Arkema S/Adr

Ladies and gentlemen, welcome to the Archimedes Alfreo Results Conference call. I will now hand over to Marie-Josée Donzio, CFO. Madame, please go ahead.

Good morning, everyone. Welcome to the webcast conference. I'm actually together with Thierry, so I'll actually hand over to Thierry himself for the call.

Thank you, Marie-Josée, for this introduction. Good morning, everyone. Welcome to Arkema Q2 2022 results conference call. So with me today is Marie-Josée, as you could see, and also Beatrice and Peter from Investor Relations team. As usual, to support this conference call, we have posted the presentation on our website, which details our second quarter performance and revised outlook. We now commence the highlights of the quarter before letting Marie-Josée go through the financials in more detail. And as always, we will answer your question at the end of the call. So in Q2, we clearly delivered an excellent set of results. Actually, this was a record quarter in many respects. The numbers were ahead of our forecast and well above market expectation. This financial performance is really an element of pride for our teams. All the more as the operating environment remains challenging and demanding with many disruptions. As a matter of fact, the high inflation, the Ukraine conflict leading to insecurity of gas supply and supply chain disruptions, as well as volatile conditions in China due to the pandemic and lockdown, all represent great challenges for our teams. As for our peers and many companies, our performance integrates the tightness on a few of our product lines, but above all, reflects the relevance and the right execution of our strategy on specialty materials, our balanced geographic footprint, our differentiation, as well as the strength of our innovation and of our technology to help our customers develop and provide sustainable solutions. Specifically, I would mention the following key points of this second quarter. First, Arkema's EBITDA rose by nearly 50%. to €705 million, breaching the quarterly €700 million mark for the first time and the EBITDA margin improved by over 200 basis points to 22.1%. This excellent performance was in particular driven by firstly our pricing power in all businesses to offset notably the continued and extraordinary inflationary trends in raw materials, energy, and transportation costs. Secondly, the evolving product mix towards high-value added applications in light weighting, clean mobility, 3D printing and electronics, reflecting our strategy of innovative material for a sustainable world and our unique positioning. Third, our balanced geographical exposure which allows us to mitigate the underperformance of one region and take advantage of our strong presence in other regions. And the benefit from the tightness, which we mentioned before, partly sustained by this context of supply chain disruptions. This quarter, we really saw the importance of having a balanced geographic footprint and diversified in markets. Europe slowed down. impacted in particular by construction, which has an end market in this region, represents around 10% of total group sales, and the automotive market remains affected by component shortages. But the overall dynamic stays strong in the U.S. and resilient in Asia. Besides, the diversity of our end market should hold us in good stead in the second half with growth in areas such as sports, oil and gas, new energy, 3D printing, electronics, for example. It's really this combination of high value-added solutions across all those end markets that has made the company robust in the different market conditions which we have experienced in the past several years. Furthermore, each of Arkema's four segments contributed very positively in Q2. BOSIC achieved its first ever triple-digit million euro EBITDA in a quarter. We are very pleased about it. Supported by Ashland's excellent contribution and its ability to maneuver in a challenging environment marked by continued raw material shortages and the slowdown in European construction and do-it-yourself. Advanced materials particularly benefited from our exposure to megatrons and best-in-class innovation in high-performance polymers. Performance additive also delivered a solid performance with a pricing effect of close to 30%. In coating solutions, while conditions in upstream acrylics, which represent around one-third of segment cells, remained favorable, the pricing effect was virtually the same in the downstream and the upstream, demonstrating our pricing power, and the benefit of our innovation in megatrends and attractive niches. And in intermediates, we benefited from good market conditions in refrigerant gases in the U.S. and a good resilience of acrylics in China despite the lockdowns. Q2 results confirm that Arkema is benefiting from its unique positioning specialty material, which makes up 90% of group sales. There are many examples of our drive to develop high-performance and innovative solutions, but I will focus on some specific opportunities in clean mobility where we have exciting initiatives to support future technologies. We recently announced a joint venture with Nippon Shokubai, a long-lasting partner, to accelerate the development of new electrolyte formulations for the next generation of batteries with the aim of significantly increasing batteries' power, stability, cycle life, and recyclability. This project is completely in line with Arkema's strategy to leverage its technical expertise and develop tomorrow's solutions to accelerate the decarbonization of our economy. There are many other similar projects across our specialty material platform working closely with our customers in 3D printing or electronics, for example, to further our innovation, not to mention new business development in lightweighting in sports and automotive. This will enable Arkema to stay at the forefront of industry development in megatrends. Our strategy of sustainable growth is therefore clearly paying off and gaining traction. On the M&A front, we are happy to have announced last week the Bolton acquisition of Polymeros Especiales, a leading player in solvent-free waterborne resins in Mexico, reinforcing the downstream of our North American cutting segment. Meanwhile, the integration of recent acquisitions in Adhesives, Notablisation and Permoseal is going very well. Our rich pipeline of high-return organic impacts projects is progressing nicely, with PVDF expansion in China and France, 1233ZD fluoro-specialties in the US, Sartomer in China, PBACs in France, all starting in the next 18 months, and which will strengthen our sustainable growth profile in attractive markets. We will also soon be starting our two exceptional CAPEX projects focused on decarbonization, namely our polyamide-11 biofactory in Singapore and the HF acid plant in the US. On this important subject, earlier this month, Arkema unveiled a new ambitious climate plan aligned with a 1.5-degree trajectory and using a science-based target approach to reduce emission spanning scope 1, 2, and 3 by 46% by 2030 relative to 2019. It clearly places Arclima among the most ambitious companies within the industrial sector and positions us well to bring our contribution to the key challenge of global warming. This climate plan complements our broader corporate social responsibility initiatives, including our Impact Plus target to increase the share of our solutions that contribute to the UN Sustainable Development Goals, our circular economy initiatives, as well as efforts to improve safety and diversity in the workplace. I will comment on the outlook at the end of the call, so I will now hand it over to Marie-Josée.

