Solvay Sa Act

Hello, and welcome to the Solvay Half-Year 2025 Results Conference. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded. After the duration of the call, your line will be in the listen-only mode. However, we will have the opportunity to take questions towards the end of the presentation, and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0, and you will be connected to an operator. And I'd like to hand the call over to your host today, Mr. Geoffroy Dutremont, Head of Investor Relations, to begin today's conference. Please go ahead, sir.

Thank you, Georges. Good afternoon, everyone, and welcome to Solvay's second quarter and first half 2025 earnings call. I'm Geoffroy Dutremont, Head of Investor Relations, and I'm joined here today on the call by our CEO, Philippe Queren, and our CFO, Alexandre Blum. This call is being recorded and will be accessible for replay on the investor relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risk and uncertainties. The slides presented in today's call are available on the website. We will first discuss the second quarter earnings and then the outlook for 2025, and then we will take your questions. Philippe, The floor is yours.

Thank you, Geoffroy, and hello, everyone. As usual, we will start with a word on safety. We continue to work hard on the transformation of the safety culture. The task force that we put in place last year, supported by external advisors, is visiting our sites and taking actions to improve the safety of our people. of reportables is stable, but the number of high potential incidents is decreasing and that's encouraging. So let's continue our efforts, be disciplined and work on our mindsets and behaviors and it will pay off. Safety will always be our number one priority.

Slide six please.

As usual, Alex will go through the earnings in detail, but I will first comment on the environment of the last few months. As indicated in our communication two weeks ago, when we updated our 2025 guidance, we continued to see a soft market environment in the second quarter, impacted by the ongoing global tariff discussions, the foreign exchange movements, and the heightened geopolitical tensions. All of this led to a progressive reduction of demand and a slowdown in order books. That's particularly visible in some soda ash end markets and in the Coetis business unit. In soda ash more particularly, we continue to see different and volatile market conditions. In Europe and in the U.S., the market demand has been soft for the past two years already. In the seaborn market, and more specifically in Southeast Asia, we have seen a decreasing demand in the second half of last year. And as this continued in the first and second quarter of this year, the pricing pressure has naturally increased. Coatis, our Brazilian business unit active in phenol and solvents, is producing and generating most of its sales in Latin America. The second quarter was difficult for Coatis, impacted by increased competition in the region, in particular from Asia. And the renewed tensions around tariffs are adding pressure on the business and on our customers there. We are monitoring the situation closely and taking measures to improve the business. Aside from Coatis and Solarash, it's important to keep in mind that our other businesses are delivering in line with our expectations, even if they feel some pressure from the current environment. One example is rare earth, where Chinese rare earth export control is putting pressure on the whole value chain. This situation reinforces the need for rare earth production capacity outside of China, And we can confirm that we have seen growing interest from customers in our newly opened La Rochelle production line dedicated to rare earth production for permanent magnets in France. The capacity we have now is very limited, but if we can embark all stakeholders in this project, we could grow our capacity further and quickly. Clearly, this is not what we expected at the beginning of the year, but we are taking all the necessary actions to navigate this environment and to make sure that we deliver on our commitments. I will come back to that when I will discuss the outlook. Now, Alex, can you please walk us through the Q2 results?

