Hello, everyone. Thank you for joining us, and welcome to Syensqo's Third Quarter 2026 Results Analyst Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Sherief Bakr, Chief Communications Officer and Head of Investor Relations at Syensqo. Please go ahead.
Hello, everyone, and welcome to Syensqo's Third Quarter 2026 Earnings Call. I'm Sherief Bakr, Chief Communications Officer and Head of Investor Relations, and I'm joined today in Brussels by our CEO, Mike Radossich, and our CFO, Christopher Davis. As a reminder, today's call is being recorded and will be accessible for replay on the Investor Relations section of our website later today at syensqo.com/investors. I'd also like to remind you that during this call, we will be making forward-looking statements regarding our future business and financial performance that are subject to risks and uncertainties. The slides related to this presentation, along with today's press release, are also available to download from our website. Turning to today's agenda, Mike will begin with an overview of the quarter.
Chris will then go into more details on our financials before turning the call back to Mike, who will discuss our updated outlook for the balance of the year. We will then be happy to take your questions. With that, I'll turn the call over to Mike.
Thank you, Sherief, and good morning or good afternoon to everyone joining us today. During our last earnings call, I emphasized the urgency of translating our strategic priorities into decisive actions that strengthen performance and accelerate value creation. In the third quarter, we made further progress against these priorities. We delivered another quarter of volume-led growth with accelerating momentum in Materials, supported by record sales in Composite Materials and continued improvement in Specialty Polymers. Novecare also returned to year-on-year growth, while operating cash flow improved significantly compared with the previous quarter. Together, these results reflect the progress we are making and the momentum we are building through focused actions across the company. Our priority now is to translate this momentum into stronger, more consistent financial performance through sharper commercial execution, differentiated innovation, operational excellence, and disciplined capital allocation.
This means moving faster to convert customer opportunities into commercial wins, innovation into revenue growth, and operational improvements into tangible gains in productivity, cost competitiveness, and cash generation. Turning to the highlights of the quarter on slide five. In the third quarter, we delivered 9% year-on-year net sales growth. Volumes increased 7%, with pricing contributing a further 2%. This performance was again driven by double-digit volume growth in our core Materials segment, with Performance & Care also contributing to growth. Composite Materials delivered a standout performance, achieving another record quarter with sales growth of 27% year-on-year. Civil aerospace grew even faster, up 30%, supported by stronger execution and increased production across major Boeing and Airbus programs, particularly the 787, 737, A220, and A350, alongside robust growth in aircraft engine applications.
This performance also highlights the breadth and the strength of our position across aircraft manufacturers, key programs, and the broader aerospace supply chain. Space and defense delivered more than 20% year-on-year growth, supported by a recovery in demand, particularly in the F-35, following inventory adjustments earlier in the year, as well as higher demand for UAVs, or unmanned aerial vehicles. Importantly, improved operational execution enabled us to convert strong customer demand into record sales. Manufacturing improvements, targeted staffing initiatives, and the elimination of capacity bottlenecks have allowed us to progressively increase output throughout the year to meet our customers' growing production requirements. Looking ahead, we remain focused on maximizing output and productivity from our existing assets, complemented by selective, disciplined investments to support the continued growth of our Composite Materials business. Turning to Specialty Polymers, we delivered 6% year-on-year organic sales growth, accelerating from 2% in the second quarter.
Growth was driven by broad-based volume improvements, led by strong demand in semiconductor and battery applications. Sales into semiconductors increased by approximately 20% year-on-year, supported by investments in new fab capacity and equipment, driving demand for our high-purity piping materials and high-performance sealing solutions. Battery applications also delivered strong growth, with sales increasing more than 20%, supported by demand for separator coatings, binders, and battery sealing solutions, particularly in Asia. Building and food packaging also contributed to higher volumes, while healthcare remains stable. As a reminder, the strength of Specialty Polymers lies in the combination of our differentiated materials portfolio and deep application expertise. Once qualified, our materials become deeply embedded in our customers' applications, creating significant barriers to entry and supporting long-term customer relationships. Our priority is to leverage these competitive advantages and leadership positions across our end markets to deliver sustainable, profitable growth over the long term.
