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.

Thank you, ladies and gentlemen. If you wish to ask a question, you may press 01 on your telephone keypad. So it's 01 on your telephone keypad. We have one first question from Mr. Emmanuel Matteau from Adobe HF. Please go ahead.

Good morning, Marie-José. Good morning, Thierry. Thank you for this presentation. Maybe first, what can you tell us about 2022? Is Arkema in a position to further grow its EBDA? Because the basis of comparison looks now very impressive, very challenging. Second, the cycle remains very good in coating solutions. When do you think you will go back to more normal market conditions? Are there notably some new capacities to come in acrylics, in the acrylics market in Europe and North America in the next quarter? Do we have to worry about access to key raw materials for Arkema in the coming months? Do you expect a higher negative impact on volumes for adhesives? As you mentioned, if I'm correct, minus five, minus six percent of loss of volumes in Q3 in adhesives. Could these shortages extend to other businesses? And last question, do you confirm that CapEx are going to reach a peak this year and should go down as from next year? Thank you.

Okay, thank you for your question. With regard to 2022, so clearly we are publishing today our third quarter. So I think, first of all, we need to appreciate the quality of the results. Otherwise, we already discussed the future and never what we have just achieved. So I think it's important to recognize the quality. With regard to 2022, I will make use of the same answer as I do every year. It's a topic we will more address when we publish the full year, so let's deliver the fourth quarter and then let's discuss 22. What we try, nobody knows exactly today what will be 22 macroenvironment, and I think that you look at 21, you remember the discussion we had in 20, nobody would have predicted what has been 21, so we can, everybody can can have an advice on the macro, which is a starting point on 22, but nobody knows exactly and everybody will be wrong. So it depends really on the assumption. So what I often say is that, and it has been, as you could see, it has been quite beneficial, is that inside Arkema, we focus on the self-help and on our positioning in order to be able to adapt to and to be good in what will be the condition of the year. So I think every year we try to outperform the market. This year it's absolutely obvious. And we are operating in conditions that are completely different from the one we would have thought for 2021. So now for 2022, we'll continue on the big elements, we'll continue to progress on the sustainability solutions. I mean, we'll benefit from our new business in HPP, in adhesives, in downstream of coatings. Certainly, we should expect some normalization in acrylic value chain, but we know that. But on the other side, if raw material are getting lower, we'll benefit from it in downstream. So it will be, as usual, a sum of elements. But to go beyond that is too early. So what is clear is that we are confident and our positioning to do better than most of our peers in a given market, and this is what we did this year, we did previous year, we try to do next year. With regard to the coating solution, you say what we should expect on things going back to normal or whatever. First question to you is what is normal? I mean, it's something which is a definition which is changing all the time. What is clear is that in Coding Solutions, what we said has been true is that we are not satisfied with our performance in the past years, which means that we consider that level of profitability was not enough to reinvest. And we believe that this year we appreciate the fact that we did the right choices and what we said was true, which means that it's a strong product line and we appreciate that. Now it's clear that in some parts we earn more than what should be the normalize, so there could be some normalization, clearly, but it will stay at a solid level. After that, there is a when. It depends. I mean, again, each context is different. So if you have some less tightness on the more capital-intensive products, you will benefit from it downstream and vice versa. What is very important for Arkema, again, is the positioning upstream, downstream, different product line, coatings, adhesives, HPP. performance additives to make sure that whatever the environment, we perform well against competitors and we perform well in absolute terms. So I think our positioning is better and better. Now, what can be market condition in acrylic is too early to tell you next year. I think they should be solid at which level, we don't know exactly. But what is more important for us is to continue to improve structurally our portfolio and to be more and more on specialty, and you see the full benefit clearly this year. On raw material, yes, it will continue to be challenging, but also we benefit from it. You saw it in your previous question. So again, it's difficult to take one element and not the other, so it's a sum of elements. And clearly, access to raw material is working against us this year, and particularly with the more downstream businesses. And for Bostik, because as we mention often, if for Bostik you have one raw material which is missing, this is a whole product that you cannot make. So it has a direct impact on the top line, which we got because we have lost more or less 5% of our cells in a disease that we will recoup when the raw material will be more accessible. but that we lost just because we could not make the product because one small additive was missing. So what is our visibility on that? I think things will improve, at which speed we don't know, because we have all been surprised this year, so it will not be easy to have a precise forecast. We think it will improve, not in Q4. Q4 will be again difficult from this standpoint, but hopefully in the first semester next year it will... But again, you have never a perfect environment. So some environments are better for this product line, some others are better for another product line. I think what is important for us is to be from a geographical and product-like standpoint to be balanced in order to answer to different kinds of environments. And the last one, because you have many of them, one is CAPEX. Ah, CAPEX. Do you want to answer, Marie-Jovelle?

