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Dear ladies and gentlemen, welcome to the Conference Call of Evonik Industries AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions]
May I now hand you over to Tim Lange, who will start the meeting today. Please go ahead.
Thank you very much and good afternoon to our Q4 Earnings Conference Call. With me, as usual, are our CEO and CFO, Christian Kullmann and Ute Wolf, and I will hand over directly to Christian for the introductory remarks.
Thanks a lot, Tim, and also, very warm welcome from my side, and thanks a lot for being with us today. Under this, let's keep it, [ph] like the very (00:00:57) special and worrying circumstances. There is war in Europe. This was hardly imaginable until a few days ago. But now, in the here and now, it is our reality. Less than two flight hours away from Germany, people are dying from tanks and missile fires.
Immediately, after the attack on Ukraine, we, at Evonik, have set up a task force to assess the situation on an ongoing basis. Evonik has 59 employees in the region: 3 in Ukraine and 56 in Russia. We are in constant exchange, especially with our colleagues in Ukraine via SMS or social media. We will do everything we can to support our employees and, if necessary and possible, bring them to Germany.
Our first priority now is to alleviate human suffering and provide help where we can and that is exactly what we will do. I hope and I do pray for the people of Ukraine. Under these circumstances, it is really difficult to switch to daily business and the conference call on financial figures. We will, nevertheless, try to do so for the next hour. As a disclaimer right at the start, our outlook and forward-looking statements are based on our currently observable positive sales and order book development. As anybody else, we are currently not able to assess the impact on the war in Ukraine on the overall economic development.
For our company, the different business impact is limited with only 1% sales share in Russia and Ukraine, of which the biggest part is from methionine. With no production in the region, we are not impacted by any direct sanction. We are monitoring the situation closely on all levels, IT security, international payment flows, procurement and energy [ph] soften (00:03:14). So, we are prepared and we'll take the appropriate measures.
So far, our introduction and personal statements on the latest development. Let's try the hard cut and switch to the latest development of Evonik. Ladies and gentlemen, let me start with a look back in the rearview mirror. Exactly one year ago, in March 2021, here on this call, I shared with you my confidence about 2021 as the year of growth and progress. And despite the headwinds in the second half of the year, we grew EBITDA double-digit versus the pre-crisis year 2019 and we were able to convert this at a high cash conversion rate, with free cash flow beating the 2019 level by even 32%. And these results are not – are definitely not a one-hit wonder. They extend and even accelerate our long-term growth track record since 2017 when we, as management team, have taken over. Our ambition level for 2022, we will strive to outperform our EBITDA growth rate of the last two years and deliver the fifth year in a row with higher free cash flow.
Chart 5 describes the track record of the last three years in more detail, which can certainly be characterized as not being the easiest. Let me briefly summarize it in two sentence. First, by never losing the long-term view by consistently executing our strategy and by constantly improving the quality of our portfolio, we delivered on our promises. Here, we even upgraded our guidance in two of the last three years, something I could really get used to.
An element which has become more and more important growth driver for us over the last years is sustainability. Here are some highlights across our four different sustainability focus area. They are not only nice, shiny examples, but real growth drivers of our business which is expressed as a growing share of next-generation solution within our group sales from 35% to 37%. Check membranes as one example. Since the first product launched in 2011, we have now delivered gas separation membranes to more than 1,000 reference plants worldwide. The business is growing at 35% per year.
Continuing on chart 9, the other essential growth drivers for us is innovation. Well, actually, sustainability and innovation are two sides of the same coin for us. Also for innovation, just one, but therefore impressive figure. On our way to reach our target of more than €1 billion sales in our six innovation growth fields by 2025, we already achieved more than €500 million in the last year. This is a growth rate of above 40% in the last year, which is well above the actually necessary 25% annual growth rate to reach the €1 billion target. So it is unnecessary to say that we are very well on track here.
The high growth will clearly show the acceleration in the commercialization of those innovative product. Health care solutions like our lipids or mRNA or active cosmetic ingredients like our ceramides are just two examples.
Ladies and gentlemen, that was a brief strategic review of the last year. Now, Ute will shed more light on the fourth quarter result.
Thank you, Christian, and good afternoon from my side as well. Let me start with chart 14 as the group summary of the fourth quarter. We had to muster some challenges during the quarter. There was a power plant outage in Marl that has cost us €20 million for externally sourced energy.
