Good afternoon, ladies and gentlemen, and welcome to our fourth quarter 2022 earnings call. This is Jodi Allen, Head of Investor Relations, and I'm joined today by our CEO, Ilham Kadri, and our CFO, Karim Hajjar. Today's call is being recorded and will be made available for replay on the Investor Relations section of our website later today. I would like to remind all participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. You may refer to the slides related to today's broadcast, which are available on our website. With that, I'll turn the call over to Ilham.
Thank you very much, Jodi, and hello, everyone. Today is about celebration, and I want to celebrate our people, our results, and our bright future. We all know that in today's environment, progress goes beyond financial results because performance needs to be anchored in strong ESG fundamentals. Before I turn to our financial results, I will begin with a review of our progress on Solvay One Planet, our sustainability roadmap, which is, as you know, an integral part of our strategy. The facts that I highlight in slide three speak for themselves, and whilst there is plenty to celebrate, I'll highlight a few key points. As you know very well, Solvay is committed to reducing our carbon emissions rapidly. The information you see highlights our performance reviewed by our external auditors, and it shows that we have again made good progress.
Indeed, we have achieved a -19% reduction of greenhouse gas emissions across four years since the inception of the program. Structurally, we have achieved -15% reduction since 2018, structurally, almost two times the Paris Agreement target, which is halfway to our 2030 objectives. We continue progressing on exiting coal before 2030. Biomass boilers are under construction at Rheinberg in Germany. In Dombasle in France, the new boilers are based on reused derived fuel or RDF, while Green River in the United States of America is switching to natural gas. In Devnya in Bulgaria, we have upgraded our existing coal boiler. All these projects are well underway and will together further reduce emissions by approximately 10% by 2025.
In 2022, we increased the sales of sustainable solutions by five percentage points to 55%, including growth by Specialty Polymers and Silica at the service of electrification and increase in sale in the agro market. We are also making progress on our circular solutions, which reached 9.2% by shifting to recycled material and renewable feedstocks. Here are a few examples. In Specialty Polymers, we developed a new range of high-performance polymers made from recycled raw materials used in hemodialysis membranes. In Novecare, we launched new biosurfactants made from 100% bio-based ingredients using rapeseed oil and sugar with a low environmental footprint used in personal care applications. In Silica, we launched bio-based silicate derived from rice husk ash, contributing to a reduction of CO2 in tires production for customers like Continental.
Finally, we elevated our focus on our people, including advancements in diversity, equity, and inclusion this past year. Solvay launched its very first share ownership program for employees, which has a participation rate of 28%. Noticeably with a higher participation from our manufacturing site workers and Asian colleagues. There is nothing better in the company than having employees become shareholders and having skin in the game, and we like it. We also supported our employees last year with an exceptional bonus to help manage the inflationary environment. At Solvay, we care while daring to transform. Bringing gender parity at mid and senior level management is a challenging goal, as you know. At Solvay, we target inclusion through better purpose-led managerial practices and applying equity in everything we do, such as equality in gender pay wages.
We are proud of closing the gap with 951 employees to start with, both male and female. Inclusion and equality is what we do, and diversity is what you will see. We still have a long way to go, obviously, although we have increased our female population at mid and senior level to 26.5% in 2022, 2.2% better than in 2019. We continue to promote all types of diversity in our hiring practices. Before I move to the financial results, I would also like to celebrate our last year upgrade from B to A minus from renowned rating agency CDP's Climate Change list, who reconfirmed our rating again in December. We were specially recognized for our governance, our climate roadmap, and our progress on emission reduction. Last week, we were proud to be included in the new BEL twenty ESG Index.
It's an evidence again that Solvay's progress is meaningful, to say the least. In short, I'm truly proud of our ESG progress, as you know, we won't stop here. This now brings me to our full year financial performance shown on the next few slides. This time last year, we indicated that managing the inflationary cost pressures was a top priority. 12 months later, you can see that our teams successfully implemented EUR 2.6 billion of pricing initiatives, more than offsetting EUR 1.6 billion of inflationary costs. You may want to note that the resulting pricing of EUR 1 billion includes the benefits of hedge of around EUR 100 million. As you see, the impact from hedging is not that significant. Why?
Simply because we consider it as an insurance that only buys you time. We would not wish such hedges to distort the drive to preserve profitability at all times. This is why we prioritize commercial mechanism, by which I mean contractual escalation and surcharge mechanism. This is also why energy surcharges have now been integrated in many of our formula-based contracts. The combination of strong pricing and volume increase in 2022 helps us to deliver net sales of EUR 13.4 billion, up 26% with every business contributing to the growth. The increases in price and volumes drove EBITDA to EUR 3.2 billion, up about 29% organically, leading to an EBITDA of over EUR 3 billion for the first time in the company's history. We did this while maintaining our disciplined approach on cash.
We have now delivered 15 consecutive quarters of positive free cash flow, and we delivered a record of EUR 1.1 billion for the year, despite increasing our CapEx almost EUR 300 million versus 2021 to EUR 1 billion record level. Another significant achievement is returns or return on capital employed, called ROCE, now at 16%. This is double the level when I first joined the company back in 2019. Just to be clear, if we exclude some impairments which were recorded in 2019 and 2020, the ROCE today would be 13.7%, an improvement of nearly 6% on a capital base of EUR 14 billion. This reflects strong operational performance and upgrading our portfolio. Perhaps the most important achievement has been the improvement of our balance sheet.
The improved cash generation enabled us to reduce net debt by EUR 2 billion, which we also made substantial voluntary contribution to deleverage our pension liabilities, which are around EUR 1.6 billion below 2019 levels. As a result of the deleveraging of our debt and pension liabilities by 43% since early 2019, the annual cash cost of financing our debt and pension has fallen by EUR 204 million a year. This is nearly 3x the target we set for ourselves, if you may remember, in the growth strategy in November 2019. Our leverage of 1.1x is half 2019 levels. This illustrates the strength of our balance sheet.
Since early 2019, we generated free cash flow of EUR 3.5 billion, paid EUR 1.6 billion on dividends and reduced debt and pensions by a total of EUR 3.6 billion. Our results have put us in the top quartile of performance relative to our peers. Before I hand it over to Karim, I'd like to highlight our investments in capital expenditures, which exceeded EUR 1 billion for the year. About half was for growth and energy transition investments. Key highlights of last year's investments were the launch of our PVDF line in China, our increased capacity of sodium bicarbonate in Bulgaria, and vertical integration in natural vanillin in France. These are backed by customers who want and value our sustainability driven innovations. I'd like here to highlight just a few.
Novecare launched two new high performance surfactants made from 100% bio-based ingredients for beauty care products that have an additional benefit of biodegradability. We won a sizable contract in the Specialty Polymers business to serve an important battery producer with a new PVDF grade for binders, which are used by key automotive OEMs in electrical vehicle. We were recently awarded with the environmental achievement of the year at Tire Tech 2022 for the Silica innovation called TECHSYN Technology, which was adopted by Bridgestone and enables 30% better wear efficiency and improves rolling resistance by up to 6%. As I go through these examples of innovation, one thing is crystal clear, sustainability is not a trend, it's here to stay, and it fuels Solvay's research and innovation engine.
