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Arkema Reports Strong Growth in 3rd Quarter

Published on 2015-11-12. Author : SpecialChem

The Board of Directors of Arkema met to review the Group’s consolidated accounts for 3rd quarter 2015. At the end of the meeting, Thierry Le Hénaff, Chairman and CEO, stated: “Arkema achieved a strong performance with good cash flow generation in a third quarter marked by volatility in petrochemical raw materials and a soft global economic environment. Excluding Bostik contribution, EBITDA improved significantly, with the vast majority of product lines progressing over last year. Among major projects, Bostik confirmed the solid momentum of the first half, and began to benefit from first synergies. The thiochemicals site in Kerteh in Malaysia delivered an excellent quarter, whereas the performance of our new acrylics activities in China remained disappointing. While we remain cautious about the economic environment, we have increased our EBITDA guidance for 2015 released with the half-yearly results.”

Arkema
Fig. 1: Arkema

3rd Quarter 2015 Performance

In 3rd quarter 2015, Group sales reached €1,946 million, 31.7% up on 3rd quarter 2014 with a +29.4% scope effect related to the acquisition of Bostik and the purchase of a stake in Sunke in Acrylics in China. The currency effect was positive at +7.0% mostly due to the strengthening of the US dollar versus the euro. Volumes, close to last year’s (-0.5%), reflected overall soft global demand. The trend in prices (-4.3%) was essentially due to the acrylics cycle.

EBITDA, at €286 million, was, for the third quarter in a row, significantly up (+38.2%) over last year. The integration of Bostik, the ramp-up of the new Thiochemicals plant in Malaysia, a positive currency exchange effect (translation) of some €20 million, lower input costs and a good control of fixed costs contributed in particular to this solid growth. EBITDA margin rose to 14.7% (against 14.0% in 3rd quarter 2014) despite the acrylics cycle and the mechanically dilutive effect of Bostik’s integration. In line with EBITDA growth, recurring operating income grew to €176 million against €120 million in 3rd quarter 2014. It includes €110 million depreciation and amortization, up on last year (€87 million) as a result of the acquisition of Bostik, the purchase of a stake in Sunke, the impact of currencies, and the start-up of new production plants.

Non-recurring items amounted to -€15 million, including -€10 million corresponding to additional depreciation and amortization booked as a result of the revaluation of tangible and intangible fixed assets as part of Bostik purchase price allocation. The other non-recurring items mostly correspond to restructuring expenses.

Financial result stood at -€53 million against -€15 million in 3rd quarter 2014 as a result of the higher cost of debt relating to the financing of Bostik acquisition as well as the recognition, following a sharp fall in the Malaysian ringgit versus the US dollar, of a €28 million unrealized currency loss on the financing in US dollars of the investments made in Thiochemicals in Malaysia. This last item had no impact on net debt.

Income taxes amounted to -€51 million against -€37 million in 3rd quarter 2014. Excluding the reversal of €3 million provisions for deferred tax liabilities recognized as part of Bostik purchase price allocation, tax rate stood at 30.7% of the recurring operating income, reflecting the geographical split of the results, and in particular the share of the Group’s income generated in the United States.

Net income Group share stood at €61 million against €24 million in 3rd quarter 2014. Adjusted net income stood at €95 million, i.e. €1.27 per share.

Segment Performance in 3rd Quarter 2015

High Performance Materials

High Performance Materials sales reached €866 million, +100.5% up on 3rd quarter 2014, largely supported by the contribution of Bostik (€411 million sales) and a +6.8% translation effect. The -1.9% decrease in volumes reflects weaker demand in some applications in the oil and gas market. The price effect was stable overall (+0.2%).

EBITDA grew by +56% to €131 million against €84 million in 3rd quarter 2014. This strong increase is the result of Bostik’s good performance in a moderate growth environment, thus confirming the relevance of its strategy and the benefits from first synergies. Excluding Bostik contribution, the segment’s performance is at last year level, lower volumes being offset by the positive impact of currencies and lower input costs.

EBITDA margin stood at 15.1% reflecting the mechanical dilutive effect of Bostik integration.

Industrial Specialties

Industrial Specialties sales rose by 10.1% to €608 million against €552 million in 3rd quarter 2014. This growth results from a +7.8% translation effect as well as a +3.2% increase in volumes supported by the ramp-up of the new Thiochemicals plant in Malaysia. These effects largely offset price variations (-1.3%) mainly resulting from product mix over the quarter and lower raw materials.

