Welcome to Solvay's Q1 2022 Results Conference Call for analysts and investors. Solvay team, the floor is yours.
Thank you. Good afternoon, and welcome to our first quarter 2022 earnings call. This is Jodi Allen, Head of Investor Relations, and I'm joined here in Brussels 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, Jody, and happy to have you with us in Brussels. Hello, everyone. I'll begin my remarks as always with the health and safety overview. Compared to the first quarter of 2021, the reportable injury and illness rates are down, as are the number of accidents and near misses. Frequent safety dialogues. As we return to our plants and offices, more in-person interactions at the site between management, cadre, and employees to keep our team safe and productive. Since 2019, we have been building up a culture of near misses, which are increasing in the company. These indicators are observations at work of situations that could lead potentially and becomes accidents, although they didn't occur in reality, but it could have happened. We encourage our all employees, especially in the field, to make observations and reports.
All reports are reviewed and lessons learned implemented, and we continue working hard to continue raising the bar towards zero incidents goal. Regarding COVID-19, the strict lockdown measures across China are impacting markets across the globe. Particularly affected are the people, including our employees in those regions. These are nationwide lockdowns following the surge of new cases, and it remains unknown when the restrictions will be lifted. We are doing as much as we can to help our colleagues meet their essential needs. To support our employees in Shanghai, our Industrial Director, [Lu Y ang], has led the initiative to provide all employees with a fresh package of food. The packages were delivered at home for each of the employees.
We also continue to use the Solvay Solidarity Fund to help our employees and their communities in Ukraine as we have donated EUR 1 million to the Belgian and International Red Cross in support of relief efforts. Through our donations matching program, Solvay and our employees have donated an additional EUR 100 ,000, matching the donations of around 350 employees to help the people of Ukraine. Now moving to our first quarter 2022 results on slide three. I'm really proud of the strong performance we delivered in the quarter. We are hitting new records on sales, EBITDA, and returns.
Our businesses continue to do an outstanding job managing an environment of unprecedented inflationary pressures from energy and raw material costs, supply chain and logistics constraints, and lingering uncertainty due to what we continue to hope are the last stages of the pandemic. Sales were up 26% on an organic basis, and 20% growth or EUR 475 million is from pricing. This is impressive when you consider we achieved EUR 441 million through the entire year of 2021. We succeeded to deliver in one quarter what we delivered the whole last year. This is the highest level of quarterly price growth we have ever achieved. All businesses achieved price increases, soda ash and derivatives, specialty polymers, and Novecare in particular.
Now as shown on slide four, pricing momentum accelerated from 12% in the fourth quarter 2021 to 20% in the first quarter of this year, more than compensating for the sharp cost increases. Let me spend a moment on price, given its significant contribution, and tell you how we are changing our culture and really getting momentum on pricing. First of all, this achievement is group-wide, with every business successfully raising prices. Our pricing initiatives entail multiple mechanisms depending on the business, its contract structures, and its actual cost impacts. For example, in the more specialty-focused businesses, such as specialty polymers, we focus on value pricing. What does this mean?
It means we are selling a unique, differentiated value proposition to customers through existing and new solutions that address their needs, for light weighting, electrification, hyperconnectivity, and many more features as you know, and we would expect much of this to remain in place. In other businesses, including those in our chemical segment, most of our contracts are linked to formulas. These prices would adjust based on the rise or the fall of key raw materials. In fact, we didn't sit on it. We have been reviewing this, as I told you, in quarter three, quarter four last year, and we are improving such contracts since last year. Finally, in the fourth quarter last year, we started to implement surcharges, for example, on energy and logistics to secure necessary increases. These are mainly used where existing contracts do not allow such adjustments.
In our chemicals segment, with its focus on essential chemicals, our pricing power enabled us to leverage prices to achieve a contribution to net sales of 26% of the 32% sales growth of the segment. In materials with its focus on specialty polymers and composites, price contributed 12% of the 28% increase in net sales for the segment. In the solutions segment, last but not the least, I'm extremely proud, price contributed 21% of the 27% sales growth of the segment. This, of course, all of this came on the top of the volume growth, which was also positive in each of the segments. All of this shows you that our products and solutions are valued, appreciated by our customers, and that the value is clear even in such an inflationary environment.
Thinking ahead to the two independent companies we intend to create, you can also see on slide four that businesses across both future SpecialtyCo and EssentialCo delivered pricing in equal measure, showing the progress on pricing is not limited to one type of business or one type of entity, and indeed broad-based and strong. Another element of growth was from the underlying demand trends in our key end markets, which enabled us to grow our volumes by 6%. Volume growth was driven by strong demand in several key markets, including automotive, which grew 24%, electronics which grew 32%, healthcare which grew 34%, agro and feed markets, finally, which grew 46%.
As we started, we will continue, you know, delivering such color, monitoring our growth by market, Solvay's best-in-class portfolio enabled us to grow our sales above market growth rate in each of the served markets. Geographically, all regions delivered double-digit organic sales growth versus the previous-year quarter, with all regions growing around 25%. Sales in Russia, which you remember are not material, less than 1%, were down slightly in the quarter as we suspended operations there in early March. Our volume growth, together with the vigorous pricing actions, enabled us to again deliver a record EBITDA which came in at EUR 712 million. This is 20% higher than Q1 2021. In fact, all three segments achieved double-digit EBITDA growth.
I would like here to make a spotlight on the performance of the solutions segment, which delivered the highest growth rate in the quarter, 35% higher organically year-on-year, and this is thanks to significant growth in consumer-driven end markets, again, supported by price initiatives and healthy demand. The underlying EBITDA margin of the group was 23%, which continues the record level set in 2021. This, in fact, was due to strong pricing actions offsetting inflationary headwinds. The 12 months return on capital employed ROCE performance was another record at 12.3%. Thanks to the strong EBITDA performance in the quarter and our ongoing actions to optimize our businesses since 2019. Let me give you some perspective. This is 50% higher than it was in 2019 and has moved us from laggers to leaders.
