Arkema S.A.

Thank you very much. Good morning, everyone.

Welcome to Arkema's Full Year 2021 Results Conference Call. Joining me today are Marie-José Donsion, our CFO; and the Investor Relations team with Béatrice and Peter.

As always, you can download the slides used during this webcast from our website. And together with Marie-José, we will be available to answer your questions at the end of the presentation.

Clearly, the news of the day is a Russian-Ukrainian conflict, but I propose you to attentively focus for this hour on Arkema 2021 results and outlook. In 2021, recognizing the hard work and results of Arkema's teams to achieve an excellent financial performance, as you could see, positioning us fully on track toward our 2024 road map.

At €9.5 billion, our sales grew by more than 25% versus 2020. At constant scope and currency boost our EBITDA at over €1.7 billion.

And the group's EBITDA margin at 18.12% reached the best ever levels in a demanding operating environment, marked by high input cost inflation and logistic disruptions. Our performance in 2021 confirms the relevance of our long-term transformation strategy, marking the start of a new era of growth for Arkema.

At €1.5 billion, Specialty Materials EBITDA was up nearly 50% year-on-year and up 30% versus 2019, which we all considered as a reference point. In the context of the post-COVID economic rebound, we delivered growth beyond the expectations, clearly demonstrating the strength of our unique offering of Specialty Materials, centered around the three highly synergistic segments of Adhesive Solutions, Advanced Materials and Coating Solutions.

This potential is captured in our new identity, which we addressed last November, innovative materials for a sustainable world, through which, we are positioning our Specialty Materials at the core of addressing the planet's major challenges by fully leveraging our expertise of material science, in line with the strategy we announced at the 2020 Capital Market Days. Beyond the financials, we strongly reinforced our profile towards specialties, making significant progress in our strategic road map, first of all, in terms of external growth, but also organically with several targeted projects and a strong acceleration of new opportunities.

Looking now at portfolio transformation, we delivered, as you know, two important milestone in 2021, finalizing the divestment of PMMA and announcing the acquisition of Ashland Performance Adhesives. I'm convinced that Ashland will take our adhesive business to the next level given the significant complementarities and synergies with Bostik.

And together, we look forward to the many growth opportunities that lie ahead. Our M&A activity did not stop at the last update; however, as we also made four bolt-on acquisition, mostly in adhesives.

In 2021, Specialty Materials made up over 85% of group sales. And on a pro forma basis including the contribution of all announced M&A deals, this figure rises close to 90%.

So you can see that we are basically closing in our target to become a pure Specialty Materials player. Organically, over the coming two years, we look forward to a strong momentum of project that will support our customers in their quest for sustainable performance, leveraging our unparalleled know-how.

The highlights include: 50% capacity expansion for PVDF in China and France, particularly for the batteries market; the start-up in the middle of this year of our PA11 biofactory in Singapore. Our innovative ecofriendly project for the supply of hydrofluoric acid with Nutrien in the U.S.

will start also by midyear. The 1233zd production plant in the U.S., which should start by the end of 2023, which is in specialty fuels gas.

Double its Sartomer photocure resins capacity in China, in particular, for the electronics and renewable energy market, it will be again in 2023. And in France, we are increasing by 25% of capacity of Pebax in elastomer.

You know, this elastomer, which are using high-performance sports shoes and consumer goods. All of those projects are geared towards sustainability and will support Arkema's growth and improve our environmental footprint in the medium term.

The accelerating shift towards sustainability easier to say from our standpoint, driven by powerful megatrends like climate change, resource scarcity, urbanization and clean mobility. Of course, to success this is in paradigm, the power of innovation is paramount and Arkema's valuable asset to leverage in this field.

So this makes us confident in our potential looking toward 2022 and beyond. In this respect, we are now aiming to generate €1.5 billion of sales coming from our five innovation platform by 2013 versus 2019 baseline.

And this has to be compared with the €1 billion you have in mind, which was previously announced. We have a strong position.

And we are really recognized key partner in areas like batteries, 3D printing, bio-based material, eco-friendly paints, electronics, sports, consumer goods. And when I see the growth of new opportunities on these past three years, really my strong conviction is that we don't yet know the extent of these new opportunities that will emerge.

In 2021, we were very active in regard to corporate social responsibility, which is at the core of our strategy. And our strong commitment to CSR has been rewarded by the inclusion of Arkema in the CAC 40 ESG index, which we group the 40 largest company listed in Paris with the best ESG practice.

And by an improved ranking to supply in the chemical sector of the DJSI World index. We also maintained our best-in-class working among nonfinancial rating agency, making robust progress during the year in our different programs.

We have three of this program, which are the following. We considerably expanded the scope of archimedes, Portfolio Sustainability Assessment program which measures the percentage of sales as significantly contribute to the United Nations Sustainable Development Goals.

We are accelerating our initiatives in favor of a circular economy, increasing the share of sales covered by a life cycle analysis. As a reminder, we also acquired Agiplast last year, a specialist in the regeneration of high-performance polymer and historical partner of Arkema in recycling operations.

