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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Solvay's Q1 2022 Results Conference Call for analysts and investors. Solvay team, the floor is yours.
Thank you. Good afternoon, and welcome to our first quarter 2022 earnings call. This is Jodi Allen, Head of Investor Relations, and I'm joined here in Brussels by our CEO, Ilham Kadri; and our CFO, Karim Hajjar. Today's call is being recorded and will be made available for replay on the Investor Relations section of our website later today. .
I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. You may refer to the slides related to today's broadcast, which are available on our website. With that, I'll turn the call over to Ilham.
Thank you very much, Jodi. And happy to have you with us in person. Hello, everyone. I'll begin my remarks as always with the health and safety overview. Compared to the first quarter of 2021, the reportable injury and industry rates are down as are the number of accidents and near misses.
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Frequent safety dialogues. And as we return to our plants and offices, more in-person interactions at the site between management, [ card ] and employees to keep our teams safe and productive. Since 2019, we have been building up a culture of near misses, which are increasing in the company. These indicators are observations at work of situations that could lead potentially and becomes accidents, although they didn't occur in reality, but it could have happened. We encourage our all employees, especially in the field to make observations and reports. Our reports are reviewed at least and then implemented and we continue working hard to continue raising the bar towards 0 incident goals.
Regarding COVID-19, the strict lockdown measures across China are impacting markets across the globe, particularly affected are the people, including our employees in those regions. These are nationwide lockdowns following the surge of new cases and it remains unknown when the restrictions will be lifted. We are doing as much as we can to help our colleagues meet their essential needs. To support our employees in Shanghai, our Industrial Director, Lou Young, has led the initiative to provide all employees with a fresh package of food. The packages were delivered at home for each of the employees. We also continue to use the solve solidarity fund to help our employees and their communities in Ukraine as we have donated EUR 1 million to the Belgium and International Red Cross in support of relief efforts and through our donation matching program Solvay and our employees have donated an additional EUR 100,000, matching the donations of around 350 employees to help the people of Ukraine.
Now moving to our first quarter 2022 results on Slide 3. I'm really proud. I'm really proud of the strong performance we delivered in the quarter. We are hitting new records on sales EBITDA and returns. Our businesses continue to do an outstanding job managing an environment of unprecedented inflationary pressures from energy and raw material costs, supply chain and logistics constraints and lingering uncertainty due to what we continue to hope are the last stages of the pandemic.
Sales were up 26% on an organic basis and 20% growth or EUR 475 million is from pricing. This is impressive when you consider we achieved EUR 441 million through the entire year of 2021. So we succeeded to deliver in one quarter what we delivered the whole last year. This is the highest level of quarterly price growth we have ever achieved. All businesses achieved price increases, so the [indiscernible] specialty polymers and Novecare, in particular. Now as shown on Slide 4, pricing momentum accelerated from 12% in the fourth quarter 2021 to 20% in the first quarter of this year more than compensating for the sharp cost increases.
Let me spend the moment on price given its significant contribution and tell you how we are changing our culture and really getting momentum on pricing. First of all, this achievement is group-wide with every business successfully raising prices. Our pricing initiatives entail multiple mechanism depending on the business, its contract structures and the actual cost impact. For example, in the more specialty focused businesses such as specialty polymers, we focus on value pricing. What does it mean? It means we are selling a unique differentiated value proposition to customers through existing and new solutions that address their needs for light rain, electrification, hyperconnectivity and many more features, as you know. And we would expect much of this to remain in place.
In other businesses, including those in our Chemicals segment, most of our contracts are linked to formulas. So these prices would adjust based on the rise or the fall of key raw materials. But in fact, we didn't sit on it. We have been reviewing this, as I told you in quarter 3, quarter 4 last year, and we are improving such contracts since last year.
Finally, in the fourth quarter last year, we started to implement surcharges for example, on energy and logistics to secure necessary increases. These are mainly used where existing contracts do not allow such adjustments.
In our Chemicals segment, with its focus on essential chemicals, our pricing power enabled us to leverage prices to achieve a contribution to net sales of 26% of the 32% sales growth of the segment.
In Materials, with its focus on specialty polymers and composites, price contributed 12% of the 28% increase in net sales for the segment. And in the Solutions segment, last but not the least, I'm extremely proud. Price contributed 21% of the 27% sales growth of the segment. This, of course, all of this came on the top of the volume growth, which was also positive in each of the segments. All of this shows you that our products and solutions are valued, appreciated by our customers and that their value is clear even in such an inflationary environment. And thinking ahead to the two independent companies, we intend to create, you can also see on Slide 4 that businesses across both future Specialty Co and Essential Co delivered pricing in equal measure showing the progress on pricing is not limited to one type of business or one type of entity and indeed broad-based and strong.
Another element of growth was from the underlying demand trends in our key end markets which enabled us to grow our volumes by 6%. Volume growth was driven by strong demand in several key markets, including automotive, which grew 24%; electronics, which grew 32%; Healthcare, which grew 34%, Agro and feed markets, finally, which grew 46%. As we started and we will continue delivering such color monitoring our growth by market, Solvay's best-in-class portfolio enabled us to grow our sales above market growth rate in each of the served markets.
Geographically, all regions delivered double-digit organic sales growth versus the previous year quarter, with all regions growing around 25%. Sales in Russia, which you remember are not material, less than 1%, were down slightly in the quarter as we suspended operations there in early March. Our volume growth, together with the vigorous pricing actions enabled us to again deliver record EBITDA, which came in at EUR 712 million, This is 20% higher than quarter 1 2021.
