Arkema (EPA:AKE), the France-based specialty chemicals and advanced materials company, reported modest growth in its third-quarter earnings call for 2024. CEO Thierry Le Hénaff highlighted a 2.9% year-on-year sales increase to €2.4 billion, with EBITDA growing 5.4% to €407 million. The company's Specialty Materials segment, particularly in Asia and the U.S., drove the sales growth, despite declining European automotive demand. Arkema's net debt stood at €3.1 billion, with a net debt to EBITDA ratio of 2x, and the company expects 2024 EBITDA to be at the lower end of the guidance range of €1.53 billion.
Key Takeaways
- Arkema's sales increased by 2.9% year-on-year to €2.4 billion, with EBITDA up by 5.4% to €407 million.
- Specialty Materials, especially in Asia and the U.S., drove the growth, while European automotive demand declined.
- Adhesive Solutions and Advanced Materials segments saw EBITDA increases of 9% and 10%, respectively.
- A reduction in projected CapEx for 2025 to between €650 million and €700 million was announced, down €100 million from earlier estimates.
- 12 significant projects are nearly fully financed, expected to contribute €440 million in additional EBITDA by 2028.
- The company is managing challenges in the automotive sector and focusing on cost management and operational efficiency.
Company Outlook
- Arkema expects EBITDA for 2024 to be at the lower end of the guidance range of €1.53 billion.
- The company anticipates an average EBITDA growth of €100 million annually from 12 major projects starting in 2025.
- CEO Thierry Le Hénaff emphasized a strategic focus on High Performance Polymers and other key projects to meet 2028 targets.
- Arkema plans to maintain a pragmatic approach to capital expenditures, focusing on high-end PVDF products.
Bearish Highlights
- Performance Additives faced challenges due to a prior year's high comparison and a temporary plant shutdown.
- The macroeconomic outlook remains challenging, particularly in the automotive sector and European market.
- A slight decline in EBITDA is projected for Q4 due to lower refrigerant business compared to the previous year.
- Margins in Coating Solutions are currently constrained by low upstream cycle demand.
Bullish Highlights
- Arkema's strong presence in North America, with nearly 40% of sales coming from the region, supports ongoing investment plans.
- The company is optimistic about future EBITDA growth, with a €100 million upside from the acrylic cycle.
- Arkema's Bostik division contributes to profitability, driven by volume and incremental price increases.
Misses
- The company reported a reduction in capital expenditures by approximately €100 million annually.
- R&D expenses decreased to €47 million in Q3 due to a reclassification of expenses.
Q&A Highlights
- Arkema aims to achieve €250 million in savings over five years, with additional temporary savings projected for the next year.
- The company's corporate tax rate in France is projected to remain unaffected due to existing tax losses, with minimal impact from proposed social charges.
- Arkema's majority-owned PI segment is expected to continue its historical dividend pattern, despite a recent halt due to a downturn in the electronics sector.
Arkema's earnings call presented a company navigating through economic challenges while maintaining a strategic focus on growth and operational efficiency. With significant projects nearly fully financed and a reduction in capital expenditures aligned with the company's strategy, Arkema is positioning itself to capitalize on future opportunities while managing current headwinds.
Full transcript - None (ARKAF) Q3 2024:
Thierry Le Hénaff: Good morning, everybody. Welcome to Arkema's Q3 '24 Results Conference Call. With me today are, as usual, our CFO, Marie-José Donsion 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-José go through the financials. And at the end of the presentation, we'll be available to answer your questions. So the macroeconomic conditions we encountered in the third quarter remain broadly in line with what has already been observed for several quarters, namely continued soft demand in a global challenging macroenvironment. Once again, there was no sign of rebound overall, and we should even add that the automotive sector has worsened notably in Europe. After an encouraging month of July, demand were down in September, which reflect inventory adjustment end of the quarter at some customers. Despite this context, Arkema achieved, we believe, strong financial results, significantly higher than the average of its peers. We are able to deliver again a solid sales growth in Q3 up 2.9% compared with last year, driven by Specialty Materials in Asia and in the U.S., while Europe suffered from low demand overall. Besides we increased our EBITDA by more than 5% and reach an EBITDA margin at the elevated level of 17% confirming once again the strength of our portfolio, the high reliance of the group's top line and profitability in these more difficult market conditions. Our performance in Q3 was driven by our Specialty Materials and the good mix, which represents 92% of our sales and recorded a significant 9% EBITDA growth and 80 bps EBITDA margin increase compared with last year. To achieve this good result, we continue to manage strictly our cost and to push the commercialization of high value-added solutions, notably in those submarkets, supported by the global mega trends. If we look now briefly, as a result of our three Specialty Materials segments, here are some key points and not to underline. First of all, Adhesive. Adhesive delivered again a strong quarter in the continuity of the first semester, EBITDA significantly grew by 9% compared with last year and EBITDA margin reached its record high at 15.7%. This was within quite an achievement. This very good performance was delivered in a low-volume environment, particularly in the construction market while some industrial markets such as packaging or labeling showed a more positive dynamic. In Advanced Materials, EBITDA growth was also significant at 10% year-on-year, primarily driven by high performance polymer while