Finally, following the announcement in early 2020 of an ambitious climate plan to reduce greenhouse gases by 30% by 2030 versus a baseline in 2015, sorry, we have already been able to significantly reduce our emission by 34%, thank to all our efforts. I believe it's a great achievement.

Last but certainly not least in our achievement, we had a very good year in terms of safety, with the accident rate at the same low level as last year, and the process safety event rate dropping significantly from above 4 to 3.1, allowing us to set new more ambitious 2020 target at two. As a result of our strong financial performance in 2021 and given the Board and management confidence in Arkema's positive prospects, we will propose a dividend of €3 per share at the next AGM, up by 20% versus last year and in line with our progressive dividend growth policy.

Also, in line with our capital allocation policy communicated at the 2020 Capital Market Day, we completed last November, as you know, the €300 million share buyback program, which we said we would carry out after the finalization of the divestment of PMMA. Going into 2022, we have a strong balance sheet, with our net debt-to-EBITDA ratio below 2x, including the Ashland Adhesives acquisition, as we said at the time of this acquisition.

So we have the fire power to carry out further value added targeted M&A should opportunities arise. The evolution of our share price in 2021, in particular, our outperformance versus peers is testament to the shareholder value Arkema is creating and has created since the start of our transformation strategy.

And it validates also the soundness of our balanced capital allocation policy between transformative M&A and shareholder return. After this introduction, so I will now hand it over to Marie-José, who will review in more detail of Q4 and full year results.

And then I will come back to the outlook at the end of the presentation.

Thank you, Thierry, and good morning, everyone. So I'll start straight away with the sales bridge.

At €9.5 billion, sales were up 21% year-on-year in the context of post-COVID economic rebound. And thanks to our leading positioning in a number of high-growth end markets, volumes were up by over 7%.

The price effect is close to 19%, thanks to; first, an active pricing policy throughout the year across all product lines to offset the significant inflation and input costs; second, I would say the mix improvement toward high value-added applications; and third, obviously, favorable market conditions in upstream acrylics in all three regions. So driven by these sales growth, Arkema achieved a very strong 46% increase in EBITDA to €1.7 billion, in spite of a negative scope impact of around €75 million, linked mainly to the divestments in Intermediates.

Looking at the EBITDA of the different segments. So starting with Bostik.

The segment achieved an EBITDA of €316 million, up by 21% year-on-year, thanks to strong demand in construction and DIY and high performance industrial application. We also had an improved product mix and the integration of the acquisitions, while solid pricing power led to a slightly positive net pricing impact over the year.

In Q4, Bostik managed to maintain neutral net pricing in spite of accelerating input cost inflation. Q4 EBITDA was flat year-on-year at €69 million, while underlying demand trends remain well oriented in all major markets.

Our volumes were negatively impacted by raw material shortages. Our full year EBITDA margin came at 13.9%, in line with the guidance, which is a great achievement given the negative mechanical dilution of price increases on this ratio.

Regarding Advanced Materials, EBITDA was up 34% year-on-year at €662 million, with an EBITDA margin improving to above 21%. High-performance polymers had an excellent year indeed, thanks to accelerating demand in high-performance sustainable solutions in market like batteries, bio-based consumer goods and sports, which drove volumes and improved clearly the product mix, while growth in automotive was limited by chip shortages in the second half of the year.

The growth in Performance Additives was less buoyant as demand was subdued in the oil and gas and paper market in particular. The positive momentum in High Performance Polymers was maintained in Q4, with a segment EBITDA up nearly 40% to €158 million.

Regarding Coating Solutions, EBITDA doubled year-on-year to €535 million. And the EBITDA margin reached a high level of 19.1%, up from the 13.7% in 2020.

In this segment, we benefited from a number of factors, I would say, first, higher volumes across all major markets, including decorative paints, 3D printing, graphic arts, electronics and industrial coatings; second, price increases in the downstream activities to offset higher raw material and energy costs; third, a vendor product mix due to the trend towards more value-added eco-friendly products; and fourth, last but not least, the favorable conditions in upstream acrylics. In Q4, most of those drivers were still in place, driving EBITDA up 77% to €122 million, so with the exception of volumes, which declined given high prior year comparison days.

Finally, Intermediates EBITDA in 2021 grew 37% to €316 million, thanks to good market conditions in acrylics in Asia and robust pricing dynamics in Fluorogases. So this segment recorded a €90 million negative perimeter impact, as you know, from the divestment of functional polyolefins and PMMA, impacting the total contribution, of course, of Intermediates.

The trends remain positive in Q4, with EBITDA up strongly to €80 million. Regarding the rest of the P&L.

With depreciation and amortization at €543 million, recurring EBIT nearly doubled versus last year at nearly €1.2 billion. And the recurring EBIT margin was up 450 basis points and stood at 12.4%.

Financial results stood at €56 million negative, benefiting from the lower interest rates on our debt swapped into dollars. The recurring tax rate came to 20% of recurring EBIT, thanks to a more favorable geographic split of profit.

For 2022, we expect a amount to around 21% of recurring EBIT. And finally, adjusted net income more than doubled year-on-year to nearly €900 million, which corresponds to €11.8 per share.

