Solvay profits drop again amid tough market conditions

Belgian chemicals group Solvay has reported a drop in sales and profits in the first quarter. The weaker cash flow could put pressure on its dividend policy.

Revenue fell 8.5% to just under €1bn, while underlying earnings dropped 12% to €219m, slightly below analysts’ expectations. The company said this was mainly due to lower demand and strong price competition, especially from China in parts of its business such as soda ash and its Brazilian Coatis unit.

Chief executive Philippe Kehren said the results were “solid”, but added that there is “no short-term improvement expected” in market conditions.

For the third year in a row, Solvay expects lower annual earnings. Full-year underlying EBITDA is forecast to fall to between €770m and €850m, down up to 12%. Free cash flow is expected to drop sharply to around €200m.

That matters because the company’s cash flow may no longer be enough to cover its dividend commitments. Solvay says it aims to keep dividends at least stable, but may need to take on extra debt to do so.

The company has partly supported its results through cost cuts and one-off gains, including €38m from selling CO2 emission allowances.

Solvay also faces higher energy costs and the cost of reducing carbon emissions in Europe, which the company says makes it harder to compete in export markets.

The group said the conflict in the Middle East had only a limited impact on first-quarter results, as less than 5% of its revenue comes from the region. However, a major hydrogen peroxide plant in Saudi Arabia has been shut since mid-March due to supply chain disruption linked to the conflict. The site has not yet restarted, and the impact on the second quarter is still unclear.

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