Arkema S.A.

Thank you very much. Good morning, everyone, and welcome to Arkema's quarter three 2020 results conference call.

I'm here together with the Investor Relations team. And as usual, in addition to the press release we have posted on our website, the slides which detail the third quarter performance.

So, before going through the financials in a little more detail, let me highlight the key points of the third quarter. So, first of all, as said, the third quarter results are solid in view of the context and showed a significant improvement relative to the second quarter.

Overall, organic sales in Q3 declined by 8.9%, slightly better than the guidance of 10% organic sales decline that we provided late July. In spite of negative forex and scope effect, the quarter three EBITDA decline of 20% is also moderated versus the second quarter.

Another important highlight of the quarter is the cash flow generation as we generated free cash flow of €285 million, which is a record for third quarter, thanks to the strict working capital management and contained capital expenditure. In the M&A front, we closed the acquisitions of Fixatti and Ideal Work on October 1, which means that, in this year of COVID, we have closed three bolt-ons in the Adhesive segment, including LIP at the beginning of the year.

This past months have also been particularly fertile with regards to CSR initiatives. So, in June, we announced that we had joined the World Business Council for Sustainable Development, working in partnership with this network to accelerate the transition to a more sustainable world.

In October, we successfully issued our first ever green bond for an amount of €300 million, giving investors the opportunity to contribute to the development of sustainable solutions in specialty materials. This project is the first of its kind insofar as it is fully dedicated to the financing of one project, namely our new world scale plant in Singapore to manufacture the 100% bio-based polyamide 11.

As you may have seen as well, last month, The Wall Street Journal published its list of the 100 most sustainable managed companies in the world and I'm very proud of the fact that we were ranked 11th amongst 165 global companies shortlisted. In fact, Arkema ranked number one in the chemical sector, which rewards all the assets we have put in to improve our sustainability profile.

We are also proud of Arkema's ranking as the 14th best employer in France according to the Forbes Magazine's World's Best Employers List for 2020, which I believe reflects our ongoing action to promote work life balance, diversity in the workplace and enriching career paths. And last, but not least, a word on innovation.

Among the many achievements this year, and we highlight two key ones in the past month, so just a few days ago, Arkema was awarded the 2020 Pierre Potier Prize for its Elium liquid thermoplastic resin. Pierre Potier is a major prize for the chemicals industry in France, which rewards innovative products linked to sustainability and equal responsibility.

And this is the third time actually that Arkema has won this prize after the success of Kynar back in 2016 and Rilsan in 2013. I also wanted to elaborate on our Zero wastE Blade ReseArch project, named ZEBRA, announced in September.

Arkema will actually take part in a consortium to create the first 100% recyclable wind turbine. So, recycling end of life wind turbines is a key environmental challenge for this industry.

And together with Bostik's structural adhesive, Elium thermoplastic resin is key for this project, as it is completely recyclable and has exceptional physical mechanical property. So, this project is fully in line with our circular economy approach and concerns Arkema's leading contribution in sustainable materials.

So, let's now take a closer look at some of our financial figures for the third quarter 2020. So, as you could see, sales were especially down 13.9% compared to last year at €1.9 billion, which corresponds to a minus 9% organic variance of quarter three year 2019.

Volume declined by 4.4%, so it's basically evenly split between volume and price effects. The volume reflects mainly the lower activity levels in Advanced Materials, I would say, especially in the oil and gas, consumer goods and general industry markets, which overshadowed in fact good growth in batteries and solid sales in the medical and crop nutrition sectors within Performance Additives.

In Intermediates, we saw lower volumes in Fluorogases on the back of challenging end markets. The trend in PMMA have improved this quarter, supported by a positive trend in auto.

Bostik volumes were broadly stable, which means basically back in line with 2019 or like the pre pandemic situation as the strengthen in construction affect, let's say, softer volumes that we've seen in hygiene or industrial markets. And finally, decorative paints were strong and drove higher volumes within Coating Solutions.

Regarding the price effect, which contributes for the other half of the organic variance, the decline is mainly linked to two factors, I would say. On Intermediates, price declines are linked to lower volume amid challenging market conditions.

In coating solutions, the price effect is mainly due to the lower propylene price. And we can see basically both in Adhesives and Advanced Materials that we benefited from a resilient price situation overall.

Moving on to the EBITDA, so unlike the second quarter, EBITDA of the third quarter was affected by two elements – adverse elements. The first one is the perimeter effect as a result of the divestment of the functional polyolefins business back in June, and as well an adverse currency effect of more than 3%, reflecting a weaker US dollar versus the euro.

