Solvay SA (SOLB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the webinar for analyst and investors conference call, Solvay team. The floor is yours.

Thank you. Good afternoon, and welcome to our conference call to discuss today's announcement. My name is Jodi Allen, and I'm the Head of Investor Relations, and I'm so pleased to be here in Brussels on this important day, today. I'm joined 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, shortly after the webcast has concluded. 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 welcome to Brussels. Good morning, everyone. This is an incredibly exciting day for all of us here at Solvay, and we are delighted to have the opportunity to speak with you about our plans to unlock much greater value through the business separation that we announced earlier this morning. By launching two independent strong companies, we will create two new leaders in our industry, each with sharpened strategic focus, well-positioned to enhance value for shareholders, for customers, and team members alike. But before we talk about where we are headed, I want to spend some time on how we got to where we are today. Remember, I joined Solvay in 2019, not a long time ago, and not just because I saw a tremendous opportunity to create value, but because I appreciated the trust and mandates that Solvay's Board gave me to unleash the full potential. And in fact, I spent my first week in Solvay meeting and listening to employees, customers, investors and many of you on the phone today. What I heard was instructive and confirms my assessment, which is that there was a need to raise the performance bar and a strong yearning for simplification and clarity on the strategic direction. We knew that we couldn't do both at the same time, and that is why we launched our growth strategy, knowing very well that as we up our performance, we would be working on the future strategic direction of Solvay. And that is what we did, working quietly on the long term, while keeping a sharp eye on the short-term delivery. We've always known that we could not unleash our full potential by staying as we are. And indeed, every step we've taken has been a step in the direction that we are announcing today. But before I go further, it's important to pause and see the extent to which Solvay's performance in the last 3 years has earned us the right to take the bold steps that we announce today. The comprehensive strategic review initiated in 2019 covered every business and focused on unique strength, market position and opportunities. It resulted in the launch of our growth strategy, aiming to align our businesses to distinct mandate, which was new in the company, with a plan to maximize sustainable profitable growth, cash generation and returns. We implemented the new operating model to reduce complexity, better manage resources and deploy capital expenditures to the highest value opportunities. And we started to reinvigorate and to upgrade our leadership ranks, profoundly changing the culture of the organization. Over the last 2 years, our team has come together, determined to transform and improve the financial health of the company. I'm truly proud and humbled by the way our employees around the world have rallied behind these efforts to deliver beyond expectations. Let's take a closer look at our achievements. As you can see on Slide 3, we have already, in 2021, achieved all of our midterm plan 3 years ahead of plan. Despite the COVID crisis and many other headwinds, including the 737 MAX stoppage and an unprecedented inflationary environment, we delivered 4% EBITDA annual growth since 2019, while the recovery of the civil aviation and oil and gas market are yet to come. We also focused the group on cash, which you know was one of my first priorities when I joined Solvay. We achieved new records, delivering 11 consecutive quarters of positive free cash flow, totaling EUR 2.4 billion of cash in the past 3-year period. Our Materials business is now entirely self-sustaining, no longer relying on the cash generation from Chemicals to drive growth. In fact, our Specialty Polymers business has recently been as cash generative as our soda ash business. Likewise, we have reached our free cash flow conversion target of greater than 30% 3 years in advance. On returns, and you know it was also one of my priorities, here, we have also made great progress. We've pruned some product lines, optimized our industrial footprint, which we reduced by 20%. We improved our working capital and increased our profitability. All of this has led to a return on capital employed of 11.4%, again, exceeding our midterm targets. Finally, on costs. You know the story here, never waste a good crisis. We accelerated our structural cost reduction, reaching EUR 390 million savings just in 2 years and raised our targets not once, but twice. We also deleveraged the balance sheet and reduced our debt and pension liabilities by 1/3 since beginning of 2019, and this is impressive. I'm so proud of our team for this first ever great achievement. In fact, we have emerged stronger on all fronts, from market position and pricing power to profitability from cash generation to return. On the top of our financial commitments, we have also made significant progress on our Solvay One Planet ambitions. Here, just a few examples. As you know, Solvay is fully committed to reducing carbon emissions. And we continue to make excellent progress against our target, achieving an 11% reduction across the 3-year period, nearly doubling the 6.6% required by the Paris Agreement. Solvay Solidarity Fund donated over EUR 6.4 million out of the EUR 15 million collected from investors, from management team, directors' contribution to support our people and communities in 13 countries. More recently, we donated EUR 1 million to the Belgium and International Red Cross in support of relief efforts for the civilians impacted in Ukraine. Solvay has also committed to matching employees' private donation to help address the growing humanitarian needs. Staying on the topic of people, we are preparing the future and its foundation actually, and we are already making great progress on our diversity, equity and inclusion program, and I'm very proud of our employee engagement score of 80%. Our people are clearly committed to the company's success and fully mobilized during COVID-19 and after and ready for our next step. As you can see on Slide 5, we are now fit, ready to accelerate and change the game. Every single Solvay business is delivering, which has established our strong foundation stronger than ever. The Solutions segment, remember, I asked them to optimize their returns and to earn the right to be invested in. Now they are optimized. We have what I consider to be best-in-class business leaders in the industry, and our unified culture is already showing that we are winning, and we have demonstrated this through the various crisis. So we are ready. We are ready to change the game and create two new companies, both champions in their own right, which for now, we will call EssentialCo and SpecialtyCo. So let's turn to this next step in our journey, Slide 6. EssentialCo comprises mostly our Chemical segment today, representing just over EUR 4 billion of net sales in 2021, operating in 45 sites. It's a leader in providing essential chemicals, serving attractive end markets and its strategic mandate would be to enhance its cost leadership, while maximizing cash generation. SpecialtyCo comprises our Materials business segment, and most of the Solutions segment, representing EUR 6 billion of net sales in 2021, operating in 68 sites. Company would be a pure-play specialty in materials and a leader in consumer and resources. The company's strategic mandate would be to provide innovative, value-added solutions to our customers, and it will continue to achieve above market growth and strong returns. We will get into the specific businesses and market a bit later in the presentation. As we look at the rationale for the separation on Slide 7, which is really about giving each company the strategic and financial flexibility to focus on its distinctive business model, market and stakeholders' priorities. As standalone companies, SpecialtyCo and EssentialCo can each intensify their strategic focus, allocating resources appropriately to best serve the needs of the business and the needs of customers. For example, SpecialtyCo, we need to invest for growth. Remember, we have already announced major capacity expansion for PVDF in Europe and in China, to support the acceleration of electrification in the automotive industry and capture the double-digit growth expected over the next decade. EssentialCo will get leaner, more productive and cost efficient and reinvested savings to strengthen its #1 leadership position. Each entity would be well positioned to drive its own ambitious sustainability roadmap. Soda ash will, of course, stay focused on its energy transition plan, and it is important to note that projects are already in place to deliver 30% CO2 emissions reduction, meaning that EssentialCo will be off to a very strong start. We also recognize that we need different set of skills to support the unique needs of each company. And we will be able to develop and attract the talent best suited for the respective company. SpecialtyCo will invest in strengthening its research and innovation on the front line, such as sales and marketing, while EssentialCo, we doubled down in process engineering supply chain and energy transition experts. By strengthening the link between each company unique needs and strategic path forward, we believe we can unlock value for all shareholders. And before we dive into the strengths and attribute of each company, I'll ask Karim to give you a brief overview of some key transaction parameters. Karim?

