Arkema (EPA:AKE.PA), the specialty chemical company, has reported an increase in its second-quarter sales for 2024 by 3.8% year-over-year (YoY) to €2.5 billion, buoyed by a 4.7% rise in volume. The company's EBITDA also rose by 8.2% YoY to €451 million, resulting in an EBITDA margin of 17.8%.
Arkema confirmed its annual guidance, expecting a slight increase in EBITDA above last year's level for the third quarter. The net debt stood at €3.3 billion at the end of June 2024.
Key Takeaways
- Arkema's sales increased by 3.8% YoY to €2.5 billion in Q2 2024.
- EBITDA grew by 8.2% YoY to €451 million, with a margin of 17.8%.
- The company confirmed its annual guidance, anticipating a slight EBITDA increase in Q3.
- Net debt was reported at €3.3 billion.
- Major organic projects and the acquisition of Dow's business contributed to growth prospects.
- Arkema expects material EBITDA impact from organic growth and potential M&A in 2025.
- The company has completed maintenance on biochemical plants, and all are operational.
- Arkema is reducing exposure to the volatile acrylic business in China.
- No new developments on PFAS issues; the company maintains transparency with authorities.
Company Outlook
- Arkema confirms its annual guidance with expectations of a slight EBITDA increase in Q3 above last year's level.
- The company has financed organic growth projects and potential M&A that will impact EBITDA in 2025 significantly.
- Arkema aims to maintain positive net pricing in its Adhesives business by focusing on value-added applications.
Bearish Highlights
- Q3 EBITDA is expected to be lower than Q2 due to seasonality in the fluorogas market.
- The biochemical segment's turnarounds are behind schedule, and the acrylics demand in Europe is complicated due to the political environment.
Bullish Highlights
- Arkema has seen a good performance in Asia and new business development.
- The company has achieved 5% volume growth compared to last year, reflecting the end of most destocking.
- The Polyamide 11 plant in Singapore is operational, although the ramp-up will take time.
Misses
- While the company has been slightly positive in net pricing this year, the year-on-year comparison may be less favorable.
Q&A Highlights
- CEO Thierry Le Hénaff confirmed that all biochemical plants are operational after maintenance.
- The company plans to reduce its exposure to the volatile acrylic business in China.
- Arkema's EBITDA margin of 18% is higher than most of its peers.
- There were no new developments on PFAS issues, and the company is working transparently with authorities.
- Arkema's product, PVDF, is believed to have strong grounds for defense against ECA investigations.
- For further details on the company's guidance, analysts were directed to contact Peter and Beatrice.
Arkema remains focused on sustainable development and is strategically supplying regions from within those regions to mitigate the impact of tariffs.
The company's robust performance in Asia and development of new businesses, along with the contribution from major organic projects and the acquisition of Dow's flexible packaging laminating adhesive business, have positioned Arkema for continued growth.
Despite some challenges in the biochemical and acrylic segments, Arkema's overall outlook remains positive as it navigates through market seasonality and maintains a strong focus on operational efficiency and strategic growth initiatives.
Full transcript - None (ARKAF) Q2 2024:
Operator: Welcome to Arkema’s Second Quarter 2024 Results and Outlook Conference Call. For your information, this call is being recorded. It will take place in a listen-only mode. [Operator Instructions] I will now hand you over to Thierry Le Hénaff, Chairman and Chief Executive Officer. Sir, please go ahead.