So, we are currently basically at $1.17 for the third quarter 2020 versus $1.11 third quarter 2019, but also, let's say, weaker emerging currencies overall. So, our performance was, however, supported by our cost savings program and lower raw material prices.

So, EBITDA therefore stood at €307 million, which translates into an EBITDA margin of 16.1%, which clearly remains at a high level. Looking at the results by segment, Adhesive Solutions EBITDA rose to €73 million, thanks to the rebound of volume.

And the segment's EBITDA actually in terms of margin has even increased 50 bps to 14.1%. Advanced Materials EBITDA is down 20% relative to last year at €127 million.

The decline is clearly driven by lower volumes and negative currency impact, which partly offset our efforts to reduce the fixed costs. This being said, at 21% EBITDA margin, the segment's margin is clearly resisting well at a high level.

Coating Solutions EBITDA is at 17% lower year-on-year at €68 million. That's due to challenging market conditions impacting upstream, so the non-integrated acrylic acid, which represents around 30% of the segment sales.

Results of the segment's other activities are broadly flat year-on-year, reflecting the good trend that we had in Decorative Paints. I would say in line with what we observe in construction for Bostik.

And after 14.5%, EBITDA margin remain at a good level thanks to the benefits of the integration upstream/downstream and lower fixed costs. In the Intermediate segment, EBITDA of €55 million is around, let's say, 40% below last year's level, driven by lower prices and volume, but also impacted, of course, by the scope effect linked to the divestment of the functional polyolefins.

Sequentially, though, the EBITDA of PMMA has improved while the situation in Fluorogases has remained challenging. For the rest of the P&L, it's a little surprise.

Depreciation and amortization has reached €136 million, unchanged versus last year. Therefore, the recurring operating income stands at 9%.

Financial result is better than last year. So, the improvement is mainly attributable to the decrease of US interest rates impacting the net debt swap in the US dollar in our portfolio.

Regarding tax, the year-to-date rate excluding exceptional items is around 22% of recurring operating income. So, in line, let's say, with the with the guidance.

And finally, the adjusted net income amounts to €109 million, which corresponds to €1.4 per share. So, moving now to cash flow and net debt.

I think free cash flow is clearly once again at a good level, €285 million, reflecting the strict working capital management, as well as lower CapEx. At just below 14%, the working capital ratio on annualized sales is well below last year's level of 16.4.

I'd say we are almost, let's say, at the year-end level where we stand right now. So, in the context of lower raw material prices and also lower sales.

So, I expect this level to be maintained in Q4. Total capital expenditure amounts to €139 million versus €148 million last year and we confirm our guidance of around €600 million spend for the full year.

Net debt stands at €1.9 billion at the end of September, including hybrid bonds. And therefore, the balance sheet remains of course solid as net debt represents 1.6 times 12 months EBITDA.

To conclude my remarks, a quick word on the outlook. As you're all aware, the fourth quarter is marked by a second wave of the pandemic in many countries, notably in Europe, which creates uncertainty definitely with new sanitary restrictions being deployed by major countries.

We cannot yet fully assess the impact of those lockdowns on demand. But let's say, the restrictions so far do not seem clearly as drastic as they were in April and May.

So, overall, we estimate that activity level should be in the continuity of the third quarter. Specifically, and this is our base case for now, sales in the fourth quarter could be around 7% below last year's level at constant scope and forex.

We think construction should continue to be supportive for Bostik and Coating Solutions. And we expect a more sequential improvement in high performance polymers.

As a result, Specialty Materials EBITDA should decline less year-on-year in Q4 than in Q3. As for the Intermediates, they should, however, continue to be significantly down with a similar year-on-year decline in Q4 when looking at the Q3 and Q2 as well.

Looking at the various regions, we see the US holding up relatively well. China is probably the strongest region and East Asia is gradually improving.

Situation is more uncertain in Europe with the return of lockdowns in the past few weeks. But as I said, basically, less stringent restrictive measure than what occurred in past quarter two.

Arkema will continue therefore to focus on elements within its control. So, notably, the initiatives on costs and the strict management of working capital and capital expenditure.

And we will, of course, also continue to roll out the long-term strategy, including the implementation of major organic growth projects, the targeted acquisitions, and the innovation efforts in Specialty Materials to meet sustainable development opportunities of our customers, as well as the strategic review for the Intermediates, in line with the ambition to become a pure specialty player by 2024. So, this concludes my comments.