In fact, all 3 segments achieved double-digit EBITDA growth. I would like here to make a spotlight on the performance of the Solutions segment, which delivered the highest growth rate in the quarter, 35% higher organically year-on-year, and this is, thanks to significant growth in consumer-driven end markets, again supported by price initiatives and healthy demand.
The underlying EBITDA margin of the group was 23%, which continues the record level set in 2021. This impact was due to strong pricing actions offsetting inflationary headwinds. The 12-month return on capital employed, ROCE performance was another record at 12.3%, thanks to the strong EBITDA performance in the quarter and our ongoing actions to optimize our businesses since 2019. But let me give you some perspective. This is 50% higher than it was in 2019 and has moved up from laggards to leaders. We've done this by upgrading the quality of our portfolio of our businesses by pruning those that could not be improved further and by prioritizing and focusing on higher and specialties and growth as we focus on the value of our solutions and what our solution can bring best to our customers.
Finishing the financial overview, our free cash flow generation was positive for the twelfth consecutive quarter despite higher working capital as a result of a higher sales level. We continue to prioritize investments in innovation and capacity expansion to support continued growth across the midterm.
Turning now to our ambitious ESG-related targets. Our climate initiatives to reduce greenhouse gas emissions by 30% between 2018 and 2030 and to reach carbon neutrality before 2040 in all businesses and before 2015, soda ash remain on track. You will recall that Solvay's greenhouse gas emissions at the end of 2021 were down 14% versus 2018 levels. And our efforts continue in quarter 1 to support our ambitious goals, reduction in these quarters were achieved, thanks to projects to reduce emissions in specialty polymer and in soda ash. Furthermore, in April, we announced that we have signed a 10-year utility power purchasing agreement with the Oslo-based hydropower company Statkraft to purchase electricity produced by a regional wind farm. The agreement will enable our site in Finland to operate on 100% with wind-generated electricity helping to decarbonize the production of hydrogen peroxide at the site.
This agreement complements the decarbonization initiatives, we have already undertaken such as the previously announced investments to transition to biomass at our soda ash plant in Rheinberg in Germany, in Dombasle in France, and in Devnya in Bulgaria and our solar farm in South Carolina in the U.S.A. that allows us to provide greener power for 17 of Solvay's factories, which places us among the top 10 companies in the U.S.A. for installed solar power.
We have also demonstrated progress together with the French recycling technology company, Carbios, on the recyclability of PVDC high-barrier polymer, which recently has been proven to be fully compatible with that innovative recycling process. This breakthrough provides a sustainable end-of-life management solution, which can extend the proportion of our circular sales consistent with our Solvay One Planet commitment. The work we have done to address scope 1 and 2 emissions has further triggered our climate ambitions to integrate Scope 3 emissions into our targets.
I'll remind you that Scope 3 considers the emissions generated along the value chain, all the value chain. Recognizing this potential, Solvay's commitment to set the 2030 target for our reduction in Scope 3 emissions by joining the science-based target initiative, or SBTI, and those targets will be announced later this year. So this is the day of announcement where we have also just launched the fourth growth platform, which will focus on renewable materials and biotechnology.
And I must say, I'm thrilled because we have been working on it since some time now behind the scene. As you know, demand is increasing for BioSource, biodegradable and recycled products, and Solvay will focus on the biotechnology required to address this rapid growth. Today, we source bio-based technologies, including guar, natural vanillin, [indiscernible] and BioSource solvent. And this new platform will largely open up new opportunities enabled by biotechnology across our markets. As you may know, the bio revolution is here, in full swing and driving a new paradigm shift in our industry.
To give you some perspective, 6 of the physical input to the global economy could be produced biologically between 2030 and 2040 with the potential to disrupt economies, industries and society. In 2020, 5% of Solvay Group sales were based on renewable or recycled resources. Our objective is to reach 15% by 2030. Of course, this is not about sustainability on the one hand and profits on the other hand.
At Solvay, we believe that we can be both sustainable and profitable. This new platform in conjunction with our other platforms, material, thermoplastic composites and green hydrogen will enable us to investigate and provide solutions for our planet and society's needs while growing our business profitably.
Last but not the least, again, a day of announcement. Today, we announced the acquisition of the 20% minority position from AGC Soda Corp., our partner in our Greenville United States of America natural soda ash operations to give us complete control of the site. These step simplifies and enhances our soda ash and derivative business and will help to meet growing demand from customers, especially in lithium carbonates using EV batteries for clean mobility and flat glass in solar panel for resources efficiency, to name a few. This transaction will generate cash returns, net cash return of 15%, which would make this one of our most valuable acquisition in the last decade.
Now I would like to hand over to Karim, who will review the group segment and financial performance in more detail. Karim?
Thank you, Ilham. Good morning, good afternoon, everybody. I will go directly to the business review, and I'm going to refer to figures, as usual, on an organic basis, by which I mean at constant scope and currency, unless, of course, otherwise noted.
Starting with materials on Slide 5. Net sales in the first quarter were up 24% versus last year. Half of that came from pricing, the other half from volumes. Specialty Polymers grew 26%, both from volume and price. This was driven by 29% growth in automotive, which includes EV batteries, 47% growth in health care, driven by really strong sales into medical devices such as in surgical instruments as elective surgeries are beginning to return after the pandemic impacts of the last -- or the recent period. We saw 26% growth in electronics with increased sales into electronics display applications to name a few. The auto market, again, including batteries, represented 28% of sales of Materials segment last year, and it continues to grow. Although geopolitical headwinds could affect auto production, of course, the most recent market forecast for 2022 from LMC still indicates growth of around 7% in light duty vehicle production globally.
