Evonik Industries AG

XETRA:EVK

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q4 2022 earnings conference call of Evonik Industries AG. I would now like to turn the conference over to Tim Lange, Head of Investor Relations. Please go ahead.

[Tim Lange, executive]

Thank you very much, and good afternoon here from Essen on a busy day for us with our annual press conference already in the morning and also a busy day, especially for you with lots of companies reporting. Therefore, we will kick off right away and also make sure that we finish early enough for the next call. And therefore, I hand over directly to Christian.

[Christian Kullmann, executive]

Great. Thanks a lot, Jim, and welcome, and thanks for joining us here from my side. Today's call, I dare say it's a special one because it is the 37 for Ute. And at the same time, it is the last one. For the last 6 years as CEO, I have the pleasure and it is still one. I have the pleasure to have her by my side, not only here during this call, but also during our management and internal meetings. It has not only made a major contribution to these calls and meetings. But also to the commercial success and strategic development of the whole company of the entire crew of Evonik. We will order a great debt of gratitude. And I personally wish all the best for a private and professional future. Ute, your expertise will be missed. The expertise you have also proven in the last year with the multitude of challenges we have faced, mainly because of the geopolitical situation.

So having said so, ladies and gentlemen, let's get to Chart #4. We'll face supply chain hurdles with the cope with more than 80 force majeure at our suppliers in the month of February alone. We faced energy supply shortages unheard of before with full gas cut in Germany. We faced inflation, which led to an increase of more than EUR 2 billion of variable costs within a single year. But we prepared ourselves early, reacted fast and face the challenges quick. Consequently, we closed the year 2021 with an EBITDA increasing 4% year-on-year to a level of EUR 2.5 billion, and we delivered a strong finish on free cash flow, generating more than EUR 600 million in the last quarter alone. But even more importantly, ladies and gentlemen, the year 2022 stood for a significant progress to prepare Evonik for the future in Germany, in Europe and the world. Let me walk through with the different dimensions. We are progressing well in streamlining our portfolio. We are at an advanced stage of negotiations for the divestment of our Lülsdorf site. As the first of 3 deals in performance materials. And for superabsorbents, the second deal, we'll start the divestment process within the next days and send out the cheese for interested parties.

Moving on with another critical, if not the most critical element for the future of our company on Chart #7. Year after year, we get closer to our sales target of more than EUR 1 billion to be generated by our fixed innovation growth fields. In the last year, we already achieved more than 7 months more than EUR 600 million, sustainable nutrition like Veramaris, our cosmetic solutions like our liposome delivery systems have shown the strong growth over the last year. To keep this innovation growth engine running, we invested accordingly last year. In terms of disruption of global supply chains, strong regional footprints and serving customers from all local basis is becoming a critical success factor for us. Our balanced regional approach is reflected in 3 investment projects in the 3 key regions. You already know the new lipid production site in the United States and the biosurfactants factory in Slovakia. On top, we recently announced an important investment in Yokkaichi Japan. The facility will be the first alumina plant in Asia, focusing on the production of specialty solutions for battery technologies using e-cars. We will spend a mid-double-digit million euro amount. Due to the sustainability benefits and the job creation in the region, the project is partly funded by the Japanese government. Construction starts this year to become operational in 2025.

If we at Evonik aim to differentiating growth, this must come from structural growth areas would show a certain independence from macro trends, just like our next-generation solutions. While this product stood from 37% of group sales in 2020, we now already represent 43% of our portfolio. With the average above average, ladies and gentlemen, excuse me, just I want to underpin that the message will meet you right. With the robust average growth rate, they will generate more than half of Evonik sales by 2030. In other words, the direction is also clear regarding our footprint reduction. We announced our new CO2 targets on scope 1 and 2 at the Capital Markets Day in May last year and made further progress in 2022, achieving a reduction of 6%. As promised, we also worked out new quantitative targets for water and waste since then, which I'm happy to present on this slide today. One important pillar of the CO2 reduction path is to switch to renewables for electricity we source externally. In the last months, we signed 2 sizable PPA agreements with EnBW, for a total of 150 megawatts. This will enable us to cover 1/3 of our European electricity needs from 2026 onwards. With other partners in Asia and in the United States, we are working towards electricity portfolio to 100% purchased from green sources by 2030. This is a major step for us. It makes us fully independent from fossil fuels, and it gives us more visibility and therefore, security related to energy prices going forward.