Alongside the stronger growth in Specialty Polymers, gross margins in the quarter were impacted by selective commercial actions to gain market share, higher raw material costs, and the timing of pricing adjustments. We are addressing this through additional targeted pricing actions beginning in Q4, complemented by continued cost reductions and productivity improvements. Our approach is tailored to regional market dynamics, reflecting differences in demand, cost structures, and competitive intensity, while recognizing the degree of differentiation we bring to each customer application. Ultimately, our objective is to translate our market leadership, differentiated innovation, and exposure to attractive end markets into sustained profitable growth and stronger returns on invested capital. Turning to Performance & Care, where net sales increased 2%. This was led by Technology Solutions, which delivered 4% growth. Importantly, Novecare returned to year-on-year net sales growth, with strong pricing more than offsetting lower overall volumes.
Growth in home and personal care and industrial applications and coatings helped offset continued weakness in agrochemicals, with North America leading the recovery in coatings. Turning to profitability, underlying EBITDA was EUR 320 million, broadly stable year-on-year, and 3% higher than the second quarter. EBITDA margin was 20%, largely unchanged sequentially. Excluding Other Solutions, EBITDA margin in the quarter would have been approximately 100 basis points higher, an increase of 60 basis points compared to Q2, driven by margin expansion in Specialty Polymers and Novecare. Finally, operating cash flow improved significantly compared with the second quarter, reaching EUR 284 million. Chris will provide more detail on the key drivers of this improvement. Strengthening cash generation remains a key priority, and as highlighted in this morning's press release, we have raised our full-year outlook on operating cash flow. Turning to our strategic priorities.
The direction we outlined earlier this year remains unchanged, positioning Syensqo as a pure-play specialty materials and advanced technologies company with increased exposure to structurally attractive end markets. Specialty Polymers and Composite Materials remain central to this ambition. As I highlighted earlier, our focus is on leveraging their differentiated technologies, deep application expertise, and strong customer relationships to deliver stronger, more consistent financial performance. With regard to Performance & Care, the strategic review continues to progress, and we have received interest from a range of prospective parties. Our priority remains to achieve an outcome that maximizes shareholder value, which could include the sale of Novecare, Technology Solutions, or both businesses. In parallel, we remain fully focused on strengthening the operational and financial performance of these businesses while continuing to deliver for our customers, and we will provide further updates as appropriate.
Alongside the portfolio review, we are building on our progress by accelerating execution, making faster decisions, and shortening the time it takes to convert customer opportunities and differentiated innovation into tangible commercial results. Let me highlight a few examples of how we're translating these priorities into action, starting with commercial execution. In batteries, we have secured new qualifications for our binders in Europe and the United States, further strengthening our position in key customer programs. In automotive, we continue to gain market share in thermal and air management applications with our high-performance PPA and PPS materials, despite a challenging market environment. We're also making progress in converting differentiated innovation into commercial growth. During our last earnings call, I highlighted the commercialization of Diofan Super B, a high-performance polymer for pharmaceutical packaging. Its superior barrier properties help protect medicines against oxygen and moisture while enabling smaller, transparent packaging formats.
Sales for this technology have grown 30% year-on-year through the first nine months, demonstrating how differentiated innovation can translate into tangible commercial results. These are precisely the outcomes we want to accelerate and replicate across our businesses, securing new customer qualifications, winning additional business, and driving profitable growth through differentiated products and technologies. Second, innovation remains central to our competitive advantage. Our ambition goes beyond developing better materials. It's also about solving our customers' most critical challenges and accelerating the commercialization of differentiated solutions. In semiconductor manufacturing, for example, we recently highlighted our next-generation Tecnoflon FFKM sealing materials, engineered to withstand increasingly demanding chemical, plasma, and high-temperature environments. These advanced materials help customers enhance equipment reliability and improve manufacturing productivity, reinforcing the value of our innovation and our application expertise.
In advanced mobility, our Ryton PPS material for DC fast-charging busbars received a Fakuma Innovation Award earlier this month. This innovation material combines high-temperature resistance, electrical insulation, and impact toughness to meet the most demanding requirements of high-voltage applications. Like Diofan® Super B, it demonstrates how we leverage our deep materials expertise to solve complex customer challenges and deliver differentiated solutions. More broadly, our priority is to accelerate the journey from innovation through customer qualification to commercial adoption, enabling our technologies to translate into revenue growth more quickly. To drive this ambition, I have challenged our teams to cut the cycle time in half, from 24 months to 12 months, reinforcing our commitment to faster execution and greater commercial impact. Third, operational performance and capital discipline. In Specialty Polymers, we are reinforcing our commercial initiatives with targeted actions to improve cost competitiveness and manufacturing productivity.