We've done this by upgrading the quality of our portfolio of our businesses, by pruning those that could not be improved further, and by prioritizing and focusing on higher-end specialties and growth as we focus on the value of our solutions and what our solutions can bring best to our customers. Finishing the financial overview, our free cash flow generation was positive for the 12th consecutive quarter, despite higher working capital as a result of a higher sales level. We continue to prioritize investments in innovation and capacity expansion to support continuous growth across the midterm. Turning now to our ambitious ESG-related targets. Our climate initiative to reduce greenhouse gas emissions by 30% between 2018 and 2030, and to reach carbon neutrality before 2040 in all businesses and before 2050 soda ash remain on track.
You will recall that Solvay's greenhouse gas emissions at the end of 2021 were down 14% versus 2018 levels. Our efforts continue in quarter one to support our ambitious goals. Reduction in these quarters were achieved thanks to projects to reduce emissions in specialty polymer and in soda ash. Furthermore, in April, we announced that we have signed a 10-year utility power purchasing agreement with the Oslo-based hydropower company, Statkraft, to purchase electricity produced by a regional wind farm. The agreement will enable our site in Finland to operate on 100% with wind-generated electricity, helping to decarbonize the production of hydrogen peroxide at the site.
This agreement complements the decarbonization initiatives we have already undertaken, such as the previously announced investments to transition to biomass at our soda ash plants in Rheinberg in Germany, in Dombasle in France, and in Devnya in Bulgaria, and our solar farm in South Carolina in the U.S.A., that allows us to provide greener power for 17 of Solvay's factories, which places us among the top 10 companies in the U.S.A. for installed solar power. We have also demonstrated progress together with the French recycling technology company, Carbios, on the recyclability of PVDC high barrier polymer, which recently has been proven to be fully compatible with their innovative recycling process. This breakthrough provides a sustainable end-of-life management solution, which can extend the proportion of our circular sales consistent with our Solvay One Planet commitment.
The work we have done to address Scope 1 and 2 emissions has further triggered our climate ambitions to integrate Scope 3 emissions into our targets. I remind you that Scope 3 considers the emissions generated along the value chain, all the value chain. Recognizing this potential, Solvay's commitment to set a 2030 target for our reductions in Scope 3 emissions by joining the Science Based Targets initiative or SBTi, and those targets will be announced later this year. This is, you know, the day of announcements. Today, we have also just launched the fourth growth platform, which will focus on renewable materials and biotechnology. I must say I'm thrilled because we have been working on it for some time now behind the scenes.
As you know, demand is increasing for biosource, biodegradable and recycled products, and Solvay will focus on the biotechnology required to address this rapid growth. Today, we source bio-based technologies including guar, natural vanillin on rice husk, and biosourced solvents. This new platform will largely open up new opportunities enabled by biotechnology across our markets. As you may know, the bio revolution is here. It's in full swing and driving a new paradigm shift in our industry. To give you some perspective, 60% of the physical inputs to the global economy could be produced biologically between 2030 and 2040, with the potential to disrupt economies, industries and society. In 2020, 5% of Solvay Group's sales were based on renewable or recycled resources. Our objective is to reach 15% by 2030.
Of course, this is not about sustainability on the one hand and profits on the other hand. As at Solvay, we believe that we can be both sustainable and profitable. This new platform, in conjunction with our other platforms, materials, thermoplastic composites and green hydrogen, will enable us to investigate and provide solutions for our planet and society's needs while growing our business profitably. Last but not the least, again, a day of announcement. Today, we announce the acquisition of the 20% minority position from [AGC Soda Corp], our partner in our Greenville, United States of America, natural soda ash operations, to give us complete control of the site.
This step simplifies and enhances our soda ash and derivative business and will help to meet growing demands from customers, especially in lithium carbonate, using EV batteries for clean mobility and flat glass in solar panels for resource efficiency, to name a few. This transaction will generate cash returns, net return of 15%, which would make this one of our most valuable acquisitions in the last decade. Now, I would like to hand over to Karim, who will review the group segments and financial performance in more detail. Karim?
Thank you, Ilham. Good morning. Good afternoon, everybody. I will go directly to the business review, and I'm gonna refer to figures as usual on an organic basis. By which I mean at constant scope and currency, unless of course, otherwise noted. Starting with materials on slide five. Net sales in the first quarter were up 24% versus last year. Half of that came from pricing, the other half from volumes. Specialty polymers grew 26%, both from volumes and price. This was driven by a 29% growth in automotive, which includes EV batteries. 47% growth in healthcare, driven by really strong sales into medical devices such as in surgical instruments, as elective surgeries are beginning to return after the pandemic impacts of the recent period.
We also saw 26% growth in electronics, with increased sales into electronics display applications, to name but a few. The auto market, again including batteries, represented 28% of sales of materials segment last year, and it continues to grow. Although geo-geopolitical headwinds could affect auto production, of course, the most recent market forecast for 2022 from LMC still indicates growth of around 7% in light-duty vehicle production globally. Significant price increases in specialty polymers more than compensated headwinds from increased energy and raw material costs. In our composite materials business, overall sales growth was 16%, predominantly from volumes driven by sales to the civil aerospace market, which grew 43% on increased single aisle build rate at our key customers. For example, the Boeing 737, the A220, the Airbus A320, as well as a recovery in the business jets market.
