Arkema S/Adr

Good morning, everybody. Welcome to Arkema Q3 2025 Results Conference Call. With me today are Marie-Josée Doncion, our CFO, and the Investor Relations Team. To support this conference call, we have posted a set of slides which are available on our website. And as usual, I will start with some comments on the highlights of the quarter before letting Marie-Josée go through the financials. At the end of the presentation, we'll be available as always to answer your questions. Let's commence first on the economic environment, which remains, as you know, challenging. We noted weaker than anticipated trends in the U.S. over the summer. The lower demand is probably a reflection of ongoing uncertainty around the tariffs and frictions in adjusting supply chains. On the other hand, Europe and Asia remain consistent with what we have seen since the start of the year. Europe at relatively low levels, and Asia still with a positive dynamic, in particular in China. The negative currency impact was also slightly stronger than in Q2. Despite this challenging macro environment, Our growth pockets, which are at the heart of our climate strategy, deliver substantial growth. As a matter of fact, our sales were at 20% in several key markets, namely batteries, sports, 3D printing, healthcare, and new generation fuel specialties with low global warming potential. This positive momentum is also supporting the ramp-up of our measure project on flight 7, but all in all that was not sufficient, obviously, to offset the strong macro headwinds of the saltwater. With the Q2 results, we share with you that this measure project should bring 50 million euros in 25 versus 24. I am happy to convey that we reassessed the progress and we can lift the impact to 16 million euros. This contribution is essentially supported by the strong momentum in PVDF for batteries, bio-source feedback in sports, and 233ZD for our specialties in building insulation. PM has also showed good growth since the start of the year thanks to new smartphone models and now flexible packaging at Hazy is starting to contribute. This is certainly less than the initially estimated €100 million attributed to the tough environment. Nevertheless, this project showed good momentum, and the setup for 2025 is encouraging. As you know, these projects are already fully financed and therefore are included in our capital employed with only limited contribution to the P&L In this regard, the group will gain around 2.5 points of ROC from this project over the next years, in addition to the improvement of the cycle, which will benefit everyone. We can mention also the start of two new plants in Q3 in the U.S., both on budget and on schedule. The new 1233 ZD unit, a fluorospecialty with low emissive impact used for building insulation or thermal management, and a new DMDS capacity for refining and biofuels, with an impact on earnings still limited in 2025. In addition, the new Rilsang Clear transparent polyamide plant reached mechanical completion. This unit, downstream of the polyamide 11 plant in Singapore, is expected to be operational in the first quarter of 2026. Given the tough environment, I'd like to stress that all teams are fully mobilized on a daily basis to best manage the current economic and geopolitical context. We run a number of cost-cutting initiatives, as shown in slide three, and are on track to deliver the targeted 100 million euros of fixed and variable cost savings by year-end. The cost alignment will continue, and we strive to again offset inflation in 2026. In addition, Arkema stayed disciplined in capital allocation. You see that we made progress in working capital management and delivered 200 million euros recurring cash flow compared to last year despite lower earnings. This cash generation is fully reflected in the reduced debt, maintaining a robust balance sheet. Arkema will once more reduce capex next year to 600 million euros while continuing to optimize its working capital. Despite all the efforts of the Archimedes team, EBITDA went down to 310 million euros. Looking at the results by segment, you could recognize the different profiles of each product line. Additive solutions and advanced materials are more resilient with earnings affected by lower demand, while net pricing was only slightly down. In contrast, there was more volatility in cuttings linked to the low cycle in upstream water leaks, while the all-generation flow of gases in intermediates reported a seasonally lower outcome. I already mentioned the ramp-up of our measure project, which reflects the execution of our growth strategy, but also our ability to work in parallel on two tasks. We focus on optimizing our operations in the short term, but at the same time secure our growth potential in the long term. This prepares us to be ready in the winter when the macro will again be more supportive. As highlighted before, we follow a strategy focused on five identified high-growth markets where we continuously look for new opportunities. In this context, I am happy to announce that we will expand our potential in the attractive adult electronics market by adding a new structured platform dedicated to data centers. You have heard details of it in slide five of our Q3 presentation. By dedicating joint initiatives to this powerful market, we see significant growth prospects, though starting from a low base. Besides, I would like also to emphasize Arkema's success in the battery market in Asia. Our bet on LFP batteries is clearly a winning one, and our strategy to expand our asset base with modest capex in China, Europe, and the U.S. turns out to be really good, putting us in a good position to move in this dynamic market. We recently inaugurated a new laboratory dedicated to the next generation of batteries, using an innovative dry-coating process for electrodes that significantly reduces the cost of battery production while lowering its carbon footprint. This innovation illustrates that PVD's long-term growth potential remains significant while offering premium margin on the target as we are doing the high-end of the range. I will now hand it over to Marie-Josée for more details or a more in-depth look at the financial before we discuss it at the end of the presentation.