Alongside lower-cost sourcing and tighter control of external spending, we are removing capacity bottlenecks in high-demand product lines, including high-purity piping and semiconductor sealing materials, to increase our output from existing assets. These actions enable us to better serve growing customer demand, improve operational efficiency, and support profitable growth while maintaining disciplined capital investment. In Composite Materials, we are building on the operational progress I highlighted earlier. Manufacturing improvements and the rebalancing of production across our assets have enabled us to better capture strong customer demand, increase output, and drive higher sales from our existing footprint. As I mentioned during last quarter's call, we are complementing these efforts with selective investments to support future growth, including the adhesives expansion at our Havre de Grace facility. This reflects our disciplined approach to capital allocation.
Prioritize productivity improvements and asset utilization first, and deploy additional capital only when customer demand and expected returns clearly justify the investment. Across all these priorities, the common thread is disciplined execution, clear accountability, focused allocation of resources, and a direct connection between these actions that we're taking and the value we create. With that, I will hand it over to Chris, who will take you through our third-quarter financial performance in more detail. I will then return afterwards to discuss our outlook.
Thank you, Mike. Good morning and good afternoon to everyone on the call. The third quarter of 2026 was characterized by a two-speed recovery in specialty chemicals. Persistent weakness in a number of traditional industrial end markets and geopolitical uncertainty contrasted with stronger demand in aerospace, semiconductors, and AI-related applications. Whilst raw material cost increases have been a theme throughout the year in the sector, the third quarter saw a sharper increase in raw material costs, driven by the Middle East-related feedstock disruption, energy costs, and supply chain constraints. Against this backdrop, Syensqo's competitive differentiation through its end-market exposure, portfolio quality, disciplined capital allocation, and selective pricing actions has positioned us well to benefit from the structural growth pockets, with early signs of improving momentum in several of these markets. This gives us confidence in the underlying direction of the business. Turning to slide eight, reflecting the third-quarter financial results.
As Mike mentioned, the third quarter showed continued improvement in our underlying performance, with organic sales growth increasing 9% year-on-year. Net sales for the quarter were EUR 1.6 billion on the back of strong volume growth from our Materials portfolio, in particular civil aviation, space and defense, and in semiconductor and battery applications. I will discuss the key drivers of performance across our business segments in a later slide. As we have previously mentioned, we remain committed to defending our gross margins over time. Our end-market exposures, strong value proposition, pricing, and cost discipline remain key elements of how we have been able to deliver gross margins consistent with a specialty business, despite the broader macroeconomic and competitive challenges the industry continues to face.
Gross profit increased to EUR 502 million for the quarter against the prior year, resulting in a gross margin of 32%, a decline of 140 basis points year-on-year. As Mike outlined, this primarily reflects the increase in raw material costs, selective commercial actions, and the timing of pricing adjustments. The margin performance also reflected portfolio mix effects, including a greater contribution from our Composite Materials business, given its strong growth, as well as a higher proportion of volumes in battery applications in Specialty Polymers. EBITDA of EUR 320 million for the quarter was flat compared to the same period last year, but increased 3% sequentially. The sequential improvement is driven by improved performance in Specialty Polymers and Novecare. Last quarter, I referenced a year-over-year increase in variable compensation costs, along with incremental costs in both Composite Materials and Specialty Polymers to support commercial execution and operational improvement.
Additionally, higher sales relative to production in Composite Materials resulted in lower fixed cost absorption from inventory destocking in the quarter. This is temporary in nature. Operating cash flow was EUR 284 million in the quarter, which included EUR 39 million of insurance proceeds related to PFAS and other litigation cases, bringing the year-to-date operating cash flow to EUR 497 million. Positive working capital management in the quarter and the absence of the annual variable compensation cash payments that occurred in the second quarter contributed to the strong sequential improvement. For 2026, we now expect operating cash flow of at least EUR 700 million, driven by our ongoing focus on working capital management and the collection of accounts receivable following a strong third quarter. Turning to operating performance by segment on slide nine and starting with Materials.