Sales to space and defense were down 11%, mainly reflecting raw material shortages and supply chain issues. Overall, the defense sector is expected to grow over time as demand for defense aircraft is increasing due to the war, supported by a broad position across multiple key programs. Price increases in composite materials offset increased raw material and energy costs. Although higher logistics costs marginally impacted our margins. Wrapping up materials, EBITDA in the quarter grew 21% compared to last year, leading to an EBITDA margin for the segment of 29%. Moving to chemicals. Slide six. First quarter sales in the segment rose 29%, driven mainly by price. Soda ash and derivative sales increased 29% versus Q1 last year.
Given the current environment, our teams were resolutely focused on implementing price increases and energy surcharges, and they were successful because their actions helped to fully offset the rising energy costs. Significant price increases were successfully realized, especially in Europe and in seaborne markets. Demand remains solid across all markets, and customers are looking to us to do more to meet their growing needs. You'll recall a few weeks ago that when Philippe Kehren, President of that business, spoke at the last earnings call, he explained how his team had successfully renegotiated pricing with key customers to overcome rising costs. The macro environment only became more challenging since that time, but the results speak for themselves. As industry leaders in soda ash, the team continued their momentum. They used price increases and surcharges to pass on costs and protect margins.
Peroxide sales grew 21% organically compared to Q1 last year, driven mainly by strong demand in the pulp and paper market in North America, as well as increased volumes in all subsegments of the food industry, including cleaning, aseptic packaging, as activity resumes and the COVID lockdown in most geographies are eased. Significant progress was made in driving price increases and cost surcharges, which more than offset cost inflationary impacts. The Coatis business benefited from the continued momentum that was evident in the second half of 2021. Sales in the quarter were up 33% as favorable market conditions persisted. Demand and price levels for these basic chemicals were strong. However, the negative impact from the sudden logistical supply difficulties, in addition to increased raw material and energy costs, outweighed the price increases in the quarter, and that resulted in a margin contraction in that business.
Going forward, Coatis will continue to leverage pricing power to mitigate cost increases. Silica sales grew 30% over last year on solid demand and volumes in the tire market. There was good progress on price increases, though these did not fully offset cost inflation due mainly to questions of timing, because contractual arrangements in that business typically mean that prices lag costs by a matter of a few months. You will remember that we announced in early March the suspension of our business operations in Russia. While sales are not significant, our results are modestly down in Q1.
Profits in RusVinyl, a 50-50 JV, were down 13.13% sequentially against Q4 last year. We also, to remind you, indicated that we would suspend dividend payments from RusVinyl, and you may want to note that in 2021, dividends from that joint venture amounted to EUR 103 million. We won't be seeing that this year, clearly. Overall, EBITDA for the chemical segment rose 15% compared to Q1 2021. The segment achieved an underlying EBITDA margin of 27%, which is down from the Q1 2021 levels of 30%, mainly attributed to price and cost effects, and I highlighted earlier, particularly in silica. Turning now to solutions, on slide seven you see some key facts. In particular, sales were up 26%.
There, pricing and good demand contributed to that growth across all relevant markets that we serve in that segment. Sales in Novecare increased 28%, driven by significant increases in pricing, which came on top of demand growth in the agriculture, coatings, sorry, and the home and personal care markets. Significant progress was made in adopting a value-based pricing approach with customer where we offer differentiated solutions. For example, our formulations in the, for the agriculture market, where farmers are currently benefiting from stronger crop prices, all delivered strong pricing gains in the quarter in a supportive environment, clearly. Oil and gas solutions grew 67%, driven by strong demand and by high prices. Pricing more than compensated for higher costs yet again.
This business also overcame headwinds with several raw material outages at suppliers and significant logistic challenges which have been created by the lockdown and the port congestion issues in Shanghai, in China. Specialty chemical sales increased 18% versus Q1 last year. Higher sales in electronics markets were partially offset by lower sales of catalyst ingredients and metal surface treatment products to automotive due to the continued impact of chip shortages as well as supply chain disruptions. That business managed to drive price increases that marginally exceeded cost inflation. Technology solutions sales increased 7% compared to Q1 last year. The growth there was driven primarily by higher volumes to the mining industry, thanks to underlying strong demand and higher production levels for copper.
Sales in our aroma business, Aroma Performance business, improved 22% and achieved a new record driven by significant price increases and solid demand in food, flavors, and fragrance markets. To conclude, the solutions segment results for first quarter EBITDA was up 35%, and that really reflected really strong pricing power in a supportive and a positive demand environment across all the core markets. EBITDA margin in the segment was up 150 basis points to reach 21% in Q1 2022. I look back over time, I'm particularly encouraged when I recall the 17% margin for that same segment in Q1 2019. That really shows the impact of the execution, the relentless focus and execution of the growth strategy on that segment.
Looking at the Corporate & Business Services result, you'll see costs have increased by EUR 28 million to EUR 64 million in the quarter. The increase over low Q1 last year reflects a ramp-up of our investments in our growth platforms, in digital transformation, as well as in cybersecurity, as well as fixed cost inflation, less, as you know, the benefit of continued cost reductions. Talking of cost reductions and turning to slide eight, the structural and fixed cost savings for the quarter came in at EUR 22 million. 60% of that came from continued labor cost reductions, the balance from a combination of productivity increases and lower indirect spend. On slide nine, you'll see that fixed costs for the group increased by EUR 85 million. That's 11% up on Q1 last year.
Due to the factors I've indicated before, as well as inflation impacts of EUR 30 million, investments across the group of around EUR 30 million in IT, cyber, and of course in growth platforms, and an indirect spend, including maintenance of EUR 15 billion. Cumulatively, structural cost savings now amount to EUR 410 million since 2020. As we look forward, there is a high likelihood that we will absolutely deliver the targeted EUR 500 million cost reductions pretty early, much earlier than the 2024 commitment. Turning to cash on slide 10. Free cash flow reached EUR 260 million, and that marks the 12th consecutive quarter of positive cash generation. The strong EBITDA growth mainly offset the higher working capital, which increased mechanically due to price and cost inflation and to higher value inventories.
