Arkema S/Adr

Ladies and gentlemen, welcome to the ARCEMAS Q2 2020 Results Conference Call. I will now hand the call over to Mr. Thierry Lehenaf, Chairman and CEO. Sir, please go ahead.

Thank you very much. Good morning, everyone. Welcome to ARCEMAS Q2 2020 Results Conference Call. With me today are Marie-Josée Doncion, our CFO, and the whole Investor Relations team. To support this conference call, we have posted on our website a set of slides. which detail our performance. Otherwise, we will answer your questions at the end of the call. Overall, given the challenge of the current economic environment, we delivered a solid set of results in Q2. And really, I would like to thank all the group's employees for their strong commitment and the quality of their work during this period. Our results and our cash generation clearly demonstrate a good level of resilience. My feeling is that we have resisted well relative to our industry peers, but I will let you be the judge of that. This confirms the merits of our ongoing strategy to increase the share of specialties in our portfolio and become a pure specialty materials player by 2024. As we all know, the second quarter was marked by the exceptional context of the COVID-19 pandemic. In these circumstances, the health and safety of our employees continues to be our utmost priority, and we have taken all the necessary steps to ensure a safe workplace environment. In April and May in particular, economic activity was severely impacted by the lockdown measures implemented in many countries, important for Arkema, affecting our customers across various sectors of the economy. We confirmed this demand should be the low point of the year, and we started to see some improvement in June, driven by market segments linked to construction. This especially benefited Bostik, and I know some of you were expecting higher results for Adelgim in Q2, but you have to be aware that construction in April and May in countries with strict lockdown measures, for example in France. This mechanically weighs heavily on our volumes and therefore EBITDA, and by the way, in this environment, prices still end up well. So the decline in EBITDA is linked only to lower volumes. thing about construction-related adhesives is that when the rebound materializes, as it did in June in Europe and in the US, we immediately see the results in our earnings. So Bostik's EBITDA in June was nearly flat year-on-year after the two very difficult months in April and May. In July, although we don't have the final numbers, we are tracking broadly in-line with June, with construction on the same trend and industrial markets still mixed. Overall, So for this year, really I'm convinced, so there is absolutely no worry there, that ADD will prove to be one of the most resilient businesses in our portfolio, and I would say for the chemical industry in general. Beyond the numbers, these past months have been very busy for us as we prepare for the medium and long term. It is a paradox that this period has yielded many opportunities for innovation. in the areas of batteries, hydrogen, composites, filtration, including for face masks. In all of those areas, Arkema has a lot to offer with its cutting-edge innovation. In addition, the use of technology, which became a day-to-day tool when working from home or organizing virtual investor interactions, has allowed us to actually accelerate certain projects and partnerships with some customers. It is our conviction that some niche markets, like 3D printing, for example, where growth paused during the COVID crisis, will come back strongly and we will be well positioned to serve and work with our customers when growth returns, as, in a sense, these difficult times actually reinforce the relationship we have with our customers. Furthermore, and it's very important, We finished the second quarter in quite good shape. We have kept our financial flexibility intact. Surely, we have reduced our debt significantly despite the difficulty of the environment. And this is important as my sentiment is that in the next year or two, there will be many opportunities for a company like Arkema in terms of both organic and external growth in specialty materials. I will now comment On the second quarter's performance, before leaving, Marie-Josée goes through the financials in more detail. Just the following key points. First, while the Q2 EBITDA level reflects a strong impact of lockdown measures on the economy across many important countries for the group, our balanced geographic footprint, diverse end-market exposure, and also project innovation, end us whether on the downturn. Sales were down 15%, 15.6% to be exact, and volumes around 12% in Q2, reflecting declines in transportation, construction, and industrial markets especially. In particular, the abrupt decline in construction strongly impacted, as I said before, our additive business, specifically in April and May, before bouncing back in June, thanks to the lifting of lockdown measures mechanically. Meanwhile, we continue to see solid demand in a few end markets such as packaging, nutrition, and various niche applications such as medical and protective barriers and masks. In this context of lower volume, pricing remains firm in our additive solution and advanced material businesses, demonstrating the quality of our product portfolio and initiative in 2019 to improve the product mix. Together, we support from lower raw material and set measures this end of specialty material FBDA margin state above 15%, which I would say is a good achievement in this context of double-digit volume declines. As announced during Q1 results in May, we have implemented significant cost-cutting measures across the organization to mitigate the impact of this crisis on our reserves. We reacted quickly and those efforts are already visible in our Q2 numbers. I can confirm that we are well on track to deliver our goal to achieve €50 million cost savings in 2020 relative to 2019. This is also true for the €100 million reduction in capital expenditure related to our original plan of €700 million, while largely preserving the pace of investment dedicated to our Polymite 11 plant in Singapore. Cash generation was clearly a highlight of the quarter for our schema. We generated a record level of free cash flow for the second quarter, even significantly better than last year, which was already quite high for the second quarter. It was also true for the first half. Up strongly year on year. as the decline in earnings was more than offset by tight control of working capital by the teams in the context of low activity levels and raw materials decline. I would really like to once again thank our employees at Arkema for their hard work delivering these results, both in terms of working capital and fixed costs. This has not been easy, as you know, to achieve since our industry is mostly with continuous processes So they can really be proud of this result. Finally, while we continue to remain more focused in managing the short term, we are also making progress towards our long-term goals and implementation of 2024 strategy presented recently at the April Investor Day. Having closed the acquisition of Leap in January, and by the way, Leap is delivering, you know, it's a Danish company. and is really delivering on expectation despite the COVID. So, having closed this acquisition early, we closed the divestment of our functional poly-electronics business to SK in June. So, in the middle of the COVID, we closed this divestment. I think it was a good milestone for our group. Less than two weeks ago, we announced the acquisition, a small one, but important one, of Fixati. which will strengthen Bostik's global offering of FortMent adhesive solutions. It means that we don't want to slow down the pace of bolt-on acquisition for Bostik. Pixati is a great example of this strategy in adhesive. This company is quite profitable, offers significant synergy potential, both from technology and market standpoint. Product ranges are very complementary with the one of Bostik. Last but not least, as you now know, we appointed the Bank to support us in exploring the potential sale of our PMMA business underlined as a CMD. So we move forward, not only on the short term, but also on the long term. On the organic project side, we started at the end of the Q1 the capacity expansion of Ontario Chemical Plant in Curtin, Malaysia. It was expected. And in spite of the pandemic, And we are very close to the authorities in Singapore. You know, Singapore is a little bit complicated in terms of COVID. We started the first step of the construction of the bio-based polyamide 11 project in Singapore. Together with important partnerships with Nutrien, all these initiatives will certainly contribute to our ambition to become a pure specialty materials player by 2024. So now, I propose to turn over the call to our CFO, Marie-Josée, who will detail the Q2 financial performance.

