Solvay SA
XBRU:SOLB
Earnings Call Analysis
Q3-2023 Analysis
Solvay SA
In a resounding demonstration of financial discipline and strategic execution, the company has achieved its 18th straight quarter of positive free cash flow, amassing EUR 346 million in the third quarter. This performance not only highlights the company's robust cash flow management but also points to the strategic timing of capital expenditures, which totaled EUR 765 million year-to-date. As the year heads to a close, an additional investment of EUR 350 to EUR 400 million is anticipated, aiming for an annual total around EUR 1.1 billion.
Free cash generation soared past the one billion euro mark within the first nine months, marking an 11% increase over the previous year. This impressive achievement comes in the wake of EUR 200 million in capital expenditures, underscoring the company's determined investment in future growth. The robust cash flow has already eclipsed the full-year goal of more than EUR 900 million, and expectations set for the fourth quarter to remain essentially neutral, maintaining the positive trend.
The company has reported EUR 2.8 billion in net debt as of the end of September, with a planned deleveraging action involving a EUR 0.4 billion infusion toward one-time costs and pension obligations. These actions are projecting to lower the aggregated net debt below the EUR 3.4 to EUR 3.5 billion range previously stated, thereby strengthening the balance sheet ahead of the corporate split.
Confirming its previous forecast, the company's full-year EBITDA is expected to hit the lower end of the initial guidance range, rounding to approximately EUR 2.9 billion. This aligns with earlier projections, considering the ongoing challenge of volume recovery. The route ahead involves a structural transition with the creation of 'EssentialCo' and 'SpecialtyCo'—entities expected to navigate approximately EUR 60 to EUR 70 million in total dis-synergies post-split, which the company assures will be swiftly mitigated.
Both the future 'EssentialCo' and 'SpecialtyCo' are poised to benefit from diverse and inclusive governance, sporting boards comprising 10 members each. With a rich blend of expertise and global representation, including 60% women in the ScienceCo Board, these entities are designed to embrace the full spectrum of strategic, financial, and developmental know-how to steer the company into its new phase.
Since 2019, the company has undergone a profound transformation, adapting to a shifting business landscape and achieving milestones on its 'One Planet' sustainability roadmap. This transformative journey has seen the company fulfill its growth strategy two years ahead of schedule despite pandemic-induced hurdles, reflecting a successful pivot from being a follower to a market leader.
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Hello, and welcome to the Solvay Third Quarter 2023 Results Call for Analysts and Investors. Please note this conference is being recorded.
[Operator Instructions]
Solvay, the floor is yours.
Thank you. Hello, everyone, and welcome to Solvay's Third Quarter 2023 Earnings Call. I'm Jodi Allen, Head of Investor Relations, and I'm joined today by our CEO, Ilham Kadri; and our CFO, Karim Hajjar. For today's call, we are slightly adjusting the format given the amount of news published today. First, Ilham will begin with an overview of results and the progress on our separation project. Karim will follow with a high-level financial overview of the quarter and our full year outlook, and Ilham will finish with some closing remarks before taking your questions.
Today's call is being recorded and will be accessible for replay on the Investor Relations section of our website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. You may refer to the slides related to today's broadcast, which are available on our website.
And with that, I'll turn the call over to Ilham.
Thank you very much, Jodi, and good afternoon, everyone. Today marks another exciting milestone in Solvay's rich history as most probably the final earnings call before our planned separation into 2 independent companies. I'll start with a few comments on the third quarter results. As you know, the macro environment remain challenging, yet our teams focused on actions within their control. On a year-to-date basis, we have generated more than EUR 1 billion of free cash flow, and our underlying EBITDA is only 1% below 2022, despite a 20% decline in revenue growth.
This speaks to the ongoing transformation underway and reflects the strength of our differentiated portfolio, our focus on value-based pricing and unrelenting actions to reduce costs. Together, this has enabled us to consistently deliver best-in-class results. As we are now in November and have a line of sight at year-end, we've confirmed that we remain on track to deliver our full-year guidance.
Perhaps more importance has been the ability to manage both the short-term headwinds, while simultaneously investing to support our long-term growth which will set a strong foundation for both future companies. And as I like to say to our teams, we have kept our eyes on the microscope and on the telescope as we are now only a month away from separating into 2 strong industry leaders.
As you know, we've spent the past 1.5 years preparing for the future, and have successfully accomplished every milestone along the way. Since we spoke last quarter, we completed our liability management process, which Karim will summarize in more detail. And we published first half results for EssentialCo and SpecialtyCo to provide a better view into the 2 companies performance this year. We also received rulings from tax authorities, confirming that subject to certain conditions, the transaction will qualify for favorable tax treatment for Solvay in its Belgium and U.S. shareholders.