The further sharp increase in raw materials impacted especially our two divisions, Specialty Additives and Smart Materials. Additionally, Specialty Additives was hindered in volume growth due to raw material and supply chain shortages and deliberately the business decided to be a higher logistic cost, fewer reliable customer servicing.
The Smart Materials division continued to cope with higher fixed costs like linked to the PA12 ramp-up. And Baby Care had another, most likely, the last quarter of unfavorable contract prices.
The good news about these negatives is that all of them are fading out or even turning positive throughout the current year. And on the other side, the positive trends observed in Q4 will continue or even accelerate in 2022. One of the very positive trends are the healthy volume across virtually all businesses, as well as the continuous and further accelerating prices and pricing campaigns in Specialty Additives and Smart Materials.
In Performance Materials, we see a normalization in butadiene. But the other products of our C4 chain, namely Butene-1, Oxo products and Specialties are expected a sustained positive spread into 2022 and they stand for 70% of our C4 chain. And as you know, Performance Materials and the product spread benefit from a higher naphtha price. This is the natural hedge in our portfolio against higher oil prices.
Nutrition & Care had a strong finish of a very successful year 2021. The three drivers behind that were the ramp-up of lipid sales, the outstanding sales growth of more than 50% in active cosmetic ingredients, as well as rising prices and healthy volumes in amino acids. And, again, all of them will even accelerate in 2022. So, fading negative and accelerating positive, this is a nice headline for the year 2022.
Let me spend some more time on raw materials and pricing initiatives. On group level, our own price increases amounted to around €600 million in Q4 after €450 million in Q3. They already overcompensate the cost inflation effects. This was mostly visible in Performance Materials and Nutrition & Care and explains their strong performance in Q4.
In Specialty Additives and Smart Materials, both the specialty character of the business, as well as another sharp increase in raw materials like siloxanes or silicon metal resulted in a gap, but yet fully compensate the higher cost. Nevertheless, we have reached already around 80% in pass-on in Q4. The negative gap in 2021 will turn into a positive gap in 2022 or, to put it differently, the EBITDA burden in 2021 would turn into a positive EBITDA contributor in 2022.
On the cash flow side, we came out at €950 million and achieved a conversion rate of 40%, in line with our long-term target level. Free cash flow in Q4 came out well below last year's level. This had two main reasons. First, we observed the expected higher tax prepayments adapting to the higher earnings levels. Second, clearly lower net working capital inflows. This, on the one hand, was caused by a [ph] valuation effect in (00:12:12) inventory based on the inflated price levels. On the other hand, inventories and goods in transit were tied up in the system due to inefficiencies in logistics and to avoid the risk of shortages. [ph] The latter we will reward (00:12:28) in 2022 and turn into a clear free cash flow support. Taking the full-year perspective on cash flow again, we were able to grow significantly in absolute terms for the fourth consecutive year and by more than €230 million compared to the pre-crisis year 2019.
With that, back to Christian for the outlook.
Thanks a lot, Ute. Let's dive into our full-year outlook. Again, let me repeat the disclaimer from the start of the call. Our outlook and forward-looking statements are based on our currently observable positive sales and order book development. As anybody else, we are currently not able to assess the impact of the war in Ukraine on the overall economic development. But based on the confidence in our resilient portfolio and our proven ability to manage challenging times, the direction is crystal clear. We are well set for growth in 2022. Resilient businesses like in Nutrition & Care, the positive price trends in amino acids for animal nutrition, and the natural hedge in Performance Materials against higher oil prices support this ambition level despite the uncertain economic environment.
We aim to achieve an adjusted EBITDA between €2.5 billion and €2.6 billion. The range expresses our confidence in our strong structural growth and our sustainability and innovation achievement, as well as the ramp-up of our pricing initiatives.
The narrow range is a sign of trust, of trust in our resilient portfolio quality and based on the conviction that virtually no business has over-earned in 2021. And as of today, I can report that [ph] we had a (00:14:36) pretty good start into the year. This is reflected in the guidance for the first quarter of at least 10% EBITDA growth year-on-year, which is even above the upper end of the full year guidance range.
On free cash flow, the high cash conversion rate achieved in the last years is a level we will sustain going forward. Accordingly, we guided cash conversion on a high prior year level of around 40%. Based on the guided higher EBITDA level, this translates into a higher absolute cash flow number for 2022 for the fifth year in a row.
