Arkema S/Adr

Thank you for holding and welcome to Arkema's first quarter 2023 results presentation. For your information, this call is being recorded. It will take place in a listen-only mode and you will have the opportunity to ask questions after the presentation by pressing star and one on your telephone keypad. I will now hand you over to Thierry Le Henaf, Chairman and CEO. Sir, please go ahead.

Thank you very much. Good morning, everybody, and welcome to Arkema's Q1 2023 results conference call. Joining me today are Marie-Josée Doncion, our CFO, and the investor relations team. As always, to support this conference call, we have posted a set of slides, which are available on our website. I will comment the highlights of the quarter before letting Marie-Josée go through the financials, and at the end of the presentation, we'll be available, as usual, to answer your questions. After, as you know, an exceptional performance in the first half of last year, driven by AfriMac Relics and PVDF in China, we knew Q1 2023 would come back to more normalized levels, especially given the challenging economic environment marked by destocking and weaker demand on specific end markets, notably constructions. In this context, we delivered a solid set of results. Of course, clearly lower relative to last year, but still comparable to 2021 and pre-COVID levels, despite weak volumes. Here are some key points I would like to highlight. We delivered an EBITDA of €367 million, broadly in line with our expectations, may be even a bit better in adhesives and performance additives and consistent with our full-year EBITDA guidance. This performance includes a reversal of last year's overrunning in PVDF and octane acrylics, mainly in the first half, which was mainly in the first half last year. It also reflects the more difficult macroeconomic conditions versus Q1 2022, which materialize in most end markets except for automotive, aeronautics and oil and gas, but which combined only represent a relatively low share of ourselves. Our volumes were lower year-on-year due to poor demand in Europe, slowdown in construction in the U.S., and significant stocking in the battery chain, temporary but significant in China, which impacted PVDF. Extrusion PVDF volumes in China are pretty much in line with last year's levels for specialty market materials. against a rather low comparison base. Looking briefly at the performance of our specialty material segments, Adhesive had a solid quarter with a resilient EBITDA margin, thanks to our mix toward more value-added solutions, our pricing actions, and the benefit from Ashland, which continues to perform well. In advanced material, we had the headwind from PVDF, and also some impact from the strike in France, which overshadowed some good new business developments, always aligned with mega-France, and also a solid U.S. business in high-performance polymer. Performance additives deliver, frankly, a very resilient performance, despite some lower volumes. In coatings, we benefit from solid pricing in the downstream, in the context of broad stocking, but as expected, we suffered from last year's elevated comparison base in the F3 business. Beyond these financials with sustainability at the core of our strategy, we are very happy to announce that SBTI approved our ambitious next-term climate plan on a 1.5-degree trajectory across the whole value chain. As you saw in the press release today, given the strength of our results in our decarbonization path in the past couple of years, we further raised our commitment and will reduce greenhouse gas emissions by 2030 for both Scopes 1 plus 2 and Scopes 3, even further than we had planned. So I am really proud of our team's work in this area and very happy to be part of the few companies with an SBTI-approved 1.5-degree seduce near-term trajectory. During the quarter, we also continue to sharpen our portfolio with the divestment of FEBEX at the start of the year, and our M&A strategy will continue this year to further strengthen our specialty materials. As always, we'll be patient and make sure acquisitions are a good strategic fit and offer significant synergy potential. On the organic project front, which are important as they will impact the second semester positively, we are entering the final stages of the start-up for our new bio-based polyimide 11 plant in Singapore, which should contribute nicely in the second half of the year. Over the past 15 years, although we enjoyed on this line very strong EBITDA growth, thanks to the positive evolution of the mix, our volume growth was really pretty much constrained by our plant's capacity. So the startup of this new plant is really a breath of fresh air, and we are really excited about its potential with numerous opportunities at a time where carbon footprint reduction is increasingly a key factor for our customers. We are also making good progress. We are very pleased with it. In our other organic APEX projects, including Nutrien, which will start shortly, PBACs, PVDF in France, and Sartomer in China. So this was my summary, and I'd like to hand it over to Marie-Josée for a more in-depth look at the financials before we discuss the outlook at the end of the presentation.