Moving on to cash flow and net debt. Recurring cash flow amounted to €756 million, which corresponds to an EBITDA conversion into cash of nearly 44%.

This robust cash generation was achieved, thanks to a much improved operating result versus last year, thanks to the limited rebuild of working capital for €438 million and the controlled level of recurring CapEx. So coming back to working capital, the ratio on annualized sales stands at a relatively low level of 12.7% to be compared to 11.8% at end of 2020 and 13.9% at end of 2019, keeping in mind that we consider the normative level for the company to be around 14%.

Including our exceptional projects in Singapore and U.S., the total capital expenditure amounted to €758 million versus the €600 million of last year. This reflects higher exceptional CapEx for €252 million in 2021 as a result of the progress of the construction of the polyamide 11 plant in Singapore and the Nutrien project in the U.S.

If we project 2022, we expect recurring capital expenditures should come to around 5.5% of group sales and our exceptional capital expenditure should be finalized with an amount of around €130 million. Consequently, net debt at the end of 2021 dropped to just below €1.2 billion, including the €700 million of hybrid bonds.

The net debt to last 12 months EBITDA ratio stood at 0.7x EBITDA. Indeed, this is a temporary situation before closing the Ashland Adhesives transaction, as you can imagine.

I thank you for your attention. And we'll now hand it over to Thierry for the outlook.

Thank you, Marie-José. If we look now at 2022, it should be a particularly dense and interesting year.

First of all, in terms of projects, as we will start up in the middle of the year of two exceptional CapEx of polyamide 11 in Singapore and the Nutrien project in the United States, as well as the PVDF expansion in China by year-end. On the acquisition side, I look forward to welcoming Ashland team, as you can imagine, should be shortly.

I'm convinced that they will play a key role in accelerating our adhesives strategy, as I said before. So far in 2022, global demand seems to be well oriented overall.

Of course, there are nuances by market, by region. And we'll continue to benefit also from a favorable geographic and production positioning, especially on these megatrends we have discussed in depth before.

There is, by definition, see a few challenges, the one of this morning, for example, and maybe largely geopolitical tension, the evolution of health crisis, which remains uncertain even if it seems to get a little bit softer. And not surprisingly, raw material inflation and shortages in the continuity of what we have seen in the second-half of last year.

In this context which is demanding for the team to manage, which needs agility, really what we ask our managers and our team is really to be focused on continuing to implement price increases to reflect higher input cost, if it's still the case. And as we did so successfully in 2021 in order to – and also to minimize which has been penalizing the effects of raw materials shortages.

Having said that, in Q1 2022, group EBITDA, from what we see, should grow strongly, supported by the performance of Advanced Materials and Coating Solutions. We expect Adhesives Solutions to have a slower start into the year because of what I've explained before, which are on this raw material shortages.

But the effect should largely dissipate in Q2, which means we should have a Q1 EBITDA still robust and – but somewhere between the Q1 2021 and the Q1 2020 levels at constant scope. It does not question the fact that adhesive will have a robust performance over the full year, on track with the long-term target.

For the full year 2022, in a environment that should remain volatile, Arkema is aiming for Specialty Materials EBITDA, as you know, which is really the core of what we've been done to be comparable to the record level of 2021, at constant scope, again, we have been very clear on that, as we expect our underlying growth to broadly offset the impact from the expected normalization of margin in acrylics, which mean a better mix. On top of that, we'll benefit from the contribution of Ashland Adhesives when the deal closes.

EBITDA in the Intermediate segment should mechanically reflect the residual impact of the divestment of PMMA because we had noted the divestment full year last year. We are still a part of the year with PMMA.

And we also expect with regard this time acrylics in China, a progressive normalization of the margin, although what we see in the first few months of the year is still well oriented. And also, we believe Fluorogases should deliver a solid performance.

Beyond the financials, we'll continue to deliver as we did in 2021, 2024 road map by making value-added bolt-on acquisitions, Specialty Materials a few small ones every year, especially in adhesive, but not only we pursue high return, also CapEx opportunities to meet customer demand in fast-growing end market. And clearly, as we say, corporation social responsibility is really for us a core area where we want to maintain a best-in-class standing.

As a conclusion, we had a very good 2021 with an excellent financial performance. And we are fully ready to meet the opportunities and challenges of 2022.

And we are very confident beyond, which mean to deliver our 2024 road map. I thank you very much for your attention.

And together with Marie-José, we are now ready to answer your questions.

Yes, good morning, Thierry, Marie-José, Béatrice and Peter, congrats to the great performance. I have three questions.

The first two are for Thierry. You mentioned in your outlook a strong start in Q1 2022 and you highlighted Advanced Materials and Coating Solutions.

So question number one, is this primarily pricing driven? Or do you see also higher demand as well?

And question number two, regarding adhesives, which indicate basically decreasing year-on-year earnings in Q1. Just to clarify, this is purely due to the supply chain issues and raw material shortages, not because of any mismatch in contract durations.

And the third question is for Marie-José. The special items on the EBIT level, I mean the delta between the recurring operating income and the recurring income has been rather high with €109 million.

I know there are two components. The PPA-related amortization, that is clear, but the remaining €92 million expense is not clear.

