ARKAY (ARKAY) Q3 2026 Earnings Report, Transcript and Summary

Good morning. This is the conference operator. Welcome, and thank you for joining the Arkema Third Quarter 2026 Results and Outlook Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Thierry Le Henaff, Chairman and Chief Executive Officer. Please go ahead. Thierry Le Hénaff: Thank you. Good morning, everybody. Welcome to Arkema's Q3 '26 Results Conference Call. With me today are Marie-José Donsion, our CFO, and the Investor Relations team. To support this conference call, we have posted, as usual, a set of slides, which are available on our website. And I will start with some comments on the highlights of the quarter before letting Marie-José go through the financials. At the end of the presentation, we'll be available to answer your questions. So let's start with the macroeconomic conditions we encountered in the third quarter, which remained challenging. Oil and raw material prices as well as energy and logistic costs rose sharply over the summer as a consequence of the renewed tension in the Middle East. Demand was soft overall with no signs of recovery in Europe. Asia slowed after several quarters of strong growth, particularly in China, while the U.S. showed better demand compared to last year's Q3. So in this environment, mostly challenging, Arkema delivered overall quite a solid performance, which varied across regions and product lines. In Q3, sales grew materially by 8% year-on-year, supported by the price effect and driven notably by North America, which where we benefit from our well-established footprint and which accounting for around 36% of group sales in Q3. The volume effect was slightly positive with Specialty Materials delivering a solid 1.7% volume growth. Besides, we increased our EBITDA by 7% to EUR 330 million, which is significant and highlights once again the quality of our portfolio and the resilience of both our top line and profitability in a challenging environment. Besides, we increased our EBITDA by 7% to EUR 330 million, which is significant and highlights once again the quality of our portfolio and the resilience of both our top line and profitability in a challenging environment. Our performance were particularly solid considering the adverse impact of the conflict in the Middle East in Q3 and the absence of the acrylic support we saw in Q2. Our EBITDA margin remained stable at 14%. This is a good performance to the extent that the dilutive impact of the pricing linked to inflation is around 1%. I'd like also to underline that our adjusted earnings per share increased strongly by 23% compared to last year. Most importantly, all of this earnings growth came from our Specialty Materials, which are at the heart of our strategy and now represent 90% of group EBITDA. So looking at Specialty Materials segment, Adhesives and Coating Solutions showed particularly strong performances driven by richer product mix. More precisely, Adhesive Solutions led the way with EBITDA up a strong 9%, building on the positive momentum seen in Q2. This was supported by the strength of industrial adhesives and acceleration in higher value-added solutions, especially in adhesives for durable goods in aerospace, transportation and industrial application, while demand remained subdued in construction. Coating Solutions EBITDA was up more than 20%, extending the positive Q2 dynamic in the more downstream businesses, namely [indiscernible] and rheology additives. Advanced Materials was roughly stable, benefiting from our new business development in high Performance Polymer, while Performance Additives continued to suffer from the situation in Middle East. Behind this performance of Specialty Materials, we continue to accelerate the commercialization of high value-added solutions in attractive markets such as batteries, water management and adhesive for durable goods. As a result, our EBITDA continuously benefit from the shift in our product mix. At the same time, we continue to benefit from the ramp-up of our major projects, which are expected to contribute an additional EUR 50 million of EBITDA in 2026 compared with last year. Given the ongoing growth in PVDF, the new capacity in the U.S. starting at the end of Q2 came at the right time. And the same is true for our new Rilsan Clear unit in Singapore, which has enjoyed strong growth in the start of the year. In Q3, we remain firmly focused on what we can control. As you see on Slide #4, we are on track to offset fixed cost inflation by year-end with EUR 55 million of cost savings delivered year-to-date. We are also making good progress on headcount with a reduction of more than 2% achieved by end September through natural attrition with no additional separation costs. We also remain highly disciplined on capital allocation. We continue to tightly manage working capital and keep CapEx under strict control. Marie-Jose will comment this in more detail. We are equally disciplined on pricing, taking the necessary action to offset raw material inflation and more recently, the sharp rise in energy costs, particularly in Europe. So far, we have been able to offset these inflationary pressures. On energy costs, as you see on Slide #5, our portfolio is significantly less energy intensive than our European peers. In addition, we have much higher exposure to noncarbon source of energy. We benefit, for example, from our biomethane supply contract in Adhesive Solutions and from the 20% increase in energy efficiency at our carbon site. On our top line, we remain fully focused on high-growth market driven by global megatrends. When Arkema is