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.