Let me close our presentation with a Save the Date. We today spoke about the importance to have a clear strategy and to stick to its consistent execution. Therefore, we continue to work on our strategic agenda and adapt it to the ever-changing environment. So, on May 11, my board, colleagues and I invite you to our Capital Markets Day. On this occasion, we will give a strategic update. But you will agree that there's no reason for a revolution of the successful strategy over the last years, rather an evolution into the next transformation period. Moving along with this, we will focus in more detail on two main growth drivers of our portfolio. First, sustainability and second, innovation.
With that, ladies and gentlemen, thank you for your interest and your time so far. And now, we are happy to take your questions.
Ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] The first question is from Sebastian Bray, Berenberg. Your line is now open. Please go ahead.
Hello. Good morning and thank you for taking my question. Good afternoon, I should say. I have two, please. The first one is on the cash flow. I don't know if this was mentioned in previous quarters, but could you please just elaborate on what the €145 million settlement the previous M&A transaction refers to? Is that all remaining amount that was for the finished plant on PeroxyChem? But I'm not quite sure if it was that magnitude. So, what is this amount, please?
And my second question is on the margin development in Nutrition & Care. This is quite positive if it continues for the next, let's say, two, three years, the Specialties continue to take share and so on. Is it fair to say at the moment, i.e., in Q4, the margin made in methionine was pretty similar to the margin made in health care? Thank you.
Yeah. Good afternoon, Sebastian. I'll start with cash flow. These are purchase price adjustments from our methacrylates sale and another settlement, which is a little bit older. When we sold carbon black, there was a dispute often in – with regard to the US Clean Air Act, which was also settled this year. These two should make up the biggest part of this €145 million.
Okay. And then, I will take the second question. Hi also from my side. Good to hear you. And I guess your assumption is, fair to say, that the margin development in methionine and in health care are quite similar. So, yes, I would agree about your assumption.
Mr. Bray, we couldn't hear you at the moment. Could you please repeat if you had anything else to say?
No. Apologies if you couldn't hear me. I said thank you for taking my questions. I'm happy to pass on.
All right. Thank you. [Operator Instructions] The next question is from Martin Rödiger, Kepler Cheuvreux. Your line is now open. Please go ahead.
Yes. Thanks and good afternoon. I have three questions. First is on energy cost. Can you disclose what has been the absolute energy cost in the year 2020 and in the year 2021? What is your expectation for 2022 and what would be the level based on today's energy prices if your energy hedges are running out?
Second question is on methionine. I was a bit surprised to see your announcement about the investment in the US. I understand it's a quite lucrative investment, but this is a capital-intensive business. So, can you please explain how this investment fits to your strategy of focusing on low capital-intensive activities?
And the third question is on free cash flow guidance. I'm still trying to get my head around that. You expect significantly lower net working capital outflows, but it should be clear that selling prices are further rising, input costs are rising. Volumes are rising. So, what makes you confident that net working capital will shrink in 2022? Thanks.
Hi, Martin. Good to hear you. Christian speaking. First of all, it is to underpin that our methionine business. We do take this business as a cash cow. And in this respect, nothing has changed. Second, having said so, it means that we have to constantly and continuously increase the efficiency and to improve our cost position. It is not about being the market leader with this. It is about being the cost leader. And following this idea, I would invite you [indiscernible] (00:22:24) a tiny revenue into the past, that we have closed our methionine production, for example, in Wesseling that we started a lot of activities to cut and to reduce costs coming out of a double-digit million cost savings per annum.
And now it is to say, okay, from a strategical point of view, that we do have three main hubs all over the world, one in Asia, Singapore, one in Europe, Antwerp, and one in the United States of America, which is in Mobile, Alabama. And here, it is need to better our cost positions over the course of the next years. So in other words, this investment you have tackled helps us to extend and to expand our leading cost position from methionine in North America. And we will definitely benefit from this nicely. So we will see here significant annual savings of about €15 million – a little bit more than €15 million. And it is worthwhile to mention that it will help and increase the supply security which is needed to make sure that we could provide our customers with a sufficient amount of methionine.
So, to sum it up, no change of strategy in this respect. But because following the strategy we have given to you that methionine is a cash cow, it is [ph] time by time needs to better hear (00:24:02) our cost position and this is a good opportunity we are going to tackle.
With this, I do hand over to Ute.