Performance Additives, we're facing a high comparison base of last year and we're also impacted, as you know, by this temporary shutdown of our German organic peroxides plant. The segment benefited in the quarter from PIAM contribution despite at a slightly lower level than Q2 from the positive dynamic new generation to our specialties and from the continued development of our high-performance solutions in attractive markets like energy, sports and health care. As I mentioned earlier, the automotive sector started to slow down notably in Europe. And in particular, at least temporarily, the EV market seems to grow more slowly than expected. The Coating Solutions segment resisted relatively well while continuing to face low cycle market condition in the upstream part. Fortunately, the segment benefited from better volumes and an improved mix in the downstream additive and resin. All in all, EBITDA was up in this segment by 6.5% and EBITDA margin reached a reasonably robust 13% figure. Beyond delivering the short term, we have continued to prepare our midterm future with a gradual ramp-up of our major organic projects including the successful restart of our polyamide 11 operation in Singapore in September after its regulatory shutdown. The smooth completion of our investment in our new 1233zd capacity in the U.S., which is expected to start by the end of this year and we look forward to that the preparation of the closing of those laminating adhesive business acquisition expected in Q4. We have also made significant progress on our CSR road map to decarbonize our value chain and more and more crucial topic for our customers. As an example, thanks to improved process efficiency and the use of renewable and low-carbon energy, we have decreased even further the carbon footprint of our flagship bio-based polyamide 11, which is now 80% less than a comparable fossil-based polyamide such as PA12. In the adhesives space, we have also developed more and more products based on bio-source or renewable raw materials, enabling to reduce our carbon footprint while maintaining their performance. Last and not least, you may have seen that we have recently announced some changes to the Executive Committee following the retirement of 2 of its members. With the appointment of Sophie Fouillat, and Tilo Quink, with the evolution of Laurent Tellier, the Executive Committee maintained its set of competencies while further increasing its diversity. With this new organization at the top of the company, we are well equipped to move on with our 2028 roadmap. I will now hand it over, after this introduction, to Marie-Jose for a more in-depth look at the financials before we discuss the outlook at the end of the presentation.
Marie-José Donsion: Thank you, Thierry, and good morning to all of you. So I'll start with our revenue. So Group sales amounted to €2.4 billion in Q3, increasing by 2.9% year-on-year. Volumes were up 3.8% organically in the Specialty Materials perimeter benefiting from the more favorable trends in energy, sports, packaging and healthcare, while construction stays relatively low and automotive is slowing down. Volumes in intermediates were down reflecting the quota enforcement mechanism in refrigerants, both in Europe and U.S. The price effect was fairly stable, standing at minus 0.2%, in line with the evolution of raw material prices overall. The scope effect was positive at plus 2.3%, corresponding essentially to the integration of PI Advanced Materials. And finally, currencies had an adverse effect of 1.4% on sales, reflecting the depreciation relative to the euro of the U.S. dollar and several Latin American currencies. As Thierry commented earlier, Q3 EBITDA was up 5.4% year-on-year, reaching €407 million driven in particular by Adhesive Solutions and Advanced Materials. Actually, this is supported by increased volumes as well as a positive spread on pricing and mix. Depreciation amounted to €161 million, including the impact of PI Advanced Materials consolidation and that of organic projects start-up. As a result, recurring EBIT was flat compared to last year, standing at €246 million, with a fairly stable REBIT margin at 10.3%. Nonrecurring items amounted to €62 million in Q3. This is composed of €38 million related to PPA depreciation and amortization and €24 million corresponding essentially to restructuring expenses, start-up costs for polyamide 11 platform in Singapore and M&A costs linked to the acquisition of Dow's adhesives business that we'll be closing soon. Adjusted net income stood at €168 million, which corresponds to a €2.25 per share. Looking now at cash flow and net debt, Arkema delivered a solid cash flow generation in Q3. Recurring cash flow stood at €190 million, which reflects a well-controlled working capital. Actually, working capital stood at 16.4% of annualized sales, which is very similar to last year. And it includes as well a total capital expenditure of €167 million in the quarter. For 2024, CapEx are expected to reach a total of €770 million, in line with the annual guidance. And if we look ahead, taking into account the slower pace of development that we see on the electric vehicle market, we refined our analysis of potential future CapEx and plan to reduce our annual CapEx spend by around €100 million compared to what was announced in the Capital Market Day back in September '23. So let's say, for 2025, this means the CapEx spend is expected between €650 million and €700 million. Net debt at the end of September '24 stood at €3.1 billion. It includes €700 million of hybrid bonds after the €400 million outstanding hybrid bond that was redeemed on September 17th. In addition, Arkema continued to refinance its upcoming bond maturities in September and completed a €500 million senior bond issue with a 10-year maturity and an annual coupon of 3.5%. So at end of September, we have actually an average maturity of our own debt, which stands at 4.3 years excluding hybrid and with an average coupon of 2.2%. Net debt to last 12 months EBITDA ratio, therefore, stands at 2x EBITDA. Thank you for your attention, and I will now hand it over back to Thierry for the outlook.
