Solvay SA (SOLB) Earnings Call Transcript & Summary

Welcome to the Solvay's Consumer Webinar Conference Call. Solvay team, the floor is yours.

Good afternoon, and welcome to our webinar focused on the consumer market. My name is Jodi Allen, and I'm the Head of Investor Relations. I'm joined today by our CEO, Ilham Kadri; and Michael Radossich, President of our Novecare business; as well as An Nuyttens, President of Aroma and Silica business. Immediately following today's presentation, we will host a Q&A session where we will also be joined by Jean-Pierre Marchand, VP of Technology in the Novecare business. Today is a continuation of our webinar series that began in December 2021 with an ESG webinar focused on the progress Solvay is making to reduce our environmental impact. Then in February, we hosted a webinar on our materials segment, serving the automotive industry, driven by lightweighting and electrification. And at the end of February, we presented our soda ash and derivatives business. All of these webcasts are available for viewing on the Investors section of our website. We will continue to host these webinar series throughout the year, leading up to a more formal capital markets event in 2023. Today's call is being recorded and will be made available for replay on the Investor Relations section of our website. You may refer to the slides related to today's broadcast, which are also available on our website. With that, I'll turn the presentation over to Ilham.

Thank you very much, Jodi, and hello, everyone. Thank you very much for attending today's virtual webinar focused indeed on the consumer businesses of the future, SpecialtyCo. And I know many of you on the call ask us to have a dedicated session. Let me take a step back. And remember, when we launched our growth strategy in 2019. And as you may recall, we created 3 operating segments with distinct business mandates. The Materials segment was all about top line growth represented by G. The Chemicals segment was about resilient cash generation represented by R. And our third segment was Solutions which had to optimize represented by the O, an optimized sense for optimizing the returns. The Solutions segment included businesses that needed indeed to improve their returns prune the portfolio and better manage costs to unlock value. Remember, returns in these businesses were below WACC, cost of capital. And growth was essentially flat in the prior years. So today, we are going to share with you how Novecare and Aroma businesses, which comprise our consumer-focused businesses has succeeded in their mission to truly optimize their businesses. We will share how this was accomplished and how we are positioned to generate more top line and bottom line growth going forward. I'm confident you will see how they now deserve to be part of the future SpecialtyCo. And as a reminder, our growth strategy objectives were achieved 3 years ahead of time, and the solutions segment was fully optimized. The SpecialtyCo entity would comprise the company's currently reported Material segment, including its high-growth, high-margin specialty polymers and its high-performance composite business. The other segments, which we call Consumer & Resources comprises the more consumer-focused businesses from our solutions segment today, including Novecare, Aroma performance and also the Technology Solutions and Oil & Gas businesses. These businesses altogether generated approximately EUR 6 billion in net sales in 2021. The businesses within SpecialtyCo have a similar approach to the market and the same operating model and innovation needs, that's why they belong to the same units. For example, the application expertise is critical to their success and allows them to offer differentiated service to our strategic key accounts. Their innovation spend is higher and should be higher than the commodity focused segments and focuses on developing solutions to address customer needs and unmet needs while align into macro trends. The businesses within SpecialtyCo have built up a broad and flexible asset base and manage a complex portfolio and assay by developing solutions that customers are willing to pay a premium for. The segment will be positioned to drive above market growth at strong returns. So before we get into the heart of our conversation, I think in Slide 5, today, you see that our focus here in the consumer market that we serve largely consisting of the Novecare business. Before I would like to introduce our business presidents, Mike, I will summarize what we are going to show you today in threefold. First, our key markets are accelerating as sustainability drive premiumization. Our customers are facing increased demand from end consumers for products that are biosourced, biodegradable and contribute to the circular economy. End-of-life considerations are increasingly important. Our customers are asking us for these types of solutions, and we are delivering. Second, we have a proven track record of outgrowing the market in our key areas. Our focus on customers and their needs drives innovation in these businesses. We, in fact, co-develop tailored solutions with our customers. Through our strong formulation capabilities and application know-how, and this is what enables our organic growth since 2019 and our ability to use value-based pricing, not the traditional cost-plus approach. I often say that we don't sell products but we'd rather sell value proposition and solutions and we invoice products. Taking this approach has enabled us to command margins in the range of 19% across the segment. And third, we have a proven repeatable growth model. Growth in these businesses is impressive and will be driven by innovation and expansion opportunities including a disciplined approach to bolt-on acquisitions. We are on a path to continuously upgrade and differentiate our portfolio towards higher specialty solutions. So next slide. Just as we have improved the group's financial performance, we have also taken many measures to improve the solutions segment profitability and focus. This is, in turn, has contributed to the above-average market growth we have delivered. Our work began with the strategy redesign part of growth. through which we reevaluated our product portfolio, our organization, obviously, and our operational setup. This kick started a series of optimization efforts, including a shift in our product mix towards more specialty solutions, the type of solutions that offer greater value to our customers and we win-win them by expecting part of it. We launched several commercial and operational excellence programs. For example, we implemented a new customer segmentation strategy, sharpening our focus on the most strategic growth-oriented customers. On the operations side, we redesigned our value chain to better serve our customers while also focusing on cash and costs. At the same time, we reevaluated our products portfolio and asset base. And this resulted in the sale of our lower margin, less strategic businesses and more commoditized such as our commodity surfactant line. Next, we separated the Oil & Gas business to run it as an independent business enabling more focus on the consumer facing market segments, and we are looking, as you know, at strategic options for that business. And then to further strengthen our portfolio, we acquired complementary technologies. One of those was the acquisition of Bayer seed coatings business, while -- which we extended our leadership position in this area. We also invested recently in Suanfarma's manufacturing site in Portugal to further develop our biotech capabilities and support business growth in Aroma performance for natural ingredients in the food flavors and fragrances industries. So collectively, these measures had significant impacts on the businesses, improving our EBITDA margin by 4 percentage points between 2019 and 2021 -- sorry, between 2018 and 2021. And through these optimization measures, we improved the health of these businesses to align with those of the true specialty players. Our team's hard work and discipline were key in enabling these businesses to fulfill their optimization mandate and earn a seat at the SpecialtyCo table now with a growth mandate, and I'm so proud of them. As you can see also, and this is not the easiest probably KPI. We improved the cash flow return on investments or what we call CFROI by 2.5 percentage points putting us firmly in the value creation range. And lastly, I'd like to point out that our businesses have proven to be resilient and continued to grow despite the COVID-19 pandemic due to the fact that these businesses and products and solutions were recognized as attention. And due to the diversity of our activities across all consumer markets. As you can see in Slide 7, we have dramatically improved the quality and performance of the business over the past 3-plus years. I'm obviously extremely proud of these achievements and more importantly, of the team behind them, and I'm very confident in our future. Looking ahead, we anticipate high single-digit organic top line growth, well ahead of the projected market average, and we will continue to drive margin improvement. We forecast approximately 5% expansion of our EBITDA margin by 2025. This will be driven by leveraging our sales growth, continuing to upgrade our portfolio and our unique ability to deliver on the performance and sustainability requirements for our customers and the markets we serve. So let me now switch gears and I'm very excited and thrilled to introduce Mike Radossich. Mike is the President of the Novecare business unit. Mike has more than 25 years' experience managing global and regional teams in commercial, operational and technical functions. Prior to taking over as President of Novecare, just as I was joining the company, so this transformation, we started it together, mike was serving as the President of the Technology Solutions business. I'm also excited to introduce An Nuyttens, the President of the Aroma Performance business and the Silica business, which is not a scope and at glance today. She, too, has been with Solvay for more than 25 years and spent most of her career in specialty polymers, managing market development, sales and business teams. She has served as president of the Silica business for the past 7 years. And 1 year ago, I asked her to extend her responsibility with the Aroma business, which is the focus of her remarks today. Next, I will hand things over to Mike to give you more details on how he and his formidable team has led the turnaround for the strategic mandates they've got with the growth strategy and how we will continue to deliver more value. Mike, the floor is yours.