It is correct that the exceptional CAPEX are at a peak this year with a €250 million spend in 2021. And basically, since the start of both plants is taking place, let's say, in the second half of next year, we should basically have a tail of spending, which probably would represent something like €150 million next year. So definitely, this will reduce, let's say, the total spend in CAPEX that we project in 2022.

And again, maybe to complete what Marie-Josée... I mean, the CAPEX we have this year, we had last year, we had next year, this exceptional CAPEX, They are done for the good of the company, which means they are very interesting CapEx in terms of return, in terms of sustainability component. And they are very, very good CapEx. So for you, it's good news because we are able to find projects which really, at the same time, have a good return and a significant improvement of the footprint of the company, both in terms of sustainability and in terms of innovation. So you should appreciate that. I'm sure you do.

I do. Thank you very much. You're welcome.

Thank you. Our next question is from Mr. Mopasha Mamchaduri from City Service. Go ahead.

Hi, Marisa. Hi, Terry. Thank you for taking my questions. Just two, please. I was thinking about the Nutrient Project. I think it's expected to come on sometime in 2022. Just firstly, just on the timing of the startup, and then secondly, what kind of contribution should we expect from that? And then in the press release, I think you talked about that you were constrained or there was some capacity constraints from the dual controls in Asia acrylic. Is there any way of quantifying what that was, and are you already seeing that picture turn, and are you starting to see more normalized operation in Asia acrylic? Thank you.

Okay, so with regard to Nutrien, yes, it will start in the second quarter of 2022, so a little bit in advance compared to the polyamide 11. if we keep the same track. In terms of contribution, overall, you know, for this big project, we target to have between 4 and 5 times EBITDA at maturity. This means that, let's say if we spend, to say something, 150 million, we divide between 4 and 5 to get at maturities The profitability and the maturity for this kind of big projects is after four to five years. Okay? And then if you want to have an assumption, you take a liner from zero point. On four to five years, you take a liner progression.

Okay?

With regard to Asia capacity constraint, Yes, it's true that especially now with this energy control, which has been a restriction, which has been implemented by the Chinese government, the acrylic is more tight even than it was at the beginning of the year, but you have less volume. So it puts a pressure on the price, but you have less volume. So at the end, you make certainly less money. It's clear that after many years where we have suffered and been challenged in China, we appreciate the fact that finally the results are really the expectation we had, which means that the investment we have made there, at least from a return on capital employed standpoint, we can debate about the cyclicality, but return on capital standpoint and IIR is really very good. Now, can it stay next year at the same level? The answer normally is no. I come back to the previous question from Emmanuel. There will be normalization. The only thing is that what is normal? I think it's above what it has been in the previous years and is below what it is this year. Now do we see, but maybe it's a question which is beyond acrylics. Do we see overall in our kind of products significant capacity addition I would say no. The trend is less than it has been at a certain period, and this is for different reasons. The first reason is that the cost of making new capacity is more and more important because of a lack of talent, not in our company, but for construction, for finding the lack of resources is true in the U.S., is true in Asia, and the cost of... metal, as you can see, or any materials you need to build your plant is far more expensive because what you see on our pricing on our raw material is also true when you want to build a plant. So you have market conditions which make the decision more difficult today to make, and I think from a capital standpoint, we don't see significant capacity addition with regard to the products we are making, which is, I believe, a good thing, knowing that in China, we are starting from the high point in terms of capacity. So we can only appreciate the fact that we start to see the light.