I see that occurred primarily in Advanced Materials and in Adhesive Solutions. Can you provide some details about this item?

Are these restructurings or write-downs? Thanks.

Okay, Martin. Thank you for your questions.

So on the first one, and again, we are at the start of the year, and January, not a typical month, could be varied from year-to-year, and we had also a strong base in the past. I would say it's mostly a pricing effect.

But when I say pricing, it's also the mix, which is very important. This means, as you know, we have still a lot of constrained capacity.

And what we do, thanks to our new business, we replace lower margin business by higher-margin business. Okay.

So it's – as you mentioned, certainly in the first quarter, mostly a pricing story, which reflect the strength of our portfolio. But in this pricing, you have also the mix, which is an important part of what we delivered also last year where we replaced low margin sector by higher opportunities coming from megatrends.

So it's really a key part of story. I think – I wasn't completely clear.

The second question is on adhesives or…

Yes. Adhesives…

Yes. So it's really a raw material shortage story.

I think we have some important product line where we have leaders where what is missing is sometimes the key, sometimes a small one. But it's – since they are formulated products, they are more impacted than the more, I would say, upstream product we have in the portfolio.

And it has to be – we have to recognize that for Bostik in the first quarter, already a little bit in the third, in the first quarter, it penalizing. But we believe that it's again story of Q1, but Q2 should be far better from the same point, and we should ready for the growth.

So it's nothing else. And they have done a good job.

I'm sure you have seen in terms of – we have been quite challenged at the beginning of last year on our ability to price increase in additive, our ability to deliver the 14% margin, and we did it. This means that Bostik is really focused on passing this atypical price input costs we got, and they have done a good job.

And I wanted to take advantage of your question to mention it.

So then regarding the recurring that we booked in quarter four, I would mainly quote two main factors. The first is impairment of assets in our hydrogen peroxide activities on the basis of the evolution of the paper market.

And the second item is, let's say, some acquisition costs, mostly in additive, during the quarter.

Thanks.

Okay, other question.

Good morning, Thierry. Good morning, Marie-José.

Maybe just three for me. I hope some are quite simple.

So just first off, on your comments that play around adhesives and the pass-through of the raw material inflation, how should we think about that in 2022? Has inflation peaked in your eyes as it relates to adhesives raw materials?

Or do you see a bit more still to come through in the start of this year? And when we put that together, what's your expectations underlying ex-Ashland for the margins in 2022, all else kind of equal as of today?

Secondly, on the point around demand and the fact that you guys are somewhat restricted in your ability to grow given capacity constraints, how should we think about demand in 2022? And maybe you can quickly run us through the kind of the divisions and your expectations there given the capacities you have and how full they are.

And then finally, a quick question on PVDF. Clearly, looking at the market data, it appears to be a very tight market beyond just the good fundamentals and the growth of battery.

It feels like it's actually very tight, and prices have gone up a lot. So just it would be good to hear your view on that market.

It seems like there's lots of new capacity announcements coming, probably more 2023 story than a 2022 story. But how do you see that in terms of the current level of profitability in PVDF today versus what you think might be the longer or the medium term, longer term levels of profitability?

Obviously, growth sounds very compelling. But just trying to gauge, is it a case that actually right now, profitability of that product today is very elevated and where it might normalize?

Just good to hear your views on that would be great.

Okay, Charlie. As usual, good questions.

With regard to the raw material environment, particularly for the adhesives, we think it has not completely peaked today. It will continue a little bit.

Because the way I see it, but again, we can all be wrong around the table now, so I'm quite relaxed when I say that. But I think that the most raw material are now getting stabilized and have reached a peak, and maybe some could decrease a little bit.

But the more you go down in the chain, which is the case for the raw materials that adhesive is buying, you have still some increase and some shortages. So this is why adhesives is a bit more impacted than others.

But again, I'm confident of the ability. And we try to – we are very agile and focused on raw material evolution.

And I think what the team is doing is quite good in terms of anticipating and pursuing the right price increase. So the only difficulty for me is really – the shortages is one.

And the second thing is a dilution that it has – as long as raw material as – at this level, on the EBITDA percentage, it's mechanical and there is nothing you can do about it. But you can take it as an upside, which means that a certain point, raw material will get lower, and then you will have an accretive effect on the other side.

So let's take it as an upside someday. Okay.

With regard to Ashland coming. So first of all, Ashland, we are confident that they will deliver what we promise and when we make the acquisition.

So you will get on, I would say, on the full year around one point of accretion on the EBITDA margin. But for this year, since it is a partial year, it's more a little bit than 0.5.

Okay? And we don't have the synergies yet.

So let's say about 0.5. And the idea for Bostik without Ashland is trying to maintain the – despite the dilution of the raw material so – of the pricing to maintain the margins there this year.

So you would have a sort of consolidation, which will be, frankly speaking, a very nice performance despite 1.5 years of a very strong increase in raw material. To us, legacy Bostik, maintaining this 2021 margin and on top of that to gain 0.5 points with Ashland, since it is not full year, and we have not – we'll not get the synergies on the first year in order to be around 14.5% on Bostik.

