Solvay S.A.'s (SVYSF) CEO Jean-Pierre Clamadieu on Q2 2014 Results - Earnings Call Transcript

Aug. 3.14 | About: Solvay S.A. (SVYSF)

Solvay S.A. (OTC:SVYSF) Q2 2014 Results Earnings Conference Call July 31, 2014 2:30 AM ET

Executives

Jean-Pierre Clamadieu - CEO

Karim Hajjar - CFO

Analysts

Heidi Vesterinen - BNP Paribas

Laurent Favre - BofA Merrill Lynch

Mutlu Gundogan - ABN AMRO

Markus Mayer - Baader Helvea

Peter Clark - Societe Generale

Jaideep Pandya - Berenberg

Joe Dewhurst - UBS London

Patrick lambert - Nomura London

Operator

Good morning ladies and gentleman. Thank you standing by, and welcome to the First Half Year and Second Quarter Earnings Conference Call for Analysts and Investors. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 31 July 2014.

And now I would like to hand the conference over to your speakers today, Jean-Pierre Clamadieu, CEO and Karim Hajjar, CFO of Solvay. Please go ahead.

Jean-Pierre Clamadieu

Thank you very much. Thanks everyone to participate in this Q2, 2014 results conference call. I'm very pleased to present today solid results I think demonstrating that the Solvay transformation is continuing.

This Q2 results are very much in the continuity of what we have presented for the first quarter but the trend is continuing to improve and this is good. On top of that as you've seen this morning, we were able to sign a divestiture of Eco Services, which is one element in confirmation of the portfolio of the company, which I think is an interesting sign but we are indeed determined to continue to significantly transform Solvay.

On top of that, you are seeing that we are delivering our net earnings growth. Our growth engines are demonstrating a very strong performance. External growth doing well too, Chemlogics was clearly a very good deal and we are fully benefiting from a very strong dynamic of the North American oil and gas business.

And last but not least, our excellence initiatives, with various action plans that we are putting in place for the Group to improve the way we manage this group and where we operate, which is also contributing to our results.

So if we go into the numbers, good demand dynamics, net sales are up 2% year-on-year and obtained by good demand and external growth overcoming the ForEx headwinds, which are still significant during this quarter.

In terms of regions, mix picture but very much in line with what we've said and what we’ve seen in Q1. U.S. confirmed that especially in the market we serve that the growth is accelerating. Q1 was impacted by some extreme weather condition so this is clearly behind us. But the regions which represent today one-fourth of Solvay total sales is clearly an area where we are growing and where we see further growth opportunities.

Europe which represent one third of our sales shows steady but slow recovery. So I think it’s probably something we have to get used to but still it leaves some opportunities for us and I think we've been quite active in seizing these opportunities.

Asia which represent today 30% of our sales continue to post solid dynamics particularly in China and we've never been very worried about China but we continue to see to that -- a lot of opportunities and a positive trend in this in which regions the only issue that we have in Asia as we mentioned is of the currency movement, which impacted some of our businesses but overall it's something that we've been able to overcome.

And probably the only area that we see as an area of question today and I was about to take concern is Latin America with Brazil clearly disappointing, limited growth, competitiveness issues and it is an area where we need to fight to make sure that we make the most out it bit of a challenging scenario.

In terms of end markets, once I would like to shed some lights on, which -- because they are really contributing to our performance automotive. Positive across all continents but Latin America and positive because we are bringing new product, innovation into the automotives segment at last. I would include tire in this segment and clearly this is an area where we see still significant opportunities for specialty polymer engineering plastic and silica mostly.

Second important market for us is unconventional oil and gas most in North America today but very, very dynamic market, with Chemlogics integration to Solvay. We have a good range of offering and as chemicals unconventional oil and gas exploration are concerned and we are fully benefiting from the various strong dynamics that we see there.

And the last market, last but not least, as we used to say smart devices. This has become an important market for specialty polymer especially in times where we see new product about to come to the market and that’s really some market that we’ve developed over the past two years, which proved very, very interesting market for our specialty polymer business.

So bringing to the numbers and just the headlines and Karim will go into more details. REBITDA is up 10% at €485 million in Q2. System growth, presented 11% growth in Q1 so 10% in line.

If we correct for three elements foreign exchange impact, perimeter which is Chemlogics and the fact that we’ve lost our capital and credit opportunities at the end of last year.

We would have an underlying growth of 19% and I think this is clearly very reassuring and just to walk you through the impact as mentioned, ForEx impact €60 million conversion in the quarter similar to the first quarter.

Chemlogic €23 million impact in pro forma Q2 2013 and CER in Q2 2013 was €44 million. So if you correct for that 19% underlying growth and if you go into the various segments, advanced formulation is 29%, advanced materials is up 16%, setting record proceed and record margin at 28% EBIDTA margin but frankly speaking all segments were doing well.