Significant price increases in Specialty Polymers more than compensated headwinds from increased energy and raw material costs. In our Composite Materials business, overall sales growth was 16%, 1-6 percent, predominantly from volumes, driven by sales to the single aerospace market, which grew 43% on increased single eye build rate at our key customers. For example, the Boeing 737, the A220, the Airbus 320 as well as recovery in the business market. Sales to Space and Defense were down 11%, mainly reflecting raw material shortages and supply chain issues. Overall, the defense sector is expected to grow over time as demand for defense aircraft is increasing due to the war supported by broad position across multiple key programs. Price increases in composite materials offset increased raw material and energy costs, although higher logistic costs marginally impacted our margins. Wrapping up materials, EBITDA in the quarter grew to 21% compared to last year, leading to an EBITDA margin for the segment of 29%.
Moving to Chemicals. Slide 6. First quarter sales in the segment rose 29%, driven mainly by price. Soda ash and derivative sales increased 29% versus Q1 last year. Given the current environment, our teams were resolutely focused on implementing price increases and energy surcharges and they were successful because their actions helped to fully offset the rising energy costs. Significant price increases were successfully realized, especially in Europe and in seaborne markets. Demand remains solid across all markets. And customers are looking to us to do more to meet their growing needs. You recall a few weeks ago, that went Philippe Kehren, President of that business spoke at the last earnings call, he explained how his team had successfully renegotiated pricing with key customers to overcome rising costs. And the macro environment only became more challenging since that time, but the results speak for themselves. As industry leaders in soda ash the team continued their momentum, they use price increases and surcharges to pass on costs and protect margins.
Peroxide sales grew 21% organically compared to Q1 last year, driven mainly by strong demand in the pulp and paper market in North America as well as increased volumes in all subsegments of the food industry, including cleaning, aseptic packaging as activity resumes and the COVID lockdown in most geographies are eased. Significant progress was made in driving price increases and cost surcharges, which more than offset cost inflationary impacts. The Coatis business benefited from the continued momentum that was evidenced in the second half of '21. Sales in the quarter were up 33% as favorable market conditions persisted. Demand and price levels for these basic chemicals were strong. However, the negative impact from the sudden logistic and supply difficulties in addition to increased raw material and energy costs, outweighed the price increases in the quarter, and that resulted in a margin contraction in that business.
Going forward, Coatis will continue to leverage pricing power to mitigate cost increases. Silica sales grew 30% over last year on solid demand and volumes in the Thai market. There was good progress on price increases, so this did not fully offset cost inflation due mainly to questions of timing because contractual arrangements in that business typically means that prices lag cost by matter of a few months. You will remember that we announced in early March, the suspension of our business operations in Russia. And while sales are not significant, our results are modestly down in Q1. Profits in revenue, a 50-50 JV, were down 13%, 1-3 percent, sequentially against Q4 last year. We also, to remind you, indicated that we would suspend dividend payments from RusVinyl.
And you may want to note that in 2021, dividends from that joint venture amounted to EUR 103 million. We won't be seeing this year, clearly. Overall, EBITDA for the Chemicals segment rose 15% compared to Q1 '21. The segment achieved an underlying EBITDA margin of 27%, which is down from the Q1 '21 levels of 30%, mainly attributed to price and cost effects, and I highlighted earlier, particularly in Coatis and Silica.
Turning now to Solutions. And on Slide 7, you see some key facts. In particular, sales were up 26%. There, pricing and good demand contributed to that growth across all relevant markets that we serve in segments. Sales in Novecare increased 28%, driven by significant increases in pricing, which came on top of demand growth in the agriculture, coatings and the home and personal care markets. Significant progress was made in adopting a value-based pricing approach with customer where we offer differentiated solutions, for example, formulations in the -- for the agriculture market, where farmers are currently benefiting from stronger crop prices all delivered strong pricing gains in the quarter and it's a positive environment, clearly. Oil & Gas Solutions grew 67%, driven by strong demand and by higher prices. Pricing more than compensated for high cost yet again. This business also overcame headwinds with several raw material outages and suppliers and significant logistic challenges, which are created -- which have been created by the lockdown and the port congestion issues in Shanghai in China.
Special chemicals sales increased 18% versus Q1 last year. Higher sales in electronics markets were partially offset by lower sales of catalyst ingredients and metal surface treatment products to automotive due to the continued impact of chip shortages as well as supply chain disruptions. That business managed to drive price increases that marginally exceeded cost inflation.
Technology Solutions sales increased 7% compared to Q1 last year. The growth there was driven primarily by higher volumes to the mining industry, thanks to underlying strong demand and high production levels for copper. Sales in our Aroma business, Aroma Performance business improved 22% and achieved a new record, driven by significant price increases and solid demand in food flavors and fragrance markets. To conclude, the Solutions segment results. The first quarter EBITDA was up 35%, and that really reflected really strong pricing power in a supportive and a positive demand environment across all the core markets. EBITDA margin in the segment was up 150 basis points to reach 21% in Q1 2022. And I look back over time, I'm particularly encouraged when I recall the 17% margin for that same segment in Q1 2019. And that really shows the impact of the execution, the relentless focus and execution of the growth strategy on that segment.
