Solvay SA (SOLB) Earnings Call Transcript & Summary

Welcome to the Solvay Soda Ash and Derivatives Webinar for analysts and inventors. Solvay team, the floor is yours.

Good afternoon, and welcome to our Soda Ash and Bicar Webinar. This is Jodi Allen, Head of Investor Relations. I'm joined today by our CEO, Ilham Kadri, the President of our Soda Ash and Derivatives business, Philippe Kehren; and the Finance Director of the business, Alexander Blum. Immediately following today's presentation, we will host a Q&A session where Ilham, Philippe and Alex will be happy to take your questions. 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. I'd like to remind all participants that today's webinar includes forward-looking statements, which are subject to risks and uncertainties. Please refer to our safe harbor statement at the end of the presentation for more detail. With that, I'll turn the presentation over to Ilham.

Thank you. Thank you very much, Jodi, and hello, everyone. Thank you for attending today's virtual webinar focused on Soda Ash and Derivatives business. I'm particularly excited about today's topic as it puts the spotlight on one of the exciting businesses that will be going to the future EssentialCo. As you are all aware, we continue on our path to separate Solvay into SpecialtyCo and EssentialCo in December 2023. EssentialCo will comprise leading mono-technology businesses, including Soda Ash, Peroxide, Silica, Coatis and Special Chem. These businesses are built on Solvay's strong legacy of technology leadership and in fact, have shown to be significantly less volatile than other more cyclical businesses across the chemicals industry. These technologies have proven attention across a number of attractive and resilient end markets and benefit from a foundation of strong leadership positions. As an independent company, EssentialCo would further strengthen its operating model by enhancing its cost leadership, maximizing cash generation and reinforcing its leadership position, including playing a key role in accelerating the energy transition. As we prepare for the future, we are making a number of investments to support the continued growth and sustainability of EssentialCo. Let me remind you of the investments we have recently announced for Soda Ash. In Green River, Wyoming, United States of America, we acquired in May last year, the 20% minority stake of AGC in the Soda Ash JV building on our leadership position in trona-based soda ash production. Later in November, we resumed the 600,000 tonnes natural soda ash capacity expansion in Green River, and we announced the project to deploy a new breakthrough technology to reduce emissions originating from trona mine. Solvay Sodi, our joint venture Sisecam unveiled in June, the results of a modern large-scale investment projects which add 200,000 tonnes of sodium bicarbonate capacity per annum to the plant in Devnya Bulgaria, which is the largest European soda ash plant in our network. Later in November, Solvay Sodi started coal-firing biomass to support our energy transition goals and phase out coal by 2030 and to reach carbon literality in soda ash production by 2050. In September, we announced our breakthrough process innovation, which reinvents the 160-year-old process developed by our founder. You will hear more about this from Philippe later today. So you see, even though the future EssentialCo will continue to demonstrate its cost and cash leadership, its business is also have attractive growth opportunities. Now before I hand the floor to Philippe, I would like to summarize what we are going to share with you today. First, we have a proven top track record of strong and resilient cash generation and margins and growth through the cycle. Second, we are strongly exposed to the attractive and fast-growing sodium bicarbonate business. As you know, sodium bicarbonate is the derivative of Soda Ash. This is our strong downstream integration, which complements our upstream integration in all our main raw materials. Solvay is a global leader in sodium bicarbonate or Bicar, as we call it, which is Solvay's brand name or baking soda as we say, in the U.S. We are a market maker and we developed innovative and fast-growing applications, which enabled Bicar to grow twice as fast as Soda Ash. Third, we are a global leader in soda ash and we differentiate in the market with our unique web of world-class competitive assets, leveraging both the so-called Solvay process for producing synthetic Soda Ash out of salt brine and limestone in Europe and for producing natural Soda Ash out of the trona ore in Wyoming U.S. We have well-established strength versus competition in costs, scale and technology leadership. So, as you know, has been in this business for the past 160 years, and we continuously invested in the operations and research to maintain this position. In line with our Solvay One Planet commitment to phase out coal by 2030, we are accelerating our energy transition, leveraging new sustainable and local fuels such as waste biomass or refuse derived fuel or RDS made of ways that cost be recycled. It allows us to discontinue -- to disconnect from volatile for steel energy markets to improve our competitiveness and to decrease our CO2 emissions in line with our carbon neutrality ambition. Last, we are reinvesting where we invest in the Solvay process that made the success of our group and of Solvay group 160 years ago. We are moving to a pilot scale of catching edge innovation that will improve the competitiveness and the sustainability of our production. Now I'm pleased to be joined today by the President and Final Director of our Soda Ash & Derivatives businesses, Philippe Kehren and Alex Blum, respectively, President and Finance Director of this business. Philippe has been with the company for 27 years and has accumulated a broad range of experience from operations, finance, and managing clean energy production to leading transformation projects and customer relations. In 2020, he became President of the Global Soda Ash & Derivatives business where he and his team have been driving the business transformation flawlessly on both the operations and the energy transition. Alex, Alex Blum has a wealth of experience in different senior finance roles incorporated in business. Alex had its finance in Asia Pacific and previously worked with Philippine Energy businesses, so they know well each other. Before his Soda Ash Finance Director role, he was for 6 years, our Solvay Controlling Director. Philippe will now give you a full overview of the business and its exciting future. Now I would like to turn it to Philippe. Philippe?

