Arkema S/Adr

Good morning, everybody. Welcome to Orchema's Q1 24 Results Conference Call. Joining me today, as usual, are Marie-Josée Doncion, our CFO, and the Investor Relations Team with Beatrice and Peter. As always, to support this conference call, we have posted a set of slides which are available also 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 to answer your questions. After a challenging macro in 2023, as you know, during which we performed well, the demand environment in Q1 2024 remained globally unchanged in the continuity of Q4 2023 with relatively weak volumes in Europe and the US and some slight improvements in Asia. This materialized in a volume growth of 3% in specialty materials with growth across all three platforms, the intermediates decreasing mechanically with a quota set in fluorogases. In this context, Arkema continued to deliver a robust set of results. slightly lower relative to last year, which was sustained by the high comparison in the pricing of acrylics and of PVDF. The start of the year is in line with what we expected and consistent with our full year guidance. Here are some key points I'd like to highlight to you. We delivered an EBITDA of €350 million, close to last year's level. despite the negative impact of around 30 million euros from less favorable market conditions in PVDF and extreme acrylics, a specific and expected gap of Q1. Our performance was in particular driven by double-digit EBITDA growth in adhesives that I am pleased to underline. This follows on from the positive momentum of last year for adhesives. The group's results also reflect, we think, good growth in high-performance polymers and downstream cuttings, where our positioning in high-value applications is paying off. Note that our EBITDA margin increased versus last year at the good level of 15%. Now we're looking briefly at the performance of our three specialty material segments. Our disease had a really solid quarter. with an EBITDA margin above 15% thanks to the benefits of the successful integration of our acquisitions, notably Ashland, which continues to perform well, as well as good price management and a more favorable product mix in line with our strategy. In advanced materials, our EBITDA was stable year-on-year despite the headwind from PVDF pricing thanks to the good dynamic of high-performance polymers in Asia, driven by volume growth in batteries, sports, automotive, and the contribution of PM, which should accelerate from Q2. Performance Additive delivered another resilient performance, while not at the excellent level of last year. Finally, in coatings, we benefited from good volume growth, notably for Sartomer and Coatex, which only partly offset the lower contribution of upstream acrylics. Beyond the Q1 results, in the first months of this year, we were active on many fronts, including the M&A field. As you saw recently, we were pleased to announce that we agreed to acquire Dow's flexible packaging laminating adhesive business which will further fuel our medium-term growth for the adhesive segment a couple of years after the Ashland good. This is really an exciting deal, which will create significant value from a set point for shareholders over time. It is a first-rate business, which has been, like other specialty chemical businesses, impacted by the challenging macro and customer dystopian in the past two years. But it is really a business we have been following for a long time with superior technologies and high-quality manufacturing assets and with a long history. The revenues amount at $250 million, and we will buy this business for an enterprise value of $150 million, which represents 50-50 the working capital and the book value of the plants and other physical assets. So no goodwill is included in the EV. Since our daily business is for flexible packaging are very complementary. We plan to generate significant synergies, estimated at $30 million at the EBITDA level over the next five years, equally split between cost and development. There will be implementation costs, which we estimate around $50 million, and all in all, including this one, of course, to the EV for the sake of the calculation and of the transaction multiple, We estimate the EV EBITDA at maturity, so let's say within five years, to reach around 3.5 times. We also invested in two exciting startups, Tiamat and ProUnique, which will strengthen our KEMA position as a key player in high-end solutions for next-generation batteries. These small steps will participate in our strategy in battery to progressively build an extensive range for this attractive and rapidly growing market. Now on the organic project front. We started our paybacks capacity in Normandy in France in January, and we are progressing well with the new project which we announced at the Capital Market Day, namely expanding our organic peroxide in China, the new DMDS unit in the US, and the decarbonization of acrylics production in France. They are, as you know, in the early construction phase, but so far they are progressing as expected. As stated in this morning press release, we had a few questions during the rituals on these two projects. Our polyamide-11 and nutrient projects are now almost ready to deliver, and we start contributing in June, end of June, to be fully operational starting in the second half. We are very excited to finally see these two attractive and sustainability-focused projects delivering. In the same decarbonization vein, And as part of our climate plan, we recently signed long-term renewable energy agreements for a number of our sites in the U.S., including all Bostik sites. This means that by the end of 2024, approximately 40% of the power needed to run our operations in the U.S. will be obtained from renewable resources, marking another step toward our long-term