Arkema S/Adr

Thank you very much. Good morning, everyone. Welcome to our Arkema Q3 2022 results conference call. With me today are Marie-Josée Doncion, our CFO, and the investor relations team. As usual, to support this conference call, we have posted the presentation on our website, which details our third quarter performance and confirmed full year outlook. I will comment the highlights of the quarter before letting Marie-Josée go through the financials in more detail. And otherwise, we will answer your question at the end of the call. We delivered a very solid set of results with a record Q3 EBITDA slightly above last year's level. The cash flow generation was strong. As you know, this performance was achieved in a challenging operating environment with elevated inflation, the energy crisis in Europe, as well as a clear slowdown again in Europe, which amplified by destocking in the construction market impacted our volumes. We expect, obviously, this destocking to continue into Q4. More broadly, the results show clear contrasts depending on which region and which market we are talking about, the bright spot being the US, with Europe being more challenging, and Asia between the two. We'll come back to this in more detail. These results are in line with our expectations and with our confirmed full year guidance of an EBITDA of 2.1 billion euros. Specifically, I would like to mention the following key points of this third quarter. Arkema's EBITDA rose by nearly 5% to 495 million euros. and the EBITDA margin came close to the 17% level without reaching the very high level of the first half. While intermediates were down as expected, this performance was driven by our specialty material with an 8% increase in EBITDA, thanks to a number of factors. Firstly, our pricing power continued across all businesses to offset the ongoing inflationary trends in raw material and energy costs, Although the temporary tightness in PVDF is as expected, inaccurate spreads have normalized in Europe and Asia. Our product mix was positive, as appetite for high-value added applications in areas like clean mobility, lightweighting, 3D printing, and value-based material remain well-oriented. Thirdly, our balanced geographical and end-market exposure served us well. slowed down materially, impacted by destocking in the construction market. But the excellent contribution from the Americas and to a lesser extent Asia, where China nevertheless remains soft, enabled us to offset the weakness in Europe. We have also observed in Q3 a stabilization of raw materials prices, even the first signs of declines. This decline should accelerate in Q4, but the impact on the P&L should take three to six months. Looking briefly at Arkema's segment, Bostik and Advanced Materials delivered solid results. Bostik's EBITDA resisted well, despite half of their sales being exposed to construction, growing by 14% in the quarter, driven by their pricing power, product mix, and of course, integration of Ashland adhesives, confirming the quality of this recent acquisition. We expect Bostik volumes to continue to suffer in the near term, but we should start to see some benefits from lower raw materials as we go into 2023. Like we have seen through this year, advanced materials earnings rose strongly, driven by our innovation and application of how in Megatrans, high-performance polymer with a standout performance with exposure of the innovation to megatrons, despite progressive normalization on PVDF prices, and some exciting product introduction at key customers in areas like sport and mobility. Regarding performance additives, they deliver the resilient performance despite lower volumes, reflecting the macro environment. In cutting solutions, EBITDA was lower than last year, very high level. Conditions in extreme acrylic, which represent, as you know, around one-third of segment sales, were more challenging in Europe. Pricing power remained solid in the downstream, but their volumes were impacted by destocking in construction-related markets. In intermediate, the dynamic in refrigerant gases remained good, while market conditions for acrylic in China as expected, were challenging after a few very tight quarters. Last but not least, I'm sure you noticed it, Arkema generated excellent cash flow this quarter, thanks to the level of EBITDA and our focus on managing working capital. This impacted favorably the balance sheet, the low level of debt being a key asset for Arkema. Beyond the financials, We also continue to work on our long-term ambition this quarter, with a strong emphasis on sustainability, which is at the heart of our development strategy. We published in July our new, more ambitious climate plan, aligned with a 1.5-degree trajectory, including scope-free emissions, and we launched a number of innovative products linked to the circular economy. We also continue to invest in our employees, and we are proud. that Arkema is very well ranked among the world's best employers published by Forbes this year. Our progress in ESG was further recognized with Euronext confirming Arkema present in the CAC 40 ESG and Moody's ESG Solutions Rating Agency improving our overall score, placing Arkema among the best companies in its sector. In terms of organic growth, we are making headway with our various ongoing projects. In our new polyimide 11 plant in Singapore, we have produced the first tons and the startup phase should be completed by year end. We have around six months delay with HF plant with nutrient due to some adjustment, but we confirm the level of contribution for this project next year, more weighty towards the second half. Our other project which will all strengthen our sustainable growth profile are progressing well, and all in all, we confirm an expected EBITDA contribution of 50 to 70 million euros next year. As a matter of fact, more towards the upper end of the range. On the M&A front, in early September, we finalized the acquisition of Polymerose Special F, and we announced earlier this month the divestment of Febex, a small company specialized in phosphorus-based products, that fits within the performance IDT business, but had very limited synergy with the rest of the group. So we continue to prove the portfolio. I will comment on the outlook at the end of the call, so I will now hand it over to Marie-Josée. Thank you for your attention.

