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Edited Transcript of AKE.PA earnings conference call or presentation 1-Aug-19 8:30am GMT

Half Year 2019 Arkema SA Earnings Call

COLOMBES Cedex Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Arkema SA earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Marie-José Donsion

Arkema S.A. - Group CFO

* Thierry Le Hénaff

Arkema S.A. - Chairman & CEO

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Conference Call Participants

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* Chetan Udeshi

JP Morgan Chase & Co, Research Division - Research Analyst

* Emmanuel Matot

ODDO BHF Corporate & Markets, Research Division - Analyst

* Geoffrey Robert Haire

UBS Investment Bank, Research Division - MD and Equity Research Analyst

* Georgina Iwamoto

Goldman Sachs Group Inc., Research Division - Associate

* Jean-Baptiste Henri Rolland

BofA Merrill Lynch, Research Division - Associate

* Jean-Luc Romain

CM-CIC Market Solutions, Research Division - Analyst

* Laurent Guy Favre

Exane BNP Paribas, Research Division - Research Analyst

* Mubasher Ahmed Chaudhry

Citigroup Inc, Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Arkema's Second Quarter 2019 Results Conference Call. I will now hand over to Thierry Le Hénaff, Chairman and CEO. Sir, please go ahead.

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [2]

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Thank you. Good morning, everyone. Welcome to the second quarter 2019 results conference call. With me today are Marie-José Donsion, our CFO; and also, as usual, the IR team.

As always, we have posted on our website, in addition to the press release, a set of slides which details the second quarter performance that I'm happy to present to you today.

Obviously, and it should be the case for the whole year, (inaudible) for our peers, the opportunity to test Arkema in a more challenging environment, a kind of environment in which the strength of the business portfolio, the balance of the geographical footprint and quality of execution make a difference. As you have seen from the press release this morning, in the second quarter, Arkema achieved a very solid performance in what remains a volatile and complex macroeconomic environment.

And I will start this conference call by highlighting a few key points of the strong set of results. Firstly, Arkema continues to demonstrate a good resilience at high levels, both from an EBITDA and operating cash flow standpoint in an environment, which has become, since the fall of 2018, increasingly complex and volatile. As you know, geopolitical tensions continue to weigh on global demand and amplify volatility in the oil price. In this context, customer remain cautious. They continue to manage tightly their inventories. This and the specific weakness in certain areas, such as automotive and consumer electronics, explains that we have continued to see this quarter a lower demand compared to last year, with what we consider to be some inventory adjustment from customer and along the whole value chain.

As far as Arkema is concerned, this observation was particularly true in the modern trend businesses, namely the HPM segment. In this context, Arkema achieved, in Q2, an EBITDA of EUR 407 million, close to the record performance of Q2 2018. And as already mentioned, this is the second best performance ever in a quarter, and in fact, the second time Arkema's quarterly EBITDA exceeds EUR 400 million. The fluorogases were, as we know, facing more adverse conditions and (inaudible) normalizing versus last year. We were glad to see that the large majority of our portfolio grew overall. EBITDA margin resisted well above 18% and free cash flow was quite positive for the second quarter, more than twice last year's level.

(inaudible) is a confirmation of the progress we are making at Bostik. Since the start of the year, and as expected, Bostik has really changed gears and managed to deliver a strong increase in EBITDA, with EBITDA margin at 13% and EBIT margin at 10%. As expected, this is a result of a number of factors. Our successful price increase strategy, reinvest work of the (inaudible) 2014 to '15 to prune Bostik's portfolio, modified the organization, enhanced operational efficiency and also our targeted acquisition strategies, the latest example being last week's announcement of the proposed acquisition of Prochimir in high-performance thermobonding films. So as you can see, Bostik is well on track with its road map, and we are confident in our ability to further increase its profitability and top line in the coming years, in line with our ambitious mid and long-term ambition for this business.

So overall, I'm rather pleased with the mix of this quarter. It's a good mix, with Bostik coming back, as I was mentioning, Coating Solutions confirming year after year a great resilience and margin percentage increase, (inaudible) shrinking, [hazard] material resisting quite well versus peers with net pricing coming through.