Thank you very much, Ilham, and hello, everyone. I'm very excited to be here today and talk about the consumer portion of our Consumer & Resources business segment. Now when we say consumer, we are referring to a diverse group of businesses that touch all of us in our daily lives. These are markets driven by demand from consumers and regulators for sustainable and high-performing solutions. You will see the majority of these activities are categorized into 4 main areas of focus for Solvay: agrochemicals; home and personal care; coatings; and food, flavors and fragrances. In addition, about 1/3 of the sales of our consumer businesses are classified as others, just to bring some simplification to our presentation today. Some of these are further upstream in our value chain, like intermediates for Aroma chemicals, a means for broad-based surfactant applications and some very high-value metal treatment applications. For the 4 core markets and focus for today's webinar, we bring formulated solutions to our customers based on our expertise in polymers, surfactants, solvents and other technologies that drive performance and sustainability improvements for our customers' products. You will find Solvay inside a broad range of products such as fertilizers, plant protection products, shampoos, body washes, paints, chocolates and pastries and many daily household products. In 2021, annual sales into these market segments totaled EUR 2 billion with an average EBITDA margin of around 19%. And just to give you an idea about our global breadth, Roughly 40% of our sales are from Asia Pacific, around 30% from North America, 25% from Europe and the remaining 5% from Latin America. From a sustainability perspective, 22% of sales in the consumer-facing businesses were based on a renewable or recycled raw material, renewable energy and/or from delivering significantly improved product durability and life cycle extension. And this assessment is based on the Ellen MacArthur Foundation's Circulytics methodology. Now each of our consumer businesses is undergoing a massive transformation, driven by both regulatory demands and the public's increasing desire for safer, more natural and healthier products. This will involve, for example, carbon footprint reduction and more bio-based natural solutions and responsibly sourced products. And each of our consumer sectors is responding differently based on its unique requirements. But one thing is for sure, collaboration across the entire value chain will be key to realizing bold ambitions and fostering this is a key element of our business strategy. And speaking of collaboration, it is something that our customers value immensely. As they see these mega trends evolving, they are turning to us for solutions and co-creating and this collaborative approach decreases time to market and derisks their investments. These needs will continue to drive strong demand for our products, our solutions and our innovations, enabling us to deliver above-average market growth. You can see on this slide, many prestigious brands that you may be familiar with, and you can notice that many of our customers have already set very ambitious goals within their respective industries and continue to raise the bar. The examples that we will share today will highlight Solvay's commitment and contribution to helping our customers achieve these goals in areas such as naturalness, carbon neutrality and sustainable sourcing. These megatrends are accelerating the growth in the 4 core consumer markets we serve. And what we're showing here is an external market view using various sources and our own internal market intelligence. What is common across the various sources is that growth in each of these areas is expected to increase in the next 4 to 5 years, well in excess of the previous period. And this is driven directly by all of the megatrends I shared earlier and our customers' ambitions to address them. It's important to note that sustainability drivers go hand-in-hand with performance drivers. Any new solutions that we develop must deliver comparable or superior performance to incumbent products while offering an improved sustainability profile. This is the value proposition we offer, and this is the value that we create and share together with our customers. Also, as Ilham mentioned in her public statements and established internally at Solvay as a guiding principle sustainability means profitability. And all of our new product development efforts should deliver performance, be sustainable and profitable. Now I know many of you want to understand how we differ from our peers in these various sectors. So we've indicated our strengths in each of the markets presented here. And as shown, we hold either a global or regional leadership position across a variety of fast-growing market segments. In a moment, I will share with you our growth model, driven by performance and differentiation which has enabled these leadership positions. More importantly, we will discuss how this model will continue to drive further above-market growth and profitability. So let's explore our business model in greater detail. As depicted on this slide, our proven ability to outperform the market is based on a 3-pronged approach. First, we work hand-in-hand with our customers to codevelop innovative solutions tailored to their unique needs, leveraging sustainable chemistry expertise and application know-how as well as our global network of technology and application labs. We collaborate with the Tier 1 players in our markets. Customers appreciate this intimacy and tailored approach. And in fact, we use a measurement called the Net Promoter Score, or NPS, for short, which is a customer loyalty and satisfaction measurement that indicates how likely our customers are to recommend us to others, and we're very proud to be about 6 percentage points higher than the peer average group. Another metric we use to measure our performance is the percent of sales from new products developed within the past 5 years. Today, 17% of our sales come from new products. I'm particularly proud of this metric as it highlights the robustness of our innovation pipeline, which is backed by our formulation know-how, technical expertise and proximity to customers across all of our market segments. In total, we have more than 330 scientists working to translate our consumer customers' requirements into value-added solutions. Second, we continue to upgrade, differentiate and expand our portfolio. We do this through a combination of measures, including patent protection and trade secrets. Today, more than 50% of our portfolio is IP protected, which is truly a differentiator and another example of our focus on innovation. Now given the sustainable trends driving our markets, we also measure the percent of sales coming from circular solutions. Today, as I just mentioned, we are at 22%. And what I want to point out -- our aggressive ambition in the consumer segment is to be above 50% circular sales by 2030. In addition, we are playing our part in Solvay's carbon neutrality ambition, targeting a 30% reduction in CO2 emissions by 2030. Again, we set