Arkema: Second-Quarter 2021 Results

COLOMBES, France--(BUSINESS WIRE)--Regulatory News:

Arkema (Paris:AKE):

The Group recorded excellent earnings growth in the second quarter, notably with EBITDA up 67% compared to 2020 and above the pre-crisis level of 2019.

This performance was driven by Specialty Materials ⁽¹⁾, which benefited from strong demand for innovative, sustainable materials and from its unique positioning to support global megatrends.

In this context, and in light of the quality of the performance achieved in the first half of the year, Arkema is once again significantly increasing its financial targets for 2021.

• Group sales of €2.4 billion, up 34.6% versus 2020 and up 12.1% versus 2019 at constant scope and currency:
  • Significant growth in volumes (+17.1% vs. Q2’20 and +3.0% vs. Q2’19), driven by high demand in most end markets and the strong dynamic of new developments
  • 17.5% increase in selling prices on average compared to the prior year, reflecting the Group’s ability to offset the very marked rise in raw materials and energy costs
  • Sharp acceleration in the benefits of sustainable innovation, particularly in the fast-growing batteries, bio-based materials, 3D printing, electronics and environmentally friendly paints markets
• EBITDA of €478 million, up 67.1% compared to Q2’20, and a historically high EBITDA margin of 20.0%:
  • Strong growth in the three segments that constitute Specialty Materials, which recorded EBITDA of €417 million, up nearly 80% versus Q2’20 and 37% versus the pre-Covid reference of Q2’19
  • Intermediates’ EBITDA of €87 million, up 31.8% despite a negative scope effect related to the PMMA divestment on 3 May 2021, benefiting from more favorable market conditions than in the prior year, which was marked by the health crisis
• Adjusted net income up almost threefold to €267 million, representing €3.50 per share
• Net debt of €1.28 billion (including €700 million in hybrid bonds), representing 0.9x last-twelve-months EBITDA and including €1.1 billion in gross proceeds from the PMMA divestment, €191 million in dividend payments and a €300 million commitment relating to the share buyback program launched at the end of May
• Continuation of the strategy to refocus on Specialty Materials, with the finalization of the PMMA divestment and the acquisitions of Edge Adhesives and Agiplast
• Full-year guidance significantly raised; for 2021, Arkema is now targeting around 30% growth in Specialty Materials’ EBITDA relative to 2020 at constant scope and currency ⁽²⁾, which would result in Group EBITDA of around €1.4 billion, excluding a systemic resumption of the health crisis

Following Arkema’s Board of Directors’ meeting held on 28 July 2021 to approve the Group’s consolidated financial statements for the first half of 2021, Chairman and CEO Thierry Le Hénaff said:

“Arkema’s employees can be proud of the performance achieved in the second quarter and I’d like to take this opportunity to thank them warmly for their contribution. We expected the results to be significantly above 2020 levels. But very sharply outperforming 2019, particularly in Specialty Materials, is a great achievement that positions us perfectly on our trajectory to 2024. This performance fully confirms the validity of our strategy of sustainable growth and transformation towards innovative, high-performance materials.

In a fast-changing world full of opportunities, we firmly believe in the strength of our project, which is the product of our teams’ unwavering commitment since many years, enabling us to support in a unique manner our customers address the major challenges of sustainable development.

Our technologies, the partnerships we forge with our customers, our geographical footprint and our financial flexibility are all valuable assets that will contribute both to speeding up our organic growth via high-quality industrial projects and to strengthening our Specialty Materials through bolt-on acquisitions.

We’re more confident than ever in our potential to create value and enthusiastic about growth opportunities notably in such areas as lightweight and bio-based materials, batteries, hydrogen, 3D printing, technical adhesives and more environmentally friendly paints. Raising our guidance for the second time this year is a reflection of this confidence.”

