The specialty chemicals group has significantly lowered its profit expectations.
(Photo: imago images / Future Image)
Dusseldorf The specialty chemicals group Evonik has significantly reduced its profit target for 2023 in view of the extremely weak global economy. Evonik is now assuming continued weak demand without any recovery over the entire second half of the year, as the group announced on Monday. “We have not experienced such weak sales volumes for a long time, perhaps never over such a long period of time,” says CEO Christian Kullmann with a view to the development in the second quarter.
According to the new forecast, Evonik’s adjusted profit (Ebitda) will be between 1.6 and 1.8 billion euros. That’s a good quarter less than management expected at the beginning of the year. At that time, Evonik had forecast a range of between 2.1 and 2.4 billion euros. The Essen-based company is now tightening the austerity measures that have been initiated.
On the stock exchange, Evonik shares only faltered briefly on Monday afternoon and then turned positive again. Reason for the calm of the investors: The profit warning does not come as a surprise and is less severe than expected by analysts. Competitor Lanxess drastically reduced its forecast on June 20, followed last Friday by the Swiss specialty chemicals group Clariant.
>> Read about this: Sluggish economy, disappointment in China: chemical companies shock investors with profit warnings
Analysts expect that industry leader BASF will also have to lower its profit forecast. All share prices of chemical companies in Europe have already fallen sharply since May due to the poor economic prospects. The industry is considered a good indicator because it supplies almost all processing industries worldwide with raw materials and primary products.
Sentiment in the chemical industry has plummeted
In March, the chemical industry was still optimistic that the global economy would pick up again by the end of the second quarter at the latest. But this did not only happen in Europe. The hoped-for recovery did not materialize in the Chinese market, which is important for the industry. Consumers there continue to hold back, while prices in Chinese industry have already fallen significantly due to weak demand.
In the USA, too, there have been no signs of a rapid upswing. The mood in the executive floors of the export-strong German chemical industry therefore plummeted in June. The barometer for the business climate fell to minus 28.3 points after minus 12.5 in May, as the Munich-based Ifo Institute announced last week.
“We haven’t experienced such weak sales volumes for a long time, perhaps never before over such a long period of time.”
(Photo: imago images/Rainer Unkel)
“It’s not just the high energy and production costs that are weighing on chemical business,” said Ifo industry expert Anna Wolf. “The order situation for many companies has also continued to deteriorate, as global demand for chemical products is still weak.”
At Evonik, demand remained very weak across all end markets in the second quarter, and customers continued to run down inventories. Overall, the volumes sold remained at the very low level of the previous quarter, the company said. In the specialty chemicals business in particular, however, prices have largely been able to be kept stable.
Evonik cuts investments
For the second quarter of 2023, Evonik now expects adjusted profits of between EUR 430 and 450 million. That is around 40 percent less than in the same period last year. The strict savings would have had a positive effect on earnings. By not filling vacancies, discipline when using external service providers and restrictions on travel expenses, the company will save 250 million euros in the current year.
However, these should go even further in order to secure free cash flow this year. In view of the persistently weak demand, Evonik has made further postponements and cuts in smaller capacity expansions and projects in terms of investment payments and now expects a level of around EUR 850 million for 2023 as a whole. At the beginning of the year, Evonik cut its investment budget from EUR 975 million to EUR 900 million.
More: Systemically relevant or dispensable? What threatens the economy if basic chemicals migrate