And when you make the calculation, you take the upside also coming from the fact that raw material to a certain point in the next two, three years will certainly get softer. I think we really consume of 17% for Bostik in 2024.

On the ability to grow, in fact, there is not one answer, because we have completely different product line. And depending on which product line, you have capacity restrictions.

For example, this is the case with polyamide 11 and the PVDF. But on the – for example, on the coating downstream, we have – depending on the region, we have capacities available.

We have also, in Adhesives, capacity available. In Performance Adhesives, we have capacity available.

So again, it's a mix. And where, as you know – otherwise, profitability of Arkema will not have grown as much in the past year.

I mean, this – for example, this bottleneck on polyamide 11, it exists in 15 years. And we have tremendously increased profitability of polyamide 11.

And the reason being that we manage the mix. This is what I explained to Martin before.

So what you will get this year versus last year is an increase in volume where we have the capacity, and we have a certain number of possibilities. We’ll get improved mix where we are taking capacity.

And we have some project which will start AHF in the U.S. in partnership with Nutrien.

We’ll get some volume coming from Singapore, so polyamide 11. And then on the – also we get some extra capacity, et cetera, et cetera.

So overall, we are – this is why we are confident in our guidance, which is a very robust guidance to say that we should consolidate in Specialty Materials. Before Ashland, the level of 2021, which was by far the record of Arkema over time.

With regard, PVDF, you know me, Charlie, so I will give you a few element of answer, but another one will give a more about competitive position, et cetera. No.

I think it will remain a good market, driven by technology. There will be new capacities.

But currently, because of the batteries, but not only, there is a big appetite for this kind of products, which – I mean it’s – I would say it’s overall the exponential need for new high-performance material for sustainable solution, which is one. And on top of that, in this world, I would say that PVDF is ultra-high performance qualities, even more demanded.

And it – on top of that, you have this acceleration in batteries where it is an important product. So all in all, I see that huge on the market.

I think for me it should be manageable. And for Arkema, PVDF should remain quite strong in the next decade.

It’s my feeling. And so far, has not been disappointed by what we have achieved in PVDF, where we started very small, in fact, if I remember.

So I think so far, quite a good progress. And for the next decade, I would say we seem to be in good shape.

We have plenty of project, incredible amount of projects. And high-tech project, not the one you can copy easily.

That’s really helpful. Thank you very much.

Thank you, Charlie.

Thanks a lot. So your first question really is on biochemicals.

Yesterday, one of your key customers announced a backwardation project in the U.S. So could you just give us some color about how biochemicals as a business has progressed, given you’ve done so many investments in Malaysia, for instance?

And how much today is dependent on the traditional methionine market versus other markets? Because in sort of three years’ time, if they go for backwardation, then I just want to understand if you will really lose any volume or actually, you’ll make it up.

That’s my first question. The second question is around PVDF, more from a value chain point of view, because 142b prices in China have gone up a lot.

So I just want to understand where are you with regards to backwardation in 142b. And when the Nutrien project comes online, going forward?

What do you see the future of PVDF with regards to the raw material chain? And what sort of strategic advantage do you have there?

That’s my second question. And the third question really is sort of around your coatings business, more on the downstream side of things.

Like do you think that now you’ve done enough because your last year was a very tough year for raw material, for instance, is going up. But downstream seems to have performed also very well.

So do you think that now you’ve achieved peer level profitability in some of your coating resins businesses? Or is there more to come here with regards to catch-ups?

Thanks a lot.

Thank you, Jaideep. So, on the first one, I’m a little bit hesitant to answer because I never disclose relationship with customers.

So is this a customer or no, I would say the only thing that I can say is that – if in certain cases, we have some specific contract. We have customer who’ve decided to go upstream backward.

And you can imagine that we know that well in advance. This means that on the other side, we have free capacity for our intermediate product that we can use to good [indiscernible].

It goes in the two directions, okay? So if what you say is true, we have a plan which has been thought and developed already some time ago.

So we are comfortable. And again, as you know, in Thiochemicals, we have about half of methionine, which is one output.

And we have the other one which are using the some intermediates, which is really developing very well. And the other half have plenty of opportunities.

So you could assume that we could use our intermediates to reinvest on the downstream of the other half. Okay?

On the PVDF, again, you asked good question, but a confidential question also. Clearly, we – you are right to say that it’s not just PVDF.

It’s a whole value chain, which is complicated, which is different from region to region. The actors are different.

Not everybody, including Arkema, has the same strategy, depending on each region. So we have different strategies that – which are discussed at high level inside Arkema since 15 years, where we built things brick by brick.

And – but it’s difficult for me to tell you more. The only thing that I know is that we have the right strategy to sustain our CapEx development of PVDF.

No, I will not openly communicate on what we do at 142b, too strategic. You see what I mean?

On the third question, on coating, yes, you’re right to say that we have independently from the upstream, from the acrylic monomer. We have done quite a good job on the downstream by repositioning our offer – product offer, spending a lot of time with our customer to reinforce intimacy, partnership, innovation, leveraging the three platform.