Sure. Thank you, Philippe, and good morning, good afternoon, everyone. Moving to the financials. I remind you that my comments are based on organic evolution, meaning at constant scope and currency, unless otherwise stated. Moving to slide eight, underlying net sales in Q2 2025 reached 1.1 billion euros, down minus 4% versus Q2 2024. On volumes, we benefited from a one-off revenue of around $20 million related to the termination of a customer's contract in special care. Excluding this impact, we observe a year-on-year decline of minus 4%, primarily driven by the weaker performance in the Coatis business and in the Sodash seaborn market. Volumes for bicar and peroxide were steady, and special care suffered from a strong comparison base in Q2 2024. Prices were overall resilient, but we saw a decrease in the Soda Ash Seaborn market, while the price remained stable in the other businesses. Moving to slide 9. Underlying EBITDA amounted to €230 million in Q2 2021, down minus 12% compared to Q2 2020, which was the strongest quarter of last year. Overall, the ADDA margin remains healthy, close to 21%. Volume and mix impact was slightly down when excluding the one-off, as already explained in the sales bridge. Net pricing, which reflects the evolution of our unit margins, decreased year on year, primarily driven by SUDASH and COETIS. This decline was due to pricing pressure but also to higher variable costs resulting from the inefficiencies of our low production rate. As far as fixed costs are concerned, saving programs continue to exceed inflation, but here only a variation this quarter was negatively impacted by two elements. First one, temporary stranded costs, which really started in Q2 of this year as ScienceCo progressively exceeded most of the transition service agreements. And also higher fixed costs in our basic chemical plants from operational issues. Finally, the other bucket of the bridge reflects the non-repeat of the Q2 2024 accrual of minus 18 millions for the Dombal Energy Transition Project. Moving to an update on our cost-saving programs. Cultural Cost Saving Initiative delivered 29 million in the second quarter, bringing the 2025 savings to 55 million euros and 165 million euros in total since the beginning of 2024. We continue to accelerate savings where we can, and we expect to exceed our intermediary target of 200 million by the end of 2025. One of the key drivers remains the digitalization of our plants. We are leveraging the use of devices such as IOT captors or drone in our sites, supporting saving both in viable and fixed costs. For example, by reducing the time for maintenance inspection, by extending the life of equipment, or by optimizing our energy consumption. Moving to the segment review and starting with basic chemicals. Let me start for once with the peroxide business. With sales year-on-year down 2%, volumes remained resilient. Mining and water treatment in markets were more robust, which compensated for lower demand from the chemical applications. The electronic grades saw higher demand in semiconductors, which have offset lower volumes from the solar panel industry. Now, let me elaborate on the sodash and derivative business sheet, where sales were down minus 4%. Bicarbonate demand continued to be robust, driven by food and feed and flue gas treatment. As a reminder, and based on 2024 figures, this business now represents more than 30% of the GDU sales and 12% of the sales at group 11. Todash volumes were lower year-on-year due to the continued sluggish demand in our domestic market in Europe and North America, as well as from an increasing pricing pressure on the seaboard market, especially in Southeast Asia. During the quarter, the business unit also had higher unit variable costs, resulting from less efficient low production rate. The Sodash unit also faced some operational issues which negatively impacted fixed costs this quarter and which we are currently addressing. Consequently, the segmented EDDA was on minus 25% compared to Q2 2024. Overall, the immediate margin decreased to 21% this quarter. Moving to performance chemical on slide 12. Silica sales continue to be very resilient with volumes only slightly down compared to a rather strong Q2 2024. Quartis saw the largest decline with minus 19%. Volumes and pricing were negatively impacting by strong competition from Asian players on the whole value chain. While at the same time, high tension around tariffs are impacting demand. In Special Chem, sales were up plus 6%. This includes the positive one-off of circa 20 million euros highlighted previously. And this is linked to the termination of the customer's contract. Volume in rare earths autocatalysis business were lower compared to the strong performance of Q2 2024 when we had opportunistic sales captured in Asia. Chinese rare earths export control implemented in April also explained to a lesser extent the lower volume in AutoCAD. While there are alternative sources for the light rare earth, heavy rare earth oxide are still mainly sourced from China. So far the impact on Solvay has been quite limited, as we have been able to get licenses to export most of our products, or as we have found other solutions for our customers, such as alternative supplies, reformulation, of some inventories abroad. All in all, in Q2 2025, thanks to the one-off gain, the performance chemical segment ABDA was up 9% compared to an already strong Q2 2024. And the ABDA margin increased year-on-year to 24%. Slide 13, corporate segment results. Solvay has been delivering support function and IT services to ScienceCo since the spin-off. A large majority of these services were terminated progressively during Q2 2025. We consequently started to adjust our course days, but a full offset will take some time, and hence we started to see temporary stranded costs this quarter. The corporate segmented ETA for the quarter ended at minus 15 million euros, sequentially lower than in Q1, due to this temporary stranded cost. Regarding the full year, we expect corporate costs to be between 80 and minus 90 million euros, with the peak of the stranded cost being obviously H2 2025. Regarding the upcoming years, our projections remain similar. consistent with what we presented during last year Q3 only. In 2026, our corporate net costs are anticipated to temporarily increase from the loss of TSA revenue and from operational expenditure associated with our ERP implementation. Then we anticipate the full offset of the temporary stranded costs and the delivery of the structural savings from the targeting operating model in year 2027 and 25 along with the ERP rollout. Overall, this will bring the corporate segment to a normalized level around this year. This brings us to the free cash flow to shareholders from continuing operations, which amounted to €54 million in Q2 2025, reaching €97 million for H1 2025. This is in line with our previous indication to generate approximately one-third of the annual free cash flow in the first half of the year and two-thirds in the second half. You will note the working capital seasonal cash out for H1 for 56 million euros. All of it can be attributable to the variable remuneration cash out we are doing in Q2. For the full year, we are committed to reach our free cash flow target of around 300 million We will come back to this in the Outlook section. I will end this financial review with a word on net debt. As indicated during our previous earnings call, net debt increased in H1 primarily due to the dividend payment and to additional lease on our balance sheet in relation to the launch of the West Coast Boiler in Rhineburg, Germany. We expect net debt to come back to a level of approximately 1.7 billion euros by the end of the year. Our leverage ratio remains healthy at 1.9 at the end of this quarter. Philippe, back to you for the outlook.

