Solvay SA (SOLB) Earnings Call Transcript & Summary

Welcome to the Solvay Aerospace & Defense webinar for analysts and investors. Solvay team, the floor is yours.

Good afternoon, and welcome to our Aerospace & Defense webinar. This is Jodi Allen, Head of Investor Relations. And today, I'm joined by our CEO, Ilham Kadri; and the President of our Materials segment, Carmelo Lo Faro. Immediately following today's presentation, we will host a Q&A session where Ilham and Carmelo will be happy to take your questions. Today's event is also being recorded and will be made available for replay on the Investor Relations section of our website. I would like to remind all participants that 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 very much, Jodi, and hello, everyone. Thank you for attending today's virtual webinar focused on the Materials segment activities supplying the aerospace and defense industry. As a material scientist by training, as you may know, I am particularly excited about today's topic as we highlight a business that produces and develops the materials that currently enable air travel and will shape its future going forward. As we are all -- well aware, we remain on track with our planned separation into 2 strong independent companies, which today we call SpecialtyCo and EssentialCo. Last week, during our earnings broadcast, we shared an update on the project timeline, which is on track for completion in December 2023. SpecialtyCo will comprise the company's currently reported Materials segment, including its high-growth, high-margin specialty polymers; its high-performance composite business; as well as the more consumer-focused businesses in our Solutions segment. These businesses combined generated over EUR 7.8 billion in net sales in 2022. As you can see, our Materials business is nicely balanced across advanced and important markets. We have an unmatched portfolio of technologies, including a proprietary range of high-performance polymers, and we have high-performance carbon fiber composites. Our Composites business mainly serve the aerospace industry. Remember, I said it before, we are not just selling products. Sure, we invoice products, but what we are selling is the unique value proposition versus our competitors. We have the broadest portfolio of high-performance materials available in the market. When customers come to us, they do not come to us for a particular material. They come for the best solution that affords the lowest total cost of ownership, knowing that we stay agnostic to a technology type and that we have the portfolio to meet their demanding needs. In fact, you cannot find a portfolio like ours anywhere in the industry. With the Solvay products, customers can save time, money, fuel and emissions and meet their customers' needs -- that's a sub value proposition to be. Think about it, we license any products, any mobile product to, be it a car, plane or your e-bike. Therefore, if you make it lighter, it consume less fuel, it emits less CO2, we are enabling clean mobility amongst many other value propositions. Last year, we hosted a webinar focused on our Specialty Polymer business unit activities in addressing automotive light weight and electrification. Later in the year, we will give you our last webinar before our Capital Market Day on the Specialty Polymers business as a whole. And today, I'm so excited to focus on the Composite Materials business. The segment as a whole is expected to grow at 10% CAGR from 2022 to 2026. And we're proud of our EBITDA margin for the segment, which are projected to remain above 30%. Our Composite Materials business is a leading provider of carbon fiber, advanced composite materials, adhesives and surfacing films for the aerospace and defense markets. So the scientists and engineers work closely with our OEMs and their Tier 1, 2 and 3 suppliers to develop high-performance materials that need growing requirements for compatibility with automated processes, high production rates and lower cost of ownership. Our portfolio comprises thermoset composites, thermoplastic composites, liquid resins, structural adhesive and surfacing technologies, carbon fiber and ancillary materials. Our position in the supply chain is built on decades-long legacy of material supply and collaboration. Our experience, our reputation and record of delivering innovative products to both OEMs and their sales suppliers has had 2 notable benefits. One, barriers to entry are high on an OEM program and specification, as you may know. We have developed a hundred of material specifications with OEMs and their suppliers across every flying program in existence. And two, we enjoy a strong position in a relatively stable market. So why are these materials important to our customers? OEMs like Boeing and Airbus are always looking to reduce waste, increase design freedom and increase production throughput of their aircraft. There are 2 fundamental challenges that all planes have to overcome when they fly: weight and drag. Part historically made from metal that are just as strong, but lighter provide an obvious advantage, and the design freedom that composite materials afford allow for aircraft producers to design exterior features that reduce drag and improve aerodynamics. These benefits taken together can provide up to 25% increased fuel efficiency and thus reduce greenhouse gas emissions. This results in better aircraft that burn less fuel and are therefore cheaper to operate. The aerospace industry estimates that every kilogram of fuel sales translates into 3.15 kilograms less CO2 in the atmosphere. This is an industry that continues to grow steadily. And the 1 way it can succeed in reaching its target of cutting emissions in half by 2050 is to continue making planes lighter and lighter. As innovators explore alternative fuel sources like the solar power flights around the world by the Solar Interest Foundation in collaboration with Solvay or the development of green hydrogen that will greatly reduce CO2 emissions in aviation, composite materials will nonetheless play an important role as the industry works towards its lower emission goals. Without advanced materials, airplanes would be much more expensive to operate and more polluting than they are today. With addition fuel cost hitting an 8-year record high last year and new efficiency standards as part of the U.S. bipartisan Infrastructure Law, composite materials on some futuristic concepts, they have become a manufacturing imperative. As much as we marvel at the speed and power of jet engines and rockets, from a scientific perspective, advanced materials are what is unlocking the next generation of flights. Composites materials do bring some challenges. For starters, there are complex multi-material systems consisting of carbon fiber sheet imprinted with resins that needs to be cured for several hours under very controlled temperature and pressure conditions, not nearly as quickly and easily as a few second injection mode in process of thermoplastic. These materials are often irreversibly close linked, and this process step presents challenges around throughput and recycling. As OEMs seek to produce their planes and parts on an industrial scale, a process that takes several hours per part can be a limitation. Furthermore, carbon sheets that already have the close link resin applied to the fibers known as free cracks are shipped and stored and the refrigeration to prevent premature reaction before the manufacturing step. As told, we will focus on these very issues as we develop new products, new processes, and we'll explain how later in this presentation. As a result of the benefits that our material affords, we can comfortably claim that our products are present on all civil aerospace aircraft that fly. That's quite amazing, isn't it? When you think about it. Our products are on the roughly 8,000 passenger planes in the sky right now. Drilling down into the aerospace and defense market, in particular, we have a balanced exposure to commercial aviation, defense and space and launch that served us well during the COVID pandemic. As commercial aviation bill rates fell sharply, our Defense business provides a stable base for us during COVID times. Sales to aerospace and defense were just under EUR 1 billion in 2022, representing 30% growth versus the prior year. We target growing the top line of this business by double digits for each year from 2022 to 2026. In a moment, I will hand the floor to Carmelo, and he will highlight the details behind the 3 takeaways that underline our confidence in addressing the aerospace and defense industry, which are summarized on this slide. First, as the aerospace industry recovers from the COVID crisis, we anticipate double-digit market growth in the coming years. We clearly see a steady improvement in civil aerospace, driven by the build rate increases in the single-aisle aircraft, like the Boeing 737 and Airbus 220 and 320. We have an attractive business with a growth innovative portfolio and high barriers to entry affording stable growth. We will show that we have the right know-how, the people and the relationships to continue to supply our customers as they ramp up production back up to normal levels and beyond. And lastly, we have exposures to the most attractive market segments in aerospace and defense. And we have the innovation engine to deliver the next-generation materials to our customers and partners. We will leverage our experience and know-how in the market and our material know-how, not only in composite, but also in specialty polymers to tackle today's sustainability challenges and address the new markets of tomorrow. Very exciting stuff. So now, and I'm looking for another -- and with that, I'd like to introduce Carmelo Lo Faro. Carmelo is the President of our Solvay Materials segment. The Materials segment includes both the Specialty Polymers and Composite Materials businesses. Carmelo was appointed to this current role in May 2021. Prior to this, he served as the President for Composite Materials. Prior to this, he was the Chief Technology Officer of Cytec Industries. Carmelo holds a doctorate of science in materials science and a masters in mechanical engineering from Catena University in Italy and a Masters of Business Administration from Arizona State University. As you can see, there is not a more qualified person to lead you to today's topic than Carmelo. Carmelo, the floor is yours.

