Arkema S/Adr

First of all, I would like to thank you for taking the time to join us today in these busy times. I am very happy to be here today to present our full year results, as well as our priorities for 2021, together with our CFO Marie-Josée Doncion and the IELTS team. It's been one year now since the pandemic started and deeply changed the way we live and work. However, I'm optimistic that we will be able to meet again in person in the not-so-distant future. As usual, today we'll be happy to answer all your questions at the end of the presentation. So, 2020 has been a challenging year. It was like no other we have seen before. But the board and I are extremely grateful for the hard work and commitment of all Arkema's employees. They adapted quickly and enabled us to continue supplying the best possible product and services to our customers safely and efficiently. Since the beginning of the pandemic, our objective has been at the same time to manage operations, to react to the crisis and limit its financial impact, and to reposition the group to benefit fully from the post-COVID rebound and emerge stronger than before. Unsurprisingly, COVID impacted many of our end markets and key geographies, But despite this difficult context, we achieved a solid set of results, delivering an EBITDA margin of 15% and limiting the volume decline to 4%. Among the highlights of the year was our high cash generation with free cash flow of 651 million euros and the resilience of our specialty materials platform, which, as you know, will represent the backbone of the company going forward. We finished 2020 on a strong dynamic driven by the recovery in volumes in several end markets and delivered a Q4 EBITDA broadly stable compared to last year, representing a very clear sequential improvement. Thus, despite the global pandemic and ensuing lockdowns, 2020 was another important year and the efforts of Arkema's teams were focused both on the short-term and on the execution of the medium-term strategy. We made significant progress in our transformation journey to become a pure specialty materials player. We also reinforced our commitment to sustainability and received external recognition for progress in this area. One of the elements of this movement towards sustainability is the innovation pipeline, mainly focused on the opportunities created by well-identified structural trends, such as lightweighting, energy efficiency, and urbanization. Our large industrial project, which beyond generating significant financial returns and strengthening our position in high-growth country, will enable us to have the capacities in place to monetize the benefits of this innovation. The resilience of our specialty material platform was confirmed, validating the soundness of our strategy. As mentioned just before, they limited their EBDA decrease to 12%, delivering solid results given the context. while our intermediate business declined by around 40%. The performance of specialty material in 2020 is perfectly in line with the historical pattern of robust resilience, as evidenced by the chart outlining our EBD emerging evolution since 2012. Our confidence guidance for 2021 is another strong signal of the quality of specialty materials. Staying with specialty material, this platform represented 79% of group sales in 2019, and in 2020 it increased to 82% of revenue. This proportion reaches 89% when taking into account the portfolio transformation steps we announced in 2020, namely the proposed disposal of PMMA, which is a big step forward in our transformation, The earlier sale of functional polyolefins, both at an attractive multiple, and our Bolton acquisition mostly in adhesives. Beyond portfolio management, Arkema reinforced its commitment to sustainability with several significant achievements in 2020. First of all, we defined new ambitious climate and environmental targets, having already reached most of the previous ones. This includes reducing our greenhouse gas emissions by 38% in 2030 compared to 2015, after a decrease of 23% in 2020. We also lowered our emissions into air and water by 10%. We continue sustainability projects around the world, with the Praga Initiative, for example, to help Indian farmers produce cattle oil in a more sustainable way. This same castor oil is used as a raw material for the production of our bio-belt high-performance polyamide 11, for which we successfully issued our first ever green bond of 300 million euros to finance our new plant in Singapore. The last example I wanted to highlight is the Zebra project, a collaborative innovation scheme to develop the first 100% recyclable wind turbine blade. a major innovation given the real challenge that blade recyclability represents for the wind power industry. Furthermore, we have decided to strongly reinforce our commitment to diversity by increasing our ambition to reach 30% of women in senior management by 2030 and 50% of non-French individuals. And we received strong recognition in 2020 for our initiative in this corporate social responsibility space, bearing testament to the focus that we are placing on this critical area. I won't list everything we have achieved. I just mentioned one that we are particularly proud of. Joining the Deutsche Sustainability World Index, the DGSI, in sixth place in the chemicals category among 140 companies assessed. This validates our position as the best-in-class company in