Evonik Industries AG (EVK) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Evonik Industries AG. At our customers' request, this conference will be recorded. [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 like the very special and varying circumstances. There's 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 2 flight hours away from Germany, people are dying from tank and missile fire. 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're 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 sanctions. We are monitoring the situation closely on all levels: IT security, international payment flows, procurement and energy sourcing. So we are prepared and will take the appropriate measures. So far, our introduction and personal statements on the latest developments. 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 1 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 precrisis 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 a management team, have taken over. Our ambition level for 2022, we will strive to outperform our EBITDA growth rate of the last 2 years and deliver the fifth year in a row with higher free cash flow. Chart 5 describes the track record of the last 3 years in more detail, which can certainly be characterized as not being the easiest. Let me briefly summarize it in 2 sentences. 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 2 of the last 3 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 4 defined sustainability focus areas. They are not only nice, shiny examples but real growth drivers of our business, which is expressed by the growing share of next-generation solutions within our group sales from 35% to 37%. Take 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, where actually, sustainability and innovation are 2 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 EUR 1 billion sales in our 6 innovation growth fields by 2025, we already achieved more than EUR 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 EUR 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 and the commercialization of those innovative products. Healthcare Solutions like our lipids for mRNA or active cosmetic ingredients like our ceramides are just 2 examples. Ladies and gentlemen, that was a brief strategic review of the last year. Now Ute will shed some more light on the fourth quarter results.

Thank you, Christian, and good afternoon from my side as well. Let me start with Chart 14 as a good 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 EUR 20 million for externally sourced energy. The further sharp increase in raw materials impacted especially our 2 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 bear higher logistic costs to secure 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 volumes across virtually all businesses as well as the continuous and further accelerating 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 at sustained positive spreads into 2022, and they stand for 70% of our C4 chain. And as you know, Performance Materials and the product spreads 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 3 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 at healthy volumes in amino acids. And again, all of them will even accelerate in 2022. So fading negatives and accelerating positives, 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 EUR 600 million in Q4 after EUR 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 to yet fully compensate the higher costs. 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 '21 would turn into a positive EBITDA contributor in '22. On the cash flow side, we came out at EUR 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 2 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 valuation effects in inventories 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. The latter will revert 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 EUR 230 million compared to the precrisis 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 Nutrition & Care, the positive price trend 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 EUR 2.5 billion and EUR 2.6 billion. The range expresses our confidence in our strong structural growth in our sustainability and innovation achievements, 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 we had a 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 adapted 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. Going along with this, we will focus in more detail on 2 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.

[Operator Instructions] The first question is from Sebastian Bray, Berenberg.

I have 2, 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 EUR 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 over the next, let's say, 2, 3 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?

Yes. Sebastian, I'll start with cash flow. These are purchase price adjustment from our methacrylate sale and another settlement which is a little bit older. When we sold Carbon Black, there was a dispute of the -- with regard to the U.S. Clean Air Act, which was also settled this year. These 2 should make up the biggest part of this EUR 145 million.

Okay. And then I would take the second question. 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.

[Operator Instructions] And the next question is from Martin Roediger, Kepler Cheuvreux.

Yes. I have 3 questions. First is on energy costs. Can you disclose what has been the absolute energy costs 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? The second question is on methionine. And I was a bit surprised to see your announcement about the investment in the U.S. 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?

Martin, 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. It is about being the cost leader. And following this idea, I would invite you attending a [ tiny ] revenue into the past that we have closed our methionine production, for example, in Wesseling, that we have 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 3 main hubs all over the world: 1 in Asia, Singapore; 1 in Europe, Antwerp; 1 in the United States of America, which is in Mobile, Alabama. In 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 for methionine in North America, and we will definitely benefit from this nicely. So we will see here a significant annual savings of about 15 more -- a little bit more than EUR 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 time-by-time need to better here our cost position, and this is a good opportunity we are going to tackle. And with this, I do hand over to Ute.

Yes, thank you. Martin, first, on the energy cost, we had energy costs in '21 of around EUR 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 EUR 200 million, EUR 250 million increase, maybe a little bit more depending on the overall gas price and market situation. We are hedging 3 years in advance. Of course, the first year has a very high hedge rate, and then the following years have lower hedge rate. We have increased the hedge rate 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 gap is a European one in the U.S. or in Americas. And in Asia, we have a different picture. So -- and of course, we will 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 formula. 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 mats and energy. So from that point of view from Q2 and 3 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 rising raw material prices. But then I think in the consecutive quarters, step-by-step, that should in the end level out.

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. So are there any disposal proceeds baked in your free cash flow guidance with 2022?

I don't know. Which Page 35 you mean? On M&A, it's not -- M&A is not part of our free cash flow. It's -- CapEx is in that...

Martin, that's the net debt bridge we referred to.

Net debt, yes. And net debt, of course, that's -- now that's clear. But not in the free cash flow.

The next question is from Geoff Haire, UBS.

Two questions from me. You're clearly guiding to 10% EBITDA growth in Q1, but if I look at the midpoint of your 2022 guidance for the year at 7%, so that's a slowdown as we go through the rest of the year. Could 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 into through this year.