Performance chemical is stable but at a very high level, functional chemical, which is polyamide is improving very significantly and we’re not yet at the level of profitability where we’d like to see this business like this one.

Excellence, momentum is keeping pace more than compensating inflation on our fixed cost base and clearly helping us improve the margins and margins are quite good. They are up 140 basis points from 17% last year to 18.4% and when we compare with our peers, I think we have reasons to be reasonably satisfied with these margins. It puts us very well with our comparable.

In terms of portfolio management, we are continuing to work on the various transactions that we have announced, European chlorovinyls JV project is moving. The key challenge now is to achieve divestments of remedy package that we have proposed to the EU to get their approval for the transaction.

It’s moving. There is as the bank working on it. We have a number of interested parties. Now we have to turn that into transactions to be able to close this deal by the end of the year, which is still our objective.

We have divested Benvic, which is the PVC compound business in Europe, Indupa, the last things before closing is the authorization of CADE, the Brazilian antitrust authorities. Braskem, our partner is working on that and we expect the decision by yearend.

Eco Services, we’ve announced at the beginning of the year that we’re looking at strategic opportunities. Indeed we’ve done quickly and quite effectively a lot of work. We are able to sign last night the divestiture of this business. We are selling it at what I think is a good price for such an asset eight times REBITDA, $890 million.

That’s clearly a good transaction. Eco Service was a good business but probably not fully aligned with our own strategy and I think that we’ll find with CCMP a very good owner, which can bring the business forward and for us that’s a way to streamline and simplify our portfolio and to free up resources to continue to go in areas that we have chosen.

Obviously we are not just divesting, we’re also looking at opportunities to strengthen our position in various areas. Bolt-on acquisition is something which is important for us and although we don’t have any news to share with you on this one, I hope that in the near future you can see that we’re continuing to be willing to grow on our growth engines and in regions like Asia and North America that we consider as having very significant growth potential for the next few years.

So in a nutshell, I think that we are continuing our transformation towards higher growth, less cyclical and higher cash returns group and I think that today’s results are a good demonstration of the commitment of the management team to deliver the transformation.

And with that Karim, the floor is yours to walk through our results in a bit more detail.

Karim Hajjar

Thank you Jean-Pierre and good morning, everybody. I will now provide more color on the results and obviously will cover some key bottom line elements as well as the balance sheet. As you’ve heard from Jean-Pierre, the headline REBITDA growth is 10% year-over-year but the underlying is much stronger at 19%. How do we get there?

The REBITDA grew fractionally from €440 million in Q2 2013 to €485 million, an increase of €45 million. Half of that is scope, Chemlogics, €23 million. The other half really has a lot of quality because there’s a strong organic demand growth component as well as a very strong delivery on our excellence programs, which together overcame €27 million of total ForEx headwinds.

That’s €60 million conversion, which Jean-Pierre mentioned and €11 million of transaction risk FX, as well as €44 million of non-recurrent CER income in the second quarter last year.

When you take account of the conversion ForEx impact of €16 million, the CER sales that are absent of €44 million and make allowance for the Chemlogics growth, the underlying is 19%. For the first half equivalent to that underlying headline is 17%.

Our operating excellence programs are delivering in terms of reducing our fixed and our variable costs and if you just look at our fixed cost alone, they are more than offsetting the impact of inflation on our fixed cost base, which is over €3 billion just to remind you.

In addition, there is very good progress in our commercial excellence program as well as our innovation. So it’s fair to say that all the cylinders are firing now.

Before I turn to the performance of the businesses, it is worth noting that if average exchange rates in the first prevail for the remainder of the year, the adverse accounting impact relative to 2013 on a full year basis will be about €60 million to €65 million.

As we look forward, we don’t factor in any improvements or worsening in exchange rates and I’ll remind you that on a cumulative basis for the first half, ForEx advanced to €63 million, €31 million of that is conversions, €22 million transactions.

I will now turn to our key business and I will start with advanced formulations. That segment benefited both from Chemlogics strong performance, which outperformed out expectations and for organic volume growth especially in the oil and gas market where we really are responding to strong consumer demand because we can then meet for relevant solutions.

REBITDA was up 30% year-on-year at €119 million in second quarter and it was up 8% at €221 million for the first half. REBITDA margins stood at 16% for the quarter and for the semester.

Advanced materials again beat its record performance and it delivered REBITDA in the second quarter of €187 million up 6%, year-to-date up 15% at €362 million. The growth was broad based and it was particularly evident in silica and in specialty polymer that Jean-Pierre alluded to.

The latter benefited in the quarter from continued demand momentum in most end markets and there was a notable increase for smart device applications, which more than offset a slight marked softening in the offshore oil and gas market demand.

Our REBITDA margin in the second quarter reached a record 28%, a performance that was strongly underpinned by our excellence programs both in terms of innovations and cost manufacturing excellence programs.