We are also making great progress on our strategic initiatives in both future companies. In EssentialCo, we just closed a deal to sell the remaining part of our Energy business which you may recall, provided energy supply to third parties. This was a necessary and voluntary decision ahead of our separation, which will help reduce volatility of the corporate cost and balance sheet exposures.
I'm also thrilled to share that we have officially finalized our joint venture agreements with our partner, Orbia to build the new battery-grade PVDF facility to serve the United States of America markets. This is a key milestone in our electrification strategy, emphasizing our commitment to sustainable mobility. And of course, today, we announced the executive leaders of the 2 organizations. The new leadership teams bring unique expertise to their respective organizations, and were carefully selected to match each company's distinct strategy, designed to unleash their full potential.
I know many of you have been patiently waiting for this clarity. Here we are, and I look forward to introducing them to you live on November 13 when the new leaders will host a Capital Markets Day to share their respective strategies and midterm targets for Solvay and ScienceCo. We hope you will join us in Brussels for these events. Of course, it will be webcasted as well but those attending in-person will also have an opportunity to meet us, to see some of next-generation innovations presented by our experts in their fields. I look forward to meeting many of you at our event to share more about these exciting companies.
And now I will turn to Karim who will give you a review of the highlights of our third quarter performance. Karim?
Thank you, Ilham. Good morning and good afternoon, everybody. In order to be most helpful and to really allow time for the usual Q&A session, I'm going to focus my financial review of the quarter at a somewhat higher level than usual, highlighting really the more critical elements before providing an update on the progress we made on matters such as the liability management process since we announced it at the end of August -- at the beginning of August. And then we'll close with some comments intended to help you with your models and expectations as it relates to the 2 future companies. Starting with our Q3 financial performance, I will present figures on an organic basis, which means that constant scope and currency, unless I state otherwise. As expected, sales were down 20% organically in Q3 versus the record Q3 '22, which, if you recall, and I hope you do, saw a 30% year-on-year organic growth last year. Now the decline in Q3 sales was driven by lower volumes and to a lesser extent, by lower pricing, given lower raw material costs and energy prices.
That said, and I know that many of you are particularly attentive to that, we're really pleased that our net pricing power continued its positive trajectory. This time with a EUR 36 million positive contribution in the quarter. Turning to Slide 7. I'm looking at materials. What do you see? Volumes are 7% down against that tough comparable quarter of Q3 last year that I mentioned, and that was driven by weak demand across most markets, that include auto, electronics and health care. And that impacted the sales of our Specialty Polymers business.
Pricing was, how can I say, minimally impacted, and that was very much what we expected. In batteries, we are seeing some signs of recovery following the end of customer destocking, although year-on-year volumes continued to decline in the quarter. Sales in Composite Materials were higher, thanks to the continuing recovery of the aerospace industry, although higher growth was impacted by supply chain issues, which limited some deliveries.
Now despite the lower volumes, the EBITDA margin in composites were sustained, segment EBITDA was 12% lower versus Q3 2022 due to the lower polymers volumes, while EBITDA margins remained strong at 33.8%, modestly lower than last year, and that shows the strength of our materials portfolio.
Next, I'm going to move to the Solutions segment because as you recall, Materials & Solutions really make up most of what will become ScienceCo. And in solutions, the markets in which we operate remain challenged. Volumes were down about 19% in Q3. Pricing was down about 6%. The solutions we supply into agro, coating, home and personal care, food and fragrance markets all experienced weak demand. And our priority has been twofold. One, protect our margins to adapt our costs to the lower demand. Those actions have supported a 1% improvement in EBITDA margins to 18.6% on a sequential basis. And they will be slightly down year-on-year. So we're really pleased with that.
Turning to Slide 9. And in Chemicals, what you see. And of course, as you know, chemicals represents a significant part of the future Solvay perimeter. And in that segment, volumes were down 18%. Pricing was down 8%. Weak demand continues to impact our major markets. And I'm really looking there at construction, electronics, textiles and tires. All of the business in the Chemical segment have been very diligent in managing their fixed costs. And together, in the context of the lower variable costs that we benefited from, not only did we protect our margins, but we actually grew our EBITDA margin by 5 percentage points year-on-year to 30.2% in the third quarter. We will continue to manage costs in a very disciplined way, especially given the current demand and the uncertain macros. That's what you expect. Year-to-date, we've delivered EUR 63 million of additional structural costs and it takes the tally to $530 million on a cumulative basis.
On Slide 11, what do you see? You can see that as you bring this together, the group EBITDA came to EUR 702 million, down 18% year-on-year, again, versus a record quarter last year, which did see a 40% growth. As you can see in the bridge on Slide 11, our EBITDA performance in Q3 was primarily driven by lower volumes, partially offset by positive net pricing and fixed cost reductions. From an EBITDA margin point of view, we were slightly up year-on-year and sequentially at 25.6%. And that's despite lower volumes, there you have a good example of resilience.
