Arkema S/Adr

Thank you very much. Good morning, everyone. Welcome to Arkema's full year 2023 results conference call. Joining me today are Marie-Josée Doncion, CFO, and also the investor relations team. As always, the slides used during this conference call are available on our website and together with Marie-Josée will be available to answer your question at the end of the presentation. So in 2023, Arkema delivered a solid set of results in challenging macroeconomic conditions. Our teams demonstrated their agility and their commitment as we managed to achieve a performance within the range of the full year guidance we gave a year ago, despite a much more difficult backdrop than initially anticipated. I know many of you are already focused on 2024 and we'll talk about the outlook later But it's important to appreciate the robustness of our performance in 2023, which really highlights the strategic and operational work we have accomplished over the past several years. So here are some key points I'd like to emphasize today. In 2023, we achieved a solid EBITDA at 1.5 billion euros, of course, lower than last year's exceptional performance, and also slightly above the pre-COVID level. This highlights the quality of the performance of several of our businesses, particularly in adhesives and performance additives, which have counterbalanced those product lines that were more impacted by the macro environment. I will let Marie-José go through the segments in greater detail later on. Our EBITDA margin proved resilient at 15.8%, so close to 16%. Also supported by good demand for higher value-added solutions linked to megatrends, including grid energy as well as bio-bait and recycled products. We are pleased to have delivered an excellent recurring cash flow of €761 million, one of our best ever, thanks to our team's hard work in keeping CAPEX and working capital under control. We came out of 2023 with an outstanding financial performance. It was in 2022, and we had highlighted already in September 2022, we saw a reversal in 2023 of around 400 million euros EBITDA over-earning as a result of the normalization of PVDF and acrylic. This you knew. What no one had foreseen, however, at least at this level, was the persistence of a low underlying demand across many end markets for the chemicals industry. As we have shown in the past, we were able to adjust to the challenging environment, in particular with a strict discipline on operational costs, pricing, and stock management. We also benefited from our expertise in material science and from the shift towards higher value-added, high-performance materials. After 2022, when our high-performance polymer and coating solution drove a very strong performance, in 2023, we were very pleased to see that some of our businesses stepped up and delivered growth. Adhesives are an increasingly significant part of our business, as they now represent nearly 30% of VOOP sales. And they played, last year, an important role in Arkemalt's resilience. Performance additives also perform well. highlighting our solutions in new energies like biofuels and solar energy that are critical for our customers. These businesses, which stood out in 2023, fueled our technology matrix, which will drive our future growth in the fast-growing sub-market we spoke about at the last Capital Markets Day. This is the strength of Arkema's business portfolio with different product lines, that can address different environments and are built around three simple and coherent segments. Beyond these financials, last December, we achieved a new step in the strengthening of our specialty materials profile with the closing of the acquisition of a 54% majority stake in PIAM, PI Advanced Materials, which is a global leader in ultra-high performance polyimide films. As you know, current momentum is soft given the weak end market, but we are convinced that PM's performance will pick up significantly when the electronics market recovers, and we believe we'll see some good progress from Q2 this year. This acquisition provides numerous and significant synergy with our polymer, adhesive, and with Sartomer and our teams have already started to work hard to deliver those synergies. On the organic CapEx front, we are finalizing some important projects, as you know, to support our customers' sustainable growth. The expansions of Sartomer and of PVDF in China and Paybacks in France are up and running and are starting to contribute. For Nutrien, we have just started up, and for Polyamide 11 in Singapore, we have still some adjustments to undertake. Polyamide 11 took more time than expected, we recognize, but as I've said in the past, It's really a unique proprietary process which needs a lot of fine-tuning, but it should really ramp up from the beginning of Q2. Overall, we can confirm that we expect an EBITDA contribution of 60 to 70 million euros in 2024 from all those projects, including the startup in the US in the second part of the year of 2033 ZD, a new generation low-emission fluoro specialty used notably in insulation foams for building and in batteries. We are also pleased by our progress in our ESG performance in 2023. We strengthened our commitment for the climate on the 1.5-degree trajectory by 2030, and this trajectory was validated by SBTI. Last year, we reduced greenhouse gas gases by 7% for Scopes 1 and 2, and by 9% for Scopes 3 versus 2022, and our commitment remains well recognized by external agencies. Developing our employees is also at the forefront of our priorities, and in 2023, we are very proud to have been certified as top employer in five new countries, also gaining the top employer Europe label. We are equally proud to have increased significantly the share of women in management positions to 29%. This is not an easy task in the chemicals industry, but further progress in this area remains clearly one of our long-term priorities. Finally, a word on the important topic of the dividend. As a result of our solid financial performance in 2023 and the board's confidence in Arkema's outlook, A 3% increase in the dividend to 3.5 euros per share will be proposed as the next AGM in line with our progressive dividend growth strategy. The payout at exactly 40% is in line with what we indicated at the 2020 capital market day. Over the past five years, the dividend has grown on average by 7% per year from €2.5 in 2019 to €3.5 in 2024, which is a strong achievement given the declining volume environment we have been facing, and is testament to Arkema's ability to withstand different macro contexts and create value for shareholders. I will come back to the outlook at the end of the presentation and will now hand it over to Marie-Josée, who will review in more detail our Q4 Thank you, Thierry.

