Evonik to Divest all Functional Materials Business Lines

On May 12, according to the news released by Evonik on its official website, Evonik is promoting the next stage of strategic transformation, and comprehensively and systematically integrating sustainable development into all aspects of corporate strategy, including product portfolio management, innovation, enterprise culture.

"We have made great strides in recent years, both strategically and financially, driven by our corporate mission 'Beyond chemical boundaries'. In the next phase of our strategic transformation, we will focus on green growth targeted, large-scale investments in the sector, with sustainability as a core driver of innovation.”

Evonik is currently overhauling its product portfolio to better support the growth of its three growth business segments, Specialty Additives, Nutrition and Consumer Chemicals, and Smart Materials. "Based on strategic considerations, Evonik will divest some businesses. We are optimizing these businesses to be divested to provide them with a future-oriented and responsible development path." Cullman said. All business lines of the Functional Materials business unit will be divested, including superabsorbents, functional solutions and functional intermediates, and related preparations have already begun. Evonik will look for new owners or partners for the three business lines in 2023.

According to Evonik's 2021 full-year financial report data, the functional materials business unit's sales in 2021 will increase by 47% to 2.91 billion euros. Benefiting from the substantial increase in market demand and selling price, the sales of carbon 4 products increased significantly. The market demand for carbonyl alcohol-related businesses was high, and sales increased significantly. The superabsorbent business continued to be impacted by difficult market conditions. Adjusted EBITDA of the Performance Materials business unit increased to EUR 317 million from EUR 88 million in 2020, thanks to higher selling prices.

Proceeds from the divestiture of the Performance Materials business unit and operating cash flow in the next few years will be used for the green transformation of the company. Evonik aims to invest more than 3 billion euros in the development of "next-generation solutions" with significant sustainable advantages by 2030. This amount represents about 80% of the annual growth investment. Evonik will also invest 700 million euros in "next-generation technologies" over the same period, such as optimizing production processes and infrastructure to reduce carbon dioxide emissions.

"We will significantly expand the 'sustainable handprint' of our products while reducing the footprint of our production operations," said Thomas Wessel, Member of the Executive Board and Head of Sustainability at Evonik. We plan to significantly increase the sales share of 'next-generation solutions' from the current 37% to more than 50% by 2030." "Next-generation solutions" include drug delivery technologies for controlled release of pharmaceutical active ingredients, Gas separation membranes for biogas and hydrogen treatment and natural active ingredients for cosmetics. “Our innovative solutions help our customers to increase the sustainability of their products and improve corporate climate change performance. There is currently a dynamic uptick in demand for 'next-generation solutions'. Generating offers above-average growth potential," Wessel said.

Evonik also plans to reduce its footprint by significantly reducing direct and indirect greenhouse gas emissions from production and processing. Supported by "next-generation technologies", Evonik will reduce Scope 1 (direct corporate greenhouse gas emissions) and Scope 2 (indirect greenhouse gas emissions from corporate electricity consumption) by 25%, from the current 6.5 million tons to 4.9 million tons in 2030. This target is fully in line with Evonik's commitment to the Science-Based Carbon Targets Initiative (SBTi). At the same time, investments in sustainability also pay dividends: By investing 700 million euros in "next-generation technologies", Evonik will cut operating costs by more than 100 million euros per year by 2030.

Evonik's research, development and innovation departments have been repositioned to fully integrate sustainable development into the management of innovation activities. Harald Schwager, Member of Evonik's Executive Board and Head of Innovation, said: "In the areas of research, development and innovation, we are on track to achieve additional sales of more than 1 billion euros in 2030 through the innovative growth area. The strength of innovation will be a key component in promoting the greenness of Evonik's business. , the key to profitable growth.”

This vision will be supported by corporate venture capital activity. A new Sustainability Tech Fund with a total investment of 150 million euros will be used to invest in innovative technologies and business models to underpin corporate sustainability goals. Its investment focus is on new emission reduction technologies and innovative projects with a high degree of technological fit with "next-generation solutions".

As part of the strategic transformation, Evonik also assessed its medium-term financial targets. "Despite the challenging current environment, we remain unwavering in our core objectives: Adjusted EBITDA margin of between 18% and 20%, cash conversion ratio of over 40% and return on capital employed (ROCE) of over 11%." Chief Financial Officer Ute Wolf said. Evonik focuses on high-growth, low-cyclical specialty chemicals business, for which Evonik plans to achieve a compound annual growth rate of more than 4% in organic sales. Until then, it was targeting volume growth of more than 3 percent. The annual capital expenditure budget will gradually increase from about 900 million euros today to between 900 million and 1 billion euros over the next few years as a result of investments in "next-generation technologies" to reduce CO2 emissions.