Arkema S/Adr

Good morning, everyone. Welcome to our Q3 2021 results conference call. With me today are Marie-Josée Doncion, our CFO and the investor relations team. As usual, you can download the set of slides used during this webcast from our website, and together with Marie-Josée, we'd be happy to answer your question at the end of the presentation. Before commenting Q3 results, I would like to quickly come back on our new brand territory unveiled earlier this week. Only the second time we have made such a change in the creation of Arkema. With our new identity, innovative material for a sustainable world, we are positioning our specialty materials at the heart of our ambition to play a leading role in addressing the world's major challenges in line with the strategy we announced last year and placing our expertise of material science at the core. The timing of this new identity is good, as Arkema delivered a set of excellent results in the third quarter, building on our strong dynamics in the beginning of the year. Our teams can be proud of what they have accomplished, and I feel that quarter after quarter, we are reaping the fruit of our strategy toward innovative and high-performance materials. Over the past few years, We have accelerated Arkema's repositioning on structural growth markets, and we have significantly strengthened our unique specialty materials platform around our three pillars of additive solution, advanced material, and coating solutions. We have done this through acquisition, cutting-edge innovation, and high return capex, and I expect Arkema to continue to benefit from this strategy over the coming quarters and years, thanks to the many exciting projects on the way, which will enable us to fully capture the significant growth opportunities from Megatrends. As you read, in Q3, we achieved an EBITDA of 474 million euros, up 54% year-on-year, despite a negative scope effect of over 30 million euros. EBITDA margin reached a record level for a third quarter at 19.8%, so let's say 20%, above the Q3 2019 pre-COVID level of 17.4%. We are very pleased with the quality of our results. Firstly, all of our specialty material segments contributed nicely. With overall solid underlying volume growth in most of our markets, driven by accelerating demand for sustainable solutions, while noting some exceptions in a small number of markets like automotive, oil and gas, and paper. In parallel, our volumes were impacted by the lack of availability of certain materials. It's not new to you. COVID-related lockdowns in parts of Southeast Asia, like Malaysia, and a softer environment in China due to authorities' measures to limit energy consumption. In this context, volumes for the group are up more than 5% compared to last year, thanks especially to strong demand in high-performance polymers and coating solutions in markets like batteries, consumer goods, eco-friendly paints, 3D printing, and electronics. In adhesives, underlying demand remains strong in construction and structural adhesives for industrial applications, but we estimate that raw material shortages had a negative impact, estimated at 5-6% on volume for adhesives, which is not insignificant. Indeed, our Q3 performance was achieved in a more difficult operational context. marked by rising raw material shortages, logistic constraints in HR and in ZOS, and of course, higher input costs. As you can see from the significant price effect in Q3, and while it is true that we benefit from tight market conditions in the acrylic chain, our specialty material once again demonstrated robust pricing power in the face of accelerating higher raw materials, energy, and transportation costs. I thank you, too, Thanks to our pricing actions, we managed to completely offset this negative impact at group level, including in our most downstream businesses like adhesive, high-performance polymer, and cutting resins and additives, which is really, I think, a remarkable achievement in this context. We expect to see further increases in input costs in Q4. So our pricing action will continue, and the net pricing impact should again be at least neutral in Q4 for the group. Our specialty materials, ABDA, reached €421 million, plus 35% against the Q3 2019 pre-COVID level. Specialties' ABDA margin was at 20% thanks to the strong performance of high-performance polymer and coating solution, while Bostik's margin came in at 14% despite the mechanical dilutive effect of price increases of around one point. So in spite of the headwinds of further input cost increases and the impact on volumes of raw material availability in Q4, we are maintaining Bostik's 14% EBITDA margin target for the full year. Frankly speaking, this would be a good performance for Bostik, really underlining its resilience as this kind of environment is particularly challenging for businesses like Adesiv. As you know, they are formulated products using a wide range of different raw materials, so if there is just one of the components missing, we cannot make the product and we lose the sales and margin. Intermediates also recorded better than expected results as the negative scope effect linked to the PMMA disposal was more than offset thanks to favorable market conditions in Asia, acrylics, and solid fuel gases in the U.S. Our specialty materials, which now represent nearly 90% of our sales, are truly geared toward eco-friendly solutions in high-growth applications. They are driven by