really a powerful differentiator, bringing together our expertise in creating bonding and protecting material to accelerate innovation and unlock new opportunities. Bio-based adhesives and battery are great examples. In battery, in particular, combining technology across our segments enables us to deliver more integrated solutions and greater value to leading manufacturers. Innovation is at the heart of this strategy. Our expanding R&D center in Shanghai and battery center of excellence in France will accelerate innovation in key growth markets and bring us even closer to our customers. More than ever, Arkema is becoming an innovation-driven company. And this ambition goes hand in hand with sustainability as illustrated by the recent validation of our net zero target by SBTi services. In an increasingly volatile and uncertain world, Arkema acting moving forward. We have consistently executed our strategy to build the global leader in specialty materials, which have a significantly higher share of our group EBITDA, contributing strongly to the resilience of the results of Arkema. We have already come a long way, but there is more to come, thanks to our well-invested asset base, our technology competencies and strong innovation capabilities. 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. Marie-José Donsion: Thank you, Thierry. Good morning, everyone. So I'll start with Arkema revenues. At EUR 2.4 billion, Q3 sales were up 8.1% year-on-year, driven primarily by a positive 6% price effect, reflecting the group's ongoing pricing actions across all businesses to offset raw material and energy cost inflation. Volumes were also up 0.6% despite subdued demand overall. All 3 segments, Adhesives, Advanced Materials and Coating Solutions contributed to the 1.7% growth of Specialty Materials. By contrast, Primary Materials volumes declined 5.1%, reflecting weak demand in acrylic monomers mainly. I would like to mention that currency had a positive 1.8% impact in Q3, driven by the year-on-year appreciation of the U.S. dollar and Chinese yuan against the euro. EBITDA came in at EUR 332 million, up 7% year-on-year, with an EBITDA margin at 14.1%. As commented by Thierry, Additive Solutions delivered a solid quarter with EBITDA up 9% year-on-year and EBITDA margin reaching 13.7% despite a dilutive impact from price increases of around 80 bps on that segment. Advanced Materials delivered a slightly better EBITDA year-on-year and a margin at 19%. This was mainly supported by High Performance Polymers that continued to benefit from attractive markets in batteries, cables and consumer goods, notably in PVDF and PA. Coating Solutions delivered another strong quarter with EBITDA up 23%. Additives performed particularly well with ongoing growth at Faster in Europe and in the U.S. as well as at rheological additives. This improved mix contributed to lifting EBITDA margin to 12.9%. Lastly, Primary Materials EBITDA declined on the weaker market conditions in acrylate monomers while all generation refrigerants improved slightly. Depreciation and amortization stood at EUR 176 million, leading to a recurring EBIT of EUR 157 million, up 11% and to a REBIT margin broadly stable at 6.6%. Nonrecurring items amounted to EUR 42 million and included a EUR 34 million of PPA depreciation and amortization. Financial expenses stood at EUR 30 million -- minus EUR 30 million comparable to last year. Consequently, Q3 adjusted net income was EUR 3 million, which corresponds to EUR 1.23 per share, up 23% compared to last year. Moving on to cash flow and net debt. Recurring cash flow reached EUR 129 million, while working capital remained well controlled under 17% of annualized sales. Actually, this reflects a strong discipline in the management of inventories and cash collection in a context where inflation has an adverse mechanical impact on working capital value. We actually expect inflation to have an adverse impact of around EUR 150 million on working capital for the full year 2026. CapEx amounted to EUR 110 million this quarter, keeping us firmly on track to deliver below EUR 600 million CapEx for the full year. Net debt and hybrid bonds at the end of September amounts to EUR 3.5 billion, including EUR 800 million of hybrid bonds. The net debt to last 12 months EBITDA ratio currently stands at around 2.8x. Thank you for your attention. I will now hand it over to Thierry for the outlook. Thierry Le Hénaff: Thank you, Marie-Jose. So going into Q4, so we assume the macroeconomic will remain challenging in continuity with the past quarter, which marked by low visibility, weak demand. So we don't expect so far the external conditions to ease in the coming months. So if we take into account the macro and our performance year-to-date, we remain confident in our ability to deliver our full year guidance with EBITDA slightly higher than last year at constant currency. If I may, I'd like to point out that this guidance was delivered early in the year and before the conflict in the Middle East started, but -- and this is good. We have been able to keep it unchanged despite the additional headwinds. So to conclude, I would like to add that the earnings growth delivered so far this year by Arkema supported by a richer product mix. This is important. You could see that also in Q3, also supported by our innovation, advanced customized solution demonstrates the increasing resilience of our business model and the progress we are making in strengthening our financial performance. So thank you very much for your attention. And together with Marie-Jose, we are now ready to answer your questions.

