Solvay's (SVYSF) CEO Jean-Pierre Clamadieu on Q4 2016 Results - Earnings Call Transcript

| About: Solvay S.A. (SVYSF)

Solvay S.A. (OTCPK:SVYSF) Q4 2016 Earnings Conference Call February 24, 2017 6:00 AM ET

Executives

Jean-Pierre Clamadieu - Chief Executive Officer

Karim Hajjar - Chief Financial Officer

Analysts

Thomas Wrigglesworth - Citigroup

Paul Walsh - Morgan Stanley

Peter Mackey - Exane BNP Paribas

Alex Stewart - Barclays

Martin Roediger - Kepler Cheuvreux

Stephen Benson - Goldman Sachs

Patrick Lambert - Raymond James

Mutlu Gundogan - ABN AMRO

Operator

Ladies and gentleman, welcome to Solvay’s Fourth Quarter and Full-Year 2016 Results Conference Call for the Investment Community. I am pleased to present Mr. Jean-Pierre Clamadieu, CEO and Mr. Karim Hajjar, CFO. For the first part of this call, all participants will be in listen-only mode. And afterwards there will be a question-and-answer session.

I now hand over to Mr. Jean-Pierre Clamadieu.

Jean-Pierre Clamadieu

Thank you very much. Thanks everyone to participate in our call. I know that this is a busy day within a busy week. But we are pleased to report to you what we think are our strong results to finish the year 2016. So, I’m here with Karim, our CFO and Kimberley in-charge of IR. And we’ll try to give you with Karim a short time as possible to leave enough time for questions and try to give you the headlines on these results.

So, again, I think stronger, where we indeed delivered on our priorities. Maybe soft spot for transformation, we have finalized our exit from PVC businesses. We started this project three years ago. It has been in some cases a long and complex project. But along the year we have finalized our exit from INOVYN. So we are not anymore in PVC Europe.

We have finalized on December 27, for exit from Indupa, a rough and complex ride due to some regulatory issues with antitrust authorities which have delayed this project. And Zinitai [ph] it was a quick process. We were now stating in November.

And as you’ve probably seen we’ve closed this process, we divested share yesterday. So we are not anymore in PVC with one exception RusVinyl, 50-50 JV with SIBUR in Russia, performing well today. Very good cash cost position in the business that we will continue to operate forward for the foreseeable future.

We have also in terms of portfolio announced the agreement to sell Acetow business to Blackstone. We expect to close this transaction in the first half of 2017, leaving a good business but we’ve limited growth prospect and which was not anymore in line with our core strategy.

On the acquisition side, 2016 was year of Cytec integrations. Cytec is today fully integrated into Solvay quickly and very effective as far as synergy generation is concerned. We’re significantly above our initial synergy target.

We’ll continue to work on the transformation of our portfolio. And what’s important to keep in mind is that this transformation of the portfolio is also bringing a transformation in our customer, lease customer profile, our key customers today are geometrically different from five years ago. And we are indeed usually in a very unique position of being a sole supplier of large blue chip companies on their most improvement development project.

Going to the results, Q4 was indeed quarter aware we’ve seen return to volume growth. Less pronounced seasonality than what we’ve seen at the end of 2015. Good growth across many diverse markets including Agro, auto, consumer and healthcare, smart devices and oil and gas, although we still see a negative comparison with Q4 2015 sequentially with increase in oil price. And we’ve increased in exploration and production activities in North America which saw sequential significant improvement year-on-year.

So, full-year, EBITDA growth of 7.5% in line with our initial guidance and our mid-term strategy roadmap, strong pricing power we have three years of positive pricing power although an impact of pricing power which is in excess of €400 million during this period.

So, and this illustrates the strength of our position which allows us in inflationary or deflationary energy and raw material environment to continue to expand our margin, leading us in 2016 with record 21% EBITDA margin. That’s a company record, but it’s very good in comparison with European and even North American peers. And this is again a consequence of the liquidity of our portfolio.

Cytec synergies, I was mentioning it €70 million year-to-date, €25 million in the last quarter which means a run rate of €100 million. Very strong year, I remind you that when we first presented this project in July 2015, we were targeting €100 million synergies in 2018 so we are significantly ahead of our expectation.

