Arkema S/Adr

Good morning, this is the conference operator. Welcome and thank you for joining the Arkema Second Quarter 2026 Results and Outlook conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and 1 at any time. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0 on their telephone. At this time, I would like to turn the conference over to Mr. Thierry Le Henaff, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good morning, everybody. Welcome to our KEMAS Q2 2026 results conference call. Joining me today are Marie-José Donsion, our CFO, as well as Investor Relations Team. To support this conference call, we have posted a set of slides, which are available on our website. I will first comment the highlights of the quarter, before letting Marie-José go through the financials, and at the end of the presentation, as usual, will be available to answer your questions. The second quarter was, as you know, marked by the challenging context in the Middle East. Oil and raw material prices, as well as energy and logistic costs, rose sharply. As a consequence of the conflicts and global supply chains were partly disrupted. We saw some temporary easing towards the end of the quarter, but following the ceasefire, the conflict resumed and raw material prices have moved back up. The market demand environment remained weak overall, in line with previous quarter, with no recovery yet in Europe and the US. On the other hand, Thank you very much. Thank you very much. Quite a strong level, 16.1%, up 90 basis points year-on-year. This marks a significant step-up and the first positive year-on-year EBITDA evolution in several quarters. This improvement was driven primarily by the strong performances of our adhesive and coating businesses, while high-performance polymers were broadly stable. As expected and as previously flagged, The disappointment came from performance additives. Performanceally, this result demonstrates the quality of Arkema's portfolio and reflects the strategic transformation carried out over the years to focus the group on higher value-added applications and attractive growth markets. I would like now to underline the hard work and commitment of our teams, who remain fully mobilized to mitigate supply chain disruptions, both in terms of raw materials availability and input cost inflation, closely working with our suppliers and with our customers. Now, looking briefly at the performance of our specialty material segments. Adhesives Solutions posted a strong quarter. with EBITDA up 7% year-on-year. By the way, this was the best quarter ever achieved by BOSTI at par with Q2 2022. This performance was mainly driven by the segment's continued product mid-shift towards higher value-added solutions and pricing actions to pass through the inflation of raw materials. Volumes were indeed broadly stable with strong growth in durable goods markets Particularly aerospace, consumer electronics, and industrial assembly. This was partially offset by volumes a bit below expectations in the construction market, in particular in Europe, and by packaging which remained soft. In a still subdued demand environment, EBITDA margin increased to a good level, 15.1%, highlighting the ongoing efforts of the team to improve the profitability of the segment. Advanced Materials delivered mixed results, as you could see in the quarter. High-performance polymer gained some momentum, benefiting from our new business development, the ramp-up of our project, and the good growth in batteries, 3D printing, and electronics. PRM delivered another very strong quarter, with EBITDA up 30% in local currency. Plural specialties were weaker than forecasted, but should improve in the second part of the year. All in all, HPP achieved EBITDA on par with last year. On the other end, performance additives were significantly down, impacted by the Middle East crisis, with particularly weak demand in some end markets, such as refining and fertilizers, and also, as you know, sulfur costs increased, which was significant. The margin of the advanced material segment remained overall at a solid level, around 19% which leaves nevertheless space for improvement. Coating Solutions delivered a strong recovery in the quarter. The EBITDA was significantly up from the low base of 2025. Our resin and additive business both posted strong results but I would like to highlight especially the positive dynamic of Sartomer delivering Strong volume growth over the quarter, notably in electronics, 3D printing and industrial cuttings. The segment's performance reflects also the ongoing refocusing of the portfolio toward higher value-added applications, as well as the agile pricing management. As a result, we were very pleased by the segment margin, which reached a high level at 18.5%. As for primary materials, as anticipated, earnings were driven by the tighter spreads in acrylic, partially offset by the fading out of all-generation refrigerant. In Asia, acrylic spreads rapidly declined, going back to their previous levels, while in Europe and the US, spreads have improved more gradually, which only moderately contributed to the earnings growth, as the volume environment remains so far subdued. We also continued in Q2 to focus on strict cost discipline and cash allocation. We are, at the end of June, in line with our target to offset fixed-cost inflation over the full year, which would be quite a performance, supported by a number of cash-cutting initiatives across the organization. We also tightly control working capital, and our capex are below the level of last year, on track with our annual target. As a result, the group was able to generate a good level of recurring cash flow in the quarter, close to 80 million euros, which was not given in the context of rising raw material costs. It is also important to continue to implement our long-term strategy. From this standpoint, one of our priorities remains to ramp up our major projects, including, recently, Our polyimide 11 and rich sand clear plants in Singapore, our new PVDF capacity in the US which has recently started up. We also started the new distillation in acrylics in our site of Carlin in France, enabling the group to reduce the size carbon footprint by 20% and its energy consumption by 25%. All together, our growth project contributed around 25 million euros of additional EBITDA in H1 versus last year, fully in line with our full-year target. I will now hand it over to Marie-José for a more in-depth look at the financials before we discuss the outlook at the end of the presentation.