Thank you, Thierry, and hello to everyone. I will start with the Q2 sales bridge. As you can see, revenues are down 15.6% compared to last year at €1.9 billion. The 12% drop in volume, which Thierry already commented, is obviously the main driver for this decline. The price effect was of close to minus 6%, and it mainly linked to the lower propylene prices in the coating solution segment, and more largely to the tough market conditions in the intermediates. Prices in adhesives and advanced materials were marginally down, demonstrating their resilience in the context of much lower volumes. In the quarter, we benefited from nearly 3% perimeter effect, thanks to the successful integration of ALMA in advanced materials, LAMSON in coating solutions, Prochemair and LIP in the analysis. It also includes, of course, the disposal of the functional polyolefins business on the month of June itself. The currency effect is a slightly negative 0.4%, mainly reflecting some weak Latin American currencies versus the euro in the quarter. 42 EBITDA came out at 286 million euros, down around 30 cents versus last year. The challenging market conditions in intermediates and the lower volumes in specialty materials are the two concepts that really weighted on our earnings. But a few positive factors helped mitigate this decline. Firstly, the quick implementation of fixed cost savings, which we announced in May. You should bear in mind that the cost savings are mainly transitory, as we expect them to return at the previous level as the level of activity picks up. Secondly, we benefited of a lower raw materials and some product mix improvements in our specialty businesses. Thirdly, the solid results of performance additives helped by Armaz and the resilience of its end markets, like Crap Nutrition, also supported the performance. The EPTA margin stands at 15% for the grid. So while in some cases, so a significant margin for contraction year-on-year, coating solutions and advanced materials showed good resilience. Incoating solutions are upstream-downstream integration cells as well. Given the severity of the prices, our EBDA margin at 13.5%, I think, held up really well. In advanced materials, our EBDA margin was close to 20%, benefiting from a good product mix, lower raw materials, and cost reduction. The EBDA margin of adhesive solutions was, I think, extensively commenced by Fieri. It stands at 11% in Q2. And as mentioned, it was temporarily impacted by the strong decline of construction in the months of April and May, in particular. And we expect a recovery from Q3 following a better month of June. Depreciation and amortization reached €142 million, which is slightly up as a result of the startup of production units and the integration of acquisitions. Therefore, the recurring EBIT came at €144 million. Non-recurring items were a positive, €92 million in the quarter. They basically include a roughly 240 million euro gain from the sale of the functional polyolefins, and around 150 million euros of various items, so asset write-downs, PPI amortization, restructuring, and acquisition charges. Financial expenses stand at 22 million euros, which is lower than last year, thanks mainly to two factors. First, the redemption of our €480 million bond in April, which carried a coupon of 3.85% and that we refinanced actually last year with a €500 million bond at a coupon of 0.75%. The second effect is the lower interest rates in the U.S., which we benefit from actually in the portion of debt that we saw with walking to U.S. dollars. The tax rate at the end of the first half stands at around 22% of recurring EBIT. It should be a good proxy actually for the year. And consequently, the 42 adjusted net income amounted to 90 million euros, which corresponds to close to 1.2 euros to share. Moving on to the cash flow and net debt, so as mentioned by Thierry, positive free cash flow amounts to 288 million euros, establishing a new record for Actima in the second quarter. The performance, this performance reflects the good work to try to manage your working capital. The working household ratio on an annualized sales basis stands at 16.5% versus 16% last year. The free cash flow figure also includes a €65 million tax saving related to the use of tax clusters in France. Total tax expenditure was stable quarter to quarter at €123 million. We reiterate that the total recurring and exceptional technical expenditure should amount to around 600 billion euros this year. Net debt reached 2.1 billion euros at the end of June, including a billion euros of hybrid bonds. This represents a decrease of nearly 350 million euros relative to net debt of close to 2.5 billion at the end of March. So, coming mainly from the inflow related to the sale of the functional polyolescence business, the strong free cash flow generation over the period, and integrating the payment of the dividend in May, which amounted to €168 million. Also, please remember that we temporarily carry a €300 million hybrid bond in duplicate. Since we took advantage of the favorable market conditions last January to issue €300 million of hybrid bonds at a yearly coupon of 1.5%, in advance of our initial €300 million hybrid bond maturing next October at a 4.75% interest rate. So, as a conclusion, our balance sheet remains extremely solid. ASNA debt, including hybrid bonds, represents 1.7 times the last quarter to be done. We also remain comfortable with our liquidity level, which stands at 1.8 billion euros at the end of June. And as you may have seen in the press release this morning, we also renewed our revolving credit facility for a billion euros. with an initial term of three years and the possibility to extend further two years. I thank you for your attention and I will now hand over to Pierre for the outlook.