Compared to the prior year, organic sales increased 13%, driven by volume growth in both Specialty Polymers and Composite Materials. Composite Materials recorded yet another record quarter, while Specialty Polymers had its second consecutive quarter of year-on-year growth in sales. Specialty Polymers saw an acceleration in growth, delivering 6% year-on-year organic sales improvement. The improvement was driven by broad-based volume gains across battery, electronics, and building applications. Importantly, we saw a second quarter of year-on-year growth in the semiconductor market as investment in fab construction activity increases demand for our products. In batteries, strong momentum continues, driven by program wins across Asia, robust demand for NMC binders, and separator coatings. Higher volumes in building were driven by stronger demand for our high Specialty Polymer solutions as customers sought alternatives to higher-cost piping systems.
Composite Materials delivered its stronger quarter on record since the inception of Syensqo, yet again, with organic sales increasing 27% year-on-year. As Mike mentioned, civil aerospace drove this growth, increasing 30% year-on-year, supported by higher build rates from both Boeing and Airbus, as well as increased sales to engine programs. Space and defense also delivered strong growth, with sales increasing 22% on the back of higher defense spending and continued commercial discipline. The combination of Specialty Polymers returning to growth and another record performance in Composite Materials resulted in an underlying EBITDA of EUR 275 million in our Materials segment, 3% above the prior period, despite the higher variable remuneration and increased fixed costs I previously mentioned. This translated into an EBITDA margin of 28%, which also reflects the higher contribution of Composite Materials to the portfolio mix.
Turning to Performance & Care, organic sales increased 2% year-on-year, driven by continued strength in Technology Solutions. Technology Solutions performance reflects the strong demand for phosphorus solutions in the quarter. Within the segment, Novecare delivered 1% organic sales growth compared to the prior period, supported by growth in coatings and home and personal care, which offset softer demand in agro. A focus on pricing discipline also contributed to improved sales performance. The net result is that Performance & Care delivered EBITDA of EUR 100 million in the quarter, up 7% year-on-year and up 9% sequentially, with an EBITDA margin of 19%. Within the Other Solutions segment, EBITDA was break-even for the quarter as a result of increased raw material costs. Importantly, at a Syensqo group level, sales increased 9% organically compared to the prior year.
Whilst EBITDA was flat, reflecting higher raw material costs, increased variable remuneration, and hiring and training in Composite Materials as we continue to invest in the business to support future volume growth. The net effect of what I have just described is reflected on slide 10. Moving to EBITDA for the quarter. Underlying EBITDA of EUR 320 million was flat year-on-year. Whilst both our core segments of Materials and Performance & Care improved, this was offset by a lower performance from Aroma and higher costs in corporate segment. The strong performance from Composite Materials across all applications resulted in underlying EBITDA in Materials increasing by EUR 4 million compared to the third quarter of 2025.
Performance & Care delivered resilient results with EBITDA EUR 7 million above the prior year on an organic basis, reflecting an improvement in home and personal care applications and a higher contribution from our joint venture in India in Novecare. Moving to the right, Other Solutions was down EUR 6 million compared to the prior year period. Corporate costs have increased by EUR 10 million in the quarter, primarily due to the reload of variable incentives as communicated in the last quarter, which is expected to continue through the remainder of the year. Turning to capital expenditure on slide 11. Our total capital expenditure for the quarter was EUR 107 million, down 25% year-on-year, including capital expenditure for the new ERP program. This brings the year-to-date capital expenditure to EUR 299 million, 30% lower than the prior year.
Looking ahead, we will continue to make disciplined investments where demand is strong, returns are attractive, and additional capacity is required. This includes in Composite Materials, where we are looking at capacity expansions to meet increasing demand, for example, in aerospace, where long-term growth is expected to continue for the next decade, and targeted capacity expansions in Specialty Polymers, including the Spinetta plant in Italy and Changshu plant in China, to meet increasing demand from semiconductor fabrications as investment activity begins to recover. We will continue to carefully manage CapEx and cash to balance our shorter-term targets with longer-term value creation. We now expect our CapEx guidance to be less than EUR 450 million for the full year, reflecting the timing of spending with some of the 2026 planned CapEx flowing into 2027.
Finally, we continue to have a strong financial position with underlying net debt of EUR 1.9 billion at the end of September, a reduction of more than EUR 150 million compared to the end of the second quarter, with a stable leverage ratio of 1.7 x. With that, I'll turn the call back to Mike. Thank you.