(inaudible) [point] is a confirmation of our full year guidance and our mission to achieve this year an EBITDA comparable with the 2018 record level. Lastly, beyond the day-to-day thought of the team to cope with the current market conditions, we have continued, and this is very key, to actively implement our long-term strategy, focusing on our well-known growth pillars.

First, organic growth in the U.S. and Asia, with the start-up of Sartomer expansion in China end of April and for the longer term, the announcement of the [registering] for our flagship polyamide 11 site in Asia, in Singapore. And by the way, we are also in the process of starting, and just now in fact, starting off a new acrylic acid reactor in Clear Lake in the U.S. Second, technological partnership, we have announced, as you know, in the quarter for research and development with the opening of an R&D joint laboratory, together with Hexcel for composite for the aerospace industry, and in 3D printing with a USD 20 million investment in the Californian Carbon 3D. They will both participate in a full dynamic in the area of lightweight materials. Finally, bolt-on acquisition in High Performance Materials, with the 2 announcements over the last few days, the planned acquisition of Prochimir in adhesives and Lambson in Performance Additives. These are 2 small-sized acquisition, bringing unique technologies fitting perfectly with our portfolio of hot melt adhesive for Bostik and UV-curing resin for Sartomer. These 2 announcements are the opportunity for me to come back on our acquisition philosophy. We believe in fact that small streams make big rivers. Prochimir is a high-performance solvent-free adhesive film specialist. Based in France, it is a technology leader in the fast-growing market and is therefore an exciting addition to our adhesive business, offering double-digit stand-alone growth and strong synergy potential.

This type of small acquisition with high returns done on a regular basis as Prochimir, Sunke, XL Brands, Nitta, to name the recent ones, allow us in fact to double the pace of Bostik's organic growth. On top of that, we still intend to carry out some midsized ones such as (inaudible). In regards to Lambson, it is a photoinitiator specialist whose business will perfectly complement and enlarge Sartomer's product offering of UV-curing resins at a time when the global supply of photoinitiators is in fact very tight. These 2 small acquisition nicely complements the larger acquisition of ArrMaz, which was completed early July and was in a very short time frame.

So far, ArrMaz prospect confirm to be quite promising. All these recent announcements, both organic and in M&A that I've just mentioned, marks another step towards our ambition to achieve more than 80% of our sales in specialties by 2023. Let me now hand it over to Marie-José for a more detailed look at Q2 results.

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Marie-José Donsion, Arkema S.A. - Group CFO [3]

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So hello, everyone. Let's take a look at some of our financial indicators for the second quarter '19. As you can see, sales are close to last year at EUR 2.25 billion. Sales bridge shows a slightly negative 0.6% price effect, with declines in Industrial Specialties and Coating Solutions and a volatile raw material environment, largely offset by our strong pricing actions in the High Performance Material division. In continuity with the start of the year, volumes declined 2.4%. In High Performance Materials, demand remained lower in markets such as automotive, customer electronics and oil and gas, while volume growth remained very positive in Coating Solutions. Finally, we had a positive 1.9% currency effect, mainly reflecting a stronger U.S. dollar residual. So as a reminder, dollar rate is at $1.12 for the second quarter this year versus $1.19 same period last year. Scope effect was rather limited at 0.4% impact. EBITDA of EUR 407 million was slightly down on last year's record performance. Despite weaknesses in certain of its end markets, High Performance Materials resisted well, thanks to a strong focus on pricing and mix also mentioned by Thierry. Coating Solutions continued to progress this quarter, thanks to increased demand levels, and pricing actions in the downstream, actually. Our Industrial Specialties performance is lower, as expected, impacted by market conditions in Fluorogases, and to a lesser extent, by normalization in MMA/PMMA. EBITDA margins remained high at 18.1%, slightly down on last year's and comparable to the second quarter '17 performance.

Depreciation and amortization reached EUR 129 million. For the results, recurring operating income amounted to EUR 278 million and REBIT margin stands at 12.3%. Nonrecurring items include EUR 10 million of PPM amortization and EUR 11 million nonrecurring charges, corresponding mainly to restructuring expenses and asset write-offs. Financial results stood at minus EUR 33 million. This increase stands mainly for the interest rate impact on our net debt swapped in U.S. dollar, and noncash actuarial losses on certain employee benefit provisions. The tax rate, excluding exceptional items, is at around 20% of recurring operating income for the semester, so overall in line with our full year guidance of 21%. Consequently, second quarter adjusted net income amounted to EUR 192 million, which corresponds to a EUR 2.52 per share. You will note that reported EPS this quarter was impacted by the partial refinancing of our hybrid bonds with a one-off impact of EUR 37 million.