Momentum continues in excellence program, we continue to deliver significantly in all these improvement programs, which cover the group, both in terms of geographic businesses but also functional activities, manufacturing, commercial, supply chain, we are still developing little bit, hundreds of action plans allowing us to bring in 2016 more €100 million to €200 million of contribution to our EBITDA. On the last four years, we have a total of around €1 billion of impact which is again significantly ahead of our initial expectation.

This year was also a year of strong cash generation, free cash flow at €866 million this is clearly the consequence of clear focus on cash generation again in line with what we have shared with you along the year and especially at our Capital Market Day in September.

If we look at continuing operation, which means if we exclude [indiscernible] we have generated €736 million of free cash flow. Maybe just to weld on non-financial performance, we are communicating not just on financial indicators but also on some non-financial indicators, probably the headline there in 2016 is a 19% reduction in Greenhouse gases emission intensity.

That’s the impact of our portfolio transformation but also the impact of a strong focus on energy optimization, energy mix. We want indeed to continue to drive our CO2 intensity down and this year was a benchmark or at least saw a milestone in terms of reducing short intensity.

So, a year in which we have continued to execute our strategy. And we are able to overcome number of headwinds especially in advance materials, with small device segment. Advance formulation with enough American oil and gas environment. And I think that this good result, despite within reflects the strength of our multi-specialty portfolio and our business model.

Karim, can you give us a bit more insight on our financial results. And I will then conclude with a few comments.

Karim Hajjar

Of course, thank you, Jean-Pierre. As usual, the numbers I’m going to discuss are on an underlying basis. And I’m going to refer to a few slides that are available on our website.

Before I get into this, I just want to clarify for the avoidance of any doubt that the comparatives we’re using other that are restated for the fact that assets turn, vinyl turn are treated as discontinued operations.

Let’s start with sales on Slide 13. The facts are sales are down 5% for the full year. Overall volumes are flat with solid growth in important market such as automotive consumer goods, semi-conductors, agro-home and personal care. And that helps to offset the headwinds that Jean-Pierre talked about in oil and gas, smart devices and aerospace.

Prices are down 2.3% in a deflationary environment with lower raw material prices being positive through to customers, primarily in polyamide, plus there has been some market pressure which is totally understandable in oil and gas, and our businesses in Latin America as well.

Let’s talk about EBITDA on Page 14, Slide 14. Jean-Pierre did indicate the 7.5% and the record margin of 21%. A few points I’d like to highlight to notable terms. There is strong momentum in terms of excellence and synergies and that shows itself in two particular respects.

On excellence program, you see that’s a contribution to the positive pricing power but also on fixed costs, the facts that our fixed costs are down €61 million despite inflationary cost increases of over €80 million is testament to a real focus on cost discipline and excellence.

Clearly, as you know as well, that we hedged the majority of our net transaction foreign exchange. Nine months forward and that contributed about €110 million to about €209 million [ph] in 2016.

Now, if we turn to each of the key segments, advanced materials increased 3%, margins expanded 2% to 26%. Specialty polymers stands out as very strong performance with growth in automotive, batteries, consumer goods, healthcare outpacing quite a marked slowdown, lower demand in smart devices.

Composites as you know, was faced with declining build-rates in wide buddy platforms. Their inventory just put pressure on the segment. The market now seems to have stabilized.

Special Chem. delivered double-digit growth with good momentum and automotive catalysts, semiconductors, whereas growth in silica was unfortunately masked by the devaluation of the Venezuelan currency.

Advanced formulation, sales are down, EBITDA is down 7% but margins were largely stable at 18%. That to mind is worth noting in particular because that represents the verbalization of fixed costs in that segment. As another example of this focus on the bottom line deliver.

As we know oil and gas was under pressure towards most of the year, but we did see sequential improvement in Q4 against Q3 indicating that our activity is starting to increase following the higher rig counts that we’d be noticing for a while now.

There was good growth other Novo Care markets, agro, coatings and other industrial standout. And that helped to partially mitigate and offset the decline in oil and gas.

Technology distributions, a leading business in mining remained resilient and finished the year quite neutral despite the significant headwinds facing all of the industry that absorbs.