Ladies and gentlemen, strict budget discipline is also key to counter the high inflation environment. Our ongoing benchmarking initiatives enable us to strive for an important cost position since years for an improved and therefore, it is of importance for an improved cost position since years. On top, mid of 2022, we started to take precautions with some short-term contingency measures. They will amount to EUR 250 million for this year and already have an effect since the start of the year. Taking these initiatives altogether, I'm happy to report that Evonik is in a strong position to leverage growth opportunities on the one side, but also to limit risks on the other side. Which is we are well prepared for the future of specialty chemicals in Germany, in Europe and in the world. This was my brief strategic introduction. And now Ute will share some more light -- give you some more light on the full year and fourth quarter of the last year. With this, I do hand over to Ute.

[Ute Wolf, executive]

Thank you, Christian, and good day from my side as well. Yes, today is my last conference call with Evonik. I always appreciated the interaction with you. Your questions, your input, analysis and reports are always helping us to question ourselves and to make Evonik even a better company. Therefore, I would like to thank you for your valuable time you have dedicated to us, and in particular, for the trust you have placed in me over the last 10 years. Let me now start my part with Chart 15 as a good summary of the year, which was characterized by 2 completely different halves. In the first half of '22, we recorded a record EBITDA, pushed by strong volumes and the accelerating pricing campaigns of our specialty businesses. Free cash flow, however, was heavily burdened by the outflows for net working capital. In the second half, EBITDA weakened month by month. Although we were still successful in passing on prices, we were unable to stem the significant decline in volumes. But on the free cash flow side, our strict net working capital management has proven to turn out very successful.

We were able to generate cash again in Q3 and finish the year with an all-time high for quarterly free cash flow. Of course, our focus on reducing inventories in Q4 was positive for the free cash flow. But in return, the destocking led to under-absorption of fixed costs with an equivalent negative effect on EBITDA. Most likely, we will again be confronted with the year of 2 different halves in '23. However, this time, it will be just the other way around. Let me skip Slides 16 and 17 and go directly to the Q4 performance of our divisions on Slide 18. All divisions faced volume declines in Q4, but the magnitude was especially pronounced at Specialty Additives, reflecting heavy customer destocking. Still, the division was again best-in-class in terms of resilience, posting an EBITDA increase of 4% year-on-year. Our strong pricing initiatives countered lower volumes and higher variable costs. In Nutrition & Care, we saw a mixed picture in Q4. Healthcare delivered the expected catch-up in Q4 after the disappoint in Q3 with several supply chain issues. Care Solutions continued its strong and resilient track record. They have grown EBITDA by 20% last year, which is even above the already impressive 15% CAGR over the last 5 years. Animal Nutrition had to deal with ongoing customer destocking. Prices have seen the expected step down while raw material costs remained high for the time being.

Additionally, lower utilization rates of our plants resulted in lower fixed cost absorption for the fourth quarter. In Smart Materials, the positive top line was not reflected in the earnings. Broad based weakness of demand led to a clear volume decline. This became especially visible with shutdowns at our 2 HPPO plants. The downturn in construction and white goods directly affected our customers in the PU foam industry. Additionally, EBITDA was impacted by inventory effects and higher logistic costs. High-Performance Polymers stood out positively, posting double-digit volume growth with pent-up demand materializing. With our new capacities for PA12, finally up and running since the beginning of this year, this is good news for the market. Performance Materials had another solid quarter with stable sequential earnings. All 3 businesses have shown a more or less stable performance. In the C4 business, the last quarter was impacted by longer maintenance, so the seasonal volume decline in Q4 was not as strong as normally. Additionally, spreads, especially in MTBE and Butene-1 have held up quite well. However, Q1 is expected to show a clear sequential decline in C4 spreads and weak demand. On the accounting side, the most recent goodwill impairment test led to a write-off of the remaining goodwill of EUR 300 million for the division. The main driver was a change in our assumption on energy price levels in the next couple of years as we expect elevated levels to persist going forward. With that, I hand back to Christian for the 23 outlook.

