Arkema S.A.

Thank you very much. Good morning, everybody.

Welcome to Arkema's Second Quarter 2025 Results Conference Call. Joining me today are Marie-José Donsion, our CFO; and the Investor Relations team that you know well.

To support this conference call, we, as usual, posted a set of slides, which are available on our website. And always, I will comment on the highlights of the quarter, and then we'll let Marie-Jose go through the financials and at the end of the presentation, as was said before, will be available to answer your questions.

In Q2 2025, as you know, the macroeconomic environment was challenging with an increasing wait-and-see attitude of customers. This was no doubt reinforced by the uncertainty and lack of visibility around trade tariffs.

As a result, the weakness of the demand has persisted through the quarter, impacting notably the U.S. and Europe.

Asia, on the other hand, continues to be well oriented from what we could see. The second quarter was also marked by an unfavorable evolution of exchange rates with the weakening of the U.S.

dollar against the euro as well as a currency such as the Korean won. All this is neither specific to Arkema or something new to do but it's important to mention this to start with.

This context and these headwinds had, of course, an impact on our financial performance but overall, Arkema reserves ended up relatively well with a slight decline in volumes, a robust EBITDA margin of 15.2% and a solid cash generation in the quarter. This was supported by the good resilience of our adhesive solutions and high-performance polymer demonstrating the quality of our portfolio and the work carried out in the last 2 years to deeply transform and strengthen Arkema.

EBITDA was nevertheless lower year-on-year at EUR 364 million for the quarter, reflecting mostly on top of the FX headwind. The decline in refrigerant gases already was flagged in Q1 but improving quarter-on-quarter as well as the low cycle market condition in upstream acrylics directly impacted by the current macro.

Looking briefly at the performance of Specialty Materials segment. Adhesives had a very decent quarter with an EBITDA and slightly down compared to last year despite the continued pressure on volumes.

This performance of Bostik was supported by the ongoing work on efficiency and our strict price discipline, enabling us to mitigate the weak demand environment in industrial adhesives in particular, North America. On the other hand, construction business was slightly better in Europe and Asia with a good momentum in efficient buildings.

The integration of Dow is progressing well and contributed incrementally to the segment's results. In Advanced Materials, volumes were strongly up 6% in the quarter with growth in most businesses.

High Performance Polymers delivered yet again a solid performance. They benefited from our significant footprint in Asia over many years and from our high value-added new business development in differentiated materials serving fast-growing markets such as sports, battery, 3D printing.

On the other hand, EBITDA was impacted by unfavorable geographical mix and overall weaker market conditions in Performance Additives. The margin of the Advanced Materials segment remain overall at a good level, close to 20%.

Lastly, in Coating, the unit margins in upstream acrylics remain challenging, where the volume in downstream were disappointing, especially North America affected by the weakness of construction in this reset. Therefore, the performance of the segment was significantly lower than last year.

To adjust to the challenging environment, Arkema implemented also significant cost-cutting measures across the organization and tightly control working capital and CapEx. Thanks to these specific initiatives, and I would like to highlight the hard work of the team.

The group was able to offset fixed cost inflation over the quarter and generated a robust level above EUR 110 million of recurring cash flow, which was not given in the context. In parallel, the fundamentals of the group, as you know, are very solid.

The megatrends beyond the short-term challenges will continue to drive the growth of the global economy. So it's important to continue to work on the long term and to be prepared for better times of the world economy.

From this standpoint, 1 of our first priorities remain to ramp up our major projects, which have been financed in the recent years. They are, as you know, centered on innovative materials and focus on key growth markets such as electric mobility, sustainable lifestyle goods, advanced electronics and efficient buildings.

We are now starting up our new capacity for additives in the U.S. for refining and biofuel just now as well as the expansion of our organic peroxide in China for renewable energy.

Besides, as anticipated, I am happy to confirm that our new greenfield plant in Singapore for biosource polyamide 11 is reaching the breakeven point. And as announced at the beginning of July, we have invested -- we have decided, sorry, to invest in a new unit of recently transparent polyamide on the same site, expected to be operational quite quickly in the first quarter of 2026.

This last investment represents a limited CapEx of around USD 20 million that will triple Arkema global production with a very attractive payout. This will also contribute to our strategy to develop local supply flows to our customers in this region.

