The Belgian chemical group Solvay invests heavily in innovative technologies to benefit from megatrends such as renewable energy. CEO Ilham Kadri does not choose between rechargeable batteries or hydrogen, but focuses on both. She said that during our 31st episode of CEO Talks.
The corona crisis has hit Solvay hard. In the first nine months, sales fell 12 percent, gross operating profit by 16 percent. What is the disruptive impact of corona on the business?
Ilham Kadri: ‘We are a global company. We learned very early from China and South Korea how they tackled the pandemic there. We learned from this how we could better manage the crisis elsewhere. 40 percent of our 10,000 employees were already teleworking before the crisis. So we were well prepared. ‘
“Not one of our factories had to be shut down by the authorities because we supply essential products for our daily life: from polymers in your car to ingredients for pharmaceuticals, food or disinfectants.”
‘Of course the pandemic has had an impact on our activities, with volumes declining, especially in the aviation, automotive, oil & gas and construction markets. Still, Solvay weathered storm Covid-19 well by delivering record cash flow through targeted cost management. Going forward, I am confident that our three business segments are well positioned to respond to tomorrow’s growth trends. ‘
Turnover (2019): 10.2 billion euros (-2.2%).
Three divisions: Solutions (36.6% of turnover in 3rd quarter): chemicals for mining, food, consumer products, …
Chemicals (34.5%): Monochemistry such as soda and peroxides.
Materials (28.8%): polymers and composites for, among others, the aviation and automotive sectors.
Gross operating profit: 2.32 billion euros (-2.8%).
Employees: 24,100, at 152 locations.
Do you already see points of light?
Frame: ‘Anyway. We are already seeing a recovery in hard-hit sectors such as cars, although the second corona wave with its lockdowns may throw a spanner in the works. And we have branches that are less susceptible to corona, such as our healthcare products or consumer products such as detergents. For example, we accelerated the development of Actizone, a substance that eliminates 99 percent of all germs – including the Covid-19 virus – and keeps the surface clean for 24 hours. That is much longer than other products. The electronics market is also resilient and accelerated during the lockdown. Geographically, China is a bright spot. The country grew 7 percent last quarter. ‘
Hit the stock market
The share price is lower than during the crisis of 2008. What will you do to recreate shareholder value?
Kadri: ‘It is true that our course has taken a hit, but that applies to the entire sector and many of our customers. We are already seeing signs of recovery and are recovering faster than the market. In contrast to the past, we intervene more quickly where necessary. We also make hard decisions such as closing a factory. Thanks to cost savings and discipline, our cash flow generation for the first nine months of the year was a record 801 million euros, more than double the previous year. Our cash flow phasing during the year is also improving, with margins that are the best in our sector. Our profitability is less affected than the volume declines. ‘
Improving the share price is one of my mandates.
‘In addition, I started a transformation process and we are investing heavily in megatrends with an enormous number of growth opportunities. Just like our focus on cash flow, the share price should profit from this in the long term. Improving the share price is one of my mandates. ‘
Could value be created by splitting up Solvay?
Frame: “When I started at Solvay in March last year, I said there were no sacred cows. We always have to decide whether we are the right owner of everything we do. We always look at possible options, both acquisitions and a sale of assets. The creation of shareholder value comes first. ‘
Which megatrends is Solvay focusing on?
Frame: ‘It concerns structural issues that the world cannot ignore, such as electrification, lightweight materials, digitization or environmentally friendly solutions. Last year, for example, we launched a platform for battery technology and one for thermoplastic composites that are circular and recyclable. ‘
‘Last week, our hydrogen platform was added, a market with a potential of 1 billion euros. Hydrogen is important to achieve Europe’s Green Deal. We believe that global hydrogen production can grow to 100 gigawatts by 2030 (the production of 100 nuclear reactors, ed.). That is huge! We have a good solution for this with our Aquivion product. We are very early in this market, but believe that hydrogen and electric motors will coexist. Rechargeable batteries for a passenger car, and hydrogen for long-distance cars, trucks, buses, trains and even airplanes. We are committed to both. ‘
Speaking of aviation, how hard is the unprecedented crisis in the sector affecting Solvay?
Frame: ‘Civil aviation accounts for 7 percent of our turnover. The sector will take a long time to recover. If we listen to Boeing and Airbus, production will reach the level of 2019 at the earliest in 2023. In a pessimistic scenario, this will not be until 2025. If a vaccine is available – and there are positive signs about it – it can be done faster. In this segment we have devastated the business and cut costs heavily. We have closed one factory, another will follow at the beginning of 2021. ‘
‘But people are going to keep flying, as part of their freedom. We recently renewed our contracts with Boeing and Lockheed Martin. We do notice that aircraft makers are more committed to aircraft for shorter distances. That is beneficial for us. The current short-haul aircraft have fewer lightweight composites than those for long-haul, which means that there may be some catching up. Smaller appliances must also become more economical. ‘
Solvay is the world’s largest supplier of chemicals for shale oil production. This is under pressure because of the environmental impact. In addition, US President elect Joe Biden does not seem like a great friend of the oil industry.
Frame: First of all, I am happy that a record number of Americans voted, a show of civic spirit. I congratulate Mr Biden for wanting to rejoin the Paris Club and do more against global warming. After all, we are a leader in green solutions, such as electrification, hydrogen and making materials lighter. ‘
We are looking at strategic options for our shale oil business.
‘Shale oil accounts for 4 percent of our income. The Biden government is not going to ban fracking, only restrict it on new land. The oil price is more important to that branch than anything else. We are well positioned for a possible revival of the oil and gas sector, but are looking at the strategic options for this segment. ‘
Solvay is known as a dividend aristocrat and has never cut its dividend in the past 38 years. How secure is the coupon?
Frame: ‘As the entire management team, we have defended the benefits. Our record cash flow allows both to invest and to reward investors. We also paid all bonuses for the employees. The interim coupon remains stable. It is still too early to make any statements for the entire year, but I would prefer to continue with the dividend policy. The credit rating is important here. If that is in danger, there are no taboos about the dividend. ‘
Next episode: Serge Van Herck, CEO of EVS (November 24)
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