Solvay S.A.

Good afternoon, and welcome to our second quarter 2020 earnings call. My name is Jodi Allen, Head of Investor Relations, and I'm joined virtually by our CEO, Ilham Kadri, and our CFO, Karim Hajjar.

Today's call is 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 the presentation includes forward-looking statements, which are subject to risks and uncertainties. You may refer to the slides related to today's broadcast, which are available on our website.

With that, I'll turn the call over to Ilham.

Thank you, Jodi, and hello, everyone. I hope that you and your families are staying healthy during this continuing challenging time.

At Solvay, health safety and security of employees remain our number one priority. We continue to have 10,000 employees or 42% of our human capital, working in a virtual capacity.

And we will take a cautious and progressive approach to the confinements over the coming months. The recent spikes in COVID cases in certain parts of the world have increased our numbers slightly.

Today we have 40 colleagues who are infected with COVID-19 and 176 employees in quarantine. We wish our colleagues a quick and complete recovery and we will continue to take a disciplined approach, to managing the safety of our employees.

As I mentioned to you in May, Solvay's businesses began to witness the significant impact from the COVID pandemic in the second quarter, following our solid first quarter results. We quickly adapted our organization to manage through the short-term challenges and focus our priorities on managing costs, while driving cash generation.

I am pleased to inform you that the fruits of our labor are paying off. Slide 3, summarizes the results.

We delivered record free cash flow to shareholders of €435 million in the first half 2020, compared to €33 million in the first half last year. As all of our businesses remained unwavering in their focus on cash generation, this marks the 5th consecutive quarter of strong and positive free cash flow.

The majority of this improvement 75% in fact, was due mainly, to the enforcement of working capital discipline. Karim will share more on these financial details in a few minutes.

In addition, we continue to focus on our self-help measures. And have made significant progress, executing our cost-saving program, we shared in November, as part of the growth strategy.

Since that time we increased and accelerated our delivery, in light of this crisis, from €300 million to €410 million. For 2020, I would like to share with you some important breakdown of the cost savings figures.

In the first half of this year we delivered €170 million in gross savings for the group. This is a record and it enabled us to mitigate a portion of the steep drop in volume, due to COVID impact.

Of this €170 million, €80 million are structural cost improvements and €90 million of the current cost savings relate to temporary measures. Turning to the top line, first half sales were down 11% to € 4.6 billion and second quarter sales were down 17% to €2.2 billion versus quarter two 2019, with headwinds from aero, auto, oil and gas and construction markets, impacting volume since April.

Thanks to our diversified portfolio, other markets were resilient, such as, health care, agro food, home and personal care and electronics. In fact, Solvay has outperformed the general market in certain areas.

We welcome these results considering the unprecedented times we are all facing. In fact I would like to share with you a bit more, about what makes Solvay special, more about why we are regarded as technology leaders by many of our customers.

I will start to share more on our performance by region, end markets. And of course our new customer wins, while Karim will explain the performance by segments business units and financial details including cash and cost performance and impairment.

I will then close with a short update on our growth strategy, specifically our portfolio and investment. Before I dive into each market I want to share some insights, on the regional performance.

Our sales in China in particular are back to pre-COVID levels and have grown sequentially, by more than 20% from quarter one to quarter two and grew more than 5% in quarter two 2020, versus quarter two 2019. Asia Pacific region, excluding China is slightly down versus quarter two last year.

All other regions remained down versus last year and versus quarter one. Let me now dive into some of our key markets, representing about 50% of our sales.

And I invite you to turn to slide 4. In auto market estimates, indicate global production was about 45% lower in quarter two.

As you know this is an important market for Solvay, representing about 14% of the group sales on an annual basis. Our Specialty Polymers business, in particular supply many high-performance polymers to this market and its sales to auto in quarter two, were down 26% in comparison, demonstrating the continuing replacement of metal with polymers.

We have further evidence of this penetration, through new business awards into the demanding under-the-hood applications. So in fact what I am saying, despite the fact that there are less vehicles being produced, we have more penetration of Solvay materials in each car produced.

This led to our outperformance of the general market. And will continue to position us well when growth resumes.

We also continue to make good progress winning new business in EV and hybrid vehicles. For example, we recently expanded our relationship with a large European OEM, who will use one of our next-generation polymer technologies in battery containers for hybrid vehicles.

This all comes after commercializing similar technologies on other auto platforms and the customer is now expanding usage on new hybrid model further evidence on the continuing penetration of polymers into auto. As a reminder, batteries are a key growth platform for Solvay we launched in quarter two last year.

I am also proud to announce that we are in advanced discussions with Veolia, a global leader in resources management and specializing in the design and provision of water waste and energy management solutions, which contribute to the sustainable development of communities and industries. Together with Veolia, our plan is to create a circular economy consortium to address the end-of-life of lithium-ion batteries.

We look forward to sharing more details with you in the near future. Moving to aero, we are performing in line with the market though we saw significantly lower commercial aircraft production in the second quarter.