Yeah. Thank you. Martin, good afternoon. First, on the energy costs, we had energy costs in 2021 of around €700 million. The comparison with 2020 makes only limited sense as 2020 with COVID, of course, was not a normal year. I think for this year, we will see another €200 million, €250 million increase, maybe a little bit more depending on the overall gas price and market situation.
We are hedging three years in advance. Of course, the first year has a very high hedge rate and then the following years have lower hedge rates. We have increased the hedge rates a little bit already back in last year. So from that point of view, I think we're pretty well-positioned here. Please keep in mind that the discussion on high gas rate is a European one. In the US or in America and in Asia, we have a different picture. So – and, of course, we always see – we have to see the full group.
I think to speculate what would it be without hedges is somewhat, I think, going very far because you never know when would you buy. So, I think we should leave it with the numbers we know and not with the numbers that might come depending on whatever scenario. Of course, higher energy costs are part of our pricing initiatives and in some of the products we have also energy prices as part of pricing formulas. So, a big part of that will be passed on to our customers.
The question regarding net working capital is a very valid one. You are right. We had quite a buildup of – in last year and, of course, now as raw materials are still rising, that goes into the valuation of our inventories. But of course, we have also rising prices on the sales side. And this year, that should overcompensate the rise in raw mat and energy. So, from that point of view, from Q2 and Q3 onwards, we will have also more cash in from our receivables and this is how we look at it. So, first quarter, I think will still be influenced by this rise in raw material prices. But then I think in the consecutive quarters, step by step, that should, in the end, level out.
Thank you. Can I have a follow-up question on the free cash flow in general, the free cash flow guidance? On page 35, I see that you also factor in M&A in the free cash flow. Are there any disposal proceeds baked in your free cash flow guidance for 2022?
I don't know which page 35 you mean. Normally...
On the presentation...
...M&A is not part of our free cash flow. It's the CapEx is in that...
I think that's the net debt bridge we refer to [indiscernible] (00:27:20) [indiscernible]
(00:27:20) but not in the free cash flow.
Okay. Thanks.
The next question is from Geoff Haire, UBS. Your line is now open. Please go ahead.
Good afternoon. Thank you for taking the questions. Two questions from me. You're clearly guiding to 10% EBITDA growth in Q1, although I look at the midpoint of your 2022 guidance for the year at 7%. There's a slowdown as we go through the rest of the year. Can you just talk a little bit about what that's relating to? Or is it just cautiousness? And then secondly, I was just wondering if you could give us some thoughts on how we should think about the LNP sales for 2022, given we are seeing COVID, obviously, easing in the Northern Hemisphere at least as we go through this year.
Ute?
So, I'll start with Q1. Geoff, good afternoon, [ph] and I think that is (00:28:31) Christian's favorite topic. Yeah. So, I think what we see is really customer demand is strong across all divisions. We really see continued strong and resilient demand and we see that our price increases are accepted quite well and fulfilled quite well. We have also strong order book in our industry-related businesses.
So, the consumer side, of course, there is still some pent-up demand, but also in industry-related business. As we said, of course, we are now having another increase in raw material, energy, logistics, we discussed that. But as I said, the price increases accelerate further and at this price, they will outpace this cost increase on the energy and material side. From that point of view, we have a strong start into the year. That's why we see that very positive guidance. Of course, you might argue it's more positive than the full year, but on the other side, we have more visibility on Q1 than on the full year. So maybe, I think that explains why your math is not working between the Q1 and the full year.
Okay. And I'll take the second question about the lipids and, yes, I'm really excited about the business because it is one of our growth drivers in future. So, last year, we have crossed €100 million revenues for mRNA and the lipid-based therapies. It was splitted up, one half was about pure lipid production and the other half, that is worthwhile to mention, was about the development and manufacturing of a very complex parenteral lipid nanoparticle system.
Taking this in consideration, this translates, for me and for the company and, hopefully, for you, into higher sales in 2022. And why am I excited about the future of this business? Yes, as of today, it is focused on fighting the corona pandemic, but in future, there is much more growth we do expect from different opportunities and options like, for example, fighting cancer and a lot of other ideas we do have. And here, in this respect, we have already started deep discussions and negotiations with a lot of potential customers and they are really keen on making use of our capabilities to foster their own ideas about this brilliant new technology.