an ambitious target as we are already near the top of our consumer peer group in terms of CO2 emissions per capita. And the third element of our model is about the assets. We run, what I call, an asset-light strategy, our manufacturing assets are flexible and multipurpose plants. These assets are spread across the globe and are close to our customer base, enabling us to be responsive to their needs. And with our CapEx to sales ratio at just 4%, driving our growth across varied and highly profitable market segments enables us to drive a superior return on the capital we employ. In fact, I'll start with this global view of our facilities to describe this part of the model. This proximity helps us deepen our understanding of local requirements and to be even more agile in responding to the needs of our customers who acknowledge this in terms of NPS, rewarding us with more business and calling us first when they have a problem. We have teams in each region dedicated to each of our markets and all are working on new sustainable chemistries and processes. Complementing the regional labs, we have global centers of expertise for our key strategic market segments, including seed care, hair care and agricultural -- architectural coatings. Additionally, we run flexible multipurpose assets all around the globe. These assets enable us to produce a range of products based on different technologies within the same facility. Currently, our plants are running at rather high asset utilization rates. Where needed, we are investing incremental CapEx, which complements our manufacturing excellence programs to expand capacity to ensure security of supply, while meeting growing demand. Now let me highlight some examples of our innovations that address both the megatrends and our tailored approach to meet the specific needs of our customers. We're particularly excited about these examples as they alone target an addressable market of approximately EUR 5 billion. Starting with the agro market segment. Solvay is a global leader in green solvents for agrochemical formulators in the crop protection market. These solvents are both safe and biodegradable while offering the same or better efficiency compared to conventional petrochemical-based solvents. In response to growing regulatory concerns, we developed Rhodiasolv IRIS, a readily biodegradable nonflammable and nontoxic products. In addition to its excellent safety and environmental tox profile, the solvent is cost efficient. And our customers see clear value in this innovation. As a testament to this, our products are specified in our customers' formulations and product registrations, which demonstrates their long-term commitment to greener technology and to Solvay. Furthermore, the product has won numerous awards due to its strong sustainability credentials. As I previously mentioned, the second prong of our growth model focuses on upgrading our portfolio toward more specialty solutions. We take a holistic approach to differentiation from raw material sourcing to product design to end-of-life management. As you may know, the guar plant is an abundant and renewable resource and is also a vital raw material for many of our home and personal care products. When we move downstream in the value chain, guar-derived formulations are key to helping our customers grow the share of biodegradable solutions in their portfolio. A few years ago, we pioneered the sustainable guar initiative, which helps improve the standard of living for guar farmers in India, with a specific focus on empowering women and training farmers on sustainable agricultural practices to enhance guar yields. The initiative creates a virtuous cycle. Not only does it benefit the local community, but it establishes a secure traceable supply chain for guar. Over the years, we added new partners, including L'Oreal, Henkel and, most recently, Procter & Gamble, which has doubled the program's reach. This is something we're all very proud of. Recently, we launched 2 new guar-based specialties, which we brand as Jaguar. And this brand built on our already expansive range of biodegradable functional polymers. Jaguar enables formulators a personal care products to achieve excellent conditioning and texturizing performance while answering consumers' growing preference for eco-conscious products and more stringent legislative demands. Common uses for Jaguar include shampoos, hair treatments and body washes. In addition to beauty care, our consumer business also includes an expansive range of products and solutions for home and institutional care. As we all know, the COVID-19 pandemic has made us keenly aware of the need for disinfection solutions that make good on their long-lasting protection claims. At the height of the pandemic, we introduced a breakthrough cleaning and disinfection solution called Actizone that kills 99.9% of germs and delivers 24-hour hard surface protection against microbes and viruses including COVID-19. Today, many products on the market claim to offer a long-lasting protection against microbial contamination. However, the limitations of these disinfectants are well known such as their inability to quickly kill microorganisms, their tendency to evaporate just minutes after application or the ease with which they wipe off surfaces. In contrast, Actizone kills germs quickly and continues to kill microorganisms on surfaces over time even after repeated touching and re-contamination. This eliminates the need for continual antibacterial cleanings throughout the day. So simply put, with Actizone, you and your family are protected. Today, we are selling to some of the largest household brands. In addition to our ingredients, we also offer drop in solutions, which are beginning to sell in the institutional market. And we are expanding beyond our current target markets of Europe, Middle East and Asia as we are in the final stages of registration in the United States after we obtained EPA approval at the end of last year. Speaking of creating value for our customers, sustainability is also a hot topic in the paint and coating sector, driven by the need for more durable and safer paints. And therefore, we are experiencing a major shift toward waterborne coatings. We answered this challenge by collaborating with 2 of the top coatings manufacturers in North America. These partnerships led to the development of Sipomer monomer, a product that improves the coatings durability by imparting superior adhesion and resistance to water and corrosion, bridging that traditional performance gap versus solvent-borne coatings. This product is now used by leading Tier 1 coatings players and is growing at double digits as durability and sustainability continue to drive that industry. Before I close, what's probably clear to all of you by now is that our consumer segment is very diverse. So we would be remiss if we did not talk about the food, flavors and fragrances segment where SpecialtyCo. is the global leader in natural and synthetic vanillin. I would now like to pass the floor to An, the President of our Aroma business to discuss some of the exciting innovations in that area. An, over to you.

