Evonik Industries Ag

Thanks a lot, and welcome to our Q1 earnings call today. This is the first time within 10 days that we're going to meet. Today, virtually for our Q1 earnings, and next week, Thursday, for a more strategic view ahead at our Capital Markets Day. My board colleagues and I are really looking forward to welcoming quite some of you next week in Essen. So I guess you agree. that we focus today in our opening statement and during the Q&A session mainly on the current year. At our Capital Markets Day, we can then take a look ahead and cover the more strategic topics. With that, let's come to the key message for today. After a pretty good last year with 25% of earnings growth, we have further increased EBITDA in the first quarter. The same for free cash flow. Already in the last, already in the first quarter, we managed to outgrow the pretty good prior year level by more than 50%. We are confirming our full year guidance today. And, more importantly, it is well underpinned by our positive Q1 performance, as well as a solid start into the second quarter. several supporting factors for the upcoming quarter. This is a strong message, I guess, a strong message in these turbulent times. So, we are confident to deliver on our full year guidance range, driven by our own strengths. As you can see in the first quarter numbers, we have a strong portfolio. The resilient businesses and specialty additives and the strong growth in nutrition and care differentiate our portfolio in the current environment and from most of our peers. Our cost programs are in full execution and further supporting our solid operating performance. And our high share of local production with major production platforms in each and every region shields us from the rise in protectionism and might even offer the one or other opportunity with our local presence behind the tariff borders. I think our performance and our numbers in the first quarter are pretty, pretty straightforward and stand for themselves. So let me hand over directly to Michael for our full year outlook. The stage is yours, Michael.

Thank you, Christian, and good morning from my side. And yes, it's obvious that the risks around us have increased since we have given our outlook range back in March. We are expecting a lower global GDP growth for 2025, now only 2.2% and down from 2.5% two months ago. And FX is turning from a tailwind into a headwind. But even if we take these sectors into our calculation, and at the anyway low direct impact from tariffs, our guidance range is still very much intact and realistic. This is because we can confirm virtually all positive factors and assumptions supporting the current year. We will deliver high double-digit million additional net savings. We expect lower energy costs from our hedges as well as decreasing spot energy prices on smaller unhedged parts. And our animal nutrition business continues to do better for longer. The methionine market will remain tight also in Q2 and demand continues to be very strong. We have delivered an all-time sales record in Q1 and the price trend continues to be intact, especially in Asia. So, we are more and more optimistic for that business, also looking into the start of the second half already. It is clear that there are some risks around us, and that we cannot fully assess all of them at the moment. Weakener customer and end consumer confidence further escalating trade and tariff tensions or even a global recession are scenarios we have and we do prepare ourselves for. But while the visibility is very low at the moment, there are currently no indications that things are getting significantly worse. April is already in our books and the good news is EBDA in April continues more or less stable on the average monthly level of Q1 across virtually all our businesses. There is no pronounced macro slowdown and no significant drop in volumes or orders visible yet. But again, important to highlight, visibility is very limited at the moment. So much from us, and now we are ready to take a question.

We will now begin the question and answer session. Our first question comes from Martin Rüdiger from Kepler Schubert. Please go ahead.

I have two questions, please. First is on politics. I guess you're in contact with the new German government. To which extent do you think you can benefit from the upcoming infrastructure spending initiative? And secondly, due to the tariffs, it is possible that Chinese exports which so far have been dedicated to the U.S., are shifted to the European destination. In which products do you expect more Chinese competition for the European market? Is it in crosslinkers or in silica or in hydrogen peroxide or anything else? And can you rank the products by risk, please? Thank you.