Thank you very much for your attention. And I'm now happy to answer your question.

Just two things. How should we think about the raw material picture in Bostik as we go into, say, the fourth quarter and then going into 2021 as well?

Could it potentially turn into a headwind? And are you likely to introduce any pricing initiatives even if it turns into a headwind?

One. And the second question is more around your – comments around the batteries in high performance polymers.

Can you provide some color on how big that business is at the moment in all Arkema please? It looks like it's delivering strong growth.

But just some context around what the size of that business is. And then just finally on thiochemicals, if you just provide some comments around the volume picture and how that's evolving, given the ramp up.

That would be very helpful. Thank you.

Regarding the raw material effect, I would say that the index is clearly showing a decrease in raw material price. As per my assessments right now, overall, for Arkema is that there is, let's say, a kind of net zero to slightly positive net effect on pricing.

So, the pricing to customers minus the pricing on the material. Again, the profile of Bostik, the prices are very much, let's say, fixed for, in average, I would say a year.

So, we are in an annual type of negotiation process, which has revealed some headwind when the prices are going up and clearly more supportive when prices are going down since it creates a lag in between what the market and the raw material price is doing and what you pass on to the customer. I'd say since the volumes are right now pretty back compared to a lesser level of activity, I'm thinking the situation should remain, I think, slightly positive in the same way it is currently.

I don't see a short-term issue popping up. Yes, you're correct.

In the end, the pricing is a constant fight. And in the current environment, it is something we monitor extremely closely.

But right now, I would believe it's still a phenomena that is supporting the margin rather than the opposite. Regarding the batteries in high performance polymer, actually, this business is clearly developed frankly very well.

So, it's probably one of the few businesses that in the current year has grown, I would say, double digit in volume compared to last year. The thing is, when you start with low volume, of course, even if the growth is double digit, it still, obviously, needs to increase further to have very material impact on the bottom result.

But, definitely, it's an area that is extremely encouraging and should continue to further increase its contribution as we move along. As you know, there are limited number of players in this market.

We think of technology as clearly a good differentiation to be successful and actually the growth is proving that it's well-received by customers. We are mainly on lithium ion technology, but actually R&D works also on for solid technology.

And despite we don't disclose the size, let's say, by type of application, it's definitely, I think, a very positive feature in the portfolio of the Advanced Materials. Regarding thiochemicals, I would say the picture is kind of a mixed bag since you know this activity itself serves, I would say, roughly 50% nutrition, 50% oil and gas.

So, oil and gas is quite depressed at the moment, which was actually not at all the case last year since you know the regulations regarding desulfurization of maritime transportation was actually pushing a lot of volumes. So, this year, clearly, this part of the activity is clearly is less supportive, but nutrition continues to be quite resilient.

So, again, a mixed bag overall for the business, but I would say it's still part of the strong business activity that we have in our portfolio.

First question is, can we just get an update on where you are in terms of the PMMA disposal process? Anything you can say about timelines there and the extent to which that process gets complicated by COVID restrictions?

The second question is for your downstream coating business. Just because DSM said the other day that they felt the resin market needed to consolidate, but they didn't want to play a role in that.

I know when Arkema tends to get asked about M&A, the focus usually is on adhesives, but can you talk a little bit about your strategic ambitions in the coatings area and what you can do to further reduce the length you have in the acrylic molecule?

Regarding PMMA process, what we have mentioned is that, yes, we've been open regarding the strategy of exit of this business from the portfolio. So, as you know, we have initiated work on the carve-out internally.

So, since it is a disposal, actually, it's quite classical that the company can prepare in advance a number of things or information, memorandum and other diligence. So, the data room is built.

So, again, the process is ongoing. There is a bank to support us in this process.

We see actually a good interest from the market, also in light also the resilient performance of the business in quite an adverse economic environment. So, so far, I would say, there is little more to be said.

What we think is that, in light of the current situation, we think the process should happen, let's say, in the coming months in terms of execution. So, we don't expect a resolution of this process in a matter of a few days or weeks.

But we also don't expect it to take several months, several years and finish by 2024. So, if I had to bet, I think in the first half of the strategy plan.

There is a likelihood the process can be executed. So, now to be precise on the timeline, it's very difficult because, as you know, the definition of a business plan and the valuation is something that is not fully stabilized in the current environment.

