Evonik Industries AG

XETRA:EVK

Earnings Call Analysis

Evonik Navigates Challenges and Targets Growth

In 2023, Evonik grappled with market headwinds and revised targets amidst an uncertain environment but managed to achieve EUR 250 million in savings and displayed disciplined capital expenditure practices, leading to high cash conversion. Moreover, the company finalized the sale of its superabsorbent business at a favorable multiple and has seen its innovation growth fields advance, notably gas filtration membranes. Sustainability initiatives progressed, aiming for a 50% sales share from next-generation solutions by 2030. Despite a tough global landscape, Evonik’s restructuring program aims to deliver EUR 400 million in savings by 2026, reducing up to 2,000 jobs, largely in management roles. Financially, Evonik’s 2023 EBITDA reached EUR 1.7 billion, and for 2024, despite expecting no macro tailwinds, the firm conservatively targets an adjusted EBITDA of EUR 1.7 billion to EUR 2 billion, anticipating strength in its Nutrition & Care division and a robust first quarter earnings, higher than the previous year .

Weathering Economic Storms and Strategizing for Resilience

Evonik Industries navigated the tumultuous economic conditions of 2023, with CEO Christian Kullmann highlighting the company's successful adherence to its revised targets despite the challenges. The key strategy focused on stringent cost management and maximizing cash flow, achieving EUR 250 million in savings through the contingency program and setting a new high in cash conversion. The firm sold its superabsorbent business, part of its Performance Materials division, at a favorable multiple, indicating a strategic shift towards more resilient and profitable segments.

Organizational Revamp Set to Unlock Significant Savings

The company's financial executive, Maike Schuh, outlined Evonik's balance sheet, which landed squarely within its revised EBITDA guidance at EUR 1.7 billion for 2023. Despite facing headwinds from currency fluctuations and inventory devaluation, Evonik's aggressive cost-saving measures and fixed cost control helped maintain financial stability. Looking ahead, they plan to redouble these efforts with a comprehensive restructuring under the 'Evonik TaylorMade' program. This initiative promises to streamline operations, decimate bureaucratic layers, and empower employees, which is expected to yield approximately EUR 400 million in savings by 2026 and implicate a reduction of up to 2,000 jobs, mainly managerial roles.

Conservative Yet Optimistic Outlook for 2024

Evonik sets forth a cautiously optimistic forecast for 2024, in spite of a lackluster macroeconomic forecast. The company anticipates harnessing internal mechanisms such as the continuation of its contingency measures and operational efficiencies, particularly in the Animal Nutrition business, where pricing shows positive trends. Notably, the expected decrease in energy and logistics costs adds a glimmer of positivity. Evonik targets an adjusted EBITDA in the range of EUR 1.7 billion to EUR 2 billion, fueled principally by its Nutrition & Care division. Additionally, projected cash conversion remains robust at 40%, underpinning the company's commitment to sustained cash flow generation and shareholder returns.

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, welcome to the Evonik Industries AG Q4 2023 Earnings Conference Call. I'm [indiscernible], 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.

[Christian Kullmann, executive]

Thanks a lot, and welcome and thanks for joining us today. Ladies and gentlemen, 2023 is now finally behind us, and there are no 2 opinions. The last year was just one.

But we fought the challenges and finally delivered on our -- what we have to admit revised targets. And there is no beating around the bush, 2024 will be another test of our persistence, test of our perseverance. For the starting to the year, although there are some flary lights at the end of a very long tunnel -- our entry markets do not show any broad-based recovery, and the geopolitical landscape remains unchanged and difficult.

But first, let's start with a brief summary of what has happened last year. In this uncertain environment, setting priorities is essential, and our priorities were and are crystal clear. We focus on costs and cash. We delivered EUR 250 million savings via our contingency program. We have proven our CapEx discipline and achieved a record high cash conversion.

And ladies and gentlemen, we will maintain these priorities also in 2024 and actually reinforce our measures more on that later. And we continue to focus our portfolio on businesses with stronger resilience and higher returns. Fair to say, the last rounds of the negotiations have taken a bit longer. But finally, today, we signed the sale of our superabsorbent business. This is the second deal in the divestment process of Performance Materials.

