Hello, and welcome to the Solvay Q1 Results Conference. My name is George. I'll be the coordinator for today's event. Please note this conference is being recorded, and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions towards the end of the presentation, and this will be done by pressing Star 1 on the top of the keypad to register your question. If you require assistance at any point, please press Star 0, and you'll be connected to an operator. I'll now hand the call over to your host today, Mr. Geoffroy d'Oultremont, Head of Investor Relations, to begin today's conference. Please do answer.
Good afternoon, everyone, and welcome to Solvay's first quarter 2025 earnings call. I'm Geoffroy d'Oultremont, Head of Investor Relations, and I'm joined here today on the call by our CEO, Philippe Kehren, and our CFO, Alexandre Blum. This call is indeed being recorded and will be accessible for replay on the Investor Relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. The slides presented in today's call are available on our website. Today, we will discuss our first quarter earnings and the outlook of 2025, and then we'll be available to take your questions. Philippe, the floor is yours.
Thank you, Geoffroy, and hello, everyone. As usual, we will start with safety. Following the tragic loss of three colleagues, subcontractors in 2024, we took decisive measures, and we launched a transformation program on the culture of safety at Solvay. To do so, we established a dedicated group safety task force, which is reviewing and reinforcing our safety plans all over the organization. In Q1 of this year, there were no reportable high-severity injuries, but we all know safety is a daily commitment and is never, ever a given. We will continue to work on our reinforced roadmap. Safety will always remain our number one priority. Slide six, please. Alex will go through the earnings in detail, but I will first comment on the environment of the last few weeks.
During our Q4 earnings call, we mentioned that we had seen a little bit of pre-buying during that quarter, which positively impacted our basic chemical segment in Q4 2024. This resulted in some softness in our soda ash business in the first quarter of this year. However, we saw a resilient performance in all the other businesses. Solvay is not only a soda ash player, and the strength and resilience of Solvay lies in its diversified portfolio of leading businesses operating locally and serving numerous end markets. This unique profile gives us a strong confidence in our ability to navigate these conditions. The second half of the quarter saw growing macroeconomic uncertainty from trade tensions and making customers more cautious. I will come back on this in our outlook, but now, Alex, can I ask you to walk us through the Q1 results, please?
Thank you, Philippe, and good morning, good afternoon, everyone. Moving to the financials. As usual, I will comment on the organic evolution, meaning at constant scope and currency, unless otherwise stated. Moving to slide 8, underlying net sales in Q1 2025 reached EUR 1.1 billion, lower by 6% versus the first quarter of 2024. The volume decline, primarily in soda ash and as we noted, drove these disparities. Most of our businesses saw stable volumes, while bicarbonate and peroxide continued to grow year- on- year. Meanwhile, pricing was resilient and even slightly up in performance chemicals. Underlying EBITDA amounted to EUR 250 million in Q1 2025, down 6%. Regarding volumes, you might recall that Q1 of the previous year included some volume benefits from restocking and short-term demand increase, particularly in our soda ash table market in Asia.
These opportunistic sales did not repeat this year, but they were only marginally profitable, as can be seen with the limited drop-through from sales, EUR 75 million, to EBITDA EUR 15 million. On net pricing, the slight decrease is mainly driven by basic chemicals from the higher energy cost in Europe, including the first few months of the quarter, which are now behind us. Regarding fixed costs compared to last year, while there are several elements, the key takeaway is that our cost-setting initiatives are successfully offsetting inflation. Overall, the EBITDA margin was stable at 22%. Moving to the segment review, and I will start with basic chemicals. Soda ash sales were lower for the quarter compared to the first strong quarter last year. We continue to see low demand in our domestic Europe and U.S. markets and demand in seaboard, softened sequestration.
On the other hand, bicarbonate demand continued to be strong, benefiting from global megatrends such as flue gas treatment, and volume continued to grow year- on- year. Peroxides also delivered positive year-on-year growth, primarily from higher volumes in the electronic grade and Latin American merchant market. The segment, which was down 20% compared to Q1 2024, from lower volume and somewhat lower net pricing, and with a slight increase in fixed costs compared to a lower base in Q1 2024. Overall, the EBITDA margin reached 24% this quarter. Performance chemicals on slide 11. Sales were down in special chem due mostly to the auto catalysts business, which was down year- on- year, but which has improved sequentially. This was partly offset by higher demand in electronics. Sales in silica and coatings remained very steady organically.