Thank you, Thierry. So I'll start with the sales bridge. So at the 3.2 billion euro sales, 23% in organic terms, Price effect at over 28% is the main driver, reflecting increased prices in the face of the very strong inflation, as well as good conditions in the acrylic cycle globally. Group volumes were down 5% compared to last year's elevated levels, impacted by logistics disruptions, China lockdowns, and the slowdown in European construction, while our volumes grew in the U.S., where demand remains well-oriented in most end markets. The currency effect is a positive 8%, driven by a stronger U.S. dollar and a Chinese yuan versus the euro. The scope effect is also positive, plus 1.6%, mainly linked to the integration of Ashland's evasives business, partly offset by the residual impact of the disposal of PMMA in May last year. Quarter 2 EBITDA came in at 705 million euros, with solid growth across all segments. Bostik's EBITDA is up 35% at €111 million. We benefited from the integration of the Ashland Adidas business, which added around €20 million profit this quarter. Adidas' performance reflects our strong discipline to implement price increases to offset cost inflation, as well as a better mix. The EBITDA margin was stable at 14.2%, despite the mechanically diluted impact of price increases on the ratio. Advanced materials EBITDA grew over 50% year-on-year to 282 million euros, with an elevated EBITDA margin of 25.3%. High-performance polymers continued their strong innovation-led momentum, still benefiting from tight conditions in various product lines. performance additives also performed well, demonstrating solid pricing power in this environment. Coating solutions EBITDA rose over 30% year-on-year to 207 million euros, with an EBITDA margin at 21.6%. Market conditions for acrylic monomers, which represent around one-third of the segment sales, continue to be favorable. We benefited from product mix improvement towards higher value-added and more eco-friendly products in the downstream. Photocure resins performed particularly well in markets like electronics, new energies, and 3D printing. Finally, intermediate EBITDA grew 59% thanks to the improved performance of refrigerant gases, especially in the US, and also thanks to the tightness of acrylics in Asia. Recurring EBIT came to €570 million, up 65% relative to last year. Rebate margins stood at the level of 17.9% versus 14.4% in Q2 2021. Non-recurring items amount to €56 million and include €21 million of purchase accounting, depreciation, and amortization relating to the past acquisitions, as well as 35 million euros of one-off charges, restructuring, and legal expenses. Financial results stand at 6 million euros. It's actually much lower than last year as a result of actual gains from loan service awards, which is actually linked to the increase of interest rates. At €106 million, the tax charge is half of last year's level, which at the time included the tax on textual gains on PMA divestments. Excluding exceptional items, the tax rate guidance for the year remains at 21% of recurring EBIT, so no change there. Consequently, Q2 adjusted net income rose strongly to €443 million, which corresponds to €6 per share. Moving on to cash flow and net debt, you see Q2 recurring cash flow amounts to 235 million euros, so broadly in line with last year's figures. This reflects our strong operating performance, partly offset by an increase in working capital linked to higher raw material and selling prices, as well as the usual seasonality in the first half. The working capital ratio on annualized sales stands at 14.9%, versus 11.9 last year, which was marked by the post-COVID rebound and sourcing difficulties. Total capital expenditure amounts to 125 million euros this quarter. This reflects lower exceptional capex of 26 million euros versus 64 million last year, as the two major projects that we have in exceptional basically come into a completion stage. Net death at the end of June 22 therefore amounts to 2.8 billion euros, including 700 million euros of hybrid bonds, which is broadly stable relative to Q1 level. The net death to last 12-month EBDA ratio stands at 1.3 times, and that's about it. Thank you for your attention, and I hand it over to Thierry.