Thank you, Alex. So moving to the outlook now. As you know, we revised the outlook for 2025 two weeks ago to adapt it to the new reality of our markets. I will not repeat what I said at the beginning of this call, but we are currently facing very unique circumstances. There's limited visibility, but one element is clear, the second half of the year will continue to present significant challenges. While we recognize the current macroeconomic and geopolitical environment is not supportive, we are taking the necessary measures to deliver on our commitments, and we stay firm on our strategic priorities. More specifically, we continue and accelerate where and whenever possible the transformation of Solvay to make it stronger for the future. Now, let me repeat the guidance for 2025. We expect the underlying EBITDA to be between 880 and 930 million euros, assuming current foreign exchange levels for the second half of the year. I can also confirm the third quarter is expected to be sequentially down versus the second quarter. Our underlying demand continues to be negatively impacted by the tariff's latest announcements, especially for our COATIS customers in Brazil. As said, our cost savings initiatives are well on track and we now expect to exceed the indication of 200 million euros accumulated savings by the end of 2025. Finally, on cash, we confirm that the free cash flow from continuing operations to survey shareholders will be around 300 million euros. This is really the way we operate. And to anticipate some of your questions, Alex will now give you some additional elements on how we can reach 300 million euros of free cash flow in this new context.

On slide 18, we provide you with a schematic bridge for 2025 going from ABDA to free cash flow. You know the ABDA range already. Considering the evolution of the business context, we have decided to limit capex to a maximum of €300 million in 2021. Cash out for provision is expected to be around €250 million this year, and that includes approximately €100 million for pension and environmental liabilities together, as well as €60 million related to the energy transition project in Dombas. The rest is mostly for restructuring and some litigation. 2025 is exceptionally high on cash out for provision, and we see our baseline cash out to be around 130 million per year, so about half of what we're going to see in 2025. Financing expenses should be around 80 million euros, and tax and other probably around the same amount. This leaves us with the working capital, which is where we expect a positive contribution in 2025. I will mention three elements. The first relates to the TSA exit we discussed before. All in all, we will have less working capital at the end of the year, which should contribute for a good 25 million. The second element, in such a lower demand environment, we will see some natural improvement from our working capital. And thirdly, and more generally, we are looking at each component of the working capital, be it in inventory, receivable, or payable, and we will look at what we can do in such a depressed environment.

Thank you, Alex. So now maybe let me conclude this first part. So we're navigating a period where our focus is very much on the short term. This is essential, particularly as we anticipate a lower EBITDA in 2025. However, we have the organization, the model, and the flexibility to meet our cash commitment. Cash is the key enabler of our capital allocation and our dividend policy. and it will remain at the forefront of my attention. This short-term focus doesn't mean that we're losing sight of our long-term strategic priorities. We continue to engage closely with our customers and leverage our local footprint to support them in this challenging environment. We are actively involved in the transformation of our industry, For example, I'm personally engaging with many stakeholders on the EU Chemicals Industry Action Plan to sustain the competitiveness of the European industry for which decarbonization is an imperative. At our level, the energy transition continues to be well underway and will enable us to further reduce our greenhouse gas emissions by 10% in 2025 versus 2024. Finally, we accelerate the transformation of survey. And we will stay agile and disciplined in the future, ready to seize new opportunities or adapt our footprint depending on the evolutions of the market. Thank you. Back to you, Geoffrey.

Thank you, Philippe and Alex. This closes our prepared remarks, and we will now take your questions. Georges, now you may open the line.

Thank you very much. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1 on your tablet keypad and also just make sure that your lines are not muted to allow your signal to reach your equipment. Our very first question is coming from Katie Richards of Barclays. Please go ahead. Your line is open.

Hi there. Thank you for taking my question. Two, please. One on Soda Rush and then one on COTIS. So on Sodorash, can you give us some more color, please? In the pre-release, you mentioned a progressive reduction of demand in Sodorash markets. But in the release today, you said volumes have improved sequentially versus Q1. So it sounded like a little bit of a shift in tone. Can you help reconcile this? And in COTIS, sales were obviously down quite significantly this quarter. Can you elaborate on the factors behind this, specifically to what extent the competition from Asian producers intensified, and which product chains are mostly affected by this, and if you see potential for further deterioration?

Okay, thank you. So maybe I will start with Quatis.