Thank you, Thierry, and good morning, everyone. I'll start with our CMA revenues. At 2.4 billion euros, Q2 states were at 3.2% on-year organically, volumes came in slightly down, 1.8%, to an overall weak demand environment in Europe and in North America, and to lower volumes in performance additives. The price effect was a positive 5.1%, reflecting, on one hand, the pricing actions implemented by the group across all businesses to compensate the inflation of raw materials, and on the other hand, The Better Market Conditions in Upstream Acrylics. The scope effect was a small negative at minus 0.7%, corresponding to the divestment of some small plastic additive businesses on the 1st of July. Lastly, sales were impacted by a still negative 1.2% currency effect, reflecting the weakening of the US dollar against the euro.

This effect was more moderate than in the first quarter.

Quotetulbida came in at 391 million euros, up 7% year-on-year, mostly driven by strong performances in additive solutions and in coating solutions, while advanced materials were down year-on-year, impacted by the weaker performance of performance additives, while the high-performance polymers remained stable. Primary materials were very much supported by the improved spreads in acrylics. Quotetulbida included an unfavorable currency effect of 10 million euros. Depreciation and amortization stood at 171 million euros, leading to a recurring EBIT of 220 million euros, up 11%, and the rebate margin improved to 9%. Non-recurring items amounted to 78 million euros, they included 32 million euros of PPA depreciation, and 46 million euros of one-off charges, notably linked to the reorganization of our sites of Jarry and Servanit in France, initiated last year. and to ongoing legal proceedings as well as the divestment of some small plastic additives businesses completed recently. Financial expenses stood at minus 35 million euros, reflecting mainly the increased cost of our refinanced bonds. Quota II adjusted net incomes stood at 129 million euros, which corresponds to 1.70 euros per share. Moving on to cash flow and net debt, Arkema delivered a solid cash flow generation in Q2, recurring cash flows to that 78 million euros, reflecting a well-controlled working capital. The working capital ratio on analysed sales to that 15.8%, much improved, versus the 17% of last year. I take this opportunity to commend the teams who have been able to strictly manage working capital despite rising raw material costs.

Overall, the free cash flow delivered by the group in the first half was a solid print, slightly better than last year.

Total capital expenditure amounted to €117 million in Q2, in line with our guidance of annual cash expense of under €600 million for the full year 26. Net debt and hybrid bonds at the end of June amount to €3.6 billion, including the €800 million of hybrid bonds. Our debt remains stable year-on-year, confirming the solidity of our balance sheet in a weak market condition. The net debt to last 12 months EBITDA ratio currently stands at around 2.9 times. I thank you for your attention and will now hand it over back to Thierry.