In the quarter of the first semester, margin came in at 27%, which is a 285 basis point improvement year-on-year. In performance chemicals, pricing power and volume growth were offset by fixed costs and by adverse ForEx. There was strong delivery in manufacturing excellence but it wasn’t sufficient to overcome temporary logistic and maintenance issues in one of our plants that came through from the turnaround and we started it out and thus our REBITDA was €2 million below last year at €189 million.

Over the first half of 2014, REBITDA was up 6% at €377 million and the margin increased by 130 basis points to 24% on net sales. I will also highlight that Eco Services, which is currently reported within this operating segment is to be presented at discontinued operations and assets out for sale as from the third quarter following the signing of the binding agreements. Consequently Solvay will restate its 2013 income and cash flow statements and its 2014 financial statement to reflect the discontinuation of that business no later than the publication of our third quarter earnings.

Turning to functional polymers, they have benefited from improved demand in Europe and Asia and from strong manufacturing excellence program delivery. Both P&I and engineering plastics improved as Fibras continued to be impacted by weak market conditions in Latin America.

Overall though our REBITDA in the quarter was up 42% at €38 million and cumulatively €78 million in the first half. Margin at 8.7% on net sales has improved 240 basis points a welcome improvement, but we have more to go.

Turning to Corporate & Business services net costs were €47 million in Q2 and €85 million in the first half. Energy services broke even in the quarter as it did not benefit from any CER sales.

On total costs, our cost discipline is unrelenting. We continue to rein in and to defer costs. ForEx devaluation helped the cost base but there was strong delivery to the cost reduction as well. As a result, the first half of our corporate costs stood below our usual run rate though we do expect the second half to be somewhat higher.

That said; we are completely determined to building the momentum that you’ve seen in the first half and remain focused over the remainder of the year.

I would like to take the opportunity to highlight that fundamentally our corporate cost structure is of the order of €200 million a year. The increase that we signaled previously stemmed from two factors; one, an investment in our shared business services and two, from offering costs related to service functions that do not get recovered as we divest businesses. The cumulative effect of these offering costs, net of the savings that we have delivered distorts our performance.

In order to ensure that we better represent the fundamental underlying performance, we will allocate the net offering cost, net of savings through to our businesses who are benefiting from these services and will therefore restate our corporate cost and our segment results in the third quarter when we classify Eco Services as discontinued.

I will now turn to the elements below the REBITDA line and I will start by highlighting that the reevaluation of the Russian ruble versus the euro in the second quarter has a positive impact on ruble denominated debt of Rusvinyl, which created a €13 million preoperational game, which was more than offsetting the loss we incurred in the first quarter of €12 million.

We remind you that we expect to commission Rusvinyl later in the third quarter and that is normal during the start-up phase it’s REBITDA contribution, which will be accounted for on equity basis, recognizing that the project is highly leveraged, that contribution will be negative by few 10s of millions as production ramps up.

Non-recurring charges reduced to €46 million against €97 million in the same quarter last year as a result of lower restructuring costs, €30 million against €81 million last year.

The remainder of the non-recurring charges consisted of non-current environmental litigation and usual portfolio management provisions. Net financial charges increased to €75 million, €24 million higher than last year.

The net financial charges or net debt fell by €10 million as you’ve seen we've taken steps to create more value from our balance sheet by reimbursing roughly €1.3 billion of debt in the first half, €500 million costing 5% in the first quarter and €800 million equivalent of grow the high yield bond at an average cost of 7% ahead of maturity.

These steps reduce our average cost of debt by 40 basis points. However, the cost of discounts and provision is mainly related to our environmental obligations went up by over €30 million reflecting reduction in discount rates of 50 basis points between the two periods.

I will remind you that we have issued hybrid bond last year for €1.2 billion at an average coupon of 4.7%. This is reflected as equity and coupon payments of similar dividends and in this respect and our dividend cash flow statements you will see €50 million attributed to the hybrid and this is on six months for the 700 million tranche with a 4.2% coupon.

Turning to taxes, adjusted tax charges were €65 million, which compares to €20 million in 2013, clearly the nonrecurring effects which distorted, so we look at the underlying tax rates and we are trending at 34% in the second quarter in line with the first quarter and entirely consistent with the guidance that we gave of mid to low 30s.

The net result from discontinued operations was €481 million loss as a result of the impairment of €477 million related to marine, chlorovinyls to the Inovyn JV, which the chlorovinyls JV we’re setting up with Ineos.

You’ll note that the impairment is essentially non cash and includes inter alia, the write-off of the Rhodia-related goodwill that was allocated of a €142 million deferred depreciation charges of €60 million as well as taxes and other costs related to the structuring agreement for a combined €72 million.

Taking into account minority interest, the Group share of that impairment is €422 million and that is why our adjusted net income group share is a €292 million loss.