Thank you very much, Mike, and I'm very glad to be with you today. As you may know, vanillin is used in many applications from chocolate and ice cream to confectionery and bakery foods. And it is a most essential formulation ingredients for our customers. flavor and fragrances customers like Firmenich, [indiscernible], but also large food companies like Nestle and Ferrero. It enables an improved sensorial experience like sweetness and moat field. It also allows lower dosage of sugar and brings great taste with lower fat. . Our natural valine product has grown strongly in the last few years at a CAGR greater than 30%. And as it may suggest our [indiscernible] natural is just that, naturally sourced vanillin made by fermentation. It is an EU natural compliance, which is a reference standard for food and beverages in Europe and is actually one of the most stringent regulations worldwide. The product is an ideal replacement for synthetic vanillin without taste compromise. It is a drop-in solution that enables our customers to meet clean natural stable flavor labeling regulations. Similar to what Mike reported on guar, Solvay's natural vanillin supply is fully traceable. We manufacture the product in Europe through a fermentation process using a wild strain of yeast. For this fermentation process, we use ferulic acids as a raw material, which is extracted from non-GMO rice bran. An added benefit of this approach is that rice bran is a byproduct of rice production and this contributes to the circular economy. We expect volume growth to continue at double-digit levels, far above the growth forecast of the food, flavors and fragrances markets. Supporting this growth last month, we announced broadly our investments in Suanfarma's fermentation plant in Portugal. This investment, combined with our internal biotech capabilities strengthens our capacity leadership, but also our technology leadership position in natural vanillin. And it enables portfolio expansion into other natural ingredients for the food markets and other markets like HPC. And now I'll hand back to Ilham.

