Earnings call transcript: Syensqo Q1 2025 sees flat sales, stock dips

Syensqo SA reported its Q1 2025 earnings, revealing net sales of €1,600 million, which met the revenue forecast of $1.6 billion. The company’s stock saw a decline of 1.83% post-earnings, reflecting investor concerns over flat sales growth and challenges in the electronics segment. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics, with analysts maintaining a bullish consensus rating of 1.83 (where 1 is Strong Buy and 5 is Strong Sell).

Key Takeaways

• Net sales were flat year-on-year at €1,600 million.
• Stock price decreased by 1.83% following the earnings release.
• Composite Materials segment showed strong growth in civil and defense applications.
• Electronics segment experienced a significant 30% sales decline.
• Ongoing share buyback program and cost-saving initiatives are in place.

Company Performance

Syensqo’s Q1 2025 performance showed stable revenue compared to the same period last year. Despite flat sales, the company achieved a 5% sequential increase in underlying EBITDA to €311 million, with an improved EBITDA margin of 19.2%. The Composite Materials segment demonstrated robust growth, driven by demand in civil and defense markets, offsetting weaknesses in electronics.

Financial Highlights

• Revenue: €1,600 million (flat year-on-year)
• Underlying EBITDA: €311 million (+5% sequentially)
• EBITDA margin: 19.2% (+60 basis points)
• Gross margin: 32% (+160 basis points sequentially)
• Net debt: €1,900 million

Earnings vs. Forecast

The company met its revenue forecast of $1.6 billion for Q1 2025. Specific EPS figures were not provided, making a detailed comparison to the EPS forecast of 3.5 challenging.

Market Reaction

Following the earnings announcement, Syensqo’s stock price dropped by 1.83%, closing at 66.84. The market reaction suggests investor concerns over the company’s stagnant sales growth and challenges in the electronics sector, despite some positive operational metrics.

Outlook & Guidance

Syensqo maintains its 2025 outlook, expecting stronger performance in the second half of the year. The company anticipates sequential EBITDA improvement in Q2 2025 and plans to invest around €600 million in capital expenditures, targeting free cash flow of €400 million for the year.

Executive Commentary

CEO Ilham Khadri stated, "We are not wasting a good crisis," highlighting the company’s focus on efficiency and cost-saving measures. CFO Christopher Davis emphasized that 2025 is expected to be a peak investment year, reflecting the company’s commitment to strategic growth and innovation.

Risks and Challenges

• Continued decline in the electronics segment, with a 30% sales drop.
• Uncertain tariff and trade dynamics impacting market stability.
• Potential challenges in achieving targeted cost savings and restructuring goals.
• Dependence on defense and civil aviation markets for growth.
• Macroeconomic pressures and competitive industry landscape.

Q&A

During the earnings call, analysts inquired about the impact of European defense spending and the company’s pricing strategy in light of market challenges. Executives addressed concerns regarding the electronics and semiconductor markets, reiterating their focus on strategic capital allocation and efficiency improvements.

Full transcript - Syensqo SA (SYENS) Q1 2025:

Sharif Bakra, Head of Investor Relations, ScienceCo: Thank you, Bella. Hello, everyone, and welcome to ScienceCo’s First Quarter twenty twenty five Earnings Call. I’m Sharif Bakra, Head of Investor Relations, and I’m joined today in Brussels by our CEO, Ilham Khadri and our CFO, Christopher Davis. As a reminder, today’s call is being recorded and will be accessible for replay on the Investor Relations section of our website later today at scienceco.com/investors. I’d also like to remind you that during this call, we’ll be making forward looking statements regarding our future business and financial performance that are subject to risks and uncertainties.

The slides related to this presentation, along with today’s press release, are also available to download from our website. Turning to today’s agenda. Ilham will begin with an overview of the quarter. Chris will then go into more details on our financial performance before turning the call back to Ilham, who will discuss our outlook for 2025. We will then be happy to take your questions.

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

Ilham Khadri, CEO, ScienceCo: Thank you, Sherif. Good afternoon, and good morning to everyone. The first quarter of the year saw us deliver and slightly exceed our outlook in a challenging market environment. Chris will take you through more of the details of our quarter one performance in his usual financial review. I’ll then share some thoughts on our unchanged outlook and some context relating to the evolving tariff and global trade dynamics.

Turning back to the quarter one highlights. As Chris will demonstrate in his comments, we delivered resilient sales growth with stable pricing despite the headwinds we flagged last quarter in Specialty Polymers. Our performance was led by Composite Materials and Technology Solutions, which on a reported basis both delivered 10% growth with 7% growth in North Care. While gross margin was impacted by lower volume in Specialty Polymers, we saw 160 basis points sequential improvement supported by higher pricing and margin expansion in both Materials and Performance and Care. An underlying EBITDA of €311,000,000 increased by 5% sequentially, with EBITDA margin increasing by approximately 60 basis points to 19.2%.

The first quarter of the year also saw us make excellent progress to fully separate our systems and IT infrastructure from Solvay. And in early May, we successfully completed a key milestone with the cutover of our ERP systems, which are now fully owned and operated by Science Co. We also continued to execute our €300,000,000 share buyback program, repurchasing an additional €56,000,000 in the quarter, which took us to approximately 40% of the total program. And taking into account the repurchases in the first six weeks of quarter two, we are almost at 50%. Turning to our updated segment reporting on Slide six.

