Arkema S/Adr

Ladies and gentlemen, welcome to the Arkema's Q1 2020 Results Conference Calls. I now hand over to Thierry Léonard, CEO, and Marie-Josée Dussion, CFO. Madame, sir, please go ahead.

Good morning, everyone. Welcome to Arkema's Q1 2020 Results Conference Calls. With me today are Marie-Josée Dussion, our CFO, and the whole Investor Relations team. So the global situation has continued to evolve since we last talked at our strategic update on April 7th. With the health crisis, as expected, further increasing intensity in many countries, and now we're just beginning to show signs of stabilization. Meanwhile, the economic environment, as you know, has continued to deteriorate, with the second quarter currently expected to be the low point of the year, concentrating As you know, most of the lockdown measures implemented by governments in many countries around the world. First of all, I hope that you and your families are well. And before I start this conference call, I'd like to express my gratitude to everyone who is bringing his contribution one way or the other in any part of the world to the fight against this terrible virus. Primarily, of course, all the health workers who are at the forefront of this fight. Very quickly, as many companies, Arkema showed in its own way its social commitment in this crisis through free delivery of gel to hospitals, supply of essential polymers to make protection equipment or medical devices, or financial donations. Our management and our teams can be proud of this. Beyond this expression of our solidarity, the health and safety of our employees is our utmost priority, and we have swiftly installed crisis cells focused on employee safety. In parallel, we are making sure operations are running as smoothly as possible. Actually, most of our plants have been running since the beginning of the crisis. and we implement quick and significant measures to mitigate the impact of this crisis on our results. To support this conference call, we have posted on our website a set of slides which detail first quarter performance and outline some elements of the outlook. As always, we will answer your questions at the end of this call. I will now make a few comments on the first quarter's achievements before letting Mathieu Jose go through the financials in more detail. I would like to underline the following key points. First, Q1 results were in line with our expectations. They were impacted by the emergence of the pandemic in China first and in Europe in the second part of the quarter. The picture varies significantly by end market and by region. Overall, we estimated the impact of the COVID-19 in Q1 at around 100 million euros on ourselves and 45 million euros on our EBDA. This is in line with the guidance of 40 to 50 million we gave at our strategy update on April 2nd. Most of the EBDA impact came from lost volumes and from a regional standpoint, around two-thirds of the total relates to Asia and the rest to Europe. Volumes were down nearly 5%, a drop that more or less corresponds to the estimated impact of the COVID-19 on our top line. This reflects more particularly decline in the transportation, oil and gas and electronics markets, which affected especially advanced materials and were amplified by the pandemic. This overshadowed solid demand in a few end markets such as packaging, notably within adhesives, or nutrition, and in certain emerging niche applications used for the fight against viruses such as disinfection, medical and protective barriers, and masks, in which Artema was able to use its know-how. A simple way to analyze the evolution of the group Cebida in the quarter can be the following. we have three well-identified specific elements. The COVID-19, with its negative impact estimated at 45 million euros. The national strike in January in France linked to the new national pension scheme which affected transportation by rail and cost us nearly 10 million euros. And the impact of illegal imports in European flue gases which amount to around 20 million euros. and which should prevail up until end of May. Excluding these elements, our EBDA was stable with a different picture by segment. The decline in the EBDA of specialty material essentially came from the impact of the COVID-19. This was a rather resilient performance if you keep in mind the underlying challenging economic context which was prevailing at the end of last year in a few end markets. And this solution continues to perform very well, recording double-digit EBITDA growth, thanks notably to operational excellent measures, lower raw materials, and synergy from acquisitions. Beyond the COVID-19, EBITDA from intermediates was impacted as expected by daily rolling costs in European fuel gases and some further normalization in PMMA. We have put in place a number of strong measures in order to adapt to this crisis, to mitigate its effect on our volumes, and to focus first and foremost on cash regeneration. I will give two examples. Reducing fixed costs in 2020 by €50 million relative to 2019, or €100 million relative to our budget, including decreases in all dimensions of the company operation from manufacturing to SG&A. Reducing capital expenditure by €100 billion relative to the initially budgeted level of €700 billion, while preserving much of the significant step up in investment dedicated to our polyimide 11 plant in Singapore. Finally, we must look beyond the current turmoil. Even if the short term requires all our attention and a considerable amount of effort, it is critical to continue to think and work for the longer term whether this be the gradual rebound after the crisis or the implementation of our 2024 strategy presented at the recent investor event. During the quarter, despite the pandemic, we continue to make progress towards our mid-term goals. In January, we closed the acquisition of LEAP, a Danish leader in time-adhesive, waterproofing system and floor preparation solution, which delivered a good first quarter. At the end of the quarter, we started the capacity expansion of our thiochemicals plant in Kerte in Malaysia to support the growth of the animal nutrition, refining and petrochemical market in Asia, building on the rapid success of the first unit. We moved on with the site preparation of the bio-based polyimide-11 project in Singapore and ensuring that the CAPEX cut we will implement this year does not affect This is critical development for Arkema. Finally, in Q2, we expect to close the divestment of our functional polyolefins business to SK, which we announced last year. This initiative will contribute to our ambition, which we presented as a strategy update on April 2nd, to become a pure specialty materials player by 2024. So we'll now turn over the call to Marie-Josée, who will detail the Q1 financial performance.

