Solvay SA (SOLB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Solvay First Half Year 2020 Results Conference Call for analysts and investors. Solvay team, the floor is yours.

Good afternoon, and welcome to our second quarter 2020 earnings call. My name is Jodi Allen, Head of Investor Relations, and I am joined virtually 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. 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, Jodi, and hello, everyone. I hope you and your families are staying healthy during this continuing challenging time. At Solvay, health, safety and security of employees remain our #1 priority. We continue to have 10,000 employees or 42% of our human capital working in a virtual capacity, and we will take a cautious and progressive approach to the confinements over the coming months. The recent spikes in COVID cases in certain parts of the world have increased our numbers slightly. Today we have 40 colleagues who are infected with COVID-19 and 176 employees in quarantine. We wish our colleagues a quick and complete recovery, and we will continue to take a disciplined approach to managing the safety of our employees. As I mentioned to you in May, Solvay's businesses began to witness the significant impact from the COVID pandemic in the second quarter, following our solid first quarter results. We quickly adapted our organization to manage through the short-term challenges and focus our priorities on managing costs, while driving cash generation. I am pleased to inform you that the fruits of our labor are paying off. Slide 3 summarizes the results. We delivered record free cash flow to shareholders of EUR 435 million in the first half 2020 compared to EUR 33 million in the first half last year. As all of our businesses remained unwavering in their focus on cash generation, this marks the 5th consecutive quarter of strong and positive free cash flow. The majority of this improvement, 75% in fact, was due mainly to the enforcement of working capital discipline. Karim will share more on these financial details in a few minutes. In addition, we continue to focus on our self-help measures and have made significant progress executing our cost-saving program we shared in November as part of the growth strategy. Since that time, we increased and accelerated our delivery, in light of this crisis, from EUR 300 million to EUR 410 million. For 2020, I would like to share with you some important breakdown of the cost savings figures. In the first half of this year, we delivered EUR 170 million in gross savings for the group. This is a record, and it enabled us to mitigate a portion of the steep drop in volume due to COVID impact. Of this EUR 170 million, EUR 80 million are structural cost improvements and EUR 90 million of the current cost savings relate to temporary measures. Turning to the top line. First half sales were down 11% to EUR 4.6 billion and second quarter sales were down 17% to EUR 2.2 billion versus quarter 2 2019, with headwinds from aero, auto, oil and gas and construction markets impacting volume since April. Thanks to our diversified portfolio, other markets were resilient, such as health care, agro food, home and personal care and electronics. In fact, Solvay has outperformed the general market in certain areas. We welcome these results considering the unprecedented times we are all facing. In fact, I would like to share with you a bit more about what makes Solvay special, more about why we are regarded as technology leaders by many of our customers. I will start to share more on our performance by region, end markets and of course our new customer wins, while Karim will explain the performance by segments, business units and financial details, including cash and cost performance and impairment. I will then close with a short update on our growth strategy, specifically our portfolio and investment. Before I dive into each market, I want to share some insights on the regional performance. Our sales in China, in particular, are back to pre-COVID levels and have grown sequentially by more than 20% from quarter 1 to quarter 2 and grew more than 5% in quarter 2 2020 versus quarter 2 2019. Asia Pacific region, excluding China, is slightly down versus quarter 2 last year. All other regions remained down versus last year and versus quarter 1. Let me now dive into some of our key markets, representing about 50% of our sales, and I invite you to turn to Slide 4. In auto, market estimates indicate global production was about 45% lower in quarter 2. As you know, this is an important market for Solvay, representing about 14% of the group sales on an annual basis. Our Specialty Polymers business in particular supply many high-performance polymers to this market, and its sales to auto in quarter 2 were down 26% in comparison, demonstrating the continuing replacement of metal with polymers. We have further evidence of this penetration through new business awards into the demanding under-the-hood applications. So in fact what I am saying, despite the fact that there are less vehicles being produced, we have more penetration of Solvay materials in each car produced. This led to our outperformance of the general market and will continue to position us well when growth resumes. We also continue to make good progress winning new business in EV and hybrid vehicles. For example, we recently expanded our relationship with a large European OEM, who will use one of our next-generation polymer technologies in battery containers for hybrid vehicles. This all comes after commercializing similar technologies on other auto platforms, and the customer is now expanding usage on new hybrid model, further evidence on the continuing penetration of polymers into auto. As a reminder, batteries are a key growth platform for Solvay we launched in quarter 2 last year. I am also proud to announce that we are in advanced discussions with Veolia, a global leader in resources management and specializing in the design and provision of water waste and energy