KEY FIGURES

(In millions of euros)	Q2'21	Q2'20	YoY change	H1'21	H1'20	YoY change
Sales	2,395	1,902	+25.9%	4,621	3,990	+15.8%
EBITDA	478	286	+67.1%	836	586	+42.7%
Specialty Materials	417	233	+79.0%	723	489	+47.9%
Intermediates	87	66	+31.8%	162	134	+20.9%
Corporate	-26	-13		-49	-37
EBITDA margin	20.0%	15.0%		18.1%	14.7%
Specialty Materials	20.7%	15.4%		18.8%	15.3%
Intermediates	23.5%	17.4%		21.1%	17.3%
Recurring operating income (REBIT)	345	144	+139.6%	568	304	+86.8%
REBIT margin	14.4%	7.6%		12.3%	7.6%
Adjusted net income	267	90	+196.7%	426	190	+124.2%
Adjusted net income per share (in €)	3.50	1.18	+196.6%	5.58	2.49	+124.1%
Recurring cash flow^(*)	245	284	-13.7%	298	271	+10.0%
Free cash flow	313	288	+8.7%	297	250	+18.8%
Net debt including hybrid bonds				1,281	2,134
€1,910m as of 31/12/2020

(*) Recurring cash flow corresponds to the free cash flow before exceptional items. It excludes non-recurring items and exceptional capital expenditure.

SECOND-QUARTER 2021 BUSINESS PERFORMANCE

Sales amounted to €2,395 million, up 25.9% compared to second-quarter 2020. At constant scope and currency, sales were up 34.6% versus Q2’20 and up 12.1% versus the pre-Covid level of Q2’19. Volumes rose by a sharp 17.1% year on year, and were also 3.0% above 2019 levels, thanks to high demand in most of the Group’s end markets, in particular construction, batteries, electronics, transportation and consumer goods. Arkema is thus reaping the benefits of its positioning on growth markets and on innovative, sustainable, high-performance solutions, where demand, linked to global megatrends, is accelerating. The evolution of volumes in the packaging, nutrition and hygiene markets reflects the high 2020 comparison base. The price effect was a positive 17.5%, reflecting price increase initiatives in all product lines to pass on the steep rise in raw materials, energy and logistics costs, and benefiting as well from tight market conditions in the acrylics chain. The negative 4.5% scope effect relates to the divestments of the Functional Polyolefins business on 1 June 2020 and the PMMA business on 3 May 2021, which were partially offset by acquisitions in Specialty Materials. The euro’s rise against the US dollar was the main factor behind the negative 4.2% currency effect. In second-quarter 2021, Specialty Materials represented 84.5% of total Group sales (80% in Q2’20).

Group EBITDA, at €478 million, was up by a very sharp 67.1% compared to Q2’20, despite a negative currency and scope effect of around €30 million. This excellent performance was driven by growth in volumes, particularly in Adhesive Solutions, High Performance Polymers and Coating Solutions, the benefits of our price increase initiatives as well as tight market conditions in the acrylics chain. At €417 million, Specialty Materials’ EBITDA was well above 2019 pre-Covid levels (+37.2% versus Q2’19 and +79.0% versus Q2’20), with strong growth in all three segments. The Group’s EBITDA margin reached a historic high of 20.0%, up 500 bps from Q2’20.

As a result, recurring operating income (REBIT) amounted to €345 million compared to €144 million in the second quarter of 2020. This figure includes recurring depreciation and amortization of €133 million, down €9 million compared to second-quarter 2020, primarily due to the currency and scope effects. The REBIT margin was up by nearly 700 bps to 14.4%, thus repositioning the Group’s return on capital employed above its 10% long term target.

Operating income came to €1.06 billion and included a pre-tax capital gain of close to €950 million relating to the divestment of PMMA, as well as expenses corresponding primarily to asset impairments.

Adjusted net income rose by a strong 197% to €267 million, representing €3.50 per share. In the first half, excluding exceptional items, the tax rate came in at 20% of recurring operating income, versus 22% last year, reflecting the geographic mix of the Group’s earnings.

CASH FLOW AND NET DEBT AT 30 JUNE 2021

For the sake of comparability between different years and to neutralize in particular the significant non-recurring inflows linked to the tax impacts of recent disposals, a recurring cash flow excluding exceptional items is now calculated. This recurring cash flow ⁽³⁾ thus came to €245 million in second-quarter 2021, versus €284 million in second-quarter 2020. It includes an increase in working capital linked to volume growth and raw materials inflation in a context of a sharp improvement in activity. At 30 June 2021, working capital remains well controlled and represented 11.9% of annualized quarterly sales excluding the PMMA business (16.5% at 30 June 2020 and 16.0% at 30 June 2019), an exceptionally low ratio that remains below the normative level due to strong demand and some difficulties to source raw materials, which did not allow to rebuild inventories.