[Operator Instructions] The first question comes from Katie Richards with Barclays.

My first question would be that we've started to see some signs of improving construction activity in Europe with some of the players in the space having noted a visible upturn. Would it be fair to say that you are not seeing this translate into your construction volumes yet given your commentary today? And is it because you need the U.S. to turn here? And then my second question, please, would be on PVDF. Following the announcement from Europe about the investigations into PVDF imports from China and some other countries. Could you explain to us how you have seen competitive intensity for these imports evolve in Europe? And you've previously talked about shifting towards suspension-grade PVDF away from some of the emulsion grades, where I understand Arkema is predominantly positioned. How far through this transition are you? And have you observed it translate into better pricing or margins? Thierry Le Hénaff: So, thank you for your question. So with regard to the first question, construction in Europe, which we could address maybe more globally. No, so far, we don't see really any change in trend in Europe. We see that interest rates are increasing, as you could see. I don't think this is favoring construction. What is clear is that if we look at our businesses, which are most impacted by the -- or, let's say, involved in construction, with regard to Adhesives, which really delivered a strong quarter, as you could see, for us, it really came from industrial adhesives -- construction. Construction was flattish, but not -- certainly not recovering, flattish, let's say, but really the growth in Adhesives came from industrial. With regard to Coatings, overall, it was a super performance on the quarter by Coatings because overall, as we mentioned, the performance of the quarter has been driven by Adhesives and Coatings. But I would say, again, and you know that we are more positioned both for Adhesives and coatings on residential and renovation. We have not seen so far any improvement. But on the other side, our more industrial related business are behaving very well, including supported by megatrends. PVDF, I don't want to be too specific. So what we can say is that we are continuing to deliver regular growth and strong performance worldwide on PVDF. We are happy with our technology. We have been really a good winner over time. If you take the example of battery, you know that the batteries, LFP is really developing far faster than NMC, which is good for our technology. So I think we are happy with volumes and trends on PVDF. And with regard to investigation, I don't want to comment specifically.

The next question comes from Laurent Favre with BNP.

Two questions, please. The first one is regarding the EUR 130 million of CapEx spent in China, which I think was just completed. Can you talk about, I guess, the competitiveness of the site now and whether, I guess, at currently low cycle conditions, it's transforming the EBITDA generation of that site significantly. I mean, I guess, low double-digit EBITDA millions maybe? And the second question for Marie-Jose is on CapEx. Guidance below EUR 600 million. I think you're run rating well, technically below EUR 500 million, but I know Q4 is lumpy. Can you maybe help us with a little bit more specific guidance on CapEx for this year and also an early look on 2027? Thierry Le Hénaff: Laurent, thank you for your question. So with regard to China, so first of all, good news, and you could see the press release this very important transformation of the process of China has been quite successful. So this means we can say today that the site is really working well, and it was a breakthrough technology. So I think it's a good -- let's say, it rewards the quality and the efforts of the team. The competitiveness, I would say, is a combination of 2 things, the scale and the quality of the process. China on these 2 sticks the 2 boxes, I would say, because it's a world scale site. So -- and secondly, the process now puts the site of China in good position in the first quartile. So in terms of competitiveness, it's quite competitive. Now as you mentioned wisely currently, the condition after Q2 where we had a little bit of a bump came back to low cycle condition. And as long as we are in a low cycle condition, I would say the EBITDA is more single digit, you know that. But after that, this is a cyclical business and it can generate as we have seen in the past, a lot of cash when the cycle is coming back. But yes, we confirm that so far, we are in low cycle conditions. Marie-Jose on the CapEx? Marie-José Donsion: So regarding CapEx, actually, you can see the trend yourself. It's fair to say that the EUR 30 million let's say, lower spend in Q3 comes after lower spend in Q1 and Q2. So cumulatively, we are now EUR 70 million below, let's say, the last year CapEx spend trend. So that's why we are comfortable, let's say, to confirm that we see no reason we should not beat, let's say, the guidance on CapEx to be below EUR 600 million. So I have no, let's say, further update to make regarding next year at this point, considering the macro, I guess, we could expect something quite similar.