That's very helpful. Thank you.

Thank you, sir. Our next question is from Matthew Yates from Bank of America. Sir, you said,

Hi, good morning. A couple of questions, please. Maybe it's around the CapEx theme, but very impressive performance in the materials division this quarter, and obviously that's an area you've been putting CapEx to work to try and support the future growth in these high-margin, high-return areas. But even so, given the growth that you're seeing and the megatrends you've talked about, Is this suggesting that we need to have an extended period of CapEx to add more capacity in areas like PVDF over the coming years? So what you've described as exceptional CapEx actually becomes closer to normality. The second question is around the intermediates division. I'm just wondering how you're prioritizing the remaining strategic actions in the portfolio in light of recent market events. I guess you've got these better market conditions for acrylic spreads in China. And I gather the EPA has also now formalized a phase-out process for the HFC gases in the U.S. So I don't know if that regulatory clarity helps you engage in any flora gas discussions. It would be good to get an update there. Thank you.

Okay. Thank you, Mathieu. The first question is a very interesting one because it's clear that, as you mentioned, As I mentioned, we are successful in the expansion that we have implemented, and it's a matter of balance between being reasonable in terms of capex, which is part of the equity story of the company, but also to follow the rules. I would say I would split the kind of investment into when you talk about PVDF, and we have increased capex very significantly in the past, Finally, it's recurring. It's higher than it has been, but it's recurring. After that, we can debate if the base is 5.5% or 6%, but the discussion is around that. After that, you have really the big, big ones. And again, so far, we'll see if it changes, but so far, where we believe we could have a sort of new exceptional capex, is to double the plant in Singapore. And if we announce to you one day that we will double the plant, then it will be good news. This means that really it develops the way we thought, this appetite for bio-sourced high-performance polymer because this product is unique. And we believe that we should not wait too long in order to double the plant because the plant is more or less half of what we have in France. So the natural size to double it. So far my answer to your question is let's say maybe the 5.5% is a little bit stretched and it should be closer to 6% in a recurring basis. Okay, to be confirmed. We have not for the time being the complete answer and someday to announce a doubling of Singapore, which basically we would not be able to complete in the recurring envelope. Is that clear to you?

Yes, very much so.

With regard to the intermediate deconsolidation disposal, the way you want to name it, We are still following the, I would say, the step-by-step approach. So, we did PMMA. Next step will be the fluorogacis. Clearly, what you say is helping us. This means that, at least in the U.S., we have now a good idea of what will be the legislation framework, which is working in our favor. And it's better to sell activities when the landscape is solid and in your favor. It's clear that acrylics in Asia are working also in the right direction, but I don't think it will change our order of doing things. So, I mean, if we have opportunities, we'll certainly look at it, but for the time being, The way we see it is that let's take advantage of the flue gas, and as I say, I think in my speech I say, and many times we'll not update every month on that. We'll just update if we have some breaking news, which is not the case, and then we'll do acrylics after.

Thank you, Thierry.

You're welcome.

Thank you, sir. Next question is from Mr. Martin Rudiger from St. Louis. Sir, please go ahead.

Yes, good morning, Marie-Josée, Thierry, and hello to the whole RR team. Three only minor questions. Firstly, on coating solutions. Did earnings in both business units, i.e. coating resins and coating editors, grow similar percentage-wise like the segment, which was up by 147%, Or was the earnings growth in upstream clearly higher than in downstream? Secondly, on the general earnings drivers across the portfolio, you mentioned accelerating demand for more eco-friendly and higher value-added solutions and coding solutions. You mentioned accelerating demand for sustainable and high-performance materials and advanced materials. I understand that you benefit from such innovations. Can you provide some color how strongly innovations performed in your before-year versus the rest of your before-year, and what is the current innovation rate? And thirdly, a really minor question on the tax rate. Can you provide some guidance for the full year, and especially what you think about the likely tax rate next year, given your exposure to the US and the discussed changes in the tax rate there? Thank you.

