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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen, and welcome to our Fourth Quarter 2022 Earnings Call. This is Jodi Allen, Head of Investor Relations, and I'm joined today 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 hello, everyone. Today is about celebration, and I want to celebrate our people, our results and our bright future. We all know that in today's environment, progress goes beyond financial results because performance needs to be anchored in strong ESG fundaments.
So before I turn to our financial results, I will begin with a review of our progress on Solvay One Planet; our sustainability road map, which is, as you know, an integral part of our strategy.
The facts that I highlight in Slide 3 speak for themselves. And whilst there is plenty to celebrate, I'll highlight a few key points.
As you know very well, Solvay is committed to reducing our carbon emissions rapidly. The information you see highlights our performance reviewed by our external auditors, and it shows that we have again made good progress. Indeed, we have achieved a minus 19% reduction of greenhouse gas emissions across 4 years since the inception of the program.
Structurally, we have achieved minus 15% reduction since 2018, structurally, almost 2x the Paris Agreement targets, which is halfway to our 2030 objectives. We continue progressing on exiting coal before 2030. Biomass boilers are under construction at Rheinbach in Germany. In Dombasle in France, the new boilers are based on reuse derived fuel or RDS, while Green River in the United States of America is switching to natural gas. In Devnya in Bulgaria, we have upgraded our existing coal boiler.
All these projects are well underway and will together further reduce emissions by approximately 10% by 2025.
In 2022, we increased the sales of sustainable solutions by 5 percentage points to 55%, including growth by Specialty Polymers and Silica at the service of electrification and increasing sales in the agro market.
We are also making progress on our circular solutions, which reached 9.2% by shifting to recycled materials and renewable feedstocks. Here are a few examples. In Specialty Polymers, we developed a new range of high-performance polymers made from recycled raw materials used in hemodialysis membranes.
In Novecare, we launched new biosurfactants made from 100% biobased ingredients used in rapeseed oil and sugar, with a low environmental footprint, used in personal care applications.
In Silica, we launched biobased silicate derived from rice husk ash, contributing to a reduction of CO2 in tires production for customers like Continental.
Finally, we elevated our focus on our people, including advancements in diversity, equity and inclusion this past year. Solvay launched its very first share ownership program for employees, which has a participation rate of 28%. This is higher than the median of mature companies and noticeably with a higher participation from our manufacturing site workers and Asian colleagues. There is nothing better in the company than having employees become shareholders and having skin in the game, and we like it.
We also supported our employees last year with an exceptional bonus to help manage the inflationary environment. At Solvay, we care while daring to transform. Now bringing gender parity at mid and senior level management is a challenging goal, as you know. At Solvay, we target inclusion through better, purpose-led, managerial practices, and applying equity in everything we do, such as equality and gender pay wages. We are proud of closing the gap with 951 employees to start with, both male and female.
Inclusion and equality is what we do and diversity is what you will see.
We still have a long way to go, obviously, although we have increased our female population at mid and senior level to 26.5% in 2022, 2.2% better than in 2019. We continue to promote all types of diversity in our hiring practices.
Before I move to the financial results, I would also like to celebrate our last year upgrade from B to A minus from renowned rating agency CDP's Climate Change list, who reconfirmed our rating again in December. We were specially recognized for our governance, our climate road map and our progress on emission reduction.
Last week, we were proud to be included in the new Bel 20 ESG Index, and evidence again that Solvay's progress is meaningful to say the least.
So in short, I'm truly proud of our ESG progress. And as you know, we won't stop here. And this now brings me to our full year financial performance shown on the next few slides.
This time last year, we indicated that managing the inflationary cost pressures was a top priority. 12 months later, you can see that our team successfully implemented €2.6 billion of pricing initiatives, more than offsetting €1.6 billion of inflationary costs. You may want to note that the resulting pricing of €1 billion includes the benefit of hedge of around €100 million.
As you see, the impact from hedging is not that significant. Why? Simply because we consider it as an insurance that only by due time, and we would not wish such hedges to distort the drive to preserve profitability at all times. This is why we prioritize commercial mechanism by which I mean contractual escalation and surcharge mechanism. This is also why energy surcharges have now been integrated in many of our formula-based contracts.
The combination of strong pricing and volume increase in 2022 helps us to deliver net sales of €13.4 billion, up 26%, with every business contributing to the growth. The increases in price and volumes drove EBITDA to €3.2 billion, up about 29% organically, leading to an EBITDA of over €3 billion for the first time in the company's history. We did this while maintaining our disciplined approach on cash. We have now delivered 15 consecutive quarters of positive free cash flow, and we delivered a record of €1.1 billion for the year despite increasing our CapEx almost €300 million versus 2021 to €1 billion record level.
Another significant achievement is returns, or return on capital employed called ROCE now at 16%. This is double the level when I first joined the company back in 2019. And just to be clear, if we exclude some impairments, which were recorded in 2019 and 2020, the ROCE today would be 13.7%, an improvement of nearly 6% on a capital base of €14 billion. This reflects strong operational performance and upgrading our portfolio.
Perhaps the most important achievement has been the improvement of our balance sheet. The improved cash generation enabled us to reduce net debt by €2 billion, which we also made substantial voluntary contribution to deleverage our pension liabilities, which are around €1.6 billion below 2019 levels. As a result of the deleveraging of our debt and pension liabilities by 43% since early 2019, the annual cash cost of financing our debt and pension has fallen by €204 million a year. This is nearly 3x the target we set for ourselves, if you may remember, in the growth strategy in November 2019.
Our leverage of 1.1x is half 2019 levels. This illustrates the strength of our balance sheet. Since early 2019, we generated free cash flow of €3.5 billion, paid €1.6 billion on dividends, and reduced debt and pensions by a total of €3.6 billion. Our results have put us in the top quartile of performance relative to our peers.
Before I hand it over to Karim, I'd like to highlight our investments in capital expenditures, which exceeded €1 billion for the year. About half was for growth and energy transition investments. Key highlights of last year's investments were the launch of our PVDF line in China; our increased capacity of sodium bicarbonate in Bulgaria; and vertical integration in natural vanillin, in France. And these are backed by customers who want and value our sustainability-driven innovation.
I'd like here to highlight just a few. Novecare launched 2 new high-performance surfactants made from 100% biobased ingredients for beauty care product that have an additional benefit of biodegradability.
We won a sizable contract in the Specialty Polymers business to serve an important battery producer with a new PVDF grade for binders, which are used by key automotive OEMs in electrical vehicles. We were recently awarded with the Environmental Achievement of the Year at TireTech 2022 for the silica's innovation called TECHSYN technology, which was adopted by Bridgestone and enables 30% better wear efficiency and improved rolling resistance by up to 6%.
As I go through these examples of innovation, one thing is crystal clear, sustainability is not a trend, it's here to stay and it fuels Solvay's research and innovation engine. In 2022, we increased our overall innovation spend by around €50 million, resulting in a research intensity value of 2.6%, with the Materials segment at 4.6%.