net zero ambitions. And we now 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. So looking at the sales bridge at 2.3 billion euros, sales are down 7.3% year-on-year, driven by a negative 7.2% price effect, which is linked mainly to the price decrease of raw materials as well as a lower PVDF and upstream acrylic prices. Volumes were stable year-on-year, on one hand decreasing in intermediates due to the enforcement of quotas in the U.S. and Europe for fuel gases, and on the other hand, slightly better, plus 3% in specialty materials, reflecting continued good demand in the automotive and energy markets. Construction seems to have now stabilized after over a year of customer destocking. The scope effect is basically offset by the currency effect. So the scope effect is positive at 1.8%, corresponding mainly to the contribution of the PI advanced materials acquisition, and to a lesser extent to bolt-ons in additives. And the currency effect is negatively impacted by 1.7% on Q1 sales as a result of the depreciation of the UN and the US dollar relative to the euro. Q1 EBITDA came in at €350 million. Looking at the different segments, on one hand we have Bostik, which achieved a good performance with EBITDA at €105 million, a 13% year-on-year. Volumes grew slightly thanks to good demand in structural and packaging adhesives, and we benefited from our dynamic pricing management, operational excellence actions, and synergies linked to Ashland notably. The EBITDA margin reached a level of 15.4% as a progression compared to the exit point of Q4 last year. Advanced material DBDA was stable at 162 million euros. As the adverse impact of PVDF was offset by the contribution of PI, advanced materials, and the solid performance of other businesses in the segment, notably the polymers in Asia. Advanced material DBDA margin improved 140 bps to 18.5%. The EBITDA of cooking solutions came in at 75 million euros, reflecting less favorable conditions in the upstream, while we enjoyed growth in some high-value-added downstream activities. Finally, intermediate EBITDAs to that 39 million euros volumes were lower, given the impact of quotas reductions in refrigerant gases and the low environment for acrylics Asia. In the positive side, pricing dynamics continue to be positive for the fluorogases. Depreciation and amortization stood at 148 million euros, leading to a recurring EBIT of 202 million euros and a rebate margin of 8.6%. The non-recurring items amount to 67 million euros. They include 38 million of PPA depreciation and amortization, and around 29 million for one-off charges, restructuring and legal expenses, as well as the startup costs for our Polyamide 11 platform in Singapore. Financial expenses stand at 18 million euros, with the cost of the newly issued bonds broadly offset by the higher interest of cash investment. So basically, we have a cost of carry, which is basically neutral. At 36 million euros, the tax charge represents 22% of rebate and reflects the group's results evolution. Consequently, the quarter one adjusted net income stood at 138 million euros, which corresponds to 1.84 euros per share. Moving on to cash flow and debt. The Q1 recurring cash flow amounts to a negative 60 million euros, which includes the usual first quarter working capital seasonality. The working capital ratio on annualized sales stands at 16.1%, broadly unchanged. That's just last year. Total capital expenditure amounted to a bit short of 100 million euros in the quarter. at 21 million euro outflow correspondingly to the acquisition of ARC building products in Ireland to be compared with an inflow last year of 30 million euros linked to the sale of FIBEX. The net debt at the end of March 24 therefore amounts to just over 3 billion euros. This includes 1.1 billion euros hybrid bonds following the 400 million euro issuance. in March to anticipate the refinancing of the tranche of the same amount with the first call date in September 24 this year. The net debt to last 12 months EBITDA ratio stands at around two times. I thank you for your attention and will now hand it over to Thierry for the outlook.

Thank you Marie-Josée. So going into Q2. The current macroeconomic environment remains mostly in continuity. We have not yet witnessed a clear pickup in volumes, although there are here and there small improvements yet to be confirmed in activity level. So hopefully things will start to move in the right direction at some point at the end of the quarter or during the second part of the year. For the second quarter, we'll continue, as you expect, to focus on our self-help and our main projects. This is our first beauty. We look forward to the initial contribution of some of our key projects, and in addition, we will benefit from the contribution of PIAM as a continued positive dynamic of adhesives. So, all in all, we expect in Q2 an EBITDA slightly above last year's level, which would show a positive trend after the slightly below-trend performance of the first water. We confirm that our main organic project should contribute 60 to 70 million euros in EBITDA over the full year, mostly in the second half. So, on the back of our Q1 results and the current outlook, we confirm our annual guidance and aim to achieve in 2024 an EBITDA of around 1.5 to 1.7 billion euros, depending on the strength of the recovery of the economy. We'll also continue to work towards achieving the medium-term targets announced at the Capital Market Day with progress in our organic projects, integrating and delivering the synergies of acquisition and furthering our innovation together with our customers to best leverage our unique positioning across our three specialty materials segments. I thank you for your attention and together with Marie-José, we are now ready to to answer the question you may have.