Earnings Release • Aug 3, 2023
Earnings Release
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August 3, 2023 at 7 a.m. CEST
Quality results with strong cash generation and improved margins in a weak demand environment; 2023 full year profit and cash guidance confirmed
| Second quarter | First half | |||||||
|---|---|---|---|---|---|---|---|---|
| Underlying (in € million) | 2023 | 2022 | % yoy % organic | 2023 | 2022 | % yoy % organic | ||
| Net sales | 3,087 | 3,477 | -11.2% | -9.2% | 6,254 | 6,532 | -4.3% | -3.9% |
| EBITDA | 790 | 864 | -8.6% | -2.6% | 1,629 | 1,576 | +3.4% | +8.7% |
| EBITDA margin | 25.6% | 24.8% | +0.7pp | - | 26.1% | 24.1% | +1.9pp | - |
| 1 FCF |
556 | 257 | n.m. | - | 681 | 473 | +44.2% | - |
| FCF conversion ratio (LTM) | 40.0% | 34.5% | +5.5pp | - | 40.0% | 34.5% | +5.5pp | - |
| ROCE (LTM) | 16.3% | 13.7% | +2.6pp | - | 16.3% | 13.7% | +2.6pp | - |
"I'm pleased that we continue to meet our customers' needs whilst maintaining strong net pricing across the majority of our portfolio. The accelerated achievement of our 2024 target of €500m in structural costs savings helped to sustain our industry-leading margins notwithstanding the weaker demand environment. We increased investments in the future success of EssentialCo and SpecialtyCo, reinforced working capital discipline and delivered €556 million of free cash flow in the quarter. We remain focused on adapting the posture of all our businesses with speed as we continue to face a particularly challenging macro environment, ready to deploy all levers within our control to maintain our competitive edge and drive superior performance. We recently announced target capital structures of the future entities, and we are on track to take the next steps in our journey to separate into two strong, investment-grade rated companies later this year."
Results for the first half 2023 are in line with expectations. The macroeconomic environment remains challenging and persistent demand weakness is expected to continue to weigh on volume recovery across most markets.
With this macroeconomic context, the company expects to maintain strong margins and cost discipline. Accordingly, it confirms its full year 2023 EBITDA guidance of +2% to -5% organic growth versus 2022 1 . This is equivalent to approximately €2.9 billion to €3.1 billion at prevailing foreign exchange rates. The low end of the guidance range assumes volumes stabilize in the second half and the high end of the range assumes modest volume recovery in the second half.
The company continues to invest for growth and estimates a minimum of €900 million in Free Cash Flow for the full year, reflecting its investments in capex and disciplined working capital in a lower volume environment.
| Q2 | Q2 | % | H1 | H1 | % | |
|---|---|---|---|---|---|---|
| Underlying, in € million | 2023 | 2022 | yoy | 2023 | 2022 | yoy |
| Net sales | 3,087 | 3,477 | -11.2% | 6,254 | 6,532 | -4.3% |
| EBITDA | 790 | 864 | -8.6% | 1,629 | 1,576 | +3.4% |
| EBITDA margin | 25.6% | 24.8% | +0.7pp | 26.1% | 24.1% | +1.9pp |
| EBIT | 599 | 674 | -11.2% | 1,241 | 1,200 | +3.4% |
| Net financial charges | -49 | -57 | +13.1% | -98 | -106 | +7.7% |
| Income tax expenses | -120 | -141 | +15.5% | -251 | -238 | -5.5% |
| Tax rate | 22.5% | 23.7% | -1.2pp | |||
| Profit / (loss) attributable to Solvay shareholders | 426 | 470 | -9.2% | 886 | 839 | +5.6% |
| Basic EPS | 4.10 | 4.53 | -9.4% | 8.53 | 8.09 | +5.4% |
| Basic EPS from continuing operations (in €) | 4.10 | 4.51 | -9.0% | 8.53 | 8.06 | +5.8% |
| Capex | 239 | 180 | +32.8% | 451 | 331 | +36.4% |
| FCF to Solvay shareholders from continuing operations | 556 | 257 | n.m. | 681 | 473 | +44.2% |
| FCF conversion ratio (LTM) | 40.0% | 34.5% | +5.5pp | 40.0% | 34.5% | +5.5pp |
| Net financial debt | 3,052 | 4,047 | -24.6% | |||
| Underlying leverage ratio | 0.9 | 1.5 | -36.9% |
Net sales of €3,087 million in Q2 2023 was lower by -11.2% versus Q2 2022 (-9.2% organically) due to continued pricing actions more than offset by lower volumes, and modest negative currency effects across the Group. Lower volumes were due to softer demand across several end markets including batteries/automotive, construction, and consumer-driven industries. Sequentially, sales were down -3% versus Q1 2023 as volumes declined most notably in Aroma and Novecare, consistent with the consumer sector, and to a lesser extent in Soda Ash, mainly in seaborne markets. First half net sales were down -3.9% organically, as higher prices relative to H1 2022 were more than offset by lower volumes.