Now I'd like to invite Karim to share the highlights of our quarter 4 results. Karim?
Thank you, Ilham. Good morning, good afternoon, everyone. As usual, I will refer to figures on an organic basis, meaning at constant scope and currency, unless I note otherwise. And I'm going to start with an overview of the fourth quarter performance, and then I'll dive into each segment.
Group sales grew 15% organically year-on-year, driven by price, which more than offset a 6% drop in volumes as we all witnessed a general slowdown in demand across some key markets, in part also related to destocking by customers as we all approach year-end. The businesses of Solvay did a great job responding to the changing environment, not only matching supply with softening demand, but also sustaining pricing.
I'm now going to take a closer look at each segment, starting with Materials on Slide 9. And before actually I zoom on Q4 results, it's worth noting the fact that full year sales increased 33% to €4.1 billion. This reflects gains in both volumes and pricing, driven mainly by record sales in Specialty Polymers across all end markets and supported by the composite business, which benefited from continuing demand recovery in commercial aerospace.
Turning to the fourth quarter. Sales improved 31%, driven mainly by price increases, and volumes were also 3.3% higher, and that reflects continued strength in most end markets.
In Specialty Polymers, Q4 sales grew 37% against Q4 2021, driven by pricing, combined with sustained, yet modest volume growth. Our strong market leadership across most markets more than offset weakening demand and destocking in a couple of markets, most notably in the auto market, including sales of electric vehicles.
We delivered volume growth in electronics where we grew our business above the market, and we [won] business with new fab investment opportunities. And we also grew volumes in other markets such as health care, where we're strong, in hemodialysis membrane and in medical packaging.
Composite Materials sales up 16% and against Q4 last year, due both -- to both volumes and pricing, demonstrating the demand in recovery that we've been signaling for a while. This is continuing in the aerospace sector. The volume growth amounted to 5% and was driven by single-aisle production -- aircraft production, such as the Boeing 737 MAX as well as the Airbus A220 and [A320] platforms. We also recorded strong sales to engines and business jets, which were partially offset by declines in Space and Defense.
Wrapping up the Materials segment results, fourth quarter EBITDA for the segment increased 36%. EBITDA margins improved 210 basis points, that was shared under 30% at 29%.
Moving to the Chemical segment on Slide 10. Full year '22 sales in the segment were up 27% to €4.5 billion, reflecting the combination of pricing measures and sustained demand for soda ash and derivatives, for peroxides, and for silica, which together more than compensated for softening demand in Coatis and RusVinyl. Overall, fourth quarter sales in the segment rose 17% as we were again able to manage inflationary costs with suitable price increases. Volumes declined 7% overall in the segment, due mainly to reduced demand at Coatis relative to a very high comparable figure in the fourth quarter of 2021.
It is worth noting that our Coatis and RusVinyl businesses are cyclical and they have started to come off prolonged period of above cycle average -- above cycle average earnings. Soda ash and derivative sales grew 42%, and mainly through pricing actions, which overcame higher energy costs. Volumes were slightly positive, driven by the derivatives side of the business, namely Bicar, which is enjoying growth in several emerging markets and have reached new records in terms of volumes and revenues in 2022. Now although demand for soda ash in the construction markets softened somewhat in the fourth quarter, their business remains resilient in what remains a tight market.
Turning to Peroxides. Sales were up 8% in the fourth quarter, reflecting higher pricing, which did offset lower volumes in Europe and in North America, where we saw that pulp and paper customers curtailed productions because of energy price spikes. You may recall that earlier this year, we announced a licensing agreement with the China-based Caprolactam producer called Sanning and now we're seeing the fruits of that engagement with positive results in the fourth quarter.
In Silica, sales increased 15% in the quarter, driven by pricing actions that were able to more than compensate for softening demand in the Thai market as volume declined 11%. Our resilience in this business demonstrates our focus on developing innovative, sustainable solutions and it illustrates the strong customer partnerships that we have. We will continue to focus on our growth opportunities for silica -- with silica for electric vehicle tires, and our recently announced rice-husk-derived biocircular silica.
Coatis sales were down 19% in comparison to the very strong Q4 2021. Sales volumes were down 17% due to imports into the Brazil market, which put pressure on pricing. Indeed, business conditions in the cyclical business in the last few months have been amongst the most challenging we've seen in recent years.
You may have read in the news recently that we confirmed the fact that we are in advanced negotiations to divest our stake in RusVinyl, a 50-50 joint venture with Sibur. We're pleased that we have obtained preliminary clearance from Russian governmental authorities, but any potential transaction is conditional on agreeing final terms of Sibur and is also subject to other regulatory approvals. We'll keep you updated as the situation evolves.
Wrapping up Chemicals, segment EBITDA fell 10% versus the previous year's quarter. You may recall that in Q4 2021, we recorded a onetime gain of €55 million related to the recovery of indirect sales duties in Brazil. If we exclude this effect, then fourth quarter EBITDA in the segment rose 9%, driven by sustained pricing, and it more than compensated for the downturns I've referred to in our 2 cyclical businesses, Coatis and RusVinyl.
Segment EBITDA margin in the fourth quarter was 25.5% compared to 32.1% in Q4 last year.
Turning now to solutions. Full year sales in 2022 were up 20%, reflecting higher pricing, which more than offset a modest 1% reduction in volumes. Sales in the fourth quarter were up 3%, driven by 15% increased pricing, whereas volumes were down 12% on weak demand in businesses that are exposed to consumer and construction end markets. And I'll say a bit more about that.
I'll turn to Novecare. Fourth quarter sales decreased 7% year-on-year as demand in coatings and consumer end markets weakened. Demand in the agro market was resilient, driven by demand for green solvents, whereas our technologies exposed to the coatings for construction markets and for home and personal care markets faced falling demand.
Pricing in Novecare was 13% higher compared to fourth quarter 2021 as the business has made tremendous progress in defending its margins in a slowing market environment, and this helped to partially offset lower volumes.
Special Chem sales increased 21%, mainly reflecting higher prices. Volumes were largely stable, supported by small improvements in rare earth, especially for auto as it was an easing in prior -- in previous supply chain issues, for example, in relation to what we used to talk about on the shortage of semiconductor chips. But also, some solidity in terms of demand for semiconductor polishing and medical applications.
Turning to Technology Solutions. Sales in the fourth quarter increased 25%, due mainly to strong pricing, although, volumes also advanced 3% with strong demand in copper mining mainly. We expect demand for copper to remain pretty strong as new mines are projected to come on stream in 2023.
Aroma Performance, sales decreased 14% in the fourth quarter as gains in pricing did not compensate for volume declines due to high stock levels. We expect the vanillin demand to be resilient, while its use in fragrance markets will face more pressure -- will continue to face more pressure.
Oil & Gas solutions fell 1%, reflecting pretty stable pricing in the face of a slight decline in demand for oilfield chemicals, particularly in North America.