Because when you say coating, it’s coating which together with adhesive and Advanced Materials is working to serve our customer – most customers because they are, in some cases, the same. And they want, for example, PVDF, and acrylic resins and some adhesives, some sealants, et cetera.

And it gives us quite a good and extensive offer. And because of that, we have been able really to take the profitability up for this coating downstream.

So do we have more to come? The answer is yes.

I think it just work over a few years. But I think we’ll continue to work hard to capture the opportunities which are again arising from megatrends.

Eco-friendly paints is certainly an example. But you could – it’s also for electronics.

You cannot imagine the number of opportunities that 5G is bringing, also 3D, because our material in coating solution are also used for 3D, et cetera, et cetera. So we have really – again, it comes from innovation, new business development, changing the mix, increasing the average pricing.

And I think there is still more to come.

Okay. Thanks a lot.

You’re welcome.

Good morning, everyone. Thank you for taking my questions.

I’ve got a few. So first one, given this kind of strength of the margins, it would be helpful to get your views regarding whether you think there’s a new sustainable margin level for Specialty Materials being beyond the 17% target for 2024.

And my second question is, given the flexibility of the balance sheet, even with the acquisition of Ashland Adhesives to be into 2022, what’s your view on capital allocation, especially on further opportunities or share buybacks? And lastly, any comments regarding the progression of the exit of the massive Fluorogases would be helpful.

Thank you.

Sorry. Say again the last one?

Yes, in terms of progression in terms of...

Okay. Good.

Thank you again for your question. With regard to Specialty Material, I think we are – when we announced in 2020 the 2024 target, I think most of the financial committee thought it was very stretched.

So after 2021 was finished, when the result of many company including Arkema decline, then many people thought, "ah, it becomes more than threats. How can we reach it?

" So now we delivered 2021 – fantastic 2021. And then we say, maybe the world is a bit cautious.

I think you know us. I think we see something, we deliver, we commit, we work out to reach it.

So we say what we wanted to reach in 2024, 17%, we are more at 18%. There is, let’s say, a little bit of cyclical part linked to the rebound of the COVID attention on the acrylics.

So you could argue that 17% remains a good target. And then you could say that, okay, let’s assume that.

But then you’re already at 17%, so you should continue to progress. But now what we want to do is to continue to have the evolution of the mix.

This means we have still – and your last question from disposal in intermediates to make, which are high margin, okay, which will be dilutive when they will exit. And we want really to be a pure specialty player, increased adhesive, which has a lower margin, et cetera.

So at the end, I think the 17%, with the portfolio we target, which is not the same as today, the product mix will start to get for 2024 is quite a robust target and would further create value. So we stay there.

We still have a strategy, which has been expressed at the Capital Market Day, which, to a certain extent, answer your second question. Maybe Marie-José, you want to add on the second question, the capital allocation, share buyback, to explain what we have in mind in from three-year now.

So as a reminder, we have basically committed to spend 15% to 20% on exceptional CapEx. So this is well in progress.

As I’ve mentioned before, we will finish the exceptional CapEx both in Singapore and U.S. in the course of next year.

So this one is basically mostly over when we complete 2022. Then we had practically quite well-balanced allocation between the net M&A that we wanted to achieve and the return to shareholders.

We continued the – to be very active in M&A. So obviously, Ashland will close in 2022.

And we are looking for the disposal of Fluorogases. So again, on this part, we are again sticking to our commitment.

Regarding the return to shareholder, Thierry, has announced basically the progression of the dividend that we want to continue to deliver to our shareholders. We’ve completed the €300 million.

To be frank with you, regarding the evolution of the stock price, I think there is more value for us to continue to transform the portfolio, then spot it, let’s say, on the share buyback. So nothing in the – let’s say, out of the table.

But definitely, today, it is not in my immediate radar, but we would do another share buyback. So let’s see how the stock evolves, and we’ll continue looking at it opportunistically, as we said, during the Capital Market Day.

Thank you, Marie-José. So with regard to the exit of fluorogas [indiscernible] to all and keep specialty fluorogas as we said.

We’re still working on it. As I said many times, we take our time.

We’ll not update frequently the market. So we want to do it quietly.

And so it’s – we are working on it, but we’ll take the time to make sure this is the right project that we have. So nothing especially new there.

Fantastic. Thank you very much.

Thank you.

Hello. Can you hear me?

Yes.

I just have three very simple questions. First was, just understanding a little bit about your price pass-through mechanism.

So I know prices were up this year. And you’ve got that in the coming year, you will look to offset pretty much most of the raw material price inflation.

I just wanted to understand contractually how long your contracts are, how long their – how frequently they’re renegotiated, and whether there’s any indexation, and whether there’s any lag in the pricing being increased after any cost inflation. That’s question one.

Second question, hopefully simple, is what percentage of your costs are energy? And what’s your hedging policy for energy?

And the third question that I have was just sort of lasering in a little bit more on volumes. So they were up 7% this year.

What’s your expectation for 2022? Was it sort of mid-single digit, low single digit?

Or do you think it’s going to be comparable to 2021? Thank you.

Okay. So on the contract, in fact, you have all kind of examples.