Thank you. Thank you, Ilham, and hello, everyone. It's my pleasure to be here with you today to provide some additional insights into the business. This is a business where Solvay has a strong leadership position. And I will explain why this is the case and why the business will continue to be successful in the future. The Soda Ash & Derivatives business reached EUR 2.2 billion in net sales in 2022. The EBITDA grew 5% annually since the creation of the global business unit in 2013. It delivered strong cash flows to the group with a cash conversion of 66% on average. We have 2 product lines. On one hand, Soda Ash or sodium carbonate which represents 75% of our sales. And on the other hand, Bicar or sodium bicarbonate with 25%. Soda Ash and Bicar are essential chemicals used in steady growth applications, supported by all the key megatrends. Soda Ash is growing 2% to 3% per year. It is mainly used to manufacture glass, it lowers the melting temperature of the silica sand, therefore, it allows our glass customers to save energy. There are 2 main categories of glass, flat glass and container glass. Flat Glass is primarily used in construction. Around 80% of the soda ash demand for flat glass is going to construction. Today, construction is a bit soft due to the inflation and also increased interest rates. Flat glass also goes in automotive and in solar panel, which is growing fast, notably in China and India, around 10% annually so for solar panels. Container glass is used for food and beverage, which is a very strong market today as people move away from plastic use to glass bottles. Soda ash also goes into detergents, which are growing slower after the spike of demand observed during the sanitary crisis. There are also other applications among which sodium silicates for which we have a downstream integration with the Solvay Silica business. And the soda ash is also used for lithium carbonate that is going into the batteries of electric vehicles and which is growing very fast, 20% annually. Compared with our peers, Solvay has a far higher exposure to Bicar, which is growing twice as fast as Soda Ash at 4% to 5% annually with opportunities in several emerging markets also backed by key megatrends. I'll tell you more about it, but Bicar goes into flue gas treatment for cleaner air, pharma, feed and food, all of which have shown a very strong resilience over the crisis. Now speaking of megatrends. Our markets are driven by sustainable megatrends, which support the robust growth of soda Ash and Bicar demand. This is related with the evolving demographics and the aspiration of society to make a better use of natural resources and energy to produce them sustainably and to consume them efficiently. It impacts construction where flat glass and fiberglass are enabling the thermal insulation of the buildings. It impacts energy where photovoltaic glass is going to solar panels and where our lithium carbonate is going into batteries for electric vehicles. It impacts food and beverage, where the growing population implies growing needs for baking soda and animal feed as well as more sustainable packaging with glass containers that can be recycled infinitely. It also impacts our health with tighter air pollution control, which requires enhanced flue gas treatment, and it supports the growing and agent population, which needs more pharmaceuticals and more hygiene at home. Soda ash as is the tenth largest essential chemical product in the world. And unlike some other commodities, it is more resilient and less cyclical. It benefits from very strong market attributes, which have been confirmed over the last decade with operating rates always remaining above 80% throughout the cycles. The demand is growing moderately, but robustly in times of crisis, such as 2009 or 2020, demand dropped by less than 10% and recovered very quickly. Moreover, capacity expansions follow demand growth and are quickly absorbed by the market. This was notably the case in 2016 to 2019 when a new mine started in Turkey without creating significant overcapacity. This is the result of the cost and cash consciousness of the industry. Market players make tough decisions when plants are getting out of the market. In the past decade, we shut down 2 plants in Portugal and Egypt. And we carried out a broad competitiveness program across our network of plants, which included 1,000 jobs reduction. It was the case again during the COVID crisis when capacity expansions on Solvay and most competitors were delayed or frozen. Looking forward, we see the demand outgrowing the supply. And as a consequence, we anticipate the market to remain very tight and our operating rates to keep very high in the next decade. Now I suggest we look also at the market dynamics of Bicar to which Solvay has a far higher exposure compared to its peers. As we said, Bicar market demand is growing twice as fast as soda ash, around 4% per year. If we go into the details the pace of the growth is even faster in 2 segments: flue gas treatment and healthcare. In flue gas treatment, we have developed a very strong technical expertise that enables us to convert a growing number of customers to Bicar, and this is projected to grow 7% to 8% in the next 5 years as regulations and corporate policies require more stringent evolution of exhaust gas. In healthcare, where Solvay has an even stronger presence. We know how to produce higher quality and higher purity grades of Bicar for the most demanding pharma applications such as hemodialysis or tablets. And this market is growing at 5% to 6%. With around 40% market share, we are leading both flue gas treatment and healthcare segments to which we are strongly exposed versus our peers. Now how does this translate into our profitability. Soda Ash & Derivatives EBITDA has been growing 5% on average per year since the creation of the GBU in 2013 with an excellent conversion into cash flow. We expect to accelerate the growth of our EBITDA up to 10% per year over the next 5 years. This acceleration will be driven by the same drivers we have leveraged over the last decade. Price, volume and competitiveness, but they will be amplified over the next 5 years. Tight market context should support price while we grow our volumes with new capacity expansions in natural soda ash in the U.S. and Bicar in Europe, as explained by Ilham in the introduction. Moreover, we are relaunching an industrial program, which will continue to enhance the performance of our plants striving for excellence. We run world-class factory programs for 2013 to 2018, which strongly improved the competitiveness of our assets. As a complement to the energy transition of our plants, we are now launching the new STAR Factory program, which will, on one side, address the other aspects of ecological transitions, such as water and waste; and on the other front, which will structurally enhance our competitiveness, in particular through digitalization and energy consumption reduction. Now let me transition from the overall picture and explain why Solvay is global leader for both Soda Ash and Bicar. What does it mean? First, it means that we enjoy scale leadership with the largest capacity made of balanced portfolio, a balanced portfolio of assets, both in terms of geography and in terms of technology, supplemented with a network of warehouses that enable us to secure the supply of our customers all around the world. It also means cost leadership. This is the result of relentless programs to enhance the competitiveness of our operations. Our competitiveness is, first of all, supported by our unique integration along the value chain. We are a pure player, not competing with our customers. We benefit from both upstream integration on raw materials and downstream integration in the highly attractive Bicar. Last, but not least, we are innovating in both product and process innovation, and we are protecting our inventions through patents in order to sustain our technology leadership on synthetic soda ash, natural soda ash and Bicar. Let's start with a deep dive into capacity. We are leading both soda ash and Bicar with a quite significant size advantage versus our followers, as