Profit is one thing. Cash is what it's all about. And on Slide 12, you know that cash has been a major area of focus, in fact ever since Ilham came here 4 years ago. So no surprise maybe by the fact that we've continued to make strong progress. Our strong cash flow performance and our enhanced balance sheet that we sustained over an extended period of time has given us the flexibility to invest -- to invest to meet future growth expectations to continue on our journey to meet our energy transition goals and to generate return to shareholders and to deleverage one of my favorite words and that's what we've been doing.
Coming back to the third quarter, we delivered our 18th consecutive quarter of positive free cash flow, generating EUR 346 million, which benefited from strong working capital discipline. Now frankly, the cash flow may even appear a bit stronger than expected at this time of the year. But keep in mind that this is also a result of CapEx phasing. On a year-to-date basis, CapEx totaled EUR 765 million, and we still expect to invest a further EUR 350 million to EUR 400 million in Q4 for a full year total of around EUR 1.1 billion.
As Ilham referenced earlier, our free cash generation exceeded EUR 1 billion in the first 9 months of the year. That's an increase of 11% year-on-year, and that's despite higher CapEx around EUR 200 million more than this time last year. And that's why we're so keen as so determined to invest in the future growth. In addition, the strong free cash flow has already surpassed our full year commitment to deliver more than EUR 900 million. and we expect Q4 to be largely neutral as result of the phasing of the CapEx I referred to. On Slide 13, you see a detailed overview on our major debt following the successful completion of the liability management. I'm not going to go through the details of it but one of my takeaways is that debt investors understand and appreciate the strategic merits of our Paris 2 project. But more importantly, I believe they also see the logic of the distinct capital structures and they also appreciate the credit strengths of each company.
Regarding net debt, we reported EUR 2.8 billion of net debt at the end of September. We still have onetime cash outs and pension deleveraging of around EUR 0.4 billion to make before year-end. So we expect the aggregated net debt at the time of the split to be below the EUR 3.4 billion to EUR 3.5 billion we indicated to you in June. The point that matters here the most is that we will make sure that the 2 companies have distinct and optimized capital structures.
Also, as you know, keep in mind that both of them will be investment grade with SpecialtyCo or ScienceCo, having a credit strength a couple of notches stronger than EssentialCo. Finally, I'll make a few comments on the full year outlook on Slide 14. First, and as mentioned in this morning's press release, we reconfirm our full-year guidance with EBITDA at the lower end of the prior guidance range or approximately EUR 2.9 billion, current exchange rates. This is in line with what we have shared since the last quarter, given the lack of volume recovery. So this shouldn't be a surprise.
Second, given that this is our last reporting quarter under Solvay's current perimeter, I also want to spend a few moments with you to help you establish the baseline for your models in 2023. Note that the intention here is to provide you with what I would say are the guardrails for EssentialCo and SpecialtyCo, rather than a precise point estimate because what we want to do is to give you an appropriate jumping off point as you think about the future growth prospects of both companies. For EssentialCo, which will retain the Solvay name, there will be 2 scope changes. The first is that we are phasing out the thermal insulation activities that were part of Special Chem.
Now this is aligned with regulatory requirements related to the phase -- the phasedown of hydroprocarbons or HFCs, a process that began several years ago. The second scope impact relates to the termination and exit from our third-party energy supply business, which Ilham mentioned earlier. This business was reported within our corporate cost and the decision to exit at this time supports the focus of the remaining activities in Solvay and actually will serve to reduce the volatility of our earnings and balance sheet exposures. Some of you will recall back in 2021.
So that's a really good step. Now together, the phaseout of these activities, as expected, these activities generated about EUR 100 million of EBITDA in 2023 and neither will contribute any significantly to EBITDA in 2024. Next, I would like to give you an estimate on the synergies, total dis-synergies related to the split are estimated to come to EUR 60 million to EUR 70 million, of which EUR 25 million to EUR 30 million for EssentialCo and EUR 35 million to EUR 40 million for SpecialtyCo. That said, I can't tell you more today, but you will discover on the 13th of November, these dis-synergies will rapidly be mitigated.
As you can see on Slide 14, our full-year EBITDA outlook for Solvay implies an EBITDA of approximately EUR 2.9 billion. Assuming that day 1 of the separation was at the start of 2023, this slide provides our best estimates for the adjustments you may want to make for comparability purposes related to dis-synergies, and again, these synergies reflect the costs related to new executive teams, to duplicate corporate functions, to public company governance headquarter costs and the like. And they will be embedded into the respective cost basis. As I said, as well as the scope changes I've referred to. I hope these estimates enable you to have a much clearer view of each company's starting point.