Thank you, Ilham, and good morning, everybody. I will start by stating that each company is expected to have a distinct capital structure, intended to provide resilience through the cycles on the one hand, and the resources for superior growth on the other. We will be working on refining the detailed capital structures that we've already had the benefit of helpful constructive inputs from credit rating agencies. We fully expect SpecialtyCo to be committed to a strong investment-grade rating, able to fund its growth. The combination of this EssentialCo's prudent financial policy and cash generation will enable it to fund, amongst others, its energy transition. Until such time as the separation takes place, we expect Solvay's investment-grade ratings of BBB and Baa2 stable to be preserved, until the separation takes effect. Value is created when it's shared. The dividend at the outset is intended to be aligned with Solvay's current level. And in the same way, as we will be refining capital structures, the proportion to be borne by each company will be established further down the road. I should add that as we undertake this work, we're also benchmarking extensively the likely peer groups for each of the businesses that we will be creating. And I'm confident that our approach to refining capital structures and dividends will further enhance each company's ability to win. You won't be surprised to learn that we're approaching this transaction in a manner that will maximize value creation. At this stage, we expect that the separation will be tax-free in most jurisdictions, and I'm pleased to advise that we also expect the separation to be tax-efficient for the majority of shareholders. Finally, when it comes to timing, the fact that we started the carve-out of our soda ash business last year is a big plus, as we learned a lot and will now adapt and extend that work to accomplish this project. As a result, we expect the separation to be completed in the second half of 2023, pending the necessary approvals, of course. And we will be providing details about the composition of the Board and the management teams as well as the name of each company at a later date. And with that, I hand you back to Ilham.