Free cash flow came to €313 million, versus €288 million in the second quarter of 2020. It included a non-recurring inflow of €132 million, corresponding mainly to tax liabilities relating to the capital gains tax on the PMMA divestment. The tax has been recorded in net cash flow from portfolio management operations but will be disbursed during the second half of the year. Free cash flow for second-quarter 2020 also included a non-recurring €48 million cash inflow, corresponding primarily to tax savings linked to the use of tax losses.

This quarter, free cash flow also included an increase in exceptional capital expenditure (€64 million versus €44 million in Q2’20) relating to the construction of the polyamide bio-factory in Singapore and the hydrofluoric acid supply project with Nutrien in the United States.

Cash flows from portfolio management operations represented a net inflow of €912 million in the quarter, essentially corresponding to the PMMA divestment finalized on 3 May and that also included the bolt-on acquisitions of Agiplast and Edge Adhesives in Specialty Materials.

Including hybrid bonds, net debt stood at €1.28 billion at 30 June 2021 versus €1.91 billion at 31 December 2020. This figure includes €1.1 billion in gross proceeds from the PMMA divestment, the €2.50 per share dividend payment for a total payout of €191 million and a €300 million commitment corresponding to the share buyback program launched in May 2021. The net debt (including hybrid bonds) to last-twelve-months EBITDA ratio remains well under control, at 0.9x.

Moreover, in line with its ambitions in terms of Corporate Social Responsibility, Arkema has signed an addendum to its €1 billion syndicated credit facility set up in July 2020 in order to integrate three key CSR criteria for the Group into the calculation of the cost of credit: greenhouse gas emissions, volatile organic compound emissions and the total recordable injury rate (TRIR). Arkema also obtained approval from all lenders for the first one-year extension, bringing the maturity date for the syndicated credit facility to 29 July 2024.

SECOND-QUARTER 2021 PERFORMANCE BY SEGMENT

ADHESIVE SOLUTIONS (24% OF TOTAL GROUP SALES)

(In millions of euros)	Q2'21	Q2'20	YoY change
Sales	575	453	+26.9%
EBITDA	82	50	+64.0%
EBITDA margin	14.3%	11.0%
Recurring operating income (REBIT)	65	35	+85.7%
REBIT margin	11.3%	7.7%

Sales of the Adhesive Solutions segment totaled €575 million, significantly up 26.9% compared to second-quarter 2020. Volumes rose by 20.5%, lifted by positive trends in the construction and DIY markets and by a significant rebound in industrial applications. In the continuity of the first quarter, the packaging and hygiene markets faced the high prior-year comparison base. Up 3.8%, the price effect reflected the Group’s actions to pass on raw materials inflation. Further pricing initiatives will be implemented in the third quarter, as the impact of rising raw materials will intensify. The 5.5% positive scope effect corresponds to the integration of Fixatti, Ideal Work, Poliplas and Edge Adhesives and the currency effect was a negative 2.9%.

EBITDA for the segment totaled €82 million, up sharply 64.0% versus Q2’20 and up 15.5% versus Q2’19. This performance was driven by high volumes, operational excellence actions, the integration of acquisitions and initiatives to increase selling prices to offset the rise in raw materials costs. Despite the mechanical dilutive impact of price increases on this ratio, the EBITDA margin reached 14.3%, more than 300 bps higher than in the prior year, thereby consolidating the target of 14% set for 2021 despite the raw materials context.

ADVANCED MATERIALS (30.5% OF TOTAL GROUP SALES)

(In millions of euros)	Q2'21	Q2'20	YoY change
Sales	729	628	+16.1%
EBITDA	178	124	+43.5%
EBITDA margin	24.4%	19.7%
Recurring operating income (REBIT)	116	61	+90.2%
REBIT margin	15.9%	9.7%

Sales of the Advanced Materials segment rose by a significant 16.1% to €729 million. Volumes grew by 14.5%, driven primarily by the excellent dynamic in High Performance Polymers, which benefited from the acceleration of new developments, particularly in lightweight materials, clean mobility and bio-based products. The trend in volumes was favorable in most of the segment’s end markets, including construction, batteries, electronics, consumer goods and transportation. While gradually improving, the oil and gas market was down year on year, and growth was limited in the animal nutrition market, due to the high comparison base in second-quarter 2020. The 5.9% positive price effect reflects the price increases carried out to pass on the rise in raw materials costs. The currency effect was a negative 4.3%.