Thank you, Martin. Maybe we can start with the last one. if manager they want to answer.

Okay. So basically right now I understand by then administration is not fully clear on the tax rate for next year. So initially we thought there would be an increase from a 21% federal tax to 26 and a half. So this was what we were basically starting to work with and We understand now the last text let us believe that the tax rate could remain at 21%. So let's say, obviously, we will all be probably fixed at the end of the year. So right now, I'm building a budget at a flat federal tax rate of 21%.

Thank you, Marie-José.

Unless you have different information on your side, I don't know.

Okay. On cutting solutions,

So both we contribute both upstream and downstream. It is the first thing to have in mind. This means because we had some questions on that. Some of you had some impression that coating solution was nearly only driven by acrylic upstream, which is not the case. We have very strong performance downstream. And for me downstream is Arkema coating resins, Sartomer products, and Coatex products. So it's really additives. under any kind of form and any kind of technology. Now, the improvement is a bit higher from upstream than downstream, but does it mean that upstream is a pure cycle matter? This means that if you look at the previous years, we are starting from really a low point, which was below the reinvestment point. So this means that this year, for the upstream, you have two things. You have, and we agree, some over-earnings because the market is very tight, and we accept that. But you have also some catch-up from a situation which was not acceptable long-term for the players. So have that in mind. And then, on the downstream, frankly speaking, we do a good job. and beyond fully offsetting the increase of raw material, and this raw material includes the acrylic monomer itself, we have a good volume trend coming, and this comes to your second question, from this innovation on megatrends and sustainability. Now, if I understand well, your second point, you are saying innovation is really coming more on the HPP and coding solution. And you say, what about the rest of the portfolio? In fact, if you go to the page 14 of the presentation, so everywhere in the presentation, you have plenty of examples which go in different platforms or business units. But if you go on page 14, Okay, the Capital Macadamia, but you have also, you have also on the slide, you have our six platforms of water management, new energy, light weighting, electronics, management of natural resources. Okay, on this platform, they concern really all our business segment, coating solution, adhesives and advanced materials including HPP and performance. If you take, for example, adhesives, they are present on your energy. For example, you have adhesives for cell-to-cell in battery. Light weighting, they are very important. Everything we develop through structural adhesives is present in light weighting. We are working on the bio-based raw material in order to develop new kind of adhesive compostable packaging also. We look at it. So you have plenty of examples in additives and the same for performance additives. So I would say it's true that when we give you examples, we try to give to everybody examples they can really understand easily. This is why we mentioned a lot. about batteries, about tomorrow's hydrogen tanks, about eco-friendly paints, or about sports shoes, but it's more than that. It's really every year in the company, and we have more and more platforms which touch not only one segment, but all four segments. In terms of KPI, which was your last question, We can say that we have 15 percent of sales consist of products below five years old. And I would say nearly everything now is dedicated to sustainability. Nearly all our new business development, our research, I don't talk about fundamental research, but really research for new business is dedicated to sustainability. Okay, Martin, that's fine for you.

Thank you.

You're welcome.

Thank you, sir. Next question is from Mr. Jason Odeshi from GPMark. Sir, please go ahead.

Yeah, hi. Thank you. Morning. A few questions from me. The first question was it's really impressive to see the ramp-up in advanced materials prices to almost 15% year-on-year in Q3. Are you able to give us some color on which products are driving that sort of a big increase? Is it across the board or is it specific to certain products? We've seen, for instance, with PVDF in China, the prices have gone to the roof. So I don't know if that's contributing to that big price increase you've seen in HPM. So that was the first question. The second question was? Going back to the discussion around accolades and coating solutions in general, is there a way for you to maybe isolate what could be the impact from the upstream tightness on earnings in Q3 or first three quarters of this year? And I think the broader question here is if I go back to the capital market day last year, the target was to have 16%, I think, margin in this business. Today, maybe we are on our own rate basis close to 20%. So is there a reason to believe maybe it should be more than 16 in the future? That's the second question. Third, can I just confirm, because I wasn't very clear, should we at least expect the absolute capex to go down from this year to next year, or is there a chance that it may not go down because of some additional growth capex that might be needed? Thank you.