Thierry Le Hénaff: Thank you. Good morning, everybody. Welcome to Arkema’s Q2 2024 results conference call. Joining me today are Marie-José Donsion, our CFO, and as usual, the Investor Relations team. To support this conference call, we have posted a set of slides which are available on our website. As always, I will comment the highlights of the quarter before letting Marie-José go through the financials, and at the end of the presentation, will be available to answer your questions. In Q2 2024, the macro environment did not see any real global recovery on the demand side, remaining broadly unchanged versus the past six months to nine months. This is also confirmed by the raw materials environment, which remains sequentially fairly stable, with the exception of those few raw materials which saw some tightness linked to the Red Sea (NYSE:SE) situation, or some temporary issues at suppliers, like in Texas recently after Hurricane Beryl. Arkema was nevertheless able to achieve a 5% volume growth compared with last year, which was a good growth, reflecting the end of most of the destocking, a good performance in Asia and the benefit of new business development in the superior growth of sustainable market platforms presented at our last Capital Markets Day. The volume growth was more significant in Industrial Adhesives, Specialty Polyamide, and the downstream of Coating Solutions. PIAM’s contribution was included in the scope FX since it was acquired at the end of last year, but note that they also enjoyed a good volume improvement compared with last year, with material progress at some of their key customers in electronics. Overall, given the state of the economy, Arkema delivered a robust set of results in Q2, well above last year’s level, with an 8% progression of the EBITDA. Another strong point of the quarter was the EBITDA margin reaching nearly 18%. This undoubtedly underlines the strength of the Specialty Materials portfolio we have built over the years, which allows us to combine high performance and resilience in more challenging times. Our results were already appreciated by the financial community as you remember in 2023, as we maintained our guidance throughout a challenging year, and this year our solid results are also again clearly demonstrating the benefits of our long-term strategy. The contribution of the major organic projects listed in the Capital Markets Day presentation was close to €15 million in the quarter, totaling €20 million in the first semester, we expect this amount to double in the second semester, so to reach around €60 million in the full year. The polyimide 11 plant in Singapore is now fully operational, with significant technical progress achieved by the team in the second quarter. H2 will be the start of the commercial ramp-up, so the contribution naturally to H2 EBITDA will be by nature limited, materially increasing over the years with the ramp-up. The comment applies as well to the HF operations at Nutrien (TSX:NTR) (NYSE:NTR). We will also start in the fall the 1233zd capacity in the U.S, which is, as you already know, a new generation of fluorospecialty, complementing our existing seven. All our segments recorded EBITDA growth in the quarter, with Adhesives leading the way, thanks to double-digit growth, more precisely plus 15%, which is, from our standpoint, remarkable in the context, following on the positive dynamic in Q1. Also for the first time, Bostik exceeded 15% EBITDA margin in a semester, confirming that the segment has reached a new milestone in its development. We continue to benefit from a more favorable product mix and from the successful integration of our past acquisitions, in line with our strategy towards differentiated technologies. The volume growth was at a good level of 5%, supported by the industrial assembly, packaging and laboring market, in short, industrial market, while the dynamics in construction remain subdued. In Advanced Materials, our EBITDA was up slightly, supported in particular by our new business development in Asia in attractive markets like batteries, energy, sports, medical and by the contribution of PIAM, which benefited from the launch of new models by large consumer electronics players and with a clearly accelerated performance in Q2 versus Q1. Performance Additives were, as expected, below the record achievement of last year, penalized by three major planned maintenance turnaround in biochemicals. Note also that in the first week of June, Germany experienced an exceptional flooding of the Danube River, with the water actually rising above the 1,000-year flood level, so creating some damage at one of our plants in Günzburg, mostly electrical installation. The site will have to shut down for three months and the impact on the EBITDA is estimated mostly in Q3 at around €15 million. In Coating Solutions, while the upstream of the segment remained impacted by the slow cycle in acrylic monomers, downstream activities EBITDA was clearly up, benefiting from strong volume growth, and the segment continued to drive towards more sustainable and valued-added solutions. So the mix in the quarter was positive, less acrylic monomers, more in the downstream. We are pleased also to deliver in this segment an EBITDA margin still at 14%, given the relative headwind of the upstream, which shows you the intrinsic quality of this activity after years of positive repositioning. On the M&A front, we expect the acquisition of Dow’s flexible packaging laminating adhesive business still to close end of Q4 and wrap up from the beginning of next year. The teams are actively preparing the post-closing phase and are fully mobilized to deliver the benefits of this great deal, which should create significant value for shareholders over time. After this introduction, I will now hand it over to Marie-José for a more in-depth look at the financials before we discuss the outlook at the end of the presentation.