Thank you, Ilham, and good afternoon, everyone. It's a real pleasure to be presenting on my favorite topic this afternoon. This is an area where Solvay has a strong leadership position, and I'll try to explain why that is the case and why the business will be successful in the future. Today, I'm talking to you from our Rexson U.K. manufacturing site, a plant where I spent several years working in R&D and continuous improvement. And it's always great to spend time with our teammates here. Now I spend my entire career in composite materials and aerospace and defense. And I've seen the ups and downs in this cyclical industry, particularly for the commercial aviation phase in part of the business. Now we are seeing a period of strong growth as build rates are recovering from the impact of the COVID-19 crisis. From 2016 to 2019, the composite aero-structures market was growing at a 5%, 7% growth rate, driven by higher build rates and by the introduction of new programs at key OEMs like the Airbus A350 and Boeing 787. Now with the growth rate in a relatively stable market environment. Then starting in early 2020, first, with a slowdown in narrow-body build rates from Boeing 737 MAX problem. And then with the COVID-19 crisis, the industry experienced a dramatic decline in demand. Now we are seeing increasing build rates at OEMs, and we continue to see the benefits from the higher advanced material adoption on commercial aircraft. Clearly, we don't have a crystal ball, and there are assumptions about the stability of the supply chain and the availability of qualified labor. Based on the multiple scenarios we have considered, this is the growth rate we foresee. Looking at the market a different way, when we look at build rates of our customers, you can see the effects I just mentioned a bit more clearly. Going forward, we expect solid growth rate in the commercial narrow-body and in the defense subsamons, while growth rates for commercial widebody will be lower but still positive. Growth in demand, fundamental technology shift is needed in this industry in order to accelerate the build rates while continuing to build aircraft that are lighter and, hence, more fuel efficient. The result and expected growth of our addressable market is expected to be around 10% per annum to 2026. So also, this is a cyclical industry, the overall effect is growth through the cycle. The overproportion growth rate is due to the increased use of composite materials in aircraft. As you can see, from 1996 to 2019, build rates increased at a rate of about 5% per annum. During that same period, a time frame that was fortunate enough to live, the composite materials market grew almost 2x that rate because of the increased adoption that was leading to more content per aircraft. Looking now at the adoption of composite materials into the aircraft industry, we see since the introduction of the grade materials into aircraft in the 1960s, but today, composite materials can make up to 50% of the weight of a plane. Ilham mentioned the benefits that this material bring, and aircraft manufacturers have been employing these materials, starting in military programs and catching up to and surpassing them in commercial aircraft today. These materials enabled aircraft to take on more aerodynamically efficient shapes, increased passengers in payload and travel further. Composite materials are -- and their benefits have been employed for decades. But that doesn't mean that getting specified on new programs is just automatic. Having the technical know-how, commercial experience and a broad portfolio enables us to serve as a trusted partner, with our rigorous understanding of material science and manufacturing processes, the understanding of how to get from atoms to airplanes; Solvay materials has enabled the adoption of composites onto aircraft since our first specification in the '70s. That's 50 years of material know-how and collaboration with our customers. And if you excuse the pun, we still have plenty of runway to grow our business as build rates recover and composite materials are increasingly used for more parts on commercial airplanes. Earlier, Ilham mentioned that there are new aircraft flying without our technology somewhere on the plane. Here on the slide, you see why that is. We offer materials for every major part of a commercial aircraft, from surface coatings, our adhesive and surfacing portfolio that help protect the plane from lightning strikes to the engine components made with our thermoset composites, specialty polymers that have the physical properties to perform in the very demanding environment of an aircraft. So as you can see, we have many touch points in an aircraft. And customers come to us not only for a particular material, but for the best solution from our portfolio to meet their application needs. Get these specific actions either directly from the OEMs to build a plane or from the tier supplier who they have contracted to provide the parts. So how will Solvay win in this attractive market? In the next section, I will present our innovation, our broad portfolio and our long-standing ability to meet our customer specifications and supply their platforms with the best solution. As you can see, Solvay grew faster than the market in 2016 to 2019 because our materials were on high adoption programs. And our business contracted as a result of the COVID pandemic from 2020 to 2022, albeit less than the market. This was mainly because we were exposed to defense programs, which were less impacted by the COVID crisis and partly because we were also less exposed to commercial widebody programs, which contracted more substantially. Our recovery going forward is in line with the market growth rate. So there are several elements that will enable us to grow in the market. First, we have the broadest product portfolio to solve our customers' needs. Second, we are specified in all major programs, and this gives us visibility on the order book to 2026. Third, our relationships with our customers and our experience in solving their problems are a key factor in our future success. We have a seat at the table with OEMs and their suppliers, and we are recognized for that. In fact, last year, we won the Boeing Supplier of the Year award and the Lockheed Martin Excellent Supplier award for delivery and quality. And last but not least, we have a global footprint to meet our customers' demand for materials from sites that are certified with all the requisite accreditation to supply the highly regulated aviation industry. Very important to note that on some of these aircraft, there are hundreds of kilograms of Solvay material. Here, you can see the value, the chipset of key programs. And as you can see, we are very well distributed across many of the largest growing programs in the industry. In addition, we have a presence in several of the key engine programs in both commercial and defense aviation. Some notable examples that I want to highlight is that we are expecting supplier of primary and secondary structures for Airbus A320 and Boeing 777x. And we supply materials for secondary structures, structural adhesive and surface in