Thank you, Thierry, and good morning, everyone. So let's start with the Archimedes revenues. At 2.2 billion euros, our Q3 sales were down 8.6% year-on-year. They were impacted by a negative 3.9% currency effect, reflecting mainly the weakening of the U.S. dollar. against the Euro, but also from other currencies, including Chinese Yuan and Korean Won. Volumes were down 2.5%, reflecting the lower demand observed in the U.S. over the summer, and the overall weak demand environment in Europe. On the other hand, we continued to benefit from a positive dynamic in Asia, and more particularly China, mainly driven by high-performance polymers. The price effect was a negative 3.7%, impacted essentially by the acrylic cycle, and the all-generation refrigerant gases. All other activities showed a more limited price decrease of 1.3%, with a slightly negative net pricing. The benefit from lower raw material costs works progressively through the supply chain. Q3 beta came in at 310 million euros, the currency effect representing around 15 million euros negative. Looking at the performance by segment, Adhesives EBITDA reflected the weak demand in industrial adhesives and the disappointing summer in the U.S., notably in flexible packaging and construction. On the other hand, construction business grew in Asia thanks to positive momentum in efficient buildings and remained broadly flat in Europe. The performance of BOSIC continues to be supported by our ongoing work on efficiency and our price discipline. Finally, the integration of dowsabases brought a limited contribution this quarter due to the softness in the U.S. market. In advanced materials, the EBITDA was essentially affected by the volume decrease in performance additives that were impacted by the weak demand environment in Europe and in the U.S., as well as the reorganization of our JARI sites in France in hydrogen peroxide. On the other hand, high-performance polymers volumes were stable, benefiting from strong growth in Asia, And the margin of the advanced material segments remain overall as a good level, 18.8%, with HPP maintaining its solid margin level of 20%. In coatings, EBITDA was essentially impacted by the low cycle conditions in the upstream acrylics. Sales declined in the U.S., in particular in the construction and decorative paints markets. The performance of the segment was therefore significantly lower than last year. Lastly, intermediates to be done included the usual seasonality of the third quarter, as well as the impact of the evolution of regulations in the U.S. and Europe in refrigerant gases. Depreciation and amortizations stood at 168 million euros. They included the amortization of new production units, which started up in the course of 2024, as well as in 2025. This led to a recurring EBIT of 142 million euros and a EBIT margin of 6.5%. Non-recurring items amounted to 48 million. They include the typical 35 million euros of PPA depreciation and 13 million euros of one-off charges, not to blame the thresholding costs linked to the reorganization of our hydrogen peroxide site in France. Financial expenses, to that 33 million euros, the increased asset classes reflecting mainly the increased cost of our bonds as well as the lower interest of invested cash. And consequently, Q3 adjusted net income stood at 78 million euros, which corresponds to 1.04 euro per share. Moving on to cash flow and net debt, Arkema delivered a solid cash flow, as you could see in Q3, with recurring cash flow standing at 207 million euros. This reflects our continuous initiatives to tightly manage our working capital and integrates also decreasing cap excesses last year. The working capital ratio on annualized sales to that of 17.3% and total capital expenditure amounted to 131 million euros in line with our objective of 650 million euros for the full year 2025. Net debt amounts to 3.4 billion euros including 1.1 billion euros of hybrid bonds. The net debt to last 12 months EBITDA stands at around 2.6 times. Note also that we continue to refinance our 2026 bond maturities with the issuance in September of a €500 million green bond with an eight-year maturity and an annual coupon of 3.5%. This has also enabled us to extend our debt maturity now to 4.6 years. Thank you for your attention, and I'll now hand it over back to Thierry for the outlook.

Thank you, Marie-José. So, going into Q4, the macroeconomic environment remains challenging, marked by low visibility and weak demand in the U.S. and Europe, so no surprises there. In this context, as already said, optimizing the short-term by working on fixed costs, capex working capital remains among our top priorities. We are on track, as mentioned, to achieve around €100 million of fixed and variable cost savings in 2025. More specifically, our numerous initiatives on fixed costs will enable us to offset inflation in both 2025 and 2026. At the same time, we continue to build Arkema for the future. It's very important. By maintaining our efforts in R&D as well as in sales and marketing, focus on the key attractive markets identified by the group, supported by the major projects that you are well aware of. Taking into account the macro environment that remains challenging and the softer than expected demand in the U.S., for the time being at least, we aim at delivering an EBITDA of between 1.25 billion and 1.3 billion euros in 2025, with a midpoint globally consistent with the consensus and a recurring cash flow of around 300 million euros. I thank you now very much for your attention, and together with Marie-José, we are certainly ready to answer any of your questions.