Thierry Le Hénaff: Thank you, Marie-José for these explanations. As previously said, going into Q4, the macroeconomic environment remained challenging, marked by low visibility of demand overall. And the recent slowdown of the auto sector, even if we are not overexposed in this sector. As always, we will focus on optimizing the short term and at the same time, as we finalize and ramp up our growth projects. Therefore, strict management of operation of cost, CapEx and working capital will remain among our top priorities in Q4. In this context, as rebound of the macroeconomic environment has not materialized yet, which was one of the possibilities, and as you know, we envisaged when we guided in July for the full year, we expect to achieve in 2024 an EBITDA at the lower end of the guidance range of €1.53 billion. This would mean the full year performance likely above last year reflecting the strong year in Adhesives and the growth in High Performance Polymers and Coating Solutions downstream activities, while other activities would show more contrasted performances. Going into 2025 and beyond, we don't know yet what the market conditions will be next year, but we can confirm that Arkema after several years of resilience in challenging market conditions, we'll be in a unique position to go with 12 significant projects, nearly fully financed. You know these projects well. And these projects include organic CapEx and M&A. They should bring for the most part independently from the macro, around €100 million of additional EBITDA every year up until 2028 just more than €400 million, to be exact €440 million additional EBITDA at the end of the period, this mean in 2028 and you have the detail in the slide presentation. So I thank you very much for your attention, and we are now, together with Marie-José, open to answer your questions.
Operator: [Operator Instructions] Our first question comes from the line from of Tom Wrigglesworth of Morgan Stanley (NYSE:MS). Please go ahead.
Thomas Wrigglesworth: Thank you, Thierry, Marie as well for the presentation. Thierry, just to come back to that last point, you talked about €100 million of EBITDA growth on average for the period. As we think to '28, can we just expand a little bit further on that in terms of -- so in 2025, we shouldn't have the repeat of the German outage, is that going to cost you €30 million? And then how should we think about kind of net cost inflation? Can you balance cost pressures with cost savings in '25? That's my first question. And my second question is, clearly it's just a little bit more detail on the HPP performance. Within the auto picture that you're describing, specifically on EVs, is it that Europe is weaker and Asia stronger and its net balance or on aggregate, it's still a negative? And is there a big margin differential between you selling HPP products to Chinese EVs over European EVs. Thank you.
Thierry Le Hénaff: Okay. So to be clear on '25, and we were not guiding on '25. It's still not the topic today. We were telling you which contribution we should expect from a selection of major projects that you know, which we described on the presentation on Page 16, but -- which is just a confirmation of what we already presented, I think, during the summer. So we have -- you have 12 projects, organic CapEx and still the ramp-up of the 3 acquisitions, 1 which is more old, which is Ashland (NYSE:ASH), which is still ramping up and another 1 which is expected for the end of the year. So the message there was to say, if you stay these 12 identified projects, both organic and acquisition, this should be nearly fully financed end of '24. So the cash still in -- from '25 to be spent for this project will be, I think, €100 million around. But then the EBITDA will come. So for the acquisition, the EBITDA has already started, for example, Ashland and some will be new like for Dow. And for the organic CapEx, we should reach this year, we guided for €60 million. I think we should be a bit below but we should be close to that, so most of the contribution will come from '25. So what we say is that if you take this 12 project, nearly fully financed at the end of '24, we should expect an addition of €440 million, which will be built step by step over the years for '28. This means that the contribution of these projects should be, if we divide by 4, it should be more or less liner, around €100 million additional EBITDA for '25 coming from these projects. So it's not linked to any other points, whatever cost inflation or no one-off from the visible side or whatever, this kind of element are the element which will be part of the guidance for '25. But as you know, we should start to guide at the end of next year when we publish the full '24 results. So I was a little bit long, but to clarify, I was mentioning what you should expect, which I think is unique in this industry. This contribution, which is significant from projects, which would have been nearly fully financed at the end of '24. Now on the -- in '25, cost pressure versus pricing, I think we have demonstrated our ability every year to be in terms of raw material evolution that we don't know. And by the way, to be at least at par every year, hopefully, to have a little bit of positive pricing every year. So we'll see for next year, but this is what we have demonstrated so far. I think we have managed more broadly raw material rather well and despite the volatility, I think we have been able to adapt to different environment for raw material over the years, and we should be able to do so in '25. With regard to HPP for our policy, I think if it was your question, specifically this is my feeling. Today, most of the EV is in Asia including China. Europe and U.S. is just starting and so I would say the majority -- a large majority of our sales are for the time being in Asia, but our intention is to step by step to benefit from the ramp-up in this -- on these two components. Depending on the speed that we don't know that they will have. In Q3, more specifically, I would say that the topic is Malaysia because Europe has not yet very much developed nor U.S., even if we have a lot of contracts. So -- and what we say is that in Asia, in EV in Q3, we had less traction as we had in the first part of the year. That's all. But maybe I will tell you the contrary in Q1 2025 is still very volatile. But I think at the end EV at least for Asia, we continue to be positive next year and the years beyond.