Marie-José Donsion: Thank you, Thierry. At €2.5 billion, sales are up 3.8% year-on-year, driven by a 4.7% rise in volume. The price affects to that negative 2.4%, reflecting essentially lower raw material prices. The scope effect is positive at 2.3% and corresponds mainly to the contribution of PI Advanced Materials in Korea. Finally, currencies have a negative impact of 0.8% on sales as a result of the depreciation of the Chinese yuan and the Argentinian peso relative to the euro. The U.S. dollar is relatively neutral compared to last year. As Thierry commented earlier, Q2 EBITDA came in at €451 million, up by 8.2% year-on-year. EBITDA margin grew 70 bps, reaching the solid level of 17.8%. Depreciation and amortization stood at €149 million, leading to a recurring EBIT of €302 million, up 6% compared to Q2 2023. Non-recurring items include, on one hand, €37 million of PPA depreciation. PI Advanced Materials PPA depreciation represented roughly €5 million per quarter. On the other hand, €49 million of one-off charges encompassing M&A costs linked to the Dow adhesives, restructuring in legal expenses and startup costs for our PA11 platform in Singapore. Financial expenses stand broadly unchanged at €15 million with the cost of the newly issued bonds offset by higher interest on cash investments. At €52 million, the tax charge represents 22% of EBIT. Consequently, Q2 adjusted net income stood at €214 million, which corresponds to €2.87 per share. Moving on to cash flow and net debt, Q2 recurring cash flow amounts to €132 million, quite consistent with last year’s Q2, which includes €170 million capital expenditure in the quarter, as well as the usual first semester working capital seasonality. The working capital ratio on annualized sales stands at 15.7% at the end of Q2, which is in line with our normative level of circa 15%. As for M&A, we spent €20 million in Q2. This cash outflow corresponds mainly to the acquisition of the majority stake in Proionic and various M&A costs linked to the acquisition of Dow’s laminating adhesives business. Net debt at the end of June 24th therefore amounts to only €3.3 billion, including €1.1 billion of hybrid bonds, and the net debt to last quarter monthly EBITDA ratio stands at 2.2 times. Thank you for your attention and I’ll now hand it over back to Thierry for the outlook.
Thierry Le Hénaff: Thank you, Marie-José, for this explanation. As I said earlier, the macroeconomic environment remains challenging and with broad base of demand, with some pick-up in volumes here and there. So we will therefore continue, as in previous quarters, really to manage quickly our operating costs, focus on the elements under our control, including working capital and CapEx. As you know well, we look forward to the increased contribution of our key organic project in the second half. I mentioned it earlier. This project should amount to around €40 million in EBITDA, twice as much as in the first half. In H2, we will also benefit, as in H1, from the addition of PIAM’s contribution. On the other side, as I said, we have a one-off and with this flooding of Günzburg plant in Germany, it would cost us €15 million in EBITDA, but it’s mainly in Q3. And taking everything into account on the back of our H1 results, the benefit of our ongoing initiatives, which are ramping up, and the current macro outlook, we can confirm our annual guidance, and with six months under our belt, we can also turn it a bit. We aim to achieve so in 2024 a higher EBITDA year-on-year of around €1.53 billion to €1.63 billion, depending again on the strength of the macro in H2, compared with €1.5 billion in 2023. And so far in Q3, we expect an EBITDA slightly above last year’s level. We will also continue to work towards delivering our medium-term roadmap, which we announced at the Capital Market Day, with progress in our organic project, integrating and delivering the synergies of acquisition, and focusing on our value-added innovation together with our customers. As you know, and I think it’s an important message to close this introduction speech, Arkema will benefit from a high density of organic projects and acquisitions for the coming year. The density of projects is either organic or M&A is absolutely unique in the specialty chemical industry, and will help us to accelerate our organic growth in the future. The essential part of this project has already been financed and the impact on the 2025 EBITDA will already be material, with of course further ramp up in the following years. I thank you very much for your attention and together with Marie-José, we are now ready to answer your questions.
Operator: Thank you. [Operator Instructions] Our first question is from Aron Ceccarelli of Berenberg. Please go ahead.
Aron Ceccarelli: Hello. Good morning. Thanks for taking my question. I have three. My first question is on the Intermediate segments, very strong EBITDA generation in Q2 after a week Q1. Maybe can you talk a little bit about the price elasticity in this business and how should we think about H2 development for the Refrigerant Gases? The second question is on Advanced Materials. May you shed some light on the growth in battery materials? I mean, I would like to understand how much of this was automotive versus other types of batteries, and how much of it was maybe market growth versus market share gain? And the last one is on your EBITDA guidance for Q3. When you say slightly above last year, is it slightly above last year ex the impact of the Texas, sorry, of the plant shutdown that you experienced? Thank you.