Thank you, Karim. And let's now turn to EssentialCo shown on Slide 9. Today, this represents EUR 4.1 billion in sales and, geographically, is well balanced across regions. EssentialCo would be a market-leading essential chemical company composed of leading mono-technology businesses that today are mostly part of our Chemicals business segment. These businesses include soda ash, peroxides, silica, Special Chem and Coatis businesses. EssentialCo business enjoy global leadership positions across most product lines, as you can see. Company would be positioned to further reinforce its leadership, operational excellence and lean manufacturing. The business would also seek expansion and consolidation opportunities, including accelerating its position in natural soda ash and sodium bicarbonate. Would also pursue growth in the Asia Pacific region and further extend its leadership in the peroxide market. For example, Silica and Coatis, both mono-technology businesses, have been operating under this business model for 2 years now, and they have flourished as a cash generator, while innovating selectively. Turning now to Slide 10. I will highlight just a few of EssentialCo's, key characteristics as we prepare the company for more success. Each of these businesses would benefit from the existing foundation of strong global leadership positions in each of their markets. The added focus on process technology to sustain its competitiveness makes it a supplier of choice for customers around the world. These sectors enable strong and resilient cash generation. Regarding our sustainability roadmap, EssentialCo would remain on a path to exit coal by 2030 and to reach carbon neutrality by 2040 for most of its businesses; and before 2050, for soda ash. With clear plans well underway, the separation can allow even more focus on this important roadmap. Slide 11 highlights the key end market opportunities for EssentialCo, which are driven by megatrends that are needed by humanity. Solvay provide technologies that are, in fact, essential across a number of attractive and resilient end markets. In the building and construction industry, the need for more energy-efficient solutions continues to drive more use of soda ash for triple-glazed glass windows. Similarly, the same trends drive greater need for greener, longer-lasting tires in the automotive industry. Our highly dispersible silica technology reduces rolling resistance and consequently, reduces CO2 emissions. Reducing air pollution is another environmental driver and our bicarbonate derivative is helping industries to limit air pollution delivering 2x GDP growth. Lastly, health care needs will drive increased demand for certain grade of peroxide used in food and pharma packaging, disinfection in wound care, dental care and even in fish farming. Turning now to Slide 12. To summarize, EssentialCo, as an independent company, would be able to reinforce its global leadership position, with a focus on process technology, driving operational excellence and enhancing cost competitiveness. This autonomy will give the company the ability to accelerate its energy transition program, while also capitalizing on the right expansion and consolidation opportunities. Let's now take a closer look at SpecialtyCo on Slide 13. The new SpecialtyCo company would have two business segments: Materials, on one hand; Consumer & Resources on the other hand. Materials segment includes the highly valued, high-margin specialty polymers and composites businesses. This segment also includes our growth platform for battery, hydrogen and thermoplastic composites. As you know very well, it's an industry leader, focus on bringing new solutions to customers that address critical performance and environmental challenges. Like today, it comprises the broadest portfolio of specialty polymers and carbon fiber composite technologies, and we have leading global positions in all core markets. The Consumer & Resources segment mainly consists of businesses within Solvay's current Solutions segment, including Novecare, Aroma Performance, Technology Solutions and Oil & Gas. We aim to provide specialty technologies focus on more natural and sustainable ingredients that are being requested by leading FMCG companies. As you know, we have optimized the oil and gas business and our investments in innovation now means that around 50% of its solutions are less than 5 years old. As a result, we are benefiting both from demand recovery and improved pricing power, and we will continue to review our strategic options. Let's now turn to attribute of the SpecialtyCo businesses, which you can see on Slide 14. SpecialtyCo's position in attractive end markets is supported by strong tailwinds from sustainability-driven megatrends, including electrification, light-weighting, sustainable mobility, digitalization, natural and bio-based ingredients, and resource efficiency. These businesses have some leading market positions in their core markets. Some businesses like surfactants are good challenges to formidable competitors. And whilst we came a long way in the past years, we have significant room to further improve and grow. All benefits from a strong innovation pipeline and unique application expertise. SpecialtyCo is also the partner of choice for leading OEMs and fast moving consumer goods companies, with many joint development programs backed by strong customer relationship and partnerships. Company would benefit from the independence, enabling it to deliver faster above market growth at superior returns and margins. SpecialtyCo is already in the top quartile -- actually, the top 3 specialty companies when it comes to CO2 intensity measured as tons of CO2 emissions per unit of revenue. Separation will enable it to extend its lead, as it drives a strong sustainability roadmap with a clear path to achieving carbon neutrality before 2040. Let's now review SpecialtyCo attractive end market opportunities. Each of the megatrends shown on Slide 15, supports compelling growth opportunities in key markets, including transportation, electronics, agriculture, consumer and health care. One example I'd like to highlight is transportation, which represents a significant opportunity for SpecialtyCo. You may remember from the auto webinar shared with you last month, that we have truly unique positions and compelling growth prospects. We're preparing for significant and ongoing advancements across cars, trucks, trains and even air travel and you name them. This industry is undergoing a major transformation as regulations in many regions of the world have set ambitious goals for decarbonization. SpecialtyCo is well-positioned to be a leading player in this transformation, and this motivated us to double down with the EUR 300 million investment to support demand for batteries in Europe so that we can continue to outperform the market. In Electronics, SpecialtyCo has a number of technologies supporting digitalization and 5G trends. For example, our high-performance polymers are used in fab construction for [ deck ] coating and piping as well as in fab equipment for accelerated heat exchange. In agriculture, our new sustainable formulations enable next-generation agriculture. For example, they are used as bio-stimulants, to improve seed germination and plant growth, while also minimizing the use of harsh chemicals, pollutant and improving yield. Return toward more natural and bio-based ingredients is here to stay and is driving significant opportunities in the consumer industry. The Novecare business is well positioned to benefit from these trends, with the specialty surfactants and guar polymers, making us the #1 in hair care. Another example is the trend in hygiene and disinfection, where the business is gaining much traction for its latest innovation. Remember, Actizone, a disinfectant technology that can protect surfaces from viruses and can kill 99.9% of germs including coronavirus up to 24 hours and is now commercialized by major household cleaning brands in the world. Turning now to Slide 16. As a stand-alone company, SpecialtyCo would be well positioned to leverage on its leadership position as a pure play in materials and in consumer markets. Through increased investments in capacity, innovation and commercial capabilities, a growing portfolio of sustainable solutions and leading edge technology, SpecialtyCo can continue to deepen its customer relationships, capitalize on to new opportunities. To conclude, we are energized. We are really energized about Solvay's next chapter as we work to launch 2 new industry champions. We strongly believe that both companies would be well positioned for long-term growth and value creation, with distinct strategies, operating models and capital structures that are best suited to capitalize on each company's potential. Last weekend, I brought our top 30 business and functional senior leaders together for the first time physically since April 2019, most probably, when I joined the company, to share this project with them. I'm proud to say that we are all committed and ready to write the next chapter in Solvay's history, determined to thrive in the years ahead. Thank you. Thank you so much, and thank you again for joining us to discuss this truly pivotal milestone and defining moments for Solvay. This is the beginning. This is the beginning of 2 exciting stories. And with that, let's open the line to questions.