I think the situation there is probably where I mean, the changes are the most important during Q2 for different reasons, and I think mainly two, and they are not completely unrelated. There is today a strong pressure coming from the potential future tariffs between Brazil and the US. We're talking about 50%. And this is... supposed to be implemented as the first of August. And this changes completely the behavior and the strategy of our Brazilian customers that are exporting some of their products to the US. And so they clearly reduced their orders based on this uncertainty. The second element, which is an indirect effect of the tariffs between China and the US is that there is a lot of very aggressive competition in Latin America coming from China on the products manufactured by Coatis. So the situation really changed very much between Q1 and Q2 for Coatis. So again, Coatis is not the biggest of our businesses, but the impact is quite significant. What will be the future of evolution? It's very difficult to say. We're getting organized to face any potential scenario, including adjusting the way we operate our assets and reduce our cost basis. But we will see. I mean, it will also very much depend on what Brazil will do versus those new tariffs and so on. So it's very difficult to say at this point. Regarding Sodash, maybe Alex, you want to address the question?

Sure, I can give you an element and you can compliment. I think what you are mentioning is that it's true the volumes in terms are slightly higher in Q2 versus Q1, but still below. I think fundamentally, nothing has changed between Q1 and Q2. In Q2, even we could say the tariffs are progressively increasing the pressure. But what happened in Q1 is that volumes are particularly low. As you may remember, or maybe I don't know if you joined the call at the time, but in Q4 last year, we have seen quite strong volume. Some people were probably anticipating some purchase and some production in Q4. before the tariff, before the reduction, and that has impacted temporarily Q1. So I would say fundamental trend, if you look on the kind of rolling average, no change. And in Q2, we saw a little bit of catchment. Thank you.

Thank you.

Thank you very much, Ben. We'll now move to Thomas Rigglesworth of Morgan Standard. Please go ahead, sir.

Hi, gentlemen. Thanks very much for the opportunity. My question is really just kind of a bit of a follow-on on this soda rash because the margin is down 300 basis points quarter on quarter. Normally, I mean, from my outside-in type of model, it looks like you've managed to lose price in base chemicals at the same time as experience a cost increase there. which is normally quite unusual. So is it that you've lost really high-value tons in 2Q, or that there's something else, or that you've got some high-cost inventory? I didn't quite catch in your pre-prepared comments what you were saying around fixed-cost absorption. And if it is fixed-cost absorption, how temporary is that? I mean, obviously, your guidance suggests it's not. So something seems to have more meaningfully changed in margins in base chemicals into Q. And I guess the question is, you know, is that resetting the base for 26 now? Or is there basis to think that that might normalize back up? That's my first question. My second question is, Just as a follow-up on Coates, I mean, obviously, you built this plant originally because Brazil is a net importer. Do you think that's now structurally changed? Or do you think that this is just because of those tariffs? And once tariffs abate, we'll see that material redirect, i.e., is there a strong disincentive for the Chinese market logistically to sell to Brazil versus ship to the US? Thank you.

Okay, so first on sodash margins, you're right. I mean, it's not, I mean, there is a decrease in price, not in Europe, not in North America, but in Southeast Asia, because we've seen between Q1 and Q2 additional pressure in Southeast Asia. and we continue to see, even though the volumes exported from China are relatively stable and probably close to their maximum already, we see some players selling really at extremely low prices and most probably not even covering their variable costs. But the big impact comes from our costs and not from prices. And you are right, we had In Q2, several elements. A lot of them are non-structural. We had unplanned maintenance and also scheduled maintenance, but that were phased in Q2 and that you don't see when you compare to Q2 last year or to the previous quarter, very clearly. So we have additional costs that will not repeat And we also have additional costs that are a little bit more structural because we run at lower rates, right? So our plans are optimized to run, let's say, at 80%, 85% utilization rate. Today, we are slightly below that. We've been running like that for a few quarters already. And so we see a little bit the effect of this lower rate on our... you know, specific consumptions and yields. So I would say this will reset, you know, somehow at some point. I'm not talking about the market at this point because we don't see any recovery in our order book visible at this point. But there are a certain number of elements in our costs that will not repeat. So this should not be completed the basis for 26 in terms of costs, at least. And so, of course, in terms of impact on the margins. Regarding your question on Coatis, I mean, this is intrinsically a good business. We have the only final production unit in Latin America. We have two value chains, that are important on polyamide and on solvent. And I would even say on solvent, we are exporting from Brazil. So I think now we have a non-structural pressure coming from a lot of uncertainties, as long as there is no clear visibility on what will be the tariffs between Brazil and the US, and until we are in a more stable situation, I would say. As long as we will be in this uncertain environment, it will be very difficult for all the players in the value chain to get organized. Once this stabilizes, I'm pretty convinced that the business will find its balance and its way to operate because it's legitimate, it has competitiveness, and it has a market.

Okay. Thank you very much. I appreciate those answers.

Thank you. When I move to the host of KBCS, please go ahead. Your line is open, sir.