Underlying EBITDA of €790 million in Q2 2023 was lower by -8.6% as a result of lower volumes, higher fixed costs, negative scope effect related to the Rusvinyl disposal in Q1 2023, and foreign exchange, partly offset by higher pricing. On an organic basis, excluding the impacts of scope and foreign exchange, underlying EBITDA was lower by -2.6%. EBITDA margin increased slightly to 25.6% for the second quarter mainly as a result of positive net pricing and mix effects, offsetting lower volumes. EBITDA margin is +0.7pp higher than in Q2 2022, and +1.7pp higher when excluding the contribution of Rusvinyl last year. Sequentially, the EBITDA decrease was contained to -5.9%, which was better than expected thanks to a good month of June. First half 2023 EBITDA increased by +8.7% organically compared to the first half 2022.
1 FY 2022 reported underlying EBITDA of €3,229 million included profits from Rusvinyl, which was divested in Q1 2023, and reflected stronger \$/€ exchange rates, which together total €180 million assuming current exchange rates continue into H2. FY 2022 underlying EBITDA on a comparable basis to 2023 is €3,050 million.
Free cash flow to shareholders from continuing operations increased from €257 million in Q2 2022 to €556 million in the second quarter of 2023, mainly driven by disciplined working capital including the benefit of inventory reduction and sustained low overdues. Free cash flow in the first half of 2023 was €681 million, +44% higher than first half 2022.
Underlying net financial debt decreased by €539 million compared to the end of 2022, mainly due to the strong operational free cash flow of €681 million. Other main items included €432 million of proceeds from the sale of the Rusvinyl joint venture and the dividend payment of €421 million. The leverage ratio is at a historical low of 0.9x.
Provisions increased by €248 million in the quarter, primarily reflecting an additional €229 million provision resulting from the PFAS settlement reached in June. The PFAS provision represents the estimated expense and does not reflect expected recoveries from third party contributors or potential insurance proceeds, the combination of which could significantly reduce the resultant costs.
| (in € million) | H1 2022 | Scope | Forex | Volume | Price | H1 2023 | Yoy % | Organic % |
|---|---|---|---|---|---|---|---|---|
| Materials | 1,927 | - | -25 | -33 | 245 | 2,114 | +9.7% | +11.1% |
| Chemicals | 2,158 | 28 | 7 | -313 | 237 | 2,117 | -1.9% | -3.5% |
| Solutions | 2,443 | -22 | -16 | -475 | 83 | 2.013 | -17.6% | -16.3% |
| Corporate | 4 | - | - | 6 | 10 | n.m. | n.m. | |
| Solvay | 6,532 | 6 | -34 | -816 | 565 | 6,254 | -4.3% | -3.9% |
| (in € million) | Q2 2022 | Scope | Forex | Volume | Price | Q2 2023 | Yoy % | Organic % |
|---|---|---|---|---|---|---|---|---|
| Materials | 1,048 | - | -30 | -17 | 91 | 1,092 | +4.2% | +7.3% |
| Chemicals | 1,118 | 9 | -14 | -156 | 57 | 1,014 | -9.3% | -8.9% |
| Solutions | 1,309 | -10 | -31 | -289 | -4 | 975 | -25.5% | -23.1% |
| Corporate | 2 | - | - | 5 | - | 7 | n.m. | n.m. |
| Solvay | 3,477 | -1 | -74 | -458 | 144 | 3,087 | -11.2% | -9.2% |
Segment sales in Q2 2023 increased +4.2% (+7.3% organically) driven by higher prices (+9%) more than offsetting lower volumes (-2%).
Sales in Specialty Polymers increased +1.4% (+4.7% organically) compared to the second quarter of 2022, and +6.3% sequentially versus Q1 2023 driven by sustained pricing power. Volumes were slightly down for the quarter due mainly to batteries for auto as customer destocking continued, while polymers used in semiconductors grew in the quarter.