Fourth quarter EBITDA in the Solutions segment fell 11% as growth in mining and agro was more than offset by demand declines that we referred to in other sectors, including electronics. While EBITDA margin for the segment was 15.2%, which was 1.8% below, full year EBITDA was up 25% and the segment's EBITDA margin was up 1% to 19.5%.
Turning to Corporate & Business Services. EBITDA in the fourth quarter improved by €74 million in the fourth quarter of 2021. Now this was mainly due to the continued stabilization of our energy business, which recorded, you may recall, a €34 million onetime loss in the fourth quarter of 2021. And this is all in relation to the energy supply business that we have to third parties.
We're really pleased with the improvements we've made in this business. It's a real turnaround. Now the improvement in profitability is a result of painstaking work, negotiations with some customers to adapt contracts in pretty volatile energy market conditions. Our work is not complete. There is more to do there.
And although our efforts to stabilize the business are really evident in terms of the strong improvements in results, frankly, we remain cautious because energy markets, we know, in Europe, in particular, they remain volatile. So let's see.
The other fact that I'd highlight in terms of our costs in our Corporate Services line is our investments in cybersecurity and in digital transformation were down from the higher rates of spend that we had in the first half of 2022. Although, looking ahead, we will continue to invest substantially in cybersecurity and in digital transformation. It's an important part of building the foundation of two strong companies.
Moving to Slide 12. Ilham mentioned earlier that significant -- she mentioned earlier that significant inflationary cost headwinds, which actually peaked in the third quarter, they added €1.6 billion of cost in 2022, which is about 1/3. To give you more of an indication as to where these cost pressures came from, these inflationary pressures, while raw materials increased 40% in '22. Energy costs doubled and logistic costs increased 15%. The more important fact here, however, is that our team is mobilized and as you know, you've heard us, we've increased prices and delivered net pricing of €1 billion.
Turning to Page 13, Slide 13, you can see that we continue to make good progress on our structural cost programs, achieving a further €79 million in savings in 2022, taking the cumulative total to €470 million overall against a target of €500 million.
These achievements stem from three main sources: one, restructuring. That represents about half of the total savings. Now beyond the cost reductions that are self-evident, the delayering, the suppression of roles in the last three years, which incidentally represent around 10% of our global workforce, 10%. That helps us to also become more agile and to stay ahead of the game in uncertain times; two, indirect cost reductions, which is about 30% of the savings. We still make progress as we instilled strong demand management, really reducing demand as much as we can whilst meeting our needs, and also we continue to leverage on the global spend to reduce unit costs, for example, in maintenance contracts in the Chemicals segment.
Productivity efficiencies of around €100 million reflect the strong improvements in our industrial processes as we improve yields and reduce consumption of raw materials and energy. It goes without saying that we remain fully committed to maintaining strong cost discipline in 2023 because we all know it's even more important to do that in a cost inflationary environment.
What about cash? If you turn to Slide 14, you will see, as we've already seen from Ilham. Free cash flow reached €1.1 billion at the end of the fourth quarter of '22. And our free cash flow conversion rate was 34%. This reflects record profits with continued disciplined management of working capital across all of Solvay.
And as Ilham indicated, despite a 0.3% ramp-up in investment to take CapEx to €1 billion. As you'd expect, we are going to be -- we remain very, very disciplined in our CapEx, making sure that we're focused on growth, but strictly on returns as well.
Maybe I say a word as well on working capital. Our working capital to sales ratio is a class leading 12.6%. And that's in an industry, as you know, where high teens are, how can I say, they're not unusual. Some of you may remember that I mentioned in the third quarter that we were very alert. I'm going to say I was nervous to the fact that the 31st of December 22 fell on a Saturday.
And we know that in these situations, customers will often -- how I can say, they'll opt to pay on the next working day rather than on the previous working day. It didn't happen. I wish to appreciate the efforts that our teams put in just before the New Year, and also thank our customers for helping us to ensure that our overdues were at an all-time low, less than 2% despite that Saturday.
And now a few words on our net debt. The underlying net financial debt fell in 2022 by €363 million to €3.59 billion. That reflects our strong free cash flow, dividends as well, actually, as the €155 million of additional voluntary contributions that we made towards pension obligations.
And with that, I'm going to hand you back to Ilham who's going to discuss the full year outlook.
Yes. Thank you, Karim. As a result of such performance, we will recommend at our general assembly a dividend increase of €0.20 for a total dividend of €4.05 per share. And if approved, would be our highest increase to date. This clearly benefits investors among whom we can now count more than 5,000 Solvay employees who have decided to invest their own funds to become shareholders.
Thanks to the launch of our employee share plan last year.
2022 was a year of exceptional performance for the group based on the significant progress made in the last four years, to strengthen our customer partnerships, bring more sustainable innovations valued by our customers and build strong competencies in our team, leading to a performance culture of discipline, meritocracy and raising the bar.
Although it may be a challenge to match 2022, we will build on those trends to drive another strong performance in 2023, albeit the macro context will likely be less supportive.
Before I talk about our full year outlook, I will share with you some insights on our January performance. Volumes were down overall as destocking effect from quarter 4 still linger into this year and particularly so in Coatis business, and to an extent, in oil and gas markets. The volume decline was offset by pricing.
Our order books gives us limited visibility, though they indicate stabilization at recent levels, and we remain confident in our ability to sustain margins.
In Chemicals, performance will be driven by higher pricing, thanks to recently concluded contractual arrangements in soda ash and Bicar. The business has successfully rebased soda ash prices upwards in all regions in line with supply demand. Whilst we don't provide commercially sensitive information, I will point you to industry forecasts provided by agencies like CMA, this is the previously known IHS, for estimates. I can confirm that our value propositions to customers typically enable us to achieve outcomes in the upper end of their estimates.
Despite the expected resilience of soda ash, peroxide and silica, volumes in chemicals will be under pressure driven by the anticipated normalization of the Coatis business. Please note that we are excluding RusVinyl profits from our earnings growth guidance, which were about €100 million in 2022.
In Solutions, we expect demand to weaken and volumes to be under pressure in coatings and consumer markets. Although the segment is working hard to continue defend its margin, we may see some price erosion this year.
In materials, we expect to see volume growth driven mainly by electrification, light weighing and the continued recovery of the aero market. We also expect to sustain pricing power in this segment. As you can expect, our fixed cost will be higher this year by about €100 million, driven mainly by inflation, and we will continue to drive cost discipline hard, expecting to deliver the final €30 million of the €500 million structural cost savings one year ahead of time.
Taking this all into consideration, we currently estimate 2023 full year EBITDA down between 3% and 9% on an organic basis. This exceeds current Street estimates, but perhaps more importantly, it would also exceed pre-COVID profitability by more than 25% on an organic basis. And this illustrates the magnitude of change at Solvay over that period. The fact that we set our 2023 ambitions at such a high level is testimony to the commitment and determination of every employee in the group.