Thank you, Thierry. As usual, I'll start with the sales bridge. So at 2.5 billion euros, sales decreased by nearly 13% year-on-year. Volumes were down 18%, reflecting notably the less favorable demand conditions in upstream acrylics and PVDF, as well as the soft demand in construction and coatings applications. The global price effect came in at plus 2.7%, reflecting the resilience of our pricing in adhesives, performance additives, and coating additives. The scope effect is positive. at plus 2.2% thanks to the two-month additional contribution of Ashland Acquisition. And the currency effect is limited at 0.8% and may become negative as the US dollar continues to devalue versus the euro. Q1 EBD at group level came in at 367 million euros. Detailing it by segment, we have Bostik, who achieved an EBITDA of 93 million euros, up 3%. Volumes remained on the low side in construction-related markets, but our pricing stood firm and we benefited from tight cost management. The EBITDA margin was stable at 13.3% despite lower volumes and mechanically diluted impacts of price increases. since actually we benefited from resilient engineering-adhesive applications and appreciative M&A. Advanced material DBDAs stood at €160 million. We saw contrasting trends here, with performance additives being very much in line with last year. However, the lower contribution from PBDF in China, which we had clearly identified since last year, and some disruption from French strikes, weighted on the segment's profitability. EBITDA in coating solutions came in at 94 million euros with margin above 14%. While much lower than last year's exceptionally high level when our upstream activities enjoyed very tight market conditions, this is actually a good performance in the context of weak demand, especially in construction. We notably managed to hold on to pricing in the downstream, partly reflecting ongoing efforts to position our range of products toward more biobased and eco-friendly solutions. Finally, intermediates EBDA stood at 49 million euros. We had, on the one hand, lower volumes and less favorable market conditions in Asia acrylics, and on the other hand, continued positive pricing dynamics in fluorogacids. Depreciation and amortization stood at €133 million, leading to a recurring EBIT of €234 million and a rebate margin of 9.3%. Non-recurring items amounted to €38 million. They include roughly €30 million of PPA depreciation and amortization. $28 million for one-off charges, restructuring legal expenses, and the startup costs of our Foliamide 11 plant in Singapore. And a net positive of €21 million from the gain of our divestment of FIBEX plans. Financial expenses stand at €19 million on the back of higher interest rates for our US dollar swap debt. And we also... on the cost of the additional 400 million euro bond issued in January. The tax charge at 41 million euros reflects the group's lower results and is in line with our full year tax rate guidance of 21% of recurring EBIT. Consequently, Q1 adjusted net income stood at 162 million euros, which corresponds to 2.17 euros per share. Moving on to cash flow and net debt, Q1 recurring cash flow amounts to 21 million euros negative. It reflects the usual first quarter working capital seasonality. Working capital ratio on annualized sales actually stands at 16.3% versus 14% last year. The higher level being linked to some restocking following the low point of year end 2022. Total capital expenditure amounted to 89 million euros in the quarter, including decreasing exceptional capex of 7 million euros, that is 40 million last year, as our two major projects get closer to completion. In terms of M&A, we cashed in 30 million euros linked to the sale of FIBEX, obviously compared to a 1.5 billion euro outflow in Q1 last year, corresponding to the acquisition of Ashland. Net debt at the end of March 23, therefore amounts to 2.4 billion euros, including a 700 million euro of hybrid bonds, unchanged, versus the end of 22 level. The net debt to last 12 months EBDA ratio stands at 1.3 times. And this concludes my presentation. Thank you for your attention. And I'll now hand it over to Thierry for the comments.

Okay. Thank you, Marie-Josée, for your summary. Currently, the surprise on the macroeconomic environment is still weak. And for this reason, we are still operating in a context of weak volumes and limited visibility. So this is, as you know, especially the case in Europe, which is impacted by different elements, including inflation, lack of competitiveness with energy and uncertainties linked to the Ukraine conflict. The U.S. has slowed down in certain markets, but we still believe, and from our standpoint, that it will continue to show greater resilience than Europe, clearly. And as you know, we are strong in this part of the world. And with regard to Asia, no obvious signs of a rebound, but we believe that at a certain point it will – start to improve even if gradually. So clearly in this type of environment, we have seen it in the past, we know what we have to do. We'll continue to focus on what we control, managing fixed costs, strict management of working capital, you saw what we did at the end of last year, in order to continue to generate, which is part of our DNA, solid cash flow, and keep at the end of the year, on the full year, an elevated cash conversion ratio So, as we say, in this context where the macro is not really showing any of your signs of improvement, we believe, and it started like that, that Q2 will be in the continuity in terms of volume of Q1 and also with limited visibility. Given the seasonality and some relief on the raw material and energy, we believe that Q2 EBITDA should be a little bit better than Q1, which means fully in line with our full year guidance. As we explained to you already, we believe that the H2 will be a bit better than the H1 to reach this guidance. So we are completely still in these thoughts. H2 supported by two main reasons. The first one being some gradual improvement on the macro and even without that, just if you take out most of the destocking, volume will be better. And the second part, which is more specific to Arkema, will benefit from some new projects that you know which will contribute on the second half between 50 and 70 million euros in EBITDA. So for all this reason, we are comfortable to confirm our annual guidance and aim to achieve in 2023 an EBITDA of around 1.5 to 1.6 billion euros, as we said already earlier in the year. Longer term, because we are working on two horizons, short-term and long-term, We still believe that we are a very valuable asset to leverage, which position us very well to capture what is really the key point today. This opportunity is from sustainability in areas like batteries, eco-friendly paint, 3D printing, home efficiency, circular economy. We have plenty of opportunities. We start to materialize. We have also a robust balance sheet with a debt to EBITDA ratio at 1.3, which enables us to implement our project regarding major CAPEX and also some Bolton M&A. We are really more and more an innovation sustainability-driven company with the ambition of being a global leader in specialty materials. Our positioning across our three core segments is unique and increasingly enables us to furnish a complementary range of solutions to our customers under the One Arkema umbrella. As a reminder, I hope many of you will come to our Capital Market Days on September 27, when we will unveil new mid-term financial targets and our vision for the future of Arkema. So this is what we wanted to share with you today beyond the answer to your question, and thank you for your attention. And together with Marie-José, we are ready to start the discussion.