At €178 million, the segment’s EBITDA increased by more than 25% compared to pre-Covid Q2’19 levels and by 43.5% year on year, mainly reflecting the marked increase in volumes and the high technological content of Arkema’s solutions. In this context, EBITDA margin reached a record 24.4% (19.7% in Q2’20 and 21.8% in Q2’19).

COATING SOLUTIONS (30% OF TOTAL GROUP SALES)

(In millions of euros)	Q2'21	Q2'20	YoY change
Sales	712	436	+63.3%
EBITDA	157	59	+166.1%
EBITDA margin	22.1%	13.5%
Recurring operating income (REBIT)	128	28	+357.1%
REBIT margin	18.0%	6.4%

Sales of the Coating Solutions segment rose by a sharp 63.3% to €712 million. The 25.4% increase in volumes reflects the strong dynamic in the segment’s main markets, namely decorative paints, electronics, 3D printing, graphic arts and industrial coatings. The segment also benefited from its broader offering of more environmentally friendly products, such as waterborne paints and powder coatings. The 44.3% positive price effect reflects price initiatives to offset the increased cost of propylene, acrylics and VAM, as well as a tight acrylics market for activities not integrated downstream. The currency effect was a negative 6.4%.

At €157 million, EBITDA for the segment was up very significantly (€59 million in Q2’20 and €91 million in Q2’19), benefiting from higher volumes and prices, the shift in the product mix toward higher added-value applications, and more favorable market conditions in activities not integrated downstream. In this context, the EBITDA margin came out at a record 22.1%, up by around 800bps relative to Q2’20 (13.5% in Q2’20 and 15.8% in Q2’19), thereby confirming the segment’s profitability potential, in line with the ambition presented at the Capital Market Days.

INTERMEDIATES (15.5% OF TOTAL GROUP SALES)

(In millions of euros)	Q2'21	Q2'20	YoY change
Sales	371	379	-2.1%
EBITDA	87	66	+31.8%
EBITDA margin	23.5%	17.4%
Recurring operating income (REBIT)	64	35	+82.9%
REBIT margin	17.3%	9.2%

Sales of the Intermediates segment fell 2.1% year on year to €371 million, impacted by a negative 29.0% scope effect corresponding to the divestments of the PMMA business on 3 May 2021 and of the Functional Polyolefins business on 1 June 2020. Volumes grew by 7.7% and the price effect was a positive 22.4%, primarily reflecting more favorable market conditions in acrylics in Asia as well as a gradual improvement in the Fluorogases environment, particularly in the United States. The currency effect was a negative 3.2%.

EBITDA increased by 31.8% year on year to €87 million, with more favorable market conditions in the segment’s various activities more than offsetting the negative scope effect. The EBITDA margin rose to 23.5%, driven notably by the tightness observed in the acrylics chain since the beginning of the year.

OUTLOOK FOR 2021

The positive dynamic observed in the first half is continuing, benefiting from solid demand in most of the Group’s end markets. Arkema will nevertheless remain vigilant and ready to respond rapidly to the current evolution of the health crisis and the rising raw materials context, and will pursue its price increase initiatives.

Moreover, Arkema will continue to leverage its strong sustainable innovation dynamic and its recent capacity expansions in order to capitalize on accelerating demand for sustainable, high-performance solutions, driven by global megatrends.

In light of its first-half financial performance, and while remaining attentive to the macroeconomic context which remains volatile, the Group has significantly raised its full-year guidance once again. Excluding a systemic resumption of the health crisis, Arkema is now targeting for 2021, around 30% growth in Specialty Materials’ EBITDA relative to 2020 at constant scope and currency ⁽⁴⁾, versus the 20% previously announced. Group EBITDA should therefore reach around €1.4 billion for the full year.

Finally, Arkema will continue to deploy its strategic roadmap, in line with its ambition to become a pure Specialty Materials player by 2024.

Further details concerning the Group’s second-quarter 2021 results are provided in the “Second-quarter 2021 results and outlook” presentation and the Factsheet, both available on Arkema’s website at www.finance.arkema.com.

REGULATORY INFORMATION

The half-year financial report for the six months ended 30 June 2021 is available on the Group’s website (www.arkema.com) under Investor-relations/Financials/Financial results.