Thank you, Marie-José. So again, we certainly appreciate the quality of the first half financial performance. The year-on-year growth is all the more noteworthy that our first half 2021 EBITDA had grown considerably relative to 2019, which was the last reference point before COVID. Going forward, the teams are fully prepared, if needed, to manage a different working environment in the second half, I'm sure everyone on this call is up to date with the current uncertain macroeconomic climate, so I will not detail it again. The question, and there is no clear and unanimous answer, is what the environment will be like in the second half. Certainly, the next period will be different from the previous one, but different scenarios still remain on the table. So, to be honest, this is what we experienced in 2019, 20, 21, or 22. No year is like this one. I would even say every semester is different. In this context, we remain particularly attentive to market conditions, but we will above all focus on what we do best, which is to execute our strategy, reinforce our self-help, include being strictly managing inventory, fixed costs, be agile, proactive, manage shedding prices to adapt to the inflation context, and continue to prove that whatever the context, we deliver solid results, solid cash, and to outperform our peers, as we have done in the past few years. In this context, while remaining cautious on the development of the environment, Arkema shows its confidence by raising again its annual target and now aims to achieve in 2022, excluding significant disruptions, annual EBITDA growth at content scope of 17% to 22% compared with 2021. This would mean an EBITDA for the year of around 2.1 billion euros. At content scope, second half EBITDA would thus be somewhere midway between the two best second halves achieved by the group so far in 2019 and 2021, highlighting the resilience of the company. Lastly, and this is important, we are well on track to achieve our ambitious 2024 target. We'll continue to implement our strategic roadmap to become a pure specialty materials payer. We have seen that this strategy was really paying off. Leveraging our Bolton M&A policy, industrial capacity expansions, with high return. As a strength of our innovation for sustainable development, we should enable the company to generate 1.5 billion euros of new revenues from 19 to 2030 around our five large R&D platforms. So I thank you very much for your attention. We try to be rather short, but up to the point. And we are now together with Marie-Josée ready to answer your questions.

Thank you, ladies and gentlemen. If you wish to ask a question, please press 01 on your telephone keypad. First question from Emmanuel Matou from OdoBHF. Sir, please go ahead.

Good morning, Thierry and Marie-José. And first, congrats for your impressive first half. Now, if I'm looking at your guidance for 2022, your EBITDA guidance, it implies a decline in H2. meaning a disruption compared to H1, which was fast growing. I know you used to be cautious, but have you seen the situation deteriorate significantly over the last few weeks? Could you notably give us an idea about how was the month of July? Second, could you remind us to what level Arkema is exposed to energy and what will happen to the company in case of significant discontinuities related to the supply of natural gas in Europe. Are you working on a plan to reduce your exposure to natural gas? And third, what about your pricing power? Do you feel comfortable to further pass on inflation to your customers after several significant pricing crises and at a time demand may slow down? Thank you very much.

Hello Emmanuel, so thank you for your question and for your congratulations. I think all your questions are quite relevant by definition. So first of all, again, it's important to appreciate the moment. I think the first semester was really very strong and it shows that in a given environment, Arkema is really... delivering, compared to other industrial companies, chemical companies, very strong results. We appreciate and for our team this really reflects the quality of the execution of the strategy. Secondly, not only Arkema, but for plenty of other companies, because of the tightness of the condition, H1 compared to the normal course of the business was somewhat exceptional. So when you look H2 versus H1, you need to take that into account. The H2 that we, and you should not forget that the H2 last year was compared to 19, a very significant progression, certainly far beyond the average of the peers. So once all said that, I would say that our guidance for the second semester is placed midway. between the last two record semesters of the company, which means it's quite a very solid guidance. I read the analyses which are published here and there with regard to the macroeconomics, and most of them are bearish. I think that in this context that most of the experts are announcing, the quality and the solidness The guidance shows, on the contrary, quite confidence on our side, but you have also to take into account in a realistic way the context. So I would say solid guidance after a superb first one result. midway between the last two record semesters, but in a context which is certainly not as strong as it was in the first semester. So now what is changing? There is no, like, two-week disruption or something. It's sort of continuity, but that you see as we see. Arkema has not acknowledged that you don't have even yourself. What we see is that the U.S. so far is still solid. that Asia, despite the lockdown in China, is, let's say, neutral plus in terms of growth. I think we still are able to deliver a slight growth, but close to zero, but slightly positive. But in Europe, so is that the stocking? Is that this uncertainty about the gas? Is that the inflation? Is that the war in Ukraine? But it's clear that Europe is construction, automotive, but not necessarily only is slowing down. So we see that in our numbers. So it's certainly a difference between the average of the H1. But again, despite all that, we believe that the guidance we have communicated to you today is an encouraging guidance. Don't forget that our previous guidance for the year was slightly positive. above the previous year, and now we moved to, for the EBITDA, to 17 to 22%. So it's a material increase of the guidance, despite the fact that the view of the expert on the environment is itself getting in the opposite direction. So we should all be pleased about it and while being realistic. With regard to the gas, so nobody knows exactly what is going to happen What can happen on the gas? You know that in Europe it's a big matter. Each state tries to understand what they have to do with solidarity between the states. So with regard to Arkemao, even if we are not a big buyer of gas, but even a small buyer, given the increase of the cost of the gas, it makes material increase in terms of cost. And even a site which is not using a lot of gas can be partially reduced because it has not the whole gas it needs. So we are looking at that in detail. We are making a different backup plan, et cetera. You cannot change the way you use your energy today. I mean, you are not going to move to a co-gen if you don't have it or to move to electricity if you don't have it. And again, the truth of today is not necessarily the truth of tomorrow. So we have... We should be careful not extrapolating the current situation for the next 10 years. So what we do is that we really, because we have strong experts in the company, we try to see, depending on the scenario, what we should do to mitigate. But I would say all chemical companies are doing that. So after that, I think we have, in terms of track record, a good track record to be agile and find solutions for what is in front of us. But clearly for Europe, The energy, and it's not only the gas, also the electricity, because it goes together to a certain extent, is certainly an important matter for the next two semesters. On the pricing power, I think we have done well. I remember it was a big question for all of you when we started the year, and even last year, is Arkema going to be able to show pricing power, et cetera, et cetera. And I think we have proven our ability. So now the raw material costs, some are increasing, some are decreasing, but overall we are more at the same top. So I think now the question is different. I think we have a context which is the same for everyone. We have a strong position as we demonstrated, and we are confident our ability to at least offset the raw material costs as we have been doing in the past semesters.