Thank you. If you wish to ask a question over the phone, please press star 1 on your telephone keypad. If you wish to withdraw your question, please press star 2. Again, please press star 1 on your telephone to enter the question queue and wait for your name to be announced. Our first question comes from the line of Martin Rödinger of Kepler-Chevreux. Please go ahead.

Yes, good morning, and the whole IR team. I have three questions, please. Regarding the performance additives business unit, which was relatively resilient in Q1, can you provide some color why it was so resilient? Secondly, I wonder that your depreciation and amortization charges were sequentially down in Q1 versus Q4 despite your capex spending. What was the reason for that? And what should be the run rates when your PA11 plant is on stream by end of the year? And thirdly, on your Scope 3 emissions, your SPTI-based target to reduce emissions from 152 million tons to 70 million tons by 2030. You mentioned several actions, i.e. increasing share of renewable or recycled raw materials, select raw materials with lower carbon footprint, reduce most emissive activities, and develop polymer recycling channels. Are such alternative raw materials available today? Will you give up business? And does it come with higher costs? And if so, are your clients willing to pay for that? These are my questions.

Okay, so thank you. Martin, it's true to say that performance additives have been quite resilient for different reasons. So I would say this is, compared to the other segments of the company, they are far less impacted by the construction segment, which change the picture, clearly, because as you know, construction has been really the negative factor in the past six months. In terms of new business development, new energies in Asia, and also, as you know, biofuel in the US, we had really a lot of things going on, so it's a good momentum on new business, and you know that it belongs to the advanced material segment, which is a in terms of new business, one segment which is the most driven by sustainability, so you can see it. So it's a combination of a good momentum of new business on one side, and the fact that in terms of end market, and I should add also oil and gas, which is going well, is certainly the segment which is let's say, seeing the most resilient picture, at least for the start of the year, you could argue that we should see that also on the HPP side, which is the other part of advanced material, but HPP temporarily was eaten by batteries in China. Maybe, Marie-Josée, on the second question of Martin?

Okay, so in fact depreciation and amortization is at this point very comparable to last year level. In fact, we expect an impact of the depreciation of the Singapore plant, so 450 million euros over a 20-year period, so roughly 23 million euros depreciation per year to start hitting the accounts in the second half of this year. So this should definitely have an effect on the run rate of depreciation going forward once we start the amortization of these assets. Same thing will occur to the nutrient capex probably around the same period of time.

Thank you, Marie-José. So on the question of scope-free reductions, Clearly, we work a lot on it as we are working on the scope 1 plus 2. Otherwise, we will not be able to reach this very demanding target. With regard to access to renewable raw material, it's really a key important point of Arkema. This is also why we are... developing the polyamide 11 capacities in the world for example but it's not the only initiative as you know I would say it depends sometimes raw material are higher cost sometimes it's not it's incremental so you have different examples clearly there is it's not as available as fossilized raw material by nature but we find a already many opportunities and normally when we are using them and they are most expensive, we have enough pricing power to at least offset this cost of raw material. It's clear that the decarbonization has a cost on capex, as you know, but also on the raw material. So I think this is okay for everybody. But our feeling is that we have with our solutions the pricing power which is necessary in order to more than offset the input cost. What is most important today is before talking about the cost to get real opportunities. And I'm really proud and glad of what I'm seeing with the teams. They have really more and more new ideas coming. And the last thing I would like to mention, which is important, The targets we have on the scope one, two, and three, they are not just defined to define ambitious targets. They are really based on very specific actions, business unit by business unit. It can go from raw material, use of energy, any other element working on the process, and this is why we're investing on the CAPEX 400 million, which is touching the scope one and two. So it's really defined with a high granularity, and this is also the case for the scope 3. So to make the story short, from time to time, more cost, but we are comfortable to get it back on the value chain. Thank you.

The next question is from Matthew Yates. Bank of America, please go ahead.

Hey, good morning, everyone. Two questions, please. One perhaps short term, one more longer term. Let's do the short one first. The 20% volume decline in materials looks like something that you perhaps would have seen at the depths of the financial crisis. I appreciate you've got a diverse portfolio going into lots of applications and markets, but Can you just elaborate a little bit on why the volumes are so bad? And I think in your introductory comments, you did mention some impact of strikes in France. Is it possible to isolate perhaps what the impact of that was within the volumes? And then the second question, more longer term, is I think it was this time last year you announced a partnership with Nippon around making electrolyte salts. And I gather you've got a pilot plant now, but you were looking to potentially scale this up sort of mid-decade. Can you give any sort of update on how it's going to validate this technology? And if all goes to plan, when would you be looking to communicate some sort of capex? And what sort of quantum do you think that could be for the company, obviously? We've talked a lot about PVDF over the last couple of years and the opportunity for Arkema there, but how would you assess the potential opportunity in salts?