management solutions, which contribute to the sustainable development of communities and industries. Together with Veolia, our plan is to create a circular economy consortium to address the end-of-life of lithium-ion batteries. We look forward to sharing more details with you in the near future. Moving to aero. We are performing in line with the market though we saw significantly lower commercial aircraft production in the second quarter. The civil sector represents about 7% of the group sales. Our leadership position supplying composite to defense program helps us to offset some of that reduction. In response to the aircraft production decline, the composite business has been rigorously focused on their cost takeout to align their footprint to the new environment and the team has been executing their plan flawlessly. To date, we are ahead of schedule; 50% of the restructuring plans are completed and we have already closed 1 of the 2 intended facilities. As you know, electronics is a market that includes a diverse group of subsectors, including semiconductors, semiconductor consumables and equipment displays and smart devices, and all of these use Solvay's materials. Solvay's sales to this market have been resilient to -- during the crisis, as we supply a number of specialty materials from Specialty Polymers and Special Chem businesses. As a reminder, we invested in a plant in China to produce an electronic grade H2O2 to meet the growing demand in the semiconductor industry. We continue to grow with our Tier 1 semiconductor customers and are working on more new business opportunities to support 5G mobile electronics. Health care continues to be a resilient market for Solvay. As a reminder, our Specialty Polymers are key ingredients for a number of applications, including hemodialysis, pharma packaging and medical devices. We are enjoying good growth in each of these segments. In addition, our technologies are being requested in new marketing response to COVID-19. Our polymers are being used in ventilators, face masks and other protective equipment, whose sales are expected to total EUR 20 million this year. Our recent investment late last year in polyethersulfone technology, or PESU, in Asia is helping to support this growth, and we are thankful that our solutions are helping to protect people during such times. In many respects, Solvay's growth in health care has outperformed, reflecting our growth portfolio of technologies and the value we bring to our customers. Home and personal care grew modestly in the first half, reflecting our strength in hygiene and cleaning related products. We also have an exciting innovation pipeline and continue to invest in big bets in this market. This business has been innovating more biofriendly solutions at the request of our large consumer customers, and indeed we recently rolled out a biosourced polymer that offers hair and personal care manufacturers a full range of conditioning and texturizing features. In addition to that, I am particularly excited about the proprietary patented new technology we have just launched, which offers a 24-hour germ protection and leaves an invisible barrier, which not only kills 99.9% of germs, but continues working after it has dried. This innovation combines superior cleaning performance with long-lasting antimicrobial technology, while maintaining a shining surface, a very unique solution protecting consumers. We had been working on this opportunity long before the start of COVID. But in fact, we have accelerated our efforts since then, and it could not come at a better time for consumers. We will update you more as we are in the early stages of product launch. But based on strong preliminary interest from top B2B, B2B2C, FMCG companies and customers, we expect this to be a commercial success. Finally, I will now turn to mining, where we saw the downturn, particularly in copper production, in line with market dynamics. Many of the copper mines are in places like Panama, Peru, where production temporarily ceased. We expect these headwinds to be short-lived as the fundamentals in the industry remain intact, and Solvay's technology leadership continues to be recognized across the industry. In fact, we just extended our contract for the next 3 years with our #1 mining customer. Solvay earned the business despite lower prices offered from competitors. It's a great example of our winning business model and the hands-on technical support Solvay brings to this multinational. Our technologies, together with our digital tools and software, help them optimize their process and improve yields, creating measurable value. So these are just a few examples of why Solvay is recognized in many markets we serve for having the right technologies and innovation capabilities. This is why customers call us first when they have a problem to solve. To take this advantage 1 step further, we have recently launched a group-wide initiative of our front line, redesigning the way we work with and service our customers. This includes the appointment of executive key account managers for the group's top 20 accounts, new sales incentive programs to drive top line growth, leveraging CRM, digital tools and investing in our people through a new Solvay sales academy with a full virtual and offline curriculum, which we will launch in September. I am confident that reinventing the frontline competencies and processes together with our market leadership position will differentiate us even more against competition while improving our future profitability. To wrap up the quarterly overview. The significant volume decline led to EBITDA down 29.5% in the second quarter. While we cannot define the full magnitude of the demand shift that began in April, we quickly and efficiently mitigated part of the impact with the cost measures and pricing trends during this volatile period. A testament to this is our ability to sustain solid EBITDA margin of 21.7% in the first half of 2020. With that, I will turn it over to Karim. Karim?