Superabsorbent businesses generated an average EBITDA of EUR 20 million over the last 5 years. With a purchase price in the low triple-digit millions -- this results in a multiple of around 7x, which is quite fair in the current environment.

With this deal behind us, we can now move ahead with the next steps of our portfolio transformation. The future, ladies and gentlemen, of our portfolio, life and innovation and sustainability. I'm pleased to report that our 6 innovation growth fields grew by almost 10% in the last year, a quite remarkable achievement in the current environment.

Let me just state 1 example. Once more, our gas filtration membranes had a really good year, and the growth potential is immense. That is why we are currently investing in a further capacity expansion in Austria.

Sustainability is the other key driver of our growth. In 2030, the sales share from next-generation solutions will be over 50% and in 2023, we are already at 43%. For our footprint, the green electrification of our production is an important lever. Two new PPAs with Vattenfall and RWE are additional steps on this path.

After the short introduction, Maike will now give you some more details about our financials.

[Maike Schuh, executive]

Thank you, Christian, and good afternoon from me as well. With EUR 1.7 billion of EBITDA, we finished the year quite in the middle of our revised guidance range, despite EUR 30 million headwinds from the Argentinian peso as well as EUR 20 million inventory devaluations in Performance Materials in Q4. This was only possible with a significant support of our contingency program.

The thousands of smaller measures have overcompensated cost inflation so that our fixed costs in 2023 were clearly above the prior year level. We are expanding these measures into 2024. But as you know, they are only short-term in nature and were introduced to fight last year's headwinds as swiftly as possible. It was always clear to us that we also have to work on our cost structures.

So we started the reorganization program, Evonik TaylorMade, middle of last year and have now completed the first phase of the program. We have defined the target organization structure for the whole company, which is to be established by the end of 2026. The overarching idea behind this structure can be summarized in 2 sentences. By shifting responsibilities from corporate or division level, the operating businesses, our business lines will be the future nucleus of Evonik. And through the reduction of hierarchy levels and management spends, we are empowering each of our employees and call for faster decision-making.

Tailor Made will change our structures more than any other program before. It's not just about administration. It's a comprehensive reorganization of our group structures and organizational principle. There is still a lot of work ahead of us. But with the completion of the first phase of the program, we can today communicate the savings potential of EUR 400 million by the end of 2026.

Up to 2,000 jobs are to be cut worldwide, and this includes a relatively higher share of more expensive management. To give you some figures here, Evonik currently has around 4,500 manager positions worldwide, of which up to 1,500 will be eliminated by the end of 2026. Some of the managers will be set free without replacement, while others will be retained but will lose their management roles.

Over the next 3 years, we will now implement the target structures across the whole company, all regions and every unit of the organization. During this process, we will keep you updated as usual. Over the next 3 years and starting already this year, the program will not only support our earnings, but also help to extend our strong track record of cash generation.

Despite the pandemic, massive disruptions in global supply chains and pronounced destocking by our customers, we have achieved an average cash conversion of 40% over the last 5 years and a cash flow of above EUR 700 million each single year. Needless to say, this -- that this covered our attractive dividend in each of the last 5 years. And you can be sure, 5 years of track record is not enough for us, neither for me nor for Chris.

[Christian Kullmann, executive]

Well, Maike, you can be really sure of that. And that, ladies and gentlemen, brings us to our outlook for the current year. You know it. We know it. There's not much macro tailwind to be expected for the year. So we will take a realistic conservative approach and assume no change of the current weak environment for all 4 quarters ahead of us.

However, for Evonik specifically, 2024 will be supported by 2 factors. Firstly, our self-helping measures. The contingency measures extended into 2024, the operational efficiency measures like in Animal Nutrition and the first smaller savings for our new Tailor Made program.

Secondly, our Animal Nutrition business, where prices are currently on the rise, relatively independent of the macro environment. And on top -- we expect some smaller support from our energy costs and to more material support from lower logistics costs. Overall, these factors give us confidence to grow earnings without much macro support.