That's very useful.

Thank you.

Thank you. Next question from Laurent Fabre from BNP Paribas.

Hi, good morning all. I've got two questions on HPP please. The first one is can you remind us roughly speaking how much of HPP goes in autos globally? And the second question is regarding I guess pricing of the different polymers. So we've got new capacity coming from you on polymer 11, from one of your peers on polymer 12, from another peer on PVDF, very significant additions in the three cases. If there's no significant reduction in demand from here, basically what do you think can happen to pricing in those, roughly speaking, in those three polymers? And how quickly would you expect prices to normalize even those supply additions? Thank you.

So we, as you know, with auto, we communicate more on the group, which is 5-6% of the group says. For HPP, it's double digit, but more in the low tens, a little bit, if you exclude batteries, so more on the traditional auto, then batteries will increase it, but it's a different dynamic, I would say. So certainly O2 is declining for HPP segment, but in fact since we are limited in terms of capacity today, it does not impact Arkema. What we are doing, and it's important for your second question, and since now many years, is that really working on... high-value products, differentiated acquisition, because we know that in this kind of high-performance polymer, you can have some addition of capacity. It's important to continue to be positioned on the high end of the range and to differentiate yourself to protect your pricing power. Now, once said that, we have enjoyed, as many high-performance polymers, a very strong period recently, a little bit atypical in the In the H1, there will be certainly in the battery segment more availability because it took some time for all suppliers to adapt to the strong and exponential growth of the market. So it will weigh by definition on this pricing, but will stay with good pricing, but not as high as it has been in the past. With regard to polyamide 11, as I think I've said many times, we are the marketer. So we make sure that the ramp-up is at the speed which is necessary. And I think, you know, we have been really, for us, the fact that we have only one site, each time you have a turnaround or a technical issue, it's a challenge for the company. So the fact you have a second side will really help in terms of operation, in terms of working capital, in terms of profitability, even if we decide to have a ramp-up, which is really on five or six years. But we'll make sure that the ramp-up is the one which is needed in order to protect the pricing power. With regard to PN2, it's a little bit different because we are... more players you have two players which are expanding so there will be some pressure on the pricing but again it's in general terms it's part of our strategy to focus on the differentiated products now compared to each one it's clear that you will have a pricing which will be less strong as it has been in the past but H1 was again atypical.

Thank you.

Thank you. And next question from Martin Nios from Bank of America. Sir, please go ahead.

Hey, good morning, everyone. It's Matthew. A couple of questions really about MIX. Zarkim has been changing a lot over time through its M&A and R&D efforts. And there's obviously a temptation to look at these numbers and 30% price increases is just reflecting temporary market tightness. So firstly on adhesive, apologies if my math's wrong, but if we strip out acquisitions, it looks like your volumes are roughly back to 2019 levels. I know you've been putting a lot of effort into developing new adhesive products. How would you expect that to show itself through the numbers going forward? Should we see an acceleration in volumes at some point, or is it more about the mix and margin trajectory of the business and getting closer towards your midterm target? And then the other question about mix, maybe it's a follow-on to what Lauren was asking about materials, where you are running above your long targets here, and your introductory remarks mentioned several new high-return projects that will be ramping up over the next year or so. Would you be confident enough to say you've got some upside to those mid-term margin targets as these capacities come online? Or is your answer to Laurent about atypical pricing essentially a recognition that current margins will be hard to sustain? Thank you.