Thank you, Chris. Let me close by sharing our outlook for the remainder of the year and the key priorities guiding our actions. The third quarter demonstrated continued progress in our volume recovery, particularly in our Materials segment. We expect this momentum to continue into the fourth quarter, although the broader demand environment remains uneven and geopolitical uncertainty continues to create volatility in raw materials and input costs. Against this backdrop, we expect fourth quarter volumes to grow at a mid to high single-digit rate year-on-year, led by Materials. From an EBITDA perspective, our fourth quarter expectations reflect normal seasonal patterns. Within this context, we expect first quarter underlying EBITDA to remain the lowest quarterly level of the year.
Turning to operating cash flow, based on our performance for the first nine months and the expectations for fourth quarter, we are raising our full-year outlook to at least EUR 700 million, supported by the working capital improvements Chris highlighted earlier. Finally, reflecting our continued focus on capital discipline, we now expect full-year CapEx to be below EUR 450 million. Looking beyond the quarter, our strategic direction remains clear. We are building on the competitive strengths of Specialty Polymers and Composite Materials while continuing to advance our portfolio priorities. The commercial wins, differentiated innovations, and operational improvements highlighted today demonstrate how we are translating our strategy into tangible actions and results. I'm encouraged by the progress that we're making. Our priority now is to continue to build on this momentum, scale what is working, accelerate execution, and consistently convert growth into stronger earnings, cash generation, and returns.
With that, we would be happy to take your questions.
Thank you, Mike. We will now move to the Q&A session, and I kindly invite you to limit yourself to two questions and to rejoin the queue as necessary in order to allow more analysts to ask their questions. Operator, can we please have our first question?
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sebastian Bray with Berenberg. Your line is now open. Please go ahead.
Hello, hello. Good afternoon, and thank you for taking my question. It was on the Specialty Polymers segment. I am interested in if this segment has actually grown its EBITDA on a year-on-year basis in Q3, and in particular, how much the price increase, or how much of the targeted price increases are going to enter the automotive segment as we move into 2027? Do you have any outlook for how divisional pricing might behave as we move into that year? Thank you.
Hello, Sebastian, and thank you very much for your question. Our current assumption is we do not necessarily expect to see any increase in net pricing, particularly in the automotive segment. We will, however, look to offset any inflationary impacts on raw materials through price increases, albeit there is a lag effect. We think about pricing in the context of our innovation, our value proposition, customer and regional dynamics, as well as the competitive landscape and current inflationary environment. In automotive, we have two key segments, batteries that support electric and hybrid vehicles, and the under-the-hood applications, where we are replacing metal with high-performance polymers that make vehicles lighter, lowers total cost of ownership, and brings differentiated performance in some of the most demanding environments.
The overall demand picture, looking at global production, remains challenging, and coupled with growth from China, we have been balancing pricing and volumes to drive overall profitability. I would say that this trend is likely to continue. We are going to continue to fight for pricing across the portfolio, leveraging our strong value proposition and our application expertise as part of our strategy to convert growth into stronger earnings, cash generation, and returns over time.
Sebastian, if I can just add to Mike's answer. You asked about Specialty Polymers year-on-year. Year-on-year, it is marginally down, but it is up sequentially, and we are starting to see a return to growth, as we have seen over the last two quarters.
That is helpful. Thank you.
Your next question comes from the line of Chetan Udeshi with JPMorgan. Your line is now open. Please go ahead.
Yeah, hi. Thanks for taking my question. I will just follow up on Sebastian's question, because I am really puzzled that your net sales in Materials are up EUR 114 million year-on-year, while the EBITDA is up just 10. This looks like pretty underwhelming, at least to me. I am just curious, are you starting to chase volumes to some extent, at the extent of margins? I am also reminding myself, because over the last two years, you guys have highlighted significant cost-saving actions as well, including in Materials. I am sorry to say this, but there is no evidence of that in the numbers today. If anything, you are loading up bonus provisions when the EBITDA is down year-on-year organically for the first three quarters of the year.
I am just curious, how should one gain confidence that the trajectory of organic earnings delivery and margin improvement here should become visible at some point? Because it seems like we were going through restructuring phase, and now you are starting to do investments. So, seems very reactive from outside. The second question on Performance & Care strategic review. Do you have any timeline we should have in mind in terms of the next steps? Do you expect anything to come out before end of this year? Any clarity in terms of where are you in that process and the timeline, that would be quite useful. Thank you very much.