[Operator Instructions] Karim and I will now address your questions. The first question comes from Daniel Chung from Redburn.

I think firstly, congratulations on this new strategy. Just a couple from my end. First is, could you run through the rationale of the decision, mainly in terms of expanding more on how the work was done to carve out soda ash and how that influenced the new strategy here? And sort of linked to that, does that mean we're still going to see soda ash numbers starting in this coming quarter results? Second question is in terms of the portfolio with SpecialtyCo and EssentialCo, is there any optionality here for further pruning? Or are we saying that the assets are core for each one? That would be very helpful.

Yes. Well, thank you, Dan, and thank you for your words, it means a lot to us. Indeed, this defining moment in the history of the company. You talked about soda ash. We didn't waste -- the carve-out of soda ash obviously, this process allowed us first of all, to learn a lot and to meet personally, obviously, and to get a jump start on what we are currently announcing because we are adapting as we speak the carve-out process to ensure that it set the stage for the next steps we announce today then. So you will recall that when I announced the carve-out of soda ash, we explained that it would both improve the operational focus, and it would give us strategic flexibility. I've been turning every single stone in this company, including building a very strong energy transition for soda ash. And it's in place now. We are, as you know, exiting coal from the third plant in 2 years' time or less than 2 years' time. And at that time, we were very clear that we made no decision outside the start of the carve-out process. So today, announcement gives clarity on Solvay's strategic direction, which was frankly requested by all our key stakeholders from day 1 when I joined the company. We needed to get to this stage to build a better operating business, right? And I hope, in the past 3 years, we have shown to you and to the world that we are good operators. And achieving the growth strategy and its milestone tree is ahead of time, is allowing us, giving us the luxury now to make such a bold decision. And we hope really that this clarity and the prospects of unleashing more value is truly welcomed. Back to you.

And about the reporting structure?

Yes, reporting structure will remain the same. Karim, can you...

No, I think that's exactly it, Daniel. I think for the time being, we'll continue to report as fully as we do today. Clearly, as we get -- as we have -- we make progress, we will obviously provide a lot more information on a pro forma basis, to help you understand and appreciate the opportunities ahead.

Yes. So for -- till day 1, obviously, this is a project. It will be subject to board approval and extraordinary assembly general meeting, right, for the approval. And it's going to last -- yes, we announced second half of 2023 and in between, obviously, reporting as usual. Back to you. The pruning. Sorry, there was another question [indiscernible] telling me. Yes, great question. I mean, we are running our businesses like we've always been doing. So we'll continue pruning the portfolio, pruning our product line, pruning the low-margin businesses we don't like, and you've seen it, guys. I mean, in 2019, remember, when I joined the company, I told you 2 things. I was unsatisfied, unhappy with the free cash flow, its conversion. We were the last student in this school. We are now in the top ranks of the performance, with 37% of conversion last year. I didn't have time -- I mean, the luxury at the time to announce such projects or even dream about it because the cash cows, our cash cows, our chemical businesses were feeding the growth business, which needed much cash to grow. Well, now you know it. Specialty Polymers is as much cash generative as soda ash, so it's good. Second, the Solutions business, and you know it. I put it in the solution, and I called it [indiscernible] in grow, optimize the return. I was clearly unhappy with the returns. And I said it to our team, any business, any asset which doesn't deliver a return better than WACC, the cost of capital, doesn't earn the right in my book to be invested in and look at what the team has been doing. And I applaud and I know that many are listening to the call today. I applaud our teams. I applaud the solution guys who have been really moving and allowing us to move the return from 8% to 11.4% in just 2 years' time. So yes, pruning is part of the muscle then, will continue. And I think you mean organic and inorganic, both of it is on the table, business as usual. No sacred cow. Did I answer all the questions because I keep forgetting.