So let's now go through the performance of our 3 business divisions. First, in High Performance Materials, sales amounted to EUR 1 billion, so close to last year. Prices increased by about 4.7%, thanks to continued price actions and actions to optimize the product mix towards high value applications. Volumes are down 8%, reflecting softer volumes in the end markets I previously mentioned, and with some destocking activity visible in some of those chains.

These overshadowed good growth in batteries and 3D printing, where the momentum is fairly positive. We expect volume declines to moderate over the coming quarters as the destocking readily comes to an end. The 0.9% scope effect corresponds to the integration of bolt-on acquisitions in adhesives from last year. Consequently, EBITDA reached EUR 170 million with a 17% EBITDA margin, which is close to last year's record level, with a significant contribution from both of these, as mentioned by Thierry.

Regarding Industrial Specialties, sales were down around 5% year-on-year, with volume down 1.3%, mainly due to Fluorogases, and as expected, the minus 5% -- 5.7% price effect reflects lower prices on both MMA/PMMA and Fluorogases compared to the record high, let's say, of last year. At EUR 179 million, the EBITDA of the division is down, reflecting the impact mainly of the illegal HFC imports into Europe as already flagged earlier this year. It continued to weigh both on volumes and prices of Fluorogases. In MMA/PMMA, we continued to see the impact of normalization, but this remains in continuity of both quarter 4 and quarter 1 and fully in line with our assumptions. Meanwhile, both Thiochemicals and H2O2 delivered solid performance this quarter. And overall, the EBITDA margin of the division remains at a high level at 26.6%.

In Coating Solutions, sales were up 5% year-on-year, mainly thanks to volumes, up 6.7%, driven by the acrylic monomers. The price effect mainly reflects lower propylene prices, while currently the downstream activities are holding stable. EBITDA rose sharply, so up to -- 20% to EUR 82 million compared to last year thanks to gradually improving market conditions in acrylic monomers as well as the progressive recovery of unit margin in the downstream activities.

So I'll conclude my comments with a few words on cash flow and net debt. Free cash flow was positive at EUR 90 million, which is a fair increase relative to quarter 2 '18. So this stems mainly from a lower increase in working capital compared with last year due to strict management, the positive impact of lower raw material costs and also from lower activity levels. A 16% working capital ratio on annualized sales improved slightly compared to the 16.5% ratio at the end of the first semester '18. As for expenditure of EUR 124 million, which includes both recurring and exceptional investments, are in line with our ambitious investment policy to support our future growth. For the full year, we continue to confirm our assumption of around EUR 610 million total capital expenditure. Net debt reached EUR 1.3 billion at the end of the first half, including the EUR 190 million dividend payment. The EUR 38 million cash out linked to the hybrid bond refinancing and EUR 13 million of share buyback.

This concludes my comments. Thank you for your attention. And I'll now hand over back to Thierry for the comments on the outlook.

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [4]

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Thank you, Marie-José. So now I will, as Marie-José mentioned, come back to the -- on the outlook, which was mentioned in the press release. Globally, in the second half for the year, we expect no surprise and the macroeconomic environment to remain volatile and complex, with geopolitical uncertainties continuing to weigh on global demand. However, and this is for us a difference, we expect inventory adjustment, which has been quite significant from our customers in the first half, to at least compare with what we have seen in the sub-semester. In this context and in the continuity of what we have done so far this year, we've continued to focus on what we control, which is our internal momentum and also because we have to be for the long term (inaudible) the execution of our long-term strategy. In the second half, we expect, in particular, to benefit from new startups in Sartomer, technical polymer, acrylic also, we have mentioned in Clear Lake start-up currently as well as the contribution from acquisition, mainly ArrMaz and also Sunke, which is a bit late, but we should -- we expect to close in Q3. So taking into account all these elements, our operational excellence program, also our pricing actions, which is going through, as you could see, in the first semester, we confirm our full year guidance to achieve in 2019 an EBITDA comparable to 2018 record level, thus consolidating our financial performance at high levels.