Performance chemicals, advanced by 11%, its margins achieved a new record at 28%. What did we see? We saw soda ash really going from strength to strength specifically bicarbonates in 2016 which had double-digit growth supported in part by the new tearing plant. And there is good demand for soda ash which was very much in line with the previous tier as well.

Peroxides performed well and it benefited from volume growth with a new plant in China as well. Operational excellence really stands out as the key contributor to our performance and that is something which really helps to preserve our leadership positions and at least in terms of the industry cost goes very, very strong position.

Looking forward, we do see limited impact from new capacities in 2017 although clearly one expect some margin pressure stemming not at least from increasing energy costs.

Functional polymers, was a very strong performer and we see 57% increase in EBITDA when you see margin expansion from 9.5% to 15% in the space of one year. As you’d expect, Polyamide led that strength, led that growth with volume growth typically in automotive and industrial applications. But also as you know that growth was supplemented and really underpinned by very, very strong focus and delivering operational excellence.

Corporate costs, you won’t be surprised to see that we’re down 5% and that simply is a fact that we’re determined to maintain cost discipline and deliver those synergies. And that helped to obviously overcome inflation.

Now, turning to net income on Slide 15. There is little to really highlight other than the fact that net income has progressed by 10%, aided by the fact that our effective tax rate is down from 32% to 28.5%. The other aspect is clearly as to why is that improving tax is driven largely by the evolution and the geographic mix of our pretax earnings.

Cash, Jean-Pierre has given you the headlines of our cash generation and on Slide 16, you’ll see the bridge on the key components of that. I won’t repeat what Jean-Pierre said but I would highlight two or three things. One, the rise of the cash has high quality behind them because they come from strong profits, low CapEx and a non-relenting focus on working capital. Those three coincide to generate that. And the 876 compares with €492 million last year. And it’s fair to say it’s at the top end of our expectations.

Nevertheless, that cash more than offset clearly all funding costs, dividend and interest by nearly €200 million. However, adverse movements in foreign exchange meant that our net debt did not fold down, largely because of the impact of dollar, the Venezuelan currency and the impact of our debt.

So, net-net that was very strong balance sheet, very strong cash flow performance and the quality is there to stay.

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

Jean-Pierre Clamadieu

Thank you very much, Karim. So, maybe just to conclude, weld on our sustainability indicators that you see on Slide 11, just to confirm that indeed we are wheeling in the next two years as we did during the Capital Markets Day when we were setting midterm objectives. We are willing to continue to follow our value on various metrics.

I already mentioned we Greenhouse gases intensity, what we see indeed meaningful reduction in ‘16 due to portfolio movement but also the continuation to optimize energy consumption and CO2 emission.

Meaningful increase in sustainable solutions, which represent today 43% of our portfolio. Safety, a bit of a disappointment with a stable performance to good level but stable and as far as safety is concerned, we want to be stable, we want to be improving and a slight improvement also in employee engagements. So, again, you should count on us to continue to follow on these indicators.

Looking into 2017, and our priorities, we’ll continue to upgrade liquidity of the portfolio indeed the work is not finished there, although we have a lease term some significant project during 2016.

We are willing to deliver volume growth especially on our core engine, will be a bit of differential than what we’ve seen in 2016. We expect that headwinds that we’ve seen in some segments like small devices on North American oil and gas turning. And we continue to expect significant growth coming from automotive electronics over aerospace.

And in overall businesses, just to mention [indiscernible] we expect our new satellite capacity to actually start up during the first half of the year. And this will be another opportunity for us to generate volume growth.

Based on this, our current estimate is that we should be able to generate mid-single-digit EBITDA growth for the full-year, mostly driven by advance material and advance formulation.

Focus on cash will continue to be a priority for us, as Karim mentioned. Our target on continuing operation will be to generate more than €800 million of cash compared to €736 million this year. And this again means that we’ll continue to have very disciplined approach to CapEx. This will provide us more opportunity to reduce our debt profile going forward.

All of this, very much in line with the strategic roadmap but we have announced during our Capital Markets Day and we feel very confident that until 2018 we have all the components in place to deliver on the various objectives that we have shared with you a few months ago.

Maybe just a final word to, regarding dividend, just to say that our board yesterday decided to recommend to a shareholder meeting in May, dividend increase of 4.5% to €3.45 per share. This is both the result of our strong delivery in terms of EBITDA and cash in 2016 but also our confidence that we will be able to continue growth and that we are confident in our ability to create more sustainable value for our shareholders.