So, this is probably what will impact, let's say, the timeline of the process. But so far, I would say, there is no particular news flow that deserves any communication.

Let's continue to progress and have the various interested parties express their views, and then we see. Regarding the downstream of coatings business, you are correct.

And this remains an axis where we want to enforce the portfolio. So, the level of integration, as I said, in Europe and US is still, let's say, around 50%.

So, clearly, any further integration that we could do in this area will further strengthen, in fact, the resilience of the margin, which already today I think is at a good level, in fact. Then the question is the nature of the integration because, as you know, there are activities that utilize a lot of acrylic acid, but for which, let's say, the relative margin contribution is not as robust maybe as what we ourselves already had in the portfolio.

So, I'm not really pushing for buying, for instance, separate solvents despite it would be a major downstream acrylic, let's say, further reinforcing the level of integration of the portfolio. So, it's fair to recognize we have certain selective approach where what we would like, in fact, to look at is more in line with what Coatex or Sartomer type of downstream represents where you can go into water pigment, into 3D printing.

So, it's a type of diversification that allows, let's say, some high-end downstream rather than just any downstream. So, this is the type of selection that we try to implement when looking at potential M&A on downstream coating business.

First of all, a simple one. Are you still suggesting that the EBITDA you're going to generate – actually, EBITDA margin you're going to generate in Q4 will be higher than the one you generated last year?

First of all. And then, secondly, just on CSR stuff that you're talking about, can you tell us how much CO2 Arkema emits a year?

And what percentage of that CO2 is exposed to carbon trading schemes around the world please?

In fact, we have not guided on EBITDA. We are guiding on revenues.

So, I've not expressed any comment on EBITDA. But I'm rather surprised by the conclusion that may derive from what I said on the volume, actually, since my comment is that we expect, let's say, Q4 to be at minus 7% organic volume compared to last year Q4.

So, logically, you should conclude that EBITDA should actually be lower in Q4 than last fiscal…

I was asking about the margin. The EBITDA margin.

Not absolute EBITDA.

Yeah, sure. But, in fact, you see basically the size of fixed cost on our structure.

Again, I'll you make your own conclusions, but I think it would be probably quite challenging. So then, regarding CO2, so as you know, we have communicated on an ambition of reduction of our CO2 emissions below – it's greenhouse gas, which is equivalent in kilotons of CO2, which in terms of target represents below 3,000 kilotons of CO2 by 2030.

So, this is the target we have. And basically, when you look at what was generated back in 2019, we were above 4,000 kilotons of CO2 – equivalent CO2 issued by the group.

So, this is an information that basically is available on Arkema site. So, the trajectory that we have, as you know, is a science-based trajectory which complies with the Paris agreement and basically supports well below 2 degree approach for Arkema.

So, now, regarding – you were asking me if some of those CO2 were subject to what?

Carbon trading schemes. Carbon emission schemes around the world.

I see what the question is about. Today, we are balanced in terms of CO2 credits.

So, we are not acquiring or needing to acquire any CO2 credit at Arkema level. So, we are in excess, in fact, of credit limit for still a number of years.

So, I hope it answers your questions.

Three questions from – regarding Intermediate, when do you think prices will start to improve for Arkema? How do you explain that there was no improvement in Q3 for Intermediates despite less declining volumes compared to Q2?

Second question, can you update us on your €50 million cost saving program related to COVID-19 for this year? Are there some of those cost savings which can become structural and not only temporary?

Are you also thinking about increasing those savings next year in the context of low visibility related to the pandemic? And my last question is about Fluorogases.

Have you started the process of selling Fluorogases? And do you think it may be more complex than for the PMMA business?

Thank you.

Regarding the cost saving program, clearly, the efforts are paying off. My expectation is that, probably, we will exceed, in fact, the €50 million cost program for year-end by a bit.

So, right now, clearly, the program is well on track. And we should exceed, in fact, this ambition by end of this year.

Now, I agree with you. In fact, the issue is how much of that can be materialized structurally that you suggest opportunistically because just the people are not traveling and, therefore, the fixed costs have been shrinking.

This is a difficult question because despite we have not been exposed to a lot of measures of subsidies or we have not really applied to anything in the various geographies where we operate, so I think this is a very specific impact which would come from the support of the various governments. I think it remains quite modest at Arkema.

So, on that front, I do not expect kind of any kick back effect into next year. Yes, it's fair to recognize that all the markets in actions, the traveling has been much lower, the number of indirect costs in terms of subcontracting and logistics are also significantly reduced.