So we are targeting an adjusted EBITDA between EUR 1.7 billion and EUR 2 billion. Based on the just described macro assumptions, this will be mainly driven by our Nutrition & Care division, apart from the healthy price level in methionine during at least in the first half of the year, also cash solutions with a sustainable specialties and the start-up of biosurfactants plant will contribute to this growth.

And the first quarter should already support our growth ambition for the year. Although Smart Materials and Performance Materials are expected to remain below their still stronger last year level, a year-on-year stable specialty additives and especially Nutrition & Care will result in the first quarter clearly above prior year's level.

Maike already set the target for the free cash flow. Another year of 40% cash convergence are our ambition level.

Ladies and gentlemen, so let me summarize with the last slide. Short term, we'll execute on cash and costs. Midterm, we continue to drive our portfolio transformation to invest into innovation and sustainability. And we're just about to radically reorganize our structures. So from that point of view, what is in for you as an investor? Look at the company, which is well positioned as an enabler of sustainable change with a proven track record of cash generation also during difficult times with an attractive and reliable dividend with targeted earnings growth for 2024 and with a lot of self-help support over the next 3 years.

With that, thank you for your interest and your time so far. And now we are ready and happy to take your questions. Operator, please would you take over for the first question in the line.

[Operator]

[Operator Instructions] And the first question comes from Gunther Zechmann from Bernstein.

[Gunther Zechmann, analyst]

If I can start with the guidance, please. First on the full year and then on Q1. Could you just give us the sensitivities, what's baked in at the high end at the lower end of the guidance range? And now your comments about not assuming any macro recovery to be taken at the midpoint. And if that was something else, the main swing factor.

And then for Q1, thanks for providing guidance there. Is it EUR 460 million EBITDA reasonable? The reason I'm asking this is, if you don't guide for a back-end loaded 2024, which I think you don't then to get towards the midpoint of the guidance, assuming normal seasonality, that's the level you would assume you get to and given we're already in March. I would hope you have some very good visibility on Q1 numbers already.

And if I can sneak a last one in, hopefully, short for Maike. The cost savings you announced today, can you just confirm that it's fully incremental to the existing cost-saving programs? And could you give us a cumulative net savings number for this year, please?

[Christian Kullmann, executive]

Thank you very much, Gunther, for the 3 questions, and I'm afraid, Maike, they all for you. Back to call. So the first one on the sensitivity of the guidance of the upper and lower end of the range. The second one, more specifically what we expect in Q1 and the third one on incremental cost savings and the potential net effect.

[Maike Schuh, executive]

All right. Yes. Gunther, good afternoon. I have to concentrate as well to say not good morning because we are so used to the morning. So good afternoon from my side as well. You asked regarding upper and lower end of guidance range. Let's start with that one. So the upper end -- obviously, we will reach the upper end if the macro recovery is faster than expected and/or the healthy methionine price level stays also in the second half year.

The lower end, obviously, it's quite the contrary. So if you see even further macro deterioration from the current low level. Then you have set Q1 guidance. What we say and we guide you -- can guide you today as you have -- you mentioned a very clear figure. So what I can tell you today is that it will be clearly above last year's level.

Last year was EUR 410 million. So I can kind of keep it to you to, to elaborate more on what is clearly above EUR 410 million above last year's level. And then you asked about the cost savings if they are fully incremental or cumulative or what would be the cumulative net savings number?

So the savings what we mentioned is the EUR 250 million contingencies, they will be basically rolled over from 2023 to 2024. Then we will see an additional EUR 60 million roughly from [ Janos ], our cost project, our commoditization project of Animal Nutrition. We have shown roughly EUR 50 million in 2023, and we expect another EUR 60 million now in 2024. And then we see -- we expect first few savings from Evonik Tailor Made from ETM. I hope that answers all your questions.

[Operator]

And the next question comes from Jonathan Chung from Morgan Stanley.

[Ho Kan Chung, analyst]

I've got 2, please. First one on the cost -- the EUR 400 million cost program. I noted that the majority of the staff reduction will be made in Germany. So is it fair to say that Germany -- the Germany that you see now is no longer competitive versus the global chemical productions. And in your views, what is necessary to bring Germany back on the feet and be competitive again? Or [Technical Difficulty] from Germany and Europe in the medium term?

