Edited from: Evonik Industries 2008 annual report, 2009 outlook and company website
Evonik Industries states that 2008 was a “watershed in the history of the global economy”. The repercussions of the financial crisis broadened into a global economic crisis at a speed that it says had hardly been considered possible. Against this background, Evonik says that it “held up well and achieved its objectives”. However, the company looks to 2009 and beyond with what it sees as being “major challenges” ahead.
“I am confident that the company can come through this difficult phase because we actively shape our own future. We have taken action and have the courage and determination to drive forward the expansion of our business. And because we are positioning ourselves foresightedly in tomorrow’s key markets”, says chairman, Klaus Engel.
One reason for his confidence is Evonik’s broadly based innovation pipeline. The company has put aside over €300m for 2009. Over the past five years it has invested more than €1.5bn in R&D. The strategic alliance it concluded with Daimler last December 2008 on industrial development of lithium-ion technology is said to be “evidence of the wealth of opportunity contained in its portfolio”.
In 2008, Capital Partners (CVC) joined RAG-Stiftung as a second major investor in Evonik, supporting the company’s growth strategy. “Like RAG-Stiftung and Evonik’s management CVC is convinced of Evonik’s potential. We want to use this as a basis for sustained profitable growth in the coming years. The restructuring of the executive board was a first important step towards this. Strategically, we aim to develop Evonik as a global company and strengthen and expand its present position as one of the leading players in many areas of business”, says Engel.
In its chemicals business, it has initiated the expansion of production capacities for key products in Brazil, North America, Western Europe and Asia. In Shanghai, China, the first plant in its €250m investment project came on-stream to supply moulding compounds for acrylic sheet to the Asian market. As a supplier to the photovoltaic sector, the company will be stepping up its commitment in both Western Europe and Asia.
In its energy business, it is making good progress with the construction of Europe‘s most advanced power plant fuelled by hard coal. The Walsum 10 power plant is scheduled to start operating next year. In addition, its plans for a further power plant in Turkey are moving ahead.
“Although our businesses are very different, their fundamental characteristics are similar. They are dependent on Evonik’s core competencies such as creativity and specialisation, and the ability to respond fast and flexibly to customers’ requirements. Moreover, they open up profitable growth prospects for Evonik. That nurtures our mid- to long-term confidence”, says Engel.
“In the near term, we are resolutely tackling the enormous challenges. Throughout industry, the global economic crisis has made it difficult and in some cases impossible to plan orders, sales and earnings. Against this background we expect our policy of business diversification and stable areas of operation to receive increasing recognition. I am convinced that industrial groups like Evonik with strong innovative capabilities will gain in significance in these difficult time”, continues Engel.
Looking ahead, depending on the sustainability of the state investment programmes initiated by all relevant economic powers and the ability to restore confidence in positive economic trends, demand and output are unlikely to pick up until the second half of 2009 at the earliest. Signs of improvement could be felt in the chemical industry when current inventories have been utilised and the automotive, construction and electronics industries have to re-order starting materials.
The economic crisis has had a considerable impact on the sales, volumes and earnings of Evonik’s chemicals operations since November 2008. This has been exacerbated by the financing and liquidity risks affecting its customers in virtually all end-markets. Evonik sees this as an unprecedented global economic situation. The sales, volume and earnings trends up to the end of February 2009 show no indication that the chemicals business is recovering.
In view of the financial and economic crisis and the dominant role played by the chemicals business area in its performance, the company assumes that sales will drop considerably which will also have a negative impact on earnings before interest, tax, depreciation and amortisation (EBITDA) and earnings before interest and tax (EBIT). Lower procurement prices for key raw materials and the action it has taken to cut costs will merely dampen this effect.
To safeguard its cash flow, it has reviewed its investment plans for 2009 and scaled them back substantially.
The main adjustments relate to capacity expansion and construction projects that were scheduled to start in 2009. Overall, it has earmarked nearly €1bn for investment in 2009.
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Financial highlights: Evonik, year ended 31 December
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Evonik Industries is formally known as Degussa, a wholly owned subsidiary of the RAG group, and is a specialty chemical company. On 9 February 2001, two global producers, Degussa-Huls and SKW, came together and formed the new Degussa AG. In March 2001, Laporte, a UK-based fine and performance chemicals company, joined Degussa to form one of the world's leading major speciality chemical companies. On 12 September 2007, Degussa was renamed Evonik Chemicals and is part of Evonik Industries.
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