Evonik Industries AG

SEPTEMBER 21, 2010 

ANALYSIS 

Table of Contents: 

CORPORATE PROFILE 1 

SHAREHOLDER STRUCTURE AND 

MANAGEMENT STRATEGY 2 

KEY RATING CONSIDERATIONS 4 

BUSINESS RISK FACTORS 6 

FINANCIAL RISK FACTORS 8 

DEBT STRUCTURE AND GROUP 

FINANCING 12 

LIQUIDITY 12 

MOODY’S RELATED RESEARCH 12 

Analyst Contacts: 

FRANKFURT 49.69.70730.700 

Stanislas Duquesnoy 49.69.70730.781 

Assistant Vice President-Analyst 

Stanislas.Duquesnoy@moodys.com 

Max Huefner 49.69.70730.783 

Associate Analyst 

Max.Huefner@moodys.com 

LONDON 44.20.7772.5454 

David G. Staples 44.20.7772.5593 

Managing Director-Corporate Finance 

David.Staples@moodys.com 

This Analysis provides an in-depth discussion 

of credit rating(s) for Evonik Industries AG 

and should be read in conjunction with 

Moody’s most recent Credit Opinion and 

rating information available on Moody's 

website. 

Evonik Industries AG 

Essen, Germany 

Corporate Profile 

GLOBAL CORPORATE FINANCE 

Evonik Industries AG, headquartered in Essen, Germany (Ba1, Stable outlook), is the 

holding company of the Evonik Group (EI, Evonik or the group), an industrial 

conglomerate encompassing chemicals, energy and real estate businesses. While the roots of 

EI date back to 1843, the group in its current legal form was established in 2007, when the 

so-called “white division” of RAG AG was separated from the mining activities of the group 

and incorporated under EI. Evonik is majority-owned by RAG-Stiftung, which was set up to 

fund liabilities relating to the termination of RAG’s mining activities until 2018. Funds of 

the financial investor CVC Capital Partners acquired a 25.01% stake in EI in 2008. 

EI reported revenues of €13.1 billion and EBITDA of €2 billion for the fiscal year-ended 

(FYE) 31 December 2009. The group employed 38,681 people at FYE 2009. 

FIGURE 1 

2009 Sales by segments 

Energy 

20% 

Real Estate 

3% 

Source: Company reports 

Services & 

Corporate 

1% 

Chemicals 

76% 

EBITDA and EBITDA margin by segment (2009) 

EBITDA in € million 

1,700 

1,500 

1,300 

1,100 

900 

700 

500 

300 

100 

16.1% 


16.3% 

48.4% 

Chemicals Energy Real Estate

2 SEPTEMBER 21, 2010 


Chemicals: Evonik’s chemicals business is one of the world’s leading specialty chemicals enterprises, 

with approx. 80% of revenues generated from products that hold top three market positions globally. 

The group’s chemicals portfolio is widespread, ranging from commoditised chemical applications in its 

industrial chemicals business to more stable and higher-margin applications in its health & nutrition 

sub-segment. EI also benefits from “Verbund” structures in silicon, its C4 chemistry business, 

isophorone and Methylmetacrylates (MMA), which offers better control over supplies and higher 

margins. EI’s chemicals portfolio is geared towards a wide array of end industries, including 

automotive, construction, food, pharmaceuticals, home & personal care, and oil & gas. 

Energy: EI’s energy business is the fifth-largest power producer on a basis of long-term contracts in 

Germany, with 10,201 MW of installed capacity in 2009, albeit with limited market share compared 

with the four largest players (RWE, Eon, Vattenfall and EnBW). EI primarily operates coal-powered 

power plants and its installed power generation capacity is split approximately 80%/20% between its 

domestic market and international locations (Turkey, Colombia and the Philippines). Besides its 

generation activities, Evonik also provides engineering expertise in the construction of power plants. 

The group is currently seeking to divest a stake in its energy business. 

Real Estate: With around 60,000 units (as per end of 2009) in the largest German state, North Rhine- 

Westphalia (NRW), EI’s real estate business is one of Germany’s largest residential real estate 

companies. EI also holds a 50% stake in THS, which owns approx. 73,000 residential units. In the 

medium term, EI is seeking to spin off its real estate business. 