Moving on to cash and balance sheet, we delivered a positive free cash flow in the second quarter of €89 million, better than the €64 million recorded last year and substantially offsetting the negative €97 million in the first quarter.

Both quarters are characterized by seasonal patterns whereby industrial working capital requirements increase mainly inventories as we prepare ourselves to follow our customer's demand and respond to their needs and this was in anticipation of the incidence of turnaround as we look to Q3.

What is pleasing is that our working capital intensity stood at 15.4% to sales and that is 20 basis points better than the same period last year despite a ramp up in our inventories.

CapEx came in at €203 million with €181 million linked to our continuing operations. Looking ahead, taking into account the phasing of our investment project and the fact that we had lower CapEx incurred in 2013, we anticipate the full year CapEx to be on €850 million Euros. Net debts rose to €1.4 billion from €1.3 billion at the end of March and this is as a result of financing cash outs.

Dividend payment accounted for €171 million and that includes a €15 million coupon on the 700 million balance of the hybrid. The remainder reflect the final dividends of 2013 of €1.87 per share, which took place in the quarter.

The second quarter also saw a high concentration of cash payments related to the financial debt of €168 million and that includes a €51 million one-off payment related to the early retirement or make-whole element of the high yield bond retirement and that make or essentially reflect both premiums as well as the upfront interest payments totally as expected.

And with this, I will hand you back to Jean-Pierre.

Jean-Pierre

Thank you very much Karim for this very detailed analysis of our results. Just a few words on the outlook before the Q&A.

We see a very encouraging start to the year in Q1 results where we are starting to show this trend. Q2 is very much in line with what we’ve seen in Q1 and this gives just gives confidence certainly for the remaining part of the year.

We feel that we should be as we said -- when we presented our Q1 results, we should be able to generate in the current foreign exchange environment, high single-digit year-on-year REBITDA growth. This guidance is made now taking into account the fact that Eco Service is in discontinued operation, so correcting for Eco Service in 2013 and 2014 without Eco Service in 2013 and 2014 we are confident that we will achieve high single-digit REBITDA growth.

Confirmation for the company will continue as you will see in the next quarters and we are very pleased to have demonstrated today that we’re committed to this transformation and once again it's really an ongoing project and the management team is very focused on delivering on all fronts.

And with that, I will open for Q&A.

Question-and-Answer Session

Operator

[Operator instructions] Yeah. Your first question comes from the line of Heidi Vesterinen from BNP Paribas. Please ask your question.

Jean-Pierre

Hello Heidi.

Heidi Vesterinen - BNP Paribas

Yes. Hi. Good morning. So first one on Acetow, please. Could you talk about what you saw in Q2? And what is your outlook going forward given recent cautious statements from some of your peers? And second question, could you update us on your outlook on soda ash, please? Thank you.

Jean-Pierre

On Acetow, I am quite satisfied with what we’ve achieved during this first half of the year and frankly speaking, I’ll probably be less cautious than some of our competitors. I think I’ve read a statement that you’re referring to, but we see the year as continuing to develop very well at a very, very high level of profitability for this business, if I compare it with what was historical profitability.

Based on very sound supply-demand equilibrium, yes there are new capacity coming in China, but we don’t expect this to create a significant impact. And frankly speaking it’s a business for which I see a number of green lights.

Soda Ash positive also, I am not expecting any breakthrough in profitability in Soda Ash but clearly strong results in this quarter. We had a couple of operational issues in North America mostly linked to logistical issues, difficulties to get product out of Green River but this is now solved.

I think their supply-demand equilibrium is satisfactory and I am probably expecting to see in the next couple of years some improvement there in terms of pricing and margins.

Heidi Vesterinen - BNP Paribas

Thank you.

Jean-Pierre

Thanks Heidi.

Operator

The next question comes from the line of Peter Mckay in Morgan Stanley, London. Please ask your question.

Unidentified Analyst

Good morning, actually it’s not Peter, its Paul speaking. Morning Jean-Pierre, morning Karim.

Jean-Pierre

Hey Laurent (ph).

Unidentified Analyst

Just a quick question for you with regards to your M&A strategy, you talked about bolt-on Jean-Pierre in the presentation, but just wondering what that could mean because the balance sheet is obviously building up a nice war chest. Give us some guidance on size of deals could be larger and more likely bolt-ons just allocation of capital would be helpful. Thanks.

Jean-Pierre

I will tell you it’s always difficult to make two specific comments on projects which are just developing, but frankly speaking for the remaining of the year you just -- you could just think of bolt-on being acquisition or I would say a couple of hundred million of yours and I don’t expect to do that many of such transaction. We might want to look and I think we would have the ability to look at larger projects, but we are very picky to make sure that we invest where it makes sense.

With Chemlogics last year we had significant sized opportunity and we’ve bit more than six months of Chemlogics integrity into Solvay. Clearly this was a very good project and we are seeing Chemlogics exceeding our expectation or the expectation on which we base the acquisition business plan.