I thank you very much for your attention. And we are now ready together with Marie-José to answer all your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Emmanuel Matot from ODDO BHF.

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Emmanuel Matot, ODDO BHF Corporate & Markets, Research Division - Analyst [2]

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Several questions for me, please. First, what makes you confident to see less inventory adjustment during H2, and which end markets are you thinking about? Second, in Coating Solutions, do you think the situation is sustainable for adding at the same time, EBITDA growth in acrylics monomers and in downstream activities. Historically, those activities used to go in opposite directions. And my last question, we have seen Arkema very active on acquisitions since the beginning of the year. What are the main reasons according to you? Would you say that the current macro environment is helping to make deals, and you feel, therefore, comfortable to achieve your M&A projects for the 2020 roadmap?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [3]

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Okay, Emmanuel. So with regard to the inventory, I would say there are 2 things. And you have the underlying demand in also electronics and (inaudible), and as you know, we're quite diversified with a set of end market. I would say, this underlying demand, I think, will continue at the same pace in H2 than H1. I don't think any improvement. But what we have seen in H1 is clearly -- and we have a lot of practice in over -- more than 10 years of, close to 15 years of managing Arkema. And that when you start to have a change of trend in end market, you have a very significant adjustment all along the chain, which goes far beyond what the end market suffer. For example, if you are automotive at minus 6% to say something, then you will offset, you will suffer minus 20% by definition. This is just adjustment of value chain of stock around the chain, and typically it takes between 6 months by norm. So we're starting in the fall of last year, so step by step. And so we believe we'll internal guide where this inventory adjustment will get lower. I don't say there would be no more inventory adjustment, but compared to the first semester, which was quite significant, my belief is that this will be far less, and I think it is reasonable [assumption], I think. A lot of stock has been adjusted in the past 9 months. And with regard to the end market, it's a little bit [we have a clear path in] electronics, automotive, oil and gas, but we are not the only one to say that. It has been certainly -- and we have not lost market share, have been quite more significant in terms of inventory adjustments, far beyond the trend of this -- of the end market themselves, so that also as a market can be concerned.

With regard to Coating Solution, first of all, it's not only external condition, as you mentioned. And you know what, the market itself is of today, the global economy is challenging, and so you cannot achieve what we have achieved in Coating Solutions just by waiting for the environment and also our internal momentum, which is quite strong in both acrylic monomer and Coating Solution. I'm happy to prove to you year after year this business, which was certainly underestimated by some. It's really getting a great deal quite resilient and if we look at the past years, and so it's really a good element of mix. And so we benefit not only from lower propylene, for example, for the downstream for the acrylics monomer, some gradual improvement that we consume. We have consumed that since now 3 years and we have been right to do it. So all in all, we are in a satisfactory position. The environment, which remains challenging, but on which I think we are well positioned, and I think our strategy is paying off, I would say.

With regard to the pace of acquisition, I think we continue at a pace which is really reflecting what we have done in the past years. So some of you may think that we are a bit slow, some may think that we are a bit too much, but actually it's a reasonable pace with a combination of small acquisition and bigger one. Is the environment more favorable? If you look at the macro and you look at the multiple, I would not say it is the case. If we -- I look at the interest rate, I think it's more favorable. But at the end, this is not what makes a difference. What makes the difference is really our strategy to make bolt-on acquisition with high synergy, high quality of technology. And once the opportunities are coming, we look at them and we are very selective, as you know. And I think all acquisitions, as we have mentioned since the start of Arkema, have been quite good in terms of return to our shareholders. And so we try to stay selective. So after that what will we do in 2020, it's too early to say. It depends on opportunities. We are very selective because we have strong financial flexibility that we make acquisition for the sake of it, I think. We are not shy, but at the same time, we are very cautious about balance sheet and about the acquisitions that we are making. So we continue at the same pace hopefully as we have been doing in the past years.

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Operator [4]

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Next question comes from Laurent Favre from Exane BNP.