So, mechanically, some of the costs clearly is linked to the level of activity that will take place. If this level of activity is not coming back, clearly, the pressure is maintained on the structure in the same way it has been so far.

We are clearly looking at various avenues to see if there are some synergies that can be implemented across platform. So, as you know, we've communicated earlier on on the year when we announced the creation of the Coating Solutions platform, for instance, the segment.

By grouping a number of businesses there – in fact, Richard Jenkins was working on a setup to see how we could, in fact, cut from some structure in this new combination. So, we have definitely a number of opportunities we are investigating to see how we can further contribute to saving structure in light of an environment which is uncertain.

Now, regarding intermediate, prices are definitely challenging. I would say – of course, we all know this part of the internet is more exposed to volume volatility.

If I take the case of PMMA, in fact, this business has been quite resilient in volume, but with obviously a mix which is a little different because auto remains below what it was in volumes. So, of course, there is some impact there.

Fluorogases clearly is the outcome of the combination of low demand plus, as you know, a pressure on price that had been initiated already last year with illegal imports reaching Europe and impacting us almost for the full year last year already. So, it's fair to recognize that Fluorogases weighs significantly on the overall Intermediate performance and, unfortunately, I don't see a recovery in Q4.

This is the reason why. In fact, the guidance we give at minus 7% basically incorporates actually a quite negative perspective, in fact, still on intermediates.

And despite, we see clearly some progressive recovery in the specialty materials front compared again, clearly, to Q2 and even to Q3. We still see a significant adverse impact coming from that particular segment.

Regarding acrylics in Asia, frankly, no big change in the situation. I would say volumes are more stable, but prices are still at a low level.

Today, utilization of assets in Asia is clearly not very, very high. Regarding the disposal process of Fluorogases, typically, yes, I see a more complex process if I compare to PMMA because, in fact, it reflects the complexity of the market and of that business.

As you know, this business is highly regulated with very different situations in US, in Europe, in Asia and mainly China. And therefore, we think exit most likely is not going to happen through just the pure selling of the business.

We believe probably the solution lies in a more specific approach, continent by continent, not to mention, potentially even product by product. So, this clearly is the way we think about it.

And that is why, for sure, today, my main focus is mainly on MMA/PMMA because this is the scope where you can actually work even before what the buyer – who the buyer is and what the buyer is willing to do because it's a full-fledged carve-out. And therefore, you can prepare in advance internally.

For Fluorogases, this is more complex because till you know which you're – actually, which product, what type of agreement, is it a joint venture, what type of outcome will happen, it's very difficult to build anything in advance. So, for sure, today, I would say, the full attention of the teams internally is very much focused on PMMA.

I see more the MMA situation of Fluorogases, let's say, happening in the second part of the roadmap to 2024. So, as I mentioned before, PMMA I think should happen in the first two years of the plan.

I guess Fluorogases, I see it more clearly in the second part of the plan.

In Fluorogases, I don't know what the exact split is, is it fair to say that the lack of office working across the world has caused a significant drag on AC gas demand? And is that a big part of the lower volumes?

It would be interesting if you could quantify that one and how much of the market that is. But secondly, and actually finally, the announcement a couple of days ago that BPI has taken a 5% stake in Arkema.

Does that change your ability to pay or return cash, do a buy back at some point in the future as you laid down in early April. It would be very interest to have your view on that too.

Thank you.

On Fluorogases, I would say the split of the market, as you know, for us is, I would say, 25% non-emissive and we see this as a key raw material fluoropolymers. And then, 75% would be what we consider the emissive part.

And this is the part on which we would like to clearly find an exit solution. The emissive part, in fact, the main areas the product goes into – so you would have air conditioning for cars.

So, this is a significant application. Let's say maybe 30%.

Then you would have definitely HVACs or air conditioning, let's say, for industry, for buildings. So, this probably is another third or so.

And then, you would have also applications such as isolation for building, the foams, this type of application. So, regarding HVAC, it's of course the decrease in volume of activity, the shutdown on some plants, some industry, the fact that people stay at home rather than go to the office and, therefore, buildings are potentially empty.

Of course, it has an impact on the level of demand. That is causing, in fact, the current situation and pressure on margins that we see in this business.

I believe automotive has also some contributions if people stop driving, they stay at home. In fact, you also have the impact of the auto industry.

That indirect, let's say, weighs also on the demand on Fluorogases as well. So, I would say it's probably a combination of the different drivers.