Looking at the Corporate & Business Services result, [ proceed ] costs have increased by EUR 28 million to EUR 64 million in the quarter. The increase over a low Q1 last year reflects a ramp-up of our investments in our growth platform in digital transformation as well as in cybersecurity as well as fixed cost inflation, less, as you know, the benefits of continued cost reductions. Talking of cost reductions and turning to Slide 8. The structural and fixed cost savings for the quarter came in at EUR 22 million.50% of that came from continued labor cost reductions, the balance with combination of productivity increases and lower indirect spend.
On Slide 9, you'll see that fixed costs for the group increased by EUR 85 million, that's 11% up on Q1 last year. Due to the factors I've indicated before, as well as inflation impacts of EUR 30 million, investors across the group of around $30 million in IT, cyber, of course, in growth platforms and an indirect spend, including maintenance of EUR 15 billion. Cumulatively, structural savings now amount to EUR 410 million since 2020. And as we look forward, there is a high likelihood that we will absolutely deliver the targeted EUR 500 million cost reductions pretty much earlier than the 2024 commitment.
Turning to cash on Slide 10. Free cash flow reached EUR 260 million, and that marks the 12th consecutive quarter of positive cash generation. The strong EBITDA growth mainly offset the higher working capital, which increased mechanically due to price and cost inflation and to higher value inventories. We are maintaining our discipline on working capital and our working capital as a proportion of sales remains strong at 12%, similar to the same period last year. Free cash flow was EUR 67 million below last year, due in part to the increased investment in CapEx of EUR 51 million. Importantly, free cash flow conversion stood at 32.9%. And with that, I'll hand the floor back to Ilham.
Thank you. Thank you, Karim. So let me conclude. In fact, after 2 years of listening to us talk consistently of driving cost and cash, which we are delivering again, you will now hear us consistently highlight growth and pricing because we get fit and we are now ready to change the game. Our results this quarter demonstrate our ability to implement necessary price actions to overcome the significant inflationary pressures while continuing to transform the company. Our team has consistently demonstrated our ability to manage through these near-term headwinds. Solvay, I would say, has had more experience than we wanted in navigating through a difficult market environment. Remember, we persevered through the impact of 737 MAX issues which had on the Aerospace industry during my first year in the company.
We took requisite measures to protect our employees and balance sheet throughout the pandemic in 2020 and 2021 and we are now facing the impact of a war in Europe that is affecting millions of lives. All of this, along with the drastic lockdowns in China are resulting in impacts on energy prices, potential oil and gas curtailments, lower production rates of customers, potentially lower GDP and unthinkable human suffering.
The market environment is right with uncertainty, and we are exposed to many risks that we cannot control. We will keep focusing on what we control, and we will continue doing what we have been doing, balancing required inventory levels and working capital, increasing cash flows, reducing debt and cost, relentlessly serving and servicing our customers and investing in growth. As we look forward, the second quarter should be supported by our current solid order book and sustained pricing actions, although we estimate quarter 2 to be lower than quarter 1 to record, not least because we factor in the loss of around EUR 50 million in sales mainly in specialty polymers related to shutdowns and port congestion in China.
We also know that the second half of 2022 have tougher comparables given the measures to address the inflationary environment already in the second half of 2021. We will, of course, continue to be attentive to and closely monitor the mobile environment and we have not factored in any additional major headwinds into our guidance. So thanks to our robust start of the year, continued pricing momentum and solid order book were raising our 2022 guidance and now expect EBITDA to grow on an organic basis by mid- to high single-digit levels for the full year, by which we mean a range of 5% to 8% organic growth.
On cash, we are maintaining our full year outlook despite the previously announced suspension of dividends from RusVinyl. We expect to deliver more than EUR 650 million of free cash flow for the full year 2022. As we continue to invest in capacity expansion and decarbonization projects in the course of the year, the CapEx level is expected to be around EUR 850. This represents a 15% increase versus 2021, half of which is inflationary effects.
Moving to another important milestone, our announcement in mid-March on the plan to explore a separation of Solvay into essential co and specialty co. We have received a good thank you. Internally first within Solvay, the response was overwhelmingly positive. I'm so glad about this. And our employees are energized to support and execute on the plan. I want to extend my gratitude to all of them for their support and their hard work as we move forward with this important phase in our development. We are also mobilizing the task force led by highly experienced and dedicated team, while supplementing our own teams with the best experts. In short, we had the necessary resources and the intention to deliver on the separation. We anticipate completing the spin-off during the second half of 2023, of course, following approval from our shareholders. Since the announcement, we have engaged with many shareholders, analysts, debt holders and lending banks. We acknowledge that some analysts may have expected a different course of action and a quicker project execution and we hear you.
Having said that, we were encouraged by the broad support of many top shareholders who appreciate the strategic logic that we have outlined, stating that logic succinctly the individual strategies, the customized and the unique differentiated operating models of the two entities and capital allocation plans uniquely position each company to unlock value for shareholders, customers and employees alike. Indeed, feedback from customers has been also positive as they anticipate each new company to further sharpen its focus on serving their respective needs by being more effective, dedicated to one model we customize allocation of resources and the right operating model that can serve them better.
Of course, I appreciate that you will need more information from us in order to better understand the path to value creation, and we will share more information in the coming months. In the meantime, we also intend to continue with the business briefing that we commenced earlier this year and we will host our next webinar mid-June, June 15, focusing on our offering to consumer-facing markets, and will be joined by our President of Solvay's North Care Global Business unit to share more about our position and growth opportunities in areas including the agro, coating and home personal care market.
And with that, Karim and I are happy to take your questions.