So, sum it up, good start or good amount of revenues we have reached last year. And this year, we will definitely see higher sales in this area of mRNA and lipid-based therapies if I compare it to the last year. So, you talk to CEO which is filled up with hope and confidence about the future of this business. Please forgive me that I talked about a little bit more excited about it than you might have expected it, but I'm really here convinced about and therefore forgive me on my bold statement about the future of our business in this respect.
Can I just follow up on that? Is the growth in 2022 expected to come from – more from lipids or the delivery systems that you're developing, or both?
From both. Take it as a mixed – a pretty nice mixed picture. So, from both sides, we do expect similar growth. And if I look through our order books, they are already filled up. So, yes from both sides.
Okay. Thank you.
The next question is from Georgina Fraser, Goldman Sachs. Your line is now open. Please go ahead.
Hi. Thank you. Good afternoon, Christian and Ute. First, I just want to thank you for your sincere words related to difficult context in which you're running your business and that we're all working in. I know there are various scenarios that are impossible to predict, but I was wondering if you could describe the key end market assumptions that you made in the guidance range that you gave today, and maybe if you could break out how much of your growth is driven by capacity expansion versus margin recovery.
My second question is that we have seen limited wage inflation in recent years, but we are undeniably in a strong inflation environment. And so I was just wondering if you factored in higher labor costs in your outlook, and if so, at what rate. And then I have one final question on the lipids business, would Evonik prefer to grow its capabilities organically or are acquisitions in this field also possible? Thank you.
Good to hear you. Thinking about the – our strategy in respect of enhancing – of expanding and extending our lipid capacities, we do not have in mind here to tackle M&A opportunities. Here it is to grow organically because we do have the capacities. We do have the staff to do it on our own. And by the way, it is not so costly if we would do it here, this respect with M&A. So, here we focus on our – on investments in organic growth so far.
The second, about higher labor costs and the inflation, I do not worry about it because I'm convinced. I'm convinced that the head of the trade union, Michael Vassiliadis, we have good and fruitful and open-minded negotiations and the outcome of this will be, let me say, reasonable. So I do not hesitate about the results of those kind of discussions. [ph] There have been (00:35:14) some more questions. Maybe Ute, you could assist.
Yeah. Yeah. I will take the first one, the key end market assumptions and key growth drivers. I think we should go through this division by division. If we look at Specialty Additives here, of course, we have Crosslinkers with high volume demand in their applications. We have Comfort/Insulation where there is also some pent-up demand. We have Oil Additives that were constrained last year as raw material shortages and logistic constraints were limiting their growth. So I think there, it is really a mix of demand growth, better usage of capacities.
If we go to Smart Materials, of course, here is a big driver. Our new PA12 capacity [indiscernible] (00:36:12) clearly one driver of the new capacity. But also, if we look at the other businesses like active oxygens, they have seen growth in 2021 both in the traditional and also in the specialty applications and we have enough capacity here to grow the business also in this year. If we look at coating additives, I think also here, good growth so I think that is what really drives the growth in the more material-oriented division.
If we look at Nutrition & Care, we discussed it here and there already. We have good demand in our overall animal nutrition, good price levels for all the amino acids and since many, many years, very, very solid and healthy demand and volume growth. If we look at Care Solutions, again, they increased the sales with our active ingredients dramatically. They are working on that. They have two smaller M&A acquisitions that they integrate, of course, that will fuel growth. And so, I think that is for that Care Solutions, Health Care, we discussed with our lipids nanoparticle business, but also with other applications where we have a good pipeline with pharma polymers growing at very, very good margins over the last few years. I think that more or less described the picture that we have in our outlook.
That's really helpful. Thank you both.
The next question is from Chetan Udeshi, JPMorgan. Your line is now open. Please go ahead.
Yeah. Hi. Thank you for taking my question. I had one question. Maybe this is for Christian given that you're also Head of the German Chemical Industry Association. I believe it's a broader question. How do you see this huge spike in energy prices impacting the German chemical industry and the competitiveness of the industry? I'm not asking this from a Q1 or Q2 perspective. It's more a philosophical question from a, say, the structural perspective. And second, I mean, the Q1 guidance, can you – is it driven – is that growth driven primarily by methionine prices? Or do you see other segments also contributing to that more than 10% growth for the earnings?