films for the A350 and the 787 family of aircraft. We are also a trusted and long-term advanced material supplier of Safran for engine and nacelle programs. The strong visibility into the order backlog of these core programs from our key customers that is worth more than EUR 5 billion give us confidence in our future growth. Now reaching and focusing a bit more on the defense industry. We have a leading position in the U.S. defense market. We supply hundreds of products across all main defense programs, including rotorcraft, underwater vehicles, ammunition and manned and unmanned aircraft. We offer customized, high-performance material solution with a strong focus on parts exposed to high temperatures. Just as we do for our business in commercial aviation, we leverage our know-how and relationship to OEM like Lockheed Martin, Northrop Grumman, Boeing, General Atomics and their Tier 1 suppliers. We supply over 50 products from both our structural composites and adhesives and surfacing film portfolio, and this results in the highest composite materials value to the Defense subsegment. We are once again the partner of choice to develop new applications. And our continued innovation and customer relationship has distinguished us and provided a wide moat from our competitors. For very good reason, the aviation industry is quite conservative. Materials development in the industry is also a very rigorous process. Materials are developed and extensively tested to ensure they are suitable for use on an aircraft. There are many approvals and certifications that needs to be developed. But when we look at the development of an aircraft program, it typically takes several years to move through the design, product development, prototyping, testing and, lastly, production stages. But once our projects are satisfied, the aircraft has an operating life of several decades, during which service and replacement parts are also required. So doing the hard work of engineering, parts manufacturing and parts material testing to win the business provides a long and profitable payoff. We employ a one clean approach in our Materials segment to address our customers' various needs. We don't have sales reps per material or product group that are calling on different sourcing contacts at our customers. We have key accounts, et cetera, that represent the entire Materials portfolio. And naturally, the pulling the appropriate experts as needed, structuring the business in this way enables us to leverage our broad portfolio. Solvay has 14 innovation centers in all major regions, across which we can quickly transfer know-how to benefit our customers. With over 100 researchers, we are able to collaborate closely with all the major OEMs. And this approach has paid off, recent case in point is the development of our CYCOM EP2750 material, which was developed through over 3 years of close collaboration with our customers. With that product, we were able to deliver a 10- to 20-fold increase in manufacturing rates and reduce production costs. Turning to the footprint of our composite materials assets, we are well positioned to serve our customer needs globally. Aircraft manufacturing is primarily based in North America and Europe. Most of our sites are positioned in those hubs. We also have composite production sites in Asia and in the Middle East to support our global customer manufacturing site in those regions as well. Adding production and innovation sites near the customer allows us the customer intimacy that is required for the development of new specifications and the ability to consistently supply their production sites wherever they may be. Another benefit of our proximity to customers is that pre-recast materials need to be shipped and stored in cold conditions to avoid aging of the RASM. So short-term supply chain are an additional benefit. Now I'd like to switch again and describe where we are focusing our innovation know-how for our future business growth. For starters, we have been and continue to address the material industry's most pressing needs in aviation. We know the challenges that the aerospace and defense industry will face, and we have the know-how and capabilities to address them. Challenges for the industries are opportunities for us. These challenges are and will continue to be the need for lower-cost, large-scale production, more energy-efficient air travel and enabling new mode of transportation of people, goods and satellites. Looking at the innovation themes that we have addressed over time, starting with the earlier development of fiber glass-based composites and thermoset prepregs in the '50s to the '70s, a period that marked the beginning of the adoption of composite into space and launch and so expansion into interior parts and farings. That period was followed by lighter weight, stronger carbon-based composites and adhesives that were developed for secondary ARPU structures, parts like spoilers, adders, Elron and flight. For the last 20 years or so, we have been focusing on upgrading the production system of our customers with innovation like resin infusion and out of vertical curing technologies, which have enabled adoption into primary aircraft structures like fuselage and wings. There is still a sizable market for composite to replace metal. These technologies have resulted in commercial successes for us, and we continue to optimize the system. The last few years and looking forward from there, we are looking at new technologies, like bonding technology, which we call fuel supply, multi-functionality and thermoplastic composites, which I'll discuss in more detail in the next slide. Of course, we also explore emerging opportunities in markets like advanced air mobility and spatial launch. One of the key differentiators of Solvay versus our peers is the breadth and depth of our innovation capability. The way we will win specifications into primary structure will be by optimizing our systems for lighter weight and faster power manufacturing. Today's materials will continue to improve the advantages I showed you about 2 slides ago. Also, composite materials will have to do even more. The industry will require a material that not only provides lighter weight and decide freedom, but something more. So we are developing materials that also address vibration and noise reduction, we are embedded with sensors to indicate fatigue or excessive temperature. Another issue, as primary structures move away from metals to composites, will be to use conducted composites that can behave like metal to better protect the aircraft from lightning strikes or take other functions like current return. Also, just as we are seeing a push in automotive to introduce more renewable and recyclable materials into cars the same trend is coming to the aviation industry. Always, we are delivering the innovation required for next-generation aircraft with the breadth and depth of expertise and our legacy of innovation. The 4 specific areas where our researchers will continue to focus are shown here. We are having infusion, a process that uses only vacuum pressure to draw a resin into a dry laminate. This development has