Shareholder Structure and Management Strategy 

On 8 November 2007, Germany’s lower house of parliament approved the proposed coal mining 

financing legislation. This constituted a key milestone in a process that would ultimately lead to the 

complete discontinuation of the country’s hard-coal mining activities by the end of 2018, in line with 

the agreement made in February 2008 on a compromise between the German federal government, the 

states of NRW and Saarland, RAG AG and the IG BCE trade union. As part of the reorganisation 

process necessary to implement the compromise, the RAG group was sold to RAG-Stiftung, a 

foundation set up under German civil law. Subsequently, all of its non-coal businesses, which are held 

by EI, were separated from the subsidised hard-coal mining operations conducted by Deutsche 

Steinkohle AG (DSK). In July 2010, the European Commission approved a proposal for a regulation 

to allow state subsidies for loss-making coal mines only if plans for a closure by October 2014 are 

presented. In order to align the different time schedules negotiations between the involved parties will 

follow.If executed as proposed, the decision by the European Commission could increase pressure on 

RAG-Stiftung to fund mining liabilities four years earlier than initially anticipated. 

RAG-Stiftung owns 74.99% of EI, with the remaining stake owned by CVC. In order to raise the 

necessary funds to wind down the hard-coal mining activities, RAG Stiftung accumulates cash from 

dividends. Moody’s understands that it is the shareholders’ intention to sell their stakes through an 

initial public offering (IPO), notwithstanding that RAG-Stiftung would most likely keep a minority 

stake in EI post-IPO. 

ANALYSIS: EVONIK INDUSTRIES AG


FIGURE 2 

Shareholder structure of Evonik Industries AG 

¹ domination and profit-and-loss transfer agreement 

Source: Evonik Industries AG 

Stronger focus on EI’s chemicals operations ... 


Following a strategic review of the group’s operations and market opportunities at the end of fiscal 

year (FY) 2009, EI is currently in the transition from its conglomerate structure to becoming a focused 

chemicals company, paying specific attention to trends such as resource efficiency, health & nutrition 

and globalisation of technologies. In order to improve the breadth and strength of the group’s 

chemicals portfolio, EI will aim to reduce its exposure to energy and real estate. 

The group is well advanced in the process to sell a stake in its energy business, with potential bidders 

having submitted non-binding offers in a second round of bidding. Proceeds from a sale are likely to 

be kept in the group and used both to reduce leverage and to fund development projects at the 

chemicals division through a combination of organic and external growth initiatives. 

EI is considering a possible listing for the real estate business or the sale of a minority stake in the 

business in order to reduce its exposure to real estate. However, in the meantime, EI is likely to merge 

its real estate operations with THS. This entity owns around 73,000 units in NRW and is 50% 

controlled by EI and 50% by labour union (Vermögensverwaltungs- und Treuhandgesellschaft der 

Industriegewerkschaft Bergbau und Energie mbh (IGBCE), Hannover). 

... and continued attention to cost optimisation ... 

CVC Funds RAG-Stiftung 

100% 1 

25.01% 

Evonik Industries AG 

Evonik Degussa GmbH 

Evonik Steag GmbH 

Evonik Immobilien 

GmbH 

Evonik Services GmbH 

Directly and 

indirectly 74.99% 

In early 2009, EI launched a cost optimisation programme, “On Track”, with the aim of reducing 

annual costs sustainable by €500 million by FY 2012. This programme is broad-based and focuses on 

operational improvements, administrative and corporate centre costs, shared services costs, and 

sourcing. EI is progressing well with the implementation of the programme, with more than one 

quarter of sustainable savings achieved at the end of FY 2009. It is also likely that EI will achieve 

savings slightly exceeding €550 million, which is higher than initially anticipated. 




... should pave the way for a successful IPO in the medium term 

The ultimate target of EI is to float the business in an IPO, as this option would allow both 

shareholders to fulfil their strategic objectives. CVC could exit its investment in the medium term and 

RAG-Stiftung could raise proceeds necessary to fund liabilities arising from the discontinuation of 

Germany’s hard-coal mining operations. Moody’s believes that the successful implementation of EI’s 

strategy focused on the development of its chemicals franchise will support a successful IPO. 