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Laurent Guy Favre, Exane BNP Paribas, Research Division - Research Analyst [5]

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Two questions, please. The first question one, Thierry, is on HPM variable costs. And it looks that you're seeing less inflation, but still a lot of inflation, nevertheless. So I was just wondering if you could help us understand what's happening on raw materials versus non-raw material cost. And whether or not you're starting to see some raw materials deflation or are you expecting raw material deflation in the next couple of quarters? So that's the first one. And the second one, on Technical Polymers. From memory, you had been -- you have had issues around availability of capacity, especially in polyamide 11. And given what's happening to volumes, I'm just wondering how the business mix has changed, and whether you've repositioned the business to keep utilization rates high, but on lower mix. And as you get more -- assuming you get more available capacity, does it mean that you can slow down the Asian CapEx as we are in a slower world?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [6]

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Thank you, Laurent, for the questions, completely different. So on the first one, we believe when we started our guidance that raw material will continue to ease a little bit, I would not say massively, but a little bit in the second part of the year. It would be certainly good for Bostik, for all part of HPM. You have all kind of raw materials, Laurent, with the exception of castor oil, but castor oil is increasing (inaudible) which is decreasing, so one affecting the other. I would say, for the rest, we have some raw material which increased, there's some other which decreased, but the net is a little bit in favor of Arkema, and especially with -- for Bostik. So I think it's typical of this kind of global market when the demand is slowing down, but normally you have a plus on raw materials, which helps you to mitigate the lower volumes. This is what we got. I mentioned our competitors got the same. And for the second semester, we are not pessimistic on raw material, but it's not massive, it's incremental, but it's more in positive (inaudible). With regard to Technical Polymer, yes, you're right at least on the first semester, but hopefully it will not be. So my expectation in the second semester, we got some release of capacity for polyamide 11. But last year, we finished with very low stock, so it was important also to rebuild some stock because last year we were more than tight in terms of business mix. The business mix has changed. Overall, I think the whole Technical Polymer is in the right direction. As you know, we continue to prune some businesses. Our business margin has continued to increase because we are very selective in portfolio development. So we benefit with the addition of certain good, high-value business. So I would say, again, it's incremental like for raw material. That business mix is continuing year after year to increase a little bit. So no, no significant change here, but I would say, [hard to fool], a little bit improvement.

On the Asian CapEx, [accept] this suddenly the worldwide economy is collapsing, but it is not the case for me. It's just a readjustment. I think we've maintained the calendar on the polyamide 11 in Singapore because we don't build for tomorrow, we build for the day after tomorrow, which its CapEx will start end of '21. We have plenty -- pipeline of innovation is very strong. It's to support the mega trend in battery and lightweight materials. So we have to be there. And frankly speaking, over 15 years, polyamide 11 has been far more tight than long in terms of supply-demand. So it's a unique product. We need to maintaining that product. We have always been, in terms of CapEx, reasonable and manage well the calendar. But philosophically, we are -- we stick to completely our calendar on polyamide 11, and the sooner would be the better.

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Operator [7]

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Next question comes from Mubasher Chaudhry.

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Mubasher Ahmed Chaudhry, Citigroup Inc, Research Division - VP [8]

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Two quick questions, please. Just -- the first one on the bolt-on acquisitions. Now just wanted to -- I know the growth rate has been communicated, and it's quite positive. But could you just comment on the EBITDA margin of these latest 2 acquisitions and whether they are accretive to Arkema? And if not, then what is the longer term plan for these acquisitions and how they are likely to incrementally benefit Arkema going forward? That's the first question. And then the second question is a bit more nearer term. How have you seen the demand play out in June and July? And are you seeing a bottoming of the inventory management? Are you seeing that come through or maybe an improvement in demand?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [9]

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Okay. So on the first one, first of all, they are important acquisition, that they have to seen as a big package. This means that it's not (inaudible) stand-alone, these have changed over from Bostik or from Sartomer. But when you make the addition of many smaller I mentioned, at the end they are very -- something very solid. In terms of margins, they're above the average, okay. They participate with the online target -- the long-term target for Sartomer and for [we'll see that they are of the] high-value businesses. Even if we don't disclose the margin, they are above the average. So we are quite comfortable on this quality of this asset. And synergy would be of top significance. So at the end, it's typically the kind of acquisition we like: strong margin, strong synergy, unique technology, high-growth pattern. So -- and we just need to continue to make more of them. With regard to June/July, June was a weak month. I think from listening to my peers, it was the case for everybody. If I -- if we count the number of days finally, there were 2 days less compared to last year. In fact, it's not so different. So it's clear that it was maybe a little bit weaker than expected. But overall, the quarter is more meaningful. And the quarter is what we told you. And we don't think that this is a change in trend in June, if it was your question, underlying question. For us, it was just a fact that June had less months -- less days, and that it's the last month of the semester with a very volatile oil price, raw materials. So customer have the tendency to be cautious in restocking. July is going normally. So no change in trend. So nothing special on July.