Thank you, Thierry. I will comment starting with the bridge on turnover. So sales are down 5.7% compared with last year at 2.1 billion euros. Beyond the negative volume impact of close to minus 5% that Thierry commented, the price effect has also had a negative 5% effect on sales compared to 2019. This impact mainly comes from lower propylene prices in the coating solution segment and the tough market conditions in refrigeration within the intermediates. The price effect was slightly positive in Adesys, thanks to the measures taken last year to improve product mix, and was quite resilient in advanced materials with a limited minus 1.7% effect. Please also note that we enjoy a positive 3.4% perimeter effect coming from the integration of AMAZ, LAMSA, and Proximir acquired in the second half of last year, as well as from the acquisition of FLIP within Abidis that was acquired in January this year. We have as well a 0.7% positive currency effect mainly reflecting a stronger US dollar versus the Euro. Basically, the rate for the first quarter of 2020 was at 110 compared to 114 for the first quarter of 2019. These effects on volume have led to a Q1 EBITDA of 300 million euros. which is 19% lower than last year's level, including an approximately €45 million negative impact linked to COVID-19, as detailed by theory on the various segments just before. Depreciation and amortization reached €140 million, up €17 million year-on-year, as a result of the startup of several production units and the integration of acquisitions. Therefore, recurring interest amounted to 160 million euros and rebate margins stood at 7.7%. Non-recurring items include a 14 million euro PP amortization and a 14 million euro non-recurring charges, mainly relating to restructuring expenses, asset write-offs and acquisition costs. Financial results stand at a minus 23 million euros which is slightly lower than last year. The difference coming mainly from non-cash, actual changes in certain employee benefit obligations. The tax rate excluding exceptional items remains stable at 21% of recurring interest. Consequently, our Q1 adjusted net income amounted to 100 million euros, which corresponds to 1.31 euros per share. Moving on to cash flow and net debt, you see that Q1 free cash flow amounts to minus 38 million euros to be compared to the 73 million euros in Q1 2019 and to a minus 25 million euros in Q1 2018. Free cash flow reflects the impact of a lower EBITDA and includes a regular seasonal increase in working capital linked to sales phasing of Q1 versus Q4. The working capital ratio on annualized sales stands at 16.5% versus 15.1% last year, and as highlighted by Tianyi, a tighter monitoring has been put in place to track inventory evolution and cash collections. Total capital expenditure amounted to 92 million euros in the quarter versus the 109 million euros in the first quarter of 2019. So, as Thierry mentioned, we intend to reduce capital expenditure by 100 million euros compared to our initial target of 700 million euros. And as a result, we should end up with a total recurring and exceptional capex expenditure at around 600 million euros this year. Net debt reached 2.48 billion euros at end of March 2020, including 1 billion euros of hybrid bonds. This represents a slight increase of 150 million euros relative to our net debt of last December. coming mainly from the M&A done in January for 95 million euros and from the operating cash for the period. As a reminder, please note that we temporarily carry a 300 million euro hybrid bond in duplicates since we took advantage of favorable market conditions in January to issue a 300 million euros of undated hybrid bonds at a yearly coupon of 1.5% in advance of our initial 300 million euro hybrid bond maturing in October this year, which had an interest rate of 4.75%. Our balance sheet remains extremely solid, as net debt including hybrid bonds represents 1.8 times our last 12 months EBITDA. We are also very comfortable with our liquidity level, which stands at 1.5 billion euros at the end of March. I'd say, moreover, our pension obligations stand at around 400 million euros, which is a very manageable level in the current polar cycle for markets. I thank you for your attention, and we now hand it over to Thierry for the outlook.