In 2022, we increased our overall innovation spend by around EUR 50 million, resulting in a research in-intensity value of 2.6% with the material segment at 4.6%. I'd like to invite Karim to share the highlights of our quarter four results. Karim.
Thank you, Ilham. Good morning. Good afternoon, everyone. As usual, I will refer to figures on an organic basis, meaning at constant scope and currency, unless I note otherwise. I'm gonna start with an overview of the fourth quarter performance, and then I'll dive into each segment. Group sales grew 15% organically year-on-year, driven by price, which more than offset a 6% drop in volumes as we all witnessed a general slowdown in demand across some key markets, in part also related to destocking by customers as we all approach year-end. The businesses of Solvay did a great job responding to the changing environment, not only matching supply with softening demand, but also sustaining pricing. I'm now gonna take a closer look at each segment, starting with materials on slide nine.
Before actually I zoom on Q4 results, it's worth noting the fact that full year sales increased 33% to EUR 4.1 billion. This reflects gains in both volumes and pricing, driven mainly by record sales in Specialty Polymers across all end markets and supported by the Composites business, which benefited from continuing demand recovery in commercial aerospace. Turning to the fourth quarter. Sales improved 31%, driven mainly by price increases and volumes were also 3.3% higher. That reflect continued strength in most end markets. In Specialty Polymers, Q4 sales grew 37% against Q4 2021, driven by pricing, combined with sustained, yet modest volume growth. Our strong market leadership across most markets more than offset weakening demand and destocking in a couple of markets, most notably in the auto market, including sales electric vehicles.
We delivered volume growth in electronics, where we grew our business above market, and we won business with new fab investment opportunities. We also grew volumes in other markets, such as healthcare, where we're strong in hemodialysis membranes and in medical packaging. Composite materials sales up 16% against Q4 last year, to both volumes and pricing, demonstrating the demand recovery that we've been signaling for a while. This continuing in the civil aerospace sector. The volume growth amounted to 5% and was driven by aircraft production, such as the Boeing 737 MAX, as well as the Airbus A220 and A32 platforms. We also recorded strong sales to engines and business jets, which were partially offset by declines in space and defense. Wrapping up the material segment results, fourth quarter EBITDA for the segment increased 36%.
EBITDA margins improved 210 basis points to a shade under 30% at 29.6%. Moving to chemical segment on slide 10. Full year 2022 sales in the segment were up 27% to EUR 4.5 billion, reflecting the combination of pricing measures and sustained demand for Soda ash and derivatives for peroxides and for Silica, which together more than compensated for softening demand in Coatis and RusVinyl. Overall, fourth quarter sales in the segment rose 17% as we were again able to manage inflationary costs with suitable price increases.
Volumes declined 7% overall in the segment, due mainly to reduced demand at Coatis relative to a very high comparable figure in the fourth quarter of 2021. It is worth noting that our Coatis and RusVinyl businesses are cyclical, and they have started to come off a prolonged period of above cycle average earnings. Third, ash and derivative sales grew 42%, mainly through pricing actions which overcame higher energy costs. Volumes were slightly positive, driven by the derivative side of the business, namely Bicar, which is enjoying growth in several emerging markets and has reached new records in terms of volumes and revenues in 2022. Although demand for Soda ash from the construction market softened somewhat in the fourth quarter, the business remains resilient in what remains a tight market.
Turning to peroxides, sales were up 8% in the fourth quarter, reflecting higher pricing, which did offset lower volumes in Europe and in North America, where we saw that pulp and paper customers curtail productions because of energy price spikes. You may recall that early this year we announced a licensing agreement with a China-based caprolactam producer called Sanning. Now we're seeing the fruits of that engagement with positive results in the fourth quarter. In Silica, sales increased 15% in the quarter, driven by pricing actions that were able to more than compensate for softening demand in the tire market as volume declined 11%. Our resilience in this business demonstrates our focus on developing innovative, sustainable solutions. It illustrates the strong customer partnerships that we have.
We will continue to focus on our growth opportunities for silica, with silica for electric vehicle tires and our recently announced rice husk-derived bio-circular silica. Composites sales were down 19% in comparison to the very strong Q4 2021. Sales volumes were down 17% due to imports into the Brazil market, which put pressure on pricing. Business conditions in this cyclical business in the last few months have been amongst the most challenging we've seen in recent years. You may have read in the news recently that we confirmed the fact that we are in advanced negotiations to divest our stake in RusVinyl, a 50/50 joint venture with Sibur. We're pleased that we have obtained preliminary clearance from Russian governmental authorities, any potential transaction is conditional on agreeing final terms with Sibur and is also subject to other regulatory approvals.
We'll keep you updated as the situation evolves. Wrapping up chemicals, segment EBITDA fell 10% versus the pre-previous year's quarter. You may recall that in Q4 2021, we recorded a one-time gain of EUR 55 million related to the recovery of indirect sales duties in Brazil. If we exclude this effect, then fourth-quarter EBITDA in the segment rose 9%, driven by sustained pricing, and it more than compensated for the downturns I referred to in our two cyclical businesses, Coatis and RusVinyl. Segment EBITDA margin in the fourth quarter was 25.5% compared to 32.1% in Q4 last year. Turning now to solutions. Full-year sales in 2022 were up 20%, reflecting higher pricing, which more than offset a modest 1% reduction in volumes.
Sales in the fourth quarter were up 3%, driven by 15% increased pricing, whereas volumes were down 12% on weak demand in businesses that are exposed to consumer and construction end markets. I'll say a bit more about that. If I turn to Novecare, fourth-quarter sales decreased 7% year on year as demand in coatings and consumer end markets weakened. Demand in the agro market was resilient, driven by demand for green solvents, whereas our technologies exposed to the coatings for construction markets and for home and personal care markets faced falling demand. Pricing in Novecare was 13% higher compared to fourth quarter 2021, as the business has made tremendous progress in defending its margins in a slowing market environment. This helped to partially offset lower volumes. Special Chem sales increased 21%, mainly reflecting higher prices.
Volumes were largely stable, supported by small improvement in rare earth, especially for auto, as there was an easing in previous supply chain issues. For example, in relation to what we used to talk about on the shortage of semiconductor chips. Also, some solidity in terms of demand for semiconductor polishing and medical applications. Turning to technology solutions, sales in the fourth quarter increased 25% due mainly to strong pricing, although volumes also advanced 3% with strong demand in copper mining mainly. We expect demand for copper to remain pretty strong as new mines are projected to come on stream in 2023. Aroma Performance sales decreased 14% in the fourth quarter as gains in pricing did not compensate for volume declines due to high stock levels.
We expect the vanillin demand to be resilient while its use in fragrant markets will continue to face more pressure. Oil and gas solutions fell 1%, reflecting pretty stable pricing in the face of a slight decline in demand for oil field chemicals, particularly in North America. Fourth quarter EBITDA in the solutions segment fell 11% as growth in mining and agro was more than offset by demand declines that are referred to in other sectors, including electronics. While EBITDA margin for the segment was 15.2%, which was 1.8% below, full-year EBITDA was up 25%, and the segment EBITDA margin was up 1% to 19.5%. Turning to corporate and business services, EBITDA in the fourth quarter improved by EUR 74 million in the fourth quarter of 2021.