During lockdown, in Europe, the construction works were stopped, I guess. All isolation forms, et cetera, were also impacted by some shortfall of volumes during a period that normally corresponds to the peak season, let's say, of consumption of this refrigerant gas.

So, not only, in fact, Q4 is normally anyway a very low point in terms of seasonality for this business, classically, but on top of it, it's fair to recognize that the pandemic has had the maximum impact in Q2, which is normally, in fact, the strongest period of consumption. So, of course, maximum effect on the contraction of margin for this business at that time.

So, all in all, the demand in Fluorogases, yes, has been impacted and will continue to be impacted, I believe, in Q4. I would imagine at least similarly to what happened in Q3.

Now, regarding the BPI investment into Arkema, so thanks for asking. In fact, BPI France, through their fund, which is the named Lac1 has declared, in fact, a stake in Arkema over 5%.

Clearly, what has driven the entry of this shareholder is, I think, Arkema's strategy and roadmap to become a pure specialty player as what we presented, in fact, during the last capital market day. We understand this is what attracted them and fits with their investment criteria.

They seem to have a passion, in fact, for technology. So, they are very keen to favor investment in companies with high technology content, strong CSR commitments.

So, the strategy was extremely clear and well received by them. The shift also to become a pure player of specialty materials, I think, is a key driver for their decision.

So, I feel very, very good alignment and support to the strategy and the cash allocation, specifically that we presented during the strategy update. So, there is no inflection of this strategy.

On the contrary, there is full support from this new shareholder regarding the strategy that we presented to you and to the market back in April.

I've just got one question left and it's very similar to one that you had earlier on adhesives. I was just wondering, can you confirm the net impact on price versus raws in Coating Solutions.

It was slightly negative in the third quarter. And then, if you can maybe talk about how that trend might develop in the fourth quarter and beyond.

And then perhaps, like, on that note, if you can give us an idea about how you see pricing power in Coating Solutions. Is it somewhere that you expect people to react to raw material price increases?

Thank you.

Your question is mainly on Coatings rather than on Adhesives. I'm correct, Georgina?

Yeah. I was saying you had the same question on adjectives earlier before, right at the beginning.

I was just wondering if you could give us an overview on Coating Solutions.

As I mentioned on Coatings, the integration proportion, I would say, is around 50%. So, for sure, the portion that is more merchant, as you know, there we have normally a pass through of the evolution of propylene price.

I would say, in a matter of a month or a couple of months max. So, it's pretty straightforward.

And this obviously creates a lot of volatility on the pricing you see. Not necessarily on the compression of the margins since, in fact, the downstream which basically absorbs 50% roughly of that volume can absorb and benefit, in fact, from this reduction of acrylic acid and definitely basically retains some of that at that level, which allows us to – as you can see, compared to Intermediates, margin erosion remains rather contained.

We are talking about less than a point of margin difference year-on-year. So, the resilience is actually quite good.

That's why I mentioned earlier in the call, I think it's important to – going to the downstream and reinforcing the downstream in coating. For us, it is very important to focus on the high end in terms of value, of product value rather than on volume.

So, the integration is not for the sake of increasing the share of integration, because as I mentioned earlier, superabsorbent, for instance, which would allow Arkema to significantly increase the level of integration, yet the volatility of the margin in superabsorbent remain actually pretty high. So, it doesn't really fulfill the objective that we have to increase the resilience.

So, it's fair to recognize we are quite selective when assessing the potential downstream integration that we could further do in coatings. At this point, I still see, let's say, as I mentioned, very similar to Bostik, in fact, a slightly net positive effect of the net pricing for that segment.

I was just wondering if I could be very cheeky and ask a very crude question. It is fantastic to hear from you, but Thierry is conspicuous in his absence.

I'm just wondering if there was anything that you could say on that because he does normally join these calls.

Yeah, he decided actually I can do it on my maybe for once. Thanks for asking.

But he's actually healthy and well. He addressed actually the press in parallel, so then we splitted the workload.

No particular signal or lack of it.

Glad to hear that he is well. Thank you.

Maybe just one on the current kind of volume underlying organic trends you saw through the quarter. In the past, you've kind of helped us understand how that progressed sequentially.

It's just understanding how that was through in the various months up to September. And then, maybe if possible, also a sense on how October has gone so far, that would be – or has gone, sorry, it's not done.

That would be helpful. From an organic growth perspective.