Compared to Q1 2024, the overall segment was up 20%, but two-thirds of that impact was driven by the one-off gain on the favorable outcome of a patent dispute in our autocatalysis business, the remaining third coming from positive net pricing and mixing products. The EBITDA margin subsequently increased accordingly to 21%. One word on our corporate segment. Fixed costs remain under control, and our stranded costs were limited in Q1 to low single-digit million euros, as the exit of the TSA, the science group, is being gradually implemented. The exit will be mostly completed by the end of the first semester. Free cash flow. This brings us to the free cash flow to shareholders from continuing operation, which amounted to EUR 42 million in Q1 2025. The main building blocks from EBITDA to free cash flow were the following.
CapEx reached EUR 70 million during the quarter, in line with our EUR 300 million revised full-year objectives. Working capital saw a seasonal increase in Q1 of EUR 46 million, which mirrored the seasonal decrease we've seen in Q4. Finally, provision cash out includes the usual pension and environmental liabilities, as well as some restructuring, Domal Energy, and other small cash outs. Let me spend a few minutes on explaining the phasing of free cash flow. The quarterly split of last year should not be considered as the normal seasonality at all. On a normalized basis, we expect the phasing of free cash flow to be one-third in the first half of the year and two-thirds in the second half. Here are the big elements explaining this pattern. First, working capital. Q4 usually shows a reduction with lower activity level in December and hence a positive cash impact.
We typically see the mirror effect in Q1 of the following year. The bond variable remuneration, they are paid in Q2 and represent this year approximately EUR 80 million. Finally, coupons payment. We have two senior bonds with annual coupons paid in April and October for EUR 30 million each. As we issued this bond last year, 2025 will be the first year with normal coupon payment phasing. For this year, giving the planned cash out in Q2 and the dividend payment, please note that our net debt will temporarily increase to EUR 1.9 billion at the end of June. Net debt. I will end this financial review with a word on it. It increased in Q1 primarily due to the additional lease on the balance sheet in relation to the launch of the Westwood boiler in Reinberg, Germany. This EUR 105 million impact is reflected in the other packet.
Overall, our leverage ratio remained healthy at 1.7 times at the end of the quarter. Philippe, back to you for the outlook.
Thank you, Alex. Moving to the outlook now. As you all know, we are in a period of global economic uncertainty, and it is certainly very hard to predict what will happen with trade negotiations, currency fluctuations, or GDP evolution. In times like this, rest assured we stay close to our customers, and I make sure that the organization remains fully focused on cost savings and cash management. Looking at the short term, I expect Q2 to be comparable to Q1, set aside the positive one-off we had in Q1 and that Alex mentioned, and also set aside the sequential increase of the temporary stranded costs related to the transition service agreement with Syensqo.
We confirm the underlying EBITDA guidance for the year of EUR 1 billion-EUR 1.1 billion and currently expect to reach the lower half of the range should current market conditions and currency exchange rates continue to prevail. We confirm that we expect EUR 200 million of cost savings by the end of 2025, which will add EUR 90 million in terms of EBITDA in 2025 in the P&L versus 2024. More importantly, given our commitment towards cash generation, we are also confirming our free cash flow guidance to Solvay shareholders at around EUR 300 million for the full year. As explained by Alex earlier, we expect the majority of this cash generation to occur in the second half of the year, and this is typical for our business due to natural phasing of certain elements.
In response to the prevailing market conditions, we are also taking some action to optimize our CapEx, and we are now targeting a CapEx of around EUR 300 million for the year. That is a reduction from our previous range of EUR 300 million-350 million. As a word of conclusion, I want to remind you of Solvay's resilience and our commitment on cash generation, as we have demonstrated in the past. We remain fully focused on our strategic transformation, and we are confident in our ability to navigate these complex times and deliver on our commitments. Thank you for listening, and now, Jean-France, I think we are happy to take your questions.
Thank you very much, Director. Thank you very much. Ladies and gentlemen, just as a quick reminder, if you have any questions, please press star one on your telephone keypad and just make sure that your line is not muted to allow your signal to reach equipment. Today's first question is coming from Hannah Harms, BNP Paribas. Please go ahead. Your line is open.