Thank you, Marie-Josée. So as I mentioned at the beginning, the COVID-19 continues to spread across the world and how the sanitary situation evolves as well as its precise impact on the world economy are still quite uncertain at this stage. So like most of our peers, we decided a month ago that the 2020 guidance we gave when we published 2019 results was no longer relevant. Our feeling is that in terms of year-on-year demand variation, a Q2 will be more strongly impacted, one element being the drop in building and construction-related segments in Europe and in the U.S., therefore affecting the adhesives and coating solution segments. Our sales evolution for the month of April is estimated to be around minus 17% year-on-year, including a perimeter effect of around plus 3%, like in Q1. which mean at constant scope in April, our sales evolution of around minus 20% year on year. The gradual improvement should materialize from our standpoint from June, provided that the lockdown measures are lifted in Europe and the US as currently expected. We also believe we should be in a position to have a clearer view of the prospect for the full year in December. I stated at the investor event early April, we are very confident to go through this crisis and emerge in good shape. We are benefiting from a diversified base of end markets and countries, some ongoing developments in each application key in the fight against the virus and other innovations, a strong balance sheet including a relatively low level of pension obligations, and a strong liquidity position. Our adaptation measures on cost and capex and some benefits from lower raw material will help mitigating the drop in demand. As you can see, we focus on what we can control and are implementing a very strict and reactive steering of our activities and operations. As you know, our culture has long been action-oriented and our teams have stepped up their level of determination and initiatives quite well. Beyond our focus on cost, Cash and liquidity, we are fully attentive not to weaken in any way our ability to rebound when the recovery materializes. Our focus on sustainable innovation, corporate social responsibility, and portfolio evolution is unchanged, and we remain fully committed on not slowing down the execution of the 2024 roadmap towards becoming a pure player and specialty material. I thank you very much for your attention, and we are now, together with Marie-Josée, ready to answer your questions. Thank you.

Thank you. If you wish to answer a question, please press 01 on your telephone keypad. It's 0 and 1 on your telephone keypad. We have a first question from Martin Rigard from Kepler-Chevreux. Please go ahead.

Yes. Thanks and good morning Marie-José, Thierry and to the whole team. I have three questions. First, can you talk about the sequential development so far? I mean, how April compares to March and what does your order book tell you for May? Secondly, you say that you want to reduce fixed costs by 50 million. Can you elaborate on the actions you are planning? You mentioned SG&A. But can you help me to understand if these actions are more temporary only or also sustainable? And thirdly, on your cut in capex budget, is that a postponement of maintenance capex? And if so, does it mean that the capex is shifted into next year or anything else related to that? Thanks.

Okay, Martine. First of all, hello. Thank you for your question. I will start by the last one and come back to the second and first one after. So there are relevant questions. So on the capex budget, in fact, it's more, first of all, it's not one capex specifically, so all across the board. We are not considering any investment we wanted to make because we believe they were all important even if we are ongoingly reviewing our most important capex. So it's more about... which means that, first of all, physically it will take more time because of the confinement measures. This means that things we simply cannot do because you don't have subcontractors. Okay, so you will have natural delay. On top of that, we have decided to delay some capex on which, based on the sales prospect, we can wait a little bit. We are also using this period to negotiate, to renegotiate certain capex envelope. This means that we obtain, because your price has decreased, because the economic is down, we are able to take unit prices down. And with all that, we are able to reduce capex. It's not also just to put it on next year, because at the end, next year will not be above what we thought three months ago next year would be. So it's just a natural delay that we keep to a certain extent for many years. And we certainly don't take any risk, as you know, on maintenance and safety. We never do that. So I think it's a reasonable topic. It's all across the board. It's mostly delay and renegotiation. And I think this corresponds to 15%, all in all. I think it's reasonable in the current context. With regard to the fixed costs, again, it's all across the board. It goes from SG&A, but it includes also manufacturing, R&D. Everybody is contributing. As I mentioned, we try certainly not to jeopardize any ability to rebound. So again, we try to reach a balance, to be reasonable, to be strong in what we want to achieve, but also to be reasonable. Examples you want, they are everywhere, I would say. Starting from renegotiation of any purchases to certainly travel is absolutely obvious. In operations, there is some sense going down to adapt the momentum of certain sites, et cetera. So it's everywhere to cut some marketing costs because we don't need them when the customer don't order. So it's really all approachable. With regard to the order book, I think it was your question on the first point and how uh may and june uh after uh after april i would say i would consider that may is more or less like uh like april there are a lot of uncertainties for you for everybody but our feeling is that after what i told you on april and we wanted to share this number with you and they should be should see more or less the same kind of and we should start to see some gradual, actually a really gradual improvement starting in June. Is this lifting of lockdown implemented the way everybody is expecting in the different countries around the world?

Thanks.

Thank you. Next question from Alex Stewart from Berkeley. Please go ahead.

Hello. Yes, hello. Sorry, I'm here. Thank you for the question. I have three, but hopefully very quick questions. On this cost savings, you talk normally about being able to offset 50% to 100% of normal fixed cost inflation through specific measures. Could you just confirm whether your expectation for 2020 is is that you will now be able to offset all of the normal fixed cost inflation, given that you've announced another $50 million program. So I'm interested in understanding the net effect of that fixed cost inflation. Secondly, in adhesives, you talked about a better product mix, which is accretive to the price component. Can you talk about whether your customers are asking for like-for-like price decreases with the lower oil price? In other words, the same ton of adhesive this year compared to last year would be very helpful. And then your comment finally on MMA, PMMA. You talk about, I think, normalization continuing. Can you confirm whether the spreads that you're seeing are still positive? higher than this time last year, which is what you saw in the fourth quarter of last year, whether they've now started to track below the same level last year. That'd be very helpful, thanks.