As you would have seen from our press release earlier this week and in our quarter one results, we have updated our segment reporting, creating two new segments to replace the former consumer and resources. By separating the businesses we intend to divest, we now have two segments: materials in one hand and the newly created performance and care. They are both better aligned with our pure play strategy as well as providing better visibility to the investment community into the profitability of North Care and technology solutions. Excluding oil and gas and aroma, the underlying EBITDA margin of Performance and Care was more than three fifty basis points higher than the previous Consumer and Resources segment in 2024 and much closer to its best in class peers. What you see on the left hand side of the slide is a simpler, higher margin and more focused specialty company with approximately threefour of its EBITDA generated by the higher margin Materials segment.

Starting with Specialty Polymers, our largest and highest margin business unit Composite Materials, which is exposed to a broader range of civil and defense customers and programs, with strong underlying demand and has increased its EBITDA margin over the last five years from low to double digits to above 20%. NorthCare, with its portfolio of surface chemistry, focused on the home and personal care, coatings and agricultural end markets and Technology Solution, a global leader in specialty mining reagents and technical services, which is our second highest margin business. Now let’s turn to our segment highlights for the first quarter. Starting with Materials. As I mentioned earlier, Q1 performance was led by double digit growth in Composite Materials, with broad based growth in both civil and space and defense applications.

As expected, our performance in civil aerospace was impacted by destocking at Boeing following the strike action at the end of last year. On a year on year basis, Specialty Polymers’ performance saw mixed end markets dynamics. As we referenced on last quarter’s call, Q1 was impacted by specific headwinds in electronics, where sales were down by approximately 30% year on year, primarily due to temporary customer destocking in semiconductors in the first half of the year and, to a lesser extent, from lower sales in consumer electronics. Growth was led by Food and Pharma Packaging with stable performance in health care. At materials level, EBITDA margin of 28% reflect the lower volume in specialty polymers and unfavorable mix given the higher growth in composite materials.

Turning to performance and care, where we delivered 8% year on year growth. For technology solutions, we continue to see strong underlying demand, supported by market share gains. Growth was also supported by an easier year on year comparison. For Nof Care, growth was driven by agro and, to a lesser extent, by home and personal care, supported by share gains as well, with a slower start to the year in coatings. At segment level, underlying EBITDA margin of around 18% saw a healthy sequential increase, up 140 basis points.

With that, I’ll turn the call over to Chris to go through our financial performance in more detail. Chris?

Christopher Davis, CFO, ScienceCo: Thank you, Elam. Good morning and good afternoon to everyone on the call. As Elam has referenced, 2025 is a year that has commenced with a great deal of uncertainty. Whilst we did not expect any near term recovery in demand as we commenced the year, the impact of tariffs, by contrast, has introduced friction and volatility into global markets. Elam will cover this in the outlook section of her remarks.

Despite this, I’m pleased to report that we finished the first quarter of twenty twenty five slightly above expectations. With that in mind, let us turn to Slide nine, which summarizes our first quarter financial results. For the quarter, net sales totaled €1,600,000,000 in line with the prior comparable period. Volumes were down 1% due primarily to the expected lower demand in our Specialty Polymers segment. I will talk more about the drivers of sales by each business segment in a later slide.

As I have previously mentioned, we remain committed to defending our gross margins as this reflects our value proposition and how we manage both our sales and cost of goods sold. In this respect, our gross margin at 32% continues to reflect our specialty value proposition and improved by 160 basis points on a sequential basis, driven by strong volumes and pricing within composite materials and generally a better pricing environment in the first quarter. Whilst the individual mix of products within each of the segments can impact the margins in any single quarter, the important message is the trend and our ability to defend pricing and maintain cost discipline over the period regardless of the impact of volumes. At €311,000,000 underlying EBITDA for the first quarter is slightly above expectations. Turning to operating performance by segment on slide 10.

As Elam mentioned and aligned with the announcement to divest both the aroma and oil and gas businesses, we have created a new segment named Other Solutions so as to provide a better picture of the true underlying performance of our Performance and Care segment. Within our Specialty Polymers business, sales revenue reduced by 11% compared to the prior comparable period, primarily due to the expected lower volumes in electronics and to a lesser extent in automotive. As Elam referenced and as we saw in the fourth quarter of last year, the lower volumes in electronics primarily relates to sales to certain semiconductor customers who have delayed a new fab construction projects. This has resulted in an extended period of destocking in the value chain, which we continue to expect will impact our growth in the first half of the year. In addition, year on year volumes were also impacted by the design change we referenced last quarter in consumer electronics.

On the plus side, volumes improved in packaging applications on the back of strong demand across all markets in the quarter. Net pricing in specialty polymers remained broadly flat with modest declines in the automotive and battery applications. Revenue from composite materials continued its strong improvement totaling three seventeen million euro, a 10% increase compared to the prior period. Despite the expected impact on sales to Boeing, increased sales to other commercial aviation programs and space and defense applications drove a strong performance in the quarter. Sales to commercial aviation improved by 9% compared to the prior comparable period and sales to space and defense improved by 14%, resulting in our EBITDA margin in composite materials exceeding 20%.

This demonstrates the strong value proposition of our range of products and our exposure to a mix of customers and programs within both civil aviation and defense applications. The net result in our materials segment is EBITDA of €254,000,000 in the quarter and a strong EBITDA margin of 28%. NovaCare delivered sales of €371,000,000 and technology solutions sales were €169,000,000 a year on year increase of 710% respectively. Within NovaCare, agro sales increased 19% representing the third consecutive quarter of strong year on year growth. Whilst we have seen a shift of product mix to lower margin products in the agro market, stronger demand and a return to a more balanced level has driven the improvement in sales in the quarter.

Home and personal care sales increased 11% driven by share gains in targeted businesses across Asia, increased demand for premium products from key customers in Europe and a rebound in the North American sales via distributors. Technology solutions benefited from new business and customer wins and a higher reagent consumption in copper mining. The net result is that Performance and Care delivered an EBITDA of EUR96 million in the quarter and an EBITDA margin of 18%. Within the other solutions segment, EBITDA improved to EUR17 million on the back of positive net pricing and lower fixed costs. The net effect of what I’ve just described is reflected on slide 11.