All in all, EI’s corporate strategy is sensible and should be supportive of the group’s credit profile, in 

Moody’s view. The divestment proceeds from the sale of a stake in the energy business will be used to 

reduce EI’s leverage and should enable the group to strengthen its chemicals franchise. Moody’s 

considers EI’s focus on its chemicals franchise to be positive, as the group lacks critical mass in energy 

and already has an excellent platform for growth in chemicals, with leading market positions in most 

of its chemicals end markets. Moody’s also notes that a more focused group with a strong chemicals 

franchise should be easier to float on the stock exchange. 

Key Rating Considerations 

On September 21, 2010 Moody’s Investors Services has assigned a Ba1 Corporate Family Rating 

(CFR) for the group and Probability of Default Rating (PDR) to Evonik Industries AG, the holding 

company of a German-based conglomerate encompassing chemicals, energy and real estate businesses. 

At the same time, Moody’s has assigned a Ba1 rating to EUR750 million of Senior Unsecured Notes 

issued by Evonik Industries AG. The outlook on all ratings is stable. This was the first time that 

Moody’s has rated Evonik Industries AG. 

Moody’s Ba1 Corporate Family Rating for Evonik reflects the group’s (i) strong business profile in 

chemicals with leading market positions, large scale, wide end-product and end-market diversity with a 

good mix between more cyclical upstream activities and stable specialty applications, (ii) above average 

operating margins at the chemicals business supported by the quality and technology content of its 

products as well as through a good level of vertical integration through selective ‘Verbund’ structures, 

(iii) clear strategic path to focus on the group’s strong chemical division by partial divestments of the 

energy and real estate business notwithstanding that the successful implementation of this strategy 

bears execution risk, (iv) focus on optimizing its cost structure through the implementation of various 

cost initiatives across the businesses to further enhance margin levels notwithstanding that Evonik 

already generates operating margins in excess of most of its European chemicals peers, (v) strong 

technology- as well as R&D platform (more than 20% of sales generated from products not older than 

five years) allowing for a timely response to customer needs and to new market trends, and (vi) strong 

liquidity profile with currently over EUR1.359 billion in cash on balance sheet as well as access to an 

undrawn EUR1.5 billion unsecured revolving credit facility. 

The rating remains constrained by Evonik’s (i) leveraged capital structure if compared to investment 

grade chemicals peers, (ii) aggressive dividend policy (payout ratios was around 100% of net income in 

FY 2009) which is expected to exert negative pressure on free cash flow generation going forward, (iii) 

limited exposure to cyclical customer industries such as automotive and construction notwithstanding 

that the group has no specific concentration on any specific industries, customers or products, (iv) 

shareholder structure with the cohabitation of a financial investor with a minority stake and a 

foundation set up in 2007 to wind down the subsidized coal activities of former RAG by 2018, which 

might have different strategic interests although the execution of the group’s strategy since the change 

in the ownership structure has been smooth and focused. 




The stable outlook assigned to the rating reflects Moody’s expectation that Evonik will continue to 

focus on deleveraging and will apply discretion in the implementation of its organic growth strategy. 

The agency’s expectation is predicated upon a gradual recovery in chemicals demand across all regions 

with continued stronger growth patterns anticipated in emerging economies. The strong recovery in 

emerging market economies have been the main driver of the recovery in the European Chemicals 

industry. The derailing of emerging economies growth and / or a reversal in the recovery of developed 

economies, which are concurrently considered as tail risks could invalidate our assumption underlying 

the assignment of a stable outlook to Evonik. 

Continued strong operating performance coupled with prudent balance sheet management and / or 

proceeds from asset disposals applied to debt reduction leading to Adjusted Net Debt / EBITDA of 

below 3.5x and RCF / Net Debt of above 15% on a sustainable basis would exert positive pressure on 

the ratings. 

A sharp deterioration in the operating environment and / or shift in the group’s organic and external 

growth strategy leading to sustained negative free cash flow generation and / or a deterioration in 

Adjusted Net Debt / EBITDA to sustainably above 4.5x would lead to negative pressure on the 

ratings. The agency would also expect Evonik to maintain RCF / Net Debt in the low double digit to 

avert negative pressure on the ratings. 

