Solvay Sa · EURONEXT:SOLB
Solvay Sa — Q3 2016 Earnings Presentation
52 slides from Solvay Sa's earnings presentation, Nov 8, 2016
Slide 1: Third Quarter 2016 Results
THIRD QUARTER 2016 November 8 2016 RESULTS
Slide 2: Safe Harbor
SAFE HARBOR This presentation may contain Consequently, actual results or future forward-looking information. Forward- events may differ materially from those looking statements describe expectations, expressed or implied by such forward- plans, strategies, goals, future events or looking statements
Slide 3: Forenote
FORENOTE The results of former Cytec are consolidated in the Group’s income and cash flow statements since January 1, 2016. Comparative information for the third quarter and first nine months of 2015 is presented on an unaudited pro forma basis as if the acquisition of Cytec had taken place on Janua
Slide 4: Overview
OVERVIEW • Transformation delivery • Financial highlights • Priorities and outlook • Annexes Third quarter 2016 results 4 November 8, 2016
Slide 5: Executing our plan
EXECUTING OUR PLAN Profit growth and record margin Pricing power maintained Sustained excellence efforts Acceleration of synergies Strong cash generation Third quarter 2016 results 5 November 8, 2016
Slide 6: Third quarter results: record margin & solid cash generation
THIRD QUARTER RESULTS RECORD MARGIN & SOLID CASH GENERATION EBITDA Free Cash Flow [1] 6% 14% Pricing power Resulting from Sustained for 11 quarters Higher EBITDA Lower CapEx Lower fixed costs Working capital discipline Benefiting from synergies and excellence Volume Under
Slide 7: Overview
OVERVIEW • Transformation delivery • Financial highlights • Priorities and outlook • Annexes Third quarter 2016 results 7 November 8, 2016
Slide 8: Solid results: financial highlights Q3 2016
SOLID RESULTS FINANCIAL HIGHLIGHTS Q3 2016 € 2.9 bn -8% € 664 m +6% Net Sales yoy Underlying EBITDA yoy Volume down across operating Pricing power supported by operational segments in specific markets excellence Prices down linked to pass-through of Fixed costs reduced through synergies, low
Slide 9: Sales down with softer demand in certain markets
SALES DOWN WITH SOFTER DEMAND IN CERTAIN MARKETS Net sales in € m Volumes lower 3,162 (30) (20) (91) (100) Slower demand ramp-up for smart devices Cytec 2,921 stand-alone Scope Conversion Soft demand in composites (0.9)% forex Volume 447 (0.6)% & mix Price Contraction in oil & gas market (3)
Slide 10: Record EBITDA margin underpinned by excellence and synergies
RECORD EBITDA MARGIN UNDERPINNED BY EXCELLENCE AND SYNERGIES Underlying EBITDA Pricing power in € m € 25 m 19 664 Pricing power 625 38 in all segments, except (4) (13) (26) 126 (101) Advanced Formulations, Others Cytec Scope Conversion Fixed (including supported by (0.6)% equity stand-alone forex
Slide 11: Resilience through multi-specialty portfolio
RESILIENCE THROUGH MULTI-SPECIALTY PORTFOLIO MARGINS FLAT TO IMPROVED OVER SEGMENTS ADVANCED Broad-based growth & Contraction in oil & gas ADVANCED MATERIALS operational excellence impacting yoy, stabilizing FORMULATIONS 297 (1.8)% 292 mostly offset weaker smart sequentially, partly 130 (12)% 114 de