The civil sector represents about 7% of the group sales. Our leadership position supplying composite to defense program helps us to offset some of that reduction.

In response to the aircraft production decline, the composite business has been rigorously focused on their cost takeout to align their footprint to the new environment and the team has been executing their plan flawlessly. To date, we are ahead of schedule; 50% of the restructuring plans are completed and we have already closed one of the two intended facilities.

As you know, electronics is a market that includes a diverse group of subsectors, including semiconductors, semiconductor consumables and equipment displays and smart devices and all of these use Solvay's materials. Solvay's sales to this market have been resilient to -- during the crisis as we supply a number of specialty materials from Specialty Polymers and Special Chem businesses.

As a reminder, we invested in a plant in China to produce an electronic grade H2O2 to meet the growing demand in the semiconductor industry. We continue to grow with our Tier 1 semiconductor customers and are working on more new business opportunities to support 5G mobile electronics.

Health care continues to be a resilient market for Solvay. As a reminder, our Specialty Polymers are key ingredients for a number of applications, including hemodialysis, pharma packaging and medical devices.

We are enjoying good growth in each of these segments. In addition, our technologies are being requested in new marketing response to COVID-19.

Our polymers are being used in ventilators, face masks and other protective equipment whose sales are expected to total €20 million this year. Our recent investment late last year in polyethersulfone technology or PESU in Asia is helping to support this growth and we are thankful that our solutions are helping to protect people during such times.

In many respects, Solvay's growth in health care has outperformed reflecting our growth portfolio of technologies and the value we bring to our customers. Home and Personal Care, grew modestly in the first half, reflecting our strength in hygiene and cleaning related products.

We also have an exciting innovation pipeline and continue to invest in big bets in this market. This business has been innovating more biofriendly solutions at the request of our large consumer, customers and indeed we recently rolled out a biosourced polymer that offers hair and personal care manufacturers, a full range of conditioning and texturizing features.

In addition to that I, am particularly excited about the proprietary patented new technology we have just launched, which offers a 24-hour germ protection and leaves an invisible barrier, which not only kills 99.9% of germs, but continues working after it has dried. This innovation combines superior cleaning performance with long-lasting antimicrobial technology, while maintaining a shining surface a very unique solution protecting consumers.

We had been working on this opportunity long before the start of COVID. But in fact we have accelerated our efforts since then and it could not come at a better time for consumers.

We will update you more as we are in the early stages of product launch. But based on strong preliminary interest from top B2B, B2B2C, FMCG companies and customers we expect this to be a commercial success.

Finally, I will now turn to mining where we saw the downturn particularly in copper production in line with market dynamics. Many of the copper mines are in places like Panama, Peru where production temporarily ceased.

We expect these headwinds to be short-lived as the fundamentals in the industry remain intact and Solvay's technology leadership continues to be recognized across the industry. In fact, we just extended our contract for the next three years with our number one mining customer.

Solvay earned business despite lower prices offered from competitors. It's a great example of our winning business model and the hands-on technical support Solvay brings to this multinationals.

Our technologies together with our digital tools and software help them optimize their process and improve yields creating measurable value. So these are just a few examples of why Solvay is recognized in many markets we serve, for having the right technologies and innovation capabilities.

This is why customers call us first when they have a problem to solve. To take this advantage one step further, we have recently launched a group-wide initiative of our front-line, redesigning the way we work with and service our customers.

This includes the appointment of executive key account managers for the group's top 20 accounts, new sales incentive programs to drive top line growth, leveraging CRM, digital tools and investing in our people through a new Solvay sales academy with a full virtual and offline curriculum which we will launch in September. I am confident that reinventing the frontline competencies and processes together with our market leadership position will differentiate us even more against competition, while improving our future profitability.

To wrap up the quarterly overview, the significant volume decline led to EBITDA down 29.5% in the second quarter. While we cannot define the full magnitude of the demand shift that began in April, we quickly and efficiently mitigated part of the impact with the cost measures and pricing trends during this volatile period.

A testament to this is our ability to sustain solid EBITDA margin of 21.7% in the first half of 2020. With that I will turn it over to Karim.

Karim?

Thanks Ilham. Good morning, good afternoon as well actually everybody.

I'll start with an overview of the three business segments and I will refer to figures as usual on an organic basis, meaning constant, scope and currency. I'll start with Materials that you can see on slide number five, where net sales in the first half of the year were down 11%, driven by volume declines that began in April.

In the second quarter specifically, sales were down -- sorry just to find my key point -- so yes, in the second quarter sales were down 19% in that segment as a result of lower demand mainly related to aero and auto. Starting with composites.

It's widely understood and accepted that the crisis is significantly impacting air travel. And this impact production rates for several aircraft in the near term.

As Ilham indicated, the business was quick to develop a plan to permanently close two manufacturing facilities and to shift production to other more efficient operations. Also as Ilham mentioned we fast-tracked that plan.

We brought forward the closure of our plant in Manchester in the U.K. and only closed that a couple of weeks ago and we're focused on expediting the closure of the second site in Tulsa in Oklahoma in the U.S.

by the first quarter of next year. As a result, we're on track to deliver €22 million of cost savings this year and we will be achieving the full run rate of €60 million that we announced by the first quarter of 2021.