[Christian Kullmann, executive]

It is now secret. Ladies and gentlemen, that global economic growth will be a weaker one in this year in comparison to previous years. How and when global demand will pivot to the positive, that is the big question. Our assumption is that the weak economic momentum from year-end 2022, we continue into the first quarter of this year with a successive recovery thereafter. That means that the first quarter will most likely not be better than the last quarter of the last year, followed by a successive upturn in our business from the second quarter onwards. For the full year, we are targeting an adjusted EBITDA between EUR 2.1 billion and EUR 2.4 billion. Earnings from Animal Nutrition and Performance Intermediates will be clearly lower year-on-year. In Animal Nutrition, we expect the market from a signing to grow again.

However, we also expect prices to normalize noticeably following the strong prior year. Decline in raw material energy costs will be supportive in the second half of this year, just as further efficiency improvement in the business. For Animal Nutrition and Performance Materials combined, we have assumed a decline in total of around EUR 400 million for the full year 2023 in EBITDA at the midpoint of our guidance range. This means, in other words, that our specialty businesses, Specialty Additives, Smart Materials and Health & Care should prove resilient in this year. This will be supported by a positive contribution from the new PA12 plant. Our EUR 250 million contingency measures, a clearly less negative EBITDA in the Technology & Infrastructure division and declining raw material prices in combination with our strong pricing power. On energy costs, based on our long-term hedging strategy, we are now assuming a slight increase of only EUR 100 million. This is EUR 200 million less than our last assumption back in November. So overall, we think these are prudent assumptions underpinning our outlook range for this year. On free cash flow, we expect a higher number versus last year, both in absolute terms and in cash conversion. With that, thank you so far for your interest. And now we are happy to take your questions, and we feel free to be classed by those of you. Thanks a lot.

[Operator]

[Operator Instructions] Our first question comes from Matthew Yates with Bank of America.

[Matthew Yates, analyst]

A couple of questions then. The first one on the Additives division, which achieved broadly flat profit on a 20% volume decline year-on-year. That's quite a remarkable achievement. I know it's a relatively asset-light business. So perhaps it makes sense that there isn't too much margin volatility. But in an environment where demand is seemingly so bad, how are you feeling about defending pricing going into 2023? And then the second question, I'd like to ask a little bit more about, I think, it was Slide 12 and the contingency measures, in particular, the half that seems to relate to personnel costs. Are you not worried that cutting so much cost is going to have a negative impact on the business development in terms of revenue opportunities or your ability to attract and retain talented employees in due course?

[Christian Kullmann, executive]

I'll take the second question. Have a look, I guess, I dare say really that we -- in respect of implementing and executing contingency measures, we are really used to it, used to it since 2020 during the pandemic, we have shown that we are able to tackle our cost position in a decently disciplined way to bring them down. And on the other side, to grow, in particular, in our 3 specific growth divisions. So in other words, we are familiar with those instruments. We know how to treat them. We know how to deal with them. So I'd just say to sum it up, I'd just say that in this respect, we are really professionals. And on the other side, don't forget that we will build up that we will enhance our staff in respect of our innovation teams that in respect of our supply chain management. So here, the focus is on the administrational areas. And that is -- so they're saying a fair assumption that we are able because of our experiences we have made in the past with this amount of countermeasures. So to give you a good feeling, we are really -- let me say like this, I will confirm my confidence that we will be able to realize those EUR 250 million. With this, I hand over to Ute.