Good afternoon, and thank you for taking my question. Would you be able to clarify why the seaboard and soda ash market was softest sequentially? I'm curious if it was driven by price or volume or if there were any specific countries that were particularly weak, or if indeed the impact was caused by the minimum import price in India. Thank you.
Thank you. The seaboard market is softer, in particular in Southeast Asia. It is softer versus Q1 last year because in Q1 last year, you might remember that China was importing. Today, we are back to a normal situation, which is that China is exporting at a normal usual level. It is softer sequentially versus Q4 2024 because the demand has weakened a little bit. We have seen a good momentum throughout 2024 with all the signals turning to green, and we have seen a sort of slowdown in 2025 in front of all the uncertainties we mentioned and the trade disputes.
Thank you, Sarah. We'll now move to Tom Ringelsworth of Morgan Stanley. Please go ahead.
Yeah, a couple of questions, if I may. The first is on the kind of volume picture. Looks like volume's down 9% in the first quarter. Is that just indicative of a catch-up of, well, what are we expecting for the rest of the year? Obviously, you've cited some pre-buying, but I'm also cognizant that obviously things like flat glass demand was down 10% last year, and I'm wondering if there's a kind of lag effect coming through the system that will weigh on the volume picture for some of your traditionally contract markets.
A little bit of, and on the other side, I guess in the bicarb world, can we continue to see, are you confident that you can continue to drive growth in that market given that on the consumer side of the equation, there are some concerns, at least in the U.S., around the strength of the consumer? My second question is then on specialty chemicals. That, I seem to recall, has a high China exposure relative to the rest of your businesses. I was wondering how that's going to fare in the light of the tariffs and any other trade uncertainty fallout. Any comments there would be helpful. Thank you.
Thank you very much. Let's start with soda ash and bicarbonate. Indeed, soda ash, again, I mean, we've seen good signals in the course of last year that made us think that 2025 would recover. This is not what we see at the beginning of 2025, and this is clearly coming from the uncertainty that we have on the market, a very, very prudent behavior of the customers. The fact, as you mentioned, that flat glass has not restarted yet. Of course, whenever construction will restart, we will see the impact a couple of months, a couple of quarters after, immediately in our order book. Bicarbonate continues its growth very clearly. That's confirmed quarter after quarter. The main segments that are driving this growth are really flue gas treatments and pharmaceutical applications.
Of course, no one can predict what will happen, but we do not see at this point any risk coming from consumers reducing their and changing their behaviors and so on. Now, on specialty chemicals, you're fully right. I mean, if you take our global exposure to tariff, it's limited because we are very much local to local, and more than 80% of our staves are regional. Whenever they're not regional, we pass through the cost to the customers. The impact, and this is what, by the way, we see in particular for the soda ash, is that there is an impact on demand coming from the inflation. Our only direct exposure, which we are really monitoring very closely, is on heavy rare earth export control from China. If this is what you're referring to, it's not, of course, a big exposure.
It's a small business in our portfolio. We are monitoring this very carefully and checking that we can continue to export those materials from China, which are very important. I remind you, by the way, that we have a plant in China as well. That is for us an advantage. I think that also highlights the fact that the projects that we are developing and that we have announced in La Rochelle are timely, I would say.
We need to connect to verify the recording. I'm hoping to connect because the last time I think we can hear the background.
Is the line open?
Thank you.
Thank you, Tom, Operator.
Thank you.
Thank you. I think the volume was probably coming from the questions line. Gentlemen, right now we're going to move to Chetan Udeshi of JPMorgan. Oh, please.
Yeah, hi. Thanks for taking my question. First question I had was, can you explain what's going on with your operate line? It's sometimes minus two, sometimes it's minus 15. What's really going on? It's very confusing for us from quarter to quarter. That's the first question. Second question is, just going back to the rare earth discussion, can you remind us how big is that business these days? We've seen a big jump in pricing for many of these rare earth metals in the last two months, especially. Is that something that helps your business anymore, or is it gone are those days where rare earth prices actually matter for Solvay? The last question is just on volumes in soda ash. I'm a bit curious because when I look at some of your customers on the container glass side, their volumes have actually turned positive.
