Ladies and gentlemen, welcome to the Evonik Industries AG Q1 2025 Earnings Conference Call. I am Sandra, the Chorus Call Operator. I would like to remind you that all participants have been listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Kullmann, CEO. Please go ahead, sir.
Thanks a lot, and welcome to our Q1 Earnings Call today. This is the first time within 10 days that we're going to meet today virtually for our Q1 earnings and next week Thursday for a more strategic view ahead at our capital markets day. My board colleagues and I are really looking forward to welcoming quite some of you next week in Essen. I guess you agree that we focus today in our opening statement and during the Q&A session mainly on the current year. At our capital markets day, we can then take a look ahead and cover the more strategic topics. With that, let's come to the key message for today.
After a pretty good last year with 25% of earnings growth, we have further increased EBITDA in the first quarter. The same for free cash flow.
Already in the first quarter, we managed to outgrow the pretty good prior year level by more than 50%. We are confirming our full year guidance today, and more importantly, it is well underpinned by our positive Q1 performance as well as a solid start into the second quarter, plus several supporting factors for the upcoming quarter. This is a strong message, I guess, a strong message in these turbulent times. We are confident to deliver on our full year guidance range driven by our own strengths. As you can see in the first quarter numbers, we have a strong portfolio.
The resilient businesses in specialty additives and the strong growth in nutrition and care differentiate our portfolio in the current environment and from most of our peers. Our cost programs are in full execution and further supporting our solid operating performance.
Our high share of local production with major production platforms in each and every region shields us from the rise in protectionism and might even offer the one or other opportunity with our local presence behind the tariff borders. I think our performance and our numbers in the first quarter are pretty, pretty straightforward and stand for themselves. Let me hand over directly to Maike for our full year outlook. Stage is yours, Maike.
Thank you, Christian. Good morning from my side. Yes, it's obvious that the risks around us have increased since we have given our outlook range back in March. We are expecting a lower global GDP growth for 2025, now only 2.2% and down from 2.5% two months ago. FX is turning from a tailwind into a headwind. Even if we take these factors into our calculation and add the anyway low direct impact from tariffs, our guidance range is still very much intact and realistic. This is because we can confirm virtually all positive factors and assumptions supporting the current year. We will deliver high double-digit million additional net savings. We expect lower energy costs from our hedges as well as decreasing spot energy prices on smaller unhedged parts. Our animal nutrition business continues to do better for longer.
The methionine market will remain tight also in Q2, and demand continues to be very strong. We have delivered an all-time sales record in Q1, and the price trend continues to be intact, especially in Asia. We are more and more optimistic for that business, also looking into the start of the second half already. It is clear that there are some risks around us and that we cannot fully assess all of them at the moment. We cannot customer and end consumer confidence, further escalating trade and tariff tensions, or even a global recession are scenarios we have and we do prepare ourselves for. While the visibility is very low at the moment, there are currently no indications that things are getting significantly worse.
April is already in our books, and the good news is EBITDA in April continues more or less stable on the average monthly level of Q1 across virtually all our businesses. There is no pronounced macro slowdown and no significant drop in volumes or orders visible yet. Again, and important to highlight, visibility is very limited at the moment. So much from us. Now we are ready to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Martin Roediger from Kepler Cheuvreux. Please go ahead.
I have two questions, please. First is on politics. I guess you are in contact with the new German government. To which extent do you think you can benefit from the upcoming infrastructure spending initiative? Secondly, due to the tariffs, it is possible that Chinese exports, which so far have been dedicated to the U.S., are shifted to the European destination. In which products do you expect more Chinese competition for the European market? Is it in crosslinkers or in silica or in hydrogen peroxide or anything else? Can you rank the products by risk, please? Thank you.
Hi, Martin. Good to have you. I checked for sure the first question. Yes, of course, we are in good speaking terms with the new government, and it is maybe worthwhile to emphasize that there is a tremendous change ongoing in politics in Germany because the former government has ignored the specific interests of industry in Germany and all the more in Europe too, and that is now changing to the better. First, to underpin that, the new government has announced that Europe and in particular Germany will become the most attractive country and region for chemicals industries up to 2045, which is really interesting because we are here in deep and open-minded collaborations and exchanges about how to do.