So I will let Marie-Josée complete on the CAPEX because I thought she was clear that maybe she can complete and will do it certainly. On the pricing, in fact, what you should have in mind is that our pricing is mostly dictated by the raw material. So this means that we have more pricing increase where we have more raw material increase. This is the first thing. Now, beyond that, it is clear that we have some more support from Acryx, as we mentioned. But in fact, it's fully across the board. We pass price increase nearly everywhere. And even for adhesives, which is not a market where typically, since it's very downtrend, very formulated, you expect price increase, we have also in adhesives significant price increase. You have, for example, in Q3, you have 6.6%, but it's an average. This means that between the start of the Q3 and the end of the Q3, you have a ramp-up, and it will continue in Q4. So it's really a very special year. I've never seen where you have raw material and input cost because you should add energy and transportation, which is all across the board. And because of that, you have significant price increase all across the board. Now it's true that once we have said that we have significant price increase all across the board, you have some which are increasing a bit more than the other. But I will not enter into specifics. And the specifics can vary from quarter to quarter, so it can be even misleading. But clearly we sell, we benefit beyond the national pricing, pricing power coming from our innovation, our positioning. We have worked so much on the positioning since many years. that this year clearly we benefit from it. You mentioned that three years clearly is doing well, but we can mention plenty of niches where we have, we benefit from a niche with superior value product because there is a lot of innovation in them and we really appreciate that. Now again, on coating, second question, coating solution to be clear to everyone. You have two different, on acrylics, you have two different situations. You have the one of coating solution, which is specialty materials, where we have the acrylic upstream for Europe and US. This is where we have a significant integration. And because the integration, and you have seen in the past 10 years, we have been able to build model of specialty which is rather resilient and where between the extreme and the downstream, you have some composition factors. So this is one. And now the point you mentioned, it's clearly mostly focused on the acrylics in Asia. And you benefit from this new segmentation where you have intermediate a big part of the contribution which is coming from flue gas and acrylic in Asia, and a big part of the growth which is coming from acrylics in Asia. So I think you have a picture which helps you really to understand where we have a superior increase. Now once I've said that, it's clear that even in cotic solution in this very special year, you have some overall links which are linked to the spatial situation in accrease that you need to appreciate. But overall, our improvement in cutting solution is also significantly coming from the downstream. Now I hand it over to Marie-José to complete your element on CAPEX.

So as I mentioned in my speech, basically the total capex for 2021 is expected at 750 million euro and includes, in fact, a peak of spending in exceptional capex, which amounts in 21 to 250 million euro within this total of 750. So this should decrease next year as the projects come to completion. by roughly 100 million, so all in all, I certainly expect the total capex to go down by the same amount.

Is that clear?

Yes, thank you. Maybe another point I would like to mention, and this is what we are very proud of this year, is that this year is not really the story of one product line or one specific element. It's really a sum of plenty of elements. which help us really to deliver a superior growth in every element of Arkema. So if you look here today in adhesive, despite all this difficulty, operating difficulty with raw material, with logistics, I think it's quite a good year and which, frankly speaking, you are fully pleased about the development in acrylics. If you take HPP, which is mostly based on innovation, Really, it's a very, very strong year. Clearly, performance additive is more in a cash cow mode this year because of different elements, but it's still a solid performance. Coating solution is really quite strong, but coming both from the extreme and the downstream, which is very nice to see. And then intermediate is better than expected, but overall, It's really, and this is what should be good for you, it's really this performance of the year is not one point or two points. It's really a sum of different points, and we came to appreciate this content, which is quite diversified.

Thank you.

Thank you, sir. Next question is from Mr. Laurent Favre from Exxon BNP Paribas. Sir, go ahead.