Thomas Wrigglesworth: Thank you very much Thierry, very clear, thank you.
Thierry Le Hénaff: Okay, you are welcome.
Operator: The next question comes from the line of Emmanuel Matot of ODDO. Please go ahead.
Emmanuel Matot: Hello Thierry and hello Marie-José. Four questions from me, please. First, why Q4 should be slightly down for EBITDA because despite an already challenging environment, Q2 and Q3 were up? Is it related to the recent deterioration of market conditions in automotive? Second, do you intend to step up your investment in the U.S. following Donald Trump's likely victory? Are you already well balanced between your revenues and your industrial production in this country, the U.S.? Third, how do you explain the strong volatility per quarter for intermediates? And my last question, why is there no improvement of your working capital compared to last year in percentage of sales? It is a top priority for you? Thank you.
Thierry Le Hénaff: Okay. The third question on the intermediate was what?
Emmanuel Matot: How do you explain the strong volatility per quarter for intermediate?
Thierry Le Hénaff: On the Q4, first of all, if you make the math, it should still be quite solid Q4. Last year, we had -- it's not specific to Automotive, whatever. We are not overexposed in Automotive. We can -- Automotive certainly we have a little bit of effect in the HPP, but I would not make a case there. No, it is that last year, we had in refrigerants or in intermediates, we had -- maybe it comes also to your last point, which is your third question. We had last year quite a good refrigerant business in the Q4, which is a little bit atypical because normally, the seasonality is quite low in refrigerant and this year, we should be more normalized. So you could expect maybe, I don't know the exact number yet, but maybe €15 million less in refrigerant in the last quarter. So it's one explanation. And you have still a little bit of our site in Germany, where we had €8 million, and we should have the number close because we say €59 million total for the semester, we had only €8 million in the third quarter. So we should have maybe €7 -- €6 million, €7 million in the second quarter. So all-in-all, it makes the difference with last year. But again, if you take out last year, if you look at long history, including before COVID, we should be above where we were in the past before COVID. So it should be a solid first quarter, but not at the same level as we had last year, which was specifically robust. With regard to the investment in the U.S., I think your question is a little bit of a paradox to me because we are now in the U.S. North America is getting close to 40% of Arkema sales, thanks to all our investors. We have a few investors, including 2 major ones, Nutrien (NYSE:NTR) -- three major one, Nutrien, 1233zd and the DMDS in the U.S., just starting really to ramp up significantly next year. So I think we are at full speed in the U.S. and we'll continue to be full speed. So for us, it's not -- there is no question there, it is really we continue to invest in the U.S. because we strongly believe since 20 years in this part of the world. Intermediates, I mean, we have been able in Intermediates to have a relative stability year after year, which is a quite great achievement, I can tell you because the nature of this business is volatile. So we have been able, despite of that, to be rather not perfectly stable, but rather stable in Intermediates. Now per quarter, the volatility is inherent to the business. So you can have a stronger quarter than a lower quarter, but at the end, the year is rather stable, and this is what we target. So I have no comment, it is more the nature of Intermediates, but don't forget that 92% of our sales are now Specialty Materials where you don't have this kind of volatility, so we should appreciate that. Working capital, I will ask Marie-José to keep…
Marie-José Donsion: Okay. So as I mentioned, in fact, working capital is very comparable in terms of percentage of sales to last year. The normative level we target is around 15%, which we normally try to reach by year-end. So for me, frankly, no major change in our management of this metric inside the company. This being said, it's fair to say that we were probably having a better track record in H1 and we were probably a little bit surprised by some, let's say, disappointing September month, which contributed to this ratio basically being at the same level as last year. But for me, I mean, this metric remains a key point of attention of the company, and therefore, there should be a significant contribution of working capital in Q4.
Emmanuel Matot: Okay, thank you very much.
Operator: The next question comes from the line of Aron Cecceralli of Berenberg. Please go ahead.
Aron Cecceralli: Hello, good morning, Thierry. Good morning, Marie-José. I have three questions, so my first one goes back to Slide 16. And if I compare it to your slides from the Capital Market Day, basically, you reduced the CapEx by around €100 million per year, but the total EBITDA has just been reduced by €10 million from €650 million to €640 million. And reason is because if we understood correctly, you basically have this project already financed. But when I look at the CapEx for the next few years, the €650 million to €700 million, this is still an element of growth there because your maintenance CapEx should be something around €550 million. So what kind of EBITDA growth should we expect from this element of growth in your CapEx? And also maybe can you tell us if you're still expecting €40 million contribution from new projects in the second half of this year? My second question goes back to your footprint. So when I look at your global footprint, you have around 150 plants with a majority, let's say, 40% in Europe despite your sales contribution from the Old Continent has decreased from 50% to 34% over the last few years. So what's the competitive advantage to keep the strong foothold in the region? And would you expect this to remain like that in the future? My final one is on Coating Solutions. So I see strong pricing, strong volumes. What's really preventing margins to expand? Thank you.
