Arkema S/Adr

Ladies and gentlemen, welcome to the Arkema First Quarter Results Conference Call. I now hand over to Mr. Olivier Lassio. Sir, please go ahead.

Thank you very much. Good morning, everyone. Welcome to Arkema's Q1 2022 Results Conference Call. With me today are Marie-Josée Doncion, our CFO, and the Investor Relations Team. To support this conference call, we have posted on our website a set of slides which detail our first quarter performance and updated outlook. I will quickly comment the highlights of this quarter before letting Marie-Josée run through the financials in more detail. And as always, we will answer your questions at the end of the call. We were actually very pleased with the Q&A results. They were very strong indeed, ahead of our forecast and well ahead of market expectations. Despite, as you know, and this is not specific to Arkema, a challenging operating environment marked by high inflation, geopolitical events, and the resurgence of COVID in China, which our teams managed to navigate well. During the quarter, Arkema certainly confirmed the benefits of its unique positioning in specialty materials, which now represent over 90% of group sales, supported by the exponential need for high-performance materials and the accelerating shift toward more sustainable solutions. Since we last spoke, we have also taken a decisive step to strengthen our adhesives platform with the finalization of Ashen's performance adhesives business as of 1st of March. We are excited to have welcome assurance teams within Arkema and we are very happy with the business initial contribution which confirms the huge growth potential that lies ahead. More specifically now, I would mention the following key points. First, Arkema's EBITDA rose by 73% to 619 million euros, the first time ever that we have achieved a quarterly EBITDA above 600 million and, as a matter of fact, also above 500 million euros. The EBITDA margin improved by over 500 basis points to 21.4 percent, keeping in mind that the prior year quarter was somewhat impacted in the U.S. by the euro storm. All segments, and this is quite important, contributed to the strong group performance. Specialty materials EBITDA rose by more than 80% thanks to two key drivers. Firstly, our pricing power and proactive pricing policy across all business lines to offset the very significant inflation in raw materials, energy, and transportation costs. Secondly, an improved product mix reflecting the execution of our strategy and the increasing development of high-value added applications linked to sustainable megatrends, such as in light weighting, clean mobility, 3D printing, electronics, and eco-friendly paints, demonstrating the strength of our innovation. We can also mention as a positive element the contribution of the more favorable market conditions in upstream accretes. Another reason for satisfaction, and it's more qualitative but as important, are the synergies between the three specialty material segments. They are increasingly important, both from an innovation viewpoint and a commercial aspect, as we continue to present our One Arkema strategy and cross-business product offering to major customers across the key end market I just mentioned. As I underlined previously, during this first quarter, all segments achieved strong performances. Bostik, and this is what we expect from Bostik, delivered a solid result despite some key raw materials missing and the high inflationary environment. Advanced materials were boosted by our new business developments linked to sustainable megatrends. Coating solution was very strong. both on the upstream acrylics, which represent around one-third of the segment cells, and the downstream, which represent two-thirds. And intermediates managed to more than offset the disposal of PMMA. During the quarter, we also had some exciting highlights in sustainability and CSR, including our partnership with Monroe, to develop solutions for next generation batteries, the completion of the first ever 100% recyclable wind turbine blade, and celebrating the fifth year of the Pragati Sustainable Castor Crop Program in India. On the strategy front, we are getting closer to reaching our ambition of becoming a pure specialty materials player by 2024. Over the next few months, we will be starting our two exceptional CAPEX projects focused on decarbonization, namely our P11 biofactory in Singapore and the hydrofluoric acid plant with Nutrien in the U.S. Over the next two years, we have a rich pipeline of high-return projects that should strongly contribute to our earnings, such as PVDF expansion in China and France, 1233 ZE, near-zero emission fuel specialty in the U.S., Sartomer in China, PIBAC in France, all serving very attractive markets. This will boost our ability to support customers' growing demand in high-performance polymers. On the M&A front, we expect to announce a couple of bolt-on, small bolt-on, but bolt-on this year to strengthen our specialty materials. Despite the integration of Ashland, our balance sheet remains strong at 1.4 times last 12 months EBITDA, which means this gives us ample flexibility to implement our growth strategy. After this introduction and before commenting the outlook at the end of the call, I will now hand it over to Marie-Josée.