Chetan, good to hear you. And while thinking about how to answer your first question, I'll try to answer your second one. And to be very clear about this, it is not, not exclusively driven by methionine. It is a broad and therefore bright growth in all areas of our businesses. So it is, let me say, very well underpinned in Smart Materials and Specialty Additives and in Nutrition & Care, too. And sometimes, to give a little bit more color about this, sometimes Caspar Gammelin, the Head of the Nutrition & Care Division, with a twinkle in his eye, looked at me and said, Christian, you know what? I'm a little bit not really satisfied because this so attractive growth rates we do have in Care Solutions and in our Health Care business, they are not really treasured, for example, by the capital markets because everybody is talking about methionine and methionine.
So, having said this, now coming to your first question, there is – I should – I would try to differentiate the answer a little bit, splitting it up and saying, first of all, those German companies who are global players, they could definitely better – in a better way balance the energy prices out because they do business all over the world. And here, the energy prices, the uplift of energy prices is really, let me say, pressing some kind of pressure on the mid-cap companies here in Germany because they do not have the chance of diluting the increase of those energy prices.
But second, it is definitely worthwhile to mention being in touch with the Minister of Economy, Mr. Habeck, in Berlin. We are in good speaking terms about the question how he could help to ease the energy prices here in Germany, impacting German industry overall. And in this respect, I'm confident that we will create, over the course of the year, might be not some kind of – that we will not be able to resolve it. But I'm confident that we will find a way to relieve those energy prices here for German industry. So, my first answer was very concrete. And my second answer was as you had expected it more on a level of a philosopher, but I'm not.
Understood. Thank you.
The next question is from [indiscernible] (00:41:51) Research. Your line is now open. Please go ahead.
My first question really is around your competitive landscape, especially focusing on Wanhua who is potentially a very small competitor today, but going to enter PA12 [indiscernible] (00:42:13) in the next year or so and then the move from them to also entry into methionine. So, just when you look at your competitive landscape today, given you guys are so downstream and you've had technology advantage and innovation advantage over the years, I mean, what is your intel on new competition, especially on products where it's been sort of, if I may use the word, in few hands or few company hands as technology over the years? That's my first question.
The second question to you, Christian, is really around the share price, and I apologize for asking this question. But you've done a fantastic job over the last four years in EBITDA growth and in cash flow as well. But share prices remain between €25 and €30. From your point of view, I mean, what is it that you guys want to do to unlock value here? Is it a share buyback or is it value here. Is it a share buyback or is it a special dividend? Or is it – how are your conversations with your anchor shareholder, for that matter? Because, frankly, for me, this is the biggest problem, is to what you could do to, sort of, breach €30 million. Thanks a lot.
Pleasure. Maybe to the – let me start with the first question, the competitive landscape and here in respect talking about Wanhua. You would make a brilliant mistake to underestimate the potentials and the perspectives of Wanhua and that is a mistake we do not want to do. Second, the more specialty technologies, businesses, markets are, the more it is about customer intimacy, the better the position of Evonik in the respect, for example, of PA12.
And as you could see, as you could observe, there is a remarkable delay of Wanhua to ramp-up their PA12 capacities, and here, in comparison to us, we are front runner. So, to sum it up, I do like competition because that is the best chance for us to make the difference. And each and everybody is really invited to tackle our markets and to see what will come out of it. Competition helps us to become better.
Second, [ph] OEA (00:44:58), it's a very German phrase. It's close to goodness gracious, as I look and Ute [ph] is the (00:45:07) same to our share price, we are really, let's keep it like this, disappointed. And as you know, the members of the extended board of directors are shareholders. So, it is anything else than sufficient, if I look to the development of our share price.
What could we do? It is not about thinking about super dividends or super some-whatever, something else then. It is about to remain and to stay put to our strategy, which translates into good EBITDA growth, which translate into good free cash flow growth over the course of the last five years in a row and I'm confident – and I have rolled my sleeves up for it and I am going to work my knuckles bloody for it to make Evonik together with Ute and the members of the [ph] Senate (00:46:06) Board of Directors a better company. And therefore, I'm convinced that there will be a point of time when this blossoming up of the company will be recognized by the credit investors and that will help to lift the share price up.
So, stay put. Move ahead. Roll our sleeves up. Work our knuckles bloody and create more and better growth and more and better growth perspectives. That is what I do have in mind about – let me say that that is what we do have in mind about thinking about the future.
Thanks a lot.
Thanks.
And the next question is from Thomas Swoboda, Société Générale. Your line is now open. Please go ahead.
