Arkema S/Adr

Good morning, everybody. So welcome to Arkema's Q3 2023 results conference call. Joining me today are Marie-Josée Donchon, our CFO that you know well, 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's highlights before letting Marie-Josée go through the financials in more detail. And at the end of the presentation, we'll be able to answer your questions. So I don't want to sound like a broken record, but the economic environment in Q3 was broadly similar to what we experienced through this year, with low volumes, hopefully now at a trough, driven by weak demand and some residual stocking. In these circumstances, our Q3 2023 financial performance was robust and our EBITDA was in fact comparable to pre-COVID levels but in a much lower volume environment. Our resilient EBITDA margin versus last year and our high cash generation are also strong elements of performances and are testament to the success of the group's repositioning in high performance specialty materials. Here are some of the key points of the quarter I'd like to highlight. First of all, we delivered an EBITDA of €386 million in Q3. Year on year, our results were impacted by the absence of exceptional profits in PVDF we had in 2022, as you know, as well as less favorable market conditions in acrylics, and they also underline lower demand trends in most end markets, although we continue to see a positive dynamic in automotive energy crop nutrition and batteries. And again, these 386 million euros of EBITDA was comparable to what we achieved in 2019 despite lower volumes. I'll let Marie-Josée go through the detail by segment afterwards. Our EBITDA margin stood at 16.6%, showing, we think, a good resilience given the economic context and reflecting the evolution toward higher value-added solutions as well as our dynamic pricing policy. Group volumes were some 7% lower relative to last year. Europe and the US bore the brunt of the decline, while Asia performed a bit better, benefiting amongst other elements from higher battery volumes. The lower price effects mainly reflect, as expected, the normalization of PVDF and lower upstream accolades. and to a lesser extent lower raw materials. Excluding the former, net pricing was globally positive thanks to our disciplined pricing policy as well as the favorable products missed as we benefited from our innovation-led new business developments. Thanks to our team's efforts to tactfully manage working capital and costs, our cash generation was solid. with recurring cash flow of 312 million euros in the quarter, in line with our full year objective to maintain an elevated cash conversion ratio. As well as dealing with a challenging short-term picture, our teams are fully mobilized around the 2028 ambition we unveiled at the Capital Markets Day in September, which a number of you attended. On that day, you will remember we disclosed three new industrial projects, all geared toward decarbonization and aligned with our new ambition. They concern purification technology to improve the environmental footprint and efficiency of our acreage production in France, the DMDS capacity increase in the US to support the growth of biofuels, and organic peroxide in China for renewable energies. I won't go into them in detail, as we already spoke about them at length during the capital markets day. Shorter term, a few important projects are expected to have a material contribution in 2024, namely our bio-based polyimide 11 unit in Singapore, which is gradually ramping up, as well as a plant at Nutrien and 233ZD for batteries and home insulation in the US. I will now let Marie-Josée go through the financials in more detail before we discuss the outlook at the end of the presentation.

Thank you, Thierry. I'll start with the profit and loss as usual. So at 2.3 billion euros, Arkemasa quarter sales were down 17% at constant scope and currency. Williams were down 7% and the price effect at minus 10.6% reflected the trend on raw material prices. as well as the normalization of PVDS and less favorable conditions in upstream acrylics. The currency impact is at minus 4.5%, driven by the strength of the euro versus the US dollar and versus the Chinese yuan relative to Q3 2022. Our Q3 EBDA came in at 386 million euros, which demonstrates a good resilience of the margin at 16.6% in line with last year's. This margin level was achieved through discipline in pricing management as well as strong control over fixed costs. Looking quickly at the performance of our segments, we have Adesys, which had a good quarter growing EBDA by 9% despite a 10% decline in sales, which equates to a 250 basis points improvement in the EBDA margin to 14.4% for this quarter. With some help from lower raw material costs, this performance was driven by efforts to control costs over the weaker volume environment, a better product mix, and continued operational excellence initiatives to improve efficiency. In advanced materials, we were impacted by the reversal of the PPDF over-earning of last year. This overshadowed the benefits from new business developments which drove increased volumes in high-performance polymers, as well as a strong EBDA in performance additives. In the current context, our EBDA margin is holding well at 20%. In coatings, we face challenging conditions in upstream acrylics, all the more in the context of last year's high comparison base. The combination of lower unit margins and lower volumes explains the EBDA decrease The performance of our downstream business is more resilient despite slower demand and destocking. It's boosted by the success of eco-friendly solutions and more favorable raw materials. Finally, in intermediates, our performance is robust given the macro environment supported by the resilience of refrigerant gases. For the group, depreciation and amortization stood at 140 million euros, stable versus last year, leading to a recurring EBIT of 246 million euros and a rebate margin of 10.6%. Non-recurring items amounted to 64 million euros in line with Q2 level. Around half corresponds to PPA depreciation and amortization and the other half to one-off charges as well as the startup cost of our polyamide 11 plant in Singapore. With financial expenses at 9 million euros and tax expenses at 54 million euros, Q3 adjusted net income stood at 277 million, which corresponds to 2.38 euros per share. Q3 free cash flow amounts to 273 million euros, which includes the 138 million inflow from working capital as a result of lower activity levels and lower raw material prices. This strong performance emphasizes the focus on cash generation across the company. Social capital expenditure amounted to 137 million euros, broadly similar to last year's level. And to finish, basically net debt at the end of September 23 amounts at 2.4 billion euros, including the 700 million euro hybrid bonds. Our balance sheet remains therefore solid, with the net debt to last 12 months EBITDA ratio standing at 1.7 times. Thank you for your attention, and I hand it over to Thierry.

Thank you, Marie-José. So as you know, the macroeconomic environment has not shown any signs of improvement, and the overall visibility remains limited. This is true across all regions, I would say, although Asia remains somewhat more resilient relative to Europe or the U.S., at least for the time being. In addition, as you all know, geopolitical tensions have risen over the past few weeks. We are therefore really focusing on what we control. So we maintain a strict operational discipline in this context. We manage fixed costs very strictly. We'll deliver on these two what we said we would deliver, which is 30 million euro savings compared to our budget, and we spoke about it when we published Q2 results. And we are also, as Marie-Josée mentioned, optimizing working capital to take into account the weak macro to adapt permanently on the sales forecast and to maintain a strong cash flow dynamic. So with Q3 results, which were, as you could see, in line with our expectation, and as we had indicated recently and during the Capital Markets Day, we confirmed our target to reach an EBITDA of around 1.5 billion euros in 2023. As we look towards the month ahead, we are actively working on the industrial projects that you are familiar with, both the ones which have started already and those which will shortly be finalized. as we expect those projects to contribute nicely to our growth in 2024. Beyond these short-term considerations, the Capital Markets Day was a great opportunity to focus the teams on our larger, longer-term ambitions. So we are all highly motivated, focused to achieve the financial target we set ourselves longer-term for 2028. And we are convinced that with our portfolio of cutting-edge technology and sustainability-driven innovation, we are ideally positioned to ride the waves of the megatrends and capture the opportunities in the high-growth sub-market that we detailed during the event. So, after these few words, I thank you very much for your attention, and together with Marie-José, we are now ready to answer your questions.