As mentioned on the previous slide, all businesses with the exception of specialty polymers and to a lesser extent aroma experienced improved volumes compared to the prior comparable period. The lower volumes in specialty polymers, more specifically electronics and automotive, is the single largest driver at a Science Co group level of the year on year decline in EBITDA when compared to the first quarter of twenty twenty four. Absent the lower volumes in electronics and automotive, specialty polymers volumes were flat year on year basis, reflecting the shorter term headwinds in electronics and slower overall industry growth in automotive. This was partially offset by savings and fixed costs and flat year on year net pricing, as well as the improved performance from composite business as already described. The net result is a decline in EBITDA of €60,000,000 in the material segment compared to the first quarter of twenty twenty four.

In Performance and Care, the strong sales from Technology Solutions and NovaCare was offset by higher input costs, most notably Oleo chemicals as well as an unfavorable mix in NovaCare. This resulted in a year on year EBITDA decline of €1,000,000 in the first quarter of twenty twenty five. Other solutions improved by €5,000,000 compared to the prior period as a result of savings and fixed costs in the Aroma business. Whilst we will no longer report net pricing, I am pleased to say that at a Science Co Group level, net pricing in the quarter was marginally positive. The net result is EBITDA of EUR311 million for the first quarter of the year.

Turning to capital expenditure. Our total capital expenditure for the quarter was million. This remains in line with our expectations with higher planned maintenance and safety spend in the first quarter as well as spend on IT infrastructure as we separate from Solvay. In terms of CapEx phasing for the year, we expect the first quarter to be the highest quarter in terms of capital expenditure spend, and this remains within our envelope of €600,000,000 for the year, which is more than 10% lower than our spend in 2024. Included within the €176,000,000 is growth capital expenditure of €90,000,000 related to the spend on the PVDF facility in Tervaux, France, investments in technology solutions in Welland, Canada, and Gelden expansion in Spineta in Italy.

Over the coming years and as capacity is filled, these projects are expected to contribute more than €100,000,000 of incremental EBITDA. As you will have seen in a separate release today, we have secured more than €150,000,000 of PVDF contracts in the first quarter, which will be serviced by the Tavow site in the future, a first step towards achieving this target. As a reminder, 2025 is expected to be a peak year of investments, driven by a significant reduction in both the spend on the Tavo site and the transition to a separate digital and IT infrastructure from Solvay. Our focus going forward is therefore on leveraging our existing capacities that we have today to meet future volume growth. This requires no additional capital expenditure.

We will also focus on investing in smaller and faster organic growth opportunities where the market exists and where we are at capacity, thereby accelerating our strategy. And finally, we will maintain our investment grade credit rating and reward shareholders in line with sustainable cash generation. As with the decision to defer the spend on the North American PVDF facility, we will continue to evaluate all capital expenditure and only invest when we are comfortable that the market exists and that the returns are acceptable. In this respect, we will remain responsible custodians of cash. Moving to our operating cash flows on slide 13.

The generation of strong operating cash flows remains a key focus for the business. In the first quarter of twenty twenty five, operating cash flows were €176,000,000 Based on the last twelve months, this results in a cash conversion of 80%. Free cash flow to shareholders for the quarter was EUR37 million. We continue to target free cash flow of EUR400 million for the full year in 2025. It is important to note that 2025 remains a year of transition from a cash perspective.

With the separation from Solvay in late twenty twenty three, there remains separation costs to be incurred so that Science Co. Can operate as an independent company. As we head into 2026, the situation will improve significantly with reduced spend on separation and a finalization of growth capital being spent on the Tavot site. Together, these account for €200,000,000 to €250,000,000 of cash outflow in 2025 that will not repeat in 2026 and beyond. Turning to our financial position.

I am pleased to report that we continue to have a strong balance sheet with our net debt remaining at €1,900,000,000 a gearing ratio of 22% and a leverage ratio of 1.4 times. We continue to have low levels of gearing and a balanced debt maturity profile. We have strong levels of liquidity available as demonstrated by the €1,700,000,000 of undrawn committed bank facilities and a further €600,000,000 of cash and cash equivalents and other financial instruments on hand as of the 03/31/2025. With that, I’ll now hand you back to Elan. Thank you.

Ilham Khadri, CEO, ScienceCo: Thank you, Chris. Looking into the balance of the year, I think it’s clear that everyone’s crystal ball is pretty cloudy. In what was already an uncertain demand environment, the evolving and unpredictable tariff and global trade dynamics, as we have seen in the last few days, has made it even more challenging for global companies to operate and look too far ahead with clarity. Indeed, in the process of preparing our materials for today’s call, we’ve had to adapt to these ever changing situations. For Science Co, we believe that the combination of our balanced regional footprint and mitigation actions position us to see a limited direct impact from tariffs.

However, the broader consequences on end demand and the global economy remain unknown. As we navigate this evolving period of uncertainty, our focus remains on executing on initiatives that we can control to help mitigate potential shorter term headwinds and ensure we are taking action to support our longer term growth and value creation potential. Turning to full year outlook on Slide 16. The high level takeaway is that based on the assumptions we shared at the February, our 2025 outlook is unchanged. Our quarter one performance was slightly better than expected, and we continue to expect a stronger second half of the year than the first, supported by a number of more science specific drivers.