With that, I will open the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is coming from Thomas Wrigglesworth, Citigroup. Sir, please go ahead.

Thomas Wrigglesworth

Jean-Pierre, Karim, thank you very much.

Jean-Pierre Clamadieu

Hello

Thomas Wrigglesworth

Hi, Jean-Pierre, Karim, thank you very much for your presentation. Three questions if I may. The first on the portfolio transition. If I could push you to kind of one key barometer that you’re looking at quarter-by-quarter in terms of how that transition is taking place to your expectations. What is that barometer and how - that’s my first question.

The second question is around your outlook statement. So on your guidance you’re saying mid-single-digit EBITDA growth which broadly speaking on the basis just north of €100 million. You guide the CapEx down of around €100 million as well year-on-year. And so that gives me free cash flow increase I think of €200 million and yet you’re guiding to free cash flow up only €100 million. So, I’m wondering if you could help me understand that dynamic and what I’m missing in that calculation. Thank you.

Jean-Pierre Clamadieu

I will let Karim answer the second question and maybe that is a bit of a cautious in a way we present this. On the, on your first question I mean, it’s not easy to follow strategy progress quarter-after-quarter. But I think that where are going is rather simple. We want the portfolio made of three components, two strong advance materials and advance formulation.

There I don’t expect to see much transformation, just a strengthening of our positions in the next year, probably stronger delivery of top-line synergies leading to slight integration. We focus very much on you will certainly understand why on cost synergies that we have delivered in a very quick and effective ways, so the next challenge for us is to make sure that the top-line synergies are coming.

Then we have a third group of businesses, where we want to have long-term sustainable cash generators have said all time. But we say all the time that soda ash and peroxide are the two key strong long-term sustainable cash generators when we still have movement to - some movement to do to deal with other situations, I mean, there are a number of strategic questions happen, strategic projects. Let’s see how quickly we can conclude them.

Karim Hajjar

On the cash, perhaps we just respond to your question Thomas. There are three things to highlight one clearly is to factor in taxes. There is a modest increase in our pension cost of the order of €20 million to €25 million from about €185 million to €210 million. And there is also as Jean-Pierre already pointed out, I’m not going to say caution but a capacity for us to invest in our customers to follow that growth.

So having that headroom to do that is important to us. And that’s how you reconcile exactly correctly what you said and what we’ve indicated.

Operator

Thank you, sir. The next question is coming from Paul Walsh, Morgan Stanley. Please go ahead, sir.

Paul Walsh

Yes, thanks very much. Good morning guys. And thanks for taking my two questions. The first is just on the guidance. It sounds like the mid-single-digit EBITDA growth is mostly volume provision in there for net pricing being positive or negative, obviously the roadmap is going up now. But is that a zero number for you this year or not?

And secondly, on the EBITDA bridge, what’s your FX assumption because obviously Euro weakness is going to start to be a tailwind for some, just curious if you baked in anything in for that guidance around FX as well? That’s my first question on EBITDA guidance.

Second question on cash flow, just to come back to Tom’s question, I get the lower CapEx benefit and the high EBITDA benefit. Karim, I think you just mentioned that higher cash taxes. Would you expect the same cash tax rates or is that also going up?

And in terms of the other changes in net debts of 237 from last year, is that all currency that disappears this year or should we factor in something negative on that piece as well this year? Thank you.

Jean-Pierre Clamadieu

Well, regarding the EBITDA guidance, we’re just exiting the year 2016 which started slowly. We’ve seen a cold building up along the year. Our current view is that indeed the EBITDA growth next year will be coming from volume growth and mostly from the advance material and advance formulation cluster.

In terms of pricing power, as to obviously very long sequence of positive pricing power, I would probably say that we expect a modest contribution. But I can tell you that we will continue to make sure that our teams focus on that.

And in terms of fixed cost, some of the new units, I was mentioning [indiscernible] running costs we start to impact our P&L so we’ll see some impact there. Cytec synergies will continue but clearly a big contribution was this year.

And in terms of foreign exchange, we’re not very original, very creative. I mean, we have viewed €110 million as a reference which was more or less the current rate when we launched the jet project to maybe a slight benefit in today’s condition but certainly not something we want to build on.