Slide 12: Underlying net income reflecting higher operating profit
UNDERLYING NET INCOME REFLECTING HIGHER OPERATING PROFIT Underlying (in € m) P&L Q3 2016 Q3 2015 % yoy in € m pro forma Net sales 2,921 3,162 (8)% EBITDA 664 625 6% Underlying net income (Solvay share) EBITDA margin 23% 20% 3pp up 16% Depreciation & amortization (198) (196) (1)% EBIT 466 429 Net f
Slide 13: 66% cash conversion year to date
66% CASH CONVERSION YEAR TO DATE DRIVEN BY HIGHER EBITDA AND LOWER CAPEX Cash conversion [1] EBITDA-capex 65% [2] EBITDA 2016 53% Growth capex at >50% of total ~2/3rd in Advanced Materials (1,092) Aerospace resins line in Germany Capex Continuing ~(950) Q4 Expansion of Adhesives for operations (
Slide 14: Net debt reduced with focus on cash supplemented by portfolio
NET DEBT REDUCED WITH FOCUS ON CASH SUPPLEMENTED BY PORTFOLIO Underlying net debt [1] evolution in € m Free cash flow Other cash flows Free cash flow € 280 m vs € 280 € 245 m m in 2015 € 230 m (7,012) 664 (238) 27 (64) (112) 3 267 (18) (6,502) (19) Perpetual hybrid Changes in Taxes Changes in Free c
Slide 15: Effective treasury management leading to reduced cost of debt
EFFECTIVE TREASURY MANAGEMENT LEADING TO REDUCED COST OF DEBT Underlying debt [1] (8.7) at 3.80% [4] (7.7) evolution at 3.55% [4] in € bn (2.2) at 5.07% EUR perpetual hybrid (2.2) bonds at 5.07% (2.1) 0.8 at 4.03% @ 5.45% USD bonds (2.1) at 4.03% EUR bonds [2] repaid in (3.6) at 2.88% H1 2016 (2.8)
Slide 16: Overview
OVERVIEW • Transformation delivery • Financial highlights • Priorities and outlook • Annexes Third quarter 2016 results 16 November 8, 2016
Slide 17: Outlook for FY 2016 confirmed
OUTLOOK FOR FY 2016 CONFIRMED EBITDA to grow approximately 7% - 8% Free cash flow to exceed € 700 m Third quarter 2016 results 17 November 8, 2016
Slide 18: Our commitment
OUR COMMITMENT Exceed expectations on synergies Excellence & portfolio optimization continuing Reinforced focus on cash generation Attractive returns for shareholders Third quarter 2016 results 18 November 8, 2016
Slide 19: Investor relations contacts and next events
INVESTOR RELATIONS CONTACTS Kimberly Stewart Jodi Allen Geoffroy Raskin Bisser Alexandrov +32 2 264 3694 +1 (973) 357 3283 +32 2 264 1540 +32 2 264 3687 [email protected] [email protected] [email protected] [email protected] NEXT EVENTS January 18 February 24 May 3
Slide 20: Annexes
ANNEXES • Additional Q3 2016 financial data • Forex sensitivity & other financial considerations for 2016 • Solvay general information Third quarter 2016 results 20 November 8, 2016
Slide 21: Advanced Materials Q3 2016
ADVANCED MATERIALS Q3 2016 HEADWINDS SMART DEVICES & COMPOSITES OFFSETTING OTHER MARKET GROWTH Net sales (in € m) EBITDA (in € m) margin 27% 1,167 (27) (21) (42) 46% 25% (5) 1,072 Scope Conversion Volume Price 297 292 (2)% forex & mix (0.4)% (1.8)% (4)% 10% 1,072 (1.8)% (8)% 24% 20% Q3 2015 Q3 2016
Slide 22: Advanced Formulations Q3 2016
ADVANCED FORMULATIONS Q3 2016 OIL & GAS NOT YET OFFSET BY OTHER MARKET GROWTH Net sales (in € m) EBITDA (in € m) margin 18% 18% 710 (5) (11) (20) (25) 648 62% Scope Conversion Volume Price (0.7)% forex 130 & mix (4)% (1.6)% (3)% 114 648 (12)% (9)% 13% 25% Q3 2015 Q3 2016 Novecare Technology Solution