Given the profile of our profit evolution last year, you should note that we expect quarter 1 to show positive momentum relative to quarter 1 last year, whereas the middle quarters of the year will likely lag versus their high comparable quarters. Naturally, each business will fight to maintain the hard won gains in pricing throughout the year and to sustain our high quality and levels of profitability.
On cash, we remain in our investment cycle right now as we have anticipated. And we intend to use the strength of our balance sheet to fund our future growth so CapEx should be around €1.2 billion to €1.3 billion. We also expect to pay higher taxes in 2023 as a consequence of record 2022 results. It goes without saying, and you've seen it in the past 4 years that we will continue our disciplined approach to working capital.
Taking all of this into account, we estimate our free cash flow to be around €750 million this year. We have come a long way on our journey together, and frankly, numbers speak louder than words. The main message today is that we have overachieved every strategic commitment ahead of time. We reinvented ourselves, and I'm so proud of the Solvay team for continually proving their ability to navigate challenging environment, delivering record results and driving major progress in ESG.
Thank you to each and every one of them.
Before we turn to your questions, I would also like to give you an update on our plan to separate into two strong independent companies. We are pleased to confirm that we are on track to complete the separation by December of this year. We have provided the project time line in our presentation materials. So let me walk you through some of the key milestones.
The positive feedback that we have received for our webinars from you, from investors, motivates us to continue them, and we have three more planned. We will start with soda ash next week on February 27, and we look forward to sharing why this business is resilient through business cycles. So please save the date.
We will also host a webinar the day after on February 28 on our aerospace and defense activities which will be more of an education on the market as requested and the recovery underway. We are planning one final webinar topic on our Specialty Polymer business, which will be held before the end of the second quarter. I know many of you are eager to understand the capital structures of both new entities. And our teams have been working hard on this to ensure the establishment of two strong companies.
We aim at publishing information documents on ECo and SCo towards the middle of the year, by which time we expect regulatory approvals, which would allow us to disclose capital structures and historical financial data for both SpecialtyCo and EssentialCo. As we approach that exact timing, we will inform you as we plan to host an event midyear to share and properly review the new information with the market.
The next milestone will be the third quarter, where we plan to begin the debt management process in both Europe and in the U.S. In the fourth quarter, we will host two capital market events, one for each new company. This will be led by the new executive leadership teams who will share their respective strategies and midterm plans.
Following these events, the teams will participate in investor roadshows in both Europe and the United States of America, leading up to the extraordinary shareholders' meeting that will take place in December 2023. We are looking forward to writing the next chapter of Solvay's future.
With that, Karim and I will now address your questions. Thank you.
Thank you, Ilham. We will now move to the Q&A. And I ask that you kindly limit yourself to one question per person so that everyone has an opportunity to participate. Moderator, please proceed with the Q&A.
[Operator Instructions] We have a first question from Mubasher Chaudhry from Citi.
Sorry, apologies. A couple, please. Can I just come back to the comments that you made around on the soda ash contracts and the prices coming in substantially higher than what they were in 2022. Could you just maybe talk about the kind of contract structure that you built in for 2023? Is there any energy linkage in there, as far as if the energy prices do come off in 2020, or carry on coming off, the prices will come off there in line? Or are you likely to see that €400-plus tonne contract price remaining flat regardless of what happens to energy? That's the first question.
And the second question is a little bit more around the IPO side of things. Could you provide some comment on the December 2023 time line? Is that -- is it likely to be based on market conditions at the time that you will go ahead with the IPO? Or would you go ahead regardless given the structural reasons behind splitting up the businesses?
Yes. Thank you very much, Mubasher. So on soda ash, you may remember that we renegotiated now in quarter 3, 2021, right, to shield our margin from volatile energy costs, specifically in Europe, right? You may remember that. And we did that. We had baked into existing contracts. It was the first time in our history, we were renegotiating contracts in the full 2021, where we put energy surcharges not expecting a war and unprecedented inflationary cost in 2022. Soon after, it was already as an anticipation of a rising cost in second half of 2021.
And our customers understand this and care. So our returns enabled us to continue investing in the energy transition and ensure the sustainability of our operations.
In 2022 last year, we truly enjoyed our contracts and [surcharge] in energy and logistics arrived to really maintain our margins. What we did now is we're entering to 2023, the major part of our contracted volume, 90% in Europe and North America is [annual] only this seaborne can be an ease quarterly or spot, meaning we are less sensitive to intra-year volatility and we keep some volume a bit free.
And I think what we simply did and we as a team, I'm so proud of them, is that they tend some of the energy surcharges, the surcharge into floor pricing. That's what we ask them to do. And that's what we are doing.
And I'm so glad that they are doing this because this is the only way to reinvest in the business, both actually from the decarbonation and the growth in volumes like our investments in Wyoming in Green River we announced after acquiring [ Asahi ]equity the et cetera. And our customers, they need every kilo, every gram of future soda ash because there will be demand in this term for more products either soda ash for double glazing, triple glazing for insulation for construction for automotive. But also bicar, as you know, it's a special byproduct of soda ash, which is sold out. These days, our businesses, that's why we have invested in them in Bulgaria.
So all in all, you would remember that's a good big proxy because we -- going to give you senitive information commercially, it's called now CMA, but it's the same, Mubasher -- the former I think IHS price in -- it's an average of the prices visible in the market, we can see that's always usually on the high-end range of this index and better than average. I'm really glad of the soda ash team and give them my recognition on the great job they have done into turning surcharges into floor pricing.
Second question was power of two and yes, the separation in the December. Well, the separation plan, Mubasher, is well underway. And this is also another -- thank you to our teams because, while delivering the year the, back kitchen is busy, and we are managing probably transaction and projection of a project of lifetime in our company. So the separation plan is well underway. We have a clear view of the milestones, and we're happy to share them with you today to give you more clarity.
We always aimed for second half, as you know. At that time when I announced it last year in March, you asked why so long? Because I told you we prefer to do it with quality, and we prioritize quality to speed, and that's exactly was the right thing to do. And we are pleased now to tell you that it's December time frame. We do not see any roadblocks at this time for any delays, and that's our plan. And obviously, we'll continue informing you as we go forward with the plan.
Back to you.
Just to follow up, just to clarify on the soda ash. So there isn't energy price linkage anymore in the contract so the surcharges that you had has been turned into actual base pricing. So there's no links there in the regard to energy pricing there? Just to clarify, please.
But what we did, Mubasher, is part of -- I mean, we cannot turn all the formula pricing into pure floor pricing, but we embedded in the base price mostly right. So indeed, what you can see in IHS, and, again, the high range or CMA now, I should call, the majority of it has been baked in the pricing, right?
Now we always will continue with energy surcharges, but we want to be independent from the energy prices up and down because we wanted our floor pricing to represent the quality of the business and the reinvestment we are doing in soda ash. And I'm so pleased. I mean this is the renaissance of the sensitive soda ash, and we will continue and we may discuss it if there is a question on CapEx, on our investment in soda ash specifically, in Wyoming in the U.S. and in Europe in decarbonation. Back to you.
