Solvay Sa · EURONEXT:SOLB
Solvay Sa — Q1 2014 Earnings Presentation
54 slides from Solvay Sa's earnings presentation, May 6, 2014
Slide 1: Q1 2014 results
S$ > O LVAY ~Q1 2014 results May 6, 2014
Slide 2: Encouraging start to the year
Encouraging start to the year Demand momentum translating into volume growth • Across end-user markets • Growth in Asia continued • Sound dynamics in North America, but affected by extreme weather conditions Strong set of • Modest demand pick-up in Europe results • Latin America below its potent
Slide 3: Structural projects progressing
Structural projects progressing European Chlorovinyls Polyamide JV with Ineos / Benvic disposal Renewed JV agreement with Invista • JV with Ineos • Providing long-term JV frame • Remediation package market tested • Most advanced technology upgrade in butadiene- • Awaiting approval from EU anti-trust
Slide 4: Strong set of results
Strong set of results Q1 2014 financial highlights € 2.6 bn +1% € 467 m +11% yoy yoy Net Sales REBITDA • Volume growth • Conversion forex headwinds • Transactional forex headwinds • Chemlogics • Raw materials led price • Excellence enhancing pricing power and margin contribution deflation € 107 m +2
Slide 5: Demand and excellence momentum underpinning REBITDA growth
Demand and excellence momentum underpinning REBITDA growth Net Sales REBITDA in € m in € m Net pricing 36 (15) €4m 65 (107) 22 (5) (18) (3) 467 96 (18) 2,552 28 Conversion Fixed costs Others 2,516 Volume forex Conversion Price Variable (including Price 422 Volume equity Scope forex costs earnings) S
Slide 6: Broad performance delivery
Broad performance delivery (Advanced Formulations impacted by temporary effects) in € m 113 -9% 102 Solid markets and Record performance 156 13% 175 strong Chemlogics boosted by innovation- delivery, but weather driven volume growth and forex weighed and operational efficiency Q1 2013 Q1 2014 Q1 201
Slide 7: Adjusted Net Income (Group share) increased by 24%
Adjusted* Net Income (Group share) increased by 24% in € m Q1 2014 Q1 2013 Net sales 2,552 2,516 Other elements • € (12) m at Rusvinyl (pre-operational): REBITDA 467 422 Ruble devaluation effect on debt • € (5) m at Chemlogics: PPA inventories + holdback payments Other elements (17) - Depreciation &
Slide 8: Net debt increase in line with seasonal patterns
Net debt increase in line with seasonal patterns Net debt* evolution in € m (41) (14) (1,459) (112) FCF € (97) m (257) 62 (53) Changes in (3) Other net debt changes attributable (1,141) 264 Dividends in net debt to assets FCF of Aquisitions Net (166) held for sale disc ops & divest- financial ments
Slide 9: Seasonal swing in industrial working capital needs
Seasonal swing in industrial working capital needs Industrial working capital % of gross sales 16% 15.6% 15.1% 15.0% 14.9% 15% 14% Average 2013 14.6% 13% 12.8% 12% Target 12.5%-13.5% 11% 10% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 2016 Historical figures restated for consolidation changes (including
Slide 10: Selective investments for value growth
Selective investments for value growth Capex (continuing operations) In € m Focused on Upper range of superior growth areas 765 guidance 700-800 Q4 320 HDS Silica Q3 Specialty surfactants 158 Vanillin Q2 HPPO 154 Alkoxylation Fluoro-polymers Q1 166 133 Bicarbonate 2013 2014 Guidance Alkoxylation 201
Slide 11: Larger on-going investment projects
Larger on-going investment projects Novecare Specialty Surfactants plant in Germany Aroma Performance Vanillin plant in China Specialty Polymers Fluoro-polymers JV with 3F Silica HDS plant in Poland 2014 85 ktonnes/year PVC plant in Russia (in JV with Sibur) Expected commissioning Rusvinyl
Slide 12: A sound and more efficient balance sheet
A sound and more efficient balance sheet Capital structure (31/03/2014) Optimising Balance Sheet efficiency in € bn in € bn Total equity 7.5 (3.6) Total repayments (1.8) Other Hybrid (0.5) Gross debt bond 1.2 HY (0.3) 6.9%, May 2014 (3.1) bonds (0.8) (0.5) 7.0%, May 2014 Other (0.5) HY (0.5) 5.0%, J
Slide 13: 2014 outlook
2014 outlook Solvay expects Encouraging high single-digit REBITDA* growth Q1 underpins at current perimeter confidence & prevailing forex exchange rates * Compared to 2013 restated Adjusted REBITDA of € 1,704 m Q1 2014 results 13 06/05/2014
Slide 14: 2014 Priorities
