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.

Thank you, ladies and gentlemen. If you wish to ask a question, you may press 01 on your telephone pad. So first question is from Mr. Martin Rudiger from Kepler-Chevreuse. Sir, please go ahead.

Yes, good morning, Thierry, Marie-Josée, Beatrice, Peter. Congrats to the great performance. I have three questions. The first two are for Thierry. You mentioned in your outlook a strong start in 2021-2022, and you highlighted advanced materials and coding solutions. So question number one, is this primarily pricing-driven, or do you see also higher demand as well? And question number two, regarding adhesives, which indicate basically decreasing year-on-year earnings in Q1. Just to clarify, this is purely due to the supply chain issues and raw material shortages, not because of any mismatch in contract durations. And the third question is for Marie-José. The special items on the EBIT level, I mean the delta between the recurring operating income and the recurring income, has been rather high with 109 million. I know there are two components, the PPA-related amortization that is clear, but the remaining 92 million expense is not clear. I see that occurred primarily in advanced materials and in adhesive solutions. Can you provide some details about this item? Are these restructurings or write-downs? Thanks.

Okay, Martin, thank you for your question. So on the first one, and again, we are at the start of the year, and January is not a typical month. It can vary from year to year, and we had also a strong base in the past. I would say it's mostly a pricing effect, but when I say pricing, it's also the mix, which is very important. This means, as you know, we have still a lot of constraint capacity. And what we do, thanks to our new business, we replace lower margin business by higher margin business. Okay? So it's, as you mentioned, certainly in the first quarter, mostly a pricing story which reflects the strength of our portfolio. But in this pricing, you have also the mix which is an important part of what we delivered also last year, where we replaced the world margin sector by higher opportunities coming from megatrends. So it's really a key part of our story. I think I wasn't completely clear. The second question is on ADC, so... Okay. Yes. So it's really a raw material shortage story. I think we have some important product line where we have leaders where what is missing is sometimes the key, sometimes a small one, but since they are formulated products, they are more impacted than the more, I would say, extreme product we have in the portfolio, and it has to be We have to recognize that for Bostik in the first quarter, already a little bit in the third, in the fourth, in the first quarter, it's penalizing. But we believe that it's again a story of Q1, but Q2 should be far better from this standpoint, and we should renew for the growth, so it's nothing else. And they have done a good job. I'm sure you have seen in terms of we have been quite challenged at the beginning of last year on our ability to pass price increase in additives, our ability to deliver the 14% margin, and we did it. This means that BOSIC is really focused on passing this atypical input cost we got, and they have done a good job. And I wanted to take advantage of your question to mention it.

So then regarding the non-recurring items we booked in quarter four, I would mainly quote two main factors. The first is impairment of assets in our hydrogen peroxide activities on the back, let's say, of the evolution of the paper market. And the second item is, let's say, some acquisition costs, mostly in adhesives, during the quarter.

Thanks. Okay. Other questions?

Thank you. The next question is from Mr. Charlie Webb from Morgan Stanley. Please go ahead.

Morning, Tiara. Morning, Mary-Jose. Maybe just three for me. I think some are quite simple. So just first off, on your comments, Tiara, around adhesives and the price of the raw material inflation, how should we think about that in 2022? Has inflation peaked in your eyes as it relates to adhesives, raw materials, or do you see a bit more still to come through in the start of this year. And when we put that together, what's your expectations underlying X Ashland for the margins in 2022, all else kind of equal as of today? Secondly, on the point around demand and the fact that you guys are somewhat restricted in your ability to grow given capacity constraints, how should we think about demand in 2022? And maybe you can quickly run us through the divisions and your expectations there, given the capacities you have and how full they are. And then finally, quick question on PVDF. Clearly, looking at the market data, it appears to be a very tight market beyond just the good fundamentals and the growth of batteries. It feels like it's actually very tight and prices have gone up a lot. So just, you know, it would be good to hear your view on that market. It seems like there's lots of new capacity announcements coming, probably more a 2023 story than a 2022 story. But how do you see that in terms of the current level of profitability in PVDS today versus what you think might be the longer or the medium-term, longer-term levels of profitability? Obviously, growth sounds very compelling, but just trying to gauge, you know, is it a case that actually right now profitability of that product today is very elevated and where you might normalize it? Good to hear your views on that. That would be great.