Thanks, Ilham. Good morning, good afternoon as well, actually, everybody. I'll start with an overview of the 3 business segments, and I will refer to figures, as usual, on an organic basis, meaning constant scope and currency. I'll start with materials that you can see on Slide #5, where net sales in the first half of the year were down 11%, driven by volume declines that began in April. In the second quarter, specifically, sales were down -- sorry, just to find my key point -- so yes, in the second quarter, sales were down 19% in that segment as a result of lower demand, mainly related to aero and auto. Starting with composites. It's widely understood and accepted that the crisis is significantly impacting air travel. And this impact production rates for several aircraft in the near term. As Ilham indicated, the business was quick to develop a plan to permanently close 2 manufacturing facilities and to shift production to other more efficient operations. Also, as Ilham mentioned, we fast-tracked that plan. We brought forward the closure of our plant in Manchester in the U.K. and only closed that a couple of weeks ago, and we're focused on expediting the closure of the second site in Tulsa in Oklahoma in the U.S. by the first quarter of next year. As a result, we're on track to deliver EUR 22 million of cost savings this year and we will be achieving the full run rate of EUR 60 million that we announced by the first quarter of 2021. Turning to the defense sector, a historic strength of ours, as you recall, sales were stable in the quarter and we continue to work with our customers on new defense programs. We're confident that this sector will continue to grow across the short and the medium term. And this will bring resilience and will help to offset some of the midterm civil program headwinds. Turning to Specialty Polymers. Sales were down only 9% in Q2. Why do I say this? Because essentially, as Ilham already outlined, we outperformed on certain markets despite the softer demand mainly in auto and construction. The business was able to maintain its high EBITDA margin, and this was driven by the combination of our leadership position in key markets, new wins and basically disciplined cost focus. For the first half, EBITDA in that segment declined 16%, and in the second quarter was down 28% due to the volume reduction, whereas pricing was -- remained stable overall. And this helped to preserve our EBITDA margins at 25% in the second quarter. Moving to the chemicals segment on Slide #6. First half sales were down 11%. Second quarter sales were down 11%, primarily related to volumes and offset partly by price. Starting with soda ash. Sales were down 17% in the second quarter. As you know, the largest market for soda ash are glass used in construction, glass for containers, and these were impacted by the closures of restaurants and hotels, just to cite one example. Despite the demand challenges, soda ash pricing was resilient, thanks to our annual contract structures and our strong customer relationships. Yet, the bicarbonate products continued to grow solidly for health care and for food applications. Soda ash continues to deliver on the demanding, challenging, ambitious cost programs, supporting strong delivery of the cash target for the year, which, as you know, is a key metric for every business in that segment. Switching gears to peroxide. Sales were down 13% in Q2, mainly related to lower demand for HPPO in auto and in construction markets. This decline was partially offset by growing demand and supportive pricing for H2O2 and sodium bicarbonate used in disinfectants and in detergents, which are sold to the health care markets. The business has been successful with its cost containment program and it helped to alleviate all the effects of lower volumes. Overall, the Chemicals segment EBITDA declined 30% in the second quarter due mainly to the lower volumes, of which nearly half actually occurred in our Coatis and in our Silica businesses. Every business in that segment worked resolutely on fixed cost containment and reductions, and this offset a large part of the impact and helped protect segment margins of 25% in the quarter. The solutions segment, which you can see on Slide #7, delivered sales that were down 10% in the first half, down 14% in the second quarter due to volumes, whereas pricing was stable overall. I'll start with Novecare, where I'm really pleased to share that the business saw growth in home and personal care and in agro markets, whereas the coatings markets proved resilient. Growth in those markets offset about 60% of the significant decline in demand in oil and gas. And in total contained the sales decline to 16% in the second quarter. On the plus side, the oil and gas turnaround plan has essentially been delivered now and the wider focus on cost control and lower input costs enabled Novecare to maintain its EBITDA margin. And you remember, this is not the first time we managed to deliver that result. Sales in Technology Solutions were down 18% in the quarter due to lower demand in the copper mining market, which was affected by lockdown measures in certain countries. The alumina markets, on the other hand, was not as impacted by lockdown measures, and our sales in this market grew by 27% in the quarter. Aroma Performance again performed very well, growing sales by 14% in the second quarter and outperforming the general food industry. The main driver is the demand for our natural vanillin technology, where we have very strong leadership positions. We continue to move the industry to natural vanillin and are working with key consumer players. Overall, the solutions segment EBITDA was down 26% in the second quarter, reflecting the speed with which the businesses adapted and matched production levels with demand. EBITDA margin was 16% in the second quarter. I am now going to turn to cash on Slide 8. The strong free cash flow performance in the first half was almost EUR 400 million above last year's performance and was driven by a group-wide focus on cash with the second quarter coming in at EUR 233 million. The prime lead driver of that strong first half performance is the ongoing focus on working capital that we've consistently demonstrated for over a year now, and that represents EUR 331 million of the improvement. We quickly adapted production and inventory levels to demand patterns. But also I'm particularly pleased that our razor-sharp focus on receivables has led us to set new records in terms of reduced overdue levels. It's really critical in terms of macro challenges that we're going through. Tax cash out was lower by EUR 122 million in the first half due to the one-off tax gain that you recall of EUR 65 million associated with the additional voluntary pension contributions that we alluded to in the first quarter. Finally, we quickly adapted our capital expenditure plan and generated a cash benefit of EUR 61 million compared to last year. And you can see that reduction makes a modest contribution to our cash flow improvement. We also made significant progress with our deleveraging plans this year. Net debt in the first half of this year is down EUR 0.75 billion, reflecting strong operational free cash flow EUR 0.43 billion, and of course, the EUR 1.3 billion proceeds from the polyamide divestment. That said, as you recall that we also made major contributions of EUR 460 million to our pension obligations in France and in the U.S. When we turn to pension and restructuring and environmental provision, it's worth noting that operationally, we've delevered by EUR 60 million, but this is offset by an EUR 87 million increase in provisions for the additional restructuring plans we announced both in the first quarter and the recent composite restructuring plans. This is an accounting impact, and I'll come back to the cash consequences. Moving to Slide #9. As Ilham explained, we achieved EUR 170 million of gross savings in the first half of 2020, which more than offset inflation of EUR 37 million in the first half. About EUR 80 million of that saving were structural actions that we accelerated and deepened, and they fall into 3 categories: one, restructuring. This is the largest impact, and it includes labor cost. To date, we've saved EUR 36 million; indirect spend, when we look transversely and look across our businesses, we managed to deliver EUR 32 million. This is structural and sustainable; productivity efficiencies is more of what we've been doing historically that includes yield improvements. In the first half, these delivered EUR 12 million. We also took significant temporary reactions to manage through the steep and sudden changes in demand. The total of these actions to date is EUR 90 million in savings, and the reductions like furloughs, salary freezes, but also a complete -- like I say, a complete focus -- a very strong focus on all discretionary spending, which is a given in times like these. And obviously, any discretionary spending has been essentially very, very low during the lockdown period. Finally, last month, as you all have noticed, we announced a noncash impairment, which totals EUR 1.46 billion as a result of the significant short-term effect of the COVID crisis, which triggered the reassessment. Approximately EUR 1.2 billion of this relates to the former Cytec goodwill, predominantly the composite business, and the balance consists of oil and gas and some other intangible assets, all of which are fully detailed in the notes to our financial reports that were published today. While the pandemic is certainly impacting our performance in certain markets in the near term, we consider the fundamental long-term attractiveness of our Composite Materials and our Technology Solutions to remain unchanged, driven by strong demand for lightweighting, electrification and resource efficiency that we believe is here to stay. We continue to pursue new business opportunities in composites. And following this difficult period, we estimate the return to double-digit growth over the midterm, in part due to our self-help measures. And with that, I'll hand you back to Ilham.

