Earnings Release • May 6, 2020
Earnings Release
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Inside/regulated information May 6, 2020 at 7 a.m
| Underlying, (in $\epsilon$ million) | 01 2020 | 01 2019 | $%$ yoy | % organic |
|---|---|---|---|---|
| Net sales | 2,474 | 2,571 | $-3.8\%$ | $-4.3%$ |
| EBITDA | 569 | 571 | $-0.4\%$ | $-1.2%$ |
| EBITDA margin | 23.0% | 22.2% | $+0.8$ pp | |
| FCF to shareholders from continuing operations |
202 | (91) | n.m. | |
| FCF conversion ratio | 40.4% | 17.7% | +22.7pp | - |
"Our highest priority is to protect the health and safety of our employees during these unprecedented times, while remaining focused on safely serving our customers. The actions we took in particular on costs and cash supported our strong performance, protected our industry-leading margins and exceeded our profit and cash expectations. Looking forward, headwinds are increasing and we expect second quarter results to be substantially lower. That said, our decisive measures will set us on the path to rebound and resume our growth commitments at the right time," said Ilham Kadri, Solvay CEO.
On April 9, Solvay withdrew its full year quidance for 2020 due to the effects of the heightened uncertainty of the COVID-19 pandemic on key end markets.
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| Underlying, in $\epsilon$ million | 01 2020 | 01 2019 | $%$ yoy |
|---|---|---|---|
| Net sales | 2,474 | 2,571 | $-3.8%$ |
| EBITDA | 569 | 571 | $-0.4%$ |
| EBITDA margin | 23.0% | 22.2% | $+0.8$ pp |
| EBIT | 371 | 376 | $-1.4%$ |
| Net financial charges | (68) | (88) | $+22%$ |
| Income tax expenses | (76) | (72) | $-5.6%$ |
| Tax rate | 26.4% | 26.1% | $+0.3$ pp |
| Profit / (loss) attributable to Solvay shareholders | 236 | 289 | $-18%$ |
| Basic EPS from continuing operations (in $\epsilon$ ) | 2.08 | 2.01 | $+3.7%$ |
| Capex in continuing operations | (163) | (179) | $+8.8%$ |
| FCF to Solvay shareholders from continuing operations | 202 | (91) | n.m. |
| FCF to Solvay shareholders (total) | 197 | (32) | n.m. |
| FCF conversion ratio | 40.4% | 17.7% | $+22.7pp$ |
| Net financial debt | (4, 673) |
Net sales were down -3.8% including changes in scope and forex, or -4.3% organically due to low volumes (-4.9%) mainly in oil and gas and from the 737MAX program, partially offset by pricing (+0.5%) primarily in the Chemicals segment.
Underlying EBITDA was down -0.4% including forex, and -1.2% organically, driven by the resilient performance of the Chemicals segment, which partially offset lower volumes in Solutions due to the oil and gas industry and in Materials due to commercial aerospace.
Free cash flow to Solvay shareholders from continuing operations rose strongly to reach $\epsilon$ 202 million in the first quarter of 2020 (€197 million including discontinued operations) versus -€91 million last year. Drivers of strong performance included continued discipline in working capital management, lower costs from group-wide programs, one-off tax deductions for €65 million in continuing operations associated with the use of the proceeds of the polvamide divestment, and 9% lower capital expenditures.
Underlying net financial debt decreased €0.7 billion to €(4.7) billion at the end of March 2020, thanks to the proceeds from the sale of the Polyamide assets (partially used for additional voluntary contributions to pension plans). In addition, the free cash flow to Solvay shareholders was strong at €197 million and fully covered the interim dividend payment to shareholders.
Provisions decreased €0.5 billion to €(3.2) billion as a result of €460 million of additional voluntary pension contributions in France and the United States, more than offsetting an operational increase related mainly to the ongoing restructuring program.
| (in $\epsilon$ million) | 01 2019 | Scope | Forex | Volume | Price | 01 2020 | Yoy % Organic % | |
|---|---|---|---|---|---|---|---|---|
| Materials | 801 | $\overline{\phantom{a}}$ | 12 | (27) | 789 | $-1.5%$ | $-2.9%$ | |
| Chemicals | 831 | ດ | 13) | (38) | 12 | 800 | $-3.7%$ | $-3.2%$ |
| Solutions | 938 | $\overline{\phantom{0}}$ | (59) | 2) | 883 | $-5.8%$ | $-6.5%$ | |
| Corporate | $\overline{\phantom{a}}$ | $\overline{\phantom{0}}$ | $\sim$ | $\overline{\phantom{0}}$ | $\sim$ | - | ||
| Solvay | 2,571 | $\bullet$ | 6 | (125) | 13 | 2,474 | $-3.8%$ | $-4.3%$ |
First quarter net sales were down -1.5%, including forex, and down -2.9% organically due to lower volumes.
Specialty Polymers sales were in line with first quarter 2019 levels and up sequentially versus the fourth quarter due to solid demand in core markets, including automotive, healthcare, and consumer goods, while electronics showed mixed results.
Composite Materials sales were down -3.9% due primarily to the anticipated production stoppage of the 737MAX program, partially offset by increased demand for military aircraft while other commercial aircraft were stable.
First auarter underlying EBITDA decreased -3.3% (-5.0% organically), with price and strict cost reduction measures offsetting a significant part of the volume decline. Margins year on year declined -0.5% to 28.9% but are up on a sequential basis.
First quarter net sales were down -3.7% including forex and scope changes, and down -3.2% organically due to lower volumes, partially offset by higher prices.
