Arkema SA

PAR:AKE

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the Arkema first quarter results conference call. I now hand over to Mr. Thierry Le Henaff, CEO. Sir, please go ahead.

[Thierry Le Hénaff, executive]

Thank you very much. Good morning, everyone. Welcome to Arkema's Q1 2022 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 on our website a set of slides, which detail our first quarter performance and updated outlook. I will quickly comment the highlights of this quarter before letting Marie-José run through the financials in more detail. And as always, we will answer your questions at the end of the call.

We were actually very pleased with the Q1 results. They were very strong indeed, ahead of our forecast and well ahead of market expectations despite, as you know, and this is not specific to Arkema, a challenging operating environment marked by high inflation, geopolitical events and the resurgence of COVID in China which our teams managed to navigate well.

During the quarter, Arkema certainly confirmed the benefits of its unique positioning in Specialty Materials, which now represent over 90% of group sales, supported by the exponential need for high performance materials and the accelerating shift towards more sustainable solutions.

Since we last spoke, we have also taken a decisive step to strengthen our adhesive platform with the finalization of Ashland's Performance Adhesives business as of first of March. We are excited to have welcomed Ashland teams within Arkema, and we are very happy with the business initial contribution, which confirms the huge growth potential that lies ahead.

More specifically now, I would mention the following key points. First, Arkema's EBITDA rose by 73% to EUR 619 million, the first time ever that we have achieved a quarterly EBITDA above EUR 600 million and, as a matter of fact, also above EUR 500 million. The EBITDA margin improved by over 500 basis points to 21.4%, keeping in mind that the prior year quarter was somewhat impacted in the U.S. by the Uri storm. All segments, and this is quite important, contributed to the strong group performance.

Specialty Materials EBITDA rose by more than 80%, thanks to 2 key drivers: Firstly, our pricing power and proactive pricing policy across all business lines to offset the very significant inflation in raw materials, energy and transportation costs. Secondly, an improved product mix, reflecting the execution of our strategy and the increasing development of high value-added applications linked to sustainable mega trends such as in lightweighting, clean mobility, 3D printing, electronics and eco-friendly paints, demonstrating the strength of our innovation. We can also mention as a positive element the contribution of the more favorable market conditions in upstream acrylics.

Another reason for satisfaction, and it's more qualitative but as important, other synergies between the 3 Specialty Materials segment. They are increasingly important, both from an innovation viewpoint, and a commercial aspect as we continue to present our One Arkema strategy and cross-business product offering to major customers across the key end markets I just mentioned.

As I underlined previously, during this first quarter, all segments achieved strong performances. Bostik, and this is what we expect from Bostik, delivered a solid result despite some key raw materials missing and a high inflationary environment.

Advanced Materials were boosted by our new business developments linked to sustainable megatrends. Coating Solutions was very strong, both on the upstream acrylics, which represents around 1/3 of the segment sales, and the downstream, which represents 2/3.

And Intermediates managed to more than offset the disposal of PMMA. During the quarter, we also had some exciting highlights in sustainability and CSR, including our partnership with Morrow to develop solutions for next-generation batteries, the completion of the first ever 100% recyclable wind turbine blade and celebrating the fifth year of the Pragati sustainable castor crop program in India.

On the strategy front, we are getting closer to reaching our ambition of becoming a pure Specialty Materials player by 2024. Over the next few months, we will be starting our 2 exceptional CapEx project focused on decarbonization, namely our PA11 biofactory in Singapore and the hydrofluoric acid plant with Nutrien in the U.S.

Over the next 2 years, we have a rich pipeline of high-return projects that should strongly contribute to our earnings, such as PVDF expansion in China and France, 1233zd, net-zero emission fuel specialty in the U.S., Sartomer in China, Pebax in France, all serving very attractive market. This will boost our ability to support customers' growing demand in high-performance polymers.

