Arkema S/Adr

Thank you very much. Good morning, everyone. Welcome to Arkema's 4-Year 2021 Research Conference Call. Joining me today are Marie-Josée Denchon, our CFO and the Investor Relations Team, with Beatrice and Peter. As a raise, you can download the slides used during this webcast from our website, and together with Marie-Josée, we will be available to answer your questions at the end of the presentation. Clearly, the news of the day is a Russian-Ukrainian conflict, but I propose you to focus for this hour on Arkema 2021 results and outlook. In 2021, recognizing the hard work and resolve of Arkema's teams, we achieved an excellent financial performance, as you could see, positioning us fully on track toward our 2024 roadmap. At 9.5 billion euros, our sales grew by more than 25% versus 20. At constant scope and currency and both, our EBDA at over 1.7 billion euros and the group's EBDA margin at 18.1% reached the best ever levels in a demanding operating environment marked by high input cost inflation and logistic disruptions. Our performance in 2021 confirms the relevance of a long-term transformation strategy, marking the start of a new era of growth for Arkema. At 1.5 billion euros, specialty materials EBDA was up nearly 50% year-on-year and up 30% versus 2019, which we all considered as a reference point. In the context of the post-COVID economic rebound, we delivered growth beyond expectations, clearly demonstrating the strength of our unique offering of specialty materials centered around the three highly synergistic segments of additive solutions, advanced materials, and cutting solutions. This potential is captured in our new identity, which we unveiled last November. Innovative materials for a sustainable world, through which we are positioning our specialty materials at the core of addressing the planet's major challenges by fully leveraging our expertise of material science in line with the strategy we announced at the 2020 Capital Market Days. Beyond the financials, we strongly reinforce our profile to our specialties, making significant progress in our strategic roadmap First of all, in terms of external growth, but also organically with several targeted projects and a strong acceleration of new opportunities. Looking now at portfolio transformation, we delivered, as you know, two important milestones in 2021. Finalizing the divestment of PMMA and announcing the acquisition of Ashland's performance adhesives. I'm convinced that Ashland will take our adhesive business to the next level, given the significant complementarities and synergies with Bostik. And together, we look forward to the many growth opportunities that lie ahead. Our M&A activity did not stop at the larger deals, however, as we also made four Bolton acquisitions, mostly in adhesives. In 2021, specialty materials made up over 85% of group sales. And on a pro forma basis, including the contribution of all announced M&E deals, this figure rises close to 90%. So you can see that we are decisively closing in our target to become a pure specialty materials figure. Organically, over the coming two years, we look forward to a strong momentum of projects that will support our customers in their quest for sustainable performance, leveraging our unparalleled know-how The highlights include 50% capacity extension for PVDF in China and France, particularly for the batteries market. The startup in the middle of this year of our PA11 biofactory in Singapore. Our innovative eco-friendly project for the supply of hydrofluoric acid with nutrients in the U.S. will start also by the mid-year. The 1233 ZD production plant In the U.S., we should start by the end of 2023, which is in specialty fluoros gas. There will be certain capacity in China, in particular for the electronics and renewable energy market. It will be again in 2023. And in France, we are increasing by 25% of capacity of payback elastomers. You know, these elastomers which are used in high-performance sports shoes and consumer goods. All of these projects are geared towards sustainability and will support our chemical growth and improve our environmental footprint in the medium term. The accelerating shift towards sustainability is here to stay from our standpoint, driven by powerful megatrends like climate change, resource scarcity, urbanization, and clean mobility. Of course, to succeed in this new paradigm, the power of innovation is paramount, and Arkema is a valuable asset to leverage in this field. So this makes us confident in our potential looking toward 2022 and beyond. In this respect, we are now aiming to generate 1.5 billion euros of sales coming from our five innovation platforms by 2030 versus 2019 baseline, and this has to be compared with the 1 billion euro you have in mind which was previously announced. We have a strong position and we are really recognized key partners in areas like batteries, 3D printing, bio-based materials, eco-friendly plants, electronics, sports, consumer goods. And when I see the growth of new opportunities over the past three years, really my strong conviction is that we don't yet know the extent of these new opportunities that will emerge. In 2021, we were very active in regard to corporate social responsibility, which is at the core of our strategy, and our strong commitment to CSR has been rewarded by the inclusion of Arkema in the CAC 40 EAG Index, which regroups the 40 largest companies listed in Paris with the best EAG practice, and by an improved ranking to third place in the chemical sector of the DGSI World Index. We also maintain our best-in-class rankings among non-financial rating agencies, making robust progress during the year in our different programs. We have three of these programs, which are the following. We considerably expanded the scope of our activities to have our portfolio sustainability assessment program, which measures the percentage of sales that significantly contribute to the United Nations Sustainable Development Goals. We are accelerating our initiatives