Turning to the defense sector, a historic strength of ours as you recall, sales were stable in the quarter and we continue to work with our customers on new defense programs. We're confident that this sector will continue to grow across the short and the medium term.

And this will bring resilience and will help to offset some of the midterm civil program headwinds. Turning to Specialty Polymers.

Sales were down only 9% in Q2. Why do I say this?

Because essentially as Ilham already outlined, we outperformed on certain markets despite the softer demand mainly in auto and construction. The business was able to maintain its high EBITDA margin and this was driven by the combination of our leadership position in key markets, new wins and basically disciplined cost focus.

For the first half, EBITDA in that segment declined 16% and in the second quarter was down 28% due to the volume reduction, whereas pricing was remained stable overall. And this helped to preserve our EBITDA margins at 25% in the second quarter.

Moving to the Chemicals segment on slide number six. First half sales were down 11%.

Second quarter sales were down 11%, primarily related to volumes and offset partly by price. Starting with soda ash.

Sales down 17% in the second quarter. As you know, the largest market for soda ash are glass used in construction, glass for containers and these were impacted by the closures of restaurants and hotels just to site one example.

Despite the demand challenges, soda ash pricing was resilient. Thanks to our annual contract structures and our strong customer relationships.

Yet the bicarbonate products continued to grow solidly for health care and for food applications. Soda ash continues to deliver on the demanding challenging ambitious cost programs supporting strong delivery of the cash target for the year, which as you know is a key metric for every business in that segment.

Switching gears to peroxide. Sales down 13% in Q2, mainly related to lower demand for HPPO in auto and in construction markets.

This decline was partially offset by growing demand and supportive pricing for H2O2 and sodium bicarbonate used in disinfectants and in detergents which are sold to the health care markets. The business has been successful with its cost containment program and it helped to alleviate through the effects of lower volumes.

Overall, the Chemicals segment EBITDA declined 30% in the second quarter, due mainly to the lower volumes of which nearly half actually occurred in our Coatis and in our Silica businesses. Every business in that segment worked resolutely on fixed cost containment and reductions and this offset a large part of the impact and helped protect segment margins of 25% in the quarter.

The Solutions segment which you can see on slide number seven delivered sales that were down 10% in the first half, down 14% in the second quarter, due to volumes whereas pricing was stable overall. I'll start with Novecare, where I'm really pleased to share that the business saw growth in home and personal care and in agro markets whereas the coatings, markets proved resilient.

Growth in those markets offset about 60% of the significant decline in demand in oil and gas and in total contained sales declined to 16% in the second quarter. On the plus side, the oil and gas turnaround plan has essentially been delivered now and the wider focus on cost control and lower input costs enabled Novecare to maintain its EBITDA margin.

And you remember this is not the first time we managed to deliver that result. Sales in Technology Solutions were down 18% in the quarter, due to lower demand in the copper mining market, which was affected by lockdown measures in certain countries.

The alumina markets on the other hand was not as impacted by lockdown measures and our sales in this market grew by 27% in the quarter. Aroma Performance again performed very well, growing sales by 14% in the second quarter and outperforming the general food industry.

The main driver is the demand for our natural vanillin technology where we have very strong leadership positions. We continue to move the industry to natural vanillin and are working with key consumer players.

Overall, the Solutions segment EBITDA was down 26% in the second quarter, reflecting the speed with which the businesses adapted matched production levels with demand. EBITDA margin was 16% in the second quarter.

I am now going to turn to cash on Slide 8. The strong free cash flow performance in the first half was almost €400 million above last year's performance and was driven by a group-wide focus on cash with the second quarter coming in at €233 million.

The prime lead driver of that strong first half performance is the ongoing focus on working capital that we've consistently demonstrated for over a year now and that represents €331 million of the improvement. We quickly adapted production and inventory levels to demand patterns.

But also I'm particularly pleased that our razor-sharp focus on receivables has led us to set new records in terms of reduced overdue levels. It's really critical in terms of macro challenges that we're going through.

Tax cash out was lower by €122 million in the first half, due to the one-off tax gain that you recall of €65 million associated with the additional voluntary pension contributions that we alluded to in the first quarter. Finally, we quickly adapted our capital expenditure plan and generated a cash benefit of €61 million compared to last year.

And you can see that reduction makes a modest contribution to our cash flow improvement. We also made significant progress with our deleveraging plans this year.

Net debt in the first half of this year is down €0.75 billion, reflecting strong operational free cash flow €0.43 billion and of course, the € 1.3 billion proceeds from the polyamide divestment. That said, as you recall that we also made major contributions of €460 million to our pension obligations in France and in the U.S.

When we turn to pension and restructuring and environmental provision, it's worth noting that operationally we've delevered by €60 million but this is offset by an €87 million increase in provisions for the additional restructuring plans we announced both in the first quarter and the recent composite restructuring plans. This is an accounting impact and I'll come back to the cash consequences.