Karim Hajjar

Yes, maybe turning to your other questions on the cash and to help you with your expectations, couple of comments. We are not going to change guidance of around 30%. I still think that’s appropriate because again, you’ve seen quite, 3% to 4% movements in one year because of the evolution of where profit pulls geographically speaking. So, I say around 30% is still good, still holds.

And to the question around can you expect debt to go down I think the cash comes through that. It really depends on your view on foreign exchange rates at year-end. As you know, this is more of an accounting conversion impact, anything impacts the cash I can’t predict what’s going to happen in 31, December ‘17.

What I can say is given what we’ve described and if the exchange rate at the end of ‘17 although that we saw in ‘16 now you do expect de-leveraging coming from operational cash flow. That’s kind of stating the obvious there.

Paul Walsh

Okay. Brilliant guys, thank you very much.

Jean-Pierre Clamadieu

Thank you.

Operator

Thank you. The next question is coming from Peter Mackey, Exane BNP Paribas. Please go ahead, sir.

Peter Mackey

Good morning everyone, I’ve got three questions if I can. Firstly, to continue the debate around cash flow. That CapEx number is a little bit below what I was expecting even adjusted for the disposals. You talked to the Capital Markets Day sort of gradually bringing CapEx down towards depreciation. And it looks like 2017, it’s going to be, it’s already going to be pretty close.

And, I mean, is that better investing on your part or phasing of investments or what has driven that further reduction in CapEx, please?

Secondly, you talked about feeling that the composite situations began to stabilize or has stabilized. I wonder if you could give us a little bit more color around about that you said on the third quarter stage you were expecting some recovery in composites really in the backend of 2017. Can you sort of comment around in that context?

And then finally, on the smart devices business I think you said before that you were expecting less quarterly volatility. It looks as if we’ve seen that in the fourth quarter relative to the third. We’ve seen few comments from some peers suggesting that the tablets, the smartphone markets seem a little bit better. You’re still happy to - do you feel that you’re now on a run rate in the smart devices businesses please? Thank you.

Jean-Pierre Clamadieu

Okay. CapEx, we’re pleased with the guidance that we are giving. We still have significant project which are in the start-up phase, which give us the opportunity and the ability to generate coal. We think that with current level it’s probably a good one and with the exception of some specific sizeable projects, which could happen, I don’t have any in mind as we speak, I think it’s probably a reference but we should use. We are doing a lot of things regarding CapEx excellence within the group which is really when making sure that we should go on the right project.

Second making sure that we make the most out of every Euro that we’re investing, and I have to say that we are starting to give special attention to a small project at the end of the day will present a significant part of €800 million envelops which are done at the decided at business level, done at executive plant level, we think that there are opportunities to do this a little bit better.

But again, we have very well invested in the past years. We have seen a number of projects starting up, ramping up, some of them a little bit delay like [indiscernible], which was unfortunate because it was one of the largest CapEx project over past few years.

But again, we’re feeling that we have now enough, runway to be able to operate with this €800 million. And just to mention two projects that are about to start and probably at the right point of time, our chlorinated polymer plant in China, PVDS, they’re coming fairly at the right point of time because this is a product used for battery. And the battery market China is continuing to grow very significantly.

And then, big facility in the U.S. where we see also some opportunities materializing and the plant should be in full production mode in the next couple of months.

Your second question sorry, what were you?

Peter Mackey

Second question was just on the composites business.

Jean-Pierre Clamadieu

Yes, composite business. For composite business, we’ve seen last year a couple of events explaining soft market. The first one is just with difficulty of some OEMs to build planes. I mean, if my memory is correct Airbus has delivered 700 planes last year, 100 in December. So it shows that indeed during the year it was a very significant ramp-up in terms of production, still a number of issues, I don’t want to comment. You can read the news.

But we see our customers still having difficulties to bring the new platform up to the expected production level but overall improving.

And the second element was a bit of a digital king within the supply chain, people being a little bit worried because we are production right we’re not at the expected level. So we have suffered from the impact of both production high declining but also a supply chain squeezing a little bit inventories.