On the M&A front, we expect to announce a couple of bolt-on -- small bolt-on, but bolt-on, this year to strengthen our Specialty Materials. Despite the integration of Ashland, our balance sheet remained strong at 1.4x last 12 months EBITDA, which means this gives us ample flexibility to implement our growth strategy.

After this introduction and before commenting the outlook at the end of the call, I will now hand it over to Marie-José.

[Marie-José Donsion, executive]

Thank you, Thierry. I will start with the sales region. At EUR 2.9 billion, sales are up 30% in organic terms. Volumes were down 2% compared to last year's elevated levels, impacted by logistics disruptions and raw material shortages, in particular in adhesives. But overall demand remains very well oriented, with some weaknesses in automobile and construction in Europe.

The price effect at plus 31% was significant, reflecting the pass-through of very strong input cost inflation. We also benefited from the product mix improvement as well as favorable conditions in upstream acrylics across all regions.

From a regional perspective, we see positive trends in the U.S., while Europe is slowing down and Asia was impacted towards the end of the quarter by COVID-related lockdowns in China.

The scope effect is negative this quarter, circa minus 5%, as the impact of the disposal of PMMA was only partly offset by Ashland's 1-month contribution.

The currency effect is a positive 5%, from the opposite direction, driven by a stronger euro -- stronger dollar versus euro. Q1 EBITDA came in at EUR 619 million, with growth across all business segments. Bostik's EBITDA is up 5% at EUR 90 million.

This is a good performance in the context of lost volumes from logistics and procurement disruptions and reflects the benefits of our active price increase policy to offset strong inflation as well as limited M&A contribution.

The EBITDA margin at 13.4% was impacted by the mechanically dilutive effect of price increases. In addition, we will, of course, benefit from the integration of Ashland's Adhesive in coming quarters.

Advanced Materials EBITDA nearly doubled year-on-year to EUR 274 million, with an EBITDA margin above 22%. High performance polymers grew strongly, thanks to a very positive product mix linked to their positioning on sustainable megatrends. As you know, our innovation enables higher value-added solutions, meaning that we are generating a greater amount of EBITDA per unit produced. In this segment, performance additives also performed well, helped by the oil and gas market gradual recovery.

EBITDA of Coating Solutions stood at EUR 192 million versus the low base of EUR 78 million last year, which, as a reminder, was impacted by winter storm Uri in the U.S. in the first quarter 2021.

Both our upstream and downstream activities grew sharply, thanks to strong pricing but also higher volumes on the back of good demand in decorative paints in the U.S. in particular.

EBITDA margin was at a high level of 22.3%, driven by tight conditions in the upstream and the better product mix for downstream activities. Demand for higher value-added products is growing, including UV curing, powder resins, solutions for electronics and 3D printing.

Finally, Intermediates EBITDA grew 25%, thanks to improved market conditions in Fluorogases, mainly in the U.S. and acrylics in Asia, more than offsetting the negative scope effect linked to the disposal of PMMA which was finalized in May 2021.

Please note that as from first quarter '22, we have included the upstream of the PVDF within the Advanced Materials segment in the high-performance polymers business line instead of the Intermediates segment, so in line with the strategy we announced in the 2020 Capital Markets Day.

Continuing on the P&L, depreciation and amortization stood at EUR 131 million, which leads to a recurring EBIT of EUR 488 million, more than double last year's level. Recurring EBIT margin stood at close to 17% versus 10% in Q1 2021. Nonrecurring items amount to EUR 54 million. This includes actually PPA depreciation and amortization, one-off charges, restructuring and legal expenses.

Financial results stands at minus EUR 8 million, benefiting from lower interest rates from the debt we swap in U.S. dollar. At EUR 95 million, the tax charge reflects the group's higher results, of course, and is in line with the full year tax rate guidance of 21% of recurring EBIT.

