N°25 - December 2017
A strong set of results in Q2 2016: profit growth and record margin
Solvay has posted another strong set of results in the second quarter of 2016. The Group has delivered a record EBITDA margin of 22%. This performance is reflecting the quality of the portfolio, the continued achievements on excellence programs and the delivery of synergies stemming from integration of the Cytec legacy.
Q2 2016 Underlying results
Notes: All the Q2 2016 figures are compared to Q2 2015 figures
The total Solvay sales amounted to € 2.9 billion (down 6%). This was principally a result of unsupportive foreign exchange fluctuations as well as price decrease in a deflationary context of lower raw materials and energy costs that are partially passed through to Solvay’s customers.
Volumes however were slightly up by 1% for the first time since Q4 2014, with a solid growth across Advanced Materials, Performance Chemicals and Functional Polymers segments, overcoming declines in Advanced Formulations related to persisting market headwinds.
On an underlying basis, Solvay’s operating earnings before taxes, depreciation and amortization charges grew solidly by 8% going from € 603 m to € 652 m. The Group posted a profitability growth in three out of four operating segments despite the negative foreign exchange impacts. Our pricing power was once again positive, thanks to cost discipline and excellence measures across our businesses, and the fixed costs were lower despite inflation and despite the additional costs subsequent to our new sites and our increased manufacturing capacities.
Q2 2016 underlying EBITDA by segment (in € m)
EBITDA was up 6% to € 293 m (versus € 275) driven by volume growth linked to a strong demand in automotive, healthcare and consumer goods markets which more than offset the inventory reductions in smart devices. Sales volumes of composite materials were slightly down in the aerospace business due to anticipated legacy aircraft production rate reductions and lower demand in some segments such as business jets and rotorcrafts. However, new aerospace programs including a higher content of Solvay composites continued their ramp up and will contribute more significantly to the growth of this market going forward (e.g. LEAP engine on Airbus320neo, Boeing 737MAX). Sales of rare earth compounds used in catalysis for auto and high purity H2O2 for semiconductors were up.
EBITDA decreased by 11% to € 124m (versus € 139 m) mainly due to persisting headwinds in unconventional oil & gas industry, which was not fully offset by the growth in other markets (Home & Personal Care, Agro, Coatings). Sales remained stable in the mining industry underpinned by the quality of Solvay’s offering in a context of reduced production levels in the market driven by the lower copper and aluminum prices.
EBITDA was up 20% to € 224 m (versus € 187 m) as a result of volume improvement and cost benefits. Solvay posted a record performance in Soda Ash & Derivatives with a demand returned for both European and seaborne markets following a slow first quarter. Volumes of bicarbonate stood at record levels driven by the Thailand plant ramp up and the positive impact of excellence programs. Furthermore the recovery in acetate tow market (expect in China) also supported the growth of the segment.
EBITDA grew by 24% to € 64 m (versus € 52 m) driven by volume and cost improvements in chlorovinyls activities as well as by a solid contribution from the RusVinyl joint venture with the maximization of its capacity utilization. The Polyamide demand was satisfactory, while operating margins were flattened due to a planned maintenance turnaround which occurs every three years.
Significant cash generation improvement
Free Cash Flow from continuing operations was up 27% to € 174 m (versus € 192 m), thanks to higher EBITDA, lower capex intensity and continued focus on working capital management. Solvay lowered capital intensity and capex in the period amounted to € (215) m, € 28 m lower compared to 2015.
Portfolio : recognition of Solvay’s Advanced Materials
Solvay was pleased to announce the selection of its advanced composite materials by Boeing to supply the 777X primary structures. The composite materials will be produced in a 50/50 joint venture with Mubadala company, located in the United Arab Emirates and should be operational by 2021. The joint venture will deliver carbon fiber pre-impregnated composite materials for the empennage and floor beams of Boeing 777X program. The composite content of next-generation aircraft is expanding as plane makers aim to reduce weight, fuel consumption and CO2 emissions. This represents a strategic milestone for Solvay and positions the Group for long-term growth in a key market.
Sustained excellence efforts and accelerated synergies from Cytec
The integration of Cytec is going quickly with the delivery of € 24 m of synergies in the first half, and Solvay is projecting even higher synergies for the second half.