Thank you and good afternoon. I also have a couple of questions. The first one is on the tariff impact. I think you mentioned clearly the impact or the uncertainty around Brazil, but can you maybe elaborate on the other regions, the 15%, for example, that have been agreed recently between Europe and the US, what kind of impact that might create for some of your businesses? Second question is on the outlook for the peroxides business and specifically I'm interested in the semiconductors and solar panels market segments. Is there some restocking in Semicon, for example, that has helped you? Is the solar panel weakness temporary or is it also tied to tariff impacts? If you can just elaborate a little bit on that, that would also be helpful. And then the third and last question would be on the rare earths business of special cam. Can you maybe elaborate on how close are you or what is the current thinking about potential timing of expansion projects in that business? You said you see some interest. Does that mean that expansion in Europe of that business might come rapidly? A bit of clarification and that would also be helpful. Thank you.

Thank you, Wim, for your questions.

So first, Taris, So indeed, what we said is that we are not so much directly impacted by tariffs because we have a lot of clothes that are local to local, but we are always, of course, indirectly impacted because those tariffs have an impact on the inflation and so on demand. That's the same for, you know, the new tariffs announced between the EU and the US. We don't have flows between the EU and the US. Very limited flows on rare earths, for example, but that's really small and non-substitutable. So those taxes will have to be paid anyway by the customers. So it can have an impact on demand, of course, but not on our margins. So we won't be impacted directly, but indirectly today it's very difficult. It's probably too early to say what will be the impact of those new tariffs. A lot of people say it's good. Some people say it's not good. So, I mean, who knows, right, how this will evolve. Where we see the highest level of impact today is really in Brazil, to be clear, because of two elements. I mean, there is a lot of business. I mean, Brazil is selling a lot to the U.S. And so all our customers, all the Brazilian industry is currently potentially impacted if it's confirmed that the U.S. will put 50% of tariffs on these flows. And also because Asia is redirecting some of its flows from the U.S. to Latin America. So Brazil is very much potentially impacted. I have absolutely no doubt that they will take measures they will take measures to protect their markets. I'm pretty sure of that. This is what they did in the past. It was already in place, and they can do it to a larger extent. Peroxide. Peroxide, so electronic grade, electronic market doing good. Of course, there's a high level of volatility, I would say, in this market right now, but all in all, good level of demand. and good performance of the business. When we talk about the other grades that are for the solar panels, here the market is still down, I would say, but it will recover. I mean, we will need, you know, solar panels in the future to do the energy transition, but for the time being, we still see a level of demand that is served. I don't know, you wanted to compliment Alex, maybe?

Sure, I think the... Q2 is a little bit an adjustment. I mean, if you look again beyond the one quarter and we are conducting markets, it shows the fundamental demand in the electronic segment, especially sustained by artificial intelligence, where there is a need for a lot of chips where our product is largely outperforming the photovoltaic. So even if you assume flattish photovoltaic, the demand will be positive for our ultra-purity grade.

Thank you, Alex. And then you had a question on rare earth. So clearly there's an interest in this business that is bigger and bigger. We see our customers coming to us and asking for new options, in particular with what's happening in terms of export control from China on some heavy rare earth materials. And so we started producing light rare earth oxides for permanent magnets in La Rochelle earlier this year. For the time being, as we said, the volumes are relatively small. Today, we have not yet decided to go further, and we're waiting for our customers and for the policymakers to give us the right level of comfort to invest. Again, as I said earlier, we are extremely strict on cash management in these circumstances, probably even more than we are normally, and we are normally already very, very strict. So we will not invest if we are not secured on the revenues that we will get from this unit. We will wait to secure our sales before investing, and that's even more true in the current circumstances. Did I miss something? No?

Okay.

Okay, Vincent, thank you very much.

Thank you very much, sir. Next question will be coming from Hannah Harms of BNP Paribas, Exana. Please go ahead.

Hi, all. Good afternoon. I just wanted to have a little bit of clarification on the corporate costs, if possible. My understanding was before that it was suggested we'd have a range of 70 to 90, and now we're obviously at the upper end of that. I was just wondering what the reason for that was or whether it's a pull forward from next year. And secondly, just going back to Soda Ash, if I may, I know that Tartar Chemicals mentioned that there's increased inventory levels of soda ash across the board at the moment, which kind of implies that there might be more pricing pressure. Is that something that you think we might see for the rest of this year and indeed into 2026? Thank you.

Thank you very much, Anna. I will take maybe your question on soda ash, but first I will give the floor to Alex on the corporate process.