And on my second question on methionine. On the slide, you mentioned methionine contract price is on a healthy level, at least during half 1. Can you tell us how you define a healthy level in the context of a year-on-year comparison? And if I could recall correctly, NHU is bringing a good 150 kilotons of methionine later this year. How disciplined are your competitors when they bring up new capacity to the market? And do you see a risk to the contract price for the latter half of this year.

[Tim Lange, executive]

Thank you very much, Jonathan. On your 2 questions. First one on Germany and the competitiveness of Germany. Obviously, that goes to Christian. And the second 1 Maike will try to define healthy in terms of the methionine pricing.

[Christian Kullmann, executive]

Jonathan, Christian here. I have a different view on this because over the course of the last years, Evonik Industries, all over the world in respect of our administration areas, has really become too complex, too bureaucratic and too hierarchal, let me say, oriented. And that is what we have to now to resolve by getting rid of these structures to become more efficient, more effective, becoming leaner and even quicker and faster in acting, which means, first of all, that we will reduce the level of hierarchies from 10 to 6.

And second, that we brought the span of [indiscernible] executive, the average spend from 1 to 3 to 1 to 7 employees that might become very helpful for us, and that will translate into the cost reduction of roughly EUR 400 million or give or take EUR 500 million, it might be even a little bit more let's see. But that has nothing to do with Germany.

The reason why we are focusing those cost-cutting and restructuring measures on Germany is still that we're a European company headquartered in Germany and the most administrational -- let me say, employees are located here, and that is the reason why we do focus on Germany.

Besides Europe, the United States of America and Asia, they do all have advantages, and they do all have, let me say, some concern. So it is not to say that America and Asia are the exclusive growth regions. It is a mixture as always. It's not only picture of growth and not only picture of challenges and contributing to this means we have to become more international, and that is what we are also striving to do. So that is my idea about your first question. And now I hand over to Maike.

[Maike Schuh, executive]

Yes. Thank you, Christian, and hello, Jonathan. So you asked about the methionine prices and the demand and supply, let me see if I can shed some light here. So maybe starting with demand, supply, this is the underlying question you mentioned is that the volumes -- we expect the volumes still with a solid growth throughout 2024. So the market is intact.

And -- so from a supply perspective, this is what drives now the prices. In Q1 and Q2, we see that the market remains tight. Public sources tell us and now we can tell you that Adisseo is having production issues in Europe in Q1, then CJ has another shutdown in Malaysia in Q2. Last but not least, also Evonik is having a shutdown in Q2 due to the expansion projects, for example, our Zynex project in Singapore. So that's why we see a clear step-up in contract prices in Q1 and a further step-up in Q2.

Then H2 depends obviously and how -- when and how fast the additional capacities will come to the market. We all know that NHU has planned additional availability in Q2. We have taken a very bullish price assumption for H2 as a basis for the group guidance. So looking at the overall supply picture for 2024, we feel that the additional 150 kt of the NHU capacity should be offset by the market growth and capacity reductions. So 70 kt is market growth, and we have the closure of the Adisseo plant in France. That's an additional 70 kt. Sumitomo is reducing the capacity in 2 steps -- that's an additional 50 to 70 kt. In CJ with a 60 kt reduction in Malaysia will also play into that direction. I hope that helps.

[Ho Kan Chung, analyst]

Can I just clarify, did you say you have taken a very bullish assumptions on the methionine price for H2?

[Maike Schuh, executive]

Exactly. That's what I said.

[Christian Kullmann, executive]

No, no -- the wording. Not a very bullish...

[Maike Schuh, executive]

Not -- sorry, we have not taken a bullish -- sorry. Thank you for clarifying that.

[Operator]

And the next question comes from Martin Roediger from Kepler Cheuvreux.

[Martin Roediger, analyst]

First is on the business environment. And here, I would like to understand what do you see in terms of demand for Specialty Additives, Smart Materials and Performance Materials in Q1? Do you see some signs of restocking?

And are you benefiting from some supply chain issues via the Suez Canal because there are less imports of Chinese products to Europe. That's number one. Number 2, Christian, Slide 4, you talk about the capacity utilization rate. Can you disclose that? What was it for 2023? And how was -- how does it compare to 2022? And finally, on energy costs, can you also mention the absolute energy cost bill in 2023. And was -- what was it in 2022?