Yes, sure. Good afternoon, everybody. I have two questions, two related on your portfolio cleanup opportunities. Firstly, on Baby Care, I heard you saying that the contracts are set to roll forward and the margins are set to improve. But I think there is also a antidumping probe in the US which should help earnings. So, I figure this business could become very quickly a triple-digit EBITDA again. So, my question here is, is it fair to assume that Baby Care is finally to go out this this year or do you still have hopes that you could get more for it if you wait for another year?
And secondly, on Performance Materials and Performance Intermediates, I think if I remember correctly, your cash flow issues in the past were partly keeping you from thinking in a divestment. I mean, that looks fixed now. Congrats, by the way. Is it time to revisit? Is it time to think of Evonik excluding Performance Materials? Thank you.
Yeah, Thomas. Good afternoon. Baby Care. Yeah. As we described last year, they still had unfavorable price [ph] cancellations, (00:48:38) but that really turned with the new contracts that start this year. So, the earnings are improving here. And as you rightly said, the antidumping cases will help, will support that. I think the final decision in Europe will come somewhat in April or May – in April and I think the US then later in the year.
So, what we [ph] have done, (00:49:04) we have prepared Baby Care. Technically, the carve-out is completed. And now we will then see the operating performance and then decide when is the right time to start the process. I think normally it makes more sense to have somewhat positive track record. So, I think that might take just the one or the other quarter before we start the official process here.
Yes. Before, I think that question also is some kind of evergreen. For us, Performance Intermediate is a cash generator for the group. This is how we run it. And I think at this point in time, we do not invest into growth here. From that point of view, that's how we do. If we look at the portfolio, we really take a step by step approach. We divested MMA. We carved out Baby Care. We are now preparing the sale of some smaller parts of the portfolio for Functional Solutions and this is how we look at it.
And generally speaking, of course, if you want to sell something, you have to prepare the business for divestment and then, of course, you have to see that they have a good, ideally, the best timing in the cycle. So, this is how we look at this.
No. This is helpful. Thank you.
And the next question is from Charlie Webb, Morgan Stanley. Your line is now open. Please go ahead.
Afternoon, everyone. Thanks for taking the questions. Maybe just following up on Thomas's question there, Ute, around divestitures, So just obviously you mentioned what's kind of currently underway. But when you look at the portfolio and I guess other parts like [ph] L-lysine (00:51:12) have kind of come up as potentially non-core and other bits and pieces. So, just wondering where are we in terms of those divestiture opportunities or restructuring opportunities as you look at the portfolio today versus perhaps last year? Just a bit more detail about – on other parts that may be in scope looking ahead?
And then just second question on PA12 and thinking about the ramp-up there. Can you help us understand what the ramp costs were in the second half of 2021 and just how we should think about its contribution this year as it gets fully ramped? That might be helpful. Thank you.
Charlie, good to hear you. I'd take the first question and Ute will take the second one. About divestment candidates, it is an easy one because the businesses we do have in our non-core Performance Materials division, they are flagged as non-core. [ph] If you mean that it is next status on – and you know, (00:52:17) taking this in consideration, it's all about timing to sell the Baby Care business and we've started a process to find a solution for our site in Germany close to Cologne and Lülsdorf.
There is, if I look to it, a good amount of the Functional Solutions business line and these are the next two steps. And once again, Ute has already mentioned and it is worthwhile to repeat, all the businesses which are located in the division Performance Materials are non-core businesses and here it is to work on them step-by-step. And then you have asked if there is anything else [ph] is there – as I said, (00:53:08) some new ideas about what could be non-core or not. Here's the answer. It's an easy one. It is two letters and one message. The two letters are an N and an O, and the message is no. And with this, to Ute.
Yeah. Charlie, good afternoon. On the PA12 ramp-up, it's actually much more than two letters here. The fixed cost last year where around €20 million, roughly. As soon as the facility is starting production, we expect significant positive contribution [ph] because (00:53:55) the market of PA12 is very, very short. So, really the market is really waiting for the materials. So, we'll see a very quick ramp-up and a quick contribution here to EBITDA and maybe even somewhat more than we thought originally, the ramp-up takes a couple of years. But given the market environment and really the supply shortage in that market, we think that we will have a decent contribution in this year already.
So, ladies and gentlemen, this end our call for today. Under these very special circumstances and our thoughts and prayers are with the people of Ukraine. Thank you for your attention and take care. That closes today's call. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.