The next question comes from Chetan Udeshi with JPMorgan.

I had one question, which I probably try to ask every 18 months or so to you. We see some sort of an acceleration in terms of consolidation, M&A portfolio actions, and I'm aware that Arkema has done a lot in the last 10 years. But how do you see your current structure? And I'm quite curious on your adhesives business because I appreciate the mix is different between your business and some of your peers. But when I've compared your volumes in this business, it just seems like it's lagged quite considerably over the last 7, 8 years, especially since COVID-19 pandemic. And why do we think or maybe if you can help us understand why is Arkema the best owner of this business? And why would you not look at strategic options for this given your multiple versus some of the pure-play peers as well in that industry? Thierry Le Hénaff: Yes. So no, I think the answer is very simple and very clear and very obvious for everybody who follows Arkema and the strategy of Arkema is very clear around specialty, is a clear pillar of our Specialty Material strategy, which is on 3 pillars, Arkema completely integrated within Arkema. We have created a fantastic value on adhesives. We have -- if you take the starting point, which was a very nice acquisition from total, we have very significantly increased the profitability. We have really upgraded the portfolio. We are still a long way to go. This is fantastic because there is unlimited potential in the adhesive CapEx perfectly integrated in our strategy. So we want to continue, as everybody knows, to continue to develop adhesives to upgrade the margin, to make acquisition, bolt-on M&A and adhesive, and we are a very happy owner the Adhesive segment, again, very part of the strategy on 3 legs on the raw material. We stick materials, we make materials, we put materials. So you have the Adhesive segment, you have the Advanced Materials segment and you have the coating segment. But I'm sure you knew the answer to the question.

If I follow up, some of your peers, especially actually, most of them seem to be quite upbeat in terms of order books, October trends. I guess you don't seem to be as upbeat in terms of what you are seeing across your divisions in terms of order book. I don't know if you want to maybe shed some light on perhaps some of the divisions and if there is any real pickup that you see in your business as we think about Q4 versus what you've seen in the last few quarters? Thierry Le Hénaff: I think everybody has a different style of communication. I think you know us since now many years. Some of you since 20 years we are always -- we have always a cautious communication, and we'll continue to do so. But results and facts are facts and results are results. I think our release of the Q3 is quite solid, and we increased EBITDA by 7%. By the way, we increased EBITDA on adhesives by 9%, which is quite significant. Back on your question on adhesives, the volume are quite okay even if we compare to peers and some of our peers are negative. So I think overall, I think we have -- we consider that we have quite a solid and robust in the current context, but we are not here to, I would say, to make any teasing. I think overall, the macro remains challenging and inflation is there everywhere. Geopolitics is complex. And I think in this context, we do quite a good job. And you can see that this year and particularly on the Q3, the fact that we confirm our full year guidance, I think is a good sign because certainly, the overall macro is more complicated than people would have thought after that for the same macro, everybody can have a different way of expressing our cautious way of expressing things. This is our style. I don't think we will change it.

The next question comes from Jean-Luc Romain with CIC CIB. So the next question comes from Matthew Yates with Bank of America.