And consequently, Q1 adjusted net income jumped to EUR 376 million, which corresponds to nearly EUR 5 per share. Moving on to cash flow and net debt. The first quarter recurring cash flow amounts to EUR 26 million. This reflects the cash generated from our operations, offset by higher working capital. So indeed, working capital ratio on annualized sales stands at 14% versus 12.7% last year and 16.5% in Q1 2020. The working capital level is linked to higher raw material and selling prices as well as our usual seasonality of the first month of the year. The current level, I would say, is more in line with what we consider our normative level.

Total capital expenditure amounted to EUR 112 million in the quarter, reflecting decreasing exceptional CapEx of EUR 40 million versus the EUR 53 million last year since we are now entering the final stage in construction of the Polyamide 11 plants in Singapore and the Nutrien project in the U.S.

In '22, we still expect the exceptional CapEx envelope to be finalized with an amount of around EUR 130 million and recurring CapEx to come to around 5.5% of sales. This quarter, we also had an outflow of around EUR 1.5 million linked to the payment for the acquisition of Ashland's performance adhesives.

And this leads us to have a net debt at the end of March 2022 amounting to EUR 2.7 billion, including EUR 700 million of hybrid bonds. The net debt to last 12-month EBITDA ratio stands at 1.4x, as Thierry mentioned. And thank you very much for your attention, and I now hand it over to Thierry for the outlook.

[Thierry Le Hénaff, executive]

Thank you, Marie-José, for these explanations. So while our Q1 results were very strong. This is clearly not a time to be complacent. We remain attentive on the environment, in particular, the war in Ukraine, its consequences, inflation trends, logistic disruptions and, more recently, the evolution of COVID in China which will all weigh on demand in the coming quarters.

In this demanding environment, we remain really focused on managing supply chains and actively adjusting selling prices and more broadly and remaining committed to the execution of our long-term strategy and on leveraging our innovation and positioning on sustainable megatrends.

While visibility is, as you know, low, market conditions remain for the most part generally positive for us as we speak, but with differences between regions and end markets. In particular, we expect a temporary weakness in China linked to the COVID lockdowns, and the global volumes in automotive will continue to suffer from a lack of components.

With all this in mind, in Q2, the group's EBITDA should increase significantly year-on-year, driven in particular by the strong organic growth of Advanced Materials and Coating Solutions. Adhesives should continue to be impacted by some residual raw material shortages, but still a solid result, while benefiting from the integration of Ashland.

Intermediates should perform well but will be specifically impacted by the slowdown in China acrylics into lockdowns and mechanically by the absence of PMMA. Following our strong Q1 results, we are adjusting positively our full year 2022 guidance and now expect Specialty Materials EBITDA and group EBITDA to increase slightly versus record 2021 at constant scope versus our previous guidance of Specialty Materials EBITDA to be comparable to the 2021 record level at constant scope.

We are still, as you know, early in the year, so we will aim, as every year, to be more precise when we publish Q2 results and have a few more months under our belt. Moreover, the execution of our strategy will continue with our major CapEx project, the strengthening of our R&D investment in our 5 innovation platforms, the ongoing strategic review in Fluorogases, continued bolt-on acquisitions and further progress on corporate social responsibility.

I thank you very much for your attention, and we are now, together with Marie-José, ready to answer your questions.

[Operator]

[Operator Instructions] The first question is from Mr. Laurent Favre from BNP Paribas Exane.

[Laurent Favre, analyst]

Thierry, I'd like to go back to Advanced Materials and the margins there. It's unusual for a specialty business to see nearly a doubling of EBITDA on a lower volume. I understand that what you said on the mix and I guess on strong pricing. I was wondering if you could perhaps tell us in a bit more granularity why you think some of the improvement is structural and sustainable and why you think you may have benefited from some areas of shortages or increase from pricing, for instance, in PVDF.

[Thierry Le Hénaff, executive]

Thank you, Laurent, for your question. I think the question is valid for all companies which are publishing in these days because the environment is so special with shortages, with strong input cost increase, with some economic drawbacks like in automotive or now in China. So it's such a special world that to identify which is more structural or more linked to the macro is really a gamble for everyone.