This was mainly due to the continued stabilization of our energy business, which recorded, you may recall, a EUR 34 million one-time loss in the fourth quarter of 2021. This is all in relation to the energy supply business that we have to third parties. We're really pleased with the improvements we've made in this business. It's a real turnaround. The improvement in profitability is a result of painstaking work, negotiations with some customers to adapt contracts in pretty volatile energy market conditions. Our work is not complete. There is more to do there. Although our efforts to stabilize the business are really evident in terms of the strong improvements in results, frankly, we remain cautious because energy markets we know in Europe in particular, they remain volatile. Let's see.
The other factor I'll highlight in terms of our costs in our corporate services line is our investments in cybersecurity and in digital transformation were down from the higher rates of spend that we had in the first half of 2022. Although looking ahead, we will continue to invest substantially in cybersecurity and in digital transformation. It's an important part of building the foundation of two strong companies. Moving to slide 12. That she mentioned earlier that significant inflationary cost headwinds, which actually peaked in the third quarter, they added EUR 1.6 billion of cost in 2022, which is about one-third. To give you more of an indication as to where these cost pressures came from, these inflationary pressures, while raw materials increased 40% in 2022, energy costs doubled and logistic costs increased 15%.
The more important fact here, however, is that our team is mobilized. As you know, you've heard us, we've increased prices and delivered net pricing of EUR 1 billion. Turning to page 13, slide 13, you can see that we continue to make good progress on our structural cost programs, achieving a further EUR 79 million in savings in 2022, taking the cumulative total to EUR 470 million overall, against a target of EUR 500 million. These achievements stem from three main sources. One, restructuring. That represents about half of the total savings. Beyond the cost reductions that are self-evident, the delayering, the suppression of roles in the, in the last three years, which incidentally represent around 10% of our global workforce, 10%. That helps us to also become more agile and to stay ahead of the game in uncertain times.
Two, indirect cost reductions, which is about 30% of the savings. We still make progress as we instill strong demand management, really reducing demand as much as we can whilst meeting our needs. Also, we continue to leverage on the global spend to reduce unit costs, for example, in maintenance contracts in the chemical segment. Productivity efficiencies of around EUR 100 million reflect the strong improvements in our industrial processes as we improve yields and reduce consumption of raw materials and energy. It goes without saying that we remain fully committed to maintaining strong cost discipline in 2023, because we all know it's even more important to do that in a cost inflationary environment. What about cash?
If you turn to slide 14, you will see, as we've already seen, from Ilham, free cash flow reached EUR 1.1 billion at the end of Q4 2022, and our free cash flow conversion rate was 34%. This reflects record profits with continued disciplined management of working capital across all of Solvay. As Ilham indicated, it's despite a 0.3 ramp-up in investment to take CapEx to EUR 1 billion. As you'd expect, we remain very disciplined in our CapEx, making sure that we're focused on growth, but strictly on returns as well. Maybe I say a word as well on working capital. Our working capital to sales ratio is a class-leading 12.6%, and that's in an industry, as you know, where high teens are, how can I say? They're not unusual.
Some of you may remember that I mentioned in the third quarter that we were very alert. I'm gonna say I was nervous to the fact that the 31st of December 2022 fell on a Saturday. We know that in these situations, customers will often, how can I say? They'll opt to pay on the next working day rather than on the previous working day. It didn't happen. I wish to appreciate the efforts that our teams put in just before the New Year, and also thank our customers for helping us to ensure that our overdues were at an all-time low, less than 2% despite that Saturday. Now a few words around net debt. The underlying net financial debt fell in 2022 by EUR 363 million to EUR 3.59 billion.
That reflects our strong free cash flow, dividends as well actually, as the EUR 155 million of additional voluntary contributions that were made towards pension obligations. With that, I'm gonna hand you back to Ilham, who's gonna discuss the full year outlook.
Thank you, Karim. As a result of such performance, we will recommend at our general assembly a dividend increase of EUR 0.20 for a total dividend of EUR 4.05 per share, and if approved, would be our highest increase to date. This clearly benefits investors among whom we can now count more than 5,000 Solvay employees who have decided to invest their own funds to become shareholders, thanks to the launch of our employee share plan last year. 2022 was a year of exceptional performance for the group based on the significant progress made in the last four years to strengthen our customer partnerships, bring more sustainable innovations valued by our customers, and build strong competencies in our teams, leading to a performance culture of discipline, meritocracy, and raising the bar.
Although it may be a challenge to March 2022, we will build on those trends to drive another strong performance in 2023, albeit the macro context will likely be less supportive. Before I talk about our full year outlook, I will share with you some insights on our January performance. Volumes were down overall as destocking effects from Q4 still linger into this year, and particularly so in Coatings business and to an extent in oil and gas markets. The volume decline was offset by pricing. Our order books gives us limited visibility, though they indicate stabilization at recent levels, and we remain confident in our ability to sustain margins. In Chemicals, performance will be driven by higher pricing thanks to recently concluded contractual arrangements in Soda ash and bicarb. The business has successfully rebased Soda ash prices upwards in all regions in line with supply-demand.
Whilst we don't provide commercially sensitive information, I will point you to industry forecasts provided by agencies like CMA, this is the previously known IHS for estimates. I can confirm that our value propositions to customers typically enable us to achieve outcomes in the upper end of their estimates. Despite the expected resilience of Soda ash, peroxide, and Silica, volumes in Chemicals will be under pressure, driven by the anticipated normalization of the Coatings business. Please note that we are excluding RusVinyl profits from our earnings growth guidance, which were about EUR 100 million in 2022. In Solutions, we expect demand to weaken and volumes to be under pressure in Coatings and consumer markets. Although the segment is working hard to continue defend its margin, we may see some price erosion this year.
In Materials, we expect to see volume growth driven mainly by electrification, light weighting, and the continued recovery of the aero market. We also expect to sustain pricing power in this segment. As you can expect, our fixed cost will be higher this year by about EUR 100 million, driven mainly by inflation. We will continue to drive cost discipline hard, expecting to deliver the final EUR 30 million of the EUR 500 million structural cost saving one year ahead of time. Taking this all into consideration, we currently estimate 2023 full year EBITDA down between 3% and 9% on an organic basis. This exceeds current street estimates, but perhaps more importantly, it would also exceed pre-COVID profitability by more than 25% on an organic basis. This illustrate the magnitude of change at Solvay over that period.
The fact that we set our 2023 ambitions at such a high level is testimony to the commitment and determination of every employee in the group. Given the profile of our profit evolution last year, you should note that we expect quarter one to show positive momentum relative to quarter one last year, whereas the middle quarters of the year will likely lag versus their high comparable quarters. Naturally, each business will fight to maintain the hard-won gains in pricing throughout the year and to sustain our high quality and levels of profitability. On cash. We remain in our investment cycle right now as we have anticipated, and we intend to use the strength of our balance sheets to fund our future growth. CapEx should be around EUR 1.2 billion-EUR 1.3 billion.
We also expect to pay higher taxes in 2023 as a consequence of record 2022 results. It goes without saying, and you've seen it in the past years, that we will continue our disciplined approach to working capital. Taking all of this into account, we estimate our free cash flow to be around EUR 750 million this year. We have come a long way on our journey together and frankly, numbers speak louder than words. The main message today is that we have over achieved every strategic commitment ahead of time. We reinvented ourselves, and I'm so proud of the Solvay teams for continually proving their ability to navigate challenging environments, delivering record results and driving major progress in ESG. Thank you to each and every one of them.