Looking forward, I think that I would be very pleased to be able to make a bolt-on acquisition in one of our growth engines. In terms of geography I mentioned the priorities where in Asia and North America, but again I am thinking I would say reasonable sizeable turn and certainly projects which would be smaller than Chemlogics just because we have not found larger wins available at a reasonable price.

Unidentified analyst

That’s very clear. Thanks guys.

Operator

Your next question comes from the line of Laurent Favre from BAML London. Please ask your question.

Laurent Favre - BofA Merrill Lynch

Yes. Good morning gentleman. Two questions, if I can. One on Eco Services. Could you give us anything more in terms of financials, so not just LTM, REBITDA, but also maybe 2013 and year to date, maybe something on capital employed, CapEx, working capital anything that we can basically use to judge the disposal versus your strategy of reducing capital intensity in the business and accelerating growth.

And a second question is on Slide 11 and the large ongoing investment projects. On the 2014 five startups, could you remind us roughly in which quarter those five projects are supposed to be on stream? Thank you

Jean-Pierre

Okay, so comment on Eco Services but I'll turn to Karim from a bit more color or detail. Eco Services is business, which was fairly high margin business but consuming significant amount of CapEx replacement CapEx, sulphuric acid, that’s the characteristic of heating of the plant in which it is produced or regenerated and in terms of free cash flow generation the business was probably not available in tougher months we’re expecting and limited growth opportunities. So these are the strategy rational for the divestiture. Now you might want to give a bit more color on Karim on the divestiture.

Karim Hajjar

What are the key parameters to bear in mind, I think from a REBITDA point of view the $100 million that we referred to is a good guide and one can look at that and you can anticipate that having being flat historically.

It is quite a capital intensive business. The CapEx is in excess of $72 million. What that means is the free cash that we will no longer see over $30 million or less and that is essentially the fact.

If we look at CFROI you will remember that we’re looking at that and we will make sure we track it. This divestment is essentially margin enhancing ultimately and that is ultimately what we anticipate and that with positive outcome. Yeah and the sales we are talking of about €300 million at US$400 again set.

Jean-Pierre

So second question on Slide 11, if we go into this project I would say that the first, which is not there in Germany, we have plant in China, the JV in China also and our HDS plant in Poland, their startup is expected before yearend, I would say between October and December for most of these plants and I would expect them to bring REBITDA contribution into 2015.

Very much in line with the growth strategy of this business and it's kind of used for silica and Novecare but also for Aroma Performance. Specialty polymer, clearly the objective is to prepare for the next step, which will have to end in 2015, which is our own polymer plant in China.

Rusvinyl, a large project obviously. We are really in the middle of a startup. I expect to produce the first batch of PVC probably by the end of August, which means that we will be starting actual commercial operation probably in September and October. As Karim mentioned, it’s a highly leveraged project so it impact on our REBITDA is minimal but it will start with a negative impact in the first period of operation. I guess its covers probably what you had in mind Laurent.

Laurent Favre - BofA Merrill Lynch

Yes, thank you.

Jean-Pierre

Thank you very much and next question.

Operator

The next question comes from the line of Mutlu Gundogan from ABN AMRO Amsterdam. Please ask your question.

Mutlu Gundogan - ABN AMRO

Yes. Good morning everyone. Three questions. First on the scope. If I look at the waterfall chart for your revenues, I see that the contribution from scope was €81 million, while it was €96 million in Q1, i.e. a decline of 16% quarter on quarter. Now if I look at your REBITDA, I see that that is good indeed. I'm just wondering on the top line, does this all relate to Chemlogics? That's the first question.

And secondly, if that's so, is there a seasonality that we should be aware of or is there another reason for this decline? And then the second and third question are minor questions, the first on performance chemicals. Can you quantify the negative impact you had of the temporary issue that you mentioned, so that the impact on sales and REBITDA? And actually that same goes for functional polymers, what was the impact of the divestment of Benvic? Thanks.

Jean-Pierre

I will take the last question on performance polymer, I won’t quantify what I was mentioning it’s a few million but I would say it’s a more delayed sale than anything else. If you could choose to buy the product out of the plant and ship it to customer or nothing that’s very meaningful and Benvic divestiture, I don’t have the actual number on the top of my head but it’s a very minimal impact. Karim, on the scope?

Karim Hajjar

I think on the scope you’re right to highlight Chemlogics as the main factor but there is also the divestment of life science that we did last year and that’s the other factor. They’re the main two drivers of what you see there.

Jean-Pierre

And Chemlogics seasonality now frankly speaking sometimes there is a bit of difficulty -- personal difficulties in winter time sometime to bring product to the fracking operations but the business cycle is not seasonal, it's based on project and we can see ups and downs linked to project going as we speak it's mostly up, but nothing like a seasonal pattern in our results.