Thank you Marie-José for this analysis. So what can we say on the outlook? So first of all, based on the initial lifting of lockdown measures in some important countries for the group, we estimate that demand should improve gradually the second half of the year. in the continuity of June, while remaining obviously below last year's level. The pace and strength of this recovery are still uncertain, depending on the evolution of the health crisis, and will continue to vary greatly between end market and geographies. Undoubtedly, we will have to live with the uncertainty around COVID for the foreseeable future. Barring the second wave, however, the improvement we saw in June should be confirmed over the coming months. We hope activity in construction will consolidate at June's level and we are seeing light at the end of the tunnel in decorative paints with fire balloons as to strong customer intimacy and innovation. With regard to industrial market, activity from our standpoint should improve gradually but will be more uneven. especially as we are further down the supply chain or the value chain, so we hope to see an improvement a bit later in the year. As a result, at this stage, we estimate that in the third quarter, sales at constant scope and fixed rate will decline by around 10%, which would be a clear improvement compared to the roughly 20% decline in Q2 So in this context, we focus on what we can control. We continue to focus on these elements which are at our end, in particular our costs. Capital expenditure, working capital, in order to maintain a strong level of liquidity. As we said earlier, we are quite confident to deliver this 50 million euros of fixed cost savings in 2020 relative to 2019. By the way, in Q2, just on Q2, we were more than half of this savings already. and also we are trying to reduce our capex by 100 million relative to our initial plans. We will, however, preserve completely our innovation efforts in specialty materials to meet our customer's numerous technological and sustainable development challenges. Thanks to those initiatives, following a robust performance in Q2, given the external context, which led to an even stronger balance sheet, We remain very confident that we will emerge stronger from this crisis, drawing on our balanced geographic exposure, diversified market, and preserved financial flexibility. So I thank you very much for your attention, and together with Marie-José, we are now ready to answer any of your questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, you may press 01 on your telephone keypad. We have one first question from Mr. Martin Rüdiger from Kepler-Chevreux. Sir, go ahead.