Thank you. Hello, Matthew. As you mentioned, two different questions. On the first one, I would say STRAX is incremental, but we would say in this kind of environment, even incremental doesn't could cost EBITDA. So this is why we mentioned it, but we did not mention it as a broad topic, but I think in our transparency it was important to mention it. But I would say it's quite an incremental number inside the 20%, so I would not make it a big topic at your level. No, the 20% is mostly coming from destocking. This means that it's not reflecting the true GDP. It's clear that it takes time. And I agree, the numbers are big, not only for us, but for other peers which are positioned in the same end market. And I would say my interpretation beyond the macro that you know, as we know, is that after the COVID, after the tension, the raw material side which happened in the first half last year and in the end of 21 and also on the transportation limitation a lot of stock has been built along certain value chain which still need to be digested this is my explanation as you have a long history in this industry it's rare that you have so long this talking so you have to put that in the context of the the post-COVID and also this element which creates the separation disruption last year and the year before the last and we are still to a certain extent being impacted with that on top of the macro so we have the double pain now as you know we have seen different situations in the past we work on our self-help we are patient at the end it will change I think the good news is that If you look at the kind of EBITDA we have been able to deliver with this low volume, at the end it's solid. But I agree with you, there are some frustrations there because normally you don't get heat by so little volume for such a long period. Now it will come back and maybe there will be in the second half restocking that will also support delivering the result on the full year. So you know me, we work on the We don't complain. We work, and we believe that it will come back. We have just to be patient. We are not losing market share, if it was also one of your questions. So it's really the end market. Maybe they have been helping us well in the past two years, so we have some counterback, but no specific answer beyond stopping, and also macro, which is not... overall supportive currently. So this is why we really work very strongly on the shorter mitigating the impact, but we continue to invest on the long run, which is part of your second question, because we believe that at the end it will come back and sustainability, at least for the ones who are well positioned and Arkema is one of them, will be really a key driver of growth for the coming years. On your second question, I think capital market day will be an important milestone in order to come back on different projects, so we'll certainly come back on this one and on the whole picture, because as you can see, not only we have very interesting projects, major projects coming on right now that you are aware of, but also we are not sure of ideas on sustainability, and we want to give you the full picture for the capital market day as one of the important elements. On the process with this electrolyzed salt, it has been validated fully. So it's quite an element of proudness for Arkema. So now it's more fine-tuning the investment and we are still, you know, the way our kind of companies are working, you have different gate that you validate. We are still in the gate process and I would say in an environment which on finding the materials, finding the engineering, et cetera, is a bit demanding. So we want really to make sure to come with a fully validated project. And we're also working with our partner to fine-tune the different elements of our partnership. And so it will certainly take us up until the end of the year to give you a rough estimate of calendar before we are more specific. But we'll give you more... let's say, more information already at the capital market.

Thanks, Jerry.

The next question is from Mubasher Chowdhury of Citi. Please go ahead.

Hi. Thank you for taking my question. Two, please. Just on the capital allocation, I think you're coming off a higher level of CapEx from the last couple of years. Does that free you up to do a little bit more on the bolt-on side of things? And while you're looking at the bolt-ons, is there a growing appetite for kind of a larger bolt-on, kind of a mid-triple-digit-sized M&A after the large acquisition that you've already done in adhesives? Just some thoughts that would be helpful. And then secondly, on a decent for 2023, how should we think about the margins for that business? I know the rule maps are coming off. I know there's some pricing that's linked to the rule maps as well, but just some comments around how we should be thinking about the margins for the full year and whether we get back to or even above the 2021 levels. Any comments around that would also be helpful. Thank you.

Okay. On the first one, with regard to capital allocation, it will be one of the topics of the Capital Market Day, so we'll not disclose it now. There are fair questions. It's clear that on sustainability, we have never seen as many interesting opportunities from organic, which we should be pleased about. They are the best returns. And so we need to see where we put the bar and at which speed we want to, let's say, to support all these ideas which are really very exciting on new energies, on the bio, on lightweight material, on 3D. The list is nearly endless. And so we need to confirm to you what we see in organic. With regard to bolt-on, I think we are comfortable with our current approach, which is normally two, three small bolt-on in the year, which are not big, and from time to time, every couple of years, let's say an average size one, as we did Ashland, let's say, 18 months ago, as we did before, et cetera. So we are still in this period. So after that, we are pragmatic, opportunistic. But what is important for us is really to deliver our strategy and to make sure that the acquisition we are making are reinforcing our technology, let's say, footprint short-term and long-term. With regard to adhesives for 2023, I would say you have two elements. You have the unit margin, which would improve with our pressing power and the lower raw material, which even if they stay elevated, are a bit lower than they were. So my feeling is that you need margin. Now, it's more a question of volume, and on that, the visibility remains still limited, so we're no more mid-year. So, for the percentage of EBITDA, it's a bit too early. What is clear is that visibility and our pressing power in adhesives, unit margin, unfortunately, improved a certain degree this year. Now it's really the matter of volume between the H1, which would be weak, clearly, and the second one, which would show some rebound.

That's helpful. Thank you.

The next question is from Emmanuel Matto of Odo. Please go ahead.

Good morning, Thierry. Good morning, Marie-José. Three questions for me. First, could you give us more details about the first more positive signs in Asia you are mentioning in your press release this morning? Which markets are concerned? Is it both China and the rest of Asia? Second, what explains the situation of temporary destocking in batteries in China? How long will it last? And third, have you had any first feedback from the European authorities following your press release at the end of February on PFAS? Are they considering your views that the proposed restriction by five state members is too broad? What are the next steps? Thank you very much.