FIGURE 3 

Rating factors table as per Moody’s Global Chemical Industry Rating Methodology 

EVONIK INDUSTRIES AG 

CHEMICAL INDUSTRY 

Factor 1: Business Profile 

Aaa Aa A Baa Ba B Caa Ca 

a) Business Position Assessment X 

Factor 2: Size & Stability 

a) Revenue (Billions of US$) X 

b) # of Divisions of Equal Size X 

c) Stability of EBITDA X 

Factor 3: Cost Position 

a) EBITDA Margin (3 Yr. Avg.) X 

b) ROA - EBIT / Assets (3 Yr. Avg.) X 

Factor 4: Leverage / Financial policies 

a) Current Debt / Capital X 

b) Debt / EBITDA (3 Yr. Avg.) X 

Factor 5: Financial Strength 

a) EBITDA / Total Interest Expense (3 Yr. Avg.) X 

b) Retained Cash Flow / Debt (3 Yr. Avg.) X 

c) Free Cash Flow / Debt (3 Yr. Avg.) 

Rating: 

a) Indicated Rating from Grid X 

b) Actual Rating Assigned Ba1 

X 




To assess EI, Moody’s has applied its Global Chemical Industry Rating Methodology, published in 

December 2009. The methodology contains five key rating factors (Business Profile, Size and Stability, 

Cost Position, Management Strategy and Financial Strength), incorporating several sub-factors or 

metrics, against which we assign a score to the company. EI’s performance against these factors and 

sub-factors is detailed under “Business Risk Factors” and “Financial Risk Factors”, as follows: 

Business Risk Factors 

The strong business profile of EI is largely supported by its world-leading chemicals franchise 

EI’s chemicals business segment, which accounts for 76% of group revenues and 79% of group 

EBITDA, is one of the largest and most profitable European specialty chemicals companies, with 

around 100 production sites in 28 countries. The products of the chemicals franchise hold marketleading 

positions, including in silicas, polyamide 12, super absorbants, Dl-methionine to name a few. 

EI is active across the entire value chain of the chemicals industry, with some exposure to commodity 

type chemicals (mainly centred around the group’s C4 chemistry expertise), but mainly to specialty 

chemicals applications in its consumer specialties and health & nutrition business units (conditioners, 

super absorbants, skin cleanser), which carry higher margins. Importantly, EI benefits from Verbund 

structures in several of its chemicals product lines (silicon, C4, isophorone and MMA), which enables 

the group to control the entire value chain, a key competitive advantage over non-integrated players. 

EI’s chemicals franchise is also widely diversified in terms of end markets, with exposure to the food, 

pharmaceuticals, healthcare, automotive and aerospace industries among others. 

FIGURE 4 

Sales by end market for Chemicals (2009) 

Source: Evonik Industries AG 

Home / Personal Care 

18% 

Other 

17% 

Automotive 

16% 

Pharma 

4% 

Oil & Gas 

5% 

Construction 

7% 

Coating 

10% 

EI’s chemicals business uses raw materials ranging from petrochemicals to some natural oil-based 

oleochemicals. Despite the group’s transformation in the past five years to a more specialty-end 

chemicals company, approximately 70% of its raw materials are still sensitive to oil prices, albeit to 

varying degrees. The chemical division’s main raw materials include C4-crack, carbon black feedstock, 

propylene, methanol and acetone. 

Food 

12% 

Plastic 

11% 




Raw material costs represent more than 40% of the division’s sales. In 2009, EI benefitted from the 

significant decrease in raw material costs which only partly had to be passed on to the customers (sales 

price -6%); During H1, the increase in raw material costs (compared to H1 2009) could be 

successfully passed on to the customers (sales price +7%) 

Energy and real estate businesses offer some level of earnings diversification but have lower, or more volatile, 

returns on capital employed 

The earnings diversification stemming from EI’s energy and real estate businesses, accounting for 20% 

and 3% of group revenues, respectively, is only valid to a certain extent. The group’s energy division is 

focused on power generation and has no retail integration. Moody’s notes that most of EI’s power 

generation is sold under long-term contracts to other utilities or industrial customers, which means 

that it is a more stable business and is relatively less exposed to normal economic cycles. The real estate 

business offers very stable earnings and operating cash flows but its contribution to the group’s overall 

earnings is relatively limited, with only 9% of group EBITDA generated from this business. 