Thank you, Karim. I'll now share some comments on the outlook for the remainder of 2020 and an update on the growth strategy. As you would expect, the nature and timing of the rebound will be specific to each individual key market. For markets such as civil aero and oil and gas are expected to continue to experience headwinds similar to current levels, whereas auto and construction markets are more likely to improve gradually toward year-end. Other markets, including health care, agro food, personal care and electronics are expected to demonstrate continued resilience. Against that backdrop, we fully expect to maintain our leadership position. As you know, order books provide limited forward visibility and the uncertainties associated with the various market recoveries make it difficult to provide reliable forecast. That said, we expect a continuation of weak demand trends from Q2 into the third quarter with a modest improvement in quarter 4. Notwithstanding these uncertainties, we are certain of one thing, and that is our determination and focus on cost measures and on self-help measures. At this stage, we anticipate that cost reduction will total around EUR 300 million in 2020, including EUR 150 million of structural cost reduction. In addition, our focus on cash remains a top priority, and we expect our free cash flow generation to be similar to the 2019 level despite lower profit. Our expectations assume a resumption of EUR 25 million in investments for a selected number of value-creating projects to meet the needs of customers as they rebound. This implies a total CapEx of around EUR 600 million in 2020. So before we take your questions, I'd like to share with you a few updates in reference to our growth strategy. First, on our cost targets. We increased cost savings targets, as you know, from a minimum of EUR 300 million when we first launched our plan in November to EUR 410 million during quarter 1 earning results. So the EUR 150 million of structural cost reduction we are forecasting for this year will represent 35% of that commitment, further illustrating our determination to accelerate the group's transformation. Second, an integral element of our strategy is our commitment to sustainability. You may remember, we launched our ambitious goals in February, solving key environmental and societal challenges through science and innovation. Together with our customers, this is a critical part of our plan. We will be hosting an ESG webinar in October. We will share with you the date and we'll share more about these plans in the near future, and I hope you will join us. Finally, during our strategic review, we said we had opportunities to optimize certain businesses. We also stated that the review of our portfolio is a continuous process and that we will always test whether we are the right owner for every business, and we will ensure that we are not leaving value on the table. In the past year, we have taken concrete steps to enhance and drive operational improvements in certain businesses that we do not consider to be core. And I am pleased that our operational actions have yielded strong results. We have, therefore, launched processes to explore strategic options to monetize some businesses predominantly within the Solutions segment. If and only if we find valuations to be sufficiently compelling, our intention is to complete these in the next year or so. We expect this first step to contribute favorably towards simplifying Solvay's portfolio and creating more shareholder value. Thank you very much for listening. And I will now take your questions with Karim.