the chemical sector and reward our years of efforts to improve our CSR profile. Benefiting from our intense efforts on innovation and commercial excellence of the past five years, I believe the company is at the start of a long period of robust organic growth, which will be supported by selective and high return investments. All the industrial plans launched or announced in 2020 relate to growth opportunities driven by Megafrance in line with our sustainability commitment. As an example, the recent extension of our PVDF capacity in China is dedicated to the high-growth battery market for electric mobility. Beyond batteries, the superior potential of PVDF led us to announce two days ago a further increase by 35% of its capacity in China. Also, we are, as you know, very excited about two high-return exceptional CAPEX, which broke ground in 2020. Those include the BioSource PolyMag11 capacity in Asia and the Fluorhydric Acid Production Unit in the US. Since the spin-off, the mobilization and solidarity of our teams has always been a strong element for Arkema's successful transformation. It was particularly true this year, given the context. We quickly assembled dedicated crisis management cells centrally and in each region to ensure that Arkema was strictly implementing the required safety measures across all sites, ensuring protection of our employees while making sure that supply chains and deliveries to customers were not materially disrupted. As we have said many times, the safety of our employees is our first priority. In 2020, we sharpened our focus on safety through the pandemic, and I am pleased to say that the results speak for themselves. We raised the lowest injury rate ever, with a number of accidents per million hours worked at one. During this period, we also supported the local communities in which we operate, giving time and resources to support local initiatives focused on combating COVID, such as sanitize those gifts to hospitals and donations from the executive committee and managers. Finally, the financial performance of the year was very solid and benefited from our ability to quickly and significantly adapt our level of operating expenses, capex and working capital to the complex. Before I hand over to Marie-Josée, I'm pleased to say that in line with our policy to increase shareholder returns progressively and in line with the guidelines presented during the Capital Market Day back in April, the Board of Directors has decided to propose a dividend at 2.5 euros for this year to the next Annual General Meeting. This is an increase of 14% versus 2019 and back at the 2018 level. Also, we have decided to allocate 300 million euros to a share-by-back program to be started following the closing of the PMMA disposal scheduled mid-year. We'll give further details regarding the implementation of this buyback program before we launch it. These provisions include the restitution of the 50 cents per share portion of the dividend retained last year in the context of the pandemic. The dynamic cash allocation is reflective of the strength and resilience that Arkema demonstrated in 2020 and is in line with capital market guidelines. So now I will pass over to Marie-José to present the financial performance of the year to you in more detail.

Thank you, Thierry. And good morning, everyone. So let's take now a look to the full year results for 2020. Annual sales, as you can see, amounted to 7.9 billion euros, which represented an organic variance of minus 8% compared to 2019. We saw a strong rebound in the last quarter of the year, enjoying a positive organic sales growth at 2%. EBDA reached nearly 1.2 billion euros, with an improved momentum in the second half, and in particular in the Q4. Actually, last quarter, EBDA of 289 million euros was broadly stable, versus last year's level, and grew when looking at the scope of our specialty materials platform. This led to an adjusted net income close to 400 million euros, representing 5.1 euros of earnings per share. Regarding the cash generation, Arkema delivered 651 annual cash flow, representing a strong 67% ratio of EBITDA conversion into recurring cash. It allowed us to decrease the net debt, including hybrid bonds, below 2 billion euros. Looking at the sales bridge, the evolution of 2020 volumes was uneven across the year, with a very strong decline in the second quarter as a result of lockdowns in key markets. We then saw a sequential improvement in Q3, especially in construction and decorative paints, and a much better Q4, leading to an overall decline of 4.3% in the year. The price effect of minus 4.7% is mostly linked to a lower propylene price and to unfavorable market conditions in intermediates. The weaker dollar versus euro generated a negative 1.7% currency impact concentrated in the second half of the year. And the scope effect was positive at 0.9%, taking into account the contribution of AMAS in the first half of the year and that of bolt-on acquisitions in adhesive, offsetting the impacts of the disposal of the functional polyolefins business in June 2020. Focusing on the sales bridge of the last quarter, organic sales were up 2.1%, with volumes growing 5.2% on the back of a good momentum in construction, decorative paints, battery markets, as well as the improvement of industrial markets, notably in transportation. The price effect of minus 3.1% remains impacted by the lower propylene prices in