Thierry, I had a couple of questions about innovation and the direction you're trying to take the company in. And in the answer, please go easy on me with the chemistry so that I understand. But can you just elaborate a little bit more on rheology, because obviously, per your comments, it's not like end coatings volumes are particularly robust. So what is it that's driving the growth that you see in rheology? Is that a new product you've launched? Is that some sort of regulatory change? Is that customers reformulating to save costs, et cetera? If you could talk about that? And then secondly, in the presentation, you talked about PI reducing the thickness to now about 1/3 or so. Can you elaborate on what incremental sort of opportunities and markets that opens up for you by having such a thinner product, so to speak? Thierry Le Hénaff: Okay. With regard to rheology, but if I may, I would like to extend it also to UV curing because this is really the -- if you take the coatings, okay, it's a very nice overall answer, a very nice resin and additives product range. And in this product range, you have really a very high-value product with accelerated growth, which we are seeing on rheology, but also UV curing. And by the way, if you take the Q3 is a whole, I would say, business which is doing well in terms of growth, we appreciate. But I would say that our UV curing supported by electronics, 3D medical, semiconductor has really accelerated that growth this year. So I wanted to mention it because it's more, I would say, UV curing as such now radiology, it's very nice additive, as you know, because it changed by nature of different additive of the product of our customers, including paint, but also even if I don't want to mention all application in plenty application construction and in water treatment, in mining because for example, transfer of products, it can bring a lot by changing the rheology of the product of our customers. But again, I would say that for the Q3, it has been more -- has more come from UV curing products and from rheology. With regard to PM, I think there is a lot of need, especially in electronics for miniaturization of needs and for thermal quality, including thermal dissipation. You have less and less reduced space in all end application. And you know that our customers, they don't want that we are too specific on the application we have with them, but it's really this concept of miniaturization of reduced space of lightweighting, where the fact to have field of significantly reduced thickness bring constant performance, which is an important point, is really increasing the need for PM and for PI in general.

The next question comes from Jaideep Pandya with On Field Research.

First question is on Thiochemicals. Just want to know what's happening here with regards to the legacy sort of business where you are supplying to methionine industry, given that we've seen announcements that CJ might permanently shut down and obviously, Evonik has pursued backward integration. So curious about Thiochemicals as a business unit, what is really happening here? The second question is really around the acrylics market. Thierry, very rightly, you're saying that when the market returns, this is a very profitable business. I just want to understand, if you compare the new plants in China in terms of size, production process or the catalysts that they use and with the plants in Europe and U.S. How are they benchmarked today? Are they better and therefore, they're able to produce at a lower cost? That's my second question. And the last question really is just a follow-up around the Nutrien project. Just an update on what is happening there. Has the project started? Are you seeing already the benefits or not? Thierry Le Hénaff: Thank you for all the questions, which are of different nature. So on Thio, just know that our chemical business is -- I know that our supply to methionine is because it's methionine is something which is more marketed or more known by easier to follow. So often, they -- you can relate Thio to methionine. But in fact, our business is far beyond what we supply to methionine, which is for methionine base product which is used for methionine customers on which we are very competitive and also our customers. So I would say it's still an important business for Arkema. So I would say methionine remain an important business, but we have, for example, DMDS, which is a far bigger business, which is based on sulfur. In fact, chemicals of Arkema and within Arkema chemical. So as you mentioned, CG has some challenges, and we don't comment, as you know, on commercial contracts and what is happening with customers. But I would say we remain quite especially in the other region, quite well positioned on this based product for methionine. But as I mentioned, Thio remain a key element of Arkema with some very strong product line like DMD and other product line based on sulfur. The element which is not linked to your question, but we have mentioned several times this year on is that they are like other performance additive, certainly inside Arkema, the business line which is affected by this Middle East situation with -- because we have many customers in Middle East because we have this increase of sulfur, which is quite significant and other elements, so they are impacted by this kind of external element. With regard to acrylic market, so I would say, if you put aside the input cost, this means, for example, the propylene or other element which enter into the acrylics or acrylic. I would say for the process themselves, we are relatively comparable in terms of competitiveness between the 3 regions of the world. Where we have the difference, which is not just on acrylic is on many products is that the base raw material, so the olefin, for example, in Asia, significantly lower cost than in other regions. So at the end, the cost of making acrylic like other chemicals in the example are by 100 in the chemical industry. The cost of making product in China is significantly lower than in other regions of the world, but not by the process itself, by the input cost that the process is using to make the final product. But in terms of competitiveness, we are comparable at least for Arkema between the 3 regions of the world. With regard to, Nutrien, so Nutrien we are making a very strong progress. So we have benefits already this year, which are part of the EUR 50 million guidance of EBITDA -- additional EBITDA guidance for the major project because Nutrien is one. So we start to see the benefits, and we should have a significant ramp-up next year. But from a technological standpoint, we have made a very significant improvement. I would like also to mention that we have -- with regard to the polyamide 11 -- Aino-11 and polyamide 11 in Singapore, which is another major project of Arkema for the one who are interested in following it, we have reached a record production. So now in terms of production, we are really exactly where we thought we would be, which is really rewarding the efforts of our teams.