Moving to Slide number 9. As Ilham explained, we achieved €170 million of gross savings in the first half of 2020, which more than offset inflation of €37 million in the first half.

About €80 million of that saving were structural actions that we accelerated and deepened and they fall into three categories: one restructuring. This is the largest impact and it includes labor cost.

To date we've saved €36 million; indirect spend when we look transversely and look across our businesses we managed to deliver €32 million. This is structural and sustainable; productivity efficiencies is more of what we've been doing historically that includes yield improvements.

In the first half these delivered €12 million. We also took significant temporary reactions to manage through the steep and sudden changes in demand.

The total of actions to date is €90 million in savings and the reductions like furloughs, salary freezes but also a complete – like I say a complete focus – a very strong focus on all discretionary spending, which is a given in times like these. And obviously, any discretionary spending has been essentially very, very low during the lockdown period.

Finally, last month, as you all have noticed, we announced a non-cash impairment, which totals €1.46 billion as a result of the significant short-term effect of the COVID crisis which triggered the reassessment. Approximately €1.2 billion of this relates to the former Cytec goodwill predominantly the composite business and the balance consists of oil and gas and some other intangible assets, all of which are fully detailed in the notes to our financial reports that were published today.

While the pandemic is certainly impacting our performance in certain markets in the near term, we consider the fundamental long-term attractiveness of our Composite Materials and our Technology Solutions to remain unchanged, driven by strong demand for lightweighting, electrification and resource efficiency that we believe is here to stay. We continue to pursue new business opportunities in composites.

And following this difficult period, we estimate the return to double-digit growth over the midterm in part due to our self-help measures. And with that, I'll hand you back to Ilham.

Thank you, Karim. I now share some comments on the outlook for the remainder of 2020 and an update on the growth strategy.

As you would expect, the nature and timing of the rebound will be specific to each individual key markets. For markets such as civil aero and oil and gas are expected to continue to experience headwinds similar to current levels, whereas auto and construction markets are more likely to improve gradually toward year-end.

Other markets including health care, agro food, personal care and electronics are expected to demonstrate continued resilience. Against that backdrop, we fully expect to maintain our leadership position.

As you know, order books provide limited forward visibility and the uncertainties associated with the various market recoveries, make it difficult to provide reliable forecast. That said, we expect a continuation of weak demand trends from Q2 into the third quarter with a modest improvement in quarter four.

Notwithstanding these uncertainties, we are certain of one thing and that is our determination and focus on cost measures and on self-help measures. At this stage we anticipate that cost reduction will total around €300 million in 2020 including €150 million of structural cost reduction.

In addition, our focus on cash remains a top priority and we expect our free cash flow generation to be similar to the 2019 levels despite lower profit. Our expectations assume a resumption of €25 million in investments for a selected number of value-creating projects to meet the needs of customers as they rebound.

This implies a total CapEx of around €600 million in 2020. So before we take your questions I'd like to share with you a few updates in reference to our growth strategy.

First on our cost targets. We increased cost savings targets as you know from a minimum of €300 million, when we first launched our plan in November to €410 million, during quarter one earning results.

So the €150 million of structural cost reduction we are forecasting for this year will represent 35% of that commitment further illustrating our determination to accelerate the group's transformation. Second, an integral element of our strategy is our commitment to sustainability.

You may remember, we launched our ambitious goals in February, solving key environmental and societal challenges through science and innovation. Together with our customers, this is a critical part of our plan.

We will be hosting an ESG webinar in October. We will share with you the date and we'll share more about these plans in the near future and I hope you will join us.

Finally, during our strategic review, we said we had opportunities to optimize certain businesses. We also stated that the review of our portfolio is a continuous process and that we will always test whether we are the right owner for every business and we will ensure that we are not leaving value on the table.

In the past year, we have taken concrete steps to enhance and drive operational improvements in certain businesses that we do not consider to be core. And I am pleased that our operational actions have yielded strong results.

We have therefore launched processes to explore strategic options to monetize some businesses predominantly within the Solutions segment. If and only if, we find valuations to be sufficiently compelling our intention is to complete these in the next year or so.

We expect this first step to contribute favorably towards simplifying Solvay's portfolio and creating more shareholder value. Thank you very much for listening.

And I will now take your questions with Karim.

Thank you, Ilham and Karim. Before we start the Q&A, can I kindly remind you to limit yourself to one question only to allow time for all participants?

And now I'll hand it over to our moderator.

Hello. Good afternoon, Ilham, Karim.

I limit it to one question. It's the underlying depreciation and amortization charge which was quite high in Q2 much higher than in Q1.

Can you help me to understand what was the reason for that? And is that the right run rate going forward?

I doubt that because I think that you had in the €1.5 billion write-down also some other intangible assets being affected. So normally D&A charges on an ongoing basis should be lower going forward.

Maybe you can clarify that.

So the question Martin is about the depreciation right and amortization on our impairment right, Martin?

Right. Yes.

The underlying depreciation and amortization.