Thank you, Ilham and Karim. [Operator Instructions] And now I'll hand you over to the moderator.

[Operator Instructions] Your first question comes from Martin Roediger from Kepler Cheuvreux.

I limit it to 1 question. It's the underlying depreciation and amortization charge, which was quite high in Q2, much higher than in Q1. Can you help me to understand what was the reason for that? And is that the right run rate going forward? I doubt that because I think that you had in the EUR 1.5 billion write down also some other intangible assets being affected. So normally, D&A charges on an ongoing basis should be lower going forward. Maybe you can clarify that.

So the question, Martin, is about the depreciation, right, and amortization on our impairment, right, Martin?

Right. Yes. The underlying depreciation and amortization.

Underlying. Yes, I got it now. Karim, can you provide the details?

There was essentially a relatively modest amount of depreciation, accelerated depreciation of spare parts. I think that's probably the only factor worth of note.

And the run rate going forward?

This is not a run rate. This is very much COVID-related when you place this over too many spare parts. And essentially, we depreciate them and we move on. So no, I think there's no impact on the run rate of depreciation for Solvay based on this.

So for Q3, we should look more to Q1 figure.

Yes. Correct.

Correct. Absolutely.

The next question comes from Alex Stewart from Barclays.

I'm interested in your comments about the auto sector because with the trading statement on the 24th of June, you talked about auto and aerospace and construction and several other markets being down 40% in the second quarter, and then it was only down 26%. You mentioned there's one possible reason, the increased penetration of polymers. I can't see how that bridges the gap with car production down 45% in Q2. So could you perhaps explain why the actual results in the second quarter was so different to what you had indicated back in June, would be incredibly useful.