The next question comes from Wim Hoste from KBC Securities.

Yes. And also, from my end, congratulations to this somewhat surprising move. I have two questions. First, on Special Chem. Can you explain why Special Chem was put in the Essentials buckets? My intuition would be that it would have been in the other bucket, but I'm happy to hear your thoughts on that one. And then the second question is on, yes, the dividend policy going forward. I understood from your presentation and the press release that the dividends, in absolute terms, would be unchanged at the moment of separation. But what kind of dividend policies would you put in place for the businesses? Would it be yield-focused? Would it be payout-focused? Maybe, can you explain that as well? Those are my questions.

Thank you very much, Wim, for your words. It means a lot. So on Special Chem -- and let me give you a bit of stepping back, what are the rationale and how we define the scope? I mean, you know me by now, this has been clinically done and looking really and we assess every GBU, every asset in the GBU, right? Because at the end of the day, it's about the rating and the potential rating of each asset and it's about the re-rating story here and the valuation of the assets. So we looked at few KPIs. We looked at the business fundamentals, and we agreed this is Specialty, this is more commodity in terms of the businesses, how they operate. We looked at their ability to create value in the future, right? This is GDP. This is above GDP, medium high growth. The value they create with the customers and sharing the win and the value created. We look at the ESG alignment, right, for each business. We looked at the financials, obviously, and we had other consideration here and there. So Specialty can basically -- on the catalysis side, on the rare earth side, the special nature of that is commodity. So you have to run it this way, although -- I mean, on commodities, by the way, they can be high margin, that's okay. But some businesses have been sunset and other businesses will be growing with the potential for growth, specifically on the rare side, but definitely, the way to manage it has to be as a commodity and manage for cash in its real nature. And we forced ourselves not to be in love with any assets, right? Liking it or not liking it, but really, looking at the operational model, which can best extract value for our customers, for our employees and definitely for our shareholders. And if you look at their peers, this is the way it goes. Karim, you want to answer?

Yes, maybe, I can start, and obviously, can add to the dividend question. I think Wim your understanding is absolutely correct. At the outset, in absolute terms, total dividend will be the level that precedes the separation. To your question on the dividend policies, a couple of things I want to highlight. I already explained that this is work in progress. And it's also linked to both the evolution and the capital structure. We can't look at these things independently. What I can confirm are 2 things: One, they will be adapted to the requirements and the needs of the business to achieve their full potential. This is about unleashing the value. Secondly, would be interested in the feedback and the reaction from stakeholders and investors. You know us, we listen, and that will also inform the future decisions. So for now, I'd like you to hold on to the question. We will address very openly and we'll give you the clarity further down the road.

Okay. Very clear. And again, congratulations.

Thank you, Wim.

Thank you. The next question comes from Chetan Udeshi from JPMorgan.

A few questions. First, I think the assumption that we all are making at the moment based on this announcement is that this essentially, is a plan B, which was crafted because maybe, Solvay couldn't find a buyer for that soda-ash business, given that it's been on the process of carving it out, et cetera, et cetera. So can you confirm whether that business was shopped around? And was this essentially plan B prompted by the lack of, let's say, right multiple for that business to be sold, et cetera, et cetera. And if that's the case, like, how do you think publicly listing the commodity business is going to help in terms of value creation? That would be my first question. And the second question was just around the carve-out of the Specialty company. I'm a bit puzzled why is the Novecare and the most of the solutions business clubbed with the Materials business. I would have thought Materials business, in its own right, is a pretty good business, viable business, probably by clubbing the Solutions business, which doesn't seem to have any strategic overlap with the Materials business, it sort of dilutes the attractiveness of Materials business in general. So what was the thought process around clubbing the Solutions and Materials business into one?

Yes. Yes. Thank you very much, Chetan. No, the question to soda ash first, not at all. I mean, we didn't go to the market yet, any if this was your question, right? Not at all. I mean, you know our soda ash business. It's a very strong cash cow business. I told you guys since day 1, I love this business, and I really like it even more. Compare our performance with other peers in the market through crisis, prior to COVID, during COVID, post-COVID, I think you can see it and I think you heard Philippe Kehren in my earnings call and the expectation for this year. No, this is a very, very, very strong cash-generating business, has strong fundamentals in terms of customers, proximity, our energy roadmap. When I joined the company, Chetan, I asked myself, what to do with the scientific transition. And you know me by now, I don't like anecdotes. So we started working on plant 1, which was Rheinberg in Germany. It's out from coal or it's been underway to be out from coal. We worked on Dombasle in France. We approved the project. It's in underway. And the last one, the recent one is Devnya, Bulgaria, that's the third one. So we have 30% already underway, and I know that soda ash, at latest, can be carbon neutral by 2050. So no, we like this business. We did not go to the market because it was an internal carve-out process. And for tax reason, you should not go to market and have any discussions outside. So that's technically and regulatory-driven. And we didn't waste a year on the carve-out. I mean, as I said to earlier question from Dan, it allowed us really to learn and get a jump start on what we are currently announcing. So actually, if there is anything that's going to accelerate the process of the new carve-out, and by the way, we will be reversed carving out the Specialties versus the commodities and the essential in this process. If you can do it quicker, we will do. I like people to accelerate and do it quickly, but I will not jeopardize and compromise quality for speed. We will do it right, right? But if we can do it quickly, we will do, of course.