Thank you very much, Chetan. On your first question with respect to the Materials, as we have said consistently, we are taking both a short and long-term commercial and operational improvement actions, and we expect that operating leverage to become more evident in Materials segment as we move forward. But it is important to distinguish specifically for your question the performance between what is happening in Composite Materials and Specialty Polymers. Approximately two-thirds of the organic sales increase in Materials came from Composite Materials, and Composites delivered an absolutely exceptional quarter, and its margin improved year-on-year, even taking into account the impact of higher headcount additions to support our stronger growth and the inventory drawdown, as Chris had mentioned. So the business is driving most of the growth, while also still improving on our profitability, and that is what we want to do.
Because Composite Materials has a lower margin than Specialty Polymers, its faster growth nevertheless dilutes the overall Materials margin. Chris would have to precise it, but I believe that Composite Materials made up 35%-36% of the Materials sales in the quarter versus 32% a year ago. So there is that mix effect within the Materials segment. Approximately one-third of the organic sales growth came from Specialty Polymers, which I would say characterized as largely temporary factors weighed on margins in the quarter. First, raw material and energy costs increased sharply in the quarter, driven largely by the crisis in the Middle East, and we are addressing that through additional pricing actions in Q4. There is going to be a lag between the cost increases and the recovery through pricing.
Although the markets remain volatile, as we have seen over the past couple days, we need to continue to mitigate that issue, and we are committed to doing that. Secondly, on the variable compensation accruals, as you mentioned, they were again higher year-over-year in the business as well as at the corporate level, and that reflected the weaker performance that we saw against our 2025 targets. So that creates an additional and more visible cost increase year-on-year impacting margin as well. I would say the last point would be that the stronger year-on-year growth in batteries weighed on the mix within Specialty Polymers. While these factors explain the quarter, they do not change what we need to deliver. I just want to be very clear, we need to deliver organic earnings growth, and it needs to convert to margin improvement and higher returns.
As a company, we are committed to doing that as fast as possible. On your second question, which related to the process around Performance & Care, I am going to continue to say that we are exploring strategic options. We have received some strong interest and expressions of interest from a range of parties. Our priority is to achieve an outcome that maximizes shareholder value, and again, this could be a sale of Novecare, Technology Solutions, or both. I would say that we are moving at pace. We have not committed a specific timeline, and again, we will update the market when appropriate.
Thank you.
Thank you.
Your next question comes from the line of Tristan Lamotte with Deutsche Bank. Your line is now open. Please go ahead.
Hi. Thanks for taking my questions. The first is on capacity. You mentioned debottlenecking in semis. I was wondering when do you think you'll need more capacity in the segment, or is this comment very kind of forward-looking because you're looking at your anticipated order book for 2027 and 2028? And linked to that, what do you think about CapEx next year? Then second, I was just wondering if you could maybe clarify the thinking on the variable compensation accruals. Is that kind of on the basis of taking numbers down at the start of the year? Maybe remind us what the level of reset is expected to be for 2027 in terms of that accrual. Thank you.
Yeah. I'll take the first one, and I'll give Chris the second one. Sorry, my mic wasn't working there. What we're seeing in terms of inventory and investment, based on what we can see, inventory is right at normalized levels, and we're focused on supporting the strong growth. We are seeing strong growth, as we mentioned, about 20% in semis in Q3, and that's building on improved momentum. We have announced some capacity expansions where demand is strong and the returns warrant the investment in supporting some of that fab construction activity and the increase in semi demand. But I think right now, we'll largely say that we're closely working on timing capacity with customer demand. Chris, I don't know if you want to comment a little bit more on CapEx.
No, I mean, on CapEx, just to further Mike's points on semis, we have always maintained that where we are at capacity, and we would invest further, and it would be in the smaller projects. In terms of CapEx for next year, we have not given a guidance on that, but what I have stated in my speaking notes is that our CapEx for this year will be below EUR 450 million, as we expect timing of some projects from this year to flow into next. What we will do is give you a CapEx update as we come out with our full-year results in February.
Now, in terms of the variable compensation accruals you asked about, our variable remuneration, both on the short and long-term incentives in the current year, is accrued in line with the performance of the business and the targets that were set by the board at the beginning of the year. That said, moving forward, we will accrue in line with the performance targets that are set for 2027, depending on the actual results and at the time and the delivery of that performance relative to the targets over the course of next year. So you should not assume that the higher year-on-year compensation expenses in 2026 automatically becomes an equivalent benefit going forward. So really, it depends on the performance next year. So we will update you on 2027 when we provide our guidance in February 2027. Thank you.