in favor of a circular economy, increasing the share of cells covered by a life cycle analysis. As a reminder, we also acquired AGPLAST last year, a specialist in the regeneration of high-performance polymer and historical partner of Archimedes recycling operations. Finally, following the announcement in early 2020 of an ambitious climate plan to reduce greenhouse gases by 38% by 2030 versus a baseline in 2015, we have already been able to significantly reduce our emissions by 34% thanks to all our efforts. I believe it's a great achievement. Last but certainly not least in our achievement, we had a very good year in terms of safety. with the accident rate at the same low level as last year, and the process safety event rate dropping significantly from above 4 to 3.1, allowing us to set new, more ambitious 2020 targets at 2. As a result of our strong financial performance in 2021, and given the board and management confidence in Arkema's positive prospects, we will propose a dividend of €3 per share as the next AGM, up by 20% versus last year, and in line with our progressive dividend growth policy. Also aligned with our capital allocation policy communicated at the 2020 Capital Market Day, we completed last November, as you know, the €300 million share-by-back program, which we said we would carry out after the finalization of the divestment of PMMA. Going into 2022, we have a strong balance sheet with our net debt to EBITDA ratio below two times, including the Ashland Adesys acquisition, as we said, at the time of this acquisition. So we have the firepower to carry out further value-added targeted M&A should opportunities arise. The evolution of our share price in 2021, in particular our outperformance versus peers, is testament to the shareholder value Arkema is creating. and as created in the start of our transformation strategy. And it validates also the soundness of our balance capital allocation policy between transformative M&A and shareholder returns. After this introduction, so I will now hand it over to Marie-Josée, who will review in more detail our Q4 and fuller result, and then I will come back to the outlook at the end of the presentation.

Thank you, Thierry, and good morning, everyone. So I'll start straight away with the sales bridge. At 9.5 billion euros, sales were up 21% year on year. In the context of a post-COVID economic rebound and thanks to our leading positioning in the number of high growth and markets, volumes were up by over 7%. The price effect is close to 19% thanks to first an active pricing policy throughout the year across all product lines. to offset the significant inflation and input costs. Second, I would say the mix improvement towards high value added applications. And third, obviously favorable market conditions in upstream acrylics in all three regions. So driven by these sales growth, Arkema achieved a very strong 46% increase in EBITDA to 1.7 billion euros. in spite of the negative scope impact of around 75 million euros linked mainly to the divestments in intermediates. Looking at the EBDA of the different segments, so starting with Bostik, the segment achieved an EBDA of 316 million euros, up by 21% year-on-year, thanks to strong demand in construction and DIY, and high-performance industrial applications, We also had an improved product mix and the integration of the acquisitions, while solid pricing power led to a slightly positive net pricing impact over the year. In Q4, Bostik managed to maintain neutral net pricing in spite of accelerating input cost inflation. Q4 EBDA was flat year-on-year at 69 million euros, Underlying demand trends remain well oriented in all major markets. Our volumes were negatively impacted by raw material shortages. Our full year EBDA margin came at 13.9% in line with the guidance, which is a great achievement given the negative mechanical dilution of price increases on this ratio. Regarding advanced materials, EBDA was up 34% year-on-year at 662 million euros, with an EBDA margin improving to above 21%. High-performance polymers are an excellent year indeed, thanks to accelerating demand in high-performance, sustainable solutions in markets like batteries, bio-based consumer goods, and sports. which brought volumes and improved clearly the product mix, while growth in automotive was limited by cheap shortages in the second half of the year. The growth in performance additives was less buoyant as demand was subdued in the oil and gas and paper market in particular. The positive momentum in high performance polymers was maintained in Q4 with a segment EBDA up nearly 40 percent to 168 million euros. Regarding coating solutions, EBDA doubled year-on-year to 525 million euros, and the EBDA margin reached a high level of 19.1 percent, up from the 13.7 percent in 2020. In this segment, we benefited from a number of factors. I would say first, higher volumes across all major markets, including decorative paints, 3D printing, graphicals, electronics, and industrial coatings. Second, price increases in the downstream activities to offset higher raw material and energy costs. Third, a better product mix due to the trend toward more value-added eco-friendly products. And fourth, last but not least, the favorable conditions in upstream acrylics. In Q4, most of those drivers were still in place, driving EBDA up 77 percent to 122 million euros, so with the exception of volumes which declined given high prior year comparison days. Finally, intermediate EBDA in 21 grew 37 percent, to €316 million, thanks to good market conditions in acrylics in Asia, and robust pricing dynamics in fluorogases. So this segment recorded a €90 million negative perimeter impact, as you know, from the divestment of functional polyolefins and PMMA, impacting the total contribution, of course, of intermediates. The trend remained positive in Q4, with EBDA up strongly to €80 million. Regarding the rest of the P&L, with depreciation and amortization at 543 million euros, recurring EBIT nearly doubled versus last