Before we turn to your questions, I would also like to give you an update on our plan to separate into two strong independent companies. We are pleased to confirm that we are on track to complete the separation by December of this year. We have provided the project timeline in our presentation materials, let me walk you through some of the key milestones. The positive feedback that we have received for our webinars from you, from investors, motivates us to continue them, and we have three more planned. We will start with Soda ash next week on February 27th, and we look forward to sharing why this business is resilient through business cycles. Please save the date.
We will also host a webinar the day after on February 28th on our aerospace and defense activities, which will be more of an education on the market as requested and the recovery underway. We are planning one final webinar topic on our Specialty Polymers business, which will be held before the end of the second quarter. I know many of you are eager to understand the capital structures of both new entities, and our teams have been working hard on this to ensure the establishment of two strong companies. We aim at publishing information documents on ECO and ESCO towards the middle of the year, by which time we expect regulatory approvals, which would allow us to disclose capital structures and historical financial data for both SpecialtyCo and EssentialCo.
As we approach that exact timing, we will inform you as we plan to host an event mid-year to share and properly review the new information with the market. The next milestone will be the third quarter, where we plan to begin the debt management process in both Europe and in the U.S. In the fourth quarter, we will host two capital market events, one for each new company. These will be led by the new executive leadership teams who will share their respective strategies and midterm plans. Following these events, the teams will participate in investor roadshows in both Europe and the United States of America, leading up to the extraordinary shareholders meeting that will take place in December 2023. We are looking forward to writing the next chapter of Solvay's future. With that, Karim and I will now address your questions. Thank you.
Thank you. Ladies and gentlemen.
We will now move to the Q&A, and I ask that you kindly limit yourself to one question per person so that everyone has an opportunity to participate. Moderator, please proceed with the Q&A.
Thank you. Ladies and gentlemen, we will now begin our Q&A session. If you wish to ask a question, please dial star one one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Once again, please dial star one one on your telephone keypad to ask a question. We have a first question from Mubasher Chaudhry from Citi. Sir, please go ahead. Mr. Chaudhry, your microphone is open.
Hi. Sorry. Apologies. Thank you for taking my questions. A couple, please. Can I just come back to the comments that you made around on the Soda ash contracts and the prices coming in substantially higher than what they were in 2022. Could you just maybe talk about the kind of contract structures that you've built in for 2023? Is there any energy linkage in there, such that if the energy prices do come off in 2023 or carry on coming off, the prices will come off in line? Or are you likely to see that EUR 400+ ton contract price remaining flat regardless of what happens to energy? That's the first question.
The second question is a little bit more around the IPO side of things. Could you provide some comments on the December 2023 timeline? Is that likely to be based on market conditions at the time that you will go ahead with the IPO? Or will you go ahead regardless, given the structural reasons behind splitting up the businesses? Thank you.
Yeah, thank you very much, Mubasher. On Soda ash, you may remember, you know, that we renegotiated now in quarter three, 2021, right, to shield our margin from volatile energy costs, specifically in Europe, right? You may remember that. We did that. We had, you know, baked into existing contracts. It was the first time in our history we were renegotiating contracts in the fall 2021, where we put energy surcharges, not expecting a war and unprecedented inflationary costs in 2022. Soon after, it was already as an anticipation of rising costs in second half of 2021. Our customers understand this and care. Our returns enabled us to continue investing in the energy transition and ensure the sustainability of our operations.
In 2022 last year, we truly enjoyed our contracts and the search in energy, in logistics, right, to really maintain our margins. What we did now with the entering to 2023, the major part of our contracted volume, 90% in Europe and North America, is annual. Only the seaborne can be an ease quarterly or spot, meaning we are less sensitive to intra-year volatility, we keep some volume a bit free. I think what we simply did, and we asked team, I'm so proud of them, is that they turned some of the energy surcharges, the surcharges into floor pricing. That's what we asked them to do, and that's what we are doing.
I'm so glad that they are doing this because this is the only way to reinvest in the business, both actually from the decarbonation and the growth in volumes, like our investment in Wyoming and Green River we announced after, you know, acquiring the Asahi equity, et cetera. Our customers, they need every kilo, every gram of future Soda ash because there will be demand in the return for more products, either Soda ash for double glazing, triple glazing, for insulation, for construction, for automotive. Also Bicar®, as you know, it's a special byproduct of Soda ash, which is sold out these days, our businesses. That's why we have invested in Devnya in Bulgaria. All in all, you remember that's a good public proxy because we're gonna give you sensitive information commercially.
It's called now CMA, but it's the same, Mubasher, the former, I think, IHS price index, is an average of the prices available in the market. We can say that Solvay's usually on the high end range of these indexes better than average. I'm really glad on of the Soda ash team and give them my recognition on the great job they've done into turning surcharges into floor pricing. Second question was? Power of two and yeah, the separation and the December. The separation plan, Mubasher, is well underway. This is also another thank you to our teams because, you know, while delivering the year, the back kitchen is busy and we are managing probably transaction and projection of, you know, a project of lifetime in our company.
The separation plan is well underway. We have a clear view of the milestones, and we're happy to share them with you today to give you more clarity. We always aimed for second half, as you know. At that time when I announced it last year in March, you ask, "Why so long?" I told you we prefer to do it with quality, and we prioritize quality to speed. That exactly was the right thing to do. We are pleased now to tell you that it's December timeframe. We do not see any roadblocks at this time for any delays, and that's our plan. Obviously, we'll continue informing you as we go forward with the plan. Back to you.
Just to follow up, just to clarify on the soda. There isn't a energy price linkage anymore in the contract. The surcharges that you had have been turned into actual base pricing. There's no linkage there in the regard to energy pricing there. Just to clarify, please.
Well, what we did, Mubasher, is part of. I mean, we cannot, you know, turn all the formula pricing into pure floor pricing, but we embedded in the base price mostly, right. Indeed, what you can see in IHS, and again, the high range or CMA now I should call, the majority of it has been baked in the pricing, right. Now, we always will continue with energy surcharges, but we want to be, you know, independent from the energy prices up and down because we wanted our floor pricing to represent the quality of the business and the reinvestment we are doing in Soda ash. I'm so pleased.
I mean, this is the renaissance of the synthetic Soda ash, and we will continue, and we may discuss it if there is a question on CapEx, on our investments, in Soda ash, specifically in Wyoming, in the U.S., and in Europe in decarbonation. Back to you.
Thank you. Thank you.
You're welcome.
Thank you. Next question from Matthew Yates from Bank of America. Sir, please go ahead.
Hey, afternoon everyone. I'd like to follow up on Mubasher's question actually about Soda ash. As you say, last year you took the unprecedented step of reopening the contracts mid-year to pass through those energy charges. That 2023 base prices has been set meaningfully higher. I assume that was on the basis of where energy costs were in December, January when that was negotiated. As things stand, that may not necessarily be the case. What's the risk here that customers start calling you, asking for the contracts to be reopened again because you've got less justification for those floor prices? Thank you.
Who was that? Matthew?