You are saying you are seeing weakness. I am just trying to tie those two things together. Are you actually losing market share? Are you seeing more competition? I am just not sure what is going on. Thank you.
Thank you very much, Chetan. I will maybe start with the volume in soda ash and then turn over to Alex for the corporate lines, and then we will answer also your question on the side of the rare earth business. In soda ash, good news that container glass is moving. We are also expecting flat glass to do so at some point during the year. We will see. There is always a little bit of lag until it comes to our order book. We will continue to monitor. For the time being, we do not see any significant change yet. Just to answer your question, there is no market share that was lost. The only share impact that we have is probably versus Q1 of last year.
Again, when China was exporting and we seized some opportunities that we were not used to, volumes that we were not used to deliver in the past, now we are more back to a normal situation where China is exporting the expected quantities of soda ash. Now, let's move maybe to the corporate line question.
Alex.
Yes.
Yes.
Hi, Chetan. Yeah, we presented that Q3 of last year, and you have the slide. I acknowledge that when you look on the quarter, this is the segment where we concentrate some runoff units. When we have such a context, we tend to keep the corporate costs low. What we have indicated is that the normalized run rate this year should be EUR 70 million-EUR 90 million annual run rate. You should see the corporate segment, apart from the runoff offsetting we can do on corporate costs, that should trend towards that trend.
On rare earth, I think the size of the special chem business is 12% in terms of top line. It is an important market, but of course, it is not the most important. The business that we have started, the new one in April, in order to produce the first tons of rare earth oxides from permanent magnets, is really very small at this point. It is a potential opportunity for the future, but at this point, it is only marginal in our account.
Thank you.
Thank you, sir. Our next question will be coming from Sebastian Bray of Berenberg. Please go ahead. Your line is open.
Hello, good afternoon, and thank you for taking my questions. It's centered on the U.S. capacity expansion plan for soda ash. So correct me if I'm wrong, but my understanding is that within the 11% organic decline in soda ash, there is both a price and volume component. My understanding is that the U.S.trist investment, about 500 kilotons, is due to start ramping up midway, maybe a little later during the year. Is this going to be delayed or somehow stretched out? Because it looks as if Solvay would be adding volumes to a market where pricing may already have the margins be under pressure. I appreciate it's a lower cost position, but how exactly do you think about that? My second question is on auto catalysts, but I'll ask it after the first. Thank you.
Yeah. First, a question indeed on the we are not slowing down the investment. We are not pushing, of course, because the capacities today are not needed. I mean, the CapEx has already been spent more or less. Clearly, we do not envisage a ramp-up of this capacity before 2026. We might do some arbitration in order to seize the competitiveness because this capacity is very competitive. We might decide to slow down another capacity. Our expectation is that we will not need these additional volumes before next year. That is what we have in our outlook and guidance.
That's helpful. Could I just confirm before I move on to the auto-catalyst question? Both the prices and the volumes were down in soda ash in Q1.
Mostly volumes. Prices have been relatively resilient in Europe and North America. They are, of course, very volatile on the seaborn and under pressure on seaborn. Yeah, Alex, you wanted to maybe.
Just to remind that Q1 last year, it included, I reflect that as a kind of opportunistic sense. So it's true. When you look just one quarter, Q1 versus Q1, you see a trending volume, which is not necessarily representative of the overall.
Absolutely. Absolutely.
Of the overall trend.
If we get back to the question raised earlier by Chetan on the market shares, I mean, we cannot consider that we have our fair market share. It's just that in Q1 2024, given the very, very unusual situation in China, I mean, China is normally not importing soda ash. We were able last year to seize those opportunities. I would say it's more now back to normal, but in a market that is very, very well supplied. Again, what I want to say, just to be clear, is that this situation can change quickly. Whenever construction restarts, this market can turn tight quickly.
That's helpful. Thank you. My other question was on the auto catalyst component of the rare earth market. Can you talk a little on the pricing here and the unit margins? It's a little difficult to differentiate the decline in volumes over the last two and three years from what looks like inflationary or close to inflationary pricing. It partly relates to Chetan's question, but is there here a unit margin improvement story where price can be pushed a bit even if the volumes decline? What exactly is the growth outlook for this business on a two or three-year view?
Maybe I will let Alex give a few words, but yeah, I mean.