And with that, I'll transition back to Ilham.
Yes. Thank you very much, Karim. Now I'd like to take a moment to highlight the Board appointments that were unveiled today. The Board appointments of the future Solvay will be composed of 10 members. 6 of whom are independent, 3 represent the reference shareholder Solvac and the CEO, of course. They collectively possess a wealth of expertise in areas, such as governance, strategic planning, corporate financial management and business development. The ScienceCo Board will also be composed of 10 members, including 6 independent members, 3 members representing the reference shareholders Solvac and the CEO. This Board is a testament to diversity and inclusion as well as globalization, representing our customers' footprint, including 7 nationalities and believe it or not 60% of women with decades of complementary experience in governance, finance industry innovation, sustainability and talent management. Together with the announcement of leadership, we've reached yet another important milestone and with the governance structures in place, we are now ready to begin new lives as independent companies. Before we close the call today, let me take a moment to reflect upon the incredible journey we have undergone over the past 4 years. One thing that I can say with complete certainty is that we are not the same company today as we were when I became CEO in 2019.
We have taken bold steps to transform the company on so many levels, while adapting to the ever-changing business environment, that was filled with hardships and crisis. In the past years, we have made tremendous progress on our One Planet sustainability roadmap, advancing on our climate ambitions, while bringing more sustainable solutions to the market.
We're truly pioneer taking a holistic approach to sustainability. We've delivered our growth strategy 2 years ahead of time despite the pandemic, which included delivering on every financial metrics from profitability to cash to returns, many respects, we went from lagers to leaders. But what I'm most proud of is our people. I recognized very early in the journey that we could not accomplish our ambitious goals without the right people in the right roles.
So we adapted our organization and made them top priority. We united around a common purpose, one in which we created together. We invested in their success, grooming talent at all levels of the organization. We enabled them to embrace change, model the right behaviors and collaborate with their colleagues. The culture change was deep and very noticeable. And this brought out the best in them, and it shows in our high level of engagement today. I'm personally convinced this deep cultural change helps us to win.
So I want to wish a heartfelt thank you to all of our people who are listening today. Thanks to you. We stand stronger and more prepared than ever to take this next step. I'd like to say a big thank you to all our stakeholders, not only employees but also customers and business partners and our shareholders for making these past 5 years, that's -- years that I will always remember, Thank you for your trust and dedication and unwavering support. Together, we can be all proud of what we accomplished. So let's get ready to create the next amazing chapter.
Now to finish with before your Q&A, I would like to thank a few people, especially thanking Augusto Di Donfrancesco, our COO; for the great collaboration we have had for the past years. He will stay with ScienceCo for a few quarters after the split, His contribution with them and impacts have been invaluable, and many will remember his discipline, his focus, his business acumen and now his friendship.
Equally, I would like to thank Karim, who is present here. This may be our last quarter call together Karim, case we hope, for the outcome of the project. Thank you for your contribution to Solvay, Karim. Upon the approval of the spin-off, Karim will leave the group after a 10-year tenure as Solvay's CFO. I'm very grateful for your contribution, Karim, and I wish both Karim and Augusto the very best in their future endeavor.
And of course, all of this would not have been possible without a special person in my life, our Chairman and President of the Board, Mr. Nicolas Boel. We have developed some very special bonds over the years. And I would like to pause and thank him from the bottom of my heart for having offered me this opportunity 5 years ago. While he came to Charlotte, North Carolina to interview and propose the job, no one of us could imagine what the future will bring. We spoke about transformation. We, in fact, disrupted. We spoke about social dialogue. We progressed even more. We talk about legacy founding members who are publishing today, best-in-class governance rooted in the human-centric legacy. On my side, I wanted freedom to transform this sleeping beauty, and while he promised to allow me to do so with care, this is exactly what we have done together and what he and the current board have allowed me and my team to do. We turned the sleeping beauty, simply, I hope to beauty [ indiscernible ].
So thank you, Nicolas, for your wisdom, your guidance over the past 5 years, which were personally my beacon throughout this fantastic transformation journey. And Nicolas, you will be missed by many, but I know I'm gaining a month or [ for life ] on the top of you being long lasting shareholder and investor. So with that, I finish with those emotions and I go back grounded into your questions and answer session, and Karim and I will be happy to take your questions. Thank you.
Moderator, I think we're ready to move to the Q&A.
[Operator Instructions] The first question comes from the line of Chetan Udeshi from JPMorgan.
