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Investing.com -- Moody’s Ratings has revised the outlook for Evonik Industries AG (ETR:EVKn) from stable to positive, while confirming the company’s long-term issuer rating at Baa2. Alongside this, Moody’s has also affirmed the Baa2 ratings of all of Evonik’s outstanding senior unsecured notes, the (P)Baa2 rating of Evonik’s senior unsecured MTN programme, and the Ba1 rating of Evonik’s outstanding junior subordinated hybrid instrument.
The revision in outlook to positive is based on Moody’s expectation that, despite a challenging macroeconomic environment, Evonik will maintain credit metrics consistent with a higher rating on a sustainable basis. Moody’s anticipates that Evonik will continue to optimize its cost base and refine its product portfolio, focusing on products and markets with resilient demand, favorable pricing patterns, and positive demand fundamentals.
For the twelve months ending in March 2025, Evonik’s Moody’s adjusted gross leverage and RCF/Net debt were 2.6x and 28%, respectively. These credit metrics, despite restructuring charges relating to Evonik’s Tailor Made program and other cost-saving initiatives, are at the stronger end of Moody’s expectations for the Baa2 rating category.
Moody’s expects that Evonik will increase EBITDA generation as it realizes cost savings from ongoing restructuring initiatives. It is also expected that Evonik’s EBITDA generation in 2025 will benefit from moderately improving volumes, which should support an improvement in its leverage ratio to clearly below 2.5x and its RCF/Net Debt to above 30%.
However, Evonik’s financial flexibility is somewhat limited by a relatively high and stable dividend payout, resulting in a free cash flow (FCF) after dividends fluctuating around break-even levels. Despite these high dividends and expected cash outflows related to its restructuring program, Moody’s expects Evonik’s FCF to remain around break-even levels, leading to a largely unchanged gross debt position.
As of March 2025, Evonik demonstrated excellent liquidity, with around €1,215 million of cash & marketable securities on its balance sheet, full availability under its €1.75 billion revolving credit facility, and €800 million additional bilateral credit facilities. Along with expected FFO generation, these sources comfortably cover expected capital expenditures, dividend payments, and swings in working capital.
Moody’s suggests that an upgrade of Evonik’s rating could occur if the company maintains Moody’s adjusted gross leverage below 2.5x on a sustained basis and if its RCF/net debt exceeds mid-20s in percentage terms through the cycle.
While a downgrade is currently unlikely due to the positive outlook, Moody’s could consider downgrading Evonik’s rating if the company fails to maintain its RCF/net debt above 15% on a sustained basis. An increase in Moody’s adjusted gross debt to EBITDA to above 3x on a sustained basis would also negatively impact the rating.
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