Turning to tariffs. At a high level, we believe the broader impact of the recent announcement has resulted in increased uncertainty, reduced visibility and increase operating costs, conditions that are fundamentally at odds with the interest of shareholders seeking steady long term value creation. For Science Co, we believe our global manufacturing footprint and proximity to customers, coupled with the mitigation actions we are taking, should serve us well as we adapt and manage our direct exposures. Mitigations measures already implemented include tariff surcharges, refining our supply chain exposures, redirecting capacity to serve local and regional customers less affected by the higher tariffs and taking actions to further localize production and increase our flexibility. For example, using our compounding capabilities in China to qualify more volumes.

While the external factors related to tariffs, including the impacts on foreign exchange rates, are out of control, we will double down on actions that we can, including the acceleration of our restructuring and cost saving initiatives to both offset the inflationary impact on costs during the year and deliver more than €200,000,000 of run rate savings by the end of twenty twenty six. Advancing our mitigation plans and actions to try and reduce potential direct cost impact in the coming quarters as well as completing our full separation from Solvay by the end of the year latest, which will also allow us to drive more efficiencies. Finally, a few words on quarter two. The evolving tariff dynamics have made it even more challenging to provide a specific outlook for quarter two as the entire value chain is now adapting to the news from earlier this week and the trade relations between The US and China. Nevertheless, what we can say at this stage is that we expect quarter two to show a sequential improvement in EBITDA.

Starting in quarter two and for the balance of the year, we should also start to see greater benefits from cost savings. Combined with the easing of headwinds in the first half in electronics and aerospace, this will also help to support a higher net sales and EBITDA in the second half of the year than the first, consistent with the full year outlook we provided in February. In closing, the first quarter saw us deliver on our outlook. While we continue to operate in these uncertain times, our focus remains on what we

Christopher Davis, CFO, ScienceCo: can

Ilham Khadri, CEO, ScienceCo: control, accelerating how we can become more efficient, enhancing for new growth opportunities to drive more profitable volumes, and how we can unlock value. With that, we are ready for your questions. Thank you, and back to you, Cherry.

Sharif Bakra, Head of Investor Relations, ScienceCo: Thank you, Ilham. We’ll now move to the Q and A session. Bella, can we please have our first question?

Operator: Your first question comes from the line of Matthew Yates with Bank of America. Your line is now open. Go ahead.

Matthew Yates, Analyst, Bank of America: Hey, good afternoon, everyone. Maybe it’s principally for Chris. If I understand correctly, you’re reiterating the $200,000,000 cost saving plan, but are now trying to accelerate the realization of that. Can you just be a bit more specific as to what the latest thinking is on the actual contribution in 2025 itself? And maybe contextualize that with whatever the original sort of budget was when you gave the guidance?

And then as a sort of related follow-up, within your commentary on NovaCare, you’re talking about both fixed and variable cost inflation and that weighed on the margins. So when we think about the overall cost base of the group in 2025, what do you think the net change is given those two dynamics of the restructuring versus the underlying inflation that you’re seeing? Thank you.

Ilham Khadri, CEO, ScienceCo: Thank you, Matthew. I’ll start with the cost, and then you take, Chris, the the other one. Yeah. Indeed, Matthew, you remember we we have been targeting over €200,000,000 run rate cost savings by the end of twenty twenty six, which is you know, it equates more or less of offsetting roughly three years of fixed cost inflation in two years. Right?

And this is what we’ve been working with the team since last year. We continue to expect cost savings for the reasons you know to be faced towards the second half of the year aligned with our full year outlook. So nothing changed there. In the first quarter of twenty twenty five, actually, the cost saving offset the fixed and variable cost inflation in line with the expectation and what we told you earlier in the year. You’ve seen it probably in the press release.

We’re accelerating cost actions. I mean, this team and for those who followed us for the past six years, we’re not wasting a good crisis. We have announced that we will have 200 additional full time equivalent reduction on the top of the 300, three 50 announced in November 2024. And obviously, this is gonna start with the social dialogue, and it’s gonna impact next year. Next one, Chris?

Christopher Davis, CFO, ScienceCo: Yeah. Let me take it. And, Matthew, apologies if I don’t fully understand the question. But at a group level, as I indicated in my call or in my speech, is net pricing was marginally up. If you look at it specifically around performance and care specific to NovaCare, given the impact of Oleo Chemicals, they had a bit of margin squeeze in the quarter.

And then when I look at the fixed costs across the group, it’s marginally up. And the bulk of that sits in our composite materials business as we put extra resources on board to increase the outputs and the efficiencies given the very, very strong demand environment that we have in composite materials. The rest where there’s fixed cost increases is not material to talk about.

Matthew Yates, Analyst, Bank of America: Thank you, guys.

Operator: Your next question comes from the line of Laurent Favre with BNP. Please go ahead. Mr. Fabry with BNP, your line is now unmuted. You may begin.

Mr. Fabry, your line might be on mute. Next question comes from okay. You may begin.

Arun Sarasiri, Analyst, Berenberg: Apologies.

Laurent Favre, Analyst, BNP: Two questions, please. The first one is on the Rearn eight hundred billion plan in Europe. I was wondering if you could talk about what are the key relevant areas of this plan that could impact your business in composites over the next, let’s say, three years? And if you could help us dimensionalize the upside? The second question maybe for Chris is on specific guidance on corporate costs.

If you could talk about as the ERP integration is now done, how we should think about corporate costs for the rest of this year, but also as we go into the clean 2026 year? Thank you.

Ilham Khadri, CEO, ScienceCo: Yeah. I’ll start maybe, Chris. Yes, Laurent. The potential for higher defense spending, specifically in Europe, but, frankly, not only in Europe, I just came back from India, is the same, represents a major growth opportunity for composite material. On Europe, as you mentioned, is driven by the rearm Europe plan.