Okay, Charlie, as usual, good questions. With regard to the raw material environment, particularly for the adhesives, we think it has not completely peaked today. It will continue a little bit because the way I see it, but again, we can all be wrong around the table, so I'm quite relaxed when I say that, but I think that the more extreme raw material... are now getting stabilized and have reached a peak and maybe some could decrease a little bit. But the more you go down in the chain, which is the case for the raw material that Adesiz is buying, you have still some increase and some shortages. So this is why Adesiz is a bit more impacted than others. But again, I'm confident of the ability and we try, you know, to... We are very agile and focused on raw material evolution and I think what the team is doing is quite good in terms of anticipating and passing the right price increase. So the only difficulty for me is really the shortages is one and the second thing is the dilution that it has as long as raw material at this level. on the EBITDA percentage. It's mechanical and there is nothing you can do about it, but you can take it as an upside, which means that at a certain point from material will get lower and then you will have an accretive effect on the other side. So let's take it as an upside someday. Okay. With regard to Ashland coming, so first of all, Ashland, we are confident that they will deliver what we promised and when we make the acquisition. So you will get on the, I would say on a full year around one point of accretion on the EBITDA margin, but for this year, since it is a partial year, it's more a little bit than 0.5, okay? And we don't have the synergies yet, so let's say about 0.5. And the idea for BOSTIC without Ashland is try to maintain, despite the dilution of the raw material, so of the pricing, to maintain the margin they had this year. So you would add a sort of consolidation, which would be, frankly speaking, a very nice performance, despite one year and a half of very strong increase in raw material, to have the legacy Bostik maintaining this 21 margin, and on top of that, to gain 0.5 points with with Ashland since it is not full year and we have not, we not get the synergies on the first year in order to be around 14.5% on BOSIC. And when you make the calculation, you take the upside also coming from the fact that raw material at a certain point in the next two, three years will certainly get softer. I think we really consume our 17% for BOSIC in 24. On the ability to grow, in fact, there is not one answer because, you know, we have completely different product line. And depending on which product line, you have capacity restrictions. For example, this is a case with polyimide 11 and PVDF. But on the, for example, on the cutting downstream, we have, depending on the region, we have capacities available. We have also, in adhesives, capacity available. performance additive with capacity available. So again, it's a mix. And where, as you know, otherwise, the profitability of Arkema would not have grown as much in the past year. I mean, this, for example, this bottleneck on polyamide 11, it exists in 15 years. And we have tremendously increased profitability of polyamide 11. And the reason being that we manage the mix. This is what I explained to Martin before. So what you will get this year versus last year is... increase in volume where we have the capacity and we have a certain number of possibilities. We'll get improvement of the mix where we are tight in capacity and we have some projects which we start. We'll get half a year of ZEHF in the U.S. in partnership with Nutrien. We'll get some volume coming from Singapore, so polyimide 11, and then on Sartamer also we get some extra capacity, et cetera, et cetera. So overall, this is why we are confident in our guidance, which is a very robust guidance to say that we should consolidate in specialty materials before Ashland, the level of 21, which was by far the record Arkema all the time. With regard to PVDF, you know me, Charlie, so I will give you a few elements of answer, but I'm not the one who gives more about competitive position, etc. No, I think it will remain a good market driven by technology. There will be new capacities, but currently, because of the batteries, but not only There is a big appetite for this kind of products. I would say it's overall the exponential need for new high-performance materials for sustainable solutions, which is one. On top of that, in this world, I would say that PVDF for its ultra-high performance qualities is even more demanded. And on top of that, you have this acceleration in batteries where it is an important product. So all in all, I still accuse the announcement on the market. I think for me it should be manageable. And for Arkema, PVDF should remain quite strong in the next decade, is my feeling. And so far, He has not been disappointed by what we have achieved in PVDF, where we started very small, in fact, if I remember. So I think so far, quite a good progress. And for the next decade, I would say we seem to be in good shape. We have plenty of projects, incredible amount of projects. And high-tech projects are not the ones you can copy easily.

That's really helpful. Thank you very much.

Thank you, Charlie. Thank you, sir. Next question is from Mr. Jaydeep Pandiya from One Field Research. Sir, please go ahead.

