Solvay Sa Act

Good afternoon everyone and welcome to Solvay's second quarter and first half 2026 earnings conference call. I'm Geoffroy Loutremont, head of investor relations and I'm joined today by our CEO Philippe Kehren 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 risks and uncertainties. The slides presented in today's call are also available on our website. Let's get started. Philippe, over to you.

Thank you, Geoffroy, and hello everyone. Let me start with safety, which is at the heart of everything we do. A transformation delivers tangible results with the reportable injury rate further improving in the second quarter, as you can see here. This positive development reflects the commitment of our teams. We continue to strengthen our safety culture through targeted initiatives. For example, we now have a focus on injuries, slips, trips and falls, and contractors' safety management. So let's move to our performance. Our performance in the second quarter reflects different realities in an operating environment that is constantly evolving. On the one hand, bicarbonate and electronic grade peroxides are at record sales levels. On the other hand, soda ash remains under competitive pressure in the export markets, indirectly weighing on the US market. On the conflict in the Middle East, we estimate that it had a negative impact of around 20 million euros on the EBITDA in Q2. The main element is the shutdown of the peroxides plant in Saudi Arabia. Outside of this, the impact is slightly negative with the improvement of the dynamics at Coatis not fully covering higher energy, raw materials and logistics costs. Looking ahead, we currently anticipate that the peroxides plant in Saudi will restart in the second part of Q3. Our teams on site are working in this direction and we will be ready as soon as the platform restarts. I will come back to this when we talk about the outlook. Now two weeks ago the European Union released its draft proposal for the reform of the emissions trading system. Although it is too early still to fully assess the impact, we believe that this proposal moves in the right direction. Most importantly, it confirms the 2050 carbon neutrality objective while maintaining the allocation of free allowances. Their proposal appears significantly more focused on supporting industrial competitiveness and decarbonization rather than simply increasing costs for the European industry. We will continue to assess the proposal in the coming weeks. As said, we believe it goes in the right direction, but there is still a lot of work to do before it is final. We will obviously update you on this topic in our next communications. Now, Alex, over to you for the details of the Q2 results.

Thank you, Philippe, and good morning, good afternoon, everyone. So let's move to the detail of the financial performance, which is mainly impacted by the continued weakness of the soda ash prices in export market, the conflict in the Middle East, and the more general geopolitical environment. Moving to slide 9, and as usual, I will comment on the organic evolution leaning at constant scope and currency, unless otherwise stated. Underlying net sales in Q2 reached slightly over a billion euros, down 7% compared to the second quarter of 2025, but up sequentially in all business units. The decline was mainly volume-driven, reflecting the temporary shutdown of our peroxide plant in Jubal and the 20 million one-off gain recorded in Q2 last year for the contract termination in the fluorine business line. Pricing was slightly lower overall, broadly stable across all of our businesses, except for some pressure largely concentrated in the soda ash seaborn market. Forex provided a small tailwind this quarter thanks to the strengthening of the Brazilian Real against the Euro. Now moving to EBITDA. We delivered an underlying EBITDA of €187 million in the second quarter, down 20%, representing an EBITDA margin of 18.1%. There are two main factors behind the year-on-year EBITDA decline, both explaining the significant volume drop of this quarter. Around half relates to the consequence of the conflict in the Middle East, mainly due to the temporary shutdown of our peroxide plant in Saudi. The other half reflects the one-off in Special Can in Q2 2025. Net pricing was broadly stable. The improvement in Coatis was offset by higher cost in other businesses and continued pricing pressure in the Sodaash export market. Fixed costs contributed positively as our structural cost saving initiatives more than offset inflation. We delivered a third of 26 million euros of cost saving in the quarter, mainly through operational excellence initiative in our manufacturing sites. Moving now to the segment review, starting with basic chemical on slide 10. Sales in sodash and derivatives declined by 8% organically. Sodash volume was slightly lower year on year, partly because of some delayed shipment into July. Pricing was marginally lower in domestic market and declined more significantly in the civil market. On the other hand, our bicarbonate business remains steady with both volumes and pricing broadly stable year on year. Peroxide sales were down 5%. This mainly reflects the temporary shutdown of our HPPO plant in Saudi, which was partly offset by the continuous strong growth in electronic grade supported by semiconductor demand. Performance in other application was broadly stable. The segment ABDA decreased by 6%, lower peroxide volumes, and continued sodash pricing pressure were partly mitigated by improved operational performance and cost discipline. Moving to performance chemicals on slide 12. Overall, performance chemical ABDA declined by 26%, mainly due to the absence of the 20 million one-off benefit in Q2 2025, and a lag in price indexation in silica. This was partly offset by a stronger performance in Coatis. Looking at each business now, silica sales were slightly down, overall performance remained solid after the quarter was affected by an unfavorable regional mix and a lag in price indexation. In our Coatis business, sales increased by 1% with improved pricing in both phenol and solvent product lines. The difference between the year-on-year and organic performance mainly reflects the impact from the stronger Brazilian reais against the Euro and the US dollar. This marks a clear sequential improvement for the gratis business, following the significant pressure experienced since the middle of the second quarter of last year. In special camps, sales declined by 18%. The overall performance was stable in most business lines, with a pickup of volume in electronic rare earth application at quarter rare. As highlighted before, the year-on-year comparison is primarily impacted by the contract termination benefit recorded in the second quarter of last year in our fluorine business line. Finally, a quick word on the corporate segment EBDA, which was minus 25 million euros in Q2. As expected, stranded costs were still high during this quarter, reflecting the full impact of the exit of the TSE with ScienceCo. Based on this, I can confirm that our full year expectation remains between 70 and 80 million euros. Turning to slide 13, free cash flow to Solvay shareholders, reached 15 million euros in the first half of the year. The second quarter was negative at minus 11 million euros due to the seasonality combined with some concentration of cash out which I can explain as follows. CAPEX for the first half of the year represented approximately 140 million euros. Spending remained disciplined and focused primarily on essential HSE and maintenance investment as well as ongoing energy transition projects. Working capital represented a cash outflow of minus 79 million euros in the first half, reflecting the usual seasonality during the first six months of the year, including variable remuneration payment in Q2. Cash outflow from provision amounted to 106 million euros in the first half of the year. As already explained, they are still above the normalized level, and many relate to the transformation and restructuring initiatives. This includes the exit from the TSA, the optimization of the fluorine business footprint and the remaining spending on the Dombal Energy Transition Project. The free cash flow in the third quarter will remain under pressure from the above elements, but we are firmly focused on delivering our full-year free cash flow guidance. On slide 14, let me remind you that our pre-cash flow in 2025, 6 and 7 is and will be impacted by temporary transformation expenses, which include the stranded cost linked to the exit of the TSA, the restructuring of the fluorine business line and the development and implementation of a new ERP. So looking at 2026, these expenses represent approximately 90 million euros of cash outflow. We could improve cash generation by slowing or postponing our transformation, but as already explained, we are convinced that continuing is the right direction, especially in this market condition. Moving on to net debt on slide 15. Underlying net debt stood at 1.8 billion euros at the end of June, temporarily higher than at the end. reflecting the full dividend payment the first part of the year for 254 million euros. Similarly, the leverage ratio temporarily increased above two times at the end of the quarter and should be back around two times at the end of the year. This is consistent with the confirmation in June by S&P of our BBB minus investment grade rating. So overall, our Q2 results reflect the challenges brought by the conflict in the Middle East, which we need to manage while continuing the transformation of the group and maintaining a solid balance sheet. Philippe, back to you for an update on the latest Rare Earths development and the 2026 outbreak.