Thank you, Ilham and Karim. We'll now move to the Q&A portion of our call. [Operator Instructions] Moderator, please proceed with the Q&A.
[Operator Instructions] So we have our first question from Matthew Yates from Bank of America.
Just one question then. Can we talk a bit more about the solutions business. I certainly can't remember profitability anything like this level although the frequent restatements don't make that necessarily easy to track over time. Ilham, I remember in the past, you said this business or perhaps Novecare specifically had to earn the right to stay within Solvay.
Yes.
And it looks like something very good is happening here. But can you elaborate a bit more on what's driving this? You mentioned in your introductory remarks that they need to be brave get value-based pricing, but any further insights you can share on the more structural or cultural changes of this portfolio to be really interesting. So that I don't just assume you got lucky with the rebound in all activity.
Yes. Yes. Thank you, Matthew. And you remember well, when I joined the company, you remember at the fall 2019, when I launched the growth strategy, the O was for optimized, and remember that I told you that the solution business is including Novecare and the surface chemistries, in general. I mean, at that time, I didn't know to think about them, but we ask them to optimize their returns because they were flirting and dating with the cost of capital, which I was not happy about, right?
So we asked them really to fix it because they didn't have the right to invest in. And I cannot be so proud and you heard me being a bit emotional in my introduction remarks because they did service today. And that's why in this separation, they deserve to become a specialty co eligible confidence. So how we did that?
You may have seen us match behind the carton doing some heavy, heavy homework. We restructured the product portfolio to focus on more value-added solutions. We've pruned the portfolio. We divested -- you may remember, commodity on for tariffs around EUR 250 million in sales and on the top of various other specialty chemical product line, we did it in 2021 last year with organized management, it's both people and people who change leadership our presidents will be with me mid of June to share the equity story of this business, which in the CFO, we send the market in strategy people business, the general managers of coatings and home and personal care and Agro all have changed. And as you know, a bit my straight language now, Matthew, we stopped filling the pot actually, right?
So we were just filling the pot and we are choosing in a better way the product mix, how we fill the pot and frankly, also, we are choosing our customers. It goes both ways to do business with. And we are engaging better with our customers, not only transactionally, right, but strategically. And we are thinking and sending a value proposition, which is about having a healthier greener chemistries, to factors which can make them use less water, last longer waterborne coatings in hair care and personal care where you need much more eco-friendly solutions for the consumers and [ this is -- knew ] this language.
And that's why, frankly, we are also launching a bio platform today. So today, with all of this, and we don't share the CFROI, which we have internally of each business. But I can tell you that the solution business has doubled annually. They doubled the group improvement of say for between 2019 and 2021. So they did the job strategically. So today, I was unhappy is that they clean home, they have a better foundation that are supported by exciting megatrends in naturalness, biosourced ingredients, exciting future ahead, and you will hear more in June 15. Thanks.
So next question by Peter Clark from Societe Generale.
Quick guidance really on the material side. You made it quite clear with your full year guidance, maybe flat EBITDA from here. Materials made the point, lockdowns starting to impact specialty polymers. The composites had some of the supply disruption impact. I'm assuming the volumes there, excluding that would have still shown acceleration. But anyway, how you feel, particularly with the very tough comps you've got in the bigger business, Specialty Polymers in Q2 and Q3. So I'm sensing the materials could be down on EBITDA if your guidance is flat for the group. But just your reading on the materials for the next couple of quarters.
So on Specialty Polymers, right. Thanks for the question. I think we've seen really great momentum on Specialty Polymers. I think Karim has explained and gave you the color for materials, a very strong quarter in auto, but electronics, et cetera. Specialty Polymer drove the growth in auto, in general, our EV continues to increase, which means new projects where our materials have a critical role ramping up faster than expected. And as you remember, we have more kilograms right per vehicle for hybrids and pure electrics than in traditional ICE combustion engine, therefore, our share continues to increase. So that's good news, right, for us. And this will continue, right?
I think in auto, maybe if this is the question, and I can talk about China, the outlook in auto production for the rest of 2022 remains negatively impacted by the continued chip shortages, which is now expected to extend maybe to 2023 and the deception of supply chain in Europe, mainly China lockdown have an important impact on the very short term, and it will depend when China lift the lockdown. I think the local industry, in my mind, has significant free capacity to catch up and the government typically uses the automotive industry as one of the levers to drive economic growth numbers. So the lower end, we shall see that we are -- we stay alert, but positive. Analysts have diversion views, optimistic LMC still to 7% would the word automotive production for light vehicle, the pessimistic are around minus 2%. So there is still some positive growth expected in 2021. But what is important is the electrical vehicle share continues to increase.
And if you look at it, the hybrid market, the [ bad ] market share reached 8% in February from 5% half a year ago. And again, we like it because we are just increasing our share all in all, I remain -- and I mean I'm not going to share it now for the sake of time, but we talk to customers, OEMs, et cetera, except few they keep being positive. So our growth in materials, you've seen it mainly in pricing as our ability to supply remains constraining key products, right?
In H2, we will have some new lines in [indiscernible] in Italy. The start-up was in Q1, but some qualification has been achieved in record time. So we will have some new lines getting in and giving us some new volumes for 2023. So we are extremely positive. The pricing has played a big role. Half of the sales growth was pricing. And this is value pricing, and I explained it, we were probably selling products, and now we sell value proposition and we invoice products. And you will see that part of it is going to be sticky and will remain regardless of recessionary environment. I'm very bullish. I think I called it in 2019, the crown jewel. The crown jewel needs now to defend itself in terms of margins. We are investing EUR 300 million in Tavaux in batteries, and we are debottlenecking our plants also digitally with low CapEx. And this you may see it, and you may not see it, but we are doing it behind the scene. But obviously, we are also looking at the macros the impact on the GDP and if there is anything changing we will let you know.