We think that we’re starting the year in better conditions. Run rates are more predictable, more stable. And the supply chain has done its effort running inventories. The way we are more optimistic regarding the developments, although I still see the situation where we will see gradual improvement in composite along the year.

Smart devices, you know that we are very dependent on one customer which is good. But we are also dependent on their, own product cycle. Yes, the situation has stabilized. We have seen less volatility last year. We are seeing opportunities in front of us with new products about to be launched off, which would be launched during 2017. So, clearly smart devices should be a segment of bringing some goal of opportunities for us.

Peter Mackey

Thanks very much.

Operator

Thank you. The next question is coming from Alex Stewart of Barclays. Sir, please go ahead.

Alex Stewart

Hi there, good afternoon. I just like to repeat this question on smarter devices. Has something changed in the market, the fourth quarter of 2015 was the worst point to the last cycle with aggressive de-stocking in the chain because of the discipline and of the success.

And so, is somewhat at this point that it is still negative year-on-year, just wanted to know if that was beneath or over the summer?

Secondly, can you tell us what the margin would have been in functional polymers if you stripped out the contribution from RusVinyl, which obviously has an impact on the EBITDA but not the revenue line? And whether that year-on-year improvement would have been same?

And then finally, can you remind us how, your accounting for the Sadara peroxide plants. You’ve got a mix I think of different accounting methodologies for ace CO2 plants. And any guidance there you can give on the earnings on the top line contribution depending on how it’s accounted for would be very useful? Thank you.

Jean-Pierre Clamadieu

Well, it’s from the various, and again I don’t want to share our customer specific information. But I think it’s quite well known that in Q4 we suffered from CDC count inventory adjustment, vendor situation as stabilized with probably a smoother supply chain management but also a new product coming online. So we are now getting ready for the next opportunities in 2017. And again I see both smoother supply chain but also some half opportunities in this segment.

I will turn to Karim to, are you ready to give function on RusVinyl margin?

Karim Hajjar

I hesitate to give you much more detailed information on RusVinyl. What I can say to you is polyamide itself generates a margin of around 14% which is about 4% higher than last year. So the majority improvement we see actually is coming from that business.

Your third question was referring to Sadara and how we’re going to account for it. It’s going to be proportionally consolidated, which reflects the joint controlling nature of the agents that we have contractually.

Alex Stewart

Okay, thanks. And can you give any indication of your contribution? The reason why I ask is that we can see your total housing for oxide capacity because you account for different plants in different ways. It’s not easy for you to see all the percentage increase and ideal revenue where your earnings would be?

Karim Hajjar

I think that’s something we can take into account and maybe reflect on how we share once it really kicks up and starts generating to the bottom line. I understand your need to really appreciate what it’s adding how it shows up. So let’s see how we take that. For now, I think there is nothing more that I can really say at this early stage.

Alex Stewart

Okay. Very helpful. Thank you so much.

Jean-Pierre Clamadieu

Yes, maybe just one thing Karim, we’ve said in the past and we can confirm that we are expecting a contribution in the order of €50 million including the other new transaction. In fact what we’ve said, let me phrase it more precisely. What we’ve said is that last year the new peroxide capacity mostly had a habit of the overall, should bring EBITDA in excess of €50 million. So, I can confirm this.

Alex Stewart

Thanks Jean-Pierre.

Jean-Pierre Clamadieu

Good. Next question.

Operator

The next question is coming from Martin Roediger, Kepler Cheuvreux. Please go ahead.

Martin Roediger

Yes, thanks for taking my question. Hello, good afternoon, Jean-Pierre, Karim. Just staying on Sadara, this €15 million, is that related or really for 2017 or is that the peak earnings you expect from the Sadara in new other peroxide plants?

And in respect to Sadara to say that they are timing of the start-up. Would that be middle of this year or more the end of this year? And how do you intend to ramp-up over one year or two years?

The second question is on silica. You said strong volume growth in Q4, and tire was offset by devaluation of the Venezuelan Bolivar. Can you explain to me how important Venezuela is for your Silica business?

And the third question is on Novo care, can you talk about the sales growth in agro please? I guess its volume driven. And maybe you can differentiate about the regions how the demand was there. Thanks.