Thanks a lot. So the first question really is on thiochemicals. You know, yesterday one of your key customers announced a backwardation project in the U.S. So could you just give us some color about how thiochemicals as a business has progressed given you've done so many investments in Malaysia, for instance, and how much today is dependent on the traditional methionine market versus other markets. Because in sort of three years' time, if they go for backwardation, then you just want to understand if you will really lose any volume or actually you'll make it up. That's my first question. The second question is around DVDF, more from a value chain point of view, because 142B prices in China have gone up a lot recently. So just want to understand, you know, where are you with regards to backwardation in 142B? And when the nutrient project comes online, you know, going forward, what do you see the future of PVDF with regards to the raw material chain, you know, and what sort of strategic advantage do you have there? That's my second question. And the third question really is sort of around your coding business. uh more on the on the downstream side of things um you know like do you think that now you've done enough uh because you know last year was a very tough year for raw material for us it's going up but you know downstream seems to have performed also very well so you know do you think that now you've achieved peer level profitability in some of your coating resin businesses or is there more to come here with regards to catch up thanks a lot

Thank you, Jalip. So on the first one, I'm a little bit puzzled to answer because I never disclose a relationship with a customer. So is this a customer or no? I would say the only thing that I can say is that if in certain cases we have some specific contract, we have a customer who decided to go upstream, backward. And you can imagine that we know that well in advance. This means that on the other side we have free capacity for intermediate product that we can use to go more downstream. So it goes in the two directions, okay? So if what you say is true, we have a plan which has been sought and developed already some time ago. So we are comfortable. And again, as you know, in thiochemicals, we have about half-half methionine, which is one output. And we have the other half, which are using the same intermediate, which is really developing very well. And the other half has plenty of opportunities. So you could assume that we could use our intermediates to reinvest on the downstream of the other half. On the PVDF, again, you asked a good question, but a confidential question also. Clearly, you are right to say that it's not just PVDF. It's a whole value chain, which is complicated, which is different from region to region. The actors are different. Not everybody, including Arkema, has the same strategy depending on each region. So we have different strategies which are discussed at high level inside Arkema since 15 years, where we build things brick by brick. But it's difficult for me to tell you more. The only thing that I know is that we have the right strategy to sustain or CAPEX development of PVDF. No, I will not openly communicate on what we do on 140 to be too strategic. You see what I mean? On the third question, on coating, yes, you're right to say that we have, independently from the upstream, from the acrylic monomer, we have done quite a good job on the downstream. by repositioning our offer, product offer, spending a lot of time with our customers to reinforce intimacy, partnership, innovation, leveraging the three platforms. Because when you say cutting, it's cutting which together with adhesive and advanced materials is working to serve our customers, large customers, because they are in some cases the same. And they want, for example, PVDF and acrylic resins and some adhesives, some sealants, etc. And it gives us quite a good and extensive offer. And because of that, we have been able really to take the profitability up for this cutting down trim. So do we have more to come? The answer is yes. I think it's just a work of a few years, but I think we'll continue to work hard to catcher, the opportunities which are again arising from megatrends. Eco-friendly paint is certainly an example, but it's also for electronics. You cannot imagine the number of opportunities that 5G is bringing, or also 3D, because our materials and cutting solutions are also used for 3D, et cetera, et cetera. Again, it comes from innovation, new business development, changing the mix, increasing the average pricing, and I think there is still more to come.

Okay, thanks a lot.

You're welcome.

Thank you. So our next question is from Mr. Daniel Sun from Redbird. Go ahead.

Good morning, everyone. Thank you for taking my questions. I've got a few. So the first one is, Given the current strength of the margins, it would be helpful to get your views regarding whether you think there's a new sustainable margin level for specialty materials being beyond the 17% target set out for 2024. And my second question is, given the flexibility of the balance sheet, even with the acquisition of Ashland and the thesis to be in 2022, what's your view on capital allocation, especially on further opportunities of share buybacks? And lastly, any comments regarding the progression of the exit of the emissive flora gases will be helpful. Thank you.

Sorry, say again the last one.

Just, yeah, in terms of progression, in terms of... Okay, that's clear.