I just wanted to start with the Slide 14. I'm a bit curious about the scope impact. And I'm sorry, I didn't understand what is being phased out exactly because I didn't even know that you guys were in the HFC market. I thought that was something you sold in the past. So what exactly are you phasing out? And is this essentially going to 0? Or are you going to sell it to somebody, that's the first question.
The second question I had was just looking at the sort of Q4 trajectory. I think you guys previously had talked about flat net pricing in second half of this year. And clearly, Q4 -- Q3 has turned out to be positive, which is good. But in a way, people are clearly worried about that as well, how long can it be positive when the volumes are so bad. So maybe can you talk about Q4? How are you thinking in terms of dynamic between volume, net pricing, and also fixed costs, which were running negative until the first half have not turned positive in Q3. So what is the outlook for that as well?
Yes. Thank you very much. Karim, you take the discontinued business, and then I'll take the Q4.
So Chetan, thanks for your questions. Obviously, as usual, very pertinent. So the thermal instillation activities we have is a small part of the Furan business that we bought a special camp. It has products like Solk365 and associated blends from the hydrofluorocarbon family. Now despite not having those in depleting potential, they have been subject to more stringent regulations and they're being phased out. It's called -- it references the F-Gas Regulation 2014, if you want the technical requirements. So it's a natural. And frankly, we've been working towards that sunset for quite a while. We just wanted to ensure that at this juncture, you were made aware of that.
And we anticipated this and production was completely stopped, in fact, during the course of August or early September of this year. So that's why we really want to give you that heads up. Your second question, I think, was on Q4 and...
Yes, I can take it. Well, historically speaking, Chetan, the fourth quarter is usually, as you know, the weakest quarter of the year. Looking at the lower end of our guidance, around EUR 2.9 billion, as Karim stated, and our 9 months actual doing the math indicates that quarter 4 is expected to come below EUR 600 million, obviously, taking into account the continuation of weak global macroeconomic environment, right?
So nothing that we didn't expect. We were one of the first company or the only company, you remember in our sector earlier in the year, that still showed growth in the first quarter. And then we said that the first half, second half will evolve and happen like it is. So we'll experience lower volume, flattish net pricing.
I think we got some positive in quarter 3. We'll continue defending value pricing. We'll continue letting go volume which are not profitable. So we are looking for quality market share wherever it makes sense, the raw materials, the variable cost. Obviously, the raw mats and energy prices were down. So this is not going to happen anymore, we believe, in quarter 4. So -- and as you expect, right, we will continue maintaining our cost and working capital discipline.
Maybe I'll take your final question on fixed costs. You're right. We're proud of the fact that our fixed cost decreased EUR 41 million quarter-on-quarter. There are 3 years I'm going to highlight, okay? One, structural cost reduction initiatives, I've talked about the cumulative 530 where we're continuing to deliver, and that helps to offset inflation. That's the first point.
The second point, as you would expect in an environment which is challenging like this, -- we've also continued to I guess, contain our -- reduce our discretionary spend. And to have that really more than offset inflation. And finally, there is one other factor, which is we have the impact of lower variable compensation compared to last year, which was a record year, as you recall. So these are the 3 elements I'd like you to take note of. Thank you.
The next question comes from the line of Alex Stewart from Barclays.
Two questions, actually, if that's okay. The first one, I just wanted to check something on free cash flow. You did about EUR 1 billion in the first 9 months, I think you said that Q4 would be roughly neutral, so that's EUR 1 billion for the year. But Karim, I think you also said the CapEx would be EUR 1.1 billion compared to your original guidance of EUR 1.25 billion. So EUR 1 billion minus that difference in CapEx means that you probably come into the year -- end the year with about EUR 850 million of free cash flow. So the question really is what happened in the second half in free cash flow that was worse than you expected to come in sort of on an adjusted basis below what you expected.
The second question is in solutions, you had 25% revenue decline and 25% EBITDA decline, which is highly unusual for an industrial chemical company. So I wonder if you could talk about the measures you took there to defend the margin. And then finally, just to clarify on Chetan's question. Can you just confirm that the 2 businesses that you're phasing out, there's no disposal value for them. In other words, there's no cash inflow. I just wanted to be clear on that. I think possibly you said at the beginning of the call, but I missed it.
I'll start with a very last comment around, no, we're not expecting major cash inflows from the phaseout of those activities. To your first point on free cash flow. I'm not sure how you did your math, I struggled to follow but what are we saying? We're saying we've delivered EUR 1 billion. Our guidance was more than EUR 900 million. For us, it was almost getting the obvious to say that we're going to make the guidance now. In terms of math, what I've said is we expect Q4 free cash flow to be broadly neutral, and that's after taking into account the EUR 350 million to EUR 400 million of CapEx.