We are maintaining our discipline on working capital, and our working capital as a proportion of sales remains strong at 12%, similar to the same period last year. Free cash flow was EUR 67 million below last year, due in part to the increased investment in CapEx of EUR 51 million. Importantly, free cash flow conversion stood at 32.9%. With that, I'll hand the floor back to Ilham.
Thank you. Thank you, Karim. Let me conclude. In fact, after two years of listening to us talk consistently of driving costs and cash, which we are delivering again, you will now hear us consistently highlight growth and pricing because we get fit, and we are now ready to change the game. Our results this quarter demonstrate our ability to implement necessary price actions to overcome the significant inflationary pressures while continuing to transform the company. Our team has consistently demonstrated our ability to manage through these near-term headwinds. Solvay, I would say, has had more experience than we wanted in navigating through difficult market environments. Remember, we persevered through the impact of 737 MAX issues, which had on the aerospace industry during my first year in the company.
We took requisite measures to protect our employees and balance sheet throughout the pandemic in 2020 and 2021, and we are now facing the impact of a war in Europe that is affecting millions of lives. All of this, along with the drastic lockdowns in China, are resulting in impacts on energy prices, potential oil and gas curtailment, lower production rates of customers, potentially lower GDPs, and unthinkable human suffering. The market environment is rife with uncertainty, and we are exposed to many risks that we cannot control. We will keep focusing on what we control, and we will continue doing what we have been doing, balancing required inventory levels and working capital, increasing cash flows, reducing debt and costs, relentlessly serving and servicing our customers, and investing in growth.
As we look forward, the second quarter should be supported by our current solid order book and sustained pricing actions. Although we estimate quarter two to be lower than quarter one's record, not least because we factor in the loss of around EUR 50 million in sales, mainly in specialty polymers related to shutdowns and port congestion in China. We also know that the second half of 2022 will have tougher comparables given the measures to address the inflationary environment already in the second half of 2021. We will, of course, continue to be attentive to and closely monitor the global environment, and we have not factored in any additional major headwinds into our guidance.
Thanks to our robust start of the year, continued pricing momentum and solid order book, we're raising our 2022 guidance and now expect EBITDA to grow on an organic basis by mid-to-high single digit levels for the full year, by which we mean a range of 5%-8% organic growth. On cash, we are maintaining our full year outlook despite the previously announced suspension of dividends from RusVinyl. We expect to deliver more than EUR 650 million of free cash flow for the full year 2022. As we continue to invest in capacity expansions and decarbonization projects in the course of the year, the CapEx level is expected to be around EUR 850 million. This represents a 15% increase versus 2021, half of which is inflationary effects.
Moving to another important milestone, our announcement in mid-March on the plan to explore a separation of Solvay into EssentialCo and SpecialtyCo. We have, you know, received a great deal of feedback since then, and thank you. Internally first within Solvay, the response was overwhelmingly positive. I am so glad about it, and our employees are energized to support and execute on the plan. I want to extend my gratitude to all of them for their support and their hard work as we move forward with this important phase in our development. We are also mobilizing a task force led by a highly experienced and dedicated team while supplementing our own teams with the best experts. In short, we have the necessary resources and the intention to deliver on the separation. We anticipate completing the spin-off during the second half of 2023, of course, following approval from our shareholders.
Since the announcement, we have engaged with many shareholders, analysts, debt holders and lending banks. We acknowledge that some analysts may have expected a different course of action and a quicker project execution, and we hear you. Having said that, we were encouraged by the broad support of many top shareholders who appreciated the strategic logic that we have outlined. Stating that logic succinctly, the individual strategies, the customized and the unique differentiated operating models of the two entities and capital allocation plans uniquely position each company to unlock value for shareholders, customers, and employees alike. Indeed, feedback from customers has been also positive, as they anticipate each new company to further sharpen its focus on serving their respective needs. By being more effective, dedicated to one model with customized allocation of resources and the right operating model that can serve them better.
Of course, I appreciate that you will need more information from us in order to better understand the path to value creation, and we will share more information in the coming months. In the meantime, we also intend to continue with the business briefings that we commenced earlier this year, and we will host our next webinar mid-June, June 15th, focusing on our offering to consumer-facing markets. I will be joined by our President of Solvay's Novecare Global Business Unit to share more about our position and growth opportunities in areas including the agro, coating, and home and personal care market. With that, Karim and I are happy to take your questions.
Thank you, Ilham and Karim. We'll now move to the Q&A portion of our call, and I'll ask our analysts to kindly limit yourselves, if possible, to one question per person, just so that we can address as many people as possible today. Moderator, please proceed with the Q&A.
Yeah, thank you. Ladies and gentlemen, we will now begin our Q&A session. If you wish to ask a question, please dial zero and one on your telephone keypad, and you will enter a queue. After you are announced, please ask your questions. Once again, please dial zero one on your telephone keypad to ask a question. We have our first question from Matthew Yates from Bank of America. Please go ahead.
Hi. Good afternoon, everyone. Just one question. Can we talk a bit more about the solutions business? I certainly can't remember profitability anything like this level, although the frequent restatements don't make that necessarily easy to track over time. Ilham, I remember in the past you said this business or perhaps Novecare specifically had to earn the right to stay within Solvay.
Yes.
It looks like something very good is happening here. Can you elaborate a bit more on what's driving this? You mentioned in your introductory remarks that the need to be brave, get value-based pricing, but any further insights you can share on the more structural or cultural changes of this portfolio would be really interesting, so that I don't just assume you got lucky with the rebound in oil activity.