No, but both on volumes and pricing, it's been relatively stable. It's the type of business that tends to be not completely even over the quarters. We can see a quarter a little bit high, a little bit low. I would say overall, we were expecting this business to slowly decline as it's linked to internal combustion engine. This is why also we are looking at new opportunities. Finally, I mean, it turned out to be probably more stable than we thought. It's good news. It helped us in the meantime because this is a business very few people are investing in. It helps to hold the price. The customer needs the product. Structurally, it will decline slowly as electric vehicles replace progressively internal combustion engines. This business, auto catalysts, is needed in hybrid vehicles.
Hybrid vehicles.
The fact that hybrid is also probably.
Not a long future, at least during a southern transition.
That's helpful. Thank you for taking my questions.
Thank you very much, Mr. Bray. We will now move to Jeff Hare of UBS. Please have your lens open, sir.
Yeah, good afternoon, and thank you for the opportunity to ask questions. I just had one left. I was just wondering if you'd seen any changes in interregional trade or have customers talk to you about that given the prospect of tariffs and changes related to that?
The first thing is, can you repeat the first half of your question?
Yes. Given obviously the prospect of tariffs coming, I was just wondering if any of your customers have discussed with you or you have actually already seen changes in trade dynamics globally, as in where product is going, etc.
You want to take it?
No, I'll let you see if you want to complain. For the moment, our customers, like everybody, they have difficulties figuring out what are the rules. We see a lot of logistic disruption today. I mean, you have even the customs having difficulties to know what tariff or what restriction applies. You have congestion in certain ports. I mean, it's probably the type of things we see today navigating the short-term volatility. We are not aware of any customer changing fundamentally its pattern. I mean, you've seen the example in electronics in one week where people thought, "Okay, you could not sell or you could not produce mobile phones from China to the US," and then it's later. We've seen that. That explains a little bit of the softness we are currently seeing here and there, this uncertainty. Beyond that, no significant change in part of that.
Okay, thank you.
Thank you very much, sir. Next question will be coming from Tristan Lamotte of Deutsche Bank. Please go ahead, sir.
Hi, thanks for taking my questions. The first one is, it seems like at this kind of run rate, you need a bit of a step up in H2 to reach the low end of your guidance. Could you maybe just clarify the reasons why you see H2 above H1, especially given a probably weak Q4? The second question is, I just want to clarify what the expectation is for soda ash for the rest of the year. Could there be further downside on price to come and on volumes? At this kind of price and volume run rate, can you hit the bottom end of your guide? Thanks.
Thank you, Tristan. What do we see in H2? First, we will have cost savings, right? The impact of the cost savings program that would gradually build up and produce results in H2 that are higher than in H1. That will more than compensate the stranded costs that we will see from the termination of the Syensqo contracts kicking in in Q2 of this year. We also have some business opportunities we're working on, right? This is something that will also materialize in H2. That is why what we're saying is that if current conditions prevail, we should land somewhere in the lower half of the range that we've given in terms of guidance. Now, on soda ash, what are our expectations for the rest of the year?
I would say a certain stability in Europe and in North America, and potentially continuous volatility in seaborne, knowing that you need to be aware that at this point of time, prices are at very low levels, and that a lot of operators, in particular in China, are operating at negative contribution when they sell at this price. We do not see any potential for further deterioration. We see only potential of upside on this point. Again, how long will it take? No one knows.
Thank you very much for your question, Tristen Lamotte . Now we'll go to Peter Clark of Bernstein. Please go ahead.
Yes, good afternoon, everyone. Yeah, just following up on that, I'm just wondering in Europe, obviously, you've had a couple of players now shut capacity. How helpful do you think that will be when you look forward? Obviously, it's a tough market. In terms of the guidance for the second half, again, obviously, last year, you were sort of baking in in your thoughts some licensing come on HPPO coming in at the end of the quarter. You've been pretty good on signing these things every year. Is that in your thinking again for this year that you get some HPPO signature on licensing come? Thank you.