Thanks a lot.
Your next question comes from the line of Katie Richards with Barclays. Your line is now open. Please go ahead.
Hi, thank you for taking my questions. I just wanted to follow up from the first two, really, on the Specialty Polymers, and in particular the margins. Just looking across the year now, it looks like the margins have reset since Q4, I think, even with the strong volume recovery we've seen. So, could we correlate this with the ramp-up of the PVDF capacity in Tavaux being the primary factor behind this, or would you suspect it's raw materials or another factor? Can you see a scenario where Materials ultimately returns to these 30% margins we once saw? If so, what would it take?
Yeah, so thank you very much, Katie. I wouldn't attribute it to the PVDF ramp-up and what is happening at Tavaux. I'm going to go back to how I answered Chetan. It's really multiple factors. It's mixed factors between Specialty Polymers and Materials, Composite Materials, with Composite Materials having stronger growth and more of an impact on the margins in the quarter. It relates to the lag effect in raw materials. Again, we saw the spike and the sharp increase around September related to the Middle East crisis, and we've taken action to mitigate that, and you'll see that follow through in Q4 as we would expect our improved leverage when those commercial actions take hold.
We're also doing things that over the longer term, and I go back to some of the comments that I made in Q1, we need to improve our operational performance. We need to drive efficiencies on our assets. We need to get greater return on the capital that we've already invested. That's why you're seeing that push on volume growth and improving our commercial actions to drive opportunity pipeline management and to take share of wallet, because we need to improve our value proposition to our customers. Then center to all this is innovation. We need to make sure that we're driving innovation, commercializing things faster. The team is really mobilized around that. We're leveraging AI now as well, as well as to address churn. So we want to put new things in the pipe, but we also want to prevent loss of business as well.
It's a combination of all those factors.
Yeah, I mean, Katie, if I can just add to Mike's point there, just to clarify on the Tavaux plant. The Tavaux plant remains as an asset under construction. It is non-operational at the moment, and only once we start operating that plant will the costs and the depreciation have an effect. For now, it has no impact on the business.
Thank you. For my follow-up, you mentioned innovation there. Outside of the semiconductor opportunity, where would you see the most interesting emerging growth opportunities for Specialty Polymers, and what kind of growth are you seeing for stationary energy storage or humanoid robots, for example?
Great question. Thank you very much. On humanoid robotics, it is still an emerging opportunity for us, and we have a number of applications, but it is too early to quantify its revenue potential. AI and data center-related, short term with semicon business, leading to the next generation data centers requiring higher performance, and humanoid robotics, that is interesting to us. Increasing need for energy storage solutions is something where I think that we have a strong value proposition, and we are working with customers in those opportunities. I would say on the healthcare, aging population requiring performance in pharma packaging. We are a leader in hemodialysis. It really is spread across the Specialty Polymers portfolio, where we have strong customer positions already, but we have very versatile innovation that we can leverage across not only our existing applications, but new applications as well.
Thank you.
Your next question comes from the line of Sébastien Afoy with Bernstein. Your line is now open. Please go ahead.
Hi, good afternoon. Thank you for taking my questions. Two, please. The first one on Specialty Polymers automotive. What would be a sustainable degree of outperformance versus automotive growth rates that you think you can achieve? After the share gains, are you still more biased to European OEMs? My second question would be on Composites. Can you talk about payback expectations from the investment in staff and training, and what do you think a sustainable growth rate is into 2027 after achieving stellar performance this quarter? Thank you.
Yeah, let me answer your first question, then I might ask you to repeat the second question, because I'm not sure I picked it all up. With respect to sustainable degree of outperformance, actions that we're taking this year, I'm pleased with the share gains that we've been able to deliver in auto, and it really has been supported by a change in leadership. While performance varies quarter to quarter, our growth in batteries has been concentrated in Asia, and I'd say particularly in China, where our commercial approach has really enabled us to capture nearly all of the NMC growth. As you know, we're in NMC, not LFP. That has supported our strong volume growth, which more than offset any of our pricing activity.