Underlying. Yes I got it now.

Karim, can you provide the details?

There was essentially a relatively modest amount of depreciation accelerated depreciation of spare parts. I think that's probably the only factor worth of note.

And the run rate going forward?

This is not a run rate. This is very much COVID-related when you place this over too many spare parts.

Essentially we depreciate them and we move on. So no I think there's no impact on the run rate of depreciation for Solvay based on this.

So for Q3 we should look more to Q1 figure.

Yes. Correct.

Correct.

Okay.

Absolutely.

Thank you, Martin.

Hello. Good morning.

I'm interested in your comments about the auto sector because with the trading statement on the 24th of June you talked about auto and aerospace and construction in several other markets being down 40% in the second quarter and then it was only down 26%. You mentioned there's one possible reason the increased penetration of polymers.

I can't see how that bridges the gap with car production down 45% in Q2. So could you perhaps explain why the actual results in the second quarter was so different to what you had indicated back in June would be incredibly useful.

Yes. We couldn't hear you very well, Alex.

But I think the question -- the line is bad. It's about the auto right?

And why we outperformed the auto markets right?

No. Sorry.

Sorry let me ask a question again. That would help.

Yes, please. That's better.

You talked about auto sales being down 26% in the second quarter, but in your trading statement on the 24th of June you said there's several markets including aerospace and auto had revenues down 40%. So you had previously talked about down 40% you delivered down 26%.

I am interested why there's such a divergence in the last month you could possibly explain that.

Let me start. So again the guidance we gave in our trading update was indicating the market trends as we saw them.

The figures you quote the 26% is Solvay's outperformance against that backdrop. And the reason for it I'll turn to Ilham to give you a reminder some of the key factors that helped us to outperform.

Yes. So Alex, it will be a bit of a rendezvous between you and us on explaining a bit how why is Solvay special as a specialty company and how we target whatever the market does that we need to outperform our specialty market and obviously auto is one -- is part of it.

So it's really on Specialty Polymer it's only down 26% as I mentioned. Two things as I said we are in automotive under-the-hood application where invisible we replaced metals right in auto.

And basically the value proposition is to make the car lighter at a lower total cost of ownership decrease in the consumption of fuel and therefore emitting less CO2 again at lower total cost of ownership. And those are things the auto OEMs they just love it right?

And I gave you an example of the battery casing. We started with few auto platforms in Germany and now we're expanding in other models.

So Specialty Polymers again whatever does the market they need to outperform the market. Obviously, you cannot defy gravity, but we are winning new applications creating new market.

So I think that's important. Now the light in the tunnel and I'm sure you have LMC data obviously, they see some improvement between quarter two, three and four, right?

So less decline in quarter four and I remain optimistic also between now and the end of the year. The other piece I would like to really stress out is the batteries right?

And I think when you talk about the electrification the green -- the EU stimulus and you see number of states in the EU not only given bonuses to consumers to scrap their cars and buy new ones with even higher bonuses if they buy cleaner cars right either hybrid or electric, we like that. In a nice car internal combustion engine they can use up to 6-kilo of our top technological polymers; if you go to EV they use up to 9-kilo; and if you go to hybrid they use up to 12-kilo.

So again, whatever the market does we can penetrate with our technologies. And the batteries is a fabulous opportunity to really innovate.

And then we talked about obviously recycling of the batteries. So I'll stop here.

But sorry just to be very clear on this. In your trading statement you said businesses related to oil and gas automotive and aerospace were the most significantly impacted with revenues down 40%.

So there is no indication that that's where the market was down. You said the revenues related to auto was down 40%.

I don't want to unnecessarily push this point, but there is clearly a divergence between what you had talked about in June and what you reported. And I'm just trying to understand why that was?

Yes. So here we highlighted the Specialty Polymers part.

Yes Alex there is a Special Chem which is in catalysts right? And there the dynamics are different.

You know that we are in China 5 and 6 you know that the regulations have been moving from China 5 to China 6 which has been normally positive for Solvay. However, due to the COVID-19, China has actually pushed out a bit the China 6 regulation to actually empty the stock of China 5 cars.

So that we've seen also some delays in our plans.

Okay. Thank you.

Hi, thank you for taking my question. Just one on free cash flows and just wanted to get your thoughts on first of all cash tax.

Even with the kind of the €65 million benefit taken out the cash tax payment has been a little bit low in the first half versus the P&L tax. So I was just wondering whether there is a cash tax payment coming up in the second half?

And then related to cash flow as well, how do you see working capital trending in the second half of the year as -- while business revenues pick up a little bit more should we be expecting an outflow for the full year or should it be flat for the full year? Thank you.

Okay. Mubasher great questions.

So I'm going to reframe your question make sure I've understood it which is why is the cash flow forecast we're indicating essentially low in the second half compared to the first half. And you're correct in identifying some of the elements.

But I'm going to start somewhere else. Remember since early last year and Ilham was very, very clear that we are going to really work on improving the quality which meant also the phasing of our cash flow and you've seen that being delivered.