Yeah, thank you, Peter. Capacity, I guess this question was on soda ash more. Yeah. So indeed, I mean, what we've seen since the beginning of this year is, I mean, a pressure on the least competitive capacities on the market. And you might have seen that two capacities shut down in Europe. I mean, one forever, which is in the U.K., and one supposedly for, I mean, it was announced for as the most volume. I think this shows that indeed the market is restructuring. And that's normal because that's the name of the game for this type of market. I think we also expect this to happen in China because they've started a very competitive capacity, as you know, close to 5 million tons now. And we expect also some restructuring to take place in China. This seems to be a little bit slower than what we expected.
Obviously, if this speeds up, I would say it will bring some also relief on the market. Licensing in Peru, obviously, that's one of the elements of the business opportunities that I mentioned earlier on that we're working on very, very hard for H2.
Thank you.
Thanks very much, Mr. Clark. The next question will be coming from Alex Stewart. Clive from Barclays. Please go ahead.
Hello. Thank you for taking my questions. I wanted to probe a little bit on this idea that Chinese synthetic soda ash companies are making break-even or negative contribution margins and will therefore shut. Could you tell us how easy and how quick it is to shut down a synthetic soda ash plant and then potentially restart it again in the future? I guess my thought process here is that they will presumably want to be prepared for some recovery in their markets. Now that the imposition of tariffs and potential future tariffs make trade more difficult, what's the risk here that they just decide to keep them running to maintain a state of preparedness? I do not know what the technical considerations are. I am interested in your view on that.
The second question, you added EUR 100 million of lease liabilities related to, I think, a conversion of a plant in Germany. It seems very high. You ended 2024 with IFRS 16 lease assets of just over EUR 260 million. Adding another EUR 100 million in that context is a big sum. Could you just talk us through why that is so significant and why indeed you decided to lease the asset rather than purchase it outright? I am just curious. Thank you.
Thank you, Alex. I will let the other Alex answer the second question, and I will take the first one that has a first technical aspect. Of course, it's always difficult to shut down a plant. I mean, even if, I mean, whatever the plan is, to shut it down and then restart it is always a headache because you have to keep the assets in good shape, and you have to keep the people. How do you manage this? It's not necessarily unique to the soda ash market. It's a little bit the same for all types of businesses. Now, purely technically, you can imagine keeping, I mean, shutting down and restarting. Of course, if you shut it down for a long period of time, it means you have to cool down completely the installation. It would probably take three months to restart, technically, I mean.
That's something that you can very well imagine doing. Now, that's not necessarily, I think, what people have in mind because here we're talking about a structural restructuring that is needed because we have this big capacity that is super competitive that has been launched based on Trona. We have in China a part of the industry that is non-competitive. When I say non-competitive, it's less competitive than anywhere else in the world. That also has environmental challenges. I think at some point, those will probably shut down forever. The current situation is probably not helping to move faster on this aspect. Now, maybe I turn to Alex for the leasing question, the question on the leasing.
Thank you, everybody. Here, again, we are getting back to the cash allocation framework of Solvay. As you know, our cash allocation framework, we start by essential CapEx, EUR 250 million-EUR 300 million per year. In that, we have the energy transition CapEx, and we want to spend every year around EUR 30 million-EUR 35 million per year. We will pay our dividend, and we will do discretionary CapEx. That is the overall framework. The investment we are talking about, it is linked to the coal phase-out of our plant in Reinberg. I mean, we have made some communication around that plant. It is a huge asset. It is one of our biggest soda ash plants, and it is half of the steam capacity. We have communicated it is about 300,000 tons CO2 equivalent reduction. It is big.
This is typically the type of investment we do not want to put at risk our dividend capability or our investment capability. Leasing the asset is a way to spread the cash over a long period. On top of that, in Germany, you have certain incentives which are paid annually. You match the incentives in Germany and the cash out linked to the asset. That is for us, again, reinforcing, making sure we are not putting our dividend capability at risk. If you look at the balance we have today, we have about EUR 400 million of lease assets. It is going to add another EUR 100 million. Yes, it was. This is not a surprise. We have been building that asset for a few years. It is well anticipated in our balance sheet.
Out of interest, if you had bought and built the asset rather than leased it, how much would it have cost, roughly?
