Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Solvay SA (SLVYY, Financial) achieved EUR46 million in cost savings in the first half of 2024, with a target of EUR80 million for the full year.
- The company has seen stabilization in volumes across its markets, indicating a recovery from the trough experienced in Q4 2023.
- Solvay's Star Factory program has been implemented in 90% of its plants, focusing on safety, productivity, and sustainability.
- The company has a resilient portfolio serving multiple end markets, which helps navigate challenging conditions.
- Solvay has upgraded its free cash flow guidance from more than EUR260 million to more than EUR300 million for 2024.
Negative Points
- Sales in Q2 2024 were down by 7% compared to Q2 2023, mainly due to lower prices in soda ash and lower energy and input costs.
- EBITDA for Q2 2024 was EUR272 million, a 17% decrease from Q2 2023.
- The company faces ongoing challenges in the container glass market in Europe, which remains soft.
- Solvay has provisioned EUR78 million for its coal phase-out project in Dombasle, France, due to various headwinds, impacting overall financial performance.
- Visibility of the order book remains relatively short, adding a level of uncertainty to future demand projections.
Q & A Highlights
Q: How do you see the trends for EBITDA from Q2 to Q3, and what is the typical seasonality for Q4?
A: We see Q3 volumes stabilizing, similar to Q2. Our cost-saving program is delivering faster than expected, but we will spend more on transformation and digitalization in the second half. We confirm our guidance of organic EBITDA growth between -10% to -15% for 2024.
Q: Can you explain the provisions taken for the cost overrun in the Dombasle energy project?
A: The total provision is EUR78 million. We have reassessed the project and are confident in the new estimate. The original project cost was over EUR200 million. This provision should be final, and we do not expect similar issues with other energy transition projects.
Q: What was the net pricing effect if you compare Q2 with Q1 at the group level?
A: Year-on-year, Q2 net pricing is more negative due to the peak in Q2 2023. Sequentially, the fundamental market pricing has not changed much, but we improved the product mix, selling more high-margin products.
Q: Can you explain the cost and benefits of the digitalization program?
A: The capital cost of IoT devices is within our normal optimization budget. The program is driven by our own people, not consultants. The benefits are unique to Solvay due to our scale and repetitive technologies, allowing us to implement improvements across multiple plants.
Q: What is the status of the Green River expansion and the impact of container glass market softness on soda ash margins?
A: The Green River expansion is nearly complete, included in our EUR300-350 million CapEx range. Container glass softness has a moderate impact, offset by growth in lithium carbonate and solar panels. Soda ash serves a variety of end markets, providing resilience.
Q: How have soda ash prices evolved in the first half, and what is the outlook for 2025?
A: Prices are mostly locked on a yearly basis, with seaborne volumes being more volatile. For 2025, it's early to say, but long-term demand for soda ash will grow due to trends in glass, detergents, solar panels, and lithium carbonate.
Q: Can you clarify the impact of the special chem performance on Q2 EBITDA?
A: Special chem saw strong volumes in autocatalysis and niche markets like rare earth and medical applications. This performance may not repeat every quarter, but we will seize opportunities as they arise.
Q: Should we expect normal corporate costs to be lower than the EUR80-100 million guidance given the provisions taken this year?
A: The run rate remains EUR80-100 million. The Dombasle project provision was offset by non-structural and structural savings, resulting in a neutral impact on corporate costs.
Q: What are the risks of potential destocking in the second half, and is there any seasonality in the business?
A: There is limited seasonality in our business. Potential destocking is a risk, but not based on current observations. We manage cash with this risk in mind, but our order book remains stable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