So we try to -- what is very important first, and then I will come back more in detail on your question is that in the same environment as everyone, we really outperformed many of them. It's really an element of proudness for the whole company. It was the same in '21 in a different environment. It was the same in '20 completely different environment. So I think we are really on the right track and we are very proud and pleased about that. I think the company has really a very strong positive momentum.

Now Advanced Materials, the good thing is that is pretty much supported by megatrends. And the difficulties that we have is that our capacity are limited, as you know, because we have grown so much in the past. Our capacity become limited and we are reinvested, you have seen the Singapore plant coming, Nutrien, PVDF new expansion. So we will regain capacity available.

But for the time being, most of the work that we are doing is really to arbitrate them between our different volume because we cannot supply more. So we focus Arkema more and more on these high-value businesses which really drive the mix.

So to answer your question, certainly, as everybody, there is a part which is linked to the macro, some tensions, et cetera, but there is a significant part that is linked to the product mix because of this innovation of megatrend, and I think we outperformed peers and competitors on that. And this is why you see such development of Advanced Materials for Arkema. And I think we are very agile, as you know, and I think we hold up well on this kind of environment that I've never seen so far.

[Laurent Favre, analyst]

And as a follow-up, I guess, the carve-out of the upstream of PVDF was effective this quarter. It seems that you're making progress on the -- I guess, on the strategic review and well the CMD commitment to get out of fluorochemicals, the net-zero part. I was wondering if you could tell us, now that conditions seem to be improving in the U.S., should we assume that you are closer to an exit? Or should we assume that the conditions are now better and so therefore there's no rush to exit?

[Thierry Le Hénaff, executive]

No, I wouldn't say that it changed nothing for us. The process we have ever always mentioned that we would take our time, like a couple of years. And that -- it's clear that there is no specific rush, but there was no rush before. I think we can really be pleased on the fact that fluorogas particularly in the U.S. are getting better. But I think our determination to make the disposal is still intact and -- but we'll take our time, as we said before.

So I would say, Laurent, no change on this side. But it's clear that to mention it's a small point, which is to transfer the integration which was in the upstream, which was in the Intermediates to put it towards the full line and the full vision for the PVDF. I think it's an element which to you that we are going in this direction. But I would say it's a specific accountable point which clarifies the situation.

[Operator]

Our next question is from Mr. Matthew Yates from Bank of America.

[Matthew Yates, analyst]

I'd like to follow up on Laurent's question actually. I mean, the very strong profit results we're seeing clearly doesn't look like a function of volume leverage given the traction you have, but rather the efforts you've been making around the mix.

I wondered if you could just talk a little bit more about that in the 3 different divisions. Specifically, are there any products or end markets that have become more important in the mix? And conversely, what are the areas you scaled back?

And maybe as an aside, you touched on the One Arkema strategy in your introductory remarks. Thierry, forgive me if I'm wrong, but I can't recall you being so vocal about this reorganization benefit in the past. So I'm very intrigued if you think the innovation and the customer traction you're seeing is really validating the strategy you put in place to focus around these 3 platforms.

[Thierry Le Hénaff, executive]

Thank you, Matthew, for your question. I would say that, to a certain extent, your 2 questions are linked because if we get such a good mix and so much new business development replacing more commoditized product, this is because on the global key accounts and on certain markets, we really benefit from this One Arkema strategy, where we present ourselves not as a sum of business unit, I would say, which are defined by, as you know, by product line, but really as a company which offers a full package from raw material, from the adhesives to the coatings through the introduction of new material, substitution of material.

And in fact, we see more and more in paints, in electronics, in 3D, now in batteries, in lightweighting from BioSource this really combination and synergies of approach between the different segments. So this is very positive. And in fact, this is the same answer for them. In fact, what we see is that we have a strong traction on everything which is linked to this megatrend sustainable development.