Okay, so question in nature. With regard to the cost savings, so to give you the full picture, Every year, we are able to save about between one-half and two-thirds of the inflation of fixed costs by fixed costs and variable costs. What you don't have in what we have said is a variable cost component, which is every year that will be this year, which means that when we build what we call the budget for 2020, Compared to the base of 2019, we had an increase of $50 million of fixed costs. This increase of fixed costs was net of the savings I mentioned in fixed costs and in valuable costs. What will we be achieving in 2020? We are quite confident because, in fact, to complete the answer to Martin, we have already collected the action of everybody on the initiative, and we are exactly where we thought we would be. So we are very confident, and this is one of the strengths of Arkema, to be able to react quickly. So from this budget, which we planned, but with a better market environment, which was plus 50, we go to minus 50. So all in all, compared to the budget 2020, we will save 100. Compared to the 19 reference points, we will save 50, which means that to answer your question, yes, we will deliver the variable cost savings. We deliver the fiscal savings, but on top of that, will adjust compared to the budget with the lack of sales, clearly, and on top of that, we will save 50 million compared to the 19 level. So it's quite a significant saving because you add, in fact, all the savings together, the one which you add to offset inflation. You have to save to try to adapt as much as you can to yourself, and on top of that, you make savings. There was a question which may be also of Martin, I think, was it long-lasting or just one shot? Clearly, we should not dream, and it's true for every chemical company or every company, a significant part of what we will save this year in this specific context It's not the kind of things you can maintain for the long term. If I take travels, for example, obviously we are not going to stop traveling when the rebound is coming and when the confinement will disappear. So what would be interesting, but it's not a topic for today, that we start to think about it, is how we think about the longer term. How can we, through other measures, replace what is really shorter by something which is more long-lasting? That is not a topic for today, but it is, by definition, something we need to have in mind. And what is interesting today is the way we work with people at home. You see that you can certainly make things more simple or more efficient. So there are ideas which are emerging that we try to collect, but for the longer term. Now, with regard to the NADs, clearly, yes, there is a little bit of... of pressure on pricing, but you know what it is, is some of the niches. We are working a lot on the product mix, so our product mix is really changing a lot over the years. And when you talk about the raw materials, as you know, between when your price is decreasing and when you get the benefit in your account, you have six months. So all the elements mean that There is a little bit of pressure on pricing, which is reasonable because you are on specialty materials. And I think we manage that rather well in the adhesive. But the main element, as I mentioned, is really the evolution of our mix on the higher higher priced product and higher matching products organically, but also in terms of acquisition. On the MMA, I don't know if I understood well your point, but the spread is not improving. We have some further normalization, which is reasonable. It's clear that with the current context where the automotive is down, You have some unique price pressure, so we get it. You have also some raw material benefits, which attenuate this. But overall, the spread of MMAPMMA, as we mentioned, I think both in the press release but in the call, has continued to normalize, but in a reasonable way.

Thank you.

You're welcome. Thank you. Next question from Emmanuel Matos from OdoBHF.

Please go ahead. Hello to the team. Hope you are all right. Three questions for me, please. First, why are you saying in your press release this morning that the negative impact from illegal imports in fluorogases in Europe will stop in June? Is it just due to the basis of comparison? or do you expect that business to recover?

I can answer now. This means that we had the impact last year, starting early June, which means that at the end of May, we should have a base of comparison, which is comparable.

Okay? Okay. Okay. There is nothing else related to the authorities being able to stop those imports.

You know, all the authorities, they are in confinement. So, they are at home. So, it's more difficult in this world to... So, I think that we are still quite determined. But to get the law to be applied, which should be the normal world, But I don't think that this is a main topic of the current quarter with all these confinement and sanitary measures. So I will not bet on that. What we bet on is that the rate of comparison will be easier.

Okay.

Second, you talked a little bit... And even, sorry, even in normal work, so I put the COVID aside, You remember we said that we should expect an improvement at the end of this year. We have never said in the course of this year. Of course. Yeah.

Okay. Thank you. Second, you talk a little bit about raw materials for adhesives, but at the group level. Several raw materials were down a lot since the beginning of the year. If they do remain unchanged until year end, could there be a significant support for your EBITDA margin this year? And if yes, could you quantify it?

No, I will not quantify this point because the situation is still very volatile. Secondly, the main impact of the year will be volumes, not raw material benefit. But so all these elements, costs and raw material are there to mitigate, but partially mitigate. But the main impact of this year will be about volume. So then you have some positive elements. Fortunately, we go with the volume, which will be in particular our costs and raw material. After that, with regard to raw material, we have a very... a strong drop of the oil price one month ago, let's say a few weeks ago. Between, and then you have the food chain, from oil to refinery, petrochemicals, intermediate chemicals, basic chemicals, intermediate chemicals, and then for our downstream business, this is what we buy, intermediate chemicals. So you have a food chain, and then you have stock. So basically, in the chemical industry, for specialty chemical like us, What you anticipate when assuming your price more or less stable, which has to be confirmed, you have six months between when it comes and when it arrives to us. So you have to, there will be some benefit, but not in the short, short term. It's more, you have some lag, but it will be an element which will help to mitigate as cost, which is normal because together with the volume drop.

