Sector News

Belgian chemicals maker Solvay to rejig business, sets new targets

November 7, 2019
Chemical Value Chain

Solvay issued a five-year outlook on Thursday including plans to reorganise into three business units as the Belgian chemicals maker’s third-quarter core profit slipped.

Shares in the company were up 0.7% as of 0929 GMT.

Weak demand in the automotive, electronics and oil and gas sectors resulted in a 1.8% fall to 601 million euros ($666 million) in third-quarter underlying earnings before interest, tax, depreciation and amortisation (EBITDA).

The three new units would be materials, chemicals and solutions.

It said it now expected mid-single percentage growth in annual underlying EBITDA from 2020 to 2024. That is lower than previous targets of mid to high-single digit percentage annual growth for 2016-2018 and 6%-9% for 2019-2021.

“While the lowering of the earnings growth target seems disappointing at first glance, we believe the market should appreciate more realistic targets while we are positive that Solvay’s new management is well placed to drive strong free cash flow growth,” ING analyst Stijn Demeester said in a note.

Solvay said it aimed to deliver costs savings of 300 million to 350 million euros by 2024.

It would prioritise investment to drive innovation in materials, which is made up of specialty polymers and composites, such as those used in the aerospace sector.

Its chemicals unit, which includes production of soda ash, peroxides and silica, would focus on cash return.

In solutions, a wide-ranging segment including fragrance and fluids used in shampoo and in oil extraction, Solvay would seek to deliver better returns.

More effective management of pension liabilities, debt and working capital would also generate around 500 million euros in extra cash flow by 2024, Solvay said. ($1 = 0.9030 euros)

By Marine Strauss

Source: Reuters

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