Our customers asking for more and more solutions. Where we can really position Arkema are on high-value product, which was not the case in the old part, because we have not the range, we have not the innovation and it was too early in the execution of the strategy.

So now -- and a little bit, we are -- because of the constraints we have on some capacities, we have no choice in pushing the mix in order to continue to develop the EBITDA and up until, as we will have on the second semester and next year new capacities coming on stream.

So mix is important in the development, as I mentioned, to Laurent of our EBITDA. Certainly, there is an element we benefit from tensions on the different change, it's not only true for Arkema, it's true for everyone, and not only in the chemical sector, but outside of the chemical sector, and we have to confirm that. But for Arkema, I think we made a significant difference because of this momentum on this innovation pipeline and we really fully appreciate that.

[Operator]

Your next question is from Mr. Andreas Heine from Stifel.

[Andreas Heine, analyst]

Yes. Maybe you can help us a little bit more with these reallocation from the Intermediates to the Advanced Materials. My understanding is that the Fluorogases business has 2 components, 1 is more to specialties and 1 at more the commodity gases. The second one, you wanted to exit. Now you talk about the precursors of the PVDF. Is my understanding right that these precursors reallocation did not affect sales only with a longer value chain margin?

That is my first question. And maybe you can give an update as of today how your Asian acrylic plant is affected by the lockdown. Does it still run and at reduced rates? Some more flavor in this regard would be helpful. Basically these are my questions.

[Thierry Le Hénaff, executive]

Okay. So maybe Marie-José on the first one.

[Marie-José Donsion, executive]

Okay. So on the Intermediates Fluorogases, you are correct, we have basically 2 components there, one which is basically the MEC gases that go into the air-conditioning and refrigeration applications mostly. So this is basically the scope that is for sale. If you go back to our Capital Markets Day presentation back in 2020, this is clearly explained there.

And then we have, obviously, the upstream, the fluorochemistry itself, upstream of the PVDF product, which is a specialty product and on which we've always said we think it's virtuous to have a vertical integration there. So basically, we just implemented in the reporting basically what we stated back in 2020 in our strategy, which is reclassification of the assets of this fluorochemistry upstream of the PVDF back into the PVDF so that you have a comprehensive view, both in terms of -- because the margin was basically already there, but at least you have a comprehensive view, in particular, in terms of asset classification supporting the PVDF product line.

[Andreas Heine, analyst]

What was the impact then exactly on sales? So there was no sales impact in the reallocation, but there was a margin impact? Is that correct?

[Marie-José Donsion, executive]

We obviously have transferred prices inside the company. So that's why basically the impact you see on sales is marginal impact only concerning sales that we do third parties, so it's minimal. And mostly, let's say, the effect is the asset reclassification into the PVDF product line.

[Thierry Le Hénaff, executive]

So to make the story short, the P&L impact is quite limited, it's more asset reclassification. Then it's completely clear for everyone. And the factor of the integration is very good on PVDF because it's also one of the advantage of Arkema, I think, in the fluoropolymer segment. We are quite well integrated upstream, including the Nutrien HF plant, which will be part of this integration in the coming quarters and which is really an asset -- a strong asset for us to support the chain.

With regard to -- with regard to the acrylic plant, yes, you're right to mention it. And this means that our contribution and is factored in the guidance for the Q2, the contribution in China in acrylics will be certainly less than it has been in the first quarter because we cannot produce full speed. Recently, we were at 1/3 of our capacity only, but it changes week after week. And maybe, May should be better.

But then it's also the question about our customers and because you have a lot of customers which have closed. So frankly speaking, visibility is quite limited around development, where the COVID will be managed in China. So April has been painful. But as expected, nothing more. We see it to be a bit better, but we'll see.

So difficult to give you a precise answer. The only thing that I can say is that we were just supplying 1/3 of the capacity in April, which is not a lot, but with customers, which were not there anyway. So hopefully, it will come back. But again, it's factored in the guidance.

[Operator]

Our next question is from Mr. Jaideep Pandya from One Field Investment.