Thank you very much. Thank you, Mike. Thank you, An, and I hope all of you are as excited as I do about all these -- this turnaround, but also the prospective growth in these businesses. And before we go to the Q&A, I hope that you could all see now the sustainability and innovation are in our DNA and they're intertwined, indeed. As a reminder, recently, we launched our fourth growth platform and seek to grow the share of renewable carbon in our portfolio and incubate growth opportunities based on biotechnology and biodegradable by design approaches. This platform complements our existing -- the 3 existing growth platforms. I'll remind you, there are batteries materials back in 2019, thermoplastic composites and green hydrogen recently launched. The newest platform is already using some of the expertise Mike and An have shared with you. So we are not starting from 0, and will serve the needs of both the consumer and material segments. So it's across all SpecialtyCo businesses, including Materials, by supporting the development of new and circular solutions for our customers. And the goal is to embed circularity in all what we do in all our businesses. And biotech is critically important for the future of our consumer-facing businesses. Innovation from the new growth platform is expected to deliver EUR 500 million or EUR 0.5 billion in new sales by 2030. So to now bring this all home as a conclusion, we've shared only a few innovation examples in this presentation. In reality, our research and innovation capabilities are driving significant innovation across the consumer businesses. And this is why -- and one of the reasons why they belong to the SpecialtyCo unit. And as we've shown, we are developing solutions to improve the performance and safety of agrochemical formulations while developing solutions for healthier and more sustainable home and personal care ingredients, we are developing natural ingredients for food, flavors and fragrances and we are addressing demand for waterborne performance solutions in coating, and the list goes on. Bottom line, this is all about doing well by doing good and making sustainable profit. So based on the megatrends, you've seen our proven track record, a resume to innovate and commercialize new technologies and our global footprint and proximity to customers, the future of the consumer segments of SpecialtyCo is very bright. So thank you. We'll get now to questions in a moment, but first, last concluding remarks. Our key markets are accelerating, driven by the need for more sustainable premium offers. Our customers are facing increased demand from end consumers for products that are biosourced by degradable and circular. These trends present significant growth and innovation opportunities for Solvay. As Mike shared with you, we have track record of outgrowing the market over the past 4 years and in fact, we are growing twice as fast in each key segment. That's along with the improvement actions taken by our team has improved our bottom line by roughly 4 percentage points since 2019. This proven approach will allow us to continue and repeat what we do well and continue to outperform our key segments and accelerate our top line growth to high single digits per annum across the midterm. Looking ahead, we will build on the pillars that have driven our success, focusing on portfolio upgrades, cost and efficiency measures and our customer intimacy model. With the competencies, the technologies and the market leadership positions in some of the fastest-growing highest-margin specialty segments, we are really well positioned not only to capitalize on market growth, but also to enhance quality of life. With that, thank you very much, and it's time for questions, Jodi.

