Arkema Reports 3Q 2014 Results

The Board of Directors of Arkema met on Nov. 13, 2014 to review the Group’s consolidated accounts for third quarter 2014.
 
“In the third quarter, the Group delivered a solid performance with an EBITDA margin close to 14%, demonstrating good resilience in overall contrasted market conditions,” Thierry Le Hénaff, chairman and CEO of Arkema, said. “The High Performance Materials and Industrial Specialties segments, with 16% EBITDA margins, benefit from good volumes in the U.S. The Coating Solutions segment was affected by lower acrylic margins, which are currently close to low cycle.
 
“With the announcement of the project to acquire 2 Bostik, the finalization of the construction of the Thiochemicals platform in Malaysia, and the acquisition from Jurong of a 160,000 tons acrylic acid production line, Arkema is completing a major investment phase. 2015 and subsequent years will benefit from these various projects,” he added. “The Group thus enters a new phase of profitable growth with strong and regular cash generation.”
 
Sales stood at €1,478 million against €1,495 million in third quarter 2013, stable at constant business scope and exchange rates. In an environment of moderate global growth, volumes grew by 1.6% (+3.0% excluding the impact of the shutdown of activities in Chauny, France, effective first quarter 2014), mainly supported by Industrial Specialties and solid volumes in High Performance Materials.
 
The Group continued to benefit from its strong position in the United States (36% of the Group’s sales). The -1.7% price effect essentially corresponds to lower prices in Coating Solutions. The -1.1% scope effect reflects the deconsolidation of coating resins companies in South Africa divested in August and a change in consolidation method used for certain joint ventures.
 
At €203 million against €233 million in third quarter 2013, the EBITDA decrease mainly reflects market conditions now close to low cycle in acrylic monomers and the high basis of comparison in 2013 in polyamide 12. As announced, the performance in fluorogases was stable compared to last year. The other product lines achieved a good performance overall.
 
EBITDA margin held up well in a challenging economic environment and stood at 13.7%, stable compared to second quarter 2014 despite the usual seasonality of July and August and lower acrylics margins.
 
Despite the usual seasonality of the summer months, High Performance Materials results improved significantly compared to second quarter 2014, which had been impacted by a number of specific and temporarily unfavorable elements such as the maintenance turnaround in Mont, France. They confirm the stabilization of market conditions in polyamide 12 compared to the previous quarter. Nevertheless, performance remained down on the third quarter 2013 high basis of comparison. Fluoropolymers achieved a strong performance supported by innovation. Organic Peroxides benefited from good volume growth. Finally, the product mix was temporarily less favorable in the Filtration and Adsorption business.
 
Sales reached €457 million, 1.5% up on the previous year at constant business scope and exchange rate. Volumes grew by +2.5% supported by the growth in the activities in the United States. The -1.0% price effect essentially reflects lower prices than last year in polyamide 12. The translation effect was limited, at -0.2%.
 
EBITDA stood at €75 million against €85 million in 3rd quarter 2013 (€67 million in 2nd quarter 2014). EBITDA margin reached a solid 16.4% despite more challenging market conditions.
 
For the first time since first quarter 2013, EBITDA in Industrial Specialties increased over last year’s figure. This slight improvement reflects, as anticipated, stabilization in market conditions in fluorogases, which are similar to those of last year, and good performance in Thiochemicals. Market conditions were positive in PMMA in North America and in Europe, and the situation remained mixed in Hydrogen Peroxide, in particular in Europe.
 
At constant business scope and exchange rate, sales grew by 4.0% to €476 million compared to 3rd quarter 2013. Volumes increased by +4.5%, supported by fluorogases and Thiochemicals. The price effect was limited overall, at -0.5%, with price increases in PMMA offsetting the decrease in fluorogases. The -0.9% scope effect corresponds to a change in the consolidation method used for certain joint ventures.
 
EBITDA grew by 2.7% to €76 million compared to the third quarter 2013 (€74 million). EBITDA margin stood at 16%, stable compared to last year and up on the first two quarters of the year despite the seasonality of the summer months.
 
The performance of the Coating Solutions segment reflects, as expected, lower unit margins in acrylic monomers following the start-up of new production capacities in China. Market conditions in this activity were now close to their cycle low and should remain at this level through the end of the year. The performance of the other product lines was stable overall.
 
Sales stood at €540 million against €574 million in the third quarter 2013, down 3.9% at constant business scope and exchange rate. The volume effect was limited, at -0.7%. Excluding the impact of the shutdown of activities in Chauny, France, effective in 1st quarter 2014, it was positive at +2.9%. Volumes grew in Asia in Acrylics to prepare for the integration of Jurong’s acrylics assets. However, demand remained moderate in paints in Europe. Acrylic monomer prices decreased in 3rd quarter with a -3.2% price effect. The -2.2% scope effect results from the deconsolidation of coating resins companies in South Africa, which were divested in August. The translation effect was very limited, at +0.2%.
 
EBITDA stood at €62 million (€79 million in third quarter 2013), with EBITDA margin at 11.5%.
 
In third quarter 2014, Arkema generated €61 million free cash flow. Net debt stood at €1,054 million on Sept. 30, 2014 against €923 million at Dec. 31, 2013.
 
On Sept. 19, 2014, Arkema announced the intended acquisition of Bostik, number three worldwide in adhesives. This project is a key milestone in Arkema’s transformation into a world leader in specialty chemicals and advanced materials. This acquisition in the low cyclical and low capital intensive adhesives sector will enable Arkema to strengthen the quality of its business profile and its resilience to changes in the economic environment, and to continue developing its High Performance Materials segment, which should account for 42% of total sales following the acquisition of Bostik.
 
With sales of €1.53 billion and 4,900 employees, Bostik holds leading positions in most of its markets, has internationally recognized brands and technologies, fosters close partnerships with its customers, and is particularly well-placed to take advantage of the momentum of the adhesives market currently enjoying annual growth above global GDP.
 
At the end of July, Arkema finalized its US$110 million investment plan intended to strengthen the Group’s position in the U.S. acrylics market, with the start-up on its Clear Lake site of its new 45,000 tons plant for the production of methyl acrylate used in the manufacture of polymers for water treatment, elastomers and engineering polymers.
 
Arkema has finalized the first stage of its acrylics assets acquisition project in Taixing, China, and now has access to a modern and competitive 160,000 tons/year acrylic acid production capacity in Asia for an amount of US$ 240 million. This investment will enable the Group to serve its customers in China and in Asia in growing markets such as superabsorbents, paints, adhesives and water treatment.
 
The macro-economic environment is expected to remain globally challenging up until the end of the year with contrasting trends depending on product lines and regions and a continuing volatility in foreign exchange rates and oil prices. In this context and while remaining cautious given the volatility of the macro-economic environment, Arkema confirms its 2014 target of an EBITDA close to €800 million. The Group also confirms its 2017 target, adjusted in September 2014 to take account of the project to acquire Bostik, to achieve €1,310 million EBITDA, as well as its long-term targets.