Okay. Thank you very much for your question, Mathieu. So on the first question with regard to the ADZ, the strategy of the ADZ will continue to be a combination of organic growth and evolution of the mix. And you are right to say that in the past, we have sometimes arbitrate, being arbitrating against volume in order to focus more on high-margin products. So because of that, you had a a fair increase of the profitability of BOSIC, but on the other hand, you add organic volumes that you could consider to be a bit disappointing. Going forward, the idea is really to deliver GDP in ADZ. There is no doubt about that. This is our strategy, but at the same time, to continue to have an evolution of the mix which is favorable. Normally, what we target in the mix is something structural. It's not something you build on one year. You build it on several years. And with the addition of all the efforts quarter by quarter and year by year, you can make a difference on the long run. Normally, if we are able to add one point of mix, one percent of revenues every year coming from the mix, it would be quite a good result. And to add to that, our ability to grow at the GDP. So this is what we have in mind. With regard, maybe I can make a comment on the margin for Bustic. You can get the impression that in percentage are a little bit low, but in fact, they're quite resilient because there is a derivative impact linked to the high raw material. We have increased price in Bustic by more than 15%. So for the same value, you have less margin. But I would say it's a reserve because at a certain point for material we normalize. It's really a reserve of EBITDA margin for the coming year. So I think BOSTIC really delivers step-by-step even if it takes years. It's a strategy and will be really a super component of Arkema in the coming years. I would like to add to that that Ashland is really getting integrated very well. With regard to the I think the mid-term targets appear a little bit conservative, and I think they are a bit conservative, so we should do a little bit more. Not as today, but a little bit more as we have at least implemented more than what we have We see, for me, 24 now is tomorrow, and I think everybody is, I think, aware that we are really on the very good track for 24. So the question will be at the next capital market day to think of which kind of margin we could deliver for 26, 27. So the next step of Arkema, because we'll continue to grow up in order to be among the best peers in terms of profitability. So, no, I think we are really on good track, but you have to make a difference between what is more, let's say, linked to the tightness of the last two semesters and what is more structural. But on a structural way, we are really doing a good job. This is our feeling.

Thank you, Thierry.

Thank you. Next question from Rob is from Morningstar. So, please go ahead.

Hi, good morning. Thanks for taking my question. Two questions. The first is just on the M&A environment. Can you talk about the current state of the M&A environment? Are companies more willing to sell now? Is the bidding environment less competitive maybe? And then just on the Q2 results and your introductory remarks, you mentioned that they were well above your internal forecast. So I'm just wondering what was the biggest surprise for you Were you surprised that the size of the price increases you were able to push through? Thank you.

So with regard to the M&A environment, I think it will soften, which means in the sense that normally multiples should decrease a little bit, I think, in the coming months. It's a little bit too early. so far, but the market overall is getting softer. The access to money is getting more difficult, especially for private equity. I think it should have an impact on the multiple. So you have seen that recently we have made a small acquisition. It was a small one for Coding Solutions, actually the first one since a long time. But I think they deserve it with the quality of the results. I think that we'll continue to make a small bolt-on and to target high quality. So because of that, we'll stay with multiples which are not small, but the market should be more favorable for the buyers in the coming months, is my feeling. At the same time, if we have a good opportunity to try to get them, but not feel any urgency to make any significant move in the coming months. With regard for the results, I think first of all, Asia was a bit better than expected because we saw that because of the lockdown, we could have the risk to have a negative growth in Asia. It has not been the case. Maybe it's due to our positioning, so we benefit from it. We also benefited from our positioning regarding the ethics. We are very strong in the U.S. and in China. And it was a result of our strategy, but Europe was weak, so the euro went weaker, but we benefited from a strong ethics, so it helped. It was certainly... supporting factor. We had good news in terms of megatrend development from innovation. We were quicker than expected. So we had some very strong momentum for new business development that we benefited from it. So I would say compared to our initial forecast, it was not one element. I would say that most of the elements were green at the same time. So, and because of that, we deliver the super performance.

Okay, it's very helpful. Thank you very much.

Thank you. Next question from Jadip Pandya from OneSield Research.

Go ahead. Thanks. A few questions. Firstly, if I, Siri, if you talk about PVDF, and I don't want to talk about pricing, but technology, uh there is a theory in china that companies are working on reducing pvdf intensity in the battery in the outer years with blending it with other materials like polyacrylic acid for instance are you guys working on similar solutions for the next generation pvdf binders for the cathode binders that's my first question the second question is really sorry to focus on q2 now but If you look at the HPP sales, sequentially they are relatively stable. And I'm assuming now that additives must have had a good result given the ethylene oxide chain is doing very well. So was there anything holding you back or are you just sold out and therefore it's difficult to grow until your sort of next capacities come in? That's my second question. And then the third question really is around Ashland. Could you just remind us, has Ashland suffered from margins because of very strong acrylic acid price increases? And therefore, there's a huge opportunity for our team to see margin improvement in Ashland, A, because you're backward integrated, and B, because acrylic acid prices are normalizing now. Thanks a lot.