[Ute Wolf, executive]

Matthew. On your question on Specialty Additives, in Q4, we had numerous effects. We had force majeure and other things. So I think that volume development has very specific reasons, not only driven by the economy. Overall, I think they really benefited very much from raising prices that went through the whole year. And of course, they kept on rising prices also in the second half. So then, of course, all the positive developments also were a little bit back-end loaded. Overall, the division, of course, is very much benefiting from the energy transition. A lot of the product from them go into sustainability-driven applications, energy, resource-efficient applications. So from that point of view, I think they had a very good underlying driving forces for the business. And again, Q4 was a number of several effects. So I would not over-interpret into those numbers.

[Operator]

Our next question comes from Chetan Udeshi with JPMorgan.

[Chetan Udeshi, analyst]

Can you hear me?

Okay. I was just asking about Q1 comment that Q1 EBITDA will probably most likely be below Q4 levels. I mean usually, the seasonality is that Q1 tends to see better trends versus Q4. So I'm just curious what is holding back the development. I guess methane is the obvious one, but are you not seeing any sort of pickup or seasonal recovery in any of your divisions in terms of demand yet? And just coming back to this division, T&I, it just feels like every quarter, we expect a lower number or lower loss and somehow that division ends up with a higher loss. So I'm just curious, I think in the guidance also, you are assuming a lower loss for 2023, what's going on in that division, which is resulting in a consistently worse loss in this division, at least in the last few quarters, I think.

[Christian Kullmann, executive]

Chetan, I'll take the first question, and then Ute will take the second one. So I'm about current trading and the outlook for the first quarter. To sum it up, key message is that our customers -- that the destocking of our customers is still continuing. However, this trend is what we do observe as of today, slowly reversing. So volumes are picking up again month by month. And I guess some of our customers have maybe rather overstretched their, let me say, their destocking policy so that the inventory levels of them seems to be a little bit already too low. But nevertheless, it is that our order books having said so, we have started to improve. So we expect installed to improve from March onwards. On the one side, we see still higher raw material costs, but here is a stabilization or even a decline recognizable for most of our raw material prices, which has still become invisible. So here, sum it up. We are more optimistic or let me say, less capital for a pickup already in the second quarter of this year. And that is also pretty well underpinned by the, let me say, structural growth drivers of our specialty divisions in our portfolio. They are not as much tackled by, let me say, the cyclical -- than the cyclical businesses in this particular period during the first quarter. With this, I hand over to Ute.

[Ute Wolf, executive]

Yes, Chetan. Your question on T&I [indiscernible] before. First of all, you have to see T&I very much is an internal service provider. So of course, then the results are also then distributed internally, they have surpluses or even I think EBITDA also is very much linked to internal cost reconciliation. Q4, again, had higher costs for the [coal plants] You know that we have -- that we run the coal-fired plants, which are relatively old. So there is a lot of maintenance to do and all these things, and that is not always plannable. Also energy purchasing unrelated now to the energy spot market. As I said, there is some volatility in that redistribution internally. Additionally, we had in Q4 a onetime effect from our tariff results, the negotiations with the unions, we have a onetime payment to our employees. That was all accounted for in Q4 and STI is the division with the most of the employees, of course, they see it the most. So I think that are the main drivers for the somewhat worse Q4 number. Going forward, of course, they will also deliver into the contingency measures that will have a positive effect. And the negative net onetime effects, we start a coal-fired plant and so forth should not reoccur in this year.

[Operator]

Our next question comes from Gunther Zechmann with AB Bernstein.