That's Matthew.
Hi, Matthew. Well, I mean, the market is still tight, Matthew, right? I think the Soda ash pricing has been always supported by strong supply demand. Our customers value that we continue investing in supporting growth. I mean, I met few customers in the past five months with Philippe Kehren, our President, and people are asking for decarbonization and growth, volume growth, right? I think this is what we offer in line with the tight markets and obviously in a tight market is supply demand, and obviously it's price volume elasticity curve, and we have investment. Customers are asking for more capacity.
We're investing, actually, when you look at the Wyoming, you know, our Green River is one of the best, if not the best IRR return capacity investment in the whole industry. You know, we learned from last year, and we made sure that we consider potential volatility in energy costs. We have a mechanism to activate surcharges should energy costs go high. I think the repositioning of the floor pricing is so important for the reinvestment in Soda ash. It's so important. As I told you, I've been always from day 1 impressed with the Soda ash resilient business, really well run, great talent. By the way, you know, save the dates, Matthew, come over next week. We will have a webinar.
The 27th, yeah.
27th, huh?
Exactly.
We will have a webinar. I promise to you that you will see the resilience of this business. I heard in the market that this business is cyclical and not resilient. I'll invite you to come over. I think we will show you the historical, you know, performance of this business, and we'll give you a look under the bonnet and you will see why this business is a leader, is resilient and is poised to grow on glazing, but also on bicarb, which I'm a really fan of because it's two times GDP, right? It's really going to sustainable air cleaning, et cetera. Bicarb is now, I'm not sure you know it, 25% of Soda ash business.
Tight market condition, good team, reinvestments, in decarbonation, in growth, and that's what we expect for the next few years. Back to you.
Thank you. I thank you for taking the question. Thank you as well for taking the time and effort to do those webinars. They're much appreciated.
Thank you.
Thank you. Next question from Geoff Haire from UBS. Please go ahead.
Yeah, good. Good afternoon. I just had one question. I noticed that you've now got about EUR 2.6 billion on an annualized basis of non-recurring sales in the P&L. Where does that end up going in terms of any profit from that business? Where's that allocated to? What do you expect it to be for 2023?
let me just quickly have a look at that. This is to do with the non-core activities.
Yep.
Let me think now. This is mainly our energy trading business. Clearly, as the cost of energy goes up from, let's say, the low EUR 20 to the EUR 100+, that balloons the magnitude, but the profits are much, much more modest. As I mentioned when I was giving my overview, you know, we've turned a loss in these energy markets to a stable profit, but we have to be vigilant. Fundamentally, to your point, it's a business which is non-core with razor-thin margins. Yeah. Does that help?
We have been cleaning it.
Oh, absolutely.
Since 18.
We're nearly there, but we've got a bit more work to do. Does that help you, Geoff?
Yeah, that's fine.
Thank you.
It goes into the corporate line, is that right?
Yeah.
Yep, absolutely.
Yeah. Corporate line.
Okay. Thank you.
Non-core activities. Yeah.
In fact, that's what helped the Q4 to Q4 comparison really improve.
Yeah.
We baked that into our expectations, obviously.
Yeah.
Thanks.
Thank you. Next question from Alex Stewart from Barclays. Please go ahead.
Hi there. Good afternoon. Thanks for taking my question. Sorry for banging on about this Soda ash point, if I understand all of the comments that you've gone through already, you raised prices using surcharges over a period of 15 months as energy costs went to very, very high levels. Now you've convinced your customers to keep paying the surcharge price, even as the cost of energy has collapsed. Which seems an extraordinary feat, it also occurs to me that although the soda market is tight today, there's several million tons coming on in the next couple of years. Perhaps could you just talk about how you see the landscape for Soda ash, let's say, over the next
Two to five years would be really interesting. Thank you.
Say it again, the last sentence. I couldn't hear it, Alex.
Sure. If you wouldn't mind just giving us an overview of how you see conditions in the soda market evolving 2-5 years out, so beyond 2023.
Again, Alex, I don't want to, you know, shoot back here. Next week, we will have a full webinar on Soda ash, right? Again, I think you said we convince customers. I mean, they are really. I mean, the collaboration and the engagement with our customers is great. It's not about that convincing, although there is convincing value proposition. Customers have always choice, but it's also they need reliable supply, they need source of growth and investment. They need decarbonation. We are world leaders, right? Our customers value us, we value them, we're investing for growth. They've seen what we are doing.
I think since four years I'm in the job, this business went from strength to strength, including on, you know, the, the simplification, the agility, the competencies, and then the roadmap in decarbonation. Now we have Rheinberg in Germany, onstream. I talked about it in my prepared remarks. Dombasle, we are, you know, building and, you know, the largest boom ever built in France and Europe. Devnya is also underway to be for decarbonation. Green River in Wyoming, right? Moving to gas. All of this, and they know that our internal carbon pricing has been EUR 100 a ton since a while. I think customers, they like anybody else to be with the right suppliers and winning partners, right? It's a shared effort. We don't impose. We agree, we move on.
I think the energy surcharges has been a way to move through 2022. Now 2022, we have a new set of pricing. Again, I invite you to use AHS, I should say CMA again, on as a proxy. It's a high wrench. Next week you will have more information about our historical resilience performance, but also on our plan going forward.
Thank you so much.
You're welcome.
Thank you. Next question from Martin Rüdiger from Kepler Cheuvreux. Sir, please go ahead.
Thanks. I have actually three small questions. Your tax rate guidance for 2023 is the first one. Any effect on your P&L from the sale of license in hydrogen peroxide is the second. The third one is, can you explain why your position in PVDF is more favorable than your competitors?
The first one was the guidance, right? What's the question on-
On tax rate.
On what?
Tax rate.
Tax rate.
Tax rate.
Tax rate.
No. Tax. Texas.
Texas.
Oh.
I heard the guide.
On, you mean on the cash?
On the guidance.
On the tax rate. Yeah.
Okay. Martin, we haven't given any guidance on tax rates. We've been in the mid-20s, give or take, for a while now. The actual incidence of the profit pools in terms of which jurisdictions will impact it, but at this point, we haven't actually given any new guidance. It's a great question. I mean, I don't think there's anything more I can add at this point. Maybe just talk about taxes very briefly just to maybe at least one further point, 'cause I know the free cash flow, I mentioned the taxes, but we're talking about EUR 150 million or more cash taxes will be paid this year in relation as in record profits. That doesn't mean our tax rate was high.
It just merely means that the other side of record profits is higher taxes. That's what we paid for this year.
Right. The second question, remind me, guys, was the peroxide.
The license.
Licensing. Licensing, you may know, you know, we started actually looking at different business models. Obviously, we do two things. We have, in our H2O2, we are by far, you know, the leader in the market, and we have, you know, mega plans with partners like BASF, and around the world, right? This is, gives us guaranteed margin and visibility. The other is spot market for our own markets. Obviously, since now, yeah, 2 years, we were looking at how, what's the next step of mastering growing, you know, our process leadership in hydrogen peroxide. Indeed, you recall well earlier this year, we announced a licensing agreement with the China-based caprolactam producer, Sanning. This has nothing to do, it's not in competition with HPPO and our own markets.