[Tim Lange, executive]

Thank you, Martin, for the 3 questions. The first one on Specialty Additives in Q1. The second one, I didn't 100% get capacity utilization in which business or division, could you help us here, what you meant specifically...

[Martin Roediger, analyst]

It was on Slide #4 of your presentation. And I would like to know that on a group level, what was the capacity utilization in 2023 and how was it in 2022?

[Tim Lange, executive]

Okay. And the third one was on energy cost. I think that was clear 2023 and also outlook 2024, I think we can give you. Maike, you want to start with Specialty Additives in Q1? And then Christian can do the capacity utilization. And energy costs, we will see once we are there.

[Maike Schuh, executive]

Okay. I'll start with the business environment and the divisions. So maybe let's go through the division by division in -- so for Specialty Additives, we see higher volumes year-over-year in all BLs, business lines. Maybe some green shots in the first weeks of the year, but obviously all come from a very depressed levels. So the coatings demand is slowly coming back, especially in APAC and here in Europe.

The PU foam and all additives continue to be on a robust level -- and we see some restocking benefits which are likely not sustainable. Cost incurs is somewhat weaker than expected because of the higher competitive intensity. And the pricing is slowly coming down, but in line with the lower raw material costs. And then you asked only for...

[Martin Roediger, analyst]

If -- also for Smart Materials...

[Tim Lange, executive]

Say that again, Matthew.

[Maike Schuh, executive]

Sorry, once again.

[Martin Roediger, analyst]

Actually, I was also interested in Smart Materials and Performance Materials. If there is any restocking or any benefit from less competition from China because of the supply chain issues in Suez Canal?

[Maike Schuh, executive]

Yes. Okay. Got you. So for Smart Materials and also Nutrition & Care, if you look into the -- yes, the impact of the Red Sea conflict, we and -- we must produce in the region for the region, and we see actually that products coming into Europe and products going out of Europe. They have a delay by 10 to 15 days -- day, sorry.

So the supply chain is not redirected, but it's still -- simply longer. And so we don't see any big impact on Asian competitors being completely blocked from coming into our European, yes, production environment. That counts for Smart Materials and also for Nutrition & Care.

[Christian Kullmann, executive]

Okay. Martin, I take the other 2 questions. The first was about the overall utilization rate, and that was around 70%, give or take, some businesses even below. But as a yardstick, you could take those 70% capital utilization rate overall.

And once again, somewhat different business by business, but that's the yardstick for the last year. And then second question was about the energy costs in 2023. We have hopefully seen the peak by EUR 1.2 billion. And for this year, we do think it is between EUR 1 billion and EUR 1.1 billion. So a slight decline of energy costs is what we do expect for this year in comparison to last year. I guess that are the answers to your questions.

[Operator]

And the next question comes from Andreas Heine from Stifel.

[Andreas Heine, analyst]

I would like to start with the Tailor Made program. So you said the cost savings this year some, so not too much is -- and the rest more or less evenly split between '25 or '26 or is there a different phasing? Maybe also demanding on what the next is you plan the infrastructure separation, any thoughts you can share with us how that is progressing?

And then lastly, operationally, I'd like to understand a little bit more of the Specialty Additives. As I look on Q4, your earnings were down 29%, volume was flat, prices down 5%. Going into next year is what you expect, let's say, that the volume increase you have elucidated to by business lines is offset by marginal pressure, and that's the reason why your earnings are flat or what is behind that rather pushes you on the earnings progression in Specialty Additives?

[Tim Lange, executive]

Thank you very much, Andreas. First question on the ETM saving. Maike, if you would take over a second question on the process of our [ Tango ] project, the separation of technology infrastructure and then the third one, Specialty Additives, maybe Maike again.

[Maike Schuh, executive]

Okay. Andreas, regarding the cost savings of ETM. Let me say that this is probably a little bit too early to say how exactly it will be -- the cost savings will be split in 2025 and 2026. We have communicated the program today, and we will start now to discuss in more detail with our workers council in the next couple of days and weeks and also then communicate obviously, with our employees to get a better understanding on how that will be split. So bear with me and we will give you a better understanding on the cost savings and of the split of the cost savings in the course of this year.