Okay. And my last question, why have you not been able to cut your working capital in line with your annualized sales in Q1? Do you think this ratio should improve in the coming quarters?

First of all, we have some questions which were fair on the cash flow. In fact, last year, as you remember, was a bit atypical for Arkema with a positive cash flow in the first quarter. We are in the Q1, rather comparable to the Q1 2018, which was considered to be a good performance with a limited negative outflow. Now, clearly what has happened, and we have to be modest on that, on the sales is that you are starting mostly in Feb, the sudden and brutal sales drop. After that, you need to adapt all your plants, everywhere in the world, which are affected. You are in continuous process. You need to adjust your raw material, and it takes a little bit of time. You cannot, in our business, just adapt overnight to a drop in set. This is the only explanation. If I remember what has been our schema in each period of sudden sales drop, we have been able to adapt quite rather quickly compared to the rest of the industry. So I'm not worried about that. It's an element of attention, and thank you for mentioning it. But I think it's normal when it's just arrived, you have a few months in order to adapt. That is an element of attention. So we will follow it, but we are really working on it. And don't forget, most of our plants are continuous process. You cannot just adapt overnight.

That's very clear. Thank you very much, Thierry.

You're welcome.

Thank you. Next question from Bashar Kamrish from Citi. Go ahead.

Hi, thank you for taking my question. This is Mubasher Chowdhury. Hi, Terry. Hi, Mary-Louise. Just on the working capital, are you seeing any signs of your customers having any financial difficulties in meeting their commitments? I guess to put it another way, are your bad debt provisions in line with what they've been historically, or are you seeing them move upwards? And then the second question is on thiochemicals, which can provide some colour around the utilisations in that division. Are the plants still running in line with utilisations seen at these levels last year, or are they running at lower utilisations? And then finally on Bostik, The raw material tailwind was expected to come through in 2020, but now if the current oil price is possessed, can you provide some color around how long before these get baked in and what the potential margin expansion could be, please? Thank you very much.

Sorry for me. On the last point, you could repeat. Positive margin expansion. Positive margin expansion, okay, okay. So on the first one, it's a stock and it's an element of attention for everybody. So far, I think we have a little bit of a stretch, but which is quite limited, Marie-José, on receivables. So it's an element of attention because, you know, in this world, which is quite challenging, some customers may have some difficulty. We put a lot of follow-up on it and we are very strict on payment. But so far, we manage it. The situation at the end of the first quarter is healthy, but needs a lot of energy and attention. Maybe, Marie-Josée, you want to complete?

As you know, we have a contract insurance contract, actually, on receipt levels, with actually a very strong performance year-on-year, which supports basically the low premium we pay for these contracts. So we obviously monitor with COFAS the credit limits that evolve and are updated on a regular basis by the agency. So it's a very close attention that we are paying to this metric. At this point, no increase in bad debt balances across the company. We definitely see a tendency from customers to ask for longer term and term. So this is something really that requires approval at a high level in the organization. But at this point, clearly this topic is in line, let's say, with the historical monitoring that we have on the bad debt balances.

Thank you, Marie-Josée. On telechemicals, So far, I think these are the few product lines for which the demand is behaving rather well. So you have the part of nutrition, as you can imagine, the world of today is one of the few markets which is resilient. And even the oil and gas in January was resilient. was rather okay, but now we expect to have some weakness. But overall, for the thiochemicals, we see rather good resilience. I would not say we are on the level of last year, but it's good resilience. With regard to Bostik, I would think you have to think structurally or short-term. Short-term, they will be impacted clearly in the Q2 by the construction, which is half of their business in the U.S. and Europe because the confinement is mechanical. It's nearly physical. Construction, for example, in France has nearly stopped for a couple of months. So they will be impacted by that. But I think your question was more, if we look ahead, beyond this... First of all, Bostik, by all the actions we have presented at the Investor Day structurally, we continue to improve this margin. We don't change our mind. And coming back to the question of Emmanuel on the Alexandre material and your question, Yes, in the course of the second semester, they should see some benefit from raw material. Yes, if the price stays where it is today.

Sorry, thank you. Just as a quick follow-up, how much of Bostik is purely DIY?

I would say, we speak into industrial and construction, including do-it-yourself, it's 50-50. And of this, do-it-yourself is really a minority part of what we call CNC, which is really the construction and distribution part. It's around 10% of the total sales of the stick. But in the second quarter, when we say construction, this is a whole construction and do-it-yourself, which will be impacted by the lack of people, of our customers being on the works and with the shops which are closed. So it's really nothing to see with Bostik. It's just a world which is like that in April. It started mid-March, then April and May, I would say. Okay? Okay.

Thank you very much.

Thank you. Next question from . Go ahead.