Okay. Thank you, JD. So on your question, so first of all, on batteries, and I know there are a lot of notes on the battery market and use all the time, and it will continue. So for me, it's the start of the journey. This means that even if it's now material for Arkema as a contributor, we consider that the picture in 2030 will be very different from the one today, which means that technology will evolve by definition of the battery, of the material for battery, And you need to be at the forefront. So I don't want to disclose any technology development of Arkema. I will not do it for obvious reasons. But clearly, I think we are increasing every quarter our teams in order to answer the future challenges, what is happening on the market. We are confident on our positioning, on our technology. We are multi-technology, as you know. But we don't want to comment too much So there will be many stories, and you have seen ourselves also, for example, recently announcing this joint venture with Nippon Shukubai on electronics, where not necessarily our people were expecting us, which means that we are really moving with a great speed on that. And you know that the 1.5 billion euros of new development that we have announced for 2030 versus 2019, battery is at least 50% of it now. So, which means that we not do it only with the technology of today and we are working on different things. So we are attentive to what is happening in China by definition, but also we are also a Chinese player. So it's a very interesting, very dynamic. There are challenges, there are opportunities. Nothing is granted. It's the beauty of the world of today is that you cannot just rest yourself on what you have been doing, but we are working, I can tell you, with... high motivation and speed and a strong technology breadth. With regard to the HPP cells, this year we have no volume available. We have not added any capacity and all our capacity were tight. So the new capacity which are coming for HPP are twofold. You will get for PVDF new reactors in China and in France, and for polyamide, as you know, we have the Singapore plant, so it should give us the possibility of finally starting organic growth again. But we have been a little bit victim of our strong new business development of the past years, and we have been sold out this year, so we work more on the mix. But next year, we'll start to grow again in terms of volume. With regard to Ashland, first of all, they have done a good job in terms of pricing. And since they have been embarked inside the company, you know, in our company, something that we follow very strictly, and they have played the game. So I think now they are at par between the raw material increase they got And the pricing, they have passed. The new pricing, they have passed. So we are pleased about it. Overall, the profitability of Ashland, and they are mostly in the U.S., as you know, has been really in line with the business plan, which was quite demanding. So we are also pleased about it. With regard to the acrylic acid, thank you for mentioning that to have the backwards integration on acrylic can be a positive. but clearly on the pressure sensitive is part of the equity story and will benefit at double level for the equity solution segment, which is now the supplier of Ashland. And for Ashland, it's certainly one element which will help us to accelerate in this pressure sensitive adhesive business that we bought from Ashland.

Thanks, and well done to Marie-José on great free cash flow as well.

Thank you, Teddy. Thank you very much. Thank you.

Thank you. Next question from Mutasha Shalderi from... Sir, please go ahead. Hi.

Hi. Thank you for taking my questions. Just a couple, please. There's a strong uplift in the intermediates. Are you able to help us understand how much of that is coming from flora gases in terms of pricing? Just trying to disaggregate the performance there a little bit and trying to understand if that carries on for the rest of the year. And the second question is around the coating solutions volumes. It was slightly negative in the second quarter. I think some of your customers are talking about significant destocking across the supply chain. So have you seen any early indications of that, either in June or July, where the volumes within coating solutions are starting to taper off? Any comments around the demand picture there would be helpful. Thank you.

So I'll start with the second question. Yes, in Europe, we got destocking in the paint business. So we know that. We knew that. I think they have managed well in the coating solution segment when you look at their profitability in the second quarter, which means that we have a strong positioning, high value application, and that between the, we have also a good diversification of a good diversification of the application. It's not anymore mostly paint. It's also electronic. It's also industrial coatings. It's also 3D, et cetera, et cetera. So this means that, in fact, we have offset the negative volume by some high-value applications that we are developing. But, yes, you're right. We got less volume because of the European performance, which has been affected by destocking. And overall, the Europe macroeconomics, so nothing to see with Arkema, is softening. It's clear. I'm sure you hear that from other companies. We are not isolated in our world, so you should hear it from other guys. With regard to pricing, sorry, we do not, as you know, detail pricing between acrylics and fluorogases, but they both contributed positively to the price in Q2. In Q2, clearly, as maybe you mentioned, of course, fluorogases benefit from the positive seasonality. So Q2 is always the better quarter for fluorogas because the distributors are stocking and for the semester, and the second semester is normally a weaker one, even significantly weaker in the last quarter, a little bit weaker in the Q3, and this is why in Q2, fluorogas really was very bright, and we are also happy to see that fluorogas, for structural reasons, is getting better results, and They seem to go well, and we appreciate it. We don't need it more than that, but we have it, so we appreciate it. Thank you.