Up 39% compared to 3rd quarter 2014, EBITDA reached €114 million, showing a strong improvement for the third quarter in a row. The excellent performance of Thiochemicals reflects the contribution of the Kerteh platform (Malaysia) which continued to enjoy strong demand in the animal feed market in Asia. PMMA results remained very good with a few signs of normalization. Certain fluorogases continued to enjoy higher prices than last year in a quarter with a traditionally less favorable seasonality. Finally, Hydrogen Peroxide again reported a solid performance, significantly up on last year.

EBITDA margin showed also a solid improvement compared to 3rd quarter 2014, at 18.8%.

Coating Solutions

Coating Solutions sales stood at €465 million, -4.9% down on last year. The translation effect was positive at +6.5%, and the acquisition of a stake in Sunke resulted in a +4.1% scope effect. A -3.6% decrease in volumes reflects ongoing soft demand in construction and decorative paints in Europe as well as inventory adjustments at the end of the quarter in a context of high volatility of raw material costs. In line with the beginning of the year, the -11.8% drop in prices reflects the acrylics cycle and lower raw material costs.

EBITDA stood at €53 million against €51 million in 3rd quarter 2014, while EBITDA margin reached 11.4%. The positive impact of currencies and the good performance of downstream activities supported by new developments at Coatex as well as lower costs helped offset lower margins in acrylic monomers. In this activity, unit margins were at low-cycle levels, particularly in Asia, and should remain so in the near future.

Cash Flow and Net Debt at 30 September 2015

In 3rd quarter 2015, Arkema generated +€172 million free cash flow2, significantly up on 3rd quarter 2014 (+€64 million). In line with the Group’s ambition reaffirmed at the Capital Markets Day in June 2015 to increase cash flow generation, this good performance reflects a strong EBITDA growth compared to last year and the good control of working capital and capital expenditures. Over 3rd quarter, working capital decreased by €43 million 3 reflecting the traditional seasonality of the activity and capital expenditure amounted to €103 million. Non-recurring items over the period were limited to -€3 million.

After taking account of the impact of portfolio management operations, net cash flow 4 stood at +€167 million in 3rd quarter 2015 against +€63 million in 3rd quarter 2014. As regards Group capital expenditures (including Bostik), Arkema maintains its forecast for 2015 which, adjusted for the impact of exchange rate variations (mostly US dollar versus euro), should represent some €470 million.

Net debt stood at €1,632 million at 30 September 2015 (against €154 million at 31 December 2014), i.e. 42% gearing. It is down compared to end June 2015 (€1,773 million). It includes €47 million dividend paid in cash in 3rd quarter to shareholders who did not elect for the payment in shares. It does not include the €33 million interest due on the hybrid to be cashed out in 4th quarter 2015.

2015 OUTLOOK

The 4th quarter 2015 should reflect the usual year-end seasonality, which might be amplified by current volatility of raw material prices and result in a more cautious behaviour from some customers towards the end of the year. The impact of the US dollar / euro exchange rate should remain positive, but far less material in the fourth quarter than in previous quarters. Unit margins in acrylic monomers are expected to remain at lowcycle levels, in particular in Asia.

At the end of the year, Arkema will continue to benefit from Bostik’s contribution and the ramp-up of the Thiochemicals platform in Malaysia, as well as its operational excellence efforts to offset part of the inflation on fixed costs. The improvement in the fluorogas activity should be limited in the quarter given the traditional year-end seasonality of this business.

Based on these drivers and the strong performance of the first nine months of the year, Arkema increases its EBITDA target (including Bostik contribution) for 2015 up to a range of €1,020 million to €1,040 million (Arkema had announced late July an EBITDA target for 2015 “slightly above €1 billion”)

About Arkema

A global chemical company and one of the leading chemicals producers, Arkema is building the future of the chemical industry every day. Deploying a responsible, innovation-based approach, it produces state-of-the-art specialty chemicals that provide customers with practical solutions to such challenges as climate change, access to drinking water, the future of energy, fossil fuel preservation and the need for lighter materials. With operations in nearly 50 countries, about 19,000 employees, and research centers in North America, France and Asia, Arkema generates pro forma annual revenue of €7.5 billion ($9.5 billion), and holds leadership positions in all its markets with a portfolio of internationally recognized brands.

Source: Arkema

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