In the under-the-hood applications, we've been winning share, as you mentioned, I'd say primarily in Europe and North America, as a result of the technical support or application expertise that we're providing to our customers, which, from my standpoint, clearly has increased our market share. Going forward, as is the case across Specialty Polymers, we're continuing to aim to outperform the market and deliver profitable growth. We'll continue to innovate with Chinese OEM and tiers there, as they drive new programs in electric vehicles. Then maybe again on your second question.
Composites, when you invested in staff and training, maybe can you talk about payback expectations going into next year or the years after, and maybe a sustainable growth rate into 2027?
Yeah. The investments that we are making in Composite, we saw very strong demand growth. We mentioned 27% in Q3, 30% coming from commercial aerospace, 22% coming from defense. We are seeing growth broadly across Composite Materials, including engines and carbon fiber composites or adhesives business. The growth is very broad. We are making investments to support that growth in terms of some capacity de-bottlenecking. We need to improve our productivity. We are adding headcount, though, to support this growth. It is a sharp increase in growth. Our growth levels for Q4 will moderate off of Q3 because we start lapping the effect of in 2025, and especially in Q4, when Boeing came back after the strike.
We are driving productivity improvements, we are improving our staffing, we are adding selective CapEx where the growth is warranted, the demand is there, and it supports our strong strategic assessments and segments, and we mentioned adhesives as one of those in Havre de Grace. In terms of growth, I would expect that Q4 will moderate off of Q3. As I mentioned, there is some seasonality in the business. Then, longer term, again, I am not going to precise a number right now for 2027, but the outlook is extremely strong for this segment. For a lot of companies, they talk about a 10-year backlog. I would expect mid to high single-digit growth for this segment for the foreseeable term.
If I can just add to Mike's answer, as we said in one of the previous answers, I think it was to Chetan, most of or two-thirds of the growth in our sales of that EUR 114 million that Chetan referred to actually came from Composite Materials, yet it still managed, with all the increase in the headcount, to improve its margin year-on-year. As we go forward and we increase our sales output, we expect that this increase in headcount will more than pay off given the strong margins in the business and the strong demand for the product.
And just the final comment here is, we want to drive growth and we want to expand the margins. That's the mandate to the businesses, and we're developing a strategy to help us be able to deliver that.
Your next question comes from the line of Matthew Yates with Bank of America. Your line is now open. Please go ahead.
Hey, afternoon, everyone. I'd actually just like to follow up on that last question around Composite Materials, and maybe this is the perils of quarterly reporting, but 30% growth in commercial aero would probably strike me as at least 2x the growth in terms of production build rates. Obviously, I don't know exactly what platform you're on and all the content, et cetera, but it looks well above arguably what underlying demand is. Mike, you referenced mid to high single-digit growth. So, I guess two components in the question. Why is it overshot so much in Q3? Are customers calling off high volumes to build inventory or some other reason? What does that sort of phase from 30% towards high single digit look like over the coming quarters? How abrupt is that Q4 moderation that you called out earlier? Thank you.
Thank you, Matthew. I'd say the 30% growth was extremely strong. I would point back to 2025 and the base, and again, I mentioned that in Q4, we would expect that year-on-year growth to moderate because of us lapping Boeing and the strike that happened there. I would say that what's driving some of the 30% is going to be volume, but it's also going to be pricing. Pricing will then stabilize moving forward. We'll continue to enhance our value proposition, but I think that that had probably the equally large impact that we saw for Q3. Again, going forward, we're not going to precise a number right now in terms of growth and margin expectations. We'll do that when we report our Q4 results in February and give an update on our 2027 outlook.
Matthew, just to reiterate the point that you said, it is the perils of quarterly reporting, as my investor relations quite well knows. But as you will see in our Q2, we had strong growth from Composite Materials. We have had strong growth in Q3, and we seem to have record growth since quarter four last year. It is not around the peril of one particular quarter. The underlying fundamentals in this business are very solid, and it is coming through both growth on all of our programs, and it is coming through the pricing benefits that we have in place.
The last comment I want to make is, it is somewhat of a lumpy business. I think we called that out with defense. It depends on field readiness, stocks on the ground, and build rates through the entire value chain. Again, it was an exceptional quarter for a host of factors.
Thank you. Back to you, folks.
There are no further questions at this time. I will now hand the conference back to Sherief for closing remarks.
Thank you very much, everyone. Thank you for the great questions and the participation. As usual, the investor relations team is available throughout the day to answer any remaining questions, and wishing you all a great day. Thank you very much.
This concludes today's call. Thank you for attending. You may now disconnect.