This comes on top of the new capacity, which was recently announced. It was in February in the U.S.

for PVDF, which is also scheduled to be completed by mid-2026, and this will enable us to follow market development, and answer the increasing demand for locally manufactured PVDF in energy storage systems, semiconductor, cable market and other natural markets of PVDF. This was for my introduction.

I will now hand it over to Marie-Jose for a more in-depth look at the financials before we discuss the outlook at the end of the presentation.

Thank you, Thierry. Good morning, everyone.

So starting with revenues at EUR 2.4 billion. Quarter 2 sales were down 5.6% year- on-year, impacted by a negative 3.3% currency effect.

This reflects the weakening of the U.S. dollar against the euro and that of most other currencies, including the Chinese yuan, the Korean won and the Mexican pesos.

Volumes came in slightly down at 1.3%, mainly due to an overall weak demand environment in Europe and North America. On the other hand, several markets continue to grow in high performance volumes, especially in Asia.

The price effect was a negative 2.5%, reflecting the unfavorable geographic mix. The evolution of certain raw materials as well as the market conditions, in particular, in upstream acrylics.

Continuing with profits, quarter 2 EBITDA came in at EUR 364 million, impacted by the decreased contribution from the refrigerant gases as well as the decline in Coating Solutions, while Adhesives and Advanced Materials were more resilient. Quarter 2 EBITDA included also an unfavorable currency effect estimated at EUR 50 million, half is dollar related.

The other half is from all other currencies. Depreciation and amortization stood at EUR 166 million that included the amortization of new production units, which started during 2024.

This is for a recurring REBIT of EUR 198 million and an REBIT margin of 8.3%. Nonrecurring items amounted to EUR 82 million.

They include EUR 34 million of PPA amortization and EUR 47 million of one-off charges, notably restructuring costs linked to the reorganization of hydrogen peroxides site in France. Financial expenses stood at EUR 34 million, reflecting mainly the increased cost of our bonds and the low interest on invested cash.

Consequently, quarter 2 adjusted net income stands at EUR 118 million, which corresponds to a EUR 1.56 per share. Moving on to cash flow and net debt.

Arkema delivered a very solid cash flow generation in quarter 2, recurring cash flow stood at EUR 111 million, reflecting a well-controlled working capital. The working capital ratio actually stands on annualized sales at 17%, which is comparable to last year.

I'd like to thank the team to have been able to strictly manage the level of stocks in a difficult-to- predict environment. Total capital expenditure amounted to EUR 151 million, in line with our guidance of annual CapEx spend of EUR 650 million for the full year '25.

Net debt and hybrid bonds at the end of June '25 amounted close to EUR 3.6 billion, including a EUR 1.5 billion of hybrid bonds. Since a new EUR 400 million hybrid was issued in May refinancing the upcoming maturity early '26.

The net debt to last 12-month EBITDA ratio now stands at around 2.5x. Thank you for your attention, and I'll now hand it over to Thierry for the outlook.

Thank you, Marie-Jose. So going now into H2, the macro environment seems to be the opportunity of the recent months, no surprise there with low demand, geopolitical uncertainty and limited visibility, including on the tariff.

Our industrial footprint close to our customers in our 3 major regions significantly protect the group from direct impact of higher tariffs. Obviously, we are remaining vigilant about what we call the direct impact on the global demand.

In this context, as already said, we reinforced our initiatives on cost and cash. This year, we aim to achieve EUR 100 million of savings in fixed and variable costs to offset inflation.

If you remember, this is a double of the annual target set at the Capital Markets Day in September '23. We'll also continue to control strictly our operations and frankly manage our working capital and CapEx as we did in Q2.

In parallel, we continue to be making up for the future. This is very important, and this includes the execution of our major projects that you know.

We still believe we can expect a contribution of more than EUR 400 million Arkema's EBITDA in 2028 in comparison to 2024. This year, given the current context, the ramp-up would be slower than expected, and we see an additional contribution to the group's EBITDA of almost EUR 50 million versus last year.

Based on all these factors, we now aim to achieve in 2025, as you could read, an EBITDA of between EUR 1.3 billion and EUR 1.4 billion. This includes an FX headwind of around EUR 50 million for the full year, assuming a stabilization of exchange rate at the current level for the rest of the year.