Therefore the past is not an indicator of the future. You're right in saying, that there was a high-quality but a non-repeat of the €65 million that was announced and described in Q1 associated with the additional pension fund contributions we made.

But there's a couple of other points I want to highlight. One, you will recognize that we've been really working hard on structurally driving working capital to a different level.

One cannot continue to drive such structural change quarter in quarter out. So there's something around -- it's high-quality and I'll come back to that second point on quality.

But there's an element of the quick wins that are essentially behind us. Bearing in mind, we started off from a very strong platform already.

But by far the biggest factor behind all of this is the fact that second half profits are expected to be low than the first half. Remember Q1 is essentially flat against last year.

That won't be the case in second half. But also we've announced restructuring plans in Q1.

We've announced a further restructuring plan with composites. We will be accelerating therefore paying cash restructuring costs that will essentially mean our cash spend this year will likely be a good €20 million, €30 million higher than the typical €50 million €60 million a year you've seen from us historically.

And that really completes the answer on the phasing of the cash. Clearly if we can generate more cash we will.

Now going back to the level of working capital etcetera we will make sure, we invest for our customers as and when it happens. That is far more important to maintain our leadership positions and be there for our customers.

That said, as I look at the working capital, I am going to share with you one or two operational KPIs that we look at. Take inventories.

Our ability to maintain inventories at 15.1% of sales which is lower than last year lower than the first quarter despite a rapid decline in Q2 to my mind is very strong and our challenge and our absolute resolve is to maintain that. The second point receivables.

I mentioned to you that in times of challenge like this liquidity management is the biggest source of corporate distress. We have 11000 customers.

We're so focused on receivables management. I've never seen that it's over before and it's paying off.

That's why our overdues are just under 4.5% of all our receivables and that's a record. And I thought we set a record in December last year we were up 4.9%.

Again can we sustain it? It's not a walk in the park.

We'd absolutely continue to focus on that systemic sustainable performance. And that's why we will invest but we'll keep the discipline.

Just to clarify on the tax part. Do we expect any tax payments for the second half, or is the kind of low tax payments that you've seen in the first half is the kind of run rate that we should be thinking about?

At this stage nothing at all is anticipated in that regard. Essentially the cash flow expectations are very much driven by the factors I have described.

Thank you very much.

Yes, good afternoon everyone. My question is on cost savings.

So the gross amount amounted €170 million in the first half. You did €50 million in Q1.

What were the net savings in Q1 and Q2? And then relating to Q2, how much of that was from furlough?

And then looking at your full year guidance of €300 million of gross savings how much of that will be net? And how much of furlough would you expect in Q3, Q4?

Thank you.

So I've already indicated that inflation was €37 million in the first half. You can extrapolate that easily.

So €300 million you can deduct 2x the €37 million I mentioned and you get to a net figure. There are many other factors that impacted the cost.

We've highlighted the key aspects. For example, you've got the negative impact on fixed cost from destocking.

And our stock levels -- our inventory levels are down. But there are many other factors that have compensated for it.

So the key elements are those that we've mentioned and you've correctly retained.

And I think what is interesting Mutlu is out of €170 million I have explained with Karim €80 million is structural and we follow the structural. Basically almost 50% of the structural is restructuring plans which we already shared with you our intent during the growth strategy.

And obviously the composite materials starting a bit in quarter two, right to execute their restructuring plans and 40% is indirect. The rest is productivity.

And the €90 million temporary is mixed bag of T&E travel ban, obviously, and many other things. And the target as we said is €300 million for the year, which is already a nice achievement as compared to our five-year target of €410 million, which represents 35%.

Thank you very much. I mean, just an add-on why won't you just simply give the net number in the press release each time?

Because inflation is a recurring part of the business.

Yes.

And fundamentally, it's about what is that we can do. I mean, there are many different ways you could present the figures.

I feel focusing on what is within our control inflation certainly is not makes a lot of sense. And the math is the math.

And we can -- yes, it's a math.

You can count on us.

So we can engage with you Mutlu offline.

Yes. No, I mean, just because other companies do it as well.

So anyway it's just a thought.

No. yes, thank you.

Appreciate it.

Thank you.

Hi. This is Geoff Haire from UBS.

I just wanted to sort of ask you if that's all right just a confirmation question. The structural element of the €300 million of cost savings for this year, is that additional fixed cost savings taken from the growth strategy or is that on top of the €410 million?

And then secondly, I was wondering if you could talk a little bit about how the sales for the group or the volumes of the group progressed through the quarter. And what they look like in July please?

Yes. Great question.

Karim, yes, please?

I'll pick up the costs. So maybe I'm going to start by reminding you that when we announced our growth strategy we indicated a €300 million to €350 million gross cost savings over five years.

In the first quarter, we said that you know we're going to do a minimum of €350 million. And with the composites restructuring we announced a few weeks ago we've raised about to €410 million, okay?

So the €150 million which is half the €300 million for this year represents about 35% of that five-year commitment. We said at the time we're going to front-load our efforts.