Given the above, EI’s strategy to focus its efforts and resources on its chemicals franchise in future is 

sensible, in Moody’s view. This view is supported by our analysis of the group’s returns on capital 

employed (ROCE). As illustrated in Figure 5, below, the chemicals division generated ROCE well in 

excess of that of the real estate business over the past four years. In addition, ROCE at the group’s 

energy business has proven much more volatile than that at the chemicals division. 

FIGURE 5 

Return on Capital employed by division 

ROCE 2006 2007 2008 2009 

Chemicals 8.5% 10.1% 9.9% 10.3% 

Energy 13.8% 15.3% 13.2% 9.7% 

Real Estate 6.6% 8.3% 9.2% 7.3% 

The group generates around 61% of sales and has more than 80% of its assets (see Figure 6) in its 

traditional European markets. EI’s overweight position in the high-cost regions of Europe and North 

America is a disadvantage, particularly in certain sub-sectors of the chemicals industry, in which lowcost 

players based in China and India have exacerbated the competitiveness. 

FIGURE 6 

Geographical breakdown of sales and assets (FYE 2009) 

Sales 

Segment 

Assets 

Germany Europe excl. Germany North America Asia Central & South America Other 

0% 


10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 




Score of A for the “Size and Stability” rating factor reflects the group’s scale and breadth ... 

With annual revenues of €13.1 billion (€10.0 billion for its chemicals division), EI is among the largest 

European chemical issuers rated by Moody’s. On a more negative note, the group’s energy business 

clearly lacks scale and breadth compared with other European multi-utilities. Moody’s expects the size 

of the group to remain relatively stable in the short to medium term, given that parts of the proceeds 

from a potential sale of a stake in the group’s energy business would be reinvested in the chemicals 

franchise while the other part will be applied to debt reduction. We do not expect EI to embark on an 

aggressive external expansion strategy as the group’s focus will be on maximising its enterprise value 

through organic projects and bolt-on acquisitions ahead of a potential IPO. 

... and the stability of its operating margins through the cycle 

As referred to above, EI’s diversified chemicals portfolio has proven very stable through the downturn, 

with EBITDA margins in FY 2009 exceeding those in the previous year. The group’s real estate 

business, albeit dilutive in terms of ROCE, offers earnings and operating cash flow stability through 

the cycle. As illustrated in Figure 7, below, EI has been able to sustain healthy and stable operating 

margins through the cycle and has outperformed its peers. 

FIGURE 7 

EBITDA margins of EI in comparison to peers 

ADJUSTED EBITDA MARGINS 2007 2008 2009 

Evonik Industries 14.42% 11.93% 13.87% 

Lanxess 9.87% 8.53% 7.81% 

Akzo Nobel 13.65% 13.77% 13.84% 

Clariant 8.79% 8.64% 4.75% 

Low Baa score for the “Cost Position” rating factor offers improvement potential in line with the implementation 

of EI’s “On Track” programme 

While EI already exhibits relatively high margins compared with most of its peers, Moody’s believes 

that the strength of the group’s chemicals operations should allow the group to increase its operating 

margins going forward. In addition, EI’s implementation of its broad-based cost optimisation 

programme, “On Track”, should help EI to retain industry-leading margins in the medium term, in 

Moody’s view. As a consequence of EI’s implementation of this cost optimisation programme and a 

higher focus on its chemicals operations, the group’s margins could be lifted into the high Baa – low A 

range (i.e. around 15% EBITDA margin) through the cycle. 

Financial Risk Factors 

High pension liabilities and reported financial debt ... 

EI’s overall weak Ba positioning for debt leverage rating factors reflects the group’s relatively high 

leverage on an adjusted basis. Adjustments for pension liabilities and operating leases accounted for 

almost 60% of EI’s adjusted net indebtedness at FYE 2009. While EI has largely focused on reducing 

its financial indebtedness over the past 12-18 months (its net reported indebtedness was reduced by 

€1.1 billion to €3.4 billion over the past 18 months to 30 June 2010), the group’s debt metrics remain 

weaker than those of its direct peers in high non-investment-grade and low-investment-grade territory. 