I'll start with the revenues. At 9.5 billion euros, 2023 sales were down 18% year-on-year. Volumes were 10% below 22 level, with destocking and weak demand throughout the year impacting some important end markets across all regions, especially Europe and U.S. The price effect of minus 6.1% reflects the normalization of PVDF and acrylics mainly. as well as a decline of raw material prices in the second half of the year. We had a limited 0.7% perimeter effect, linked mainly to the contribution of Ashland adhesives in January and February, as well as some bolt-ons, and the consolidation of PI advanced materials in December. This was partly offset by the divestment of feebacks at the start of 2023. Currencies had a negative impact of 2.2% on sales, mainly linked to the weaker US dollar and Chinese yuan against the euro. EBITDA came in at 1.5 billion euros, in line with the guidance we gave at the Capital Markets Day last September, and it reflects our efforts to maintain a solid pricing and cost discipline in a low-volume environment. In Q4, EBITDA grew 14% year-on-year to 331 million euros, supported notably by slightly better volumes and a strong contribution from Bostics. Indeed, looking at the profitability of the different segments, Bostik achieved a good performance with a yearly EBITDA of €380 million, up by 4% year-on-year, despite an 8% drop in volumes. Focusing on the second half EBITDA, it was even up by 16%. The key drivers were our ability to hold on to pricing in a lower cost of raw materials context, to control costs, and to deliver operational excellence initiatives. We also got some support from acquisitions. EBITDA margin was up 140 basis points to 14%, a record high for Bostik, which constitutes a good base from which to expand the margin further in 2024. In Q4, EBITDA rose strongly by 25% to €94 million in Bostik, confirming the improving margin dynamics. Moving on to advanced materials, EBITDA came to €666 million, 29% down on last year's, given the absence of last year's exceptional profits in PVDF, while performance additives had an excellent second half. In Q4, EBITDA was stable year-on-year at €149 million, with performance additives offsetting the lower results of high-performance polymers. EBITDA of coating solutions was down sharply to €327 million, which represents a margin of 13.6%. This was mainly driven by less favorable conditions in upstream acrylics in Europe and in the US. Downstream activities were impacted by lower volumes, but margins held up better thanks to pricing discipline and improved mix. Q4 EBITDA for the segment rose by 10% to €69 million, thanks to improved volumes of a low base. Finally, EBITDA in intermediate fell 30% to €213 million, with the less favorable conditions in Asian acrylics, only partly offset by the good momentum on the refrigerant gases. With depreciation and amortization at 562 million euros in 23, recurring EBIT amounted to 939 million euros and the rebate margins stood at 9.9%. Financial expenses at 70 million euros reflect the bond issues we undertook last year. The average coupon on Arkema's debt stands at 2.1% at the end of 2023. The recurring tax rate came to 21% of recurring EBIT. This rate should remain relatively stable going into 2024. All in all, adjusted net income came to 653 million euros, which corresponds to 8.75 euros per share. Moving on to cash flow. You saw we delivered a strong recurring cash flow of €761 million in 2023, which is equating to a bit more than 50% EBITDA to cash conversion rate. This includes €170 million working capital inflow linked to the price effect, notably on receivables, and to the quality of our management of inventories. The working capital ratio on analyzed sales stands at 13.4%, which is actually a pretty good level. Capital expenditure totaled 634 million euros, reflecting lower exceptional capex of 26 million euros as the construction of the nutrient and polyamide 11 plants were being finalized. Free cash flow. amounts to 625 million euros. It includes a non-recurring outflow of 110 million euros, linked primarily to the startup costs of the Singapore platform, as well as BOSTIC restructuring costs. Taking into account the net cash outflow of 708 million euros from the portfolio management operations, linked essentially to the acquisition of PI advanced materials, Net debt at the end of 2023 stood at 2.9 billion euros, including the 700 million euros of hybrid bonds. And the net debt to last 12 months EBITDA ratios stood at 1.95 times. Thank you for your attention. I will now hand it over to Thierry for the outlook.