Okay, thank you. Okay, good. Thank you again for your question. With regard to specialty material, I think we are... You know, when we announced in 2020 the 2024 target, I think most of the financial community thought it was very strange. So after 2020 was finished, when the result of many companies including Arkema declined, then many people thought, oh, it becomes more than strange, how can we reach it? So now we deliver 2021, a fantastic 2021, and then we say, oh, maybe they were a little bit cautious. I think you know us, I think we see something, we deliver, we commit, we work hard to reach it. So we say what we wanted to reach in 24, 17%. We are more at 18%. There is, let's say, a little bit of more cyclical parking to the rebound of the COVID, the tension on the acrylic. You could argue that 17 remains a good target, and then you could say that, okay, let's assume that, but then you're already at 17, so you should continue to progress. But now what we want to do is to continue to have the evolution of the mix. This means we have still, and it's your last question, some disposal intermediates to make, which are high margin, okay, which will be dilutive when they will exit. And we want really to be a pure specialty player, increase adhesives, which has a lower margin, et cetera. So at the end, I think the 17% with the portfolio we target, which is not the same as today, the product mix we target for 24 is quite a robust target and will further create a value. So we stay there. We stay on our strategy, which has been expressed at the Capital Market Day, which to a certain extent, answer your second question, Maybe Marie-Josée, you want to add on the second question, the capital allocation, share my back, to re-explain what we have in mind in three years now.

So as a reminder, we have basically a committee to spend 15 to 20% on the exceptional capex, so this is well in progress. As I mentioned before, we will finish the exceptional capex both in Singapore and US in the course of next year. So, this one is basically mostly over when we complete 2022. Then we had practically, you know, quite well-balanced allocation between the net M&A that we wanted to achieve and the return to shareholders. to be very active in M&A, so obviously Ashland will close in 2022. And we are looking for the disposal of fluoro gases. So again, on this part, we are clearly sticking to the commitment. Regarding the return to shareholders, Thierry has announced basically the progression of the dividend that we want to continue to deliver to our shareholders. We've completed the 300 million. To be frank with you regarding the evolution of the stock price, I think there is more value for us to continue to transform the portfolio than I spotted, let's say, from the share buyback. So nothing is, let's say, out of the table, but definitely today it is not in my immediate radar that we would do another share buyback. So let's see how the stock evolves, and we'll continue looking at it opportunistically, as we said during the capital market day.

Thank you, Marie-José. So with regard to the exit of fluorogas, nothing really new. So it's emissive fluorogas, and we keep specialty fluorogas, as we said. We're still working on it. As I said many times, we take our time. We do not update frequently the market, so we want to do it quietly. We are working on it, but we'll take the time to make sure this is the right project that we have. So nothing especially new there.

Fantastic. Thank you very much.

Thank you. Thank you, sir. Next question is from Mr. Sheria Malek from Pinto. Sir, please go ahead.

Hello. Can you hear me? Yes. I just have three very simple questions. First was just understanding a little bit about your price pass-through mechanism. So I know prices were up this year and you've got it that in the upcoming year you will look to offset pretty much most of the Robin Deere price inflation. I just wanted to understand contractually how long your contracts are, how frequently they're renegotiated and whether there's any indexation and whether there's any lag in the pricing being increased after any cost inflation. That's question one. Second question, hopefully simple, is what percentage of your costs are energy and what's your hedging policy for energy? And the third question that I had was just sort of lasering in a little bit more on volumes. They were up 7% this year. What's your expectation for 2022? Is it sort of mid-single-digit, low-single-digit, or do you think it's going to be comparable to 2021? Thank you.

Okay. So on the contract, in fact, you have all kinds of examples. So by definition, for most of the cases, you have a lag. I mean, the perfect world where... you've got a raw material increase and you don't discuss with your customer and you have your increase and pricing doesn't exist. So it's always negotiation, whatever the contract is, discussion, you need to explain, et cetera. So it takes already some time, but sometimes even when you have automatic formula, which as I mentioned is really a minority part, I would say for the most of it, it can be between... amounts to three months. The big difference, but it's not only Arkemite, everybody, even beyond chemicals, is that in a normal world and year, you are increasing once a year your price, and sometimes you increase three times, four times, five times last year. So it's a completely different world because you have so much volatility in the raw material with a level of escalation which is incredible that we have no choice. I mean, it's not so... After that, you need to take into account the situation of each customer, each product line. And so we have discussion with our suppliers. We have discussion with our customer. And there are as many cases as we had of supplier and customer. But at the end, I think looking at the result, we did a good job. But unfortunately, I cannot give you a simple answer because it does not exist. The only thing which is for me important to have in mind is that at least in the current period, the time where we were negotiating and discussing once a year has disappeared for a certain time, and we come back with fresh increases regularly, as I told you, for five times a year, because we have no choice, and the suppliers do the same, and their suppliers do the same to us. On the energy, the energy which is electricity and not gas represents a mid-single-digit percentage of our total valuable cost, which means that it's not small, especially when you have, with the European gas, when it has been multiplied by 8 or 10, at the end, even in smaller volumes, it makes something huge.