you can see on this chart. You may notice different geographical market scope for soda ash and Bicar, I will focus on our main markets. Starting with soda ash. As Ilham mentioned, we took full ownership of our Green River plant in Wyoming last year, and we have relaunched our capacity expansion over there. With those 2 moves, we are getting a quite balanced portfolio of assets between U.S. and Europe on one hand and natural and synthetic soda ash on the other hand. In Bicar, Europe is more developed because the synthetic route enables us to produce the full range of Bicar, including the most purified rates for pharmaceutical applications. We also have a plant in Thailand, which supplies our Asian customers with top quality grades of Bicar. We have 2 types of plants in the soda ash market. First, world-class assets. Those assets are best positioned to serve customers competitively anywhere in the world, especially where there are no suitable local alternatives. Second, regional assets. Those assets are typically smaller and are closer to local customers. Successful regional assets are more competitive than world-class assets on a delivered basis. With 70% of world-class assets and 30% of regional assets, our portfolio of plants is unique and is completely competitively positioned, ready to thrive as the market evolves. Let's now look at our unique integration. We described here our value chains and where we are positioned in these value chains. You can notice that we are fully integrated on the left side of the chart and that we are not competing with our customers that are playing on the right side of the chart, neither with our Bicar customers nor with our soda ash customers. We are a pure player benefiting from strong upstream integration on all our raw materials, limestone and salt brine in Europe, trona in the U.S. as well as CO2, which is captured from our process to convert soda ash into Bicar. Bicar is our strong downstream integration, growing faster than soda ash and to which we have a far higher exposure than our peers, providing also stronger resilience of our business, thanks to diversified end markets. The combination of industrial integration and being a pure player allows Solvay to be a very lean and focused organization. Let me now talk about sustainability. As I explained earlier, our chemicals are essential, and they grow solidly in applications and in end markets that are supported by key megatrends. However, we have to deal with the environmental footprint of our production process. The good news is that we are committed to address these concerns, and we are developing solutions to do so. Let's start with CO2, which is our top priority as well as the one of all our stakeholders who are committed to fight against climate change and to eventually achieve carbon neutrality. You are already familiar with the Solvay One Planet sustainability road map. Our ongoing energy transition to phase out coal and the abatement of the greenhouse gas released by trona mine in Wyoming will enable us to reduce our emissions by 30% by 2030. This is an absolute reduction versus 2018, and it will occur despite significant volume growth. Looking forward to achieve carbon neutrality. We are developing further decarbonization projects to cut our process emissions and to fully shift towards carbon-free energy. What does it mean in terms of product carbon footprint. Today, we emit an average -- on average 1 tonne of CO2 for each tonne of soda ash we produce. The natural process starts with a slight advantage versus synthetic, but both processes are in the same ballpark. With our current plan, by 2030, we will emit 0.35 to 0.73 tonnes of CO2 per tonne of synthetic soda ash in Europe and 0.5 tonnes of CO2 per tonne of natural soda ash in the U.S. By the end of 2024, the best-in-class soda ash plant not only at Solvay, but across the entire global industry will be our plant in Reinberg, Germany, with 0.35 tonnes of CO2 per tonne of soda ash produced. Reinberg will be primarily powered by waste biomass. Let me maybe give you now an overview of all the energy transition projects, either completed or being undertaken or being designed across our global network of plants, as you can see in this chart. Let me also emphasize that it is quite a challenge to run in parallel so many projects from a human resource perspective as well as from the financial resources perspective. Our incredibly talented, dedicated and motivated teams make it happen. They are able to design the best projects for each plant fitting with the local context, identifying the right technologies to make it happen. And in the way we select and structure our energy transition projects, we always ensure Solvay's return will exceed our cost of capital, which may imply involving external debt and equity investors or getting government support. To date, we have already delivered a 5% structural emission reduction with the project executed already in Reinberg, in Devnya and in Green River, we have launched projects that will deliver another 15% emission reduction by 2025, and we are designing the project to save another 10% by 2030. So what this means is, first, we are on track to meet the 30% target, the minus 30% target by 2030; and two, our projects will generate returns that will exceed the cost of capital, meaning that they will generate financial value. Together with our decarbonization road map, we are also taking actions to decrease the environmental impact of our operations and I have many examples to share with you. We are committed to decrease our freshwater intake by 30% by 2030. And we have already delivered some significant improvements in Devnya, Bulgaria and in Dombasle, France. In Rosignano, Italy, we are also committed to decrease the solid discharge going into the sea by 20% by 2030. And in Spain, we regenerate biodiversity in a limestone quarry that we are rehabilitating. To conclude, I would like to highlight a major breakthrough related to our technology. And this is really in line with our technology leadership. As you know, Solvay's journey started very successfully 160 years ago when our founder, Ernest Solvay invented a new process to manufacture soda ash. This so-called Solvay process is still today the most broadly used to produce soda ash across the world. For the last 30 years, we have invested more than EUR 40 million to develop at lab scale the next generation process. Many companies would have given up after a few years, but we decided to persevere despite all odds. Why? Because we believe in science and we believe in progress. This is in our genes. We are a science-based company. In 2014, we filed our first patent related to this new process. And in 2022, we announced that we were progressing from our lab in Spain to a pilot plant in Dombasle in France. We are confident that by 2025, we will be in a position to move to industrial scale and gradually convert all of our plants. The promise of the new process is very exciting. It will be more competitive, notably with 20% energy consumption reduction and it will be more sustainable, notably with 50% CO2 emission reduction. Let me explain to you how it will work. In simple words, the current Solvay process requires lime kilns to produce lime and CO2 from limestone. The line is used in a loop that enables recovery of ammonia while CO2 is use in the soda ash production. With the future process, we will use electrochemistry to recover ammonia. Therefore, we won't need the lime kilns anymore, which means we will get rid of the fossil fuels that we currently burn in the lime kilns, like coal and anthracite. The new process will rely much more on electricity which will significantly improve yields safe energy and cut CO2 emissions by 50%. It will also completely remove the limestone residues that are currently generated by our plants. For years, our customers have been looking to us to lead the way and raise the bar further. This new proprietary process will be important for the planet, appreciated by the customers and welcomed by investors. This is how Solvay will expand its leadership, responsibly and sustainably. And with that, I hand you back to Ilham.