And clearly this crisis has helped to deepen and accelerate that pace of progress beyond anything we were imagining at the time.

So, Geoff, it's €150 million. We are taking the structural growth taking our structural, right?

And there is a lot of self-help going on this year may not repeat, I hope after the rebound happens. So -- and we all hope that we are going to enter into a more -- of growing more than reinvestment.

So the €150 million structural that's the part you need to take into account against the €410 million of savings. Makes sense?

Yes. Thank you.

Yes. Good afternoon everybody.

My question is on CapEx that you just guided at €600 million. I was wondering if you could give us a bit of an update on your investments in bicarbonate and soda ash.

Can you invest just on the bicarb side or have you had to push both, I guess, sides of the investment away? When do you think you will be able to be up online if you're not spending on those projects this year?

Thank you.

Yes. Thank you, Laurent.

Hi. Well, listen as I told you last time that we have chosen our volume capacity extension right in Green River in Wyoming just because there is no need for additional capacity at the moment, right?

So that's what we've done with other capacity increase through the quarter three crisis. Now as you can see we are a company who is looking at the short-term with an eye on the long term.

I call it having an eye on the microscope and the telescope. As we've seen that our free cash flow has reached record, we feel comfortable and confident that we are going to hit a free cash flow for the year equal to last year number.

As soon as we can we will reinvest to emerge stronger, because I believe the companies, which are going to really win and emerge stronger are those who are going to prepare for the rebound. That's number one.

So we have invested €25 million of growth projects and we have our prioritization as a team. It's all centralized in the hands of executive committee and I and we do an arbitrage for the best projects with the highest IRR, which are strategic to the growth agenda.

Number two, we also look as you know what needs to happen from really disruptive technologies in terms of building a specialty company. And programs like EV, for example, electrification, programs like the Actizone, which I discussed -- I shared with you and we fast track it during the last three months are just great examples of what this company has in the pipeline.

And I must confess we didn't share with you more of this and we will do more in the near future sharing our innovation pipeline right with you. Karim?

Look as a general point, you mentioned a couple of businesses bicarb and soda ash. Clearly, we're not going to invest in any business whether it's spare capacity that makes sense.

Bicarb is one of our really good growing resilient businesses. I'm not going to confirm or deny what we're going to do specifically.

What I can say to you on this point is we will invest to make sure we're there to grow with the markets and our customers.

Yes. Thank you.

That's very clear.

Thank you.

Good morning. Could you discuss your philosophy?

I don't want to get into sort of specifics that where you'd be like negotiating against yourselves. But can you get into your philosophy on disposals?

And then, of course, the flip side bolt-on M&A, how do you think about valuation return on capital? How do you sort of decide when a business is suitable to be moved to someone else's hands?

Well, listen I mean M&A is part of our portfolio management, right? And I always say that we have an eye open.

There is no transformative acquisitions at the moment on our table or I would consider first of all we need to manage the crisis and go through it. If there are bolt-on technologies, which can support the core and reinforce it or extend it we will consider that, right?

But at the moment we are really focused on -- with no distraction into delivering our growth strategy the G.R.O.W. navigating through this crisis and I'm very proud of our teams on what they deliver and we are really staying focused on this at the moment.

Yes. And for disposals?

For disposals as I shared and I hope today has been a bit of life in the funnel for you guys because [technical difficulty] yes, can you still hear me Laurence?

Yes. No, I couldn't on my side.

Just checking if someone is still on the call sorry. So, what I'm saying Laurence is that we are still looking -- we are looking now and exploring strategic options to monetize some of our businesses right within the Solutions segment which we don't consider as the core.

But as I said, we are not for sellers. If and only if we find valuations that are compelling and align with our expectations we will do that and we will go for it, right?

So, these are the first steps in our way to look at simplification and stress in the core businesses.

Thank you.

Hi, everyone. I just wanted to ask a question about some of the restructuring you're doing around the sales force you alluded to in your prepared remarks.

You talked about changing some of the incentives, introducing some account managers. Could you maybe just flesh that out a little bit what you're changing and what you're expecting the uplift on top line to be going forward?

Yes, it's a great question. Thank you, Matthew.

Well, listen you know at the end of the day, I know that in order to unleash the potential of Solvay not only we're going to do the right job in terms of managing customer cash and cost and you've seen us in action very decisive and agile during the crisis. But the reality is that we lag supply and growth in the past decade that you nicely called me during our one-to-one discussions.

And I think the only way in my experience to do that specifically for specialty company is to drive more hands-in mindset and we need to have more hunters than farmers in the company. So, what we are doing we launched Solvay sales academy.

It's a big, big event for us where we're going to build the curriculum from a field junior sales manager to sales field account manager to regional manager or key accounts manager for soft key accounts clients of the company. And the way we're going to do it is first of all on assessing the competencies we have, driving the CRM the client relationship manager tool which by the way good news at Solvay we have it.

We have it across company. So, we are going to reinforce it.

It was not reinforced top-down it's going be in batteries to drive a bit visibility and great visibility at my level and EXCOM level about the pipeline, et cetera. So, we started doing that.