Sure. Yeah, you pointed to the corporate cost. Indeed, we have about $10 million more than what we indicated Q3 last year. The main driver here is the fact that the science school exceeded the TSA very quickly, and that makes sense. At the end, that does not change fundamentally or anything. I mean, we can address the cost later. the cost earlier. But just to give you an order of magnitude, I mean, every day in the TSA, we were invoicing 1 million euros. So just one or two weeks of TSA duration can create this difference. So no fundamental difference. It's just the difference between what we thought would be the average exit date and what was the actual exit date. But before we confirm, I mean, Nothing changed for 2027, 2028. We will get back to a normalized level.

Thank you, Alex. Regarding sodash, what we see is a high level of inventory in China. Not in the other regions, nothing unusual. But in China, we are at a high level. I think it's 1.5 million tons of sodash. Currently, this has been seen in the past, but probably not for such a long period of time. So this is obviously creating some pressure, at least in the Southeast Asian region, and might have a little bit of ripple effect on some of the other seaborne markets. So this is something that obviously we're monitoring. The level of export is at a run rate of around, I think, 2 million tons per year. So again, a high point. Not unheard of. We've seen that in the past as well. But the combination of these export and inventory for a longer period of time usually is a little bit unusual. So we still think that the... Chinese solash industry wheel restructure. And I think we're comforted by also the latest announcements made by the Chinese government in what they call the anti-involution law, where they're looking at assets that are more than 20 years old And if they are more than 20 years old, they need to check if they can be upgraded or otherwise they will be shut down. And I think there's also a reference to more than 30-year-old assets that would most probably be shut down. So that represents a significant portion of the SODASH assets in China. So this could be the start of the process that we expected. But, you know, let's see. I mean, this is obviously something that will not happen overnight neither.

Great. Thank you.

Thank you very much, ma'am. We'll now move to Sebastian Bray of Barenburg. Please go ahead.

Hello, hello, good afternoon and thank you for taking my questions. I have two, please. The first is on environmental adjustments and provisions. I think that Solvay previously has indicated that annual cash out should be around €60 million or so to service environmental provisions. If I add up what has been booked in adjustments under the litigation stroke remediation line over the last three quarters, it's pretty close to €100 million already. And the current adjustment in Q2 of about 60 million seems to refer to a single project. What is going on with the adjustments? Because at some stage, one would assume that the provisions and the cash effective amounts are normalized to the level of each other. They should equal each other. But it seems what's running through the P&L at the moment is higher than cash. Is there one project that is particularly occupying your thoughts? My second question is on performance chemicals. even allowing for the one-off tailwind of 20 million EBITDA in special chem. Actually, the underlying margins in this business, ex-co-artists seem to have held up quite well. What is going right there? Is it something elsewhere in special chem, hybrid vehicles, something happening in silica? Any color is welcome. Thank you.

Thank you very much. So I will give the floor to Alex for the question on the cash out from provisions.

Thank you for the question, Justin. Indeed, we put some additional provision, environmental provision in Q2 and we indicated in our financial report that this was mostly linked to one remediation activity. Overall, as you know, these kind of provisions are based on the cash flow estimated for at least two decades. So the cash impact of this specific provision we had to book is quite back ended. So it doesn't change our estimate for the normalized cash out from provision. And as I was explaining to give you the vision for 2025, we estimate about 100 million for pension, and environment, that number is still the same we've been giving for one year, and even changed by these recent positions. Performance chemical, you want me to come in? Yeah, sure, go ahead. Sorry. No, no, it's okay. Yeah, performance chemical, indeed, there are very different dynamics between the business. Definitely, Coatis, it's not a large business, which I've seen a complete change in the dynamic. The rest of the business are quite resilient and Silica in particular, and you probably saw the announcement of the big tire manufacturer, which have been quite resilient. We are seeing that, and it's the largest business within performance chemical. And even if last year was quite good, and we saw last year some restocking, the good start of the year, this year is still quite good. And in performance chemical, I mean, there is electronic activities there, both in rare earths and in fluorine. And this type of business has also been quite resilient. Generally, the electronic application continues to see a sustained event. So that explains, you're right, beyond the one time we wanted to make a clarity on, quite a resilient thing.

Thank you.

The beauty of data authentication.

Thank you, Richard. Next question will be coming from James Hooper of Bernstein. Please go ahead.

Hi, good afternoon, and thank you very much for taking my questions. The first question is about working capital in the bridge, as you're trying to manage that down. What do you think the sustainable level of working capital is without affecting service levels for the business in either percentage of sales or... James Forrest, Norcal PTAC, Or do how big is the opportunity here, because it will this be management of 2025 and then what will change in 2026 and then my second question is about green river. James Forrest, Norcal PTAC, Has the plans to ramp this up for later in the year or early 2026 change, given the demand environment in soda ash, thank you.

Alex Sarros- Thank you James, so I will give the first question to Alex and I will probably take the second one so much.