Thierry Le Hénaff: Okay, thank you for these various questions. So, on the performance, first of all, thanks for recognizing that we are very consistent with the Capital Market Day. The reason why -- in fact, we have -- the EBITDA change is not so big. The first reason is that, first of all, we still plan to deliver and to deliver well on our different projects, which would be reassuring for you. And the second one is that part of the CapEx, which we've not identified yet, but which was in the envelope of the CapEx were ramping up from '27. So you were in the middle of the -- so when you look at the ratio, it's not completely right because when you start to spend -- with new CapEx, you start to spend in, I would say, '26, '27, '28, you start to deliver more in 2028, 2029, 2030, et cetera. So you have only a partial benefit from these projects with regard to the project confirmation in H2. So we say €40 million, which would be more close to €30 million. So this means that for the full year, not €60 million, but more €50 million, €55 million still to be confirmed. The only reason being is not the technical ramp-up of the CapEx is just that as we mentioned, the second half is a little bit soft in macro, there is no rebound. And because of that, we have a little bit less of contribution in -- of this. But at the end, it changed nothing about the momentum we expect as I confirmed when I talked about the €440 million and €100 million for -- around €100 million for next year. When you say 150 sites, you should not forget that a big part of these sites are linked to adhesives to Bostik. And so you have some sites that you have 20%, you have 40% because they are very local. So you remove the site, you have no business anymore. So it's important if you want to continue. In Europe, we were in terms of sales footprint quite heavy when we started Arkema. Now it is something which is more balanced, still certainly some work to do in terms of foothold, but depending also on the evolution of the demand, we are quite flexible on that as we have ever been and we review our footprint all the time. But when you say 150 a big part of them are in Europe and don't forget that the mix is different, presence of Bostik is still quite robust in Europe. And it's an advantage because we are quite profitable with Bostik in Europe. So we should not, let's say, consider that because we have site in Europe, it's a disadvantage. I think we try to have a state-of-the-art site in Europe and when we are not, we see what we have to do in order to improve or in order to reduce our footprint. In Coating Solutions, the only thing which is preventing margin to improve is really the low cycle in the upstream. So with this kind of low demand environment, it's difficult to have for acrylic acid, acrylic monomer, high margin. And I would even say that the margin we have delivered so far in the year is relatively good compared to the context. So now to do more, it's easy. We have €100 million of EBITDA, which is missing from the cycle in acrylics in Europe and U.S., so you have to consider it as an upside for the midterm.
Aron Cecceralli: That's great, thank you very much.
Thierry Le Hénaff: You are welcome.
Operator: The next question comes from the line of Chetan Udeshi of JPMorgan. Please go ahead.
Chetan Udeshi: Yes, hi. Thank you for taking my questions and thanks again for your slide about the contribution from projects. It is very useful as always. I'm just struggling a little bit. You said previously to one of the questions that the contribution this year is a bit lower because of the macro context. And if I look at the volumes of Arkema and try to compare versus 2019 and I know you don't run the business on volumes, that's fair. But in your Materials business, we are still 10% lower than 2019 organic. I'm just trying to tie these things together. On one hand, you've been investing in projects, but yet your volumes are lower than 2019. So how do we square that and how do we see the growth in terms of the business in general from an organic perspective? And the second question was just more a clarification, which is if I look at your R&D historically has ranged between €60 million to €70 million per quarter, I think for some reason, this quarter, it was €47 million. So just curious what has changed in that line in Q3? Thank you.
Thierry Le Hénaff: So on the first one, I think you forget or maybe it's not included in your question, the evolution of the mix, which is considerable. Our pricing power has been very significant over the period because we have adapted to the world as it was changing. So we had some line with volumes down and some line with volumes up, where we invest. And I see the rationale of your question, but where we invest our businesses on which we have had growth since 2019, so on which we are sold out, so we invest in order to continue to grow. Okay? And then it comes back to the question previously, Aron, is that, what we do is that ongoingly, we review our footprint of our site because on certain sites, we have lost volumes because the world has changed. I mean the word is permanently changing and the DNA of Arkema is to adapt to these changes. So we try to, even if we don't are too visible on that and make too much noise, we permanently review our footprint, we organize our sites. In order to cope for those sites who have lower volume since 2019 and on the other side, where the business line is really developing strong, we invest. And this is why you have this Page 16, where all the businesses which are mentioned are businesses on which we have very significant growth. So the mix between 2019 and between 2023, 2024 has significantly changed and this is why we are able to deliver comparable level of EBITDA in a far less favorable macroeconomics with lower volume in 2023, 2024 than 2019. This is because the mix has considerably improved and in fact, we have said with higher value in average. Hopefully, I was clear and on the R&D expenses, maybe Marie-José, you want to comment?
