A good start to 2012 - EBITDA margin still very high
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- Klaus Engel, Chairman of the Executive Board: "We are very confident about 2012."
- Good operating performance in Q1 2012—but slightly below the excellent performance in Q1 2011
- Sales totaled €3.5 billion; flat organic growth, year-on-year decline of 8 percent due to divestment of the carbon black business
- Adjusted EBITDA of €692 million and adjusted EBIT of
€533 million still high
- Adjusted EBITDA margin still very good at 20.0 percent
- Adjusted net income slipped roughly 9 percent year-on-year, mainly due to divestment of the carbon black business
- Capital expenditures up 28 percent - construction of two large-scale facilities has started in the growing Chinese market
- Outlook: Sales expected to be slightly higher at year-end 2012, while the operating results will probably be slightly above or in line with the excellent 2011 level
Essen. “Evonik made a good start to 2012. In the first quarter, our operating performance improved considerably compared with the weaker fourth quarter of 2011. In many areas of business, demand picked up perceptibly compared with the previous quarter. We are very confident about 2012 as a whole and that is also reflected in our outlook,” commented Klaus Engel, Chairman of the Executive Board of Evonik Industries AG, today, when the company published its key financial data for the first quarter of 2012.
Business performance in Q1 2012
As a result of the divestment of the carbon black business at the end of July 2011 and the fact that sales from these operations are therefore no longer included, Group sales contracted by 8 percent to €3,456 million in Q1 2012 (Q1 2011: €3,756 million). Organic sales growth was flat: Volumes declined by 4 percentage points but this was offset by higher selling prices (+4 percentage points).
Adjusted EBITDA* came in at €692 million. The 10 percent reduction compared with the very good performance in the first quarter of 2011 was due to the fact that earnings from the carbon black business were still included in the first quarter of last year, and to a slight downturn in demand. The adjusted EBITDA margin remained very high at 20.0 percent (Q1 2011: 20.5 percent). Adjusted EBIT dropped 12 percent to €533 million (Q1 2011: €604 million).
The adjustments of minus €64 million mainly related to impairment losses on assets in the Resource Efficiency segment resulting from the tough competition in the photovoltaic industry, and expenses for restructuring. In Q1 2011, adjustments were plus €78 million due principally to a gain recorded in connection with the first-time recognition of the put and call options for the remaining shares in STEAG GmbH.
Owing to these non-operating effects, the net adjustment compared with the first quarter of 2011 was a change of minus €142 million. Consequently, income before income taxes from the continuing operations was €380 million, down 35 percent from the year-back figure of €588 million. Net income fell 38 percent to €269 million (Q1 2011: €431 million). The decline was mainly due to non-operating effects contained in the adjustments. Adjusted net income, which factors out these effects, therefore only fell 9 percent to €332 million (Q1 2011: €364 million). After deduction of the carbon black business, which was still included in the prior-year figure, adjusted net income was close to the very good level achieved in the first quarter of 2011.
The cash flow from operating activities of the continuing activities increased by €111 million year-on-year to €383 million. Capital expenditures advanced 28 percent to €165 million (Q1 2011:
€129 million). Net financial debt was reduced further thanks to the good cash flow. As a result of the dividend of €425 million for fiscal 2011, which was adopted on March 20, 2012 but had not been disbursed as of March 31, there was only a slight year-on-year increase of €190 million in net financial debt, bringing it to €1,033 million.
Growth basis to be strengthened further
Evonik intends to strengthen its basis for organic growth. As part of its growth strategy, the Group is planning to invest more than €6 billion between 2012 and 2016. An investment budget of €1.3 billion has been earmarked for 2012. Last year, the Group initiated projects totaling over €900 million alone to expand production capacity in Asia.
Performance of the segments in Q1 2012
Consumer, Health & Nutrition
The Consumer, Health & Nutrition segment produces specialty chemicals, principally for applications in the consumer goods, animal nutrition and pharmaceutical sectors. It comprises the Consumer Specialties and Health & Nutrition Business Units.
Evonik’s biggest ever overall investment in its specialty chemicals operations is designed to further strengthen the business with essential amino acids for animal nutrition. A new methionine complex with an annual capacity of 150,000 metric tons is to be built in Singapore by the second half of 2014 at a cost of more than half a billion euros. In addition, construction work started on a new production facility for organic specialty surfactants in Shanghai (China) in March 2012. Evonik will be investing a sum in the upper double-digit millions in this facility, which is scheduled to start operating in mid-2013.
Sales increased 8 percent year-on-year to €1,055 million, driven by an increase in both volumes and prices. Adjusted EBITDA advanced slightly to €286 million (Q1 2011: €282 million) thanks to sustained high demand, especially for feed additives. The adjusted EBITDA margin was 27.1 percent, slightly down on level in the same period of 2011 (28.9 percent). Adjusted EBIT was €252 million, in line with the very good level achieved in the first quarter of the previous year.
The Resource Efficiency segment provides solutions for environment-friendly and energy-efficient products. It comprises the Inorganic Materials and Coatings & Additives Business Units.