Yes, indeed, we've now entered the Q&A session, and I'll hand it back to our moderator to begin.

[Operator Instructions] First question is from Mr. Jaideep Pandya from On Field Research.

First question really is around the raw material sourcing. Could you tell us how much as a percentage of the raw material basket these days is natural or bio-based versus synthetic? And what are your plans really with regards to green ethylene oxide? Because quite a few of your peers are going towards that direction and quite a few of your customers are also talking about this. So that would be my first question. A second question is really around your synthetic -- sorry, natural vanillin where you added capacity. Just wanted to understand what are the plans for future capacity addition, given you are a market leader here? And also we have seen a lot of volatility in vanilla prices. So how is your contract structure in the vanillin business? And just in the same group, could you -- there's always been sort of a cloud around your Aroma business that -- is this strategic? Is it not strategic? Could you just say for the record that this is core for Solvay and you're definitely not going to exit this business?

Thank you very much, Jaideep. And I will give the floor to Mike and to An to comment on your question. Well, first of all, I'll take on the circularity naturality renewable. The way we do that is that we measure circularity at the group level, right? And as you know, today per Ellen MacArthur type of KPI, we're around 5%. Our aim is to more than double that by 2030. And frankly, we would like to do more than that. Definitely before 2030, specifically in the SpecialtyCo. You've seen in my slide, resources group altogether have actually 22% of circularity. And this is the highest I mean, we have in the company, by the way, there are champions, there are #1, and we love that. And they are ahead, but they need to continue leveraging, repeating that model. And actually, that's why we launched also -- Jaideep, we launched this biomaterials, frankly, which they're not starting from scratch and being inspired by what Mike's group and An's Group are doing to leverage for their own groups, but also elsewhere in the company. So all in all, circularity is real, is more real in the resources segment than in other departments in the company. We are leveraging that as we speak through the biomaterial and they are using different type of natural raw materials. Mike, would you like to pick up a few examples on guar and maybe natural vanillin was also a question, and then I'll take it back on the core of Aroma. Mike, the floor is yours.

Thank you, Ilham, and thanks for the question, Jaideep. Specifically, on your question around bio-EO, we have sources of bio-EO, and we upgrade that product into our home and personal care market segment. We continue to look for biosourced opportunities while also developing our own. We are, I would say, uniquely suited to vertically integrate some biosourced raw materials into bio-based products. Ilham mentioned guar, but also biosurfactants and bio-based polymers across our portfolio. So I think that we're very well suited today. We continue to invest in partnerships, JV expanding our process knowledge towards fermentation processes to continue to drive growth in these segments and continue to base our products on biosourcing and looking at life cycle analysis and circularity in the development of our new products and technology. So not only are we looking at bio sourcing, but we're looking at the end-of-life.

Yes, back here in Belgium. So maybe, An, you can explain a bit the expansion you are doing in natural vanillin? And how you build the vertical integration?

Yes, sure. So for natural, it's clear, we are full in the circularity. It's based on this non-GMO rice bran. Bran is actually nonfood based. It's a stream. . Now how we are going to grow -- continue to grow that. That's a very important question. We actually started in 2001 with the first capacities, just to give you some history here. We doubled capacity by -- in 2019. And with this new announcement, we're doubling again in what we announced with Suanfarma in 2022. It will be affected more end of 2023. But -- so we're fully engaged. We're also well looking upstream to be part of the value stream. And when we're talking about the natural vanillin, if you look in the other part of the business in synthetic, also there, there's a lot of opportunities in bio-based sourcing and bio-based working, for example, with mass balance or other ways to get the circularity in there. But it's full in what we're doing and what we look for in the future.

