Arkema SA Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tom Wrigglesworth - Morgan Stanley & Co. LLC. - Analyst : Thierry, just to come back to that last point, you talked about EUR100 million of EBITDA growth on average for the period as we think the '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 EUR30 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 your -- 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.

Question: Emmanuel Matot - ODDO BHF Corporate & Markets - Analyst : (spoken in foreign language) Four questions for 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 US following Donald Trump's likely victories? 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?

Question: Emmanuel Matot - ODDO BHF Corporate & Markets - Analyst : How do you explain the strong volatility per quarter for intermediate?

Question: Aron Ceccarelli - Joh. Berenberg, Gossler & Co. KG - Analyst : 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 EUR100 million per year, but the total EBITDA has just been reduced by EUR10 million from EUR650 million to EUR640 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 EUR650 million to EUR700 million, this is still an element of growth there because your maintenance CapEx should be something around EUR550 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 EUR40 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?

Question: Chetan Udeshi - JPMorgan Chase & Co - Analyst : I was just -- 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 EUR60 million to EUR70 million per quarter, I think for some reason, this quarter, it was EUR47 million. So just curious what is -- what has changed in that line in Q3?

Question: Georgina Fraser - Goldman Sachs Group, Inc. - Analyst : 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 EUR100 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.

Question: Georgina Fraser - Goldman Sachs Group, Inc. - Analyst : No, that was it. It was just a really long one question, which you answered.

Question: Georgina Fraser - Goldman Sachs Group, Inc. - Analyst : It was just a comment. It was saying from the cycle gets you to the target. So all very clear. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 10:00AM, AKE.PA - Q3 2024 Arkema SA Earnings Call

Question: Geoff Haire - UBS Investment Bank - Analyst : 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?

Question: Jaideep Pandya - On Field Investment Research LLP - Analyst : Sorry to ask you this, but on the intermediates, can you tell us how is the path for quotas looking like in the US 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.

Question: Jaideep Pandya - On Field Investment Research LLP - Analyst : Just if I may 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 has been delays on the US 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 US. And therefore, we could expect an announcement from Arkema over the next 6 months on PVDF.

Question: Ranulf Orr - Citigroup, Inc. - Analyst : 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.

Question: Matthew Yates - Bank of America Merrill Lynch - Analyst : Perhaps they're going to be for Marie-JosT, 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?

Question: Alex Stewart - Barclays Investment Bank - Analyst : Just wanted to clarify, the EUR 100 million on upstream acrylics as the cycle normalizes that's presumably the European, US, 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 06, 2024 / 10:00AM, AKE.PA - Q3 2024 Arkema SA Earnings Call