Arkema S/Adr

Thank you. Good morning, everybody. Welcome to Arkema's Q2 2023 results conference call. Joining me today are Marie-Josée Doncian, our CFO, and the investor relations team. As always, supporting this conference call, we have posted a set of slides on our website. I will now comment the quarter highlights before letting Marie-Josée go through the financials in more detail. And at the end of the presentation, as usual, we'll be available to answer your questions. So in the context of numerous profit warnings, the chemical sector over the past couple of months amidst a very challenging economic environment, our Q2 2023 financial performance did not show any particular surprise and was relatively robust. While our EBITDA was, of course, lower year-on-year given the well-flagged exceptional profits, in atrium atrix and PVDF. It was comparable, in fact, to pre-COVID levels in a significantly lower volume environment, which, if needed, is a good indicator of the increased resilience of the group over time. Here are some key points of the quarter I'd like to highlight. We delivered an EBITDA of 470 million euros a little bit better than our expectations and consistent with our full year EBITDA guidance. This performance was achieved in difficult macroeconomic conditions marked by low visibility and weak demand, including continued destocking. This weakness was nearly all over the place, with nevertheless a few exceptions, like automotive, energy, and batteries. In particular, destocking the battery chain in China continued in the early part of the quarter, but seems to have come to an end, and volumes finally turned positive on the quarter. All in all, while group volumes were lower year on year, our pricing remained firm, for the most part in the context of general inflation, even if raw materials declined. Excluding the expected normalization of PVDF and extreme acrylics I've mentioned before, we already had the opportunity to comment in the past quarters. The price effect was positive at group level, reflecting the execution of our dynamic pricing policy and also the positive impact of innovation and new business development on the product mix. A highlight of the quarter from our point of view was our EBITDA margin. which stood at 17.1%, testament to the quality of our business portfolio, and again, supported by positive mix and pricing discipline. Looking briefly at the performance of our specialty materials segments, adhesives had a decent quarter with a stable EBITDA margin compared to last year, which was appreciated given the continued pressure on volumes. This performance of BOSTIC was supported by our mix toward more value-added solutions and benefits from lower raw material prices. In advanced materials, we had the reversal of the PVDF overhorning, but we benefited from high value-added new business developments, as well as resilience in high-performance polymers in the U.S., and to a certain extent, also in Europe. Performance additives again delivered a solid performance despite lower volumes with EBITDA, broadly flat year-on-year and high margins. Our EBITDA margin was above 20% for the segment, which was a satisfactory performance in this context. In coatings, we were impacted by broad destocking and more challenging conditions in atrium acrylics, following last year's very high comparison base. Our downstream business, despite again lower volumes, was clearly more resilient, with a rising share of more eco-friendly solutions and some benefits of lower input costs. Beyond the financials, we had, as you know, some exciting M&A news in the quarter, which will increase our exposure to high-growth markets like electronics and electric vehicles, finalizing Polytech in high-end engineering and of course announcing the acquisition of a majority stake in PI Advanced Materials, which is really a unique opportunity to broaden and strengthen our high-performance polymer range with an amazing technology. Regarding our major CAPEX, we were delayed by a couple of months, both on the plant at Nutrients Facility in the U.S. and on the bio-based polyimide-11 plant in Singapore. No important issues at all, but as you know, there are both proprietary and cutting-edge processes, many equipment, so we have to experience more minor corrections than expected. For this reason, we now estimate the EBITDA contribution from new project to be closer to 30 million, than the initial forecast of above $50 million. But you will see that in our conclusion, this delay will not impact our full year guidance for the group since our first health performance was ahead of our forecast. We expected more benefit from lower raw materials as we anticipated a couple of months ago. And recently, we launched a company-wide initiative which will bring on the fixed costs around $30 million So we are quite comfortable on our guidance, and we'll come back to that after over to Marie-Josée for a more detailed look at the financials. Thank you, Thierry.