We are seeing the first fruit of this engagement with positive results in quarter four. It's commercial sensitive. It gives us extra profits. I'm gonna mention a number, but as you know, we are leaders. Our technology has value. There is more upside to this. I think when we presented the peroxide webinar, we talked about that and probably during the capital market days, EssentialCo and SpecialtyCo will share with you more. I'm really glad on hydrogen peroxide way, they start thinking outside the box and going beyond the HPPO traditional polyurethane chain. For now, going to caprolactam and others. Our resume, our history speaks for itself. We are the only one in the world, compared to other peers, you know, who can really build mega plants, safely run them efficiently over, you know, decades of time horizon.
Back to you.
There's another PVDF question.
What was the other one?
The PVDF question, I think.
What was the question? Sorry, I have hard time to hear you.
Why are we differentiated to perhaps some other competitors when it comes to PVDF?
Okay. On PVDF, I'll tell you what I know in our markets, right? As you remember, PVDF is critical component in many applications. There are two type of PVDF technologies, I think we shared with you that in February last year during the auto webinar, which was also battery webinar, suspension and emulsion. We are a world leader in suspension-grade PVDF. It's higher performance grades allows us to solve customers' requirements, which are higher than those resolved by emulsion. I remind you that it can be used in LFP and NMC batteries. There are companies focusing on the lower end of the market, which are typically offering the emulsion technology, that we participated, but very limited, right? We do emulsion, we can do.
We prefer to focus on suspension. This is where our sweet spot on the top of the technology, you know, performance pyramid. The emulsion is primarily used in LFP batteries. Yeah, I think this grade, the emulsion, is more fierce competition from the Chinese as raw material fluctuate. The pricing volatility has been primarily driven by key raw material, called, I'm sure you know it, 142b. The most important, I think two things on PVDF. I can take offline questions. I think the technology, we are agnostic to the battery technology, right? We are also not making anode or cathode or separator material, right? We're in binder, coating, and electrolyte additive.
Our objective is to have the broadest portfolio of technology, being able to support and provide, future solid-state batteries and PVDF, et cetera. The risk of commoditization, and I'm sure this is on the back of your mind, I think it will happen in emulsion before suspension, right? As we told you during the webinar. On pricing, our January pricing has been, to give you a sense, have been flattish year-on-year. It doesn't mean that we are not gonna. At the end of the day, is less about pricing, more about contribution margin and protecting the contribution margin of our products and the reinvestments we are doing. Okay?
I think, be patient till you see quarter one and you see the Specialty Polymers margin, but I have every faith that, you know, we will continue protecting our margins and pushing the value pricing. By the way, PVDF doesn't go only to batteries. It goes to other applications, right? I think, we talk a lot about batteries because it has been growing from two digits to three digits since I joined the company, right? We are investing, as you know, in suspension in Europe and United States of America with the IRA supporting our investments, and we are very glad. I think you've seen the announcement that we've $178 million from the Department of Energy from IRA to invest in a $400 million investment for Solvay only.
Which I can tell you it's a no-brainer deal. We are investing in the U.S., and that's part of our CapEx investment in 2030, in 2023, right. At the service of 2030. We told you that the sales in automotive in general, can go up to more than EUR 3 billion. By the way, sales in automotive were EUR 800 million in 2021. We announced it in our webinar. Last year it was EUR 1 billion. It gives you an idea that we are really increasing our sales in automotive. It's not only PVDF, it's lightweight material, under the hood application. Our job is to sell other polymers to really replace metal, lighten the car, and therefore allow clean mobility. Back to you.
Thank you.
Mm.
Thank you. Next question from Chetan Udeshi from JP Morgan. Please go ahead.
Yeah. Hi. Thanks for letting me on. Can I, can I just confirm a few things? First, Ilham, I heard you say Q1 you expect earnings to be up year-on-year. Is that including whatever, you know, EUR 10 million, EUR 15 million or, you know, excluding the RusVinyl contribution? Even without RusVinyl, you think Q1 will be up year-on-year? Can I confirm that?
Yeah.
Yes.
Yeah, it's excluding. Karim, you can... Yeah. It's excluding.
I'm not saying we'll exclude the profits.
Yeah. Yeah.
What I'm saying to you, irrespective of RusVinyl, the profits will be up in Q1.
Mm-hmm.
Okay. That's, that's helpful. Thank you. The second question was.
There is Chetan, there is still a phase in. You remember that I told you...
Yeah.
The mid quarter's, right, is something else. I saw that some people see it differently. That's life. I think we don't have a crystal ball. We are telling you what we see in January, our perspective in quarter one. There will be a phase in during the year. With a tougher comp, as you can see, versus last year because you've seen our pricing going up throughout the year. Back to you.
I think that's clear. The second question was, we've talked a lot about PVDF and Soda ash. I'm just curious if I, if I look at three segments overall. Can you help me understand how should we think about the full year guidance in terms of range -3% to -9%? How should I think about that by individual division? I don't want exact number, but just some clarity on how you think that each division perform. That would be my second question. Third will be for Karim, and sorry, this is a bit mathematical, but I'm just looking at the cash flow numbers for 2023. And the math I'm thinking about is you did EUR 1.1 billion of free cash flow with EUR 575 million of working capital outflow.
You'll have EUR 250 million of lower EBITDA. You might have EUR 250 of higher CapEx. Net-net, your working capital, assuming it is flat, should offset the increase in CapEx and decrease in EBITDA. Why is the free cash flow not EUR 1.1 still in 2023? What are we missing? Thank you.
Great question. After me, Karim. On the EBITDA guidance, listen, Chetan, our guidance obviously is primarily related to volumes as we expect to sustain high quality margins in most of our business. In general, we expect continued demand strength in markets like for the whole year, like auto, aerospace, and frankly what we told you a few years back that probably pre-COVID levels, we'll get to 2024, and we see strengthening demand in healthcare, in agro, mining as well. I see it's pretty strong. Against that, we expect continued softness in consumer and construction markets, specifically, especially in H1. We've seen it in quarter four. Some of our peer or customers have obviously published and they talked about their markets.
This is just what we see today, and we expect other markets such as chemicals to be largely stable. The volatility, our volatile businesses, you know them, is oil and gas and coatings, which has been earning above cycle averages, which will normalize, and we told you that. We also expect, Chetan, some growth in Specialty Polymers from new capacities in healthcare. We have new medical application water treatments coming on stream, some performance lubricants and the batteries, obviously. We did the bottleneck and after the destocking, which we saw in quarter four, and we'll see some of it in quarter one, we will see it up and running. Obviously, probably China is gonna get up by March time, if there are new policies specifically out there.
These, all these new projects will generate returns which at maturity in our book will exceed 15%. We told you that. These steps are logical in our strategic roadmap towards the growth estimates, which we shared. You remember, it was EUR 800 million in 2021. Last year, we delivered EUR 1 billion in auto. We believe we can do EUR one and a half billion by 2025 and more than EUR two and a half or EUR 3 billion by 2030. Importantly, we are gonna try and defend sticky pricing dynamics overall. That will generally support our strong margin over time. Give you a color, as you said, we cannot guide precisely by segment. In materials, leading margin will continue, will largely sustained thanks to the value-added offerings supported by electrification, lightweight, and connectivity.