coating solutions and the difficult market conditions in fluorogases while adhesives and advanced materials were resilient. The scope effect of minus 1.3% relating to the disposal of functional polyolefins will partly continue over the first half of 2021. And the negative Forex impacts coming from the depreciation of the US dollar and emerging currencies, as is the Euro, came to a 4.1% in Q4. And we expect this Forex impact to continue to be negative in H1 of this year. Now, following slide, looking at each segment, we can see that 2020 ended up being a robust year for Adizis. After a very challenging Q2 when construction activity was heavily impacted by lockdown, the BDA eventually reached the same level as 2019 at 261 million euros and 13.1% BDA margin, improving its resilience in a challenging and therefore proving its resilience in a challenging environment. In Q4, sales were up 2.4%. to €512 million, with the momentum in construction remaining positive, beat in flooring applications, sealants and DIY, and industrial adhesives continued to improve as well. As a result, Q4 EBDA was up 15% to €69 million, boosted by the contribution of acquisitions, good cost control and a better mix. Q4 EBDA margin reached 13.5% and was up 150 BIP, compared to Q4 2019. Looking now at advanced materials, 2020 was challenging in terms of volumes due to the decline in a number of end markets, namely transportation, oil and gas, and consumer goods. Prices were resilient and margins remained at a high level at 19.6%, which reflects the good positioning of our product portfolio in the value creation for our customers. In Q4, organic sales showed an increase of 0.8% year-on-year, which reflects a very strong sequential improvement compared to the previous quarter. As a reminder, Q3 organic sales had declined nearly 12% year-on-year. So this is a result of strong growth in batteries and much improved momentum in industrial markets and notably transportation. Looking now at coating solutions, Prices were down strongly in 2020, driven by low propylene prices, which directly impacted the non-integrated acrylic-based activities that we have in Europe and US. EBITDA margin was, however, resilient at 13.7%. Q4 showed a significant volume growth of 14.5% year-on-year, driven by decorative paints, industrial coatings, 3D printing and graphic arts. The price effect on sales was a negative 8.4%, consistent with lower property prices again. Yet higher volumes led to a 19% rise in Q4 EBDA, with the margin rising nearly 200 dips to 14.1%. Finally, for intermediates, 2020 was very challenging overall, given the difficult market conditions linked to COVID, especially in fluorogases and acrylics Asia. EBDA dropped 40%, and EBDA margin was down to 16.2%. Q4 sales variance mainly reflected the scope impact from disposal of functional polyolefins, represented minus 13% compared to Q4-19. Volume throws... more than 6%, thanks to the strong momentum in Asian acrylic monomers and good demand in PMMA, while fluorogases remain weak. Q4 EBDA was down materially to €42 million on the back of the deconsolidation of the polyolefin business and lower unit margins, notably in fluorogases. Moving now to the cash. Our cash flow generation was once again outstanding in 2020. Our free cash flow amounted to 651 million euros, and our EBITDA to cash conversion rate reached 67%. This performance was achieved thanks to a sharp decrease of our working capital. That came from a combination of mainly two factors. I would say on one hand, a proactive and effective management of our inventories and customer credit management. And on the other hand, as a result of a mechanical effect attached to decreasing sales and decreasing raw material prices. At the end 2020, working capital represented 11.8% of sales. Considering the current trend that we see in sales growth and in raw material price increase, it is reasonable to expect an increase in working capital in 2021. The tight monitoring of our capsule expenditure contributed to the cash generation as well. So for 2021, we expect recurring capex of around 500 million euros plus exceptional capex of around 250 million euros since we will be at the peak of spending in both our polyamide 11 greenfield plant in Singapore and our HS plant in the U.S. The excellent cash generation and the resilient margins have allowed Arkema to maintain its financial strength intact to weather this crisis in a strong position and to retain a very healthy balance sheet. It gives us flexibility to carry out the organic growth investments and the bolt-on acquisition strategy whilst maintaining our solid investment grade rating. From a financing standpoint, we have successfully refinanced our senior debt at attractive rates, lengthening our average maturity to 5.6 years now. At the end of 2020, our net debt, including hybrid bonds, amounted to 1.9 billion euros, representing 1.6 times EBITDA. It was down from 2.3 billion euros at the end of prior year. So this decrease came from the free cash flow generated, which was only partially allocated to exceptional CAPEX for 140 million Euro and to cash return to shareholders in the form of the 168 million Euro dividend payment. While as you can see for M&A, the net impact was basically zero since the divestment of functional polyolefins offset our Bolton acquisitions in ADVs in the year. I will now pass over to Thierry to present our 2021 priorities and outlook.