Thank you. Thank you very much, Philippe. Between us, your presentation is truly exciting. We do not wake up every day, reinventing 160 years old process, and you are just doing it with your team. It is also a fascinating example on how technology and strong reliable processes can have a sustainable and profitable impact. And even though soda ash has been in our portfolio for 160 years, there are unique and big opportunities to create so much value when our teams put effort and ingenuity at the service of our customers. Now as Philippe stated loudly soda ash unlike other essential chemicals is resilient strong cash generating business across the cycle and certainly less to no cyclical compared to many other technologies. On the top of it, we are targeting double-digit CAGR growth EBITDA growth between 2022 and 2027, thanks to market cycling supporting pricing to our anticipated additional capacity investments for natural soda ash in the U.S. since 4 years and the highly growing Bicar demand at 2x, where we are the undisputed leader. And finally, more importantly, from what you heard from Philippe, thanks to our continued excellence and cost reduction rigor and disciplined approach in this business and the best is yet to come. I'd like to wrap things up with the key takeaways. First of all, Soda Ash & Derivatives is at the heart of our One Planet goes. Not only are we substantially reducing our own emissions, but we are part of environmental megatrends. Sustainability is at the core of our strategy in all our businesses and the Soda Ash & Derivatives business is certainly no different. We've demonstrated a proven record track record of strong resilient cash generation and cash conversion. We showed our EBITDA growth rate of 5% since 2013 and will accelerate our EBITDA growth rate to 10% over the next 5 years, while maintaining cash conversion above 70%. This positive outlook is supported by the track record of resilient demand and operating rates across cycle together with markets further tightening going forward. We are also leaders in Bicar, our strong downstream integration, which is growing twice faster than soda ash. We are a market maker. And within Bicar, we are strongly exposed to the fast-growing segments of flue gas treatment, cleaning air and healthcare, thanks to our differentiating expertise and technology. We have a well-established stand versus competition in scale, cost and technology leadership. We are a global leader with 20% market share, a balanced portfolio of U.S. natural and European synthetic plants of world-class and competitive regional assets. We are on track with our commitment to phase out coal and reduce our set emissions by 30% by 2030. Our teams are setting up energy transition projects that are profitable and create value. Looking ahead, we are confident we can achieve carbon neutrality, thanks to the reinvention of the Solvay soda ash process. And this breakthrough technology protected by patents will provide to Solvay a competitive and sustainably edge versus competition for the benefit of our customers. Now before getting into the Q&A in a moment, I would like to comment on the macro environment, which is present in the industry with some unique challenges. Our Soda Ash & Derivatives business is also exposed to the slowdown of the economy that we observed since quarter 4 2022. However, supply-demand balance remains site, which is supporting our pricing. As we prepare to establish the future EssentialCo, we will keep our teams focused on delivering value to our customers. In Soda Ash & Derivatives our proven approach will allow us to continue to outperform the market and accelerate our growth above 10% per annum across the midterm. Looking ahead, we will build on the strategic pillars that have driven our success, focusing on targeted investments, maintaining our technical and market leadership and continuing our cost and efficiency measures. In essence, we are well positioned in the soda ash and Bicar market, not only to capture lost shares of the growing market but also to enable the transformation of the chemical industry to greener processes, enhancing quality of life. Jodi, back to you.

