CEO Solvay: ‘Promising momentum, but no recovery yet’

Solvay started 2024 better than expected, seeing volumes increase for the first time in seven quarters. Nevertheless, CEO Philippe Kehren maintains his very cautious annual forecast for the chemical company.

The chemical company Solvay

recorded 1.2 billion euros in turnover and 265 million euros in operating profit before depreciation (EBITDA) in the first quarter. Adjusted for exchange rates, this amounts to a decrease of 12 and 14 percent respectively.

The decline is considerably smaller than analysts had estimated. On average, they expected only 236 million euros in EBITDA. Net profit amounted to 119 million euros or 1.11 euros per share. “I am proud of these figures,” says CEO Philippe Kehren.

When the ‘old Solvay’ was split up at the end of 2023, Solvay was assigned the basic chemistry last year. At Solvay the focus is on slow but steady growth and a strong dividend policy. Other activities, such as battery materials and plastics for cars and aircraft, ended up under Syensqo.

The declining quarterly profit is largely due to lower sales prices for sodium carbonate (soda ash). Its production was the cradle of Solvay and is still its most important activity today – more than 160 years after its founding.

Sodium carbonate is used, among other things, for the production of glass, but due to the dip in the construction industry, demand is lagging behind. Analysts had previously indicated that sales prices of the substance would drop by 20 percent or more this year. On the other hand, there is a lower bill for raw materials and energy.

In addition, the cost savings program launched last year is starting to bear fruit. CEO Kehren promised to implement structural savings of 300 million euros in the coming years. This should mainly come from digitalization, energy efficiency, the exchange of best practices between factories and a leaner organization. “We are quickly implementing cost-saving initiatives that are already starting to bear fruit,” it said. ‘In the first quarter that was already 19 million euros.’

While the soda ash division needs to catch its breath after several very good years, the other activities are holding up better. Even more, there are segments that continue to grow. For example, Solvay also sells sodium bicarbonate for animal feed, medicines and to purify exhaust fumes.

With ultra-pure hydrogen peroxide for the production of semiconductors, the company is taking full advantage of the chip famine and the construction of new chip factories worldwide. Other activities include silica (for tires with less rolling resistance) and Coatis (solvents based on renewable raw materials). And in La Rochelle, France, Solvay is building a research and production hub for rare earth metals.

The stock exchange Degroof Petercam noted in a recent report that Solvay’s results are ‘resilient’, even in economically difficult years. The ‘adjusted’ EBITDA has never fallen below 875 million euros in the past seven years, even during the pandemic.

This has not escaped the notice of David Einhorn, the founder of the hedge fund Greenlight Capital. He recently put Solvay in the spotlight at an investor conference in New York as ‘a boring chemical company that guarantees a solid return’. That gave the stock price a boost. Since Einhorn’s statements, the share has risen in value by about 20 percent.

Despite the better than expected quarterly results, CEO Kehren remains cautious about the rest of the year.

‘Some business units are showing promising momentum compared to the low point at the end of 2023, but we cannot yet call it a recovery. We remain cautious due to the combination of weak demand combined with a volatile macroeconomic and geopolitical environment.”

Management reiterates the previously formulated objectives for the full year. 2024 will be the second year of shrinkage in a row. Gross operating profit will be 10 to 20 percent lower, which implies a figure of 925 million to 1,040 million euros. Historically speaking, that is still quite high. The free cash flow from continuing activities should amount to 260 million euros.