So by definition, for most of the cases, you have – I mean, the tough account where you got a raw material increase, and you don’t discuss with your customer, and you have your increase in pricing doesn’t exist. So it’s always negotiation, whatever the contract.

It’s discussion. It’s – you need to explain, et cetera.

So it takes away some time. But sometime, even when you have automatic formula, which, as I mentioned, is really a minority part, I would say, for the most of it, it can be between a month, one to three months.

It’s a big difference, but it’s not an Arkema, everybody, even beyond chemicals, is that in a normal year world, a year, you are increasing once a year on your price. And sometimes, you increase 3x, 4x and 5x a year.

So it’s a completely different world because you have so much volatility in the raw material with a level of escalation which is incredible, that we have no choice. I mean it’s not – so after that, you need to take into account the situation of each customer, each product line.

And so we have discussion with our suppliers. We have discussion with our customer.

And there are as many cases as we had our supplier and customer. But at the end, I think looking as a result, we did a good job.

But unfortunately, I cannot give you a simple answer because it does not exist. The only thing which is for me important to have in mind is that at least in the current period, the time where we were negotiating and discussing, one figure is disappear and – for a certain time.

And we come back with price increase regularly, as I told you, 4x, 5x a year and – because we have no choice, and the supplier do the same to us. On the energy, which is electricity and nat gas, represents a mid-single-digit percentage of our total variable cost, which means that it’s not smaller, especially when you have – with the European gas, when it has been multiplied by eight or 10, it’s at the end even a smaller volume, which make some...

I apologize. I didn’t hear the percentage.

Did you say...

Mid single-digit, mid-single-digit percentage of our total variable cost. So the volume is limited, but the increase is very high in Europe.

It’s mostly a European story, and it will not ease today. So with – and – but I would say the raw materials, as you know them, represent a significantly higher percentage.

But the magnitude of the increase is for most of them far smaller than the one we got in the nat gas in Europe and we’ve got this day. But so at the end, because you mentioned energy, you could mention also transportation cost, the team freight has increased very significantly.

So what we do with our teams is that we – in fact, one year ago, we are really focusing on raw material. Now we say raw material, plus energy, plus transportation.

You have the full package. We’ll give you – how much it is committed and the duty is really to pass it over to our customers.

And I’m sure they do the same with our customers, et cetera. In terms of gross – in fact, you cannot – I will not guide on the – I mean, we got already on the EBITDA as we do every year.

So we don’t – again, it depends actually on the macro protect. So when the volume are lower, we try to manage our unit margin to be a bit more aggressive, product mix, et cetera.

Where they are higher, we have more flexibility. At the end, what counts is how much EBITDA you deliver, even if in the average, we target to be GDP plus for Arkema in Specialty Material.

What will be different between 2022 and 2021 is a bit of comparison is that we have a very strong rebound in 2021 compared to 2020. And because of that, we were above 10% organic growth in the first semester.

It will not happen at all this year. So in fact, you will get a different seasonality, first, where we compare in volume, on the first semester, we compared to a strong base.

And in the second semester, a little bit easier base. But year-on-year, when you compare 2021 and 2020, you compare a year-to-year, which was a year of COVID crisis.

It’s not the case anymore. You compare year-to-year rebound so – and in the first semester of last year, you had a rebound.

So this is why the first semester would be difficult to match, while the second semester will be a more normal type of GDP growth. Okay?

Thank you.

Hello. Good afternoon.

Thank you for taking my questions. In Advanced Materials, you did a strong volume growth number in the fourth quarter, which I believe was partially due to the phasing of your molecular sits business, which can be quite seasonal.

Could you possibly give us some idea of how much of that volume growth in Q4 down to Q1 would be very useful. Thank you.

And then secondly, Marie-José, you talked about an impairment in H2O2 because of changes in the paper and pulp market. Presumably, that’s a long-term structural change.

Otherwise, you wouldn’t have to impair the assets. So could you maybe talk a little bit about the drivers behind that impairment?

I appreciate it’s not huge, but just interested to whether it changed at all. Thank you.

On the first one – sorry, Alex, we’ll take the first question because your sound is very bad. So I’m sure that at least Peter understood.

On the Q4 volume, due to the volume production.

When? This year?

In Q4.

No. No, not at all.

I know you are very thoughtful. It’s not a total molecular sieves.

It is your question in Q4, this is really – Advanced Materials is really fully supported by this need for new materials, megatrends, lithium-ion batteries, sport et cetera, et cetera. So it’s not a molecular sieves.

There is a bit of phasing on molecular sieves.

Thierry, sorry, can I just get back on that question then? Because in the first three quarters of 2021, your volume growth relative to 2019 was more or less flat, largely because you were sold out of a lot of products.

And then in the fourth quarter, it stepped up very meaningfully. So there was clearly a change in the order environment between the first three quarters and the last quarter.

If it’s not molecular sieves, could you possibly talk us through...

Let me check.

Okay. We come back to your question.

So regarding maybe H2O2, you’re correct. Actually, we think the pulp on the paper market is – we are revising, in fact, the growth perspective of this market, and at the same time, obviously, the cost structure of our current business is highly impacted by the energy cost evolution.