Sure. As we indicated, clearly the part which is linked to the TSA, it's here to say it represents 25 million. Generally, I don't have the exact number in mind, but I think our working cap on sale, if you look on the moving average, is around 13%, which is quite good in the industry. But again, as the sales have been going down, there will be a mechanical effect. And we think within the 100 million that there are probably a few tens of million euros we can structurally gain in our working capital. So that's, again, that's what makes us confident in our ability to reach the 300 million euros of free cash flow this year, despite the lower GDP.

And for 26?

Yeah, 26. We are 12% today, 12-13% as a total working capital on sales is the right order of magnitude, and that puts us again in the first or second quartile of the community industry.

but we will continue to work on. How will we continue to work there? I mean, reducing to as close as zero, the overdue, the terms, this is already.

Yeah, typically inventories. Okay, in the context like it is now, you can probably be a little bit more aggressive on inventories than you could be in a more tight environment.

Thank you. Second question. So on soda ash expansion in Green River, two elements. I mean, the first one is we will complete the project. So as we said earlier on that we are going to strictly monitor our capex and be extremely mindful about launching new discretionary capex. This one is almost complete, right? So we will complete it. It's almost done. We will start up in the second part of this year and ramp up this new capacity until the end of the year. Number two, if those tons are not needed by the market, we will use this capacity because it's the most competitive and we will reduce the production in another asset. That's what we will do. And just by doing this, we will generate better margins, right? But as long as the capacity is not needed, we will not increase the global level of production of our industrial footprint.

Thank you very much, both. Thank you.

Thank you very much, sir. We now move to Chetan Udeshi of J.P. Morgan. Please, your headline is open.

Hi, thank you. I just wanted to clarify your third quarter comment when you said, Philippe, that Q3 will be below Q2. Is that including the one-off in Q2 or even without the one-off, you expect Q3 to be below Q2?

Well, frankly speaking, we don't see today any improvement in terms of markets. So it's clear that we have the one-off in Q2 that will not repeat in Q3. I would say both the positives and negatives. Now, we said also that we had a little bit of negative one-off coming from Sodash in terms of cost. But all in all, I think you need to neutralize the positive one-off that we had in Q2 to take your new reference. We also have, you know, a little bit of higher stranded costs in Q3 versus Q2. I would say Q3 would probably be a soft, a low point.

So below 200, basically, slightly, perhaps.

That's not what we're saying. We don't give numbers. I mean, I don't... No, we don't give numbers. Just, you know, take the reference, taking out the one-offs, and this is, you know, basically where you are.

Okay, fine. Okay. The second question was, you know, I saw MT Materials, you know, which is in the rare earth value chain. They got a huge sort of check from the U.S. government. I'm just curious. Is MP Materials a competitor to Solvay? Is that a partner? Because I think at some point you were the only one or Solvay was the only one who had the capability to separate out the rare earths from the concentrates. How is the dynamics? Where are you now in that value chain on the rare earths outside China? I know you talked about the magnet, but To get to the magnet, you perhaps first need to do the separation of the rare earth concentrates. And I'm just curious, how does that MP materials deal, which is quite big? Does that have any implications on Solvay?

Yeah. Thanks, Chetan. We're still the only one to have at this point to have one plant that is able indeed to take any source of material and produce any type of rare earth elements. MP Materials has a project at this point and which is linked to a mine. So it's a little bit different. I mean, our assets in La Rochelle can take any product from any type of mine or even recycled material and so on and adjust its process to produce all sorts of rare earth elements. What I understand, again, but of course you would have to ask directly to empty material, is that their project is really linked to a mine, and at this point it's a project. However, what I've seen, so it doesn't change really the landscape and the value chain, but what I saw that is very interesting is a mechanism in which, in fact, they would have a sort of guaranteed price because you know that today in the rare earth segment, there are a lot of different projects, but none of them is profitable because the rare earth prices that are set by China are too low, right? And so I think the Department of Defense or the US administration is proposing to set a floor price and to compensate the operator if the market price is below this floor price. I think this is probably something that we should look at as well in other regions, and in particular in Europe, if we want to develop new projects in La Rochelle. It's missing, right? It's

Will you be adopting the same strategy that you would require an upfront deposit from your customers and these guaranteed minimum prices for you to invest if you have to invest a lot of money in setting up this capacity?

Yes, we need to have a sort of security if we want to invest, absolutely. So I don't know if it's upfront payment. In detail, it's possible to adjust. But yeah, I think... we need to have a certain level of commitment, both in terms of volume and prices. Absolutely. So either directly from the customers or like in the US, but again, let's see how it works. It's just for the time being, I think an indication, but a sort of mechanism that will compensate if the market price is too low. You know, it's a little bit like the development of renewable energies. When the electricity price was too low, people that developed solar panels or windmills, they were compensated in order to have a decent return.