Marie-José Donsion: So actually, you probably noted an adverse phenomena in G&A, Chetan. So in fact, there has been a €20 million swing in terms of classification, or various items between those two lines, but clearly, it will be corrected back in Q4, so no operational underlying phenomena there.
Chetan Udeshi: Thank you.
Operator: The next question comes from the line of Georgina Fraser of Goldman Sachs. Please go ahead.
Georgina Fraser: Hi, good morning Thierry, good morning Marie-José. It's one long question and also a bit of a follow-up to Aron's question on Coating Solutions margins. So today, you've already got very impressive margins in Adhesives. You're very close to 2028 target already. You're still 400 bps short in Advanced Materials. And if I mechanically take the €100 million in EBITDA that you said is missing from the cycle in Coating Solutions, then that means you're kind of already at the 16% target or 17% target that you have for 2028. So my question is, is there anything that is over earning in Adhesives? Or do you actually see upside to your 2028 target given what you've already achieved today? And what's needed in Advanced Materials to deliver that extra 400 basis points? Thank you.
Thierry Le Hénaff: Thank you, Georgina for your questions. I would say in Adhesives, we should yes, we should be closed this year to 15.5%, it's more 15.5% than 16%. And normally, if we work well, we gain 0.5 point a year. And we say we target 17%. So if you add, so this means that we should reach the 17% in three years which take us to 5%, 6%, 7% in 2027, maybe instead of 2028 or there is maybe one year difference, we'll see. But don't forget that we will integrate Dow for which it's a low-cost acquisition, which is very good, certainly a very strong payback. But it will take a little bit of time, as it will be -- it will take a little bit margin down at the beginning. So because of that, we lose a year. Okay? We'll try to be stable next year and then to go up again. So if you factor this, you go exactly in '28 at 17%. Obviously, if we can do better, we'll do better. But for us, it's very clear, 0.5 point. And because of Dow, we lose a year. So we lose the year, but with the project, we are very attractive. For HPP, frankly speaking, if you look at the quality, a big part of the project, which are Page 16 on organic CapEx are for HPP. So if you factor this project in HPP it will be easily at the 2028 target which was disclosed at the Capital Markets Day. So for us, I would not say it's a no-brainer. But frankly speaking, I would be disappointed if we are only at 23% in '28 for this business, Advanced Materials, in fact. Now on -- and then there was a last question. No. They were the only two, Georgina. I thought it was...
Georgina Fraser: No, that was it. It was just a really long one question, which you answered.
Thierry Le Hénaff: You had something on Coating. It was a comment or a question?
Georgina Fraser: It was just a comment. It was saying from the cycle gets you to the target, so all very clear. thank you.
Thierry Le Hénaff: Okay, thank you very much.
Operator: The next question comes from the line of Geoff Haire of UBS. Please go ahead.
Geoffery Haire: Good morning and thank you for the presentation. I was just wondering if we could talk a little bit about your exposure in autos, whether or not you'd be willing to sort of split that down between sort of EV, hybrids, ICEs, and also comment on regionally what you're seeing in autos at the moment?
Thierry Le Hénaff: So on auto, I think we have no problem to disclose our number. We are around 7% of our sales in auto, half of it being in EV and half of it being on traditional cars, on thermals. We don't make the split between EV and hybrid, but given the conception of our products, they are far more in pure EV than in hybrid, I would say it's mostly EV even if we have some good sales in hybrid. But I put EV, hybrid together and thermal on the other side, and I would say it's half-half and not exactly the same product lines. Now by region, I would say, the majority, less than half, but the bigger region is in Asia and then it would be split equally between U.S. and Europe. Okay?
Geoffery Haire: Yes, thank you.
Operator: The next question comes from the line of Jaideep Pandya of On Field Research. Please go ahead.
Jaideep Pandya: Thank you. Sorry to ask you this, but on the Intermediates, can you tell us how is the path for quotas looking like in the U.S. and in China? And what should we really expect from this division in the next couple of years to come? Do you think that stability around the 200 plus/minus level is sort of the level of EBITDA we should be thinking even as volumes go down? Second question really is around Bostik. I think this was asked before, but in the current margin, which is phenomenal, is there any sort of price versus raw material benefit you're getting? Or is this going to continue to progress into 2025 given the product mix is improving, and you will have probably synergies from Dow as well? And then the last question really is on the PI Advanced business. I know it's a public company, but what are you seeing with regards to the product pipeline, given now we are seeing clearly electronics as an end market improving. So could you give us some information around this and also on the legacy electronics exposure of Arkema and how you're trying to combine the two and achieve synergies? Thanks a lot.