And as rightly pointed out, it's a bit below the guidance we gave at the beginning of the year. It kind of makes sense to think about it. You want the new capacity to come on stream in a period of, let's say, recovering and growing demand rather than lying idle. But there's nothing more to it than that. On the solutions business, do you want to take that?
Yes, I can do that. Well, listen, Alex, I think you've seen obviously across the industries in the solution business remaining very challenging, both on the volume and the pricing. I think what we did is exactly what we told you. We'll continue to protect our margin and adapt our cost to lower demand. That's why you see some margin improvements, basically 1/3 of the volume decline was compensated by net pricing and fixed cost discipline. You may remember, Alex, that we have made a lot of structural improvements in the Solutions segment in the recent years. And we have maintained this focus with good operational discipline. I told you that we have a contribution margin surveillance almost at the [ indiscernible ] level at the reactor level. So in some product line with tough competition, of course, we are making selective pricing concession and only where it makes sense, such as where we have, for example, lower raw material and energy pricing.
But in the rest, I think we are also testing our value pricing like we do in the Materials segment. And I'm very happy when you see our performance as compared to other peers, either who have recently profit warned or others in the care segment, you see that not only we are doing better in the volume side. And in other cases, we are delivering better margins.
So really happy with what the team has been doing. December -- I invite you on November 13, if you are joining us, Alex, you will hear more from our GBU President, Mike, who has transformed the Novacare business and now he will be leading obviously, the whole research and consumer leg and we'll show you more about how we are going to build more differentiation in this segment.
The next question comes from the line of Wim Hoste from KBCS.
Two questions from my side, please. First one is on one-off and cash out costs for the remainder of the year. I think in June, you said separation costs and other restructuring costs would be more than EUR 500 million in total. Can you maybe shed a light on how much we should still expect to fall in Q4? That's the first question.
And the second one would be coming back on an earlier question on volume trends in Q4, do you see apart from the usual seasonality that there is, do you see further weakening of markets? Or do you see stabilization overall? And can you maybe be a bit more explicit by sector or by end markets?
I take the one-off first maybe, take the okay -- so you may recall, and I think you did point out, but I'll just clarify the numbers. In our Q2 earnings call, we did say that we expected the separation-related onetime cash costs in 2023 of around EUR 250 million to EUR 300 million, and that's for the separation itself. To date, we spent EUR 100 million, and I expect us to spend, in the fourth quarter, a further EUR 200 million and that's split between taxes, financing, advisory fees and a few more items.
That's for a total cumulative total of EUR 300 million this year. Now there will be a few tens of millions of more EUR 30 million, maybe EUR 40 million related to taxes, where the cash out on those taxes will probably occur next year and a small amount possibly 2025. If I look at all of that in combination, that really means total separation costs in total below 3% of total sales, which I remind is about 3% to 5%, is the benchmark is well below the benchmarks. So yes, I think that's probably the best I can give you today. We have turned to volumes and the trajectory, Ilham?
Yes. I mean if you look at the volumes, as I said, I mean, we don't see the macros at least short term in quarter 4 improving. We believe that the destocking is now mostly over Wim, and we see today what is reflected is the real actual weak demand environment which is pretty broad a growth in many markets and across the regions. We are maintaining our leadership positions wherever we want it to be material in soda ash, et cetera. In some businesses, we are carefully prioritizing pricing over volume typically in activities that are less profitable.
So in some modest -- in some areas, we have had modest market share voluntary loss like aroma, for example, type of business, some of the solutions in the solvent in coatis, for example. And our strategy continues to be focusing on the quality of market share we generate value. And that's where we really continue maintaining Solvay's profitability, right, in measured in terms of EBITDA margin and we'll continue sustaining it. Yes, that's all what I can tell you about the things. I mean going forward to 2024 is really too early. I will invite you, again, to join us during the CMD Day on November 13 with the management team to see the midterm plans, right, and basically, the 2 new leadership teams will give you more color in due time about 2024.
The next question comes from the line of Peter Clark from Societe Generale.
Yes. Good luck, Karim. I'll probably see you at the CMD anyway. But effectively, the first question is around the sequential pricing because it looks like it's holding up pretty well, especially considering the energy surcharges coming off the indexation, et cetera. But materials of all the 3 segments seems to be under more pressure. So I just want to be clear what might be going on there. And then the second question is, it looks like your structural cost savings have picked up a little bit again. I know you're doing more restructuring for the demerger. Just wondering if you're looking again at the cost base, given how the world is.