Next question from Matthew Yates from Bank of America.
I'd like to follow up on Mubasher's question actually about soda ash. As you say, last year, totally unprecedented step of reopening the contracts midyear to pass through those energy charges, and our 2023 base prices has been set meaningfully higher. But I assume that was on the basis of where energy costs were in December, January, when that was negotiated. But as things stand, that may not necessarily be the case. So what's the risk here that customers start calling you asking for the contracts to be reopened again because you've got less justification for those floor prices?
Who was that? Matthew?
That's Matthew Yates.
Yes, well, I mean the market is still seismic, you're right? So I think the soda ash pricing has been always supported by strong supply demand. And our customers value that we continue investing in supporting growth. And that was -- I mean I met few customers in the past 5 months with Philippe Kehren our President, and people are asking for decarbonization and growth -- volume growth, right? So I think this is what we offer in line with the tight market. And obviously, in this market, it's supply/demand and of this price volume elasticity curve and we have investments. So customers are asking for more capacity. We're investing. And actually, when you look at the Wyoming, our Green River is one of the best, if not the best IRR reach capacity investments in the whole industry.
And we learned from last year, and we made sure that we consider potential volatility in energy costs, we have a mechanism to activate surcharges should energy costs go high, but I think the repositioning of the floor pricing is so important for the reinvestments in soda ash, it's so important. And as I told you, I've been always, from day 1, impressed with the soda ash resilience business, really well run, great talent. By the way, save the date, Matthew, come over next week, we will have a webinar...
27th. Yes.
27th?
Yes.
We will have a webinar, and I promise to you that you will see the resilience of this business. I heard in the market that this business is cyclical and not resilient. I invite you to come over. I think you will be -- we will show you the historical performance of this business, and we'll give you a look under the bonnet. And you will see why this business is a leader, is resilient and is so poised to grow on glazing, but also bicar, which I'm really fan of because, it's [2 tonne] GDP, right? And it's really going to sustainable air cleaning et cetera, and bicar is now -- I'm not sure you know, it's 25% of soda ash business. So tight market conditions, good team, reinvestments in the carbonation in growth, and that's what we expect for the next few years. Back to you.
Next question from Geoff Haire from UBS.
Yes. I just had one question. I noticed that you've now got about €2.6 billion on an annualized basis of nonrecurring sales in the P&L. Where does that end up going in terms of any profit from that business? Where is that allocated to? And what do you expect it to be for '23?
Let me just quickly have a look at that. This is to do with the noncore activities.
Noncore...
Yes.
And let me think now, this is mainly our energy trading business. And clearly, as the cost of energy goes up from let's say the, low 20s to the 100-plus, that balloons the magnitude, but the profits are much, much more modest. And as I mentioned when I was giving my overview, we've turned a loss in these energy markets to stable profit, but we have to be vigilant. But fundamentally, to your point, it's a business, which is noncore, with razor-thin margins, yes. Does that help?
And we have been cleaning it...
Absolutely. Yes. Yes.
Since 18 months.
We're nearly there, but we've got a bit more work to do. Does that help you, Geoff?
Yes, that's fine. But it goes into the corporate line. Is that right?
Yes. Yes. Corporate lines.
Yes. Absolutely.
Noncore activities, yes.
In fact, that's what helped the Q4 to Q4 comparison really improve. And we baked that into our expectations obviously.
Thank you. And next question from Alex Stewart from Barclays.
Sorry for banging on about this soda ash point. But if I understand all of the comments that you've gone through already, you raised prices using surcharges over a period of 15 months as energy costs went to very, very high levels. And now you've convinced your customers to keep paying the surcharge price even as the cost of energy has collapsed, which seems an extraordinary feat, but it also occurs to me that although the soda market is tight today, there's several millions of tonnes coming on in the next couple of years. So perhaps, could you just talk about how you see the landscape for soda ash, let's say, over the next 2 to 5 years, it would be really interesting?
So say it again, the last sentence. I couldn't hear, Alex?
Sure. If you wouldn't mind just giving us an overview of how do you see conditions in the soda market evolving two to five years out, so beyond 2023?
Again, Alex, I don't want to shoot back here. Next week, we will have a full webinar on soda ash, right? And again, I think you said, we convince customers -- I mean they're weekly -- I mean, the collaboration and the engagement with our customers is great. So it's not about that convincing although there is convincing in value proposition customers have -- are always a choice, but it's also they need reliable supply, they need source of growth and investment, they need decarbonation. We are world leaders, right? Our customers value us. We value them. And we are investing for growth. They've seen what we are doing.
I think since four years I am in the job, this business went from strength to strength, included on the simplification, the agility, the competencies and then the road map in decarbonation. We have Rheinbach in Germany onstream. I talked about it in my prepared remarks. Dombasle, we are building and -- the largest boiler ever built in France and Europe, Devnya is also underway for decarbonation and in Green River in Wyoming, right, moving to gas.
So all of this -- and they know that our internal carbon footprint has been €100 a tonne since a while. I think, customers, they're like anybody else to be with the right suppliers and winning partners around. So it's a shared effort. We don't impose. We agree.
We move on. I think the energy surcharges has been a way to move through 2022. And now 2023, we have a new set of pricing. And again, I invite you to use IHS, I should say, CMA, again as a proxy, it's a high range. And then next week you will have more information about our historical resilience performance, but also on our plan going forward.
Next question from Martin Roediger from Kepler Cheuvreux.
I have actually three small questions. Your [Tex] rate guidance for 2023, is the first one.
Any effect on your P&L from the sale of license in hydrogen peroxide is the second? And the third one is, can you explain why your position in PVDF is more favorable than your competitors?
So the first one was the guidance, right? And what's the question on...
On Tax rate.
On what?
Tax rate.
Tax rate.
Tax rate?
No. tax, Texas.
Taxes. I heard right.
You mean on the cash?
On the guidance.
On the tax rate, yes.
Okay. Martin, we haven't given any guidance on tax rates. We've been in the mid-20s, give or take, for a while now. The actual incidence of the profit pools in terms of which jurisdictions will impact it, but at this point, we haven't actually given any new guidance. But it's a great question. I mean, I don't think there's -- more I can add at this point.
Maybe just talk about taxes very briefly, just to maybe illustrate, one further point because now the free cash flow, I mentioned the taxes, but we're talking about €150 million or more cash taxes will be paid this year in relation to [positive] record profits. But that doesn't mean our tax rate was higher. It just nearly means that, the other side of record profit is higher taxes and that's what we're paying for this year.
And the second question -- remind me guys, was it peroxide?
Licensing.
So licensing, you may know, we started actually looking at different business models. Obviously, we do two things. We have -- in our H2, too, we are by far the leader in the market, and we have mega plants with partners like BASF and [Domo] around the world, right? And this is guaranteed margin and visibility and the other is spot market for our own markets. And obviously, since now, yes, two years we will -- what's the next step of mastering, growing our process leadership in hydrogen peroxide. So indeed, you recall well, earlier this year, we announced the licensing agreement with the China-based Caprolactam user Sanning. So this has nothing to be in competition with HPPO. And our own markets are now harvesting the first fruits of this engagement with positive results in quarter 4. It's commercial sensitive. It gives us extra profit. I'm going to mention the numbers.