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Operator [10]

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Next question comes from Chetan Udeshi from JPMorgan.

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Chetan Udeshi, JP Morgan Chase & Co, Research Division - Research Analyst [11]

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Chetan from JPMorgan. Just a couple of questions on Bostik margin. It's good to see improvement there. But I was just looking and comparing Bostik to few of their listed peers, and it still feels like there is a big gap in margin. And it's not like Bostik is more in terms of top line anymore. I know you are probably close to EUR 2 billion, if my calculation is correct. So what is needed to close that gap, you think, in terms of improving the Bostik margin more from here? That's number one. And number two question was on fluoro. Maybe if you can just update us on shorter term dynamics on pricing, but the question is more just structural, mid- to long-term question, which is, can you help us understand what is the mix, and I guess, maybe this is the question might have been asked in the past calls, of what is the mix of legacy products in terms of earnings contribution, which are at some -- to some extent at the risk of being replaced by HFO, so that we can just model that accordingly over the next 3, 4 years?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [12]

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Okay. With regard to -- so first of all on Bostik. Before talking about margins, let's talk about value creation, where the greater story was to buy a company with huge potential in terms of technology, in terms of geographical footprint, in terms of what Arkema could bring and step by step to improve it, knowing that the starting point was low because the margin was around 10%. So in fact, what we are doing is that next year, with about 2/3 of acquisition and 1/3 of organic, the EBITDA value in million euros of Bostik should have more or less doubled compared to the starting point, okay. And the EBITDA percentage would have gone from EBITDA of 11% for next year. So certainly -- so this year it should be 13% and will continue to improve. So in terms of -- it's really a great story because step-by-step Bostik is really improving with an EBIT margin which is now at 10%, okay, which is very resilient. And so we are really in what we wanted to do, and is very encouraging. Now if you compare to peers in terms of margin, if you compare with Henkel, you have to take out their unique position, which nobody can beat in engineering adhesive, which is huge with margin. We don't know exactly, but which are more in the range of 25%, 30%. If you take the traditional margin of Henkel on the kind of businesses we have (inaudible) they are certainly more. Even if we total exactly in the range of 15%, which is considered to be a good benchmark for Bostik. So this is where, let's say, our mid-term target for Bostik is to be, at 15%. EUR 300 million of EBITDA in value for 2020, and a little bit [faster] to reach the 15% EBITDA margin. (inaudible) is already there, although (inaudible) before the acquisition of (inaudible) after 10 years of restructuring and improvement, well, not 3 or 4 years, but 10 years, they were more in the range of 13% -- 12%, 13%. So I think Bostik is really doing good quite quickly. And now the Henkel level is not achievable because of that. But in terms of -- we still get quite good, strong margin, which we can get 15% and certainly after a little bit above. And in terms of value creation, it would be fantastic. So we are really pleased with what we are doing with Bostik. And in terms of resilience, so you can see that this year, for example, it's compared to [many chemical] business, it's really quite favorable.

On the Fluorogas. So it depends what you call the negative. Is the negative, negative? We have launched a big number of new products, which we will continue for many years, including HFC, okay? We have done that in the U.S. and in Asia. Now if you take just into account the traditional HFC, that is the HFO. Today, HFO are quite small in our portfolio. You know that we are not in the 1234yf specifically for automotive, but we have some cards we are playing that we have announced in -- for other HFO in other application. So as we often mention, we are not positioned as (inaudible) which has a specific access to 1234yf. But with, I would say, the group of all the players for Fluorogas, we are well positioned with HFO, not in automotive, but on the rest of the business, which will likely complement our current HFC, which are still if compared to last year, significantly down, but still at good levels, and will continue to do so for many years. So we have not changed our, what we say, on the Fluorogas. The performance of the coming year would be a combination of HFC, which will continue to deliver to good level, certainly not to what we had in '18, but come back to more kind of '17 level. And what we'll start to lose from this HFC, we should be able to offset with access to HFO that we have.