In Soda Ash, sales were down -4.2% due to volume declines in building and construction partially offset by good demand in consumer goods and container glass in addition to stable pricing.
Peroxides sales were resilient as demand remained solid amid a supportive pricing environment.
First quarter underlying EBITDA increased +5.4% (+5.9% organically) due to higher prices and fixed cost reductions across the segment, and margin increased $+2.5$ pp to 29.8%.
First quarter net sales were down -5.8% including forex, and down -6.5% organically.
Sales in Novecare were down -12%, with significantly lower demand in the oil and gas industry outweighing the good performance in other markets including home and personal care, agro, and coatings.
In the other global business units, good demand in semiconductors, mining, and food offset weakness in thermal insulation and other industrial markets.
First quarter underlying EBITDA was down -4.3% (-5.5% organically) due primarily to lower volume in the oil and gas sector. Margins Increased by $+0.2$ pp to 17.4% as a result of the continuous cost control measures.
| Underlying | ||||||
|---|---|---|---|---|---|---|
| (in $\epsilon$ million) | Q1 2020 | 01 2019 | % yoy | |||
| Net sales | 2,474 | 2,571 | $-3.8%$ | |||
| Materials | 789 | 801 | $-1.5%$ | |||
| Specialty Polymers | 481 | 480 | $+0.1%$ | |||
| Composite Materials | 308 | 321 | $-3.9%$ | |||
| Chemicals | 800 | 831 | $-3.7%$ | |||
| Soda Ash & Derivatives | 390 | 408 | $-4.2%$ | |||
| Peroxides | 172 | 172 | $-0.1%$ | |||
| Coatis | 127 | 138 | $-8.1%$ | |||
| Silica | 111 | 113 | $-1.8%$ | |||
| Solutions | 883 | 938 | $-5.8%$ | |||
| Novecare | 421 | 478 | $-12%$ | |||
| Special Chem | 206 | 210 | $-2.0%$ | |||
| Technology Solutions | 140 | 144 | $-2.2%$ | |||
| Aroma Performance | 116 | 106 | $+9.0%$ | |||
| Corporate | $\mathbf{1}$ | $\overline{2}$ | $-27%$ | |||
| EBITDA | 569 | 571 | $-0.4%$ | |||
| Materials | 228 | 236 | $-3.3%$ | |||
| Chemicals | 239 | 226 | $+5.4%$ | |||
| Solutions | 154 | 161 | $-4.3%$ | |||
| Corporate | $-52$ | $-52$ | $+0.8%$ | |||
| EBITDA margin | 23.0% | 22.2% | $+0.8pp$ | |||
| Materials | 28.9% | 29.4% | $-0.5pp$ | |||
| Chemicals | 29.8% | 27.3% | $+2.5pp$ | |||
| Solutions | 17.4% | 17.2% | $+0.2pp$ |
| Q1 key figures | IFRS | Underlying | |||||
|---|---|---|---|---|---|---|---|
| (in $\epsilon$ million) | 01 2020 | 01 2019 | 1% yoy | Q1 2020 | Q1 2019 | $\frac{9}{6}$ yoy | |
| Net sales | 2,474 | 2,571 | $-3.8%$ | 2,474 | 2,571 | -3.8% | |
| EBITDA | 485 | 530 | $-8.4%$ | 569 | 571 | $-0.4%$ | |
| EBITDA margin | 23.0% | 22.2% | $+0.8$ pp | ||||
| EBIT | 233 | 278 | $-16%$ | 371 | 376 | $-1.4%$ | |
| Net financial charges | (27) | (54) | $+49%$ | (68) | (88) | $+22%$ | |
| Income tax expenses | (47) | (53) | $+10%$ | (76) | (72) | $-5.6%$ | |
| Tax rate | 26.4% | 26.1% | $+0.3$ pp | ||||
| Profit / (loss) attributable to Solvay shareholders | 249 | 228 | $+9.3%$ | 236 | 289 | -18% | |
| Basic EPS, from continuing operations (in $\epsilon$ ) | 1.43 | 1.58 | $-10%$ | 2.08 | 2.01 | $+3.7%$ | |
| Capex in continuing operations | (163) | (179) | $+8.8%$ | ||||
| FCF to Solvay shareholders, continuing operations | 202 | (91) | n.m. | ||||
| FCF to Solvay shareholders | 197 | (32) | n.m. | ||||
| FCF conversion ratio | 40.4% | 17.7% | +22.7pp | ||||
| Net financial debt | (2,873) | (4, 673) |
EPS is earnings per share.
Free cash flow to Solvay shareholders is the 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. The free cash flow conversion ratio is calculated as the ratio between the free cash flow to Solvay shareholders of the last rolling 12 months (before netting of dividends paid to non-controlling interest) and the underlying EBITDA of the last rolling 12 months.
Organic growth excludes forex (foreign exchange conversion) and scope effects related to small M&A not leading to the restatements.
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 P&L), 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.
Jodi Allen +1 609 860 4608 Geoffroy d'Oultremont +32 2 264 29 97 Bisser Alexandrov +32 2 264 36 87 [email protected]
Nathalie Van Ypersele +32 478 20 10 62 [email protected]
Brian Carroll +32 2 264 15 30 [email protected]
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, requlatory 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 24,100 employees in 64 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 plan crafted around three pillars: protecting the climate, preserving resources and fostering 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 €10.2 billion in 2019. Solvay is listed on Euronext Brussels (SOLB) and Paris and in the United States, where its shares (SOLVY) are traded through a Level I ADR program. Learn more at www.solvay.com.
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