But as you know, we are leaders. Our technology has value. There is more upside to this. And I think when we presented the peroxide webinar, we didn't talked about that. And probably due to the Capital Markets Day, ECo and SCo we'll share with you more, but I'm really glad on hydrogen peroxide where they start thinking outside the box and going beyond the HPPO's traditional polyurethane chain for now going to Caprolactam and others, our resume, our history speaks for itself.
We are the only ones in the world compared to other peers who can really build mega plans, actually really run them efficiently over decades of time horizon. Back to you.
Position of PVDF -- question.
What was the question?
PVDF position.
And what was the question, sorry, I have had some...
Why are we differentiated to purchasing that some other competitor, in PVDF...
Okay. So on PVDF and I'm not sure what you know about competitors, but I'll tell you what I know in our market, right? As you remember, PVDF is critical component in many applications, there are 2 types of PVDF technologies. And I think we shared with you that in February last year during the auto webinar, which was also battery webinar, dispenser and emulsion We are a world leader in suspension-grade PVDF. It's a higher performance grade. Allows us to solve customers' requirements, which are higher than those resourced by emulsion. I remind you that this can be used in LFP and NMC batteries. So there are companies focusing on the lower end of the market, which are typically offering the emulsion technology, and that we participated, but very limited, right?
We do emulsion and we can do -- we prefer to focus on suspension, and this is where our sweet spot and support technology performance pyramid. The emulsion is primarily used in electric batteries. So yes, I think this grade emulsion more fierce competition from the Chinese as a raw material [shortage], the pricing volatility has been primarily driven by its raw material called, I'm sure you know it, 142b.
The most important I think 2 things from PVDF, and I can take offline questions. I think this technology, we are agnostic to the best in technology, right? We are not -- and we are also not making anode or cathode or separator material, right, when wider coating and [electrolyte edit]. And our objective is to have the broadest portfolio of technology being able to support and provide future solid-state batteries and PVDF et cetera.
And the risk of commoditization, and I'm sure this is on the back of your mind, I think it will happen in emulsion before suspension, right? As we told you during the webinar.
On pricing, our January pricing has been to give you a sense, have been flattish [year-on-year]. It doesn't mean that we are not going to -- at the end of the day, it is less about pricing more about contribution margin and protecting the contribution margin of our products and the reinvestments we are doing, okay?
So I think be patient till we see quarter 1, and you see the Specialty Polymer margin, but I have ever said that we will continue protecting our margins and pushing the value pricing. And by the way, PVDF doesn't go only to batteries. It goes to other applications, right? I think we talked a lot about batteries because it has been growing from 2 digits to 3 digits since I joined the company, right?
And we are investing, as you know, in suspension in Europe and the United States of America with IRA supporting our investments, and we are very glad. I think you've seen the announcement that with $178 million from the Department of Energy from IRA to invest in $400 million investment for the [R&D] only. In fact I'll tell you, it's no-brainer deal, and we are investing in the U.S., and that's part of our CapEx investment in 2023, right? At the service of 2030, and we told you that the sales in automotive in general can go up to more than €3 billion. By the way, sales in automotive were €800 million in 2021.
We announced it in our webinar, and last year it was €1 billion. So it gives you an idea that we are really increasing our sales automotive. It's not only PVDF, it's like weighing material under the good application. Our job is to sell other polymers to really replace metal, lighten the car and, therefore, allow clean mobility. Back to you.
Next question from Chetan Udeshi from JPMorgan.
Can I just confirm a few things. First, Ilham, I heard you say Q1, you expect earnings to be up year-on-year. Is that including whatever, $10 million, $15 million or excluding the RusVinyl contribution. So even without RusVinyl, do you think Q1 will be up year-on-year. Can I confirm that?
Yes, it's excluding -- Karim, you can. Yes. It's excluding...
I'm not saying will exclude the profits, what I'm saying to you, in respect of RusVinyl, the profit will be up in Q1.
Okay. That's helpful. The second question was...
But there is a -- Chetan, there is still a phase in. I remember that I told you, the mid-quarter derived is something else. And I saw that some people see it differently, and that's life. I think we don't have a crystal ball. We are telling you what we see in January, our perspective in quarter one, and there will be a phase in during the year with a tougher comp, as you can see versus last year because you've seen our pricing going up throughout the year. Back to you.
I think that's clear. The second question was, you've talked a lot about PVDF and soda ash. I'm just curious, if I look at three segments overall, can you help me understand how should we think about the full year guidance in terms of range, minus 3 to minus 9? How should I think about that by individual division? And I don't want an exact number, but just some clarity on how you think the East division perform? That would be my second question. And third will be for Karim. And sorry, this is a bit mathematical, but I'm just looking at the cash flow numbers for 2023. And the math I'm thinking about is you did €1.1 billion of free cash flow with €575 million of working capital outflow. Now you'll have €250 million of lower EBITDA, you might have €250 million of higher CapEx. So net-net, your working capital, assuming it is flat, should offset the increase in CapEx and decrease in EBITDA. So why is the free cash flow not €1.1 billion still in 2023? So what are we missing?
Yes. Great question so after me, Karim. So on the EBITDA guidance, listen, Chetan, our guidance, obviously, is primarily related to volumes as we expect to sustain high-quality margins in most of our business. In general, we expect continued demand strength in markets like for the whole year, like auto, aerospace and frankly, what we told you few years back that probably pre-COVID level will get to 2024, and we see strengthening demand in health care, in agro, mining as well, I see it's pretty strong.
Against that, we expect continued softness in consumer and construction markets, specifically, especially in H1. We've seen it in quarter 4. Some of our peers or customers have obviously published and they talked about their markets. So this is just what we see today, and we expect other markets such as chemicals to be largely stable. The volatility -- our volatile business, if you know them, is oil and gas and Coatis, which has been earning above cycle averages, which will normalize, and we told you that. We also expect Chetan, some growth in Specialty Polymers from new capacities in health care. We have new medical application, water treatments coming on stream, some performance lubricants, and the batteries, obviously, we did debottleneck. And after the destocking, which we saw in quarter four, and we'll see some of it in quarter 1, we will see it up and running. And obviously, probably China is going to get up by much time, if there are new policies specifically out there.
And this -- all these new projects will generate returns, which at maturity in our book will exceed 15%. We told you that. And these steps are logical in our strategic road map towards the growth estimates which we shared. And also, you remember, it was €800 million in 2021. Last year, we delivered €1 billion in auto we believe we can do €1.5 million by 2025 and more than €2.5 billion or €3 billion by 2030.
So -- and importantly, we are going to try and defend sticky pricing dynamics overall. That will generally support our strong margin over time.