Yes, good morning. Glad that you . I've got two questions. The first one actually is a double one on operating leverage. So first of all, on timing of savings, so either on the 100 million gross savings on the 50 net, I was wondering if you could talk about how much you crystallized in Q1, bearing in mind what you just said on the fact that you cannot change the company overnight. The second question on leverage is, given that we have a new divisional structure, we can't really look back at history to track what happened on operating leverage. So I was wondering if you could talk a little bit about the areas where you would say Q1 op leverage was higher than what you would hope, where maybe it was bang in line. And in particular, some comments on advanced materials would be helpful, given that the EBITDA drop was bigger than the SEMS drop, which is a bit surprising. So that's the first question on op leverage. And the second question, specifically on PMMA, we're hearing a lot of anecdotes on computer screens demand on work from home, but also protective measures in retail environments, which is helpful for PMMA demand. I mean, against that, obviously, there's a drop in autos. I was wondering if you could tell us how you think about those, I guess, diverging factors for demand for PMMA. Is it just a small story, or should we actually assume PMMA demand to be resilient?

Okay. With regard to the fiscal decrease, I would say it's limited in Q1. It's quite limited, maybe a few millions, but this is the order of magnitude, which means that we'll split the rest over the last three quarters for most of it. Okay, the 50 million, I talk about the 50 because now you have to resolve compared to 19. This is the simpler way, but I wanted to explain the mechanism. We have to go to the minus 50, but now, so the minus 50, I would say a few million into one, then the rest being split. Maybe it's a paradox, but it will really amplify in the second semester, so you should have a weighted average of the three quarters which is more on the last two quarters, but we will have some already in the Q2. With regard to advanced materials, so your question, I would say for me, but I look at Marie-Josée, there is a... good correlation between the cells and EBITDA.

I would say the milk, oil, and gas has probably some impact in the quarter.

Yeah, we have some, in automotive also, we have some good margin business which has been impacted. So maybe in terms of product mix, a little bit disavailable because we have lost on some high margin application. It's temporary, but linked to the It's a difficulty with the COVID because it's a little bit different from month to month and quarter to quarter. The product can change very quickly because it depends really on what is happening in every country and which is changing every month. So maybe in this quarter we are maybe more impacted on higher margin products. that we have, but it's not a long-lasting. And the margin, we are losing four points of margin, which is certainly why that we are still close to 19%. With regard to PMMA, first is good to participate, and it's an element of proudness for workers to participate to the protections for this sheet. Clearly our sheet plant, We don't have so many, but they are full in France and in the U.S. Unfortunately, this is a drawback compared to what we sell in resin. It's a far smaller business, so it's a good business to have. It's quite developing. There is a lot of expectation from our customers. We have been able to react very quickly. But at the end of the day, in terms of impact on the profitability, it's nice to have, but it's far from being sufficient to offset for the automotive group.

Thanks, Thierry. That's right. Thanks, Mario. Okay, thank you.

Thank you. Next question from Daniel Chan from Redburn. Please go ahead.

Good morning, everyone. Just two from me. First was on China. So just in terms of the various sources out there suggesting a recovery in China, it would be great if you could provide some sort of colour on what you see on the demand side by specific end markets. It might be too early to ask, but how much do you think that is structural versus a pent-up in demand on restocking? And my second one is back on strategy, if that's okay. Do you envisage... any further non-core assets in the portfolio for pruning or divesting beyond what was mentioned at the strategic update on PMA and flora gases. I remember that there was a target of divesting 700 million of sales before this, and there was still some headroom there. So it would be good to get your views on that, I think.

So on the first one, on the recovery in China, I would say China sequentially is better. between Feb and March. After that, what is happening in China is that China is depending a lot on export to Europe and U.S., even more to U.S., and this part has slowed down. So, in fact, what is happening in China with some plus and minuses, China is not rebounding anymore, really. So we are still, like in March, we have still a level of sales which is more or less minus 10% compared to what it was last year of the same period, with some notable differences depending on which product line and market we are talking about. But it's more or less minus 10%, which means that China is not coming back yet to where it was the previous year. And the main reason, or one of the reasons, being the fact that China is depending on export, and these exports are impacted by these low-down measures in the U.S. and in Europe. And Southeast Asia. And Southeast Asia. And Southeast Asia, yes. You have also, Marie-Josée is right, we have to mention Southeast Asia. Yes, sometimes people don't have in mind that in Asia, you have really two Asia. You have China, which is not at the same level as last year, but which has recover for a big part of it. And you have Southeast Asia, which is nearly fully locked down. And it's one of the elements also of impact in the Q2 on Arkema, because we have a strong position there, which are in normal times very good, but then we will suffer from it for a few months. With regard to the, I will not come back to the CMD today. I don't think this is the purpose. The CMD was very clear on what we want to dispose, and I don't see what you mean by I think we have enough on our plate, and the strategy was very clear. We know exactly what we want to dispose of, and we are working on it in order not to lose time when the market condition will come back to normal.