Thank you so much, Ilham and Philippe. Melanie, please open the line for questions.

[Operator Instructions] The first question comes from Peter Clark from Societe Generale.

Yes. I've got 2 questions here I can. I mean clearly, you want to leverage the lead you have here. Have you got any feel that you can give us sort of CapEx involved? I mean, obviously, we've been giving the budget for next year of [ 12.50 ] or so at the midpoint. But on a 3-year view as well, the sort of split also between growth and maintenance. And I guess the decarbonization is over the top of both of those? And then the second thing is on returns. Obviously, your return on capital at a group level has shot up doubled since 2019 or 2018, even if you do the adjustment, it's still gone up significantly. I'm just wondering how soda ash is done within that, obviously, on the cash flow returns, not quite as good, presumably reflecting the CapEx going in chemicals or the chemicals one, certainly not. But just how soda ash did because it was a laggard it's obviously now contributing, but just wondering how strongly, it's come up against that sort of 2018 base level.

Yes. Yes. Thank you, Peter. And I think Alex and Philippe will get into the soda ash. You may remember since when I joined the company in 2019, we told you that any of our, obviously, business case and CapEx for growth, but also for decarbonation, we want them to hit the double-digit IRR and actually a minimum of 15% at the group level, right? And we consistently continue to push that, the quality of investment, the quality of growth per dollar investment. And frankly, between you and me, you can see it also on the ROCE improvement. So soda ash is not an exception. And on the ESG road map and they will tell you, we have, obviously, the decarbonation of soda ash, which is pretty special and probably Alex and Philippe can give you the way we do it in soda ash, which is pretty unique between consolidation and deconsolidation type of investments and then obviously, the growth investments, which is already, frankly, will be behind us by next year because as you know, we are already investing since last year in natural soda ash in the United States of America, and we acquired the 20% AGC shares will give you more quality on the returns for [ ESCO and Ecopia ] later in the year, but I can confirm that we don't expect there to be any let up on the high return, but then I would like to turn it now to either Alex and Philippe.

Okay. I can take this one. Thank you, Ilham. Now maybe 2 things to mention. First, as we indicated on CapEx, I won't give you the split by nature. But we will maintain the 70% cash conversion we have indicated, and we will add up our CapEx to the activity level and to the environment. Talking about decarbonation. As Ilham mentioned, for each project, with our experts, we will look at the best solution to maximize the return and minimize the cash out for Solvay. This can lead to either deconsolidated or consolidated project. And to give you a little bit a flavor of what it means. Typically, for consolidated project, we will try to offset the CapEx payment by doing such things at monetizing CO2 credit or even we can look at lease structure, which allows to match lease payment with state incentives. For larger projects, we can look at outsourcing or deconsolidation. For example, for the RDF cogeneration unit in Dombasle, France, Veolia and Solvay, which we are both partners in the project. We have invited equity and debt investors. And as a result, we ended with a 10% stake, equity stake in the project, which exceeds EUR 200 million. So let me insist that in all cases, we will ensure that returns exceed work. And I think as Karim mentioned in previous calls, for the initial projects such as the coal phase out, we have exceeded 15%.

The next question comes from Wim Hoste as from KBC.

I have a couple of ones, please. Maybe first on the external or potential external growth ambitions you might have for soda ash. And the balance sheet has significantly strengthened in the past few years. So there's a -- the split coming up. Any thoughts of, yes, how ambitious are you to growing this business also potentially externally? That's the first question. Then the second one is on the energy costs and potential hedges, et cetera, for soda ash specifically. Can you maybe elaborate how the energy bill for soda ash looks like in '23 versus '22? And then also diving a little bit into the contract structures with your customers in the recent conference call on the full year results. It was kind of highlighted that, yes, some of the energy surcharges were transformed into floor pricing. But can you maybe offer a little bit more clarity about what is exactly baked in, how -- what kind of portion of the energy surcharges that you had in '22 is now fully baked into how much flexibility you have to still adapt to energy price swings in '23. So those are my questions.

Yes. Thank you, Wim, and great question. Before I give it maybe to Philippe to talk about the pricing. We had a lot of questions during the earnings call last week. On soda ash, probably more on soda ash than any other business. So happy to have the 2 leaders of the business sitting in front of me and repeating and giving you more color. I think the impacts on hedges win, and as you know, hedges are just making us gaining time in terms of price increases, right? And I told it to my team from day 1. At the group level, we actually told you that the impact is EUR 100 million. So not a big deal compared to the full price increase, many of should we have delivered last year. And that's the reality, right? So it makes us gaining time, it doesn't prevent anybody to go there and fight for value pricing and defending margins facing the energy headwinds. And that's exactly what the team has been doing. I'm so proud of soda ash, not only they opened for the first time of their career and resume in 2021, H2 '21, their contracts with their customers for quarter 3, quarter 4, renegotiated the contracts and get surcharges in place but now they are also moving on with a new scheme, which I believe is necessary to reinvest in the soda ash of the future. So maybe, Philippe, you can a bit explain what happened last year in terms of surcharges and what you are doing in 2023?

Yes. Thank you, Ilham. And indeed, as Ilham told you, in particular, also during the results presentation last week. The business has successfully rebased soda ash prices upwards in all regions, in line with supply/demand. And -- well, clearly, we don't provide commercially sensitive information, so I won't give any details in terms of prices and so on. You can certainly read what is published by industry forecast by agencies like CMA and so on. CMA is the previously known IHS, and they are very knowledgeable in the soda ash market. What I can say is that our global presence, the quality and security of supply brought by our network of plants together with our strong commitments on sustainability and so on are really recognized by our customers and this allows us to operate in the upper boundaries of the numbers that you will read in those publications. The integration in the base price of 2022 inflation on energy and raw material prices, allows us really to anchor the business into solid value creation territories. This is really very important, as Ilham said, because we have investments to make in energy transition, even though we will use as much as we can, the consolidated schemes and so on we need to invest in this energy transition. We need to invest in capacity expansion in order to meet the demand growth of our customers. And to do that, we need to really anchor this business at the right level of return on capital. And this is what we did in the past couple of years. I mean, now the business has reached levels above value creation and we see to progress in order to make sure that we can do these investments. Now that being said, I mean -- and even though we have [ recherche ], I would say, the base price at the right level. We still have, and we will have some energy adjustment mechanisms for extreme variations. And that's really to protect the business and preserve the margins in case prices are again going extremely out of the normal market conditions. So this is what I can say on pricing.

