At a strategy meeting today with analysts and the press, conducted by phone due to the coronavirus disease 2019 (COVID-19) pandemic, Arkema’s top executives, headed by CEO Thierry Le Hénaff, outlined the company’s ambition to become a world leader in specialty materials realigned around three businesses with “attractive growth prospects”, adhesive solutions, advanced materials, and coating solutions.
Much of the company’s intermediates business, with sales of €1.8 billion ($2 billion), accounting for 21% of the company’s total last year, will be either divested, placed in partnerships or upgraded and transferred into the rest of specialties. The company also unveiled its roadmap and objectives for 2024.
Arkema says that since 2006, the year of its spinoff from Total, it has undertaken an in-depth transformation that has enabled it to progressively develop leading positions in specialty materials through targeted investments, innovation focused on major sustainable development trends, and pro-active portfolio management. These activities now account for almost 80% of its sales.
Le Hénaff said that the company is now entering a new phase in this transformation based on the three complementary divisions focused on specialty materials. The company has a “unique positioning around those three growth platforms”, which combine real in-house innovation expertise, strong commercial and industrial synergies, and a common approach to serving customers in sustainable and growing markets.
As part of the new focus, Arkema is aligning its organization around three divisions that will be reported separately and will include all Arkema specialty materials. These are adhesive solutions, advanced materials, and coating solutions. Arkema will implement different strategies for its intermediates division, consisting of methyl methacrylate/polymethyl methacrylate (MMA/PMMA), fluorogases and the acrylics business in Asia, dubbed Asia Acrylics, with more volatile trends than the rest of the company’s portfolio.
In particular, the group will undertake a review of its strategic options for MMA/PMMA, explore possible alternatives to minimize its exposure to the most emissive applications of its fluorogases, and rebalance Asia Acrylics between upstream and downstream. Le Henaff said that the best option for MMA and PMMA would be to divest the business, which in 2019 reported sales of €600 million. Le Hénaff, asked whether Arkema is in discussions with potential buyers and whether it has data rooms open already, said that the sale cannot progress under the current COVID-19 crisis situation. “What is clear is that when the world returns to normal activity, we can move speedily forward.”
Meanwhile the fluorogases business comprises two separate operations, specialty segment with sales of about €200 million last year and which is an essential contributor to Arkema’s fluoropolymers and fluoro derivatives for electronics and batteries. This operation is expected to be combined with the rest of specialties. The remaining fluorogases business with emissive applications, such air conditioning and refrigeration and which last year had sales of €500 million, will be either divested or placed into partnerships.
Asia Acrylics, a producer of acrylic acid in China, will be restructured to give it a better upstream and downstream balance. Arkema last year completed the acquisition of its partner’s stake in Taixing Sunke Chemicals, its joint venture manufacturing acrylic acid in China, and became the sole shareholder of the company. But now it has too much monomer capacity and it needs to rebalance the operation, which could be done through partnerships, capacity reservations, organic or bolt-on acquisitions, Le Hénaff said. Following the rebalancing, the business is expected to join the rest of specialties. Last year, sales of Asia Acrylics were €300 million.
By 2024, Arkema aims to become a pure specialty materials player, with a resilient and focused portfolio, characterized by high profitability and strong cash generation. Arkema aims to generate sales of €10 to 11 billion and an EBITDA margin of around 17% compared with 15.8% today for the specialty materials business.
To carry through this latest stage in its development, the group intends to build on its innovation projects and investments, including expansion of its specialty nylons in Asia, which will help to meet the challenges of material lightweighting, 3D-printing, new energies, and energy efficiency in buildings. Arkema also intends to continue playing an active part in the consolidation of the adhesives market.
Arkema will also maintain strict financial discipline, with a net debt (including hybrid bonds) to EBITDA ratio of less than 2 times and a return on capital employed in excess of 10% by 2024. Over the next five years, the group’s cash generation is expected to grow further compared to the five-year period ended in 2019. By maintaining the net debt (including hybrid bonds) to EBITDA ratio around end-2019 levels, it should allow Arkema to finance major organic growth projects and portfolio management operations, as well as raise shareholder returns with the goal of achieving a dividend pay-out ratio of some 40% by 2024. It should also allow opportunistic share buy-backs under favorable market conditions.
The company also plans to grow through M&A including in the fragmented adhesives business. It aims to make two to three bolt-on adhesives acquisitions every year and some larger transactions in this business. “What is absolutely clear is that Arkema in 2024 will be 100% specialty materials company,” Le Hénaff said.
Arkema adds that the 2024 targets outlined today constitute the best current estimates. Achieving these targets will depend on the duration and long-term economic impacts of the COVID-19 crisis. The group continues to monitor its cash generation and is taking active steps to reduce its investments and fixed costs from the levels initially forecast for 2020. In the first quarter, the impact of Covid-19 on the group’s EBITDA is estimated at between €40 and 50 million.
By Natasha Alperowicz
Source: Chemical Week
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