hopes

that

you

could

get

more

for

it

if

you

wait

for

another

year?

And

secondly,

on

Performance

Materials

and

Performance

Intermediates,

I

think

if

I

remember

correctly,

your

cash

flow

issues

in

the

past

were

partly

keeping

you

from

thinking

in

a

divestment.

I

mean,

that

looks

fixed

now.

Congrats,

by

the

way.

Is

it

time

to

revisit?

Is

it

time

to

think

of

Evonik

excluding

Performance

Materials?

Thank

you.

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

Yeah,

Thomas.

Good

afternoon.

Baby

Care.

Yeah.

As

we

described

last

year,

they

still

had

unfavorable

price

[ph]



cancellations, (00:48:38)

but

that

really

turned

with

the

new

contracts

that

start

this

year.

So,

the

earnings

are

improving

here.

And

as

you

rightly

said,

the

antidumping

cases

will

help,

will

support

that.

I

think

the

final

decision

in

Europe

will

come

somewhat

in

April

or

May –

in

April

and

I

think

the

US

then

later

in

the

year.

So,

what

we

[ph]



have

done, (00:49:04)

we

have

prepared

Baby

Care.

Technically,

the

carve-out

is

completed.

And

now

we

will

then

see

the

operating

performance

and

then

decide

when

is

the

right

time

to

start

the

process.

I

think

normally

it

makes

more

sense

to

have

somewhat

positive

track

record.

So,

I

think

that

might

take

just

the

one

or

the

other

quarter

before

we

start

the

official

process

here.

Yes.

Before,

I

think

that

question

also

is

some

kind

of

evergreen.

For

us,

Performance

Intermediate

is

a

cash

generator

for

the

group.

This

is

how

we

run

it.

And

I

think

at

this

point

in

time,

we

do

not

invest

into

growth

here.

From

that

point

of

view,

that's

how

we

do.

If

we

look

at

the

portfolio,

we

really

take

a

step

by

step

approach.

We

divested

MMA.

We

carved

out

Baby

Care.

We

are

now

preparing

the

sale

of

some

smaller

parts

of

the

portfolio

for

Functional

Solutions

and

this

is

how

we

look

at

it.

And

generally

speaking,

of

course,

if

you

want to

sell

something,

you

have

to

prepare

the

business

for

divestment

and

then,

of

course,

you

have

to

see

that

they

have

a

good,

ideally,

the

best

timing

in

the

cycle.

So,

this

is

how

we

look

at

this.

[Thomas Swoboda, Analyst, Société Générale SA (Germany)]

No.

This

is

helpful.

Thank

you.

[Operator]

And

the

next

question

is

from

Charlie

Webb,

Morgan

Stanley.

Your

line

is

now

open.

Please

go

ahead.

[Charles L. Webb, Analyst, Morgan Stanley & Co. International Plc]

Afternoon,

everyone.

Thanks

for

taking

the

questions.

Maybe

just

following

up

on Thomas's

question

there,

Ute,

around

divestitures,

So

just

obviously

you

mentioned

what's

kind

of

currently

underway.

But

when

you

look

at

the

portfolio and

I

guess

other

parts

like

[ph]



L-lysine (00:51:12)

have

kind

of

come

up

as

potentially

non-core

and

other

bits

and

pieces.

So,

just

wondering

where

are

we

in

terms

of

those

divestiture

opportunities

or

restructuring

opportunities

as

you look

at

the

portfolio

today

versus

perhaps

last

year?

Just

a

bit

more

detail

about

– on

other

parts

that

may

be

in

scope

looking

ahead?

And

then

just

second

question

on

PA12

and

thinking

about

the

ramp-up

there.

Can

you

help

us

understand

what

the

ramp

costs

were

in

the

second

half

of

2021

and

just

how

we

should

think

about

its

contribution

this

year

as

it

gets

fully

ramped?

That

might

be

helpful. Thank

you.

[Christian Kullmann]

Charlie,

good

to

hear

you.

I'd

take

the

first

question

and

Ute will

take

the

second

one.

About

divestment

candidates,

it

is

an

easy

one

because

the

businesses

we

do

have

in

our

non-core

Performance

Materials

division,

they

are

flagged

as

non-core.

[ph]



If

you mean

that

it

is

next

status

on – and you know, (00:52:17)

taking

this

in

consideration,

it's

all

about

timing

to

sell

the

Baby

Care

business

and

we've

started

a

process

to

find

a

solution

for

our

site

in

Germany

close

to

Cologne

and

Lülsdorf.

There

is,

if

I

look

to

it,

a

good

amount

of

the

Functional

Solutions

business

line

and

these

are

the

next

two

steps.

And

once

again, Ute

has

already

mentioned

and

it

is

worthwhile

to

repeat,

all

the

businesses

which

are

located

in

the

division

Performance

Materials

are

non-core

businesses

and

here

it

is

to

work

on

them

step-by-step.

And

then

you

have

asked

if

there

is

anything

else

[ph]



is there –

as

I

said,

(00:53:08)

some

new

ideas

about

what

could

be

non-core

or

not.

Here's

the

answer.

It's

an

easy

one.

It is

two

letters

and

one

message.

The

two

letters

are

an

N

and

an

O,

and

the

message

is

no.

And

with

this,

to

Ute.

[Ute Wolf, Chief Financial Officer, Evonik Industries AG]

Yeah.

Charlie,

good

afternoon.

On

the

PA12

ramp-up,

it's

actually

much

more

than

two

letters

here.

The

fixed

cost

last

year

where

around

€20

million,

roughly.

As

soon

as

the facility

is

starting

production,

we

expect

significant

positive

contribution

[ph]



because (00:53:55)

the

market

of

PA12 is

very,

very

short.

So,

really

the

market

is

really

waiting

for

the

materials.

So,

we'll

see

a

very

quick

ramp-up

and

a

quick

contribution

here

to

EBITDA

and

maybe

even

somewhat

more

than

we

thought

originally,

the

ramp-up

takes

a

couple

of

years.

But

given

the

market

environment

and

really

the

supply

shortage

in

that

market,

we

think

that

we

will

have

a

decent

contribution

in

this

year

already.

[Christian Kullmann]

So,

ladies

and

gentlemen,

this

end

our

call

for

today.

Under

these

very

special

circumstances

and

our

thoughts

and

prayers

are

with

the

people

of

Ukraine.

Thank

you

for

your

attention

and

take

care.

That

closes

today's

call.

Bye.

[Operator]

Ladies

and

gentlemen,

thank

you

for

your

attendance.

This

call

has

been

concluded.

You

may

disconnect.