[Jaideep Pandya, analyst]

First question is on polyamide 11 actually. Can you just update us, Thierry, about your plant? When is it going to start? And if I'm not wrong, back in the day when oil and gas was booming, this had a pretty nice application, especially with oil service companies like Technip. In the meanwhile, I suppose you've moved a lot of business away from that.

Assuming that oil and gas CapEx comes back, which is likely to be, do you think that given you have newer capacity in the next 1, 1.5 years, there is a big opportunity here to go back into that business which was, back in the day, attractive margins? That's my first question.

And then the second question really is also sort of around your other project, around the Nutrien project. If you can give us some color on progress there and also on sort of the sustainable version of PVDF that you're working on.

And just finally, if you can just tell us what is the percentage of sales or volumes these days that you're selling into the battery versus the non-battery market for PVDF. Because if I'm not wrong, a lot of the volume is shifted away from the nonbattery into the battery market.

[Thierry Le Hénaff, executive]

Okay, JD. So with regard to [ Symphony ], which is the name of the project in Singapore, we should be -- so we should be on time. So I think mechanical completion, early summer, start up late summer, so it's, let's say, midyear, as we said.

I think it's really -- it will be really a big success because you can imagine with managing the COVID in Singapore with subcontractor has been really difficult. And despite all that, in terms of cost and timing, we are really where we said we would be. So really, for the team, it's a big recognition.

In terms of end market, I think clearly we have gone a long way since the time where oil and gas was a big part of this business. So for us, it's becoming an incremental business. It depends also on the technology shift. So we don't count more than that on it. For us, it's really the megatrend. So it's sport, it's medical, it's luxury goods, it's consumer goods, it's really where we benefit from this biosource high-performance polymer and we have more and more request from these markets.

So I would say oil and gas, why not? I mean, it's coming back. But we don't count specifically on it, but we will present if they need us. But it's becoming now more and more incremental. So I think all these businesses that I've mentioned, these new businesses, new application will really drive the growth of the Singapore plant.

With regard to Nutrien, same story as for the plant in Singapore. So first of all, it's a nice example of partnership. I would like to mention it because we like to work with partners, and Nutrien is one. So together, we have built a plant which should be a fantastic technological start on the technology which is very different, but far more sustainable and being the upstream of PVDF.

And -- but again, in terms of cost and timing, we are really where we said we would be. This means that we -- the plant should start before the midyear. And so opening in [ June ] startup of the plant. With regard to the split, so we don't give it exactly, as you can imagine, between for PVDF, between batteries and non-batteries. What we can say is that we are attached to protect our customers, which are also on non-batteries because for them we are important, we are key. And so we have -- we try to get certainly short-term balance between what is in battery -- batteries and to stick to it. But we will not disclose precisely the figures.

[Operator]

Next question is from Mr. [ Adrian Tamayo ] from Berenberg.

[Unknown Analyst]

I have two. First, in Europe, for your acrylic acid plant, can you tell us how should we think about possible embargo in Russian oil from the EU and your ability to source the raw materials if the refiners you source feedstock from cannot produce.

[Thierry Le Hénaff, executive]

It is your question or you have another one?

[Unknown Analyst]

Well I can ask afterwards if you like.

[Thierry Le Hénaff, executive]

As you want. Generally, it's not -- I will answer the first one. So for us, first, we are attentive to what is happening. And it's never the raw material we buy, whichever is oil or gas coming from Russia, embargo, whatever, it can impact our suppliers at different levels.

Our understanding and belief so far is that it can impact the pricing of the raw material we buy, so it will contribute among other factors to inflation. And then we will pass the price increase to our customers. But we don't think that we will get shortages of raw material linked to this situation.

It's our feeling. So far, it has been true. We'll see if it is true in the -- in the future, but we think that we will manage together. For actually, it's mostly propylene, and we get -- we should get our propylene. Now it will -- the risk if that continues to increase, we'll manage that as we have been managing a very significant increase in the past 12 months.