On the composite side, I think there was also composes the right question. Well, listen, you know that civil IRO now represents 6.5% of our group sales. This is a number for 2021 difference being 4%. According to the main manufacturers, Boeing, Airbus, who are our customer as well as international bodies like IATA full recovery most likely by 2023, 2024 and that's what I've been telling you since 2020. So we clearly see a steady improvement in civil IRO and this is driven by the bill to rate increases in the single-aisle aircraft, such as Boeing 737, Airbus 220, 320. We have some emerging programs. I'm not going to talk about it now, but we see some recovery. We have some bottlenecks in the value chain due to raw material availabilities and some logistics challenges. But frankly, it's just a matter of time, and our teams are really working hard to fix them for our customers. Back to you.
Sounds like you said -- it seems it would be up.
So next question from Daniel Chung from Redburn.
Congrats on the results. My one question is on price versus available costs. So in a very tough environment, you managed to achieve on that delta of price cost of $106 million. It seems like initial ambitions are being exceeded here to just compensate for variable cost inflation as you're achieving a lot more. So how should we think about this for the full year? And what's baked into that guidance on that price versus cost? .
Maybe I can take that question, Daniel. I think it's a really important question. Let me start by sharing with you the fact variable costs from our core activities last year amounted to EUR 5 billion. So that's the reference for the cost base. The main areas of spend, just to remind you, we're roughly 60% of that EUR 5 billion are raw materials logistics and packaging and energy cost 20%.
Now different things will go up in different proportions, but these are helpful orders of magnitude. Based on current market conditions, you've seen the EUR 369 million in Q1 if we extrapolate based on what we can see today, we expect those variable costs to increase by around EUR 1.5 billion. That's about 25% higher than last year. That is our own expectations. Now, could market conditions lead to different cost pressures?
Yes. Of course, they can. We absolutely accept that cost good for, but frankly, suspect there was probably more of a possibility of additional increases. And in any case, we made our plans on the assumption that there will not be any easing of cost pressures. That's sort of variable cost. I don't totally ignore. I would encourage you not to fully ignore the fixed cost equation. We're talking EUR 3 billion here of fixed cost now. 55% of that cost is mainly to do with plant fixed costs, including people costs, SG&A, R&I and the remainder is about 45%. Now inflationary pressures historically were relatively modest 1.5%, 2%. We're now seeing that grow towards 5% to 6%. So again, inflation there will increase our fixed costs by around EUR 150 million, EUR 180 million a year compared to last year, important not to lose that. Now how do we address all of that?
Frankly, we've got a two-pronged approach, very simple. First and foremost, we double down. We double down on cost discipline. But frankly, the best way to win, and you've seen the results is that we mitigate far more by looking at pricing as the main lever to the company's headwinds. So that's very much how we see it. Do we have a crystal ball? We bank on things as they are today. Does that help?
Yes, very helpful.
So we have another question from Mubasher Chaudhry from Citi.
Can you please talk about the rationale to continue to include RusVinyl in the EBITDA, but I think I understand that dividends have stopped. And do you expect to see this dividend in the future as a lump sum payment? Because I assume the cash balance that was accumulating. And just a second question on the minority purchase from ADC today. Have you entered into any long-term supply agreements with ADC for the supplier to dash?
Thank you, Mubasher. Karim, would like to talk about the Russia and I'll take the -- our ownership in Wyoming.
No, sure. I mean, look, on the accounting regulations on IFRS, the rules are very, very straightforward, and we have to comply with them. We, of course, always will. So long as we have an interest and an economic activity that is performing, regulations are you need to recognize the profits. Earnings are still accounted for as equity accounted, so equity consolidation method for the proportion that we own for the entity. And that's no change as to with past practices.
Now as far as cash flow is concerned, absolutely, as you know, we affirmed is we've suspended the dividend. We haven't indicated until then. Clearly, we're all horrified by the situation that we see in that region, and we will absolutely wait for the peace to return because ultimately, that is the right thing to do. Beyond that, we haven't pronounced ourselves.
Very good. And then I think, Mubasher, you asked a question about our acquisition in Green River and maybe first and foremost, and I think the rationale is probably pretty clear for everybody. The market is very tight. And this supports our customers' growing demand for soda ash, and we are growing in some exciting markets supporting, as I said, electrification energy. It's completely aligned with our ambition to lower greenhouse gas emission and good to expand our volume on natural products. It remotes the JV structure, thereby simplifying our portfolio, bringing some more cash, right, to the company and very attractive deal, obviously, for Solvay.
I think you've seen the number, in fact, one of the most attractive deals in the past decade. On long-term supplies, we don't frankly talk about them. Obviously, AGC is one of our customers, and they will remain -- but this is both ways relationship with them and I mean this is not a public information, but definitely, they are one of our customers. They have been -- they will stay forward next year.
So we have another question from Chetan Udeshi from JPMorgan.
A few questions. First, on the material pricing, can you maybe help us understand how much of that is just PBDS. And we've seen a lot of inflation in the PBDS market, especially in China. Is that contributing most of it? Or is that broad-based? Any quantification of PBDS in terms of pricing to be useful. The other question was -- there was this press release and you also alluded alarm in your commentary in the beginning about biotechnology. And I'm not sure how Solvay is sort of involved in that industry. Can you maybe help us understand what is the sort of involvement of Solvay today in the biotechnology side? And what are the focus segments to scale that up in that future going forward.