Thierry Le Hénaff: Okay Jaideep. So with Intermediates quickly, it's mostly for quotas, it's mostly a topic in U.S. and Europe and more than China for us, Okay? The idea on the evolution of EBITDA for refrigerant is that it goes down progressively rather slowly over the year. So we will lose every year for the coming years. Stay at something which is material, but lower than what we are, and it should be a slow decrease. But you have to know that this is a refrigerant part. The fluorogas or specialty fluorogas, low HFO, our specialty fluorogas, they are part of the HPP. So all in all, our fluorogas business is in good shape, is growing but by nature of the refrigerant part, which is in intermediates will continue to decrease in the coming years at a reasonable rate. On the Adhesives, I would say that we try to get incremental net positive pricing every year. Most of the story of Bostik and we expect that from the team is with more volume driven. We have invested a lot for the volume, both in R&D and in certain selected CapEx. So the team is doing a good job on that, but we expect them to ramp up quicker. And back to the point of what we have lost against 2019, we believe that there is a little bit of growth, we should come with some recovery of business that we have lost after COVID or during COVID and that we should get back in the coming year. So more a volume story, but still a little bit, but more incremental positive net pricing year after year as much as we can, but far more limited that when we have had in the past years. With regard with PIAM, so as you could see, we have some good expectations from electronics. It was quite strong in Q2. Q3 was more moderate, but still quite solid. Q4 is a low season. So it should be less than that. So now it's really linked to what we can expect from the launch of the big consumer electronics company. Hopefully, there would be a success. It's too early to say, so we'll see. I would say the strategy of Arkema, as we have mentioned, when we bought PIAM is certainly to benefit from the strength in electronics but -- and to expand it more geographically. But I would say we want to diversify their business portfolio certainly in batteries, where they have some position, but we want to accelerate our position with the development of EV and also it's more industrial businesses where they were rather weak and where we can bring a lot. So the PIAM story will not be far from being a pure electronic story. On the contrary, we have plenty of other cards to play that we start to play by putting the teams together. I think I answered your question, Jaideep.
Jaideep Pandya: Just if I may, I have a follow-up on PVDF. One of your key competitors will ramp a plant, I guess, towards the end of next year in Europe. And there have been delays on the U.S. side. When you look at PVDF as a product, and you've known this product very well for the last decades, what is the outlook from your point of view with regards to the capacity you have? Do you want to sort of optimize the mix and not invest in fresh CapEx or do you think that on a 10-year view, there is a need for fresh CapEx, especially in the U.S. and therefore, we could expect an announcement from Arkema over the next six months on PVDF?
Thierry Le Hénaff: So on PVDF, as we mentioned many times, our strategy, I mean the growth of the market, which was 7% in the old time as with the EV nearly doubled. Okay? The message we pass is that we don't want to double our growth. We want to stay with what it was by focusing on the high end of the range. And because of that, we continue in terms of CapEx to do what we have been doing in the past 20 years, which is from time to time to add a new reactor with some amount of money, which is reasonable. So we'll see when it is. But certainly, there will be investment in the U.S., maybe again somewhere in Asia, maybe in Europe, I don't know. But we are quite pragmatic on that. And the idea is really to go step-by-step with incremental investment from time to time in order for us to be able to deliver the 7% average growth for PVDF worldwide.
Jaideep Pandya: Okay, thanks a lot.
Operator: The next question comes from the line of Ranulf Orr of Citi. Please go ahead.
Ranulf Orr: Hi, good morning. Thanks for taking the question. Actually I'd just like to go back to the project, please. And apologies if I missed this, but my question is really what gives you the confidence that you can still deliver this linear ramp-up in earnings contribution given the macro. I mean the demand environment, autos, EVs is well below kind of where we hoped it would be back in the end of 2023. So why is the ramp not become a lot more back-end loaded? Thank you.
Thierry Le Hénaff: Ranulf, thank you for the question. It's a fair question. In fact, it's not one project. It's a sum of 12 projects, which intervene in different areas. So I will not comment them all. But for example, if you take HF with Nutrien, it's a back integration. So this is mechanical. It's not linked to the macro. The HFO-1233zd is linked to a new legislation in fluorogas. So it's, I would not say it's mechanical, but I mean, it's not linked to the macro again. For maybe a third one, and we'll stop on this for the biofuel in the U.S. even if we take conservative assumption because of the macro, this is a key trend, which is not depending too much on the macro. This is really the development of the biofuels and DMDS is a key element of this. Then we have another one, which is more for green energy in China. We have no doubt that it will continue. You can have some quarters which are better than others, but it will continue. So the way we position these 12 projects are for, we are not immune to the macro, but we already took some buffers when we published the €440 million. We think this is still quite a solid assumption. And by taking a liner provision of €100 million per year, I think we are confident. But the main reason why is that supported by mega trends? It is project by project, every project is different. They have all their rationale and we have also superior technology, which outperforms the current technology. So I would say these are some elements that I could share with you.
Ranulf Orr: Great. Thank you very much.
Thierry Le Hénaff: You are welcome.
Operator: The next question comes from the line of Matthew Yates of Bank of America. Please go ahead.