Transformation continues • Complete initiated portfolio upgrades 2014 • Grow with our customers • Sustain focus on excellence Priorities • Deliver profit growth Asking more from chemistry Q1 2014 results 14 06/05/2014
Slide 15: Take-aways
Take-aways Inflection point Progress on Poised in demand many fronts for growth On track towards REBITDA to reach CFROI to increase by € 2.3 – 2.5 bn > 100 bp vs 2013* REBITDA margin to reach 18% 2016 2/3 of businesses in value-creation zone * Prior to discontinued operations Q1 2014 results 15 06/0
Slide 16: Safe harbour
Safe harbour To the extent that any statements made in Consequently, actual results may differ this presentation contain information that is materially from those expressed or implied by not historical, these statements are such forward-looking statements. Forward- essentially forward-looking. The a
Slide 17: Annexes
Annexes • Additional financial elements • 2016 ambitions • Segment presentation Q1 2014 results 17 06/05/2014
Slide 18: Balance sheet and cash flow statement
Balance sheet Cash flow statement in € m 31/03/2014 31/12/2013 in € m Q1 2014 Q1 2013 Fixed assets 9,676 9,732 Cash flow from operating 97 145 activities Investment & shares 727 735 Cash flow from investing Loans & other non current (222) (169) activities financial receivables / 98 84 Cash flow from
Slide 19: Lower rates led to slight pension liability increase
Lower rates led to slight pension liability increase Pensions in € bn Net pension liability denominated Net pension for 75% in EUR liabilities (2.6) Pension liabilities (4.5) Discount rates decreased Pension assets 1.9 31/12/2013 31/03/2014 Assets Liabilities EUR 3.25% 3.00% -0.25% GBP 4.50% 4.25% -
Slide 20: P&L considerations for 2014
P&L considerations for 2014 • Negative currency impact foreseen of € (65) m, Forex assuming Q1 2014 average spot rates prevail (conversion • Mainly linked to USD, JPY and BRL and transactional) • Carbon Emission Rights (CER) scheme phased Carbon out in H1 2013 emission rights • Total sales of CERs:
Slide 21: Financial charges considerations for 2014
Financial charges considerations for 2014 Debt repayments € 500 m € 800 m in May 2014 € 500 m • € 1.3 bn in 2014 in January (call option on high-yield in June • € 1.8 bn by 2015 2014 bonds 2018) 2015 Lead to a ⇒ Average gross interest rate to reduce by 40 bp to 4.9% reduction of net interest charges
Slide 22: Hybrid bond issuance enhances equity
Hybrid bond issuance enhances equity Accounting considerations Nominal value of € 1.2 bn, Income statement: at initial average dividend No impact yield of 4.7% Balance sheet: € 0.7 bn at 4.199% Treated under Equity € 0.5 bn at 5.425% Cash flow statement: Dividends treated in cash flow from financing
Slide 23: Other considerations for 2014
Other considerations for 2014 Depreciation & Amortization Discontinued • Recurring Depreciation & operations, expected Amortization: ~€ 650 m to reach completion • Rhodia PPA impact: ~€ 120 m in 2014 Restructuring costs • Indupa sale to generate ~ € (60) m* currency translation adjustments at expect
Slide 24: Annexes
Annexes • Additional financial elements • 2016 ambitions • Segment presentation Q1 2014 results 24 06/05/2014
Slide 25: Solvay, a major global chemical player
Solvay, a major global chemical player Based on strengths € 10.0 bn 117 Net Sales Industrial sites Well-balanced geographical spread and end-user markets € 1.7 bn 15 REBITDA Major R&I centers Leading player in 90% of our businesses 17% 29,400 REBITDA margin Employees (EFTEs) Strong R&I portfolio € 3
Slide 26: Well-balanced geographical spread and end-user markets
Well-balanced geographical spread and end-user markets Balanced Exposure to geographic exposure* higher growth end-markets* Aeronautics & Automotive North Europe 17% America 33% Consumer Goods & Healthcare 25% 25% Agro Food 12% Asia Pacific & RoW Energy & Environment 31% 11% Latin America Building 1
Slide 27: 90% of our business ranking among top 3 players
90% of our business ranking among top 3 players 1 ADVANCED FORMULATIONS Specialty surfactants Diphenols PERFORMANCE CHEMICALS Hydrogen peroxide Soda ash Phosphorus Bicarbonate chemistry ADVANCED High-performance Fluorinated Rare earth MATERIALS engineering polymers formulations polymers & compounds
