Solvay : Full Year 2020 Results

Highlights

Solvay full year 2020 results

Record Free Cash Flow and Cost Reductions

February 24, 2021 at 7 a.m.

• ● Net Sales for the full year 2020 were down 10% organically, due to the impact from Covid on civil aero and oil & gas volumes, which were moderated by resilient demand in healthcare, consumer goods, personal care, and electronics. In the fourth quarter, net sales increased 5% sequentially versus Q3 driven by strong demand in automotive and electronics markets. Full year and fourth quarter sales, excluding civil aero and oil & gas, were down 5% and up 6% respectively, as a result of strong demand in automotive and electronics markets in Q4.

• ● Cost savings o​ f €332 m​ illion were delivered in 2020, of which €175 million were structural savings. This result reflects the decisive nature of the Group's response as it also accelerated and deepened the delivery of its strategic cost reduction programs.

• ● Underlying EBITDA margin for 2020 was 21.7%, and the EBITDA reduction was contained to 13.9% organically versus 2019 due to the volume impact from the Covid-19 pandemic. These results illustrate both the quality and resilience of the portfolio, and the delivery of cost mitigation actions.

• ● Underlying Net Profit was €618 million in 2020, with €96 million in the fourth quarter.

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• ● In the face of a challenging 2020, Solvay delivered a r​ ecord Free Cash Flow o​ f €963 million, including around €260 million of one time benefits, reflecting swift actions taken, including disciplined working capital and effective capex management.

• ● The balance sheet was strengthened in 2020 with the significant reduction in n​ et debt and provisions o​ f €1.2 billion and €0.6 billion respectively, following the strong delivery in FCF.

• ● Total proposed dividend o​ f €3.75 per share, subject to Shareholders' approval

Q4 2020	Q4 2019	% yoy % organic	Underlying, (in € million)	FY 2020	FY 2019	% yoy % organic
2,214	2,440 -9.3% -4.1% Net sales	8,965	10,244 -12.5% -10.1%
464	525 -11.7% -6.4% EBITDA	1,945	2,322 -16.2% -13.9%
21.0%	21.5% -0.6pp - EBITDA margin	21.7%	22.7% -1.0pp -
161	261 -38.3% - FCF to shareholders from continuing operations	963	606 +58.8% -
-	- - - FCF conversion ratio (LTM)	51.1%	27.8% +23.4pp -

CEO Quote

"I'm proud of the significant progress we made in 2020. We launched our Group's Purpose and progressed on our ambitious ONE Planet roadmap as we deliver our G.R.O.W. strategy. As the crisis unfolded, we quickly adapted priorities to accelerate our cost and cash delivery, demonstrated the resilience of our business, while supporting our people through the launch of a Solidarity fund. I want to thank our employees for their perseverance, our customers for their valued partnerships, and our investors for their continued support. Building on the Q4 momentum and the strategic foundation now in place, we will emerge leaner and stronger, with innovation fueling our return to top-line growth."

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Solvay fourth quarter and 2020 results - February 24, 2021

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New Strategic Initiatives

Cost Savings Target Raised to €500 million

In January, Solvay launched a new chapter of its strategic transformation aimed to further align its structure to itsG​.R.O.W. strategy.​ T​ his builds on previous plans announced in 2020, and represents a profound simplification of all support functions to serve the business more effectively. The plan will lead to an additional net reduction of approximately 500 roles by the end of 2022 and incremental cost savings of €75 million. Subject to discussions with social partners, this plan together with previously announced plans will increase the mid-term cost savings target from €300 million announced in November 2019 to €500 million by 2024, of which €175 million has been delivered in 2020. As a consequence of the new restructuring plan, a non-cash restructuring provision of around €170 million will be recognized in Q1 2021.

Portfolio and Business Update

As part of the G.R.O.W. strategy, the Materials, Chemicals and Solutions segments were given distinct mandates reflecting different paths to value creation. Building upon this strategy, Solvay is taking steps to organize its Soda Ash & Derivatives business into a separate and fully controlled legal structure. These steps will reinforce internal financial and operational transparency and accountability, in line with its mandate of optimizing cash flow generation and returns, while increasing future strategic flexibility.

Also aligned with its strategic simplification, and following the optimization of several businesses,

Solvay has reached agreements1 to sell its interests in six commodity business lines. To date, these ​

include the recent transactions for barium and strontium products (part of Special Chem), the European sodium percarbonate business (part of Peroxides), and the commodity amphoterics business (part of Novecare), the sodium chlorate business and related assets in Portugal (part of Peroxides), certain fluorine chemicals and its site in Korea (part of Special Chem) and the process materials product line (part of Composites). The Group expects completion of these transactions, which collectively represent annual sales of around €300 million, in the first half of 2021. Solvay will continue to explore other opportunities to further simplify its portfolio.

Solvay also reached an agreement to purchase a seed coating technology to bolt-on to its existing agro products within the Novecare business. This is a natural extension to Solvay's own AgRHO® family of sustainable seed boosting solutions and supports the drive toward more bio-based, sustainable technologies.

Outlook

First quarter 2021 EBITDA is estimated to be between €520 million and €550 million, and Free Cash Flow is expected to be between €600 and €650 million for full year 2021. Free cash flow indications reflect the benefits of reduced pension and financial charges, higher restructuring costs, reinvestment in working capital and capex to support innovation and growth.