made the production of large parts much easier and cost effective, and there is still room to improve. Another area is bonding technology. Our fuel product line, which enables the build of reliable banded composite structures through chemical bonding, thereby eliminating the need for rivets and fasteners. Third important area is introducing multi-functionality into our customers' parts. Other multifunctional composites, these are materials that not only offer light weight and load-bearing functionalities, but also for the ability to increase the efficiency, autonomy and lifespan of a structure by performing additional functions that would have been considered by signers as mutually exclusive or at least not possible before with these materials. Again, the list of additional functionality is almost endless. Fatigue monitoring, anti-icing or de-icing impact resistance, electrical conductivity, energy storage, transmissivity, thermal conductivity are just a few potential examples. And there are a number of ways to enhance materials from additives to completely new resin system. And as you are actually all were aware of, we also innovate in thermoplastic composites, which have the potential to overcome many processing challenges that composite materials face today, things like part production times, the need for refrigeration and potentially either recyclability and waste reduction or without negatively affecting the lightweight, strength and design freedom benefits. As aircraft manufacturers look to replace more metal parts with composite materials, we are starting to consider the end of life of the material. Renewable materials will be preferred over fossil fuel-based materials to enable our customers to lower the environmental impact of replacement parts over the decades-long life cycle of an aircraft. We'll come back to thermoplastic comparisons in a few slides. Another exciting and topical area of focus for us is the growing space and launch industry, a market we are actively pursuing. The Artemis 1 rocket, NASA's redesigned aircraft built for a new age of space flight, has successfully taken off. It's the beginning of a new area for space exploration, and we are thrilled to have Solvay materials helping propel the rocket on its mission. Across space and launch industry, we aim to be the solution provider for innovative and high-performance materials for space applications. Key drivers impacting this market are the commercialization space. We all follow the news and the increased frequency of rockets and satellites going in space is remarkable. And as the number of satellites and their applications grow and the industry see more frequent trips to space, there will be more and more small craft launches to deliver the satellite to where they need to be. And Solvay they will be there with best-in-class material for all of these launches. We are also building important partnerships to meet the demanding needs of our advanced air mobility customers. Here, we are talking about new modes of air transport that will be used to transport people and deliver goods across shorter distances like from the cost to an oil rig, for example, or packages in urban environments or supplies in a war zone. As these aircraft look to use alternative fuel sources and make more frequent shorter-duration trips, they will need next-generation lightweight materials that enable a high rate production system to meet their needs. New module proportion are being explored like battery-powered flight and green hydrogen propulsion. And Solvay materials are already there because of our strong relationship with companies like Vertical Aerospace, therefore, accessing a growing industry that when looking at projected build rates and market reports is expected to have an accessible market of around EUR 6 billion in 2040. Solvay materials will be a critical part of this market. Back to thermoplastic composites. Recall that, that is one of Solvay's 4 growth platforms. Also, our platforms are addressing a wide array of end markets, all 4 are exploring technologies that will benefit Aerospace & Defense. Batteries that have higher energy density and in turn, well less along with advancing green hydrogen, will, at some point, help the industry to meet its goal of reducing the climate impact of a plane. We have seen several announcements in test flight of electric and hydrogen fuel cell planes from major aircraft manufacturers, and we are there for them with the needed innovation. Leveraging our broad portfolio in specialty materials and our know-how across polymers and composites alike is the development of thermoplastic composites. Also thermoplastic composites are regarded as a modern material. They have actually been around for many decades. And only Solvay can bring together our experience and knowledge of these materials. And we have a very experienced research and innovation team, which is focused on developing the next generation of products to meet the needs of our customers. Of course, we don't do research for the sake of it. We are targeting a strong market share position in an addressable market of about EUR 1 billion in 2035, with about EUR 400 million in the aerospace and defense industry. We are positioning our business to win. We have a head start. These materials are gaining adoption in the conservative loan development cycle A&D industry. We are working to accelerating adoption rates of our TPCs from our partnership with the National Institute for Aviation Research in Wichita, Kansas, and our collaborations with Leonardo, a multinational company specializing in aerospace and defense and security that is a quarter in a row. The benefits of thermoplastic composites are not limited to the aero industry. After this material got their start in this industry as early as the 1980s, we have also seen adoption in the oil and gas industry and the automotive market. And going forward, we see a sizable addressable market in primary structure for commercial aircraft, in oil and gas and as an enabling material for the handling of green hydrogen. We are also working with our customers to develop applications in high-end autos and electronics as we look to 2030 and beyond. In November of 2019, Solvay joined the Thermoplastic Composite Cares Center, PRC, a consortium that seeks to bring together all the actors in the value chain to identify, analyze and overcome the technological barriers that hinder the large-scale adoption of thermoplastic composites. And also in 2019, we opened 2 new R&D centers to develop TPCs. And in 2021, we had the production capacities for these materials in the United States. We believe that no other company can match our expertise and capabilities in terms of plastic composites. So when we think about the broader opportunities for composite technology, beyond the growth we see in the air and defense market, we consider an addressable market in 2035 that is about 4x the size of today and growing about 10x that size by 2050, thanks to the many benefits that this technology offers. So you can see why we are very excited about the future. And with that, I'd like to hand the floor back to Ilham for a wrap-up.