And with that, I hand over to the infrastructure operation to Christian.

[Christian Kullmann, executive]

Andreas, it's Christian speaking, about the infrastructure separation. You've asked about the current status of the progress. It is fair to assume that here, everything is pretty well on track. So we have spent a lot of time during the first weeks of this year being together with the different teams to discuss how to catch and how to form and watch the infrastructure division.

And on the other hand, the technology division. Technology is key for us because what is coming out of our innovation departments, we're going to ramp up to build up. Therefore, the technology department, our engineers is key. On the other side, we have the infrastructure of the department in here, every idea of how to treat it, how to deal with it, it's still lying on the table.

So in a nutshell, good progress here within this program and we will keep you informed if there will be any cutting edge, which is relevant for you because the timetable you are well aware of means that we will give you, let me say, some more guidance about our checking how to deal with this infrastructure in future, maybe end of the year, first days of last year to give you somewhat like the next kind of watershed.

With this, I hand over to Maike.

[Maike Schuh, executive]

And I will answer your Specialty Additives question. So basically, what we see is a good development in most of the business lines. So I've mentioned already coatings, PU foam, fuel/lubricant additives, they are all up. The only business line, which -- where we see headwind is a crosslinkers business line. So we see here an increased competition, and this is why volumes are suffering. I hope that I answered your question.

[Operator]

And the next question comes from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, analyst]

I just wanted to follow up on Christian, your comment at the beginning of the call where you said at least from your perspective, you didn't want to expect any macro recovery this year. Is this just a -- I mean, is this an assumption or is this based on what you actually see so far? Because it feels like in Specialty Additives, there is some improvement in volumes. You talked about methionine. You talked about some growth in your Care Chemicals part of the business.

So I'm just curious the assumption of no improvement. Is that based on just an assumption that you want to take to be conservative? Or is this actually based on what you see in your numbers especially now or in your conversations with your key customers? And the second question was, if I'm not mistaken, I think the previous indication from you was to assume a EUR 50 million of EBITDA increase every year for the next 4, 5 years from the ramp-up of polyamide 12 plant. Is that still the case? Or has things changed or have things changed in terms of the timing of the earnings contribution there?

[Tim Lange, executive]

Thank you, Chetan. I suggest both questions. Christian, you take over the first one, on assumption or not in the macro recovery and what we see? And the second one also on the PA12 market and what we are seeing there and the ramp-up of the new plant.

[Christian Kullmann, executive]

Tim, you know what, it is my pleasure to convey the answers to Chetan. Chetan, Christian speaking, maybe about your first question. You know me by far. And there you know that to a certain amount, the ideas I do have means gut feeling by barely spotting. And if you look at my belly, you know what I have in mind.

So in other words, it is by resumption. As you know, I'm, in this respect, a conservative one. And I'm really keen on to deliver on our promises. So it is by assumption and the assumption is a conservative one. And as you know, on the other side, the start into the year was as we have informed you a couple of minutes ago was a good one. So we will come out of the first quarter clearly above -- clearly above the first quarter of last year. So that is about what I have in mind, what we have in mind about our macro economical assumptions.

Second, you have asked about our new capacities, asked about the future of PA12. And yes, you do remember it really precisely and very rightly, but -- you have to be -- please, and I ask you to contribute to the fact that it is the question of how macro economy is running. So what have we seen here? Or what are we going to see?

The demand for our PA12 is still robust in some segments. Think about coatings, think about electronics. On the other side, it is fair. It is fair to say that even our PA12 business is somewhat to certain extent, let me say, a little bit suffering from the sluggish demand outlook into the first half of this year, which is really hopefully colored by more restocking.

Now maybe give you some color about the regional picture, what do we see here that might be helpful for you. So I guess, fair to assume that in Asia, we do still expect a solid kind of growth, whereas it is in Europe, give or take, flat, and in North America, somewhat below the prior year. So it is here a mixed picture. Maybe -- to sum it up, the EBITDA contribution, we do expect for this year, as mentioned, in some business areas attractive still. But that goes without saying depends on the market growth in 2024.