Yes. We couldn't hear you very well, Alex. But I think the question -- the line is bad. It's about the auto, right? And why we outperformed the auto markets, right?

No. Sorry. Sorry, let me ask the question again because that wasn't it.

Yes, please. That's better.

You talked about auto sales being down 26% in the second quarter, but in your trading statement on the 24th of June, you said there's several markets, including aerospace and auto, had revenues down 40%. So you had previously talked about down 40%, you delivered down 26%. I am interested why there's such a divergence in the last month, you could possibly explain that.

Let me start. So again, the guidance we gave in our trading update was indicating the market trends as we saw them. The figures you quoted, the 26% is Solvay's outperformance against that backdrop. And the reason for it, I'll turn it to Ilham to give you a reminder of some of the key factors that helped us outperform.

Yes. So Alex, it will be a bit of a rendezvous between you and us on explaining a bit how -- why is Solvay special as a specialty company and how we target whatever the market does, that we need to outperform our specialty market and obviously auto is one -- is part of it. So it's really on Specialty Polymer, it's only down 26%, as I mentioned. Two things, as I said, we are in automotive under-the-hood application, we're invisible, we replace metals, right, in auto. And basically, the value proposition is to make the car lighter at a lower total cost of ownership, decrease in the consumption of fuel, and therefore emitting less CO2, again, at lower total cost of ownership. And those are things the auto OEMs, they just love it, right? And I gave you an example of the battery casing. We started with few auto platforms in Germany, and now we're expanding in other models. So Specialty Polymers, again, whatever does the market, they need to outperform the market. Obviously, you cannot defy gravity, but we are winning new applications, creating a new market. So I think that's important. Now the light in the tunnel, and I'm sure you have LMC data, obviously, they see some improvement between quarter 2, 3 and 4, right? So less decline in quarter 4, and I remain optimistic also between now and the end of the year. The other piece I would like to really stress out is the batteries, right? And I think when you talk about the electrification, the green -- the EU stimulus and you see number of states in the EU not only given bonuses to consumers to scrap their cars and buy new ones with even higher bonuses if they buy cleaner cars, right, either hybrid or electric, we like that. In an ICE car, internal combustion engine, they can use up to 6-kilo of our top technological polymers; if you go to EV, they use up to 9 kilo; and if you go to hybrid, they use up to 12 kilo. So again, whatever the market does, we can penetrate with our technologies. And the batteries is a fabulous opportunity to really innovate. And then we talked about, obviously, recycling of the batteries. So I'll stop here.

But sorry, just to be very clear on this. In your trading statement, you said businesses related to oil and gas, automotive and aerospace were the most significantly impacted with revenues down 40%. So there is no indication that, that's where the market was down. You said the revenues related to auto was down 40%. I don't want to unnecessarily push this point, but there is clearly a divergence between what you had talked about in June and what you reported. And I'm just trying to understand why that was.

Yes. So here, we highlighted the Specialty Polymers part. Yes, Alex, there is a Special Chem, which is in catalysts, right? And there, the dynamics are different. You know that we are in China, 5 and 6, you know that the regulations have been moving from China 5 to China 6, which has been normally positive for Solvay. However, due to the COVID-19, China has actually pushed out a bit the China 6 regulation to actually empty the stock of China 5 cars. So that, we've seen also some delays in our plans.

The next question comes from Mubasher Chaudhry from Citi.

Just one on free cash flows. Just wanted to get your thoughts on, first of all, cash tax. Even with the kind of the EUR 65 million benefit taken out, the cash tax payment has been a little bit low in the first half versus the P&L tax. So I was just wondering whether there is a cash tax payment coming up in the second half? And then related to cash flow as well. How do you see working capital trending in the second half of the year as -- while business revenues pick up a little bit more, should we be expecting an outflow for the full year or should it be flat for the full year?