In Moody’s view, EI’s efforts to further reduce its leverage through asset disposals (the group is 




currently in the process of selling a stake in the energy business), with the proceeds to be partly applied 

to debt reduction, should help to position the group’s debt metrics in line with an investment-grade 

rating over time. Moody’s notes that while pension liabilities are included in its debt adjustments, they 

exert less pressure on the capital structure of EI than financial indebtedness, given the absence of 

maturities and the lower level of net interest cost carried on these liabilities. 

... as well as a relatively aggressive dividend policy result in elevated debt metrics 

Moody’s notes that EI has historically returned material amounts of cash to its shareholders through 

the payment of sizeable dividends. Payout ratios have averaged more than 100% of the group’s net 

income over the past two years. Looking ahead, we expect EI to continue to pay large dividends. 

FIGURE 8 

EI has weaker credit metrics than its peers [1] 

EBITDA/ NET DEBT/ 

RCF/ 

FCF/ 

RATING INTEREST EXP 

EBITDA NET DEBT NET DEBT 

Evonik Industries Ba1/sta 3.1x 4.8x 8.8% 10.9% 

Lanxess Baa2/sta 3.7x 2.9x 18.4% 19.8% 

Clariant Ba1/sta 3.0x 3.4x 26.2% 54.4% 

Akzo Nobel Baa1/sta 5.4x 2.1x 20.9% 22.2% 

[1] These figures are based on standard adjustments that Moody’s makes to enable global consistency for issuers reporting under IFRS. For details on 

these adjustments please refer to our rating methodology document “Moody’s Approach to Global Standard Adjustments in the Analysis of Financial 

Statements of Non-Financial Corporations - Part II”, published in February 2006. 

Ba score for “Financial Strength” rating factor reflects EI’s solid operating performance despite difficult market 

conditions ... 

Despite challenging market conditions especially during the first half of fiscal year 2009 with continued 

destocking patterns across the chemicals value chain and pressure on prices whilst most chemicals 

companies were still absorbing high raw material costs through their P&Ls, EI posted a robust 

operating performance. EI’s performance was supported by the strength of its chemicals franchise and 

the overall diversity of its business profile with exposure to chemicals, energy and real estate. 

In 2009, EI reported a decline in sales of 18% year-on-year to €13.1 billion. Both the group’s 

chemicals and energy businesses posted a sharp fall in sales (-15% and -25%, respectively), mainly on 

the back of lower volumes (-10% for the chemicals business), but also as a result of lower prices for 

the chemicals business (-6% year-on year). The real estate business fared well, with a 1% increase in 

revenues year-on-year. 

In the same period, EBITDA at the group level was down 6%, to €2.0 billion, lifting the EBITDA 

margin by 1.9 percentage points, to 15.5%, thanks to an over-proportional reduction in cost of goods 

sold (COGS, -20%) and the group’s implementation of cost-cutting measures including short working 

hours, optimised maintenance expenses, reduced external services and the streamlining of 

administrative functions. Selling, general and administrative expenses (SG&A) fell by 14%, as EI 

maintained a high level of R&D (€300 million) in order not to jeopardise its future developments in 

an industry that is evolving rapidly. In terms of divisional EBITDA performance, the chemicals 

business proved to be the most resilient through the downturn. This division posted a 1% decline in 

EBITDA, lifting its margin by 2.3 percentage points to 16.1%, mainly as a result of cost-cutting 

measures in H1 2009 (3,500 employees, or almost 12% of the division’s workforce, were working 

short hours) and high operating leverage when volumes improved in H2 2009. Meanwhile, the energy 




and real estate divisions posted a decline in EBITDA of 19% and 16%, respectively, notwithstanding 

that the real estate business benefited from a one-off gain on disposals in FY 2008. 

For H1 2010, EI reported a 24% year-on-year increase in sales to €7.8 billion, supported by a sharp 

improvement in the performance of the group’s chemicals business. The chemicals division posted a 

34% increase in revenues, to €6.3 billion, driven by higher volumes (+25%) and prices (+7%). 

Currency effects and changes in the scope of consolidation were more or less neutral (+1% 

respectively), while the revenues of the energy and real estate businesses were flat to slightly down (-1% 

and -3%, respectively). EBITDA was sharply up (+83% to €1.5 billion), again mainly supported by 

the chemicals business (+91% to €1.2 billion). 