Thank you, Marie-José, for your explanations. Turning to the year ahead, where I will aim to deliver good-earning growth, a key priority will also be to continue to execute our sustainable strategy on the road to 2024. This strategy is based on the combination of organic growth supported by sustainable innovation, strengthening our footprint in high-growth regions, and acquisition to reinforce our leadership in specialty materials. As you all know, since 2006, Arkema has undertaken a profound transformation, vastly improving our portfolio and building on our areas of strength. We have grown and advanced our areas of focus and expertise around materials. The depth and range of materials capability, in particular in terms of bonding materials, protecting their surface, reinforcing or substituting traditional materials for lighter bio-based one, makes us a leading specialty materials player. The combination of these skills is unique in the industry and brings synergies in innovation, operations as well in the commercial field. The combination also provides us with a differentiated ability to serve our customers across attractive markets. We are now strategically organized around our core strengths into three highly coherent and synergistic growth platforms centered on material science. Adhesive solutions, advanced materials, cutting solutions. Based on this and on the fruit of our innovation, we are aiming for mid to high single-digit organic sales growth in 2021 for our specialty materials. In a world of powerful global trends, such as increasing urbanization, resource scarcity, climate change, new technologies, Arkema offers its customers a unique range of cutting-edge technological solutions. To capture further growth, the group concentrates its research efforts on innovation platforms linked to the United Nations Sustainable Development Goals. We have decided to set an ambitious target with 65% of ourselves contributing significantly to these goals compared to 50% today. To reinforce our focus on the circular economy, we also decided to launch a new platform dedicated to natural resources management. We expect the products developed thanks to these five innovation platforms to generate around 400 million euros of new sales by 2024 and up to around 1 billion by 2030. Finally, and I believe it's very important at board level, an innovation and sustainable growth committee is also created to support this major pillar of our strategy. Looking now at the priorities of the different segments for this year, beginning with additive solutions. The second half of 2020 was characterized by the positive momentum that is maintained in the early part of 2021. In the past few years, our volume growth was held back by, as you know, our strategy to discontinue low-margin product lines. This program now is over. And Bostik Organic Growth will come from the reinforcement of this high-performance platform. First in construction sealant, you know we enjoy a solid growth in high-value added solution with capacity expansion, Netherlands, France, US for high added value products. The launch of high-performance PU sealants worldwide and the launch of a new frame in do-it-yourself with a pure fixed range. In flooring, We keep expanding our offer globally. There is a new site which starts in the U.S. to benefit from the post-COVID U.S. market. We continue to reposition our offer. With the launch of the new BOSIC Academy, we have a digital service to train our customers. We made the acquisition of Leap, as you know, which is really ramping up well. And industrial adhesive will benefit from the launch of a full sustainable solution range in packaging and hygiene. We also enjoy strong growth in engineering adhesive. You have seen the expansion of our bond-to-bond range. We have a unique offering in film, in web, in powder coming from recent acquisition, Prochimer and Fixati. We also ramp up the new industrial adhesive plant in Nara, Japan, which started last September. So many news coming on stream. Still on Bostik, after a year of strong resilience in 2020, we are really more confident than ever in the potential of our adhesive platform over the long term, really. We aim to increase this year our EBITDA margin to 14%, starting from 13% in 2020, which was very stable despite the COVID. And this 14% is a new step forward in the direction of the 16% margin target by 2024. And we'll do this, as you know, by three drivers, high-margin solution, operational excellence, and bolt-on acquisition. Also, our objective is to recover this year the higher cost of raw material through price increases, which is a traditional work. Regarding organic growth, we covered this topic in the previous slide. So I just would like to mention