Yes, thanks, and good morning. Harry, I was wondering if you could talk about inventory levels in advanced materials. It sounds like inventories for your customers are very tight in addresses and coatings, but in advanced materials, I was wondering what the situation is there, in particular in HPP, where your sales were up massively versus Q1 and Q2, even if one of the key markets, like autos, actually saw a production decline. So that's the first question. My second question is on advanced materials margins. I think you're targeting 22%, which is a stable margin through 2024. You're obviously on track to beat that this year. I was wondering if going forward you are still driving the business to get to 22% and focusing on growth, or do you think there is upside to that margin target? And then the last small question, pre-cash flow for Q4. I was wondering if we should expect the big seasonal inflow of working capital in Q4, Marie-José, or whether you're trying to build up your own inventories and therefore we shouldn't get too carried away. Thank you.

Okay, so Marie-José will answer the last one. I will start to answer the first one, but certainly Marie-José, because it's linked, will answer also part of the first one. I think you were more talking in the first question about the stock of our customers than of ourselves.

Yes, and in particular in HPP, where your sales were incredibly high in Q3.

In fact, I agree this is maybe an advanced material where we have a decline in certain end markets. The majority is rubbish, but we have a decline in certain end markets, and you could maybe expect some overstock here and there, but it's not the case. Even in auto, the decline is coming from the lack of ships. So in fact, they simply don't have enough stock. And so I think, I don't know how long it will take to get the shifts back to normal, but then it will mean restocking from the automotive industry at that time. So overall, my feeling is that the level of stock in the chain, including ourselves, in fact, and it will be a part of the answer of Marie-José, is still rather tight, not as tight as it has been after the COVID and the rebound, but I would say it's still rather tight. So it's certainly an element which will be supportive in the next year, even if in certain end markets you can have some less robustness than this year. I would say overall some restock will help next year in a certain point. With regard to the margin target, and sorry because I did not answer for cutting solution before, it's a little bit the same question. We are, compared to our, which is good news, we should not complain, compared to our mid-term target, we are above both in cutting solution and advanced material, and the question of the two questions, yours and the one before, was, does it mean that we can do better than our metered target? Or is that basically, shall you consider that what is on top should be considered as over-earnings and would disappear? And basically, I imagine you have the double view.

Not necessarily in advanced materials. I guess that's our thoughts on coatings. But no, in advanced materials, it's a genuine question.

OK. So, no, I think that, again, it's more a question for capital market day because we need to take our time really to look at things in details. But clearly, it means that we should at least deliver the percentage that we have mentioned for 24, which means that for you, what was a question mark becomes a certainty. Now, can we do a bit more? Maybe. Maybe, but it's too early to, we need to take our time. Clearly, we are more than on track from a percentage standpoint. Now, is that, does it mean that we should be above? You can believe it, but I prefer to answer this kind of question in a more formal way when we have capital market day because it's more question for me in terms of of a capital market. But we are very pleased by the fact that we get more value on this new business development. So it goes to a certain extent with the evolution of our mix, both in coatings and in materials, and it should help. But again, for me, we are the starting point. We announced target for 24. The first reaction to the target They are a little bit ambitious. Now we have the answer. They are more than realistic. Can we do more? It's a little bit too early to confirm. Okay. Thank you.

If I may, Thierry, in fact, the reasoning behind the 22 was also because we were adding the Singapore plant and therefore bringing capacity to the market, and therefore the ambition was definitely to manage the ramp-up rather than go and chase after... let's say, increased margin levels. So this was basically beyond the reasoning of the 23.

Yes, at the same time, it's true that we have a lot of niches, including PVDF, which are doing fine. So this is why, and thank you, Marie-José, for the complimentary point. It's already a sum of elements, and it's already important to take the time to think about it, and this is what Capital Mercader made about. It's really to rethink about what we have done and to confirm where we are. But the good news for all of you is that we are really on track of what we have done for 24, and we are pleased about that.