Hello. Good morning. Just a few questions from my side. Marietje, you said you had some win-for-profits, i.e. raw material prices eased more than sending prices. Can you quantify them? The second question is on potential reimbursements from governments for short-term work or furloughs. Can you also quantify them? And finally, can you provide us with an update on your intended disposal of your MMA, PMMA business? Thank you.

Sorry, Mathilde, I did not understand your first question. So I'm looking at Marie-Josée and to Beatrice.

So is it the impact of raw materials you're asking for?

Yeah, actually the data between low raw material costs and low selling prices. You had passed on low raw material costs, but obviously the raw material costs eased even more than your 6% price decline.

Okay. So, on the first question, it's part of the whole equation, so we don't quantify each of the elements. I would say that on the intermediate part, more or less, you could say that pricing and raw material are... are more or less in line. Even I would say that some pricing in fluorogas, for example, but also in MMA have declined more than raw material because by nature of these businesses of intermediates, okay, they are more cyclical. This is why we put them in this separately. and they are more subject to supply demand, and demand is significantly lower in Q2, so pricing was affected beyond raw material decline. With regard to specialty materials, I would say that we gained a little. We did not quantify precisely, but we gained a little. between pricing and raw material, because as you could see on specialty material, our pricing has been questionable. We confirm the specialty nature of these businesses. They are not in supply-demand mode, but really in terms of application value. And we benefited from a raw material decline, knowing that between the oil price and what we buy, there is a long chain, so you have not a direct correlation, and you need six months about to get the impact down on the PNL. But we got a little bit of positive because of raw material, especially the advanced material and in additives. With regard to the potential rain-bound sludge, so I will talk mostly for France, where the system is clearly in place. As we say, we have decided not to use any aid from the state. for what they call partial unemployment. This means that we have no, we don't expect anything. This is really Arkema's own cost structure and it was clearly said even externally because we consider that we have a solid balance sheet and there was, we prefer to leave that to other companies. Then with regard to PMMA, so as we mentioned, we don't want to comment more, but we said it already clearly. We didn't wait so long after the capital market day, but despite the COVID, to initiate exploring the potential sale of PMMA and we have appointed the bank as we said, so this is known by everybody. But as I mentioned, I think at a recent conference, we are not going to comment every week or every month where we are in the process. I think the process of exploring this potential safe was launched. And we'll tell you when things are becoming far more concrete. But be a bit patient because we are still in the COVID period. And even if we try to do it in a rather speedy way, it takes more time than in a normal period.

Thank you.

Thank you, sir. Next question is from Mr. Matthew Yates from Bank of America.

Hello, Matthew. Hey, good morning, everyone. A couple of questions, please. The first one is on adhesives. Forgive me, I'm not really sure how to eloquently ask this, but you had a very good start to the year with profit growth in Q1. And then obviously things fell off a bit of a cliff in April and May, and you're talking about a nice improvement through June and July, which I guess is consistent with what we've heard from the coaching players as well. So are you able to be a little bit more explicit in terms of absolute profit expectation for Q3, or at least directionally year on year for the adhesive business? And then the second question maybe comes back to this idea around raw materials. You're talking about group sales being down 10% in Q3. I wondered if you could just disaggregate that into volume versus price.

Thank you. OK. With regard to additives, so thank you for underlining the fact that Based on the momentum that we have implemented in Adesiv since several years, we started the year very strong. And then we had this cliff coming mechanically. There was nothing to do. I would say even more strongly, maybe it's a paradox on the construction business. This means that in the countries where we are, I will give you a few names. You can, for example, France, South Europe, Philippines, India. There was nearly a stop for two months. of which were April and May of the sales. This means we mostly are construction and do-it-yourself. When we say construction, it's construction and do-it-yourself. I'm a consumer. Three-fourths construction and one-fourth do-it-yourself, the whole being 50% of the whole Arkema. We are completely, the whole, sorry. We had a complete stop because we are selling through distributors and people were at home. Which means that in April and May on certain countries it was minus 90% of sales. So despite all that, we generated decent profit in the state, but significantly below last year, purely mechanical. But what has happened, and this is the beauty of the analysis, the big difference with many chemical businesses, and you are an expert in chemicals now, And as soon as the lockdown was lifted, mechanically, we came back. And it's rare in the chemical industry. We are not talking about to wait one year, two years, three years. I mean, just a month after, in June, we are already not in sales, but in profitability, close to the 19 level in June. So what we plan for, even if I don't want to guide, but what we have in mind for Q3 and certainly Q4, so for the second part of the year, which means for ADD to be quite close to the 2019 level, at which level exactly is too volatile, the world is too volatile to be more precise, but it shows you that despite a quite challenging macro, which stays challenging, in the end they did, with the momentum, with the nature of these businesses, where there are many levels to improve your position, including some on raw material, very quickly you go back to levels which are close to 19. Absolutely, as I mentioned, no worry on adhesives, even if I recognize that April and May were maybe lower than maybe some would have expected, but it's purely linked to people not being in the streets, shops being shut down. But, you know, if I take one to finish on the adhesive story, we bought a lip, this small Danish flooring and construction... chemicals company. They are also in Denmark. They serve mostly the Nordic countries. In Nordic, the lockdown was very limited and LEAP profitability was above last year. So you can see the beauty of this business in this kind of environment. With regard to raw material, I don't want to guide precisely on what will be the minus 10% between volume price, but clearly pricing will be rather close to what we get in, I would say, in Q2. So by difference, you can assume what would be the organic volumes, I would say, Mathieu. Okay.