[Gunther Zechmann, analyst]

I got a question for Ute, which comes with my thanks and my best wishes for the future as well. It's on the cash flow guidance for 2023. I'd like to test you a little bit on that, please. So you've done 32% cash conversion from EBITDA in the year just past. And previously, you structurally guided for the business being capable of a cash conversion of at least 40%. So you highlighted all the factors that drove that lower cash conversion this year. But shouldn't a lot of that unwind assuming we're not seeing another flex one event or a number of flex events this year, i.e., working capital release, and you've been quite strict on the CapEx discipline as well. So shouldn't we think about 40% of the structural capability of the Evonik business today, and then we see some working capital inflow on top of it, that would get closer to 45% conversion rate. So any comments in that regard would be appreciated, please.

[Ute Wolf, executive]

Yes. I think if you look at the overall net working capital development in '22, it's still a significant buildup. Although we had this very dedicated initiative to bring inventories and working capital down. So there was still a significant buildup in working capital in '22. For '23, of course, you could assume that working capital reverses. But of course, on the other side, we still see in some of the markets logistic constraints, they get less and less, but there's still their raw material availability. These are all things that are not completely away. They do not completely disappear. So from that point of view, 23 still could have some elevated working capital compared to an ideal world. We also have higher CapEx, you have seen that. We have some EUR 75 million now for the next-gen technologies for our sustainability footprint improvement. That, of course, comes on top. So from that point and you see also we see some economic headwinds in the year. And that all, of course, weighs against a high cash conversion. So I think our guidance is ambitious. And of course, it's a very clear target of the Board to get to the 40% cash conversion very, very soon.

[Gunther Zechmann, analyst]

And just to be clear to follow up on the working capital, where do you expect to be at year-end? I know it's a bit difficult to say at this point of the year, but compared to the 16% of sales last year.

[Ute Wolf, executive]

That depends on so many variables. I think you understand that I cannot give you a serious number on that. Our target is clear, but I think to really say where it is, that depends on many, many influencing factors.

[Operator]

Our next question comes from Sebastian Satz with Barclays.

[Sebastian Satz, analyst]

I'm afraid they're both on methionine actually. The first one would be, could you please help us quantify the headwind that you've had from lower methionine] pricing in the fourth quarter? And assuming that prices stay where they currently are, how much of a headwind should we pencil in for 2023, please? And then the second question is on the portfolio. Just wondering how committed you really are to the methionine business, high volume, not necessarily specialty business. Appreciate you're probably quite busy with the Performance Materials disposal. But is there a scenario where methionine might not be part of your portfolio a few years down the line?

[Christian Kullmann, executive]

Sebastian. I'll take the second question about the portfolio and let's keep it like this, 2 letters, one message in respect of if methionine should stay as one of our portfolio elements or not. And the answer to your question is, as mentioned, 2 letters one message, no, it will stay. About the business and the business quality. As you know, we have been the market -- we are still the market leader, and we are here the cost leader and to extend and expand this position, we have decided to invest in the backward integration of our methionine plant in Mobile [indiscernible]. We have decided to invest in the debottlenecking in Singapore. And for sure is that we will benefit from this investment in the near future from the near future onwards already. And that is what will help us to foster and to enhance the quality of this cash contributor for our business and for helping to invest in our specialty divisions. With this clear message I hand over to Ute.

[Ute Wolf, executive]

Yes. On the influencing factors in Q4, I think on the price side, that was relatively okay. But we have to see, of course, with the rise in raw material prices, the contribution margin is very much under pressure, and this is what we saw. So from that point of view, I think we've done already efficiency and cost programs in Nutrition & Care. And I think for this year, when we look at our contingencies, of course, they also will have to contribute a decent portion into that. Going forward, what we see now with gas prices again lower, there is a clear chance that on the raw material side, we get some less headwind name it that way. We also have to see that new capacities will come into the market later in the year. And of course, that will then have an influence on the prices.

But again, for us, it's really now the combination, price development and cost development and the variable costs Here, we have some relief, I think, in the next couple of months. So this is how we look at Animal Nutrition. Overall, Nutrition & Care, we have positive development in Health & Care. We also outlined that in our outlook. And of course, then for Animal Nutrition, we see pressure on the earnings overall.