Yes. Thank you, Philippe. And I think, frankly, I really proud on the pricing side. What happened in the past 2.5 years. I think the soda ash team led the way into just doing the right thing for our customers, for our reinvestment. And each year in this volatile world, you need to adapt. So H2 2021, you renegotiating the pricing, working with surcharges last year and now converting major parts of it into floor pricing. And again, we invite you to look at IHS. So now we call it what CMA as an index proxy for our business. I think there was a question on M&A. Yes, I think for me, it's about discipline and discipline in focusing on the returns. Wim, I think you've seen us very disciplined since 2019 on M&A in general. We didn't shy from buying AGC shares right for soda ash. It's one of the best and the highest return we've ever had in the company. So no-brainer. We've done it. We set the bar high. And I think whatever it makes sense, we'll continue to invest wisely all or inorganically, as you said, with the debt ratio of 1.1%. This is the lowest in our history. We have luxury today. We didn't have it a few years back to envisage that. But I think we are focused now on power of 2 on our split. And then obviously, EssentialCo and SpecialtyCo will have room and headroom to really continue investing in their portfolio.

I have maybe one other question I would like to squeeze in. And it's on the capacity utilization slide you showed, I think it was Page 8, which situation estimates excluding China, can you maybe give us a bit of additional background information, what kind of growth projects from competition did you include in what kind of time frame? And also how -- what is the role of China in the global markets, be it in terms of imports or exports that you assumed in that graph?

Great question.

Thank you very much. Indeed, very good question. In the projection, basically, I mean, China is really, I would say, not impacting a lot the rest of the world. Today, China is a net exporter of around 2 million tonnes per year. We've seen levels lower than that. A couple of years ago, I think it was around 500,000 tonnes per year. So this very much depends on the situation in the Chinese domestic market. So you know that in the recent months, there was a slowdown. Now we see from the latest report that it's again picking up a little bit, and inventories are lowing and prices are moving up again in soda ash, because we expect the Chinese market to restart with the COVID restrictions being a little bit released, and so we don't see China exporting a significant volumes in the coming years. So we assume that those volumes were more or less steady at a relatively low level, meaning that the new capacity that will come on stream and in particular a big one on natural soda ash production in Inner Mongolia will most likely be dedicated to the domestic market and will push out some of the less competitive capacities that we have currently in China. So this is the overall impact of China that we took. And indeed, what you can see in this graph is we are always at operating rates that are pretty high. And so this is very different from other types of chemical essential products that you might think of, where you can see big swings. And so big cycles. here, it's really, really noncyclical.

Yes. And I think what's also Philippe and our strategy, and you've seen it, including during COVID times is that we elect not participate in the seaborne if margins are low or too low. So I think that's the flexibility with our global footprint we have. And I think those are essential the right to guarantee and maintain our margins.

The next question comes from Geoff Haire from UBS.

I have 3 questions. I was just wondering, could you comment where the synthetic soda ash or European soda ash plants are on the cost curve relative to natural soda ash. It's a slide that you used to put into these types of presentations historically. I noticed we haven't got at this time? And then also in your assumptions for the 10% EBITDA growth, could you comment on what your pricing and cost assumptions are within that 10% growth? And then my final question is one on the floor pricing for this year. It would appear that one of the main reasons you were able to convert the surcharges into floor pricing was due to the tightness of soda ash around the world. If you were to see a loosening of that, would you expect to see you having to give back some of that pricing that you've managed to achieve this year in surcharges that have been converted into floor pricing?

Thank you, Geoff. Shall we start with the cost curve. Indeed, I mean, we didn't put it as the same. But maybe you can explain the landed cost, right, from a new I think Europe probably first Geoff, but we can -- each region has its own dynamics and just explain how competitive are our assets, right? Philippe?

Yes, absolutely. So if we focus in Europe, clearly, in the U.S., half of our production is for the export and natural soda ash is extremely competitive. Of course, the challenge is when you add the logistic cost because Wyoming is far from the coast, as you know, then you are close to the most competitive plants in Europe, and we even have one big plant in Europe that is more competitive on what we call the FOB basis, which means the cost of the product at the nearest port. In Bulgaria, we have a lower cost than in some natural soda ash plants just because of the location of the plant and the size of the plant. So in Europe, we have 2 types of assets. First one is -- and those are more located in southern part of Europe. Those are world-class assets. They are able. They are close to the board, and they are able to export everywhere in the world, okay? And then we have what we call the regional assets. So those are more located in Northern Europe. They are almost exclusively supplying the regional markets. And what they need is to be more competitive than imports, that imports today from Turkey or potentially in the future from the U.S. And this is what we have today. So those plants are more competitive. And this is what we guarantee when we do our energy transition projects. This is why, by the way, the energy transition projects are complex because it's not only about moving from coal to a lower carbon energy. It's also at the same time, about securing the competitiveness to make sure that whatever happens, you are competitive in terms of delivered cost versus the imports, okay? And this is why if you look at the curve in terms of delivered cost. You will see that our European plants are competing against the best world-class assets. Now maybe in terms of pricing...

Yes, the pricing I think the question was about, again, the pricing would you give back some of the prices should the energy prices is more or less high if I understand it well Geoff, I'm trying to -- go ahead, Geoff.

Those 2 questions on pricing. One was in the 10% EBITDA growth forecast that you made for the business. What is your pricing assumption and cost assumption within that? And then the second pricing question was on what you said was if you see a loosening of supply demand, do you expect to give back quite a lot of the price gain you've got this year from converting the surcharges into floor pricing?

So here on the assumption on the forecast on the 10% Geoff before giving it to Alex and Philippe, we focus more on margins than prices, obviously. I think there are components of the EBITDA margin going from prices to costs, et cetera. But the leading margin in this business are -- have been defended. I think we have a resume of many, many years in the past 4 years as well. And that's what motivates us to invest. So -- and I told you the first probably projects I supported when I joined the company is actually the trona, the natural trona investments in the Wyoming in 2019, and we've frozen it in 2020 because of COVID, there was no point to put steel on the ground. And then now we are defreezing it and putting it in motion because customers, they want it. So I'm not -- we're not going to give you specific at this stage, but I can confirm that we are confident of our ability not only to preserve the margins we have had, but definitely to grow double-digit EBITDA, both on maintaining pricing, expanding margin and working on our costs, right? The pricing question.