Yeah. Thank you, Matthew. You remember well when I joined the company. You remember at the fall 2019, when I launched, you know, the growth strategy. The O was for optimize. You remember that I told you that the solution businesses, including Novecare and the surface chemistries in general, I mean, at that time, I didn't know what to think about them. We asked them to optimize their returns because they were flirting and dating with the cost of capital, which I was not happy about, right? We asked them really to fix it because they didn't have the right to invest in. I can be so proud, and you heard me being a bit emotional in my introduction remarks because they deserve it today.
That's why in this separation, they deserve to become a SpecialtyCo, eligible candidate. How we did that? You may have seen us, Matthew, behind the curtain doing some heavy work, you know, homework. We restructured the product portfolio to focus on more value-added solution. We pruned the portfolio. We divested, you may remember, commodity amphoteric, around EUR 250 million in sales, and on top of various other specialty chemical product line. We did it in 2021 last year. We organized management. It's about people and people. We changed leadership. Our presidents will be with me mid-June to share the equity story of this business. We changed the CFO. We sent the marketing strategy people, business.
The general managers of coatings and home and personal care and agro all have changed. As you know, a bit more straight language now, Matthew, we stopped filling the pot, actually, right? We were just filling the pot, and we're choosing in a better way the product mix, how we fill the pot. Frankly, also we are choosing our customers. It goes both ways, you know, to do business with. We are engaging better with our customers, not only transactionally, right, but strategically.
We are thinking and sending a value proposition, which is, you know, about having, you know, a healthier, greener chemistries, you know, surfactants, which can make them use less water, you know, last longer, water-borne coatings in hair, you know, hair care and personal care, where you need, you know, much more eco-friendly solutions for the consumers. This is new, this language. That's why, frankly, we are also launching a bio platform today. Today, with all of this and we don't share the CFROI which we have internally of each business, but I can tell you that the solution business has doubled, you know, annually, yeah. They doubled the group improvements of [CFROI] between 2019 and 2021. They did the job strategically.
Today, you know, what I'm happy is that the clean home, they have a better foundation. They're supported by exciting mega trends in naturalness, biosourced ingredients, exciting future ahead, and you will hear more in June 15th. Thanks.
Thank you, Ilham.
Next question by Peter Clark from Société Générale . Please go ahead.
Yeah. Good afternoon, everyone. Now, quick guidance really on the materials side. You've made it quite clear with your full year guidance may be flat EBITDA from here. Materials, you made the point, lockdowns starting to impact specialty polymers. The composites had some of the supply disruption impact. I'm assuming the volumes there, excluding that, would've still shown acceleration. Anyway, how you feel, particularly with the very tough comps you've got in the bigger business, specialty polymers in Q2 and Q3. I'm sensing the materials could be down on EBITDA if your guidance is flat for the group, but just your reading on the materials for the next couple of quarters. Thank you.
On specialty polymers, right, thanks for the question. I think we've seen really, you know, a great momentum on specialty polymers. I think Karim has explained and gave you know, the color for materials. Very strong, you know, quarter in auto but electronics, etc. Specialty polymer drove the growth in auto in general. Our EV continues to increase, which means new projects where our materials have critical role ramping up faster than expected. As you remember, we have more kilograms, right, per vehicle for hybrids and pure electrics than in traditional ICE, you know, combustion engine, therefore our share continues to increase. That's the good news, right, for us, and this will continue, right?
I think in auto, maybe if this is the question, and I can talk about China, the outlook in auto production for the rest of 2022 remains negatively impacted by the continued chip shortages, which is now expected to extend maybe to 2023, and this disruption of supply chain in Europe mainly. China lockdown have an important impact on the very short term. It will depend when China lifts the lockdown. I think the local industry in my mind has significant free capacity to catch up, and the government typically uses the automotive industry as one of the levers to drive economic growth numbers. In the long run, we shall see, but we stay, you know, alert but positive.
Analysts have divergent views. Optimistic LMC is still 7% with, you know, the world automotive production for light vehicles. The pessimistic are around -2%, so, you know, there is still some positive growth expected in 2021. What is important is the electric vehicle share continues to increase, and if you look at it, the hybrid market, the BEV market share reached 8% in February from 5% half a year ago. Again, we like it because we are just increasing our share. All in all, I remain, you know. I mean, I'm not gonna share it now for sake of time, but we talk to customers, OEMs, et cetera. Except few, they keep, you know, being positive.
Our growth in material, you've seen it mainly in pricing as our ability to supply remains, you know, constraining key products, right? In H2, you know, we will have some new lines in Tecnoflon, in Spinetta, in Italy. The startup was in Q1, but some qualification, you know, has been achieved in record time. We will have some new lines getting in and giving us, you know, some new volumes for 2023. You know, we are extremely positive. The pricing has played a big role. Half of, you know, the sales growth was pricing. And this is value pricing, and I explain it, we were probably selling products, and now we sell value proposition, and we invoice products.
You will see that part of it is gonna be sticky and will remain regardless of inflationary environment. I'm very bullish. I think I called it in 2019 the crown jewel. The crown jewel needs now to defend itself in terms of margins. We are investing EUR 300 million in soda batteries. We're debottlenecking our plants, also digitally with low CapEx. This, you may see it, and you may not see it, but we are doing it behind the scenes. Obviously, we are also looking at the macros, the impact on the GDP. If there is anything changing, we will let you know. On the composite side, I think there was also composites, right, question?
Well, listen, you know that civil aero now represents 6.5% of our group sales. This is numbers for 2021, defense being 4%. According to the main manufacturers, Boeing, Airbus, who are our customers as well, and international bodies like IATA, full recovery most likely by 2023-2024, and that's what I've been telling you since 2020. We clearly see a steady improvement in civil aero, and this is driven by the build rate increases in the single-aisle aircraft, such as Boeing 737, Airbus A220, A320. We have some emerging programs. I'm not gonna talk about it now. We see some recovery. We have some bottlenecks in the value chain due to raw material availabilities and some logistics, you know, challenges.