FIGURE 9 

Revenues and profitability [1] 

€ MILLION 2009 2008 2007 

Turnover 13,076 15,873 14,444 

Operating Profit 791 898 994 

Operating Profit Margin 6.0% 5.7% 6.9% 

EBITDA [2] 1,814 1,893 2,083 

EBITDA Margin [2] 13.9% 11.9% 14.4% 

EBITA/ Average Assets excl. cash [2] 5.4% 5.6% 6.6% 


these adjustments, please refer to our rating methodology document “Moody’s Approach to Global Standard Adjustments in the Analysis of Financial 

Statements of Non-Financial Corporations – Part II”, published in February 2006. 

[2] EBITDA/EBITA computed as defined in Moody’s Global Chemical Industry Rating Methodology, published in February 2006. 

... and the management’s efforts to improve the group’s cost structure and cash flow generation 

EI rapidly adjusted to deteriorating market conditions at the end of FY 2008, as evidenced by the costcutting 

initiatives that the group launched to protects its earnings. The measures implemented were 

mainly centred on shortened working hours, reduced variable salary payments, reduction in external 

services and on the streamlining of administrative functions. EI achieved costs savings of more than 

€500 million during the course of 2009, of which more than one quarter was of a sustainable nature 

and will be retained. In addition to temporary measures to adjust to depressed market conditions EI 

has also launched a cost optimisation programme, “On Track” which aims to achieve annual 

sustainable cost savings of €500 million per annum by 2012. As referred to in the “Management 

Strategy” section, this programme will be focused on the entire value chain, with savings targeted in 

operations, corporate centre, administration, shared services, insurance and sourcing. The group’s 

various restructuring and cost-cutting measures led to a P&L charge of €103 million in 2009. 

Besides implementing short-term and sustainable cost-savings measures, EI has been focusing on 

protecting its cash flows through the increased control of working capital and capital expenditures 

(capex). EI managed to reduce its net working capital from €3.2 billion in December 2008 to around 

€2.3 billion in December 2009, and reduced its NWC/sales ratio, respectively the days of net working 

capital, significantly. The group has also reduced capex by 33%, to €834 million. 

In 2009, EI exhibited mixed results with regard to cash flow generation. EI’s funds from operations 

(FFO) and retained cash flow (RCF) were under pressure due to the group’s weaker operating 

performance, falling by 18% to €1.1 billion and by 21% to €760 million, respectively. The group’s 




cash flow from operations (CFO) and FCF improved year-on-year, reflecting both company-specific 

measures to reduce capex, working capital days and volumes, which resulted in material working 

capital inflows (€1,230 net working capital inflow in 2009). As a result, EI’s FCF/net debt ratio 

(10.9%) exceeded its RCF/net debt ratio (8.8%). 

Going forward, Moody’s expects EI’s debt and cash flow metrics to improve as a result of: (i) moderate 

organic de-leveraging (FCF is expected to be slightly positive in 2010); (ii) asset disposals (EI is in advanced 

negotiations on the sale of a stake in its energy business); and (iii) improved operating performance and cash 

flow generation (before working capital movements). While Moody’s anticipates some of the proceeds from 

assets disposals being reinvested in the business, we believe that the management of the group will apply 

discretion in the reallocation of proceeds to ensure that it further improves its balance sheet structure and 

achieves an investment-grade financial profile in the medium term. 

FIGURE 10 

Cash flow and coverage ratios [1] 

€ MILLION 2009 2008 2007 

Funds from Operations (FFO) 1,101 1,338 1,369 

Cash Flow from Operations 2,191 471 1,277 

(FFO + Interest expense)/ Interest Expense 2.9x 2.5x 3.0x 

Retained Cash Flow (pre-WC) 760 958 1,073 

Free Cash Flow 944 -1,157 -149 


these adjustments, please refer to our rating methodology document “Moody’s Approach to Global Standard Adjustments in the Analysis of Financial 


FIGURE 11 

Leverage and liquidity [1] 

€ MILLION 2009 2008 2007 

Short-Term Debt 455 1,008 942 

Long-Term Debt 4,040 4,394 3,752 

Total Debt 4,495 5,402 4,694 

Cash & Marketable Securities 885 542 349 

Net Debt 3,610 4,860 4,345 

Net Debt Adjustments: 