Hi, Martin. Good to have you. I tackle for sure the first question. And yes, of course, we are in good speaking terms with the new government. And it is maybe worthwhile to emphasize that there's a tremendous change ongoing in politics in Germany because the former government has ignored the specific interests of industry in Germany and all the more in Europe, too. And that is now changing to the better. So first to underpin that the new government has announced that Europe and in particular Germany will become the most attractive country and region for chemicals industries up to 2045. which is really interesting because we are here in deep and open-minded collaborations and exchanges about how to do. So in respect of question, is Europe or is there a chance for Europe and a chance for Germany that they will be back in respect of industrial growth? I dare saying as of today, yes, there is a good chance. And now a little bit more into detail where we have chances to benefit from it. First, of course, Lower energy prices will definitely help. And here we do think that we could have a low double-digit million cost relief in future coming out of this. So appreciate it. Second and even more worthwhile to say is the question what is going on and what would be the impact of the infrastructure program. And here we do think all of our businesses referring to the construction, to our construction area will really be positive and will really help us to grow in future in a better way. Let's keep it like this, in a better way. So each and everything which is cottoned with our construction and in brackets in Germany and in Europe, we do have around 17%. 17% of our businesses, which are referring to the construction industries, will definitely have a good chance to benefit from this. So, first, it is a change into a better, let me say, exchange, a better behavior, a better mood. And second, in detail, we'll definitely benefit first from lower energy prices, as mentioned, lower double-digit in future, and second, On top, good chance to benefit from these infrastructure programs in our businesses with respect to the construction industries, as mentioned. Having said this, I will hand over to Michael.

Yeah, hi, Martin, also from my side. Maybe one step back, Christian mentioned already that we do have local production in all three regions, so that definitely helps. So we have methionine plants, crosslinker, silica, and also hydrogen peroxide in all three regions. So what we basically expect is, of course, we might see, I come to that in a second sentence, some more competition, but there also might be some chances in the US taking, for example, methionine. Methionine, we don't see any... high competition in the US anyway. Our competitors in the US with our plants there are not really Chinese competitors. So we don't see a change there. And this is also why we don't see any large changes from a competition perspective in Europe or in Asia in the future, because this market is already relatively stable. We are used to the Chinese competition, and I think we can fight that no matter how the tariffs will look like. A little bit different might be crosslinkers. There, of course, we have, on the one hand side, we do have plants in all three regions, but crosslinkers are, to a certain extent, also imported into the U.S., so we might get something there, some headwind there. Hydrogen peroxide, on the other hand, there we don't see any further competition, or to a very, very small extent. You never know exactly how it plays out, but we aren't too concerned regarding hydrogen peroxide. So it is fortunately relatively limited. Of course, if the tariffs will come, and this is, again, this is a question mark, obviously. We all are looking into the newspapers, and it seems to ease a little bit. But even if tariffs are coming, it would be limited to really maybe a bit cross-linkers, maybe with silicon, methane, hydrogen peroxide, and all the other products should be fine.

Thank you.

The next question comes from Chetan Udeshi from J.P. Morgan. Please go ahead.

Hi, thanks for taking my question. First was maybe for Micah, and I was a bit surprised that you actually increased your discount rate for pension obligations when, frankly, the interest rates in Europe especially are going down. So maybe can you help us understand why is that the case? And second question is, we all understand the the current prevailing uncertainty around trade and how that is probably impacting the customer sentiment. I'm curious if you've actually seen in your order book any evidence of this uncertainty materializing either in terms of maybe some pre-buying in Q1 or maybe some stalling of orders into second quarter. And just related to that, in Q1, you had a very clear guidance. I guess there is no clear guidance on second quarter. I'm just wondering if that's reflective of what you see at the moment. Thank you.

Hi, Chetan. I take the second question. Given the chance, Mike, to give you a brilliant answer in respect of the first question. Having said this, I Globally, we are well-placed. So in this respect, hands to this, we do not see any kind of pre-buying because of our pretty well good, let me say, global well-balanced footprint. Second, so that is about pre-buying. what holds true for the rest of the industries all over the world holds also true for agonic industries, which means our customers have started to order shorter term and in smaller order sizes. But overall, And that is the other side of this, if you may call it a coin, that is the other side of the coin, not more or less. So once more, yes, we are observing, we do see a change in all strategy in respect of shorter term and in smaller order sizes, but on the other side, not in respect of volume. So not more and not less. That is my question. That is my answer to your second question. And now I hand over to Michael.