I think his other question was about why consumers as part of specialties?

Oh, yes. Great question. Obviously, it's too late, Chetan, and you may have in mind, why not 3 separations, et cetera. Where we looked at this, obviously, Materials is a pure-play in material. And definitely, all the other businesses with Novecare, Tech sol, et cetera, are in their own merits, as I said, following a very clinical approach, to scopes, to valuation, the way you look at it, guys, it's closer to be a specialty than commodities. So we shame on us to leave any assets undervalued, right? I mean, the objective here is to have a clear gap between commodities and specialties. And now, we have -- and I mean, what I like in these 2 lags, and things can continue progressing, is that materials is high CapEx intense, as you know, high-margin, high-quality materials, purely aligned. It's a diamond purely aligned with light-weighting, electrification, health care, and we have a beautiful growth platform from Thermoplastic Composites, Batteries. You've seen our investments and more to come, by the way, guys and Green Hydrogen, which will be later in the decade. The consumer solution has a unique trend. I mean, that was my big surprise. That's my wow in the past 3 years. You would have asked me Chetan in '19 and even early 2020, I frankly had my big question marks, and that's why I put it in Solutions. And I ask them to optimize, which they've done beautifully. They've pruned more than EUR 400 million of that top line in Novecare and other businesses because we were not the right owner of those businesses, which were laggers on commodities. And if you look at the trend towards naturalness, consumers want this technology. They see our businesses as a specialty. And it's part of SpecialtyCo because it's an obvious area where innovation, formulation, ability to respond to customers are critical competencies and it has the same operating model and capabilities, although with Materials, although it's a very different animal, right? But they will share the same operating model. So I've been really well surprised. We stress tested during COVID. Our bio-based technologies are gaining traction in the market, not only the famous guar, but now, the Actizone and others. And it's a nice opportunity for generating profitable top line growth.

If I can follow up on the first question. So can I confirm, so are you saying, number one, soda ash business was not shopped around? That's what I'm understanding.

Yes. Yes.

And second, as part of this process, are you essentially ruling out any major transactions before the full separation happens? Or is that something that, that can be considered while the second project of separating into 2 independent companies continue?

We keep our optionalities, Chetan. I mean, in -- we are entering the process, the intent is clear and there and you see how beautiful are those 2 industry leaders by their own merits, right, and benchmark against peers. We are really here supporting the launch of 2 formidable competitors in their peers group. The optionality existed yesterday, exists today, will exist tomorrow. Pre-day 1, day 1, post day 1. That's part of life. And there are no sacred cows. I mean, I've been -- a broken record there, and the value creation is my driver, right? Chetan.

The next question comes from Matthew Yates from Bank of America.

A couple of questions, please. Firstly, hopefully, one of the benefits of the strategy is it creates more accountability and better performance from the respective businesses. But I wonder if, at this point, do you have any indication what the extra costs are going to be from running 2 sets of corporate overheads? And then the second question, maybe I'm following up a little bit on what Chetan was asking. So the fundamental logic for the split is, as you say, different businesses require different skill sets and strategies and that makes total sense. Why, therefore, does the vanillin business belong together with a polymer business? Wouldn't the more value-creating strategy here be to explore disposals to unlock value and create simplicity, rather than just giving your shareholders 2 bits of paper in respective conglomerates that the market may or may not value at the multiples you'd like?

Good question, Matthew. So I think you talked first about the dis-synergies, right? Yes, you want to do that, Karim?

Sure, I'll take it. As you'd expect, Matthew, we've undertaken quite a deep analysis of what the pro forma cost structures could be. And of course, on the one hand, you can see some, I'm going to say, minor, modest or incremental dis-synergies. And in due course, we will, of course, share that. What I can tell you is that the cost structures of both entities. Remember, the starting point in Solvay is already very profitable and cost competitive. So each entity will be competitive against benchmarks. More importantly, to take your question differently, the incremental value creation will be much, much more significant than any dis-synergies, and that's why we're doing this.