Yes. Thank you, Chetan. On pricing materials, Chetan, this is not PBDS-related only. I mean, no, no. I mean, this is across the board, across really all specialty appointments, right? And I think I'm not sure you wait a bit my language last year when -- frankly, first half of last year, and you've seen the curve we have prepared for you guys on the pricing, and you appreciate that we have been always flattish on pricing, and you can imagine the same curve for specialty polymers, and we started main consistently that inflation is going to be part of the equation in the second semester last year, we started preparing our businesses right opening contracts.
And in Specialty Polymers, specifically, and I think for a business lady like me or marketeer by background, when you start practicing your value pricing, right, and selling solutions rather than products and invoicing the products, I mean I used to say, and I tell it to my team internally, in specialty polymers stop selling products sell the value proposition and invoice products. And that's what we started to do in consistency. So I'm very glad and this is under the good application, Chetan, that is not only PBDS. And you remember our webinar.
I think Mike Finelli and Mauricio and I, I think we shared the value proposition under the route to take one example. Our mission with customers is to provide them light way in order to consume less fuel and emit less CO2 and replace metal with specialty polymer. And this is not only PBDS batteries, but we have PES, et cetera, we have much more EUR 800 million of automotive business which is fabulous, right? And so the pricing, I'm just saying this is across the board, and that's why you can expect part of it to be sticky even and I know it's not probably the subject of tomorrow, will return to more normal inflationary environment.
Second question, biotechnology. I think -- I hope this didn't come as a surprise for you guys. But we've been working on the biotech for a while. Since actually, I joined the company, but I was not sure yet that this serves to become core of the growth platform. I think you understand by now when we give a label platform, which is a multibillion Euro type of opportunity for us. The big addressable market, not all accessible for us is EUR 54 billion of turnover for chemicals and plastic in the bio-based economy. That's what we are looking at. What we are doing, Chetan, at Solvay, we have three parts, right, three sub bullets. One is renewable carbon, which means that we look at increase the content of renewable carbon Solvay product offering, right? The drivers are developments of environmental trends, circular products. We have alliances to the value chain. So that's number one, renewable carbon.
Number two is biotechnology. And biotechnology, we are expanding our customer base to new growth business enabled by biotechnology. And this is where we develop new value proposition aligned with the type evolving consumer customers we open innovation to address knowledge gap with others. So that's the area of biotechnology. And the number three is the biodegradability. So the biodegradability is new. It's by -- design technologies, which is biodegradable when I was younger, right, and I was a chemist in the lab, I was not asked to correct the molecule to make it biodegradable and we decide it for a second life.
Now we are asking our chemists in the lab to just do that and to manage the end of life of products at the beginning of designing the molecules and to deliver, of course, safe, sustainable solutions and, obviously, this is going to make us even stronger in front of the EU Green deal and the chemical strategy for sustainability with CCF. So those are the three areas we are looking at its chemistry, it's biology, it's biomass, it's recycled material. You see from CO2, including using CO2, liquified CO2 and capture it. And this is all in there.
And we had pockets of excellence, Chetan, in the company. But now we are really having a dedicated team like we did with batteries and you've seen how fast we have been making momentum and deciding to invest. But now from the guar technology, this is the surfactant in Novecare, we had right husk with Vanilla in Aroma. We had biosolvents in Coatis. And all of this now as part of the same platform augmented with biotechnology, be it microbiomes, other things and you will see and we will frankly report as we progress our progress, but we are very, very excited about this, and I think this is the future of chemistry. Back to you.
So we have another question from Geoff Haire from UBS.
I was wondering, could you help us with sort of discussing how volumes are developing as we move through into Q2, particularly in China and Europe?
I mean I think the best thing I can do is say the momentum that we've described in Q1 at the moment is being maintained fully. The one exception that Ilham mentioned, this is clearly the China effect. From what we see today that I'll start with maybe just start with the facts, which is a solid, our order growth are very solid. The first results coming -- we're showing for April also confirmed the momentum that we had in Q1. I was going to say the one thing that Ilham mentioned, the best we can give you is we estimate about EUR 15 million of sales -- negative sales impact related directly to the China lockdown situation. This morning, I'm hearing that there is some good news emerging around the easing of the shutdowns, but maybe Ilham can say more about that as well.
Yes. So as Karim said, lockdown in China, we gave you an estimate to make it weak clean and give you some -- the transparency we have today. Nobody knows about China, right? But I made the call this morning with our country leader. And it looks like the situation in China is improving, the new infections are down to 5,000 level. It was 30,000, if you may remember, there is some news, not yet formalized about easing control. It says, for example, that the subways will be restarted next week. It's all new that some shops will reopen. And this will be true probably if the new infection continues goes down.
You may have read also the Shanghai lockdown has cost RMB 300 billion to RMB 400 billion economy loss. So it can be reasonably believe that the government has to consider now to reduce the impact by permitting restarting conditionally. The logistics are still challenging guys, and I know you know that even though the central government called for removing restrictions for free ways. In our side, Solvay has 9 Solvay sites, which are all operating. We have one site which is running at 50% capacity due to the lack of operators. People are still not allowed to move across districts, but it says that the Shanghai government will reduce those restriction gradually. So our people are safe. They're working from home, which helps us because of COVID-19 we went to a hybrid mode and we changed our policy. So we are happy now because it allows us to be adaptable in China. And the past 2 weeks, as I said, we have organized various support. So yes, all in all, I think wait and see. We are positive. The Shanghai port is operating, but the port is very connected. That's what we are looking at it closely. It said that there was some improvement in the past 3 days, but still low in utilization, good and -- to and from the port very difficult, but nothing new from what you have heard from other peers or from the market. And so far, we are managing it.