Thank you, Christian. Basically, what we are doing is very much in line with our peers. So we checked that there was a slight increase in the pension discount rates in the euro parts. And this is calculated by accountants. And as I said, in line with all of our peers, we have a little discount in the UK as well as in the US.

Okay, thank you.

Yeah, you're welcome. And then regarding the Q2 guidance, Maybe one more word from my side is, so we are actually relatively stable, to make that also very, very clear. There are, from an operational perspective, there are two topics we wanted to flag. This is on the one hand side, the C4 business. There we really see that macro hits us. NAFTA and butadiene prices are going down. Also, our business compared to last year and also especially to Q1, or especially to last year and also to Q1, put it like this, is definitely decreased. And then we have the planned revision for PA-12, which also is on the one hand side, yeah, the cost of a revision, of course, we have to put into Q2 into our books. So from a... Yeah, from a cost, revision cost perspective, not sales, but cost perspective, we have these topics in Q2 really underlined, despite the low visibility, of course. We see that all other businesses are according to Q1 and in line.

That's clear. Thank you.

The last question for today's call come from Tom Beaglesworth from Morgan Stanley. Please go ahead.

Thanks very much for the opportunity. Just a couple of follow-ups really from me. Just on this April is stable. I mean, it's a bigger question for the industry as well. So I'm just trying to clarify your communication. Are you saying that there's no seasonality yet in your order book? Because normally we would expect to see 2Q up 30 to 50 million euros subject to the macro conditions, but up something sequentially. So when you tell me that April is stable versus the 1Q average, my interpretation, please correct me if I'm wrong, is that there's no seasonal recovery in 2Q. And therefore, your expectation is in the second half, you'll deliver more cost savings and self-help improvement to meet your guidance. That's my first question. My second question, sadly, is on methionine. our favorite topic. But you talk about two second half normalization of prices at the same time as you've just announced a price increase. So could you just unpack that price increase? I think wars are probably going down. I'm kind of, is it a global price increase of five to 8% that you announced? And yeah, I just, you know, it seems a little bit counterintuitive. You've been telling me you're increasing prices on a press release. and yet at the same time telling me that price is going to go down on the second half.

Okay, thanks, Tom. I suggest Mike takes the first one on April seasonality and Christian the second one on with Heidi.

Yeah. Yeah, hi, Tom. So, yeah, seasonality is kind of, we aren't that strong in Q2 usually with the seasonality. So, Yeah, you're correct. Last year we had a really strong quarter in Q2 with specialty additives. We don't really see that strong seasonality in Q2 yet. So you're right that we are pretty much in line with all other years. We are pretty much in line Q1 to Q2. And so we expect... cost hitting and cost saving fitting in the second half more. But again, our products aren't that seasonal. Usually last year we had a little different pattern.

Hi, Tom. I take the question referring to methionine, and I would entitle my answer by saying boosted. And now a little bit more into detail. Yes. The market expectation for the second quarter is even tighter, which translates into a higher utilization rate of the industry. And you have to take into consideration that, for example, the plant maintenance shutdowns coming from ADCO for six weeks, from CEC, from NHU, they will have a production shutdown in Shandong for two to four weeks that they are fostering the high utilization rate in combination with very strong volumes we do expect for the second quarter too, which leads to the respective tightness of the market in the second quarter. And from today's perspective, we guess, we assume that this kind of industry, this kind of utilization rate in the methionine industry should stay high also into the third quarter so that we do expect, in respect of our sign-in business, also a warm and healthy start into the first weeks or even more into the third quarter of this year. And I guess that clears the midway why we have increased prices globally between 5% to 8% last week.

Great. Thank you both. Very clear.

We have an additional question from Anil Chinoy from Barclays. Please go ahead.

Yeah, hi. Sorry, but my question was answered. I had a question on methionine, and you've already answered that, so thank you so much for that.

All right. Okay. It was great having had you today. It was a short and crispy call, and we've tried our very best to inform you in detail, and we appreciate seeing you next week in Essen attending our Capital Markets Day. So far, have a good time and all the best and goodbye.