So on the first one, for the time being, it's more, as I say, there are no clear signals in Asia. It's more a feeling that we have reached a sort of bottom, that discussing with the team, with the customers, I would say the impression is that it should gradually improve, but I cannot guarantee tell you this, and even from month to month, it's volatile still. So it's more a general feeling that we share with you. But still, don't forget that we were at a slow level beyond battery, actually in battery last year. So the base is, so overall, Asia is still not the engine of the world, but compared to Europe, it's clearly a better market. And the feeling from sharing the team, the customer, is that gradually, slightly, we are in the nuances, should be a bit more positive than what we see in Europe and the U.S. So we are there. It needs confirmation. But if your question is, do you see a clear sign of positive in a given market, The answer is no. So it's more general feeling. And as you could see, we remain on the current macro cautious, as you are yourself, I think. But we wanted to share this feeling with you. Asia is not slowing down anymore. It's more stabilized and with some expectation of some slight gradual recovery. We are there, okay? We'll update you as the quarter is developing. On the battery, I have no crystal ball. What is clear is that a little bit as I did to Matthew post-COVID with this, on top of that, this electrical wave, which will continue for many years all along the chain, from the auto stock to sub-supplier stock, et cetera, clearly a lot of stock in China. Don't forget that China so far is the largest part of the world to make batteries. How long does it last? We don't know. We believe H1 is a good assumption, okay, so ending at H1. uh it's temporary nature so so we'll see but for us it's more a topic of each one okay let's see it this way but the trend on battery meter is good we have no doubt about that it will continue amplify we are well positioned for that but clearly for the time being uh we uh is still uh this talking this talking is less now than it has been at the early start of the year And we believe that each one is a good assumption. OK. On the third one, I cannot give you any feedback or status. It's too early. I mean, last time we talked about it, it was a couple of months. The discussion is just starting on the long process. So we believe that our arguments are valid. We are not the only one to push them. And we'll update you when we know more. But let's work on the topic.

The next question is from Alex Stewart from Barclays. Please go ahead.

Hello. Thank you for taking my questions, hopefully very straightforward questions. The first one is whether you could quantify roughly the benefits on variable costs from the dramatic collapse in energy costs at the end of last year. I know you talked about it as being a support for Q2, but I assume that there was some benefit in Q1. And if there wasn't, perhaps you could tell us why there wasn't. And then secondly, could you possibly give us a sense of what the synergy numbers are per quarter that you're able to get from Ashland already. So if I look at the first quarter this year, what roughly should we assume for the synergies? It would be very helpful. Thank you.

So on the first one, we have not made... We have the numbers inside, but we have no... made any specific disclosure on that. So again, the overall picture with such lower volumes, I mean, is really incremental. So it will not change. We'll take your question, and we'll see if we want to disclose more. We need to see. But frankly speaking, the volume will be quite good. we are in the new end compared to the impact of the volume. It's certainly part of the net pricing, clearly, but we have not disclosed any number. So we'll see if maybe on the first semester if we want to be more specific, but we don't disclose this quarter. But if not... It's not compared to the big elements. It's really incremental. So it doesn't change the picture. On the synergy number from Ashland, we are really fully in line with what we said. So the synergy for Ashland, all in all, we're on about 10% of revenues on five years. So we are on the one year, so you take 2% of Ashland revenues that you apply to the quarter. So we have not made the math, but we are really on this trend. We cannot see IR to confirm to you more precisely, but we are really on the plan. So for us, it's the order of magnitude. of its 2% of the revenues per year of AshFran revenue. So again, it will not change, unfortunately. It's a feature attempt, clearly, but at the level of the group, a bit like energy is really a sum of bits for the time being. But we take that.

If I may, Alex, if you remember, we had synergies related to cost. since it is an acrylic-based technology that Ashland is using. And on that front, I would say there is a very good progress on implementation of those synergies. So I would say they are now fully embedded in the roadmap of Ashland. On the second side, if you remember, we wanted to address the Asian market with the Ashland product. And because of the lockdown situation of China last year, clearly on that side, this initiative is more delayed. and will progress hopefully during 2023. So on that front, I would say this is today the missing part of the synergies that we have presented to you at the time of the acquisition that will come at a later stage.

But if you take a straight line, 2% of revenues per year, based on what Marie-Josée said, I think we will deliver exactly the plan. with some elements which are quicker. For example, acrylics, since we have capacity, because the volume are lower, we benefited from the synergy quicker than expected, because we were tight last year, so we delayed the synergy last year, but this year we have synergy already. Some elements are a bit linked to new business, takes a bit more time, but overall we are really, and all this synergy on finance, computer, everything, We went very fast on it because we prepared before the clothing. So we are on the page. Thank you. And this was your second question. No other questions, Alex?

No, that was it. Thank you very much.

Thank you very much.

The next question is from Charlie Webb of Morgan Stanley. Please go ahead.

Morning, everyone. Thanks for taking the questions. Maybe just digging a little bit more into the volume dynamics. Thierry, you noted you're not losing market share. Given the weakness, given the low visibility, maybe you could just help us understand what gives you the certainty around that. And maybe just tied to that, clearly, obviously, price conversations must be quite tricky in this environment with some deflation now out there. You know, how are those conversations progressing and what does that leave us in terms of the volume set up for the second quarter? I hear you obviously second half waiting and expect more recovery then. But just, yeah, any sense on how the volumes queue on queue kind of develop? And apologies if I missed that.