So this is what triggered inside the impairment decision that we took.

Okay. So on the paper, to complete what Marie-José saying, as the digital, we know that the paper, and got in very good shape because of the digital trend.

I think it’s not a surprise. And so it’s an impairment, which is a level of the company is limited.

And okay, it’s – it was fair to take it. I see – for what I see for Advanced Materials is for the whole 2021, the volumes are 10%.

Am I right? And Q4 is for, again, what the question?

What the program? I don’t understand.

It’s less in Q4 than it is in the full year? So I propose that – because I understood from your question that we had the sort of extra growth in the Q4 because of molecular sieves and the rest of the year was with no growth.

But in fact, we have 10% on the full year, which is excellent. And in fact, in Q4, we have less growth.

This is – so what I propose is that Peter and Béatrice come back to you precisely because I’m not sure I captured the question. For me, Advanced Materials on the full year is 10%.

Q4 was less, but Q4 is always a little bit atypical. And the volumes for the full year are really driven by this megatrend.

There is no doubt about that. Okay.

But if you have a more specific question, Béatrice and Peter will answer to. Okay?

I take a last question, maybe.

Yes. Hi.

Thank you. Just two questions quickly.

Typically, the Q1 seasonality is that you guys historically have seen Q1 earnings, EBITDA to be up sharply versus Q4. Can you maybe help us understand how you are thinking about that seasonality given the Q4 base from last year is quite high anyway?

So any color there will be useful. And second, I mean, given the startup of a few projects this year, do you have any number in mind in terms of how should we think about the EBITDA contribution from the start-up of these projects in 2022, if at all?

Or is it more materially in 2023 and beyond? Thank you.

The first one, I’m not sure I catch up. Again, I don’t know why the connection is not very good.

But on the second one, first of all, for the main project, like – I’m sure you mentioned the AHF in the U.S. You mentioned the Singapore.

The basic principle – and you have the CapEx amount that we have published. You take then, you divide by between 4 and 5, you have significant projects.

And then you get the EBITDA at maturity after, let’s say, four to five years. I would say, with regard to the AHF, we should be at maturity after three years.

With regard to Singapore, I mean, it’s 15% of capacity, which will be more at maturity after five years, which will be excellent. Now if you take 2022, so it gives you, I would say, if you take a full year one, it gives you a ramp-up that you can easily, with your model, finalize.

Then I would say that with regard to Nutrien, it’s more half a year impact on the first year. So you take the first year of the ramp-up up until the fifth year, and you take half of this first year.

And then for Singapore, you should take more a quarter, I would say. Because, in fact, we start midyear, but this kind of project meet at the beginning to get really technically week by week with a technical ramp up.

So I would say it would be minimal. It’s more 2023.

So to answer the last part of your question, the material effect would be more in 2023 than 2022. Even if in 2022, we have a little bit of each of them in our guidance for the full year, but along maybe 15, 20 other projects.

Okay.

Could you maybe come back to your first question, that we could not actually hear well.

Yes. I just was asking, historically, you’ve seen Q1 EBITDA is usually up very strongly versus Q4 of the prior year.

And I’m just thinking – I mean for Q1 this year, do you see a similar dynamic? Or just given the base from Q4 is relatively high, maybe the seasonality may not be as visible in Q1 this year is the question.

I will make a philosophical answer, which means that a year is made of four quarters. A year, as a meaning, every quarter can be different.

I mean you have so much volatility today between the raw materials, volumes, the base of comparison versus the previous year, the different region, China, U.S., Europe, et cetera. That is difficult completely to model quarter-by-quarter.

This is why we told you – we mentioned this for our first quarter. I would say the seasonality year-on-year will be different, certainly this year than last year because of the rebound effect we had last year in the first semester.

It should be true in volume. But the seasonality in terms of benefit from the pricing should be reversed.

This means the contrary of the volume because we have the momentum of the second semester on pricing. And in volumes also – but volumes, compared to last year, it’s more a pricing effect in the first semester and a volume effect in the second semester, which, to a certain extent, summarize what I’ve said before.

So because of that, it’s difficult to be very, very precise so far on the seasonality. We are confident to deliver what we said we would deliver for the full year.

We know we start in profitability strongly, slow start in volume, but good pricing power. We see what are the project which should deliver well all along the year, organic project, very key for us but also for you, some unknown in terms of macro, right, of years.

Then it’s really a sum of things, but we are really confident on the full year. Last year, we had also in – which has more in the second part of your – second part of the – the first quarter, we had also, so which means that between January and March, we should have a difference.

So you see you have plenty of element. It’s difficult to modelize and give you a clear answer.

But at the end of the year, it will be a very robust year for Arkema again in 2022. What exactly quarter-by-quarter?

What exactly for the full year? It’s too early.

But – because of all organic project, what we see from each product line, we should be in good shape.

Okay. We’ll stop here.

I’m sure you could have 20 more questions, but I really appreciate your attendance and your question, quality of the question. And don’t hesitate, if you have some complementary elements you want to get from Béatrice and Peter, to call them, and they will welcome you for some more explanation.

Okay? Thank you very much.