Slide 28: Strong innovation portfolio aligned with global megatrends
Strong innovation portfolio aligned with global megatrends Focused innovation fields 2013 Climate change Advanced 15 Major R&I sites worldwide materials Resource scarcity 1,950 R&I staff Health € 280 m Advanced & well R&I efforts formulations being Renewable chemistry 22% New sales ratio Next billio
Slide 29: Converting vision into value
Converting vision into value Our vision Our strategy Our 2016 ambition REBITDA to reach € 2.3 - 2.5 bn • Reinforcing business • Build a strong global profile through strategic REBITDA margin to reach 18% leader in the chemical portfolio changes industry • Striving for excellence across businesses CF
Slide 30: Executing our strategic action plan
A business portfolio change Executing our strategic action plan 2010 2011 2012 2013 Pharma divestiture Rhodia acquisition INTEGRATION TRANSFORMATION To enhance our business profile Integration & definition Chlorovinyls Europe JV of new strategic priorities announcement to extract value Solvay’s abil
Slide 31: REBITDA growth supported by strong operational levers
REBITDA growth supported by strong operational levers REBITDA > 10% CAGR in € bn Inflation Operational Organic Innovation Portfolio 2.3 – 2.5 excellence growth 1.7* 0.3 0.3 Chemlogics (10 months) (0.3) 0.3 Market growth Manufacturing Variable Overall Excellence Innovation & fixed cost Equipment Exce
Slide 32: Enhanced quality of earnings across segments
Enhanced quality of earnings across segments with differentiated levers throughout our businesses REBITDA > 10% CAGR in € bn 2.3 – 2.5 Functional Corporate Performance Polymers & Business Chemicals Services 1.7* Advanced Materials Restoring Advanced Chemlogics Formulations profitability (10 months)
Slide 33: Unlocking value by increasing CFROI and REBITDA margin
Unlocking value by increasing CFROI and REBITDA margin 2012 2016 WACC Premium WACC Premium REBITDA margin REBITDA margin return return 30% 30% CFROI to increase by 20% 20% 100bp 10% REBITDA margin 10% to reach 1/3rd of 2/3rd of total assets 18% total assets 0% 0% 0% 6% 12% 18% 0% 6% 12% 18% CFROI CF
Slide 34: Focused on being a model of sustainability
Focused on being a model of sustainability taking commitments Reach excellence in safety & health Deploy unmatched sustainable portfolio Planet management Reduce our impact on environment by 2020 Customers Energy consumption Water emissions** Investors Greenhouse gas emissions Groundwater consumptio
Slide 35: Targeting Sustainable Value Growth
Executing a clear value creation strategy Towards a higher growth, improved cash generation & enhanced returns Chemical Group Targeting Sustainable Value Growth Q1 2014 results 35 06/05/2014
Slide 36: Annexes
Annexes • Additional financial elements • 2016 ambitions • Segment presentation Q1 2014 results 36 06/05/2014
Slide 37: Organization set-up
Organization set-up Executive Committee Strengthened Corporate Advanced Advanced Performance Functional & Business Formulations Materials Chemicals Polymers Services Strategic Growth Resilient cash Restoring Efficient priorities engines flow generation profitability Support REBITDA growth +++ +++ +
Slide 38: Organized in Global Business Units
Organized in Global Business Units Advanced Materials Performance Chemicals Functional Polymers Corporate & Business Services Advanced Formulations Novecare Specialty Soda Ash & Polyamide Solvay Polymers Derivatives Energy Services P&I Aroma Silica Peroxide Corporate Performance Functions Engineerin
Slide 39: Advanced Formulations
Advanced Formulations 2013 € 2,432 m € 369 m Figures Net Sales REBITDA 65% Aroma Novecare Novecare Coatis Performance Net sales by GBU Coatis 15% Aroma Performance As one of Solvay’s growth engines, the 20% businesses grouped under Advanced Formulations stand out for their innovation capacity and lo
Slide 40: Advanced Formulations 2014 Q1 performance
Advanced Formulations 2014 Q1 performance Solid markets and strong Chemlogics delivery but weather and forex weighed Net sales Q1 2014 Novecare 71% € 663 m • Chemlogics integration progresses well 9% yoy Q1 • Quarterly demand dynamics globally healthy, in Novecare 2014 particular Oil&Gas Coatis 11%
Slide 41: Novecare