global megatrends and help address the challenges of climate change, resource scarcity, urbanization, and new technologies, amongst others. From our five innovation platforms, aligned with the challenges we expect to generate additional sales of €400 million by 2024, and a billion by 2030 versus 19. These targets will be reviewed when we publish all your results, and our feeling is that we'll be able to upgrade them given the current dynamic of new business development and positive outlook. We'll also try to give you more insight as regards those targets. As you can see in slides seven to nine, there are multiple exciting examples of Arkema innovative solutions addressing key challenges the world is facing. In clean mobility, we are seeing a true acceleration in batteries, and for us, it is not just PVDL, but the whole battery ecosystem, including, for example, PA11, used in casing and cooling lines, as well as tomorrow's Bostik thermally conducive adhesive solution. If we look ahead, Arkema will also have a big part to play in hydrogen vehicles where our high-performance PA11 as a composite for the tank casing or as a liner inside the tank, although at the same time to resist to very high pressure and reduce weight. In addition, our helium composites are very promising for the tanks and also in terms of light weighting for the chassis. When we look at living comfort and home efficiency, we have really a wide range of eco-friendly solutions over the three specialty segments. Examples include bio-based and low-VOC decorative paints, non-toxic adhesives and sealants from Bossi, cool rose painting with Kynar Aquatec, which allows to reduce temperature inside the building. Consumer goods is also an area where the acceleration of demand for products with higher performance, better environmental footprint, and recyclability, as well as improved design is most pronounced. We have a huge, for example, and well-recognized presence in high-performance sports shoes with and paybacks, including 100% recycling offering. I could name also consumer electronics with Sartomer solutions in 5G, also biobased 3D printing glasses frame. Clearly, the strength of our innovation and our best-in-class technological and application of how is instrumental in our ability to capture all these opportunities. Beyond this, the third quarter was also very eventful as regards our transformation and 2024 ambition. We were, as you know, very excited about the acquisition of Ashland Performance Adhesives. Beyond the more significant MMA M&A movement, we continue to work on the repositioning of our portfolio, and we have announced the divestment of our export-side business to Cargill at a good multiple. I won't update you with more specific elements, but we are still progressing on the strategic review of the emissive flourogases. We are making further progress on the two major CAPEX, which are directed towards sustainability with the Singapore and also the Nutri-M HF investment in the U.S. And finally, on the cash allocation front, we are on track to finalize by the end of November the 300 million euro share buyback program launched in May after the divestment of PMMA. And most of those shares will be canceled, as you know, by next January. So another, in short, As a very positive quarter, as you can see, a number of areas of satisfaction. We are very pleased, both from a financial and qualitative viewpoint, despite an operational environment which is very demanding for the teams, and will likely remain so in the near future. As you'll see in the outlook, which I will comment at the end of the presentation, we are very confident for the rest of the year. So I will now hand it over to Marie-Josée, who will review in more detail on those Q3 results.

Thank you, Thierry. And good morning to all of you. So I'll go quick to the financial. So regarding the sales bridge, at 2.4 billion euros, sales grew 29% organically year-on-year versus 2020, and 17% versus the pre-COVID Q3 2019 levels. The volumes are up by over 5%. relative to last year, with a positive underlying momentum in all regions. The price effect is close to 24 percent, which reflects the decisive pricing actions to offset higher input costs, as well as favorable conditions in the acrylic chain in all three regions as well. There is a negative perimeter effect. a bit short of 5% versus 2020, which is attributable to the divestment of PMMA in May of this year, and which is only partially offset with the voltons that we have made in specialty materials. Currency had a slight positive impact of around 1% on sales in Q3, in light of the strengthening of the dollar versus euro in particular. Driven by higher volumes, The positive net pricing and mixed improvements, Arkema achieved a very strong 54% growth in Q3 EBDA at 474 million euros, as mentioned by Thierry. And looking at the EBDA of the different segments, we have, of course, Bostik that achieved an EBDA of 79 million euros, up 8% year-on-year, thanks to a solid pricing power, leading to a broadly neutral net pricing impact. This has more than offset the effect of lower year-on-year volumes linked to raw material shortages and difficulties in logistics. The underlying demand momentum, though, remains strong in all major markets. Advanced material DBDA is up nearly 40% year-on-year at 174 million euros, which is about 10% above the Q3 2019 level. while the EBDA margin remained at a high level, above 22%. The high