To start with, quarterly sales were down 23% year-on-year at €2.4 billion. So this is mostly organic, since the scope and currency effects were rather limited. On the one hand, volumes were down 15% in the face of the continued destocking and low demand across a number of important markets, notably construction, coating applications, and packaging. On the other hand, the global price effect came in at a negative 6.6%, impacted mainly by the expected normalization of PVDF and upstream acrylics, while most of our other businesses were in positive territory. Code 2 EBDA came in at €417 million. Thierry already commented the details by segment. On a half-year basis, EBDA came to €784 million, with the 40% year-on-year decline linked mainly to the reversal of the windfall profits generated last year in PVDF and upstream acrylics. Depreciation and amortizations stood at 132 million euros. This is a stable versus last year, as the polyamide 11 Singapore plant and nutrient project have not yet started being amortized, leading to a recurring EBIT of 285 million euros and a rebate margin of 11.7%. Non-recurring items amount to 64 million euros. Around half is attributable to the CPA, depreciation, and the other half to one-off charges, restructuring and legal expenses, as well as startup costs for our polyamide 11 plant in Singapore. Financial expenses stand at 16 million euros, and tax charges come to 51 million euros. Consequently, the quoted to adjusted net income stands at 207 million euros, which corresponds to 2.77 euros to share. Moving on to cash flow and net debt, Q2 free cash flow amounts to €115 million. It reflects our solid operating performance and includes the €42 million increase in working capital. So our working capital ratio on annualized sales stands at close to 17% versus nearly 15% last year. The higher level being linked to some restocking following the low point of year end 2022. as well as the weaker sales environment. Total capital expenditure amounted to 135 million euros in the quarter, which is quite comparable to last year's level. In quarter two, we had 69 million euro M&A outflow linked to the acquisition of Polytech in Germany. Net debt at the end of June 23, therefore, amounts to 2.6 billion euros, including 700 million euros of hybrid bonds, a little higher versus end of Q1 level, given the dividend payment. Our balance sheet remains solid with the net debt to last 12 months EBDA ratio standing at 1.7 times. I thank you for your attention, and we'll now hand it over to Thierry for the outlook.

Thank you, Marie-José, for this highlighting of the financial details. So it's no surprise to you, you had the opportunity to hear it from other players in various industries the overall macroeconomic environment remains marked by low volumes and limited visibility nothing new there this is the case both in europe and in the us while asia is the most resilient region currently even though they yet have to show signs of a tangible rebound In this context, you know us, we are maintaining a strict operational discipline. Marie-Josée had the opportunity to mention our efforts still on working capital to make sure we generate significant cash flow. We are focused really on managing fixed costs, particularly as a result of this weaker than expected macros in the start of the year. We have recently implemented a new 30 million saving plan on fixed costs versus what we had in the first half and we initially budgeted. So we continue to remain attentive to the macro. We think we are now at a low point. We don't see yet when the pickup will come, but as we said earlier, We expect the benefit of the saving plan. We expect benefits also from a stronger relief in raw materials and energy costs. We'll be a bit below, as I mentioned, on the contribution of new projects, but on the other side, we have the benefit from the saving plan. Certainly, destocking, which has come to the high point still in Q2, is getting a bit weaker on the construction part, a bit higher on the industrial market, but all in all, we believe that it will get a little bit lower in the second part of the year. So this means that all in all, we are confident to confirm our annual guidance, aimed to achieve in 2023 an EBITDA of around 1.5 to 1.6 billion euros. Beyond the current financial year, we continue to work on two time horizons and we remain much focused on the longer term. With our portfolio of cutting edge technologies across three segments, sustainability driven innovation, we believe we are really ideally positioned to capture the numerous growth opportunities in areas like batteries, electronics, 3D printing, home efficiency of the circular economy. We still strongly believe that this strategy towards specialty material is really the right one. It was really for us quite satisfactory to have a 17% EBITDA margin in the second quarter despite lower volumes, so really the strategy is really reinforcing the profile of the company. So we'll be discussing some of those areas in greater detail at our upcoming Capital Market Day on September 27th in Paris, where you'll also be able to meet and talk to various members of our senior management team. I really look forward to seeing you all there. So I thank you very much for your attention, and together with Marie-José, we are now ready to answer the question you may have.