Understood. Thank you.

Thank you much, sir. Next question will be coming from Tristan Lamott of Deutsche Bank. Please go ahead.

Hi. I've got three questions, please. The first is, I was wondering if you could comment on roughly what proportion of your soda ash prices you currently sell at are above the spot price in the relevant region due to lags in your contracts. The second one is there are some capacities that I think are expected to come back online in China in Sodash and H2. To what extent do you see impact from that? And also to what extent is Beirut's production getting out to the market now? And then the third one, I'm just interested in the kind of monthly sequential trends that you saw through the quarter and the visibility you have now on August and September.

Thanks.

Sorry, your first question, Tristan.

The share of spot price.

The share of spot price. Good question. I think, do we have this information? 20% more or less?

mostly seaborne?

So, yeah, I mean, it's not really spot price. It's more quarterly prices. And quarterly prices, let's say short-term prices, are mostly in seaborne, mostly in Southeast Asia. And it's around 20%. Is that correct? 20%? 20% for some. For the capacity in China, I think Beirut is in the market already. I don't know if they have an additional, I mean, there are new capacities coming online in the future, but I think the capacity of Beirut is more or less in the market today. And again, as I said, we are in a situation where I think inventories are at 1.7 million tons and the export at 2 million tons, so high levels, but nothing beyond the historical records.

And I would say one of the reasons that we provided the updated outlook on EBDA is because we think that we don't see signs that it could recover in H2O. So we think that they're only there. There are high inventories. The fundamental that I think the new law we saw in China is going in the right direction. But for the moment, we need to... We need to consider that the environment will not improve, and we need to work on our site, on our cost, to make sure we adjust to this reality. Absolutely. Thank you. Last question.

Thank you much, sir.

Ladies and gentlemen, due to... Yeah, it's the same. It's the same, although specific.

Very sorry for that, sir. Ladies and gentlemen, due to time constraints, we have time for only one more question, and this question will be coming from Mr. Martin Rudiger of Kepler Chevrolet. Please go ahead, sir. Your line is open.

Okay, thanks. Good afternoon. First is on special chem. I understood that one customer has dissolved the contract, so you were compensated by gaining 20 million in EBITDA. This means this customer will be missing as of Q3 and beyond, which means sequentially lower demand. Is the effect for upcoming absence in sales and earnings at special care meaningful? And the second one is in the context of COTIS, you talked about the redirection of Chinese products to Brazil instead of the U.S. on the back of the upcoming tariffs. Is there any risk that the problems you have in COTIS in Brazil, i.e. this massive increase by Chinese competition, that this could happen in Europe as well, i.e. in other activities such as for some silica or in the fluorine business in special chem? Thank you.

Thank you. So, first question. Indeed, we had a customer that terminated a contract and this is the reason why we have this one-off element. Obviously, this means that we will have lower revenues in the future. And this has been clearly taken into account into the guidance outlook that we've given for 2025 very clearly.

And it shows also that we try when we have a significant customer to have good contracts. So that I mean, when market dynamics are changing, we can get a compensation. So no sizable impact in 2025, and we are looking at what is necessary for the future.

Then your question on what we see in Brazil, can it happen in other places? In theory, yes, of course. But if you take soda ash or even silica, those are bulky products. that cost much less to produce than what Coatis is producing. And so we don't see today, and we don't expect to see in the future, Chinese sodash landing in Europe. Obviously this would not be competitive. Now that being said, We've discussed extensively about the situation in China where the inventory level is high and they are exporting to Southeast Asia. This has not a direct impact on Europe, but it has a global effect that is creating this sort of trough today in the Sodaash market.

But I think on Coates, the situation is quite particular where you have this surprise 50% tariff, nobody was expecting. Brazil is a net importer from US. So suddenly the activity in Brazil is reduced. You have very low transport costs, freight costs from Asia to Latin America. And suddenly some Chinese product which had to find a place to be sourced. So somehow, I don't say it's the perfect storm, but almost So what is happening in Latin America? And as Philippe said, I mean, we know we are quite a large player there. We know the authorities are working on putting some limitation to avoid product dumping. The transport costs are increasing. So we are analyzing. We are adjusting. We are taking measures. But it was and it will be, at least for the coming few weeks and months, quite a complex situation to navigate that very specific issue.

Thank you very much.

Thank you very much, sir. Thank you. Thank you very much.

Thank you very much for your participation today. If you have any questions, please feel free to reach out to the IAR team, preferably by using the investor.relations.solver.com email address given the summer break in the coming weeks. In September, we'll be present in a few events and cities, and the calendar is available on our financial calendar page on our website. Q3 will be published on November 6th. Thank you very much.

Thank you. Thank you.

Thank you very much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. Have a good day and goodbye.