[Operator]

Our next question comes from Martin Roediger with Kepler Cheuvreux.

[Martin Roediger, analyst]

Yes. I have actually a follow-up question on Nutrition & Care. If I factor in the EUR 200 million drag from annual nutrition and higher earnings in health care, it seems that ROCE of that segment this year will be rather low. And thus, you will not be able to earn the cost of capital. So do you think you need some structural cost cuttings in Nutrition Care, in particular in Nutrition on top of the contingency measures? That's the first question. The second question is on the depreciation and amortization charges. And so putting aside the impairments, the D&A charges jumped sequentially by EUR 60 million from Q3 to Q4. And the big step-up was in Smart Materials but also in Performance Materials and Health Care. Can you provide some color about the background? I mean there was a [indiscernible] from PPA, but the remainder is unclear to me.

[Christian Kullmann, executive]

Martin, I'll take the first question about if there is a need to have an additional cost-cutting initiative in our Animal Nutrition business. And just I guess you can read my thoughts about it because that is what we have decided to do during our last meeting of the extended Board of Directors. So we will have a cost-cutting program, and we will have additional cost-cutting initiatives in our Animal Nutrition business, just to better our cost positions and to be prepared for future growth in this business line.

So yes, we will do so. Yes, we have started several initiatives. Yes, we are discussing these initiatives in the Board of Directors. And yes, if you assume we will come across with some more content with some or brief about it during the next weeks. I guess you are right. So this is the answer to the first question, and Ute will take the second. Ute?

[Ute Wolf, executive]

Yes, absolutely. Martin, what you observed is very much a consequence of accounting phenomenon. You might be aware that we had to do an asset value test as our market cap is lower than the book value of equity. So from that point of view, we had to really revalue all or assess all our assets worldwide, and there were some smaller adjustments needed that sometimes also a function of country risk factors and all these. So that is a number of different influencing factors.

In PM, of course, it was our most assessment where we had to take a look at the assets in preparation of the sale, and that's why we took an asset impairment also there in list of that's what you see in PM. The others are in the other divisions are spread around the world, smaller amounts. And the result of this asset value test that is obligatory mandatory under IFRS.

[Operator]

Our next question comes from Andreas Heine with Stifel.

[Andreas Heine, analyst]

I start with a clarification on the cost savings. Are these EUR 250 million on top of the EUR 100 million you have mentioned in Q3, the contingency members, and these 250 lasting cost savings? So nothing of that temporary. That's my first question. And the second actually is on pricing. Pricing will be higher year-on-year in Q1, but how does it look sequentially? How sticky are the pricing I'm only referring obviously to the specialty division. So not talking about C4 and methionine, but the rest, how is the pricing? And if I may can squeeze in the third one, you were rather short in discussing what you think about the exit of C4. You was mentioned that performance materials should be exited in 2023. So that would include C4. Maybe you can highlight shed some more light how you see the disposal process of the C4 value chain?

[Christian Kullmann, executive]

First question is a simple one because the answer is no. Second question seems to be more, let me say, interesting, and that goes there for Ute. I will take the third one.

[Ute Wolf, executive]

So when we look at the start of the year, despite weaker volumes, we were able to increase prices further. So we have some slight price increases as well. We have no declines that we see on a broader basis. For the year overall, of course, when raw material prices when energy prices fall, of course, there will be a discussion on the prices that had been written just on the back of these effects. So it's also possible that there is a positive, and that's what we also are working towards a temporary positive gap. You might remember, it took some time when costs are rising until we had the prices installed. So now we might see the reversal of that as we will protect our pricing as long as possible. But of course, we will see over the years that over the year that prices, of course, will then be adjusted on the input costs on one hand in some of our segments. We have that automatically know that. And of course, in accordance now with volume and demand development.