Okay. Maybe on your second question again, it was not completed.

Thank you.

On your second question, excuse me. It's a volume outlook. Okay. As we say, on the volume outlook, more or less, there is a clear continuity, as I said, with the Q1. Okay. The difference would be the seasonality, which is a bit higher. And so we benefit clearly from it, but it releases a slight improvement of the seasonality. But beyond that, I think we are really, so far, we are in the continuity of the Q1 on the different end markets. We have less destock on the construction, for example, but we have a bit more destock on some industrial markets. So all in all, We are comparable. If it is your question, like for like, I would say, and on the first question.

That's the volume dynamic going into Q2 relative to our guidance.

Yeah, okay. But again, on your first question,

First question was on market share. So just what gives you the confidence?

Yeah, I'm not using market share. Yeah, okay, this is what I get. I wanted to share with the team to make sure that... Well, no, I think we are checking with customer by customer, all the main customers. We are checking. We have a good view of what our market share, and we are very... I mean, it's our part of our culture. We put a lot of emphasis on that to make sure. And on certain customers, we have nearly 100% market share, so you see it easily. if you're losing or not market share. No, I would say, again, you cannot, it's the same for our competitors, and you are never sure for granted, but really we make a lot of, as you know, we are very hands-on, we are in the field. The way our company is managed, from the top to the, I would say, to the salespeople on the field, we have a very close connection. The members of Communex and also myself, we try to share a discussion with big customers, et cetera. So, no, I think so far we are confident we are not losing one. And if we need to adapt here and there, we'll do it. So, no, I think it's not scientific. You know, it's more about dialogue, quality of the dialogue with customers. Our feeling is that it's not a matter of market share. It really is a matter of... overall macro and of destocking, which is temporary, but which has been lasting for a certain period.

That's helpful. And then just maybe a really quick follow-up to that point. I mean, do you feel that competitors are all behaving, you know, all very rationally in the same way on that point around, you know, everyone's kind of pushing in the same direction? Obviously less so for the ones where you're a single supplier, but maybe when you have a few pairs also participating.

But by definition, all competitors are behaving differently. They have all their strategies. Otherwise, it would be too easy. So I think we're in a world where everybody's conscious that volumes are low, but also everybody's conscious that the pricing is not making the difference. The volumes are not there. It's not a matter of pricing. So I think I would say the behavior is... Overall, rather rational. Now there are exceptions, and each competitor has their own strategy, and if we need to react and adapt, we'll do it. It's not true only for competitors. I mean, it's true on the value chain. I think because you are following different companies, more upstream, more downstream, I think yourself, you have a good sense of what is behaving on the whole value chain. Since the volumes are low, it's important that the value is getting protected. It's critical for everyone, and because of that, I think there is this awareness that, especially in this high inflation world, to protect the merchants. But again, it's not something which is scientific, but this is my feeling.

Okay, that's helpful. Thank you very much. You're welcome.

The next question is from Jaideep Pandiya of On-Field Investment Research. Please go ahead.

Thank you. The first question is on Bostik. Sequentially, if you look at your sales in industrial category, they slightly went down 2.4 versus 2.1. So could you just tell us, Thierry, what you're seeing in industrial and markets within adhesives right now on a geographical basis in US, Europe, and Asia. And the second question is really on PVDF. Apologies for asking this, but could you just tell us, like, fundamentally, if you have the technology to make suspension-grade PVDF, and if so, you could actually compete at the highest end, if possible? Or is it that you guys have a genuine technological gap with one of your listed peers? And the third question really is on nutrients. So what is the update on this project? And the 40 kT, is this enough for you to sort of make your fluoro chain green in the US? Or would you need more volume if you had to do that at this moment? Thanks a lot.

OK. I will start from the third and move up. So on nutrient, yes, capacity is enough. Okay, this is how it was designed. Now we get possibility in the long run to extend it if we need with our partners. So if necessary, we will do it. It was already, I would say, one of our thoughts, but it's not a short-term topic. Okay, so for several years, we'll be completely... we'll get the volume that we need. So don't worry about that. And in terms of update, we are in the process of restarting. So we have been a bit late, but you know, sometimes in the U.S., things are, in these days, more complicated for CapEx, but we are starting progressively, starting now also. Okay? So it's going, after some delays, now we are in the last phase, and As we are also, I mentioned it, for polyamide even in Singapore. With regard, I don't want to enter too much in the detail of the PVDF, but I will make a couple of comments. First of all, PVDF, you have different technologies. Some are better for certain applications, and some are better for other applications. So don't think that there is only one by far. And even in batteries, of For certain applications, suspension is better. For other, emission is better. With regard to Arkema, as everybody knows now, because it was communicated by one of our competitors, we are a company which has been focused on the emission, and I think we are glad about it. We are very strong in that. Can we make suspension? Not now because of tools. Will we be able to make suspension? In the mid-term, the answer is yes. Do we have, beyond what we are making today, evolution of our products, including Emulsion, which will address the markets in batteries for different applications, new generations, et cetera? The answer is yes. Is PVDF sufficient to address the battery market, the answer is no. You need to have other technologies and as Arkema, these technologies, the answer is also yes. So I think we have plenty of cards to play. You have not one company which is positioned like the other one. This is the beauty of this incredibly growing market. I think we have our position with some very strong strengths and some weaknesses, the same for our competitors, but we have really enough to build a fantastic story, so don't worry about that. With regard to Bostik, yes, you're right to say that what has happened is that in construction, we have a bit less destocking, and in industry, we have a bit more destocking. So you have a sort of swap with regard to the volume trend, which is overall negative, between construction and industry temporarily. So we need to check that. So overall, again, back to the question of Charlie, we are not losing market shares, but clearly we have some destock in the industry that we have not, and we have less destock in construction. So for Bostik, overall, it's consistent quarter by quarter, but the mix of end market is different.