Mutlu Gundogan - ABN AMRO

So you would say that this decline that we’re seeing quarter-on-quarter is business as usual.

Jean-Pierre

Yes, I would not consider -- depends what you call business as usual, but I would say it’s not a seasonal pattern.

Mutlu Gundogan - ABN AMRO

Okay. Thank you very much.

Jean-Pierre

It’s just some volatility in the business. Some viability I would call in the business. Okay. Next question?

Operator

Your next question comes from the line of Peter Clark from Societe Generale, London. Please ask your question.

Peter Clark - Societe Generale

Yes. Good morning. It's following on a little bit from that with the Chemlogics. Obviously we don't have the quarterly number for last year. But on the face of it, it looks like the sales has got healthy growth, but nothing spectacular. And obviously it's the margin, as you indicate in the commentary, that is remarkable. Obviously it's a high-margin business anyway, but it does look like this margin has perhaps gone up, certainly over 30%, maybe 40%.

Just am I way off on my thinking there, because obviously we don't have the quarterly history on the sales, and which it looks like it could be up double digit, but nothing -- just over 10% or something? And then the second question is just more general. Obviously Eco Services, you've sold it for a good price, I think in line with a fair number of people's expectation. But it's a good price. Just wondering if you have many other people that come knocking on the door, parts of the portfolio that might consider, you perceive, as potentially non-core and suggesting similar things. Thank you.

Jean-Pierre

On the first question on Chemlogics, it's also a mixed issue, I think what we’ve seen -- what we've seen in terms which extends full month of margin effect that we've been filling quite significant amount of friction reducers, which a product -- which is one of the key element of Chemlogics portfolio, which is being very successful.

Sales were a little bit slower on some other segment of the business but overall we’re posting double-digit REBITDA growth and this is what we’ve in mind. So yes, very solid growth in indeed and I think this sales number are probably as always a little bit difficult to read. I think it’s the EBIDTA which makes sense.

On Eco Service and also opportunities I think the situation is very simple. There’s a lot of for business, which could attract financial investors. We see today a lot of interested scale of people have money to invest and highly to look at good assets. Right or people think right in fact.

People think that in our portfolio we have significant number of good assets, which could find better owners and I was impressed by the number of expression of interest that we had for our eco service process and up until the last minute we had several people really fighting for the asset and yes, we have people knocking on the door telling us that this or that assets, which is very well, our own business model or portfolio and by the way one of a surprise on eco service is that we had a couple of strategic players also, which were part of the last round of bidding and with prices which were not absolutely up to the financial investors, but which of course ramps and which is also a good news I think.

So yes, we’ve a right portion of interest. Nothing which makes us ready to push the button to look for other opportunities but we know that if we are willing to do that it’s probably a good time to look at such opportunities.

Peter clarke - Societe Generale, London

Thank you.

Operator

The next question comes from the line of Markus Mayer, Baader Helvea. Please ask your question.

Markus Mayer - Baader Helvea

Good morning, gentlemen. Good morning, Jean-Pierre. Good morning, Karim. Two questions as well. First of all, I missed Karim's sentence on the corporate cost and how they will be affected by now the divestment of Eco Services and maybe you can update me on this and also give me a guidance on -- for this year or the years to come. And then secondly, can you update us on the selling process of the chlorovinyl plants, which are part of the remedy package of the European Commission.

Jean-Pierre

I will take the second one and Karim will carry on or may be the statement on corporate costs and on chlorovinyls, what we can say is that a process -- the divesture process is ongoing. There was quite a large number of expression of interest.

Now we have to turn that into a deal and so it’s probably difficult to give you more precise statement on this, but yes it’s ongoing. There’s a fair amount of interest and we are still expecting to close our own transaction by year end and for that we would need to sign the agreement approved by the European Commission.

Markus Mayer - Baader Helvea

Okay.

Karim Hajjar

On corporate cost, so Marcus a few things here I would like to really share with you and that is if I look at the fundamental corporate cost I referred to, I mentioned a figure of €200 million, €40 million of that is I would call good long term investments in corporate R&I so the €160 million. That is your fundamental run rate that we've been accustomed to and that is well below the 2% to revenue benchmark that is considered good.

Markus Mayer - Baader Helvea

Okay.

Karim Hajjar

Now that’s the reality. Now what’s happened in the Group? In the last two years, I am going to share with three facts. One, inflation has done its ravages for our services and our corporate cost at the run rate of about €20 million. That is pure inflation. That’s what would happen if you just stood still.

Offering cost is when you have almost a partial recovery of the service cost that we sell our businesses. When we sell business you don't recover those costs. That total offering cost is of the order of €55 million. So you got inflation and offering cost but you also got savings and will be unrelenting and just in the last two years, by the end of this year we would have saved about €60 million as well. Net, net, we concluded that we’re distorting our corporate costs and we’re therefore going to be reallocating it because we’ve done a lot to mitigate, but we want to make sure we’re not platting or distorting performance.