Yes. And I think you asked the question about Aroma, right, if I heard it well. Why in Specialties as well, right? It's very simple, actually, following the same business fundamentals. I mean, we looked at the business fundamentals, as I mentioned to you, Specialty versus Commodity. And our ability for Solvay to create value in terms of market attractiveness and our ability to win. And I can tell you, the Aroma business is a star, and we are the #1 in natural vanillin in the world. So rather than looking at it with Materials, actually, is more on the consumer and the resources part, right? And it has much of leverage and close leverages with the agro of Aroma -- of Novecare, sorry, on the bio-base. Because, as you know, Aroma is used in natural vanillin recycling [indiscernible]. Guar is a plant based and we are using other bio-based platforms across the consumer lag. And this is where Aroma is. So we truly believe we can build -- we can create value there, that its valuation is closer to that segment and beyond rather than leaving it behind as part of the EssentialCo.

The next question comes from Stephanie Vincent from JPMorgan.

I appreciate that you said that you're still in the process of refining the cap structure. But I think just some color would be very helpful. So when you're looking at the Euro and U.S. dollar and hybrid bondholders having that option to move to SpecialtyCo, do you mean that as the existing bondholders because that's how I read it. Because we've seen in other spins that what happens is that the new company, again, SpecialtyCo raises at same financing and then pays down or transfers cash to the RemainCo. So any description on your thoughts at this moment would be quite useful. And then my next question is just on the cash generation capabilities, because I know that one is a more mature business and one is a higher grade business. But any color in terms of cash flow generation capability, either as a percentage of EBITDA or as an absolute number for the businesses would be useful as well.

Very good, Stephanie. I'll have -- Maybe, I'll kick off with the first. Maybe, I'll start by maybe reemphasizing the fact that Solvay is a strong investment grade. We expect that not to change. And part of that expectation is driven by both the track record on cash generation and the expectation that this will continue on relating. So cash generation is a core part of what we are. Now if you know us well, and I'm sure you do, but prudence is a part of our DNA. And what I'd like to start by saying is that I can confirm that we have secured all the liquidity necessary to underpin this transformation. Now to respond to your question, our intent is to seek bondholder consent to transfer the obligations to SpecialtyCo, which we've said we will be committed becoming and maintaining a strong investment grade. We hope that when we provide more clarity, more data around that, people will see the logic behind such an opportunity. As far as the cash generation is concerned, I think what you're describing more generally is spot-on. I mean, Solvay today has 2 major businesses, which are going to be seen more clearly. When you look at both the capital structure of the dividend, the investment [ diet, ] I think you'll find them to be very compelling. Resilient on the one hand, and able to fuel growth in the other. And in both cases, that cash generation will basically both unlock the value, but also, reward the capital providers, be it debt or equity. Beyond that, I don't think we can say more other than the strong cash generation, you've seen, I expect will continue. And in fact, over time, with more growth, there'll be more cash. So I think it would be a very virtuous cycle.

And then -- go ahead, Stephanie.

I'm sorry. I'm sorry, I didn't mean to interrupt you. Go ahead.

So I think just to close on Stephanie's question, I think on the cash side, we've done a great job, right? I mean, we came a long way. Stopped relying on our cash cow to just give subsidies to the other. And I think the growth strategy just did that. You remember, when we launched the growth strategy, I told you that we are going to give this sentiment date for each pillar: the materials, the chemicals and the solutions. And the outcome is that the cash generation, I mean, the amount, the conversion has been dramatically improved and Specialty Polymers, for example, earns as much cash as soda ash. So it's too early to give you, obviously, the cash conversion by entity, just we want to take a quality time. You are very familiar of the split processes, et cetera. So when we have fully fledged P&L and balance sheet for the entities, we are going to share them with you. But definitely, every business is delivering the cash you need to earn the right, again, to invest in, to pay bonuses, to base on dividends, et cetera. So that's what the growth strategy did. That's how we -- completing it 3 years in advance is unheard of. Frankly, and going through the crisis, we thought that we will need till 2023 and 2024. So I commend again, the work done by the team having checked the box on every single KPI of grow, including the cash and cash conversion to allow us today to embark and engage in this new venture.

And one more, if I can throw it in, just on environmental liabilities, including PFAS. Do you have any intention, at this juncture, to have EssentialCo or SpecialtyCo indemnify the other for a limited or unlimited amount of time related to those? Or will those be completely spun off as well?

Let me highlight first and foremost that in exposures, fears and liabilities, and we've always been very prudent. I want to really emphasize that. And clearly, our ratings reflect that prudence as well. Now at this point, what I can say is that all of the work is ahead of us in terms of refining the details as to how things will pan out. And I don't expect, for example, the comments around -- I don't expect to be able to change -- no, how do you say it, I don't expect us to change what we're saying around this will be prudent, both companies will be very, very strong, and that looks at all aspects. Current liabilities, exposures, contingent liabilities. So again, I encourage you to keep the questions open and in due course, that would become clearer once we finalize the capital structures for each entity. They'll be strong.

The next question comes from Martin Roediger from Kepler Cheuvreux.