In respect of the question, is Europe or is there a chance for Europe and a chance for Germany that they will be back in respect of industrial growth?
Are they saying as of today, yes, there's a good chance? Now a little bit more into detail where we have chances to benefit from it. First, of course, lower energy prices will definitely help. Here we do think that we could have a low double-digit million cost relief in future coming out of this. So appreciated. Second, and even more worthwhile to say is the question, what is going on and what would be the impact of the infrastructure program? Here we do think all of our businesses referring to the construction, to our construction area, will really be positive and will really help us to grow in future in a better way. Let's keep it like this, in a better way.
Each and everything which is cotton with our construction, and in brackets in Germany, we do, and in Europe, we do have around 17%. 17% of our businesses which are referring to the construction industries will definitely have a good chance to benefit from this. First is a change into a better, let me say, exchange, a better behavior, a better mood. Second, in detail, we will definitely benefit first from lower energy prices, as mentioned, lower double-digit in future. On top, good chance to benefit from these infrastructure programs in our businesses with respect to the construction industries, as mentioned. Having said this, I will hand over to Maike.
Yeah. Hi, Martin, also from my side. Maybe one step back. Christian mentioned already that we do have local production in all three regions. That definitely helps. We have methionine plants, crosslinkers, silica, and also hydrogen peroxide in all three regions. What we basically expect is, of course, we might see, I'll come to that in a second sentence, some more competition, but there also might be some chances in the U.S. taking, for example, methionine . Methionine , we do not see any high competition in the U.S. anyway. Our competitors in the U.S. with our plants there are not really Chinese competitors.
We do not see a change there. This is also why we do not see any large changes from a competition perspective in Europe or in Asia in the future because this is already, this market is already relatively stable.
We are used to the Chinese competition, and I think we can fight that no matter how the tariffs will look like. A little bit different might be crosslinkers. There, of course, we have on the one hand side, we do have plants in all three regions, but crosslinkers are to a certain extent also imported into the U.S. We might get something there, some headwind there. Hydrogen peroxide, on the other hand, there we do not see any further competition or to a very, very small extent. You never know exactly how it plays out, but we are not too concerned regarding hydrogen peroxide. It is fortunately relatively limited. Of course, if the tariffs will come, and this is, again, this is a question mark, obviously, we all are looking into the newspapers, and it seems to ease a little bit.
Even if tariffs are coming, it would be limited to really maybe a bit crosslinkers, maybe a bit silica, methionine , hydrogen peroxide, and all the other products should be fine.
Thank you.
The next question comes from Chetan Udeshi from JP Morgan. Please go ahead.
Yeah, hi. Thanks for taking my question. First was maybe for Maike, and I was a bit surprised that you actually increased your discount rate for pension obligations when, frankly, the interest rates in Europe especially are going down. Maybe can you help us understand why is that the case? Second question is, we all understand the current prevailing uncertainty around trade and how that is probably impacting the customer sentiment. I'm curious if you actually seen in your order book any evidence of this uncertainty materializing either in terms of maybe some pre-buying in Q1 or maybe some stalling of orders into second quarter? Just related to that, in Q1, you had a very clear guidance. I guess there is no clear guidance on second quarter. I'm just wondering if that's reflective of what you see at the moment. Thank you.
Hi, Chetan. I take the second question. Given the chance, Maike, to give you a brilliant answer in respect of the first question. Having said this, globally, we are well placed. In this respect, the answer to this, we do not see any kind of pre-buying because of our pretty well good, let me say, global well-balanced footprint. That is about pre-buying. Second, what holds true for the rest of the industries all over the world holds also true for organic industries, which means our customers have started to order shorter term and in smaller order sizes. Overall, and that is the other side of this, if you may call it coin, that is the other side of the coin, not more or less.
Yes, we are observing, we do see a change in order strategy in respect of shorter term and in smaller order sizes, but on the other side, not in respect of volume. So not more and not less. That is my answer to your second question. Now I hand over to Maike.