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Operator [13]

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Next question comes from Georgina Iwamoto from Goldman Sachs.

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Georgina Iwamoto, Goldman Sachs Group Inc., Research Division - Associate [14]

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I've got 2. And the first one is on HPM. I was just hoping if you give us a little bit better understanding of the dynamics that we saw in the second quarter. So I kind of summarize what we've said on the call so far for the division. We had better pricing and better mix, which will continue to improve, yet the EBIT margins deteriorated. So does that mean that actually operational leverage on the negative 8% volumes was pretty high? And if you could maybe help us understand what happened to volume sequentially. Was it the customer inventory adjustments which were worse in the second quarter versus the first of the underlying demand? And then the second question, I'm afraid I've got a repeat from the first quarter results. Could you please help us understand the volume strength in Coating Solutions and give us an update on what you expect for the acrylic acid market, especially in light of the profit warning from Nippon Shokubai last night, and given that there have been lots of industry articles citing demand weakness and rising input costs in Asia.

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [15]

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So Georgina, on acrylic, we are very -- and Coating Solution, which is a downstream, we are very glad about the result. And I think you appreciate the quality of this volume, which was one of your questions in the past quarter. So I think we have a quite positive answer. So we are all very pleased. And this is really the result of all these strategies that we are already in Coating Solution, which is quite resilient at the end business. There is a big difference with Nippon Shokubai, but you know it. So you know the answer to your question is that Nippon Shokubai is selling acrylic acid only for superabsorbent and superabsorbent may be this year available, but I cannot comment a decrease. With regard to Arkema, as you know, we are on plenty of different businesses from decorative paints to (inaudible) additives to adhesives to oil and gas, to superabsorbent, to et cetera. So it's a very diverse, and we benefit I imagine from this [trend of] more resilient, even if I cannot comment on the -- what (inaudible) but it's quite an element of this second quarter release, which is showing quite a good mix, as I mentioned. I'm sure you share that, with HPM, so with Advanced Material, quite resilient, with Bostik ramping up, with Coating Solutions confirming is upgrading year after year. So we have very good news to share with you. With regard to HPM, I think that -- no, I think a different reading to what is your reading. I think the volume on Advanced Materials are quite down compared to last year, but not different from what I see from all the peers. It seems it's a paradox of this current context is as the more downstream you are, the more specialized you are, the less volume you have because certainly have been this routine so if you are purely electronics and automotive, your volume have come down and when you are [a stream] driven. So we have volumes that you could see High Performance Materials down 8% with prices, and to work on the mix on the pricing is allowing us to offset a big part of it, which means that in terms of -- because you are talking about the operational leverage, my reading is that it's very good. Because despite this very significant decrease in volumes, our margin in High Performance Materials has gone down only of 17.6% to 17%. So I think it's quite a good performance.

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Operator [16]

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Next question comes from Jean-Luc Romain from CM-CIC Market Solutions.

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Jean-Luc Romain, CM-CIC Market Solutions, Research Division - Analyst [17]

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I have the first question about the multiples you...

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [18]

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Can you talk a little bit louder because we cannot hear you. Thank you very much.

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Jean-Luc Romain, CM-CIC Market Solutions, Research Division - Analyst [19]

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Yes. My question relates to the 2 acquisitions you announced over the last few days. Should we discern from the EBITDA margins you signal, which are better than the rest of the HPM business, that after synergies, the at least with EBITDA you paid for acquisitions will be about the same as what you usually pay, i.e., about 6x?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [20]

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So -- I mean all the annual acquisition that we are making, and this one are not exceptions, after synergy, we go down after 4, 5 years at 6, 7x, so depending on which acquisition, but yes. And between 6x and 7x, but we are in this range. And this one are no exception.

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Operator [21]

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We have no further questions. (Operator Instructions) Next question comes from Geoff Haire from UBS.