Thank you very much, Carmelo. And wow, I've joined this company 4 years ago and discovered this business, and each time I'm amazed. And this is why I mentioned before that the Materials segment has always been the crown jewel of the Solvay Group. So there are so many innovative enabling technologies that are on the cutting edge of what materials can do. And I'm very proud of our teams who have shown that pushing those boundaries is what we do and what we do best. And what you presented today demonstrates how we as Solvay people, ideas and elements to reinvent progress and quite literally material to reinvent progress. So ladies and gentlemen, to conclude, we've shown that this business will grow in line with the double-digit market growth outlook, supported by the post-COVID rebound. Our growth is driven by higher build rates in commercial narrow-body aircraft and increase in advanced material penetration across all segments. We've also shown that our attractive business with its unique broad portfolio and high barrier to entry affording stable growth as we are specked into all main commercial and defense programs and leverage our long-standing customer relationships with a high degree of co-development to capitalize on our customers EUR 5 billion customer order book backlog. And lastly, we've shown how we are actively pursuing next-generation solutions leveraging our unique innovation capabilities in areas like thermoplastic composites, space and launch and advanced air mobility. In aggregate, these applications will afford Solvay access to a multi-billion euro accessible market in 2040. And with that, we'll be happy with Carmelo to take your questions. Back to you, Jodi.

