Solvay posts record sales but expectations for 2023 muted

LONDON (ICIS)–Solvay’s balance sheet has never been as healthy, according to its CEO Ilham Kadri, although the boom times may not be sustained.

The company made record sales in 2022, spurred on by gains in volumes and pricing, despite the challenging macro-economic conditions.

“Even though adversity and the inflationary environment, we achieved our goals well ahead of the plan, delivered on earnings, cash returns, and debt reduction, which was threatening our balance sheet,” said Kadri speaking to reporters from Brussels.

As well as its best sales, the company also broke records on organic earnings before interest, tax, depreciation, and amortisation (EBITDA), return of capital employed (ROCE), and free cash flow (FCF).

Cashflows were secured in the wake of Kadri’s mission to reduce debt at the company – which for 2022 fell by one third to 1.1 times (1.1x), the lowest level since 2015.

“Cash was my top priority and we addressed it and fixed it. The whole organisation became more disciplined, and it paid off with FCF in 2022, accumulated since 2019, with a FCF conversion ratio of 30%,” she said.

The company is not yet finished with transformation, as it continues on its plans to spin out its commodity business.

The split can be reflected in how Solvay assess its business, with half being driven by supply and demand fundamentals – such as soda ash – while the other half is more value driven.

“With the value driven products, we look forward to maintaining a net pricing advantage. Customers are ready to pay a premium, and the solution is beyond invoicing for a product. With electrification or light weighting, we bring more value than just selling kilograms,” said Kadri.

The firm will complete the separation of the Essential and Specialty businesses by the end of the year, with filing registrations expected in the second quarter.

OUTLOOKAlthough Solvay managed to perform in the top quartile of its peers in 2022, despite the deluge of challenging factors, the specialty producer is not expecting to maintain this for 2023.

EBITDA is expected to be between 3-9% lower this year, compared with 2022, with free cash flow tipped to stand at €750m.

FCF will dip from its record high in line with where Solvay is in its investment cycle, indicating its growth ambitions for the firm.

“The macroeconomic context will be less supportive,” said Solvay CFO, Karim Hajjar.

“Fixed costs will be higher, driven by inflation, but we will drive cost discipline hard, and deliver cost savings.”

“We are quite realistic about the markets – consumer construction will be in the doldrums for the next two to three quarters. On the other side, we are expecting growth in aerospace and healthcare, agro – there are lots of plusses.”

Hajar emphasised that while pricing is important, even more so is the focus on margins, as this is where there is the most reduction in inflation cost measures.

Solvay intends to maintain overall pricing power going into next year, despite the challenging environment there will be a focus on profitability in areas where they are already market leaders.

Another factor weighing down Solvay’s expectations for 2023 was that after its bumper results in 2022, it would be subject to higher taxes, which would erode FCF.

Front page picture: Solvay’s CEO speaking at the World Economic Forum (WEF) in Davos, Switzerland, in January 
Picture source: Markus Schreiber/AP/Shutterstock

Focus article by Morgan Condon