Yes. So thank you. And to finish with, I mean, just to build on this, -- the beauty of this biofermentation and the competency An and her team has developed is really unique. It's extracted from non-GMO rice bran, right, An. And they're looking at different sources of waste. So this is beautiful because as soon as you can bioferment and use different source of waste, you can actually expand the competency to different sources of raw materials. So I'm very, very excited to have this on board and having extend not only the capacity, build the competency on biofermentation and now vertically integrating. So it's a whole story. On core and noncore, listen, Aroma Performance, I remind you has a leading position in its markets. I think you've seen all this formidable brand names in food, flavors and fragrances. We have key assets in every region. So we are a global player, but locally present with key technologies and expertise in reference products, track record is outstanding. You've seen both Novecare and Aroma have been belonging to the Solutions segment as from the growth strategy. And I challenge them starting with our business presidents, right, that they need to underwrite to be invest in and optimize their returns. And frankly, it's not an easy work. They didn't have a walk in the park like probably some others. I mean it was not walk in the park in the past 2 years, but more for them to really take Board encourages decisions on pruning that portfolio, cutting some products which were not profitable and really choosing rightly their customers as well. And Aroma has strong ambitions in natural ingredients like the naturalness, it's aligned with the major food trends as An explained it in clean label, natural ingredients, switch to natural and growth capacity. Thanks to this very strong customer intimacy. So today, I think their place is SpecialtyCo, right? They deserve it, and they will continue to outperform their markets and build on those responding to the naturalness and the unmet needs of our customers. Back to you, Jodi.

[Operator Instructions] Next question is from Mr. Chetan Udeshi from JPMorgan. .

Yes. The first question I had was just looking at the Slide #7, where you talk about the midterm growth targets. I just wanted to understand why should this business grow high single digit? Maybe can you explain maybe by different markets, where do you think there is a growth acceleration or which are the products that you think are going to grow faster for the next 3 years versus what you've seen in the last 3 or 4 years? I'm just not clear what is driving that acceleration in growth? The other question was, can you give us some sense of what is the sort of split of this business in terms of sales by different pockets? I saw the sort of chart of sales by different markets, but how big is the vanillin business? And how big is the natural vanillin part within that? That would be useful.

No, very clear, Chetan before -- because we are in different offices, right, and different continents. Before giving the floor to Mike and he can give you some granularity on the growth by sectors, I think you've seen, I think, 4% CAGR, right, in the slide between '18 and 2021. Obviously, if you take '19 and 2021, remind me guys, it's 8% CAGR, more or less. Probably, right? Yes. With -- so I mean the history now for me was consistently to drive the volume increases, right, not talking about recent pricing, Chetan, but the volume increases. But I allowed the team specifically enough cache to shrink before growing. I give them that's right, because remember, in 2019, I asked Mike not to give me more volumes and fill the path. I ask him to improve his returns. So actually, we know that, I think, it has been a great journey of pruning products, customers' portfolios, obviously, organically and inorganically, but we have a pipeline of sectors opportunities, initiatives, leads, new leads on our innovation to really bring it to the next level of excellence while investing in innovation, right, to upgrade the portfolio and improve the mix. So Mike, can you pick up the question as well, if you are ready?

Yes, certainly. So Ilham, I think you were spot on when you said we're pivoting towards more high value versus high volume, still have excellent volume growth opportunities. If I just touch briefly across some of the segments, very, very excited about our ability to leverage innovation for growth. We continue to expand our share of wallet based on, again, some of the factors that I discussed earlier, that customer intimacy, having regional application technology labs, production sites, so that regional ability to serve. But specifically on technology, in the agro segment, we acquired the seed coating business of Bayer because that's where we see a lot of growth. It's a relatively small market today, but growing significantly, growing double digits. And as there is the need to reduce active ingredients and pesticide use and residual pesticides and that consumer sentiment continues to drive and push. Seed coatings is where we're going to be able to formulate a lot more of our technology to address the growing concerns in the agro market and drive more towards precision farming. Biobased controls. So instead of having synthetic pesticides, biocontrol, another strong growing market that's making inroads. We have products today that we've commercialized and more in the pipeline bio-based surfactants, green solvents like we talked about. And there's going to be continued regulation, which actually will help drive growth in our business in the agro space. If I move to the home and personal care segment, strong drive, particularly in North America, where we have strong customer access on sulfate-free cleaning and low dioxane, we have surfactants that we're growing with our Tier 1 players to address those needs. We talked about disinfectants and cleaners. I'm really impressed about the traction that we're getting with our Actizone, 24-hour long-lasting disinfectant. We continue to look at bio-based polymers as well to address some of the growing needs in the personal care space. So great opportunities for us to continue volume -- strong volume growth, high-value market segments in home and personal care. And then briefly, maybe I'll just talk about the coatings segment. We're developing new monomers to address the growing trend for adding more durability, scratch resistance, mar resistance. And we're working with the major latex suppliers to be able to improve that functionality, again, to continue to drive the performance of waterborne coatings toward solvent borne. So those are just a few examples. The list goes on and on. But maybe I can turn it over to An to talk more about the Aroma space.