Jean-Pierre Clamadieu

No, I won’t give you - I won’t be able to differentiate Novo care sales by region it’s a little bit too specific. What I can say is that we are benefitting both from a volume impact in agro but also in a way we’re continuing to bring new innovative product on the goal formulation market. And what you see in terms of both is the result of these two elements.

Regarding Sadara, unfortunately I won’t share our business plan with you. I can, and regarding the start-up you might want to call my colleague at Dow Chemical to ask him our current expectation but we’ve been I want to be prudent because we clearly don’t control this, is to see Sadara starting operating sometime around the second quarter of ‘17. So it will be a gradual start-up.

We have some contractual arrangements, which will allow us to smooth a little bit this impact. But we won’t see a full impact and my comment regarding, my comment a minute ago was about peak impact, we won’t see the full impact in ‘17. It will probably take until sometime in ‘18 to see the plant reaching its peak and when it’s still in ‘18 that we should have a full-year impact.

Karim Hajjar

And perhaps, Martin, on the silica question. The impact of the devaluation of the Brazilian Bolivar is quite simply as follows. It’s about €20 million of EBITDA decline that you’ll see in the FX conversion impact to our EBITDA-bridge.

What it means is that during 2016 that business and Venezuela has no significant impact at all on our results. So in fact we manage to overcome such a factor by basically by mitigating elsewhere.

Jean-Pierre Clamadieu

And one point is; it’s a very tiny piece of business. But we are there and we’re also planning a personal care customer which is using silica for our space. So it’s clearly a very, very small part of our silica activities.

Martin Roediger

But tires, is the most important application for your silica business and you have not so much business for dental business for silica?

Jean-Pierre Clamadieu

Yes, I mean, today I think it’s mostly tire but we continue to serve customers in various segments, oil care being one of them. And in Venezuela very small capacity there it’s just for dental oil cap.

Martin Roediger

Okay. Thanks.

Operator

Thank you. The next question comes from Stephen Benson, Goldman Sachs. Please go ahead, sir.

Stephen Benson

Hi there, I had a question on the guidance I mean one on the divisions. Your medium term target 5% to 8% growth on EBITDA, since you last updated us back at Q3 or even the Capital Markets Day. Could you just help us understand what’s changed in your sort of views on 2017 that has caused you to go towards the bottom end of that?

And maybe you could rank what’s prevented you from going to the same range as the medium term target?

The second question is just on soda ash. Can you give us an update on the European contract situation when that should be finalized perhaps and have the ability to pass room higher raw materials was going?

And finally, just on functional polymers, the guidance of EBITDA flat year-on-year that factors in the move of Butadiene. If you could you just clarify that? Thanks.

Jean-Pierre Clamadieu

Okay. Just on the guidance, but first I think it’s bad to start the year with a guidance at the bottom of the ranch. Second, I think what we have to take into account is the fact that we don’t expect growth neither in performance chemical nor in functional polymer. It’s really where we’ve based on.

And if you do high single digit growth on the advance material and advance formulation, you end up from the right of the portfolio you end up with this 5%. So what you really have to keep in mind is that the contribution of the various segments will be a very different, will be very different in 2017 when it was last year.

On performance chemical and it leads to your question on soda ash. We are starting to see activities coming from, new activities coming from Turkey. So the project is materializing. This being said, we expect flat to slightly growing performance of the segment which means that what’s happening in peroxide, with startup of Sadara and full impact of the new Chinese capacity, should lead us to again stable to slowly growing performance on the cluster.

So European compact in soda ash is mostly done very small decrease in prices compensated by operational excellence, overall I would say a good to stop. What will be a challenging year for soda ash, but will be a challenging year where we’ve taken all the measures that we can to protect our positions.

Stephen Benson

Okay. And just the functional polymers, on the butadiene increase we’re seeing? Is the guidance for flat EBITDA in functional polymers that bakes in the recent moves we’ve seen in raw materials like Butadiene?

Jean-Pierre Clamadieu

Absolutely.

Stephen Benson

Okay. Thank you.

Operator

Thank you gentlemen. The next question is coming from Patrick Lambert, Raymond James. Sir, please go ahead.

Patrick Lambert

Hi, good afternoon everybody. Thanks for taking a few questions. The first one, coming back to composites and materials, we see about 6% top line decline in Q4 but better than year-to-date. And I think you mentioned you’re still cautious about the overall turnaround in terms of growth, is that still the case? Can you, because when we look at in particular saffron business is doing pretty well ramp up in Q4, I think the 66 engines delivered in H2 compared 11 in H1.