Thank you, Ilham. Thank you, Carmelo. Operator, please open the line for questions.

[Operator Instructions] And we have our first question from Peter Clark from Societe General.

I just wanted to ask 2 questions, first one is financial. I know you've been tasked with getting the composites part of the aerospace and defense. And obviously, aerospace and defense to the Specialty Polymers margin, you talked about the cost cutting. Ilham, you said 70 million plants. I don't know if that was a third composite plant. But with that, the focus on pricing and value, the innovation you've talked about, presumably, that pretty much should close the gap on Specialty Polymers where it was. So that would be the first question in terms of margin. And then the second question, when Solvay bought the business, it was quite heavily concentrated with Boeing. I think Boeing, we're over 40% of the customer base on the aerospace side. I'm presuming that's actually gone down a bit, but just on the customer concentration.

Thank you, Peter. I think 2 clear questions. Carmelo, if you can hear it well. The first one on the margins. And obviously, you've done a great job with the team through COVID actually to prune the manufacturing assets and, frankly, was the first probably time in our history we are closing manufacturing plants at the lowest possible. And I think Peter was asking a bit more on that and then the concentration on Boeing. Carmelo, we are not in the -- just for the audience who are not in the same room and actually in the same city and site and Carmelo visiting our plant in the U.K. So Carmelo, the floor is yours.

So Peter, thank you for those questions. I'll take it. So on, first of all, on margins. Clearly, we took the opportunity of the pandemic to streamline our footprint, and that obviously created some cost synergies, not only from the elimination of the actual fixed cost of those plants, but also from the simplification of the business. So I'm very proud of what we actually did and have challenging time to do that. We do still have a number of levers that we are working on. One, we will continue to work on asset optimization. That doesn't mean necessarily footprint, but it means to look at all of our assets and invest in automation and also phase out some of our older assets. And we continue to deploy a lot of Solvay expertise, something that I'm really grateful for in areas like continuous improvement and manufacturing excellence. And last but not least, since you mentioned that, we do have a unique product and believe we will continue to leverage our pricing in this market. Now to your second question about Boeing, listen, this is -- this business remains stronger at Boeing for both commercial and defense programs than we are with Airbus. We have a very strong presence with Boeing. We have a great relationship, something that was recognized, one of the most challenging years the industry had for supply chain, we won the Boeing supplier of the IR award, one of very few companies among thousands of suppliers. So we are proud of our relationship with Boeing. We believe that Boeing will continue to try and recover. They have some great programs. The MAX is going very well after the crisis and is in very high demand across multiple regions of the world. The 787 and the 777x are great programs. With the A318 no longer being on the market, the 777x is now the largest aircraft there, so really important. But you also need to keep in mind that we are present with the other OEMs. As we stated in the slide, we have a really important position with Airbus on the A220. So a reminder, this is the program that Airbus acquired from Bombardier, used to be called the C Series. And this program is having a really good life under Airbus. And we have a really strong presence in that program being their own primary structures like the wing. And of course, we also have a presence of COMAC on the C919 program. So no, we are not just about Boeing, but we are very grateful to Boeing.

Yes. Thank you very much, Carmelo. And I think what Carmelo also shown our business is also heavily now and more exposed to defense, right? As you mentioned, Carmelo, and it has been increased in the past years. And we love defense. It's an area where innovation can thrive. And what you thought to me guys is that innovation can travel from defense to commercial, right, and civil aviation through time. So that exposure to defense and the growing space and launch is something we like in our portfolio. Back to you. Next question? Jodi, is there another question?

Sorry, I was on mute. We have a question from Adrien Tamagno from Berenberg.

I have 2 questions, please. So one on the capital requirements to achieve this growth you highlighted in aerospace. You show that in 2026, we should be above 2019 revenues, and you are really pretty green now, as I can understand. So how do we think about CapEx requirements to achieve this new level of sales? And secondly is that you highlighted structural adhesives and bonding technologies. It is a space you can develop the technologies internally or that you are open to M&A in that area?