Thank you, Marie-Josée. So the environment at the beginning of 2024... is similar to what we have experienced in the latter part of 2023 with across all key regions a weak demand. In Q1 2024, as we said in the press release, we expect EBITDA to be rather similar to the Q4 2023 level, which was a good Q4 by historic standards. For the year-on-year comparison, please also note that in the first quarter, market conditions were still particularly favorable. in PVDF and extreme acrylics last year. Beyond the potential recovery in demand later in the year and the integration of the PM acquisition, Arkema will benefit, as you know, from the contribution of new organic projects at a level, as I said before, which we can estimate at 60 to 70 million euro In terms of EBITDA, this number is quite consistent with what we already said last year in the fall. The phasing will clearly be H2 weighted with a ramp-up from Q2 onwards. By segment, we see the following dynamics. In ADZ first, we'll continue to drive synergies linked to Ashland and a few recent bolt-downs and will benefit from our ongoing operating excellence and cost control initiatives. Adhesives, if you remember, were the first segment to suffer from dystopia in 2022, and as you could see, the dynamic has now turned positive, driven by higher matchings. The contribution of new projects that I've mentioned before will be, in fact, mostly concentrated within advanced materials, as a matter of fact, within high-performance polymers. This includes notably Singapore, Nutrien and Pyarm, for which we are working hand-in-hand with the management to ensure we implement synergies as quickly and efficiently as possible. As for performance additives, they will aim to consolidate their strong 2023 performance. In coating solution, upstream acrylic remains soft for the time being, but we expect growth in the downstream resins and additives. Our strategy is focused on delivering more eco-friendly and bio-based solutions. This includes the decarbonisation of our acrylic plant in France. It also includes the participation with the other segments in the One Arkema platforms of battery, electronics and bio-based products. So all in all, we aim to achieve in 2024 an EBITDA of 1.5 to 1.7 billion euros depending on the dynamic of the recovery in demand, which is still unknown at this stage. Overall seasonality in 2024 will be more H2 weighted, given the elements I've just mentioned. The lower end of the range assumes no real demand recovery, while the high end of the range assumes a clear recovery from the spring. We don't control the macro, so as always, we'll focus on what we do control. managing our business quickly, which has worked out rather well for us in the past. In addition to managing the short term, our teams will deploy the longer-term roadmap, which we unveiled at the recent Capital Markets Day. We have many new important projects on the way. I mentioned the decarbonization of acrylics, but we have also started to work on the new DMDS capacity in the U.S. for biofuels, And also our organic parasites in China show for new energies. Our balance sheet, as mentioned, Marie-Josée as we enter 2024 remains solid with a net debt to EBITDA ratio below two times, including the acquisition of PRM. So we'll continue to look for smaller targeted M&A opportunities, notably in adhesives. Last but not least, we'll maintain our innovation drive in high-performance specialty materials with a focus on sustainability, which provides a powerful tailwind for longer-term ambitions as defined at the Capital Markets Day. I thank you very much for your attention, and together with Marie-Josée, we are now ready to answer the questions you may have.