year at nearly 1.2 billion euros. And the recurring EBIT margin was up 450 basis points and stood at 12.4%. Financial results stood at 56 million euros negative, benefiting from the lower interest rates on our debt swapped into dollars. The recurring tax rates came to 20% of recurring EBITs, thanks to a more favorable geographic split of profits. For 2022, we expect a recurring tax rate to amount to around 21% of recurring EBITs. And finally, adjusted net income, more than doubled year-on-year, to nearly 900 million euros, which corresponds to 11.8 euros per share. Moving on to cash flow and net debt, Recurring cash flow amounted to 756 million euros, which corresponds to an EBDA conversion into cash of nearly 44%. This robust cash generation was achieved thanks to a much improved operating result as of last year, thanks to the limited rebuild of working capital for 238 million euros, and the controlled level of recurring capex. So coming back to working capital, the ratio on annualized sales stands at a relatively low level of 12.7% to be compared to 11.8% at end of 2020 and 13.9% at end of 2019, keeping in mind that we consider the normative level for the company to be around 14%. Including our exceptional projects in Singapore and US, the total capital expenditure amounted to 758 million euros. versus the 600 million euros of last year. This reflects higher exceptional capex for 252 million euros in 2021 as a result of the progress of the construction of the polyamide 11 plant in Singapore and the nutrient project in the U.S. If we project 2022, we expect recurring capital expenditure should come to around 5.5 percent of group sales. And our exceptional capital expenditure should be finalized with an amount of around 130 million euros. Consequently, net debt at the end of 2021 dropped to just below 1.2 billion euros, including the 700 million euros of hybrid bonds. The net debt to last 12 months EBITDA ratio stood at 0.7 times EBITDA. Indeed, this is a temporary situation before closing the Ashlanda disease transaction, as you can imagine. I thank you for your attention, and we'll now hand it over to Thierry for the output.

Thank you, Marie-Josée. If we look now at 2022, it should be a particularly dense and interesting year. First of all, in terms of projects, as we will start up in the middle of the year, our two exceptional CAPEX, Polyamide 11 in Singapore and the Nutrien project in the United States, as well as the PVDF expansion in China by year-end. On the acquisition side, I look forward to welcoming Ashanti, as you can imagine, should be shortly. I'm convinced that they will play a key role in accelerating our ADC strategy, as I said before. So far in 2020, global demand seems to be well-oriented overall. Of course, there are nuances by market, by region, and we continue to benefit also from a favorable geographic and production positioning, especially on this megatrend we have discussed in depth before. There is, by definition, still a few challenges. The one of this morning, For example, and maybe largely geopolitical tensions, the evolution of the health crisis, which remains uncertain, even if it seems to get a little bit softer. And not surprisingly, raw material inflation shortages in the continuity of what we have seen in the second half of last year. In this context, which is demanding for the team to manage, which needs agility, really what we ask our managers and our teams really to be focused on continuing to implement price increases to reflect higher input costs is still the case. And as we did so successfully in 2021, in order to, and also to minimize what has been penalizing the effects of raw materials shortages. Having said that, in June 2022, Group ABDA, from what we see, should grow strongly, supported by the performance of advanced material and cutting solution. We expect that this solution to have a slower start into the year because of what I've explained before, which are all these raw material shortages, but whose effects should largely dissipate in Q2, which means we should have a Q1 ABDA, still robust, but somewhere between the Q1 2021 and the Q1 2020 levels at QuantumScope. This does not question the fact that adhesive will have a robust performance over the full year on track with the long-term target. For the full year 2022, in an environment that should remain volatile, Arkema is aiming for specialty materials as you know, which is really the core of what we build, to be comparable to the record level of 2021, at constant scope again, we have been very clear on that, as we expect our underlying growth to broadly offset the impact from the expected normalization of margin in acrylics, which means a better mix. On top of that, we will benefit from the contribution of Ashland adhesives once the deal closes. EBITDA of the intermediate segment should mechanically reflect the residual impact of the divestment of PMMA because we had not this divestment fully on last year. We have still a part of the year with PMMA. And we also expect with regard this time in China, a progressive normalization of the margin. Although what we see in the first few months of the year is still well-oriented. And also we believe should deliver a solid performance. Beyond the financials, we'll continue to deliver as we did in 2021 or 2024 roadmap, by making value-added bolt-on acquisitions, specialty materials, a few small ones every year, especially in ADZ, but not only. We pursue high return, also capex opportunities to meet customer demand in fast-growing end market. And clearly, as we say, corporate social responsibility is really, for us, a core area where we want to maintain a best-in-class standing. As a conclusion, we had a very good 2021 with an excellent financial performance, and we are fully ready to meet the opportunities and challenges of 2022, and we are very confident beyond, which means to deliver our 2024 roadmap. I thank you very much for your attention, and together with Marie-José, we are now ready to answer your questions.