It is roughly the same. Really, the leasing, it is really a way to spread it. It is our own way to build it. I mean, we are building it. We are operating it. It is really, again, a way to limit our annual energy transition CapEx to EUR 35 million. I mean, that is the type of capability and knowledge we have on how to structure this energy transition project. Sometimes we ask other people to do it. Typically, because it is an interesting example here, typically there are certain buyouts. You need to recover all the wood in the region, the wood from furniture, construction, and so on. This part, we did not. Even if it is just next to our plant, we decided to completely outsource. It is an external company doing it. The steam production here, we decided to do it. Again, leasing to spread the CapEx.
Okay. Next question will be coming from Reynolds Ohr of Citi. Please go ahead.
Hi. Thanks for taking my questions. Got two. The first was just on the cost savings. Maybe you can just help understand the phasing that helped me understand the phasing a bit this year. I've got a bit confused. I think you said in your comments relating to the second half earnings step-up, you'd see increased cost savings contribution. When I look, I think you did EUR 27 million in Q1. Call that EUR 60 million for the first half. Then implying roughly EUR 30 million still to come in the second half based on your EUR 90 million P&L contribution comment from earlier. I think I've gone wrong somewhere. Maybe you can help just clarify. My second one is just on the CapEx reduction, where that's coming from, and does that have any impact on your growth projects? Thank you.
Okay. Maybe I will start with the CapEx, and then Alex will answer on the cost savings phasing. On the CapEx, clearly, what we do is we do the essential CapEx. Clearly, this is something that, of course, we can optimize, I would say, the phasing, but marginally. Basically, the essential CapEx are done, meaning maintenance of our assets, safety, environment, energy transition. This continues. For the rest, it means that the discretionary CapEx are really reduced to the strict minimum. We continue to invest in the small projects that deliver high level of profitability and growth, like electronic grade hydrogen peroxide, or biosource silica, or the very small investment we did to start rare earth production for permanent magnets. All the rest is pushed later. Alex, I do not know if you want to say a few words on the.
I think, again, what we said, we will deliver over EUR 200 million, we're committing to EUR 200 million cost savings this year. We are cumulative over two years. Yes, we delivered EUR 27 million in Q1. We will continue. I mean, when we have this type of environment, you've seen us in the past, we adapt. We will focus on the cost savings and on cash management. I'm not sure it's as mechanical as doing a calculation part-by part-up, but we are mitigating the business environment with the cost savings.
Okay. Thank you very much.
Thank you very much, Mr. Ohr. Ladies and gentlemen, we have time for only one question, and it's a follow-up question from Tom Ringelsworth of Morgan Stanley. Please go ahead, sir.
Hi. Sorry, we kind of got cut off in a weird way from a follow-up question. With regards to these rare earth chemicals that I'm assuming that you're bringing out of China and you then send to your customers around the world, you talk about monitoring them. It's a kind of interesting microcosm for us in terms of how the system's adapting. Are you hoarding in, are you storing in country where you feel there might be a tariff impact? Could you just have it, or is business continuing as normal? There's no change. None of the freight rates have impacted any developments. I'm kind of just intrigued that you have this insight into a Chinese resource that gets exported out to the rest of the world.
No, here it's very clear. It's just we need China has implemented an export control on some types of rare earth, and those are heavy rare earth. We need some of those materials to produce rare earth mixed oxides for the autocatalysis market. This is done outside of China and also in China, by the way. Right now, we're operating with our inventory, and we are working with the Chinese authorities in order to get the license to be able to continue to export in the future. That's the situation. When we say we monitor, it's we work with the Chinese authorities in order to get the licenses to continue to export those materials for our customers from the auto sector.
Okay. Great. Thank you very much.
Thank you, Mr. We have no further questions at this time. Let's turn our calls back to Mr. Geoffroy d'Oultremont for any additional or closing remarks. Thank you.
Thank you. Thank you all for participating today in our call. If you have any questions, please feel free to reach out to the investor relation team. We will have a couple of virtual activities in the coming weeks. Next week, on the 14th of May, management will take part in the virtual small and mid-cap CEO week organized by Kepler Chevreux. It is a kind of fireside chat in the afternoon. Management will be in London on May 15, in Nice on May 20, Amsterdam May 21, and the first week of June in Chicago and New York. Thank you very much. Our Q2 earnings will be published on the 30th of July. Thank you.
Thank you very much, ladies and gentlemen, that will conclude today's conference. Thank you very much for your attendance. May I disconnect? Have a good day and goodbye.