That's the value pricing. I think this is not an anecdote. We trained 800 salespeople back in 2021 on value pricing. In chemicals, we have a positive pricing thanks to what we discussed in large recently negotiated Soda ash contracts. Though coatings normalization will take some of the shine of that, right? It's not all plus, plus. In solution, obviously, this is where we have some pressure here. Our teams are focusing on sustaining the margin, but we are realistic and expect some margin erosion in the face of soft demand. I'll pause here, Karim. I think there was a question on?
There is a question on the maths on the cash.
Cash.
Chetan, I'm gonna try and do it in two ways. I'm gonna start by showing here's how I look at it, and I'll try and do it your way, but you're gonna have to bear with me. It'll be. Just bear with me. Let me share with you what I look at. If you take the midpoint of our guidance, but you start by excluding RusVinyl, you get to EBITDA in 2023 at the midpoint, which is -6% of EUR 2.95 billion. Take out the CapEx, take the midpoint, one and a quarter. Working capital provisions, -EUR 0.3 billion. That's what we're really talking about here. Taxes, EUR half a billion. That's about EUR 150 million more than normal because of the higher profits in 2022.
Financing, pretty stable at EUR 160. You get to the EUR 0.7 billion range if you go through that logic. I'm gonna try and do it your way. Free cash flow, EUR 1.1. EBITDA less the working capital compensation. Now, that will depend on phasing, magnitude, and timing, so that's a bit more iffy, if you like. The net of the two, I would suggest EUR 0.1-EUR 0.2 negative, depending what you assume. Then you've got to factor in a decrease in CapEx of around EUR 250. Provisions will be slightly better. The taxes, they're higher than normal because the profits is EUR 150. You do that, and I did this literally on the back of an envelope. Well, not piece of paper, not an envelope, but I get to EUR 0.7 billion.
Happy for the team to follow through with you, but that kind of logic hopefully, gets you to where you wanted to.
That's helpful. Thank you.
Thank you.
Thank you, Chetan. Thank you. Next question from Sebastian Bray from Berenberg. Sir, please go ahead.
Hello. Thank you for taking my questions. I'm again focused on cash flow. First one, given the growth opportunities that you outlined, is EUR 1.3 billion CapEx the new normal? The second one is actually on PFAS. We had a second quarter of high double-digit amounts being put aside for environmental remediation, and the Q4 release makes reference to some, though not all, of a contingent liability, which I think is just a remediation as opposed to settlement having been removed. What is the remaining contingent liability that is potentially left? Should we just think about -EUR 60 million to -EUR 70 million out being provisioned for the next few quarters for a combination of settlements and remediation? How many cases has Solvay been named in in PFAS? Thank you.
Okay. Thank you. Your question on the free cash flow guidance, right, the EUR 750, which may have surprised some of you. Listen, I think you said it very well. We are, you know, take more on our CapEx last year, EUR 300 million, and we want to spend anywhere between EUR 200 million-EUR 300 million more. This is not the new normal, right? Not at all. This is a wave of growth investment we are doing because it's a choice. It's a choice for future EBITDA top line road generation, right? It's important that you think about it this way. We are investing, to give you an example, is Soda ash, Wyoming in the U.S., the Specialty Polymers, in PVDF in the U.S. I talked about it.
That's 100 million tickets, but I get in $180 million almost from the IRS, the research and innovation platforms, in hydrogen thermoplastics. You know, when balance sheet is as strong, you've seen us being extremely disciplined in M&A, in, you know, in our reinvestments, cutting the bad costs, getting fit, delivering, you know, world-class free cash flow conversion. I still aim at 30% plus mid-term. I think there are ways of reinvestment with that. I believe that the management team or board of director needs to prepare the company for mid-term and tomorrow, right?
This is, you know, extremely important for the equity stories of ECO and ESCO, both on the organic growth, the capacity and the volume growth, which obviously we will show you how the top line and the EBITDA growth will, fueled by those investments, will give more prosperity to those entities. Again, at a high returns, right? Remember, you've seen us, I mean, in the ROCE, even with the impairment, that we have really improved quality of returns in this company. Any business case coming to me, to Karim, to the Executive Committee, needs to hit the IRR of 15% and again at EUR 100 a ton, you know, internal carbon pricing.
We are, you know, taxing ourselves and reinvesting it, which has helped us in four years to become, you know, really better and better in terms of our green investment. What was the other question?
There's more on PFAS.
Ah.
The provisions. Absolutely correct.
The techniques, yeah.
The technical question, yeah.
Go ahead, yeah.
We took a provision third quarter and nothing since. As you know, we took that provision because we were able to estimate the remediation costs. That was the EUR 93 million from memory came in. We've indicated that the cash out will be front-loaded, I think practically around half in the first two years. No change there, is what I can highlight. You also talked about cases, et cetera. As you'll know, and will be an update to the disclosures which are in your report, but I think there are about 35 cases, mainly private individuals. We don't discuss anything in terms of pending litigation, which you'd understand. I'd like to give you a bit of color.
We have been working with the regulators to understand and address any concerns, particularly here in the U.S., around our West Deptford, New Jersey plant for many years now. On one hand, I'm really pleased that we can best estimate the anticipated remediation, which is related to the past use. By the way, remind you, it wasn't just Solvay's position. It was also owned by another owner, let's say, prior to Solvay. Nevertheless, we're not gonna speculate on what it will take and how long things will take, let alone the cost of any. It's speculative to say more than that. I'll also remind you, this is really important, is this. Many of the cases in the U.S. relate to firefighting foams. Solvay never manufactured, never sold those kind of products. Out of the thousands of.
Yeah.
You want to talk about?
Well, it's a 1,000 in the industry, but I think to be precise, there was team claims named Solvay, and 17 were dismissed. We have been dismissing all but one, which, you know, we've never, as Karim said, we've never been in aqueous film forming foam concentrate, we call AFF, goes to firefighting foams, right? I think it's important that you know that. In general, they put all the names, but you know, at the end of the day, we'll get ourselves out of this. Yeah. Go ahead. Another one?
That's helpful. Thank you. The only question I had was that there's no reference to a contingent liability related to PFAS that was partly extinguished by the provisions in H2. How big is the remaining contingent liability?
Mechanically. That will be disclosed, and you'll see that in the annual report. At the moment, what we've done is clearly reduced but not fully extinguished. Precisely because when you have ongoing litigation, no matter how confident you are, you're not gonna pronounce this with any certainty.
Absolutely. I think what we did in quarter three, right? We took a provision. Frankly, it's also, I mean, we first of all, we exit the surfactant technologies in the United States of America, New Jersey, you know, site West Deptford. That's, I think we are ahead of time and ahead of any regulatory requirements, right? I'm very pleased with the team who doubled down and innovate to do that. We did, when we closed that, you know, technology route, and we replaced it surfactant free technologies. We studied and we measured how much it would take around the plant to do any cleanup, and that's the number you've seen in the provision. It's also important for you to give you clarity on what we believe is our cut and our share.
As Karim said, it's not 100% solved obviously, will go in due time when it's needed, like we did with the SM case in Spinetta. You've seen the announcement recently. We'll go after the former owner and the people from whom we got, you know, those polymers and those surfactants. That's the situation.
That's helpful. Thank you for taking my questions.
Thank you.