So the better the higher market growth recovery would be, the better and higher we would benefit from it. Maybe to close my comment about PA12. What is definitely a positive is that we do, as of today, you only see very, very, very small volumes from our competitors in the market. And the new capacity of Arkema, they have started to build up in Singapore is definitely not on stream as of today. So thinking about PA12, there are good perspectives if the market recovery would come up.

With this, back to Jim -- that's it sorry, we have answered your questions already. Thanks a lot for your attention so far.

[Chetan Udeshi, analyst]

Maybe if I can follow up, Christian, on China. Post Chinese New Year, any color there? Any interesting developments?

[Christian Kullmann, executive]

What we have seen for the first quarter or what do we see is maybe -- give it like this for China and for Asia was the start into the year was a good one? It was a good one in respect of sales in January. It was definitely clearly up year-on-year, and the order backlog for February was in respective year-on-year comparison running into the same direction and the same holds true for March. So giving you a little bit more color, this kind of trend, I'm really cautious. Don't get me wrong.

I'm really cautious. It is -- not sure if it is just restocking? Or is it somewhat like the early bird of recovery. That is too early to judge upon. So please take the word trend into this direction. So additives for automotive, for example, and industrial products, coatings and various application construction despite the real estate weakness are doing well. But still, let's see, is it restocking, or is it more than restocking? Is it already a recovery -- first signs of recovery. That is what we should judge upon maybe in 4 to 6 weeks' time. So that's about China and Asia.

[Operator]

And the next question comes from Sebastian Bray from Berenberg.

[Sebastian Bray, analyst]

I've got 3, please. The first is on the nature of contingency cost savings. The business has generated some quite remarkable cash flow over the last 2 years and the earnings have held up pretty nicely. If business comes back, does all of the EUR 250 million of contingency cost savings come back in '25?

I almost have the impression that the near term, the EBITDA might be a bit better, but in the long term, it's not possible to stop people traveling for this amount of time and keep -- have these other short-term measures in place without eventually having an impact. If business returns to normal, do we have a EUR 200 million to EUR 250 million headwind in 2025.

My second question is on CapEx. Has anything been delayed? Because Evonik has under shot consensus CapEx expectations for some time now. And I wonder, in particular, if the methyl methacrylate expansion planned originally for the second half of '24 is coming online as was originally foreseen. And my last question is simply on M&A.

How are you feeling about divesting the rest of Performance Materials? Is this really something for '24 or more likely in '25?

[Tim Lange, executive]

Thank you very much, Sebastian. On the 3 questions. First one on the contingencies going forward, go to Christian, I guess. Second one, CapEx and delays and cuts, to Maike and the third one on M&A to Christian.

[Christian Kullmann, executive]

Yes. Let's start with the third one. In respect of the dispose of candidate performance intermediates, [indiscernible], we are prepared. But I guess it would not be prudent to start the concrete process in 2024 because of the weak economical instance and environment.

Maybe it is a good example to remind you to think about the MMA and PMMA deal we have done a couple of years ago where we have taken our time to wait for the perfect moment. And the same holds true thinking about the C4 chain. And I'm -- as of today, I do not think in this year, it might be prudent, and therefore, it is worthwhile to mention that we are in a position where it is no need to have anything than a fire sale or somewhat like this. We are strong and robust to take our time because we see for business is an attractive one.

And here, we do expect a good price, even best price. Now it is about your first question. Cash flow, yes. Some costs will come back. That is a fair assumption of U.S. But on the other side, you should keep in mind that by canceling open positions that by quitting on the refilling of open positions forever. And that by tackling some additional baskets to put some money out to cut budgets. I guess it is fair to assume that these EUR 250 million will -- despite how the economical development over the course of the year will move ahead that this EUR 250 million are somewhat like Raven into stone.

With this, I hand over to Maike.

[Maike Schuh, executive]

Yes, Sebastian. I'm happy to answer your CapEx question. So you mentioned, for example, on methyl mercaptan factory in -- plant in the U.S. And I can reassure you that in the second half of 2024, we will finish our backward integration for the methionine production in Mobile. And that will bring us back to the cost leadership in North America. And we will also finalize our capacity extension for methionine in Singapore with the technology modifications we have mentioned before.