It’s there is a broad political consensus, and the EU and European defense budgets are increasing sharply with over €800,000,000,000 in new spending expected by 02/1930. Obviously, we have a good resume. We have a good resume as a company in The US, in Korea with the fighter jets there. And and as I told you, we see other opportunities in in India. Too early to get into specifics.

Obviously, the budgets have to be approved by member of states, allocate to specific program. But it’s clearly a tailwind, right, over the coming years post 2025, ’20 ’20 ’6. Cannot comment on specific program, but we are sitting in all those rooms, right, from Brussels to member of states and the main countries, right, who are now building up, the value chain and broad range of future, you know, yeah, fighter jets and and defense materials. So stay tuned.

Christopher Davis, CFO, ScienceCo: Laurent, let me take your next question about the corporate costs. So I think, you know, corporate costs last year was around €220,000,000 This year, we expect it to be approximately €200,000,000 Now what you need to bear in mind, albeit that we transitioned the the systems in the last week or so, we’ve had a element of duplication of costs because we still run on the TSA from Solvay up to a certain point. We’re in a hypercare with them today in a parallel process, and then we switch over to our systems as we we continue to go forward. So, yes, the the costs will be lower relative to last year. I think the biggest impact you’ll see is as we start going into 2026.

Laurent Favre, Analyst, BNP: So so on that point, a more normal corporate cost for next year could be, what, $1.50, 1 60, something like that?

Christopher Davis, CFO, ScienceCo: At this stage, we haven’t given any guidance on 2026 costs, but we will come out with something during the course of the year.

Laurent Favre, Analyst, BNP: Thank you.

Operator: Your next question comes from the line of Martin Rodiger with Kepler Cheuvreux. Please go ahead.

Martin Rodiger, Analyst, Kepler Cheuvreux: Hello, Ilham. Hello, Chris. My one question is about the shift of the oil and gas and the aroma performance business into the separate segment. Chris, you said that the purpose for the new segment reporting was to show how profitable your core business, I. E, Performance and Care is.

But why didn’t you put both noncore activities into discontinued operations? Or will that happen once you have concrete negotiations with the bidder? And my follow-up question regarding these two disposal candidates is, given the fact that the profitability of these activities are rather low and you do not earn your cost of capital, would you be willing to accept a negative enterprise value in case you find a buyer? Yes,

Christopher Davis, CFO, ScienceCo: Martin. Let me take the first one about discontinued operations, one of my favorite subjects here. But I do think you pretty much answered the question yourself. We announced in the last quarter that we had made a strategic decision to divest of the oil and gas and aroma businesses. Now, frankly, these business businesses do remain attractive businesses, but in the hands of the right owner because we’ve obviously got a number of opportunities to look at.

We have, in the meantime, separated them into other solutions segment so that our investors can really fully appreciate the quality of both NovaCare and technology solutions. And I think that has come out in a lot of the comments that we’ve had. You’re right. The reporting of businesses as discontinued operations is really subject to strict accounting rules and criteria, not least of which is how close you are or have signed an agreement that is bonding. And that’s regulated under IFRS five, as you’ll appreciate.

Now the biggest difference between the way we’ve treated it as an other segment versus discontinued operation is nothing more than the stopping of depreciations stopping of depreciations once you classify it as discontinued. So I’ll stop there and then hand over to Elam for the next question.

Ilham Khadri, CEO, ScienceCo: Yeah. And and, Martin, I acknowledge that probably this the oil and gas specifically was not the best acquisition this company has made. You remember, Martin, when I joined the company, I made an impairment short after my arrival, if my memory is right, probably quarter three twenty nineteen. Was at that time falling knife and with COVID didn’t help improving the macros in general. We we had that conversation because I heard it when I was on the roadshows that, you know, the the process was was that open.

It’s not true. We had that conversation with third parties due to the splits as a tax free spin off required in many jurisdiction to freeze the perimeter. So now we are where we are. We have two businesses, which are not cash drains. The macros are specifically improving for Aroma.

The US imposed duties on synthetic Vannevar and and other natural van of 213% effectively make Chinese imports of Vanille pro prohibitive. This is already effective since early this year, January 2025. I expect the EU, although hope it’s not a strategy, to reinforce anti dumping duties of around a % plus, but bear with me probably between now and summertime. And this will have long term positive impacts on the aroma. So, yeah, we are you know, the carve out is being, you know, proceeded on the aroma side.

Oil and gas is ready. And obviously, it’s too early to talk about our conversation with potential bidders. Back to you, Sherif.

Operator: For that question, Mr. Kepler. Your next question comes from the line of Mr. Peter Clark from Bernstein. Please go ahead.

Peter Clark, Analyst, Bernstein: Yes. Good afternoon, everyone. I just wanted to confirm that you said the composite margin has gone above 20% on EBITDA. The reason I’m asking that is, obviously, when it came in with SciTech ten years ago or so, it was sort of just around the 20%, just above on the aerospace side. And then obviously, you had trouble, ERP problems, etcetera.

But then it started recovering. It got back to a new peak, we thought. Then there was COVID. You ripped out a ton of costs and then started recovering again. So I’m really surprised.

Is it just a quarterly thing? Or is it very volatile in there? I’m surprised it was so low, just getting above 20%. And then the follow-up with that, obviously, is looking forward, clearly good momentum there, great visibility in terms of the business. You speak about India, etcetera.

Just wondering about the F-thirty five in there. Obviously, there’s a bit of uncertainty building on that. It hasn’t happened yet apart from maybe one country. But that was a very profitable and is a very profitable plane for you. Just any comments you might want on that?

Thank you.

Ilham Khadri, CEO, ScienceCo: Yeah. Thanks, Peter. I’ll take it. Yeah. I mean, the composite material, again, when I joined the company, and you may remember the Cytec times, I mean, was not at that level of profitability.