So next question from Alex Stewart from Barclays.
Your cost inflation in the first quarter was, as you say, in the bridge, about EUR 85 million. You talked about maybe EUR 150 million for the year, 5% to 6% to EUR 3 billion. How do I square those two numbers? Because clearly, the first quarter run rate is much higher than you'd expect. Is that simply because the fixed cost comparable gets easier through the rest of the year? Any guidance on that would be really helpful.
I'm not sure if I miscommunicated , let me just give you the facts. EUR 369 million is always experienced in variable cost inflation, and we also gave an estimate of EUR 30 million on fixed costs. As I look forward, I've also said EUR 1.25 billion, EUR 1.25 billion is the full year expected inflationary impact on our variable costs. And I've also indicated EUR 150 million to EUR 180 million in relation to fixed cost inflation. These are the only numbers that I wanted to highlight based on our current expectations. So I don't -- I guess, maybe just care for your question a bit more. I see if I can help you answer the question.
Did that answer your question, Alex?
It's fine. I can take it out with JD to the call that way.
Okay. Okay. Okay. So we can go through the math. Let's do that, Alex. Any more, Jodi?
Yes. We have another question from Martin Roediger from Kepler Cheuvreux.
Yes. It's on the -- on some cost items in the P&L. First of all, on the R&D costs, they came down significantly from EUR 93 million last year to EUR 78 million in Q1. Why do you save costs in your R&D given the fact that you are a specialty chemical company focusing on innovations? And secondly, on the admin costs, they jumped up quite strongly from EUR 220 million last year to EUR 256 million in Q1. Karim, you said a few minutes ago that inflation was roughly 1% to 2% in the past and [ now 5 million to 6 million ] for such kind of cost. But with your cost savings in place, I do not really understand this 16% increase in these kind of costs in Q1.
The 16%, where is it? Sorry, say it again.
When I compare the administration costs in Q1 2022 to the administration costs in Q1 2021?
Okay.
Well, what I can do is just explain to you that, a, we have delivered the EUR 22 million of cost savings. We certainly see it on bottom line. But as I mentioned, we are investing in our growth platforms. We're investing in digital, in cybersecurity. And I think I indicated about EUR 30 million in relation to those elements of cost investment. And you'll see that in different parts of our P&L.
That's it.
It's not in one place, Martin. So if you look at individual pieces, you may see some distortions. Going to R&I you've got...
Let's pause here because the growth platform, for example, there is some costs you will see in the CBS line which are -- where we have a growth platform, the growth platform are of growth company. They don't belong to any business units or any segment. And that's what the change I made in 2019 to ensure that there is a dedication on the focus. So definitely, as a specialty company, we continue to invest in R&I, Research and Innovation, as we call it internally.
Now since 2019, we actually shrank a bit between '19, '20 to actually -- we stopped doing this, and we are reinvesting in something else, right? So we have actually completely transformed the R&I. There are some projects we just stopped because we didn't believe that was the right thing for the company. And we are doubling down in our growth platform, the fourth one now is being launched, so obviously, we're not inflating that cost line, but definitely, we are redirecting the cost into the right area. So sometimes you need to stop something and reinvest there. But definitely, the cost in R&I is across multiple lines of the P&L.
The only thing I'll add is we're not spending less in cash in R&I. You will see variations but more relation to the accounting depreciation of the various projects that we capitalize over time.
Next question, please.
Yes, we have a last question from Jaideep Pandya from On Field Investment Research.
I appreciate that you probably don't have details for this, but can you just tell us like what is the schedule for your sort of split of the company in terms of the discussion with bondholders on the hybrid bond side as well? And then have you sort of thought with regards to the index implications of Solvay Specialty co and Solvay Essential co, especially given Solvac, I assume will be a big shareholder in both those companies.
Yes. Thank you. And I'll start and maybe, Karim, you can close on it. I mean I'm very pleased with the progress and we start up and running. We mobilize the task force, as you know, people very experienced. We have experts, et cetera. There is significant complexity to consent with and make sure that we do this well. So to run the project, there is thousands of lines, I mean, thousands of commercial contracts and advanced plans to disentangle, separate business activities amongst more than 100 legal entities nearly in the country. So that's important, right. We have a biorhythm, the fast forte and the PMO report to me directly. We give the executive leadership team and update every 2 weeks as were determined to do the right thing at the [indiscernible] progress fast as we will appreciate. Karim, on the technicality.
And I think the question really is around debt holder is that we're very, very mindful and fully intend to embark our debt investors. I think at this point, we're still refining our plans. We will certainly do it in due course to involve derisk, let's say, the transition, but it won't be subject for the next few months. As soon as we have more clarity as to what the time scale is, we will absolutely advise everybody.
There was a question on the stock exchange, right?
[indiscernible].
Yes. I mean the first indication, but yes, those were indicational and we missed that one that the company would be in the bill '20. But let's wait and see. We would remain all time will tell. So -- but the first indication is so...
Thank you. That was our last question. So if there's any other questions, feel free to contact anyone on the Investor Relations team the rest of the afternoon, and thank you so much for your participation today. Have a great day.
Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.