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All three divisions were negatively impacted by a triad of lower volumes and prices, and FX headwinds – earlier than we had expected. Interestingly, only volumes took their toll on profitability and the margin was slightly higher. This was unlike the scenario of some years ago, when Solvay saw collapsing margins in comparable conditions. The Q3 figures were a significant miss relative to our estimates (sales: -11.8%; adjusted EBITDA: -7.0% – consensus: sales: -9.2%; adjusted EBITDA: 1.4%).
Companies: Solvay (SOLB:EBR)Solvay SA (SOLB:BRU)
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Solvay was not able to decouple from the lower overall demand across the chemicals industries, but the company is well positioned to defend its margins at the group level. This allowed the management to confirm its FY guidance with a somewhat more upbeat view on FCF. This may look like an easy task given that >50% has already been booked, but the second semester could become challenging. The revenue line was a -2.9% miss to the consensus although the adjusted EBITDA was a +3.2% beat.
Solvay is now a completely different company than some years ago. Profitability is also stronger during cold weather although things are becoming more difficult as higher sales prices cannot always compensate for lower volumes. All in all, the strong beat on profitability relative to our estimates (+17.0%; consensus: +14.9%) was a pleasant surprise. he company-calculated FCF however missed our expectations by -30.9%.
Solvay’s management achieved a great deal in the 2019-22 period, having successfully navigated the pandemic and the ensuing challenges. By increasing profitability, many other KPIs improved (leverage, ROCE), which now enables the separation of the company. Having covered the company for many years, this seems too good to be true. Solvay reported another quarter beat of AV and the street’s expectations, but 2023 will be a more challenging year with a strong focus on margin preservation.
After some preliminary figures, it was clear Q3 was a strong quarter. Now the future outlook is coming into focus and the management will need to provide some – at least – qualitative insights so as to manage expectations, which could go in two directions. The reported figures were not much of a surprise. As expected, Materials continued its recovery and all divisions enjoyed strong pricing power. The top line beat to our estimates was +11.1% (consensus: +10.9%) and +13.2% (consensus: +20.0%)
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