So one of the objective I have had specifically during COVID times, we have been restructuring the composite material, including actually was the first closure plant closures ever happening in in in the history of Solvay at that time, right, where we removed some of the inefficient as assets at lower return than the cost of capital. And with the COVID, it helps us to not lose market share. We also, you know, divested the industrial parts, which was very low margin. So I think, you know, the composite material, and that’s the good news, have been really closing gap in term of EBITDA margin compared to the some formidable competitors there. So I’m very proud of the team, proud of what they have been doing.

Now we are working on our our efficiencies. So the best is yet to come, I believe, because we are automating our our manufacturing assets. And you’ve seen it even with the Boeing strike and destocking happening and impacting quarter one, quarter ’2, composite material is is is growing double digits in civil and defense. On the f 35, yeah, I mean, this is a nice program. We like it.

And and while I cannot comment on specific program, you know, the the the defense is is poised to grow. I remind you that civil aviation represents approximately 60% of composite material. Space and defense represents 36%. In quarter one of this year, this sector grew 914%, respectively, with EBITDA margin now exceeding 20%. Yeah.

And and, you know, as we announced at the, you know, the end of last year or early this year, I don’t remember, we are looking at smaller projects within composite material that increase, you know, capacity incrementally with strong returns given the sector is likely to remain robust with very solid, you know, order book. And with all what you’ve heard from recent US administration visit to the Mid Middle East from the civil aviation, the two ten aircraft from Boeing, you know, and 140 plus billion in defense. So all of these are good tailwinds for, you know, our our composite material on the top of what I said already on the European defense growing budget. Back to you.

Operator: Further question, Mr. Clock? Your next question comes from the line of Tristan Lamott with Deutsche Bank. Please go ahead.

Tristan Lamott, Analyst, Deutsche Bank: Hi, thanks for taking my questions. The first is on kind of phasing. I know you alluded earlier in your comments, but just looking to understand what drives the step up through the rest of the year. I understand the cost savings impact didn’t really hit Q1 that much. Boeing strike is kind of front end weighted, semi’s destocking is maybe kind of ending now.

You gave an 80,000,000 sales impact. So I guess that doesn’t explain the step up through the year in total. So I

Arun Sarasiri, Analyst, Berenberg: just wonder if you could give

Tristan Lamott, Analyst, Deutsche Bank: a little bit more color on that sequential improvement in the second half weighting. Thanks.

Ilham Khadri, CEO, ScienceCo: Yeah. Thank you, Tristan. Listen, we expect quarter two EBITDA, as we said and Chris said it, to sequentially be higher. Now given all the uncertainty and evolving dynamics around tariff, it’s obviously difficult to be precise at this point. But, you know, we we expect sequential improvements in specialty polymers, obviously.

Example, automotive as well, which will also help mix versus q one. Also, expect to see greater benefits from the cost savings. Obviously, when you prepare for any restructuring, as you know, Tristan, you have a social dialogue. You have implementation. And now we are, you know, in that wave one, you know, implementation.

So this this is gonna hit the second half. And and all these cost savings are more balanced towards the second half, and we told you that. For the full year, we continue to expect, again, a stronger h two. It’s driven by three things. One, the absence of impacts of the Boeing strike in H2, which we expect will be a headwind of around €20,000,000 in H1.

To the end of destocking in in semicons. We we told you that, which we can see in our order book, by the way. It was zero q one, zero q ’2, and should be around, you know, 40,000,000,000 tailwind to the second half versus the first. It’s not wishful thinking. We we talk to our customers, and this is gonna happen.

And three, the the the phasing of the cost saving we talked about, which are balanced towards the second half. Yeah. So yes, that’s it. Anything to add, Chris?

Christopher Davis, CFO, ScienceCo: No. I think you hit the nail on the head.

Ilham Khadri, CEO, ScienceCo: Thank you. Back to you.

Operator: Thank you for that question, Mr. Lamott. Your next question comes from the line of Mr. Tom Wriggles worth with Morgan Stanley. Please go ahead.

Ilham Khadri, CEO, ScienceCo0: Thanks for the opportunity to ask questions. Kind of following on, I’m thinking about 2026 free cash flow generation. Can we identify the kind of the buckets or maybe the headwinds that you’re experiencing in 2025 that won’t reoccur in 2026? I’m not looking for a guidance on the kind of the cycle, more of the moving parts as you see them that will help support improved free cash flow generation in 2026? Thank you.

Christopher Davis, CFO, ScienceCo: Yes. Tom, thanks very much for that question. I mean, I was quite clear that what we’re not gonna do is necessarily give full guidance on 2026 at this stage. But what I’d like to try and help and frame for you in the discussion, in 2025, we’re this is expected to be a peak year of investment particularly from a capital expenditures perspective. So we are expecting a significant reduction in both the spend on the Teva site and the transition to a separate digital and IT infrastructure from Solvay.

So that’s obviously been a fair amount that’s built into our capital expenditure for this year. In terms of the other free cash flow drivers, we expect lower restructuring costs versus 2025, albeit if there’s opportunities to make savings in the future, those are things we will always consider. Outside of free cash flow, we obviously also expect significant reduction in the separation costs. As part of the 2024 year end results, we announced that in 2025, there would be approximately one hundred and fifty to two hundred million in separation costs in 2025, and these will not repeat as we go into 2026. So I think putting all of this together, we expect to see higher free cash flow in 2026 and lower one off cash payments outside of this.

Operator: Mr. Wrigglesworth, your next question comes from the line of Chetan Udeshi with JPMorgan. Please go ahead.