Additional structural cost savings are estimated at €150 million in 2021, more than offsetting fixed cost inflation, expected at around €75 million. This would take cumulative cost reductions over 2 years (2020-2021) to €325 million.

1 ​The completion of the transaction would remain subject to prior consultation with employee representatives and/or approval by the relevant regulatory authorities.

Solvay ONE Planet Progress Update

Solvay increased and broadened itsE​SG commitments in 2020.​ This is an integral element of the G.R.O.W. strategy and is directly aligned with its Purpose of bonding people, ideas, and elements to reinvent progress. Solvay's ambitions center around three main pillars, including climate change, resource scarcity and promoting a better life. These are fully embedded into Solvay's key decisions. Performance is measured and assessed regularly, and the extent of progress affects Short Term Incentive Plans for both leaders and employees. Solvay made good progress on many of these initiatives during 2020, though results reflect the combination of structural improvements and the temporary decline in economic activity levels.

Align greenhouse gas emissions with Paris Agreement and SBTi

10.1 Mt

12.6* Mt

12.0 Mt

-20%

(-8% structural)

Phase out coal wherever renewable alternatives exist

33 PJ

32 PJ

27 PJ

-18%

(PJ = Petajoule)

Reduce negative pressure on Biodiversity**

121.9

116.2

107

-12%

Increase sustainable solutions % of Group sales

50%

53%

52%

+2pp

Increase circular economy*** % of Group sales

NA

4%

5%

+1pp

Reduce non-recoverable industrial waste

96 kt

96 kt

70 kt

-27%

Reduce intake of freshwater

330 Mm³

327 Mm³

313Mm³

-5%Safety with a zero accident policy (MTAR indicator)

0.54

0.44

0.40

-26%

Accelerate inclusion & diversity parity in mid & senior management

23.7%

24.3%

24.6%

+0.9ppGender equality extend maternity leave

* Restated from 12.3 Mt due to IFRS change in scope ** ReCiPe method for biodiversity impact assessment (under development)

*** Circular economy indicators have been adapted to align with the Circulytics® developed by the Ellen MacArthur Foundation

Climate

Solvay committed to reduce its greenhouse gas emissions in alignment with the Paris agreement (well-below 2°C).". In addition, under SBTi, Solvay is developing plans to further reduce emissions with its customers and suppliers (scope 3) throughout the value chain. Approximately 40% of the improvement in GHG emissions between 2018 and 2020 is related to structural improvements from energy transition projects, the balance reflecting temporarily lower activity levels.

As part of its transition to cleaner energy sources, Solvay initiated 27 emission reduction projects that represent an annual reduction of 1.8 million tons of CO2​ per year, which is the equivalent of taking 1 million cars off the road. Eighteen of these projects are already operational today. The remaining nine projects will be implemented within the next three years. For example, Solvay's soda ash plant inRheinberg, Germany, is switching from coal to biomass, reducing the site's CO2 emissions by more than 30%, and will be operational in Q2 2021. Such projects are both value-accretive and further de-risk our operations.

Resources

Solvay is committed to shift its portfolio toward opportunities that increase the amount of sustainable solutions. Growth of sustainable solutions on average are 3% higher than the average growth of the portfolio. In 2020, the evolution of sustainable solutions was affected by the temporary impacts of reduced activity levels in specific markets due to the Covid-19 crisis. Yet, new innovations were launched that include Actizone™ antimicrobial cleaning technology, AquivionⓇ for hydrogen fuel cell membranes, andR​hodasurfⓇ6​NAT, a natural-based nonionic surfactant. Solvay will continue to leverage its investments in innovation to develop more sustainable solutions, which is directly aligned with customer requests.

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Enabling circularity is a key part of Solvay's resource ambition, including working collaboratively with customers, suppliers and organizations such as the Ellen MacArthur Foundation, amongst others. In 2020, Solvay has established ap​artnership with Veolia to enable the recycling of battery materials by developing new chemical recycling processes. Solvay also established a partnership with Mitsubishi Chemical to find solutions for recycling advanced materials, such as Polyetheretherketone (PEEK), which are used in many long-term implantable medical devices.

Another example of circularity is within the Aroma business, where Solvay's natural RhovanilⓇ brand is derived from rice bran oil by extracting ferulic acid and fermenting it to obtain vanillin, a natural alternative to beans which are limited in supply. The high demand for this ingredient from the food and flavor industry supports our decision to expand production in France (St Fons) by doubling our capacity for the second time.

Better Life

One of the immediate measures taken to adapt to the crisis was a teleworking plan involving more than 10,000 people working remotely to promote a safe working environment. Further, stringent safety protocols were implemented to secure the health of all operatives on industrial sites. More importantly, and in the spirit of Better Life, the Covid-19 pandemic brought out the best of Solvay, as many of its technologies were deemed to be essential during 2020. In addition to supplying critical supplies to communities, Solvay launched aS​olidarity Fund w​ ith the financial support of shareholders, directors, CEO and Executive managers, management and employees to support Solvay employees and dependents who experienced hardship due to the impact of the coronavirus pandemic. Together, €15 million was raised. To date, support has been provided to over 1,600 families, including donations to communities in Bulgaria, educational support to women and children, and Guar farmers in India. Solvay uses Guar, a biofriendly ingredient, to develop solutions for the personal care market.

Investing in human capital is a clear priority for Solvay, as it supports all of its stakeholders and as such is one of its greatest investments.