Slide 23: Performance Chemicals Q3 2016
PERFORMANCE CHEMICALS Q3 2016 EBITDA GROWTH ATTRIBUTABLE TO SODA ASH & DERIVATIVES Net sales (in € m) EBITDA (in € m) margin 29% 26% 793 (1) 4 (10) (31) 756 53% Scope Conversion Volume 209 217 Price (0.1)% forex & mix (4)% 0.5% (1.2)% 756 4% 12% 18% (5)% 18% Q3 2015 Soda Ash & Derivatives Peroxides
Slide 24: Functional Polymers Q3 2016
FUNCTIONAL POLYMERS Q3 2016 EXCELLENCE-DRIVEN PROFIT GROWTH Net sales (in € m) EBITDA (in € m) 7 (16) margin 17% 489 3 (39) 444 80% Scope Conversion Volume 0.5% forex Price 12% & mix 1.5% (3)% (8)% 76 444 61 25% (9)% 20% Q3 2015 Q3 2016 Polyamide Chlorovinyls pro forma Q3 2015 pro Q3 2016 forma Poly
Slide 25: Corporate & Business Services Q3 2016
CORPORATE & BUSINESS SERVICES Q3 2016 BENEFITING FROM COST DISCIPLINE EBITDA (in € m) Q3 2015 pro Q3 2015 forma Q3 2016 in € m Q3 2016 pro forma Energy Services (8) 5 of which one-offs (7) - CER write-off 53% excluding one-offs (1) 5 (34) Other C&BS (63) (39) Corporate & Business Services (71) (34)
Slide 26: Working capital management compensates for higher needs of specialty businesses
WORKING CAPITAL MANAGEMENT COMPENSATES FOR HIGHER NEEDS OF SPECIALTY BUSINESSES Net working capital [1] 17.5% 17.4% % of total sales Q1 & Q2 2016 inflated by receivable on Inovyn exit price 14.8% 14.9% 15.0% 16.4% 14.6% 14.4% 13.7% 13.7% 13.4% 12.7% 12.5% Working capital management efforts offse
Slide 27: Debt profile: balanced maturities allowing flexibility
DEBT PROFILE BALANCED MATURITIES ALLOWING FLEXIBILITY Repaid € 300 € 1,000 € 500 in January 3.90% Euribor 5.43% $ 800 4.45% +82bp € 700 $ 800 € 750 Repaid 4.20% 3.40% 1.63% € 500 € 500 € 500 € 500 € 500 in June 6.38% 4.63% 5.12% $ 400 5.87% 2.75% 3.50% $ 250 $ 82 3.95% 8.95% 2016 2017 2018 2019 2020
Slide 28: Net pension liabilities up on lower discount rates
NET PENSION LIABILITIES [1] UP ON LOWER DISCOUNT RATES Pensions (30/09/2016) in € bn Net pension liabilities increase by € 0.2 bn Net pension Pension liabilities up to € (6.3) bn following liabilities discount rates drop (3.4) Pension assets largely stable at € 3.0 bn (6.3) 3.0 Cash contribution
Slide 29: Annexes
ANNEXES • Additional Q3 2016 financial data • Forex sensitivity & other financial considerations for 2016 • Solvay general information Third quarter 2016 results 29 November 8, 2016
Slide 30: Underlying EBIT(DA) considerations for 2016
UNDERLYING EBIT(DA) CONSIDERATIONS FOR 2016 Scope effects Forex sensitivity Acquisitions in 2015 Immediate impact on conversion exposure Cytec full consolidation as of January 1, 2016 Deferred transactional impact due to hedging Pro forma 2015 restated for acquisition ( 6-12 month rolling ba
Slide 31: Underlying financial, tax & cash considerations for 2016
UNDERLYING FINANCIAL & TAX & CASH CONSIDERATIONS FOR 2016 Cost of borrowings Discounting of pensions and HSE Total underlying financial charges P&L: ~€ (110) m (¾ - pensions, ¼ - HSE) expected at ~€ (370) m (incl. perpetual hybrid bonds) Sensitivity to change in discount rates [1]: Financial c
Slide 32: Other considerations for 2016