Thierry Le Hénaff: Okay. Thank you for these three good questions of different nature. First of all, you have a seasonality. And so on that, when you comp -- when you say strong Q2 versus weak Q1, it’s not exactly true, because Q1 was solid, taking into account the Q1 seasonality, which if you look at, you have really two strong quarters, Q2 and Q3, and you have two weaker quarters, Q1 and Q4. Now I would say our feeling is that the year, if you put the seasonality aside, the year will deliver robust, I would say, and the H2s will continue to be robust. But then you have to take into account that Q3 will be below Q2, and that Q1 -- Q4 will be below Q1, just because of the nature of the seasonality in this specific market, which is fluorogas. Now in terms of dynamics of pricing, it will continue to be positive by nearly mechanical, you have less volume. So it weighs down on the volume, the organic growth of the company, but on the other side, you have positive pricing with the mechanism of the quotas. So, overall, I would say maybe Q2 was a little bit more shining than usual and clearly, and we appreciate that because he’s part of the company. But overall, robust delivery for Intermediate and Refrigerant, knowing that on the other side, acrylics in China remains quite challenging. So don’t expect too much from there. But I would say overall, no surprise in this Intermediate. It’s a good contribution to the cash of the company and allows us to invest, continue to invest in the rest of the portfolio. With regard to the battery, so mostly auto still, as you know, I will not talk about market share gain. I don’t think we gain market share. I think we follow the momentum of the market. We are targeting, as you know, not so much a volume, but the quality of the growth. So we don’t -- we are even ready to lose market share, especially against Chinese. But what we wanted to make sure that with our development of assets, which is reasonable, our manufacturing footprint, we benefit from a good profitability. Now, what we see in this battery segment, we see two things, a good momentum in Asia, a -- I would not call a slowdown in Europe and the U.S., because in fact, it has not really started, but some delay on the ramp up in the batteries there of the gigafactory, because of the expectation from the consumer, and also some movement on technology. So some wait and see, but I would say for Arkema, most of our footprint, where we have put our investment is in Asia. So it changed, and for future investment, we have not confirmed yet our decision. So we -- so for us, we are in our plan. I think we are completely comfortable. And we are also benefit -- we’ll benefit in the long run of good news, because as you know, there was a key discussion on NMC cathode battery versus LFP. And you know that, at least for the PVDF part, we are a better position on the LFP, and in fact, this seems to be the winning technology for the coming year. So it’s good for Arkema, knowing that more and more for Arkema, what we try to develop on battery material is beyond PVDF. We have acrylics, we made recently an acquisition in pro-ionic for liquid ionic, we work on carbon nanotubes, we develop a lot on the acrylics, we are the only company with both technology, acrylics and PVDF. So plenty of things going in this segment. So I think we are delivering the plan we presented as a capital market today, but a plan which is qualitative, we don’t share the growth for the growth, we share the growth for the EBITDA development. With regard to the guidance, yes, clearly the Q3 guidance, when we say slightly, it includes the flooding impact. And the guidance for the full year, you have to take that into account, includes the impact of the flooding, which means that when you compare it to the previous guidance, it’s quite a solid forecast, given the state of the economy. As you know, we have increased the lower point of the guidance, despite of that, from €1.5 billion to €1.53 billion. And the higher point of the guidance includes that we have not yet seen recovery. So the recovery you are expecting for the higher end of the guidance, which was expected in spring, will not arrive before September 1st. It’s an element. Then you have this one-off element of the flooding. And despite of that, we still plan €1.63 billion, so in the rain. So I think it’s a solid forecast made of plenty, as you know, specialty chemicals, plenty of elements. But Arkema is robust with this, I would say, this release of the first semester and second quarter.
Aron Ceccarelli: Thank you very much.
Operator: The next question is from Georgina Fraser of Goldman Sachs (NYSE:GS). Please go ahead.
Georgina Fraser: Hi. Morning, Thierry. Morning, Marie-José. Thank you for taking my questions. One super quick one. Should we expect at some point an insurance payment regarding the €15 million for the flooding? And then two questions a little bit longer. So the first is on any visibility you might have of customer inventories. You mentioned, Thierry, that the macro is still quite challenging, but you’re seeing some pick up here and there of volumes. Are you confident this is being met by real consumer demand? And maybe if you could highlight any particular end markets where you’re confident that we’re seeing more than just inventory stocking. And the last question is regarding potential tariffs. Could you highlight if there are any product lines where you more export globally rather than being produced locally-for-locally? And I’m thinking particularly regarding the PIAM acquisition and the synergy expectations you had reaching the U.S. market? Thank you.