[Christian Kullmann, executive]

As promised, I'll take your third question, and I take your question as an invitation to give you something like, sorry, something like round up of our plant divestment. So first about Functional Solutions. Here, we are in negotiations, I would describe as already far advanced. In respect of Baby Care, we do see a really improved market dynamic. And so we will have better and, therefore, positive financial outlook, better results for 2023. The divestment process will be started at short notice. So in other words, the [indiscernible] will be sent out to the interested parties during the next couple of days. And in respect of performance intermediate so-called the C4 chain.

The carve-out process is progressing as planned, and therefore, it is pretty well on track. We have internally defined the carve-out parameters and the asset structure is already largely clarified. So here, we are on a good track too. And let's see what the year is going to bring. And in the meanwhile, we will monitor, we will observe, we will analyze the M&A market closely and then let's see. But one thing you can take for granted, one thing is that certain, we are not at all under pressure. But on the other side, we are keen on in getting those disposals for a good price done in this year.

[Operator]

Our next question comes from Thomas Swoboda with Societe Generale.

[Thomas Swoboda, analyst]

Yes. I have one question left. And I'm actually still trying to get my head around on what you said on Q1. There is usually a little bit of a seasonal tailwind in Q1. And if I understood you correctly, the underabsorption of fixed costs should start to be a little bit better in Q1. So could you just discuss briefly what is still running against your quarter-on-quarter in Q1?

[Ute Wolf, executive]

Yes, I think we have already seen some slowdown in Q4 in the whole economy and also with us. So if we now look at the start of the year, it was a slow start. Of course, we had Chinese New Year in January this year. So maybe that's also an affected to what. We also see that the destocking is still continuing. So there is no restocking that we see from that point of view. Also no pickup really there.

Volume trends still negative. We talked about that. Pricing holds up, continues to hold up well. So from that point of view, we see a slow start into the year and said that Q1 is most probably not better than Q4. But also, if you look at the outlook on the economy, hopefully, this will mark the low point for the year.

[Operator]

Our next question comes from Jonathan Chung with Morgan Stanley.

[Ho Kan Chung, analyst]

I've just got one question on your ramp-up of PA12 plant, given the challenging macro economy in '23, how do you see this business going forward in terms of the mix effect?

[Christian Kullmann, executive]

It is PA12 for Evonik in 2023, something like a strategical EBITDA reserve because we will have, on the one side, to face reality, then that means here that the if I could, I would be able to sell the volume maybe 2x to 4x. But as you know, there are some restrictions there are limitations in our capacity. And that is what gives me good reason and hope for this year because they are eased. The ramp-up of our PA12 capacity has started for the total plant total plant in -- total site in maybe 2 to 3 weeks ago, it was, 2 to 3 weeks ago. So here, we have a good new capacity, which will increase our volumes by give or take, 50%.

And then part of my answer, if I look to the market, there is a long, long queue, maybe a long, long backloaded queue of customers waiting to get our PA12. So the demand is high. the market is tight. And we do hear in this respect, see a good development, a good increase of our market positions and our EBITDA contribution from PA12 in this year, and that will definitely support our expectations, our prognosis for our Smart Materials division for this year, for sure.

And in the long run, I see it similar and maybe even better because if I do look to our markets, for example, the vehicle market and a lot of other PA12 is desperately needed. So talking about PA12, talking about the automotive, especially for e-cars, talking about additive manufacturing, talking about electronics, talking about the pharma business where we are in with our PA12. It is not pleasing me to go into resides about this business, but it is quite a good business with a really attractive market growth opportunities. We will take it in 2023 already and in future, maybe even also more. That is how I think about PA12 and PA12 in this particular market situation.

[Operator]

Ladies and gentlemen, this closes our Q&A session for today. I'll now turn the conference back over to Christian Kullmann for closing comments.

[Christian Kullmann, executive]

Ladies and gentlemen, ladies and gentlemen, it was our pleasure. Ute's and mine and the pleasure of the entire crew of Investor Relations having at you today. Take care, I'd stay healthy and hope to meet you soon in person. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded. You may disconnect your lines at this time. Thank you for joining, and have a pleasant day.