The last question comes from James Hooper with Bernstein.

I've got 2 left. The first is almost a continuation, Thierry, from your last answer. Can you -- I know you just mentioned PA11, but can you contextualize the EUR 50 million of EBITDA from additional projects this year? Can you give us a steer into 2027, what the projects should be that we're thinking about and how the ramp-up continues there? And then the second question is around leverage. It's been creeping up again to, I think, 2.8x that you have in the presentation. Can you just give us an indication of the moving parts that would allow that to come down you expect to see in the coming quarters? Thierry Le Hénaff: So with regard to the first question, with this EUR 50 million of this year, so the ramp-up will continue in the coming years. As you know, in the normalized condition that we were expecting at the beginning for all the projects, we are more in a pace per year of plus 100. In the current kind of macro context, we are more at 50, 60 last year, we were at EUR 60 million this year EUR 50 million. So it will depend and it's too early to visibility for us for you for next year. It depends what will be the macro for next year. I would say if you have a continuation of the macro, we should add around EUR 50 million, which is the addition for -- by this major project in this kind of macro. The macro is better, then it can go to EUR 60 million, EUR 70 million, EUR 80 million. What is sure is that at the end, we plan to add compared to the end of '24, the EUR 400 million that we have defined. And I think the long-term target is remaining the same. It's just the case that it is slower than expected, but it's still quite a good contribution year after year. On the leverage ratio, maybe Marie-Jose, you want to comment? Marie-José Donsion: So actually, when you look at the leverage, it's not very different from the leverage of last year at the same time. In reality, the main difference is the impact of inflation on the working capital together with the seasonality of the working capital itself over the quarters. As you know, our Q4 tends to be pretty positive in terms of working cap variance, which has the ability to generate cash and lower the ratio. So I'm expecting definitely a little bit better ratio by year-end.

The very last question is from Martin Roediger with Kepler Cheuvreux.

Can you quantify the energy cost bill this year and how you are hedged? And secondly, the EU Commission intends to protect the chemical industry from unfair competition, especially from Asia by implementing tariffs and quotas. And I do not mean fluorogas, but other products. Do you have a view on that? Thierry Le Hénaff: Do we have view on that EU projection. Okay. So with regard to the energy costs, as you know, we have between, I would say -- so first of all, energy is about what, 6%, 7% of our total variable cost I would say this, we could say is nat gas and half is electricity and the electricity is mostly Europe when nat gas is more shared around the world. On electricity, Europe, we are -- we can say we are nearly 100% hedged or at least 80%, okay? So it's quite -- we are quite hedged. So we have a natural hedging, I would say, in our hedging policy, we consider that the large part of the hedge is on electricity. On gas, we hedge partly, okay, but less than 50%. But overall, on the whole energy cost of Arkema, I would say we are hedged at least a good 50%, I would say, if you include electricity and gas. And you have -- the view is different depending on which region. And on the EU protection, so it's a case by case. For example, we have a case on antidumping case on. It depends really on the -- you have different ways you will get the local content also on which EU is working for, I would say, for certain applications. So it's difficult to have one view on that. What is clear is that you have more awareness of the EU on the fact that we cannot let just Europe open easily on every product but it has to be a case by case. There is not one answer depending on which product line, chemical product line, the answer has to be different. So for what is Arkema concerned, and we don't share it openly, we have a few cases on where we consider that it's not variable by our site in Europe. It's not all across the board, basically on certain sites where we consider that the competition is not fair, and we -- Europe needs to protect the industrial plant. And we say that as a global player. As you know, we are very global, but it's important also to have -- to try to protect the sites which really deserve to be protected because there is competition is not at par.

Mr. Le Henaff, there are no more questions registered at this time. Thierry Le Hénaff: Okay. I would like to thank you all for your attention, your good questions. And as usual, the IR team is at your disposal if you want to further explore some element of the release. Thank you very much. Have a good day.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.