Sales in Composite Materials were up +13.7% (+15.9% organically) compared to Q2 2022, and +8.7% sequentially, supported by both higher volumes and prices as the aerospace market recovery continues. Volume growth was driven by increased build rates of commercial aircraft as well as growth in space & defense.
Segment EBITDA increased +7.2% (+9.4% organically) compared with Q2 2022. The improvement was driven by higher prices in the context of increased variable costs. This led to an EBITDA margin of 33.4% in the second quarter or +0.9 points year on year.
Segment sales in Q2 2023 were lower by -9.3% (-8.9% organically) compared to Q2 2022, primarily due to lower volumes (-14%) partly offset by higher prices (+5%).
Coatis sales were, as expected, lower by -23.1% (-24.4% organically) compared to a strong Q2 2022 on lower demand of intermediates in Brazil as well as lower demand in Europe. Silica sales were down -8.6% (-7.1% organically) driven by lower volumes in the tire market due to soft demand in automotive. Peroxides sales were lower by -10.3% (-8.8% organically) driven by soft demand in the pulp & paper market and HPPO used in construction, while sales into electronics, food, and disinfection remained stable.
Soda Ash & Derivatives sales were down by -3.0% (-2.6% organically) due to reduced demand for soda ash used in construction and more competition on the seaborne market. Demand for bicarbonate into feed and flue gas markets was also weaker. Higher contract pricing was sustained, which partially offset the reduced volumes.
Segment EBITDA was down by -2.3% versus Q2 2022 after the disposal of Rusvinyl in Q1 2023, and +10.3% at constant scope and currency, as higher prices and lower variable costs offset the lower volumes. The Chemicals segment delivered an EBITDA margin of 30.4% in the second quarter or +2.2 points year on year.
Sales in the second quarter of 2023 were down by -25.5% (-23.1% organically) on lower volumes of -22%, while pricing was essentially flat for the segment.
Sales of Aroma dropped by -46.7% (-45.8% organically) relative to Q2 2022 and was the largest contributor to the volume decline in the segment due to lower demand for synthetic vanillin used in food, flavors & fragrances markets as a result of customer destocking and strong competition. There was a general softening of demand across consumer and construction markets, and this impacted Novecare broadly and more notably in the Agro market, where major customers destocked across the entire value chain. This drove Novecare sales -33.2% lower (-30.1% organically).
Oil & gas sales were -18.4% lower in the quarter (-14.2% organically), driven by lower drilling activity in the United States due to the decline in natural gas prices. Technology Solutions sales were -15.2% lower (-14.2% organically) compared to Q2 2022 as growth in mining was offset by lower phosphorus sales to electronics. Special Chem sales were down -10.6% (-8.6% organically), also driven by weak demand in electronics.
As a result of the lower volumes, second quarter EBITDA in the segment was down by -42.1% (-39.8% organically). EBITDA margin in the segment was 17.3% in Q2 2023 or down 5.0 points year on year due to the impact of lower volumes on a stable fixed cost base.
Corporate and Business Services contributed €-52 million to EBITDA, an improvement of 37.8% compared to Q2 2022 thanks to successful cost control and a positive contribution from the third party energy supply business.