Markus Mayer - Baader Helvea

Okay. Perfect. Thanks.

Operator

Your next question comes from the line of Joe Dewhurst, UBS London. Please ask your question.

Joe Dewhurst - UBS London

Hi. Just a couple of questions from my side. Just on the 2016 targets post the Eco Services divestment, will you still maybe maintain that REBITDA number or will that be adjusted? And then just on the specialty polymers side, again, you did speak about advanced devices and the electronics side. Fitting again with the strong performance there, was it largely related to the electronics or was it quite heavily weighted towards automotive as well? Thank you.

Jean-Pierre

On the first question, we’ve our target was set up -- our interim target was set at perimeter or the perimeter we had at the end of 2013. I think it's too early to make a restatement or let's give us a bit of time and I think in the next capital market there we’ll have the opportunity to tell you where we stand. We're viewing this target but frankly speaking very well positioned to achieve it.

On your second question, I think it was -- specialty polymer results were not linked to one single market and as far as the smart device business is concerned I think we probably see some interesting developments in the next month.

But in the first half of the year automotive related product oil and gas and smart devices contributed to be very good performance but it’s not and if your question is it we’re not at exceptional level for our specialty polymer, no frankly speaking. I think the business structurally is improving and I still have significant expectation to see the business continuing to outperform.

Joe Dewhurst - UBS London

Thanks very much.

Operator

Your next question comes from the line of Jaideep Pandya, Berenberg Bank London. Please ask your question.

Jaideep Pandya - Berenberg

Thank you. The first question is really on the margins in advanced formulations and advanced materials. So on advanced materials, the margins went up very nicely. So can you give us a little bit more color on that?

And in advanced formulations, if I actually back out Chemlogics then the margin seems to be flattish. So can you confirm that? And if so, why is this, because you had very nice volume growth and also a slight positive pricing in this business? That's -- those are my main questions. Thanks.

Jean-Pierre

Advance material I think we've covered this a bit and this is on specialty polymer very good volume growth on high valued added product and again nothing to one single digit market but good performance, costs were broad and based on a number of cases on the new formulations and new combination of products that we are bringing to the customer and frankly speaking the time which we’ll continue, I was mentioning that smart device will probably come up most probably for the second half of the year but we expect domestic to continue to be a very good market for this business and on top of that, silica is a very business, which is continuing very nicely on the growth plan.

We have parameters more and more willing to access or I discussed the silica and new capacity was created in the past few years. We’ll startup our new plant in Poland in the second half of the year. So a lot of elements explaining these good results.

On formulation I think the situation is a little bit more complex. We’re not mentioning yet but within the segment, we have a business called Coatis, which is Latin America based, which is suffering from the current situation. We’ve Aroma Performance which faced a couple of force majeurs with some remaining effects in Q2.

So ìf I focus on Novecare, which is the largest of our advanced formulation business. Yes we’re benefiting from Chemlogics integration but not just from that, we had previously some oil and gas related business, mostly our guar derivative business, which is doing very, very well.

Guar consumption is -- guar derivative consumption on the ground has increased significantly and this is good news for us. We are running today at full capacity our guar production is concerned. Agro is back, is back in a year, which was not a great year for Agro for us because of the weather in the first quarter in the U.S., which we had some lag effect and as we've said a couple of times, home and personal care is an area where we need to make improvement.

So again, in summary very strong oil and gas business, both Chemlogics but also the legacy Solvay business in oil and gas. A bit of challenges in Latin America for Coatis and a bit of some operational issues on our performance. When we had to pull that we’re at 16% margin for this business 100 basis points improvement. So overall I think quite a good performance but little bit mixed throughout the cluster.

Joe Dewhurst - UBS London

Just one follow-up on the costs savings. The €200 million, €100 million for soda ash, €100 million in polyamide, how much of that is done, if you can remind us quickly.

Jean-Pierre

I don’t have a specific number off the top of my head, but I would say is probably 60%. If you add up the two segments.

Joe Dewhurst - UBS London

That is done now. That is in the number.

Jean-Pierre

Yes, that is done. Yes.

Joe Dewhurst - UBS London

Okay, thank you.

Jean-Pierre

We've shut down the our Povoa plant and we're now working on Torrelavega and a couple of other plants in terms of fixed costs and on polymer in engineering plastic, the organization is done and the unit is performing very well and PNI. We have also achieved a significant part of the Povoa plants. So I think 60% is a good evaluation of what has been done as of the end of Q2.

Joe Dewhurst - UBS London

Okay, thank you.

Operator

Your next question comes from the line of Patrick lambert, Nomura London. Please ask your question.