Great, thank you.

Thank you. Next question from Jack Hare from UBS. Go ahead.

Good morning. This is Jeff Hare from UBS. I just have two very quick questions to ask. I was wondering, could you split out the uplift in margins you saw in adhesive solutions? Could you split out the contribution from raw materials and mix, please? And then secondly, I didn't hear the answer properly to the first question on the phasing of CapEx beyond this year. So you've taken 100 million out of this year. Are we to add that in over the next couple of years back in to the projections that we had before the, probably around Q4 time of 700 million for next year? Thanks.

Okay, on the last one, Jeff, In fact, we are talking about 15%. Fifteen percent, it means one month and a half. Basically, the answer could be we delay by one month and a half, in average, all our capex. This is the way you could look at it. It will not be added to next year, this 1.5 months, which is For this year a lot, but if you look at it on a long period, let's say until 2024, it's nothing. This will not be cut up. This means that it will not be added up next year or the year after. This means that we are the world, but it's not only us, the world. I think it's delayed by one month and a half. This is what we apply to our capex. So it's more a delay, and you will not get... You will not get this added up next year or the following year. It's a delay which is now structured. Is that clear on this part?

Yep, thank you.

On raw materials, on the first quarter, on the price, because we look at pricing versus raw material, we cannot say we get any material benefit. a little bit in adhesives, but in the continuity of what we got in the first quarter, the salmon advanced material is more an element of continuity, but based on what I think you refer to, which is this big drop in oil price. This is what I tried to explain before. You have to be a bit more patient. because of the time it takes to go from zero price to the raw material sold by intermediate chemicals and then to our stock in our P&L. And normally you have a delay which is not so far from six months.

So just to confirm then, the 130 basis point increase in EBITDA margin adhesive solutions, that was all a combination of cost reduction and mix?

There was a little bit of raw material support, but it was mostly mixed and cost reduction.

Okay, thank you.

And the raw material benefit we got, because it was firm, it was more the combination of pricing and raw material in the continuity of what we did last year, in fact. Okay? If you look at the margin development over the second semester, in fact, you have a continuity of the first quarter. Okay?

Thank you.

Thank you. Next question from Matthew Yeh from Bank of America. Please go ahead.

Hey, good morning, everyone. A couple of follow-ups on some questions that were asked earlier in the call. The first one's around thiochemicals. I just wondered if you could be a little bit more granular about the different applications for that product, a sense of how much is nutrition versus the fuel desulfurization and the polymer agents and how those latter businesses are doing in this sort of environment. And then the second question is on the strategy execution. I think earlier you said you are working on it. I'm just wondering if you can elaborate what exactly that means. Does that involve legal separation or actively talking to potential parties? Thank you.

So with regard to, thank you, Mathieu, for your question and hello. With regard to thiochemicals, it's about 50-50 between nutrition and what is refinery and petrochemicals and other oil and gas-linked applications. Clearly, nutrition is behaving well for reasons you all know. I would say oil and gas has been better. When you say oil and gas, it's not oil. It's more refinery, petrochemicals. Gas is a gas odorant, so it's a very resilient application. And we have plenty of niches also, including in nutrition, which are not the typical methionine type of application. Overall, it has been quite resilient in the first quarter. There is a little bit of more weakness there, obviously, but compared to what we see in other kinds of markets, it's still okay. But the big driver for the timing is really nutrition. And overall, thiochemicals, if we look at all our product lines, has a good level of resilience. With regard to the strategy execution, we have to be a bit patient because last time we took was at the capital market, it was one month ago. And as I mentioned, 90% of our energy is really focusing on managing the second quarter, managing the COVID, and it's really a level of complexity, which as you can imagine for a company like us, which is global, with so many sites, so many product lines, Overall, when we say the first message is that we don't want to break any momentum at all, which means that we explore possibilities. Our teams are working on it, but to have contact just today, contact we have permanently, but even before the capital of today, don't be worried about that. After that, us or our counterparts or whoever, They are really focused on managing their company in the COVID, and so it's not the month where things will accelerate. But my message is that there is no discontinuity. Contacts are intact. We are working on exploring potential possibilities. But again, the capital market day was just a month ago.

And if I can just ask one more, just around the high-performance polymers, you've mentioned repeatedly on this call auto-exposure, which is totally understandable. But are there any other significant end markets or products we should think about as being important for bringing a second-half recovery in volumes in the polymer business?