one point on operational excellence. We will continue to roll out our integrated worldwide IT system for BOSTIC. It's working well. We'll continue also to deliver strong cost synergies that we implement with the rest of the group. And we work very significantly in reformulation in order to continue to improve our competitiveness. Regarding M&A, you know it's one of the key priorities of Arkema. Three to four small bolt-on every year, so it should be the case again this year, and from time to time a bigger acquisition. The market is still very fragmented. Our market share is, despite the fact that we are number three, is still low compared to the whole size of the market. So many possibilities that we'll continue to implement in the near future and in the long term. Also, I would like to mention that the impact of efforts, you can see them really in the evolution of the margin percentage over the years, starting from the acquisition. So some could argue that it's really alpha point by alpha point. We know that, but at the end of the day, in a crisis like the COVID-19, the EBITDA of BOSIC was really completely stable, which was remarkable, really. Now we move to advanced material. After a year that has been up until Q4, significantly impacted by the lack of volume in our larger industrial market, as you know. But we see now a better momentum, and clearly with recovery of volume, in our end market and with really a lot of opportunities going further with strong push of society and the most political leader for sustainability with these stimulus packages. So we are confident and also as you know the advanced material segment is an innovation powerhouse and we are really particularly well positioned with our technology and application now in the areas of clean mobility, sports, electronics, biobases and 3D printing market. In 2021, to be more specific, our growth will be supported by several recently started industrial investments in Asia. You could see a few days ago, a new investment announced in PVDF following the start of a plant early Jan. So this is to follow the strong growth in battery, not only, but in majority on battery. We have also the benefit of our... expansion in Malaysia one year ago, and our recent expansion in polyimide 12 in China. Batteries, I will not comment in detail this slide, but you know it's clearly an area where Arkema has unique expertise, product offering. We see enormous potential in this field. We are very well... position for the use in electrical vehicles, but also e-buses, e-bags, consumer electronics, energy storage. We are the leader in the KMNR PVDF for battery, for separator and binder. And we are recognized as a supplier of choice among key players in the field everywhere in the world. So we are very optimistic there. We have recently opened a new battery lab in Lyon, in France, after the one in Philadelphia. And we are also present in electrolyte salts. You could maybe read a few weeks ago the release of a project recognized as an important project of common European interest by the EU Commission. So we are really on the right track with regard to batteries. Now, Singapore, quickly, you know, I don't need to tell you how strongly we believe in the strategic importance of 100% biobased polyamide-driven investment in Asia. It's a fantastic, really, polymer, exceptional properties, flexibility, durability, lightness. We are speaking about an outstanding advanced biocircular polymer. This is the most important organic project Arkema has ever done. You could argue that it's a big investment. It will weigh on our capes, but on the other hand, it's really strategic. It's long-term oriented, very attractive return. We spend... 450 million euros of investment. But after five years, we'll get an expected annual EBITDA of 100 million euros. The end markets are many, but specifically electrical vehicles, 3D printing, sport, lifestyle, consumer electronics, medical devices, wearable devices. And the main plant, as you know, will be in Singapore, financed by our first ever green bond of 300 million euros. With regard to COVID solution, quickly, really, you can see, I'm sure you can see the progress in coding solution platform. We had many questions on this platform over the past year, but you could see that a lot of work was done with the beginning of the implementation of the integration of the three components of the platform. Monomers raising additives with a strong emphasis on customer intimacy. You could see the growth in the last quarter in Q4, taking advantage of the rebound. And specific innovation focus on 3D, on adhesive and other markets. We'll benefit from the second phase of the ramp-up of a new Clear Lake reactor. We could not benefit of it up until Q3. Now