| Underlying | ||||||||
|---|---|---|---|---|---|---|---|---|
| (in € million) | Q2 2023 | Q2 2022 | % yoy | % organic | H1 2023 | H1 2022 | % yoy | % organic |
| Net sales | 3,087 | 3,477 | -11.2% | -9.2% | 6,254 | 6,532 | -4.3% | -3.9% |
| Materials | 1,092 | 1,048 | +4.2% | +7.3% | 2,114 | 1,927 | +9.7% | +11.1% |
| Specialty Polymers | 821 | 810 | +1.4% | +4.7% | 1,594 | 1,481 | +7.6% | +9.5% |
| Composite Materials | 271 | 238 | +13.7% | +15.9% | 520 | 446 | +16.7% | +16.6% |
| Chemicals | 1,014 | 1,118 | -9.3% | -8.9% | 2,117 | 2,158 | -1.9% | -3.5% |
| Soda Ash & Derivatives | 518 | 535 | -3.0% | –2.6% | 1,116 | 1,019 | +9.5% | +7.9% |
| Peroxides | 161 | 179 | -10.3% | -8.8% | 332 | 358 | -7.4% | -7.2% |
| Coatis | 182 | 237 | -23.1% | –24.4% | 354 | 460 | -23.1% | -26.9% |
| Silica | 153 | 168 | -8.6% | –7.1% | 316 | 320 | -1.3% | -0.7% |
| Solutions | 975 | 1,309 | -25.5% | -23.1% | 2,013 | 2,443 | -17.6% | -16.3% |
| Novecare | 338 | 506 | -33.2% | –30.1% | 724 | 958 | -24.5% | -22.3% |
| Special Chem | 255 | 285 | -10.6% | –8.6% | 505 | 525 | -3.7% | -2.6% |
| Technology Solutions | 176 | 207 | -15.2% | –14.2% | 357 | 362 | -1.1% | -1.7% |
| Aroma Performance | 89 | 167 | -46.7% | -45.8% | 188 | 308 | -39.1% | -38.9% |
| Oil & Gas | 117 | 143 | -18.4% | -14.2% | 238 | 290 | -17.9% | -16.1% |
| Corporate | 7 | 2 | n.m. | n.m. | 10 | 4 | n.m | n.m |
| EBITDA | 790 | 864 | -8.6% | -2.6% | 1,629 | 1,576 | +3.4% | +8.7% |
| Materials | 365 | 340 | +7.2% | +9.4% | 727 | 599 | +21.3% | +20.9% |
| Chemicals | 308 | 316 | -2.3% | +10.3% | 606 | 595 | +1.9% | +14.4% |
| Solutions | 169 | 292 | -42.1% | -39.8% | 388 | 530 | -26.8% | -25.5% |
| Corporate | -52 | -84 | +37.8% | - | -92 | -148 | +38.1% | - |
| EBITDA margin | 25.6% | 24.8% | +0.7pp | - | 26.1% | 24.1% | +1.9pp | - |
| Materials | 33.4% | 32.5% | +0.9pp | - | 34.4% | 31.1% | +3.3pp | - |
| Chemicals | 30.4% | 28.2% | +2.2pp | - | 28.6% | 27.6% | +1.1pp | - |
| Solutions | 17.3% | 22.3% | -5.0pp | - | 19.3% | 21.7% | -2.4pp | - |
| Q2 key figures | IFRS | Underlying | |||||
|---|---|---|---|---|---|---|---|
| (in € million) | Q2 2023 | Q2 2022 | % yoy | Q2 2023 | Q2 2022 | % yoy | |
| Net sales | 3,087 | 3,477 | -11.2% | 3,087 | 3,477 | -11.2% | |
| EBITDA | 461 | 1,123 | -59.0% | 790 | 864 | -8.6% | |
| EBITDA margin | 25.6% | 24.8% | +0.7pp | ||||
| EBIT | 232 | 895 | -74.1% | 599 | 674 | -11.2% | |
| Net financial charges | -29 | -33 | +12.5% | -49 | -57 | +13.1% | |
| Income tax expenses | -3 | -148 | n.m. | -120 | -141 | +15.5% | |
| Profit / (loss) attributable to Solvay shareholders | 197 | 705 | -72.1% | 426 | 470 | -9.2% | |
| Basic EPS (in €) | 1.89 | 6.80 | -72.2% | 4.10 | 4.53 | -9.4% | |
| of which from continuing operations | 1.89 | 6.80 | -72.1% | 4.10 | 4.51 | -9.0% |
| H1 key figures | IFRS | Underlying | |||||
|---|---|---|---|---|---|---|---|
| (in € million) | H1 2023 | H1 2022 | % yoy | H1 2023 | H1 2022 | % yoy | |
| Net sales | 6,254 | 6,532 | -4.3% | 6,254 | 6,532 | -4.3% | |
| EBITDA | 1,089 | 1,802 | -39.6% | 1,629 | 1,576 | +3.4% | |
| EBITDA margin | 26.1% | 24.1% | +1.9pp | ||||
| EBIT | 625 | 1,352 | -53.7% | 1,241 | 1,200 | +3.4% | |
| Net financial charges | -60 | -62 | +4.5% | -98 | -106 | +7.7% | |
| Income tax expenses | -117 | -227 | +48.6%. | -251 | -238 | -5.5% | |
| Tax rate | 22.5% | 23.7% | -1.2pp | ||||
| Profit / (loss) attributable to Solvay shareholders | 443 | 1,043 | -57.5% | 886 | 839 | +5.6% | |
| Basic EPS (in €) | 4.27 | 10.05 | -57.6% | 8.53 | 8.09 | +5.4% | |
| of which from continuing operations | 4.27 | 10.05 | -57.5% | 8.53 | 8.06 | +5.8% |
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Link to financial report
(in € million)
Net Sales
Net Sales
Solvay first half year 2023 results – August 3, 2023 9
EPS is earnings per share.