Let's take the structural cost, maybe start with that briefly. You've got very sharp First of all, thank you for your kind words. Your structural cost commit is very short, and I agree with you. The pace is picking up, but I hope you're not surprised. And what I will highlight is exactly the following, which is in Q1, we took a provision of EUR 78 million of cost restructuring provisions because clearly, what makes sense in this environment, knowing you've got the synergies is to get ahead of the curve. Otherwise, frankly, the dis-synergy figures I've given you would have been a good EUR 20 million, EUR 30 million higher. And that's exactly what you can expect us to continue to focus on. So I hope that helps you. But there's something more than that at this point at least. And on pricing, Ilham and the comments on sequential strength.
Yes, it's absolutely right. And as we told you, we expect net pricing to be flat in the second half. That's what we promised as a team, and that's what we are delivering. Obviously, quarter 3 was positive and...
Sorry, can I just follow up in terms of the materials specifically.
You mean on the Materials segment?
Yes, specifically because that's the one that seems to be under more pressure sequentially.
Yes, yes. Well, I mean, here, I think we are coming from a very, very high levels in materials. That's what happened. You may remember on our batteries and material, we told you that there were concession here and there as the rules were declining. But looking at the materials specifically, we estimate that the volumes will be only slightly lower in the near future. And if you look at the full year view, we expect the volume in material to be flattish versus last year, and we remain confident that over time, we sustain our profitability levels, as you've seen it in the past.
The next question comes from the line of Jaideep Pandya from On Field Research.
And yes, good luck to Karim as well. We'll definitely miss you. on your new plants in Tavaux could you give us some timing in terms of what sort of ramp-up schedule are we looking for '24, '25? And do you have already contracted customers in Europe or even for that matter from the U.S. And so therefore, you're going to sell a lot of these volumes not in the Asian market, but in the sort of non-Asian market. And then the second question, I know Phillip maybe can't answer this right now, but the famous soda ash pricing.
Any color on 2024 contracts given there's a lot of moving parts. You've done a fantastic job in defending pricing for the last 2 years. So what should we now expect for 2024 given demand is not probably not as strong as it was at the beginning of this year.
Yes. Thank you, Jaideep. I'll start. On Tavaux, the starting points for the new capacity will be around early 2025, right? And basically, this is for the European markets. I mean, we don't usually transport products over the ocean. We have enough Chinese capacity for our suspension grade for China. You know the U.S. story. We signed a joint venture agreement with Orbia yesterday. I think we did another press release on that, which will be on stream in 2026. And in Europe, we have already existing capacity, and we've been debottlenecking and adding capacity, as we know that the battery value chain is going to intensify. There are major customers who are building new capacities and early 2025 will have more product to support the high end, by the way, battery segments. What was the other question, sorry?
[ indiscernible ] on soda ash pricing next year?
We are in the season right of the pricing campaign and discussions. So we just started to close a few contracts in the United States of America. And now we are taking care of the European contract. So it's too early to tell you how it's going to go. Obviously, we are doing what it takes to maintain our margin. Our customers are very close to us. They support our decarbonization efforts. They support actually to have a landed cost local product, supporting their own business and their own growth. . Soda ash doesn't travel very well between regions. I think back in 2022 when the pricing of soda ash was at its highest you may have seen the publicly available information on Chinese imports didn't grow much. So I think we are very confident and Philip Kieren, the incoming new CEO of Solvay is the GBU President of sodas and with his team, as we speak, are actually engaging and closing the pricing campaign. So be a bit patient the new leadership will share with you the news anytime soon.
The next question comes from the line of Geoff Haire from UBS.
I just had 2 questions. Slightly related First of all, just looking at soda ash in the -- in Q3, obviously, you commented that prices were down. Could you say whether or not the price decrease came in the contracted price that you had. So your customers have come to ask for lower prices to the contracts you agreed last year?
Or was it on the merchant portion of soda ash that you've got? And then secondly, on Specialty Polymers, could you just comment what the sort of volume development versus price development was in the 18% decline in Q3?
Yes, on soda ash as I mentioned, right, I mean, we have 2 things. We have formula pricing. And you may remember that we baked, not only rose, but also energy in our pricing in soda ash back in the fall 2021, which was very helpful in 2022. And obviously, when energy prices are down, we correct it and we pass it to our customers. So that's one.
You're right, the merchant market as well is down specifically the seaborne. Obviously, we play in a very opportunistic way in that market, and we take the volumes when it makes sense for us. We didn't participate a few quarters ago intensively to that market because we've seen a lot of domestic, I would say, soda ash from China being dumped into the seaborne even some Russian volumes coming in. So we let those volumes running in the seaborne, but this is wherever we participate, there were some volume decline. What is the other question?
Your question on Specialty Polymers, I think, as you know, we don't now get into the detail specific by business and it gets a bit sensitive. What I can say to you is that the majority of the sales, the revenue decline you've seen is predominantly domain about volumes. Our pricing is really holding up well.
Yes. And this is where, as we told you, value pricing is...
Is valued by our customers.