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Geoffrey Robert Haire, UBS Investment Bank, Research Division - MD and Equity Research Analyst [22]

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I just wanted to ask, in Q1, you said that you hoped that the EU would be able to stop the illegal imports of Fluorogases into Europe. I was wondering if you could update us on when you think that might happen or whether it would be this year or next? And can you also just confirm what is left outstanding for your hybrid bond?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [23]

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So on the hybrid bond, Marie-José will answer.

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Marie-José Donsion, Arkema S.A. - Group CFO [24]

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No problem. So basically, we refinanced EUR 400 million out of the initial EUR 700 million hybrid bonds. So the new maturity of the EUR 400 million is 2024. And the maturity of the remaining EUR 300 million is actually the same as the initial one, which is basically second half of 2020.

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [25]

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Thank you, Marie-José. So on illegal import, which is, as you know, still a pain not only for us, but for others in the industry. So we continue to work with rest of the industry on coordinating our efforts as far as issue by supporting investigation, building public awareness, pursuing very close cooperation with the European Commission. And so we do that also with member states and nonmember states with everybody. So we spend a lot of time on that. What we see is that some concrete action which have been already implemented on the field by Customs Authority of several countries is still not enough, so we continue to push very significantly. So your question, well, is that fully implemented, having effects, is too early to say. For the time being, we don't assume any significant change up until the end of the year. We prefer to be cautious. And -- but we follow carefully and we put a lot of efforts on it together with -- because it's not acceptable. Now it's totally application of law and it has nothing to see with our business (inaudible)

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Geoffrey Robert Haire, UBS Investment Bank, Research Division - MD and Equity Research Analyst [26]

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So are you still sort of happy with the guidance that you gave in Q1, which was for EBITDA in Fluorogases to be back at 2017 levels or are things worse?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [27]

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Yes, we are still trying to be close to '17, around '17, close to '17. But it's clear that -- and we -- I think we mentioned it already to question which were asked. The second semester will be in the same vein of the first semester on Fluorogas. So we see positive elements will come from all the other business lines, more than the Fluorogas, but it will be for everyone.

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Operator [28]

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Next question comes from Jean-Baptiste Rolland from Bank of America.

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Jean-Baptiste Henri Rolland, BofA Merrill Lynch, Research Division - Associate [29]

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I have one question follow-up on Geoff's question regarding Fluorogases. Since you just said that these volumes are illegal in Europe, is there a possibility or do you expect that you could potentially seek compensation against the players who are selling illegally in Europe? That's my first question. And second question, I was just wondering if you could remind me what sort of pricing lag you have in PMMA versus the asset on raw materials?

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [30]

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So with regard to -- on your first question, the answer is, no, you cannot. What you can, it's between -- it's a law which is not applied by other people. So it's really [assert your completion] as a member of state to oblige and to penalize these people who are doing it, but you cannot -- in the European law, you cannot ask compensation on that. It doesn't work like that, maybe unfortunately, but the rule is like that. It's an indirect impact and you cannot ask compensation. It's really a matter of just having the [loop being tied]. On the MMA/PMMA, without quantifying (inaudible) a little bit for MMA/PMMA. But overall, what you manage -- what you look at is not so much raw material or pricing, it's just what we call the spread, which is a net between the pricing and raw material which is reflecting the supply-demand. So I would say, MMA/PMMA overall is aligned with our assumption since the beginning of the year. So what we told you when we started the year, in fact, was well-defined and was -- and we are already online with that including the price, including raw materials, including the machine volumes, which are challenging in automotive. But overall, we are really in line with what we were expecting. So I would say, overall, for the portfolio of Arkema, we have some lines like Bostik which is really looking quite positive for that strategy that we thought MMA/PMMA is in line. So you have some of the plus/minuses. But overall, as I mentioned, we are really comfortable on our guidance.

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Operator [31]

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We have no further questions. (Operator Instructions) We have no further questions.

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Thierry Le Hénaff, Arkema S.A. - Chairman & CEO [32]

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Okay. So if you have no further questions, I would like to thank you for your interesting questions. And certainly wish you (inaudible) because I'm sure everybody is waiting for some break, and don't hesitate if you have any further questions to ask the IR team, which is there to answer your question. Okay. Thank you very much.

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Operator [33]

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Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.