[Unknown Analyst]

Okay. And the second one is for the -- your comments on the European construction activity that you're saying is slowing down. Is it mainly do-it-yourself normalizing from tough comparison base in Q1 '21? Or do you see activity slowing down further in the part of war in Ukraine?

[Thierry Le Hénaff, executive]

In fact, I don't have the answer to your question. In fact, I don't know exactly. For me, clearly, there was really a very strong quarter last year in do-it-yourself and even in construction. We are more in distribution, construction distribution, and we are not directly selling to OEM and construction in Europe.

So my feeling, I would say, my preferred answer is that we had a strong base last year. Now if you look at the influence of the Ukrainian -- the war in Ukraine on the European economy, of the inflation of the European economy, I think for me there is a risk that is also linked to that. People think that the prices are too high, they buy less. But I'm not a macroeconomist, so I think maybe you know more than I know.

My feeling is that we have to be attentive to the second point. But clearly, at least in the first quarter, the first answer, which is a high base last year is certainly the majority part of the answer.

[Operator]

Next question is from Mr. Geoff Haire from UBS.

[Geoffery Haire, analyst]

Most of my questions has been asked, but I just had one small one. Could you just give us an update? Obviously, you've told us about the impact on the acrylic acid plant in China. Is there any more exposure that you have in China to lockdowns across the rest of the group?

[Thierry Le Hénaff, executive]

So since I answered already, so I will complete my answer. So on -- on China, we are running -- we were running recently at around 1/3 of the capacity. So this is the impact. It seems to be a bit better now. But then the question is our customers. Is there a lockdown?

You can have the capacity, if you don't have the customer, it has no -- it doesn't show any improvement. So I think we will get an impact on the second quarter. But depending on the scenario, it is really difficult to quantify. The only thing that I can say is that in our guidance for the second quarter, it is integrated.

Now -- and the same for the rest of the group, in China, the lockdown, again, there is uncertainty, depending on the scenario and nobody knows how long it will stay with which magnitude. Is that moving from Shanghai to PECEM which is to Beijing, which is what is being said right now. So then for us, it would be favorable compared to our scenarios.

So I think there are plenty of scenarios on the table. We have a median scenario in mind, which is we stay more or less at least has been in April. And then this is what we believe. And it concerns, I would say, mostly acrylics, but also customers from every business line of the group. In fact, because it's not so much the issue of Arkema in terms of capacity as what our customers are ordering because their plants are getting shut.

So I think you have to be prepared for China in the second quarter towards a quarter with a decline which can be notable. But overall, when you look at the dynamics of the whole group because every quarter is different, so we talk about China, maybe tomorrow it will be Europe, and then in other regions, so you need to be diversified and to have a strong momentum on your megatrend. This is the case of Arkema. And so this means that these uncertainties are factored in the Q2 objective. And they are, to a certain extent, factored in the whole guidance for the year.

[Operator]

Next question is from Mr. Chetan Udeshi from JPMorgan.

[Chetan Udeshi, analyst]

A couple of questions. First, can you -- can you help us understand if there was any inventory write-up in the EBITDA number for Q1? And if so, what was the magnitude, if at all?

And the second question, just going back to your previous comment about being capacity-constrained. I mean how should we think about that from a perspective of CapEx beyond this year? Can you maybe confirm if you guys are thinking about some other large exceptional project or CapEx beyond this year that we should be keeping in mind?

[Thierry Le Hénaff, executive]

Okay, so on the first question, Marie-José, can you answer?

[Marie-José Donsion, executive]

Okay. As you see, basically, we have increased our working capital, let's say, commensurate with the significant increase in sales, which, as you have seen, is mostly driven by price. So I would say, in total, most of the variance in working capital is definitely driven by customers.