Based on this EBITDA forecast, the recurring cash flow should adjust accordingly to between EUR 300 million and EUR 400 million in 2025. I know there have been a few questions to the IR team this morning on this topic.

As a matter of fact, the range is a mechanical adjustment versus initial EBITDA and cash guidance of end of Feb and also quite consistent if we make the analysis compared to last year results. Beyond the current year, we are firmly convinced that megatrends are there to remain on the long term and the Arkema is very well positioned with its portfolio of cutting-edge technologies and sustainability-driven innovation to continue to capture the numerous growth opportunities that we will create.

So I thank you very much for your attention. And now together with management today, we are ready to answer your questions.

A couple of questions, if I may. Thierry, just kind of focusing on that second half guidance that you've given and your wait-and-see commentary what have you baked into the second half?

Is it that things continue at the current -- at the exit rate of 2Q? Is that what you're expecting?

And around that, how long can these customers wait and see, right? Is there a certain point this year where they'll have to come back if they want to sell products?

Or can they last out through the whole year on this wait-and-see attitude? So that's my first question.

My second question is around Advanced Materials. So just to unpack that a little further.

I mean, obviously, we're seeing good volume growth but declines in EBITDA. Is that because you're seeing ramp-up of volumes, which aren't carrying positive EBITDA yet but will in the future?

Or is it -- and at the same time that you're losing high-value volumes underlying that picture in other markets? Just trying to understand when the volumes kick in to EBITDA growth in Advanced Materials?

Thank you, Tom, the very valid question. So assumption for H2 are basically continuity but we put a range of EUR 100 million on the EBITDA started from the exit rate of Q2.

So depending on this range by nature, in the range, certainly a bit more optimistic for the high end of the range, assuming certainly a little bit of rebound at the end of the year. And the low end, assuming absolutely no rebound.

So I would say, for the time being, and nobody has any crystal ball, and we have been all surprised by the length of wait-and- see. We must do that.

We are not the only one. I think we prefer to be cautious because there are some elements,which we don't master, including the tariffs.

I think time you say we get something rather clear. You have some surprise a few will after.

So later to be cautious. So I would say we don't know, I think it's our experience in chemicals, we started to have some destock.

It was in September '23. It's really very long period.

So we are absolutely convinced that there will be a rebound at certain time and then there will be certainly plenty of upside linked to the tension, we have seen several times in the past 10 years in chemicals. The question is when and really frankly on this, I -- we don't know because beyond the typical macro cycle, you have some geopolitical factors that we don't master.

So I would say it's neutral but there will be, at a certain point, light in the tunnel, and as usual, we believe that Arkema can get out of this period stronger than our competitor. This is not we have been proven -- proving since many, many years.

With regard to Advanced Material, in fact, this is a difficulty when the markets are down, is that the mix is also a little bit affected. We have -- this means that we have a tendency to have more growth in the more commoditized businesses and the more specialty businesses, and we have seen that always.

And you have the contrary when there is rebound, which is why we have double gain in EBITDA while there is a rebound. But when the volumes are more under pressure, special -- I would say, Specialty businesses are suffering a bit more.

So it's one answer. And the second one is that in terms of geographical mix, we have U.S., which is disappointing and Asia is rather solid for us and the mix between the 2 create the discrepancy between volumes and EBITDA.

But if I compare also to many peers. We have to -- despite all of this, we see for Advanced Material and for the group, the level of EBITDA margin is quite robust still.

I wanted to mention it.

Thanks for Slide #5, where you showed a recap of the new projects. Perhaps what assumption underpinned the reiterated forecast of above EUR 400 million earnings contribution by 2028?

Has this been reiterated on an assumption that by 2028, the market would be as you originally expected? Or do you expect market share gains to support it in some of the projects you mentioned?

The second question is on free cash flow and your leverage. I wonder if you can discuss a little bit what your thoughts are about the current leverage and the free cash flow generation going into the second half of the year?

Okay. So on the first question, so the nature of this project is a little bit different in, I would say, different depending on which projects we are talking about, for example, is different if you take the Singapore plot or I would say, the project with Nutrien -- project with Nutrien is really an integration of the raw material.

And then we mechanically as soon is really ramping up, we increased our profitability. And on this, even we'll get the benefit far before 2028.