Ilham Khadri, CEO, ScienceCo1: Yes, hi. Thanks for taking my question. The first question was, I heard you say that your net pricing was positive in the quarter. If I’m not mistaken, I think this is the first time it’s turned positive since second half of twenty twenty three. As you think about the rest of the year, do you think you’ve turned the corner now on net pricing that gradual unwind of peak pricing?

Is that behind us? Or you can still see that coming through in next few quarters may not be a clear trend yet. So anything there would be appreciated. The second question was, I’m sorry if this is a bit straight, but on one hand, are saying that the visibility is low and hence you can’t guide to second quarter. But then, Elam, I heard you say that on second half, you have pretty strong visibility because of order book.

So I’m just trying to tie those two things together. If you have such a good visibility on second half, why not on second quarter? And last question, sorry to squeeze one more Your specialty polymers volumes are down 10%, I think roughly year on year. I mean maybe you can just help us break it down into how much of that is the business that you lost with I think Apple or whoever and then the Semicon destocking? And why is Semicon destocking just a factor or phenomenon for Sinesco?

When I look at some of your competitors, they’re all seeing pretty good growth in electronics and Semicon included. So why is that destocking so much a factor for Sainsco and something that we don’t see elsewhere?

Christopher Davis, CFO, ScienceCo: Chetan, I’ll start with the net pricing. One other thing that we did over the course of 2024 is demonstrate quarter to quarter a consistent maintenance of our net pricing. You will recollect that of the ’97, a significant portion was aroma in oil and gas, and the bulk of the majority was NovaCare, which was more than offset in volumes. We always said as we went into 2025, we were gonna continue to defend our pricing, and we are comfortable where you look at our gross margin that we’ve done that. Now the only reason I chose to give you some numbers around net pricing is to continue to give you that comfort that we are maintaining net pricing over the period and that we will continue to defend going forward.

Ilham Khadri, CEO, ScienceCo: Yeah. And on on quarter two well, listen, Chetan, I’m sure you can appreciate, and, you know, you are covering most of our peers and customers. Visibility is challenging given the evolving macro dynamics, You know? And frankly, this is a time where we manage business on a ninety days basis. You you wake up in the morning, and you have one type of tariffs and the other day, another one.

Anyway, I mean, in the middle of the quarter, tariffs have changed drastically between US and China, as you know. Some customers were on wait and see mode, and then they start calling. So let let’s not go go there. I think we are focusing on what we control, accelerating cost savings. We expect the that following news from earlier the week will now likely go through a period of more changes.

We are adapting our value chain, not only to to mitigate the short term tariff wise, but actually, structurally, we are looking at what’s gonna be positive for us. Right? As I said, we are redirecting, for example, some of our production from US to India, for example, as some of our customers in electronics are moving from China to India. And while, you know, not not importing from The US, we may actually import from India or Japan through for some of our products, our JV with Sumitomo to China. So, anyway, those are things which can structurally make a difference short and longer term.

Right? Nevertheless, I think we wanted to give you a bit of view on quarter two. That’s why we told you we expect to see higher sequential EBITDA than quarter one for the balance of the year, a stronger h two versus h one. I have given you the three pillars, the absence of Boeing strike, the destocking in semicon. And and and the visibility, I didn’t say the order book is visible.

I said that in in the in the semicon and the fab, the largest customers who were destocking in h one told us they will buy in h 2, and that’s the visibility we have. And the last pillar is cost savings. There was a last question.

Sharif Bakra, Head of Investor Relations, ScienceCo: Specialty

Ilham Khadri, CEO, ScienceCo: polymers. Specialty polymers. Yeah. I mean, electronics I mean, without electronics and automotive, I think you said it, right, Chris, in your comments, the volumes were flat year on year. And that’s, you know, really positive on the specialty polymers side.

On electronics and first of all, on electronics, we have not mentioned any specific customers. So let me put it straight in the record. Electronics represents around 75% of the year on year decline in revenues, and that’s the lower sales to semicon due to destocking, as I mentioned. The balance is due to the design change, and we alerted you. So that’s happened.

And looking ahead, again, the destocking on semiconductors will get to an end in this first half of the year, and we will see much stronger H2, and we know it’s from our customers. You if you look at some peers, I think you mentioned them, you will find different product mix, Chetan customer original exposures. So it’s not apple to apple or difficult to comment on their performance. And we are more focused to how to serve the customers, and we’ll drive this forward. Thank you.

Operator: Thank you for that question, Udeshi. Your next question comes from the line of Alex Stewart with Barclays. You may begin.

Ilham Khadri, CEO, ScienceCo2: Hello. Good afternoon. Thank you for taking my questions. One for Chris and one for Izm, I think, if that’s okay. Chris, you talked about GBP 200,000,000 to GBP $250,000,000 year on year despite, from spending principally in CapEx rather than OpEx.

Can I just push that number a little bit? Because your CapEx this year is about CHF600 million. You include IFRS 16 lease payments within that, which are roughly 80,000,000. So that’s $520,000,000 of sort of hardcore CapEx. If you take 200,000,000 of that, you’re left with sort of 300,000,000 and a bit million of CapEx with your D and A at sort of $500,000,000 So I just want to check if that’s what you mean because the CapEx number looks very low by take 200,000,000 to $250,000,000 off.

And then, Edem, maybe for you, let’s say you sell these two assets, Aroma and Oil and Gas tomorrow for what do you plan to do with the cash? Because you’re returning capital at the moment, you’re arguably underlevered. Is it planned then to reinvest this into something which you think is a better long term, more interesting investment than what those companies represented? That would be really interesting. Alex,

Christopher Davis, CFO, ScienceCo: thanks very much for that. I’ll take the first one on your CapEx reconciliation, and then Ilham will take the second part around the divestment. Yeah. So what I said is the two big non repeats that are 200 to 250,000,000 are made up of the separation costs. I think as you note we noted as part of our year end, we indicated separation costs was roughly a hundred and 50 to 200,000,000, and that’s not included as part of the CapEx.

