Evonik refocuses

German chemicals, energy and real estate conglomerate Evonik Industries, is refocusing its operations on its chemical business in order to become a more powerful global player in the speciality chemicals arena.

In doing so it joins a number of other chemical giants that have recently restructured to focus on the speciality chemicals sector. Last year Solvay of Belgium divested its pharmaceutical activity to concentrate on strengthening its high-value chemicals operation and Dow Chemicals acquired the US speciality chemicals producer Rohm and Haas in 2009 so it would be less reliant on commodity sales.

Three quarters of Evonik’s 2008 sales of €16 billion (?10 billion) came from chemicals, and the firm is aiming to concentrate on reinforcing its position as a leading speciality chemicals operation by exploiting growth opportunities in resource efficiency. It sees those opportunities in energy use, health and nutrition and in the globalisation of its technologies. 

However in order to achieve these objectives the company will probably need to make acquisitions and find the money to finance any deals. The company, which is 75 per cent owned by the government-controlled RAG Foundation, is aiming to spin off its real estate business with residential properties of an estimated value of €5-6 billion. It is also looking to find companies to invest in its coal-fired power operations which are the fifth largest electricity provider in Germany. 

’On our own, we do not have the financial scope to ensure equally strong growth in all three [business] areas simultaneously,’ Klaus Engel, Evonik’s chairman, said in an interview with the German news magazine Focus. ’We have therefore decided to focus on speciality chemicals and to run the energy and real estate businesses as essentially independent entities.’

Evonik, which has a chemicals workforce of around 31,000, wants a stronger presence in certain markets in emerging economies, particularly in its key areas of expertise such as amino acids for animal nutrition, methyl methacrylates and solar energy and battery materials.

In 2009 it reduced investment spending in order to help prevent a sharp fall in profits. In the first nine months of the year capital expenditure in chemicals was cut by 29 per cent while it is likely to have to restrict investment this year as well.

Evonik’s reorganisation brings it back to its pure-play speciality chemicals status of seven years ago, before it was taken over by RAG. In an exchange deal, the energy conglomerate E.ON swapped its ownership of Evonik, then trading as Degussa, for RAG’s gas supply firm Ruhrgas. 

Degussa can trace its roots back to a metals refinery built in Frankfurt in 1843, and after mergers with the German chemical companies Huls and SKW Trostberg became a leading global speciality chemicals company with sales of $11 billion (?6.8 billion).

Evonik is seen by analysts as using the current sluggish economic conditions to reinvent itself in preparation for meeting the different demands of post-recession world markets.

’There’s a transition period at the moment during which companies like Evonik are preparing themselves for market needs which will be entirely different to those before 2008,’ explains Paul Hodges, chairman of London-based chemicals consultancy International eChem. ’There will be big opportunities for companies able to provide chemicals which help to solve problems relating to the low-carbon economy and new health and nutrition requirements.’

Sean Milmo