Matthew Yates: Hey, good morning, everyone. Thanks for taking the questions. Perhaps they're going to be for Marie-José, I would imagine. But it's clear that Arkema is in a very well-invested business with your CapEx spend and talk on this call about the contribution from new projects. Can I ask you about sort of the operating expenses in the part of the cost base? You have taken what we might call contingency measures over the last 18 months or so. Would you describe those as temporary savings and they need to be reinvested in the business as we go into next year? Or is that a more permanent thing that you can reduce the cost base on? I ask because it's an issue that Evonik have flagged today. The second question, sorry, not the most exciting one, but just is around taxes. I don't think we've had the opportunity to discuss any impact in the French market from potential tax changes. Can you just remind me, given sort of your deferred losses, whether or not that's going to impact the tax rate of the group going forward? Thank you.
Thierry Le Hénaff: Okay. I'll let Marie-José answer on the second one. On the first one, it depends really on the -- and we'll see where we stand early next year on the macro evolution. Clearly, there is already arbitration between reducing costs in certain areas we're investing for growth in other areas, reinvesting for growth in other areas. We try to do that as much as we can. But clearly, we'll continue to dig in and to review all our operating expenses to see if we find further potential savings. As you know, we have announced already at the Capital Markets Day and is still alive this €250 million on five years, split between fixed cost and variable cost. So your question is more, can we do more than that? And clearly, this year, we have saved more than the €50 million that we had in line with some temporary savings that should come back next year. But on the other side, we are working on some other ideas. So it's permanent, let's say, analysis that we are doing with the teams. It's true that we are a little bit less visible in what we are doing than other companies. This is our style. You know us since many years now, but it doesn't mean that we are more shy than them at all. I think, it's part of the day-to-day and our duty to implement the new savings all the time. So we are really on this matter and we have new things which will come to offset at least the one-off that we had this year on top of the EUR 250 million that we have mentioned. So now I will ask Marie-Jose to answer for the tax.
Marie-José Donsion: Regarding the 2025 finance deal, that is actually not finalized. So it's, I would say, the caveat of my answer. But at this point, what we see from a corporate tax standpoint is that there should be no effect on Arkema corporate tax rate. We have indeed numerous tax losses that we can utilize in France, and let's say, rather limited profitability in that market. The second aspect would be, let's say, the social charges. So we are assessing the different measures. I would also think there should be a limited effect of those proposed measures. At this point, we assess something like €3 million, €4 million impact next year, depending on the bills that we pass or not this winter.
Thierry Le Hénaff: Maybe to complete what Marie-Jose is saying is that we fight to try this €3 million, €4 million. So, but we are not the only company in France to fight against it clearly. And anyway, the topic of Europe is beyond that because there is quite a gap in competitiveness in the current years in Europe versus Asia and the U.S. So we're really, among other company, passing the message in order to not, the topic is not just to, not to attack, but it's also to continue to reduce what has been done in the past years in order to improve the competitiveness of our operations mostly in France, but there is still a long way. This is why we have a tendency in Europe to focus on the high added value product. Otherwise, it's difficult to get positioned in a competitive way on the things which are more commoditized.
Matthew Yates: Okay, thank you.
Operator: The next question comes from the line of Alex Stewart of Barclays (LON:BARC). Please go ahead.
Alex Stewart: Hello, good morning. Thank you for taking my questions and thanks for the discussion. Just wanted to clarify, the €100 million on upstream acrylics as the cycle normalizes that's presumably the European, U.S. and Chinese business or is that just developed markets? Just curious on that. And then on PI, could you talk a bit about how the redistribution of cash flow will work. You're a majority shareholder, but there are still minority shareholders. Will the company continue to pay dividends as it did in the past? Will you push for a higher distribution of dividends? I'm trying to figure out how the cash flow comes back to Arkema. I would be very interested in your views on that. Thanks.
Thierry Le Hénaff: Okay, so I will let Marie-Jose on the second one. I will take the first one. I mean what I said before is that it's the €100 million, we could get it most -- for most part of it, let's say, U.S., Europe, if you include China, it could be a bit more, but let's say, this is the order of magnitude, in action you can see worldwide, let's say, maybe €120 million if you take the three regions, but it's an order of magnitude and what does it mean normalization, but we are there, okay?
Marie-José Donsion: So regarding PI, so we own 54% of the company, so it's fully integrated in our books and then you will find basically the minority shareholders portion in just below net income -- just above net income, sorry. So in terms of cash, we've not guided on a different pattern, let's say, compared to historical trend. It's also recognized that because the results of PIAM have been severely impacted by the slowdown of the electronics in 2023, there has been a stop in any dividend payment, also due to the fact that there was a pretty ambitious CapEx plan that they had to digest so this has reduced a lot the dividend distribution. Going forward, it could basically resume. But at this point, we don't envisage, let's say, a change in pattern for the shareholders, the historical shareholders of PIAM, so no indication that we will revisit their policy.
Alex Stewart: Thank you.
Thierry Le Hénaff: Do have the last question?
Operator: Mr. Le Henaff, there are no more questions.
Thierry Le Hénaff: Okay, so thank you to all your questions and for the quality of the discussion and don't hesitate if you have any further questions to contact directly Beatrice and the team. Okay? Thank you very much. Have a good day.
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