Frankly, it's just, you know, matter of time, and our teams are really working hard to fix them for our customers. Back to you.
Thank you. Sounds like you saw it. It seems it'll be up. Thank you.
Next question from Daniel Chung from Redburn. Please go ahead.
Hi, Ilham. Hi, Karim . Congrats on the results. My one question is on price versus variable costs. You know, in a very tough environment, you know, you managed to achieve, you know, on that delta of price versus cost of EUR 106 million. Yeah, it seems like initial ambitions are being exceeded here to just compensate for variable cost inflation as you're achieving a lot more. How should we think about this for the full year? You know, what's baked into that guidance on that price versus cost?
Maybe I can take that question, Daniel. I think it's a really important question. Let me start by sharing with you the facts. Variable costs from our core activities last year amounted to EUR 5 billion. That's the reference for the cost base. The main areas of spend, just to remind you all, were roughly 60% of that EUR 5 billion was raw materials, 20% logistics and packaging, and energy costs, 20%. Now, different things will go up in different proportions, but these are helpful orders of magnitude. Based on current market conditions, you've seen the EUR 369 million in Q1. If we extrapolate based on what we can see today, we expect those variable costs to increase by around EUR 1.25 billion. That's about 25% higher than last year. That is under expectations. Now, could market conditions lead to different cost pressures? Yes, of course, they can.
We absolutely accept that cost could fall, but frankly, suspect there is probably more of a possibility of additional increases. In any case, we made our plans on the assumption that there will not be any easing of cost pressures. That's on the variable cost. I don't totally ignore. I would encourage you not to fully ignore the fixed cost equation.
We're talking EUR 3 billion here of fixed costs now. 55% of that cost is mainly to do with plant fixed costs, including people costs. SG&A, R&I, and the remainder is about 45%. Now, inflation pressures historically were relatively modest, 1%-2%. We're now seeing that grow towards 5%-6%. Again, inflation there, you know, will increase our fixed cost by around EUR 150 million-EUR 180 million a year compared to last year. Important not to lose that. Now, how do we address all of that? Frankly, we've got a two-pronged approach. Very simple. First and foremost, we double down. We double down on cost discipline. Frankly, the best way to win, and you've seen the results, is that we mitigate far more by looking at pricing as the main lever to overcome these headwinds.
That's very much how we see it. We don't have a crystal ball. We bank on things as they are today. Does that help?
Yeah, very helpful. Thank you.
We have another question from Mubasher Chaudhry from Citi. Please go ahead.
Hi, thank you for taking my questions. Can you please talk about the rationale to continue to include RusVinyl in the EBITDA? I think that I understand that dividends have stopped. Do you expect t o receive these dividends in the future, as a lump sum payment? Because I assume the cash balance at RusVinyl is accumulating. Just the second question on the minority purchase from AGC today. Have you entered into any long-term supply agreements with AGC for the supply of the ash? Thank you.
Thank you, Mubasher. Karim, would you like to talk about the rationale? I'll take our ownership in Wyoming.
No, sure. I mean, look, on the accounting regulations on IFRS, the rules are very, very straightforward, and we have to comply with them. We, of course, always will. So long as you have an interest in an economic activity that is performing, the regulations are you need to recognize the profits. But earnings are still accounted for as equity accounted, so equity method for the proportion that we own for the entity. That's no change at all with past practices. Now, so far as cash flow is concerned, absolutely, as you know and I've reaffirmed, we've suspended the dividends. We haven't indicated until when. Clearly, we'll wait for the peace to return. We're all horrified by the situation that we see in that region, and we will absolutely wait for the peace to return, because ultimately, that is the right thing to do.
Beyond that, we haven't pronounced ourselves.
Very good. Then I think Mubasher, you asked a question about our acquisition in Green River. Maybe first and foremost, I think the rationale is probably pretty clear for everybody. The market is very tight, and this supports our customers' growing demand for soda ash, and we are growing in some exciting markets supporting, as I said, electrification energy. It's completely aligned with our ambition to lower greenhouse gas emission and good to expand our volume on natural products. It removes the JV structure, thereby simplifying our portfolio, bringing some more cash to the company, and very attractive deal, obviously, for Solvay. I think you've seen the number. In fact, one of the most attractive deals in the past decade.
On long-term supplies, we don't frankly talk about them. Obviously, AGC is one of our customers, and they will remain, but this is, you know, a both ways relationship with them. I mean, this is not a public information, but definitely they are one of our customers. They have been, they will stay forward. Yeah. Back to you.
Thank you very much.
Thank you, Mubasher Chaudhry.
We have another question from Chetan Udeshi from JP Morgan. Please go ahead.
Yeah, hi. Thanks. You know, a few questions. First, on the materials pricing, can you maybe help us understand how much of that is just PVDF? And we've seen a lot of inflation in the PVDF market, especially in China. Is that contributing most of it, or is that broad-based? Any quantification of PVDF in terms of pricing would be useful. The other question was, you know, there was this press release, and you also alluded, Ilham, in your commentary in the beginning about biotechnology. And I'm not sure how Solvay is sort of involved in that industry. Can you maybe help us understand what is the sort of involvement of Solvay today in the biotechnology side and and what are the focus segments to scale that up in the future, going forward?
Yeah.
Thank you.
Yeah. Thank you, Chetan. Hi. On pricing materials, Chetan, this is not PVDF-related only, yeah. I mean, no. I mean, this is across the board, across really all specialty polymers, right? I think, I'm not sure you weighed a bit my language last year when, you know, frankly, first half of last year and you've seen the curve we have prepared for you guys on the pricing. You can imagine the same curve for specialty polymers. We started smelling, you know, consistently that inflation is gonna be part of the equation. In the second semester last year, we started preparing our businesses, right, opening contracts.