Thank you, Thierry. I'll start with revenues. So at the €3 billion sales, up 24% year-on-year, and up 11% organically. The price effect at... plus 19% in the driver, reflecting our pricing policy in the face of continued cost inflation, as well as a better product mix. Group volumes were down close to 8%, mainly as a result of lower activity levels in Europe and the stocking and construction, which impacted primarily Bostik and coatings segment. The currency effect is a positive 9%, driven by a stronger US dollar and Chinese Yuan versus the Euro, The scope effect of plus 3.8% is linked to the integration of Ashland's adhesives business, Permosil in adhesives as well, and Polymeros Especiales in importing solutions. Q3 BDA came at €495 million, with a solid growth in specialty materials, driven in particular by advanced materials. while coating solutions and intermediates were below last year's very high level, as Thierry detailed earlier. I take this opportunity to confirm that Ashland's integration is taking place smoothly and delivers, according to business plan, around €20 million EBITDA per quarter. Recurring EBIT came to €356 million, up 4% relative to last year. Rebid margins stood at 12%, moderating somewhat versus the 14.3% achieved in Q3 2021. Non-recurring items amount to 35 million euros and include 21 million of purchase accounting depreciation and amortization, and 14 million euros, one-off charges, restructuring and legal expenses. Financial results stand at minus 17 million euros in line with last year's level. At 76 million euros, the tax charge reflects higher earnings and their geographic split. Excluding exceptional items, the tax rate stands at 21% of recurring EBIT year-to-date. Consequently, Q3 adjusted net income is similar to last year's level at 260 million euros, which corresponds to 3.5 euros per share. Moving on to cash flow and net debt, As you could see, Q3 recurring cash flow is up strongly to 434 million euros. Cash flow generation benefits from a 138 million euro inflow linked to the evolution of working capital. I think this reflects these results from our good operating discipline and also our continuous monitoring of our credit risk and inventory levels. The working capital ratio on annualized sales stands at 15.5%. versus 12.3% last year, and is below the 16.4% pre-COVID level of end-September 2019. It is worth noting that in the context of increasing selling prices, cost inflation, and higher value inventories, the working capital increased in the nine months by around 500 million euros compared with the end 2021. Total capital expenditure amounted to 152 million euros in the quarter. It encompasses exceptional capex for 21 million euros and recurring capex for 131 million. In Q3, we also recorded a cash outflow of 121 million euros related to portfolio management operations linked mainly with the acquisitions of Permasil in South Africa and Polymeros in Mexico. Net debt at the end of September 22, therefore, amounts to 2.6 billion euros, including 700 million euros of hybrid bonds, a little below the quarter two level, thanks to our strong cash generation. The net debt to last 12-month EBITDA ratio stands at 1.2 times. I thank you for your attention, and we'll now hand it over back to Thierry for the outlook.

Thank you, Marie-José. As you know, there has been a clear change in the economic environment, currently much more pronounced in Europe. Due to the energy crisis, the shutdown in construction, you are well aware of it, which is temporarily amplified by destocking by certain customers. So those elements were anticipated. I think we had the opportunity to talk about it a couple of months ago. It was well factored into our full guidance, which we are confirming. and which will make overall 2022 a very strong year with two different halves, as is now becoming often the case. The implicit first quarter guidance factors in some expected customer destocking, while Q4 EBITDA will be below last year's performance, which was by far our best ever Q4, thanks to significant restocking, it should end up around the Q4 2019 level, But despite a much less favorable economic environment, so structurally it will be better than Q4 2019. We observed that raw material prices have started to decrease reflecting the softer macro. We should benefit at a certain point on most downstream activities. So this is more on upside for Q4 2023, around springtime. I mentioned three to six months to take into account the effect of inventories. Over the coming months, we have two key priorities, working as usual for our two-time horizons, let's say short-term, long-term, to make it simple. Firstly, and among other priorities, we will focus on cash flow. You could see the benefit of this focus on the third quarter, and we will continue and adapt to the changing economic environment with actions on costs and inventories. Secondly, helped by our strong balance sheets that you recognize and our diversification in terms of end market and geographies, we will execute our long-term strategy in all its aspects, pursuing product innovation for sustainability, making further progress on operational excellence, building a less carbon-intensive trajectory, and fully engaging with employees on all those subjects, as well as on continuing to digitalize and modernize our work organization. As you know, we are well on track regarding our 2024 trajectory, and in fact, we are starting to think about a longer-term ambition and targets for the group. I thank you very much for your attention, and we are now together with Marie-Josée, ready to answer your questions. Thank you.