I apologize, I didn't hear the percentage. Did you say... Mid-single-digit, mid...

mid-single digit percentage of our total variable cost. So the volume is limited, but the increase is very high in Europe. It's mostly a European story, and it will not east today. But I would say the raw materials, as you know them, represent a significantly higher percentage. But the magnitude of the increase is, for most of them, far smaller than the one we got in the NatGas in Europe and we got this day. So at the end, because you mentioned energy, you could mention also transportation. Transportation costs, maritime freight has increased very significantly. So what we do with our teams is that we, in fact, One year ago, we are really focusing on raw material. Now we say raw material plus energy, plus transportation. You have the full package. We give you how much it is, and the duty is really to pass it over to our customers, and I'm sure they do the same with their customers, et cetera. In terms of growth, In fact, you cannot... I will not guide on the... I mean, we guide already on the ABDA as we do every year, so we don't... Again, it depends actually on the macro context. So when the volume are lower, we try to manage our unit margin to be a bit more aggressive, product mix, etc. When they're higher, we have more flexibility. At the end, what counts is how much ABDA you deliver, even if in the average... we target to be GDP plus for Arkema in specialty materials. What will be different between 22 and 21 is a base of comparison, is that we have a very strong rebound in 21 compared to 20. And because of that, we were above 10% organic growth in the first semester. It will not happen at all this year. So in fact, you will get a different seasonality first where we compare in volume On the first semester, we compare to a strong base and in the second semester, a little bit easier base. But year on year, when you compare 21 and 20, you compare a year to a year which was a year of COVID crisis. It's not the case anymore. You compare a year to a year of rebound. And in the first semester last year, you had a rebound. So this is why the first semester will be difficult to match. where the second semester will be a more normal type of GDP growth. Okay?

Thank you. Thank you, sir. Next question is from Mr. Alex from Barclays. Sir, please go ahead.

Hello. Good afternoon. Thank you. Hi, there. In advanced materials, You did a strong volume growth number in the fourth quarter, which I believe was partially due to the phasing of your molecular SIVs business, which can be quite seasonal. Could you possibly give us some idea of how much of that volume growth in Q4 was down to the SIVs? It would be very useful. Thank you. And then secondly, Mauricio, you talked about an impairment in H2O2s because of changes in the paper and pulp markets. Presumably that's a long-term structural change, otherwise you wouldn't have had to impair the asset. So could you maybe talk a little bit about the drivers behind that impairment? I appreciate it's not huge, but just interested to know what the changes are.

Thank you. Okay. On the first one, sorry, Alex, we checked the first question because your sound is very bad, so I'm sure that at least Peter understood.

In advance materials.

No, not at all. No, not at all. I know you're very . It's not a total molecular history if it's in Q4. No, no, it's really advanced material. fully supported by this need for new materials, megatrons, lightweighting, batteries, sport, et cetera, et cetera. So it's not a molecular field.

There is a bit of phasing on molecular fields, but frankly... Thierry, sorry, can I just go back on that question then?

Because in the first three quarters of 2021, your volume growth relative to 2019 was more or less flat, largely because you were sold out of a lot of products. And then in the fourth quarter, it stepped up very meaningfully. So there was clearly a change in the volume environment between the first three quarters and the last quarter. If it's not molecular fib, could you possibly talk us through a delta?

Let me check. Okay, we'll come back to you on this question again. So, regarding maybe H202, you're correct, actually, we think the pulp and paper market is, we are revising, in fact, the growth perspective of this market, and at the same time, obviously, the cost structure of our chloride business is is highly impacted by the energy cost evolution. So this is what triggered the decision that we took.