FINANCIAL CALENDAR

10 November 2021	Publication of third-quarter 2021 results
24 February 2022	Publication of full-year 2021 results

Building on its unique set of expertise in materials science, Arkema offers a world-leading technology portfolio to address ever-growing demand for new and sustainable materials. With the ambition to become in 2024 a pure player in Specialty Materials, the Group is structured into three complementary, resilient and highly innovative segments dedicated to Specialty Materials – Adhesive Solutions, Advanced Materials and Coating Solutions – accounting for some 82% of Group sales in 2020, and a well-positioned and competitive Intermediates segment. Arkema offers cutting-edge technological solutions to meet the challenges of, inter alia, new energies, access to water, recycling, urbanization and mobility, and fosters a permanent dialogue with all its stakeholders. The Group reported sales of around €8 billion in 2020, and operates in some 55 countries with 20,600 employees worldwide. www.arkema.com

DISCLAIMER

The information disclosed in this press release may contain forward-looking statements with respect to the financial position, results of operations, business and strategy of Arkema.

In the current context, where the Covid-19 pandemic persists across the world, and the evolution of the situation as well as the magnitude of its impacts on the global economy are highly uncertain, the retained assumptions and forward-looking statements could ultimately prove inaccurate.

Such statements are based on management’s current views and assumptions that could ultimately prove inaccurate and are subject to risk factors such as (but not limited to) changes in raw materials prices, currency fluctuations, the pace at which cost-reduction projects are implemented, developments in the Covid-19 situation, and changes in general economic and financial conditions. Arkema does not assume any liability to update such forward-looking statements whether as a result of any new information or any unexpected event or otherwise. Further information on factors which could affect Arkema’s financial results is provided in the documents filed with the French Autorité des marchés financiers.

Balance sheet, income statement and cash flow statement data, as well as data relating to the statement of changes in shareholders’ equity and information by segment included in this press release are extracted from the condensed consolidated financial statements at 30 June 2021 closed by Arkema’s Board of Directors on 28 July 2021. Quarterly financial information is not audited.

Information by segment is presented in accordance with Arkema’s internal reporting system used by management.

Details of the main alternative performance indicators used by the Group are provided in the tables appended to this press release. For the purpose of analyzing its results and defining its targets, the Group also uses EBITDA margin, which corresponds to EBITDA expressed as a percentage of sales, EBITDA equaling recurring operating income (REBIT) plus recurring depreciation and amortization of tangible and intangible assets, as well as REBIT margin, which corresponds to recurring operating income (REBIT) expressed as a percentage of sales.

For the purpose of tracking changes in its results, and particularly its sales figures, the Group analyzes the following effects (unaudited analyses):

• scope effect: the impact of changes in the Group’s scope of consolidation, which arise from acquisitions and divestments of entire businesses or as a result of the first-time consolidation or deconsolidation of entities. Increases or reductions in capacity are not included in the scope effect;
• currency effect: the mechanical impact of consolidating accounts denominated in currencies other than the euro at different exchange rates from one period to another. The currency effect is calculated by applying the foreign exchange rates of the prior period to the figures for the period under review;
• price effect: the impact of changes in average selling prices is estimated by comparing the weighted average net unit selling price of a range of related products in the period under review with their weighted average net unit selling price in the prior period, multiplied, in both cases, by the volumes sold in the period under review;
• volume effect: the impact of changes in volumes is estimated by comparing the quantities delivered in the period under review with the quantities delivered in the prior period, multiplied, in both cases, by the weighted average net unit selling price in the prior period.

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⁽¹⁾ Specialty Materials includes the following three segments: Adhesive Solutions, Advanced Materials and Coating Solutions
⁽²⁾ With the assumption of a €/$ exchange rate of 1.2 for 2021, the impact on 2020 EBITDA is estimated at a negative €30 million for Specialty Materials and a negative €10 million for Intermediates
⁽³⁾ Recurring cash flow corresponds to free cash flow before exceptional items. It excludes non-recurring items and exceptional capital expenditure.
⁽⁴⁾ With the assumption of a €/$ exchange rate of 1.2 for 2021, the impact on 2020 EBITDA is estimated at a negative €30 million for Specialty Materials and a negative €10 million for Intermediates

Arkema
420, rue d’Estienne d’Orves – F-92705 Colombes Cedex – France
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A French société anonyme (joint stock corporation) with share capital of €767,364,760 – Registered in Nanterre: RCS 445 074 685
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