So give you a color, as you say, we cannot guide precisely by segment. In materials, leading margin will continue, will largely sustain. Thanks to the value-added offerings supported by electrification, lightweighting, connectivity. That's the value pricing.
And I think we trained, this is not an anecdote. We trained 800 salespeople back in 2021 on value pricing. And in Chemicals, we have a positive pricing. Thanks to what we discussed in large recently negotiated soda ash contracts. Though Coatis normalization will take some of the shine of that, right?
So it's not all plus, plus, plus. And in solution, obviously, this is where we have some pressure here. Our teams are focusing on sustaining the margin, but we are realistic and expect some margin erosion in the face of soft demand.
I'll pause here. Karim, I think there was a question on...
There was a question on the math on the cash. So Chetan, I'm going to try doing in two ways. I'm going to start by showing, here's how I look at it. And then I'll try and do your way. But you're going to have to bear with me to be -- just bear with me. So let me share with you what I look at. If you take the midpoint of our guidance, you saw by excluding RusVinyl, you get to an EBITDA in '23 at the midpoint, which is minus 6% of €2.95 billion to cut the CapEx, take the midpoint [1.25]. Working capital provision minus €0.3 billion. That's what we're talking about here.
Taxes, €0.5 billion. That's about €150 million more than normal because of the higher profits in 2022. Financing pretty stable at €160 million, and you get to the €0.7 billion range if you go through that logic. I'm going to try and do it your way. Free cash flow, [1.1]. EBITDA less working capital compensation. Now that will depend on phasing, magnitude and timing. So that's a bit more, if you like.
But the net of the 2, I would suggest [0.1 to 0.2] negative, depending what you assume.
Then you've got to factor in a decrease in CapEx of around [€250 million]. Provisions will be slightly better. And the taxes, the higher than normal because the profit is €150 million. You do that, and this lets you on the back of envelope -- a piece of paper envelope. But I get €0.7 billion. Happy for the team to follow through with you, but that kind of logic hopefully gets you to where you wanted to.
Our next question is from Sebastian Bray from Berenberg.
I'm again, focused on cash flow. First one, given the growth opportunities that you outlined, is €1.3 billion CapEx a new normal? The second one is actually on PFAs. We had a second quarter of high double-digit amounts being put aside for environmental remediation. And the Q4 release makes reference to some, though not all, of the contingent liability, which I think is just for remediation as opposed to settlement, having been removed. What is the remaining contingent liability that is potentially less? And should we just think about minus €60 million to minus €70 million out being provisioned for the next few quarters for a combination of settlements and remediation? How many cases has Solvay been named in PFA?
Okay. Thank you. So your question on the free cash flow guidance, right, the €750 million which may have surprised some of you. But listen, I think you said it very well. We are -- take more on our CapEx last to €200 million, €300 million, and we want to spend anywhere between €200 million to €300 million more.
And this is not new normal. Not at all. This a way of growth investment we are doing because it's a choice. And it's a choice for future EBITDA, top line growth generation, right? And it's important that you think about it this way.
So we are investing to give you an example is, soda ash, Wyoming in the U.S., the Specialty Polymers in PVDF in the U.S., I talked about it, that's 100 million tickets but getting I'll get in 180 almost from the [ IFRS ] the research and innovation platforms on -- in hydrogen thermoplastics. So when balance sheet is as strong, you've seen us been extremely disciplined in M&A, in our reinvestments cutting the bad cost, getting fit, delivering world-class free cash conversion. I still aim at 30% plus term, I think in our ways of reinvestments would have. I believe that the management team or Board of Directors needs to prepare the company's midterm tomorrow, right?
And this is extremely important for the equity story of ECo and SCo, both on the organic growth, the capacity and the volume growth, which obviously, we will show you how the top line and the EBITDA growth will be fueled by those investments, will give more prosperity to those entities. And again, at a high returns, right, remember, and you've seen us, I mean, in the ROCE, even with the impairments that have really improved quality of returns in this company, any business case coming to me to Karim to the Executive Committee needs to hit the IRR of 15%. And again, at €100 on tonne, internal carbon pricing. So we are taxing ourselves and reinvesting it, which has helped us since 4 years to become really better and better in term of our green investments. What was the other question?
And there's more PFA. And the provision so actually correct...
Is the techniques, yes. Go ahead, yes.
Second question, yes. So we took a provision in the third quarter and nothing gives sense. And as you know, we took that provision because we were able to estimate the remediation costs. And that will be [€93 million] for memory came in. And we've indicated that the cash out will be front-loaded, I think, partly around half in the first two years. So no change there is what I can highlight.
Now you also talked about cases, et cetera. As you know, and we will -- there will be an update to the disclosures here, which are on a report, but I think there are about 35 cases mainly private individuals. And we don't discuss anything in terms of pending litigation, which you'd understand, but I'd like to give you a bit of color.
We have been working with the regulators to understand and address any concerns, particularly in the -- area in the U.S. around our West Deptford, New Jersey plant for many years.
Now one, I'm really pleased that we can better estimate the anticipated remediation, which is related to the products used. And by the way I'll remind, it wasn't just Solvay's solution. It was owned by another owner, let's say prior to our Solvay. Nevertheless, we're not going to speculate on what it will take and how long things will take, let alone the cost -- any it'll be speculative to say more than that.
Now I'll also remind you, this is really important is this, many cases in the U.S. relate to firefighting programs. So never manufactured, never sold those kind of products. Indeed, out of the thousands of...
Yes.
You want to talk about that a bit which is...
It's thousands in the industry, but I think to be precise, there was in claims named separate and 17 were dismissed. We have been dismissed in all but one, which because we've never -- as Karim said, we've never been in [ actually seen performing ] some concerned states we call [AFS ], goes to firefighting front, right? So I think it's important that you know that. And in general, they put all the names, at the end of the day, we'll get ourselves out of this. Yes. Another one?
That's helpful. The only question I had was that there's no reference to a contingent liability related to the PFAs that was partly extinguished by the provisions in H2? How big is the remaining contingent liability?
Mechanically -- so that will be disclosed and you'll see that in the annual report. But at the moment, what we've done is clearly reduced, but not fully extinguished, precisely because when you have ongoing litigation and how confident you are, you're not going to pronounce us with any certainty.
Absolutely. And I think what we did in quarter three, right, we took a provision. Frankly, it's also -- I mean, we -- first of all, we exited the surfactant technologies in the United States of America, in New Jersey site with [indiscernible]. And that's, I think, we are ahead of time and ahead of any regulatory requirements, right? And I'm very pleased with the team who doubled down in Solvay to do that.
And we did -- when we chose that technology, Edison, we have replaced surfactant free technologies, we see it and we measured how much it would take around the plans to do any clean, and that's the number you've seen in the provision.
It's also important for you to give you clarity on what we believe is our part and our share. And as Karim said, it's not 100% Solvay, obviously. We'll go in due time when it's needed, like we did with Edison case in Spinetta, and you've -- in the announcements recently. We'll go after the former owner and the people from whom we got those polymers and those surfactants. That's the situation.
