Solvay raises cash flow target, announces battery materials JV with Orbia

By Elena Vardon

(Reuters) - Belgian chemicals company Solvay on Thursday raised its full-year free cash flow guidance on better-than-expected earnings, and announced a joint venture with Mexico's Orbia to produce battery materials in the United States.

The group, whose products include base chemicals such as soda ash and speciality polymers used in batteries, now sees full-year free cash flow at around 1 billion euros ($987 million), against a previous forecast of 750 million.

Solvay separately announced with Orbia a framework agreement for a joint venture, consisting of an investment of around $850 million, of which the U.S Department of Energy will contribute $178 million in a grant.

The firms said the project will create the largest facility in North America for production of suspension-grade polyvinylidene fluoride (PVDF), used in lithium ion batteries in electric vehicles, and is expected to be fully operational by 2026.

Solvay said in an earnings statement that capital investments would reach 1 billion euros this year.

Its third-quarter underlying earnings before interest, tax, depreciation and amortization reached 917 million euros, ahead of its own recently upgraded guidance of around 900 million euros and consensus estimates of 764 million.

The company has so far been able to pass on cost inflation to customers, helped by sustained demand and pricing stickiness.

"We've also been renegotiating contracts with a number of key customers to put automatic cost escalation clauses related to energy in Europe", finance chief Karim Hajjar told Reuters.

Sales for the July-September period were 3.61 billion euros, up 40% year-on-year, but Hajjar flagged challenges next year.

"We need to be very alert to the fact that 2023 is going to be tough", Hajjar said, adding that Solvay could be facing a 15% decline in volumes next year as customers reduce inventories.

The CFO confirmed that the split of the group into two independent public companies by the second half of 2023, first announced in March, was on track.

($1 = 1.0136 euros)

(Reporting by Elena Vardon; Additional reporting by Olivier Sorgho; Editing by Leslie Adler)