OTHER CONSIDERATIONS FOR 2016 Discontinued operations Underlying adjustments to IFRS figures Indupa chlorovinyls business in Latin America To improve comparability of results over periods Agreement reached on 02/05/2016 to sell to Exclusion of Brazilian chemical group Unipar Carbocloro for E
Slide 33: Annexes
ANNEXES • Additional Q3 2016 financial data • Forex sensitivity & other financial considerations for 2016 • Solvay general information Third quarter 2016 results 33 November 8, 2016
Slide 34: Our vision: creating a future with more potential
OUR VISION CREATING A FUTURE WITH MORE POTENTIAL MORE talents Building a new model of sustainable chemistry to help answer some of society’s challenges Asking MORE from chemistry MORE MORE innovative Responsibility sustainable solutions Leading to long-term value growth for our stakeholders Third qu
Slide 35: Executing our strategy: in-depth transformation
EXECUTING OUR STRATEGY IN-DEPTH TRANSFORMATION STRONGER GROUP Growth Returns Resilience Third quarter 2016 results 36 November 8, 2016
Slide 36: Upgrading our business profile
UPGRADING OUR BUSINES PROFILE ACTIVE PORTFOLIO MANAGEMENT Enhancing customized solution ACQUISITIONS * offerings Indupa [1] Ryton MORE Chem- Rhodia logics Inovyn Refri- gerants Reducing Eco PCC s cyclical & Services low-growth Pipe- businesses life DIVESTMENTS exposure 2011 2012 2013 2014 2015 2016
Slide 37: We are more global
WE ARE BALANCED MORE GLOBAL 30% GEOGRAPHIES 1/3rd ~c.1/3 Over in each 1/2 in 27% region • Europe Europe 33% • Asia & RoW • Latin America • North America 10% 2010 2015 (1) € 6 bn €12 bn Net sales Net sales MARKETS 12% 26% 6% • Automotive & aerospace ~ 𝟓𝟎% • Resources & environment ~ 𝟐𝟎% in GDP+…
Slide 38: We are more specialty
WE ARE MORE SPECIALTY ~ 2/3 ~1/3 specialties specialties 2010 Net sales 2015 € 6 bn pro forma € 12 bn • Advanced Materials • Performance Chemicals • Advanced Formulations • Functional Polymers Diversified chemicals Third quarter 2016 results 39 November 8, 2016
Slide 39: Resulting in value delivery improved vs benchmarks
RESULTING IN VALUE DELIVERY IMPROVED VS BENCHMARKS PROFIT CASH RETURNS EBITDA margin Cash conversion HOLT CFROI [2] 18.5% 17.5% 16.2% 16.6% 16.7% 65.2% 15.1% 62.0% 57.4% 5.8% 5.4% 51.7% 50.4% 5.0% 4.2% 4.3% 50.2% 2.7% Solvay Median and range of peers [1] 2010 2011 2012 2013 2014 2015 2010 2011 2012
Slide 40: Aligned business segments strategically coherent to drive results
ALIGNED BUSINESS SEGMENTS STRATEGICALLY COHERENT TO DRIVE RESULTS GROWTH RESILIENT CASH ENGINES CONTRIBUTOR ADVANCED ADVANCED PERFORMANCE FUNCTIONAL MATERIALS FORMULATIONS CHEMICALS POLYMERS EBITDA High performance Customized specialty Leading positions in Leading regional 2015 PF materials, providi
Slide 41: More value that stands the test of time
MORE VALUE THAT STANDS THE TEST OF TIME 3 years 3 years 2016 - 2018 2016 - 2018 PLANET PROFIT GHG intensity -20% kg CO2 eq. emissions / € EBITDA reduction to 5.8 Mid-to-high Sustainable EBITDA [1] growth single digit 7% % yoy Solutions increase to 40% % Group sales PEOPLE Accident rate -10% Free cas
Slide 42: Mid-to-high single digit profit growth