Underfunded Pensions 4,193 3,864 3,968 

Operating leases 876 750 558 

Contingent Liabilities/Other -26 -177 -181 

Net Adjusted Debt 8,653 9,297 8,690 

RCF 760 958 1,073 

FCF 944 -1,157 -149 

RCF/Net Adj. Debt 8.8% 10.3% 12.3% 

FCF/Net Adjusted Debt 10.9% -12.4% -1.7% 


these adjustments, please refer to the rating methodology document “Moody’s Approach to Global Standard Adjustments in the Analysis of Financial 




Debt Structure and Group Financing 


The debt structure of EI reflects the group’s relatively short history as well as its conglomerate 

structure, encompassing the previously independent operating companies. Therefore, the group’s 

financing comprises a mixture of debt instruments raised at the parent company level (a €1.5 billion 

unsecured syndicated revolving credit facility signed in June 2010 and a €750 million senior unsecured 

bond) and at operating subsidiary level (a €1.25 billion senior unsecured bond issued by Evonik 

Degussa GmbH, ca. €1.2 billion worth of non-recourse project financing in the energy business and 

ca. €500 million worth of mortgage-backed real estate loans in the real estate business). The absence of 

notching of the €750 million senior unsecured bond from the CFR reflects Moody’s expectation that: 

(i) EI will increasingly act as the central funding entity for the group, providing liquidity to operating 

subsidiaries through intra-group cash pooling arrangements; and (ii) new debt will be mainly raised at 

the parent company level, thereby reducing the structural subordination from legacy debt located at 

the operating subsidiary level. 

EI has access to a €1.5 billion undrawn unsecured revolver signed in June 2010 with three tranches 

maturing in 2012, 2013 and 2015. The facility contains financial covenants with ample headroom. 

EI benefits from a comfortable maturity profile with no major maturities before FY 2013, when the 

€1.25 billion senior unsecured bond at Evonik Degussa GmbH matures. 

Liquidity 

EI’s liquidity position is strong. The group’s liquidity is supported by large cash balances (EUR1,359 

million at 30 th June 2010) and access to a EUR1.5 billion unsecured syndicated revolving credit 

facility (undrawn at 30 th June 2010). Operating cash outlays for the coming twelve months, which 

comprise mainly capital expenditures, working capital, dividends are expected to be largely covered by 

operating cash flows. 

Moody’s Related Research 

Industry Outlook: 

» North American and EMEA Chemicals Stable as Industrial Demand Strengthens, May 2010 

(125347) 

Rating Methodologies: 

» Moody’s Approach to Global Standard Adjustments in the Analysis of Financial Statements of 

Non-Financial Corporations – Part II”, February 2006 (96729) 

» Global Chemical Industry, December 2009 (121271) 

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of 

this report and that more recent reports may be available. All research may not be available to all clients. 



Report Number: 127540 

Authors 

Stanislas Duquesnoy 

Max Huefner 

Senior Production Associate 

Wendy Kroeker 


© 2010 Moody’s Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. 

CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (“MIS”) CURRENT OPINIONS OF THE RELATIVE FUTURE 

CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS 

THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY 

ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, 

INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE 

NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR 

FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR 

SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR 

INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR 

WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, 

HOLDING, OR SALE. 

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND 

NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, 

TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN 

WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S 

PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate 

and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained 

herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in 

assigning a credit rating is of sufficient quality and from sources Moody’s considers to be reliable, including, when appropriate, 

independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or 

validate information received in the rating process. Under no circumstances shall MOODY’S have any liability to any person or entity 

for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other 

circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in 

connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any 

such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including 

without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of 

or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, 

constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not 

statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must 

make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR 

IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE 

OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER 

WHATSOEVER. 

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt 

securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS 

have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 

to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and 

rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between 

entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is 

posted annually at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and 

Shareholder Affiliation Policy.” 

Any publication into Australia of this document is by MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 

657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to “wholesale 

clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within 

Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and 

that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” 

within the meaning of section 761G of the Corporations Act 2001.

Evonik Industries AG

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?