Thank you, Thierry. I will start with the sales bridge. At 2.9 billion euros, sales are up 30% in organic terms. Volumes were down 2 percent compared to last year's elevated levels, impacted by logistics disruptions and raw material shortages, in particular in adhesives. But overall demand remains very well-oriented, with some weaknesses in automobile and construction in Europe. The price effect at plus 31 percent was significant, reflecting the pass-through of very strong input cost inflation. We also benefited from the product mixed improvements, as well as favorable conditions in upstream acrylics across all regions. From a regional perspective, we see positive trends in the U.S., while Europe is slowing down and Asia was impacted toward the end of the quarter by COVID-related lockdowns in China. The scope effect is negative this quarter, circa minus 5%. as the impact of the disposal of PMMA was only partly offset by Ashland's one-month contribution. The currency effect is a positive 5% on the opposite direction, driven by a stronger dollar versus euro. Q1 EBDA came in at 619 million euros, with growth across all business segments. Bostik CBDA is at 5%. at 90 million euros. This is a good performance in the context of lost volumes from logistics and procurement disruptions and reflects the benefits of our active price increase policy to offset strong inflation as well as limited M&A contribution. The EBITDA margin at 13.4% was impacted by the mechanically dilutive effect of price increases. In addition, we will of course benefit from the integration of Ashland adhesives in coming quarters. Advanced materials EBDA nearly doubled year on year to 274 million euros, with an EBDA margin above 22%. High performance polymers grew strongly thanks to a very positive product mix linked to their positioning on sustainable megatrends. As you know, our innovation enables higher value-added solutions, meaning that we are generating a greater amount of EBDA per unit produced. In this segment, performance additives also perform well, helped by the oil and gas market gradual recovery. EBDA of coating solutions stood at 192 million euros versus the low base of 78 million last which, as a reminder, was impacted by winter storm Uri in the U.S. in the first quarter of 2021. Both our upstream and downstream activities grew sharply thanks to strong pricing, but also higher volumes on the back of good demand in decorative paints in the U.S. in particular. EBITDA margin was at a high level of 22.3%, driven by tight conditions in the upstream and a better product mix for downstream activities. Demand for higher value-added products is growing, including UV curing, powder resins, solutions for electronics, and 3D printing. Finally, intermediate CBDA grew 25% thanks to improved market conditions in fluorogases, mainly in the U.S., and acrylics in Asia. more than offsetting the negative scope effect linked to the disposal of PMMA, which was finalized in May 2021. Please note that as from first quarter 22, we have included the upstream of the PVDF within the advanced material segment in the high-performance polymers business line instead of the intermediate segment, so in line with the strategy we announced in the 2020 capsule market day. Continuing on the P&L, depreciation and amortization stood at 131 million euros, which leads to a recurring EBIT of 488 million, more than double last year's level. Recurring EBIT margin stood at close to 17%, that is 10% in Q1 2021. Non-recurring items amount at 54 million euros. This includes actually PPA depreciation and amortization, one of charges, restructuring, and legal expenses. Financial results stand at minus 8 million euros, benefiting from lower interest rates from the debt we swap in US dollar. At 95 million euros, the tax charge reflects the group's higher results, of course, and is in line with the full-year tax rate guidance of 21% of recurring EBIT. And consequently, Q1 adjusted net income jumped to 376 million euros, which corresponds to nearly 5 euros per share. Moving on to cash flow and net debt, the first quarter recurring cash flow amounts to 26 million euros. This reflects the cash generated from our operations offset by higher working capital. So indeed, working capital ratio on annualized sales stands at 14%. versus the 12.7% last year and 16.5% in Q1 2020. The working capital level is linked to a higher raw material and selling prices, as well as a usual seasonality of the first month of the year. The current level, I would say, is more in line with what we consider our normative level. Total capital expenditure amounted to 112 million euros in the quarter, reflecting decreasing exceptional capex of 40 million euros versus the 53 million last year since we are now entering the final stages in construction of the polyamide 11 plant in Singapore and the nutrient project in the U.S. In 22, we still expect the exceptional CAPEX envelope to be finalized with an amount of around 130 million euros and recurring CAPEX to come to around 5.5 percent of sales. This quarter, we also had an outflow of around 1.5 billion euros linked to the payment for the acquisition of Ashland's performance adhesives. And this leads us to have a net debt at the end of March 2022 amounting to 2.7 billion euros, including 700 million euros of hybrid bonds. The net debt to last month's multi-business ratio stands at 1.4 times as Thierry mentioned. I thank you very much for your attention, and now I'll hand it over to Thierry for the outlook.