Okay. That's -- Carmelo, you get it. The CapEx requirement to reach 2026 and then the structural adhesives, what technology we have, and are we open to M&A, I'm happy to take M&A if you want, but go ahead.

So on -- I'll start with a question on CapEx. So listen, we don't have a lot of CapEx ahead of us in the next 2 to 3 years. And the reason is that one, as you know and as you pointed, our demand shrank from 2019, and we are recovering. The second reason is that we are improving on our utilization of the equipment. And so most of our CapEx in the next few years is going to stay pretty small and it's going to be dedicated to safety, of course, but also to upgrading some of our existing equipment. So you won't see it in the next 2 to 3 years and the announcement about building brand-new assets or factories like we have done before because we have the capacity that we need and we have -- we will be able, through the actions we have made and through the actions we will continue to take, to leverage that capacity more. So that's -- our level of CapEx will remain low. On this, I will indeed let Ilham answer the M&A question. What I would say is that we have a really strong and good technology in both adhesive bonding and surfacing. This is a very strong area for our business, and our customers are really pleased with what we are offering, but also what we are innovating for the future, like the fuse technology. So Ilham, I'll defer to you on M&A.

And I think you stated, frankly, we have a very strong technology and we were not shy from considering any agencies of technologies, which we may need. However, as you've seen us and usually we will stay disciplined on M&A with a big, high returns. And we -- the value creation is our main driver. So we like the return on capital employed, and composites have demonstrated year after year since I joined the company that they can do it with discipline. They are not shy of closing the lowest rate manufacturing site pruning the portfolio, including product, et cetera. And whatever the Materials business as a whole needs in terms of technology, agencies, we will consider, but with a high level of discipline and remaining setting the bar very high. Back to you, moderator.

So we have another question from Alex Stewart from Barclays.

Very interesting. I had a, hopefully, a very simple question actually. On Slide 7 of your presentation, you talk about an aspiration to deliver around 10% volume growth in 2022 to '26. And on Page 6 -- Slide 16, you then talk about sales growth of about 10% per annum. So would you mind just making clear whether your growth aspiration over the next 4 years or so is volume growth with sales growth? Because there's clearly some price carryover in 2023, which will support sales and not volumes. But really interested to hear your take on that, please?

Yes. Carmelo, you heard the question? Yes?

Yes, so I think -- so hopefully, I heard your question correctly. You are asking what are the drivers for our growth? Volume is...

Carmelo, it wasn't the driver of the growth. You have 1 slide where you talk about 10% volume growth over the next 4 years. And then another slide where you talked about 10% sales growth per annum. And I just wanted to ask whether the target is on volumes or sales...

Yes. I think -- because there were volume and sales into slide and is asking what is the main driver. And I guess is the volume, Carmelo.

The main driver is the volume. So that doesn't mean that we want to get pricing, but the main driver of our growth is absolutely volume.

We have another question from Chetan Udeshi from JPMorgan.

I had -- the first question I had was actually on just a circularity potential of composite materials. I'm not aware of how easily recyclable they are. So can you talk about the recyclability of these materials in general? Because some of the aircrafts have been using composites for now many years. What happens to them after those planes are shredded? And what you guys are doing to improve the circularity properties of the Composite business? The second question was, I remember one of your peers in composite carbon fiber was talking about at some point, I think it was talking about $1 billion of sales from new applications, including hydrogen tanks and whatnot. Where are you guys in terms of targeting growth from new applications? Or are you quite happy at the moment to just leverage the aerospace cycle rather than to invest in new opportunities, which may be further out?

Yes, great question. Thank you, Chetan. Composite -- maybe the recyclability story, Carmelo, and circularity.

Yes, Chetan, thank you, very good question. So first -- on the first one, a few comments. First of all, it is true that composites are not as recyclable as say, aluminum, and that is clear. Second, the utilization of material in the aerospace and defense industry is actually relatively small compared to, say, the automotive industry. So there hasn't been a big legislative flow push in the last few years on end-of-life directives and the like, like in automotive. At the same time, that's now why we are ignoring the recycling the recyclability topic. And the way we look at it is in terms of both recycling, reuse. And we mentioned before about the thermoplastic composites. We believe that thermoplastic composite by the virtue of having a metric that thermoplastic that can actually be a recycled will be clearly more suitable for both recycling and reuse than thermoset. But even with thermoset, we are working on a number of initiatives with our customers to reuse, for example, the air production scrap and convert that into lower-grade products. So there are opportunities. It is something our R&D team is working on, and we have not given up. We believe that once composites will expand into other markets, and I'll get to that for your next questions, recycling, reuse will become more and more important. So we are very committed to innovate in that area. Now to your second question, I would say, and we pointed to that in the presentation, that no, we are not just looking at aerospace and defense. There are other applications that we are looking at for composites. The one I would mention here is hydrogen tanks that's something we are looking at as well. We mentioned green nitrogen. There is oil and gas that has a tremendous opportunities for new technologies like thermoplastic composites to display metal that is currently used in the risers and our challenges of corrosion and overall life in certain aggressive environment. And of course, we are not -- we continue to look at automotive. We do believe that eventually, composites will penetrate the automotive market as well. And the key for that is the market realizing that composites don't just bring lightweight, but they bring a lot more. Like you heard in the presentation, they bring design freedom, they bring ability to integrate parts together and they can ultimately be a solution that can actually drive lower total cost of ownership versus some of the perception today that composites are inherently more expensive than, say, aluminum or magnesium. So we are absolutely looking at other markets. Obviously, aerospace and defense is our main market today. But I believe being a born and bred composite person, that composite will expand beyond aerospace side. Ilham, anything you would like to add?