That's very helpful. Thank you, guys.

Thank you, sir. Next question is from Mr. Emmanuel Nato from Odo, Sir.

Hello. Good morning, Thierry and Marie-José. Good morning, Emmanuel. Three questions for me. First, do you confirm that for this year we should not have the same usual negative seasonality in your results between H1 and H2, right? Just looking to Q3, with a 10% organic cell decline, you should have a level of sales in absolute value similar or slightly up compared to the 1.9 billion euros in Q2. So it tends to be encouraging for the ABD and Q3 compared to Q2. So that's the first part of my questions. Second, regarding illegal imports on fluorogases in Europe, do you expect any more negative impact in H2 or everything now is over? I mean, overall during the last 12 months, how much EBDA you lost from that situation on fluorogases and do you think it can reverse one day? And my last question is about your balance sheet. Do you think you may have some goodwill at risk in your balance sheet due to the COVID-19? Could it lead to some non-cash impairments following the deterioration in economic performance? Thank you very much.

Okay, I will ask the last question to Marie-Josée, but you will see that it's quite very, very limited. With regard to the first one, I will not answer in detail. First of all, we remain overall cautious about the environment, as we say. But clearly, you know that traditionally we are 55-45 in terms of split of ABDA, which is the equation between H1 and H2. And our feeling is that this split between the two will be more balanced than it was in the past time because of the nature of the COVID of April and May. So your point is right. I will not quantify because... We accepted to give, let's say, an estimate of what could be the sales evolution, but not of the EBITDA for the full year. So we prefer to let you make the math. But to your question, yes, we believe it could be more balanced. I don't say balanced, but more balanced between H1 and H2. With regard to the . And take also into account the scope effect. Don't forget that we will use, so it would mitigate your answer, but we use functional polygation on the second part of the year. And Armaz was already there last year. So when you compare the performance of the two semesters, there are two elements that you have not in the H1 is that functional polyethylene disposal, and Armaz was already there last year. But once we said that, in terms of top line, as you could see, lag for lag, this is why we decided to give you a minus 10% at constant scope and fixed rate will compare minus 10% compared to the minus 20% of the Q2, which confirms that on the momentum of June, we see a net improvement, a quite significant improvement in the self-development between the two quarters. Hopefully, I answered your question. With regard to fluorogases, Yes, illegal import, I would say, it was a story last year, until the end of May, which means that in comparison for us, the situation is not improving as such, but in comparison with the base of last year, you had the negative impact up until end of May last year. So what does it mean for fluorogas? I would say that you are more in a normal situation of more cyclical business in a macro environment which is tough, which means that, for example, plus the COVID, which means that you have two effects. One which is supply-demand. For example, in Asia, the results are quite challenging. for fluorogases and also in Europe, where it's more resilient in the US. And the second thing is that people, because of the lockdown, which is lifting, but not fully lifted by far, they are not, for example, in the US, they are not in the office. So they use far less air conditioning than they were using last year. So you have still, and you have closed the automotive, so you have still macro elements which are going in the wrong direction including in the second semester. But to answer specifically to your question of the legal import, this negative uranium base in Europe is certainly disappearing progressively. Now, with reverse, which is the last part of your question, it's too early to say. Clearly, this year we will have no reverse. maybe you will start to have reverse next year depending on how effective the pressure which is put by the European Commission and the state to get rid of this completely crazy situation. So, our best case is that you have no reverse, I would say, to be cautious. Hopefully next year you could have some start of reverse rule. But, you know, I prefer to take this issue step by step.

How much you lost overall from that situation on your ABDF for fuel gases?