it's time really to fully benefit of it. We have the Indian powder plant. We started in 19 or so. So we have beyond 3D and adhesive, also the rapid emergence of 5G of electronics and we'll benefit from it. So many things going on for a cutting solution. With regard to intermediates, clearly since the capital market day, a lot has been accomplished. You know, we have moved very quickly on the functional polythene and the PMMAs. The process on PMMA for the closing, which should take place in mid-year, is going as expected. So the next step now for us is fluoro gas. Our intention is to define the path to deconsolidate their emissive part, which represents around 75% of the business. We do it either as you know, partnership or disposal. You know that the regulatory and competitive landscape is different from region to region, so it could be a differentiated strategy by region. We are open on that. What is more important, short-term, is really to refine the scope between what we deconsolidate, what fluoro specialties we keep, to start to prepare the curve-out, to investigate potential interested parties. So now we really start this process. The good news that you could see recently, this is why the timing works out rather well, is the recent clarification is a regulatory HFC landscape in the U.S. imposing tariffs on important R32, as well as the new administration willingness to implement the Kigali Amendment with quota face down. So fluorogas will be certainly a year of progress in 2021. Last and not least, some words about 2021 and beyond. Of course, for you, for ourselves, for competitors, for everybody, the global environment remains uncertain. It remains volatile. There is still news with regard to the pandemic. But our feeling, because it's more a matter of feeling, nobody has a crystal ball. our feeling as a management is that the development of the vaccine and the benefits of the stimulus plan will create a positive trend this year. So, as I mentioned, for us, what was very important was really that Arkema emerged stronger from last year's crisis and that we'll be positioned really well to benefit from the current rebound. And it makes clearly, it will make clearly a big difference between different specialty companies chemical company and you could see that in the Q4 which was already better and we have a good feeling for the Q1 and this is why and we don't do it often as you know as a management we don't really guide quarter by quarter but we wanted to pass a positive message on the Q1 despite still the uncertainty is that we estimate that our EBITDA in the first quarter could grow by around 10% relative to first quarter 20% despite a negative currency impact that we estimate at 15 million euros. Arkema estimates at this stage that in 2021, the EBITDA specialty material, we wanted, since the future of the company is clearly specialty material, to guide separately for specialty material and intermediate. We would have not done it, you would have asked us, so we prefer to do to say to you right away. So we believe that EBITDA specialty material could grow at constant currency significantly by around 10% at constant currency, which would mean if you do the math, more or less returning to the pre-COVID level of 19 at constant currency. The dynamic of this growth will be supported by BOSTIC Advanced Material Coating solution. So it's not only one, it's really the three. So you can see the benefit of our strategy. I will not come back to the specifics of the three because it was well developed in my speech. I will move to the intermediate segment where we expect to be so far at a level comparable to 20 at constant perimeter and currency. We mentioned constant perimeter because we have the finalization of the disposal of PMMA, which is still expected mid-2001. So what we recommend in your forecast, if we may, is that you take at this stage six months of PMMA contribution. In parallel, because short-term is important, but long-term is also very important for a company like us, I think it's part of our DNA, the execution of the different elements of our mid-term strategy will continue to become a pure specialty materials player. We are really on the right track. The pieces of the puzzle are really gathering together. We are very excited. And this includes the construction of our two major plants in Singapore and the US, the rollout of our M&A strategy, and also the strong focus on innovation and corporate social responsibility. So I thank you for your attention. We were a little bit longer than usual for the quarter, but this is annual results with a lot of qualitative elements. I think it was worth the time spent. And Marie-Josée and myself will be happy now to answer your questions. Thank you.