Novecare Cutting-edge technologies in diversified focused markets SELECTED MARKETS Home & Agro Oil & Gas Coatings Industrial TECHNOLOGY Personal Care 50% SURFACTANTS 30% POLYMERS PHOSPHOROUS 10% DERIVATIVES SPECIALTY 10% AMINES % of Novecare sales in 2013 (proforma Chemlogics) Q1 2014 results 41 06/
Slide 42: Advanced Materials
Advanced Materials 2013 € 2,551 m € 646 m Figures Net Sales REBITDA 50% Specialty Polymers Specialty Rare Earth Special Polymers Silica Systems Chemicals Silica Net sales by GBU Rare Earth Systems 22% 16% A leader in markets with high entry barriers 12% Special Chemicals and strong returns on invest
Slide 43: Advanced Materials 2014 Q1 performance
Advanced Materials 2014 Q1 performance Record performance boosted by innovation-driven volume growth and operational efficiency Net sales Specialty Polymers Q1 2014 53% • Volume growth across all end markets € 658 m 3% yoy • End of customer destocking in Energy applications: Q1 Oil&Gas and Photovolt
Slide 44: Specialty Polymers: Focused on the most advanced products
Specialty Polymers Focused on the most advanced products Temperature resistance Chemical inertness Price Performance Weathering resistance Corrosion protection Water repellence Stain repellence Electrical inertness Non-flammability Fatigue resistance Biocompatibility Extractables Self-cleaning Trans
Slide 45: Specialty Polymers
Specialty Polymers Industry leader with the broadest product portfolio Cross- linkable Aromatics Fluoropolymers High-barrier polymers com- pounds LCP HPPA PEEK PAI PSU PTFE PVDF PFA FKM PFPE PVDC XLCP Broadest portfolio + Innovation leader = Best solution provider Q1 2014 results 45 06/05/2014
Slide 46: Silica
Silica Highly Dispersible Silica (HDS) delivers value to the tire industry Excellent technical performance … … growing across a number of applications Rolling Resistance In passenger car and light trucks 125 + 25% 120 • Energy-efficient tires 110 • Winter tires with HDS 100 • Sport tires 90 Carbon-B
Slide 47: Performance Chemicals
Performance Chemicals 2013 € 3,189 m € 766 m Figures* Net Sales REBITDA Soda Ash Soda Ash Emerging 53% & Eco Bio- Peroxides Derivatives Peroxides Acetow Services chemicals Net sales by GBU Acetow 17% 18% 11% Eco-Services Operating on mature resilient markets, this 26% Emerging Biochemicals Segment’s
Slide 48: Performance Chemicals 2014 Q1 performance
Performance Chemicals 2014 Q1 performance Pricing power and excellence programs underpinning earnings growth Net sales Net sales Soda Ash & Derivatives Q1 2014 € 783 m 42% • Soda Ash demand up in Europe and export market 0% yoy • Prices up overall Q1 Soda Ash & Derivatives 13% • Bicarbonate growth o
Slide 49: Soda Ash & Derivatives
Soda Ash & Derivatives Cost is a key success factor in the soda ash industry Average FOB cash cost Natural Synthetic process process Freight & logistics costs Production costs EU 1st CIS North East Asia Turkey China Africa US “Green River” tier EU 2nd tier India Baltics (“Solvay” and “Hou” processes
Slide 50: Soda Ash & Derivatives
Soda Ash & Derivatives European soda ash supply/demand to improve in next 3 years 2014-2016 2017-2019 Restructuration started with Kazan project closure announcements Potentially adding 2.5 mt/yr production capacity Solvay Povoa (0.2 mt/yr) Based on natural production process Tata Winnington
Slide 51: Functional Polymers
Functional Polymers 2013 € 1,763 m € 93 m Figures Net Sales REBITDA 88% Polyamides & Engineering PVC Intermediates Fibras Plastics Compounds Polyamide Net sales by GBU Chlorovinyls The key success factors of this Segment, 12% which primarily groups the Polyamide activities, are continuous manufactur
Slide 52: Functional Polymers 2014 Q1 performance
Functional Polymers 2014 Q1 performance Improved operational efficiency and pricing drove earnings growth, supported by demand Net sales Net sales Q1 2014 87% € 448 m (4)% yoy Q1 Polyamide 2014 Polyamide • Volume growth offset by pricing and forex 13% Chlorovinyls • Improved manufacturing yields and
Slide 53: Corporate & Business Services
Corporate & Business Services Net sales 2013 € 67 m € (169) m 2014 Q1 performance Q1 2014 Figures Net Sales REBITDA CER phase-out mitigated by tight cost control and forex impact on costs €0m in € m REBITDA This Segment includes the Solvay (46) (39) Q1 2014 Energy Services business which € (39) m de
Slide 54: www.solvay.com
www.solvay.com SO LVAY asking more from chemistry®