Thank you, Mike. So natural vanillin, that's the way where we see really the growth. We could see 30% and more in the last years. We foresee more double digits, serious double-digit growth. Why is that? First, customers, the consumer tendencies, they really want natural. They want clean label in their food and there's traceability. That's the other part where we are strong in as Solvay. We are a European player. We are very -- also on regulations help our customers to convince the markets on what naturals are about. But why would we win in this market? It's about value proposition here. We have this customer access. And I want to mention that we are, since 1894, in synthetic vanillin, which means in the food market. This brings us a broad base, not just of food and flavor customers, but also of direct larger food companies, food and beverage, as we call them. And there, we have a serious potential to grow because it's a simple drop in, going from a synthetic vanillin to a natural vanillin is a drop in where we can help our customers to formulate. So here it's -- again, it's about innovation, but it's also about application support with our customers. So we're continuing on that. And we move on capacity. We'll continue to add capacity and see this as a very high-growth market.

Yes. Thank you, An. And again, Chetan, I think this source formation is one of a business case and school probably case because really what is hidden is this product mix changes. And again, having the right to shrink before growing on. And there have been a lot of change in product mix, which brought our -- obviously, our margin from the 15% to the 19% and value pricing and choosing better the product line, the customers, pruning, pruning, pruning to give us a good foundation today to grow further from. Back to you, Jodi. .

Next question is from Mr. Andreas Heine from Stifel.

I have 2. The first is basically what you have touched on, not that much, the 35% of the intermediates. Is that something what is part of the business because it is an integrated business? Or is that something what you will continue to prune and to reduce that part of the pipe? And the other question is actually on the margin increase. So you have increased the margin quite a bit already, this 4 percentage point over a short period of time. And the margin is now very reasonable going another 5 percentage points from here to 2025, looks very ambitious. Maybe you can outline a little bit how that is achieved in terms of cost savings or innovation and cutting low-margin products? All of that probably has to add together, but still 5% looks pretty high to me.

Okay. Andreas. Maybe Mike, you can pick it up directly. I cannot see you. .

Yes, certainly. So the first part of your question in the others segment, again, for simplicity, we didn't bring a lot of attention to those segments today. They are very attractive, highly profitable segments. Let me just touch briefly on a couple of the core market subsegments within the others category. The first one would be metal treatment where we sell surfactants and polymers that are used in metal cleaning, so decreasing after metal working and pretreatment for adhesion promotion and corrosion protection. A lot of the products that we sell enable aluminum to be used for the EV market for lightweighting. So our products go into the bonding and adhesive solutions for that industry because, as you know, aluminum is bonded through adhesion and it's not welded like steel. So we're enabling the proliferation on EV vehicles and that lightweighting with our metal treatment solutions. We also have a highly profitable lubrication segment. Again, this is all about fluids, transmission fluids, high-value fluids for antiwear and extreme pressures. Additionally, we have market leader positions in wire drawing lubricants. So again, very specific subsegments, and that's why we didn't draw a lot of attention to it today.

Anything to add on to that, An?

I can give another good example is the [indiscernible] in the Aroma business is a quite substantial part. It's a very solid market with low single-digit growth. But what we can say, and this is the super -- we are in many applications there. And what we see is that we're the only player with a global footprint, which helps us in all our global customers and allows us this value proposition. So a good position there.

Yes. So that's some examples to show you that margin expansion. And obviously, I think the fundamental of the question from Andreas, we are already in a happier land compared to some of our peers. I think that's probably what you have in mind, right? So it's all about can you seek more volume? Can you actually value price better? Your -- any new product mix and innovation? So we continue looking at that balance. I think the foundation is very solid. But we know with what we have specifically if it's differentiated and you need to attribute to the innovation we bring from what An and Mike has been sharing with you, we have some unique opportunities to better value price our products. So back to you.

We have no other questions. Back to you for the conclusion.

Thank you to everyone, who joined our webcast today. As a reminder, a transcript of the event and a webcast replay will be available on our Investor Relations website later today. And we look forward to reconnecting with you all again when we report Solvay's second quarter 2022 results on July 28. Thank you all, and have a great day.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.