Can I just ask one follow-up on the nutrient side? There's a lot of chatter about forever chemicals in Europe, if you were to find an opportunity like nutrient in Europe, would then that mean that your fluoro chain becomes green and therefore you get out of this forever chemicals headache or that would still remain because the politicians, if I may say so, are being a bit naive by, you know, grasping everything into this forever chemicals basket.

No, um, I think, again, we have plenty of good ideas, but it's not a matter of politicians or whatever, or Europe, U.S., or Asia. It's a matter for Arkema and for our investors to make sure that we are prioritizing our investment based on the best return, including extra financial return. So it's based on our volumes, it's based on the competitiveness of the asset we can find. With Nutrien, we have a fantastic project. Do we have such a fantastic opportunity in Europe, given the volume we have for the flow chain, which are significantly lower than what we have in the U.S.? Based also on the partners that we could find, the answer is no. Are we missing sort of big opportunity in the scale of Arkema worldwide? The answer is no. We try really to focus on the best project we can find. So Nutrien is a fantastic one. It happens that it is in the U.S. on a given market. Polymer events in Singapore is completely different. We have not such an opportunity anywhere else in Europe or in the U.S. So again, it's... It's a sort of combination of strategy and opportunities and pragmatism where we try to find in an envelope of capex, which is not unlimited, what we believe are the best projects for the company and for our investors. So we will get in the near term or mid-term such a project as Nutrien in Europe. The answer is no, but not for negative reasons, for good reasons is my point.

Thanks a lot for being so clear. Thank you. Okay. You're welcome.

The next question is from Chetan Udeshi of JP Morgan. Please go ahead.

Yeah. Hi. Thanks for letting me on. A few questions. First, just on second quarter, I think you already talked about improvement from seasonality point of view. And I was just curious, you know, last time when we spoke, you know, you were quite happy with Q1 consensus. I was just curious if you think you are happy with Q2 consensus that you at least I see on Bloomberg is like 440 million. I mean is that in the right ballpark you would say? The second question was just coming back to the ramp up contribution in the second half. The volumes are quite tough in the materials business as we can see in Q1. why do you think it is reasonable to assume that you'll be able to start up and ramp up all of your capacities, especially in Singapore, given the weaker volume environment that we see just now? And the last question was, nothing to preempt what you might say during the Capital Markets Day later this year, but, I mean, just given the step up in the... CO2 reduction targets and also maybe focus on further growth in the battery value chain. Should we be expecting the capex to go up from this year's level into next five years, six years substantially, or it will remain within the current band of around 700 million or so per year? Thank you.

Okay, thank you for your question. So on the last one, as you know, I mean, you gave me the answer, so I will take your answer. We have a capital market day in September. This is really to have this kind of discussion with you, so I would not say that we have to anticipate during this call. I think we have clearly, and thank you for mentioning. We have plenty of opportunities now. We need to arbitrate what we want to do, what is more... It's good to have plenty of things to do. We'll see where, with the board. It's not only a matter of executive committees, also the board of Arkema. We have strategic review mid-year, as every year. We take the time to review it and to see what we think is making more sense for... for our stakeholders and for the company. So we'll come back to... That doesn't mean that I want to escape. We'll come back with a precise answer, but Capito Mercade, because we are talking long-term, is really the place. So I think we'll have to travel to Paris. It's my conclusion on that. With regard to roll-up of contribution in H2, I think we are more positive than you are. This means that it's not a matter of end market for that, of the macro. I think the rope-up we're talking about nutrient, which is a cost among the project. Let's say the majority of the contribution will come from two projects. One is nutrient, which is a cost issue, not an end market issue. And the second one is a biopolymer-delivered. We are so tight, you cannot imagine. And we have requests all the time that we have not been able to deliver in the past 10 years for bioproduct, and it is accelerating because of the sustainability. So we are completely confident to deliver the ramp-up on this polyamide 11 in the second quarter. And now, why in each one we have not delivered? It's not because of the market or the macro. It's because we are delayed. For technical reasons, and no big technical reasons, for Polymer 11, I think we are really just that. It's such a complex, it's a fantastic process, but complex process. And we just need to make sure that we validate every piece of equipment it takes time. But we are, I mean, in the context of this five years investment construction with COVID in the middle, it's six months late, it's nothing. So we are very proud of that. And we'll, I promise you, we'll deliver the wrap-up of these two projects in the H2. With regard to the discussion about the consensus quarter by quarter, I mean, I will make the story simple. Otherwise, everybody will laugh, and I'm not sure that we see where your Q2 consensus number is coming. So let's make it simple. We have guidance for the full year. You take the guidance for the full year. Then you have an H2 for obvious reason, which will be higher than the H1. The two obvious reasons, or three maybe, is the overall macro. Even if you are not fantastic, optimistic, you can believe that the macro will be at least slightly better on the second half. You can believe that the destock outside of the macro, which has happened still in the first half, will, at least for most of it, disappear. And then you have this benefit of this measure project we have just debated about. So you take an H2 above the H1, okay? Then you have the H1. And this means that I know the Q2 consensus in mind, but I have the H1 consensus. When we discussed last time, I don't know if it was you that asked the question about the consensus, but I say I was comfortable with the Q1 and the H1 consensus at that time, and the H1 consensus. was around 750, which would mean a Q2 slightly better than the Q1. For us, it's a good assumption that if we do that for the H1 with what we see from the H2 slightly better than the H1, we deliver the consensus for the year. So we confirm the consensus for the year, and to deliver it, we need, and this is basically a level of H1, which is at the level of the consensus that we debated last time when we had the same call in the first, it was in Edelfeld. Okay, hopefully I was clear and supportive in the answer.