MID-TO-HIGH SINGLE DIGIT PROFIT GROWTH UNDERLYING EBITDA (in € m) OPERATIONAL EXCELLENCE Mid-to-high single digit € 450 m by 2018 % yoy 600 Cytec synergies CYTEC SYNERGIES 2,336 ~300 Business growth € 150 m by 2018 Cytec (net of 1,783 1,663 Cost Operational sales 1,955 inflation excellence erosi
Slide 43: More cash: FCF > €2.4 bn over 3 years to 2018
MORE CASH FCF > € 2.4 bn OVER 3 YEARS TO 2018 FREE CASH Underlying EBITDA FLOW (in € m) mid-to-high single digit growth > € 2.4 bn Capex intensity 656 >650 to reduce Disc. 524 ops. 492 Net working capital intensity 511 Cytec stable Disc. ops. 391 Sustainable FCF growth Pensions & other provisions 19
Slide 44: Reducing greenhouse gas emissions to reduce climate change impact
REDUCING GREENHOUSE GAS EMISSIONS TO REDUCE CLIMATE CHANGE IMPACT GHG INTENSITY 8.1 (in kg CO2 eq. / € EBITDA) 7.3 KEY LEVERS 5.8 4.8 20% Portfolio 40% SolWatt excellence • Energy efficiency 2014 2015 2018 2025 • Energy mix 2.3 1.6 0.6 Capex challenge 2015 CO2 eq. EBITDA GHG intensity • Internal car
Slide 45: Building an upgraded portfolio with more sustainable solutions
BUILDING AN UPGRADED PORTFOLIO WITH MORE SUSTAINABLE SOLUTIONS SUSTAINABLE PORTFOLIO MANAGEMENT (in % of net sales) 2014 2018 2025 Low KEY LEVERS 50% of production & supply chain 25% 40% Environmental footprint 60% Sustainable solutions Portfolio Neutral impact 15% Capex Challenged applications High
Slide 46: Moving towards multi-specialty
MOVING TOWARDS MULTI-SPECIALTY PERFORMANCE ADVANCED ADVANCED CHEMICALS & MATERIALS FORMULATIONS FUNCTIONAL POLYMERS Providing solutions Customized specialty Leading positions for sustainable mobility, formulations in surface in chemical intermediates lightweighting, chemistry and liquid through scal
Slide 47: Driving sustainable mobility on the road
DRIVING SUSTAINABLE MOBILITY ON THE ROAD New Industry Paradigm: • Regulations driving CO2 emissions reductions • Sustainability • Shared Mobility • Car sharing services and self-driving cars • Connectivity • Safety: Zero casualties SOLVAY ENABLING SOLUTIONS Lightweighting Powertrain Electrification
Slide 48: Driving sustainable mobility in the air
DRIVING SUSTAINABLE MOBILITY IN THE AIR Fundamental Value of Composites Lightweighting Aerodynamics Fatigue life Corrosion resistance Lean manufacturing lower part cost Increased SOLVAY passenger comfort ENABLING SOLUTIONS Life-of-program maintenance costs Third quarter 2016 results 49 November 8, 2
Slide 49: Driving sustainable mobility beyond today
DRIVING SUSTAINABLE MOBILITY BEYOND TODAY MORE value creation Boeing 787 Serial Airbus A350 Auto 777 and A320 Empennage New Single Aisle Aircraft Current Innovations Applications Under Development Entry into transport • Industrial scale and economics • Adoption on wing/fuselage • Military aircraft •
Slide 50: Planet, Profit, People
PLANET PROFIT PEOPLE CASH SOCIETY RETURNS Third quarter 2016 results 51 November 8, 2016
Slide 51: Solvay's ADR program
Solvay’s ADR program Convenience of investing in American Depositary Receipts (ADRs) through a sponsored Level 1 program ADR Symbol SOLVY Benefits of ADRs: Platform OTC Clear and settle according to US standards CUSIP 834437303 Convenience of stock quotes and dividend payments in US dollars DR I
Slide 52: 53 November 8, 2016
Third quarter 2016 results 53 November 8, 2016