performance polymers had a very strong quarter, again, with a strong volume growth in most end markets, especially batteries, electronics, and consumer goods, and they also benefited from an improved product mix. Performance additives, on the other hand, were less buoyant, let's say, impacted by a sluggish oil and gas and paper market. EBDA of coating solutions, is at 168 million euros, so frankly strongly up versus Q3 2020, as well as Q3 2019. The segment benefited from higher volumes across all major markets, and naturally we benefited from the price increases in downstream activities offsetting higher raw material and energy costs, as well as from favorable conditions in the acrylics chain. Finally, intermediate EBITDA grew nearly 35% to 74 million euros, thanks to good market conditions in acrylics in Asia and the inflow of gases in the US. So with depreciation and amortization at 131 million, basically recurring EBIT came to 343 million euros, which is double last year's level, and EBIT margins stood at 14.3% up from the 9% of last year. So we can imagine this impacted very favorably the return on capital employee ratio. Financial results stood at 15 million euros versus 23 in Q3 last year. And this is clearly in light of the lower interest rate on debt swapped into dollars in our portfolio. In the first nine months the recurring effective tax rate came to 20% of recurring EBIT which is basically in line with the guidance we gave and is a bit below last year's level of 22% thanks to a more favorable geographic split of profit. Consequently Q3 adjusted net income more than doubled year on year at 258 million euros which corresponds to 3.4 euros per share. Briefly on cash flow and debt, basically the Q3 recurring cash flow amounted to €236 million versus €311 million in Q3 2020. The difference comes from the working capital variance mainly, which represents an outflow of €103 million in the quarter versus an inflow of €158 million last year. And this is the result of higher volumes of activity as well as the price inflation leading to a gradual rebuilding of inventories. The working capital ratio on annualized sales still stands at a low level of 12.3% versus last year's level of close to 14%. The latter being basically what we consider to be close to our normative level. Capital expenditure totaled 175 million euros in the quarter versus 138 million last year, which reflects the momentum in exceptional capex as a result of the acceleration in the construction of the polyamide 11 plant in Singapore and the nutrient project in the US. So total recurring and exceptional capital expenditure is still expected to amount to around 750 million euros this year. Q3 free cash flow amounts to 74 million euros and includes a non-recurring outflow in the quarter of 99 million euros relating to the tax disbursement linked to the PMMA sale in the U.S. Consequently, net debt at the end of September is at 1.3 billion euros. This includes the 700 million of hybrid bonds, which remains basically stable quarter on quarter. And the net that level to last 12 months EBITDA ratio stands at 0.8 times. Thank you very much for your attention. And I'll now hand over to Thierry for your thoughts.

Thank you, Marie-José, for this explanation. So after this pleasing third quarter, the fundamentals of the fourth quarter should be in line more or less with those we have seen in the past few months. The underlying demand is still good across most of our end market. and we believe our unique portfolio specialty material is very well positioned to seize the growth opportunities thanks to our sustainable innovation and recent capacity additions. We are, however, mindful of the challenges in automotive linked to cheap shortages and of the energy-related restrictions in China. Of course, the shortages and increase of raw material will remain a point of attention and we will adapt our pricing policy accordingly as we did in the previous quarters. We are confident that we can deliver a robust performance in the first quarter and so we decided to raise for the third time this year our full year 2021 guidance for specialty materials. We now expect specialty materials BDA to increase by at least 40% year-on-year in 2021 at content scope and currency versus the plus 30% announced when we raised guidance at the H1 results publication in July. For the group, we expect an EBITDA of around 1.6 billion euros in 2021 versus the previous guidance, which was 1.4 billion euros. This guidance shows a significant value creation we have generated over the past few years, and will generate this year, as our EBITDA will be well above the 19 and 18 levels, but with a much better mix and much lower debt, as well as a smaller perimeter following the divestment of PMMS. All the teams at Arkema are focused on delivering the new vision for the company, which we announced at last year's CMD. Innovation in specialty materials is at the core of what we do to capture the huge opportunities for megatrends and at the heart of our brand positioning. We will also continue making value-added bolt-on acquisition in specialty materials, progress with the strategic review in fuel gases, and aim to remain best in class within our sector in corporate social responsibility, including further significant progress on our carbon footprint reduction. I thank you very much for your attention. And now, together with Marie-José, we are ready to answer your questions.