Thierry Le Hénaff: Okay. Again, thank you, Georgina. Again, the first question, good question. Different nature, no for flooding will be below insurance deductible. So there will be no coverage of the insurance payment for that. With regard, the visibility of inventory is very difficult at customers. Frankly speaking, the supply chain is long. So you cannot -- you try to, let’s say, to analyze with some in-depth understanding, but overall, it’s a global feeling. We believe that destocking, most of destocking has finished compared to what it was last year. When we see some pick up here and there, it doesn’t mean that we have a sort of base demand and that on top of it, we have some pick up. You have some pick up here and there, and also some down still here and there. So overall, there is no demand fraction. And what we deliver is mostly coming from our new business development or some end of destocking that has happened last year. We don’t see really any restocking. So is the main message there. We really count on ourselves. And if we have some restocking and some rebound, let’s say starting in September or later, it will take the forecast of the year from €1.53 billion up to €1.63 billion. And this is -- to be clear, this is the nature of our forecast for the year. With regard to tariff exposure, we see, it changes all the time. Sometimes it protects us, sometimes it can be a question mark. But overall, we see the administration is changing in the U.S. But with PIAM in Korea, it’s not in China. We think if there is more tariff from China, it will be -- it will help PIAM clearly, especially for what you call the synergy in Europe and the U.S. We think that Korea is a country which is quite close to the U.S. and to Europe. So we don’t see any specific concern there on the contrary. So, no, we’ll see. I think we, overall, Arkema, for most of it is supplying the region from the region. This is our strategy. This is why we have invested significantly in the U.S. and in Asia over time. And because of that, I think we are less impacted by tariff. On the contrary, I think, we like when there are tariffs that protect some markets which could be sensitive, like, for example, acrylic monomers from China, et cetera. Overall, it’s not a big concern for. I mean, your question, I would say, that’s not concerned to -- does not address any specific concern from Arkema and this is valid for -- this answer is valid for Arkema. Okay.
Georgina Fraser: Thank you.
Thierry Le Hénaff: You are welcome.
Operator: The next question is from Andreas Heine from Stifel. Please go ahead.
Andreas Heine: Yes. Only three minor ones left. The first in biochemical is the turnarounds, where they’re all behind. So ISCO [ph] is free of that. Secondly, you were talking about higher acrylics demand, especially in Europe. That was partly probably due to the political environment around the Red Sea. Is that a temporary impact or do you think that that’s lasting? And the last one is the startup costs you account for, for the Polyamide plant in Singapore. When will then they come to an end? So when is your utilization rate at the level that you say there are no startup costs anymore? Thanks.
Thierry Le Hénaff: So on the, on biochemicals, the second part of your question was not completely clear. Could you -- are there…
Andreas Heine: And biochemicals …
Thierry Le Hénaff: Yeah.
Andreas Heine: Whether the maintenance is behind, so whether Q3 all plants are running?
Thierry Le Hénaff: Yeah. Sure. It is behind. It is done. It was really the quarter…
Andreas Heine: Okay.
Thierry Le Hénaff: So all three plants are running now and they were planned maintenance. And now with regard to the acrylics, first we had the low base of comparison. It was true for Europe and for Coating for U.S. Back to the question of Georgina, it is an area where we see some end of destocking. So like-for-like compared to last year, you make progress, but you make progress compared to a low base. I would say that some wet impact is occurring, it is a situation is still complicated there. I would say we see more continuity in acrylics. There is no real overall big fraction on the demand. It is more comparison to the base of last year. What we expect now in acrylics, but it will take some time, is some improvement from cycle which is close to low cycle, quarter-by-quarter, some improvement, but we are not there yet. The good news in Coatings, I would like to mention it again, I take advantage of your question to mention it, is that with acrylics monomers overall close to low cycle, we are able to deliver a 14% EBITDA margin, thanks to the positioning of this Coating segment, which is important to appreciate. With regard to Polyamide 11, yes, you are right to say that the operation has significantly improved in Q2. The plant is now operational. It will take time to ramp up, right? We have invested, as you know, five years. It is five years of capacity and because it is 50% of the total Polyamide 11 sales of the company, even if you assume 8% volume growth in average for the coming years, it takes five years. This means that the EBITDA will ramp up steadily, okay. And on the second semester, the EBITDA contribution will still be limited by nature, because it is the start of the ramp-up. Now, the last point is that clearly with non-recurring, we are really going quite quickly in the right direction, so no doubt about that. There is one final verification step to complete with local authority, which has to validate the full startup, which means that you have in the month of August four weeks of, let’s say, shut down for maintenance and verification by the authority, which is a normal step. It was planned already two years ago, okay. But I think the good news is that we are there now technically and now we have to deliver the expected commercial ramp-up.