So then if I come to the free cash flow question for Q4, So as I mentioned, it's fair to say that our working capital level is today a bit below, let's say, what we consider is our normative level, which is closer to 14% of our sales, versus our current position, which is a bit above 12%. So definitely our intention is to try to rebuild a bit of volume in stock, and today the increase in the stock is in fact 50 percent coming from volume, 50 percent coming from price, if I give you a ballpark assessment. And therefore, I would definitely still believe in Q4 we should, in fact, probably for the first time in quite a number of years, not really be in the kind of recurring trend that we had historically in terms of phasing of the year. I still believe the working capital should, in fact, not decrease as much as it was the case in previous years and remain, let's say, kind of flattish versus our Q3 level. This is what I am projecting at this point.

Okay. Thank you.

Thank you, sir. Next question is from .

Hi. Thanks a lot for taking the question. I have a couple. Firstly, first of all, by the way, it's a great logo, so well done. Firstly, on PFAS, sorry to ask this, but just wanted to understand what is our team's position here sort of officially, especially in the light of what is happening in Europe with regards to 3M and Belgium. You know, you're changing your raw material mix significantly in the with a nutrient project, you know, changing the eco footprint for the fluorine chain. So if you can just remind us, you know, on the PFAS topic, is there any reason for us to worry or you're indemnified by Total for the New Jersey side and we shouldn't worry except for that? The second question is a little bit tricky one, but I'm just going to ask it anyway. I mean, you know, Siri, you've done everything you've promised over the years. and the stock is still sort of sub-seven times or seven times. Now Bostik becomes a 550 million EBITDA asset. What would be your answer to an approach where you're sort of pushed to spin off Bostik to have value unlocking? So in other words, I'm just trying to understand how would you tackle a situation like that? What is sort of your way to unlock value and still keep everything in the current structure. And then the final question really is around M&A. There are a lot of funky polymers, which are specialty polymers in the polyamide chain that are coming to the market from both sides of the Atlantic. Just wondering if you're very happy with your polyamide exposure, or would you care to sign a few more checks on the M&A side? Thanks a lot.

Okay, so I would be quick. On your question, thank you. So with regard, I will take the last one. On M&A, first of all, we are very pleased with our positioning of today in HPP, and I think you read the numbers. It's obvious that we should be very pleased, and hopefully you are the same. There are some names which are looking for some strategic review. Certainly, as every strategic review, we look at them and we see if we get positioned at position. I think we have not transferred today. It's part of our ongoing strategic review. Each time somebody is making a move and to see if it makes sense for us, not at all. So we'll see. I think the good thing with Arkema is that we have a very good positioning, so there is no urgency to make any moves. we could stay with what we have. And each time we make a move, this is because we believe we can create value for the company. So we'll see. So I have no answer except that we have this flexibility to be able to review ongoingly what we do in terms of M&A. With regard to the... I was surprised with our second question. As you know, we have been in the business since now, the spin-off, where we started with a company for which the share price was 27. I think we are above 120 today. We compare with nearly all our European peers. We see the value creation, so you can already debate that it could be better. Maybe you would be able yourself to do more than that. But frankly speaking, it's a fantastic story, a value creation. In terms of, you should also spend time to read again what has been communicated at the Capital Market Day last year, which has really a fantastic presentation of explaining what is the science of materials. And if you want to learn more, we can share with you between a cutting solution, adhesive, And advanced material is really a completely coherent portfolio. It goes together. You cannot imagine yourself how many customers ask us to come really as a group in order to feed with new innovation in the science of materials because you can stick materials, you can substitute materials, you can create new materials, and you can cut materials. It's a unique offer. We took 15 years to build it. We are very proud of it. We have created a lot of value. And as you're mentioning, the multiple, but I have not to judge myself, the multiple give us a lot of space for further value creation. So we are in a very good situation. But clearly, we have a portfolio we like that we have built over the years. It has been really a long journey. Now we have a platform which is, frankly speaking, very attractive for the coming years, which is very coherent, a lot of synergy, incredible synergy between the different platforms. And we'll continue to develop this platform on this three feet. But capital market day, and I think we have delivered a lot in the capital market day last year, was very clear on what is our strategy, what we want to do. And we like the support of our shareholders, long-term shareholders, on this strategy. With regard to PFAS, we have no specific news to comment, otherwise we would have done it. I think if you read the reference documents, you have the elements you need to have on this issue. On Nutrien, yes, you're right, and thank you for mentioning it. It's a very strong project in terms of eco-footprint, because the way to make HF, not from a mine, but starting from a byproduct, from phosphate, in fact, in terms of impact on the environment is so much more positive that the team are very proud to have implemented this breakthrough technology, and it goes certainly in the right direction. And with the names you have mentioned with regard to their environmental impact, whatever, I cannot comment on other companies. I mean, they are different from us, so I cannot answer for them.