Yes, is the name of the game.
Sorry, could I just come back to soda ash, I appreciate that you had the energy surcharge for 2022, but my understanding, maybe it was my error that at the end of 2022, that you combined this energy surcharge with a base in price increase. So all of that was taken into 2023. So what I'm asking is...
Yes, yes. No, I explained. I think part of it, we put it in our floor pricing, right? But we still had an energy surcharge above and below. You see what I mean. So we took -- we changed our base pricing, right? We increased it in 2023, right? But we still have a mechanism to correct energy pricing at the extreme end, high-end level.
Corridors.
Corridor yes, exactly. .
Next question comes from the line of Sebastian Bray from Berenberg.
I have 2, please. The first is on the divested businesses. What stops Solvay from giving a sales impact on thermal insulation? And the reason that I asked about this is that I assume given that -- this business was being wound down. The associated CapEx was quite minimal. And another way of putting this question is, did that EUR 100 million of EBITDA drop through close to 100% of cash flow, is EUR 100 million the right number to think about cash flow drag year-on-year to a EssentialCo for '24.
And just to clarify, the second energy trading or other business that's being divested for what seems to be a rather negligible sum that didn't generate sales. It just meant that the corporate cost line was less negative than would have otherwise been the case.
My second question is on just energy cost outlook for '24. If energy costs remain the same as they are today, including the impact of hedges. Is it roughly flat year-on-year as a reasonable assumption for the Group for '24?
So fundamentally, I'd say on the phase out of the HFC business, I think this really is a business that is coming to an end. You're right, most of the profits that we made were basically straight to the bottom line. There was a little limited CapEx. The impact I gave is for both businesses, by the way. Now what I will highlight is on the Energy business, we really focused hard on stabilizing the restructuring the business. And what we've done this year is mainly reversed some of the provisions, the prudent provisions we took last year. So we didn't get, how can I say, a cash benefit this year from that.
So it's a bit of 2 different things here. So strong cash on a business that's coming to an end, and we closed it down to stop production in August, September. And the Energy business is predominantly one of reversal of provisions. And it's not really a major cash generator at all, but it's to reduce volatility that we really appreciate there. We don't have a crystal ball on the energy cost for next year, but I think it is fair to state that given that we will maintain our prudent hedging approach for energy-related elements. I don't expect that to be a major positive or negative impact in 2024 compared to 2023.
Yes, we expect it to be stable. Yes. Yes, that's a good assumption.
That helps you testing.
To clarify the Energy business had no sales. It was just EBITDA or did have sales? .
It was predominantly EBITDA. There was -- had quite a lot of sales in the noncore elements gross sales, yes, net sales. Net sales is one we've always focused on. the IFRS results.
We are very happy to get rid of this business because we are not the right owner. So I mean, you know it and it's decreasing the volatility and our exposure. So I can tell you -- this is something which was in my to-do list before the split. So I'm very happy with the team that we could do it.
[Operator Instructions]
The next question comes from the line of Martin Roediger from Kepler.
I have 2 questions. First of all, Karim all the best to you for the future. Coming back to the Energy business. I understood that this is the lion's share of this EUR 100 million EBITDA contribution of the 2 assets you are phasing out, why was it not possible to keep it because I don't see the -- but really the reason why you want to phase that business out?
And secondly, on the tax rate, which is 22%, would that be different when we look at the 2 successful companies, this 2%. And what is the best guess assuming the geographical split stays as it is, how that will evolve for the successor companies in next year.
Thank you for both questions. Let me start with the energy. Fundamentally, we're really phasing out the third-party activity, which is really essentially as we see it now, it's noncore. To your point, Essential [ indiscernible ] Solvay, the new Solvay just still have quite a lot of energy intensity. So we're keeping the key capabilities, the expertise, which really is top-notch, and that's really important. But we're simply not going to start meeting the needs of other third-party customers. So that's where we're lot of a lot of volatility that Ilham mentioned.
And it's regulatory driven, by the way, so I would like everybody to understand that. So it was a normal [ sun ] setting, and we would rather do it before it happens.
So far as your question on the tax rate, I'm going to ask you to be a bit patient and the answers are very straightforward there. One is like to be -- I'd like that to begin in the context of the future profit trajectory. And as you can expect, the location of the profit pools U.S., Europe, et cetera, has an impact on that. So I'd say that question we'd like to keep open for now. Great one to say for the Capital Markets Day November 13. I want to make sure teams are ready to help you.
I believe we have no further questions and that ends our session for today. As usual, thank you for your participation and the Investor Relations team will be here to answer any remaining questions. So thank you very much, and have a great day.
Thank you very much.
Thank you. Bye.
Thank you for joining today's call. You may now disconnect your lines.