Thank you, Christian. Chetan, basically what we are doing is very much in line with our peers. We checked that there was a slight increase in the pension discount rates in the euro parts. This is just calculated by accountants. As I said, in line with all of our peers, we have a little discount in the U.K. as well as in the U.S.
Okay, thank you.
Yeah, you're welcome. Regarding the Q2 guidance, maybe one more word from my side is, we are actually relatively stable, to make that also very, very clear. There are, from an operational perspective, two topics we wanted to flag. This is on the one hand side, the C4 business. There we really see that macro hits us. Naphtha and butadiene prices are going down. Also, our business compared to last year and also especially to Q1, or especially to last year and also to Q1, put it like this, is definitely a decrease. Then we have the planned revision for PA12, which also is on the one hand side, yeah, the cost of a revision, of course, we have to put into Q2 into our books.
From a cost revision cost perspective, not sales, but cost perspective, we have these topics in Q2 really underlined despite the low visibility, of course. We see that all other businesses are according to Q1 and in line.
That's clear. Thank you.
The last question for today's call comes from Tom Wrigglesworth from Morgan Stanley. Please go ahead.
Thanks very much for the opportunity. Just a couple of follow-ups really from me. Just on this April is stable. I mean, it's a bigger question for the industry as well. I'm just trying to clarify your communication. Are you saying that there's no seasonality yet in your order book? Because normally we would expect to see 2Q up EUR 30 million-EUR 50 million, subject to the macro conditions, but up something sequentially. When you tell me that April is stable versus the 1Q average, my interpretation, please correct me if I'm wrong, is that there's no seasonal recovery in 2Q, and therefore your expectation is in the second half, you'll deliver more cost savings and self-help improvement to meet your guidance. That's my first question.
My second question, sadly, is on methionine, our favorite topic, but you talk about second half normalization of prices at the same time as you have just announced a price increase. Could you just unpack that price increase? I think raws are probably going down. I am kind of, is it a global price increase of 5-8% that you announced? I am just surprised, it seems a little bit counterintuitive for you to be telling me you are increasing prices on a press release, and yet at the same time telling me that price is going to go down in the second half.
Okay. Thanks, Tom. I suggest Maike takes the first one on April seasonality and Christian the second one on methionine.
Yeah.
Yeah, hi, Tom. Yeah, seasonality is kind of, we aren't that strong in Q2 usually with the seasonality. Yeah, you're correct. Last year, we had a really strong quarter in Q2 with specialty additives. We don't really see that strong seasonality in Q2 yet. You're right that we are pretty much in line with all other years. We are pretty much in line Q1 to Q2. We expect the cost hitting and cost savings hitting in the second half more. Again, our products aren't that seasonal. Usually, last year, we had a little different pattern.
Hi, Tom. I take the question referring to methionine, and I would entitle my answer by saying boosted. Now a little bit more into detail. Yes, the market expectation for the second quarter is even tighter, which translates into a higher utilization rate of the industry. You have to take into consideration that, for example, the plant maintenance shutdowns coming from Adisseo for six weeks, from CUC, from NHU, they will have a production shutdown in Shandong for two to four weeks, that they are fostering the high utilization rate in combination with very strong volumes we do expect for the second quarter too, which leads to the respective tightness of the market in the second quarter.
From today's perspective, we guess, we assume that this kind of industry, this kind of utilization rate in the methionine industry should stay high, should stay high also into the third quarter so that we do expect in respect of our methionine business also a warm and healthy start into the first weeks or even more into the third quarter of this year. I guess that clears the midway why we have increased prices globally between 5-8% last week.
Great. Thank you both. Very clear.
We have an additional question from Anil Shenoy from Barclays. Please go ahead.
Yeah, hi. Sorry, my question was answered. I had a question on methionine , and you've already answered that. Thank you so much for that.
All right.
Okay. It was great having had you today. It was a short and crispy call. We have tried our very best to inform you in detail, and we appreciate seeing you next week in Essen, attending our Capital Markets Day. So far, have a good time and all the best, and goodbye.
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