Yes. I may sound like a broken recall that. No, really, it's margin that matters. Maybe to add to what you said. I mean, we have negotiated contract at 90% of our sales in 2023 half contractualized. So we are quite confident on that.

And they are firm...

And they are firm, yes. And energy protection mechanism. I would -- as I would like to prefer to call it now is really for extreme cases. I mean, again, we focus on margin. We have rebased the pricing, and this is obviously in a tight market but customers understood that if they want security of supply, sustainable us to meet our sustainable goals, we need to get the price we deserve. And that's partly included in the 10% you have seen on the slide. Together, we're also following volume growth. Again, being a leader requires 3 things . Leading on volumes, and we will grow with the market leading on cost, and we would make the necessary cost savings that are needed. Also be able to preserve our margins and finally technology, and we've talked a lot about that today.

Yes. I think -- I hope it's clear, Geoff, I think that scale, the cost leadership, bolt-on processes on tuning the portfolio. I think as Philippe said, over our history, we are not shying from shutting down or improving -- shutting down plants and improving processes, and we'll continue to be the cost leader there. And indeed, I think your question on the landed -- it's a landed cost. We don't see it as an X works out of the plant, but rather an FOB or GDP, whatever in coterm, you call it, is the landed cost. So that's why have been global and regional assets close to our customers, who value security and obviously, competitiveness is so critical in this business. And by far, we will continue working on our competitiveness.

The next question comes from Chetan Udeshi from JPMorgan.

I actually have 3 questions. One is the first one is just following up on your new technology or new process that you've developed for synthetic soda ash. Can I confirm whether that has been proven in a commercial plant? Or you are still prototyping, sampling or whatever at the moment? So you still need to figure out whether it works in real-world conditions. That was the first question. The second question was following up on the discussion around landing costs. And I think -- let's put it this way. I think the soda ash prices 2 years back in Europe were close to EUR 250 per tonne, today, they are maybe closer to EUR 400 or even more? I mean, doesn't landing costs become, to some extent, less of a constraint for shippers from North America or China to sell into Europe now. Why is that still is the arbitrage not attractive at these prices compared to what we had to years. That's the other question. And the last question was in the U.S. domestic market, you tend to have something like [ low ] collar and ceiling prices. I'm just curious if you started to see this in Europe for contracts beyond just 1 year. Just given the tightness that you're referring to at the moment.

Yes. Thank you. So 3 questions from Chetan. The first one, is on the process innovation. That's our nickname is Ernest 2.0, so our breakthrough. And I think we need to talk about why I mean, I think we are confident because we are moving on with the pilot. If not, we will never do that after, as you said, Philippe, of several failures and now we win and we are investing and extend where. The second question is the lending cost becoming less of constrained to sell in Europe as an example. And the third was what was the third one? We couldn't hear it very well.

Can you repeat it that, Chetan, please?

The contracts beyond 1 year. If we are comfortable 2023, how the floor pricing will stay. I think, Chetan, if I get it right, because your line was a bit not stable, okay? Innovation, Philippe?

So what was the question on innovation?

Are we confident on the...

Are we confident? Of course, if we pilot is to make sure that it works well and to check all the parameters and so on. But if we move to the pilot scale, it means that we have sold a certain number of key questions at the lab. So obviously, we are confident. Until the finish line, we will not know exactly if we will find something that we need to clarify, but we are confident and we are confident that it will work.

And we put the pilot in Dombasle, now Chetan as we announced. Why Dombasle? Because it's the best size suited for that pilot in. And I think the first patent was in 2014, right, Philippe?

Yes.

Yes. And now we are filing other patents, obviously, because the technology and the breakthrough yes, was really came through probably around the full 2021. So we are very excited because this one is completely reinvention of the process. As Philippe said, 50% net zero to emissions, probably 0 solid, also the CapEx, but we are -- we have things on the back of the envelope will be also divided by X. So the stage gate of such innovation is highly demanding. And obviously, we push you that, and we will communicate with the market in due time. Pricing again, guys.

Yes. The second question was really about -- I mean, first, the market is tight. So you will not see a lot of volumes moving from one region to another. And it's true that we've seen Chinese exports are moving up. And I think they reached maximum, a bit more than 2 million tonnes. But what you need also to take into account is that production costs in China are quite high. I mean they don't have cheap energy. And as I said before, I mean, in the U.S., production costs are lower, but you have the constraints of the logistics. So no one has an easy task in order to do that. And Europe has certainly also a lot of upside to play.

Yes. And production costs are also high in Turkey. So I think each region, and I think just Chetan that -- this business, and I say, the team is here is one of the best run in the company. And I think managing the supply chain, the flow of goods both knowing very well the capacities available kilos and pounds and our participation by quarter, by year in the free market and the one when we can decide to pull offer on is extremely critical. So yes, I mean, all in all, I think we are looking at the blended cost at our customer doors that what matters and improving our competitiveness flawlessly in each side, absorbing inflation, continuing increase in the fixed cost and obviously, green in our energy. So yes, I mean, that's what the team best do, and I'm very confident that what we are doing now. And this is the floor pricing and IHS CMA is a good proxy, will continue forward beyond 2023.

I think we have time for one more question before we end the webinar. Melanie?

The next question comes from Jaideep Pandya from On Field Research.