No, I think you said it well. And I think the -- our audience may remember that we launched our platform, green hydrogen. And you may remember that -- that was a key growth platform for Solvay. And obviously, we can circle the green hydrogen and the journey from gray to green with several angles from the fuel cells and the membranes, which also is under your leadership, Carmelo, right, on producing the green hydrogen from renewables, that's number one, but also definitely the use of green hydrogen in the mobility sector within aviation or heavy-duty and automotive, right? So we're looking at those opportunities, right, and will continue. We have a dedicated team working on hydrogen now since we launched it more than a year ago. And we're very excited about the opportunity, right, on green hydrogen, storage, be it in storage, be it in mobility, because people need thermoset or thermoplastic. And the TPC, you've seen EUR 1 billion opportunity, EUR 400 million is in aero and defense. The rest is in all those partnerships we are developing, be it with the green hydrogen players, but as Carmelo said, also in thermoplastic for risers in oil and gas type of applications. So we are very excited. In the long run, it's something which is not going to happen in the next 2 years, but rather between 5 to 10 years. But as the gray -- the journey from grade to green is becoming more competitive from the EUR 8, EUR 9 a kilo to the EUR 2 per kilo, I think you will see an exponential -- and it's already committed investments across the infrastructure, the production and the end use. And definitely, for us, Solvay is a huge opportunity for growth. Back to you, moderator.

We have another question from Geoff Haire from UBS.

I just had 2 questions. The first 1 is following on from Alex Stewart's question. When -- if you look at the 10% market growth, can you sort of split that between what you expect for like-for-like growth in terms of just platform growth, but also the increased adoption of lightweight materials on platforms that you're on and also higher prices? And then the second question is looking at Slide 14, where you have a range of different products that go on to aircraft coming from both specialty plastics and composites. Can you comment about the different margins on the different types of products that you have on that slide?

Yes. So again, a question on, obviously, the volume and the pricing. Maybe, Carmelo, you can best expand on how we build our contracts and the pricing, obviously, we are defending margins. And then there was a question about, yes, margin by product that -- sorry, this is very sensitive information. So we don't comment on margins at a platform needed on a product level. Carmelo, would you mind going back to the question on pricing?

I can. So Geoff, let me make a few comments. First of all, describe a little bit of what's -- let me start by describing what's going to happen in this time frame, 2023 to 2026. As you know, most of our business is aerospace and defense. And what we will see and the bulk of our growth in these 3 years will come from existing programs, right? So we are going to benefit from mostly from growth in build rates. And the reason is that short to some specific programs in defense or in advanced air mobility, the bulk of the growth is going to be the legacy aerospace programs that have a pretty high composite content and that are going to grow in terms of build rate. The real MAX, the 787, the 777X, the A220, these programs will represent a big part of our growth. Now on pricing, I'll share a little bit of how we structure our contracts with our customers. As you can see from whenever we issue an announcement, we do long-term agreements with our customers. So typically, you will see a 5-years contract, sometimes even a longer-range contract. What we do in those contracts is we obviously provide our customers with capacity. And what we have built in those contracts are specifically in accession and closes on pricing and also, of course, volume pricing tiers. And that's how we get our pricing in. This is not a casual business. We have a little more percentage of our business where we have customers on book price, and we can move on that. But largely, the majority of our business is contracted and is contracted for a reason, and it's something that has served as well until this point in time. And I believe we'll continue to serve well in the future in terms of value capture and in terms of providing our customers the stability they need when they invest into multiple decades program.

Yes. Thank you, Carmelo. And I think, yes, Carmelo hit is on the long-term contract point. And Geoff, this is about margins, right? So -- and this business has been defending its margin pretty well through to our optimization and the pruning we've done so far. But also in the slide, I think one of the slides you've seen the order backlog today and what's going to happen in the coming years, I mean, the growth is real, and we can win and we know it's worth it. So thank you, Carmelo. I think it's the last question. Back to you, Jodi.

Yes, indeed, that ends our program for today. So I want to thank Carmelo very much and all of you that participated in the event today. As a reminder, we will post a replay on our IR website later in the day. So thank you very much, and have a great day.

Thank you.

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