On the -- on Singapore, you will get the ramp-up of the business. So you have to assume clearly recovery of the macro before 2028.

But then it will be 4 years from now and from September '23, it will be 6 years. So on this, we think it's a reasonable assumption that the macro at a certain point, coming back to the answer to Tom, it will come back.

The question is when. And we get closer certainly than it was two years.

But so if you take Singapore development, you have a lot of development in niches. So you don't really -- you take market share but through technology, it's not like you bring the same product with a lower whole price or whatever.

It's really a new market that we are developing or very technical market. We mentioned in sport, we mentioned in battery, we mentioned in optical also with this new project of polyamide, et cetera.

We did a lot, even if some people can have the impression that what is sustainability slowing down in terms of potential of growth. We still believe that it's a big driver of the world, and we'll continue to push a lot on that.

And so it's not really market share. Again, it's really a new development.

We are very strict on new business development. We could mention also through [indiscernible] Advanced Electronics, where because of the new mobility, you have plenty of application and digital plenty of application developing.

So there is even if you can have some peak and down, the mid to long term is still very positive. So all this is coming from this new project, including also to show you a third nature of projects, the acquisition of Dow adhesives by in flexible packaging by Bostik.

So there is a little bit of market share recovery because in the past 2 years before we bought it this business had lost market share, that is far beyond that. I think by putting the 3 ranges together, the 2 belonging to Arkema and Bostik and another one belonging to this new acquisition, we're able to really to be a full global player with the full range and in adhesive for flexible packaging, and we will ramp up very quickly because in terms of technology, we will be really at the top of the market.

So it's a different nature again of project, and this is what is good with this. So I think we have 12 development projects.

What is good about them. They have different natures, they are quite diversified.

And if the macro is reasonably good, okay, I would say, in the coming years, we are confident to deliver the EUR 400 million of contribution. On the free cash flow, I will let -- on the current leverage, I will let Marie-José comment just to mention that, I think, again, we had quite -- if I compare also to some of our press release, quite a good free cash flow generation in Q2, which means really that is belong to the DNA of Arkema and our balance sheet is quite solid.

So regarding the updated guidance, basically, it's quite consistent with what we did at the start of the year. So if you remember, end of Feb, we guided around EUR 1.5 billion to EUR 1.7 billion EBITDA with a EUR 600 million cash flow, the midpoint being EUR 1.6 billion, so it's now readjusted to between EUR 1.3 billion, EUR 1.4 billion.

So midpoint is EUR 1.350 billion. So let's say you find basically a corresponding adjustment on the cash flow guidance.

So it still assumes actually similar type of a variance in working capital that we had generated last year and also assumes the reduction of CapEx that we have committed to deliver this year and on which we are on track. Therefore, I would think the leverage, if you take the midpoint of the 2 guidances, should remain relatively stable between 2.4x EBITDA and 2.5x EBITDA.

Two questions, please. The first 1 on the -- I mean, clearly, we've seen a resilience of the 2 specialty divisions, Adhesives and Advanced Materials.

But when we look at Coatings, obviously, a very different picture. So I was wondering if you could, I guess, talk about the different dynamics within the Coatings division between downstream and upstream acrylics, and maybe can you talk about the resilience of that downstream business in terms of, I guess, net pricing margin contribution, et cetera?

And then the second question for are cash flow point. I mean I understand that you're taking the same assumption on working capital as last year.

But I mean last year, sales were up at group level. And I guess this year, they are going to be down the few hundred millions.

So I'm just wondering, are you assuming that we see a recovery towards the end of the year. And therefore, I guess the working capital picture reflects an improvement into H1 next year?

Thank you, Laurent. So on the first question, in fact, it's true that we have 2 different dynamics between upstream and downstream.

Upstream no surprise in this kind of environment, and this is our most cyclical the business. So we suffer from a unit margin, which is linked to from the spread linked to the cycle and the new demand, and it will come back as soon as the demand is recovering.

So here, you can see it 2 ways. But if you're positive, you can say there is an upside for Arkema in the coming year, which is quite significant.

And with regard to the downstream, I would say that the net pricing is resilient. The topic is volume.

So in fact, you have differentiated. One, this is net pricing, which is negative for the upstream and the downstream is more the volume, which reflects the global economy.