Thank you, Marie-José. As you can see, despite the challenging context, we could deliver a solid achievement in the second quarter with EBITDA growth year-on-year. Looking at the first semester, our performance is as we were hoping. But through the first quarter, a bit disappointing, and the second quarter a bit higher than expected. EBITDA was slightly above last year, at constant ethics in the first half, keeping in mind that H1 was a better alt of last year, and that the environment became more demanding in the second half of the year, as for all chemical companies. As we enter the third quarter, demand trends remain broadly unchanged. In this context, the team remains agile, disciplined, with a continuous focus on operational excellence, pricing management, in order to navigate the current environment. Cash generation and capital allocation, as you know, remain for Artema key priorities, supported by strict working capital management and a disciplined approach to CapEx. In parallel, we continue to build Arkema for the future, and this includes the execution of our major project that you know. So we confirm, as I said before, an additional contribution to the group's EBITDA of around 50 million euros versus last year for these major projects. Based on our H1 achievement and in the current environment, we are confirming our guidance of a slight EBITDA growth at constant exchange rates for 2026, The balance between the two semesters would then reflect a traditional level. In H2, our performance should benefit notably from year-on-year growth in adhesive solutions and coating solutions. Thank you very much for your attention, and together with Marie-José, we are now ready to answer your questions.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Katie Richards with Barclays. Please go ahead.

Hi, good morning. Two questions for me, please. Firstly, you highlighted better dynamics in the high-performance polymers division versus Q1. Could you just elaborate, please, on what is driving this improvement and whether you have any conviction that the business has returned to growth for the remainder of the year, excluding the new project ramp-ups? And secondly, I would just be interested in your commentary on the regional dynamics. You noted some improvement in North America. Could you elaborate on why you're seeing improvements there, please?

Okay. Thank you very much for your question. So with regard to HPP, so drivers are of different nature. Clearly, the ramp-up of the project is participating, but we see a good growth now in polyamide. Let's say a big part of the semester where it was still subdued and we started to see during the second quarter the benefits from new business development, particularly on the high-performance polymers for battery, even auto, was a bit better than expected. I would say electronics, again batteries, semiconductors, all these businesses which contribute to this pocket of growth that we have mentioned. Most of the pockets of growth basically are within this HPP and we should see these dynamics contributing well in the second semester. In HPP, maybe among the different business lines, The one which is currently more stable is fluorospecialties. So, in fact, the growth is really coming from the pure polymers, so pyarm, PVDF, and polyamide. With regard to NA, I don't know if it was just referring to HPP or for the... Overall group, I will suppose this is for the overall group. I would say, as I mentioned at the beginning of the call, in terms of regional dynamics, we still see NA, so there are some exceptions, for example, aeronautics, as everybody knows, is doing pretty well, but it's not a big market for Arcema, but overall, NA is still... Disappointing in terms of underlying dynamics. I think we have some business segments which are going quite strongly, but overall still in the continuity of the previous quarter, subdued demand. The same for Europe, as we mentioned. So for us, I would say, in terms of volume, after that we can debate about... The pricing story, but in terms of volume, I would say that really the growth for Arkema is still coming from Asia. In China, as you know, China is more driven by the export from China of our customers than the domestic demand itself, which is really not so great. and by the South East Asia and India, we are not talking too much about it normally, but we are pleased by the momentum we saw in Q2. So basically the geographical balance remains more or less the same as it was in the previous quarters. Maybe just to finish on NA, and you saw it through the release of the result of the coatings, The dynamics of cutting in the U.S., including Sartre-Pomer, but even beyond, is better than it was in previous quarters.

Great. Thank you.

You're welcome.

The next question is from Matthew Yates with Bank of America. Please go ahead.

Hey, good morning, everyone. Thierry, I'd actually like to pick up on your last point about Sartoma and maybe to spend a few minutes elaborating on this business that perhaps has gone under the radar a bit historically. From memory, it serves many different end markets. So the growth that you're seeing, is this a function of now ramping up the capacity investments you've made in recent years, and in particular, Am I right in thinking that you use UV resins for printed circuit boards? So is this tying into the strong growth we're seeing in semiconductors, etc.? And finally, it's quite difficult because of the financial restatements that you've made on the coatings business to track performance over the years. But would you agree that Sartomer is a very, and I emphasize the word very, a very margin accretive franchise, and that's been really important in explaining that 18% margin that you delivered in the division this quarter. Thank you.