Evonik is driving forward the construction of a production plant for functionalized polybutadiene in Marl (Germany). When it is completed, it will produce liquid polybutadiene (HTPB) for adhesives and for sealing compounds for insulating glazing. In Shanghai (China), Evonik is planning to build an integrated production complex to produce isophorone and isophorone diamine. It will be investing over
€100 million in this plant by 2014. Isophorone and isophorone diamine are key components in the production of industrial flooring and rotor blades for wind turbines.
Sales declined 31 percent to €818 million (Q1 2011: €1,177 million), mainly because of the divestment of the carbon black business. Excluding carbon black, the year-on-year decline was just 2 percent. Adjusted EBITDA slipped 29 percent to €166 million (Q1 2011: €232 million) principally as a result of weaker demand, especially from the photovoltaic industry, and the fact that it no longer contains earnings from the carbon black business. The adjusted EBITDA margin rose from 19.7 percent to 20.3 percent. Adjusted EBIT fell 32 percent to €129 million.
The heart of the Specialty Materials segment is the production of polymer materials and their preproducts, and additives. This segment comprises the Performance Polymers and Advanced Intermediates Business Units.
In Argentina, Evonik is currently building a new production facility for catalysts for biodiesel with capacity of 60,000 metric tons p.a. A new production facility for hydrogen peroxide is planned for Jilin Province in China. Overall, Evonik will be investing more than €100 million in this plant. The groundbreaking ceremony was held on April 21, 2012 and completion is scheduled for the turn of 2013/2014.
Sales slipped 2 percent year-on-year to €1,234 million due to lower demand. Adjusted EBITDA dropped 17 percent to €213 million (Q1 2011: €257 million). This was caused by a more balanced market situation for methacrylates compared with the exceptionally good situation in
Q1 2011, and to lower demand from the LCD/LED displays market. The adjusted EBITDA margin declined from 20.5 percent to 17.3 percent. Adjusted EBIT dropped 20 percent to €175 million (Q1 2011:
The Services segment mainly provides central services for the specialty chemicals segments and the Corporate Center. This segment principally generates internal sales with the chemicals business, but also provides services for third parties to a small extent.
In Q1 2012, the Services segment reported total sales of €706 million. Internal sales accounted for €450 million of the total. External sales rose 13 percent to €256 million. Adjusted EBITDA (€51 million) and adjusted EBIT (€29 million) were virtually unchanged from the first quarter of last year.
The Real Estate segment, which Evonik plans to exit entirely in the medium term, focuses on letting homes to private households in the federal state of North Rhine-Westphalia.
Alongside Evonik's portfolio of residential real estate, the segment comprises a 50 percent stake in THS. Effective January 1, 2012, Evonik and THS bundled the operational management of their properties in a joint venture, Vivawest Wohnen GmbH. As a result of this, some of the sales previously reported by this segment are no longer included. Since the first quarter of 2012 these sales have been reported by the Vivawest Wohnen joint venture, which is recognized at equity, and are thus no longer included in this segment's sales. This has not significantly affected operating earnings.
Sales therefore declined by 47 percent year-on-year to €49 million (Q1 2011: €93 million). Adjusted EBITDA was slightly lower at €41 million (Q1 2011: €43 million), while adjusted EBIT fell slightly to €29 million (Q1 2011: €31 million).
Outlook for fiscal 2012
There are still uncertainties surrounding the global economic development in 2012, making it difficult to predict. Risks to our business could occur if the European sovereign debt crisis worsens and has an adverse effect on the economy as a whole.
Moreover, when assessing the outlook for 2012 it should be noted that in 2011 the figures for the carbon black business were included in Evonik's financial results until its divestment at the end of July. To improve comparability, the outlook is based on figures after stripping out the carbon black business.
Following a good start to the year, Evonik is more optimistic about 2012 than it was at the beginning of the year. The dip in business registered in the fourth quarter of 2011 did not continue in the first quarter of this year. On the contrary, there was a perceptible uptrend.
Evonik is therefore now more confident about the outlook: Overall, the Group expects to report slightly higher sales in 2012. The operating results will probably be in line with or slightly above the excellent 2011 level.
Evonik Group: Excerpt from the income statement
Performance of the segments
Employees by segment
*In line with the terminology used by peers, from the first quarter of 2012 the non-operating result, EBITDA (before non-operating result) and EBIT (before non-operating result) have been changed to adjustments, adjusted EBITDA and adjusted EBIT, without altering the composition of these items. Further adjusted indicators have also been calculated, including adjusted net income.
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Evonik, the creative industrial group from Germany, is one of the world leaders
in specialty chemicals. Its activities focus on the key megatrends health, nutrition, resource efficiency and globalization. Profitable growth and a sustained increase in the value of the company form the heart of Evonik’s corporate strategy. Evonik benefits specifically from its innovative prowess and integrated technology platforms.
Evonik is active in over 100 countries around the world. In fiscal 2011 more than 33,000 employees generated sales of around €14.5 billion and an operating profit (adjusted EBITDA) of about €2.8 billion.