On cash flow, basically, when you compare the second half, let's say, last year and this year, I expect a similar improvement in working capital, so close to EUR 250 million. So the main -- let's say, the main driver is probably we count on a more flattish seasonality of the business compared to last year, in line with what we've seen since the beginning of the year.

So this, I would say, is the main change if you compare the 2 financial years. Obviously, the other change is the less expenses on CapEx that generate less payable of CapEx, whether I guess this is mechanically factored in your models already.

I have 2, please. The first is around the incremental cost savings plan.

Clearly, the plan was before to save roughly EUR 50 million per year through to 2028. The incremental savings found this morning, are they additional to the plan?

Or are these molding of future savings given the pressure on the business? And then my second question is about the portfolio.

Given the kind of different dynamics, the capital being invested is focused much more on High Performance Polymers adhesives. Has the performance of Coating Solution changed your view on the right portfolio for Arkema?

Okay. So the 2 very different questions but quite valid.

So the first one, in fact, we -- the EUR 50 million average becomes EUR 100 million for this year. So we should have achieved EUR 50 million.

So it's incremental to the EUR 50 million, which brings it EUR 100 million, which is quite significant for Arkema. And I would say, structural.

So if not -- the idea is that is not just sort of one month that we'll get back next year. The idea is that we set the base lower than it should have been with our previous plan.

So it's really a big effort from the team. So as you know us, we are already a little bit low profile in terms of communication on that but I can tell you that the momentum by the team is really there.

With regard to the performance of Coating Solutions. In fact, it's typical performance of Coating Solutions when the market is down.

So we should not overreact. We know you have to be prepared that actually can -- depending on the cycle to be lower than what is normalized condition.

So it's a bit more even if EBITDA is quite disappointing but it's not reliable. I would say, we are in a position, which are a little bit extreme for this kind of business because of this context that we have explained.

So it can get normalized quite soon. As soon as you will start to see some rebound, some tension, you will be positively surprised by Coating solutions.

So we don't want to that regard. We have, as you know, strategy which is very clear, around the 3 segments, which make of materials, Specialty Materials focus.

They are very complementary for example in Coatings, we see a lot of application in battery. It's a very important technology in battery, very complementary to what we do in adhesives and in -- also in High Performance Polymers.

So we really continue to build on that. One is that, and you're right, in terms of allocation of cash and resources, we put a clear priority in High Performance Polymers and Adhesives.

And like in any portfolio, you have some businesses, which play more to cash cow and so where you really put the emphasis on the growth.

A couple, please. I wanted to just revisit the balance sheet and the cash flow.

Correct me if my numbers are wrong. I think the strategy presentation, you talked about EUR 650 million to EUR 700 million of CapEx on average through the coming years.

When you look at that leverage ratio, which is the highest I can remember at Arkema, and you also think about the state of the end markets. Are you still intending to spend the same magnitude of CapEx over the next couple of years?

Or will you be revisiting that? And then the second question, slightly more specific really, is there's some press stories about a big U.S.

smartphone company potentially launching a foldable model next year. I don't know if you have any insights into whether that would use polyamide technology, whether Arkema has a chance of selling into a U.S.

customer because that was obviously one of the big synergy opportunities from taking the Korean technology into different markets. So curious if you have any insights into that.

Okay. So with regard, Matthew, the first one, so you're right to say that we started with the amount which was EUR 750 million to EUR 800 million.

At the Capital Markets Day, we decreased to EUR 650 million to EUR 700 million. Clearly, the current spend this year is max EUR 650 million.

If we can do less,, we'll do less but it's max EUR 650 million. And given the current context, it's clear that we have not a tendency to exit EUR 650 million for next year.

So this will have to be confirmed. It will depend on the macro.

But we are just finishing a big launch that we have financed last year -- finished the finance last year a big wave of CapEx. So we are not in hurry to put big CapEx next year.

So we'll continue to I would say, to streamline the CapEx. So let's consider that this year, the max is EUR 650 million.

And then next year, from what we see today, the last will also be EUR 650 million that to be confirmed. With regard to the smartphone, clearly, I don't want to be too specific, especially in advance of PIAM and they communicate they are a listed company in Korea.

So I want them to let their communication go. But clearly, all you are talking about are opportunities for polyamide.

PIAM is a global -- supplying globally -- to supply global players on smartphone. So they are very well positioned, and they are taking opportunity from all new models.