Next question from Peter Clark from Societe Generale.
Yes, it's not about [so rush] -- actually you need be relaxed on that business. It's over-delivered for a decade. It's the solutions you indicated in '23, although the margin obviously eroding, and Aroma performance, obviously, took a hit in the fourth quarter. Vanillin, hydroquinones, just wondering how you see that business? I think you alluded to it being soft in the first quarter, vanillin and Aroma performance, but how you see that business through '23 because that was the business a lot of people felt shouldn't be in SpecialtyCo?
And then the second question is around I guess the demerger well underway, I think your comment was, do we have a better feel for the associated costs? You've always indicated these will be quite modest and really not going to deflect anything, but just the associated costs with this demerger at the end of the year?
Yes. Thank you. So the first question is about the vanillin, right?
It's about Aroma performance, yes vanillin, yes.
No, the aroma performance, I think we like this business. And you're right. I think you talked about synthetic parts, right, which can be sort of semi commoditized and specialty, right, when you get into the formula. People, they stick with you. But then sometimes you have some transactional customers who may move from one product to another, specifically if you have Chinese competition.
And we believe there will be some of the capacity coming on stream in the midterm. So Aroma performance volumes were down due to lower demand.
Also on the vanillin side into fragrance market, as I said, food was resilient. I think it's a market which remains resilient. And we believe that our natural vanillin side, right, it was like the batteries in the old day. It's something which is going to really pick up because people are asking for natural vanillin. Ours is based on the right [taste] ash.
So it's really a waste, which we reuse, and therefore, its circularity. So I think it's going to be probably a slowdown in volumes, that's what I expect throughout the year. And on the vanillin side, the [it's clearly keep on], but on the natural vanillin side, we'll see some resilience and hopefully, a pickup in H2 this year. And my expectation on the capacities is that they would be going to be absorbed in the market by the end of the year. Next question?
Related question on costs...
Yes. Cost of the split, yes.
I mean, as you know, Peter, we haven't disclosed that number. But what I can tell you is you made an estimate. And we actually -- I think -- I don't know if we would use somebody else, but when we announced the project, we said that we haven't given the number, but it will be within benchmarks.
I can tell you that a year down the road, no surprises, we're very much in line with our early expectations. I will highlight to you that we already started to spend money. So if you want an indication of what did Solvay spent in 2022 already, you'll find the answer to that on Page 18 of our financial report, where we're talking, I think, from memory, €75 million or €80 million. But that gives you an indication of the current spend. I hope that helps.
And obviously, I'll just compete, of course, we will give you more information on such matters during the course of this year.
Yes. And we are very -- obviously very disciplined. We have a project management office, as you know, from day 1. That was a learning from previous experience. So we are really monitoring with discipline, every single penny and every single cost going there and ensuring that we do it right. And yes, so it's all on track.
Under control.
Last question.
Next questing from Wim Hoste from KBC Securities.
Yes. I wanted to touch upon the inflation headwinds you might have in 2023? And then also linking that to net pricing. If you look at 2022, net pricing peaked in the third quarter and then was roughly €70 million lower sequentially in Q4. So any thoughts about, yes, how sticky your pricing initiatives are in light of the inflation that is waiting for you apart from the commentary on soda ash prices, et cetera, that you already made, but more on a general level, how you view that?
Yes. thank you very much, Wim. Yes, I mean the pricing and we can -- it's -- if we can write a book on pricing, so when I joined the company, I believe, frankly, we were probably selling products. And the mantra since 2021 was can we actually stop selling products, invoicing products and selling value proposition. And this is what I'm really proud of looking at the journey of four years is that, in 2021, we started this famous master class training.
Now we have a sales academy. It's virtual -- it's virtual training, right, with different levels, right, from field sales to sales manager to a key account manager. We build the key account management program, right? What does it mean? We have to set up strategic accounts, which the executive committee and I will sponsor at floor level.
And I think, I will start with this before giving you some color, so that I would like to really -- that you take away that really [ include ] to the muscle of value pricing, right, in the company. And then I would put it 50-50. 50% of our portfolio can be value priced or should be value priced, rather that's what we start to do to understand if we sell a product and a good application to a customer, we may want to actually, and we should extract more value and ask for more pricing because we allow that customer to have whole -- total cost of ownership, right. So I think understanding is that, was very critical in our way of value pricing.
And then the second half of the portfolio is actually linked to supply demand. And as you all know supply/demand, there is a price volume elasticity route where you make your call. It depends on your market leadership, on the tightness or the market, visibility of the reinvestment, on the energy prices and security of supply, COVID and inflation, energy inflation has shown, [ a worry ] and to our customers, but us as a buyer that pricing is not only thing. In the old days, you congratulate the procurement guy because they give you lower costs for raw material, but now you need security supply as well. And most of those supply/demand is becoming local.
Our customers, they want to have local production closer to the site. So -- and we made, frankly, significant progress. Obviously, we stress-tested it in a lot -- and pleased with last year -- with this Russian war, and we are building on the improved competencies.
So all in all, as you can see -- clearly we'll see positive pricing. Thanks to the value-added offerings, supported by, again, the mega trend, electrification, lightweighting, connectivity. In Chemicals, I think the positive pricing, I talked about in soda ash. Invite you to look at CMA, and this is recently negotiated.
So it's in that. But obviously, it will be offsets with the Coatis normalization we talked to you about that. And in Solutions, yes, there will be some erosion. I told you that, and you can see it in quarter 4, customers, our customers, right, publication, but also going somewhat to January as we see is that there is some volumes down, destocking in China and Europe for some of the personal care people, the beauty, the fabric care market in the United States of America have been dropping in quarter four, January as well and also in the U.K. and in Europe.
So all in all, I think it's going to be a bit of some erosion, but our business businesses are working hard to sustain margins. Yes.
I'll add another comment, clearly on the fixed cost part of the question,. I mean, typically, we've got a €3 billion fixed cost base. the current environment, you can safely assume an average of around 5% inflation. That takes you to about €150 million now. Ilham, in her opening remarks, talked about €100 million. The difference between the two is the fact that we will stay focused on cost reduction. And I think and I mentioned the €30 million that we -- remaining.
Yes.
So really it's important for us to be very, very disciplined on cost as well, really -- beyond just pricing. We don't like bad cost. We like good cost.
Good cost. And Wim, again on pricing, because I think it's in your mind and heart. I told you about January and the volumes were -- decline was offset by high pricing, but the month is not a quarter, and it's not a year, right? But last year, in quarter one 2022, if I remember well, we increased prices by 20%. And what we see today in this quarter is that pricing are well ahead of quarter one 2022. But again, a month is not a quarter, and we'll continue fighting for value pricing and defending our margins.
I think we've reached the end of our call now. So again, thank you to everyone for your participation today. And I want to remind you that the Investor Relations team is available if you have any further follow-up questions. And please remember to tune into our webinars next week. Thanks, everyone.