Thank you very much. Thank you. Next question from Kenny Chen from . Please go ahead.

Hello. Thank you for the chance to ask questions. So just follow on the volume question. So in particular, I want to check, given your high exposure to construction and market, do you see any demand volume coming off in debt and market? So that's my first question. And second, I just want to see your plan on your CapEx spending, especially given the current macro environment. Do you have any changing plan in how you want to spend your CapEx for the remainder of the year or going forward? Thank you.

So on the first question, I would like first to mention, because I read a few notes from an analyst on our exposure to construction, I would like to restate the truth. When we say that the construction market is weaker, at least for what we see, it's Europe, it's not the rest of the world. So which means that it's around 10% of the group sales. And actually, we are also a diversified company, so this means we have construction, but not more than what is represented in the GDP. So we represent the GDP overall, but we have plenty of other markets. Some of them are still very supportive. So it was important to remind you of that, because sometimes we read notes where suddenly Arkema becomes a construction company. It's not at all the case. We have already communicated on the fact that we were diversified on the end market and that our new business development between our growth were supported by the megatrend, which means these businesses where the growth were superior to their underlying growth because of some extraordinary opportunities coming from this megatrend. So it's important to know that. So have in mind the construction which is today weaker in for Arkema is a European construction and it's 10% of sales. One says that. Currently it's weak. They destock and but it's an element among others. With regard to the CAPEX plan, I think we'll be in continuity. In fact, Arkema is never a company which with CAPEX adapt with brutality. This means that when the times are very good, we stay on what we say, we don't do more. And when the macroeconomy is, let's say, more challenging, we try to stay with what we said. And it has always been a differentiated and positive factor for Arkema, which means that each time the macro has accelerated, we have been able to come with the right capex and accelerate the profitability of the company. And this is why we are so profitable today, because of our, I think, relevant capex strategy. So now with regard to capex, We communicated on the fact that we had 5.5% recurring capex so far, and we say we started to announce, I can confirm it today for the one for which is not completely clear. We say that given the opportunities we have in Megatrend, which will be there, I can tell you, for the second semester, for 23, for 24, for 25, for 20, 30, because of these opportunities in Megatrend, in a selective way, We will increase a little bit of CAPEX, and also we spend a bit more for the decarbonization. You could see that we have a new climate plant based on the Paris Agreement. We are not so many chemical companies, which are based on the Paris Agreement of 1.5 degrees for scope 1, 2, and 3. And because of that, we need to increase a little bit of CAPEX plants. So we'll be at 6%. versus 5.5%. But since at the same time, the EBITDA margin of the company, as it was mentioned before, I think by Matthew, is better, and maybe a little bit of that will stay for some time. I mean, it's quite okay. But have in mind that the 6% is a new norm for Arkema.

Okay, thank you for your insights.

Thank you. Next question from Andreas Einer from CIFO. Please go ahead.

Yes, thanks. Only two questions left on my end. It is on the advanced material segment in the first place. The volume was down 4%, but if I look on the two business lines, then I would assume that high-performance polymers were working at capacity, so at least on last year's level, which then would bring the volume performance editors down quite a bit. Looking on the end markets and the businesses, I'm a little bit surprised why it might be down that much. Maybe you can give some highlights on this. And secondly, on the cash flow, indeed, you manage net working capital very well. Going into the second half is lower activity and probably restocking not only in the industry, but also on yourself and having in mind to see in a pattern any flavor you could give, how much of net working capital you can release in the second half. Thanks.

Okay, so Marie-Josée will answer the second question. With regard to your question on advanced materials volume, you're right to say they are down 4%. In fact, it's coming from the fact that even if we are sold out in terms of capacity, sometimes you cannot use the capacity just because you have some specific elements. And for example, lockdown in China, it was clearly an impact. in Q2, and we have in Asia and China notably, we have a very solid positioning, so we were impacted by that. Also, we have still some logistic disruption. This means that the product is ready to be shipped, but you can simply not ship, or the product is not arriving at the right time. So you have some logistic constraints which are still existing, maybe not as strong as they were, but they are still there. And then you have in Europe, on certain markets, some slowdown, as we mentioned, and it impacted also advanced materials. So overall, you're right to say that since we are sold out, we should be more stable than negative. But since some elements arrive during the quarter, they have mechanically a negative impact. But overall, I think on the volume, we have some slight negative, but we resisted very well, and I'm very pleased about the performance in the U.S. and in Asia, because the U.S. was significantly up, and Asia was really very resilient. Now Europe is Europe. On the working capital, Marie-Claude?

So, it is correct, actually, our field analytics, releases a little bit of working capital in the second half. If you compare what's happened in the first half versus December last year, basically the increase in working capital is 600 million. So I would expect actually some of that to come back in the second half, so depending on the trend of the economy. Of course, the size of the group continues to grow, so it's fair to say that a certain percentage would be remaining working capital still at the end of the year, but definitely I would expect a portion, a significant portion of the $600 million to reverse, definitely.