But I don't want to be too specific related to PIAM.

Can you hear me?

Yes, bit low.

Cool. The first question was, it seems from your comment that you haven't really seen much change so far in July versus what you saw in Q2.

And if that is correct, would you suggest that we model seasonal developments in third quarter compared to second quarter, which tends to be down like 5%, 10% versus second quarter? Or is there something that can be different in Q3 versus normal seasonality?

That's one. The second question, perhaps for Marie-José, your net interest financing costs were higher than I think at least what we had in mind.

And I think historically, you've talked about EUR 80 million to EUR 90 million of net financial expenses, is that number now higher given what we've seen in Q2? I know you also have refinanced some of your debt?

And third question was it seems you -- the comment about rapid recovery when demand turns suggests that you think all of the earnings pressure that you've seen in some of your businesses, most notably in Coatings is cyclical but we also know that the supply cycle today is far worse than we've had for many, many years. So why would your profitability recover rapidly?

In other words, why should we not see some of your earnings pressure in some of your businesses to be more structural in the sense you've just lost it just because you can't compete with some of the very low-price competitors.

Okay. So on the -- I will let Marie-José answer on the 2, obviously.

On the first one, I would say that July is, if I put the seasonality aside, I mean, it's the same kind of trend as the exit of Q2 and you have not to expect a miracle [indiscernible] it will come, I would say, is really the continuity. But without being too specific, you should see the normal seasonality of Q3 versus Q2.

If you take the past 10 years, you have seen that Q3 is always below Q2 with a certain discount, which can be more or less important. If you take the average, I think it gives you a good idea.

You need to take in mind that August is a low month short months. So nothing -- no special comments on that, just that we enter the quarter in continuity in the second quarter and that you will observe the normal seasonality where because of the Q3 is a lower quarter than Q2.

But nothing special there and factored in the guidance. Marie-José?

Yes. So regarding the financial expenses, you are correct.

In fact, we are -- we faced an increase in financial expenses in our P&L. We have delivered EUR 58 million net financial expenses for the first half.

In fact, the cost of financing remains quite competitive because if you take the average cost of our bonds, both senior bonds and hybrid the average rate that applies to Arkema is 2.7%, which frankly, in the parent market financial interest it's extremely competitive still. But we have less liquidity that we invest.

We basically repaid a senior bond of EUR 700 million in Jan. And in fact, the main effect of this increased financial expenses is coming from the interest on invested cash, which is in fact lower than what we got as revenues last year.

This is, in fact the main phenomenon. I was investing last year EUR 1.7 billion at an average of 3%.

And I'm now investing an average of EUR 1.2 billion cash at an average of 2.2% for instance.

Thank you, Marie-José. So on the last question, I did not say that profitability would recover quickly, what I say is the profitability of the coating solutions and the particular of the upstream acrylics will recover with the market.

This means that it's certainly in our specialty portfolio is more cyclical -- is the most cyclical business and it's linked to the profitability back to the question of Laurent of the upstream. The cycle is reflecting the macro.

So for the time being, we are in low cycle. So we see that on the net pricing on the unit margin of the upstream acrylics and mechanically, when the demand will come back, we will have a recovery of the earnings.

Now on your point, it also depends on the supply. On the supply, I mean we have now close to 60 years of experience on that.

The wildcard is Asia because in Europe and U.S., you have absolutely no change in the supply since many years, and there will not be -- it make no sense to extend in these 2 regions. So it's really depending on the demand there.

And on Asia, you can see we are already overcapacity but I would say for the first part of the year, finally, acrylics profitability is not so bad. And I know that China wants to put more pressure on the internationally using [indiscernible].

So you can see it positively or negatively but we try to stay calm and neutral. So I would say to answer your question, we don't think that the earnings decrease is structural.

For the reasons that I've mentioned in upstream actually for the downstream, as I mentioned to Laurent, it's volume. It's a volume topic, and we really will be addressed when the recovery.

Now about the speed of the recovery, I have no clue. You have no clue, nobody has any clue.

We will wait and see but we are prepared for when it will come, we'll be ready there.

Okay. I would like to thank you very much for your interesting questions.

And I wish you all a good continuation of the summer. Okay.

Talk to you soon. Bye-bye.