I'm not sure. OK. So on the paper to complete what Marisol is saying, the digital, we all know that the paper is in very good shape because of the digital trend. I think it's not a surprise. So it's an impairment which has a level of the company's limited and it was fair to take it. I see for what I see for advanced material is for the whole 21 the volumes are 10%. Am I right? And Q4 is 4 only? What's the question? What's the problem? I don't understand. It's less in Q4 than it is in the full year? I understood from your question that we had a sort of extra growth in the Q4 because of molecular disease, while the rest of the year was with no growth. But in fact, we have 10% on the full year, which is excellent. And in fact, in Q4, we have less growth. So what I propose is that Peter and Beatrice come back to you precisely, because I'm not sure I captured the question for me. Advanced material on the full year is 10%. Q4 was less, but you know Q4 is always a little bit atypical. And the volume for the full year has really been driven by this megatrend. There is no doubt about that. Okay, but if you have a more specific question, Beatrice and Peter will answer, don't worry. Okay, I take a last question maybe.

Last question is from Mr. Chetan Udeshi from JPMorgan. Sir, please go ahead.

Yeah, hi. Thank you. Just two questions quickly. Typically, the Q1 seasonality is that you guys historically have seen Q1 earnings to be up sharply versus Q4. Can you maybe help us understand how you are thinking about that seasonality given the Q4 base from last year is quite high anyway, so any color there will be useful. And second, Given the start-up of a few projects this year, do you have any number in mind in terms of how should we think about the EBITDA contribution from the start-up of these projects in 2022, if at all, or is it more material only in 2023 and beyond?

Thank you. I don't know why the connection is not very good. On the second one, first of all, for the main project, like I'm sure you mentioned the HF in the US, you mentioned Singapore. The basic principle, and you have the capex amount that we have published, you take them, you divide by between four and five, they are significant projects, and then you get the EBITDA maturity after, let's say, four to five years. I would say with regard to the HF, we should get maturity after three years. With regard to Singapore, I mean, 50% of capacity, we should be more at maturity after five years, which would be excellent. Now, if you take 22, so it gives you, I would say, if you take a full year one, it gives you a ramp-up that you can easily, with your model, finalize. Then I would say that with regard to nutrients, it's more half a year impact of the first year. So you take a first year with ramp up until the fifth year, and you take half of this first year. And then for Singapore, you should take more a quarter, I would say, because in fact we start mid-year. But this kind of project needed at the beginning to do it really technically week by week with a technical wrap-up. So I would say it would be minimal. It's more 23. So to answer the last part of your question, the material effect would be more in 23 than 22, even if in 22 we have a little bit of each of them in our guidance for the full year. but among maybe 15, 20 other projects. Okay?

Could you maybe come back to your first question that we could not actually hear well?

Yeah, I just was asking, historically, you've seen, you know, Q1 EBITDA is usually up very strongly versus the, you know, Q4 of the prior year, and I'm just thinking, I mean, for Q1 this year, do you see a similar dynamic, or just given the base from Q4 is relatively high, maybe the seasonality may not be as visible in Q1 this year, is the question.

I will make a philosophical answer, which means that a year is made of four quarters. A year has a meaning. Every quarter can be different. I mean, you have so much volatility today between the raw materials, volumes, the base of comparison versus the previous year, the different regions, China, U.S., Europe, et cetera. That is difficult completely to model quarter by quarter. This is why we told you we mentioned this for our first quarter. I would say the seasonality year-on-year will be different certainly this year than last year because of the rebound effect we had last year in the first semester. It should be true in volume, but the seasonality in terms of benefit from the pricing should be reversed. This means the contrary of the volume because we have the momentum of the second semester on pricing. And in volumes also, but volumes compared to last year, it's more pricing effect in the first semester and the volume effect in the second semester, which to a certain extent summarizes what I've said before. So because of that, it's difficult to be very, very precise so far on the seasonality. We are confident to deliver what we say we would deliver for the full year. We know we start in profitability strongly, slow start in volume, but good pricing power. We see what are the projects which we deliver and when all along the year, organic projects. There is still for us, but also for you, some unknown in terms of macro, it's obvious. Then it's really a sum of things, but we are really confident on the full year. Last year we had also in the second part of the first quarter we had URI also, which means that between January and March we should have a difference. So you see you have plenty of elements. It's difficult to modelize and give you a clear answer, but at the end of the year it will be clear. a very robust year for Arkema again in 2022. What exactly quarter by quarter, what exactly for the full year is too early, but because of all organic projects, what we see from each of the project lines, we should be in good shape. Okay, we stop here. I'm sure you could have 20 more questions, but I really appreciate your attendance and your question, quality of the question. And don't hesitate. Like Alex, if you have some complementary elements you want to get from Beatrice and Peter to call them, and they will welcome you for some more explanation. Okay? Thank you very much.