Thank you. Next question from Peter Clark from Societe Generale. Sir, please go ahead.
Yes, thank you. Yeah, it's not about sodra. I'm actually reasonably relaxed on that business. It's over-delivered for a decade. It's the solutions. You indicated in 23 that the margin obviously eroding and Aroma Performance obviously took a hit in the fourth quarter. It was vanillin, not hydroxyquinones. Just wondering how you see that business. I think you alluded to it being soft in the first quarter, vanillin and Aroma Performance. How you see that business through 2023, 'cause that was a business a lot of people felt shouldn't be in SpecialtyCo. The second question is around I guess the de-merge well underway, I think your comment was. Do we have a better feel for the associated costs?
You've always indicated these will be quite modest and really not gonna deflect anything, but just the associated costs with this de-merger at the end of the year. Thank you.
Yeah. Thank you. The first question is about the vanillin, right?
It's about Aroma Performance, yeah, and vanillin. Yeah.
The Aroma Performance, I think, you know, we like this business, and you're right. I think you talk about synthetic parts, right? Which can be, you know, a sort of semi commoditized and specialty, right? When you get into the formula, people, they stick with you. Sometimes you have some, you know, transactional customers who may move from one product to another, specifically if you have Chinese competition. We believe there will be some of the capacity coming on stream in the midterm. Aroma Performance volumes were down due to a lower demand. Also on the vanillin side into fragrance market as I said, food was resilient. I think it's a market which remains resilient, we believe that our natural vanillin side, right?
It was like the batteries in the old day, yeah. It's something which is gonna really pick up because people are asking for natural vanillin. Ours is based on rice husk ash. It's really a waste which we reuse, and therefore it's circularity. You know, I think, it's gonna be probably a slowdown in volume. That's what I expect throughout the year. On the vanillin side, the Hydroquinone is one, but on the natural vanillin side, we'll see some resilience, and hopefully a pickup in H2 this year. And my expectation on the capacities is that they were gonna be absorbed the market by the end of the year.
Next question.
May I take the question of the costs?
Cost of the split, yeah. Yes.
I mean, as you know, Peter, we haven't disclosed that number. What I can tell you is you made an estimate, and we actually, I think, I don't know if it was you or somebody else, but when we announced the project, we said that we haven't given the number, but it will be within benchmarks.
I can tell you that a year down the road.
Mm-hmm.
no surprises. We're very much in line with our early expectations. I will highlight to you that we already started to spend money. If you want an indication of what is already spent in 2022, you'll find the answer to that on page 18 of our financial report, where we're talking, I think from memory, EUR 75 million or EUR 80 million. That gives an indication of the current spend. I hope that helps. Obviously... Sorry, I'll just compete. Of course, we will give you more information on such matters during the course of this year.
Yeah. We are very, obviously very disciplined. We have a project management office, as you know, from day one. That was a learning from previous experience. We are really monitoring with discipline every single penny and every single cost going there and ensuring that, you know, we do it right. Yeah, so it's all on track.
Under control.
Last question.
Thank you. Next question from Wim Hoste from KBC Securities. Please go ahead.
Yes, good afternoon, thanks for taking my question. I wanted to touch upon the inflation headwinds you might have in 2023, also linking that to net pricing. If you look at 2022, net pricing peaked in the third quarter, was roughly EUR 17, 70, sorry, million lower sequentially in Q4. Any thoughts about how sticky your pricing initiatives are in light of the inflation that is waiting for you, apart from the commentary on Soda ash prices, et cetera, that you already made, more on a general level, how you view that?
Yeah. Thank you very much, Wim. Yeah, I mean, the pricing and, you know, it's We can write a book on pricing. When I joined the company, I believe, frankly, we were probably selling products and the mantra since 2021 was: Can we actually stop selling products, invoicing products and selling value proposition? This is what I'm really proud of looking at the journey of four years, is that in 2021, we started this famous master class training. Now we have a sales academy. It's a virtual, it's a virtual training, right, with different levels, right? From field sales to, you know, sales manager to a key account manager. We build a key account management program, right? What does it mean?
We have 20 top strategic accounts which the executive committee and I, we sponsor at 411. I think I will start with this before giving you some color, because I would like really that you take away that we really wanted to build the muscle of value pricing, right, in the company. I would put it 50/50. 50% of our portfolio can be value priced or should be value priced, right? That's what we start to do, is to understand if we sell a product and a good application to a customer, we may want to actually, and we should extract more value and ask for more pricing because we allow that customer to have lower total cost of ownership, right?
I think understanding that was very critical in our way of value pricing. Then the second half of the portfolio is actually linked to supply-demand. As you all know, supply-demand is, there is a price volume elasticity, right, where you make your calls. It depends on your market leadership, on the tightness of the market, on visibility of the reinvestments, on the energy prices and security of supply. COVID and, you know, inflation, energy inflation has shown to the world and to our customers that us as a buyer, that pricing is not the only thing. You know, in the old days, you would, you know, congratulate a procurement guy because they give you lower costs for raw material, but now you need security of supply as well. Most of those supply-demand is becoming local.
Our customers, they want to have local production close to the site. We made, frankly, significant progress. Obviously, we tested it in a large amplitude last year, with this Russian war, and we are building on the improved competencies. All in all, I think in Materials we see positive pricing. Thanks to the value-added offerings supported by, again, the mega trend, electrification, lightweight and connectivity. In Chemicals, I think the positive pricing I talked about in Soda ash, invite you to look at CMA, and this is recently negotiated, so it's in bed. Obviously it will be, you know, offsets, with the coatings normalization, we talked to you about that. In Solutions, yeah, there will be some erosion.
I told you that, and you can see it in quarter four, customers, our customers, right, publication, but also going somewhat to January, as we see, is that there is some volumes down. Destocking in China and Europe for some of the personal care people. The beauty, the fabric care market in the United States of America have been dropping in quarter four, January as well, and also in the U.K. and in Europe. All in all, I think it's gonna be a bit of some erosion, but our businesses are working hard to sustain margin. Yeah.
Just add one other comment.
Yeah.
Purely on the fixed cost part of the question, Wim, I mean, typically you've got a EUR 3 billion fixed cost base. The current environment, you can safely assume an average of around 5% inflation. That takes you to about EUR 150 million. Now, Ilham in her opening remarks talked about EUR 100 million. The difference between the two is the fact that we will stay focused on cost reduction. I think Ilham mentioned the EUR 30 million.
Yeah.
remaining. Really it's important for us to be very, very disciplined on costs, and that really is the point here.
Yeah.
Beyond just pricing. We don't like bad costs. We like good costs.
Good costs. Wim, again, on pricing, because I think it's in your mind and heart. I told you about January, the volumes were, decline was offset by pricing, but a month is not a quarter and is not a year, right? You know, last year in quarter one 2022, if I remember well, we increased prices by 20%. You know, what we see today in this quarter is that pricing are well ahead of quarter one 2022. Again, it's a month, it's not a quarter. We'll continue, you know, fighting for value pricing and defending our margins. Thank you.
Very clear. Thank you.
Thank you very much.
Thank you. I think we've reached the end of our call now. Again, thank you to everyone for your participation today. I want to remind you that the investor relations team is available if you have any further follow-up questions. Please remember to tune in to our webinars next week. Thanks, everyone.