Evonik to focus on Next Generation Solutions in realignment

Specialty chemical company Evonik AG, based in Essen, Germany, is embarking on the next phase of its  strategic transformation. Sustainability is being integrated fully  and systematically into all elements of the strategy: portfolio management, innovation, and corporate culture. 

By 2030, Evonik aims to invest more than EUR3 billion (USD3.13 billion) in so-called “Next Generation Solutions,” i.e., products with superior sustainability benefits. That is around  80% of annual growth investments. In the same period, a further EUR700 million (USD731 million) will be invested in Next Generation Technologies, i.e., the optimization of production processes and infrastructure to avoid CO₂ emissions.  

“Driven by our  purpose, Leading Beyond Chemistry, in recent years we have made  good progress both strategically and financially,” said Christian  Kullmann, chairman of Evonik’s executive board. “In the next  phase of our transformation, we are executing targeted and  massive investments in green growth and making sustainability our central innovation driver,” he told investors  and analysts at the company’s Capital Markets Day on May 11.

Evonik is aligning its portfolio completely to its three growth  divisions: Specialty Additives, Nutrition & Care, and Smart  Materials. Around 3,700 people work in the five business lines of Specialty Additives, which include: Coating Additives, Comfort & Insulation, Crosslinkers, Interface & Performance and Oil Additives, as well as in the divisional functions.

“The businesses we are withdrawing from on strategic  grounds are being optimally set up to give them a responsible  route to a good future,” said Kullmann. 

The company said it is preparing to exit all three businesses of Performance  Materials – Superabsorbents, Functional Solutions and  Performance Intermediates. Evonik aims to find new owners or  partners for each of these three businesses in 2023. The proceeds from the divestment of the Performance Materials  businesses and the operating cash flow in the coming years will be channeled to the green transformation.

“We are greatly increasing our handprint and reducing our  footprint at the same time,” said Thomas Wessel, the executive  board member responsible for sustainability. 

“Translated into  KPIs: We will substantially increase the sales share of our Next  Generation Solutions from 37% at present to over  50% by 2030.” That includes, for example, drug delivery  technologies for controlled release of pharmaceutical active ingredients, gas separation membranes for biogas and hydrogen, as well as natural-based active ingredients for cosmetics. 

“Our  innovations help our customers make their products more  sustainable and improve their climate performance,” said Wessel.  The dynamic rise in demand for Next Generation Solutions is  evidence of their importance and offers Evonik above-average  growth potential.  

Evonik aims to reduce its footprint by significantly cutting both  direct and indirect greenhouse gas emissions from production and  processing. With the support of Next Generation Technologies, Evonik will reduce its scope 1 and scope 2 emissions by 25%,  from 6.5 million metric tons at present to 4.9 million metric tons  by 2030. This goal is fully consistent with the requirements of the  Science Based Targets (SBTi) initiative, which Evonik has committed to. 

Evonik said its future  investments in sustainability are projected to be  profitable: By investing EUR700 million (USD731 million) in Next Generation  Technologies, Evonik will reduce its operating costs by more than  EUR100 million (USD104 million) a year up to 2030.  

The repositioned Research, Development & Innovation unit is also  fully integrating sustainability into the management of Evonik’s  innovation activities. 

“Our RD&I targets are right on track to  generate additional sales of more than EUR1 billion (USD1.04 billion) with our  innovation growth fields by 2025,” said Harald Schwager, the  executive board member responsible for innovation. “Our  innovative capability is a key factor in leveraging green and  profitable growth.”  

Evonik’s aspirations are supported by its venture capital activities.  A new Sustainability Tech Fund with a total investment volume of  EUR150 million (USD156 million) will strengthen the sustainability targets by investing  into innovative technologies and business models. The focus is on new technologies that will reduce emissions as well as on  innovations that have a high technological fit with the Next  Generation Solutions. 

As part of its strategic transformation, Evonik has also reviewed  its mid-term financial targets. 

“Despite the current challenging  environment, we are confirming our core targets: an adjusted  EBITDA margin of between 18 and 20%, a cash conversion  rate of over 40%, and ROCE of around 11%,” said  Evonik’s chief financial officer, Ute Wolf.

 In line with the full  alignment to high-growth, less cyclical specialty chemicals, Evonik  now aims to achieve an organic sales CAGR of over 4%. Up  to now, the target was volume growth of over 3%. The  annual capex budget increases successively from the current level  of around EUR900 million (USD940 million) to a level between EUR900 million (USD940 million) and  EUR1 billion (USD1.04 billion) over the next years — as a result of investments in Next  Generation Technologies to save CO₂ emissions.  

In addition to these ambitious financial targets, the updated  sustainability targets for Evonik’s handprint and footprint will be  integrated into the executive board’s long-term compensation  scheme from next year.