Patrick lambert - Nomura London

Good morning and congratulations. Good numbers. Two very quick questions. Can you update us on the Russia situation, with sanctions, what you think can happen? You basically said no impact so far and you still expect Rusvinyl to produce. Is there any financial impact on liquidity or anything you can say about Russia sanction impact for you guys would be interesting?

Second question regarding Acetow. We had two profit warnings, mostly on outlook, from competitors. Can you comment a little bit? Your prices were up, volumes looked okay, stayed flat. But mostly on outlook, where would you see that coming? Are you more hedged in terms of regions and volumes? Thanks.

Jean-Pierre

Well, on Russia I would say a sharp turn and our focus is really to startup the unit. We have significant teams there and we are as I was mentioning in the middle of the startup plan, a little bit more than that in fact we expect to probably the first tonne of PVC produce next week but out of some intermediate that we brought into the plant, so full lines of producing probably at the end of August.

Then looking at impact, we’ll have to see how the Russian market stabilizes itself in the current challenging economic environment in Russia. So today it’s really a question mark and then on the financing side, I would say no short term issues. We have the financing package in place. We have the right sources. We have partnership. We welcome that but there’s solely Russian banks, which are for some of them and probably liquidity.

So I don’t foresee any strategic -- any specific issue on this project. You know that EBRD is one of our equity partner in the project also, which probably gives us some level of confidence. Now it's an unstable situation and not always easy to predict what will happen next. But frankly speaking, we're focused today in very much business, in technology first to make sure other plants operate well and then business.

On Acetow, you are a little bit -- when you see profit earning from some of our competitors, some of them have mentioned a bit of softening of the business in the second half, but starting with a very, very good performance in the first. As I said I am not -- I am a little bit optimistic and I understand what our competitors are referring to, but when I look at our own situation, I think H2 is likely to be quite similar to H1 on this business.

Patrick lambert - Nomura London

So it’s mostly -- you think company specifics, China issues.

Jean-Pierre

It's probably up to -- China seems to be an element for us. We’ve evaluated our limited exposure to China and so overall, I have difficulties to see in our forecast what some of our competitors are referring to.

Patrick lambert - Nomura London

Okay. Thanks Jean-Pierre.

Jean-Pierre

Thanks.

Jean-Pierre

Maybe we should take the last question?

Operator

You have one more question coming from the line of Laurent Favre, BofA Merrill Lynch London. Please ask your question.

Jean-Pierre

Hello again, Laurent.

Laurent Favre - BofA Merrill Lynch

Yes. Hi again. Two quick ones. Specialty polymers and the product cycle in smart devices, I didn't get the message. But did you mean that the one-off product launch impact is bigger in Q3 than in Q2? Obviously timing of these particular devices were, I guess, important for that business.

And the second one is I know it's small, but the refrigerant business in special chemicals, can you talk about how that business has developed? Obviously it's been pretty tough for the whole industry in the past six or nine months. Can you talk about what the impact has been on you? We haven't seen it on the business line, but that business must have suffered. And where do you see this business going for the next year or so?

Jean-Pierre

On smart devices to be clear what I have said is that this was part of a reason why we start off well in the first half but when element longer there are lot of offers and yes, we expect to have more significant impact -- more significant impact, positive impact I should say on volumes in the third quarter in the smart device market for reasons which are linked to product cycle. I won’t be more specific on these but you probably understand what I am referring to.

On refrigerants, yes it’s a challenging business but for us it’ll be getting a small. We're focusing special chemical in other areas. We’re by the way also getting rid of businesses which are underperforming. So the overall impact of refrigerants and the performance of special chemical is very limited today and special chemical results I have shown a significant improvement in 2014 versus 2013.

Laurent Favre - BofA Merrill Lynch

Okay and thank you.

Jean-Pierre

Okay so maybe it’s time to close this call. Thank you very much for your attendance and your questions.

As usual very pointed to the key elements of these results. Maybe if I can just summarize a few words, I think we’ve been very please with our H1 2014 performance. I think 10% growth despite significant foreign exchange headwinds and a lot of our carbon credit, this is I think very good and once again underpinned by delivery on two different levels, organic and external growth on one hand and excellence initiatives on the other hand and I think this is a very good mix.

We will continue to focus on the execution of our strategic roadmap, portfolio management, innovation to respond to our customers’ concerns and what we’re seeing in the -- especially in the performance material -- in the advanced material cluster but also advanced formulation clearly demonstrates that and continuing with excellence initiatives, we’re now -- all of the company is focused on how we can improve the way we do business and we’ve seen that as we’ve seen this being a very significant level for improvement.

Thank you very much for your attention. Don’t hesitate to call the IR team if you need any more clarification. Have a very good holiday and I guess we’ll see you back in September or October to continue the dialog with you regarding Solvay’s confirmation and improved performance. Thank you very much.

Operator

That does conclude our conference call for today. Thank you for participating. You may all disconnect now.

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