Just 4 minor ones. During the carve-out process, you say you have not wasted time and you learned a lot. What did you learn? Secondly, you talked about the dis-synergies, but what is your best guess regarding the onetime costs for the split up? Thirdly, regarding the timing of the splits in the second half of 2023, you say this is also subject to general market conditions, what do you mean by that? In an environment as of today, would that prevent a split up? And question number four, I see on Page 16 in your handout, regarding SpecialtyCo, you say you want to intensify the focus on customers and on innovation. But what has held you back to pursue this strategy or these activities and why you think you have now more freedom in the future with this new structure in the activities, which are now SpecialtyCo in future?

Great question, Martin. I missed the second one. What was the second one?

Onetime cost, dis-synergies. The first one is around learnings. Maybe I can pick up on the first two.

Yes, go ahead.

Martin, I mean, they're not minor questions. I think they're really good questions. There are many learnings. I can give you some examples of the learnings. Decoupling, separating companies, particularly soda ash, we had 160 years of history, so as if you're tackling the root system of the branches, the tree. So even things like IT processes that are all totally joined up, you have to decouple them and we realize there's significant complexity with that. That's on the one hand. Another example is around -- in French, there's a phrase talking about vases communicants, pluses and minuses. When it comes to tax optimization or minimizing value leakage, significant opportunities and risks come through, which is why it's important to take the time to do things well. And we learned a lot in the soda ash process, and that's why we're very confident that we're equipped with a lot more wisdom today than we had even a year ago. On the question of onetime costs, et cetera. What I can say as well is that we haven't given details at this point. We're not giving detail. What I can confirm though is that we're looking to minimize those onetime. As an example, that we have mainly mentioned it, that we expect to achieve a tax-free spinoff in a number of jurisdictions, and that will really minimize the friction, the onetime costs that you allude to. But I'm not going to give details at this early point. Clearly, this is something which is important. What I can tell you is that in the scheme of things, if you look at the magnitude of what you're doing, it won't be material. That's important. And again, do I look at it is as pure economics, math, financials, this will create value. Your other question was around timing?

The market conditions, I believe. I can take it. Yes, general market conditions. Yes, Martin, I mean, obviously, you know we were all horrified by the war, which is raging in Eastern Europe, creating uncertainty and we are doing as a company, everything we can to alleviate the suffering. Now no matter how dramatic the context is, we will adapt to overcome the challenges that lie ahead of us like we did in COVID, right? And I think with you guys, we have resume during the COVID although this may look very different, and will look different. Second, we are ready. We are fit. We closed grow and the team is focused, and we are going to embark in the growth 2.0, which is exactly what we are proposing. And this is not a short-term news. We're proposing here a broad move in a long-term perspective to create more sustainable value for all, and at least, the potential for our people and for our company. So we are ready, and we don't want to delay our execution. Yes, no matter again how domestic is the context. There was another question. One we missed.

I can repeat it if you want. It is regarding your handout, Page 16, where you talk about SpecialtyCo. And in this context, you say that you want to intensify the focus on customers and innovations. And I was wondering, what has held you back to pursue this synergy? And why you think you have now more freedom with new structure?

Yes. No, it's a great question. Nothing held us back, and I hope you've seen it in our resume. I mean, we really -- the growth strategy was already, in a way, the first step into given distant mandate to each segment. Before we had some undefined strategic mandates, but financial KPIs. And when I joined the company, and I had to define this first strategy roadmap, it was clear that materials needed to grow the top line, become more self-sustaining in terms of cash, the chemicals to become even more resilient cash generating machine and the solution to optimize the returns. So obviously, we've done this. The solution businesses are optimized. They get to the returns we like and I like, and some of the businesses are grow businesses and some businesses are cash businesses. So we just distributed them into the G and the R segment in a way. That's the way you should see it. So when you have those now commodities and specialties, either you have critical mass and they can self-sustain their own growth. And if you can allow to ourselves to have independent structure and structure like this, just enhance more accountability and strategic focus, help capital allocation. Obviously, commodity businesses will be always in competition with Specialty businesses in terms of investments. I mean, if you ask me to give you $1 or $0.01 in commodity versus specialty, one is valued at 7 and the other one at 15, I mean, you know where I'm going to go. It's unfair competition in a way, when you have leading businesses #1 or #2. So that sharper capital allocation, you need to be in the same league, in the same pool against peers to really continue unleashing your full potential. Because as a company, as a leader, if I cannot continue investing in business, I'm not the right owner anymore, right? So you'd rather let it go or do something with it. And I think having an EssentialCo and SpecialtyCo where they can continue to be relevant, it's just the right thing to do. Staying as we are in Essential is not an option as this [ erode ] the leadership of the essential businesses. So I think that's what we bring, accountability, strategic focus, allowing them to access to capital inside their own pool and a good thing for customers, good thing for our people. And definitely, this is what the market and our investors have done recently roadshows with Jodi and the team, investors were asking me again and again, post grow as we are closing that chapter to give a clear investment thesis and that's what we are doing today.

Thank you so much. I believe that was the last question for the day. So I just want to thank everybody for your participation. And as always, the IR team stands by to take any remaining questions that you have today. So thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.