I don't want to, we don't prevent specifically the reserve, but you have all an estimate of fluorogases with all the elements we have given you over the past three years. Frankly speaking, I'm sure you can have something which is very precise on that. So, I rely on you to make your own map, but you will not be far. But it was not small. The good thing is that we got it. We swallowed the ballot. So now we have a base which is far more sustainable. If I put aside the macro challenges linked to the COVID. Now I will hand it over to Marie-José.

So regarding balance sheets and internment rates, so you saw in fact how we have frankly had very limited internments in the current environment compared to, let's say, the overall So you have in the financial accounts actually the sensitivity to EBITDA variance as well as the sensitivity to weighted average cost of capital. What I can say is that compared to last year, the main change in assumptions has been the change in work in Asia. which we had at 8.5% and we increased at 9% actually to perform the impairment tests for the semester. And the sensitivity that we flagged in the account is potentially over the acrylic seizure care generating unit, where we will obviously monitor the evolution of the work. And then there is some residual goodwill there. As I said, the risk is limited as I see it right now. So you should not have anything major coming through the second half.

I think it's good to confirm what Marija is saying. We have questions in the chat about our acquisition strategy. We are very proud of what we have achieved in terms of acquisition. because they have started to be quite, compared to the day that we bought a few years ago, even in the COVID situation, you know, you take Armaz and Armaz results are in line with last year. So, I mean, how many businesses you can, there are, you can discuss how they live, but even this year, there will be a significant global when we bought from Total. The lead is positive. Prochiglie is suffering from automotive that is temporary and is very small. So, Exelbrand has been quite resilient. So, frankly speaking, I think we have been very cautious in our acquisition strategy. We have made sure that we have strong synergies. They are high-quality businesses. They are diversified in terms of end market. And you see that in what Marie-Josée is saying, I think. the few internets we have are not even linked to acquisition, but to some very, in the sum of small pieces, very specific because we did this analysis very accurately and very, very small sum of things and nothing at all to our acquisition strategy.

Yeah, that's correct. Actually, when you look at the accounts of last year, you see the sensitivity test on EBITDA variants was made with a minus 10% volatility on EBITDA. We actually extended the sensitivity test in the accounts of the semester with a minus 25% sensitivity to a variation of EBDA, and this would lead to no additional impairment. So that's why I say I'm confident with the numbers we end up with at the end of June.

So the companies, as I said at the beginning, from a more general standpoint, is really... exiting the second quarter really in good shape, with very strong balance sheet, no concern about quality of the, let's say, valuation of the assets. It's quite a good position to be in, even if the macro environment remains a bit challenging. I think there will be opportunities for companies like us, as I mentioned. just because of this strong balance sheet and because we can really rely on the acquisition that we have been making in the recent years to take us at a higher level in the coming years. So we feel comfortable on this part and it's a good message to tell you.

Thank you, that's useful.

Thank you, sir. Next question is from Mr. Balbasha Sarduli from Citi. Sir, please go ahead.

Hi. Thank you for taking my questions. Hi, Mary-Jane. Hi, Thierry. Just on the fluorogases, I wanted to get your thoughts on this investment with Nutrien, where 50% of its product is for MSF, HFC. I just wanted to get your thoughts around investing in effectively banned or going to be banned products and how that sets with your ESG metrics and then secondly on shareholder returns and M&A opportunities how are you thinking about capital allocation going forward and if a large strategic opportunity was to come by like the size of Armas is that something that you would execute on or Having announced potential buybacks, would those take precedence? Just wanted to get your thoughts on capital allocation priorities. Thank you.

Okay. With regard to the three games, I think it's a very good investment for different reasons. The first one, you mentioned ESG. Thank you for that. You know that the traditional way of getting HF, which is the main raw material for, when you say fluoro, it's fluoro gas, but also fluoro polymers, all our specialty fluorochemicals. The traditional method is to start from the minerals, so from the mining, and in terms of energy, it's quite consuming. The beauty of this investment, which is an investment in common with a very good company, which is Nutrien, is that we will use a by-product and to transform it directly into HS. So it's really the perfect process to get HS. The second thing is that we have never been comfortable On the HF long-term cost competitiveness, starting from mining, especially in Europe and the US, there has been a lot of tension. And despite this current COVID crisis, I believe that the tension can stay for a while because of the environmental constraints which are put on the mining. And with this, we will be quite competitive. So it will serve two folds. The first one is the polymer, the fluoropolymer, which, as you know, is a fantastic product line of Arkema, standing in a high-performance polymer product line. And we will not only secure, but make sure that we are competitive long-term. So it's one. with some side applications also in electronics, for example 5G, on which we can use this HF. So we are very comfortable on this part. And then, on top of that, you know that we are exploring different options for emissive flue gas. It's a positive to the extent that it will make them even more competitive. So we gain on many different elements, and I think it's a very good investment. On capital allocation, I think I will not rephrase what we say very clearly at the Capital Market Day. Capital allocation, as you know, it's a very important long-term asset. element of our strategy, so it was very clear on the capital market day between what we want to spend in M&A, what we want to spend in return to shareholder, with this dividend policy which is a growing one, and then with, and it's different with the path, more space for share buyback in opportunistic I would say that currently, in the middle of the COVID crisis, we have a strong balance sheet, but we are still at a level of debt, which is 1.7 times EBITDA. So I don't think the topic, and you can see it with all of the groups, the listed groups, is not so much a survival. The topic is really to continue to be very solid, very resilient. to make sure that when the COVID is behind us, we are in perfect shape to benefit from opportunities of the market. So this is what we are doing. But clearly, our capital allocation strategy is very clear. We find the capital market day and ask for M&A. This is what we intend to do.