In specialty polymers specifically, I think for a business lady like me or a marketer by background, you know, you when you start practicing your value pricing, right, and selling solutions rather than products and invoicing the products, you know. I mean, I used to say, and I tell it to my team internally in specialty polymers, "Stop selling products. Sell the value proposition and invoice products." That's what we started doing consistently. I'm very, you know, I'm very glad and this is, you know, under the hood application set, and that is not only PVDF. You remember our webinar, I think, Mike Finelli and Maurizio and I think we shared the value proposition under the hood, to take one example.
Our mission with customers is to provide them lightweight weight and to consume less fuel and emit less CO2, and we replace metal with specialty polymer. This is not only PVDF in batteries, but we have PES, et cetera. We have much more, EUR 800 million of automotive business, which is fabulous, right? The pricing, I'm just saying this is across the board, and that's why you can expect part of it to be sticky even. I know it's not probably the subject of tomorrow. We return to more normal inflationary environment. Second question. Biotechnology. I think I hope this not didn't came as a surprise for you guys, you know. You know, we've been working on the bio, you know, tech for a while, since actually I joined the company.
I was not sure, you know, yet that this deserves to become called the growth platform. I think you understand by now when we give a label platform, it means a multi-billion euro type of opportunity for us. The big, the big, you know, the big addressable market, not all accessible for us, is EUR 54 billion of turnover for chemicals and plastic in the bio-based economy. That's what we are looking at. What we are doing, Chetan, at Solvay, we have three parts, right? Three sub-bullets. One is renewable carbon, which means that we look at increase the content on renewable carbon Solvay product offering, right? The drivers are developments of environmentally friendly circular products. We have alliances through the value chain. So that's number one, renewable carbon. Number two is biotechnology. Biotechnology, we extend.
We're extending our customer base to new growth business enabled by biotechnology. This is where we develop new value proposition aligned with the fast evolving consumer customers. We open innovation to address knowledge gap with others. That's the area of biotechnology. The number three is the biodegradability. Biodegradability is new, you know. It's by design technologies which is biodegradable, you know. When I was younger, right, and I was a chemist in the lab, I was not asked to craft a molecule to make it biodegradable, and we recycle it for a second life. Now, we are asking our chemists in the lab to just do that and to manage the end of life of products at the beginning of designing the molecules and to deliver, of course, safe, sustainable solutions.
Obviously, this is gonna make us even stronger in front of the European Green Deal and the Chemicals Strategy for Sustainability, the CCS. Those are the three areas we are looking at. It's chemistry, it's biology, it's biomass, it's recycled material. It's CCS from CO2, including using, you know, CO2, liquefied CO2, and capture it. And that's, this is all in there. We had pockets of excellence, Chetan, in the company. Now we are really, you know, having a dedicated team like we did with batteries, and you've seen how fast we have been, you know, making momentum and deciding to invest. But you know, now, you know, from the guar technologies, this is the surfactants in Novecare. We had rice husk with vanilla in aroma. We had biosolvents in Coatis.
All of this now are part of the same platform, augmented with biotechnology, be it microbe, enzymes, other things. You will see, and we will frankly, you know, report as we progress our progress. We are very, very excited about this, and I think this is the future of chemistry. Back to you.
Thank you.
We have another question from Geoff Haire from UBS. Please go ahead.
Yeah, good afternoon. I was wondering, could you help us with sort of discussing how volumes are developing as we move through into Q2, particularly in China and Europe? Thank you.
You wanna-
Sure. I mean, I think best thing I can do is say the momentum that we've described in Q1 at the moment is being maintained fully. The one exception, but Ilham has mentioned it, is clearly the China effect. From what we see today is that, I'll start with, maybe just start with the facts. Our order books are very solid. The first results coming, showing for April, also confirm the momentum that we had in Q1. I was gonna say the one thing that Ilham mentioned, now the best we can give you is, we estimate about EUR 50 million of sales, negative sales impact related directly to the China lockdown situation. Now this morning I'm hearing that there is some good news emerging around the easing of the shutdowns, but maybe Ilham can say more about that as well.
As Karim said, you know, lockdown in China, we gave an estimate to make it really clean and give you some, the transparency we have today. Nobody knows about China, right? I made a call this morning with our country leader, you know, and it looks like the situation in China is improving. The new infections are down to 5,000 level. It was 30,000, if you may remember. There is some news, not yet formalized about easing control. It says, for example, that the subways will be restarted next week. He told me that some shops will reopen. You know, and this will be true probably if the new infection continues goes down.
You may have heard also that the Shanghai lockdown has caused RMB 300 billion-RMB 400 billion economy loss. It can be reasonably believed that the government has to consider now to reduce the impact by permitting restarting conditionally. The logistics are still challenging, guys, and I know you know that, even though the central government called for removing restriction for freeways. On our side, Solvay has nine Solvay sites which are all operating. We have one site which is running at 50% capacity due to the lack of operators. People are still not allowed to move across districts, but it says that the Shanghai government will reduce those restrictions gradually. Our people are safe. They are working from home, which helps us because of COVID-19, we went to hybrid mode and we changed our policy.
We are happy now because it allows us to be adaptable in China. The past two weeks, as I said, we have organized various support. All in all, I think wait and see. We are positive. The Shanghai port is operating, but the port is very congested. You know, we are looking at it closely. It said that there was some improvements in the past few days, but still low in utilization. Goods and, you know, to and from the port very difficult, but nothing new from what you have heard from other, you know, peers or from the market. So far we are managing it.
Thank you.
Next question from Alex Stewart from Barclays. Please go ahead.