Free cash flow to Solvay shareholders: Free cash flow after payment of net interests, coupons of perpetual hybrid bonds and dividends to non-controlling interests. This represents the cash flow available to Solvay shareholders, to pay their dividend and/or to reduce the net financial debt.
Free cash flow conversion ratio is calculated as the ratio of free cash flow to Solvay shareholders of the last rolling 12 months (before netting of dividends paid to non-controlling interests) to the underlying EBITDA of the last rolling 12 months.
Last twelve months (LTM) refers to the timeframe of the immediately preceding 12 months.
Leverage ratio: Net debt / underlying EBITDA of last 12 months. Underlying leverage ratio = underlying net debt / underlying EBITDA of last 12 months.
Net Pricing: The difference between the change in sales prices versus the change in variable costs.
Organic growth: growth of Net sales or underlying EBITDA excluding scope changes and forex conversion effects. The calculation is made by rebasing the prior period at the business scope and forex conversion rate of the current period.
ROCE: Return on Capital Employed, calculated as the ratio between underlying EBIT (before adjustment for the amortization of PPA) and capital employed. Capital employed consists of net working capital, tangible and intangible assets, goodwill, rights-of-use assets, investments in associates & joint ventures and other investments, and is taken as the average of the situation at the end of the last 4 quarters.
Underlying figures adjust IFRS figures for the non-cash Purchase Price Allocation (PPA) accounting impacts related to acquisitions, for the coupons of perpetual hybrid bonds classified as equity under IFRS but treated as debt in the underlying statements, and for other elements to generate a measure that avoids distortion and facilitates the appreciation of performance and comparability of results over time.
Underlying net financial charges include the coupons on perpetual hybrid bonds (accounted as dividends under IFRS, and thereby excluded from the income statement), as well as the financial charges and realized foreign exchange losses from the RusVinyl joint venture (part of earnings from associates under IFRS, and thereby included in the IFRS EBITDA).
Underlying net financial debt includes the perpetual hybrid bonds, accounted for as equity under IFRS.
Please refer to the financial report for additional definitions.
Jodi Allen +1 609 860 4608
Geoffroy d'Oultremont +32 2 320 7975
Bisser Alexandrov +32 2 264 36 87
Imtiyaz Lokhandwala +1 609 860 3959
Nathalie Van Ypersele +32 478 20 10 62
Martial Tardy +32 475 83 01 14
Peter Boelaert +32 479 30 91 59
This press release may contain forward-looking information. Forward-looking statements describe expectations, plans, strategies, goals, future events or intentions. The achievement of forward-looking statements contained in this press release is subject to risks and uncertainties relating to a number of factors, including general economic factors, interest rate and foreign currency exchange rate fluctuations, changing market conditions, product competition, the nature of product development, impact of acquisitions and divestitures, restructurings, products withdrawals, regulatory approval processes, all-in scenario of R&I projects and other unusual items. Consequently, actual results or future events may differ materially from those expressed or implied by such forward-looking statements. Should known or unknown risks or uncertainties materialize, or should our assumptions prove inaccurate, actual results could vary materially from those anticipated. The Company undertakes no obligation to publicly update or revise any forward-looking statements.
Solvay is a science company whose technologies bring benefits to many aspects of daily life. With more than 22,000 employees in 61 countries, Solvay bonds people, ideas and elements to reinvent progress. The Group seeks to create sustainable shared value for all, notably through its Solvay One Planet roadmap crafted around three pillars: protecting the climate, preserving resources and fostering a better life. The Group's innovative solutions contribute to safer, cleaner, and more sustainable products found in homes, food and consumer goods, planes, cars, batteries, smart devices, health care applications, water and air purification systems. Founded in 1863, Solvay today ranks among the world's top three companies for the vast majority of its activities and delivered net sales of €13.4 billion in 2022. Solvay is listed on Euronext Brussels and Paris (SOLB). Learn more at www.solvay.com.
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