And then second one, just around construction activity, obviously, a very strong recovery in European construction activity, French construction activity in the third quarter. How do you see that going into the end of the year?

Obviously, there's some seasonality to consider, but just how do you see that trending into the fourth quarter? And as we think about that, how does that look for Bostik and for Adhesives?

Basically, when releasing the guidance for Q4, clearly, we have the, let's say, the support of October in this exercise, so which basically is in line with the guidance I'm giving today. So, at this point, we see no disruption.

In fact, no major disruption. That's why we say it's pretty much in line or, let's say, in the continuity with the quarter three performance and quarter three trend.

So, this is the basic – let's say, the base case scenario that has led us to the guidance of minus 7% revenues, organic revenues in Q4 versus last year that we are putting out today. Now in terms of mix of activities, what we see is actually construction remaining at a good level.

As you know, these new lockdown measures are clearly very different from what happened in the past quarter two when construction work had been stopped, shops were being closed, et cetera. Today, the context is very different.

So, for me, it would be frankly extremely drastic to consider Q4 is a return to a kind of Q2 pattern. Right now, this is not at all the case.

And then, from a worldwide perspective, definitely, I see Asia in better shape today than it was back in quarter two. I see US, in fact, economy resilient across the pandemic.

So, for us, right now, the main signal that we observe are, again, in the continuity of what we saw in quarter three. Because the environment is uncertain, of course, our industry doesn't enjoy a kind of a six-month backlog or a huge visibility on what's going on.

As you know, the average time between receiving an order, delivering is a matter of maybe three, four weeks. So, there is no such concept of a backlog, in fact, in chemical industry.

And, therefore, it's very difficult to predict what's going to happen. Now, this being said, from what I see in October, from what we see happening in November, so basically the small visibility we have, this should confirm – at this point basically confirms the guidance we are putting in the market.

The caveat, of course, is that if anything new was going to materialize, then probably we would reconvene or use it like any other company would do probably at the same time. But, let's say, today, it's fully consistent with what we see both from October month and, let's say, the small visibility we have on November.

In terms of sector in the economy, it's a bit of a mixed bag because, as we mentioned, in fact, we see some positive signals coming from auto. And still, for us, frankly, the volumes are not very different or evolving very differently compared to quarter three.

So, we still see industry including automotive basically having a very progressive recovery rather than a V-shaped type of pattern in the recovery. So, for me, construction should remain, in fact, at a good level, kind of back to a pre-crisis level.

Some segments that had been doing really well during the pandemic. So, we mentioned nutrition, we mentioned healthcare, packaging as well as the very resilient performance, we see maybe some destocking there, some bit of destocking.

So, that is why, overall, I see Bostik relatively stable, let's say, compared to what we have in in Q3. I think Advanced Materials, because industry recovery is very slow, even if there should be a gradual improvement, it should remain kind of modest at this point, I believe.

And again, what I mentioned before is that I still see Intermediates weighing on our results. So, overall, this minus 7% is a fair assessment.

Again, because Coatings has enjoyed the benefit that we saw on construction, I think on that aspect from the decorative, its' performed well. Clearly, on the industrial side of the business, it has been clearly more impacted again by the overall industry performance.

So, again, another mixed bag picture. So, all in all, again, some very progressive improvement compared to Q3, but no drastic change in pattern, frankly.

Actually, two only very small ones after this extensive call. In thiochemicals, oil and gas is down as you outlined, the nutrition part is up.

Am I right to assume that the increase in nutrition is by far not enough to offset the decline in oil and gas and that in oil and gas you do not see any recovery yet? That's the first question.

And second, on the net working capital which helped this year a lot in terms of free cash generation, are now inventory levels at your end too low? So, do you have to assume in Q4 and maybe in Q1 that inventories go up again, so that you see then the flip side of the strong free cash flow in Q3 or year-to-date than in Q4 and then the beginning of next year?

Thanks.

What I mentioned is that definitely oil and gas has an adverse impact on volumes for us overall. So, earlier on on the call – in fact, the question was not about the content of our thiochemical business, which basically addresses specifically nutrition and oil and gas to simplify it.

I would say nutrition was resilient. But people – or animals are not eating more.

So, I see this part, let's say, resilient, but growing, in fact. And on the other side, oil and gas is clearly impacting negatively the volumes.

So, all in all, definitely, one is not affecting the other. So, this is, let's say, something I needed to clarify.

There is no recovery at oil and gas?