We're going to reinvest in the front line. We want to have people who understand more even the value proposition and deliver it because at the end of the day, we're not selling commodities most of the time we are selling actually as I said in auto lower total cost of ownership the sustainability profile.

Really I mean you need the high-technology mindset and bring the value proposition to your customer, show the money you are going to save or bring to the table, and share the value created right with them to not leave the value on the table. So, I think we are doing all of this.

And changing incentives, I have a simple main choice that you hit the pocket you hit the behaviors. Today, the incentives are extremely not homogeneous across the company because we have had a very decentralized model.

So, by January 1st, 2021, we will be changing the incentive to drive performance more hands-in spirits allowing shipment--. Okay.

One more? Go ahead.

Yes, hi. Just a couple of questions.

Just -- first question was just on the operational leverage in second quarter from volume decline because if I just take into account forgetting about gross net savings if I just look at the OpEx in the P&L, it's come down by €62 million. The prices are up.

Raw materials probably are down. The implied drop-through from volume decline seems like more than 50% in second quarter.

Can you maybe just help us understand how to think about that drop-through in the second half of this year whether it will be different whether it be same? And the second question was just I mean at this point I know the visibility is low, but do you expect third quarter EBITDA to be at least better than second quarter?

Okay. In terms of your first question in broad terms if you look at the sales evolution across our segments, you ought to quickly come to an understanding that EBITDA will have fallen by €0.3 billion had we not offset and mitigated.

Against that, I mentioned the fact that we have a pretty good pricing power that's been sustained that's a few times. And then clearly, the cost savings net of inflation that essentially gives you a good indicator, but bear in mind that first quarter was clearly much more resilient and the second quarter is the biggest factor that shows our first half performance.

Going forward, essentially our fundamental belief, I'm going to say this our fundamental belief is that our job is to ensure that we variabilize any fixed costs and preserve our margins. We can't do it in one quarter.

We certainly will be it over a strategic period. So as we recover, I expect margins to expand again fundamentally.

But I can't really quantify quarter-by-quarter what that is likely to be. It very much depends on your assumptions as to the nature and shape of the rebound and its timing.

And I think we have demonstrated Chetan, now adaptability and flexibility. Now I mean we implemented following the company for the first probably at a large-scale like we did in May, right?

So -- and we are using -- we are adapting the internal activity be it in production, in research, in innovation technical service whatever to the customer demand. At the end of the day, our compass is the customer.

And that's what drives our needs and we follow the order books at a daily level, right? On the improvement, again, I remain optimistic on auto.

We have one-third of our businesses. They show really great resilience.

Composites for example, we are driving very fast as you can see our restructuring program. We will reach a run rate by the end of the year right

Practically yes.

In terms of €60 million of savings, with €30 million of investment. So that's a great job done by our teams.

And you know the volumes will be probably still down in quarter three because we have a comp against quarter three last year with 737 Max. But going forward, the bottom will behind us and we foresee a slight improvement in quarter four.

China is also positive to us. You've seen our number 20% increase between the first quarter, the second one.

In H1, actually China for us, we scored in sales plus 1.7% for this semester as compared to last semester. So this is domestic Chinese sales and we believe that if it continues without the second wave, we will have much to do in China as well.

And then you have all this innovative programs. The green deal, the investments in Europe on electrification, cleaner mobility all of this hygiene and cleaning is becoming even more important, so all of this will continue.

And then the working capital, you've seen it from day one, I've said last year cash is king. We have now a disciplined approach to working capital as Karim said from inventories receivables and we will continue doing so, right?

Maybe time for one final question.

Yes. Alex from Barclays.

Hello, again. You'll be pleased to know it's a very simple question.

The €600 million CapEx guidance you talk about for 2020. In your second quarter release, you define CapEx as including IFRS 16 lease payments which are about €100 million for the year.

Can you confirm whether that €600 million is CapEx as it appears on the cash flow statement or CapEx including the lease payment? Thank you.

It includes the lease payment.

Yes Alex.

It represents €200 million odd reduction compared to last year.

It includes...

So it's about €500 million of capital expenditure out of the cash and investing line?

I'm sorry.

Say it again, Alex?

So your lease payments are about €100 million and they come out I think of your financing cash flow. But can I...

The €600 million is including leasing and is cash. And it's this year.

This was an operating cost.

Okay. Thank you very much.

And on CapEx by the way just to close with this obviously you have seen us, right? So our intent is not to cut anything to the bone.

We have an eye on 2020, an eye on 2021 and beyond. We will reinvest where it makes sense right selectively with high look on the IRR and return.

And we are as we speak zero-based budget in our CapEx across the company. So we have an ongoing process where we are looking at all our spending in the company by asset,.

by business unit and zero-based budgets. So we will share with you more in the next quarter.

So with that I think we should close by now. So I wish you all and your families a safe and restful summer.

So thank you very much.

Thank you.

Thanks everyone. If you would like to follow-up with any other questions the Investor Relations team is available for you after the call.

Thank you very much.