Okay. Mubasher, great questions. So I'm going to reframe your question, make sure I've understood it, which is why is the cash flow forecast we're indicating essentially low in the second half compared to the first half. And you're correct in identifying some of the elements. But I'm going to start somewhere else. Remember since early last year, and Ilham was very, very clear that we are going to really work on improving the quality, which meant also the phasing of our cash flow, and you've seen that being delivered. Therefore, the past is not an indicator of the future. You're right in saying that there was a high-quality, but a non-repeat of the EUR 65 million that was announced and described in Q1 associated with the additional pension fund contributions we made. But there's a couple of other points I want to highlight. One, you will recognize that we've been really working hard on structurally driving working capital to a different level. One cannot continue to drive such structural change quarter in, quarter out. So there's something around -- it's high-quality, and I'll come back to that second point on quality. But there's an element of the quick wins that are essentially behind us. Bearing in mind, we started off from a very strong platform already. But by far, the biggest factor behind all of this is the fact that second half profits are expected to be low than the first half. Remember, Q1 is essentially flat against last year. That won't be the case in second half. But also we've announced restructuring plans in Q1. We've announced a further restructuring plan with composites. We will be accelerating, therefore, paying cash restructuring costs that will essentially mean our cash spend this year will likely be a good EUR 20 million, EUR 30 million higher than the typical EUR 50 million, EUR 60 million a year you've seen from us historically. And that really completes the answer on the phasing on the cash. Clearly, if we can generate more cash, we will. Now going back to the level of working capital, et cetera, we will make sure we invest for our customers as and when it happens. That is far more important to maintain our leadership positions and be there for our customers. That said, as I look at the working capital, I am going to share with you 1 or 2 operational KPIs that we look at. Take inventories. Our ability to maintain inventories at 15.1% of sales, which is lower than last year, lower than the first quarter despite a rapid decline in Q2, to my mind, is very strong, and our challenge and our absolute resolve is to maintain that. The second point, receivables. I mentioned to you that in times of challenge like this, liquidity management is the biggest source of corporate distress. We have 11,000 customers. We're so focused on receivables management. I've never seen that in Solvay before, and it's paying off. That's why our overdues are just under 4.5% of all our receivables, and that's a record. And I thought we set a record in December last year, we were up 4.9%. Again, can we sustain it? It's not a walk in the park. We'd absolutely continue to focus on that systemic, sustainable performance. And that's why we will invest, but we'll keep the discipline.

Just to clarify on the tax part. Do we expect any tax payments for the second half? Or is the kind of low tax payments that you've seen in the first half is the kind of run rate that we should be thinking about?

At this stage, nothing at all is anticipated in that regard. Essentially, the cash flow expectations are very much driven by the factors I have described.

The next question comes from Mutlu Gundogan from ABN AMRO.

My question is on cost savings. So the gross amount amounted EUR 170 million in the first half. You did EUR 50 million in Q1. What were the net savings in Q1 and Q2? And then relating to Q2, how much of that was from furlough? And then looking at your full year guidance of EUR 300 million of gross savings, how much of that will be net? And how much of furlough would you expect in Q3, Q4?

So I've already indicated that inflation was EUR 37 million in the first half, you can extrapolate that easily. So EUR 300 million, you can deduct 2x the EUR 37 million I mentioned and you get to a net figure. There are many other factors that impacted the cost. We've highlighted the key aspects. For example, you've got the negative impact on fixed cost from destocking. And our stock levels -- our inventory levels are down. But there are many other factors that have compensated for it. So the key elements are those that we've mentioned and you've correctly retained.

And I think what is interesting, Mutlu, is out of the EUR 170 million I have explained with Karim, EUR 80 million is structural, and we follow the structural. Basically, almost 50% of the structural is restructuring plans, which we already shared with you our intent during the growth strategy. And obviously, the composite materials starting a bit in quarter 2, right, to execute their restructuring plans. And 40% is indirect. The rest is productivity. And the EUR 90 million temporary is mixed bag of T&E, travel ban, obviously, and many other things. And the target, as we said, is EUR 300 million for the year, which is already a nice achievement as compared to our 5-year target of EUR 410 million, which represents 35%.

I mean just an add-on, why won't you just simply give the net number in the press release each time?

Because inflation is a recurring part of the business. And fundamentally, it's about what is that we can do. I mean, there are many different ways you could present the figures. I feel focusing on what is within our control, inflation certainly is not, makes a lot of sense. And the math is the math.

And we can -- yes, it's a math.

You can count on us.

So we can engage with you Mutlu offline.

Yes. No, I mean just because other companies do it as well. So anyway, it's just a thought.