Hello. Thank you for the opportunity to ask a question. Your cost inflation in the first quarter was, as you say, in the bridge, about EUR 85 million. You talked about maybe EUR 150 million for the year, 5%-6% of EUR 3 billion. How do I square those two numbers? Because clearly the first quarter run rate is much higher than you'd expect. Is that simply because the fixed cost comparable gets easier through the rest of the year? Any guidance on that would be really helpful. Thank you.
I'm not sure if I,
Yeah.
Miscommunicated. Let me just give you the facts. EUR 369 million is what we've experienced in variable cost inflation in Q1.
Yeah.
I will also give an estimate of EUR 30 million on fixed costs. As I look forward, I've also said EUR 1.25 billion, 1.25, is the full year expected inflationary impact on our variable costs. I've also indicated around EUR 150 million-EUR 180 million in relation to fixed cost inflation. These are the only numbers that I want to highlight, based on our current expectations.
Okay, I'll...
That is very much bigger. I don't. I guess. Yes, maybe just clarify your question a bit more and see if I can help you.
Yeah. Did we answer your question, Alex?
It's fine. I can take it up with Jodi after the call. Don't worry.
Okay.
Okay.
Okay. Yeah, we can go through the math specifically. Yeah. Let's do that, Alex. Okay. Any more, Jody?
Operator?
Next question.
Yeah. We have another question from Martin Rödiger from Kepler Cheuvreux. Please go ahead.
Yes. Thanks. It's on some cost items in the P&L. First of all, on the R&D costs, they came down significantly, from EUR 93 million last year to EUR 78 million in Q1. Why do you save costs in your R&D, given the fact that you are a specialty chemical company focusing on innovations? Secondly, on the admin costs, they jumped up quite strongly from EUR 220 million last year to EUR 256 million in Q1. Karim, you said a few minutes ago that inflation was roughly 1%-2% in the past and now 5%-6% for such kind of costs. But with your cost savings in place, I do not really understand this 16% increase in these kind of costs in Q1. Thanks.
The 16%, what is it? Sorry. Say it again.
When I compare the administration costs in Q1 2022.
Ah.
To the administration costs in Q1, 2021.
Okay.
Okay.
Yeah.
Well, what I can do is just explain to you that, A, we have delivered EUR 22 million of cost savings. We certainly see it in bottom line. As I mentioned, we are investing. We're investing in our growth platforms. We're investing in digital, in cybersecurity, and I think I indicated about EUR 30 million in relation to those elements of cost investment. You'll see that in different parts of our P&L.
That's it.
It's not in one place only.
Yeah.
If you look at individual pieces, you may see somewhat some distortions. Going to R&I, you've got to know-
Well, let's pause here b ecause the growth platform, for example, there are some costs you will see in the CBS line, which are, you know, where we have a growth platform. The growth platform are cross-company. They don't belong to any business unit or any segment. That was a change I made in 2019 to ensure that there is a dedication and the focus. Definitely, as a specialty company, we continue to invest in R&I, research and innovation, as we call it internally. Now, since 2019, we actually shrank a bit between 2019-2020, actually, you know, we stopped doing this and we are reinvesting in something else, right? We have actually completely transformed the R&I. There are some projects we just stopped because we didn't believe they are the right thing for the company. We're doubling down in our growth platform.
The fourth one now is being launched. Obviously we're not inflating that cost line, but definitely we are redirecting the cost into the right area. Sometimes you need to stop something and reinvest there. Definitely, the cost in R&I is across multiple lines of the P&L.
The only thing I'll add is we're not spending less in cash in R&I. You will see variations, but more in relation to the accounting depreciation of the various projects that we capitalize over time.
Okay, thank you.
Next question, please.
Yes, we have a last question from, Jaideep Pandya from On Field Investment Research. Please go ahead.
Thanks a lot. I appreciate that you probably don't have details for this, but can you just tell us, like, what is the schedule for, you know, your sort of split of the company in terms of the, you know, discussion with bondholders on the hybrid bond side as well? Then, you know, have you sort of thought with regards to the index implications of, you know, SpecialtyCo and EssentialCo, especially given Solvac, I assume, will be a big shareholder in both those companies? Thanks a lot.
Yeah, thank you. I'll start and maybe Karim, you can close on it. I mean, I'm very pleased with the progress and we're up and running. We mobilize the task force as you know, people, very experienced. We have experts, et cetera. There is a significant complexity, you know, to contend with and make sure that we do this well. To run the project, there are thousands of lines, I mean, thousands of commercial contracts and advanced plans to disentangle separate business activities among more than 100, you know, legal entities nearly in the country. That's important, right? We have a good rhythm, the task force and the PMO report to me directly.
We give the executive leadership team an update every two weeks, as we are determined to do the right thing, act decisively, and ensure we progress fast as we will appreciate. Karim, on the technicality.
Well, I think the question really is around debt holders that we're very, very mindful and fully intend to engage our debt investors. I think at this point we're still refining our plans. We will certainly do it in due course to engage, de-risk, let's say, the transitions, but it won't be subject for the next few months. As soon as we have more clarity as to what the timescale is, we will absolutely advise everyone.
Thanks a lot.
There was a question on the stock exchange, right? He said, yeah?
Presenting the...
Yeah, I mean, the first indication. Yeah, those were first indication. Yeah, we missed that one, that the company would be in the BEL 20, but, you know, let's wait and see. We would remain all, you know, time will tell. The first, you know, indication is so.
Okay.
Okay.
Thanks a lot.
Thank you very much.
Thank you so much.
Yeah, thank you.
Thank you. I believe that was our last question.
Yeah.
If there's any other questions, feel free to contact anyone on the investor relations team the rest of the afternoon. Thank you so much for your participation today. Have a great day.
Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.