So there are, of course, we have some -- we have wiggled a little bit with some of the yes, CapEx investments. However, our major plants, our major investments like in membranes, aluminum oxide in Japan, the lipid production in the U.S. are totally in time and in budget.

[Operator]

And today's last question comes from Jaideep Pandya from On Field Research.

[Jaideep Pandya, analyst]

Firstly is on methionine. Could you tell us these days, what is really the big markets versus the liquid markets? I see clearly a trend in China of increase in liquid share and I guess, NHU's next project is liquid. So how do you see yourself competitively positioned in the powder versus liquid debate? That's my first question.

Second one coming back sort of to what Chetan was asking in PA12. If you're seeing competitive behavior in crosslinkers, which used to be a very technology-oriented product, why would we not see this in PA12 when one more ramps up properly? And also curious to know what is your share, especially in the auto market with the EV players in China for PA12 versus some of the more traditional OEMs?

[Tim Lange, executive]

Thank you, Jaideep, for the 2 questions. First, I think both go to Christian. The first one on methionine, liquid versus powder market share. And the second one, rather specific one on PA12. I think we partly answered and let's see how specific we can be on the specific market share in China in PA12.

[Christian Kullmann, executive]

I guess the question about methionine and some changes in the methionine market in respect of -- is there a difference between liquid and powder here is -- really fair to say that the share between liquid and power over the course of the last year has not changed at all.

And having said so, from the Evonik position, as you know, we have [indiscernible] favorite of the powder, and that is still a better product to feed chicken than each and everything of the rest. And then it was about PA12. And I guess that one goes to...

[Tim Lange, executive]

As you like. I think the question was how -- what the position in PA12 will be going forward with the entry also competition. And then a more specific question on the -- on our share in the Chinese auto market in PA12, I guess?

[Christian Kullmann, executive]

Yes. First of all, it is to say that in respect of our PA12, we are really prominent positioned in the automotive market. And I guess we will benefit from the growth -- from the growth perspectives in the Chinese auto market for sure. And as far as we are informed NHUA, our honorable Chinese competitor in PA12 is somewhat struggling with entering the market.

And so it is -- from our perspective, as far as we are informed, they are not in. And if only with very tiny amounts of, let me say, so here, we feel pretty well in good position. And the other one was about...

[Tim Lange, executive]

Jaideep, any follow-up question here.

[Jaideep Pandya, analyst]

No. I guess you answered the question. I guess the only probably a follow-up on methionine and apologies for asking this, but historically, when Adisseo came in the market last time with a big capacity expansion, prices probably went down by 10% to 15%.

I mean, this time around, we are in a relatively balanced market, for all the reasons, I guess, Maike mentioned. So would you think that even if NHU was to add, I don't know, 100, 120 kt, prices will still remain around the 2.5% mark for the second half?

[Christian Kullmann, executive]

Even if our honorable colleagues from NHU would enter the market over the course of this year by ramping their capacities up to the utmost, even if -- it is that we -- in respect of the volume growth, it would be a wash because first, Adisseo has announced to close their capacities in France, which means roughly 70 kt would go out of the market. Sumitomo, reduced their capacities in 2 steps, first end of last year, next end of this year. And here, this is here, we talked about amount of, give or take, 60 kt. And you should not forget that CJ has reduced the capacity of their plant in Malaysia by roughly 40 to 50 kt.

And if you add all those capacities up, it is -- even if, and that it's anything else to ensure and even if the 150 kt of methionine from NHU would completely come into the market this year, it is nothing else in a wash. So no additional capacities -- no additional capacities of volume this year if you calculate the capacities going out of the market and the other ones entering the market. So in other words, it seems to become offset by market growth and capacity reductions. That is, I guess, a fair assumption.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Kullmann for any closing remarks.

[Christian Kullmann, executive]

Yes. Ladies and gentlemen, for the first time, it is up to me to end the close instead of Tim. But don't worry, he's in best shape. Ladies and gentlemen, that is what ends or close today. Take care, and thanks a lot for your attention so far. I hope to meet you soon in person. By having said this, Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you.