Sustainability to Drive Evonik’s Business Growth

17.05.2022 - After making “good progress”, both strategically and financially, in the recent past, the next phase in Evonik’s drive toward enhanced business growth will see it execute “targeted and massive investments” in green chemistry and establish sustainability as its central innovation driver, CEO Christian Kullmann said at the company’s Capital Markets Day.

Kullmann said the German chemical producer is aligning its portfolio “completely” to its three growth divisions: Specialty Additives, Nutrition & Care and Smart Materials. Management recently confirmed plans to flog off the C3-heavy Performance Chemicals division. Without offering a detailed plan for the activities based in Marl, Germany, and Antwerp,  Belgium, the CEO said the businesses “are being optimally set up to give them a responsible route to a good future.”

Preparations are under way to exit the three units Superabsorbents, Functional Solutions and Performance Intermediates, with new owners or partners to be sought during 2023. Proceeds from the divestments and operating cash flow will be channeled into the company’s green transformation.

By 2030, Kullmann, said Evonik aims to invest more than €3 billion in what the company calls Next Generation Solutions with superior sustainability benefits. These currently account for around 80% of annual growth investments.

One of the goals is to optimize production processes and infrastructure to avoid CO2 emissions. In addition, Thomas Wessel, executive board member responsible for sustainability, said Evonik will substantially increase the share of Next Generation Solutions in its sales from 37% currently to pass 50% by 2030. This should enable it to slash costs by more than €100 million.

Projects include upgrading drug delivery technologies for controlled release of pharmaceutical active ingredients, gas separation membranes for biogas and hydrogen and “natural-based” active ingredients for cosmetics.

Evonik also aims to reduce its carbon footprint by “significantly cutting” both direct and indirect greenhouse gas emissions from production and processing. With the support of Next Generation Technologies, it wants to cut its annual Scope 1 and 2 emissions by 25% from 6.5 million t currently to 4.9 million t by 2030.

With its repositioned Research, Development & Innovation unit, the Essen-based company is fully integrating sustainability into the management of its innovation activities. “Our targets are right on track to generate additional sales of more than €1 billion with our innovation growth fields by 2030,” said Harald Schwager, executive board member responsible for innovation.

Evonik’s venture capital arm has set up a new Sustainability Tech Fund with altogether €150 million earmarked for investment in innovative technologies and business models. The focus is on new technologies to reduce emissions as well as on innovations that “have a high technological fit” with Next Generation Solutions.

“Despite the current challenging environment,” CFO Ute Wolf said at the Capital Markets Day that the chemical producer is sticking by its core targets of an adjusted EBITDA margin of 18-20%, a cash conversion rate of over 4% and ROCE of around 12% for the current business year. With the transition to high-growth, less cyclical specialty chemicals, it is now targeting organic sales CAGR of over 4%, up from 3% previously. 

Capital spending is to be increased successively over the coming years from the current level of around €900 million to a level between €900 million and €1 billion as a result of investments in CO2 emissions reduction measures.

As a new incentive beyond the usual financial targets, from 2023 the updated sustainability targets for Evonik's “handprint and footprint” will be integrated into the executive board's long-term compensation scheme, Wolf said.   

Author: Dede Williams, Freelance Journalist