Thank you, yes. Mathieu, yes, these questions are very valid, and so, yes, it's true that Sartomer, in fact, has gone... and it was disappointing in the past two years, particularly last year, through a more difficult time and we were at the same time surprised because we, as you know, it's an acquisition that we made a long time ago and we strongly believe in these products which are really attractive and high value and so we started from the base last year which was disappointing and this year we have a strong recovery for different reasons. First year in part, Thanks to electronics, to semiconductor, medical also, applications, 3D, is doing quite well. Because of the Middle East, but also supply chain disruption, the U.S. part, which was more, I would say, was more challenging, surprisingly enough, because their leader there is coming back to far more decent level of profitability. In Europe, we have very strong teams there, and they have been able to manage stability even in difficult markets. So, Sartre-Thomer as a whole was a bright point, as you wisely mentioned, but it was not the only one. The rheology additives through Coatex and the more traditional coating resins are behaving well. So, the 18.5%, we are very pleased about it, of the second quarter. It's not the new norm. It's better to take the H1 average between the first quarter and the very strong second quarter, but this means that we have the ingredients inside coatings to... Really to reach when some conditions are aligned quite a good level of result and I think it's a good message for you and for the market because maybe you had a few questions in the past which were valid because we saw some unexpected weaknesses but in fact we see that as soon as the conditions are a little bit more favorable we see a strong leverage on the profitability of this business and we are optimistic Very pleased about it, and the fact that we separate acrylics, which was the extreme, more volatile, back to primary materials, and the coating solution itself, which is more the downstream, gives a better understanding and transparency of the profitability, so clearly it worked on this second quarter.

Thanks very much.

The next question is from Chetan Udeshi with J.P. Morgan. Please go ahead.

Hi, thanks for taking my question. I had a very good Q2, but I was a bit surprised at the composition of that EBITDA growth because it seems a lot of this is, in fact, all of it is driven by pricing because your volumes are down. I'm looking at, even as these volumes are flat, EBITDA is up, it seems like there's probably some phasing benefit of lower raw materials and higher prices. I don't know, but I think the crux of my question is, how should one get comfort that this pricing-driven earnings uplift will not wither away once the Middle East conflict-driven Maybe tightness or panic buying, etc. starts to unwind later this year. And the second question is, in your presentation, you've talked about start of Q3 in the same trend as what you've seen in the recent months. With that context, how are you thinking about third quarter weather versus Q2 or weather versus last year? Thank you very much.

Okay, the questions are valid, but I think the answers are very clear. First of all, if you look, it's also about the Middle East impact, but I think if you take adhesive, clearly, adhesive, Middle East has no impact on adhesive. On the contrary, I would say the more you go downstream, the more the Middle East topic is a challenge, because you have strong raw material increase, Your business is very fragmented by the nature of the adhesives, and we reach our best Q2 ever in adhesives. So this means that internally, we have a very strong momentum. The teams are working like crazy in order to restore profitability after last year, which had been disappointing. And I think they are doing a good job, particularly because you mentioned pricing, but you miss something which is a mix. For example, our durable good business, which is quite attractive in adhesives, is really growing very strongly thanks to new business development and some pockets of growth that we have there, again in electronics, in batteries, in automotive. and it was very pleasing. So, adhesive, I would say, is part of the answer to your question, because adhesive is not at all a matter of net pricing. I mean, they have been able to compensate the increase of raw material, but they are at par in terms of... It was not easy to have a sort of neutral impact of raw material cost, but not positive. So, it's one element of answer. After that, with regard to the pricing on specialty materials more broadly, I would say we have, and it comes from coatings, a slight net positive pricing, but most of the positive pricing is coming from acrylic, as expected, even if you take Asia, already in June it was back to the norm of the first quarter. And in... So in Q2 overall, I would say for us, and we thought about it, the impact of Middle East was positive on Axelix, was a little bit positive on the coating, but it was negative on the performance additive. So the HPP development was more than offset by the challenge which was creating on the performance additive. The medially situation. So to make the story short, we think that a big part of the profitability of the Q2, the large majority, is really coming from our positioning, our mix, the work of the team in an environment which has some positive and some negative, as you can see, and it really depends on the business. Now on the Q3, I would say that We have, so we don't guide quarter by quarter, we never do that, but you have a guidance for the full year, which is rather precise. After that you can see how you want to wait Q3, Q4, but in fact we say that new quarter is looking exactly like the same. We have seen that on the first semester, it will be the same on the second semester. Thank you very much. I would say high performance between high performance product and performance additive sort of offset one by the other. So this is what we have in mind. Got it. Thank you very much. You're welcome.