Andreas Heine: Thank you.
Thierry Le Hénaff: Welcome.
Operator: The next question is from Jaideep Pandya of On Field Research. Please go ahead.
Jaideep Pandya: Thanks a lot. Maybe start with a comment first and I really -- I would like to really compliment you because I for the last couple of years, you guys have been in a bit of a problem corner with PVDF comparisons, and I think, today your esteemed competitor is delaying their U.S. site. And so, kudos to you on reading the cycle well again for that. My first question, sorry to start this, but Intermediate, could you give us some color about the China quota situation because it seems like there will be quotas coming in 2025. So, what is the exposure these days you have to China? That’s my first question. The second question is around Advanced Materials. When we think about a little bit longer term, so in the next couple of quarters when you’re up and running on PA11 and Nutrien and potentially have some recovery coming through in PI, what is the sort of run rate EBITDA on a quarterly basis seasonally that we should expect? Do you think the division can go back to doing €250 million plus? That’s my second question. And then the third question really is around Adhesives. What do you see with regards to the end market dynamic there in terms of industrial versus construction? Do you think 2025 again can be a scenario where industrial is improving and construction joins the party or do you think that we will stay in this difficult environment in construction? Thanks a lot.
Thierry Le Hénaff: Thank you, Jaideep. So, on your different question, in fact, our exposure on the things we close a few plants in China which delivered a very strong payback, but they were of a traditional focus, I would say, many years ago. I don’t think there will be any specific exposure to Chinese quota coming in 2025. It’s not a topic for us, at least not material. With regard to Advanced Material, I see your question, but in fact, we have two questions. We have one to which we have already answered during the Capital Market Day, which is if we take all these very nice projects, organic and M&A, what will they contribute at maturity? And we say in the Capital Market Day, if you include organic and M&A, from the projects that we have mostly already financed, we expect between €500 million and €600 million of EBITDA coming. Of these, we’ll get €60 million plus [ph] this year, okay, and then you can take a straight line, and then you see what it could be. Now, more specific, not just get quarter-by-quarter, but let’s take 2025, what it will be, you can already have with a straight line the first idea, and clearly, when we communicate, but it’s not now, it’s in six months, on the 2025 guidance, we’ll be more specific on the benefit from all these projects. The idea that you have in mind and that we need to keep in mind, and I think, it’s unique in the specialty chemical industry, is that we have invested in the past two years, three years, a very significant amount of money. All these projects will contribute at maturity €500 million to €600 million EBITDA, and already in 2025, we will have a material contribution to that. So, with that in mind, but now we’ll be more specific, we’ll communicate on 2025, six months from now. With regard to Adhesives, it’s clear we have more or less half industry, half construction. We don’t know yet what it will be in 2025, certainly will be better than 2024. Despite of that, Arkema has really -- Adhesives inside Arkema have really demonstrated a strong success already this year with an economy which is not wonderful, with some restocking, to come back to the question of Georgina already. My feeling is that construction will continue to stay challenging, but we have, for us, on the construction that we serve, the construction is very broad, it has already stabilized. So, maybe it can stay at the point we consider for standard rather low, but it will not continue to deteriorate. So, now the question is the speed of recovery, and this nobody knows. Industry will continue to grow in 2025 and beyond, both coming from our new business development, but also from the underlying demand, okay.
Jaideep Pandya: If I can just ask one follow-up on China…
Thierry Le Hénaff: Jaideep, yes.
Jaideep Pandya: Do you see a reason why you could get out of this business, given you bought it with an optionality angle and the cycle has not played out particularly or do you want to stay in it, given there’s not much capacity coming in acrylic acid and on a five-year view, even in China? So, is there an upside to this if you stay, and if you go back to mid-cycle, what would be roughly the EBITDA that you could benefit from? Thanks a lot.