What keeps you a bit more cautious about the balance between the growth and the legacy projects? That’s the first question.

The second question for Karim on pension, I think you mentioned €210 million on cash flow. But is that on top of the normal EBITDA pension expenses? Thanks.

Jean-Pierre Clamadieu

But what keeps me cautious, I mean, I can use your saffron number to make you cautious. I mean, I think the peak rate regarding the leap engine is number around 2,000 or 3,000 so we are still at the beginning of the ramp up. And near 60 is better than 40. But in terms of kilos of resin, it’s still we’re still at the beginning of this growth. And clearly the impact of leap engine won’t be material in our growth in 2017.

So, yes, we see a ramp up but again slow ramp up. At 45, we expect also a steep increase in the number of planes produced this year versus last. But in this project too this is the beginning of the growth.

So, again in our view, better growth, inventory optimization is behind us, that’s why we expect composite to go in 2017, but no reason to be bullied short-term, all the reasons to be very optimistic on the development in the next two years. But we are still in the year in which supply chain are being reorganized.

OEMs are fighting to be able to produce the planes where their customers are expecting to see being delivered quickly. But everything is not yet running at full capacity.

Karim Hajjar

And on the pensions [indiscernible], the two term includes the cost and EBITDA and it’s approximately €60 million EBITDA, €150 million on the otherwise on the provisions.

Patrick Lambert

Perfect.

Karim Hajjar

Thank you.

Jean-Pierre Clamadieu

Next question.

Operator

The next question is coming from Mutlu Gundogan, ABN AMRO. Sir, please go ahead.

Mutlu Gundogan

Yes, thank you. And good afternoon everyone. Two questions. The first is on fast materials, I see that your price mix is down 1% in the quarter. Can you tell us what the split was between price and mix and can you also talk about, can you also tell us which businesses drove that?

And then secondly, to come back to the question on soda ash, you talk about expected headwinds in this business. Could you provide some more detail, what kind of raw material inflation you are expecting?

And then coming back to the question on prices, or selling prices. You talked about it, what are you seeing in the U.S. and in the export market as if I look at the data I have in front of me, I see those flat to up? Thank you.

Jean-Pierre Clamadieu

On which business was your last question?

Mutlu Gundogan

On soda ash.

Jean-Pierre Clamadieu

Okay. No, no, I mean, on soda ash, what we see today is mostly pressure leaning to the new capacity becoming operational in Turkey and with an impact in Europe. As I was saying, I think we’ve been able to negotiate well the contractual prices. And we are expecting energy to go up in especially coal that plant supply of energy for our business.

And yes, I mean, what you said about U.S. and export market is where it is, so we don’t expect at all catastrophe in soda ash. We know that there will be pressure. We know that peroxide on the contrary will see a significant growth and overall it’s why we expect stable to slight growth in the performance. What was your first question about?

Mutlu Gundogan

On advanced materials, I see that the price mix down 1%?

Jean-Pierre Clamadieu

Yes, the answer is mix, bit less volumes from specialty polymer which has high margin and a bit more from our businesses which have slightly lower margins.

Mutlu Gundogan

Okay. That’s very clear. Thank you very much.

Jean-Pierre Clamadieu

No pressure, I mean on each segment no pressure on. No specific pricing issues. And all our margins are very good but just bit of an adjustment in mix from one quarter to the next.

Mutlu Gundogan

Understood. Thank you.

Operator

There are no further questions. Thanks so much.

Jean-Pierre Clamadieu

Very good. So, it means that we’ve been probably quite comprehensive in the initial presentation. I would just like to thank you very much. We will see each other in May when we present our Q1 results.

You can just count on us to continue to focus on our key priorities. Portfolio transformation we have still few projects to conclude and we are working very hard on these. And second making sure that we deliver our volume growth but this will translate not only in EBITDA growth but also in strong cash generation for 2017. Thank you very much. And talk to you in May.

Operator

Thank you, Mr. Jean-Pierre Clamadieu and Mr. Karim Hajjar. Ladies and gentlemen, this concludes today’s conference call. Thank you all for participating.

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