Thank you very much. You're welcome.

Thank you, sir. Next question is from Mr. Daniel Cheng from Redburn.

Please go ahead. Thank you, Ari. Mary-José. Just two questions from my end. I might have missed at the beginning, but in terms of your communication on the gradual improvement in 2H, so with the visibility you have and from your order book, could you put this into context for July's activity? It would be really useful to infer what the run rate of July volumes are versus June. My second question is on the various moving parts in 2H. So has coronavirus or the demand outlook changed the sort of startup timeline for expansion in PA12 and PVDF?

Thanks. Sorry, the line is very bad. So I wish you would make just in one minute what they have understood of the question and we should

Okay, okay. Okay, thank you.

Marjose has a very good ear. I am impressed, so this is why we are here. Marie-Josée is making the question, I'm making the answer. Yeah, thanks. As I mentioned, for us, so July is not, is nearly finished, but we are not the final number yet, but I would say July is in continuity with less days, because June was a long month, I should not forget, but I would say, like for life, July is in continuity of June, so what is better is still better, what is still challenging in terms of end market is still challenging, the same for the countries, but we are in continuity of June. And basically our guidance, or let's say our estimate of this minus 10% sales for the Q3 reflects this continuity with June. And this is why we have a significant improvement of the minus 20% organic cells in scope and titrate between Q3 and Q2. This is because, in fact, we plan a continuity with June. So we concern that. With regard to the schedule, if it is your question on the PVDF development and polyamide We maintain the timing, so we have in fact, if you move forward, you have at the end of the year, let's say, it can be early next year, in the current context, it's not a matter of one month or two months, we have the PBDF. We have batteries that have been a little bit stable on the first semester because of the crisis, but they will, I'm sure, on the second part of the year, start again their growth. And this PVDF investment was mostly for batteries, so it's still valid. So will it be another year or next year? We see that it's very close to our original schedule. We have some investment on the P12 downstream polymers compounding in China, also for the Q3, which should be on time. With regard to the polymide 11, as I mentioned, we have tried to protect really the Singapore development. So, in fact, it's not because of us cutting capex that it would delay. It could be because of the COVID in Singapore. But I must say that the Singapore government has been very, very helpful for us. And we are, so far in our planning, quite close to what we announced already around the mid-2023. So we are on target. It's a matter of a couple of months for each of the investments, but we are on target. Does it answer your questions?

Yeah, it does. Thank you very much.

You're welcome.

Thank you, sir. Next question is from Mr. Jeff Hare from UBS. Sir, please go ahead.

Hello?

So, we have a next question from Mr. Andreas Inner from Mindfirst. Sir, please go ahead.

Yes, please. Only very small questions left. Could you highlight a little bit more the regional trend in the progression from June to July. So is that also in continuity or do you see different trends by region? That's the first question. Then coming to your sales decline of 10% in the third quarter. So quite some operational leverage, which is usually the case if you have a very strong sales decline as it was in the second quarter. Is it fair to assume that this operational leverage is much less than in the third quarter where the volume decline is also much less? And this is the second question. And the third one is more on fluorogases, coming back to these illegal imports from China. My understanding is that that happens only at the very end of the lifecycle of the product, and then you have a change to the next generation and a pickup of sales of more innovative products. When is that going to happen so that really the next generation gives them, let's say, a push-up in earnings again?