Very clear, thank you.

Okay, thank you very much.

The next question is from Andreas Heine of Stiefel. Please go ahead.

Thank you for speaking. I have basically three questions. The first is on volume. I think it was last quarter that you elucidated that this calculation you do, how you get to the volume equation, which is basically the volume impact on last year's prices. Looking on the areas which have shown the strongest volume decline, which is the advanced materials and the coating solution, there was quite some price impact I just want to check whether what we show there in volume, if you would not show this latte in cells terms, but in kilograms and ponds, would that look different? That's the first question.

The second one... Sorry to interrupt. Actually, we have really difficulty to hear you, so I don't know if you're on the speaker or something, but you sound very remote to us, so it's very difficult to hear you. Oh, it's better.

Okay.

Still there, or is it now better? You are in the room with us, so let us adjust the sound here. A little better. Please go ahead.

Yeah, that's better? Okay. It works on volume. So last quarter, you have elucidated that the volume component is based on... the volume change, but on last year's prices. As the prices have changed a lot in PVDF and in coating solution and acrylic monomers, I just want to check whether the volume decline you report in these two segments would be different if you would show it in kilograms and tons. That's the first question. The second is, if you would net the startup cost on the new project and the profit contribution mainly in the second half, Would that look materially different? So in other words, would the positive contribution be very minor only or would it still be a significant positive contribution? And the last question is on adhesives. With the construction end market being weaker than the industrial markets year on year, is there a positive mix effect beyond the Ashland acquisition which helps you on the margin? So these are my three questions. Sorry for being not easy to understand.

OK, you're welcome. So Marie-Josée, you will take the first two.

So on volume calculation, you are correct. The calculation is kind of impacted by the price evolution, because volume effect is delta volume. times price of last year. So when you have a price which is obviously moving a lot across the period, you have a bit of distorting effect when you look at the Euro volume effect that is being calculated. So you are correct, probably volume is a bit amplified in terms of effect in our bridge due to this price effect which is quite impactful. So in fact, you would have a volume which is delta volume times the price of last year, which was obviously very high, and is reducing on both PVDF and acrylics. And price effect is delta price on current volume, which is obviously lower. So there is a kind of artificial amplification of the volume effect versus the price effect. So if we had a reasoning on those, I would probably be reallocating roughly three percentage points from volume to price, so to speak, on those two very specific products that you are mentioning. On the second one... So on the second one, the new project startup costs are being reported. So specifically, we are talking about polyamide 11 plant in Singapore. So since this plant and this capex is classified as an exceptional product, as an exceptional capex as we discussed in Q4. We therefore report the startup costs in non-recurring. So I mentioned actually when I commented on the non-recurring costs for the period, we have basically a bit more than 10 million euros being reported in startup costs for the quarter for this plant, and probably you should expect something quite similar in Q2 with a start of contribution of depreciation and of contribution of the asset that, as I mentioned earlier, should start in the second half of the year.

Thank you, Marie-Josée. And this question with regard to ADS. Again, so construction was very weak last year, in the second part of last year, certainly Q4. It's still weak, but it's in the weakness to be stronger, while industrial, which were more resilient, as I mentioned before, have more destocking. Globally, construction is still weaker than industrial. There is no doubt about it. But I would say a little bit mitigation between the balance of the two, construction and industrial. And I would say, does it make the mix? I imagine it's on the EBITDA margin, your question. I would say no. I think we made the same kind overall. We made quite close... profitability level on the construction and on the industry for Arkema. Clearly, with the ramp-up of the question of Ashland Adhesive and contribution of Ashland, with Ashland in the coming years and all these developments we have in industry with engineering adhesive, high value, high-performance hotmail for industry, et cetera, based on megatrends. Normally, in the long run, we should be a bit more profitable in industry than in construction, but it's incremental. It's not a big topic and certainly not a big topic on the quarter. Thanks a lot. You're welcome.

Ladies and gentlemen, there are no more questions registered at this time.

OK. So thank you. I will ask if there are no more questions. I think we took the time to answer all yours. And thank you for your attention and your good question. And if anything specific, certainly I or Kim is open to exchange with you during the afternoon. Thank you very much.

Ladies and gentlemen, this concludes this conference call. Arkema thanks you for your participation. You may now disconnect.