The next question is from J.D. Pandya with On Field Research. Please go ahead.

Thank you. First, I want to ask on the upstream acrylics where you are mentioning, you know, some slowdown in Europe. So, just want to understand what happened in Q2 in upstream acrylics, both product spreads wise, you know, where are we currently in terms of mid-cycle versus low-cycle and, you know, what is sort of your structural view on this product line, you know, in the next sort of 12 to 18 months? Then the second question is really on the performance additives part of advanced materials. So, just want to understand what really is going on here, you know, how much of the Middle East crisis was an effect and, you know, how much of an effect is, you know, other factors which may be stopping the performance here and, you know, again, when sort of can we expect full recovery. And then the last question is really just on the M&A pipeline for adhesives. considering one of your competitors has recently made a fairly large acquisition. So, what do you see in terms of the M&A pipeline in IDCEP these days? Thanks a lot.

Okay, thank you for the question. So, with regard, I will be quick on the thin acrylics because as you could see, I think the big... Part of the call is really on the evolution of the product mix on the specialty materials, but on the upstream acrylics overall, between the three regions, we have different momentum. And then I will mention Europe more specifically, but I would say that in Asia, and I think we had already this discussion when I was in London in March, is that in Asia things are going very very quick but on both ways so we had a surge and then it went down quite quickly so we are back to square one to quite low levels in Europe and US which is a little bit the same story we started from low point we were at low cycle on both regions so what we see now is that So it's not fantastic, it's just more normal. We get back close to mid-cycle, which means that it's hopefully something on which we can count going further. It was necessary because we were below the reinvestment point. So no nuclear volume. So now, when we mention the slowdown in Europe, Sometimes you have to make, it was important to restore the margin, and it was our priority, so instead of chasing the volume, which was more the policy last year, where really the margins were anyway difficult, this year our approach was more balanced, and this is why you could see temporarily, you cannot extrapolate a quarter, but we decided in the second quarter to restore the margin to close to normalized conditions in Europe. With regard to performance additives, it is already difficult to separate all the factors. What is clear is that the Middle East is a big, like the elephant in the room. Why? Because performance additive is really the business line which is supplying by the nature of this product of performance additives. Supplying to polymers, for example, has been impacted by Middle East because they have an important part of their business in Middle East. And on top of that, more indirectly, but at the end it was direct, it's like this, one of their big raw materials is sulfur, which has gone to sky, so it has been a very big impact for them. And then, as you know, part of the fertilizers... So, then, agrochemicals are linked to sulfur production, so sulfur cost. So, in fact, they have the three elements at the same time, and it has been a big factor. Now, there are some other factors that just... Because of the global context, the demand is not bright. They also suffer from it. This is why we have a portfolio of business lines. And this is why we have, I think, a strong Q2. Is that because while performance additive is underperforming, here the lines are more where we expect or even better than expected. And that's the beauty of the portfolio. Now, when can this... Fact on reverse, the big question is when does the Middle East cease? Nobody knows, so difficult to answer your question, but again, in each situation you have pros and cons, so Middle East has some positive impact, has some negative impact, we manage them with speed and with agility. And last question, Regarding the M&A in adhesives, so we have a pipeline, as usual, by nature, everybody has a pipeline in adhesives, but it's not a priority today. A priority is what we did in Q2, is to take the profitability where we want. We have made, in the past three, four years, several acquisitions, investing also in CAPEX for adhesives, and we have also reorganized top management projects A year ago in the adhesive, and for me the priority today, and I told that to the team, is you deliver organically. If there is really something on the market which is really an exceptional opportunity, we can consider it, and anyway it will be a small size bolt-on, not big ones, but we can live without it. So it's not the priority of the day in the current context to make acquisition in a The next question is from James Hooper with Bernstein. Please go ahead. Good morning, everyone, and thank you for taking my questions. I have two, please. The first is on cost controls.