Regarding inventory valuation, we apply a weighted average cost on inventories and not standard costing. So in reality, let's say, the price increase in inventory, this kind of spread over the duration of the inventory in our stock. So let's say, around between 3 months or 6 months, depending on the product line. So no particular why a write-up in -- it's not material for us.

[Thierry Le Hénaff, executive]

Thank you, Marie-José. So on the CapEx, as I mentioned, we have a lot of CapEx already ongoing that you know. So there is no surprise there. We have the [ Nutrien ] startup in Singapore, which is -- so they were, too, considered exceptional by ourselves.

But you have also -- which are in the current CapEx, you have Sartomer in China, you have the PVDF expansions in China, et cetera. So you have a certain number of CapEx coming on trim, which are competitive factored already. Now beyond that, it's too early actually to say, maybe it would be one of the topic of the next Capital Markets Day.

Our feeling is that in terms of exceptional, certainly, there will be at a point, but it's not for tomorrow. The doubling of the plant in Singapore and this, we will not be able to put it in our ongoing CapEx. It would be something specific for 3 years, as was the first one.

I would say beyond that, the only comment I would make is that based on the appetite of growth we have on megatrend, it's good news for you because normally this kind of CapEx are really high return. It seems the 5.5%, but I mentioned it already several times, is becoming a little bit short.

We are more in the range of 6% if we want to be able to drive promising organic growth on the CapEx. This is -- so it's not a big deal, but it's important for you to know. But it goes in the right direction because all this growth CapEx, they are really very attractive for you, a shareholder.

[Operator]

We have another question from [indiscernible]

[Unknown Analyst]

Just a question, which I suppose maybe you -- it's a bit difficult to answer for you, I appreciate that. You're on track this year. I don't want to put numbers in your head or mouth, but you're on track this year to do close to EUR 2 billion EBITDA. And you've just highlighted you've got so much CapEx coming in the next like 2 years which will allow for growth in PVDF and PA11 and Sartomer, et cetera, et cetera.

So should we now think that you're not over earning this year and therefore Arkema's really switching gears and joining the EUR 2 billion-plus club? Or as usual, you're going to be cautious and we have to wait for the next CMD for new goals from you?

[Thierry Le Hénaff, executive]

Frankly speaking, I don't know which comment I can ring. I mean I think you can ring yourself and I appreciate that. But no, I think what is important is that you appreciate the strong result of the first quarter first. I mean, they are really outstanding.

Appreciate the fact that we outperformed in exactly the same kind of environment our peers and competitors. And I think it's important for you because I know that you arbitrate in your choice. I think that everybody, there is a combination, and it will not be honest not to mention it between what is structural and there is a lot inside Arkema, but also coming from the macro with some tension, it's true for acrylics.

But acrylics upstream, as we mentioned, is 1/3 of the Coating Solutions. Sometimes people ask us a question, but there are still 2/3 remaining. Okay. So it's a combination of factors like for everyone. I think for the year, I think you got our guidance. So I will not mention any figure different. You can make your own math, but it certainly does not give you the kind of figures that you have mentioned.

It's better -- if it is better, it's better, but so far, so good. But no, I think we have really to build the company, as we have been building since now 15 years, step by step. We go in the right direction, very strong quarter, good outlook for Q2, reasonable and solid guidance. We should start with that and stick to that. If we can do better, we'll see.

But don't forget that all scenarios are on the table for H2 on your side. It's not ourselves, it's on your side. I mean if I discuss with each of you, you have different sorts for what could be the macro in the second semester. So I think our guidance in this context is quite solid, less appreciate it and has continued to work well to continue to build an incredible company, which we are building step by step and hopefully it will be more and more recognized.

But clearly, we make a difference since 3 years in the market and clearly with our strategy.

[Operator]

Thank you, sir. We have no other questions. Back to you for the conclusion.

[Thierry Le Hénaff, executive]

Okay. So thank you very much all of you for your attention. It was a pleasure to share this good result with you. And don't hesitate to ask Beatrice or Peter if you have any further questions in the afternoon. Thank you.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.