So if you then know it’s somewhere between 200 to $2.50, you can calculate how much roughly is what we spend on Tavot in 2025, which will not repeat going forward. So it’s not quite a 200,000,000 reduction, if that makes sense. And then what we will do going forward is, yes, our CapEx will be lower, certainly not 200,000,000 lower. And then we’ll look at the smaller growth opportunities that prevail.

Ilham Khadri, CEO, ScienceCo: Yeah. And and that’s it. Think it’s part of my answer. Right? I think the focus will be on what drives value.

We have optionalities. First of all, I would like us to really focus on a strict discipline, rigorous capital allocation with our organic projects. You’ve seen us, you know, delaying projects with Courage last year when there is no market demand or delayed market demand. We focus on smaller and faster projects that are closer to home, leverage existing products and solution to meet the needs of our existing customer. This is lower risk.

So that’s what we do. Even on sustenance CapEx, believe it or not, we are zero based redesigning all our maintenance and sustenance CapEx as we speak. So a full review of our 62 manufacturing sites have happened site by site, which allow us to do more with less and with, you know, digitalization as well. And Gen I I, it’s helping us as well to be even better, you know, efficient in the way we do our maintenance. And the rest, you know, I think we’ve been disciplined in m and a.

So far, the company didn’t have great track record for the past six years. We did only bolt on, you know, acquisitions. I think there is much focus now on stabilizing the company, separating from Solvay, which is important to us, getting into up and running to start hunting, you know, structurally in the next years. So that’s the focus as we speak. Back to you.

Operator: Mr. Stewart, your last question comes from the line of Arun Sarasiri with Berenberg. Please go ahead.

Arun Sarasiri, Analyst, Berenberg: Hello. Thanks for squeezing me in. I have two questions. And the first one is actually a clarification. When I look at your 2025 outlook that you stated in your full year 2024 results, You mentioned that you were expecting Specialty Polymers net sales to be approximately flat versus 2024.

Just wanted to understand if this still the case today. And my second question is again on materials, in fact. And I was wondering if I think about composites business, which is seeing an increasing margin, At a certain time, volumes in auto should come back in Specialty Polymers. I was wondering what is the level of profitability, Elon, that would make you unhappy in the future for Materials? Is this still a 30% above margins?

Or you think that you would be happy with high 20s?

Ilham Khadri, CEO, ScienceCo: Do you like to take the first one?

Christopher Davis, CFO, ScienceCo: Yes. I mean, just listen, we remain very happy with the materials business, and we’ve consistently kept the margins at these levels over a period of time. I think what you’ve seen in composite materials equally, as Elam has indicated over the last five years, she’s done a lot to improve the performance of this business to get it to the levels. I’m not quite sure personally where the question’s going.

Ilham Khadri, CEO, ScienceCo: I think, you know, the the the the composites material, as I said, we’ve done a the team did a great really good job into closing the gap in term of margins. Right? And really, you know, ensure that we can flawlessly execute against the open order book, the the the healthy one we have. And you’ve seen us doing it again through COVID, restructuring our assets, you know, the organization. And now it’s about bringing more productivity alive through digitalization and gets products out of the gate.

Obviously, we’re not the only one in this value chain. So the margin will become obviously bigger. Right? But, obviously, you need more people to build those materials. So there are temporary fixed costs you need.

But frankly, we get into a level which closed the gap against formidable competitor. So I think my wave one of reaching, you know, the happy land has gotten there in composite. The next one, we need some digitalization and automation, which we are working on, and it will take a bit of time. On the specialty polymers, our problem has never been really the margins after we did value pricing. And I think many of you have been following us on the value pricing, which touched mainly the specialty polymers side.

We’ve seen stickiness of it, and I hope that everybody now has a conviction that we capture what we could, and we’re retaining it. The thing with specialty polymer is the volumes. Right? We you all know it. And without the electronics and the automotive headwind, we see stabilization.

So going forward, the message is the hunting and the hunting and the hunting. That’s why we have deployed, Genii, SciGrow, we call it. This is the sales body. It’s in auto it’s in automotive, actually, and in specialty polymer first to really double down on the sales organization. And even the the tariffs, which are touching specialty polymers products import to China is is is is an opportunity for us to review the whole infrastructure of of of the product flow for specialty polymers.

So I think the best is yet to come, transition year here with with few headwinds in and there, but very happy the way the DNA and the culture is changing in specialty specialty polymers to be able to now focus on the volume growth and profitable volume growth.

Christopher Davis, CFO, ScienceCo: Erin, if I can just add to Ilham’s comments there. In specialty polymers, I don’t recollect us giving guidance on the revenue for the year, but what we did indicate to the market that there would be some headwinds. Now more specifically, specialty polymers’ electronic sales declined by about 30% in the quarter. And within this, an expected 25% was from the design change in the consumer electronics. Now as we go through the course of the year and as we expect the improvement in the semicon sales, sequentially, the revenue will increase over the quarter of the year.

So over this year relative to last year, you should see a modest decline on revenue out of specialty polymers, but it’s driven by the headwinds that we previously indicated. And sequentially, it will improve. Yep. Hopefully, that helps.

Operator: Thank you for all your questions. That concludes our Q and A session. I will now turn the call back over to Mr. Bakr for the closing remarks.

Sharif Bakra, Head of Investor Relations, ScienceCo: Thank you everyone for your participation and great questions. As usual, the Investor Relations team will be here to answer any remaining questions and have a great day. Thank you.

Ilham Khadri, CEO, ScienceCo: Thank you.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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