On oil and gas, at this point, projects are more or less – have been frozen. So, decision making, in fact, is kind of on hold at the moment.

So, we don't really see a lot of excitement, let's say, to reinitiate large investments in refineries at this point. So, for right now, again, no major change in trend compared to what we saw in Q3.

Now, regarding working capital, I would say you have two phenomena, in fact, in the performance of working capital that we have. I would say one phenomena is kind of mechanical to be very, very open since, of course, overall, we are, let's say, at around 14%, 15% working cap on sales.

So, if the sales declined, quite logically, working cap declines. So, this is valid, I guess, for everyone in this situation in any industry.

Still it requires, obviously, a discipline internally to watch the credit limits of your customer to make sure you don't stop piling up overdues. And therefore, you continue having a good discipline internally.

At the time, well, chasing after volumes may lead to a decreased level of attention in the ability to collect. So, this is still, I think, a necessary discipline that you need to understand in the company.

But it is fair to recognize that there is some mechanical effect that plays in favor of positive movement of working capital. The same for, let's say, the evolution of raw material prices because in the context where you have a decrease of raw material prices, it's fair to recognize the valuation of stock is also decreasing.

So, of course, mechanically, it favors the working capital. At the same time, same as for the receivables, it requires a discipline, an internal discipline in the company because I can tell you, internally, the business', let's say, natural instinct would be to buy cheaper pile of stock to explain that – then tomorrow they will enjoy this low cost raw material for their finished goods.

When you have limited visibility on demand, I think it's a very good discipline still to make sure you have a very stringent decision mechanism process in the company to decide what's the type of stock is strategic or not strategic to buy and assess basically that the price is cheap because everything is relative. And I think in those two fronts, Arkema I think has a strong discipline and shows through the performance of working capital that this discipline is paying off.

So, some of it is mechanical. And then, you can think that, of course, if there is a significant recovery in the sales, then mechanically you will have a consistent, let's say, evolution of the nominal value of working capital.

So, for sure, if the business recovers and volumes regrow significantly, there will be some consumption of working capital attached to that growth. So, I suppose no surprise there, like for any company having positive working capital in their balance sheet.

I would say similar answer in case of raw materials starting to increase significantly up. So, there as well, we will see a mechanical effect regarding those two phenomena.

It doesn't prevent, of course, the company to maintain a strict discipline regarding the monitoring of stock levels and the credit limits of a customer. So, at this point in time, are my stocks too low?

So, sometimes, when I discuss targets with businesses, they complain about the target. So, I suppose it's a matter of opinion.

Do I think I'm missing sales because of my level of stock? I don't think so.

So, I think it is okay.

I see all my questions have been answered, but I just had one cheeky one then to follow Georgina. On the guidance, I don't remember Arkema ever not guiding on EBITDA or on margins at this stage, even in the deep dark days of 2008/2009, 2014 at this stage of the year.

So, I'm just wondering if there's anything we should be aware of in terms of volatility or lumpiness on some businesses that would mean that you have more confidence in guiding on a specific organic sales number than on a range on EBITDA or EBITDA margin? I know it's cheeky, sorry.

Actually, you have a better memory than I do since I've only joined the company in 2018. So, what I can say is that, of course, what we monitor is a lot based on the volumes and the flow business that occurs every day.

So, this is basically the main driver, I would say, for the level of activity for you deciding to allocate your results, allocate, in fact, the effort in terms of running the plants. So, this is basically a shutdown.

Clearly, the main driver that we track. And now the translation of that into EBITDA, for sure, depends on the type of markets and how the mix is moving.

That's why I'm trying to give you still I think valuable indication regarding the situation in Bostik, the situation regarding Advanced Materials, regarding Coatings, regarding Intermediates, which is perfectly know the respective EBITDA contribution is quite different from one platform to the other. So, hopefully, this has been helpful.

And therefore, should still allow you to have, I think, a good appreciation for the type of performance we can generate this year. I see, for sure, around me, clear giving EBITDA guidances with margin of maneuver, let's say, of various tens, hundreds of millions of euros.

So, we can all debate which one is more valuable. But we think the guidance we are giving today is valuable and should allow you to have a good understanding of how we see the performance of Arkema for year-end.

Thank you, all. And I wish you all actually a strong – to stay healthy and well across the next coming months.

It's been my pleasure to be with you today and, hopefully, I will enjoy this experience more in the future. And looking forward to see some of you live at some point.

Again, thank you very much for your interest and see you next. Bye-bye.