With regard to the regional trend, yes, it's also continuity in regional trends. You have still many questions with regard to region, which are linked to the lockdown and the development of the COVID. If you take, for example, the US, we assume a continuity in Q3 versus June, because when I discuss with my team, clearly you don't see any significant improvement in the sanitary situation in the US, even you see some deterioration. Once said that, it's maybe a paradox, US is not more hit from an economical standpoint than Europe, which means that the sanitary situation in Europe seems to be more under control, but at the end, in terms of economic impact, it's quite comparable. With regard to Southeast Asia, which was one of our elements of concern, also there, the lockdown takes time to be lifted, so we don't see any significant difference between June and Q3. So, I would say, even from China is back to to normal level. The only weakness in China is coming from their exports. So it's more, I would say for me, it's more a net market dynamic which is changing from April to May to June and then to Q3 than a regional dynamic which finally is is more stable. With regard to your question on the SEND decline in the third quarter, first of all, when we say minus 10%, but it's obvious for everybody that it's a cut on scope and a fixed rate, but I will not reiterate that. With regard to the fixed cost, clearly, In April and May, we have been quite aggressive on the fixed cost base because of the low sales and our team has done a fantastic job. But which means that in Q3, since we assume inorganic sales have declined compared to what we got in Q2, in terms of fixed cost, we did not gain as much in Q3. than we gain in Q2. We cannot have a certain level of recovery of sales and continuing to cut costs as much. If you take, for example, one example, which is Bostik. Bostik, in it for an email, they have really cut costs like hell in construction, marketing, etc. But in June, they started back to put costs again. So overall, on the quarter, they were significantly below last year. But in Q3, they will be a little bit below, but not far from last year. But the results will be close to last year. So you see, we try to be clever in the way we manage costs. So overall, on the year, we consume the minus 50 million euros compared to net. compared to last year. But as I mentioned, the majority of it was already on one, more than half, was already on one single quarter, which was Q2. Q3 will be below last year, but not with the same dimension as we had in Q2. And with regard to Clorobas, I will not spend too much time on the call on Clorobas, while our strategy is really to develop, as you know, specialty materials, so we have to be reasonable in our speakers' time, but you are true to say that But it will take more time than people were expecting. Next generation will be a key point. And certainly one day we will update you on where we are. But we have to play on the new generation. But illegal is still a factor in Europe. Illegal import is still a factor because of the prices of the quotas. And we have been hit, and fortunately, to come back to the question of Emmanuel, is that next year, is that the second part of next year, at a certain point, we should have some reverse of, not reverse because of what you say, that we move more to a new generation, but we should have some reverse of what we lost, we should help a little bit. But for the time being, I would say in the second semester, the flue gas, topic is not HFO, is not illegal, it's really simply the macro additives. So we are back in the normal world on fluorogas with the macro which is as for any intermediate working against their performance. But I would like to, because we come to the end of the conference, really to to re-analyze the fact that you can see the fact to split specialty materials and intermediate was quite important because you can see the behavior of each of the platforms compared to last year. Clearly, we are more resilient in specialty material, which is logic, but had to be proven again. And the company is quite in good form from a balance sheet standpoint. And again, there will be opportunities, not necessarily in the next month, but in the coming 18 months, just because of... the opportunity which could be given by this COVID period if we were able to emerge as stronger, and I think it will be the case for Arkema. Even if the COVID, for the time being, is not yet behind us, there are still some cautiousness linked to this COVID. And the last question, maybe the last of the last, and then if you agree, we will cut the conference.

We have one last question from Mr. Laurent Fabre from Exxon.

Oh, thank you very much for squeezing me in. Good morning, all. Thierry, my question is regarding the, I guess, the dividend cut for 2019. And I think when you announced it, you talked about, I guess, giving back, I guess, that cut in terms of consideration either through dividends or buybacks. as you've demonstrated resilience in Q2, and you sound a bit more optimistic on Q3. I'm just wondering if you have any thoughts on the timing and mechanism of how this payment could be.

Thank you. It's a good question, and we have not forgotten what we said, which means that this Let's say the difference of dividends will be returned back to the shareholders when, I would say, the macroeconomic will come back to normal. I don't think we can consider today that it has come back to normal, even if we did a fantastic job in terms of cash flow. We have no space for balance sheets, so our shareholders will have to be a little bit more patient. But in fact, we do exactly what we said. When things come back to normal, which is not yet the case, we all know that, we committed to return back this decrease of dividend compared to the initial dividend we proposed, which was great. So we have still that in mind. but give us a little bit of a time until the situation is becoming normalized again, but it's on our roadmap without any ambiguity.

Excellent. Thank you.

Okay, so thank you to all for all your questions. I wish you a good summer. And if any further questions, don't hesitate to contact Beatrice and the team, and we will certainly be ready to answer to you. Thank you very much.

Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.