All right. Thank you a lot. Thank you a lot for your call. You're welcome.

Thank you. Thank you. Our next question is from Mr. Rob Hales from Morningstar. Go ahead.

Hi. Thanks for taking my question, Rob Hales from Morningstar. Just one question on adhesive solutions and pricing versus raw material changes. I think historically the lag was quite long, maybe six months or later, but that It seems to have compressed now. I'm just wondering, is there a structural change in terms of your pricing negotiations with customers, or is that just truly because we're in an exceptional environment right now, and a year from now, we kind of go back to that historical six-month lag or so?

No, I think there is. I don't know if it's your question, but there is a lag in the adhesive. I think the adhesive is certainly... the most difficult part of our portfolio to pass through raw material because it's more downstream. And this is why the performance we have done is very good. But the performance is a sum of plenty of elements working on the productivity, reformulation, product mix, I've already said that Bostik is in a permanent transition. We started from a low point at 10% of ABDA. We target now 17%. We are in the middle of the, a little bit beyond the middle of the journey. And the journey is made of plenty of elements. So we have certainly significant headwind coming from raw material. And I can tell you it's not easy. So we have a lag, clearly, between... passing raw material and getting the raw material input, but at the same time, we work on the product mix, we have more and more innovation, and we work on the cost, and because of that, we are able to gain one point of EBDA compared to last year, where most of our competitors have lost some ground. So I think this story of rebidding from a point which was okay, but low compared to what was our ambition and compared to the best peers. And now we are really completely on track with our ambitions. So no, I mean, nothing has changed for sure in this market. Okay, it's still the same because it's downstream. It's not a matter of what business, what positioning. It's just that there's a nature of more downstream business compared to a more upstream business. It takes more time. And you have lag. So you have still lag. But with everything we are doing, we were able to compensate that.

Great. Thanks very much.

I will take a last question because time is running. But if you have more questions, don't hesitate to come to Beatrice and Peter.

We have one last question from Mr. Jean-Luc Romain from CIC. Sir, go ahead.

Good morning. Thank you for taking my question. It relates to HPM and particularly Helium. Can you speak a little bit louder, please, Jean, because you're... Okay. My understanding is that Helium could be a very good material for recyclable windmill blades. How are you progressing to qualify this material with main builders of windmill blades?

So we are, it's true that helium, which is part of the new polymers we have developed over the past years, and it's rare to develop a new polymer, but we have a few of them, like PAKK, helium is another one. As you mentioned, fully recyclable, and we know the process to recyclable with chemical recycling. Difficulty with a blade for windmill is that you have a long homologation. But we now are close to a full homologation of 20 meters blades, so we are on the right track. Now we will come to have, you will start to see in the next couple of years, blades made of helium, which is certainly a unique material. And I don't think there is another one which is recyclable So not only recyclable, but what the product once recycled is the quality of the product before. Difficulties to have the same usage. And so we are very satisfied of the development, and I would say for me it's a matter of a couple of years to start really to see some ramp up. And it's a long shot, by definition, this kind of breakthrough. Thank you. Thank you. Thank you to all for all your questions. It was very interesting, and hopefully you appreciated the quality of the results this quarter. And don't hesitate for any further questions to come back to Beatrice and to Peter. Thank you.