Solvay had a very good start, reporting adjusted (!) EBITDA above pre-crisis levels. In the light of reality, the ugly scratches of the portfolio measures obviously weighed on profitability. Nevertheless, we are a bit more optimistic for the company, not just because our estimates were beaten by +5% (sales) and by +10% on the adjusted EBITDA (consensus: +2% and +11%), but the company beat its own estimates by +9%.
Companies: Solvay (SOLB:EBR)Solvay SA (SOLB:BRU)
Solvay’s cost-cutting initiatives have been successful and protected the company’s profitability in this challenging environment. The reported figures were slightly ahead of consensus on the adjusted profitability level and the miss to the top line was not too meaningful. Our expectations have been clearly beaten on the profitability level.
More interesting seems to us the potential change in Solvay’s esteem. ESG commitments have been enlarged under the aegis of the GROW initiative underpinnin
Solvay’s Q3 did not reflect any recovery at the divisional level in its businesses. All divisions recorded double-digit volume declines, especially Materials. This also had a negative impact on profitability, to which adverse FX developments have to be added.
Q3 came in weaker than expected, especially in Materials, but the reported figures were above street expectations.
Companies: Solvay SA
Solvay’s management has already indicated weak first months in Q2 but, since then, some of the businesses have caught up. However, the Q2 figures were a notch weaker than feared by consensus, but slightly above our expectations. Management did not provide a detailed outlook, but shed some light on its FY challenges (cost savings). This does not make us too enthusiastic about the coming quarters.
Solvay’s €1.5bn impairment of the back of the current challenging business situation is the price the current management has to pay for the predecessor’s expensive decisions. The perspectives in the aerospace and the shale oil & gas industries are not the best and are expected to remain subdued for quite a while. The CEO decided to write off ~90% of Composite Materials’ former goodwill. This action looks rather hasty, but the current pandemic will be the perfect excuse to do so.
Solvay reported better than expected profitability in Q1, beating the street’s estimates at the top-line (+4%) and the underlying profitability level (+13%). This was also true for our sales expectations as well as for our ‘hard EBITDA’.
Having reshuffled the operating segments into more “modern” divisions (Materials, Chemicals, Solutions), which might be helpful to understand the effects of market developments better, this only works if transparency is unchanged. In Q1, this was not the case.
... giving 2019 quite a nice ending. Solvay was in the position to defend its profitability, also on a real-world level. The broad product portfolio helped this as Advanced Materials and Advanced Formulations saw lower earnings. Performance Chemicals was helped by the Soda & Ash business. We has expected a slightly lower (less positive) impact from the division and the contribution from joint ventures was higher. In the company’s underlying world, consensus was met.
This led to an impairment (92% for goodwill) on the former Rhodia and Chemlogics activities (Novecare – Advance Formulations), which damaged the Q3 figures and came fully out of the blue. In Solvay’s ‘adjusted world’, the impairment does not play a role and these figures look quite nice and are therefore completely misleading.
Due to the impairment, the figures did not meet our expectations, but otherwise they would have been broadly in line. As consensus is mainly based on adjusted figures, i
Solvay’s Q2 figures look slightly decoupled from Big Chems’ performance as the top-line as well as profitability showed just some slight weakness. Meeting our expectations, the figures were good and confirmed our positive view on the stock. Consensus was beaten.
It seems be that the cancellation of the FY guidance in Q1 was only a precautionary measure.
According the saying ‘new brooms sweep clean’, the new CEO, Mrs Kadri PhD, took the chance to make useful ‘adjustments’ to the predecessor’s thinking. Or pitfall? We do not know, but the more realistic view is bracing. Hopefully, there is more to come!
Q1 figures were a positive surprise and somewhat better than expected. Underlying-whatever-based consensus was beaten.
Solvay’s FY figures gave a mixed picture with some helpful volume growth and some other effects. Our estimates were exceeded whereas those of the consensus were not met.
Solvay’s implementation of higher sales prices really helped to protect the group’s margins as the divisions gave a more mixed picture. The on-average higher raw material prices could be passed on, but had a negative effect on working capital, which additionally had to adsorb Solvay’s financing of customers. The Q3 figures fit into our broad picture, despite the slightly higher profitability. Consensus was broadly met under ‘underlying aspects’, but gave a different picture on the IRFS level.
Solvay’s Q2 figures were characterised by higher volumes and attempts to implement higher sales prices, the latter in order to pass on higher raw material prices. The presentation of the respective effects driving sales and underlying EBITDA lacked accuracy as the addition of the positive performance summed up to +5.5% (sales; reported: +5.9%) and +5.6% (underlying EBITDA; reported: +6.1%) based on H1 data.
Despite this irritation, the Q2 figures confirm our view on the company, but had beaten
... is not enough to persist in the real world. The underlying figures do not look bad and were presented in an appealing manner, giving the impression the challenges are well managed. But organic growth is not the full story and IFRS figures are the reality. Even though we are cautious regarding 2018, the hard figures fit into our picture despite the large one-off. Consensus was just met on underlying figures, but not on the real figures.
Solvay’s figures gave a mixed picture. In general, the various businesses could not get hold of profitability gains stemming from higher volumes or operation excellence programmes. Adverse FX effects should not be only explanation. Neither our profitability expectations nor those of consensus have been met, but we value the recovery in some businesses and markets as positive.
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