Thierry Le Hénaff: So, without being too specific, first of all, two years ago, I mean, we had very strong results in China. In 2022, it was a superb year in China acrylic. So, now it’s a slow cycle, so it went very fast. What will it be tomorrow? There will be good years and more challenging years. Overall, it’s not a matter of payback on the investment, because we delivered the payback quite well so far. So, now it’s more a question of strategy and volatility of this business. You have seen that our portfolio is becoming very resilient, and this acrylic in China, from this standpoint, creates volatility, which is a topic. So, what we said at the Capital Market Day on that, is that we’ll be pragmatic and we’ll be open. So, we want to reduce the exposure to China acrylic. The question is at which speed and to which extent, and these questions are still open. But the first -- before taking any decision, the first step is that we have a recovery of the cycle. We’ll see when it comes and depending on that we will initiate or not initiate shortly. This is the only thing we can say so far.
Jaideep Pandya: Okay. Thanks a lot.
Thierry Le Hénaff: And the good thing is that the Intermediate, because of the fluorogasas a whole, because they never go necessarily in the same direction at the same time, overall, and you can take it over many years in the past, overall, the sum of the two is really delivering a nice result. So, sometimes it’s more acrylic, sometimes it’s more fluorogas, but overall, the sum of the two for Intermediate business is not bad.
Jaideep Pandya: Thank you a lot.
Thierry Le Hénaff: Welcome.
Operator: The next question is from Jean-Luc Romain of CIC Market Solutions. Please go ahead.
Jean-Luc Romain: Thanks for taking my question. I would like to know if you could update us on different PFAS issues you have in France. It seems that the Lyon Metropolis is again going to justice to find out if there is pollution due to Arkema and the overplay there. Could you update us on that and then the overall risk you see on PFAS, particularly in France and Europe?
Thierry Le Hénaff: No, on PFAS, there is nothing new which has happened. So, we have already updated, so we can say that during the quarter, nothing has been new. With regard to your specific point which is more incremental, Pierre-Bénite with the metropolis, where they would like us to make more analysis, we make already analysis, we see what is the judgment, but we do again what is required to us as we are doing. I think we are working in full transparency with authorities in France. We respect all legislation and we continue to follow up. So, it’s more a local topic, I would say. And beyond that, I think there is nothing new. You are mentioning Europe. Europe is more the question of the ECA, which is a topic which is far beyond Arkema by far, where they want to know what -- which -- what they call PFAS, which is a really very broad topic. We’ll be able to make in the long run in Europe, it will take years, but I think we have strong grounds to defend the PVDF as our competitors are doing. And PVDF is only one small item of PFAS among the big topics of PFAS in Europe. So, now to make the story short, nothing really new in the quarter. And for Europe, through the ECA, we believe that PVDF has a good card to play. It’s an essential product for battery. We mentioned battery before, but also for semiconductors and plenty of other industries. We see what we work in, as usual, like all industries, I don’t know, thousands of answers to the ECA. We see what is coming out of that, but we believe that PVDF has to continue for the long run for all these essential applications. And again, it’s only a small topic among far bigger ones.
Jean-Luc Romain: Okay. Thank you very much, Thierry.
Thierry Le Hénaff: You’re welcome.
Operator: The next question is from Chetan Udeshi of JPMorgan (NYSE:JPM). Please go ahead.
Chetan Udeshi: Yeah. Thanks. I have a slightly different, weird question this time. I was just looking at your P&L and I know you probably don’t give gross profit or gross margin as a KPI for you, but I was just trying to do the sales less operating expenses. And it feels like your gross margin is somewhere around 22%. Maybe it’s -- there are some costs which may not be Cox related, but I’m just curious because most specialty chemical companies would be sitting somewhere in the 30% plus gross margin. So why that metric for Arkema doesn’t look as good in general? Is there some explanation to it? And the other question I had was, I’m sorry, this might be my misunderstanding, but I heard Marie-José talk about the startup cost for PA11 still reported as special items. And I’m just curious, why is still that -- why is that still the case, because the project is now up and running. So why is the startup cost still classified as one-off?