They appear to be more effective than previous years. Have you changed anything in the organization to promote this? And is there an opportunity to go beyond just an offset from 2027 onwards in the medium term? And then secondly, I want to kind of follow up on the margin profile of some of the new projects that you're... Are there significant startup costs associated with these? Well, kind of, in another way, are these projects expected to kind of be part of the mix effect you've been referring to in 27-28, as they're fully ramped up? Thank you.

Okay, so on the cost control, have we changed anything in the organization? I mean, the way Arkema is working, I think we work a lot of empowerment. I think And then, clearly given, I would say, the state of the global economy and with the demand which is subdued, at least for Europe and the US, the teams understand pretty well the need for cost control and for offsetting the inflation. The way we work, this is the discipline of Arkema and the mindset of Arkema and the culture of Arkema, It's not like we launch a sort of a big plan with one element which will overwhelm all the other elements. It is a sum of elements of taking advantage of retirement to reinforce the creativity To have productivity, so to do it in a smooth manner, and I think it has been quite successful so far. We are also in line with our 3% account reduction, and we are also attentive to any new forms of Thank you very much. Because we are agile, because we adapt to what is the economy, and so far we really delivered. As you could see, some summary of what we are doing, page 4, which explains to you that we are really aligned with our objective. Now, frankly speaking, for the mid-term, so let's say the next three years, if we can offset inflation, higher inflation, I will sign now, so I think it's for chemical company to offset inflation. It's a good target, so I would not commit to more, but I'm ready to commit to try to offset inflation for the next few years, as we say, and it goes with 3% account reduction, as we have announced already. On the new project, one, it is fully ramped up. But on some projects like Singapore, it can take five years. On some like PVDF, small expansion, it can take two years. Once it is fully ramped up, it's attractive to the margin of the company, but it takes a few years to ramp up. On the startup cost, I think not anymore, I would say. It was maybe the case a couple of years ago, but not anymore.

There are some of the costs, but they are all, let's say, inhibited. So the only handling that took place as non-recurring costs was the Singapore startup cost, which was extremely material and that we classified as non-recurring. But any startup cost of any new project is anyway a part of the cost. Thank you.

The next question is from Laurent Savre with BNP Paribas. Please, go ahead.

Yes, good morning. I'm sorry that I'm going to go back to Adithi's comments for the second half, as it seems that you are fairly confident that that will drive a bit of growth for the group. And I'm a bit puzzled because Comparables are exactly the same between first half and second half in terms of volumes. If you think about raw material inflation, you may not have seen all the inflation in Q2. And then on the volume side, you're more likely to have seen pre-buy than postponed orders. So I'm just wondering, given all the uncertainty, given all the issues around construction in particular, I'm just wondering what drives that confidence. And I'm not saying I doubt your confidence, I'm just wondering what's driving it.

No, no, but I think, remember that last year, our first quarter was really stronger than the, our first semester was really stronger than the second one, so we'll go, compared to our base, which last year was disappointing, and you know that I took some action to following the results that I consider for adhesives, Based on our expectations, disappointing. So I think the base of last year was not a strong one. So I think we grew compared to this base. Now we see, especially in durable goods, after a lot of work, a good momentum of new business development, which we led. Now on the pre-buy, I don't really agree with you on the disease, because if you look at the volume growth, we are at zero. We are at zero in Q2 and we are at zero in each one, so you don't see a difference between first quarter and second quarter. And in the first quarter, obviously, there was no pre-barifo. And now, between construction and the rest of the business, early it will come from industrial ideas and more than construction. But, no, I think we have a good momentum. No, we are not going to say that the growth in adhesive would be fantastic. We will be growing in adhesive in the second semester. We have been growing in the first semester. Everybody is pleased about it. And again, compared to a base last year, which was not fantastic.

Okay, thank you.

You're welcome.

As a reminder, If you wish to register for a question, please press star and 1 on your telephone. For any further questions, please press star and 1. Mr. Le Henaff, there are no more questions registered at this time. The floor is back to you for any closing remarks.

Okay, so I would like to thank you all for your questions, very interesting, and don't hesitate if you have any further questions to call Beatrice or James, it would be really open, and I wish you a summer break also, a very nice summer break, and looking forward to talking to you again. Thank you.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.