Thanks. Other questions? Thank you.

Thank you. Next question from Martin Rudiger from Cape Rochevreux. Please go ahead.

Thanks. Just two left from my side. On energy, your consumption of energy last year was 7.4 million megawatt hours. Can you disclose the energy costs in Euro terms last year and what you expect for this year? And the second topic, I read somewhere in your press release about intermediates that besides this very favorable situation in flourogases in the US and acrylics in China, you mentioned also that you have implemented initiatives which have contributed to earnings growth. What do you mean with the word initiatives? Thanks.

Okay, so with regard, first of all, we don't know what will be the price in the second semester, so there is still uncertainty. What we can say is that overall we had about 5% of our energy cost, of our total variable cost so far. It was in 21. And now it's more 7%. So this means that, in fact, our energy cost has increased more in percentage and our variable cost, but it's still quite a minority part of our total variable cost. So when we look at our pricing power and our ability, I mean, to offset all this, energy is a factor, but is one minority factor among raw material, transportation, logistics, and all this cost. So this is why, in fact, we deliver our kind of performance. we have a pricing power which allows us to assess the different components of the variable cost, energy being one of the two. But it's clear that this 2% is significant, but since we have so much of the raw material overall, it's only an element among other, as in the normal world, it would be quite a material element. It's a paradox of the world of today, but we live with it and I think we do a good job of passing that in order to be able to maintain our profitability. On intermediate? On intermediate, so first of all, as you know, we have two kinds of You have the one in Florent and the one in Acryx. In Acryx, we agree a lot on competitiveness, energy consumption, efficiency of the plants. You need to be quite efficient in terms of raw material supply. So we had a lot of initiatives. in order to make our cost positioning better. We have also continued to work a lot in terms of customer intimacy in order to reinforce the customer base. So this, we see the benefit today. So we are far stronger in China, in Acryx, compared to who we were when we bought these assets. And you can see that, so there is an element of market cycle also, but you can also see that in the current... in the current result, and it is structural. With regard to refrigerants, it's a little bit different because it's more coming our ability to manage with legislation, where you need a lot of initiatives that I could not all describe, including your positioning on the new generation, how you transition, how you manage your quotas, and we have done a lot of job, and again, a part of the result is coming from this So it's not just following the evolution of the cycle, but it's really making sure, especially for refrigerant, that the base we have is more and more resilient. And I think this is the case compared to the old days. I think we have a base which is far more resilient than it has been in the old time.

Thanks, Thierry. I have a follow-up question on the gas sourcing in Europe. Is Uniper a supplier of Akema?

Which supplier are you talking about?

Uniper. It's a utility company, very big in gas distribution, and they get their gas from Russia.

We're not coming, but I mean, the supplier of gas in France, because it's mostly France for us, it's nearly France, you know them, so, you know, they are the big names, you know them. Thanks.

Thank you. Next question from Adrian Tamagno from Derender.

Hello, good morning. I have two, please. Good morning. On the 400 million euro capex for the climate plan, is it fair to consider the majority of that as efficiency improvement and no capacity addition? And the second one is, What is your appetite for share buybacks now considering the leverage of the company as of Q2 and with the likelihood of an improved cash flow conversion going forward?

Thank you. Okay. So on the first one, in fact, it's on 10 years, so it's about 40 million per year for the CapEx for Climate plan and this efficiency improvement only. It's really how we can reduce our carbon emissions because of the investment we are making. And I think we have good ideas and a good expertise on that. Nothing to see with capacity addition. Now, when we announce our climate plan, where you see a further significant reduction of CO2 emission, it's net of our growth. So this is why it's quite demanding and ambitious. This is because it takes into account the growth which is, I think, is part of the discussion we had before on the different end markets. We are ambitious in terms of organic growth. We add this organic growth in our CO2 emission, and we deduct all this efficiency improvement, and net of that, we have our new climate plant aligned with the 1.5 degrees, and this CAPEX will certainly help us. Marie-Josée, I'm going to share my back.

So, of course, the stock market is quite depressed right now, but at the same time, you've seen actually the tension on the financial markets, the increase in interest rates, et cetera. So, for us, right now, we've just completed the purchase of Ashland. Let's say I'm looking at the situation, but so far, basically, it's more an observation standpoint than anything having been decided yet. So... Let's see how the economic situation evolves before we start spending cash on this.

Thank you. Thank you. I will take the last question. Thank you for the moment.

We have no more questions.

Okay. So we would like to wish you a nice summer. Thank you for your question. Again, very pleased to have this opportunity to share our strong results of the first semester and the solid guidance that we have seen described. So again, thank you for your question, and take some rest before we start again for the fall. Thank you.

Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.