Thierry Le Hénaff: So I think on these two questions, two very clear and short answers. The first one, I think, we have an 18% EBITDA margin. When I compare with the peers you mentioned, for most of them our EBITDA margin is significantly higher. So I don’t think we have any, after that, I don’t know what you have inside your gross margin, where you would compare us below the other one. If you want to discuss with Beatrice or Peter to understand better, please do it. But I think we will certainly not suffer from any comparison in this respect. I don’t know where your figures are coming from. So no clue. I would say that the only thing we know is that the figures we publish, how we compare to peers, we are in very good position. I -- hopefully, you can appreciate it and recognize it. With regards to startup cost, I think we have been very clear in the last conf. You can take what we said during the last conference call on the startup cost. We say that we will continue to have in the Q2 startup cost, but it will diminish, okay, because we would -- it will be fully operational at the end of June, which has happened. But there will be startup cost again in the Q2, which has happened, but they are lower than they were before, exactly what we said. And again, we say it’s going in the right direction. So they will certainly continue to diminish quite strongly. We have this question which I’ve mentioned, I’m sure you have listened to it just 10 minutes ago, where we mentioned that there would be some verification, which are formal and which were planned two years ago by the local authorities in August, where you need to have a shutdown of the site where they check everything, which is normal in Asia, so which will have some cost to finalize completely the startup. So we’re already exactly where we said we would be.
Chetan Udeshi: Very clear. Thank you.
Thierry Le Hénaff: You’re welcome.
Operator: The next question is from Geoff Haire of UBS. Please go ahead.
Geoff Haire: Yes. Good morning. Thank you for the opportunity to ask a question. I have two. First of all, just on the guidance for 2024 for EBITDA, could you just outline what you’re assuming for organic growth or volume and price, depending on how you want to do it at both ends of the guidance that you’ve given? It would appear to me that at the bottom end of the guidance, you’re assuming negative organic growth, but I just want to check that? The second question is that, you’re clearly in some businesses, particularly Adhesives and Advanced Materials, benefiting from raw material prices falling faster than selling prices. How long do you think that can continue?
Thierry Le Hénaff: Hey. On the first one, I think we already are rather precise in the guidance with EBITDA. Now everybody has a lot of information. I mean, we supply a lot of information. You can make your assumption. If you want to refine your assumption, please do it with Peter and Beatrice. I will not do it here at my level. We have ourselves at the level of the company, a precise forecast to consolidate the guidance and to make sure that it is released, but I will not comment in detail here. But please, I mean, you have the access to Peter and Beatrice if you want to check some numbers of your model. With regard to the Adhesive, we have some likely net pricing, which may be a difference between Arkema and some other PIC, which means that we have a good pricing power. So far, if the raw material stays stable, we will continue with this likely net pricing. If the change, one way or the other, we try to be, as usual, proactive to -- it’s important as the cost of doing business in the chemical industry and in many industries is continuing to increase, and more legislation, more CapEx, more everything. So it’s important to continue to have a positive net pricing. We have been able over the years to demonstrate that it was the case for Arkema. We are still in a position to continue to -- we are improving our mix towards a more value-added application and sustainable development. This is all the nature of our strategy. So we try to get net pricing positive all along the road. So we plan to continue, but it’s not so much the evolution of the raw material. It’s more the evolution of the portfolio, I would say. But so far, in a world which has been volatile, with raw material changing a lot, we are slightly positive this year, which I think, in the context, is certainly a good movement and this raw material stays stable. After that, you know, Geoff, it’s a year-on-year comparison. It’s not sequential. So when what was positive at a certain point becomes neutral at a later time, just because we did the job before. So we are neutral. So certainly, comparison will be a bit less favorable at this point. But the idea is to stay at least neutral on the material side net pricing.
Geoff Haire: Okay. Thank you.
Thierry Le Hénaff: You’re welcome.
Operator: Mr. Le Hénaff, that was the last question. Back to you for any closing remarks you may have.
Thierry Le Hénaff: Okay, thank you very much for this early August discussion. I would like to thank you to have connected so many of you. I hope you appreciate the quality of the release of the results. And don’t hesitate, if you have any further questions, to contact, as some of you may have, Beatrice and Peter to have some complimentary answers. We’ll be certainly open to answer. And for the ones who take vacation now, please have a nice vacation. Okay. Thank you.
Operator: Ladies and gentlemen, this concludes this conference call, Arkema. Thanks you for your participation. You may now disconnect.
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