Just first of all, well done on 2022. We had a great year in soda ash and '23 is shaping to be extremely strong. So I just wanted to talk about '23 for a second. If I just sort of think about price increases that are put through and multiply times sort of your capacity and assume that your energy costs are stablished this year I almost think you guys are going to grow EUR 450 million, EUR 500 million in EBITDA this year, making a new record. So I just want to understand, is this not the best year, soda ash just ever had. The second question is really around capacity and in the U.S., especially quite a few of your peers, including yourself are debottlenecking, including the big project of 2.5 million tonnes coming. So how do you see the U.S. market evolving in the next 18 months? And then the last question really is around your technology. Any thoughts around carbon sequestration and the use -- sorry, the electricity intensity per tonne in the new world or the new technology compared to the current process that you guys have.

Thank you. So first question is about the pricing and -- I mean you made some math, but we're not going to get into any specifics. I think the guidance at the group level is the direction to go. We've incorporated our pricing and what we believe is going to be the forecast for soda ash this year into our guidance, right? And we are confident to continue working hard, obviously, in defending our margins and reinvesting in the business, and that's part of what we told you for the guidance. There was a question on lowering carbon and energy intensity, right? And that's part of the decarbonation, right? Did I hear carbon sequestration or I invested that?

Yes. I wanted to understand carbon sequestrization and -- yes.

Yes. Thank you. So I think maybe guys again, put high level again, the decarbonation [ decalin ]. And maybe you have even -- you are one of the few sites in the world in the whole Solvay where we are trying carbon sequestration, we never talked about it in the market, but please do so.

Yes. No, we are indeed exploring all the possibilities. And you know what each site has different options because we really need to find the new local sources of primary energy that will be low carbon and also, in some cases, carbon sequestration. Even though today, I mean, it's still very preliminary, I would say. Let's face it. No, what we are doing in terms of decarbonization is really, I would say, first step, and that will represent, let's say, 1/3 of our commitment towards carbon naturality in 2050 for soda ash. 1/3 is done through the call phase out. And sometimes, we move to zero carbon energy like in Reinberg with biomass. Sometimes, we have to do an intermediate step with, for example, RDF, Dombasle. So it won't be zero carbon, but we cut in half the emission. So we'll need one more step after this. The [ 2/3 ] will be the second step with new energy, and we are working on this, but this will happen after 2030. And the last 1/3, I would say, will be from process. And here, it's the new Solvay process that we have been discussing earlier in this presentation, and that will help us get rid of the solid fuel that we use today in the lime kilns. So with all this and potentially also with some assets if we cannot reach the 100% we aim at reaching carbon neutrality by 2050.

2050. And maybe in a bit the background here, I mean, maybe of the question of what I read. Obviously, there is a decarbonation plan, which was in [ de Colina ], so exiting collated by 2030. And this is going to happen. We are reinventing the synthetic soda in Europe at the lowest cost possible. And the beauty is that now this is not a dream plan. You have Reinberg in Germany using waste wood not so covered, you have Dombasle, which is deconsolidated using biomass is the joint venture with Veolia. And you have part of Devnya, 30% where we are using the sunflower pellet waste biomass 30% yes, we need to continue finding options. And I think -- I mean, I've seen in some notes, frankly, the intensivity of our soda ash plant. But I remind you all that typically our plants also generate energy, which is sold to third parties, right? For example, cogeneration and of electricity, we sell it to the grid in Tuscany in other places in the world. So sometimes, I think the assessment may not be representative to the intrinsic performance of the soda ash manufacturing site. And that's okay. I mean, there are not a lot of things visibility can be complicated. But having cogeneration plan, not only its a great assets for the company because we use it for our own power and steam, but also protect us in terms of -- you've seen it in this world where some energy feeds were starting to become scarce, we could get priority because we are also selling energy to the grid. So I remind you of this, so this is an important element to keep in mind. Anything else, guys?

No, I think there was a question on the U.S.

The U.S., yes, that's true. Go ahead.

So if I understand correctly your question was that what is our view on the U.S. market? Well, on the U.S. market, and probably there is no significant growth. So all the capacities that will potentially start up in U.S. will be for export, exclusively and not to -- not for the growth of the domestic market. So that's a key question. I mean really, how are we going to supply the world and the world growth tomorrow. And it's true that today, in the U.S., we have trona resources, and it's competitive to produce there. And that's why I said also and Ilham said, the next capacities will -- in the short term will be in the U.S. But there will be also some limitations at some point. What I can say is that in the -- capacities are needed. So those projects, they are needed in the next 5 years. They should have taken place already, but they did not because the returns were not at the right level. And this is why we needed to do the work we did during the last 2 years in order to bring back the return on capital at the right level. Now yes, those projects will take place. They will supply the seaborne market. But let's face it, we -- this shows also that we need absolutely the synthetic capacity. The synthetic capacities are absolutely needed in order to supply the market. And this is why it's key also to do the energy transition and to have the right level of profitability to do this project.

Absolutely. So thank you, guys. I think I hope that our audience and our guests found it as interesting and exciting and engaging as we would like those webinars to be. Thank you for your -- the hard work of the teams and I think we'll continue with the IR team and Jodi back to you if there are any questions. And obviously, tomorrow, we have the Aero webinar, it's a week of webinars. Back to you. Thank you.

Thank you.

Thank you so much, everyone, for your participation in today's event. As a reminder, we will post a replay on our website. And indeed, as Ilham said, we're very excited to host yet another webinar tomorrow and that one will be focused on the Aero and Defense industry. So hopefully, we hear from you then. Have a wonderful day.

Bye-bye.

Bye-bye.