First of all, to complete your point on the current situation, you have O2, but you have the rate of transportation. We don't mention it too often, but it's a fact. What is bus and truck is suffering nearly as O2. You have electronics, you have oil and gas. I would say there are the three which are suffering more with regard to the second part of the year, which is not at all Q2, and we are clear Q2 will be certainly the low point. that we look more at a gradual, quite a very gradual recovery in the second part of the year. Clearly, things which are linked to battery will certainly help. I would not be so pessimistic on electronics, because it's very linked to consumer, et cetera, in the world of today. I think things could normalize quicker than... As a market, there is all this application with regard to the COVID. For example, I was mentioning for the mask, but also medical. There are plenty of possibilities, which are one by one are just incremental, but when you put them together, it will be part also of some improvement. Packaging also will continue to be strong all along the years. So we have application in adhesive, but also in advanced material. It will be a sum. It will be not one market. Construction could be better also because they will suffer a lot in the second quarter, clearly. But there will be some catch-up. I don't know at which level. So these elements. It's still very qualitative, sorry for that, and there is a part of speculation because there is still a lot of uncertainty, but if you think about it, it could be there.

Thanks very much, and best of luck, everyone.

Okay, thank you.

Thank you. Next question from Andrea Trena, main first.

Please go ahead. Yeah, actually, thank you for the opportunity to ask a question. I have three. I'd like to come back to the question before. If you look on April and you said your sales were down by 17% and excluding scope 20%, are there big differences between your business line or is that all over the place in this magnitude? And secondly, we heard that automotive restarted production. Is there anything in the incoming orders where you see a pickup or is that still very, very slow? And maybe one word on AMAS in the current environment. How is that business doing? in this changed environment. Thanks.

So, Armaz, Armaz, which is linked to nutrition and mining is quite resilient. So it's good to hear because people did not so long ago and we are pleased because it's one of the business which are resilient as well as biochemicals. So to come back to your point, there are variations between, you see that when you talk by country, by end market, the picture vary, not only is very different, depending on which country, which end market you are talking about, but the picture is changing from week to week, month to month. For example, which has been quite resilient in the first quarter, will temporarily, at least a couple of months, suffer significantly just because of construction, but is linked to lockdown measures. And when this lockdown measure will ease, then they will pick up quite quickly. So it's really a very evolving situation. It's very difficult to give you guidance by market, by country. And sometimes it's just political measures. You take South East Asia. Singapore was quite okay for everybody. Suddenly it was lockdown. Philippines was assumed to start again, and it's important for ADES in early May. After that, it was mid-May. And you have a never-changing situation. So this is why the global picture is certainly more accurate than when you start to dig in, because I can tell you things which will be wrong tomorrow. So far, with regard to the global picture, We have not been so wrong, even if we don't share everything with you because there is uncertainty and we certainly don't want to commit to things that we will change tomorrow. I think it was important for us to share this information on April, saying that our sales in April were around minus 17%, which means minus 20% at constant scope. I think it's information which has value for you. With regard to May, Again, we believe that May should be the same kind of magnitude, but again, it's not a guidance for me because there is still a lot of uncertainty, and sometimes there are political uncertainties. And our feeling, but again, it's a feeling which is not a guidance, it's a feeling, is that with the progressive lifting of the lockdown in different countries, June should start to be a little bit better. This is what we see. With the second semester, we should show some improvement. But again, there are a lot of speculation and feeling, but this is what we wanted to share with you. But we don't want to be more precise because, again, there are plenty of elements which don't depend at all on Arkema or on you or any company. It's just how the sanitary component will evolve, and these are still uncertainties, including my own country. When I see in France, you listen to politics, there are still a lot of questions. So we try to give you a sort of global framework on which you can work, and we will certainly fully in the summer be able to be more specific. Okay?

Okay. Thanks.

And the important point, again, is that this is something we say clearly at the Capital Market Day. We say it again. We are beyond the difficulties of the context with regard to the solidity of Arkema, our ability to go through the crisis, our ability to rebound when it will be time to rebound. We have no doubt. Okay. Last question.

Thank you. Yes, we have one last question from Ryan Gould from Nadja Market.

Please go ahead. Hi, good morning, good afternoon, and thanks for taking my question. Thierry, just one for you. There were reports in February that claimed dark chemo attracted the interest of activist investor Elliott without chemo taking preemptive action to review its portfolio. I was just wondering, in light of a little bit of what you said about the strategy, could you give an update as to where the overall M&A plans stand right now? and whether that strategy has been affected by coronavirus at all.

Thanks. I think I could answer, but I will answer very simply. We have a strategy which has been very clear, which has been presented. I'm sure you have attended by call at the Capital Market Day. Everything is there. So our strategy is very clear. It's a month ago. I think we cannot be more clear than that. We know exactly what we want to do. It's a roadmap for Appendix 2024. It's very consistent with what we have been saying after. It answers many of the questions that you guys were asking to yourself about Arkema. So I think just look at it, read it. If you have questions on this Capital Market Day, we'll be certainly open to answer more in detail. But I think really the document is very well... The return and the script is very clear. So we sent to the script. Everything is there. You know exactly what we want to do. And we got a lot of support about this roadmap.

And nothing has changed.

And nothing has changed at all. We are very determined on this roadmap.

Okay.

Thanks. Okay. Okay. So thank you very much for all your questions. I think it's quite a busy call, but we appreciate all the different questions. I wish you good luck in the context, and with regard to ourselves, we continue to work as hard as you do. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.