Evonik's Strategic Pivot: Cost-Cutting at Home Fuels Asian Ambitions

Evonik launches austerity plan with 2,000 job cuts and pauses M&A to fund growth in China's high-margin cosmetics market, aiming to improve weak ROCE.

The German specialty chemicals group Evonik is embarking on a dual-track strategy, marked by significant austerity measures in Europe and a targeted expansion in Asia. This approach aims to reallocate financial resources toward capturing a larger share of the high-margin Asian cosmetics market, with recent operational decisions clearly reflecting this split focus.

Profitability Pressures Drive Restructuring

The urgency behind this strategic shift becomes clear when examining the company's recent financial performance. Evonik's return on capital employed (ROCE) recently declined to 6.1%, a figure substantially below its medium-term target of 11%. This weak profitability is forcing difficult decisions, including impacts on shareholder returns. For the past fiscal year, the proposed dividend has been reduced to 1.00 euro per share.

To address this, the company has initiated a stringent global efficiency program dubbed "Evonik Tailor Made." The plan involves cutting up to 2,000 positions worldwide, with approximately 1,500 of those reductions occurring in its home market of Germany. Management expects these measures to yield annual savings of about 400 million euros starting in 2026. Furthermore, all merger and acquisition activities have been put on hold until 2027, prioritizing organic growth and cost discipline above other strategic options.

Building a Local Presence in China's Booming Market

Concurrently, Evonik is aggressively pursuing growth in Asia. The company is currently showcasing its capabilities at the PCHi industry fair in Hangzhou, deliberately positioning itself as a local supplier for China's dynamic cosmetics sector. Supporting this push, a new innovation center is scheduled to open in Shanghai later this year.

The underlying strategy is explicit: to increasingly develop and manufacture products locally, tailored to specific Asian market needs. China already contributes roughly 1.4 billion euros to the group's total revenue, and this local-for-local model is designed to deepen that foothold. To provide immediate support for margins amid the broader restructuring, management has also implemented an immediate global price increase of 10% for its animal feed product, MetAMINO.

Market Caution and a Cautious Outlook

Investors have viewed this challenging balance between restructuring and expansion with caution. Although the stock has seen a slight positive trend since the start of the year, it remains down approximately 34% year-on-year, closing at 14.34 euros in the latest session.

Management acknowledges the uncertain economic environment with an unusually wide guidance range for adjusted EBITDA in 2026, forecasting between 1.7 and 2.0 billion euros. Starting that same year, a new dividend policy will take effect, targeting a payout ratio of 40% to 60% of adjusted net income to enhance financial flexibility. The path to restoring Evonik's former earnings strength appears to be one requiring considerable patience, as the company subordinates all other strategic avenues to its twin goals of Asian growth and European cost reduction.