So I'll start with Q1, Geoff, as lipid is Christian's favorite topic. Yes. 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 go through quite well. We had also a 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 as described, they will outpace the 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 give 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 Q1 and the full year.

Okay. 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 the future. So last year, we have crossed EUR 100 million revenues for mRNA and the lipid-based therapies. It was split up. 1/2 was about pure lipid production; and the other half, that is worthwhile to mention, was about development and manufacturing of a very complex parenteral lipid nanoparticle system. Taking this in consideration, that translates for me and for the company and hopefully, to 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're really keen on making use of our capabilities to foster their own ideas about this brilliant new technology. So to 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 a CEO, which is filled up with hope and confidence about the future of this business. Please forgive me that I'm -- 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 in 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 a similar growth. And if I look to our order books, they are already filled up. So yes from both sides.

The next question is from Georgina Fraser, Goldman Sachs.

Firstly, I just want to thank you for your sincere words related to the difficult context in which you're running your business and that we're all working in. Now 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?

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 in this respect with M&A. So we will focus on investments in organic growth so far. 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, will 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. There have been some more questions. Maybe Ute, you could assist.

Yes. Yes, I'll 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, yes, demand growth, better usage of capacities. If we go to Smart Materials, of course, here is a big driver, our new PA12 capacity. So here is clearly one driver, the new capacity. But also if you look at the other businesses like Active Oxygens, they have seen good growth in '21, 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 we've since many, many years a 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 2 smaller M&A acquisitions that they integrate. Of course, that will fuel growth. And so I think that is for that, for Care Solutions. Health Care, we discussed with our lipid 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 years. I think that more or less describes the picture that we have in our outlook.

The next question is from Chetan Udeshi, JPMorgan.

Yes. I had one question. Maybe this is for Christian, given that you're also Head of the German Chemical Industry Association. I mean, 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, say, just 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 group 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 -- in 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 you a little bit more color about this, sometimes, Caspar Gammelin, the Head of Nutrition & Care division, with a twinkled eye, looked at me and said, "Christian, you know what, I'm a little bit not really satisfied because the 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. That is -- I should -- I will 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, present 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, and that 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 have expected it, more on a level of a philosopher, but I'm not.

The next question is from Jaideep Pandya, On Field Research.

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 soon, i.e., in the next year or so, and then the move from them to also signal entry into methionine. So just when you look at your competitive landscape today, given you guys are so downstream and you had a 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, technologies 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 4 years in EBITDA growth and in cash flow as well. But share price remains between EUR 25 and EUR 30. So 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 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 puzzle as to what you could do to sort of bridge EUR 30.

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 or the more it is about customer intimacy, the better the position of Evonik in the respect, for example, of PA12 is. 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, [Foreign Language], that the very German phrase. It's close to goodness gracious. If I look, and Ute is the same, to our share price, we are really -- let's keep it like this, I'm 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 -- somewhat have something else. It is about to remain and to stay put to our strategy, which translates into good EBITDA growth, which translates into good free cash flow growth over the course of the last 5 years in a row. And I'm confident, and I've rolled my sleeve up for it, and I'm going to work my knuckles bloody for it to make Evonik, together with Ute and the members of the extended 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 [ cash-rich ] 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 -- that is what we do have in mind about thinking about the future.

And the next question is from Thomas Swoboda, Societe Generale.

Yes. I have 2 questions, 2 related on your portfolio cleanup opportunities. Firstly, on Baby Care, I heard you are saying that the contracts are set to go forward and the margins are set to improve. I think there is also antidumping group in the U.S., which should have earnings. So I figure this business could become very quickly triple-digit EBITDA again. So my question here is, is it fair to assume that Baby Care is finally to go out 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?

Yes. Thomas, Baby Care, yes, as we described last year, they still had unfavorable price cancellations, but that really turned with the new contracts that started 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 U.S. then later in the year. So what we have done, 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. C4, I think that question also is some kind of evergreen. For us, Performance Intermediates is 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 you have a good -- ideally, the best timing in the cycle. So this is how we look at this.

And the next question is from Charlie Webb, Morgan Stanley.

Maybe just following up on Thomas' question there, Ute, around divestitures. So just obviously, you mentioned what's kind of currently underway. But when you look at the portfolio, I guess, other parts like lysine 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 for a bit more detail perhaps 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 '21, and just how we should think about its contribution this year as it gets fully ramped?

Charlie, good to hear you. I 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 noncore Performance Materials division, they are flagged as noncore. Here, it means that it is next step is, and you know 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 in Lülsdorf. That is, if I look to it, a good amount of the Functional Solutions business line. And these are the next 2 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 and noncore businesses, and here it is to work on them step-by-step. And then you have asked if there is anything else, so as I said anything -- some new ideas about what could be noncore or not, here's the answer, it's an easy one. It is 2 letters and 1 message. The 2 letters are an N and an O, and the message is no. And with this, to Ute.

Yes. Charlie, on the PA12 ramp-up, it's actually much more than 2 letters here. The fixed costs last year were around EUR 20 million roughly. As soon as the facility is starting production, we expect a significant positive contribution because the market of PA12 is very, very short. So really, the market is really waiting for the material. So we'll see a quick ramp up and a quick contribution here to EBITDA and maybe even somewhat more than we thought originally. Now 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 ends 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. And that closes today's call. Bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.